Days Inventory On Hand (DIO)
Definition
The average number of days your inventory sits before it is sold. It translates inventory turnover into time, which is easier to plan cash around.
Want a deeper explanation?
Formula
DIO = (Average Inventory ÷ COGS) × 365Days on hand answers a simple question: if you stopped buying today, how long would your stock last? Thinking in days makes it easier to compare against supplier lead times and to see how much cash is parked on shelves.
It is most useful broken down by product, since a healthy average can hide items with a year of stock. Watch for: days on hand well above your lead time plus a buffer, which is cash you could be using elsewhere.
Example
$300,000 average inventory and $1,200,000 annual COGS gives about 91 days on hand.