![]() ![]() The structure of your supply chain is a major driver of DIO. That “all other things being equal” is an important point since differences in DIO can be driven by either structural or performance differences. If you compare the DIO of two companies in the same industry and with comparable products, then – all other things being equal – the one with a lower DIO is likely to be more efficient. For instance, if you manufacture Scotch Whisky and you allow your product to mature for an average of 10 years before you sell it, there is little point in comparing your DIO with that of a business which buys and sells cut flowers. For more detail, and variants on the formula, see the technical notes at the end of this article.ĭIO is a simple metric with which to compare companies, although this only really makes sense when comparing companies in the same or very similar industries. Only privately held firms that do not report their figures, and a relatively small number of firms that do not break down their costs in a way which isolates cost of sales, prevent anyone from calculating DIO for any company. The big advantage of DIO is that it is a very simple metric to calculate quickly based on publicly available information. If you like formulas, DIO = Inventory value / (Annual cost of sales / 365)ĭIO of 100 implies that you have inventory to cover you for 100 days’ average activity, although this is misleading and we will return to what it is really telling you (and what it’s not) below. Which in turn means that the €1 billion inventory is equivalent to 100 days’ cost of sales (€1 billion / €10 million). ![]() This means that an average day’s cost of sales is €10 million (€3.65 billion / 365 days). The income statement shows cost of sales of €3.65 billion. Days Inventory Outstanding is the value of inventory held divided by an average day’s cost of sales.Ĭompany A’s balance sheet shows an inventory value of €1 billion.
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