Days inventory outstanding: how long does stock sit before it sells?
Days inventory outstanding (DIO) shows the average number of days goods sit in stock before they are sold. Inventory is paid for in advance, so the longer it sits, the more cash is tied up and the higher the storage and obsolescence risk.
Formula
DIO = inventory ÷ cost of sales × 365
Inventory turnover = cost of sales ÷ inventory (= 365 ÷ DIO)
Inventory is carried at cost, so it is divided by cost of sales rather than revenue (dividing by revenue is also used, but understates the days by the margin). Caveat uses year-end inventory and 365 days.
Worked example
Figures in units of 100 million KRW. Cost of sales is 22 and year-end inventory 2.5 (values calculated by the Caveat engine).
| Prior year | Current year | |
|---|---|---|
| DIO | 41 days | 41.5 days |
| Inventory turnover | 8.9x | 8.8x |
Stock sits about 42 days before it sells. Inventory grew 8.7%, but cost of sales grew too, so DIO barely moved. Had this inventory been in a 4% deposit, it would have earned roughly 1,000 (10,000 KRW units) a year.
Industry benchmarks (2025, Korean listed companies)
DIO distribution from the 2025 financial statements of Korean listed companies, for industries with at least 20 companies.
| Industry | 25th pct | Median | 75th pct | Companies |
|---|---|---|---|---|
| Food products | 41d | 58d | 83d | 76 |
| Chemicals (excl. pharmaceuticals) | 57d | 81d | 130d | 174 |
| Pharmaceuticals | 92d | 135d | 187d | 176 |
| Electronic components and equipment | 47d | 74d | 122d | 300 |
| Machinery and equipment | 58d | 104d | 174d | 215 |
| Motor vehicles | 35d | 56d | 79d | 110 |
| General construction | 11d | 49d | 128d | 42 |
| Wholesale trade | 25d | 61d | 142d | 122 |
| Retail trade | 18d | 88d | 178d | 43 |
| Publishing (incl. software) | 4d | 30d | 73d | 87 |
| Computer programming and IT services | 4d | 12d | 35d | 31 |
IT services with almost no stock sit at the short end; pharmaceuticals and machinery, with long production cycles or many items, at the long end. Spread within an industry is wide, so your own trend is often more useful than the median.
How to read it
- Trend: rising DIO with flat sales may mean unsold stock is piling up.
- Mix: for manufacturers, check whether raw materials, work in progress or finished goods grew. More raw materials suggests buying ahead; more finished goods suggests weak sales.
- Against cost of sales: inventory growing much faster than cost of sales signals excess stock.
Both sides: a longer DIO is not always bad; building stock ahead of price rises or supply disruptions can be sensible. A very short DIO may mean frequent stock-outs and lost sales.
Look at these too
- Cash conversion cycle (CCC): days of cash tied up across inventory, receivables and payables
- Days sales outstanding: days from sale to cash
- Current and quick ratios: liquidity with inventory left out
Limitations
- Year-end balances can swing widely for seasonal businesses depending on the balance-sheet date.
- Obsolete stock that is hard to sell is not separated out; an inventory ageing report is needed.
- The valuation method (FIFO, weighted average and so on) affects the amounts.
- For reference only; it does not replace credit, investment or tax decisions.
See it in your own statements
Upload a balance sheet and income statement and Caveat calculates these for your company.
FAQ
- What DIO is normal?
- It varies widely by industry. Among Korean listed companies in 2025, the median was 12 days in IT services, 58 in food manufacturing and 135 in pharmaceuticals. Compare with your industry and your own trend.
- Is higher inventory turnover always better?
- Usually it means stock sells quickly, which is good. Very high turnover can mean frequent stock-outs, so weigh it against lost sales.
- Why divide by cost of sales rather than revenue?
- Inventory is carried at cost, so dividing by cost of sales keeps both on the same basis. Dividing by revenue understates the days by the margin.
- Which figures are needed?
- Cost of sales from the income statement and inventory from the balance sheet.
Country notes: Finland
- Do inventory days for a Finnish company mean the same as elsewhere?
- Not necessarily. Chapter 1 of the Finnish Accounting Ordinance (Kirjanpitoasetus) sets the income statement format either by nature (§ 1, the default) or by function (§ 2), so many companies have no cost of sales. Inventory or payable days calculated on "materials and services" instead mix in subcontracting and inventory change and are not comparable with cost-of-sales-based figures.