Days inventory outstanding

A ratio compares two figures to reveal something neither number shows on its own. Days inventory outstanding compares how much inventory a company holds against how quickly it sells through it, expressed in days rather than a turnover multiple.

Days inventory outstanding measures, on average, how many days it takes a company to sell through its inventory. It divides inventory by cost of goods sold, then multiplies by the number of days in the period.

The formula is:

It expresses the same underlying idea as inventory turnover, but in days rather than the number of times inventory turns over in a year, which some investors find more intuitive to compare across companies. A lower days inventory outstanding generally means inventory is moving faster, which is usually a good sign as long as it is not being achieved by understocking and risking lost sales.