.svg){kind=logo}
Days stock, also known as days inventory outstanding or days sales of inventory, measures the average number of days a retailer holds inventory before it is sold.
Days stock, also known as days inventory outstanding (DIO) or days sales of inventory (DSI), measures the average number of days a retailer holds inventory before it is sold. This metric is crucial for retailers as it helps them understand how quickly inventory is turning over, which can impact cash flow and storage costs.
To calculate days stock, you use the following formula:
Days Stock = (Average Inventory / Cost of Goods Sold) x Number of Days
Where:
- Average Inventory is the average value of inventory over a certain period (often calculated by taking the sum of the beginning and ending inventory for the period and dividing by two).
- Cost of Goods Sold is the total cost of goods that have been sold during the same period.
- Number of Days is the length of the period being analyzed (usually 365 days for a year, or could be shorter for more frequent analysis).
Days stock is important because:
1. It helps retailers manage inventory levels efficiently, avoiding both excess stock and stockouts.
2. It can indicate the liquidity of inventory, which is critical for cash flow management.
3. It provides insights into sales trends and product demand.
4. It can highlight issues in the supply chain or inventory management practices that may need addressing.