Days Inventory Outstanding (DIO)
Definition
The average number of days a business holds inventory before selling it. A lower DIO means stock moves quickly; a higher DIO ties up cash in unsold goods.
Formula
DIO = Average inventory ÷ COGS × 365
Related Terms in Financial Analysis
Gearing Ratio
A measure of the proportion of a business funded by debt relative to equity, indicating financial leverage. High gearing increases both potential returns and risk.
Price-to-Earnings Ratio (P/E)
The ratio of a company's share price to its earnings per share, showing how much investors pay for each unit of profit. It is a common valuation yardstick, though it varies widely by sector and growth expectations.
Earnings Per Share (EPS)
A company's net profit divided by the number of shares outstanding, showing profit attributable to each share. It is a core input to valuation measures such as the P/E ratio.
Working Capital Management
The management of short-term assets and liabilities — inventory, receivables, payables and cash — to keep a business liquid and operating smoothly without tying up more funds than necessary.
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