Days Inventory Outstanding (DIO) and Formula to Understand It

Businesses in Malaysia should understand the meaning of Days Inventory Outstanding (DIO) and how to compute it. As part of inventory software, courier businesses in Malaysia used this system in the second quarter of 2024, and their delivery success rate increased from 94.9 percent to 96.2 percent. The day’s inventory formula also displays the time your product remains in storage.

DIO is also necessary for retail businesses to monitor their inventory and ensure it is in excellent condition. Inventory software can automate this procedure. Let’s learn more about the days of inventory outstanding and the formula for calculating it.

What is Days Inventory Outstanding (DIO)?

What is the day’s inventory outstanding? A Days Inventory Outstanding (DIO) financial ratio indicates how long your company inventory holding period before selling it. You can see how much it costs to keep the inventory management system in Malaysia and the reasons why selling it can take longer than expected.

DIO can also demonstrate the effectiveness of your company’s operations. If your DIO is smaller, you’ll sell your inventory more quickly. However, a high DIO can indicate that your inventory isn’t moving as quickly, which could hint that your cash flow isn’t doing well.

Days Inventory Outstanding Formula for Business with Example

With just a few basic components, the Days Inventory Outstanding formula is simple and easy to comprehend. It lets you determine how long a business usually takes to sell its inventory. Here’s the formula to calculate your DIO:

DIO = (AVERAGE INVENTORY / COST OF SALES) X NUMBER OF DAYS

Here’s what you need to count days inventory outstanding formula:

Average inventory: The value of your stock over a certain period.
Cost of sales: The amount spent on producing the goods you’ve sold.
Number of days: The total days in that period (e.g., 365 days for one year).

Days Inventory Outstanding example: if Company A has average days in inventory formula of P60,000 and the cost of sales is P300,000 over a year, the DIO calculation would look like this:

DIO = (60,000 / 300,000) X 365 = 73 DAYS

This means it takes Company A about 73 days to sell its inventory.

Are you still not convinced if having days of inventory outstanding could benefit your company? Try a free demo now and speak with our professionals to find out how it can improve your inventory management. To begin, click the banner below!

How to Improve Days Inventory Outstanding (DIO)?

A study found that efficient working capital management could result in DIO improves profitability and improves ROA by enhancing inventory utilization. If your company has a high DIO, you should reduce it. Reducing DIO can greatly enhance overall operations and financial health for Malaysian companies. This can be accomplished in the following steps:

• Keep stock levels balanced: Using an inventory management system to ensure that the proper amount of products is on hand guarantees that there is enough to satisfy consumer demand without having too many unsold.

• Improve forecasting and planning: Inventory forecasting the future accurately helps prevent overstocking or overproduction. By improving your planning, you may match your inventory formula accounting to real consumer demand.

• Speed up the sales process: Simplify the purchasing process, improve client service, and provide quicker delivery options to streamline sales procedures.

• Use effective marketing: Implement focused marketing strategies to increase demand. Efficient marketing techniques can speed up inventory movement through in-store or online sales.
• Get rid of outdated stock: Use bundles, discounts, or promotions to get rid of outdated or underperforming stock.  You can sell off these things and make room for new stock by providing incentives like free delivery or “buy one, get one” offers.

Manage Your Days Inventory Outstanding Quickly with HashMicro’s Inventory Management Software

In Southeast Asia, HashMicro is a well-known provider of cloud inventory software. Founded in Singapore in 2015, HashMicro is unique in that it offers the most features. In this economic climate, cloud inventory management software cannot be your second choice.  

The worldwide market, rapidly changing trends, and customer demands can quickly cause your business to fail. As a result, companies still uncertain about using days in inventory formula software opt to begin with a free demo.

You may test out the functionality of HashMicro’s inventory software capabilities, including the following, using the free demo such as:

• Stock forecasting: A day’s sales in the inventory formula system forecasts future demand for items by examining past sales data, seasonal patterns, and other variables.
• Integration with accounting system: Connected to an accounting system that performs accurate, real-time, and automated financial tasks. Assist you in making as few mistakes as possible throughout the calculating stage.
• Weight scale integration: The HashMicro system can now be integrated with various types of scales. During the delivery or receipt of goods, users do not need to manually enter the weight because the system can read the data from the scale directly.
• 3D Warehouse overview: This feature is a 3D visualization of the warehouse. Users can even see what products are in a specific location and their quantities based on this visualization.
• Inventory valuation: The cost of goods can be differentiated for each warehouse (for example, the Ipoh warehouse may have a different price for goods compared to the Kuala Lumpur warehouse).  If an inter-warehouse transfer occurs for a certain product, the system can recalculate the price in the new warehouse.

These features will show how simple it is to manage a days inventory outstanding (DIO) for your company.  Join now to see how simple it is to manage your business from any location if you’re interested in testing the free demo.

Conclusion

Running a profitable business in Malaysia requires knowing your average days in inventory calculation.  It assists you in determining when your inventory becomes sales and how long it lasts. You may prevent losses and make better business decisions with this knowledge.

One clever strategy to optimize your daily sales in inventory formula is to use inventory management software, such as HashMicro. You will always be aware of the status of your goods because it automates tracking and management. Go get your free demo today!.

FAQ about Days Inventory Outstanding

• What is a healthy DIO?

  DIO shows the liquidity of inventory. A short DIO means inventory is converted to cash more quickly while a high DIO shows poor inventory liquidity. DIO should never be compared across industries, as the DIO varies greatly between industries. A lower DIO is generally more favorable than a high DIO.

• What does DIO tell you?

  DIO tells you how quickly a company can turn its inventory into cash. It is a measure of a company’s operational and financial efficiency as well as liquidity.

• Why is DIO important?

  DIO is important, because it helps companies understand how long it takes for them to sell their inventory and how quickly they can generate cash from their sales. A high DIO indicates that a company is holding on to its inventory for a long time, which ties up cash that could be used for other business activities.