![]() Being more liquid lowers the need for debt to keep the business operating, so you can avoid additional interest expenses. But if your assets are in the form of inventory or accounts receivable, you have to sell them to receive cash. If you have more cash on hand, your company is more liquid. Your business's liquidity: Your liquidity compares how much of your assets are in cash versus inventory or accounts receivable (unpaid invoices).How quickly you turn your inventory into cash: In accounting, this is known as the cash conversion cycle (CCC). In general, you want a shorter cash conversion cycle because it means that you can efficiently turn inventory back into revenue which helps pay for expenses like payroll.Why Is Days Inventory Outstanding Important?ĭIO is important because it can help you figure out: In other words, new products typically stay on your shelves for 35 days before they are sold. That means it takes an average of 35 days to sell your new inventory. It’s also known as Days Sales of Inventory (DSI).įor example, let’s say you own a hardware store, and your company’s days inventory outstanding is 35. So, if someone asked you how long your products sit on the shelf before someone buys them, would you be able to answer it? Yes, if you’re tracking a metric known as days inventory outstanding.īut what is days inventory outstanding? And why should you track it? We’ll cover all that and more, so let’s dive in! What Is Days Inventory Outstanding?ĭays inventory outstanding (DIO) measures the average number of days your company holds onto inventory before selling it. This information can help with financial modeling, sales projections, and inventory planning. As a business owner, it’s helpful to know how quickly you can move products.
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