Cash Tied Up in Inventory Calculator
Inventory isn't cash until it sells. This shows Days Inventory Outstanding — how long, on average, your money sits on the shelf as unsold stock before it comes back as cash you can actually spend.
What your result means
Your result is days inventory outstanding (DIO): roughly how many days of sales your current stock represents. Put another way, it's how long the cash you paid suppliers sits on the shelf before it comes back as sales.
The higher the number, the more cash is locked up. If the result is much longer than your supplier lead time plus a sensible safety buffer, some of your stock is moving slowly.
How the calculation works
Days inventory outstanding = (Inventory value at cost ÷ Annual COGS) × 365
- Inventory value at cost
- what you paid for the stock you hold today
- Annual COGS
- cost of goods sold over the last 12 months
This uses your current inventory value, so it reflects your position today. If you hold extra stock ahead of a busy season, the number will be temporarily high. The guide to days inventory outstanding covers the average-inventory version and category benchmarks.
Worked example
Worked exampleExample numbers
These match the calculator's default inputs.
| Input | Value |
|---|---|
| Inventory value at cost | $80,000 |
| Annual COGS | $320,000 |
- Inventory ÷ COGS = $80,000 ÷ $320,000 = 0.25
- DIO = 0.25 × 365 = 91.25 days
One day of inventory at cost here is $320,000 ÷ 365 ≈ $877. Cutting DIO by 15 days would free about 15 × $877 ≈ $13,150 of cash with no change in sales.
How to free up cash from inventory
- Clear dead stock first. Products that haven't sold in months carry the most cash for the least return. The dead stock calculator shows what they're costing you.
- Reorder on data. A reorder point based on daily sales and lead time stops you buying too early.
- Order smaller batches more often, where supplier minimums allow it.
- Negotiate payment terms. If suppliers give you 30 or 60 days to pay, less of your own cash is tied up while stock waits to sell.
- Protect best-sellers. Lower inventory on slow movers, not on the products that drive revenue.
Common mistakes
- Using retail value instead of cost. Inventory valued at selling price overstates the cash tied up and the days.
- Using a single month's COGS times 12. If that month was unusually busy or quiet, the answer will be off. Use the last 12 months' actual COGS.
- Measuring just before or after a big delivery. A snapshot taken the day a large shipment lands will look high. Measure on the same day each month to compare like with like.
- Treating the whole store as one number. Days of inventory for the store can look fine while a few products hold months of stock. Calculate it for your biggest product lines too.
- Cutting stock across the board. The goal is fewer days on slow movers, not thinner buffers on products that sell every day.
FAQ
Why use inventory at cost, not retail value?
Cost is what you actually paid, so it's the cash that's tied up. Retail value includes margin you haven't earned yet, and dividing it by COGS mixes two different bases and overstates the days.
How is this different from the inventory turnover calculator?
Both measure days of inventory. This calculator uses your inventory value today, so it's a snapshot. The inventory turnover calculator uses average inventory over the year, which smooths out seasonal swings.
How much cash would I free by lowering my days of inventory?
Divide annual COGS by 365 to get one day of inventory at cost. Multiply that by the number of days you cut. With $320,000 of annual COGS, each day is worth about $877.