Inventory days (DIO)

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

Inventory days, or days inventory outstanding, measure how long stock sits before it is sold: inventory divided by cost of sales, multiplied by 365. Rising inventory days can mean a business building ahead of confirmed demand, buying in bulk for a discount, or holding stock that no longer sells — and only the last is invisible in the accounts until it is written down. A lender reads the trend beside the sales, asks for an ageing of the stock, and lends against inventory at a fraction of its cost, because stock is the asset worth least on the day it has to be sold.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.