Days Sales In Inventory (DSI): Definition & Formula | TFL

Inventory ties up cash, warehouse space, and operational attention. If you sell physical products, how fast you turn inventory into revenue directly affects liquidity, forecasting accuracy, and your ability to scale.

Days Sales in Inventory (DSI) translates inventory performance into time, showing how many days your stock sits before it converts into sales. Used correctly, it becomes a practical control metric for inventory planning, purchasing, and fulfillment strategy.

This guide explains what DSI is, how to calculate it, how to interpret it, and how to use it alongside other inventory metrics to improve operational efficiency.

What Is Days Sales In Inventory?

Days Sales in Inventory (DSI) measures the average number of days a business needs to convert its inventory into sales. It provides a clear, time-based view of how efficiently inventory moves through the operation and how long cash remains tied up before generating revenue.

By translating inventory performance into days, DSI helps businesses understand whether their current stock levels align with actual sales velocity. The calculation includes all inventory stages, from raw materials and work-in-progress to finished goods ready for sale. Although it may be referred to by different names across finance and supply chain teams, DSI consistently serves the same purpose: revealing inventory efficiency in practical, operational terms.

DSI vs Inventory Turnover

DSI and Inventory Turnover measure the same operational reality from opposite directions.

• Inventory Turnover shows how many times inventory is sold during a period.
• DSI converts that turnover into time.

DSI is the inverse of inventory turnover:

DSI = (1 ÷ Inventory Turnover) × 365

This means:

• Higher turnover → Lower DSI
• Lower turnover → Higher DSI

A company with strong sales but insufficient inventory may show high turnover and low DSI, yet still lose revenue due to stockouts. This is why DSI must be evaluated alongside service levels and fulfillment performance.

DSI vs Cash Conversion Cycle (CCC)

DSI is the first stage of the Cash Conversion Cycle (CCC), which tracks how long cash is tied up in operations.

The three components are:

• Days Sales in Inventory (DSI) – inventory to sales
• Days Sales Outstanding (DSO) – sales to cash collection
• Days Payable Outstanding (DPO) – supplier payment timing

Together, they measure how long each dollar invested in operations remains locked before returning as cash. Improving DSI shortens the CCC, strengthening working capital and reducing reliance on external financing.

What Does Days Sales In Inventory Reveal For Your Business?

Days sales in inventory estimates how many days it takes for a business to sell through its current inventory at its existing sales pace. Because DSI shows how long cash remains tied up in inventory, a shorter DSI typically reflects efficient selling, accurate replenishment, and healthy inventory flow.

A longer DSI can indicate excess stock, softer demand, or pricing misalignment, but it is not inherently negative. In some cases, businesses deliberately carry higher inventory levels to prepare for seasonal demand, protect against supply disruptions, or secure lower procurement costs.

DSI is most valuable when tracked over time and benchmarked against comparable businesses within the same industry. Its real value lies in showing whether inventory levels are aligned with actual demand, fulfillment capabilities, and available cash, allowing businesses to adjust proactively rather than react once issues surface.

How To Calculate Days Sales In Inventory (DSI)?

For DSI calculations, inventory typically includes raw materials, work-in-progress, and finished goods across all stages of the supply chain.

Days Sales In Inventory Formula (DSI)

The most commonly used days sales in inventory formula is:

Days Sales in Inventory (DSI) = (Average Inventory ÷ Cost of Goods Sold) × 365

Where:

• Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2
• COGS = Cost of goods sold during the period

An alternative method uses inventory turnover:

DSI = 365 ÷ Inventory Turnover

Both formulas yield the same result when the inputs are consistent.

How The DSI Formula Works In Practice

DSI compares:

• Inventory value (numerator)
• Daily cost of sales (denominator)

The result shows the average number of days inventory remains unsold.

Some companies use:

• 365 days for annual calculations
• 90 days for quarterly periods
• 360 days for simplified financial modeling

ℹ️ What matters more here is using one method consistently so that results can be compared from period to period.

Calculation Example

Assume for a company the following:

• Beginning inventory: $4.2 million
• Ending inventory: $5.8 million
• Cost of goods sold (COGS): $48 million annually

Step 1: Calculate Average Inventory

Average Inventory = ($4.2M + $5.8M) ÷ 2
Average Inventory = $5.0M

Step 2: Apply The DSI Formula

DSI = ($5.0M ÷ $48M) × 365
DSI ≈ 38 days

This means the company takes approximately 38 days to convert inventory into sales at its current pace.

What Is A Good DSI Ratio?

There is no single “perfect” Days Sales in Inventory ratio, as the right range depends on how a business operates. Many companies aim for a DSI between 30 and 60 days, but this varies based on industry expectations, product shelf life, sales volatility, and fulfillment speed.

In general, a lower DSI reflects faster inventory turnover, more accurate demand planning, and healthier cash flow. However, pushing DSI too low can create risk, signaling understocking and missed sales opportunities. The objective is not to minimize inventory days at all costs, but to maintain a balanced DSI that supports reliable fulfillment, steady sales, and sustainable growth without tying up unnecessary capital.

Indications Of Low vs High DSI

Low DSI Typically Indicates

• Efficient inventory planning,
• Strong sales performance,
• Reduced carrying costs,
• Faster cash conversion.

High DSI May Indicate

• Excess purchasing,
• Slow-moving or dead stock,
• Weak demand alignment,
• Pricing or marketing gaps.

However, context matters. Seasonal businesses or companies preparing for major sales events may temporarily carry higher DSI by design.

Other Important Metrics You Need To Monitor

DSI delivers clearer insight when evaluated alongside supporting performance metrics, including:

• Average inventory: Represents the typical inventory level held during a period, helping smooth out fluctuations and support accurate performance analysis.
• Lead time: It is the total time from when a request or order is initiated until it is fully completed and delivered.
• Inventory turnover: Shows how frequently inventory is sold and replaced, indicating how efficiently products move through the operation.
• Asset turnover: Measures how effectively total assets are used to generate revenue, linking inventory performance to overall operational productivity.
• Consignment sales performance: Tracks how efficiently consigned inventory sells, offering insight into demand without tying up owned capital.
• Sell-through rate: Compares inventory sold to inventory received within a period, highlighting demand alignment and purchasing accuracy.
• Days of supply (DOS): Estimates how long current inventory will last based on forecasted demand, supporting proactive replenishment planning.
• Inventory carrying cost: Captures the full cost of holding inventory, including storage, capital, insurance, and obsolescence risk, helping quantify tradeoffs between availability and efficiency.

Together, these metrics provide a more complete picture of inventory health and operational efficiency.

How Technology Supports Better DSI Control

Inventory management software brings DSI into day-to-day operations. With real-time visibility, forecasting at hand, and synchronized order data, businesses can:

• Track aging inventory continuously,
• Align replenishment with actual demand,
• Reduce excess stock without risking stockouts.

The Fulfillment Lab’s inventory and fulfillment software supports this level of control by combining live inventory reporting, inbound forecasting, and fulfillment execution into a single operational view, helping brands maintain healthy inventory while protecting service levels.

Want to learn more? Contact us today!

FAQs

How To Find Days Sales In Inventory?

You can find days sales in inventory using financial statements by applying the DSI formula to inventory and COGS data.

What Is The Days Sales In Inventory Formula?

The days sales in inventory formula is (Average Inventory ÷ Cost of Goods Sold) × 365 days.

Is Days Sales In Inventory Better High Or Low?

Lower days sales in inventory is generally better, indicating faster inventory turnover, but ideal levels depend on industry and demand patterns.

What Is A Good Number Of Inventory Days?

A good number of inventory days typically falls between 30 and 60 days, depending on product type and business model.

Why Would Days Sales In Inventory Increase?

Days sales in inventory may increase due to slower demand, over-purchasing, pricing issues, or seasonal inventory buildup.