How to Calculate Your Business’s Days Sales in Inventory (DSI)
Operations, Sales

How to Calculate Your Business’s Days Sales in Inventory (DSI)

May 13, 2024
As your business grows, you will notice it becoming increasingly important to carefully plan and manage your inventory to help streamline your operations, save resources, and maximise your profits. Sometimes, it may seem like your products are selling like hot cakes, while other times it might take weeks for the last item to be sold. The best way to get an accurate sense of how fast your inventory moves is to use data to track it. This is where your Days of Sales Inventory, or DSI, comes in.

What is Days Sales of Inventory (DSI)?

Days Sales of Inventory (DSI) is a measure used to determine the average number of days it takes for your business to sell its products or inventory.

Generally, a lower average number of days is better for your business. This means you have less inventory on hand, resulting in lower overhead costs, and indicates that your sales are strong.


How do you calculate it?

There are two ways to calculate DSI, and the one you choose will depend on your company’s accounting practices.

In the first version, you calculate the average inventory based on the inventory at the end of the accounting period, such as the end of the fiscal year.

In the second version, you consider both the end-date and start-date inventory values to find the average. This gives you the DSI value for that specific time period.

You can use the following formula:

DSI = (Average Inventory/Cost of Goods Sold) x 365

Note that Cost of Goods Sold (COGS) includes labour, materials, and other expenses directly related to manufacturing your products.

Here’s an example:

Let’s say that you have a total inventory value of R100,000 and your COGS for a fiscal year was R800,000. To calculate the DSI, simply plug in these numbers into the formula provided:

DSI = (100,000/800,000) x 365 = 45.6 days


Why is the DSI ratio so important?

You need to calculate your DSI because it gives you valuable insight into your inventory management efficiency and your business’s overall performance. Since the DSI value discloses how quickly you sell your inventory, it will help you understand the average time it takes to clear your inventory through sales.


What do low and high DSI levels indicate?

A low DSI number would suggest that you are selling your inventory quickly, which, as mentioned, is generally a good sign for revenue generation.

Alternatively, a high DSI number indicates that your inventory turnover is slower. This could be because you are selling products with a long shelf life, or you are facing some difficulties in moving your inventory.

How often should I calculate my business’s DSI?

It’s best to calculate your DSI regularly – preferably at the end of each accounting period, whether monthly, quarterly, or annually. This will help you consistently track inventory efficiency and make timely adjustments as needed.

When you regularly monitor your DSI, you will be in a great position to spot trends, address issues as they come up, and adapt your inventory management to meet changing market demands.


The best tools to help you calculate your DSI

Here are some software programmes that include features for tracking inventory levels, which can help you calculate your DSI:

  • QuickBooks
  • SAP Business One
  • Microsoft Dynamics GP
  • Oracle
  • Sage 50
  • NetSuite

A final word

The point we want to drive home is that DSI is a valuable tool for measuring how quickly your inventory sells and regularly monitoring it will give you important insights into your business’s operational efficiency and flexibility.

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