Why days sales of inventory (DSI) matter to a first-time founder
Inventory ties up cash and can become obsolete, damaged or costly to store. DSI helps founders see whether stock is moving faster or slower over time. A high figure may signal excess stock, but acceptable levels differ by product, season and supply chain, so comparison with relevant periods and peers matters.
Examples of days sales of inventory (DSI)
A retailer has average inventory of ₦120 million and annual cost of goods sold of ₦730 million. Using 365 days, DSI is 60 days: ₦120 million divided by ₦730 million, multiplied by 365. If the figure rises to 90 days without planned seasonal stock, cash may be getting trapped in slow-moving products.
Common misunderstanding
DSI is an average, not the exact age of every item or a promise that all stock will sell by that day. It usually uses cost of goods sold rather than revenue because inventory is recorded at cost. Different averaging methods and reporting periods can make company comparisons misleading.
When to use it
Track it monthly when inventory is material, especially before purchasing, financing or seasonal planning. Break the total down by product to find obsolete or slow-moving stock. Use consistent inputs and compare like periods. A software or service business with no meaningful inventory can usually ignore DSI.