DSI is one measure of inventory effectiveness. By calculating the number of days that a company holds onto inventory before selling, the efficiency ratio measures the average length of time that a company’s cash is tied up in inventory. The calculation gives further perspective to the overall inventory ratio by putting the figure into a daily context. The formula for DSI, equivalent to the average days to sell the inventory,
DSI tends to vary greatly between industries, depending on product type, business model, etc. Therefore, it is important to compare the value to that of other similar companies. For example, businesses that sell perishable or fast-moving products such as food items will have a lower DSI than those that sell non-perishable or slow-moving products such as cars or furniture.