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What You Need to Know About Inventory Formulas and Ratios



There are a lot of things that any business owner needs to keep track on if they are running a business that is product based. It is important to note that inventory management happens to be everything that it comes along with including purchasing as well as ordering from your suppliers. To ensure that this function is conducted in an effective way with the best results being achieved, business owners need to consider using inventory ratios as well as formulas so that they can be organized and also keep the business running and operating smoothly.


By relying on formulas as well as ratios as a way of managing your inventory, there are multiple benefits that you can enjoy including enhancing the performance of your business and even reaching your revenue goals. One of the most complicated process in the running of any business are the inventory management. By choosing to work with the inventory turnover formula for management of inventory and even supply chain, then one is able to analyze the prime indicators of performance for any business including the product turnover and sales performance. The growth of business can also be monitored in an accurate way and even opportunities determined. With the multiple benefits that are resulting from the use of inventory and ratios in inventory management, more firms are shifting to this option. You could be still in a dilemma wondering whether it is a good idea that you consider inventory and ratios but the following are the reasons as to why you need to consider this. Find out how to calculate average inventory on this link.


With the several formulas that are available, it could also be a question of concern about the best ratios to use. Some of these ratios include inventory turnover ratio, costs of goods sold, average inventory, sell through rate and even days sale. The inventory turnover ratio shows the number of times that a certain product is sold and replaced in a given period of time. As determined by the product in question, the time period could different from annual to season to weekly. The calculation of stock becomes necessary since it will clarify whether the products in question makes profit for your business or not. The ratio is also necessary since it indicates the products whose sales performance is weak and if the buying levels for your firm is on target. Cost of goods sold shows the inventory value and it is also used in other formulas. Learn more about financial ratios here: https://en.wikipedia.org/wiki/Financial_ratio.

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