INVENTORY TO SALES RATIO
- Ratio is calculated by dividing inventory/stock figures by sales. On a proportionate basis, it is recommended that you use annual figures. For example, let’s say for the year 2012-13, you have annual sales of $500,000 and $200,000 of stock on hand. Your ratio would be $200,000 / $500,000 which will give you 0.4 or 40%.
- Based on statistical data provided in the wholesales and retail industry, you could work out how your business measure up in the management of inventory.
- If your ratio calculation showed higher than 50%, there is a possible indication that your business is holding too much stock. By releasing them or reworking your replenishment rate will help to increase cashflow where the money is better placed in other business areas.