Analyze Inventory Status Monthly

by Craig Anthony

0 min read

You want to check your inventory regularly to hold the right level; a monthly analysis of your inventory level should suffice. Holding too little inventory risks missing out on future sales, which may never be recovered as your customers turn to a competitor. However, if there is too much inventory on hand, you have tied up capital and risk the goods going stale or becoming obsolete.

One way to check how often you need to replenish your inventory is to calculate your inventory turnover ratio. This is simply your cost of goods sold, which is obtained from your income statement, divided by average inventory, or the starting inventory plus ending inventory divided by two. You can compare this to your historical number and the industry to determine if you are meeting your objectives. Your inventory turnover can also be compared to your sales projections.

Related Articles

Track Financial Trends with Ratio Analysis

The success of your small business hinges on you staying on top…

Read more

Utilizing Efficiency Ratios to Understand Your Business

Efficiency ratios show how well a business is converting assets and liabilities…

Read more

Checklist Before Leaving Your Job to Become Your Own Boss

So you’re thinking of quitting your job to become your own boss. In other…

Read more