Logiwa Resource
Inventory to Sales Ratio Calculator
Use our calculator to avoid potential stockouts caused by variations in supply
and demand while minimizing potential overstock.
Inventory to Sales Ratio Formula:
Using the formula
Let’s use the following hypothetical financial data for a business over a quarter:
- Ending Inventory (Value of inventory on the last day of the period): $120,000
- Sales for Period (Total net sales revenue during the quarter): $400,000
Calculation
We plug these values into the ratio formula:
Inventory to Sales Ratio = $120,000/$400,000 = 0.30
The result is an Inventory to Sales Ratio of 0.30.
Interpretation
This ratio means that for every $1.00 of sales achieved during the period, the company held $0.30 worth of inventory at the end of the period.
- A lower ratio is generally favorable, suggesting that the company is effectively managing and turning over its inventory relative to its sales.
- A higher ratio might indicate overstocking or slowing sales, which can lead to higher carrying costs and potential obsolescence.
Inventory to Sales Ratio Calculator
Explanation of
the formula
This calculator gives you a direct comparison between how much inventory you have on hand and how much you are selling.
Think of it as checking the balance on a scale:
- On one side, you have the value of the products sitting on your shelf (Ending Inventory).
- On the other side, you have the value of the products you sold during that same time (Sales for Period).
This ratio tells you, “For every $1 in sales I made, how many dollars of inventory did I have waiting to be sold?”
This metric is all about balance. It’s the key to matching your supply (inventory) with customer demand (sales).
- If the ratio is too high: You have too much inventory. This is bad because you’ve spent money on products that are just sitting there, tying up cash and costing you money in storage (your Carrying Cost).
- If the ratio is too low: You have too little inventory. This is also bad because you are selling things faster than you can stock them, leading to stockouts, missed sales, and unhappy customers who will go to a competitor.
Getting this balance right means you have enough stock to meet demand without wasting money on excess inventory.
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