Click Ratio Name For More Information

• Current Ratio
• EBIT / Interest
• Sales / Receivables
• Sales / Net Fixed Assets
• Cost of Sales / Inventory
• Quick Ratio
• Debt / Worth
• Sales / Working Capital
• Cost of Sales / Payables
• Depreciation / Net Sales
• Officers & Owners Salaries / Net Sales
• Fixed Assets / Tangible Net Worth
• % Profit Before Taxes / Tangible Net Worth
• % Profit Before Taxes / Total Assets
• Net Profit + Depreciation / Current Portion Long Term Debt

Cost Of Sales By Inventory

What is measures

This ratio measures your inventory turnover for the year.  This should be calculated on a monthly basis.

How is the cost of sales / inventory calculated

Divide total cost of sales for the year by the inventory balance.  The total cost of sales can be calculated for any time during the year by dividing year-to-date cost of sales by the number of months that have closed in the current fiscal year and then multiplying by 12.

For example, it is 5 months into your year.  Total cost of sales year to date is $630,000 and the inventory balance is $95,000.

1. 630,000 / 5 = 126,000 (average monthly cost of sales)

2. 126,000 * 12 = 1,512,000 (projected yearly cost of sales)

3. 1,512,000 / 95,000 = 15.92  (cost of sales / inventory ratio)

Target

The target for the cost of sales / inventory is 13.15.

How to improve your cost of sales / inventory ratio

A low ratio usually indicates that you are overstocked or have obsolete inventory.  If the inventory is obsolete, write it off.  If overstocked, try to sell down what you have and implement a better inventory stocking system.