Average inventory - formula , by which it is calculated, will be discussed in the article - it is an important economic indicator. What are the features of its application and calculation?

Why is inventory calculation necessary?

Inventory (hereinafter referred to as TK) is goods ready for sale, products placed in the organization’s warehouse awaiting shipment or stored there. In some cases, the structure of the TK includes goods that are in transit (for example, from a production unit to a warehouse), as well as reserved ones (until the buyer has paid for them and the ownership of the goods has not transferred to him).

It can be noted that the economic analysis of various indicators characterizing the TK is carried out mainly only for the TK that is placed in the warehouse: if it is on the way, then it is not known reliably whether it will arrive in the estimated quantity at the warehouse and whether it will not be recalled, and if the goods are contracted, they can be purchased by the customer at any time and written off from the company’s balance sheet.

Technical knowledge is one of the key resources of an organization that ensures the sustainability of its business model. The demand for goods produced by the enterprise can change quite often:

• increasing due to seasonal and other factors (in this case, the availability of inventory will allow the company to quickly meet demand and avoid shortfalls in revenue);
• decreasing (in this case, the company can reduce the current rate of production and save on production costs, and satisfy the existing demand through inventories).

In addition, reserves will come in handy if any difficulties arise in production and it temporarily stops or slows down.

Thus, the purpose of the technical specification is to ensure the smooth operation of the mechanism of interaction between the enterprise and the market:

• as a supplier capable of constantly meeting consumer demand;
• as a sustainable economic entity, which is an employer, an investment object, as well as a consumer of resources necessary to ensure the functioning of production and supplied by other economic entities.

In economic science, quite a lot of approaches have been developed to analyze indicators of technical requirements at an enterprise. Among the most popular is the calculation of average technical specifications for a specific time period, for example, for a certain number of days. Let's consider how it can be calculated.

Calculation of average inventory in days (formula and nuances)

If we are talking about calculating for a certain number of days average inventory - formula the following should be used:

STZ = [(TOV1 / 2) + TOV2 + TOV3 + (TOV (DAY) / 2)] / (DAYS - 1), where:

STZ - average inventory;

TOV1, TOV2, TOV3 - inventory, respectively, on the 1st, 2nd and 3rd day of the analyzed period;

TOV (DAY) - inventory on the last day of the analyzed period;

DAYS - the total number of days in the analyzed period.

Example

Let's say the company has technical specifications (TVs):

• on the 1st day - 100 units of goods (TVs);
• in the 2nd - 120;
• in the 3rd - 170;
• in the 4th - 70;
• in the 5th - 120.

If you use the specified formula for calculating inventory in average terms, the corresponding indicator for 5 days will be:

STZ = [(100 / 2) + 120 + 170 + 70 + (120 / 2)] / (5 - 1) = 117.5 TVs.

If there are only 2 dates in the analyzed period, a simplified formula can be applied:

STZ = (TOV1 + TOV2) / 2.

So, if on the 1st day of the analyzed period there are 100 televisions in the company’s warehouse, and on the second - 70, then the average technical specification in this case will be:

STZ = (100 + 70) / 2 = 85 TVs.

In a similar way, average technical specifications can be calculated for months, quarters and other periods, if this is necessary to solve certain business problems.

Results

TK is the most important resource of a company in terms of maintaining the functioning of its business model. Its value is important when applying management decisions aimed at maintaining the satisfaction of market demand, as well as decisions related to production optimization. The value of TK can be presented in average terms for a particular period.

You can get acquainted with the features of using other financial indicators of an enterprise’s economic activity in the articles:

Inventory turnover ratio is an efficiency ratio that shows how efficiently inventory is handled by comparing the cost of goods sold to the average amount of inventory over a given period. In other words, it measures how many times a company sold during the year.

This ratio is important because total turnover depends on two main components of activity. The first component is purchase of shares. If a company has large amounts of inventory purchased during the year, it will have to sell more inventory to improve its turnover. If a company cannot sell more inventory, it will incur storage costs and other expenses.

The second component is sales. Sales must match inventory purchases, otherwise inventory counting will not be effective. This is why purchasing and sales departments must work closely together.

Definition

Inventory turnover represents a value that determines how many times a company's inventory is sold and replaced within a given period of time. To find out how many days it takes to sell equipment, you need to divide the sales volume by the average inventory value.

Inventory turnover ratios depend on the company, as well as the industries of development. Low-margin industries tend to have higher inventory turnover ratios as they offset lower profits from higher sales forecasts.

For all these reasons, comparisons of inventory turnover ratios tend to be most appropriate among firms within the same industry, and the determination of a "high" or "low" ratio should be made in that context.

Inventory turnover measures how quickly a company sells products and typically compares it to industry averages. Low turnover suggests weak sales and therefore excess inventory. A high ratio implies strong sales and/or deep discounts.

The speed at which a company can sell is a key indicator of business performance. It is also one of the components of calculating return on assets. As such, high turnover means nothing if the company is not making a profit on every sale.

Calculation and formula

The formula for calculating inventory turnover is as follows:

Kob.z. = TC / Mc.r., where

Kob.z.– inventory turnover ratio, TS– cost of goods sold, Mc.r.– average annual cost of inventories.

Inventory turnover is calculated as sales divided by average inventory. Average inventories are calculated as:

(quantity at beginning of inventory count + ending inventory) / 2

Analysts divide the quantity of average inventory instead of sold inventory for greater accuracy when calculating turnover, since sales include a markup on cost.

In accounting, this ratio is calculated as follows:

Kob.z. = line 2110 / line average 1210

In general, low inventory turnover ratios indicate that a company is carrying too much inventory, which may indicate poor management or low sales. Excess inventory ties up a company's cash and leaves the company vulnerable if market prices drop. Conversely, high inventory turnover rates may indicate high sales and timely inventory counts.

High inventory turnover also means that the company quickly replenishes its cash reserves. An exceptionally high inventory turnover may indicate that the company is often making ineffective purchases and, therefore, losing some sales.

It is important to understand that the timing of the purchase of inventory, especially that made in preparation for special promotions, may slightly change turnover.

Various accounting methods also affect inventory turnover ratio. During periods of rising prices, using the LIFO method, turnover indicates a higher cost of goods sold and lower inventories than using.

In addition, companies using the LIFO method also have more stocks than FIFO companies. The LIFO method increases the cost of production, which reduces profits and, in turn, reduces tax liability. Cost of goods sold is reflected in revenue.

Average inventory can be determined as follows::

TZsr. = (TZ1 + TZ2 + … + TZn) / n-1, where

TZn- the amount of inventory for individual dates of the analyzed period (rubles, dollars, etc.), n— number of dates in the period.

Turnover in days:

Obdn = (TZsr * Number of days) / T, where

TZsr- average inventory, T— turnover for a given period or sales volume.

Turnover in times is determined using the following formulas:

Image = Number of days / Obdays

Image = Turnover (T) / Average inventory (TZav)

Product inventory level:

Uz = (Inventory at the end of the analyzed period (TZ) * Number of days (D)) / Turnover for the period

The turnover rate is the expected number of product turnovers over a certain period of time. Defined as follows:

Turnover rate = 12 / (f * (OF + 0.2 *L)), where

OF is the average order frequency per month, L is the average delivery period in months, f is a coefficient that summarizes the effect of other factors that may affect turnover.

Analysis

Inventory turnover is an indicator of how effectively a company can control the sale of its goods.

falls, That

1. There may be an increase in the amount of assets used.
2. There may be a drop in sales volume.

If the turnover ratio growing, That

1. Capital turns over faster, each unit of inventory brings more profit.
2. It may be artificially inflated when switching to using a rented OS.

The higher the company's inventory turnover, the more efficient production is and the lower the need for working capital to organize it.

A webinar on determining turnover is presented below.

Concept goods turnover determines how quickly the funds invested in goods will return to you, and even with a profit. This is one of the main formulas for the company's success. In this article we will look at how to calculate it.

It is more convenient for analysts to look at the goods accounting service. MyWarehouse has built-in reports on turnover, balances, profitability, and movement of goods. You don't need to count anything yourself. Just fill in the product information and record receipts, shipments, and sales. Reports are generated automatically and can be viewed at any time - for example, in the convenient MySklad mobile application. Register and try it now: it's free!

The concepts that we will need to determine the turnover of goods:

Product- a product produced for exchange. That is, to put it simply, the product could be a carton of milk, or it could be a model haircut or the services of a lawyer. In general, everything that can be bought with money or exchanged for something. We will talk about physical goods, not services.

Inventory- these are company assets that differ from inventories in that goods and materials are intended for sale, that is, they are already available in physical form in the company’s warehouse or store.

Wherein Inventory- this is a slightly different concept: inventory includes, for example, goods that have already been sold but not yet shipped, or vice versa - goods that you have already paid for, but which have not yet been delivered to your warehouse. We are only interested in what is physically in the warehouse now.

Trade turnover- this is the sum of the costs of all goods/services sold for a certain period. Simply put, how much did you sell goods for, for example, per month or per year. Trade turnover is calculated in purchase prices or in cost prices. We will base our calculations on purchase prices.

The last concept we will deal with when calculating product turnover is average inventory. It is calculated using a simple formula: balances at the beginning of the period + balances at the end of the period/2.

There is another, more complex, version of the same formula (let’s assume that we divide the entire calculation period into equal periods of time - months): we divide the inventory in half at the purchase price at the beginning of the calculation period (T1: 2), sequentially add the amount of stocks of each month, the last month's supply is also divided in half. Thus, the following is obtained: T1:2+T2+T3+T4+...T12:2. We divide this amount by the number of time periods (months) minus one. That is: T1:2+T2+T3+T4+T5+T6+T7+T8+T9+T10+T11+T12:2/12-1

Do not be surprised if the results obtained from calculations using a simplified method and a more complex one differ.

Which of the two results you accept as true depends on what you want to get by calculating product turnover using the formula.

Why do we need a product turnover formula?

Now we need to determine what we want to analyze by calculating product turnover using the formula. For example, your “Autumn Waltz” chocolates are sold unevenly in different stores. Then it would be logical to compare turnover across different stores. Or, for example, you want to reduce the assortment and decide which products make sense to withdraw from sale. To do this, we will use an analysis of turnover by brand or product position of different manufacturers of the same product (it is obviously not worth comparing the turnover of vodka and herring).

How to calculate product turnover?

To determine the turnover of goods, two basic formulas are adopted. Let's start with a simpler one. Average inventory (at the purchase price, as we agreed at the beginning) multiplied by the number of days in the billing period and divided by turnover (or sales volume).

This formula is for product turnover in days, that is, the result will show us how many days the product inventory turns over. T␍×D/ObP

The second formula shows us how many times this product turns over over a certain period of time. To do this, you need to divide the sales volume (or turnover, which is the same thing) by the average inventory (at the purchase price) for this period. ObP/T␍

When making calculations, we recommend that you cross out the days when goods in the warehouse were reset to zero. You also need to approach calculations with caution in a situation where a company has received a large order (for example, won a tender for the supply of furniture for district schools); this furniture cannot be taken into account, since it was sold in advance (physically it is in the warehouse, but in fact, you know exactly who will pick it up and when).

By the way, many people confuse two concepts: product turnover and turnover ratio. Turnover gives us an idea of ​​which products have a shorter product-money-product cycle than others. But it makes no sense to compare the turnover of vodka and herring again. Or Borodino bread and elite cognac - the tasks of these goods are different, and from the sale of one bottle a store can easily earn more than from bread sales in a month. But to compare the turnover of different brands of milk - this makes sense. Moreover, milk is a perishable product, and if the remains are not sold, they will have to be disposed of.

Product turnover ratio- private turnover and average inventory for the period (in this case, we recommend calculating turnover in purchase prices, as is customary in warehouse accounting). ObP/T␍

What does commodity turnover analysis tell us?

It makes sense to conduct the analysis within one product category. For example, compare milk with milk, but not with cottage cheese, and compare cottage cheese with cottage cheese of different brands, but not with curd cheeses and not with curd rings. In this way we can understand several important things, namely:

• How often should this or that product be delivered?
• In what quantities should I purchase this product (large, medium or small).

However, neither the turnover analysis nor the turnover ratio gives a complete picture. It is necessary to analyze the dynamics of these indicators. For example, if the turnover in days of “Autumn Waltz” chocolate candies has decreased by half over the year, this means that the demand for them has increased and it is necessary to increase the supply of candies of this particular name. High product turnover means some problems with profitability, which ones we will discuss in the following articles.

But without proper inventory accounting and analysis of the movement of goods in the warehouse, it will not be possible to see the turnover, so first of all you need to take care of accounting for goods. And this will help.

where About days – turnover in days, days

TZ av – average inventory for the period, pieces

Q – number of days in the period, days

Calculations showed that the turnover rate in days decreased in 2013 compared to 2012. This indicates an acceleration in the turnover of the “Standard pillow” product item by 3 days. The acceleration of turnover reflects a positive trend.

Turnover in times tells how many times during the period the product “turned around” and was sold. Calculated using formula (9):

(9)

where About times - , times

TO – turnover for the period, pieces

TZ avg – average inventory for the period, pieces

12-13 times a year is the same as 28-31 days of turnover, so there is no fundamental difference in the calculation method. The same conclusions can be drawn. But, in my opinion, calculating turnover in days is more convenient, since you can more clearly trace the dynamics of acceleration or deceleration of turnover.

When analyzing the data obtained, it is worth paying attention to the credit line for this product, that is, how long it will take us to pay for it. The BELASHOFF supplier specified the following payment procedure in the contract:

20% prepayment

80% no later than 20 calendar days from the date of delivery

This means that the goods will not have time to turn around, money for them will not yet be received, and the enterprise will be forced to use borrowed funds.

For effective operations, turnover in days should not exceed the loan term.

Table 8 - Comparative data on margin and turnover

The inventory turnover ratio indicates the speed at which a company sells products. For the calculation, you will need data on revenue and average inventory. It is worth analyzing the indicator in dynamics.

The faster the company manages to convert raw materials into money, the more profitable the production. To analyze the turnover rate, the inventory turnover ratio is used. The English-language analogue of the indicator is Inventory Turnover, Times. It is calculated based on data on the cost of goods sold and average inventory. As a rule, data is taken for a year, but you can also find the coefficient value for a quarter or month.

Calculation formula

Find the turnover ratio (K OZ) using the formula:

• ΔЗ - average cost of inventories.

• Page 2110 - the value of line 2110 from Form 2 (“Revenue”);
• Page 1210np - the value of line 1210 from Form 1 at the beginning of the period (“Inventories”);
• Page 1210kp - the value of line 1210 from form 1 at the end of the period;
• Page 1220np - the value of line 1220 from Form 1 at the beginning of the period (“Value added tax on acquired assets”);
• Page 1220kp - the value of line 1220 from Form 1 at the end of the reporting period.

It is convenient to use the balance sheet to calculate the indicator if you are interested in the value of the coefficient for the year. In some companies, this accounting document may be prepared more often: for example, once a quarter.

Example of calculating CP

For example, let’s calculate the CP in the dynamics of the year (download the table).

The value of the coefficient changed throughout the year. The minimum was in April: 0.4. This means that material assets managed to turn around only 40%. The maximum is observed in November: inventories are turned over more than 3 times.

Standard value

The inventory turnover ratio is an important indicator for the financial analysis of an enterprise, assessment of its product and pricing policies, and management of the raw material base. The higher it is, the more efficient production is, the less stagnation, the higher the profitability of manufacturing products. There cannot be a recommended range of values ​​for CP: this indicator should be analyzed over time. Its meaning will depend generally on the industry and the specific enterprise. It will also be useful to compare the obtained value with the coefficients of direct competitors: this is necessary to determine the tendency to lag.

Thus, an increase in the ratio is a good sign; it indicates a more efficient use of inventory in the enterprise. However, a greatly inflated figure indicates a lack of resources for a normal technological process, and this is a minus for production. Growth should be uniform.

Note! In the high season the coefficient will increase, and in the low season it will fall. This is normal. To analyze the availability of reserves based on seasonality, you should calculate the OZ more often.

Of course, the formation of inventory and sales can be influenced by external factors, such as:

• supplier bankruptcy;
• decrease in purchasing activity;
• entering the market of a more competitive product;
• changes in legislation;
• foreign policy;
• technological defects and withdrawal of some products from sale.

External factors also have an indirect effect on the coefficient. And this must be taken into account when analyzing all financial and economic activities, and not just a single indicator.