Financial Ratios Analysis: Inventory Management

This video will analyse and explain the inventory turnover ratio, helping you track and manage your stock more easily

by Kieran McSherry
Owner and Ceo at Macs FinanceFollow

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Description
This video is broken down into three key learning points, giving you the tools to go ahead and track your inventory and inventory turnover ratio more easily. The three key points that this video will teach you are: the understanding of the inventory turnover ratio, how to find the information that can be used to calculate the investment turnover ratio, as well as how this ratio can be applied to a practical business example.

Kieran shows how to calculate this equation to establish your business' inventory turnover ratio. The equation is worked out by dividing the business' inventory, divided by the cost of sales and then multiplied by 365 days.

Kieran then explains where the required information to complete this equation can be found. He shows how you can use your business' income statement in combination with the balance sheet to find the cost of sales and the inventory or stock figure which can be found in the balance sheet.

This information is then processed and used in a model business example. Using this business model Kieran demonstrates step by step how, using the figures provided, you can calculate your business' inventory turnover ratio.

He then goes on to explain what can be learnt from the results and how they can be used. The result shows you the average number of days that your stock is held for and as such, this tool will show you whether your inventory management is effective or not.

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