Inventory metric refers to the amount of stock or products a business has on hand at any given time. It helps to track inventory levels and measure inventory turnover to optimize cash flow and profitability.
With Databox you can track all your metrics from various data sources in one place.
Inventory refers to the goods and materials that a business holds for the purpose of resale or production.
The specific items can include a variety of products, raw materials, work-in-progress goods, and finished goods that are either ready for sale or in the process of being manufactured.
The management of inventory is a critical aspect of any business, as it directly impacts the company’s financial health and operational efficiency. Proper inventory management ensures that the right quantity of items is available at the right time to meet customer demand, while minimizing carrying costs and the risk of stockouts.
To ensure efficient inventory management, businesses often use various inventory management techniques, including just-in-time (JIT) inventory, economic order quantity (EOQ), and ABC analysis, among others.
To calculate inventory, we need to consider the value of all the goods and materials that the business holds at a specific point in time.
The formula to calculate inventory is straightforward:
Inventory = Beginning Inventory + Purchases – Cost of Goods Sold (COGS) + Ending Inventory
Say a retail store wants to calculate its inventory for the year 2023 and saw these figures:
Now, let’s put the formula above into action:
Inventory = $50,000 (Beginning Inventory) + $150,000 (Purchases) – $120,000 (COGS) + $80,000 (Ending Inventory) Inventory = $160,000
In this example, the inventory for the retail store at the end of 2023 would be $160,000.
To optimize resources, minimize costs, and meet customer demands efficiently, businesses need effective inventory management.
With a well-managed inventory, you make sure that the right products are available at the right time, which significantly reduces the risk of stockouts or overstocking.
Depending on your specific business model, some inventory management strategies will be more efficient than others.
That said, we compiled a few approaches that could be useful for any business, regardless of its type or industry.
More resources to help you improve:
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Databox is a business analytics software that allows you to track and visualize your most important metrics from any data source in one centralized platform.
To track Inventory using Databox, follow these steps:
Databox pulls the value for the ‘Inventory’ metric from ‘Expenses by Vendor Summary Report’ in QuickBooks. In case you compare the value for the ‘Inventory’ metric with the value from the ‘Balance Sheet Report’ in QuickBooks and notice discrepancies, you should navigate to the ‘Expenses by Vendor Summary Report’ in QuickBooks instead and use the values there for comparison.
Choosing which inventory KPIs you’re going to prioritize should be primarily based on your specific strategic goals.
Make a list of 5-8 KPIs for the beginning, and then test and refine based on your needs and operational efficiency. Tracking more KPIs might seem like a good idea, but it can actually overwhelm you and be counterproductive.
When choosing the right inventory KPIs to track, it’s also a good idea to have a chat with your warehouse manager and inventory staff to get their opinion on the most important areas.
This metric shows the total amount of unpaid invoices that are past their due date for each customer in QuickBooks.
The Overdue Invoices by Due Date metric displays the total amount of unpaid invoices as of their respective due dates, helping businesses stay on top of outstanding payments and maintain financial stability.
Total Expenses (Cash) by Vendor metric shows the total amount of cash paid to each vendor as expenses over a specific time period. It helps businesses track their spending and identify where their money is going.
The Income (Cash) by Subcategory metric shows the total cash received by subcategories of income, allowing you to understand the sources of your revenue.
Gross Profit Margin (Accrual) is a metric that shows the amount of revenue left over after deducting the direct cost of goods sold, and it's calculated by dividing the gross profit by total revenue.
The Balance metric refers to the difference between the total assets and total liabilities of a company at a given point in time. It indicates the financial position of the company and its ability to meet its financial obligations.
Displays current balances from linked bank and credit card accounts in QuickBooks, providing a complete snapshot of your financial position.
Current Assets refer to the resources that are likely to be turned into cash in only one year or less. Examples include cash, inventory, accounts receivable, and prepaid expenses. It is a critical metric for evaluating a company's liquidity and ability to meet short-term obligations.