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.
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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.
Open Invoices is a metric that tracks the total amount of unpaid customer invoices that are outstanding in a QuickBooks account. It helps businesses easily monitor their accounts receivable and ensure timely payment collection.
The Paid Bills metric in QuickBooks tracks the total amount of bills that have been paid within a specified time period, allowing businesses to monitor their expenses and cash flow.
The Open Balance by Vendor metric shows the total amount of unpaid invoices and bills for each vendor, which is essential for managing accounts payable and maintaining positive vendor relationships.
Other Expenses (Cash) by Category metric categorizes and tracks all cash outflows not included in other expense categories. It helps analyze and monitor miscellaneous expenses incurred by the business.
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 by Bank Accounts metric is a financial measure that displays the total amount of money available in each bank account in your QuickBooks software.
Current Liabilities measures the amount of money a company owes for debts that are due within a year, such as loans, accounts payable and taxes.
EBIT (Cash) reflects a company's earnings before interest and taxes, derived from cash transactions. It's determined by subtracting operating expenses from gross profit.