Stock Market Math by Michael C. Thomsett

Author:Michael C. Thomsett
Language: eng
Format: epub
Publisher: De|G Press
Published: 2017-06-03T04:00:00+00:00

Formula: average inventory

(Ia + Ib + … In)÷ n = A

I = inventory value

a, b = period used in calculation

n = total number of periods

A = average inventory

Excel program

A1 inventory value a

B1 inventory value b

C1 … inventory value n

C2 =SUM(A1 + B1 + C1)/n

In this Excel formula, ‘n’ represents the total number of values in use (12 monthly, four quarterly, or two values for beginning and ending inventory levels.

In a case where four values are in use, assume inventory levels of $446,412, $592,004, $455,700, and $481,532:

($446,412 + $592,004 + $455,700 + $481,532) ÷ 4 = $493,912

This average is used in calculation of inventory turnover, which is an estimate of the number of times inventory is sold and replaced. In actual practice, the goods in inventory are not completely disposed of and replaced; this is only an average. The turnover reflects management’s efficiency at keeping inventory at the best possible level. If inventory levels go too high, it ties up cash and adds to storage costs and insurance. If levels go too low, it becomes increasingly difficult to fulfill orders and revenue is lost. To calculate inventory turnover:

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