Calculating Days on Hand and Inventory Turnover Rates
The career paths that lead to an 'inventory manager' all seem to be different. There may be those who majored in a totally unrelated field but ended up handling inventory, and there might be those who primarily work in administrative support and have to manage office supplies or equipment. If you become a business owner, you might also find yourself doing everything from finance, accounting, settlement, and inventory management, just like Superman.
No matter why you've started inventory control, if the thought of inventory management feels overwhelming, BoxHero is here for you!
Today, I'll share the most essential information that will form the flesh and bones for inventory management beginners!
Days on Hand = Inventory Turnover Days
Knowing the concept of 'Days on Hand' or 'Inventory Turnover Days' makes a significant difference in inventory management.
Days on Hand refers to the period in which a product (inventory) is purchased or manufactured, held, and then sold, turning into profit. It's about calculating how many days (dates) the inventory stays in the company's hands before converting to profit. You have to calculate this to check how often the assets are turning over. The calculation is as follows:
Days on Hand is the concept of expressing the Inventory Turnover Ratio in 'days.' For example, if the Inventory Turnover Ratio is 10, it means that the inventory turned over 10 times annually, and it signifies that inventory assets were sold every 36.5 days.
In the case of rice, harvested in large quantities once a year, it's a long-term storage item, so the Days on Hand tend to be long. Generally, shorter Days on Hand are considered better, except for such special items, because it means that the inventory is selling well.
Calculating Inventory Turnover Ratio
Also known as Stock Turnover Ratio,' the Inventory Turnover Ratio signifies the speed at which a company's inventory assets are turning into profit. A high Inventory Turnover Ratio means that ① the profit ratio is high, ② debts are reduced, and ③ costs such as storage fees, insurance, interest, etc., can be saved, which is advantageous for the company.
So, inventory managers need to check the Inventory Turnover Ratio to maintain the appropriate inventory level. The calculation is as follows:
The figure obtained by dividing the cost of goods sold on the income statement by the inventory assets on the balance sheet is the Inventory Turnover Ratio. If the sales of product A are 1.2 billion and the average annual inventory value is 240 million, the Inventory Turnover Ratio is 5. This means product A turned over 5 times annually. If you calculate the Days on Hand based on the Inventory Turnover Ratio, it's 365/5 = 73 days.
Check Inventory Turnover Ratio Easily with BoxHero!
With BoxHero, just accurately entering your stock in-and-out data will automatically formulate the Inventory Turnover Ratio. You have access to analytics such as total sales, Inventory Turnover Ratio, shipping quantity, receiving quantity, and daily average receiving quantity.
Without the hassle of calculating the Inventory Turnover Ratio separately, you can glance at the data at once, reducing the time spent on inventory management. You won't have to feel the cost burden of overstocking, and you can prevent the misfortune of not being able to sell a product due to insufficient inventory!
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