Ending Inventory Defined: Formula & Free Calculator

The most important variable in calculating ending inventory is having an accurate inventory count. Hand-counting inventory is tedious, especially for fast-growing businesses. This is especially important when determining the value of your business for obtaining financing or pitching to potential investors.

Inventory purchases increase the balance, while sales decrease the amount of inventory on hand. You can change any of the variables in the formula to assess the impact on your business. Calculating ending inventory is not only important for tax purposes, it is an important way to track costs and net profitability of your business. It can help you identify ways to reduce logistics and inventory costs. And by keeping an eye on it you can catch problems or discrepancies that, if not addressed, will carry over into the next month and can quickly multiply. Ergo, ending inventory is a critical part of maturing small businesses into something bigger, and maintaining ongoing profitability for enterprises.

Accurate Future Reports

Here are just some of the things brands can do after they’ve calculated ending inventory for a given period. WAC is the simplest way to value ending inventory, and it makes the most sense to use when all products sold are identical. Accountants might suggest using LIFO during times of decreasing prices. The inventory turnover ratio is just one tool you can use to measure the health of your business. The inventory turnover ratio (ITR) is a way of measuring how quickly inventory is moving through a business.

Ending inventory is the value of goods available for sale, or inventory left in stock, at the end of an accounting period. Ending inventory is an accounting term that refers to the value of the inventory you have left at the end of an accounting period. This simple metric tells you how much cash you have tied up in inventory on an ongoing basis. This simple calculation tells you the status of your end-of-period inventory. Knowing how to calculate ending inventory and continually monitoring it is critical for growing your business and maintaining profitability.

What is the Formula to Calculate Ending Inventory?

Take the time to choose the method that is best suited to your type of business and then stick with it. Which method you decide to use will affect many processes and procedures, including budgeting, reordering quantities and growth profit. Markdowns, sales, product damages, depreciation, and theft can all have a profound impact with this method. To expand on the con of this method, the issue is that the retail method is only accurate if all pricing is the same and all pricing changes occur at the same rate. As anyone working in retail knows, this is not something that’s likely to occur. The company has huge mountains of sand at their location – and as new sand comes in, it’s dumped on top of an existing sand pile.

For example, fluctuations in inventory prices due to inflation can diminish the valuation of your ending inventory. These ending inventory tips are part of Easyship’s efforts to help businesses of all sizes succeed How to Calculate the Ending Inventory? in eCommerce. We offer direct partnerships with a global network of trusted warehouses and third-party logistics providers (3PLs) with exact inventory management systems to empower your eCommerce goals.

So how do you calculate ending inventory using the retail method?

Using DEAR Systems, you can get accurate and real-time visibility of your inventory levels. All this would lead to better inventory tracking and ease your inventory calculation process. If you’re interested in trying out DEAR Systems for your business, schedule a demo with our experts now. To get an accurate inventory count, you need to consider all items you have in stock. This includes finished products, raw materials, and those that are a work in progress.

• In the retail sector, accurately assessing ending inventory as part of a broader inventory management process may be critical to a company’s survival.
• This way you can align your marketing efforts with SKU availability to strike the right balance of keeping inventory carry costs low without missing out on potential sales.
• That value will be included under current assets as inventory on a balance sheet.
• The amount earned from sales probably isn’t how much was actually spent to make that product (profit and other costs are often included in the sales price).
• Simply put, this technique implies that the first products ordered will be the first to be sold.

Ending inventory is an important aspect of your business because it provides insight into your inventory purchases and sales. This information helps you determine whether or not you need to place new orders with your supplier and dictates how much cash you should have in hand at all times. You can use several methods to calculate your ending inventory, but the most common method is the gross profit method. This method considers your sales and COGS to determine the value of your ending inventory.