Inventory to Sales Ratio Analysis

Inventory to sales ratio is calculated by dividing the total inventory for the month divided by the totals sales for that month. The Inventory to Sales Ratio measures how many months it would take to use up the surplus supplies held on shelf at that monthly sales rate. An inventory to sales ratio of 2. 1 means that it will take 2. 1 months to clear the whole inventory. A low inventory to sales ratio is a good indicator for the economy as it signifies that sales are growing more rapidly than the inventories.
When this ratio is low business tend to increase their sales by pacing up their manufacture process and order. For that reason a falling inventory to sales ratio points out the fact that the business environment is improving. Moreover a low inventory to sales shows that the inventory is lessening relative to sales or that sales are increasing, either ways this a positive sign for a business as it shows that inventory and cash is being managed resourcefully.
However a mounting inventory to sales ratio shows that inventory is rising quicker than sales, which means that businesses are being piled up with unnecessary inventory. The action taken to reduce the storage of inventory is slowing the speed of the manufacturer process and delaying orders. The outcome of a high inventory to sales ratio is slow economic activity which leads to falling interest rates and inflation. An upward trend of the ratio indicates that the business condition is worsening.

The factors responsible for a low inventory to sales ratio can be accounted to technology as it reduces the delivery time and results in better management of the inventory levels that lessens the need for excessive stocks in warehouses. Just in time method of inventory management leads to the less need for stockpile up. If inventory is closely lined with sales then variation in GDP and inventory will be minimized. The trend for declining of the inventory to sales ratio is likely to continue in the future due to reason such as the Just in time method of managing inventory , which helps in reducing the huge chunk of stocks to be stored.
JIT has a lot of cost cutback and lead time diminution. In addition due to continuous improving technology people are more likely to rely on low levels of inventory. Also, due to valuable and efficient logistic and supply chain management there is less need to mount up current assets in inventory. Additionally the benefits derived from having low ratio level is immense, as it enables businesses to invest their extra cash in short term investments which enables the investments to be used up more efficiently.
Dyer , Jeffrey H. . “Specialized Supplier Networks as a Source of Competitive Advantage: Evidence from the Auto Industry. ” Gilchrist, Simon. “Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms . ” Lovell , Michael . “Manufacturers’ Inventories, Sales Expectations, and the Acceleration Principle . ” Timothy B. , Biggart. “Industrial Management ; Data Systems. ” 2002 Whitin , T. M. . “Inventory Control in Theory and Practice . ”

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

At Solution Essays, we are determined to deliver high-quality papers to our clients at a fair price. To ensure this happens effectively, we have developed 5 beneficial guarantees. This guarantees will ensure you enjoy using our website which is secure and easy to use.

Money-back guarantee

Most companies do not offer a money-back guarantee but with Solution Essays, it’s either a quality paper or your money back. Our customers are assured of high-quality papers and thus there are very rare cases of refund requests due to quality concern.

Read more

Zero-plagiarism guarantee

All our papers are written from scratch and according to your specific paper instructions. This minimizes any chance of plagiarism. The papers are also passed through a plagiarism-detecting software thus ruling out any chance of plagiarism.

Read more

Free-revision policy

We offer free revisions in all orders delivered as long as there is no alteration in the initial order instruction. We will revise your paper until you are fully satisfied with the order delivered to you.

Read more

Privacy policy

All data on our website is stored as per international data protection rules. This ensures that any personal data you share with us is stored safely. We never share your personal data with third parties without your consent.

Read more

Fair-cooperation guarantee

Ordering and sending money to us is an indication that you are purchasing our products and services. To have business talks laid out in the official language, you can check on our terms and conditions and get more information about this.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
The price is based on these factors:
Academic level
Number of pages
Order your essay today and save 20% with the discount code: LEMONADEPlace Order