Inventory-to-Sales Ratio

The inventory-to-sales ratio is an early warning that stock is building faster than sales. It shows how many months of sales sit on the shelf at the end of a period. A rising ratio means slower sales, over-buying, or both, and it often comes before markdowns. For example, $450,000 of ending inventory against $300,000 of monthly sales is a ratio of 1.5, or a month and a half of sales. The US Census Bureau publishes monthly ratios for retail, which give context for your own trend.

Inventory-to-sales ratio = ending inventory value ÷ sales for the period

With monthly sales, the ratio reads as months of sales on hand. Use the same valuation basis, cost or retail, for both numbers.

Open the Inventory-to-sales ratio calculator on its own page

How is the inventory-to-sales ratio different from inventory turnover?

The inventory-to-sales ratio is a point-in-time comparison of ending inventory to one period's sales, often monthly. Inventory turnover measures how many times average inventory is sold over a longer period, usually using cost of goods sold.

How do you calculate the inventory-to-sales ratio?

Divide ending inventory value by sales for the period, using the same cost or retail basis for both. $450,000 of inventory over $300,000 of monthly sales is 1.5.

What is a good inventory-to-sales ratio?

It depends on category and lead time, so watch your own trend. A stable ratio while sales grow is healthy, and a rising one is a signal to slow buying.

• Inventory TurnoverHow often you sell through your inventory
• Days of InventoryDOIHow many days current stock will last
• OverstockMore stock than demand requires