How to Calculate the Stock to Sales Ratio Using a Formula in Excel

This is an overview:

The Stock to Sales Ratio

The stock to sales ratio is calculated by dividing the value of the average inventory held during a given period by the value of sales generated during the same period.

Stock to Sales Ratio Formula:

The formula is:

<span style="font-size: 14pt;"><strong>Stock-to-Sales Ratio = Average Inventory or stock / Net Sales</strong></span>

Step 1 – Create a Stock to Sales Ratio Table

Create a table in Excel and enter: Average Stock, Gross Sales, and Net Sales.

Step 2 – Calculate the Average Stock Value

Use the formula in C13 and press Enter.

=(C7*C9+C8*C9)/2

Step 3 – Determine the Net Sales

To get the gross sales, enter this formula in C14.

=((C7-C8)*C10)

Copy this formula to C15 to see the Net Sales.

=((C7-C8)*C10-C11*C10)

Step 4 – Compute the Stock to Sales Ratio

Use the formula in C16:

=ROUND(C13/C15,2)&":"&1

To calculate the Stock to Sales percentage, copy this formula to C17.

=C13/C15

Why Is the Inventory Turn or Stock to Sales Ratio KPI So important?

It indicates business efficiency: A higher Inventory Turn ratio indicates that the company is selling its products quickly, generating revenue, and minimizing the cost of carrying excess inventory.
It helps to optimize inventory management: Businesses can determine how quickly they sell their products and how often they need to restock. This information can help them make more informed decisions about inventory management.
Improves cash flow: Businesses can identify slow-moving products and make necessary adjustments to improve sales.
Helps forecasting: By analyzing trends in the Inventory turnover ratio over time, businesses can develop more accurate sales forecasts.

What Is a Good Inventory to Sales Ratio?

A good inventory-to-sales ratio varies by industry, but a lower ratio is generally preferable.

A lower ratio indicates that a company is selling its inventory quickly and efficiently, which reduces the risk of excess inventory or stockouts. A ratio of around 1 is considered a good benchmark.