Ending Inventory Calculator
This ending inventory calculator will help you determine the total value of units in your inventory at the end of an accounting period. Thanks to this tool, you will be able to quickly and effortlessly figure out how to calculate the ending inventory value that goes into your balance sheet. You will also be able to calculate your inventory turnover to measure how efficiently you are selling your product. If you want to discover what is the ending inventory formula, simply keep reading!
Make sure to check out the margin calculator, too!
What is the ending inventory?
If you happen to sell any products, you will probably have some stock leftover at the end of the accounting period. These products have a certain value, called the ending inventory.
The most straightforward way to calculate the ending inventory is to conduct a physical count. This, however, is not always possible; it may be far too time - and labor - consuming, or you might be too busy shipping products at the end of the month to perform an actual count. In that case, the best method is the analytical one - to deduce the ending inventory from your beginning inventory, the cost of goods sold, and net monthly purchases.
Ending inventory formula
The formula for ending inventory is as follows:
- — Ending inventory. The monetary value of the inventory at the ending of the accounting period;
- — Starting inventory. The monetary value of the inventory at the beginning of the accounting period;
- — Net purchases.The value of new items in the inventory that were purchased during the accounting period; and
- — Cost of goods sold. The direct production costs of the goods you create and sell out of the materials from the inventory.
You can also use this calculator to determine the inventory turnover. Essentially, this value depicts how efficient you are in selling your goods - it is the ratio of how much product you have in your inventory to the amount you actually sell. It can be calculated using the following equation:
- — Inventory turnover. It indicates selling efficiency.
Remember that there is no one optimal inventory turnover value. Even though high values are preferable, they may signal that the inventory levels are low during the month, which can cause difficulties with providing your product to customers on a short notice.
How to calculate ending inventory: an example
Start by determining your starting inventory. Let's assume that at the beginning of the month you had $25,000 worth of materials in stock.
Determine the net value of purchases made over the month. Let's say it was $30,000.
Find out what was the cost of producing the goods you sold during this month. We can assume it was equal to $40,000.
You can now input these values into the ending inventory formula:
Ending Inventory = $15,000
- Additionally, you can find the inventory turnover of your business:
Inventory Turnover = $40,000 / (($25,000 + $15,000) / 2) = 2.0
Your inventory turnover is equal to 2. It means that you have sold the equivalent of your average inventory twice during the accounting period.
Another ending inventory calculation method
Besides the method explained above, there are other methods for calculating the ending inventory value. Among them we have FIFO and LIFO. You can also access both of them by setting "no" in the Is the value of COGS known? section of the calculator. Now, we will briefly cover FIFO.
The FIFO method(First-in, First-out) assumes that the first product the company sells is the first inventory produced or bought. In this case, the remaining inventory (ending inventory) value will include only the products that the company produced later.
In practice, if later products are more expensive to produce, ending inventory would show a higher value compared to the one we would get if we use the average value of the inventory produced.