It is used to evaluate inventory purchasing plans, analyze sales figures, add on markup

and apply markdown pricing to plan stocks.

Use the following equations and retail math formulas to track merchandise, measure sales
performance and help create pricing strategies.

Acid-Test Ratio
Acid-Test Ratio = Current Assets - Inventory ÷ Current Liabilities

Average Inventory

Average Inventory (Month) = (Beginning of Month Inventory + End of Month

Inventory) ÷ 2
Basic Retailing Formula
Cost of Goods + Markup = Retail Price
Retail Price - Cost of Goods = Markup
Retail Price - Markup = Cost of Goods
Break-Even Analysis
Break-Even ($) = Fixed Costs ÷ Gross Margin Percentage
Contribution Margin
Contribution Margin = Total Sales - Variable Costs
Cost of Goods Sold
COGS = Beginning Inventory + Purchases - Ending Inventory
Gross Margin
Gross Margin = Total Sales - Cost of Goods
Gross Margin Return on Investment
GMROI = Gross Margin $ ÷ Average Inventory Cost

Initial Markup

Initial Markup % = (Expenses + Reductions + Profit) ÷ (Net Sales + Reductions)

Inventory Turnover (Stock Turn)
Turnover = Net Sales ÷ Average Retail Stock

Maintained Markup
 MM $ = (Original Retail - Reductions) - Cost of Goods Sold
MM % = Maintained Markup $ ÷ Net Sales Amount
Margin %
Margin % = (Retail Price - Cost) ÷ Retail Price
Markup
Markup $ = Retail Price - Cost
Markup % = Markup Amount ÷ Retail Price

Net Sales

Net Sales = Gross Sales - Returns and Allowances

Open to Buy
OTB (retail) = Planned Sales + Planned Markdowns + Planned End of Month
Inventory - Planned Beginning of Month Inventory
Percentage Increase/Decrease
% Increase/Decrease = Difference Between Two Figures ÷ Previous Figure
Quick Ratio
Quick Ratio = Current Assets - Inventory ÷ Current Liabilities

Reductions

Reductions = Markdowns + Employee Discounts + Customer Discounts + Stock

Shortages
Sales per Square Foot
Sales per Square Foot = Total Net Sales ÷ Square Feet of Selling Space
Sell-Through Rate
Sell-Through % = Units Sold ÷ Units Received

Stock to Sales Ratio

Stock-to-Sales = Beginning of Month Stock ÷ Sales for the Month

$ Cost =  $ Retail  x  (100% - Markup %)

Cost of Goods Sold (COGS) =  Beginning Inventory  +  Purchases - End Inventory

The above formula is an example of a company that sells finished goods. The formula

can be applied to one week, one month or a year, but must be the same for each value
of the formula. The formula for a manufacturer includes raw goods and unfinished
product in inventory.  There is no formula for a service firm, which relies exclusively
on market research of competitors and deciding a pricing strategy that allows
profitability.

Here is another way of stating the same formula:

inventory at beginning of year + purchases or additions during the year = goods

available for sale - inventory at end of year = cost of goods sold

$ Retail =  $ Cost / (100% - markup %)

$ Markdown =  Original retail price - lower retail price

GMROI (Gross Margin Return On Investment) =  (GM% x turnover) / (1 - markup %)

an example of how to calculate ones return on investment, (ROI).

Last August the stores sales were $ 1,814,476, beginning inventory was 4,875,911,
and ending inventory was 4,693,452. August maintained a mark-up of 28%.  

The formula for reaching the ROI in this scenario would be as follows.

Last Years August sales $1,814,476  x  28% =  $508,053.28  

Beginning Inventory $4,875,911 + Ending Inventory  4,693,452  = 9,569,363 divided

by 2 = 4,784,681

508,053.28 divided by 4,784,691.5 = 10.6 % ROI (Return on Investment)

Gross Margin =  Sales - cost of good sold

Margin %  =  ($ Retail - $ Cost) / $ Retail

Markdown % =  $ Markdown  /  $ Net Sales

Markup =  The difference between the cost of an item and its selling price.

Markup cancellation =  Reduction from original markup %

You can calculate the percent of change (percent of increase or percent of decrease) from
the following formula.

This Period of Sales  - Last Period of Sales / Last Period of Sales x100% = percent of
Change

 
Example, Apparel Search sold $1500. worth of blue shirts last year.  This year we sold $1575.
worth of blue shirts.   What is the percent of increase on the blue shirts we sold?

 
($1575 - $1500) / $1500 x100% =  5%

 
The increase was 5%

 
Example, A shirt on ApparelSearch.com is sold at a 20% discount off the original price of
$32.    What is the Sales Price?

 
Let the sales price by "x" dollars.

 
($32 - X) / $32 x 100% = 20%

 
($32 -X) / $32 = 0.2

 
$32-X = $6.4

 
X = $25.6

 
Therefore,  the sales price of the shirt is $25.60

 
Example, The original price of a leather jacket was $500.  It is now on sale for $440.  What is the
percent of decrease?

 
Let "X" be the percent of decrease.

 
X/100 = (500-440)/500

500X = 6000

X= 12

 
 Therefore, there was a 12% decrease.

Planned Stock  = planned monthly sales x stock sales ratio

Sell through % = units sold / (units sold + on hand inventory)

Sell-through is a percentage of units sold during a period (for example 1

month).

It is calculated by dividing the number of units sold by the beginning on-hand

inventory (for that same time period).

Example:

During the month of August you sell 100 shirts. You received 300 shirts in receipts. You
end August with 900 units shirts of stock (End of Month Stock).  What was your Beginning On-
Hand units of shirts and what was your Sell-through?

Beginning of Month stock (BOM) = EOM 900 units - Receipts 300 units + Sales 100 units = 700
units

Sell-through = Sales 100 units / Beginning Inventory (BOM) 700 = 14.3% Sell-through
in August.

BOM means Beginning of Month
EOM means End of Month
 

Stock Sales Ratio =  B.O.M. $ Stock / Sales for period

Note:  B.O.M = beginning of month
Shrinkage =  Difference between book and physical inventory

"inventory turnover." Turnover is the number of times you sell your average

investment in inventory each year.

Turnover  = net sales for period / average stock for period

Here is another way of stating the same formula: 

Cost of Goods Sold from Stock Sales during the Past 12 Months 
Average Inventory Investment during the Past 12 Months
Inventory turns : The retail sales for a period divided by the average inventory value for that period. Most
retailers are in the range of two to four turns a year.

Average Stock  =   sum of each periods Beginning of Period stock  +  the last End of

Period stock / # of periods

Breakeven = Fixed Costs / (Revenue – Variable Costs)

Breakeven Analysis:  Simply stated, this formula indicates how much sales volume
must be accomplished in order to cover all costs (fixed and variable), and begin
generating a profit.  In other words, it is the point in sales volume at which you have
no profit and no loss. This is most commonly applied to a business that sells product. 
 

Weeks of Stock

Inventory divided by average weekly sales for a given period of time.

If you have $10,000. worth of inventory in sweaters, and your total sales of sweaters
for the past 5 weeks is $20,000. the calculation would look as below :

$20,000 divided by 5 = average weekly sales of $4,000.

$10,000. divided by $4,000.00 = 2.5

This means that if you did not replenish your sweater inventory and sales continued at
the same rate, you would deplete your inventory of sweaters to zero within 2 1/2
weeks.

By the way, what are the odds that the your inventory would sell at the "same rate"
week after week.  Maybe this is why clothing stores are always out of my size ...