Revenue analysis helps businesses manage inventory levels and costs by analyzing the turnover of each item or group of items separately. This allows companies to reduce inventory levels for overstocked products and improve cash flow. Detailed information about inventory and sales is necessary for revenue analysis.
Revenue analysis is a technique used by a business to ensure that its inventory is at adequate levels to meet customer needs while keeping costs as low as possible. While calculating inventory turnover ratio can give a general indication of the appropriateness of turnover levels and how quickly inventory is generally transforming, turnover analysis delves into the situation. In turnover analysis, the turnover of each item or group of items in inventory is analyzed separately to highlight particular group products that may be overstocked. This can lead the company to reduce inventory levels for those products and free up the resulting cash for other purposes.
Revenue analysis would proceed by examining each product line or group in terms of the number of items in inventory, the number of items sold during the period under review, and the number of sales days for that particular item left in inventory. This analysis may reveal that some items are selling fast and inventory levels should have increased, while other products are moving slowly, and the company could save resources by reducing inventory levels in those product lines. By taking action to reduce inventory in the appropriate lines, the business can reduce inventory holding costs and improve cash flow for the business.
A rough check on inventory levels, such as the ratio of inventory to sales, can give a general indication of inventory turnover but, without further analysis, this ratio assumes that all products sold by the firm are the same. In reality, very few companies sell just one product and even within a product description there will be different levels of price and quality which could give rise to the need to maintain different levels of inventory for each item. These items will be delivered at different rates. The revenue analysis is detailed enough for the company to take specific actions to improve efficiency.
Revenue analysis requires a business to maintain detailed information about inventory levels and sales of particular items. Larger companies may have software that can capture information and track individual product lines within the company. For small businesses, revenue analysis may require physical inventory counting at regular intervals and more detailed sales analysis than would otherwise be required. Whether this can be done in practice will depend on cost considerations, but efficiencies gained through turnover analysis may mean that the procedure is worthwhile for the business.
Protect your devices with Threat Protection by NordVPN
