The economic order quantity is the number of units of a product a business orders or manufactures in order to minimize its ordering (batch setup) and inventory holding costs. This free excel calculator can be used to calculate the EOQ.
The reorder quantity formula can be used to calculate the minimum level of inventory a business should maintain to be able to satisfy customer demand for its products. The calculation takes into account supplier lead times and customer demand and helps a business to operate at its optimum level of working capital.
This inventory carrying cost formula can be used to calculate the economic lot size (EOQ) which a business should use to place purchase orders with suppliers. The total inventory cost calculated can be used in the financial projections template by adjusting the inventory days assumption.
A business needs to finance its working capital requirements using a combination of short term and long term funding sources. Permanent working capital is best financed with long term funding such a equity or long term loans, whereas temporary seasonal working capital is best funded by short term loans or overdraft facilities.
The fundamentals of a businesses trading activity are that it buys from a supplier, holds inventory, and sells to the customer. The amount of finance a business needs to carry out this day to day trading activity is known as the working capital requirement, and varies from industry to industry depending on the amount of time the business takes to pay suppliers, the amount of inventory held, and the time it takes to collect cash from customers.
Inventory represents the total of raw materials, work in process, and finished goods that a business holds for the purpose of resale. Inventory days is calculated using the inventory days formula and shows the average number of days sales a business is holding in inventory.
Inventory or stock as it is sometimes referred to, is the total of raw materials, work in process, and finished goods that a business holds for the purpose of resale.
If the value of the inventory is divided by the value of the average daily cost of sales, then the resulting figure is the average number of days sales which the business is holding. This number is referred to as inventory days, days inventory outstanding, inventory turnover days, or stock days.
The opening day accounts payable balance forms part of the opening balance sheet of the business. Accounts payable are amounts which are owed by the business to its suppliers, they are sometimes referred to as trade creditors.
If a supplier allows a business credit and invoices it for a product or service and payment is made at a later date 30 days 60 days etc, then while the business owes the supplier the money it are classified as an accounts payable in the accounts of the business.