Enter the cost of goods sold ($) and the revenue generated from inventory ($) into the Return on Inventory Calculator. The calculator will evaluate and display the Return on Inventory. 

Return on Inventory Formula

The following formula is used to calculate the Return on Inventory. 

ROInv = (R-COGS) / R * 100
  • Where ROInv is the Return on Inventory (%)
  • COGS is the cost of goods sold ($) 
  • R is the revenue generated from inventory ($) 

How to Calculate Return on Inventory?

The following example problems outline how to calculate Return on Inventory.

Example Problem #1:

  1. First, determine the cost of goods sold ($).
    • The cost of goods sold ($) is given as: 400.
  2. Next, determine the revenue generated from inventory ($).
    • The revenue generated from inventory ($) is provided as: 1000.
  3. Finally, calculate the Return on Inventory using the equation above: 

ROInv = (R-COGS) / R * 100

The values given above are inserted into the equation below and the solution is calculated:

ROInv = (1000-400) / 1000 * 100 = 60.00 (%)

FAQ

What is the importance of calculating Return on Inventory?

Calculating Return on Inventory (ROInv) is crucial for businesses as it helps measure the efficiency of inventory management. It indicates how well a company is generating revenue from its inventory investment, guiding decisions on inventory purchasing, pricing, and sales strategies to improve profitability.

Can Return on Inventory vary by industry?

Yes, the Return on Inventory can significantly vary by industry due to differences in inventory turnover rates, profit margins, and the nature of the goods sold. Industries with high inventory turnover rates, like grocery stores, may have different ROInv expectations compared to industries with slower turnover, such as automobile dealerships.

How can a business improve its Return on Inventory?

A business can improve its Return on Inventory by optimizing inventory levels to reduce holding costs, improving demand forecasting to align inventory purchases with sales trends, enhancing supplier negotiations to lower the cost of goods sold, and implementing pricing strategies that increase revenue without disproportionately increasing inventory costs.