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$ 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 %

Planned Stock  = planned monthly sales x stock sales ratio

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

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 ...
 

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If you are a clothing retailer and you have retail math formulas that are not listed on this page, PLEASE let us know them so we can make this section more complete.

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