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8.7 Cost of Goods Sold to Inventory to Ratio Analysis

The Cost of Goods Sold to Inventory ratio is a key liquidity ratio that must be included in a business plan for a small business like A Touch of Tuscany This ratio calculates the Cost of goods sold to the Inventory of the small business and denotes how many times the cost of sales are being turned over when looking at the inventory of goods. The result is a measure of the number of times a small business like A Touch of Tuscany is able to turn over its inventory during an year. This ratio is also known as the Inventory turnover ratio.

As we can see in our analysis, the cost of goods sold to inventory ratio for A Taste of Tuscany is 25.5, 26 and 26.5 respectively for 2009, 2010 and 2011. Whatthis means of course is that the the cost of goods sold are projected to cover our inventory by up to 25 or more times in the coming years - this is of course a verygood thing for us. We have to remember however that inventory here at a restaurant is not typically very large and we also are projecting a relatively lean inventoryof food and beverages here given the relatively good turnaround time of our suppliers and the fact that we are located in the very vibrant New York metropolitan area.

Also, important to remember is that one of the reason that the cost of good sold which in a service company like a full service restaurant is the entire operatingexpenses, are projected to stay relatively stable at $509k, 519k and 529k for the years of 2009, 2010 and 2011 respectively. These costs have a small and modest inflation component factored into the pricing, but this could easily change and negatively affect the ratios.

Quick Links:

  1. Go to the Corresponding Template section for this industry.
  2. Go to the Corresponding Questionnaire section for this industry.

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