1. What is Months on Hand?

Months on Hand is a financial metric that measures how many months of inventory a company has based on its current sales rate. It indicates inventory management efficiency and helps businesses optimize stock levels.

2. How Does the Calculator Work?

The calculator uses the Months on Hand formula:

Where:

• \( \text{Inventory Value} \) — Current value of inventory in dollars
• \( \text{COGS} \) — Cost of Goods Sold per year in dollars

Explanation: The formula divides annual COGS by 12 to get monthly COGS, then divides inventory value by this monthly figure to determine how many months the current inventory will last.

3. Importance of Months on Hand Calculation

Details: This metric is crucial for inventory management, cash flow planning, and identifying potential overstocking or understocking issues. It helps businesses maintain optimal inventory levels to meet demand without tying up excessive capital.

4. Using the Calculator

Tips: Enter inventory value in dollars and annual COGS in dollars. Both values must be positive numbers. The calculator will compute how many months the current inventory will last at the current sales rate.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Months on Hand ratio?
A: Ideal ratios vary by industry, but generally 1-3 months is considered healthy. Too high indicates overstocking, too low risks stockouts.

Q2: How does this differ from inventory turnover?
A: Months on Hand shows how long inventory will last, while inventory turnover measures how many times inventory is sold and replaced in a period.

Q3: Should I use retail value or cost value for inventory?
A: Use cost value to match with COGS calculation for accurate results.

Q4: How often should I calculate this metric?
A: Monthly calculation is recommended to track inventory efficiency trends and make timely adjustments.

Q5: What if my business has seasonal fluctuations?
A: For seasonal businesses, consider using average COGS or calculating separately for peak and off-peak seasons.