Calculating Stock Value

In order for Linnworks to calculate certain financial data, for instance; profit, it needs an accurate measure of the Stock Value. Whilst it is possible to specify a stock value via Data Import, Linnworks can also calculate the value as a dynamic property. This guide gives an overview and examples of what factors affect the stock value calculation.

General

Your inventory is extremely valuable to you and knowing how to value that inventory is really important as it will impact everything from your profit/loss statements, cost of goods sold, and the overall state of your finances. Stock Value is a dynamically calculated value that automatically keeps track of the cost of your stock. This is worked out from single unit cost i.e. Stock Value / Stock Level.  Note that Unit Cost is not simply a Purchase Price value. Unit cost is calculated based on the actual cost of stock rather than a fixed value.

When it comes to evaluating your stock, Linnworks needs to take into account specific stock movements or adjustments as they will affect the overall calculation. For example, when you acquire new stock through a purchase order Linnworks will increase the stock value based on the value specified in the purchase order. When you sell or make any adjustments to the stock, Linnworks will automatically recalculate your actual stock value based on the unit cost.

Definition of terms

The following table defines some of the key terms used in the rest of this guide:

Term Definition
Purchase Price The monetary value for an individual stock item when added to Linnworks through a Purchase Order
Stock Level The total stockholding for an individual stock item in a specific Linnworks Location
Stock Value The calculated monetary total value based on the mean averaged or FIFO value of all units for an individual stock item in a specific Linnworks Location
Unit Cost The calculated monetary value for a single based on the mean averaged  or FIFO value of all units for an individual stock item in a specific Linnworks Location, ie Stock Value / Stock Level

Calculating stock value

There are several ways to calculate stock level, and Linnworks uses either a Mean Average or FIFO method depending on what type of stock it's evaluating.

Mean average

Linnworks uses this valuation method for unbatched items and the value of an item is calculated as the average cost weighted by the quantities you have available in the warehouse. 

Unit cost as per mean average = ((Available Qty in stock * Average Unit Cost) + (Incoming Stock * Incoming Rate )) / (Available Qty in Stock + Incoming Qty)

Stock Value as per mean average = Qty in Stock * Average Unit Cost

Example 1 - Stock value adjusted due to the delivery of a purchase order

  • Historical stock value is £90.00 with a stock level of 9
  • A PO is raised for 10 units with a unit price of £15.00
    • The new stock value is: £90.00 + (10 × £15.00) = £240.00
  • This makes the unit cost £12.63
    • Stock Value ÷ Stock Level (£240.00÷19)

Example 2 - Stock value adjusted due to stock reducing to 0 and subsequent manual adjustment

  • Stock Level is 10 and Stock Value is £100.00 based on historical changes from PO's and stock movement
  • Change Stock Level to 0, Stock Value automatically recalculates to £0.00
  • Change Stock Level to 5, Stock Value automatically recalculates to £50.00 based on historical data

Example 3 - Manual reset of stock value to 0 stops recalculation of stock value due to manual stock level adjustments or sales

  • Stock item has quantity 10 and Value £50.00
  • Historical stock changes meaning that a change in Quantity will recalculate Value
  • Manually change the stock value in Linnworks to £0.00, the quantity remains the same
  • Then, change Stock Level to 20, Stock Value will remain at £0.00 due to the stock value reset

Example 4 - Manually resetting stock value from 0 to a value greater than 0 restarts stock value calculations

  • Stock level is 10 and Stock Value has been manually set to £0.00
  • Change Stock level to 20, Stock Value remains unchanged
  • Manually change Stock Value to £100.00, Stock Level remains the same
  • Change Stock Level to 10, Stock Value is recalculated to £50.00

Example 5 - Manual resetting stock value

  • Stock Level is 10 and Stock Value is £75.57 based on historical changes from PO's and Stock movement
  • Change Stock Level to 20, Stock Value automatically recalculates to £151.14
  • Change Stock Value to £175.00, Stock Level remains unchanged
  • Change Stock Level to 10, the stock value automatically recalculates to £87.50 due to the previous manual reset of Stock Value

FIFO (First In First Out)

Linnworks uses this valuation method for batched items.  If you operate your warehouse using a FIFO method, it is assumed that items that arrive in your warehouse first, are sold first. Hence, the stock value is calculated by summing the actual cost of the stock of an item, available in the warehouse. 

E.g. FIFO stock value = ( Qty1 * Unit Cost 1 ) + ( Qty2 * Unit Cost 2 ) + ...

Where each set of parenthesises represents a single batch.

Example 1 - Stock value adjusted due to the delivery of a purchase order

  • 01/04/2017 a PO is raised for 10 items with a Unit Cost of £12. This is Batch 1
  • 03/04/2017 a PO is raised for 5 items with a Unit Cost of £15. This is Batch 2
    • Stock Value per FIFO = (10*12) + (5*15) = £195.00
  • Stock level is 15 and Stock Value is £195 (Across all batches)
  • 10/04/2017 a Sale is made of 12 items.
  • Using FIFO, all 10 items are taken from Batch 1, and 2 are taken from Batch 2
  • The Stock Value for the remaining stock (3 items) is 3*15 = £45, as all remaining stock is from Batch 2