How much is your stock worth? It sounds like a question with one answer. It has at least three, and which one you want depends on what you're going to do with the number.
This article works through each of them with real sums, using a small tea and coffee stall so the figures stay easy to follow.
Three answers to one question
When someone says "the value of your stock", they could mean any of these:
| Which value | What it means | Handy for |
|---|---|---|
| At cost | What you paid for what's on the shelf | Knowing how much cash is tied up |
| At selling price | What it would bring in if it all sold at your prices | Planning, and seeing your potential profit |
| Realistic | What you'd actually get, after allowing for damaged and slow stock | An honest picture of where you stand |
Most small shops only ever work out the first one, and that's a perfectly good place to start. It is also the number that accountants and lenders usually mean, so we'll begin there.
The sum at cost
Take three products on the stall's shelf. For each one, you multiply how many you have by what each one cost you, then add the results up.
| Product | In stock | Cost each | Value at cost |
|---|---|---|---|
| Masala Tea | 12 | KES 100 | KES 1,200 |
| Kenyan Tea | 7 | KES 100 | KES 700 |
| Mocha | 4 | KES 150 | KES 600 |
| Total | 23 | KES 2,500 |
So the stock is worth KES 2,500 at cost. That's the money you've already spent and haven't got back yet.
Notice what it needs: an honest count of each product, and the cost of each item. If you've been keeping a stock record, the counts are already to hand. If not, a quick count on a quiet afternoon will do.
What it's worth at selling prices
Now add the prices you sell at. Say a cup of Masala Tea sells for KES 150, Kenyan Tea for KES 140 and a Mocha for KES 220.
| Product | In stock | Selling price | Value at selling price |
|---|---|---|---|
| Masala Tea | 12 | KES 150 | KES 1,800 |
| Kenyan Tea | 7 | KES 140 | KES 980 |
| Mocha | 4 | KES 220 | KES 880 |
| Total | 23 | KES 3,660 |
If everything sold at those prices, your stock of KES 2,500 would bring in KES 3,660. Awesome, right? The difference, KES 1,160, is your potential profit. As a share of the selling price, that is a margin of about 31.7%.
Nevertheless, the word "potential" is doing real work there. It assumes that every item sells at full price with nothing spoiled or given away. Real life is rarely that tidy: there's spoilage, credits that never materialize, personal use of stock, and the list goes on...
Which is why the third answer exists.
When you paid different prices
Sums like the one above assume each product cost the same every time. Often it didn't. You bought the first batch at one price and the next at another, and now you have some of each on the shelf.
Say you bought 10 packets at KES 90, and later another 10 at KES 110. The simplest fix is to use an average. You spent KES 900 on the first batch and KES 1,100 on the second, so KES 2,000 for 20 packets. That's an average of KES 100 each.
Sell 8 packets and 12 are left. At the average cost, they are worth 12 × 100 = KES 1,200.
There is another way to look at it, which assumes you sell the oldest stock first. On that basis, the 8 sold came from the cheaper batch. You'd have 2 packets at KES 90 left, plus all 10 at KES 110, which is 180 + 1,100 = KES 1,280.
Two methods, two slightly different answers. Neither is wrong. The average is easier for a small shop, so it's what we'd use. The important thing is to pick one and stick with it so your figures can be compared from one month to the next. If you need your numbers for tax or a loan, ask an accountant which method they expect.
The honest haircut
Some stock won't sell for what you hoped. A half dozen mugs get chipped. A bale of wheat flour passes its expiry date. There's a power outage, and the yogurt in the fridge goes bad. A product that sold well last year sits untouched on the shelf.
The sensible rule is simple: if you'd get less for something than you paid, value it at what you'd get.
Say you have 6 mugs that cost KES 200 each, and now you know the best you can do is KES 120 because of the chips. On paper, they're worth 6 × 200 = KES 1,200. In reality, 6 × 120 = KES 720. Your shelves are worth KES 480 less than the list says.
It's an uncomfortable thing to write down. But you cannot run away from the moment of truth in your life. A number you can trust is more useful than a flattering one, and it's the moment you decide whether to mark the mugs down and be rid of them.
Why bother with the sum?
Once you know the number, a few useful things follow. You can see how much cash is sitting on your shelves, and whether it's the right stock to be holding. Cash stuck in slow sellers is one of the five signs of poor stock tracking. You can compare month to month and notice if it's quietly creeping up. And you can work out what the stock you sold actually cost you, which is the number behind your real profit.
To see it in action, try this with a month's numbers.
At the start of the month, your stock was worth 2,500 at cost. You bought another 3,000, so you had 5,500 to sell. At the end, the shelves hold 2,800.
So the stock that went out cost you KES 2,700. Subtract that from what you took in from sales, and what's left is a truer picture of your profit than the cash in the till alone.
How often to do it
Once a month is a good rhythm for most small shops. Pick the same day each time, such as the last Sunday, and do a proper count first. An estimate of your stock is only as good as the count behind it.
If that feels like a lot, doing it once every three months still beats never doing it at all. The first time takes the longest. After that, it's mostly checking what changed.
Mistakes that skew the numbers
The most common mistake that skews numbers is mixing up cost and selling price, then calling the total "stock value." Be clear about which one you're adding up.
The second is forgetting stock that isn't on the main shelf: the box in the back room, the delivery that hasn't been unpacked, the items on a display... If it's yours and it's unsold, it counts.
Then there's leaving damaged or expired items in the total at full value, and mixing units, such as counting cartons for one product and single pieces for another.
Letting a calculator do the sums
Adding up a long list by hand is where mistakes creep in. Our free stock value calculator takes your products, quantities, cost prices and selling prices, and gives you the total at cost, the potential sales value, the potential profit and the margin. You can download the list as a CSV when you're done. Everything stays in your browser.
If you'd like the sum to stay up to date as stock comes in and goes out, that's what our app is ment for.
Final thoughts
Stock value is one of those numbers that feel intimidating until you've done it once. Then it's a few multiplications and an addition, and it tells you something you couldn't see before: how much of your money is sitting on the shelves, and whether it's earning its place.
Do it once this week with a rough count. Even an imperfect number is better than a guess, and you can sharpen it next month.
Key takeaways
- "Stock value" has three meanings: at cost, at selling price, and realistic. Be clear which one you're working out.
- To value stock at cost, multiply each product's count by its cost and add them up.
- If you paid different prices, use an average cost and keep using it.
- If something will sell for less than you paid, value it at what you'd get.
- Opening stock plus purchases, minus closing stock, tells you what the stock you sold cost.
