How to Calculate Inventory Shrinkage

by Michael Keenan; Updated September 26, 2017
Shrinkage measures inventory losses.

Inventory shrinkage refers to the loss of inventory due to a variety of factors, including theft and damage. Knowing the shrinkage rate can help you determine whether you could be more profitable by limiting inventory losses. High rates of shrinkage mean that you are losing a lot of inventory that you are not being reimbursed for. In order to calculate shrinkage, you need to know how much inventory you expect to have and the actual amount of inventory that you have in stock.

Step 1

Check your company's records to determine the value of inventory that you should have in stock based on prior inventory totals and the value of goods sold. This is the book value. For example, your records may show that you should have $5,000 in inventory because you had $6,000 worth of inventory, sold $2,000 and bought $1,000 more.

Step 2

Total the actual value of inventory that you have in stock. This number may be different than the book value because of losses, damaged goods or theft.

Step 3

Subtract the actual amount of inventory from the amount that you should have according to your financial records. For example, if you expected to have $5,000 but only had $4,850, you would subtract $4,850 from $5,000 to get $150.

Step 4

Divide the difference from Step 3 by the amount you should have to calculate the shrinkage rate. In this example, you would divide $150 by $5,000 to get 0.03.

Step 5

Multiply the shrinkage rate by 100 to convert to a percentage. Finishing this example, you would multiply 0.03 by 100 to determine a shrinkage rate of 3 percent.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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