Assume you sell error coins online using eBay and your own website. You started your business as a hobby because you loved collecting coins as a child and realized you could make a living out of buying and selling rare error coins online. You turned your passion into a business and now have built your inventory from your personal collection to a nice online business. Your coin business has grown tremendously this past year. Finally, after years and years of just getting by, running your businesses on a shoestring, you have built up a nice inventory with no debt. Although your retail inventory is at a new high of about 300K, you have depleted your business cash reserve because of aggressive buying this summer. You really do not want to get into debt again, but you might be willing to if a big deal comes along. You feel way more confident buying with cash than getting back into debt. The big question now is whether or not you should keep building your inventory based on your sales level. In other words, does adding more inventory to your business make financial sense?

On average, you sell 200 coins a months and carry about 1,000 coins in inventory. The following equation is used to measure your inventory turnover in units. A higher ratio is better. It means you are actually selling your inventory faster (turning it over faster) which leads to more cash flow and generally higher profits.

Inventory Turnover (In units)

= (Average units sold per month X 12) / Average units in inventory

Calculate your inventory turnover in units:

Calculate your inventory turnover in units if you add 100 coins to your inventory and you sell 10 more coins per month.

Based on your answer, does it make sense to add the additional inventory? Please explain why.