DEFINITION of 'Book To Ship Ratio'

The demand-supply ratio of the amount that is recorded in the company's books to the amount of inventory it has shipped out. This ratio can be used to help measure a company's efficiency, and can be used to indentify potential problems in the supply chain.

BREAKING DOWN 'Book To Ship Ratio'

If the ratio is greater than one, it indicates that the company has not sent out all orders. This could indicate a shortage/backorder of needed supplies. If it is one, the company is directly on time, and if below one, the company has excess inventory on hand. For example, if incoming orders for the quarter was $50 million and shipments for the quarter was $100 million, the book to ship ratio is 50%. If this company is making a simple product like widgets, which have quick turnaround times from order to shipment, then this low book-to-ship ratio could be indicative of problems in either manufacturing or shipping.

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