Employ a Detailed Approach to Merchandise Analysis

In addition to item cost and retail price to determine initial margin, the next factor to consider is actual demand. Demand nets to actual sales, so you must factor item cancellations and returns. Then determine the initial gross margin by subtracting cost of goods sold (COGS). Most analysis simply adjusts for the actual cost of goods sold. What about the overstock that is generated and the subsequent cost of liquidating that overstock?