Financial StatementsBeginner

Inventory

Raw materials, work in progress and finished goods a company holds for sale.

Detailed explanation

Inventory is a current asset. Too much ties up cash and risks write-downs; too little risks lost sales.

Formula

Inventory days = Inventory ÷ COGS × 365

Why it matters

A sharp rise in inventory days can signal weak demand.

Key points

  • Part of working capital.
  • Valued at lower of cost or realisable value.
  • Compare days with peers.

Related terms

Working CapitalCost of Goods Sold

More in Financial Statements

Income StatementRevenueCost of Goods SoldGross MarginEBITDAEBIT

Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.