CompanyGraph
Captures the value of unsold goods held by the company, exposing cash tied up in production that has not yet converted to revenue.
Inventory is the value of goods the company has produced or bought and not yet sold. Too much inventory can tie up cash, while too little can lead to lost sales.
Inventory represents goods held for sale in the ordinary course of business, including raw materials awaiting production, work-in-progress items partially through manufacturing, and finished goods ready for customers. This current asset is critical for product businesses, representing significant capital investment that must be managed carefully to balance customer availability against carrying costs and obsolescence risk.
Inventory components:
- Raw materials: Components and materials awaiting production
- Work-in-progress (WIP): Partially completed products in production
- Finished goods: Completed products ready for sale
- Supplies: Items used in production but not part of the product
Inventory costing methods:
- FIFO: First-in-first-out; oldest costs go to COGS first
- LIFO: Last-in-first-out; newest costs go to COGS first (US only)
- Weighted average: Average cost applied to all units
- Specific identification: Actual cost of specific items sold
Why inventory matters:
- Working capital: Major use of operating cash
- Customer service: Adequate inventory prevents stockouts
- Profitability: Inventory costs flow through COGS to gross profit
- Obsolescence risk: Excess or outdated inventory may require write-downs
Key metrics:
- Days Inventory Outstanding (DIO): (Inventory / COGS) × 365
- Inventory Turnover: COGS / Average Inventory; times sold and replaced per year
- Inventory as % of Revenue: Capital tied up in stock
Analysing inventory:
- Turnover trends: Declining turnover suggests slowing sales or excess stock
- Inventory vs. sales growth: Inventory growing faster than sales is concerning
- Component breakdown: Rising finished goods may indicate weak demand
- Write-down history: Frequent impairments indicate inventory problems
Industry context:
- Grocery: Very high turnover (20-50×); perishable goods
- Apparel: Moderate turnover (4-8×); seasonal fashion risk
- Industrial: Lower turnover (3-6×); longer sales cycles
- Software: Zero or minimal inventory; digital products
Effective inventory management balances availability against carrying costs. Track inventory trends alongside sales to ensure inventory levels remain appropriate for demand.
How it relates
Cash & Cash EquivalentsCash and cash equivalents combines cash and near-cash investments. It shows how much very liquid money the company has available to meet obligations or seize opportunities.+Other Short-term InvestmentsOther short-term investments are financial assets that can usually be sold or converted into cash within a year, such as marketable securities. They add to the company's flexibility beyond pure cash.+Accounts ReceivableAccounts receivable is money owed to the company by customers who have not yet paid. Rising receivables can mean growing sales, but also that cash collection is slower.+Inventory=Total Current AssetsTotal current assets includes cash and other assets that are expected to be turned into cash within a year, like receivables and inventory. It is a key part of the company's short-term financial strength.
Where it fits
Inventory→Working CapitalWorking capital is the difference between current assets and current liabilities, representing the short-term liquidity available to fund daily operations.
Inventory÷Cost of Goods SoldCost of goods sold is the direct cost of producing the company's products or services. It includes materials, labor and manufacturing costs and is subtracted from revenue to calculate gross profit.→Inventory Management