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Quick Definition

The value of products in storage a company intends to sell, or are to be used in the production of products to sell.

There's More to Financial Analysis Than You Think...

The Financial Analysis Success Kit can help!

Why you should take a look at the Financial Analysis Success Kit:

We've combined all our highly popular financial analysis tools into one mega-financial-analysis-kit that will save you hundreds of dollars if purchased separately. The kit contains 9 files packed with the most important financial ratio analysis tools you can find to help rocket your way to mastering financial analysis. The kit includes:

  1. The eBook "Learn Ratio Analysis In Minutes"

  2. The Learn Financial Ratio Analysis Excel Spreadsheet (2 versions!)

  3. A BONUS eBook..."Key Financial Statement Terms"

  4. Another HUGE BONUS...Five-Part Financial Ratio Cheat Sheet Series

The result? You get all these professionally created tools for a great low price.

Learn more on our product page:

Click the button to learn more about the Financial Analysis Success Kit

 

 

financial ratio analysis success kit

Click the button to learn more about the Financial Analysis Success Kit

Explanation of Inventories

Listed on the Balance Sheet, Inventories are the products the company intends to sell, or what is used in the manufacture or fulfillment of products or services they intend to sell. A retail company will usually simply list their inventories as the products they will be selling. For manufacturing companies, Inventories might be broken down into three different types of Inventories:

1. raw materials
2. work-in-process
3. finished goods

Importance of Inventories

Watch Inventories closely. You may at first think that a company with large Inventories is a good thing as they would be ready for any unexpected increase in sales, when in fact companies with large inventories may be a sign of poor efficiency in their retail, manufacturing, or general business processes.

When a company purchases products for retail, or items that will eventually be made into finished goods, this is money that is no longer cash – money that could be instead invested to gain a return. So instead of having cash invested that would be generating revenue on its own, the company would be buying items that will simply be stored. Even worse, these items would be taking up building space, which the company bought or leases and which is often heated or cooled.

Depending on the type of inventory, spoilage of the inventory may occur – and the cash the company spent on this inventory would be wasted.