Definition
Inventory includes raw materials, work-in-progress, and finished goods. Inventory management balances having enough stock to meet demand without tying up excess capital. Rising inventory faster than sales may indicate demand weakness or obsolescence risk.
Formula
Inventory Turnover = COGS / Average Inventory
Example
A retailer with $50M inventory and $200M COGS has 4x inventory turnover, meaning inventory sells out 4 times per year or sits for about 91 days.
FAQ
What is Inventory?
Goods held for sale or materials used in production.
How do you calculate Inventory?
A common formula for Inventory is: Inventory Turnover = COGS / Average Inventory
Why is Inventory important?
Inventory helps investors evaluate financial statements and make more informed decisions.