Average Inventory


DEFINITION of 'Average Inventory'

A calculation comparing the value or number of a particular good or set of goods during two or more specified time periods. Average inventory is the median value of an inventory throughout a certain time period. A basic calculation for average inventory would be:

(Current Inventory + Previous Inventory) / 2

In this example, the current inventory, $10,000, is added to a previous inventory - for example, the inventory on the same day of the previous year, such as $8,000 - and divided by the two balance points, for an average of $9,000 (($10,000 + $8,000) / 2 = $9,000).

BREAKING DOWN 'Average Inventory'

Because two points do not always accurately represent changes in inventory, average inventory is frequently calculated by using 13 points. For instance, you could use the end of each month over the course of one fiscal year, including the base month. These points are then added together and divided by 13 (the number of points) to determine the average inventory. Another method is to calculate each month's average inventory, adding these figures and dividing by the number of points.

To learn more about average inventory, read Why is it sometimes better to use an average inventory figure when calculating the inventory turnover ratio?

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    The calculation for working capital includes any prepaid expenses that are due within one year, since such prepaid expenses ... Read Full Answer >>
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    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  3. Does working capital include short-term debt?

    Short-term debt is considered part of a company's current liabilities and is included in the calculation of working capital. ... Read Full Answer >>
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