Average Inventory

AAA

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).

 

INVESTOPEDIA EXPLAINS '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?

RELATED TERMS
  1. Average Age Of Inventory

    The average number of days it takes for a firm to sell to consumers ...
  2. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
  3. Ending Inventory

    The value of goods available for sale at the end of the accounting ...
  4. Beginning Inventory - BI

    The book value of goods, inputs or materials available for use ...
  5. Inventory

    The raw materials, work-in-process goods and completely finished ...
  6. Best's Capital Adequacy Relativity ...

    A rating of an insurance company’s balance sheet strength. Best’s ...
Related Articles
  1. Fundamental Analysis

    Measuring Company Efficiency

  2. It is, therefore, crucial for investors who are analyzing stocks to understand how inventory is valued.
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  3. Markets

    What Is A Cash Flow Statement?

  4. Taxes

    What's the difference between cost of ...

Hot Definitions
  1. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  2. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  3. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  4. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  5. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center