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. Beginning Inventory - BI

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

    The raw materials, work-in-process goods and completely finished ...
  4. Carrying Cost Of Inventory

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

    The value of goods available for sale at the end of the accounting ...
  6. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...
Related Articles
  1. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

  2. Inventory Valuation For Investors: FIFO ...
    Fundamental Analysis

    Inventory Valuation For Investors: FIFO ...

  3. What Is A Cash Flow Statement?
    Markets

    What Is A Cash Flow Statement?

  4. Material Adverse Effect A Warning Sign ...
    Markets

    Material Adverse Effect A Warning Sign ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center