Inventory

AAA

DEFINITION of 'Inventory'

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale. Inventory represents one of the most important assets that most businesses possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company's shareholders/owners.

INVESTOPEDIA EXPLAINS 'Inventory'

Possessing a high amount of inventory for long periods of time is not usually good for a business because of inventory storage, obsolescence and spoilage costs. However, possessing too little inventory isn't good either, because the business runs the risk of losing out on potential sales and potential market share as well.

Inventory management forecasts and strategies, such as a just-in-time inventory system, can help minimize inventory costs because goods are created or received as inventory only when needed.

RELATED TERMS
  1. Carrying Cost Of Inventory

    This is the cost a business incurs over a certain period of time, ...
  2. First In, First Out - FIFO

    An asset-management and valuation method in which the assets ...
  3. Just In Time - JIT

    An inventory strategy companies employ to increase efficiency ...
  4. Inventory Turnover

    A ratio showing how many times a company's inventory is sold ...
  5. Overadvance

    A short-term commercial loan taken by a company in order to purchase ...
  6. Shrinkage

    The loss of inventory that can be attributed to factors including ...
Related Articles
  1. What are the generally accepted accounting ...
    Investing

    What are the generally accepted accounting ...

  2. Measuring Company Efficiency
    Fundamental Analysis

    Measuring Company Efficiency

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

    Inventory Valuation For Investors: FIFO ...

  4. Understanding The Cash Conversion Cycle
    Investing Basics

    Understanding The Cash Conversion Cycle

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