Obsolete Inventory


DEFINITION of 'Obsolete Inventory'

Term that refers to inventory that is at the end of its product life cycle and has not seen any sales or usage for a set period of time usually determined by the industry. This type of inventory has to be written down and can cause large losses for a company.

Also referred to as "dead inventory" or "excess inventory".

BREAKING DOWN 'Obsolete Inventory'

Large amounts of obsolete inventory are a warning sign for investors: they can be symptomatic of poor products, poor management forecasts of demand, and poor inventory management. Looking at the amount of obsolete inventory a company creates will give investors an idea of how well the product is selling and of how effective the company's inventory process is.

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  1. How do you find a company's days sales of inventory (DSI)?

    Using a simple formula, a company’s days sales of inventory (DSI) can be calculated as follows: Days sales of inventory = ... Read Full Answer >>
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    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  3. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  4. How much working capital does a small business need?

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  5. What does high working capital say about a company's financial prospects?

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