Inventory

Goods a business has bought or made and has not yet sold - raw materials, work in progress and finished stock.

Example

Northgate's inventory rose from 610,000 to 800,000, which is 190,000 of cash converted into goods on a shelf.

Important

Inventory is the current asset least reliably convertible into cash, and it stops selling in exactly the conditions that create the need to sell it. That is why the quick ratio excludes it.

Related terms

• Quick ratio — Current assets excluding inventory, divided by current liabilities. It describes the position if stock cannot be sold quickly.
• Days inventory outstanding — How long stock sits before it is sold - inventory divided by cost of goods sold, times 365.
• Working capital — The money tied up in ordinary trading. The operating version - receivables plus inventory minus payables - excludes cash and borrowings, and is the one that behaves like a use of money.

Lessons that explain it

• The balance sheet: what it owns and what it owes — A photograph taken on one specific day, showing what the business has, who has a claim on it, and what is left over for the owners. It is the statement that tells you whether a bad year is survivable. (13 min)
• When the cash and the profit disagree, believe the cash — Most accounting problems show up as a widening gap between reported profit and cash collected. A few ratios, tracked over time, catch the common ones. (12 min)
• Climate and hardware companies need capital before revenue and margins before scale — Physical-product businesses face manufacturing risk, inventory, lower gross margins and large capital needs. Many climate companies also depend on policy and on project finance to deploy their technology. (11 min)

All 578 terms in the Investing glossary