Inventory in Financial Statements

Flashcards covering the importance of inventory in financial statements, management objectives, and key performance ratios.

Inventory (Balance Sheet Perspective)

A large current asset on the balance sheet.

Inventory (Income Statement Perspective)

An item that becomes a large expense on the income statement.

Inventory Vulnerabilities

Inventory is specifically noted as being vulnerable to theft or misuse.

Inventory Management Balancing Act

The process of ensuring that a sufficient, but not excessive, quantity of inventory is on hand.

Inventory Turnover

$$\text{Inventory turnover} = \frac{\text{Cost of goods sold}}{\text{Average inventory}}$"

Days Sales in Inventory

$$\text{Days sales in inventory} = \frac{365\,\text{days}}{\text{Inventory turnover}}$"