Inventory refers to the goods and materials that a business holds for the purpose of resale, production, or use in operations. It is a key current asset on the balance sheet and plays a crucial role in a company’s supply chain and cash flow management. Inventory typically includes raw materials, work-in-progress (WIP), and finished goods.

Managing inventory effectively is vital for maintaining the right balance—too much inventory can lead to high storage costs, obsolescence, or cash being tied up in unsold goods, while too little can result in stockouts and lost sales. Companies often use inventory management systems and techniques like Just-in-Time (JIT) or Economic Order Quantity (EOQ) to optimize stock levels.

From an accounting perspective, inventory is valued using methods such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), or Weighted Average Cost. These methods influence the cost of goods sold (COGS) and, consequently, the company’s gross profit and net income.

Inventory turnover ratio is a key metric that shows how frequently inventory is sold and replaced within a period. High turnover indicates efficient sales, while low turnover may suggest overstocking or weak demand.

In short, inventory management is essential for operational efficiency, customer satisfaction, and overall profitability.