![]() The executives and other responsible parties within the company must have a clear understanding of the big picture to make strategic decisions about inventory management. That is why only focusing on a single point inventory balance might not give an accurate image. Or, if you are operating in a seasonality-dependent industry, such as swimwear, your sales and inventory levels will fluctuate accordingly. Or maybe your business has experienced a sudden huge sale. Inventory is one asset, the changes of which are strongly correlated with market changes, seasonalities, trends, etc.įor example, you might be expecting to get a large delivery at the end of the reporting period. So, external and internal events affect the business’s operations, performance, relations, etc. So, to reduce the effects of those peaks and get a more precise image of your inventory trends, you can use inventory averages.īusinesses do not operate in a vacuum. Inventory balance may dramatically fluctuate depending on large orders or seasonal peaks. Technically, it is the mean value of the opening and closing inventory balances.īecause inventory is represented in financial statements as of the period end date, using that amount in calculations and analysis might not always lead to accurate forecasts and projections. Investopedia defines average inventory as a calculation that estimates the value (in $) or quantity (in numbers) of a particular inventory unit or the whole inventory during a specified period.
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