Average inventory can be used for meaningful comparisons to other data points.That value may or may not equal the median value derived from the same data. It is the mean value of inventory over a given amount of time.Average inventory is the average amount or value of your inventory over two or more accounting periods.
What Is Inventory? Inventory can be raw materials or finished products, and the term refers to the number of goods on hand ready for sale or the amount of raw material on hand to produce salable goods. An average inventory calculation evens out such sudden spikes in either direction and delivers a more stable indicator of inventory readiness. Inventory balances at the end of each month can fluctuate widely depending on when large shipments are received and when there’s a buying surge or peak season that may markedly deplete the inventory. What Is Average Inventory?Īverage inventory is an estimation of the amount or value of inventory a company has over a specific amount of time. This is often a better lens to view a company’s inventory standing than a single point in time or accounting period. Just the right amount of inventory propels a company forward and mirrors its strengths in managing costs, sales and business relationships.Ĭalculating average inventory is a useful accounting measure to track changes and activities over time. Too little inventory on hand can lead to missed sales opportunities and empty store shelves. For example, some perishable, trendy or seasonal items may not last for long. Too much inventory on hand means capital is tied up unnecessarily and may even be at risk. Inventory management is key to managing costs and maintaining customer satisfaction. East, Nordics and Other Regions (opens in new tab)
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