Inventory
Short definition
Inventory is raw material, WIP and finished goods held for sale or production. Cash is tied here before it becomes a non-current asset; the costing method shifts period profit.
Detailed explanation
FIFO, weighted average and NRV write-downs move profit and OWC. Inflation lifts gross profit under FIFO and lifts replacement cash. Commodity prices and FX turn input stock into a financial position.
Inventory collateral is a separate pool in the bank pack; liquidation value sits below book. Dead stock inflates both average DIO and the NRV allowance.
Why it matters for the CFO
The production and buying plan is the largest internal shock in the cash budget. An inventory build can cut CFADS without touching EBITDA.
How to read it
Inventory / COGS = DIO/365. Mix (raw versus finished) carries different cash risk at the same DIO. The “right” stock depends on service level and lead time; there is no universal level.
Numerical example
Raw 25, WIP 15, finished 30 mn TL → inventory = 70 mn TL.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.