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Inventory is the collection of items, component parts, and raw materials that a company either uses in production or sells to customers.

What is inventory?

Inventory is a collection of all the items, goods, merchandise, and materials held by a company or business for selling in the market to earn a profit. Inventory is not used the produce things or promote a brand or business.

Its sole purpose is to sell to the customer and earn profit but only for this, it is not called Inventory. Inventory must be part of the business or company. For eg, a t-shirt shop’s delivery truck is not considered inventory because it is not directly or part of a product but in the vehicle business the delivery truck is a part be considered inventory because they are in the business of selling vehicles.

Inventory is a major asset on the balance sheet for almost every company and its depending on what goods or services your business provides.

What are the types of inventory?

There are many different type of inventory but the major type are most follows are:

Raw Materials: Materials that are needed to turn your product into a finished product are raw materials inventory. The raw material is pieces of component parts (eg, batteries, boxes, etc.) that are currently not ready or in progress.

Work in progress: Materials that are direct or indirect (eg, phone cover, circuit, etc.)use to create products are work in progress(WIP) Inventory.

Finished goods: This is a finished ready-to-sell product (eg, Mobile phone, Perfume bottle, etc.) that can be sold to wholesalers, retailers, or even the end users also.

MRO inventory: It is inventory that is required to assemble, maintain, repair, and operating supplies (eg, folders, printer toner, gloves, etc.) and sell the finished product but is not built into the product itself.

Inventory Turnover Formula

This the formula to calculate turnover of the number of times a company sells (inventory).

Average inventory = Beginning Inventory + Ending Inventory / 2

Inventory turnover = Sales + Average Inventory

Benefits of Inventory Analysis

  • Identify and reorder items you sell
  • Prevent Dead Stock
  • Improve Pricing
  • Reduce out of stocks


Q. Is inventory an asset?

Ans. Yes, Inventory is an asset because a business invests money in that, and then its converts into revenue when it sells the stock.

Q. How to track product inventory in Shopify?

Ans. If you want to track product inventory in shopify then read the complete guide here.

Q. What is the purpose of an inventory?

Ans. Consumers buying online expect cheap prices and fast shipping. The objective of holding just the right quantity of inventory is to make sure that customer expectations are met.

Q. How to manage your inventory in Shopify?

Ans. If you want to learn how to manage your inventory, determine your product costs and send purchase orders to your suppliers using konigle then read here.