What Is Inventory?

By Jason Hall – Updated Dec 17, 2024 at 9:39 AM

Key Points

Inventory includes finished goods, raw materials, and components companies sell or use.
Understanding seasonal inventory trends helps identify investment risks and opportunities.
Effective inventory management reflects a company's potential for profit or risk.

I say "inventory," and you probably think of goods on a store shelf. That's correct, but only partly, and understanding inventory is really important to being a successful investor. A fuller definition: Inventory is the accounting of finished goods, component parts, and raw materials that a company either sells or uses in the production of products that it sells. As a result, the actual assets a company holds as inventory can be very different.

Keep reading for a better understanding of inventory that will help you find the best companies to invest in -- and identify the ones best avoided.

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A person with a clipboard doing inventory in a retail shoe store. — Image source: Getty Images.

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About the Author

Jason Hall is a contributing Motley Fool stock market analyst with more than a decade of experience writing about dividend stocks and long-term investing. He has been with the company since 2012 and previously spent over 10 years in technical sales in the printing and information services industry. Jason also founded and operated a small food manufacturing business.

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Jason Hall has positions in Trex and has the following options: short December 2024 $75 calls on Trex. The Motley Fool has positions in and recommends Target, Trex, and Walmart. The Motley Fool has a disclosure policy.