Inventory versus Stock

Stocks and inventory have different meanings in finance. Both have different implications in understanding and analysing the business.

In this article, we will explore:

Meaning of inventory with example

Inventory includes: 

• Raw material, products/items used in the production process.
• Work-in-progress, units that are not fully converted into a finished product.
• Finished goods, products that are ready to find their marketplace.

Inventories are found majorly in manufacturing concerns. There is usually no inventory involved in the service sector.

Let’s take the case of a Motor Company to understand the concept of inventory.

First, a motor company will purchase raw materials for manufacturing its motor vehicle. The raw material will include aluminium, iron, steel, rubber and other automotive parts.

After purchasing all its raw materials, they will enter the production process to manufacture the motor vehicle. The unfinished final product during the process is called work-in-progress.

After all the production processes are completed, the finished goods, i.e. the motor vehicle. These are ready to be sold to the customers.

Meaning of stock with example

Stock refers to the final or finished products which are ready to sell. 

For a trading company, the input and output goods are the same. The company sells the same products which it is purchasing. In other words, there will be no work-in-process involved.

For example, a book store purchases school and college textbooks from the wholesaler and sells them to the students.

Comparison between inventory and stock

(#)The raw material used is usually valued at cost. But where the finished products are sold at a loss, the raw material is valued at lower of either cost or its market value.

Concluding, stocks and inventory are both different terms and impact on businesses. For example, a high stock level states that the company is weak in selling its products. While high levels in raw material states increase production and demand for the final product. And to manage the stock & inventory one can use inventory management software to easily manage their stocks & inventory.