Definition: Inventory is any item of property held in stock by a firm, including finished goods ready for sale, goods in the process of production, raw materials, and goods that will be consumed in the process of producing goods to be sold. Inventories appear on a company’s balance sheet as an asset. Inventory turnover, which indicates the rate at which goods are converted into cash, is a key factor in appraising a firm’s financial condition.

In Plain English: Inventory refers to items stored by a business including a good that will be sold and the items needed to make that good.

Example: Your shoe company’s inventory includes the completed shoes that haven’t been sold, as well as the laces, leather, soles, and any other raw materials used to make shoes.

Controlling and understanding inventory is vital to running any company that sells a good. If you don’t have enough inventory to match the demand of your customers, you will not be able to generate all possible revenue for your company.