← Business Metric: Financial (all topics)
Change in inventories to total expenses
What it is
The inventory movement line within the statement of expenses, measured against total expenditure. It shows how much reported cost has been deferred onto the balance sheet as unsold stock rather than charged against revenue
Production running ahead of sales inflates current profit
Impact on industries
- Building inventory capitalises cost into the balance sheet, so profit rises without any corresponding sale - a classic way to flatter a weak period
- The reversal is unavoidable: stock eventually sells at a discount or is written down, moving the cost back into a later period
- Read alongside volume and capacity data it distinguishes genuine restocking ahead of demand from production for its own sake
- Seasonal businesses build inventory legitimately, so the comparison must be year-on-year rather than sequential