3. Valuing Inventories for the Balance Sheet

Particularly for a business that manufactures or resells tangible goods, the size of the company’s inventory exerts a powerful influence on its profitability. The inventory of goods is often the company’s major current asset and, therefore, contributes heavily to the company’s worth. Further, the cost of goods sold (COGS) depends on the value of the stock that is marketed, so inventory also figures into the company’s gross profit and its net income.

In part because inventory is so important to a company’s ...

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