Inventory—often labelled stocks in Irish company accounts—can include raw materials, work in progress, finished goods and items held for resale. It may be essential to trading, but it also ties up cash and depends on valuation estimates. A rising stock balance can support growth or conceal slow-moving, obsolete, damaged or over-costed goods. Interpret it with sales, margins, creditors and cash flow.
Direct answer
Open the latest filed accounts, find “stocks” or “inventory” in current assets and read the accounting policy and note. Compare at least two periods, separate categories where disclosed and calculate inventory days only when cost of sales is available. Ask whether goods are owned, saleable and valued below expected net proceeds. Public accounts cannot confirm today’s quantity, condition or location.
Confirm the business and reporting date
First match the legal company and CRO number. A retailer’s brand, warehouse operator and online seller can be different entities. Then note the financial year end and whether the figures are company-only or consolidated. Seasonal businesses can deliberately choose a year end when stock is unusually low or high, so one balance-sheet date may not represent the normal position.
Use the company’s filing history to identify consecutive accounts and comparable period lengths. If the latest filing is overdue or old, the inventory figure is correspondingly weaker evidence. See how to check the latest filed accounts before calculating trends.
What may be included in inventory
| Category | Example | Key risk |
|---|---|---|
| Raw materials | Components, ingredients and production inputs | Damage, price changes, restricted use or supplier dependence |
| Work in progress | Part-completed manufacturing, construction or service projects | Cost allocation, completion risk and recoverability from customers |
| Finished goods | Manufactured products awaiting sale | Obsolescence, returns, quality issues and changing demand |
| Goods for resale | Retail or wholesale stock purchased from suppliers | Slow movement, fashion or technology change and discounting |
| Property inventory | Development land or units held for sale | Planning, completion costs, financing and selling-price assumptions |
The notes may combine categories, particularly in reduced public filings. Understand the business model before applying a generic ratio. Inventory is central to a distributor but may be immaterial for a consultancy.
How inventory is valued
Under FRS 102, inventory is generally measured at the lower of cost and estimated selling price less costs to complete and sell. Cost can include purchase costs, conversion costs and other costs incurred in bringing items to their present location and condition. Cost formulas and the treatment of overheads matter, particularly for manufacturing and work in progress.
If expected proceeds fall below cost, the company normally records a write-down. The judgement can depend on recent selling prices, ageing, completion costs, damage, product life cycles and customer demand. A later reversal may be possible when circumstances improve under the applicable framework. Read the stated policy rather than assuming every company values stock identically.
Inventory days and turnover
A common estimate is average inventory divided by cost of sales, multiplied by the days in the financial period. Average inventory is often the opening plus closing balance divided by two. This approximation becomes unreliable where trading is seasonal, acquisitions occurred, periods differ in length or cost of sales is unavailable.
- Rising days: stock may be moving more slowly, deliberately built for growth or affected by supply-chain planning.
- Falling days: efficiency may have improved, but the company may also be understocked or clearing goods at weak margins.
- Stable days with falling sales: stock may still be excessive in absolute operational terms.
- Peer comparison: useful only when product mix, seasonality and accounting policies are reasonably comparable.
Do not divide by turnover when cost of sales is available: the denominator should normally reflect the cost basis of inventory. If the public accounts omit the profit and loss account, a meaningful days calculation may be impossible.
How inventory affects cash and liquidity
Purchasing or producing stock consumes cash before a sale is collected. A company can report positive current assets while struggling to pay immediate liabilities because stock cannot be converted quickly at its carrying value. For this reason, analysts often calculate a quick ratio that excludes inventory—but that is only one conservative lens, not a universal rule.
Compare stock growth with trade creditors and borrowing. Suppliers may have financed the increase through longer payment periods, or the company may have used bank facilities. Read working capital and current ratio together with the cash flow statement to see whether inventory growth is affordable.
Ownership, retention of title and security
Possession does not always equal unencumbered ownership. Supplier contracts can contain retention-of-title clauses, goods can be held on consignment, and lenders may have security over stock or broader company assets. The balance sheet alone cannot resolve every legal ownership question.
Check registered charges, supplier terms, warehouse confirmations and insurance where stock is material. For an acquisition, consider stock-count attendance, title testing and cut-off around the completion date. Obtain legal and accounting advice for the transaction structure.
Worked interpretation example
Suppose a wholesaler’s revenue grows 8%, but inventory rises from €900,000 to €1.6 million, trade creditors rise from €500,000 to €850,000 and cash falls. Gross margin also declines. The higher stock could prepare for genuine orders or protect against supply shortages, but it could also reflect slow-moving products and discounting.
Request inventory ageing by product, post-year-end sales, gross margins, purchase commitments and the write-down calculation. Test how much cash would be recovered if older items sold at a discount. Confirm whether suppliers or lenders hold rights over the goods.
Warning signs that deserve evidence
- Inventory rises materially faster than revenue or order volume.
- The accounting policy is vague or changes without a clear explanation.
- Write-downs are small despite ageing, damage or rapid product change.
- Gross margin falls while stock and creditors increase.
- Large work-in-progress balances depend on disputed or unapproved claims.
- One site, product line or customer accounts for most recoverability.
- Stock is pledged, held by third parties or insufficiently insured.
- Post-year-end sales do not support the carrying value.
A warning sign is a question, not proof of manipulation or distress. Document the company’s explanation and corroborate it with current operational and financial records.
What to request for a material decision
- A current inventory listing by category, location and age.
- Recent stock-count instructions, results and adjustments.
- The valuation and overhead-allocation policy.
- Obsolescence provisions and post-year-end sales evidence.
- Customer orders, cancellation rights and return experience.
- Supplier retention-of-title terms and purchase commitments.
- Insurance, security and third-party warehouse confirmations.
- A cash-flow forecast showing how stock converts to collected sales.
Sources and editorial review
This guide was reviewed on 2 September 2026 using the Financial Reporting Council’s current FRS 102 materials, including Section 13 on inventories, the statutory accounting formats in Schedule 3 of the Companies Act 2014, and the CRO’s financial-statement requirements. It is general information, not accounting, valuation, legal, investment or credit advice.