Stock valuation

Stock valuation is the total value of the inventory you hold on a given date, usually at cost. For most traders it is the biggest number on the balance sheet. It is needed to work out cost of goods sold, profit, and how much money is tied up in the godown.

Example

A building materials shop counts its stock at month end and values it at Rs 415,000. If it had Rs 380,000 last month, Rs 35,000 more cash is now sitting on the floor as goods, which may or may not be a good thing depending on what is selling.

Which cost to use

When the same item was bought at different prices, the business needs a method. FIFO values remaining stock at the most recent prices. Weighted average cost values it at the average of all purchases. Pick one and use it every month so figures can be compared.

Why it matters

An overstated stock value makes profit look higher than it is. An understated one hides money. Slow-moving or damaged stock should be checked and, where needed, written down, because it may never sell at cost.

How software handles it

Inventory software keeps quantity and cost for every item, so the stock value is available any day without a full count. Taajir has a stock valuation report, and on its Business plan stock is kept separately for each warehouse, so you can see what is held where.