Managing inventory levels is an important part of running a business efficiently. A company must have enough inventory on hand to meet customer demand, but it must not stock too much inventory that causes it to tie up money that could be used for other purposes. A company reports the amount of its inventory on its balance sheet, which represents the cost to acquire or manufacture its products for sale. You can calculate the change in a company's inventory between accounting periods to see how it is managing its inventory levels.
Find a public company's most-recent balance sheet and its balance sheet from the previous accounting period in its 10-Q quarterly reports or in its 10-K annual reports. You can get these reports from the investor relations page of its website, or from the U.S. Securities and Exchange Commission's online EDGAR database (see Resource).
Identify the amount of its inventory, listed in the "Current Assets" section of its most-recent balance sheet. For example, assume the company's most-recent balance sheet shows $90,000 in inventory.
Identify the amount of its inventory, listed on its previous period's balance sheet. In this example, assume its previous balance sheet shows $100,000 in inventory.
Subtract the previous period's inventory from the most-recent period's inventory to calculate the change in inventory. A positive number represents an increase in inventory, while a negative number represents a decrease. In this example, subtract $100,000 from $90,000 to get -$10,000. This means the company's inventory decreased by $10,000 between periods.
Divide the change in inventory by the amount of the previous period's inventory to calculate the percentage change in inventory. In this example, divide -$10,000 by $100,000 to get -0.1, or -10 percent (-0.1 x 100). This means the company's inventory decreased by 10 percent.
Monitor a company’s changes in inventory over different accounting periods. A decrease in inventory suggests a company is selling its products and generating cash from the sales. A significant increase in inventory over time suggests that customers may not be purchasing the company’s products.