Fundamental Glossary / Earnings & Accounting Concepts
Inventory Valuation
The method used to assign cost to unsold stock and to the cost of goods sold.
Formula
Common methods include weighted average cost and FIFO. Ind AS does not allow LIFO. Inventory is then carried at the lower of cost and net realisable value.
What it means
The method changes both profit and the balance sheet. In rising prices, FIFO leaves cheaper older costs in the P&L and newer costs in closing stock, which lifts profit relative to a weighted-average method.
Net realisable value writes stock down when it cannot be sold above cost. That write-down hits profit and should not be reversed into a later period's sales as if it were a fresh margin.
How to read it
A change in method is an accounting event, not an operating event. The note will quantify it if it is material. Rebase your comparison.
What to watch
Obsolete stock that is still at full cost overstates inventory, current assets, and profit. Inventory days that rise while gross margin rises can be the early sign.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.