Stock valuation refers to the process of determining the financial worth of inventory held by a company at a given point in time. It involves assessing the value of all goods and materials in stock, including raw materials, work-in-progress, and finished goods.
The valuation is crucial for financial reporting, strategic decision-making, and measuring the overall health of the supply chain. Different valuation methods can be used, such as the first-in-first-out (FIFO) or last-in-first-out (LIFO) methods, which impact the calculation of cost of goods sold and the profitability of the business.
Accurate stock valuation helps companies optimize inventory levels, minimize carrying costs, and improve cash flow. It also aids in identifying slow-moving or obsolete items, facilitating effective supply chain management and inventory control.