Inventory refers to a company’s goods and products that are ready to sell, along with the raw materials that are used to produce them. Inventory can be categorized in three different ways, including raw materials, work-in-progress, and finished goods. In accounting, inventory is considered a current asset because a company typically plans to sell the finished products within a year. Methods to value the inventory include last-in, first-out (LIFO); first-in, first-out (FIFO); and the weighted average method.

Consider a fashion retailer such as Zara, which operates on a seasonal schedule.2 Because of the fast fashion nature of turnover, Zara, like other fashion retailers is under pressure to sell inventory rapidly. Zara's merchandise is an example of inventory in the finished product stage. On the other hand, the fabric and other production materials are considered a raw material form of inventory.

One way to track the performance of a business is the speed of its inventory turnover. When a business sells inventory at a faster rate than its competitors, it incurs lower holding costs and decreased opportunity costs. As a result, they often outperform, since this helps with the efficiency of their sale of goods.