What Is the Inventory Value in a Net Worth Report?
- A net worth report is a document that presents the exact worth of a company at any given time. The net worth is calculated by adding up all of the company's existing assets and repeating the procedure with the company's liabilities. Because the assets are those owned by the company and the liabilities are those owed, the owed amount must be subtracted from the amount the company owns. If the result is positive, the company has a positive net worth. If it is negative, the company owes money and has a negative net worth, which is less appealing to investors and shareholders.
- A company's inventory is considered an asset, as the items within the inventory have set values. The items have monetary values if they are products ready for customer sales or if they are raw materials and supplies used in the production of goods for end-sale. A negative inventory exists if all the items within are damaged or broken to the point of no repair. The negative amount comes from the company's investment into the products and the lack of income from utilizing them to balance out the value.
- When a net worth report is written, the inventory value must be added to the company's assets or liabilities list. The value added must be accurate at the given time. This is done by performing a manual count and carefully examining the products in the inventory to get an accurate idea of its total value. The manual count results are compared to the inventory maintenance reports that have tracked the incoming and outgoing traffic of the inventory.
- Throughout a fiscal year, a company must use inventory control methods to protect the value of the given inventory at any given time. The control methods also are used to minimize waste, so the inventory remains an asset at all times. While some companies use a scanning system to track all incoming and outgoing traffic, others use products in the chronological order they enter the inventory, also called the first-in, first-out control method. Another control method is the perpetual method, which is an ongoing daily record of the inventory traffic.