Average Inventory

Definition: Average Inventory is the simple arithmetic average of beginning and ending Inventory for a reporting period: (Beginning Inventory + Ending Inventor…

Average Inventory is the simple arithmetic average of beginning and ending Inventory for a reporting period: (Beginning Inventory + Ending Inventory) / 2. It is used as the denominator of the Inventory Turnover ratio (Cost of Goods Sold / Average Inventory) so that COGS — a flow measure over the period — is matched against an averaged inventory level rather than a single point-in-time balance. Companies with strong seasonality may use a 4- or 12-period rolling average instead of the two-point average.