4 Financial Reports Every Inventory Manager Should Know
Understanding your business’s financial reports isn’t just for accountants. If you manage inventory or run a small business, knowing the basics helps you make better decisions and avoid surprises.
Here are the four essential financial reports and how they connect to inventory:
1. Cash Flow Statement
What it is: A report showing how money moves in and out of your business.
Why it matters: It tells you if your business can pay its bills. Even profitable businesses can run into trouble if cash flow is tight.
Inventory impact: Buying inventory uses up cash, so large or poorly timed purchases can hurt your cash position. Watching this report helps you plan better.
2. Balance Sheet
What it is: A snapshot of what your business owns (assets) and owes (liabilities) at a given moment.
Why it matters: It shows the overall financial health of your company.
Inventory impact: Inventory is listed as an asset. Keeping too much stock ties up money that could be used elsewhere. Too little can lead to missed sales. This report helps you balance the two.
3. Profit and Loss Statement (P&L)
What it is: A summary of your income and expenses over a period of time (like a month or year).
Why it matters: It shows if you’re making money or not.
Inventory impact: Inventory purchases don’t show up directly here until they’re used or sold. If you’re only looking at your P&L, you might not notice rising inventory levels. That’s why it’s important to track inventory separately.
4. Operating Statement (or Cost Report)
What it is: A breakdown of costs by department or area, usually without showing income.
Why it matters: It helps managers see where money is being spent and control operational costs.
Inventory impact: If materials are bought for a specific job or department, they show up here. Once items are taken from the storeroom, their cost moves from the balance sheet into this report and the P&L.
Final Thoughts
You don’t need to be a finance expert, but understanding these reports gives you a clearer view of how inventory connects to your business’s overall performance. Each report serves a different purpose, and together they help you make informed decisions. Whether you’re managing stock levels, planning purchases, or analyzing costs, knowing how these financial reports work is a valuable skill for anyone involved in operations or management.