Why inventory on the balance sheet affects a company’s value

Inventory is not just a number sitting on the balance sheet.
It directly affects future cash flow.

When we analyze inventory, we look at days in inventory — because this tells us how long cash is tied up before turning into sales.

We also look back at historical inventory levels.
If some years are unusually high or low, we need to understand why.

Was there over-production?
Slower sales than expected?
Stock piling up at year-end?

Because the balance sheet is a point in time, not an average of the whole year.

That’s why, when forecasting, even if we use average inventory days, we often exclude abnormal years that don’t reflect normal business operations.

Inventory assumptions → cash flow → value.

#ORNA #DCF #BusinessValuation