Optimizing Inventory and Asset Valuation for Business Profitability

Abstract

Instructor’s Name Discussion Post Valuing inventory is a crucial procedure that affects the productivity and profitability of the business. The business determines the cost of goods sold and the cost of the unsold goods at the end of a financial year. Depreciation of PPE, natural resources, and intangible assets is necessary to determine the current value of the company assets. A company must have the correct inventory and depreciation valuation to put the correct value in the financial statements. Companies should have discretion over their choice of inventory valuation and depreciation methods. It has an advantage in that it is easy to apply, there is minimal manipulation of income, the value in the balance sheet is more accurate, and the flow of costs corresponds to the normal flow of goods. It also gives the company the discretion and prestige to perform tasks independently. Companies choosing different inventory valuation methods have demerits. It permits the manipulation of income hence altering the market value on the balance sheet. It is also costly to embrace other firms in inventory valuation and depreciation since they must be paid. This step can also prompt the company assets and inventory degradation since they can be undervalued. The process also prompts inaccuracy and bias when the third part is involved. In general, companies use inventory valuation and depreciation methods that best suits the company and the current circumstances. Choosing the right step for inventory valuation and depreciation methods helps the company control and forecast its earnings.