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Stock Valuation

Stock valuation is the process of assigning value to a company's inventory. As inventory typically represents a large portion of assets for product-based businesses, accurate valuation is crucial for financial reporting and profitability analysis.

Standard Price

Uses a fixed cost for inventory valuation regardless of purchase price fluctuations. Simplifies accounting but may not reflect actual costs.

Average Price

Calculates a moving average cost based on all purchases. Smoothes out price fluctuations for more stable valuation.

FIFO

First-In, First-Out method assumes oldest inventory is sold first. Better matches current costs with current revenues.

Stock Valuation Methods

Key Benefits of Proper Stock Valuation

  • Accurate financial reporting and balance sheet representation
  • Precise calculation of Cost of Goods Sold (COGS) and gross profit
  • Better inventory management and purchasing decisions
  • Compliance with accounting standards and tax regulations