Negative Changes in Inventories in Finished Goods | The Investment Quadrant by The Fifth Person

Questions › Category: Financials Quadrant › Negative Changes in Inventories in Finished Goods

Shu Fang asked 3 years ago

Hi,
Was analyzing Cortina Holdings Ltd however I saw a negative “Changes in Inventories in Finished Goods” under its income statement. Understand that this is an extraordinary item, however, I’m not sure why is it considered an extraordinary item. Does this not happen often? Secondly, I know if there are decreases in extraordinary items, you should add it back in. However, I’m not too sure if I should & why I should this time round.

1 Answers

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Victor Chng answered 3 years ago

Hi Shu Fang,

You are right that that is an extraordinary item. This is a common practice in the watch company. For instance, if the company beginning year inventory is $1 million and the ending year inventory is $2 then the company will record a positive $1 for their changes in inventories in finished goods. Seeing a negative figures means that the ending year inventory is less than the beginning year. Therefore you should add back the figure.

Shu Fang replied 3 years ago

I thought the “Changes in inventories in finished goods” refers to the costs of manufacturing incurred by the company in the past, but the goods manufactured in the past were sold in the present/current financial year? Not sure how this definition fits into your explanation…

Victor Chng replied 3 years ago

From what i understand it measure the movement of the inventory.