How is inventory growth generally aligned with other measures in a business?

Inventory growth typically grows alongside Cost of Goods Sold (COGS) because both reflect the operational activities of a business. When a company experiences an increase in sales, it often needs to purchase more inventory to meet the rising demand. This increase in inventory is directly related to the level of goods that the company expects to sell, which is quantified by COGS. In a healthy business operation, as COGS rises due to higher sales, inventory levels also increase to support that growth in sales and to ensure that products are available for customers.

This relationship helps businesses manage their supply chain effectively, ensuring that they have sufficient stock on hand for anticipated sales while monitoring COGS to maintain profitability. Understanding this correlation allows businesses to strategize their inventory purchases in accordance with sales trends, hence optimizing their cash flow and resource allocation.