Where can the impacts of inventory be primarily assessed?

The impacts of inventory can primarily be assessed through the Cash Flow Statement and the Balance Sheet.

On the Balance Sheet, inventory is classified as a current asset, which reflects the value of goods available for sale. Changes in inventory levels directly affect the company's asset position, impacting working capital and overall financial health. An increase in inventory may suggest either potential sales growth or excess stock that may need to be discounted, while a decrease could indicate strong sales or potential stock shortages.

In the Cash Flow Statement, inventory levels significantly influence cash flow from operating activities. When inventory increases, cash is used to purchase additional stock, thus reducing cash flow. Conversely, a decrease in inventory can indicate that goods are being sold off, which generates cash inflow. Analyzing these changes provides insight into the efficiency of inventory management and its impact on liquidity.

By understanding the assessments in both statements, one can gauge how inventory affects not just the asset valuation on the Balance Sheet but also the operational liquidity reflected in the Cash Flow Statement. This dual assessment is crucial for comprehensive financial analysis.