What are Stocks?

Stocks are often also known as inventories. They are anything which a firm has which is not currently being used for one of the firm's functions. Most departments in the company will have stocks of something. The factory may have stocks of raw materials ready to produce, the office may have stocks of stationery and the warehouse may have stocks of finished goods.

Stocks are vital to a company to help it function smoothly. If production had to be stopped every time the firm ran out of raw materials, the time wasted would cost the firm a fortune. If a shop had no stock on the shelves, customers would soon desert them. The same is true of most areas the firm operates in - I am sure you can appreciate the importance of planning ahead and having suitable levels of stocks.

Stocks are considered to be current assets because many types of stocks can be converted into cash reasonably readily - particularly stocks of finished goods. However, they are generally the least liquid of the current assets. At times of recession or similar it may be very difficult for the firm to sell stocks, and so although they may be listed as a certain value their true value may be lower. The other current assets are debtors and cash.

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