Financial Education

Inventory cycles tend to last two to four years. As business improves, greater confidence in future sales cause management to build inventory in anticipation of those sales. At some point, the sales fall below expectations and the inventories form a glut.

In order to clear inventories, prices are cut and fewer inventories are ordered. Eventually the inventory gets worked down. When sales do finally pick up again, this can sometimes lead to shortages.

For more information, see all articles on: Asset Allocation, Industry Analysis, Investment Returns, Portfolio Management

See also:

Industry Classification: Business Cycle Reaction

Inventory Accounting: Differences Between U.S. GAAP and International Standards

How the Inventory Accounting Method Affects the Income Statement

Global Industry Analysis

Accounting for Inventory After Purchase and Before Resale