Inventory

Inventory ties up cash and carries the risk of obsolescence, so rising inventory days is one of the earliest signals that demand has softened before it shows in revenue. The lower-of-cost-and-net-realisable-value rule means a write-down is required when goods will not fetch their carrying value, and delaying such write-downs is a common way to defer bad news. Valuation method matters too: FIFO and weighted average produce different profits in an inflationary period. Because inventory is the least liquid current asset, the quick ratio excludes it entirely.