Hello Aadi. Exactly the reason you’ve mentioned. Let me elaborate
If a co buys Raw material at some x price. Later if the raw material price falls, the end product price also falls. So, if the co is carrying Raw material inventory bought at higher prices, the gross profits would be lower.
There’s something called inventory gains. Let me explain with example of some cos.
If you know Ambika Cotton and Sportking India, they manufacture and sell cotton yarn. They generally carry some raw material (cotton) or finished good (Cotton yarn) as inventory on their balance sheet. They can sell this in market at higher prices when the price of cotton yarn cotton goes up. You can check how they made abnormally high profit in FY22 because of this reason.
Hope this answers and you don’t mind I took the liberty to answer the question directed at Pragnesh. @Pragnesh bhai, please feel free to add your points as well,
Thank you
Praveen
| Subscribe To Our Free Newsletter |
