Ask most business owners about their top financial metrics and you’ll likely hear terms like revenue, profit margin, and cash flow. But in a year where economic pressures and supply chain volatility continue to define the Australian market, one number is quietly making a comeback: average inventory.
What Is Average Inventory—and Why Should You Care?
Average inventory measures the typical amount of stock a business holds over a given period, usually calculated as the mean of beginning and ending inventory balances. While it might sound like a simple accounting tidbit, this metric has powerful implications for your business’s financial health and operational agility.
- Cash Flow Management: Excess inventory ties up cash that could be used for growth or emergencies.
- Supply Chain Resilience: The right average inventory buffer can help weather supply disruptions—a reality many faced in 2023 and 2024, with trends continuing into 2025.
- Financing Decisions: Lenders and investors scrutinise inventory metrics to assess risk and efficiency.
For example, a Queensland retailer who slashed their average inventory by 15% in late 2024 was able to redirect $120,000 into e-commerce upgrades—just in time to ride the online shopping surge in early 2025.
How to Calculate and Use Average Inventory in 2025
The basic formula for average inventory is:
(Opening Inventory + Closing Inventory) / 2
But the real value comes from what you do with this number. With the ATO’s updated small business benchmarks released in March 2025, businesses now have clearer industry-specific data to compare their inventory levels to peers. For instance, the average inventory turnover for independent grocers rose to 7.2 times per year in 2025, up from 6.8 in 2024, as operators tightened stock management in response to rising interest rates and warehousing costs.
- Track seasonal trends to avoid costly overstocking ahead of slow periods.
- Use average inventory as a baseline for setting reorder points—essential in industries like auto parts or pharmaceuticals where shortages can mean lost sales.
- Benchmark against new industry averages to spot inefficiencies or competitive advantages.
2025 Policy Updates and Technology Shifts
Inventory management is evolving fast, thanks to both policy and technology. The Federal Budget in May 2025 extended instant asset write-offs for inventory tracking systems, making it more attractive for SMEs to adopt real-time stock monitoring tools. Meanwhile, the government’s National Supply Chain Resilience Initiative has expanded its industry grants, encouraging more businesses to invest in smart inventory analytics.
Case in point: Melbourne-based distributor GreenLeaf Foods implemented AI-driven inventory forecasting in early 2025, reducing average stock holdings by 18% and improving fill rates—without sacrificing customer satisfaction.
Key trends to watch:
- AI and Automation: More Australian SMEs are using AI-powered inventory tools to predict demand and adjust stock levels in real time.
- Supply Chain Collaboration: New government-backed platforms are enabling businesses to share inventory data securely with suppliers, smoothing out disruptions.
- Financial Reporting: Banks are increasingly factoring inventory metrics into credit decisions, especially after APRA’s updated small business lending guidelines in early 2025.
Conclusion: Make Average Inventory Work for You
In 2025, average inventory isn’t just a line on your balance sheet—it’s a strategic lever. Whether you’re a manufacturer, retailer, or distributor, keeping a close eye on this metric can unlock cash flow, reduce waste, and position your business for growth amid ongoing uncertainty. With new policy incentives and technology options on the table, now’s the time to review your average inventory strategy and ensure it’s working as hard as you are.
