4 Surprising Truths About Inventory Valuation Every Odoo User Should Know

Business management relies on accurate figures. Yet, many managers struggle to answer a fundamental question: what is the exact value of my stock at any given moment, and what is the real margin on my sales? We often think we have the subject mastered by choosing a classic accounting method like FIFO (First-In, First-Out) or Average Cost (AVCO). These methods seem simple in theory, but their application in an integrated environment like Odoo can hold many surprises. 

 The reality is more subtle and depends on a complex interaction between your product configuration, the timing of your operations, and calculation rules that can be counter-intuitive. In this article, we will break down a simple test scenario (one purchase, a second purchase at a different price, then a sale) to reveal the 4 "secrets" of inventory valuation in Odoo 19 that can radically change your numbers and your perception of profitability..

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1. The Real Difference Between FIFO and Average Cost Only Appears at the Time of Sale

You might think that choosing between the FIFO and Average Cost (AVCO) methods has an immediate impact on your stock value. However, this is not the case. In our test scenario, after two successive purchases—4 units at €10, then 4 units at €20—we have 8 units in stock. At this stage, whether you use FIFO or Average Cost, the total value of your stock is strictly identical: €120. The average unit cost is €15 per unit.

It is only when a product is moved out, during a sale, that the choice of method reveals its critical importance. When selling 3 units, the two methods diverge significantly in calculating the value of the remaining stock:

• With Average Cost (AVCO): The value of the remaining stock is €75. The calculation is simple: 5 units are left, and the system uses the average cost of €15 (5 units x €15).
• With FIFO: The value of the remaining stock is €90. The system first moves out the earliest units that came in (those at €10). Therefore, 1 unit at €10 and the 4 units at €20 remain (1x€10 + 4x€20).

Not only does the total value differ, but the unit cost of the remaining stock also changes: it stays at €15 with AVCO (€75/5), but climbs to €18 with FIFO (€90/5). In practical terms, this means that in a context of rising prices, the FIFO method will present a balance sheet with higher assets (the stock), which can make the company look healthier on paper. It is therefore crucial to understand that your choice of method, while invisible in day-to-day operations, directly impacts your financial reports with every stock exit.​

2. "Valuation by Lot" is the Supreme Rule That Overrides Everything Else

This is arguably the most surprising discovery for many users. Odoo not only allows you to track products by lot or serial number but also to value them specifically by lot (SVBL - Stored and Valued by Lot). But Odoo has a trick up its sleeve: when a product is configured this way, a new calculation rule comes into play and supplants everything else.

The key result of our test is conclusive: if a product is "valued by lot," the FIFO and AVCO methods are simply ignored at the time of sale. The system no longer relies on an average or a theoretical arrival order, but on the actual, specific cost of the lots that are physically taken out of stock..

Assuming, for our scenario, that the sale is composed of 2 units from the first lot (purchased at €10) and 1 unit from the second lot (purchased at €20), the value of the remaining stock will be €80, regardless of whether the product category is set to FIFO or AVCO. This method offers absolute precision but requires rigorous traceability.

"...whether you're using AVCO or FIFO, in both cases, it will arrive at a stock value of €80."

3. A Late Supplier Invoice Changes Your Stock Value, but Not the Margin of a Completed Sale

What happens if the actual price differs from the forecast? Imagine that the invoice for our second purchase (planned at €20/unit) arrives after we have already sold the 3 units, and this invoice shows a final price of €30/unit. The impact is twofold and crucial to understand.

• Impact on Stock: The value of your remaining stock is immediately and automatically recalculated to reflect this new real cost. The reference unit costs are updated (going from €15-€18 to €20-€26 depending on the method), and the total inventory value increases accordingly. Odoo thus ensures that the valuation of what you have left is always accurate.
• No Impact on Margin:This is the essential point. The margin of the already completed sale remains unchanged. It was calculated and locked in at the time of the transaction, based on the cost known at that moment (from the purchase order). Odoo does not reopen past transactions to adjust them.​

"...there is no impact on the margin. The sale has already occurred, the margin calculation has already been done, and so the margin remains unchanged."

This rule has significant implications, especially for calculating sales commissions, which would then be based on the estimated margin at the time of sale, not on the final, real margin.

4. Your Valuation Method Directly Influences Your Profit Margin (and Your Taxes)

The choice of valuation method is not a mere accounting preference; it has a direct impact on the profit margin reported for each sale. Using our scenario of selling 3 units at €40, the table below clearly illustrates how the final margin depends on the method used to calculate the Cost of Goods Sold (COGS).

The analysis speaks for itself. In a context of rising purchase prices, the FIFO method moves out the cheapest items first (COGS of €30). Mechanically, by moving out the least expensive items first, the FIFO method reduces the cost of goods sold, which has the effect of inflating the reported profit margin. Conversely, the average cost method smooths this effect by calculating a higher COGS (€45).

This accounting configuration decision is therefore not neutral. It directly influences your performance indicators, your declared profits, and consequently, the amount of your taxes.

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Conclusion

Inventory valuation in an ERP like Odoo is much more than a simple application of theoretical accounting rules. It is the result of a dynamic interaction between the configuration of your items (storable, by lot, valued by lot), your chosen valuation method (FIFO, AVCO), and the timing of your operations (receiving invoices, sales). Understanding these mechanisms is essential for managing your business with figures that reflect the company's economic reality. Now that you know these subtleties, does your current valuation method truly reflect the reality of your margins and your company's performance?