Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Raw Materials

What it is:

Raw materials are commodities, parts or substances that are assembled or processed to form a final product.
 

How it works (Example):

For example, the raw materials involved in chocolate chip cookies are butter, sugar, eggs, flour, vanilla, baking powder and chocolate.

Why it Matters:

Raw materials determine the quality and cost of producing an item. Many raw materials are commodities that trade on the futures market. For many companies, acquiring raw materials at a good price makes the difference between having a profitable year and having an unprofitable year.

Raw materials may be considered unfinished goods and thus recorded as inventory on the balance sheet.