How does Inventory contribute to company Profit?

Inventory is a balance sheet item. Costs added to inventory stay in inventory until the items are sold. There are many different ways to allocate these costs, at the discretion of the company. When items are sold, an allocation representing these items is moved from inventory to cost of sales (a.k.a. costs of goods sold) which becomes a cost for the period, match against an allocation of revenues for the period, which gives a figure for gross profit. Watch for trends in inventory from period to period, allowing for seasonality, and the gross margin (gross profit as a percent of revenues). The biggest thing to watch for is an unwarranted increase in inventory, which could indicate obsolescence, poor planning, or high returns. If inventories are too high, they are likely eventually to be written off.