1. The product inventory settings can be added in two ways,
   1.1) system settings for all the products
   1.2) and individually, i.e. you can edit the settings for each product.

2. To access and configure system settings, log into the admin panel, navigate go to System > Configuration and click on Inventory button in the Catalog section on the left.

The Stock Options panel contains the following settings:

Set Items Status to be In Stock When Order is Cancelled: This mean that when you cancel the order , items in the order return back to stock.

Decrease Stock When Order is Placed : This means that when order is placed the stock of the product included in order become reduced.

Display Out of Stock Products: It controls display of out of stock product in product listing page.

Only X left Threshold: when you set this number , when the products stocks drops to this number the text Only X left Threshold will appear. If set to 0 this text is disabled on frontend.

Display products availability in stock in the frontend: If this option value is set to yes, then if the product number is enough, then "available in stock" will be displayed in frontend.

Product Stock Options contain the following settings:

Manage Stock: If this option value set to yes, then it decreases the product amount after purchase.

Backorders: This means product cannot be ordered when its inventory reaches 0.

Maximum Qty Allowed in Shopping Cart: This will set the maximum number of products customer will add in shopping cart.

Qty for Items Status to Become Out of Stock: when the quantity of a product becomes zero, its stock availability automatically changes to Out of Stock.

Minimum Qty Allowed in Shopping Cart: It will set the minimum quantity of the product customer has to add to the shopping cart while order. Admin can set the minimum quantity for each type of users.

Notify for Quantity Below: when the stock of product will reach 1 it will inform you.

Enable Qty Increments: By enabling this setting customers will be able to add to the cart a product only if its quantity is set to a number that matches the increments.

Automatically Return Credit Memo Item to Stock: By default, it is set to No.

Individual Product Inventory Settings

1. To do this, in the admin panel go to Catalog > Manage Products and select any product:
   

2. click on inventory tab on left and uncheck the use config settings if you want to edit the setting or left it checked then it will take the configuration setting.
   2.1) Qty: Specifies the quantity, or how many units you currently possess in your inventory.
   2.2) Qty for Items Status to Become Out of Stock: Here you can set the quantity of products to be considered as out of stock.
   2.3) Minimum Qty Allowed in Shopping Cart: This option enables you to limit the availability of a product for the purchase.
   2.4) Maximum Qty Allowed in Shopping Cart: Here you can set the maximum quantity allowed in shopping cart.
   2.5) Qty Uses Decimals: This field is used for products sold in units of length, weight, or some other measures. If you want to use decimal qty select yes.
   2.6) Backorders: This means product cannot be ordered when its inventory reaches 0.
   2.7) Notify for Quantity Below: when the stock of product will reach 1 it will inform you.
   2.8) Stock Availability: This will set whether an item is In Stock or Out of Stock.

4) Click Save or Save and Continue Edit when the necessary Inventory settings are applied and you need to clear the cache to see the changes.