Finweek English Edition - - BUSINESS -

The eff icient man­age­ment of i nven­tor y (a l s o k nown as “stock”) lev­els can free up work­ing cap­i­tal and is an im­por­tant area where a man­u­fac­tur­ing or trad­ing busi­ness can raise cap­i­tal from it­self by be­ing more oper­a­tionally ef­fi­cient. Note that whereas all busi­nesses have debtors and cred­i­tors, most but not all busi­nesses carry in­ven­tory.

To help un­der­stand the de­tail of in­ven­tory, it’s worth re­vis­it­ing the cash con­ver- sion cy­cle: a man­u­fac­tur­ing busi­ness buys raw ma­te­ri­als which it then im­proves us­ing the pro­duc­tion process un­til they are ready for sale. Dur­ing this time the in­ven­tory (if cor­rectly recorded) would move through the cat­e­gories of “raw ma­te­ri­als”, to “work in progress” and fi­nally “fin­ished goods”. A trad­ing busi­ness typ­i­cally buys fin­ished goods from some­one else, holds th­ese prod­ucts as stock and tries to sell them as quickly as pos­si­ble. Ei­ther way, the core point is that as long as the firm has items

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