How does inventory affect a company's profitability?

How does inventory affect a company's profitability?

Inventory plays a crucial role in profitability. It affects cash flow, storage costs, and sales potential.

What happens if a company has too much inventory?

Excess inventory can lead to increased holding costs, potential obsolescence, and reduced cash flow.

And what about too little inventory?

Having too little inventory can result in stockouts, lost sales, and dissatisfied customers, negatively impacting profits.

How can a company optimize its inventory?

Companies can optimize inventory by using demand forecasting, just-in-time practices, and regular inventory audits.

Are there specific metrics to measure inventory efficiency?

Yes, key metrics include inventory turnover ratio, days sales of inventory (DSI), and carrying cost of inventory.