Principles of Managerial Finance, 15th Edition

15.3 Inventory Management

1. LG3

The first component of the cash conversion cycle is the average age of inventory. The objective for managing inventory, as noted earlier, is to turn over inventory as quickly as possible (or equivalently, to minimize the average age of inventory) without losing sales from stockouts. The financial manager tends to act as an advisor or “watchdog” in matters concerning inventory. He or she does not have direct control over inventory but does provide input to the inventory management process.

Differing Viewpoints about Inventory Level

Viewpoints about appropriate inventory levels commonly differ among a firm’s finance, marketing, manufacturing, and purchasing managers. Each views inventory levels in light of his ...