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الموضوع: strategic finance

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    strategic finance

    Q.3 With the help of models explain inventory control for working capital management.
    Ans INVENTORY MANAGEMENT
    Introduction: Inventories are stock of the product a company is manufacturing for sale and components that make up the product.


    Nature of Inventories: The various forms in which inventories exists in manufacturing company are
    • Raw Materials: are basic inputs that are converted into finished product through the manufacturing process.
    • Work-in-Progress: inventories are semi-manufactured products.
    • Finished Goods: inventories are those completely manufactured products, which are ready for sale.


    Need to hold Inventories:
    • Transactions motive: emphasizes the need to maintain inventories to facilitate smooth production & sales operation.
    • Precautionary motive: necessitates holding of inventories to guard against the risk of unpredictable changes in demand & supply forces & other factors.
    • Speculative motive; influences the decision to increase or reduce inventory levels to take advantage of price fluctuations.
    Objective of Inventory Management
    • To maintain a large size of inventory for efficient and smooth production & sales operations.
    • To maintain a minimum investment in inventories to maximise profitability.


    The firm should always avoid a situation of over investment or under investment in inventories.
    The major dangers of over investment are:
    a) Unnecessary tie up of the firm’s funds and loss of profit,
    b) Excessive carrying costs,
    c) Risk of liquidity.


    The major dangers of under investments are:
    a) Production hold-ups.
    b) Failure to meet delivery commitments.
    An effective inventory management should:
    • Ensure a continuous supply of raw materials to facilitate uninterrupted production.
    • Maintain sufficient stocks of raw materials in periods of short supply and anticipate price changes,
    • Maintain sufficient finished goods inventory for smooth sales operation, and efficient customer service,
    • Minimize the carrying cost and time, and
    • Control investment in inventories and keep it at an optimum level.


    Q.4. With the help of models explain cash control for working capital management.
    :Ans
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