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Effects of Inventory Management on Cash Coversion and COG

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Please discuss the effects of inventory management on cash conversion cycle and cost of goods for the firm. What does this mean to the overall strategy of the firm both the short-term and long-term. Provide examples where possible.

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Solution Summary

The solution describes how inventory management affects the cash conversion cycle and cost of goods.

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Cash conversion cycle time is the time it takes a firm to convert its current assets into cash. A particularly useful measurement within this metric is the time it takes the firm to convert its inventory into cash.

Inventory management practices directly impact both cash conversion cycle time and cost of goods for a firm. To illustrate, consider the following example: ABC Corp. does a poor job of managing its inventory. It holds vast quantities of outdated product and slow-demand product and must constantly dispose ...

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