Article by Drew Coles a member of the chartered institute of Management Accountants
The first purchase in the working capital cycle is usually material stocks in for example manufacturing or in terms of retail stock of finished products. Material stock investments should be planned as there are several variables to consider such as bulk discounts if larger funds are freely available, the expected time which the raw material will be in stock (The longer time in stock the longer it will take to get a return), the type of inventory system implemented in the company such as Just in time. These factors should be analysed before the investment is made. For instance, it may not be possible to run a just in time operating system because regular deliveries cannot take place from suppliers or the funds may not be available to invest in sufficient stock to attract bulk discounts.