Inventory Levels Can Be An Early Warning Signal

The amount of stock a company holds on its balance sheet at reporting time can give investors an indication of a company’s cash flow status, as well as flag other issues on the horizon.

- Simon Brown

Management of inventories – the stock a business holds to sell in future – is a crucial art for most businesses. The exception being pure tech businesses that don’t sell hardware and financial services companies that generally have cash and use capital adequacy ratios as a sort of inventory measure.

But traditional retailers, manufacturers and miners will have inventory on hand. In these days of global supply chains and just-in-time inventory holdings, it can be a competitive edge if they manage their inventory effectively.

Tim Cook’s rise at Apple under Steve Jobs was in part due to his mastery of supply chains, producing tens of millions of iPhones in China from multiple parts suppliers scattered across Europe and Asia and then ensuring that each iPhone was at the right store when a customer walked in to buy that model.