Inventory Management Introduction - Working Capital Management

Working capital as net concept is defined as the difference between current assets and current liabilities. Current assets being those assets that are likely to be converted into liquidity within a year’s time or so and include items like inventories of raw materials, semi-manufactured articles or work-in-process and finished goods, accounts receivable or dues from customers, hunches or bills receivable, bank balance and cash balance etc. Current liabilities are in essence short-term liabilities which have to be settled in a year’s time, e.g. accounts payable or amount payable to suppliers of goods and services for goods and services delivered on credit, bills payable, bank overdraft etc. Since inventories constitute a major item of current assets, the management of inventories is crucial to successful working capital management. In this unit, we should discuss the nature and importance of inventory management as a component of working capital management, the motive of holding inventory and the economic order quantity (EOQ) model.


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Working Capital Management Topics