The risks a company will have due to holding excess inventory includes; reduced cash flow that can be used for emerging opportunities, exposure to risks associated with shifting demands (Chron, 2019) as a result of changes in tastes and fashion and inventory will demand more storage space and more labor.
The ratio that can be used to find out whether a company is holding excess inventory is inventory Turnover ratio (CFI, 2021). It is calculated as shown below;
Inventory Turnover ratio = Cost of Goods Sold / Average Inventory
A lower ratio from the above calculation will indicate an excess inventory.
The ratio that can be used to find out whether a company is holding excess inventory is inventory Turnover ratio (CFI, 2021). It is calculated as shown below;
Inventory Turnover ratio = Cost of Goods Sold / Average Inventory
A lower ratio from the above calculation will indicate an excess inventory.
