Inventory generally constitutes the second largest item after fi xed asset in the fi nancial balance
sheet of a manufacturing company. From a fi nancial perspective, inventory is one of the major cur-
rent assets that can contribute to maximizing the value of the fi rm and no signifi cant disadvantages
are seen in carrying more inventory. But investments in inventory carry cost. Funds invested in
inventory cost the fi rm by way of interest on working capital borrowings from the bank at the cur-
rent interest rates. Therefore, reduction in inventory will reduce inventory handling and car
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