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Management of Inventory
Investment Management
Sources of Short-Term Capital
Submitted by:
Engr.Jessie Radaza Tutor
MMME-2
Submitted to:
Mariano M. Lerin, Ph.D., CPA
Professor
Management of Inventory
The importance of the investment in inventory tends to proportional to the companys
need to protect itself against potential lost sales. For example, inventory is a significant
working component when the production or processing time is long, when raw materials
require substantial purchasing lead time and when the finished goods require sufficient
exposure to potential buyers. For the typical manufacturing firm, the concern of the
finance manager in inventory management is normally limited to controlling the total
investment in that asset and the related flow of funds.
Inventory Control
In operational terms, the overall level of investment of inventory depends on the
capability of the company to control individual items in its inventory. Such control is
inadequate if stocks-outs are experienced in some production lines while others may be
overstocked.
Two types of costs in inadequate control
1. Lost sales opportunities
2. Unnecessary carrying costs
Volume of Inventory is the total amount of whatever it is they deal in that the publishers
have in their inventory. This would be the number of whatever it is that they have on
hand.
The Economic Order Quantity (EOQ) Model
As the name suggests, Economic order quantity (EOQ) model is the method that
provides the company with an order quantity. This order quantity figure is where the
record holding costs and ordering costs are minimized. By using this model, the
companies can minimize the costs associated with the ordering and inventory holding.
In 1913, Ford W. Harris developed this formula whereas R. H. Wilson is given credit for
the application and in-depth analysis on this model.
The economic order quantity (EOQ) is a model that is used to calculate the optimal
quantity that can be purchased or produced to minimize the cost of both the carrying
inventory and the processing of purchase orders or production set-ups.
Formula
Following is the formula for the economic order quantity (EOQ) model:
Sales
Inventory
OR
Investors
An investor is a person who allocates capital with the expectation of a financial return.
The types of investments include:
equity, debt securities, real estate, currency, commodity, derivatives such as put and
call options, etc. This definition makes no distinction between those in the primary and
secondary markets. That is, someone who provides a business with capital and
someone who buys a stock are both investors. An investor who owns a stock is known
as a shareholder.
Risk in Invetsment
1.
2.
3.
4.
Market Risk
Default Risk
Inflation Risk
Mortality Risk
Insurance is the claimed to be the best option for investment. It is a form of investment
that is stable as long as the premiums are paid. In case of life insurance, for example,
your beneficiary will obtain a death benefit upon an event of your untimely demise. This
benefit is called "face value" and the premiums that need to be paid should surpass its
value. The additional funds go into an account and are invested by the insurance
corporation on your behalf, which means that if the insurance investment is profitable,
the cash account will augment over the years.
Real estate investing involves the purchase, ownership, management, rental and/or
sale of real estate for profit.
Corporate securities
are securities issued by joint stock companies act, companies and organizations of
other legal forms of ownership, as well as banks, investment companies and funds.
Corporate Security embraces five main activities
1.
2.
3.
4.
5.
Government Securities
A government security is a bond or other type of debt obligation that is issued by a
government with a promise of repayment upon the security's maturity date. Government
securities are usually considered low-risk investments because they are backed by the
taxing power of a government.
Government securities are usually issued for two different reasons. The primary reason
that most government securities are issued is to raise funds for government
expenditures. The federal government issues treasury securities to cover shortfalls
(deficits) in its annual budget. Additionally, cities will often issue bonds for construction
of schools, libraries, stadiums, and other public infrastructure programs.
Problems in Investment
determines how much it can afford to devote to its operating expenses and will often
affect its growth rate.
Internal sources( raised from within the organization)be in the form of additional
capital-perhaps used for expansion.
Trade Credit(Accounts Payable) is the credit extended by one trader to another for
the purchase of goods and services. Trade credit facilitates the purchase of supplies
without immediate payment. Trade credit is commonly used by business organisations
as a source of short-term financing. It is granted to those customers who have
reasonable amount of financial standing and goodwill.
Financing Companies are specialized financial institution that supplies credit for the
purchase of consumer goods and services. Finance companies purchase unpaid
customer accounts at a discount from merchants and collect payments due from
customers. They also grant small loans directly to consumers at a relatively high rate of
interest.
Commercial Bank is a type of bank that provides services such as accepting deposits,
making business loans, and offering basic investment products including short term
capital.
Money Market became a component of the financial markets for assets involved in
short-term borrowing, lending, buying and selling with original maturities of one year or
less. Trading in the money markets is done over the counter and is wholesale. Various
instruments
exist,
such
as treasury
bills, commercial
paper, bankers'
acceptances, deposits, certificates
of
deposit, bills
of
exchange, repurchase
agreements, federal funds, and short-lived mortgage-, and asset-backed securities.
References:
http://www.investinganswers.com/financial-dictionary/financial-statementanalysis/inventory-turnover-4803
http://forum.wordreference.com/showthread.php?t=2594968
http://fiduciarynews.com/2013/06/7-basic-investment-concepts-every-401k-participantmust-understand/
http://businesscasestudies.co.uk/syngenta/investment-appraisal-in-action/reasons-forinvestment.html#axzz39CGmou2F
www.wikipedia.com
Saldana, C., Financial Management