STOCK ~ Finance Update

Purpose of stock control

Ensures that enough stock is on hand to satisfy demand.
Protects and monitors theft.
Safeguards against having to stockpile.
Allows for control over selling and cost price.

Stockpiling
This refers to the purchase of stock at the right time, at the right price and in the right quantities.
There are several advantages to the stockpiling, the following are some of the examples:

Losses due to price fluctuations and stock loss kept to a minimum
Ensures that goods reach customers timeously; better service
Saves space and storage cost
Investment of working capital kept to minimum
No loss in production due to delays

There are several disadvantages to the stockpiling, the following are some of the examples:

Obsolescence
Danger of fire and theft
Initial working capital investment is very large
Losses due to price fluctuation

Rate of stock turnover
This refers to the number of times per year that the average level of stock is sold. It may be worked out by dividing the cost price of goods sold by the cost price of the average stock level.

Determining optimum stock levels

Maximum stock level refers to the maximum stock level that may be maintained to ensure cost effectiveness.
Minimum stock level refers to the point below which the stock level may not go.
Standard order refers to the amount of stock generally ordered.
Order level refers to the stock level which calls for an order to be made.

Cash
Reasons for keeping cash

Cash is usually referred to as the "king" in finance, as it is the most liquid asset.
The transaction motive refers to the money kept available to pay expenses.
The precautionary motive refers to the money kept aside for unforeseen expenses.
The speculative motive refers to the money kept aside to take advantage of suddenly arising opportunities.

Advantages of sufficient cash

Current liabilities may be catered for meeting the current obligations of the company
Cash discounts are given for cash payments.
Production is kept moving
Surplus cash may be invested on a short-term basis.
The business is able to pay its accounts in a timely manner, allowing for easily obtained credit.
Liquidity
Quick upfront pay.