How Can Over Investment in Inventory Impact Financial Performance?
The financial repercussions of over investment in inventory can be significant:
Reduced Liquidity: Tied-up capital in inventory can limit a company's liquidity and ability to respond to opportunities. Lower Return on Assets (ROA): Excess inventory can lower the efficiency of asset utilization, impacting ROA. Increased Debt: Companies may need to take on debt to finance excess inventory, increasing financial risk.