In managing this, the firm’s objective should be in consonance with the wealth maximization principle. To achieve this, the firm should determine the optimum level of store. Efficiently controlled store make the firm flexible. Inefficient store control results in unbalanced store and inflexibility, the firm may be some times out of stock and some times may pile of unnecessary stocks. This increases the level of investment and makes the firm unprofitable. Our custom term paper would be tailored to ones needs.
To mange stock efficiently answers should be sought to the following two questions:
a) How much should be ordered?
b) When should it be ordered?
The first question, how much to order, relates to the problem of determining the economic order quantity (EOQ) and is answered with an analysis of costs of maintaining certain level of stocks. The second question when to order arises because of uncertainty and is a problem of determining the re order point.
One of the major inventory management problems to be resolved is how much stock should be added when stock is replenished. If the firm is buying raw materials, it has to decide lots in which it has to be purchased on each replenishment. If the firm is planning a production run, the issue is how much production to schedule. These problems are called order quantity problems, and the task of the firms is to determine the optimum or economic order quantity or economic lot size. Determining an optimum stock level involves two types of costs: a) ordering costs b) carrying costs. The economic order quantity is that stock level which minimizes the total of ordering costs and the carrying costs.
It is a major responsibility for the financial manager to over see the management of store since it represents investment of the firm’s large funds in practice. A decision to determine or change the level of it is an investment decision. The analysis should therefore involve an evaluation of the profitability of investment in stock. The goal of this policy should be the maximization of the firm’s value. The policy will maximize the firm’s value at a point at which the marginal return from the investment in stock equals the marginal cost of funds used to finance the investment in stock. Finance topics are provided along with writing the term paper for this subject.
Like the investments in receivables, this investment also should be analyzed involving the four following steps:
a) estimation of operating profit
b) estimation of investment in stock
c) estimation of the rate of return on investment in stock
d) Comparison of the rate of return on investment with the cost of funds.
The incremental analysis should be used to compute the values of operating profit, investment in stock, rate of returns and cost of funds. A change in the inventory policy is desirable if the incremental rate of return exceeds the required rate of return. Management term paper is a part of this subject and involves all this ideas.
Inventory analysis term paper and many in depth analysis techniques related to this issue you can consult with us. The custom term paper would take into account all the specifications given by the customer.