OPERATIONS · INVENTORY & CASH
Too much stock, too little cash: what should you reorder?
A stock report can look healthy while the bank balance tightens. Separate the inventory already owned from the next purchase decision—and protect the items the business genuinely needs.
THE SHORT ANSWER
Do not reduce every stock line by the same percentage. Reconcile usable quantities, test demand and replenishment risk, then prioritise the next cash commitment. Avoiding an unnecessary order preserves cash; it does not turn existing stock into money.
Make the stock position usable before analysing it
Start with a dated, reconciled item-level extract. Retain unit of measure, location, usable quantity, commitments, open purchase orders, recent demand and supplier lead time. Exclude damaged or quarantined goods from stock available to promise, while keeping their accounting treatment visible separately. Separate customer-owned, consignment and in-transit items rather than silently treating them as owned, saleable stock.
A total value can hide a shortage in a critical line and excess elsewhere. Check whether units changed between cartons and pieces, whether a transfer is recorded twice, and whether an old order still inflates demand. Resolve those differences with operations before building a purchase recommendation.
Choose a planning horizon that matches the buying cycle. A steady three-month average can be a poor basis for a seasonal launch, a project order or a spare part used only when equipment fails.
Use coverage as a question, not an instruction
For reasonably stable demand, a starting measure is usable, uncommitted units divided by expected units consumed in the same time interval. State whether you are using historical sales, confirmed requirements or a forecast. Inventory coverage becomes misleading when the denominator includes stock-out periods or a one-off order.
Compare that coverage with lead time, supplier reliability, minimum-order quantity and the consequence of a shortage. A slow-moving safety spare can deserve protection; an apparently fast-moving product may still be over-ordered if incoming stock is ignored. Record the exception and the person approving it.
ACCA’s working-capital guide discusses the trade-off between liquidity and operating needs. The item-level decision process here is our suggested management method, not an industry stock-days target. Check gross margin alongside delivery performance and cash commitment; none is sufficient alone.
A fictional OMR 2,500 purchasing decision
Assume three owned, usable stock lines with no reservations or incoming orders. A has 3,000 units costing OMR 2 each and expected monthly demand of 600: five months’ coverage. B has 600 units costing OMR 5 and monthly demand of 400: 1.5 months. C is a critical spare with 50 units costing OMR 20 and expected monthly use of 10: five months, but a six-month replenishment lead time.
The proposed order is 1,000 more A units for OMR 2,000 and 500 B units for OMR 2,500. Together they require OMR 4,500 against only OMR 2,500 of available purchasing cash. Assume B’s lead time and confirmed requirements support that order, while A has no seasonal demand or service constraint that justifies buying now.
Deferring A makes the proposed B order affordable on its own. B’s post-receipt coverage would be 1,100 ÷ 400 = 2.75 months. But C’s five-month coverage falls short of its six-month lead time: check the real requirement, alternative supply and funding before approving B and exhausting the budget. C’s possible replenishment commitment is not yet priced in this illustration. The OMR 2,000 deferred A purchase is avoided spending, not money released from existing inventory; no sale, collection or supplier refund has occurred.
| Position or commitment | Amount |
|---|---|
| A: existing stock value, 3,000 × 2 | 6,000 |
| B: existing stock value, 600 × 5 | 3,000 |
| C: existing stock value, 50 × 20 | 1,000 |
| Total existing stock at assumed cost | 10,000 |
| Both proposed purchases | 4,500 |
| Available purchasing cash | 2,500 |
| Gap before deferring A | 2,000 |
| Cash needed after deferring A | 2,500 |
Existing stock: 6,000 + 3,000 + 1,000 = 10,000. Purchase gap: 4,500 − 2,500 = 2,000. C’s possible replenishment gap remains unpriced and must be resolved before final approval. Hypothetical assumptions; not a client result, valuation opinion or universal reorder target.
Keep cash decisions separate from inventory valuation
The IFRS Foundation’s IAS 2 overview states that inventories are measured at the lower of cost and net realisable value. That accounting assessment is separate from whether another purchase is commercially justified. A write-down can reduce reported inventory value without producing cash.
If you plan to discount or return excess items, document the expected proceeds, selling or return costs, contractual restrictions and collection timing. A list price is not recoverable cash. Do not present an internal coverage threshold as an accounting rule, or assume that every ageing item requires the same adjustment.
Keep an accountant’s valuation assessment distinct from the buyer’s replenishment decision. Both should use the same controlled stock records, with differences explained rather than hidden in a single “stock optimisation” total.
Run a weekly purchase-and-exception review
Give each proposed order a reason, amount, expected payment date and accountable approver. Prioritise customer or operational consequences, not the loudest request. Agree a review date for deferred items so “pause” does not become a forgotten shortage.
Track service failures, excess stock, emergency freight and forecast error together. A lower stock balance with more urgent purchases can be a false economy. Test a supplier delay and a demand reduction before using the plan to commit cash.
Put dated purchase payments and realistic customer receipts into the 13-week cash planner. Use the pricing and break-even guide before assuming a discount will recover cash profitably. The worksheet below records the decision, evidence and follow-up without requiring you to upload stock records.
TAKE THE NEXT STEP
Use the worksheet.
Open the worksheet, type your notes in the fields and use your browser’s Print command to keep a PDF or paper copy. Calculations are manual. Entries stay in your browser and are not submitted to Mizwala; reload or close without saving and they may be lost.
Questions worth checking
Does a stock write-down release cash?
No. An accounting adjustment does not itself create a sale, receipt or refund. Record the actual commercial action and its cash timing separately.
Should the slowest-moving item always be removed?
No. Critical spares, seasonal demand, contracts and long replenishment times can justify stock. Record the reason and periodically test whether it remains valid.
Sources & scope
Primary references checked on 4 November 2026. The calculations, examples and workflow suggestions are Mizwala’s educational illustrations; the linked organisations do not endorse this guide.
This is general management information. Adapt it to your circumstances and obtain appropriate professional advice before relying on it for a material decision.