Management of inventory in a company

Abstract

Firstly, the purpose of the empirical part of the study is to analyze the inventory balances of surveyed companies and secondly, to explore the dependence between companies’ level of inventory and profitability expressed in terms of return on assets. Thirdly, the aim of the theoretical research is to explore the cost and benefits from changes in the inventory level as well as to define variables that determine net savings from changes in inventory level. An optimal inventory level should be based on consideration of incremental profitability resulting from increased merchandise with the opportunity cost of carrying higher inventory balances. The results will provide a model equation for calculating net savings from changes in inventory level as well as a new mathematical optimization model. With this model a company can consider net earnings from changes in inventory level and establish the optimal inventory level as well as improve profitability.

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