STOCK

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.

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