Is Inventory Really an Asset?

According to convention, accounting practice and your balance sheet, inventory is an asset.

However, at Libero we believe viewing inventory as an asset is unhelpful, outdated and can drive the wrong behaviours – instead we challenge businesses to view inventory as a liability, one that needs to be minimised and liquidated into cash. The importance of cash and cash flow is of course well known – cash is king as the saying goes – and we encourage our clients to modify their thinking and work towards converting as much inventory as possible into cash.

The more inventory a company has, the less likely they will have what they need.   (Taiichi Ohno)

During our analysis of 697 manufacturers across the North West, North Wales and Shropshire we discovered these firms are collectively holding 190% more in inventory than they are in cash, with their cash holdings of £3.47BN being dwarfed by their inventory holdings of £6.62BN.

We believe this urgently needs rebalancing!

Huge chunks of this £6.62BN inventory pile are likely to not be assets at all.

If you were to conduct an honest assessment of the true asset value of your inventory would it be as high as reported on your balance sheet?   We’re almost certain it wouldn’t be!

When it comes to cash, there is no argument – “cash is king” and its value cannot be disputed, BUT inventory hides a multitude of sins and here at Libero we are strong advocates of rebalancing from inventory towards cash.

Libero are experts in helping organisations to reduce their inventory to improve their cash position and improve their balance sheet. If you’d like to know more GET IN TOUCH with us today!