Inventory management is crucial to the financial health of an company and their liquidity. Too much inventory ties up cash. As an accountant you will be reviewing the inventory levels on balance sheet regularly. What would be one's course of action if they saw this situation in their company. Is the scrappage of inventory of this magnitude as ordinary expense or extraordinary? Who is responsible for inventory management? What metrics would warn about increasing inventory levels?
H&M, a Fashion Giant, Has a Problem: $4.3 Billion in Unsold Clothes. This was reported by the New York Times on March 27, 2018. Here is a short excerpt. I have provided the full story in a word document attached to this discussion. It is a little dated but again inventory issues continued during the pandemic. Overall, this exemplifies the challenges of maintaining correct inventory levels since there is a lot of money held in excess inventory.
“In the world of fashion retailing, where shopping is fast moving online and stores try to keep inventories closely matched to sales, even a small stack of unsold clothes can be a bad sign. What about a $4.3 billion pile of shirts, dresses and accessories? That is the problem facing H&M, the Swedish fashion retailer, which is struggling with a mounting stack of unsold inventory. Signs of its expanding unsold inventory began emerging last year, when it reported an unexpected quarterly drop in sales. The decline was the first in two decades, a period in which H&M expanded from a lone women’s wear store west of Stockholm to a gargantuan network of 4,700 stores around the world.”
Inventory management is crucial to the financial health of an company and their liquidity. Too much inventory ties up cash. As an accountant you will be reviewing the inventory levels on balance sheet regularly. What would be one's course of action if they saw this situation in their company. Is the scrappage of inventory of this magnitude as ordinary expense or extraordinary? Who is responsible for inventory management? What metrics would warn about increasing inventory levels?
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