The Financial Analysis On Inventory Costs Of Company M

This thesis analyzed inventory relating costs of Company M from financial and internal controls point of view.Targeting on Inventory Turnover rise and inventory relating costs reduction, with tools of data statistics, Figure analysis and field investigation, vertical and horizontal analys is is performed over financial ratios such as Inventory Turnover, Excess& Obsolete Inventories(“E&O”) and Stock-take Gain /Loss. Three issues are identified through such analys is: the turnovers of some production lines are extremely low, E&O percentage is high which means the stock is built over requirement, and inventory shortage occurs frequently. Focusing on these issues, root causes of unusual factors are identified and analyzed, meanwhile, issues existing in inventory management process are addressed.In the end, possible solutions, control mechanism and improvement actions are proposed concerning the issues identified. The proposal includes specifically us ing ABC Method in deciding inventory purchase princ iples, review Lead-time and safety stock level in the ERP system to improve inventory turnovers, reducing safety materials preparing for sales projects over required quantity, segregating and periodically scrap ping E&O items, monthly review and alert for potential inventory building to reduce E&O level. Furthermore, cycle inventory stock-take is suggested to perform monthly based on ABC categories in addition to annual thorough stock-take, inventories are issued to production or non-production in different ways, and materials of category A are changed to store in a Closed warehouse so that inventory shortage could be eliminated.With wide implementation of aforementioned actions, inventory management is enhanced, which means the capital occupancy and total inventory relating costs are expected to decrease ultimately.