The cost of purchasing and maintaining inventory are key elements of this question.
The cost to track and maintain inventory is very expensive. Therefore, capital budgeting analysis conducted by the financial manager is used to determine the most efficient system. If a company decides to increase its inventory, the financial manager must raise capital to purchase the additional inventory. Ratio analysis will determine any areas of weakness related to profitability relative to its competitors.
The three primary tasks of the financial manager regarding inventory management are capital budgeting analysis, raising capital, and ratio analysis.