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- Title
AN INTEGRATED EVALUATION OF INVESTMENT IN INVENTORY AND CREDIT: A CASH FLOW APPROACH.
- Authors
Kim, Yong H.; Chung, Kee H.
- Abstract
This article suggests an approach to resolving the lack of well-developed integrated planning models for inventory and receivables and differences in the evaluation criteria for judging performance in those functions. Inventories of manufacturing firms can usefully be classified into three categories, raw materials, work in process and finished goods. Raw materials are materials, parts and subassemblies that are purchased from others and that become a part of the final product. Work in process includes goods in various stages of production. Finished goods are completed products awaiting sale. Each of the three types of inventory performs a different function. This paper proposes 'the modified square root formula' for the joint evaluation of inventory and accounts receivable based on the NPV maximization framework. The proposed framework is a theoretically correct and conceptually straightforward alternative to both the traditional cost minimization approach to inventory decisions and to the isolated analysis of accounts receivable policies.
- Publication
Journal of Business Finance & Accounting, 1990, Vol 17, Issue 3, p381
- ISSN
0306-686X
- Publication type
Academic Journal
- DOI
10.1111/j.1468-5957.1990.tb01192.x