Focus Management Group: August Month in Review
Each month we post an overview article that covers our recent company articles, announcements, and insights. Below is for the month of August.
How are Inventory Levels Impacting Cash Flow and Performance?
Since the Covid-19 shutdowns, discussions about supply chain and inventory levels have focused on the need to build inventories to offset supply chain risk. Companies have replaced just in time inventory approaches with higher inventory levels to offset the supply chain problems.
Consumers are responding to the increased costs of basic necessities by lowering spending in discretionary categories such as electronics, and as workers are returning to the office or returning to work, the stay at home products are losing their appeal.
This means the inventory a business has on hand may not turn over as quickly as before, or may require price reductions to sell. Consumers may also be holding back their spending levels due to fear of recession or a need to preserve cash for the upcoming winter energy use season.
Read more below...
Can Businesses Stop Worrying About Inflation Now?
This is the time to emphasize deep dive analysis to determine future performance risk.
Q2 results have been delivered to lenders and investors. This is the time to challenging management to complete a detailed analysis of income statement performance on a line by line basis. This is the tool a business needs to use to improve future financial performance and increase the likelihood of continued success.
Last week the July CPI and PPI were published and showed a decrease in the year over year inflation rate. The June CPI was 9.1% with the July CPI moving to 8.5%. The PPI was 9.8% in July after reaching 11.3% in June. However, within those numbers there are certain categories, such as energy and food, that continued to show increased inflationary results. And within an expense category there can be a wide range of cost depending on the state.
A deeper analysis into the components of the CPI and PPI, and a view by state, is necessary to better assist readers of financial statements in producing more accurate performance risk analysis for the remainder of 2022 and into 2023.
Let's take that deep dive…
How Will Inventory Management and Credit Availability Intersect?
In early July FMG discussed inventory stresses and the liquidity and working capital risks inventory stresses bring. We identified the dollar impact on liquidity and asset-based lending availability created by the transition to higher inventory levels coupled with increased unit costs, stress on appraised values, and stress on line of credit structures.
Companies have replaced just in time inventory approaches with higher inventory levels to offset the supply chain problems. In addition to building inventory quantity levels, the per unit value of the inventory has been increasing as evidenced by inflation at 40 year highs.
At the same time companies are experiencing higher levels of inventory and lessening of supply chain problems, the buying decisions of consumers are changing as inflation takes a toll and businesses return to more normal work schedules.
How will this affect inventory management and credit availability? Read more below!