The cash you spend to purchase products is deducted from your company value. For this reason, stocking more products than necessary can negatively affect your company value.
When Should You Stock?
Stocking is not always the right strategy.
You are advised to stock in the following situations:
If you found low-priced products in the market,
If you think prices will rise in the future,
If you can source products at more favorable costs.
In such cases, stocking can help you achieve higher profits in the long run.
When Should You Not Overstock?
Buying products at normal or high prices and stocking more than needed is generally not efficient.
If there is no favorable purchasing opportunity, keeping enough products to fill your stores' shelf capacity is sufficient.
Why Is It Important?
Excess inventory not only causes your capital to sit idle in the warehouse but can also reduce your company's value. Using your capital efficiently is more advantageous for your business growth.