Why is cycle stock important for your business?
Cycle stock is essential to growing businesses because these items are used to fulfill customer orders.
Furthermore, cycle stock directly converts into sales and generates cash flow for the business. It plays a significant part in proper accounting principles, listed in the cash flow statement as cash flow resulting from operating activities. Even when still held as inventory, cycle stock is listed in the business balance sheet.
If cycle stock runs low, whether due to sudden excess demand or a faulty forecast, a business will be forced to dip into their safety stock (more on this in the following section).
Conversely, if there is a high amount of inventory left at the end of the period, it decreases cash flow and increases carrying costs. The business may be holding cycle stock inventory than it needs and should take it as an indication to review future orders.