Cash Trapped in Inventory: Turnover and Excess Stock Analysis

In growing companies, inventory can grow faster than sales. Fear of running out, bulk purchase discounts, a wider product range and optimistic sales forecasts are among the reasons. The result is a healthy-looking profit and loss account while cash sits in the warehouse. This article explains how to measure the cash tied up in inventory and how to deal with the items involved.

Key indicators

Indicator	Calculation	What it shows
Days inventory outstanding (DIO)	Average inventory ÷ Cost of sales × 365	How many days, on average, stock takes to turn into sales
Inventory turnover	Cost of sales ÷ Average inventory	How many times a year stock is replaced
Slow-moving ratio	Stock with no movement for a set period ÷ Total stock	Where cash and value-loss risk are concentrated

Hypothetical example

Hypothetical example — not based on a real company.

Suppose a company’s annual cost of sales is TRY 120 million and its average inventory TRY 30 million.

• DIO = 30 ÷ 120 × 365 ≈ 91 days; inventory turnover = 120 ÷ 30 = 4.
• If the company can bring DIO down to 60 days, the average inventory needed becomes 120 × 60 ÷ 365 ≈ TRY 19.7 million.
• The difference is about TRY 10.3 million; if cost of sales stays the same and the reduction comes from buying or producing less, this amount can turn into cash.

Item-level ageing shows where the problem lies:

Time since last movement	Inventory (TRY million)	Share
0–90 days	21.0	70%
91–180 days	4.5	15%
181–365 days	3.0	10%
Over 365 days	1.5	5%
Total	30.0	100%

30% of total stock, or TRY 9 million, has not moved for more than 90 days. These items are the first place to act.

A decision list for slow-moving stock

1. Why is it waiting? Falling demand, product change, over-purchasing, quality issues, customer-specific production.
2. Can it be sold? At what price and through which channel?
3. Can it be used in another product? For raw materials and semi-finished goods.
4. Has it lost value? If net realisable value is below cost, inventories are written down to net realisable value; seek specialist input on estimating it. Accounting follows TMS 2 for entities applying TFRS and Section 6 (Inventories) of BOBİ FRS for entities applying it.
5. The cash and tax effect of disposal should be assessed with a tax adviser.

Reducing inventory for good

• Link to the sales forecast: Purchasing and production plans should rest on the current sales forecast. See sales forecasting methods.
• Classify items: Different stock policies for fast- and slow-moving items; applying the same safety stock approach to every item wastes cash.
• Minimum order quantities: Weigh bulk purchase discounts against the cost of holding the stock.
• Product range: The real profitability of low-volume items. See product profitability.
• Ownership: Share the inventory target between purchasing, production and sales.

Common mistakes

• Looking only at total DIO: The average hides slow-moving items.
• Treating stock as a “safe asset”: Long-held stock is a risk to both cash and value.
• Treating a discounted purchase as an automatic gain: Holding time and financing cost can outweigh the discount.
• Leaving sales out of the inventory target: Campaign and order decisions directly affect stock.

What it means for management

Cash waiting in inventory can be one of the most direct internal sources of funding. Item-level ageing instead of a single total, a clear decision list for slow-moving items and purchasing tied to the sales forecast release cash for good. For inventory’s place in the cash cycle, see the cash conversion cycle.

Sources last checked: 21 October 2026