1.1 Stock Is Cash on Shelves (Start Here)

Stock (inventory) is everything a business holds to sell, or to use in making or delivering what it sells. It is a current asset: it is meant to turn back into cash within the year.

What counts as stock

Goods for resale: bought and sold unchanged.
Raw materials: flour for a bakery, timber for a furniture maker.
Packaging and consumables: cups, labels, cleaning materials, spare parts.
Goods in transit: paid for, but still on the road or at the port.

Stock is cash on shelves

Every unit on a shelf was bought with cash, or with credit you must repay. Until it sells, that cash cannot pay staff, rent or suppliers. Stock that spoils, breaks or goes missing is worse: the cash is gone, and you must sell several times its cost to earn it back. The rule is short: sales needed to replace a loss = loss at cost ÷ margin. At a 20% margin, every dollar lost needs five dollars of new sales.

The first test is simple: how much cash sits in each item, and how many days of sales does it cover?

Worked example W1: Cash tied up in the two items

	A	B	C	D	E	F
1	Item	Units on hand	Cost per unit (USD)	Cash tied up (USD)	Units sold a day	Days of stock
2	Plain yoghurt (cup)	420	0.80	336.00	60	7
3	Olive oil (tin)	450	9.50	4,275.00	2	225
4	Olive oil if held at 60 days	120	9.50	1,140.00	2	60
5	Cash freed by holding 60 days of olive oil			3,135.00

How it is worked:

D2: =B2*C2, then copy it down to D4
F2: =B2/E2, then copy it down to F4
B4: =E3*60
D5: =D3-D4

What it shows: Tisunge’s yoghurt holds USD 336 for about a week, while the olive oil holds USD 4,275 for 225 days. Holding 60 days of oil instead would free USD 3,135 of cash for the same sales. Figures are fictional.

Try it: Copy this into Excel starting at cell A1, then type the formulas in the list. Change the units on hand in B2 and B3 to your own two items and see which one holds your cash longest.

Five myths that keep cash on the shelf

A full shop sells more. Customers want what they came for in stock, not every shelf full.
More stock is safer. More stock means more to spoil, break, date and go missing.
Profit means cash. A profitable month can still leave no cash if the profit sits on shelves.
Waste is a cost of doing business. Most waste has a cause you can find and fix.
One count a year is enough. By year end, last year’s mistakes have already cost you the cash.

The Right Stock Five

This course is built on the Right Stock Five, developed by Eunoia Consultants. Each module tests one Right.

Right	Question	Module
Right value	What is our stock worth at cost, and how long is that cash locked up?	Module 1
Right item	Which items earn their shelf space, and which only sit?	Module 2
Right quantity	When do we order, and how much?	Module 3
Right condition	Is every unit still safe and fit to sell?	Module 4
Right record	Do our records match what is really on the shelf?	Module 5

The case: Tisunge Wholesalers

Tisunge Wholesalers is a family grocery wholesaler in a regional town. It sells USD 547,500 a year at a gross margin of 20% and holds USD 72,000 of stock. It later adds a warehouse, a cold room and a second branch. Two items run through every module: plain yoghurt in 500 g cups and imported olive oil in 1 litre tins.

Name	Role	Joins in
Ireen Chiwambo	Founder and managing director	Module 1
Obed Nkhoma	Bookkeeper	Module 1
Takondwa Chiwambo	Operations and buying manager (Ireen’s daughter)	Module 2
Ndapewa Amutenya	Shop supervisor	Module 2
Efua Quansah	Cold-room and receiving supervisor	Module 4
Baraka Mwakilema	Warehouse supervisor	Module 3
Auma Wekesa	Branch manager at the second branch	Module 5

About the case business: Tisunge Wholesalers, its shop, warehouse, cold room and branch, its suppliers and customers, and every person named in this course are fictional. They were created by EunoiaData for teaching purposes only. Any resemblance to real businesses or people is coincidental. Prices, margins, shelf lives, temperatures and all other case figures are fictional and for illustration only.

This course explains stock control methods, and the principles of the international standards on inventories and food date marking, in its own words. It is not endorsed by, or affiliated with, any standard-setter, regulator, software vendor or other organisation named in it.

The Stock Health Score

Score each statement 0 (no), 1 (partly) or 2 (yes). A total of 0 to 7 is At risk, 8 to 14 Building and 15 to 20 Healthy. Tisunge scores itself now and again in lesson 5.4.

Right	Statement	Tisunge’s score
Right value	We know the cash tied up in stock, at cost, every month.	1
Right value	We know how many days of sales our stock covers and how long our cash is locked up.	0
Right item	We know which items and categories carry most of our stock value.	0
Right item	We review slow and dead stock every quarter and value it at no more than it can sell for.	0
Right quantity	Every regular item has a reorder level and a maximum based on sales and lead time.	0
Right quantity	We test every bulk buy for holding cost and risk before we commit cash.	0
Right condition	We rotate stock by date and check every delivery’s dates and temperature at the door.	1
Right condition	We have a written plan for power cuts and for stock close to its date.	1
Right record	Every receipt, sale, transfer and write-off is recorded the same day.	2
Right record	We count stock regularly, and the person who counts does not post the adjustment.	1
Total	6 of 20	At risk

You will build the answers in the Stock System Builder, a working Excel workbook you can download at the start of lesson 1.2.

Example: A fictional hardware store in Kasama lists its stock by value for the first time. Paint is its biggest line, and most of that cash sits in slow colours bought for one large order. The owner stops stocking those colours and orders them only against a deposit.

Small, growing, large

Scale	How it works here
Small shop	A monthly walk round with a notebook, pricing the slowest shelf at cost.
Growing business	A spreadsheet column that multiplies units on hand by cost to show cash tied up in each item.
Large organisation	The stock-value report by location from the stock or ERP system, reviewed each month.

Check before you act: The prices, margins and other figures in this lesson are fictional examples. Before you change stock levels, prices or stock values, check your own records, and confirm accounting and tax treatment with your accountant.

Key takeaway

Stock is cash on shelves. Know what each item holds in cash and how many days of sales it covers, and price every loss in the sales needed to replace it.

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