convert it into light. Everything that has a function requires some kind of input and produces some kind of output. many cases, that output becomes some other thing's input.
The same principle can be seen at work in companies. I companies, they acquire capital, the case of manufacturing lay in stocks of materials, turn these materials into products, and then sell the products to acquire, among other things, recyclable capital.
We find a similar situation when we switch from manag money-which many regard as the ing materials to managing pivotal aspect of company management. Put vcry bricfly, the function of finance management is to procure and opcratc capital. Capital procurement is the input and capital operation is the output.
Now we are ready to ask, "What is inventory's role activity we call within the context of this money-recycling finance management?
Please look at the balance sheet shown in Figure 2.22. The right side of the balance sheet is the credit side, which lists liabilities and shareholders' equity. The left side is the assets side. Usually, the capital procurement figures are listed in the liabilities section while the operating figures are listed in the assets section.
In the balance sheet shown in the figure, the assets and liabilities are listed in ascending order of "fluidity." To make this fluidity a little easier to grasp, we added a downward arrow and the term "cash-convertible" next to the credit side. This cash-convertible arrow indicates that the lower an item is positioned on the assets list, the easier that item is to convert into cash.
As we can see in the balance sheet, inventory items such finished goods, work-in-process, and materials are positioned within the more cash-convertible category of "current assets." However, they are not as cash-convertible as other items in that category, such as cash, notes receivable, and