Inventory level formula?

Generally, what you want to do is create a financial forecast that predicts an item called free cash flow. Free cash flow is the amount of cash that is available after all other obligations have been paid and working capital financed. Free cash flow is the only thing that really matters in a business after all is said and done. If you create a level of inventory that uses up cash instead of creates it, then you or your lenders will have to continue to invest money in the company in order to finance its growth. The amount of inventory that a business can afford is based on many factors - two if the most important being:

If you have a high gross profit margin and many inventory turns per year, then you will be producing lots of cash to finance your inventory with

If you have a low gross profit margin and low inventory turns, then you will have a hard time producing a profit and not much money to finance your invenstory with.

thanks Cliff will study this and get back to you John