Financial Impact — 5 calculators

Capital cost usually dominates. For most retail and wholesale businesses, the cost-of-capital bucket is 40–60% of total carrying cost. If your WACC is 8% and your inventory is $450K, capital alone is $36K/year. Reducing inventory by 20% saves you $7,200/year — for free.

Obsolescence is the most controllable. Better demand forecasting and earlier markdown decisions hit this bucket directly. See the Obsolescence Risk tool below.

The "1/3 of inventory cost" myth. The often-quoted "it costs 33% to hold inventory" includes opportunity cost. Pure out-of-pocket cost (storage + insurance + shrinkage) is usually 5–8%. Both numbers are valid, just for different conversations — use the breakdown to pick.

Limitations. We assume a single average inventory value. If your mix skews toward long-shelf-life vs fast-moving items, the real carrying cost per category differs by 2–3×. A SKUs-level carrying-cost analysis is the next iteration of this tool.

Category decay rates matter more than calendar days. A 90-day-old commodity is still sellable; a 90-day-old fashion item in season-end may be unsellable at full price. The score reflects both.

The "wait and see" trap. Most operators wait too long to mark down. By month 4 of obsolescence risk, your carrying cost (capital × months × 8%/12) has eaten the margin you could have captured with a 20% markdown. The tool flags this explicitly.

Markdown vs write-off. Below 30% of cost, consider writing off (clean inventory, salvage to broker, donate for tax receipt). Between 30–60% of cost, aggressive markdown is usually right. Above 60%, slow bleed while monitoring.

Limitations. The score is heuristic. A SKU that's "out of season" but in a stable demand pattern (e.g., certain industrial spares) deserves a slower decay curve than the seasonal default. Adjust inputs to match your reality.

Daily cash tied up = inventory / 365. Multiply by your cost of capital and that's the implicit annualised "rent" you're paying for the stock. A $300K inventory at 8% capital cost is $24K/year of opportunity cost — invisible until you compare it to the savings you'd get by reducing the stock.

10% inventory reduction frees up the cash shown. What you do with that cash (pay down a line of credit, fund a marketing campaign, return to shareholders) is a different conversation; this tool isolates the cash unlock.

The CCC question. A negative CCC (you collect from customers faster than you pay suppliers) is a sign of negotiating power or product strength. A long positive CCC means the business is funding its own growth with working capital — fine at small scale, dangerous at scale.

GMROI > 1 means you're earning more gross margin than the cost of the inventory that produced it. A specialty retailer doing 4× is earning $4 of margin for every $1 of average inventory; a B2B distributor doing 1.4× is barely clearing the cost of money.

The category-level insight. GMROI is most useful split by category, not at the company level. A specialty retailer might have 6× GMROI on shoes and 1.2× on handbags — and the buying decision should follow that ratio, not the company average.

Low GMROI ≠ bad business. Some businesses are low-GMROI by design (high volume, low margin). If you're a wholesaler doing 1.3× but your turnover is 8×, the inventory is moving fast enough to justify the ratio. Use GMROI + turnover together, not in isolation.

Limitations. GMROI ignores working-capital timing. Two businesses with identical GMROI can have very different cash positions. Pair with the Working-Capital tool for a full picture.

Shrinkage bucket weights vary by industry. Convenience stores typically lose ~30% of shrink to employee theft and ~50% to external theft. Groceries are more damage/expiry driven. Apparel sees more counting errors and fraudulent returns. The tool uses industry-typical splits as a starting point — adjust after a real audit.

If you don't know your shrink %, run a stock-take of your A-class SKUs. The gap between book and physical is your real number. Anything past 2% is significant; past 3% is a process problem you can usually fix with camera coverage, receiving audits, or stricter receiving dock controls.

Limitations. The tool assumes revenue ≈ cost-of-goods-mix for shrink estimation. For very high or low margin businesses, the actual dollar impact will differ. For a more precise figure, use COGS instead of revenue.