Forty-Five Percent of the Inventory. Thirteen Percent of the Sales.

Inventory is managed as a total and financed as a total. It does not behave like one, and the average hides the half that is not coming back this year.

An industrial parts distributor runs $38 million of revenue and carries $6.0 million of inventory across about eleven thousand items. Inventory turns are 4.8 times a year, which is respectable for the sector, and the number on the dashboard has been stable for three years.

Split the same $6.0 million by how fast each item actually moves and the picture changes completely.

Four bands, one balance sheet line

Fast movers, eight turns or more. $1.5 million at cost, 25 percent of inventory, producing 52 percent of cost of goods sold. This stock largely pays for itself: it converts before most supplier invoices are due.

Steady movers, four to eight turns. $1.8 million, 30 percent of inventory, producing 34 percent of cost of goods sold. Ordinary working capital, financed in the ordinary way.

Slow movers, one to four turns. $1.8 million, another 30 percent of inventory, producing 13 percent of cost of goods sold. Cash that comes back, slowly, long after it was spent.

Dead stock, under one turn. $900,000, 15 percent of inventory, producing under 1 percent of cost of goods sold. Items that have not sold in a year and will not sell next year either.

So 45 percent of the inventory dollars generate 13 percent of the sales, and the bottom band is 15 percent of the money for less than a percent of the volume.

What it costs to hold

Carrying inventory costs more than the financing on it. Financing at an illustrative 9 percent, plus warehouse space, handling, insurance, shrinkage and obsolescence, puts the all-in carrying cost around 20 percent a year for a distributor.

On $6.0 million that is $1.2 million a year, which is real money against the gross margin the business earns.

The slow and dead bands account for $540,000 of that annually. The business is paying $540,000 a year to hold stock that produces 13 percent of its sales.

Why it accumulates in a well-run company

Nobody buys dead stock on purpose. It arrives through decisions that were each defensible.

A customer asked for an item once, so it was stocked. A supplier offered a better price at a higher quantity, and the buy was made on unit economics rather than on turns. A product line was superseded, and the remaining units sat because writing them off required admitting the original decision. A big order was lost after the inventory was committed.

The common thread is that every one of those decisions was made by someone measured on availability or on purchase price, and nobody is measured on cash tied up per dollar of sales.

What clearing it actually produces

Clear the dead band at 60 percent of cost. That releases $540,000 of cash now and saves $180,000 a year of carrying cost. It also puts a $360,000 write-down through the income statement, which is the honest part of this and the reason it usually does not happen. The loss was incurred when the stock stopped selling. The write-down only records it.

Halve the slow band through markdowns and supplier returns. At 80 percent of cost that releases $720,000 and saves another $180,000 a year.

Together that is $1.26 million of cash out of the same business, without a single new customer or a dollar of new borrowing, and a permanent reduction of $360,000 a year in carrying cost.

A facility can fund inventory, and often should. But borrowing to hold stock that is not turning means paying interest to delay a loss that has already happened.

The measure that prevents the next cycle

One number, reported monthly by band rather than in total: cash tied up per dollar of cost of goods sold.

Fast movers in this business sit at about 10 cents. Dead stock sits at $3.33. The average, 21 cents, tells nobody anything useful, and it is the only version most companies look at.

Then set purchasing authority against it. A buyer who can commit $200,000 to a quantity discount should see what that does to the turn band it lands in, before the purchase order rather than at the next physical count.

How Thalos Capital Approaches This

Thalos Capital works borrower-side on working capital from $50 thousand to $100 million and above, across the United States. The starting point is the cash cycle rather than a facility size: where cash sits, how long it stays there, and which of it is genuinely going to come back this year.

For an inventory-heavy business that usually produces two outputs. Cash the company can release itself, which costs nothing to arrange, and a facility sized against the inventory that genuinely turns, rather than against a total that includes stock nobody expects to sell.

The distributor in the example had been financing $2.7 million of slow and dead inventory for years at a cost of $540,000 annually. The balance sheet called all of it a current asset.

Most financing situations have more options than the borrower initially sees. A conversation is enough to map them. Submit your financing request at https://thaloscapital.com/contact.