Asses the advantages and disadvantages to small to medium firms of holding a large amount of stock

One advantage of a small to medium firm of holding a large amount of stock is it allows the firm to rapidly respond to changes in consumer demand. This allows firms to maximise sales by satisfying a rise in demand and therefore results in profit maximisation. This is a particularly advantage for small to medium firms as it will increase their profits which can be reinvested into the business in order to fund further growth. One disadvantage of holding large amounts of stock for small to medium enterprises is it reduced the liquidity of the firm. This is because cash becomes tied up in stock within the firm and is therefore a drain on cash resources. This is a particularly disadvantage for these firms as small to medium firms often have limited finances and may become unable to operate due to poor cash flow. In conclusion there are greater disadvantages to a small to medium sized firm to holding large amounts of stock, potentially resulting in an inability to grow. A just in time approach to stock management may be more appropriate for this type of firm in order to avoid financial strains.