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Getting A Grip On The Inventory Management Of Venture Corporation Ltd

Venture Corporation Ltd (SGX: V03) is an electronics manufacturing services provider. It has its fingers in a range of activities, such as printing & imaging; networking & communications; retail store solutions, and more.

As a manufacturer, Venture carries a significant amount of inventory. As of 31 December 2016, Venture’s inventory value is S$623 million. It is thus important for investors to look at how well Venture is managing its inventory.

To do so, I will look at two things: (1) Changes in the value of the company’s inventory as compared to changes in revenue; and (2) the day sales of inventory, which is also known as inventory days.

Changes in inventory value

The ideal case here is to see inventory levels decline while revenue increases. If not, we’d want to see inventory levels ebb and flow along with revenue.

Here’s a chart showing Venture’s revenue and inventory from 2012 to 2016:

Valuetronics revenue and inventory chart
Source: Venture’s financial statements

For the timeframe under study, Venture saw its revenue and inventory grow by 20% and 25%, respectively. In other words, the rate of growth of the value of Venture’s inventory has been higher than its revenue.

Inventory days

Put simply, inventory days indicates the average number of days a company takes to clear its inventory. Ideally, what we want to see is a stable or declining inventory days.

The metric is calculated with the following formula:

(Closing inventory) / (Cost of sales) x (365 days)

The chart below plots Venture’s inventory days from 2012 to 2016:

Valuetronics inventory days
Source: Venture’s financial statements

As you can see, there has been a slight increase in Venture’s inventory days, from 98 in 2012 to 105 in 2016.

A Foolish conclusion

Given what we’ve observed – inventory growth that has outstripped revenue growth, and a higher inventory days – it appears that Venture’s management of its inventory has weakened slightly from 2012 to 2016.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned.