ESTIMATING THE COST OF CAPITAL TIED UP IN EXCESS INVENTORIES: A MONETARY ASSESSMENT OF THE INVENTORY GAP AT AN INDUSTRIAL ENTERPRISE

Abstract

This study estimates the opportunity cost of capital tied up in excess inventories at an assembly-type machinery manufacturer. The inventory gap (Gap) is defined as the difference between actual average inventories and a target level estimated using the historical inventory-to-cost-of-goods-sold ratio for 2021–2024 (k = 0.331410). The year-end base (policy) rate of the National Bank of Kazakhstan serves as a publicly available benchmark for the cost of money; the enterprise’s actual financing costs are not observed. Changes in the estimated cost are decomposed into an inventory-gap component and an interest-rate component, and scenarios of inventory-gap reduction are evaluated. The annual estimate increased from KZT 47.6 million in 2023 to KZT 1,054.5 million in 2025. Of the increase between 2024 and 2025, 81.0% is attributable to the inventory-gap component and 19.0% to the interest-rate component under the adopted decomposition. The paper proposes a phased approach to reducing excess inventories and incorporating this indicator into management reporting