A rapid build-up of inventories normally requires additional financing, unless the increase is matched by an equally large decrease in some other asset.

Question

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If a company experiences a rapid build-up of inventories, it typically needs additional financing to cover the extra costs of holding onto unsold goods. This is because inventory represents a significant investment for most businesses, tying up cash that could otherwise be used for other purposes. However, if the rise in inventory is offset by a corresponding decrease in another asset (such as accounts receivable or cash), the need for additional funding may be lessened or eliminated.

A Rapid Build-Up of Inventories Normally Requires Additional Financing, Unless