There are different motives of maintaining inventories , and these are more or less the same as the motives for holding cash. The motives for maintaining inventories may be enumerated as follows:

Every firm has to maintain some level of inventory to meet the day to day requirement of sales, production process etc. This motive makes the firm to keep the inventory of finished goods as well as raw materials .The inventory level will provide a smoothness to the operation of the firm.

A firm should keep the inventory for unforeseen circumstances also .There may be labor problem in the factory & the production process may halt. So the firm must have inventories of raw material as well as finished goods for meeting such emergencies.

The firm may be temped to keep some inventory in order to capitalize an opportunity to make profit e.g., sufficient level of inventory may help the firm to earn extra profit in case of expected shortage in market.

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