Final answer:
It is true that funds tied up in inventories could be better used elsewhere in a business. Money invested in inventories can limit a company's flexibility and may lead to considerations about whether maintaining operations is the best use of resources. Money as a flexible store of value allows for more profitable investment opportunities.
Step-by-step explanation:
The statement that the funds tied up in holding large inventories may have more profitable uses elsewhere in an organization is true. When businesses maintain large inventories, they are committing capital to goods that are sitting in warehouses, which could otherwise be employed in other areas of the business or invested to generate additional revenue. Reducing inventory can lead to better cash flow management and may prompt the firm to consider whether it makes sense to remain in operation or close, particularly if the cost of maintaining the operation exceeds the potential benefits.
This consideration rests on the understanding that in a productive enterprise, capital allocation should focus on maximizing value. Money, as a store of value, offers businesses the flexibility to invest in opportunities that provide the best return rather than being stuck in physical assets that may depreciate or become obsolete over time, as highlighted by the example of a shoemaker who risks her shoes going out of style while they are stored for future use.