In reviewing Baxter Company’s financial statements for the past two years, Stephanie Merton, a bank loan officer, noticed that the company’s inventory level had increased significantly while sales revenue had remained constant. Such a trend typically indicates increasing inventory carrying costs and slowing cash inflows. Ms. Merton concluded that the bank should deny Baxter’s credit line application.

Required
Explain how implementing an effective just-in-time inventory system would affect Baxter’s financial statements and possibly reverse Ms. Merton’s decision about its credit line application.