154491231-MBA-Project

8/12/2019 154491231-MBA-Project

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8/12/2019 154491231-MBA-Project


DECLARATION

I hereby declare that this Project Report titled “A Study on INVENTORY MANAEMENT

O! "O#I$ $T%& ' sub(itted by (e is a bona )ide *or+ underta+en by (e and it is not

sub(itted to any other Institution or uni,ersity )or the a*ard o) any de-ree.diplo(a

certi)icate or published any ti(e be)ore&

P/$IVART0I AN/S0A

Na(e o) the Student Si-nature o) the Student

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AC7NO8LEDGEMENT

I ta+e this opportunity to e2press (y pro)ound -ratitude and deep re-ards to (y -uide

#0&"YOT0I Mada( )or her e2e(plary -uidance3 (onitorin- and constant encoura-e(ent

throu-hout the course o) this internship& The blessin-3 help and -uidance -i,en by her ti(e to

ti(e shall carry (e a lon- *ay in the journey o) li)e on *hich I a( about to e(bar+&

I also ta+e this opportunity to e2press a deep sense o) -ratitude to Mr& SES0A IRI RAO3

%eputy !inance Mana-er3 "O#I$ $td3 )or his cordial support3 ,aluable in)or(ation and

-uidance3 *hich helped (e in co(pletin- this tas+ throu-h ,arious sta-es&

I a( obli-ed to sta)) (e(bers o) "O#I$ $td3 )or the ,aluable in)or(ation pro,ided by the(

in their respecti,e )ields& I a( -rate)ul )or their cooperation durin- the period o) (y

internship&

$astly3 I than+ al(i-hty3 (y parents3 brother and )riends )or their constant encoura-e(ent

*ithout *hich this internship *ould not be possible&

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CONTENTS

S.NO TOPIC NAME PAGE NO.

TITLE PAGE

AC7NO8LEDGEMENT

DECLARATION

EECUTIVE SUMMARY

1. INTRODUCTION TO FINANCIAL MANAGEMENT 15

A& Objecti,es O) !inancial Mana-e(ent 156& Meanin- and nature o) in,entory 11

#& Need o) the study 14%& Methodolo-y o) study 14E& $i(itations o) the study 14!& Objecti,es o) the study 17

2. INDUSTRY : COMPANY PROFILE 18A& Industry pro)ile 196& #o(pany pro)ile 1:#& 0istory o) co(pany 1:E& !inancial per)or(ance 1;

;. THEORETICAL FRAME 8OR7 1A& Meanin- and nature o) in,entory 16& 6ene)its o) holdin- in,entory #& Objecti,es o) in,entory (ana-e(ent 7%& In,entory ,aluation and cash )lo*s 8

4. TO STUDY ON INVENTORY MANAGEMENT

AT JOCIL41

A& In,entory ratios 46& In,entory turno,er ratio 4#& In,entory to current assets ratio 47%& #urrent ratio 48E& <uic+ ratio 4=!& Asset turno,er ratio 4:& In,entory to *or+in- capital ratio 4;

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< IMPACT ON OTHER PROFITA!ILITY RATIOS 7

0& Pro)itability ratios 74I& Net pro)it ratio 74"& ross pro)it ratio 78

>& Return on in,est(ent 79$ &Return on e?uity 7=M& I(pact on other pro)itability ratios 7;

= CASH CONVERSION CYCLE SND ITS IMPACT

ON PROFITA!ILITY OF COMPANY81

> TOOLS AND TECHNI?UES OF INVENTORY

MANAGEMENT88

$& A6# Analysis 95@ FINDINGS:SUGGESTIONS =1

9 CONCLUSION =410 !I!ILOGRAPHY =7

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LIST OF TA!LES

S.NO NAME OF THE TA!LES PAGE NO.

1 T-"1 ;2

2 T-"2 ;4

; T-"; ;<4 T-"4 ;>

< T-"< ;@

= T-"= 40

> T-"> 4;

@ T-"@ 4<

9 T-"9 4=

10 T-"10 4>

11 T-"11 <2

12 T-"12 <21; T-"1; <;

14 T-"14 <;

1< T-"1< =0

1= T-"1= =2

1> T-"1> ==

1@ T-"1@ =@

LIST OF DIAGRAMS

S.NO NAME OF THE DIAGRAM PAGE NO.

1 G%-#1 ;;

2 G%-#2 ;4

; G%-#; ;=

4 G%-#4 ;>

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< G%-#< ;9

= G%-#= 41

> G%-#> 44

@ G%-#@ 4<

9 G%-#9 4>

10 G%-#10 4@11 G%-#11 <;

12 G%-#12 =1

1; G%-#1; =;

14 G%-#14 =;

1< G%-#1< ==

1= G%-#1= =>

1> G%-#1> =9

1@ G%-#1@ =9

EECUTIVE SUMMARY

E,ery or-ani@ation needs in,entory )or s(ooth runnin- o) its acti,ities& It ser,es as a

lin+ bet*een production and distribution processes& The in,est(ent in in,entories constitutes

the (ost si-ni)icant part o) current assets.*or+in- capital in (ost o) the underta+in-s& Thus3

it is ,ery essential to ha,e proper control and (ana-e(ent o) in,entories&

The purpose o) in,entory (ana-e(ent is to ensure a,ailability o) (aterials in

su))icient ?uantity as and *hen re?uired and also to (ini(i@e in,est(ent in in,entories&

Ra* (aterials3 -oods in process and )inished -oods all represent ,arious )or(s

o) in,entory& Each type represents (oney tied up until the in,entory lea,es the

=

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co(pany as purchased products& 6ecause o) the lar-e si@e o) the in,entories

(aintained by )ir(s3 a considerable a(ount o) )unds is re?uired to be

co((itted to the(& It is there)ore absolutely i(perati,e to (ana-e in,entories

e))iciently and e))ecti,ely in order to a,oid unnecessary in,est(ents& A )ir(ne-lectin- the (ana-e(ent o) in,entories *ill be jeopardi@in- its lon- run

pro)itability and (ay )ail ulti(ately& The reduction in e2cessi,e in,entories

carries a )a,orable i(pact on the co(panys pro)itability&

The study starts *ith an introduction to in,entory (ana-e(ent3

#o(panys pro)ile3 its Vision B Mission3 Achie,e(ents and also the need )or

study3 and objecti,es are set out )or the study& Research (ethodolo-y3 %ata

analysis B Interpretation3 !indin-s and Su--estions o) the study )ollo*&One o)

the (ain areas o) the project is the analysis part3 *here the data are analy@ed B

interpreted3 to )ind out ho* the in,entories *ere (ana-ed&

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CHAPTER1

INTRODUCTION

INTRODUCTION

INTRODUCTION TO FINANCE

In our present day econo(y3 )inance de)ined as the pro,ision o) (oney at the ti(e *hen it isre?uired& E,ery enterprise3 *hether bi-3 (ediu( o) s(all needs )inance to carry on its

operations and to achie,e its tar-et& In )act )inance is so indispensable today that is

ri-htly )inance3 no enterprise can possibly acco(plish3 its objecti,e&

Money (a+es (any thin-s& It is the -ood old pro,ed *hich e2plains the

i(portance o) (oney on the li+e on not only hu(an bein-s but also

or-ani@ation resources in the or-ani@ation3

Money is necessary to ac?uire and utili@e the resources in the or-ani@ation3 both

hu(an and (aterial resources& A business enterprise that is not ha,in- proper

)inancial plannin- and control losses its&resources and conse?uently o) its

e2istence& It is the CMaster +eyC& Dhich pro,ider access to all the sources used in

(anu)acturin- transactions&

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OB"&*" $/ /*,-,*- -,-3"",&

1& Pro)it (a2i(i@ation

& Dealth (a2i(i@ation

P%$/*& -**-&*$,

It is stated in ter(s3 o) return on in,est(ent or pro)it to sales ratio& Ace& To this

objecti,e3 all actions li+e increase in inco(e and cut do*n in cost& This helps in pro)itable

utili@ation o) societys econo(ic resources&

8"-& -**-&*$,

Dealth (a2i(i@ations is a *idely reco-ni@ed criteria *ith the per)or(ance o)

business enterprise is e,aluated& The *ord *ealth (eans the (et present *orth o) the )ir(& There )ore3 it is

stated that the net present *orth is di))erence bet*een -ross present *orth and the a(ount o) capital

in,est(ent re?uired to achie,e the bene)its& ross present *orth represents the present

,alue o) e2pected cash in)lo*s discounted at a rate&

E,ery enterprise needs in,entory o) s(ooth runnin- o) its acti,ities3 it a Ser,ice as

lin+ bet*een production and distribution process& There is -enerally3 a ti(e la- bet*een the

reco-nition o) a need and its )ul)ill(ent3 the -reater the ti(e la-3 the hi-her the

re?uire(ent )or in,entory it also pro,ides a cushion )or )uture price )luctuations&

The in,est(ent in in,entories constitutes the (ost si-ni)icant part o) current

assets.*or+in- capital in (ost i) the under ta+in-& Thus3 it is ,ery essential to ha,e propercontrol and (ana-e(ent o) in,entories&

The purpose o) in,entory (ana-e(ent is to ensure a,ailability o) (aterials in

su))icient ?uantity as and *hen re?uired and also to (ini(i@e in,est(ent in in,entories&

M"-,*,3 -,+ N-&'%" $/ I,",&$%5

In accountin- lan-ua-e3 in,entory (ay (ean the stoc+ o) )inished -oods only&

In a (anu)acturin- concern3 it (ay include ra* (aterials3 *or+FinF pro-ress and

stores etc&

I,",&$%5 I,'+" T" F$$*,3 T*,3

A) R- M-&"%*- Ra* Material )or( a (ajor input into the or-ani@ation& They are

re?uired to carry out production acti,ities uninterruptedly the ?uant ity o)

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ra* (aterials re?uired *ill be deter(ined by the rate o) consu(ption and

the ti(e re?uired )or replenishin- the supplies3 the )actors li+e the a,ailability o) ra*

(aterials and -o,ern(ent3 re-ulations etc3 too a))ect the stoc+ o) ra* (aterials&

!) 8$% *, P%$3%"G The *or+ in pro-ress is that sta-e o) stoc+s3 *hich

are in bet*een ra* (aterials and )inished -oods& The ?uantu( o) *or+ in

pro-ress depends upon the ti(e ta+en in the (anu)acturin- process&

The -reater the ti(e ta+en in (anu)acturin- the (ore *ill be the

a(ount o) *or+ in pro-ress&

C) C$,'-" These are the (aterials3 *hich & are needed to s(oother the

process o) production& These (aterials do not directly enter production

but they act as catalysts& #onsu(ables (ay be classi)ied accordin- totheir consu(ption and criticality& enerally consu(able stores do not

create any supply proble( and the )ir( a s(all part o) production cost&

There can be instances *here these (aterials (ay account )or (uch

,alue then the ra* (aterials& The )uel oil (ay )or( a substantial part o)

cost&

D) F*,*"+ 3$$+ These are the -oods3 *hich are ready )or theconsu(ers the s toc+ o) ) in ished -oods pro,ides a bu) )er

bet*een production and (ar+et&

The purpose o) (aintainin- in,entory is to ensure proper supply o)

-oods to custo(ers&

E) S#-%" The stoc+in- policies o) spares di))er )ro( industry to industry

so(e industries li+e transport *ill re?uire (ore spares then the

other concerns& The costly spare parts li+e en-ine3 (aintenance spares

etc are not discarded a)ter use3 rather they +ept in ready position )or

)urther use&

Al l dec i s ions about spares a re based on the ) inanc ia l cos t o )

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in,entory on such spares and the costs (at arise due to their

nonF a,ailability&

!","/*& $/ H$+*,3 I,",&$%*"

Althou-h holdin- in,entories in,ol,es bloc+in- o) a )ir(s )unds and the cost o)

stora-e and handlin-3 e,ery business enterprise has to be (aintain

certain le,el o) in,entories o) )acilitate unFinterrupted production and s(ooth

runnin- o) business&

In the absence o) in,entories a )ir( *ill ha,e to (a+e purchases as soon as it

recei,es orders3 it *ill (ean loss o) ti(e and delays in e2ecution o) orders *hich

so(eti(es (ay causes loss o) custo(ers and business&

A )ir( also needs to (aintain in,entories to reduce orderin- cost and a,ail

?uantity discounts etc&3

T"%" -%" &"*% -*, #'%#$" $/ $+*,3 *,",&$%*"

*) T" T%-,-&*$, M$&*" Dhich necessitates the holdin- o) in,entories )or

the unpredictable chan-es in de(and and supplies o) (aterials&

**) T" P%"-'&*$,-%5 M$&*" Dhich necessitates the holdin- o) in,entories )or

(eetin- the unpredictable chan-es in de(and and supplies o) (aterials&

***) T" S#"'-&*" M$&*"G Dhich includes +eepin- in,entories )or ta+in-

ad,anta-e o) price )luctuations3 sa,inin reForderin- costs and ?uantity discounts&

NEED OF THE STUDY

E,ery industry on a,era-e spends =5H on ra* (aterials in,entoryJ& There)ore there

is a need to +no* the ra* (aterial cost and also there is a -reat i(portance to understand the

in,entory (ana-e(ent syste( o) this industry&

The study helps a lo- to ,arious depart(ents to ta+e steps to control the in,entory

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process & The o,era ll in,entory (ana-e(ent includes desi-n and in,entory control

or-ani@ation *ith proper accountability establishin- procedure )or in,entory handlin-

disposal o) scrap si(pli)ication3 standardi@ation and codi)ication o) in,entories3

deter(inin- the si@e o) in,entory&

METHODOLOGY OF THE STUDY

The study is based on both pri(ary and secondary data&

P%*-%5 +-&- Any in)or(ation *hich is collected a)resh and )or the )irst ti(e is

called pri(ary data& The pri(ary data happen to be ori-inal in character& The in)or(ation is

-athered )ro( concerned e(ployees& The e(ployees and (ana-er o) the )inancial

depart(ent ha,e pro,ided the in)or(ation needed )or the study&

S"$,+-%5 +-&- The collected data is tabulated and suitable interpretation had

been (ade by cons ider in- the da ta co llectin- throu-h secondary data li+e annual

reports purchase re-isters3 stora-e records o) the or-ani@ation&

LIMITATIONS OF THE STUDY

T" &'+5 - &" /$$*,3 **&-&*$,

• The study is li(ited only )or a period 8 years i&e&3 )ro( 55=F5: to 511F1

• The li(itations o) ratio analysis can be applicable o) the study&

• There (ay be appro2i(ation in calculatin- ratios and ta+in- the )i-ure )ro( the

annual reports&

O!JECTIVE OF THE STUDY

T" -*, $B"&*" $/ &" &'+5 -%"

1& To present the conceptual and theoretical )ra(e*or+ relatin- to in,entory(ana-e(ent&

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& To study on the in,entory (ana-e(ent at "O#I$ li(ited (ana-e(ent&

4& To study the in,entory le,els )or last )i,e years and its i(pact on other pro)itabilityratios&

7& To understand the ,arious techni?ues o) in,entory (ana-e(ent and in,entory control(echanis( at "ocil&

8& To present the obser,ations and su--estions )or opti(u( in,entory le,els thus pro)itability&

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CHAPTER 2

INDUSTRY PROFILE

:

COMPANY PROFILE

IN D U S T R Y P R O F I L E

Personal *ash (ar+et in India is ,ery hi-h& E,eryone is usin- toilet Soaps& It is one

o) the )ast (o,in- consu(er products in personal care se-(ent&

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The consu(ption percenta-e o) toilet soaps *as increased year by year& The

total consu(ption o) toilet soaps in India is 8&4 la+h tones per year& The -ro*th rate

is F4 percent per annu(& 6ut the consu(ption rate o) soap used per an Indian is lo*3

*hen *e co(pare *ith Thailand3 Italy and 6ra@il people& Their consu(ption rate is 7:5

(s3 =55 -(s and 195 -(s per head in a (onth&

There are a nu(ber o) reputed co(panies in the toiIet soap (ar+et& %ue to

increased co(peti tion 3 a lon- *ith those co(panies se,eral s(al l scale

(anu)acturers are also entered in to the (ar+et& The cro*ded (ar+et place has also

brou-ht to the consu(er as (ar+eters o) soap ha,e tried to *oo consu(ers throu-h

up-raded o))erin-s and better ?uality soaps& The (ar+eters o) toilets soaps ha,e

increased the T!M Total !atty MatterJ content in their brands3 to o))er better ?uality

soaps at a lo*erF price& Industry *atchers &say that the 1!M content on so(e brands has(o,ed up )ro( the8F5F95& per cent earlier to o,er =5 per cent o) late&

F-&&5 A*+ I,+'&%5

These are co(pounds o) carbon3 o2y-en and 0ydro-en& In the )atty acid

Molecule the carbon ato(s are lin+ed to-ether in the )or( o) a lon- chain co((only re)erred

to as a hydrocarbon chain& Accordin- to scienti)ic data and no(enclature3 lon- strai-ht chain

or-anic acids *ith carbon ato(s o) (ore than 7 are called )atty acids3 because they are

obtained )ro( natural ,e-etable.ani(al oils.)ats& 0o*e,er (ost o) the co((only used

)atty acids are *ith carbon chain 97& These )atty acids are (ainly -rouped into t*o

cate-ories ,i@&3 saturated and unsaturated )atty acids&

!atty Acids are ha,in- di,ersi)ied application in ,arious )ields o) industries li+e

rubber (anu)acturin- industries3 Tyres3 Plastic3 #os(etics3 !oods and Phar(aceuticals&

P%"",& S&-&' $/ I,+'&%5

Present (anu)acture o) !atty Acids is dispersed all o,er the country *ith units in ,arious

states& Production o) )atty acid in India *as insi-ni)icant3 prior to the period o) second *orld

*ar& Production on a s(all scale *as initially started in the (id )orties that too *ith obsolete

e?uip(ent& The ?ualities o) )atty acid co(in- &out )ro( these units are )ar )ro( desirable and

reco,ery o) -lycerin *as ine))icient&

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It is in 1;843 the )irst hi-h pressure !at Splittin- Plant in our country *ent into strea(

in 6o(bay& It started production as a batchF operatin- unit3 *hich *as soon con,erted to a

se(iFcontinuous one& The industry *hich started ta+in- shape in the early )i)ties *as

established on a )ir( )ootin- *ithin a decade3 ac?uirin- considerable +no*Fho* in process

technolo-y&

In the year 1;873 the installed capacity o) !atty Acid Plants *as belo* 7855

tonnes per annu(& The annual production )ro( the )our operatin- units at that ti(e

*as belo* 1555 tonnes per annu(& Since then the !atty Acid industry in India has (ade raid

pro-ress durin- the ne2t t*o decades&

SOAP INDUSTRY

HISTORY

Traditionally3 soap has been (anu)actured )ro( al+ali lyeJ and ani(al )ats tallo*J3

althou-h ,e-etable products such as pal( oil and coconut oil can be substituted )or tallo*&

The (ajor uses )or soap *ere in the household3 )or *ashin- clothes and )or toilet soap3 and in

te2tile (anu)acturin-3 particularly )or )illin-3 cleansin- and scourin- *oolen stu))s&

In 1;5s three )ir(s had co(e to do(inate the industryG 1J #ol-ate Pal(oli,eFPeet3

J $e,er 6rothers3 an En-lish co(pany that de,eloped a )ull line o) hea,ily ad,ertised soaps

in the nineteenth century and in 1:;= and 1:;; purchased )actories in 6oston and

PhiladelphiaK &and 4J In 1;44 Procter and a(ble introduced a pioneer deter-ent3 %ri)t3*hich tar-eted the dish*ashin- (ar+et because it *as too li-ht )or launderin- clothes&

In urban sales o) pre(iu( toilet soaps in 1;:73 the $iril brand (anu)actured by

0industan le,er had sales o) 4855 MT3 representin- 7&7H o) the (ar+et share3 Mysore

sandal (ade by >arnata+a soaps sold 18:: MT or 11H o) the (ar+et share3 and shi+a+i

(anu)actured by s*asti+a sold 1855MT representin- 15&9H o) the (ar+et share )or the sa(e

year 0industan le,er produced the three top brands o) popular Toilet soapsF$i)e boy *ith

sales o) 49555MT and 4:&8 (ar+et share& $u2 *ith sales 1=955 MT )or 1:&9H (ar+et shareG

and Re2ona3 11455MT )or an 11&;H (ar+et share&

COMPANY PROFILE

H*&$%5 $/ J$* L**&"+

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"ocil li(ited *as incorporated on 5 th !ebruary3 1;=: as per the #erti)icate

o) incorporation No&95 -ranted by the Re-ister o) co(panies A&P& 0yderabad /nder the

na(e and style o) LAN%0RA PRA%ES0 OI$ AN% #0EMI#A$ IN%/STRIES

$IMITE%' APO#I$J&

P%$$&"% $/ &" $#-,5

The unit *as pro(oted as public $i(ited #o(pany in joint ,enture by the Andhra

Pradesh Industrial %e,elop(ent #orporation $i(ited3 0yderabad API%#J and

"ayala+sh(i #otton and Oil Products Pri,ate $irnited3 "#OPJ3 Perecherla3 untur %ist

&#o(pany belon-s to "ayala+sh(i roup&

O%3-,*-&*$,- S&%'&'%" O,"%*# -,+ M-,-3"",& !$-%+ $/ D*%"&$%

P&Narendranadh cho*dary #hair(an

"& Murali Mohan Mana-in- %irector P& Narendranath #ho*dary %irector

Mullapudi Thi((araja %irector

Y& Narayanarao #ho*dary %irector

V&S& Raju %irector

>& Srini,asa Rao %irector

M& opala+rishna %irector

Subbarao V& Tipirneni %irector

SENIOR EECUTIVES

P& >esa,ulu Reddy PresidentB Secretary

!AN7ERS

Andhra ban+ untur

State 6an+ o) India untur

AUDITORS

6rah(ayya B #o&3 untur

FINANCIAL PERFORMANCE

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F*,-,*-

"ocil li(ited uses both its o*n #apital and debt to per)or( its acti,ities& The

co(pany ai(s at *ealth (a2i(i@ation3 rather earnin- (ore pro)its& The co(pany

declares di,idend to its shareholders out o) its pro)its and trans)ers the rest to -eneral

reser,e& Retained earnin-s are used )or ReFin,est(ent such as purchase o) )i2ed assets3

in,est(ents in )i2ed deposits and repay(ent o) loans&

J$* L**&"+ A$',&*,3 P$**"G

1& G","%-

The Accounts are prepared on historical cost con,ention and in accordance *ith nor(ally

accepted Accountin- Standards&

& F*"+ A"&!i2ed Assets are stated at historical cost less accu(ulated depreciation&

4& D"#%"*-&*$,

%epreciation is pro,ided on the *ritten do*n ,alue (ethod at the rates and in the (anner

speci)ied in Schedule IV o) the #o(panies Act3 1;89&

I,"&",&

$on- ter( in,est(ents are stated at cost and inco(e thereon are accounted )or on

accrual& Pro,ision to*ards decline in the ,alue o) lon- ter( in,est(ents in (ade only *hen

such decline is other than te(porary

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CHAPTER;

THEORETICAL FRAME 8OR7

THEORETICAL FRAME 8OR7

M"-,*,3 A,+ N-&'%" O/ I,",&$%5

The in,entories constitute the (ost si-ni)icant part o) current assets.*or+in- capital

in (ost o) the underta+in-& Thus3 it is ,ery essential to ha,e proper control and (ana-e(ent

o) in,entories&

The purpose in,entory (onu(ent is to ensure a,ailability is to ensure a,ailability o)

(aterial in su))icient ?uantity as and *hen re?uired and also to (ini(i@e in,est(ent

in,entories3 in accountin- lan-ua-e3 in,entory (ay be the stoc+ o) insured -oods only3 in a

(anu)acturin- co(pany concern it (ay include ra*F(aterials3 *or+FinFprocess and stores

etc&

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In,entory includes the )ollo*in- thin-s&

RA8 MATERIAL

Ra* (aterial is a (ajor input into the or-ani@ation& They are re?uired to carry out

production acti,ities uninterruptedly3 the ?uantity o) ra* (aterials re?uired *ill be

deter(ined by the rate o) consu(ption and the ti(e re?uired )or replenishin- the supplies3

the stoc+s li+e the a,ailability o) ra* (aterial and o,ern(ent re-ulations etc&3 too a))ect the

stoc+ o) ra* (aterials&

8OR7 IN PROGRESS

The *or+ in pro-ress is that sta-e o) stoc+s *hich are in bet*een ra* (aterial and

)inished -oods3 the ?uantu( o) *or+ in pro-ress depends upon the ta+en in the

(anu)acturin- process3 the ?uantu( o) *or+ in pro-ress depends upon the ti(e

ta+en in the (anu)acturin- process3 the -reater the ti(e ta+en in (anu)acturin-3

the (ore *ill be the a(ount o) *or+ in pro-ress&

CONSUMA!LES

These are the (aterials *hich are needed to s(oother the process o)

production but they act as catalysts& #onsu(ables (ay be classi)ied

accordin- to their consu(ption add critically& enerally3 #onsu(able stores

dose not supply proble( and )un a s(all part o) production cost& There can be instances *here these (aterials (ay account )or (uch ,alue than the ra*

(aterial& The )uel oil is a substantial part o) cost&

FINISHED GOODS

These are the -oods3 *hich are ready )or the consu(ers& The stoc+ o) )inished

-oods pro,ides a bu))er bet*een production and (ar+et3 the purpose o) (ar ina tin-

in,entory is to ensure proper supply o) -oods to custo(ers&

SPARES

The stoc+ policies o) spares )i)er )ro( the industry to industry& So(e

industries li+e transport *ill re?uire (ore spares than the other concerns& The costly

spares parts li+e en-ines3 (aintenance spares etc&3 are not discarded a)ter use3 rather they

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are +ept in ready position )or )ather use& All decisions about spares are based on the

)inancial cost o) in,entory on such spares and the cots that (ay arise due to their nonF

a,ailability&

!ENEFITS OF HOLDING INVENTORIES

All thou-h holdin- in,entories in,ol,es bloc+in- o) a )ir(s and the costs o)

stora-e and handlin-3 e,ery business enterprise has to be (aintainin- certain

le,el o) in,entories o) )acilities unFinterrupted production and s(ooth

runnin- o) business&

In hi( absence o) in,entories a )ir( *ill ha,e to (a+e purchase as soon as it

recei,es orders& It *ill (ean loss o) ti(e and delays in e2ecution o) orders *hichso(eti(es (ay cause loss o) custo(ers and business&

A )ir( also needs to (aintain in,entories to reduce orderin- cost and a,ail ?uantity

discounts etc&

There are three (ain purpose o) holdin- in,entories&

T" &%-,-&*$, $&*"

Dhich )acilities continuous production and ti(ely e2ecution o) sales order

T" #%"-'&*$,-%5 $&*"

Dhich necessitates the holdin- o) in,entories )or (eetin- the unpredictable chan-es

in de(and and supplies o) (aterials&

T" #"'-&*" $&*"

Dhich induces to +eep in,entories )or ta+in- ad,anta-e o) price )luctuations sa,inin

reForderin- costs and ?uantity discounts&

RIS7 AND COSTS OF HOLDING INVENTORIES

The holdin- o) in,entories bloc+in- o) a )ir(s )unds and incurrence o) capital

and other costs&

The ,arious costs and ris+s in,ol,ed in holdin- in,entories areG

C-#*&- $&

Maintainin- o) in,entories results in bloc+in- o) the )ir(s )inancial resources& The

)ir( has there)ore to arran-e )or additional )unds to (eet the cost o) in,entories&

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The )unds (ay be arran-ed )ro( o*n resources or )ro( outsiders& 6ut in both the

cased3 the )ir( incurs a cost& In the )o*ler case3 there is an opportunity cost o) in,est(ent

*hile in the later caseK the )ir( has to pay interest to the outsiders&

S&$%-3" -,+ -,+*,3 $&

0oldin- o) in,entories also in,ol,es costs on stora-e as *ell as handlin- o) (aterials&

The stora-e o) costs includes the rental o) the -o do*n3 insurance char-es etc&

• Ris+ o) price declineG there is al*ays a ris+ o) reduction in the prices o) in,entories

by the supplies 3 co(petit ion or -enera l depression in the (ar+et&

• Ris+ o) obsolescenceG the in,entories (ay beco(e absolute due to

i(pro,ed technolo-y3 chan-es in re?uire(ents3 chan-e in custo(er tastes etc&

• Ris+ deter(ination in ?ualityG the ?uality o) (aterials (ay also deteriorate *hile the

in,entories are +ept&

O!JECTIVES OF INVENTORY MANAGEMENT

D"/*,*&*$, $/ *,",&$%5 -,-3"",&

In,entory (ana-e(ent is concerned *ith the deter(ination o) opti(u( le,el o)

in,est(ent )or each co(ponents o) in,entory and the operation o) an e))ecti,e control

and re,ie* o) (echanis(& The (ain objecti,es o) in,entory (ana-e(ent are operational and

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)inancial&

The operational objecti,e (ean that the (aterials and spares should be a,ailable in

su))icient ?uantity so that *or+ is not disrupted )or *ant o) in,entory& The )inancial objecti,e

(eans that in,entory should not re(ain idle and (ini(u( *or+in- capital should be loc+ed

in it&

T" /$$*,3 -%" &" $B"&*" $/ *,",&$%5 -,-3"",&

• To ensure continuous supply o) (aterials3 spares and )inished -oods so that

production should not su))er at any ti(e and the custo(ers de(and should also be

(et&

• To a,oid both o,erFstoc+in- and underFstoc+in- o) in,entory&

• To (aintain in,est(ent in in,entories at the opti(u( le,el as re?uired by the

operational and sales acti,ities&

• To +eep (aterial cost under control so that they contribute in reducin- the cost o)

production and o,erall costs&

• To eli(inate duplication in orderin- or replenishin- stoc+s& This is possible *ith the

help o) centrali@in- purchases&

• To (ini(i@e loses throu-h &deterioration3 pil)era-es *asta-es and

da(a-es&• To ensure perpetual in,entory control so that (aterials sho*n in stoc+ led-ers

should be actually lyin- in the stores&

• To ensure r i-ht ?uality -oods at reasonable prices& Suitable ?uality

standards *ill ensure proper ?uality o) stoc+s& The priceFanalysis3 the cost analysis

and ,alueFanalysis *ill ensure pay(ent o) proper prices&

• To )acilitate )urnishin- o) data )or shortFter( and lon- ter( plannin- and control o)

in,entory&

V-'-&*$, O/ I,",&$%*" M"&$+ O/ V-'-&*$,

• !I!O (ethod

• $I!O (ethod

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• 6ase stoc+ (ethod

• Dei-hted a,era-e price (ethod

I,",&$%5 V-'-&*$, A,+ C$& F$

8-& * &" $& $/ *,",&$%5

One can readily ,isuali@e the deter(ination o) in,entory ?uantities by

physical count or by use o) perpetual in,entory records& Dhen this ?uantity is

deter(ined3 it (ust be (ultiplied by a unity cost in order to deter(ine

the in,entory ,alue that is used on )inancial state(ent&

Trade and ?uantity discount are to be e2clude )ro( unit cost since these discount

e2ist )or the purpose o) de)inin- the true in,oice cost o) (erchandise& #ash

discounts3 on the other hand3 ha,e been considered as a re*ard )or early

pay(ent and as a penal ty )or late pay(ent& The Cre*ardC has o) ten

been interpreted as a loss rather than as a part o) unit cost& Thus in

*ould not be di))icult to )ind di))erence o) opinion as to *hether in,oice

cost includes or e2cludes cash discount&

Dhen the Lcurrent replay che(ical costC o) (aterial on hand at the close o) a yearis less than the actual cost3 the in,entory ,alue is reduced to replay che(ical cost current

(ar+et priceJ& Thus the acceptable basis in,entory ,aluation is he Clo*er o) cost or

(ar+er or (ore properly the Clo*er o) actual cost or replay che(ical costC&

The deter(ination o) in,entory ,alues is ,ery i(portant )ro( the point o)

,ie* o) the balance sheet and the inco(e state(ent &since costs not included in

the in,entory the balance sheetJ are considered to be e2pensi,e and are thus

included in the inco(e state(ent&

V-'-&*$, $/ *,",&$%*" "&$+ $/ +"&"%*,-&*$,

Althou-h the pri(e consideration in the ,aluation o) in,entories is cost3 there are a

nu(ber o) -enerally accepted (ethods o) deter(inin- the cost o) in,entories at the

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close o) an accountin- period& The (ost co((only used (ethods are )irst in )irst

out !I!OJ a,era-e3 and last in )irst out $I!OJ& The selection o) the (ethod )or

deter(inin- cost )or in,entories ,aluation is i(portant )or its has a direct bearin- on the cost

o) -oods sold and conse?uently on pro)it& Dhen a (ethod is selected3 it (ust be used

conse?uently and cannot be chan-e )ro( year to year in order to secure the (ost )a,orable

pro)it )or each year&

THE FIFO METHOD (/*%& *, /*%& $'& "&$+)

/nder this (ethod it is assu(ed that the (aterials or -oods )irst recei,ed are the

)irst to be issued or sold& Thus3 accordin- to this (ethod3 the in,entory on a particular date

is presu(ed to be co(posed o) the ite(s *hich *ere ac?uired (ost recently&

The ,alue in,entory *ould re(ain the sa(e e,en i ) the Lperpetual

in,entory syste(' is )ollo*ed&

A+-,&-3"

T" FIFO "&$+ - &" /$$*,3 -+-,&-3".

It ,alues stoc+ nearer to current (ar+et prices since stoc+ is presu(ed to be

consistin- o) the (ost recent purchases&

It is based on cost and3 there)ore3 no unreali@ed pro)it enters *, the )inancial accounts

o) the co(pany&

The (ethod is realistic since it ta+es into account the nor(al procedure o) utili@in-

or sellin- those (aterials or -oods *hich ha,e been lon-er in stoc+&

D*-+-,&-3"

T" "&$+ '//"% /%$ &" /$$*,3 +*-+-,&-3".

• It in,ol,es co(plicated calculations and hence increases the possibility o) clerical

errors&

• #o(parison bet*een di))erent jobs3 usin- the sa(e type o) (aterial beco(es so(et i(es di ))i cu lt & A job co((enced a )e* (inutes a) te r another

job (ay&

• 0a,e to bear an entirely di))erent chan-e )or (aterials because the )irst jobs

co(pletely e2hausted the supply o) (aterials o) the particular lot&

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• The !I!O (ethod o) ,aluation o) in,entories is particularly suitable in the

)ollo*in- circu(stance&

• The (aterials o) -oods are o) a perishable nature&

• The )re?uency o) purchase is not lar-e&

• There are only (oderate )luctuations in the prices o) (aterials or -oods purchased3

• Materials are easily identi)iable as belon-in- to a particular purchase lot&

THE LIFO METHOD (-& *, /*%& $'& "&$+)

This (ethod is based on the assu(ption that last ite( o) (aterial or -oods purchased

are the )irst to be issued or sold& Thus3 accordin- to this (ethod3 in,entory consists o)

ite(s purchased at the earliest cost&

A+-,&-3"

This (ethod has the )ollo*in- ad,anta-es&

• It ta+es not account the current (ar+et conditions *hile ,aluin- (aterials issued to

di))erent jobs or calculatin- the cost o) -oods sold&

• The (ethod is based on cost and3 there)ore3 no unreali@ed pro)it or loss is (ade on

account o) use o) this (ethod&

• The (ethod is (ost suitable )or (aterials *hich are o) bul+y and nonperishable type&

!ASE STOC7 METHOD

This (ethod is based on the contention that each enterprise (aintains at all ti(es a

(ini(u( ?uantity o) (aterials or )inished -oods in its stoc+& This ?uantity is

ter(ed as base stoc+& The base stoc+ is al*ays ,alued at this price and is carried )or*ard as

a )i2ed asset& Any ?uantity o,er and abo,e the base stoc+ is ,alued in accordance *ith any

other appropriate (ethod& As this (ethod ai(s at (atchin- current costs to current sales3 the$I!O (ethod *ill be (ost suitable )or ,aluin- stoc+ o) (aterial o) )inished -oods other

than the base stoc+& The base stoc+ (ethod has ad,anta-e o) char-in- out (aterial .

-oods at actual cost& Its other (erits or de(erits *ill depend on the (ethod *hich is used

)or ,aluin- (aterials other than the base stoc+&

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8EIGHTED AVERAGE PRICE METHOD

This (ethod is based on the press presu(ption that once the (aterials are put into a

co((on bin3 they lose their identity& 0ence3 the in,entory consists o) no speci)ic batch o)

-oods& The in,entory is thus priced on the basis o) a,era-e priced on the ?uantity

purchased at each price&

Dei-hted a,era-e & price (ethod is ,ery popular on account o) its bein- based

on the total ?uantity and ,alue o) (aterials purchased besides reducin- nu(ber o)

calculations& As a (atter o) )act the ne* a,era-e price is to be calculated only

*hen a )resh purchase o) (aterials is (ade in place o) calculatin- it e,ery no* then as is

the case *ith !I!O3 $I!O (ethod& 0o*e,er3 in case o) this (ethod di))erent prices o)

(aterials are char-ed )ro( production particularly *hen the )re?uency o) purchase and

issues.sales is ?uite lar-e and the concern is )ollo*in- perpetual in,entory syste(&

V-'-&*$, $/ I,",&$%*" I#-& $, &" F$ $/ C$&

As should be ?uite e,ident3 the di))erent (ethods o) calculatin- in,entory ,alues *ill

all ha,e their i(pact on the )lo* o) costs throu-h the balance sheet into the inco(e

state(ent& The dollars that are paid to ac?uire in,entory are al*ays di,ided bet*een

the balance sheet in,entoriesJ and the inco(e state(ent costs o) -oods soldJ3 there is not

other place to & put the(& Thus i) the di))erent (ethods o) calculatin- in,entory produce

di))erin- in,entory ,alues3 they *ill also produce di))erin- cost o) -oods sold )i-ures3 andthe di))erin- cost o) -oods sold *ill naturally produce di))erin- pro)it )i-ures&

In order sho* the i(pact o) in,entory ,aluation on cost )lo*s3 the precedin- e2hibits

are su((ari@ed& Each (ethod produces a di))erent )i-ure )or the trans)er o) ra* (aterials

to *or+ in process& The di))erences appear s(all3 but the only reason )or this is that the

dollar a(ounts ha,e been +ept s(all to (a+e the illustration *or+able&

Dith the trans)er o) (aterials to *or+ in process3 the cost )lo* or trans)er * ith ha,e

its i(pact on the *or+ in process in,entory and the trans)er o) co(pleted

(erchandise to )inished -oods& /lti(ately *hen -oods are sold the ,aryin- (ethods o)

,aluin- in,entories *ill ha,e their i(pact on cost o) -oods sold and these pro)its& The

e))ects o) the cost )lo*s on cost o) -oods sold and pro)its can be accentuated )urther it the

di))erin- (ethods o) ,aluin- in,entories are applies to *or+ in process and )inished -oods&

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E-'-&*$, O/ M"&$+ 8-& C-'" T" D*//"%","

The di))erences in in,entory ,alues and )lo*s )or each o) the (ethod

illustrated result )ro( only one )actor3 that it3 chan-in- purchases prices or unit costs& I)

purchase prices had re(ained stable or unchan-ed3 each (ethod *ould ha,e produced thesa(e in,entory ,alue and cost )lo*&

#osts )lo*s and in,entory are e2actly the sa(e under stable prices& Dith a )allin-

price le,el3 the $I!O (ethod produces the hi-hest cost )lo* and the lo*est in,entory& Dith

a )allin- price le,el3 the $I!O (ethod produces the lo*est cost )lo* and hi-hest

in,entory&

The cost )lo* under $I!O )ollo*s the price le,el3 $I!O produces lar-er cost

)lo*s *hen prices are risin- and s(aller cost )lo*s *hen prices are )allin-& A )inal ite( to

consider is that the a,era-e (ethod produces results *hich )all bet*een the

e2tre(es o) $I!O and !I!O&

E-'-&*$, O/ M"&$+C-, 8" J'&*/5 T" D*//"%","

The best (ethod o) in,entory ,aluation (i-ht be Cspeci)ic identi)icationC3 that is3

the units in in,entory should be identi)ied *ith the speci)ic in,oices and thus speci)ic unit

costs to *hich they apply&!ortunately3 the !I!O (ethod constitutes a ,ery use)ul appro2i(ation

to the speci)ic identi)ication (ethod i) one can reasonably assu(e that the

actual )lo* o) (aterials is )irstFin )irstFout& This assu(ption is not unreasonable

and thus *e ha,e stated the (ain ar-u(ent )or the !I!O in,entory sche(e&

That is3 the physical )lo* o) (aterials *ould (a tch the )lo* o) costs under the

)irstFin )irstFout (ethod&

Dhen the units in in,entory are identical3 interchan-eable and do not )ollo*

any speci)ic pattern o) physical )lo*3 the a,era-e cost syste( *ould seen to

appropriate&

The pri(ary di))erence bet*een the !I!O and a,era-e (ethods is centered on th e

physical ) lo* s ince both (ethods could in,ol,e identical and interchan-eable

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units& The !I!O (ethods )it a )irstFin )irstFout physical )lo*& The a,era-e (ethod )its a

syste( *hich has no speci)ic pattern o) physical )lo*&

!indin- a situation *here there is no speci)ic pattern o) physical )lo* should

be ?uite di))icult because o) the )act that (ost in,entory ite(s are subject to deterioration

by institutin- a person *ould atte(pt to reduce such deterioration and any reasonable

per son *ould at te(pt t o reduce such de te riorat ion by institutin- a physical )lo*

appro2i(atin- )irstFin )irstFout& The (ajor reason )or the use o) the a,era-e (ethod

is so(ethin- other than the lac+ o) speci)ic physical )lo*&

Ordinarily the $I!O (ethod cannot be justi)ied on the basis o) the

physical )lo* o) (aterial& /nder conditions o) chan-in- prices3 the ad,ocate o)$I!O says that the only (ethod *hich (atches costs and re,enues is the $I!O

(ethod& The $I!O (ethod assu(es that the latest ite( is the )irst ite( out3 and

thus the current costs o) (aterials are (atched *ith the other hand3 assu(es

that the )irst ite( in is the )irst ite( outK and thus the nonFcurrent costs o)

(atchin- currents costs *ith current re,enues is the essence o) the ar-u(ent )or

the $I!O (ethod&

As can be seen by the abo,e co((ents3 there is no one best (ethod o)

,aluin- in,entories& The (ethod chosen should )ir the situation& A physical

)lo* pattern co(parable to !I!O *ould )orce one to consider the !I!O

(ethod& The lac+ o) discernible physical )lo* pattern *ould )orce one to

consider the a,era-e (ethod& #oncentration on cost )lo*s3 as distinct )ro(

physical )lo*s3 *ould )orce to consider the $I!O (ethod especially *here

there appears to be a discernible trend to*ards risin- prices )or )allin- pricesas has been the case in our econo(y durin- recent years&

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C-#&"% 4

S&'+5 $, &" *,",&$%5 -,-3"",& -& JOCIL

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T-" 1 I,",&$%5 &'%,$"% %-&*$

G%-# 1 I,",&$%5 &'%,$"% %-&*$

Y"-% C$& $/ 3$$+ $+ A3. I,",&$%5 R-&*$

55=F55:;7955575 158;1748 :&;:

55:F55;1==148;4= 144;7854 ;&85

55;F5151714=;1;7 19:;9:591 1&9=

515F51144854195 :8;7881 11&41

511F5115=47749 141758545 ;&:

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I,&"%#%"&-&*$,

More in,entory ratio is desirable to any co(pany and it indicates that the co(pany usin- lo*

,alue o) in,entory& The in,entory decreased in 51 *hen co(pared to 511& Actually the

)ir( has to (aintain (ore in,entories )or the purpose production o) (ore products& 0ere the

in,entory is decreased due to less orders )ro( 0/$ 3IT#&

2. INVENTORY TO CURRENT ASSETS

In order to +no* the percenta-e o) in,entory o,er current assets the ratio o) in,entory to current assets

is calculated and *hich is presented in the )ollo*in- table&

I,",&$%5

I,",&$%5 &'%,$"% '%%",& -"& %-&*$

C'%%",& -"&

Y"-% I,",&$%5 C'%%",& -"& R-&*$

55=F55: 144;7854 977:7:=91 5&155:F55; 14:;1:544 97:998=: 5&55;F515 14:;9:591 :881==911 5&1;

515F511 :8;7881 158=14: 5&=511F51 158;1748 858118;=: 5&1

T-" 2I,",&$%5 &$ '%%",& -"& %-&*$

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G%-# 2I,",&$%5 &$ '%%",& -"& %-&*$

I,&"%#%"&-&*$,

• The in,entory to current assets ratio had been decreased to5&5 in the year 55;F15

this is due to )all in the in,entories and current assets the si-ni)icant drop in thele,el o) in,entory is due to )allin- trend in de(and thus leadin- to )all in purchases

and )inally on sales leads to )all in debtors and in turn on the current assets&

• In the year 515F11 in,entory is increased to 5&= due to i(pro,e(ent o) in,entory to

current assets&

• The in,entory to current assets ratio had )allen to 5&1 in the year 511F1&

;. CURRENT RATIO

It indicates the ability o) a co(pany in (eetin- the current obli-ation& It is

si-ni)icant short ter( creditors and (ana-e(ent&

C'%%",& -"&

C'%%",& %-&*$

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C'%%",& *-**&*"

Y"-% C'%%",& -"& C'%%",& *-**&*" R-&*$

55=F55: 977:7:=91 5:;8;: 4&1:

55:F55; 97:998=: 1;57=;88=1 4&:55;F515 :881==911 451=89554 &:4515F511 158=14: 4;1941;:= &91511F51 858118;=: 19::941 4&55

T-" ;C'%%",& %-&*$

G%-# ;C'%%",& %-&*$

I,&"%#%"&-&*$,

• In "O#I$ the current ratio is &: in 51& It (eans that )or one rupee o) current

liabilities3 the current assets are &: rupee is a,ailable to the(& In other *ords the

current assets are &: ti(es the current liabilities&

• Al(ost the past 7years current ratio is )luctuatin- but current ratio in 51 it is bit

hi-her than be)ore3 *hich (a+es co(pany (ore sound& The consistency increase in

the ,alue o) current assets *ill increase the ability o) the co(pany to (eets its

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G%-# 4?'* %-&*$

I,&"%#%"&-&*$,

• Al(ost in past 7 years the li?uid ratio is )luctuatin-& The ?uic+ ratio o) the "O#I$

#o(pany has increased )ro( 1&: to &4 )ro( 511F51& It indicates -ood sound o)

co(pany &This indicates that the dependence on the shortFter( liabilities B creditors

are less B the co(pany is )ollo*in- a conser,ati,e *or+in- capital policy&

• <uic+ ratio o) #o(pany is not )a,orable because the ?uic+ assets o) the co(pany are

(ore than the ?uic+ liabilities& The li?uid ratio sho*s the co(panys inability to (eet

its i((ediate obli-ations is -ood& So3 as per the current year ratio o) the co(pany is

satis)actory&

<.ASSETS TURNOVER RATIO

Assets are used to -enerate sales& There)ore a )ir( should (ana-e its assets

e))iciently to (a2i(i@e sales& The relationship bet*een sales and assets is called

assets turno,er ratio&

-"& &'%,$"% %-&*$ ,"& -" &$&- -"&

4:

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Y"-% N"& -" T$&- -"& R-&*$

55=F55: ;7955575 977:7:=91 1&7=55:F55; 1==148;4= 97:998=: &5755;F515 1714=;1;7 158=18158 &5515F511 44854195 19::;8;5 &87511F51 :5=47749 858118;=: &87

T-" <A"& &'%,$"% %-&*$

G%-# < A"& &'%,$"% %-&*$

I,&"%#%"&-&*$,

• The ratio o) total assets is =1H o) the total assets sho*s that the co(pany has been

utili@in- its assets to the )ullest& It (a+es use o) its )ull assets to (a+e the best )or the

pro)its& Or else these assets in the co(pany *ill be nonFper)or(in- assets *hich

could brin- additional cost )or the co(pany&

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• This ratio indicates the e))iciency *ith *hich the )ir( is utili@in- its in,est(ents in

assets to -enerate re,enue& 0o*e,er since "O#I$ ltd has hu-e in,est(ent *ith

respect to production o) soaps and che(icals3 it re?uires hu-e in,est(ent&

=. INVENTORY TO 8OR7ING CAPITAL RATIO

The in,entory to *or+in- capital ratio (easures ho* *ell the co(pany is able to

a--re-ate cash usin- *or+in- capital at its current in,entory le,el& As increasin-

in,entory to *or+in- capital ratio is -enerally a ne-ati,e si-n3 sho*in- the co(pany

(ay be ha,in- the operational proble(s& I) it has too (uch *or+in- capital in,ested

in in,entory3 they (ay ha,e di))iculty ha,in- enou-h *or+in- capital to (a+e

pay(ent on shortFter( liabilities and accounts payable&

I,",&$%5 &$ $%*,3 -#*&- %-&*$I,",&$%5$%*,3 -#*&-

($%)

I,",&$%5('%%",& -"&'%%",& *-**&*")

T-" =I,",&$%5 &$ $%*,3 -#*&- %-&*$

Y"-% I,",&$%5 8$%*,3 C-#*&- R-&*$

55=F5: 144;7854 7751;194 5&45

55:F55; 14:;1:544 7474:=55= 5&4

55;F515 14:;9:591 88777597 5&45

515F511 :8;7881 94494;81 5&78

511F51 158::=5 9=85=44 5&41

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G%-# = I,",&$%5 &$ $%*,3 -#*&- %-&*$

I,&"%#%"&-&*$,

• Percenta-e (easure o) a )ir(s capability to )inance its in,entories )ro( its a,ailable

cash& Nu(bers lo*er than 155 are pre)erable as they indicate hi-h li?uidity& Nu(bers

hi-her than 155 su--est that the in,entories are too lar-e in relation to the )ir(s

)inancial stren-th&• The in,entory turno,er ratio had been decreased to 5&41 in the year 511F1 the

reason )or this decrease in turno,er *hich is (ainly pre,ailin- condition in the

industry&

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#0APTER 8

I(pact On Other Pro)itability Ratios

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G%-# > N"& #%$/*& %-&*$

I,&"%#%"&-&*$,

E,ery co(pany is able to (aintain (ore percenta-e o) net pro)it on sales due to lo*,alue o) interest char-e in e,ery year& The table sho*s there is increase in net pro)it )ro(

year to year& So the ratio o) this co(pany )ound to be ,ery satis)actory and the co(pany has

been success)ul in controllin- the e2penses& It is a clear inde2 o) cost control3 (ana-erial

e))iciency B sales pro(otion&

GROSS PROFIT RATIO

This ratio (easures the relationship bet*een -ross pro)it and sales& It is de)ined as the

e2cess o) the net sales o,er cost o) -oods sold or e2cess o) re,enue o,er cost& This ratio

sho*s the pro)it that re(ains a)ter the (anu)acturin- costs ha,e been (et& It (easures the

e))iciency o) production as *ell as pricin-& This ratio helps to jud-e ho* e))icient the

concern is I (ana-in- its production3 purchase3 sellin- B in,entory3 ho* -ood its control is

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The table sho*s that -ross pro)it is )luctuatin- in e,ery year due to chan-e in the

sales and chan-e in the -ross pro)it& The ratio is hi-h in 511 and it a-ain -ot decreased in

51 due to chan-e in the -ross pro)it (ar-in because o) chan-es in (ar+et and hea,y

co(petition&

RETURN ON INVESTMENT

This is also called as o,erall pro)itability ratio and percenta-e o) returns on total capital

e(ployed in the business& ROI (easure the pro)it3 *hich a )ir( earns on in,estin- a unit o)

capital& It is desirable to ascertain this periodically the pro)it bein- the result o) the operation&

It also e2plains all e))iciencies o) a business collecti,ely thus& It is a dependable (easure )or

jud-in- the o,erall e))iciency o) the co(pany&

R"&'%, $, *,"&",& %-&*$ (,"& #%$/*& -/&"% *,&"%"& &- &$&- ,"& -"&) 100

Y"-% EAT N"& -"& R"&'%, $,

*,"&",& ()

2007-08 :&9= :8&:1 15&152008-09 ;&9; ;7&=7 15&2009-10 1&4= 119&17 1:&72010-11 1;&74 19:&: 11&872011-12 1&85 18=&88 =&;4

T-" 9 R"&'%, $, *,"&",&

G%-# 9 R"&'%, $, *,"&",&

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I,&"%#%"&-&*$,

It -i,es the relation bet*een net pro)it and total assets& The table sho*s an decreasin- ratio

)ro( last year to study period *hich results in less return on in,ested capital&ROI (easure the pro)it3 *hich a )ir( earns on in,estin- a unit o) capital& It is desirable to

ascertain this periodically the pro)it bein- the result o) the operation& It also e2plains all

e))iciencies o) a business collecti,ely thus& It is a dependable (easure )or jud-in- the o,erall

e))iciency o) the co(pany&

RETURN ON SHAREHOLDERS E?UITY

The a(ount o) net inco(e returned as a percenta-e o) shareholders e?uity& Return on e?uity

(easures a corporations pro)itability by re,ealin- ho* (uch pro)it a co(pany -enerates*ith the (oney shareholders ha,e in,ested&

R"&'%, $, -%"$+"% EK'*&5 N"& #%$/*& -/&"% *,&"%"& -,+ &- S-%"$+"%

EK'*&5

Net inco(e is )or the )ull )iscal year be)ore di,idends paid to co((on stoc+ holders but

a)ter di,idends to pre)erred stoc+&J Shareholders e?uity does not include pre)erred shares&

Also +no*n as Creturn on net *orthC RONDJ&

Y"-% NPAIT S-%"$+"% "K'*&5 R"&'%, $,

-%"$+"% "K'*&5

()

2007-08 :&9= :4&15 15&742008-09 ;&9; ::&97 15&;4

2009-10 1&4= 157&:4 5&4:

2010-11 1;&74 15&14 19&1=

2011-12 1&85 1=&7= ;&:1

T-" 10 R"&'%, $, "K'*&5

7=

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G%-# 10 R"&'%, $, S-%" H$+"% EK'*&5

I,&"%#%"&-&*$,%ecreasin- in,entory turno,er translates into less sales nu(bers3 *hich can result in lo*

total re,enues& Assu(in- costs re(ain the sa(e or increase3 hi-her re,enues ulti(ately

decrease net inco(e3 *hich results in )all do*n o) ROE& A lo*er ROE nu(ber is al*ays less

desirable&

IMPACT ON OTHER PROFITA!ILITY RATIOS

The proper (ana-e(ent o) in,entory is critical )or any si@e business& The *ay a

co(pany ,alues its in,entory can be the di))erence bet*een a pro)it and loss& In )act3

in,entory ,aluation a))ects a co(panys pro)it (ar-in3 *or+in- capital3 assets and

shareholders e?uity& Toss in the )act that the ta2 la* allo*s a co(pany to use di))erent

,aluations o) in,entory )or ta2 reportin- purposes and a co(pany (ust be care)ul ho* it

records in,entory&

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The in,entory (ethod a co(pany uses a))ects its costs o) -oods sold3 or #OS3

*hich has an i(pact on its pro)itability ratios& The )or(ula )or #OS is be-innin- in,entory

plus purchases less endin- in,entory& A co(pany usin- !I!O to ,alue its in,entory reports

lo*er #OS3 *hich increases its -ross pro)it (ar-in sales less #OSJ and its net inco(e all

else bein- e?ual& 0i-her net inco(e (eans hi-her pro)it (ar-in& A co(pany usin- $I!O

reports hi-her #OS3 translatin- into lo*er -ross pro)it3 net inco(e and pro)it (ar-ins& This

(eans earnin-s per share net inco(e di,ided by e?uity shares outstandin-J is hi-her usin-

!I!O all else bein- e?ual&

A -ood rule o) thu(b is that i) in,entory turno,er ratio (ultiply by -ross pro)it

(ar-in in percenta-eJ is 155 percent or hi-her3 then the a,era-e in,entory is not too hi-h&

Accordin- to this rule by (ultiplyin- turno,er ratio and -ross pro)it ratio o) "O#I$ $td in

the year 515F11 the percenta-e is 117&89H this sho*s that the co(pany a,era-e in,entoryis not too hi-h&

6ut in the year 511F1 the percenta-e is the percenta-e is :9&;H this sho*s that the

co(pany a,era-e in,entory is so(e*hat hi-h *hen co(pared to be)ore year so "O#I$

should (aintain the in,entory as per the re?uire(ent&

%ecreasin- in,entory turno,er translates into less sales nu(bers3 *hich can result in

lo* total re,enues& Assu(in- costs re(ain the sa(e or increase3 hi-her re,enues ulti(ately

decrease net inco(e3 *hich results in )all do*n o) ROE& A lo*er ROE nu(ber is al*ays less

desirable& The ROI also results the sa(e it -ot decreased )ro( last years *hich -i,es less

return on in,est(ents )or the co(pany&

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CHAPTER =

C- C$,"%-&*$, C5"

ANALYSIS OF OPERATING CYCLE AT JOCIL LTDG

T" - $,"%*$, 5" CCC or O#"%-&*,3 C5"J is the len-th o) ti(e bet*een a

)ir(s purchase o) in,entory and the receipt o) cash )ro( accounts recei,able& It is the ti(e

re?uired )or a business to turn purchases into cash receipts )ro( custo(ers& ### represents

the nu(ber o) days a )ir(s cash re(ains tied up *ithin the operations o) the business& A

cash )lo* analysis usin- ### also re,eals in3 an o,erall (anner3 ho* e))iciently the

co(pany is (ana-in- its *or+in- capital&

O#"%-&*,3 C5" I,",&$%5 C$,"%*$, P"%*$+ Q D"&$% C$,"%*$, P"%*$+ C%"+*&$%

P-5-" P"%*$+

O#"%-&*,3 C5"

Y"-% 200>0@ 200@09 200910 201011 201112

81

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I,",&$%5

C$,"%*$,37.12073

761

40.874265

2

73.043459

07 52.556056

57.774596

4

A"%-3"

C$"&*$,38.99431

765

40.089366

91

38.708733

86

42.433388

59

44.687197

35

P-5-"

D"/"%%-

23.60730

976

15.710775

1

22.400084

78

7.6520277

89

10.085364

52O#"%-&*,3

C5"52.50774

55

65.252857

01

89.352108

15

87.337416

8

92.376429

23

T-" 11 O#"%-&*,3 5"

T-" 12 D"&$% $,"%*$, #"%*$+

Y"-% I,",&$%5 C$& $/ 3$$+ $+ I,",&$%5 C$,"%*$, #"%*$+

2007-08 168968061 1661425560 37.12073761

2008-09 285942551 2553416692 40.8742652

2009-10 675506154 3375521222 73.04345907

2010-11 506456758 3517324752 52.556056

2011-12 572000689 3613703329 57.7745964

T-" 1; I,",&$%5 $,"%*$, #"%*$+

Y"-% P-5-" C$& $/ 3$$+ $+ C%"+*&$% P-5-" #"%*$+

2007-08 107456953 1661425560 23.60730976

2008-09 109907275 2553416692 15.7107751

Y"-% R""*-" S-" #"% +-5 D"&$% C$,"%*$, P"%*$+

2007-

08 228771563 5866792.312 38.99431765

2008-

09 355316081 8863100.329 40.08936691

2009-

10 438561908 11329792.12 38.70873386

2010-

11 500071735 11784864.5 42.43338859

2011-

12 555178532 12423659.68 44.68719735

8

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2009-10 207156059 3375521222 22.40008478

2010-11 73738813 3517324752 7.652027789

2011-12 99850727 3613703329 10.08536452

T-" 14 C%"+*&$% #-5-" #"%*$+

G%-# 11 C- $,"%*$, 5"

IMPACT OF CASH CONVERSION CYCLE ON PROFITA!ILITY OF A

ACOMPANY

#ash con,ersion cycle o) (anu)acturin- )ir(s is ne-ati,ely related to the pro)itability

o) the )ir(s& Dhereas lon-er cash con,ersion cycle3 in,entory con,ersion period and

recei,ables period o) the )ir(s *ill lead to*ards decreased pro)itability o) the (anu)acturin-

)ir(s& Moreo,er earlier pay(ents to creditors *ill lead to*ards decreased pro)itability o) the

(anu)acturin- )ir(s&

The (anu)acturin- co(panies are re?uired to *ell esti(ate and e,aluate the cash

)lo*s o) the business3 to *ell identi)y the lon- run and short run cash in)lo*s and out)lo*s to

ti(ely sort out the cash shorta-es& As the cash con,ersion cycle increased in the study period

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the pro)itability o) the co(pany decreased& So the co(pany should e,aluate the cash in)lo*s

and out)lo*s be)ore shorta-e o) the cash raises&

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CHAPTER >

T$$ -,+ &",*K'" $/ *,",&$%5 -,-3"",&

TOOLS AND TECHNI?UES OF INVENTORY MANAGEMENT

A proper in,entory control not only helps in sol,in- the acute proble( o) li?uidity

but also increases pro)it and causes substantial reduction in the *or+in- capital o) concern&The )ollo*in- are the i(portant tools and techni?ues o) in,entory

(ana-e(ent and control&

D"&"%*,-&*$, $/ &$ ""

#arryin- o& ) too (uch and too little o) in,entory is detri(ental to the )ir(& I) the

in,entory le,el is too little3 the )ir( *ill )ace )re?uent stoc+ outs in,ol,in- hea,y orderin-

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cost and i) the in,entory le,el is too hi-h it *ill be unnecessary tie up o) capital&

An e))icient in,entory (ana-e(ent re?uires that a )ir( should (aintain an opti(u(

le,el o) in,entory *here in,entory costs are the (ini(u( and at the sa(e ti(e there is

no stoc+ out *hich (ay result in loss or sale or stora-e o) production&

M*,*' &$ ""

It represents the ?uantity belo* its stoc+ o) any ite( should not be allo*ed to )all&

$ead ti(eG a purchasin- )ir( re?uires so(eti(e to process the order and ti(e is also

re?uired by the supplyin- )ir( to e2ecute the order& The ti(e in processin- the order

and then e2ecutin- it is +no* as lead ti(e&

R-&" $/ $,'#&*$,

I t is the a,era-e consu(ption o) (aterials in the )actory& The rate o)

consu(ption *ill be decided on the basis o) past e2perience and production plans& Nature o)(aterialsG the (ature o) (aterials also a))ects the (ini(u( le,el& I) a (aterial is re?uired

only a-ainst the special orders o) the custo(er then (ini(u( stoc+ *ill not be re?uired

)or such (ater ial& Mini(u( stoc+ le,el can be calculated *ith the help o) )ollo*in-

)or(ula&

M*,*' &$ ""

ReForderin- le,elFNor(al consu(ption 2 Nor(al reForder periodJ

R"$%+"%*,3 L""

Dhen the ?uantity o) (aterials reaches at a certain )i-ure the )resh order is sent to -et

(aterials a-ainG the order is sent be)ore the (aterials reach (ini(u( stoc+ le,el& ReF

orderin- le,el * )i2ed bet*een (ini(u( le,el (a2i(u( le,els&

M-*' ""

It is the ?uantity o) (aterials beyond *hich a )ir( should not e2ceeds its stoc+s& I)

the ?uantity e2ceeds (a2i(u( le,el li(it then it *ill be o,erFstoc+in-& O,erstoc+in- *ill

(ean bloc+in- o) (ore *or+in- capital3 (ore space )or storin- the (aterials 3 (ore

*asta-e o) (ater ials and (ore chances o) losses )ro( obsolescence&

M-*' &$ "" %"$%+"%*,3 "" %"$%+"% K'-,&*&5

(M-*' $,'#&*$, M*,*' %"$%+"% #"%*$+)

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D-,3"% &$ ""

I t i s ) i2ed belo* (ini(u( stoc+ le,el& The dan-er s toc+ le,el indicates

e(er-ences o) stoc+ position and ur-ency o) obtainin- )resh supply at any cost&

D-,3"% &$ "" -"%-3" %-&" $/ $,'#&*$, ""%3",5 +"*"%5 &*" A"%-3"

&$ ""

This stoc+ le,el indicates the a,era-e stoc+ held by the concern&

A,era-e stoc+ le,el Mini(u( stoc+ le,el 2 order 3 ?uantity

D"&"%*,-&*$, $/ -/"&5 &$

Sa)ety stoc+ is a bu))er to (eet so(e unanticipated increase in usa-e& The de(and )or

(aterials (ay )luctuate and deli,ery o) in,entory (ay also be delayed and in such a situation

the )ir( can be )ace a proble( o) stoc+ out&

In order to protect a-ainst the static out arisin- out o) usa-e )luctuations3 )ir(s

usually (aintain so(e (ar-in o) sa)ety stoc+s&

T*o cos t s a re in,ol,ed in the de te r(ina t ion o) th i s s toc+ tha t i s

opportunity cost o) stoc+ outs and the carryin- costs&

I) a )ir( (aintains lo* le,el o) sa)ety )re?uent stoc+ outs *ill occur resultin-

into the lar-er ?uantity o) sa)ety stoc+s in,ol,es carryin- costs&

ECONOMICS ORDER ?UANTITY (EO?)

The ?uantity o) (aterials to be ordered at one ti(e is +no*n as econo(ic orderin-

?uantity& This ?uantity is )i2ed in such a (anner as to (ini(i@e the cost o) orderin- and

carryin- costs&

T$&- $& -&"%*- AK'**&*$, $& Q$& -%%5*,3 $&& Q $%+"%*,3 $& C-%%5*,3

$&

It is the cost o) holdin- the (aterials in the store&

8=

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(OR)

N"& S-"

A"%-3" I,",&$%5

D-5 *, - 5"-%

A,+6 I,",&$%5 $,"%*$, #"%*$+

I,",&$%5 &'%,$"% %-&*$

A!C ANALYSIS TECHNI?UE IS USED TO ANALYSE THE INVENTORY

IN JOCIL LTD

A!C A,-5* T",*K'" $/ I,",&$%5 M-,-3"",& A& JOCIL LTD F$% T" Y"-% 200@09

8;

8/12/2019 154491231-MBA-Project


T-" 1< A!C A,-5* /$% &" 5"-% 200@09

$ ,-" $/

&" *&"

',*& *,

K'-,&*&5

*/

&$&-

',*&

''-&*"

$/ &$&-

',*&

',*&

$&

&$&- $& $/

&$&-

$&

''-&*

" $/

&$&- $&

-&"3$%

1

!atty

acids

lycerin

;:=

94

75&4

8

&8=

75&48

7&;

448

=

4;1

8

445;17;

7

5=4991

8;&=

5

4&=7

8;&=5

4&=7

A

4

7

Soap

Product

Pitch

8:

17

4&=

;

5&8=

99&=1

9=&:

4495

;

==4

;

1;89151

7

4::487

48&

;

5&=1

;:&=7

;;&78

6

8

9

Industria

l o2y-en

others

:55

F

4&=

1

F

155

F

=&5=

F

898=

457;91

5&51

5&88

;;&78

155

#

Total 779 155 887817

1

155

95

8/12/2019 154491231-MBA-Project


G%-# 12 ?'-,&*&5 $/ *,",&$%5

I,&"%#%"&-&*$,

• There are t*o ite(s *hich co(es under cate-ory A *hich co(prises o) )atty acids

3-lycerin&These ite(s co,er 95H o) total cost and 75H o) total ,olu(e&These ite(s

are to be controlled strictly and are to be )orcasted accurately&

• The 6 cate-ory in,entory co(prises o) t*o ite(s i&e&soap products3pitch *hich

occupy about 47&;9H o) total cost and :&=5H ,olu(e&These ite(s re?uire only a

(oderate control&

• There is one ite( i&e& industrial o2y-en3others consu(e under # cate-ory&This ite(s

occupied 7&:4H o) total cost and 1:&9H o) total ,olu(es&$ose control is acceptable

)or these ite(s&

91

8/12/2019 154491231-MBA-Project


A!C A,-5* T",*K'" O/ I,",&$%5 M-,-3"",& A& J$* L&+ F$% T"

Y"-% 200910

S.,$ N-" $/

&" *&"

U,*&

*,

K'-,&*&

5

I/

&$&-

',*&

C''-&*

" $/ &$&-

',*&

U,*& $& T$&- $&

$/

&$&-

$&

C'

'-&*

"

$/

&$&-

$&

-&

"3

$%

5

1

!atty

acids

-lycerin

117&75

179&5;

41&79

48&79

41&79

48&7:

471=9&;8

9;91&:=

4;574=88

4;4::95

88&;

8&97

88&;7

91&8:

A

4 Soap

product

=51&189 1;&4 87&: 4=7=5&= ;95:5: 4&; ;7&81

6

7

8

Industrialo2y-en

Others

1971

F

78&5

F

155

F

9&::

F

1145

4:41711

5&54

8&7;

;7&81

155

#

Total 4945&97 155 9;=:9147 155T-" 1= A!C A,-5* /$% &" 5"-% 200910

9

8/12/2019 154491231-MBA-Project


G%-# 1; V-'" $/ *,",&$%5 /$% &" 5"-% 200910

G%-# 14 ?'-,&*&5 $/ *,",&$%5

I,&"%#%"&-&*$,

94

8/12/2019 154491231-MBA-Project


• There are t*o ite(s *hich co(es under cate-ory A *hich co(prises o) )atty acids3

-lycerin& These ite(s co,er 91H o) total cost and 44&7:H o) total ,olu(e&These

ite(s are to be controlled strictly and are to be )orecasted accurately&

• The 6 cate-ory in,entory co(prises o) t*o ite(s i&e& Soap products pitch *hich

occupy about 4&;5H o) total cost and 1;&4H,olu(e&These ite(s re?uire only a

(oderate control&

• There is one ite( i&e& industrial o2y-en 3others *hich co(es under # cate-ory&This

ite( occupied 8&8H o) total cost and 78&5H o) total ,olu(e&$ose control is

acceptable )or these ite(s&

A!C A,-5* T",*K'" O/ I,",&$%5 M-,-3"",& A& JOCIL L&+ F$%

T" Y"-% 201011

97

8/12/2019 154491231-MBA-Project


, N-" $/

*&"

U,*& *,

K'-,&*&5

*/

&$&-

',*&

C''-

&*"

$/ &$&-

',*&

U,*& $& T$&- $&

&$&-

$&

C''-&

*" $/

&$&-

C-&"

%5

!atty acids

-lycerin

1=7&=

8

==&4;8

7;&9

4&57

7;&9

8&99

71:4:&==

9=8;&7

8444;47

5=154

8=&;7

&7

8=&;7

95&1:

A

Soap

product

Toilet soap

9=1&194

99&7;7

9&1

&8:

=:&=:

:1&49

4;75

:941&=;

978=79

8=44:;=

:&=7

9&

::&;

;8&17

6

Industrial

o2y-en

Others

7=;

F

1:&9

7

F

155

F

9&:7

F

4=:

777;9:7

5&54

7&:4

;8&1=

155

#

Total 49:9&97

9

155 8878171 155

T-" 1> A!C A,-5* /$% &" 5"-% 201011

98

8/12/2019 154491231-MBA-Project


G%-# 1< V-'" $/ *,",&$%5

G%-# 1= ?'-,&*&5 $/ *,",&$%5

I,&"%#%"&-&*$,G

99

8/12/2019 154491231-MBA-Project


• There are t*o ite(s *hich co(es under cate-ory A *hich co(prises o) )atty acids3

-lycerin these ite(s co,er 95&1:H o) total cost and 7H o) total ,olu(e& These ite(s

are to be controlled strictly and are to be )orecasted accurately&

• The 6 cate-ory in,entory co(prises o) t*o ite(s i&e& soap products3 pitch *hich

occupy about 47&;9H o) total cost and :&=5H ,olu(e& These ite(s re?uire only a

(oderate control&

• There is one ite( i&e& industrial o2y-en3 others *hich co(es under # cate-ory& This

ite( occupied 7&:4H o) total cost and 1:&97H o) total ,olu(es& $ose control is

acceptable )or these ite(s&

A!C A,-5* T",*K'" O/ I,",&$%5 M-,-3"",& A& J$* L&+ F$% T"

Y"-% 201112.

.,$ N-" $/

*&"

U,*& *,

K'-,&*&5

*/

&$&-

',*&

C''-&*"

$/ &$&-

',*&

U,*&

$&

&$&- $& $/

&$&-

$&

C''-&*"

$/ &$&-

$&

-

1

!atty

acids

lycerin

==9

45

8=&;

1

&7

8=&;1

95&18

418:

74;8

779915

8

1;:::7

4

=4&1

5

4&::

=4&15

=9&;: A

4 Soap

product

144 =5&5

:

=5&5: 41:8 79481 1&9

9

:;&97

9=

8/12/2019 154491231-MBA-Project


7 Pitch 4;8;;&8

9

:557 41917;9

;&78;;&5

;

6

8

9

Industrial

o2y-en

Other

9 5&77 155 ;&4 89

4511

5&51

5&;5

;;&15

155

Total 1475 44797;=

155

T-" 1@ A!C A,-5* /$% &" 5"-% 201112

G%-# 1> V-'" $/ *,",&$%5

9:

8/12/2019 154491231-MBA-Project


G%-# 1@ ?'-,&*&5 $/ *,",&$%5

I,&"%#%"&-&*$,

• There are t*o ite(s *hich co(e under cate-ory a *hich co(prises o) )atty

acids3-lycerin&These ite(s co,er =5H o) total cost and=H o) total ,olu(e&These are

to be controlled strictly and are to be )orecasted accurately&

• The 6 cate-ory in,entory co(prises o) t*o ite(s i&e& soap products3pitch *hich

occupy about 14H o) total ,olu(e &The ite(s re?uire only a (oderate control&

• There is one ite( i&e& industrial o2y-en 3others *hich co(es under # cate-ory this

ite( occupy =H o) total cost and 75H o) total ,olu(e&lose control is acceptable )or

these ite(s&

9;

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CHAPTER @

F*,+*,326 S'33"2&*$,2

=5

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FINDINGS

• In the year turno,er ratio is -ood *hen co(pared in year 559F5= and 515F

11&!ro( this it has been obser,ed that the in,est(ent on ra* (aterials has beendecreased )ro( 515F11 to 511F1&

• !ro( the study it has been obser,ed that the in,entory to *or+in- capital ratio *as

)luctuatin- )ro( year to year& 6ut as o,erall this ratio is satis)actory&

• !ro( the study it has been obser,ed that the in,entory to current ratio o) "O#I$

$i(ited )luctuatin- )or the period o) 55=F1 the co(pany is (aintainin- satis)actory

current ratio& Dhich is (ore than idle ratio G1 due to current assets are (ore than the

current liabilities&

• !ro( this study it has been obser,ed that the ?uic+ ratio o) the co(pany (aintained

(ediu( le,el li?uidity3 *hich (i-ht slo*ly decrease its pro)itability& Since the return

on assets is not so bad&

• !ro( the study it has been obser,ed that the assets turno,er ratio o) the co(pany is

increasin- due to the net sales are (ore than the net assets&

=1

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SUGGESTIONS

• The in,est(ent on ra* (aterial has decreased )ro( 55=F1 and there is need to

i(pro,e in,est(ent on ra* (aterial )or the production.

• The in,entory turno,er ratio is increasin- le,el so it is su--ested that "O#I$ li(ited

is to ta+e the steps so as to (aintain the opti(u( in,entory turno,er ratio&

• It is su--ested that the "O#I$ ltd is re?uired to ta+e necessary steps so as to (aintain

the sa(e in,entory to *or+in- capital ratio satis)actory&

• It has been su--ested that the co(pany needs to (aintain the better le,el than the

pre,ious le,el o) in,entory turno,er ratio3 *hich is increasin- sales&

• It has been su--ested that the co(pany needs to (aintain the sa(e le,el current ratio3

*hich is use)ul to (eet current obli-ations&

• It has been su--ested that the co(pany should e2a(ine the ?uic+ ratio to the

bene)icial o) "O#I$ $td&

• It has been reco((ended that the co(pany needs to (aintain hi-h le,el o) assets

turno,er ratio3 *hich increases the pro)it&

=

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CONCLUSION

Total econo(ic li)e o) a co(pany depends up on so(e )inancial aspects li+e pro)its3

e2penses3 turno,er etc&& A care)ul analysis o) these areas is ,ery (uch essential )or the

success and sur,i,al o) the co(pany& !or this purpose in,entory (ana-e(ent *ith help o)

techni?ues li+e A6# analysis is to be carried out& A study o) this type is ,ery (uch use)ul to

any co(pany to +eep in the di))erent )inancial aspects and to ta+e (easures to i(pro,e.

In (y ,ie* the in,entory (ana-e(ent o) the co(pany is supplyin- ,ital in)or(ation

about the in,entory o) the co(pany in all aspects as per the A6# analysis& The co(pany is

(aintainin- opti(u( le,el o) in,entory as per the re?uire(ent and reached their -oals&

O,erall in,entory (ana-e(ent in "O#I$ pro,ides to be in -ood trend&

=4

8/12/2019 154491231-MBA-Project


!I!ILOGRAPHY

F$% &" #%"#-%*,3 &" %"#$%& " '" &" /$$*,3

1& Annual Report o) the co(pany o) 55=F5:&

2. 8"*&"

***&jocil ltd&co(

***&-oo-le&co(

***&+ota+securities&co(***&(oneycontrol&co(

;& !$$

!inancial Accountin-3 4rd Edition3 P0I $earnin- P,t& $td&3 AuthorF R&

Narayans*a(y3 Part III3 #hap ter113 !inancial State(ent Analysis&

=7

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8/12/2019 154491231-MBA-Project


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154491231-MBA-Project