A REPORT ON INVENTORY MANAGEMENT OF JOCIL LIMITED.

PULIVARTHI ANUSHA (121429) PGDM 2012 2014 !ATCH

R"#$%& S'()*&&"+ I, P-%&*-. F'./*..)",& /$% &0" A1-%+ $/ P$2& G%-+'-&*$, D*#.$)- *, M-,-3")",&

VIGNANA JYOTHI INSTITUTE OF MANAGEMENT

(A##%$4"+ !5 AICTE6 M*,*2&%5 O/ HRD6 G$4&. O/ I,+*-) !ACHUPALLY6 HYDERA!AD.

DECLARATION I hereby declare that this Project Report titled A Study on INVENTORY MANA EMENT 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 certi)icate or published any ti(e be)ore& de-ree.diplo(a

P/$IVART0I AN/S0A Na(e o) the Student Si-nature o) the Student

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 -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& IRI RAO3

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

CONTENTS S.NO TOPIC NAME

TITLE PAGE AC7NO8LEDGEMENT DECLARATION E9ECUTIVE SUMMARY

PAGE NO.

1.

INTRODUCTION TO FINANCIAL MANAGEMENT

15 15 11 14 14 14 17 18 19 1: 1: 1; 11 11 11 17 18 41 41 41 47 48 4= 4: 4;

A& Objecti,es O) !inancial Mana-e(ent 6& Meanin- and nature o) in,entory #& Need o) the study %& Methodolo-y o) study E& $i(itations o) the study !& Objecti,es o) the study 2.
INDUSTRY : COMPANY PROFILE

A& Industry pro)ile 6& #o(pany pro)ile #& 0istory o) co(pany E& !inancial per)or(ance ;.
THEORETICAL FRAME 8OR7

A& Meanin- and nature o) in,entory 6& 6ene)its o) holdin- in,entory #& Objecti,es o) in,entory (ana-e(ent %& In,entory ,aluation and cash )lo*s 4.
TO STUDY ON INVENTORY AT JOCIL MANAGEMENT

A& In,entory ratios 6& In,entory turno,er ratio #& In,entory to current assets ratio %& #urrent ratio E& <uic+ ratio !& Asset turno,er ratio & In,entory to *or+in- capital ratio

<

IMPACT ON OTHER PROFITA!ILITY RATIOS

71 74 74 78 79 7= 7; 81 88 95 =1 =4 =7

0& Pro)itability ratios I& Net pro)it ratio "& ross pro)it ratio >& Return on in,est(ent $ &Return on e?uity M& I(pact on other pro)itability ratios = > @ 9 10
CASH CONVERSION CYCLE SND ITS IMPACT ON PROFITA!ILITY OF COMPANY TOOLS AND TECHNI?UES OF INVENTORY MANAGEMENT

$& A6# Analysis FINDINGS:SUGGESTIONS CONCLUSION !I!ILOGRAPHY

LIST OF TA!LES S.NO 1 2 ; 4 < = > @ 9 10 11 12 1; 14 1< 1= 1> 1@ NAME OF THE TA!LES T-(." 1 T-(." 2 T-(." ; T-(." 4 T-(." < T-(." = T-(." > T-(." @ T-(." 9 T-(." 10 T-(." 11 T-(." 12 T-(." 1; T-(." 14 T-(." 1< T-(." 1= T-(." 1> T-(." 1@ PAGE NO. ;2 ;4 ;< ;> ;@ 40 4; 4< 4= 4> <2 <2 <; <; =0 =2 == =@

LIST OF DIAGRAMS
S.NO 1 2 ; 4 NAME OF THE DIAGRAM G%-#0 1 G%-#0 2 G%-#0 ; G%-#0 4 PAGE NO. ;; ;4 ;= ;>

< = > @ 9 10 11 12 1; 14 1< 1= 1> 1@

G%-#0 < G%-#0 = G%-#0 > G%-#0 @ G%-#0 9 G%-#0 10 G%-#0 11 G%-#0 12 G%-#0 1; G%-#0 14 G%-#0 1< G%-#0 1= G%-#0 1> G%-#0 1@

;9 41 44 4< 4> 4@ <; =1 =; =; == => =9 =9

E9ECUTIVE 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

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(panyAs pro)itability& The study starts *ith an introduction to in,entory (ana-e(ent3 #o(panyAs 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&

CHAPTER 1
INTRODUCTION

INTRODUCTION
INTRODUCTION TO FINANCEA In our present day econo(y3 )inance de)ined as the pro,ision o) (oney at the ti(e *hen it is re?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
(anu)acturin- transactions& the sources used in

O(B"C&*4"2 $/ /*,-,C*-. )-,-3")",&

1& 1&

Pro)it (a2i(i@ation Dealth (a2i(i@ation

P%$/*& )-D*)*E-&*$, 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) societyEs econo(ic resources& 8"-.&0 )-D*)*E-&*$, Dealth (a2i(i@ationAs is a *idely reco-ni@ed criteria *ith the per)or(ance o)
business enterprise is e,aluated& The *ord E*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 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&

M"-,*,3 -,+ N-&'%" $/ I,4",&$%5A

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,4",&$%5 I,C.'+"2 T0" F$..$1*,3 T0*,32A A) R-1 M-&"%*-.A Ra* Material )or( a (ajor input into the or-ani@ation& They are re?uired to carry out production acti,ities uninterruptedly the ?uantity o) 15

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$%F *, P%$3%"22 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$,2')-(."2A 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- to their 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*,*20"+ 3$$+2A These are the -oods3 *hich areE ready )or the consu(ers the stoc+ o) )inished -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#-%"2A 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&
All decisions about spares are based on the )inancial cost o)

11

in,entory on such spares and the costs (at arise due to their nonF a,ailability& !","/*&2 $/ H$.+*,3 I,4",&$%*"2A
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 T0"%" -%" &0"*% )-*, #'%#$2"2 $/ 0$.+*,3 *,4",&$%*"2A
*) **) ***) T0" T%-,2-C&*$, M$&*4"A Dhich necessitates the holdin- o) in,entories )or T0" P%"C-'&*$,-%5 M$&*4"A Dhich necessitates the holdin- o) in,entories )or the unpredictable chan-es in de(and and supplies o) (aterials& (eetin- the unpredictable chan-es in de(and and supplies o) (aterials& T0" S#"C'.-&*4" M$&*4" G Dhich includes +eepin- in,entories )or ta+inad,anta-e o) price )luctuations3 sa,in- in reForderin- costs and ?uantity discounts&

NEED OF THE STUDYA

E,ery industry on a,era-e spends =5H on ra* (aterials Iin,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 11

process& The o,erall in,entory (ana-e(ent includes desi-n and in,entory control or-ani@ation *ith proper accountability establishin- procedure )or in,entory handlindisposal o) scrap si(pli)ication3 standardi@ation and codi)ication o) in,entories3 deter(inin- the si@e o) in,entory&

METHODOLOGY OF THE STUDYA

The study is based on both pri(ary and secondary data& P%*)-%5 +-&-A 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"C$,+-%5 +-&-A The collected data is tabulated and suitable interpretation had been (ade by considerin- the data collectin- throu-h secondary data li+e annual reports purchase re-isters3 stora-e records o) the or-ani@ation&

LIMITATIONS OF THE STUDYA

T0" 2&'+5 0-2 &0" /$..$1*,3 .*)*&-&*$,2A

The study is li(ited only )or a period 8 years i&e&3 )ro( 155=F5: to 1511F11
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 STUDYA

T0" )-*, $(B"C&*4"2 $/ &0" 2&'+5 -%"A 1& To present the conceptual and theoretical )ra(e*or+ relatin- to in,entory (ana-e(ent&

14

1& 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)itability ratios& 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&

17

CHAPTER G 2 INDUSTRY PROFILE : COMPANY PROFILE

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

18

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 1F4 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(petition3 alon- *ith those co(panies se,eral s(all 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) toiletsE soaps ha,e increased the T!M ITotal !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( theE8F5F95&per cent earlier to o,er =5 per cent o) late& F-&&5 AC*+ I,+'2&%5A 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 917& 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%"2",& S&-&'2 $/ I,+'2&%5A 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&

19

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 INDUSTRYA
HISTORYA Traditionally3 soap has been (anu)actured )ro( al+ali IlyeJ and ani(al )ats Itallo*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;15s three )ir(s had co(e to do(inate the industryG I1J #ol-ate Pal(oli,eFPeet3 I1J $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 I4J 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 $iril brand (anu)actured by 0industan le,er had sales o) 4855 MT3 representin- 17&7H o) the (ar+et share3 Mysore sandal (ade by >arnata+a soaps sold 18:: MT or 11H o) the (ar+et share3 and shi+a+i (anu)actured by s*asti+a sold 1855MT representin- 15&9H o) the (ar+et share )or the sa(e year 0industan le,er produced the three top brands o) popular Toilet soapsF$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 PROFILEA
H*2&$%5 $/ J$C*. L*)*&"+A

1=

"ocil li(ited *as incorporated on 15 th !ebruary3 1;=: as per the #erti)icate o) incorporation No&1195 -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 $IMITE%' IAPO#I$J& P%$)$&"%2 $/ &0" C$)#-,5A 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 IAPI%#J and "ayala+sh(i #otton and Oil Products Pri,ate $irnited3 I"#OPJ3 Perecherla3 &#o(pany belon-s to "ayala+sh(i roup& O%3-,*E-&*$,-. S&%'C&'%" O1,"%20*# -,+ M-,-3")",& !$-%+ $/ D*%"C&$%2A P&Narendranadh cho*dary "& Murali Mohan P& Narendranath #ho*dary Mullapudi Thi((araja Y& Narayanarao #ho*dary #hair(an Mana-in- %irector %irector %irector untur %ist

%irector %irector
%irector %irector

V&S& Raju
>& Srini,asa Rao M& opala+rishna Subbarao V& Tipirneni SENIOR E9ECUTIVESA P& >esa,ulu Reddy !AN7ERSA Andhra ban+ State 6an+ o) India

%irector

PresidentB Secretary

untur untur

AUDITORSA 6rah(ayya B #o&3 untur

FINANCIAL PERFORMANCEA

1:

F*,-,C*-.A "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$C*. L*)*&"+ ACC$',&*,3 P$.*C*"2G

1& G","%-.
The Accounts are prepared on historical cost con,ention and in accordance *ith nor(ally accepted Accountin- Standards&

1& F*D"+ A22"&2

!i2ed Assets are stated at historical cost less accu(ulated depreciation&

4& D"#%"C*-&*$,
%epreciation is pro,ided on the *ritten do*n ,alue (ethod at the rates and in the (anner speci)ied in Schedule MIV o) the #o(panies Act3 1;89& I,4"2&)",&2 $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

1;

CHAPTER ; THEORETICAL FRAME 8OR7

THEORETICAL FRAME 8OR7A

M"-,*,3 A,+ N-&'%" O/ I,4",&$%5A 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& 15

In,entory includes the )ollo*in- thin-s& RA8 MATERIALA 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 PROGRESSA 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!LESA 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 GOODSA 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) (arinatinin,entory is to ensure proper supply o) -oods to custo(ers& SPARESA 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 11

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 INVENTORIESA All thou-h holdin- in,entories in,ol,es bloc+in- o) a )ir(Es 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 *hich so(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& T0" &%-,2-C&*$, )$&*4"A Dhich )acilities continuous production and ti(ely e2ecution o) sales orderN T0" #%"C-'&*$,-%5 )$&*4"A Dhich necessitates the holdin- o) in,entories )or (eetin- the unpredictable chan-es

in de(and and supplies o) (aterials&

T0" 2#"C'.-&*4" )$&*4"A Dhich induces to +eep in,entories )or ta+in- ad,anta-e o) price )luctuations sa,in- in reForderin- costs and ?uantity discounts&

RIS7 AND COSTS OF HOLDING INVENTORIESA

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-#*&-. C$2&2A 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&

11

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" -,+ 0-,+.*,3 C$2&2A 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 supplies3 co(petition or -eneral 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 MANAGEMENTA

D"/*,*&*$, $/ *,4",&$%5 )-,-3")",&A 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

14

)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& T0" /$..$1*,3 -%" &0" $(B"C&*4"2 $/ *,4",&$%5 )-,-3")",&A 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 ri-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-.'-&*$, O/ I,4",&$%*"2 G M"&0$+2 O/ V-.'-&*$,2A

!I!O (ethod $I!O (ethod
17

 6ase stoc+ (ethod Dei-hted a,era-e price (ethod

I,4",&$%5 V-.'-&*$, A,+ C$2& F.$12A

80-& *2 &0" C$2& $/ *,4",&$%5H
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 penalty )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 year is less than the actual cost3 the in,entory ,alue is reduced to replay che(ical cost Icurrent (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 Ithe balance sheetJ are considered to be e2pensi,e and are thus included in the inco(e state(ent& V-.'-&*$, $/ *,4",&$%*"2 I )"&0$+ $/ +"&"%)*,-&*$,A
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 18

close o) an accountin- period& The (ost co((only used (ethods are )irst in )irst out I!I!OJ a,era-e3 and last in )irst out I$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 (/*%2& *, /*%2& $'& )"&0$+)

/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+4-,&-3"2A
T0" FIFO )"&0$+ 0-2 &0" /$..$1*,3 -+4-,&-3"2. 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@inor sellin- those (aterials or -oods *hich ha,e been lon-er in stoc+&

D*2-+4-,&-3"2A
T0" )"&0$+ 2'//"%2 /%$) &0" /$..$1*,3 +*2-+4-,&-3"2. 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(eti(es di))icult& A job co((enced a )e* (inutes a)ter 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&

19

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 (.-2& *, /*%2& $'& )"&0$+)

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+4-,&-3"2A
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 METHODA

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+&

1=

8EIGHTED AVERAGE PRICE METHODA

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-.'-&*$, $/ I,4",&$%*"2 I I)#-C& $, &0" F.$1 $/ C$2&2A

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 Iin,entoriesJ and the inco(e state(ent Icosts 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 and the 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&

1:

E4-.'-&*$, O/ M"&0$+2 I 80-& C-'2"2 T0" D*//"%",C"2H

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 the sa(e in,entory ,alue and cost )lo*& #osts )lo*s and in,entory are e2actly the sa(e under stable prices& Dith a )allinprice 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) $I!O and !I!O& E4-.'-&*$, O/ M"&0$+2 C-, 8" J'2&*/5 T0" D*//"%",C"2H
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 the phys ical )lo* s ince both (ethods could in,ol,e identical and interchan-eable 1;

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 person *ould atte(pt Eto reduce such deterioration 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( out K 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- prices as has been the case in our econo(y durin- recent years&

45

C0-#&"% 4 S&'+5 $, &0" *,4",&$%5 )-,-3")",& -& JOCIL

41

INVENTORY RATIOSA
1& In,entory turno,er ratio& 1& In,entory to current assets ratio& 4& Dor+in- capital ratio 7& Assets turno,er ratio 8& <uic+ ratio&
1.INVENTORY TURNOVER RATIOA

This ratio indicates the nu(ber o) ti(es the stoc+ has been turned o,er durin- the period B e,aluated the e))iciency *ith *hich a )ir( is able to (ana-e its in,entory& This ration is calculated by applyin- the )ollo*in- )or(ula&

C$2& $/ 3$$+2 2$.+ I,4",&$%5 T'%,$4"% R-&*$, J A4"%-3" I,4",&$%5

41

Y"-%

C$2& $/ 3$$+2 2$.+

;79555175 11==148;4= 11714=;1;7 4148541915 1115=47749

A43. I,4",&$%5
1581;1748 144;78514 19:;9:591 1:8;71881 141758545

R-&*$
:&;: ;&85 11&9= 11&41 ;&1:

155=F155: 155:F155; 155;F1515 1515F1511 1511F1511

T-(." 1A I,4",&$%5 &'%,$4"% %-&*$

G%-#0 1A I,4",&$%5 &'%,$4"% %-&*$

44

I,&"%#%"&-&*$,A More in,entory ratio is desirable to any co(pany and it indicates that the co(pany usin- lo* ,alue o) in,entory& The in,entory decreased in 1511 *hen co(pared to 1511& Actually the )ir( has to (aintain (ore in,entories )or the purpose production o) (ore products& 0ere the in,entory is decreased due to less orders )ro( 0/$ 3IT#&

2. INVENTORY TO CURRENT ASSETSA 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,4",&$%5 I,4",&$%5 &'%,$4"% C'%%",& -22"&2 %-&*$ J C'%%",& -22"&2

Y"-%
155=F155: 155:F155; 155;F1515 1515F1511 1511F1511

I,4",&$%5
144;78514 14:;1:544 14:;9:591 1:8;71881 1581;1748

C'%%",& -22"&2
977:7:=91 917:998=: :881==911 15181=114: 858118;=:

R-&*$
5&11 5&11 5&1; 5&1= 5&11

T-(." 2AI,4",&$%5 &$ C'%%",& -22"&2 %-&*$

47

G%-#0 2AI,4",&$%5 &$ C'%%",& -22"&2 %-&*$

I,&"%#%"&-&*$,A The in,entory to current assets ratio had been decreased to5&15 in the year 155;F15 this is due to )all in the in,entories and current assets the si-ni)icant drop in the le,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 1515F11 in,entory is increased to 5&1= due to i(pro,e(ent o) in,entory to current assets& The in,entory to current assets ratio had )allen to 5&11 in the year 1511F11&

;. CURRENT RATIOA 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'%%",& -22"&2 C'%%",& %-&*$ J

48

C'%%",& .*-(*.*&*"2

Y"-%
155=F155: 155:F155; 155;F1515 1515F1511 1511F1511

C'%%",& -22"&2
977:7:=91 917:998=: :881==911 15181=114: 858118;=:

C'%%",& .*-(*.*&*"2
151:1;8;: 1;57=;88=1 451=89554 4;1941;:= 19::91411

R-&*$
4&1: 4&1: 1&:4 1&91 4&55

T-(." ;AC'%%",& %-&*$

G%-#0 ;AC'%%",& %-&*$ I,&"%#%"&-&*$,A In "O#I$ the current ratio is 1&: in 1511& It (eans that )or one rupee o) current liabilities3 the current assets are 1&: rupee is a,ailable to the(& In other *ords the current assets are 1&: ti(es the current liabilities& Al(ost the past 7years current ratio is )luctuatin- but current ratio in 1511 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

49

obli-ations B there)ore )ro( the point o) ,ie* o) creditors the co(pany is in -ood condition&

4.?UIC7 RATIOA The ?uic+ ratio is the relationship bet*een ?uic+ to current liabilities ?uic+ assets is (ore ri-orous test o) liability position o) a )ir( it is co(puted by applyin- the )ollo*in)or(ula& ?'*CF %-&*$ J K'*CF -22"&2 L C'%%",& .*-(*.*&5 Dhere K'*CF -22"&2 J C'%%",& -22"&2 G *,4",&$%*"2

Y"-%
155=F155: 155:F155; 155;F1515 1515F1511 1511F1511

?'*CF -22"&2
815;54=4: 7:8;7:878 9:8141559 =4;41:9:= 4;;:17874

C'%%",& .*-(*.*&*"2
151:1;8;: 1;57=;8=1 451=89554 4;1941;:= 19::91411
T-(." 4A?'*CF %-&*$

R-&*$
1&7 1&9 1&4 1&5 1&7

4=

G%-#0 4A?'*CF %-&*$ I,&"%#%"&-&*$,A Al(ost in past 7 years the li?uid ratio is )luctuatin-& The ?uic+ ratio o) the "O#I$ #o(pany has increased )ro( 1&: to 1&4 )ro( 1511F1511& 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(panyAs 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 RATIOA 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& -22"&2 &'%,$4"% %-&*$ J ,"& 2-."2 L &$&-. -22"&2

4:

Y"-%
155=F155: 155:F155; 155;F1515 1515F1511 1511F1511

N"& 2-."2
;79555175 11==148;4= 11714=;1;7 4148541915 :15=47749

T$&-. -22"&2
977:7:=91 917:998=: 158=18158 119::;8;5 858118;=:
T-(." <AA22"&2 &'%,$4"% %-&*$

R-&*$
1&7= 1&57 1&51 1&87 1&87

G%-#0 <A A22"&2 &'%,$4"% %-&*$ I,&"%#%"&-&*$,A 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&

4;

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 RATIOA 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 increasinin,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,4",&$%5 &$ 1$%F*,3 C-#*&-. %-&*$JI,4",&$%5L1$%F*,3 C-#*&-.

($%) JI,4",&$%5L(C'%%",& -22"&2 C'%%",& .*-(*.*&*"2)

Y"-%
155=F5: 155:F155; 155;F1515 1515F1511 1511F1511

I,4",&$%5
144;78514 14:;1:544 14:;9:591 1:8;71881 1158:1:=5

8$%F*,3 C-#*&-.
77151;194 7474:=55= 881777597 94494;181 9=185=441

R-&*$
5&45 5&41 5&45 5&78 5&41

T-(." =AI,4",&$%5 &$ 1$%F*,3 C-#*&-. %-&*$

75

G%-#0 =A I,4",&$%5 &$ 1$%F*,3 C-#*&-. %-&*$ I,&"%#%"&-&*$,A Percenta-e (easure o) a )ir(Es 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(Es )inancial stren-th& The in,entory turno,er ratio had been decreased to 5&41 in the year 1511F11 the reason )or this decrease in turno,er *hich is (ainly pre,ailin- condition in the industry&

71

#0APTER 8 I(pact On Other Pro)itability Ratios

71

ROFITA!ILITY RATIOSA
NET PROFIT RATIOA Net pro)it ratio is co(puted by di,idin- the net pro)it Ia)ter ta2J by net sales& It is a ,ery popular pro)itability ratio that sho*s the net operatin- earnin-s& This ratio sho*s the net earnin-s Ito be distributed to both e?uity and pre)erence shareholdersJ as a percenta-e o) net sales& It (easures the o,erall e))iciency o) production3 ad(inistration3 sellin-3 )inancin-3 pricin- and ta2 (ana-e(ent& "ointly considered3 the -ross and net pro)it (ar-in ratios pro,ide an understandin- o) the cost and pro)it structure o) a )ir(& N"& #%$/*& %-&*$J N"& #%$/*&( -/&"% &-D)L2-."2M100

S.N$
155=F5: 155:F5; 155;F15 1515F11 1511F11

N"& P%$/*&
:19&1; ;9;&59 1149&=5 1=89&1; 1;91&15

S-."2

R-&*$
8&5;H 8&15H =&11H =&;=H =&;1H

19151&19 1:951&1; 1;948&5= 47891&15 4=741&1; T-(." >A N"& #%$/*& %-&*$

74

G%-#0 >A N"& #%$/*& %-&*$ I,&"%#%"&-&*$,A 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 RATIOA

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

77

o,er the direct cost3 ho* producti,e the concern 3 ho* (uch a(ount is le)t to (eet other e2penses B earn net pro)it& G%$22 #%$/*& %-&*$J G%$22 #%$/*&L,"& 2-."2M100

S.N$
155=F5: 155:F5; 155;F15 1515F11 1511F11

G%$22 P%$/*&
1=&=; 15&:5 4=&=4 4=&;4 41&59

N"& S-."2

R-&*$
8&9: 15&=1 11&81 ;&;1 =&;4

411&:; 1;7&14 451&77 4:1&15 4;1&48 T-(." @A G%$22 #%$/*& %-&*$

G%-#0 @A G%$22 #%$/*& %-&*$

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

78

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 1511 and it a-ain -ot decreased in 1511 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 INVESTMENTA
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"&'%, $, *,4"2&)",& %-&*$ J (,"& #%$/*& -/&"% *,&"%"2& &-D L &$&-. ,"& -22"&2) D 100 Y"-% 2007-08 2008-09 2009-10 2010-11 2011-12 EAT :&9= ;&9; 11&4= 1;&74 11&85 N"& -22"&2 :8&:1 ;7&=7 119&17 19:&1: 18=&88 R"&'%, $, *,4"2&)",& (N) 15&15 15&11 1:&7 11&87 =&;4

T-(." 9A R"&'%, $, *,4"2&)",&

G%-#0 9A R"&'%, $, *,4"2&)",& 79

I,&"%#%"&-&*$,A
It -i,es the relation bet*een net pro)it and total assets& The table sho*s an decreasin- ratio )ro( last 1 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 SHAREHOLDERSO E?UITYA

The a(ount o) net inco(e returned as a percenta-e o) shareholders e?uity& Return on e?uity (easures a corporationEs pro)itability by re,ealin- ho* (uch pro)it a co(pany -enerates *ith the (oney shareholders ha,e in,ested& R"&'%, $, 20-%"0$.+"%O2 EK'*&5 J N"& #%$/*& -/&"% *,&"%"2& -,+ &-D L S0-%"0$.+"%P2 EK'*&5 Net inco(e is )or the )ull )iscal year Ibe)ore di,idends paid to co((on stoc+ holders but a)ter di,idends to pre)erred stoc+&J ShareholderEs e?uity does not include pre)erred shares& Also +no*n as Creturn on net *orthC IRONDJ&

Y"-%

NPAIT

S0-%"0$.+"%O2 "K'*&5

R"&'%, $, 20-%"0$.+"%O2 "K'*&5 (N) 15&74 15&;4 15&4: 19&1= ;&:1

2007-08 2008-09 2009-10 2010-11 2011-12

:&9= ;&9; 11&4= 1;&74 11&85

:4&15 ::&97 157&:4 115&14 11=&7=

T-(." 10A R"&'%, $, "K'*&5 7=

G%-#0 10A R"&'%, $, S0-%" H$.+"%O2 EK'*&5

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

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(panyEs pro)it (ar-in3 *or+in- capital3 assets and shareholderEs 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&

7:

The in,entory (ethod a co(pany uses a))ects its costs o) -oods sold3 or #O S3 *hich has an i(pact on its pro)itability ratios& The )or(ula )or #O S 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 #O S3 *hich increases its -ross pro)it (ar-in Isales less #O SJ 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- $I!O reports hi-her #O S3 translatin- into lo*er -ross pro)it3 net inco(e and pro)it (ar-ins& This (eans earnin-s per share Inet inco(e di,ided by e?uity shares outstandin-J is hi-her usin!I!O all else bein- e?ual& A -ood rule o) thu(b is that i) in,entory turno,er ratio (ultiply by -ross pro)it (ar-in Iin percenta-eJ is 155 percent or hi-her3 then the a,era-e in,entory is not too hi-h& Accordin- to this rule by (ultiplyin- turno,er ratio and -ross pro)it ratio o) "O#I$ $td in the year 1515F11 the percenta-e is 117&89H this sho*s that the co(pany a,era-e in,entory is not too hi-h& 6ut in the year 1511F11 the percenta-e is the percenta-e is :9&;1H this sho*s that the co(pany a,era-e in,entory is so(e*hat hi-h *hen co(pared to be)ore year so "O#I$ 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 1 years *hich -i,es less return on in,est(ents )or the co(pany&

7;

85

CHAPTER = C-20 C$,4"%2-&*$, C5C."

ANALYSIS OF OPERATING CYCLE AT JOCIL LTDG

T0" C-20 C$,4"%2*$, C5C." ICCC or O#"%-&*,3 C5C."J is the len-th o) ti(e bet*een a )ir(Es 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(Es 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 C5C." J I,4",&$%5 C$,4"%2*$, P"%*$+ Q D"(&$%2 C$,4"%2*$, P"%*$+ G C%"+*&$%2 P-5-(." P"%*$+ O#"%-&*,3 C5C." Y"-% 200> 0@ 200@ 09 2009 10 2010 11 2011 12

81

I,4",&$%5 C$,4"%2*$, A4"%-3" C$.."C&*$, P-5-(."2 D"/"%%-. O#"%-&*,3 C5C."

37.12073 761 38.99431 765 23.60730 976 52.50774 55

40.874265 2 40.089366 91 15.710775 1 65.252857 01

73.043459 07 38.708733 86 22.400084 78 89.352108 15

52.556056 42.433388 59 7.6520277 89 87.337416 8

57.774596 4 44.687197 35 10.085364 52 92.376429 23

T-(." 11A O#"%-&*,3 C5C." Y"-% 200708 200809 200910 201011 201112 R"C"*4-(."2 228771563 355316081 438561908 500071735 555178532 S-."2 #"% +-5 5866792.312 8863100.329 11329792.12 11784864.5 12423659.68 T-(." 12A D"(&$%2 C$,4"%2*$, #"%*$+ D"(&$%2 C$,4"%2*$, P"%*$+ 38.99431765 40.08936691 38.70873386 42.43338859 44.68719735

Y"-% 2007-08 2008-09 2009-10 2010-11 2011-12

I,4",&$%5 168968061 285942551 675506154 506456758 572000689

C$2& $/ 3$$+2 2$.+ 1661425560 2553416692 3375521222 3517324752 3613703329

I,4",&$%5 C$,4"%2*$, #"%*$+ 37.12073761 40.8742652 73.04345907 52.556056 57.7745964

T-(." 1;A I,4",&$%5 C$,4"%2*$, #"%*$+ Y"-% 2007-08 2008-09 P-5-(."2 107456953 109907275 C$2& $/ 3$$+2 2$.+ 1661425560 2553416692 81 C%"+*&$%2 P-5-(." #"%*$+ 23.60730976 15.7107751

2009-10 2010-11 2011-12

207156059 73738813 99850727

3375521222 3517324752 3613703329

22.40008478 7.652027789 10.08536452

T-(." 14A C%"+*&$%2 #-5-(." #"%*$+

G%-#0 11A C-20 C$,4"%2*$, C5C."

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

84

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&

87

CHAPTER > T$$.2 -,+ &"C0,*K'"2 $/ *,4",&$%5 )-,-3")",&

TOOLS AND TECHNI?UES OF INVENTORY MANAGEMENTA

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"&"%)*,-&*$, $/ 2&$CF ."4".2A #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 orderin88

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*,*)') 2&$CF ."4".A 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-&" $/ C$,2')#&*$,A It is the a,era-e consu(ption o) (aterials in the )actory& The rate o) consu(ption *ill be decided on the basis o) past e2perience and production plans& Nature o) (aterialsG the (ature o) (aterials also a))ects the (ini(u( le,el& I) a (aterial is re?uired only a-ainst the special orders o) the custo(er then (ini(u( stoc+ *ill not be re?uired )or such (aterial& Mini(u( stoc+ le,el can be calculated *ith the help o) )ollo*in)or(ula& M*,*)') 2&$CF ."4".J ReForderin- le,elFINor(al consu(ption 2 Nor(al reForder periodJ

R" $%+"%*,3 L"4".A Dhen the ?uantity o) (aterials reaches at a certain )i-ure the )resh order is sent to -et (aterials a-ainG the order is sent be)ore the (aterials reach (ini(u( stoc+ le,el& ReF orderin- le,el *2 )i2ed bet*een (ini(u( le,el (a2i(u( le,els& M-D*)') ."4".A It is the ?uantity o) (aterials beyond *hich a )ir( should not e2ceeds its stoc+s& I) the ?uantity e2ceeds (a2i(u( le,el li(it then it *ill be o,erFstoc+in-& O,erstoc+in- *ill (ean bloc+in- o) (ore *or+in- capital3 (ore space )or storin- the (aterials3 (ore *asta-e o) (aterials and (ore chances o) losses )ro( obsolescence& M-D*)') 2&$CF ."4". J%"$%+"%*,3 ."4". O %"$%+"% K'-,&*&5 I (M-D*)') C$,2')#&*$, D M*,*)') %"$%+"% #"%*$+)

89

D-,3"% 2&$CF ."4".A It is )i2ed belo* (ini(u( stoc+ le,el& The dan-er stoc+ le,el indicates e(er-ences o) stoc+ position and ur-ency o) obtainin- )resh supply at any cost& D-,3"% 2&$CF ."4". P -4"%-3" %-&" $/ C$,2')#&*$, D ")"%3",C5 +".*4"%5 &*)" A4"%-3" 2&$CF ."4".A This stoc+ le,el indicates the a,era-e stoc+ held by the concern& A,era-e stoc+ le,el P Mini(u( stoc+ le,el P 2 order3 ?uantity D"&"%)*,-&*$, $/ 2-/"&5 2&$CF2A 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 costs are in,ol,ed in the deter(ination o) this stoc+ that is 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 resultininto the lar-er ?uantity o) sa)ety stoc+s in,ol,es carryin- costs&

ECONOMICS ORDER ?UANTITY (EO?)A

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$&-. C$2& )-&"%*-. P ACK'*2*&*$, C$2& QC$2& O C-%%5*,3 C$2&2& Q $%+"%*,3 C$2& C-%%5*,3 C$2&A It is the cost o) holdin- the (aterials in the store&

8=

O%+"%*,3 C$2&A It is the cost o) placin- orders )or the purchase o) (aterials& EO< can be calculated *ith the help o) the )ollo*in- )or(ula& EO< Q1 #O.I Dhere #P consu(ption o) the (aterial in units durin- the year OP orderin- cost IP carryin- cost or interest pay(ent on the capital&

A!C ANALYSISA (AL8AYS !ETTER CONTROL ANALYSIS)A

/nder A6# analysis the (aterials are di,ided into 4 cate-ories ,i@&&3 A3 6 and #& Al(ost 15H o) the ite(s contribute to =5H o) ,alue o) consu(ption and this cate-ory is called EAE cate-ory& About 15H o) the ite(s contribute about 15H o) ,alue o) cate-ory E#E co,ers about =5H o) ite(s o) (aterials *hich contribute only 15H o) ,alue o) consu(ption&

VED ANALYSISA (VITALLY ESSENTIAL DESIRE)

The VE% analysis is used -enerally )or spare parts& Spare parts classi)ied as Vital IVJ3 Essential IEJ3 and %esire I%J& The ,ital spares are a (ust )or runnin- the concern s(oothly and these (ust be stored ade?uately& The EEE types o) spares are also necessary but their stoc+s (ay be +ept at lo* )i-ures& The stoc+in- o) R%E type spares (ay be a,oided at ti(es& I) the lead ti(e o) these spares is less3 then stoc+in- o) these spares can be a,oided&

INVENTORY TURNOVER RATIOA

In,entory turno,er ratios are calculated to indicate *hether in,entories ha,e been used e))iciently or not& The in,entory turno,er ration also +no*n as stoc+ ,elocity is nor(ally calculated as sales . a,era-e in,entory o) cost o) -oods sold . a,era-e in,entory& In,entory con,ersion period (ay also be calculated to )ind the a,era-e ti(e ta+en )or clearin- the stoc+s& Sy(bolically&

C$2& $/ 3$$+2 2$.+ I,4",&$%5 &'%,$4"% %-&*$ J A4"%-3" *,4",&$%5 -& C$2&

8:

(OR) N"& S-."2 J A4"%-3" I,4",&$%5 D-52 *, - 5"-% A,+6 I,4",&$%5 C$,4"%2*$, #"%*$+ J I,4",&$%5 &'%,$4"% %-&*$

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

A!C A,-.52*2 T"C0,*K'" $/ I,4",&$%5 M-,-3")",& A& JOCIL LTD F$% T0" Y"-% 200@ 09A

8;

2.,$

,-)" $/ ',*&2

*, N*/ &$&-.

C')'.-&*4"

',*&

&$&-. C$2& N $/ C')'.-&*4 &$&-. 445;17; 7 C$2& 8;&= 5 4&=7 "N $/

C-&"3$%5

&0" *&") K'-,&*&5 1 !atty acids 1 lycerin 94 ;:=

N $/ &$&-. C$2& 4481 = 71&;1

',*&2 ',*&2 75&4 75&48 8

&$&-. C$2& 8;&=5 SAA

1&8= 4 Soap Product 8:1 14&= ; 99&=1

41;1 8 4495 ;

15=4991 1;89151 7

4&=7 48&1 ; S6A ;:&=7

Pitch

17 5&8=

9=&1: 1==4 ; 4::487 5&=1

;;&78

Industria l o2y-en

:55

41&= 1

155

=&5=

898=

5&51

;;&78 S#A

others Total

F 1779 F 155

457;91 8871817 1

5&88 155

155

T-(." 1<A A!C A,-.52*2 /$% &0" 5"-% 200@ 09

95

G%-#0 12A N?'-,&*&5 $/ *,4",&$%5 I,&"%#%"&-&*$,A There are t*o ite(s *hich co(es under cate-ory A *hich co(prises o) )atty acids 3-lycerin&These ite(s co,er 95H o) total cost and 75H o) total ,olu(e&These ite(s are to be controlled strictly and are to be )orcasted accurately& The 6 cate-ory in,entory co(prises o) t*o ite(s i&e&soap products3pitch *hich occupy about 47&;9H o) total cost and 1:&=5H ,olu(e&These ite(s re?uire only a (oderate control& There is one ite( i&e& industrial o2y-en3others consu(e under # cate-ory&This ite(s occupied 7&:4H o) total cost and 1:&9H o) total ,olu(es&$ose control is acceptable )or these ite(s&

91

A!C A,-.52*2 T"C0,*K'" O/ I,4",&$%5 M-,-3")",& A& J$C*. L&+ F$% T0" Y"-% 2009 10A S.,$ N-)" $/ U,*&2 &0" *&") *, NI/ &$&-. C')'.-&*4 " N$/ &$&-. ',*&2 U,*& C$2& T$&-. C$2& N $/ C') C-& '.-&* "3 $% 5

K'-,&*& ',*&2 5

&$&- 4"N . $/

C$2& &$&-. 1 !atty acids 1 4 7 -lycerin Soap product Industrial o2y-en S#A 8 Others Total F F F F 4:41711 9;=:9147 8&7; 155 155 179&5; 48&79 =51&189 1;&41 1971 78&15 48&7: 87&: 155 19;91&:= 4;4::95 41=7=5&= 11;95:5: 9&:: 11451 8&97 91&8: 41&; ;7&81 S6A 5&54 ;7&81 1171&75 41&79 41&79 471=9&;8 4;574=88 C$2& 88&; 88&;7 SAA

4945&97 155
T-(." 1= A A!C A,-.52*2 /$% &0" 5"-% 2009 10

91

G%-#0 1; A N V-.'" $/ *,4",&$%5 /$% &0" 5"-% 2009 10

G%-#0 14A N?'-,&*&5 $/ *,4",&$%5

I,&"%#%"&-&*$,2A 94

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 41&;5H o) total cost and 1;&41H,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&81H o) total cost and 78&15H o) total ,olu(e&$ose control is acceptable )or these ite(s&

A!C A,-.52*2 T"C0,*K'" O/ I,4",&$%5 M-,-3")",& A& JOCIL L&+ F$% T0" Y"-% 2010 11A

97

S., $

N-)" *&")

$/ U,*&2 *, N*/ C')'.K'-,&*&5 &$&- &*4" . N

U,*& C$2&

T$&-. C$2& N &$&-. C$2&

C')'.-&

C-&"3$

*4" N $/ %5 &$&-.

$/ &$&-.

',*& ',*&2 1 !atty acids 11=7&=1 8 -lycerin 1 4 Soap product ==&4;8 9=1&194 81&99 4&57 19&1 =:&=: 1 S6A 7 8 Toilet soap Industrial o2y-en 99&7;7 7=; 1&8: :1&49 1:&9 155 7 S#A 9 Others Total F 49:9&97 9
T-(." 1>A A!C A,-.52*2 /$% &0" 5"-% 2010 11 98

2 7;&9 7;&91 1

71:4:&==

84441;47

8=&;7

8=&;7

19=8;&17 4;715

15=1541 1978=179

1&17 1:&=7

95&1: ::&;1

:9141&=; 9&:7

8=44:;= 41=:

9&11 5&54

;8&17 ;8&1=

F F 155

777;9:7 88718171

7&:4 155

155

G%-#0 1<A NV-.'" $/ *,4",&$%5

G%-#0 1=A N?'-,&*&5 $/ *,4",&$%5

I,&"%#%"&-&*$,G 99

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 71H 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 1:&=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,-.52*2 T"C0,*K'" O/ I,4",&$%5 M-,-3")",& A& J$C*. L&+ F$% T0" Y"-% 2011 12. 2.,$ N-)" $/ U,*&2 *, N*/ *&") 1 !atty acids 1 lycerin 45 K'-,&*&5 &$&-. ==9 C')'.-&*4" U,*& N$/ &$&-. C$2& 4181: 1779915 8 95&18 741;8 11;:::7 =5&5: 41:81 4 7119481 4&:: 11&9 9 :;&97

&$&-. C$2& N $/ C')'.-&*4" C-&"3$%5 &$&-. C$2& =4&1 5 =9&;: SAA N$/ C$2& =4&15 &$&-.

',*&2 ',*&2 8=&;1 8=&; 1 1&17

Soap product

144

=5&5 :

9=

S6A

Pitch

4;8 ;;&8

:557

41917; 9

;&78 ;;&5 89 ; 5&51 ;;&15

Industrial 9 o2y-en

9 5&77

155

;&4

Other Total

1475

451111 44797;= 1
T-(." 1@A A!C A,-.52*2 /$% &0" 5"-% 2011 12

5&;5 155

155

G%-#0 1>A NV-.'" $/ *,4",&$%5

9:

G%-#0 1@A N?'-,&*&5 $/ *,4",&$%5

I,&"%#%"&-&*$,A 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 and1=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;

CHAPTER

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

=5

FINDINGS
In the year turno,er ratio is -ood *hen co(pared in year 1559F5= and 1515F 11&!ro( this it has been obser,ed that the in,est(ent on ra* (aterials has been decreased )ro( 1515F11 to 1511F11& !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) 155=F11 the co(pany is (aintainin- satis)actory current ratio& Dhich is (ore than idle ratio 1G1 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

SUGGESTIONS
The in,est(ent on ra* (aterial has decreased )ro( 155=F11 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&

=1

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

!I!ILOGRAPHY
F$% &0" #%"#-%*,3 &0" %"#$%& 1" '2"2 &0" /$..$1*,3A 1 & Annual Report o) the co(pany o) 155=F5:& 2. 8"(2*&"2A ***&jocil ltd&co( ***&-oo-le&co( ***&+ota+securities&co( ***&(oneycontrol&co( ;& !$$FA !inancial Accountin-3 4rd Edition3 P0I $earnin- P,t& $td&3 AuthorF R& Narayans*a(y3 Part III3 #hapter113 !inancial State(ent Analysis&

=7

=8