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INVENTORY MANAGEMENT
INTRODUCTION:
Every enterprise needs inventory for smooth running of its activities.
It serves as a link between production and distribution process. There is,
generally, a time lag between the recognition of a need and its fulfillment. The
greater the time lag, the higher requirements for inventory. It also provides a
cushion for future price fluctuations.
In a complex industry like Kesoram Industries Limited it studied
clearly of how the thing are being performed and what is the real impact of
these on industry and how effectively the inventory is utilized is interested to
be known by researcher because of its great significance in the research.
IMPORTANCE OF THE STUDY:
Decisions Relating to Inventories are taken primarily by executives in
productions, purchasing, and marketing departments. Usually, raw material
policies are shaped by purchasing and production executives, work-in-process
inventory is influenced by the decisions of production executives, and finished
goods inventory policy is evolved by production and marketing executives.
Yet, as inventory management has important financial implications, the
financial manager has the responsibility to ensure that inventories are properly
monitored and controlled. He has to emphasize the financial point of view and
initiate programmes with the participation and involvement of others for
effective management of inventories.
2.
3.
4.
5.
1. The report will not provide exact Budgetary System status and position
in HERITAGE FOODS it may vary from time to time and situation to
situation.
2. The study is limited unto the date and information provided by
HERITAGE FOODS and its annual reports
The study is limited only for a period of 5 years i.e., from 2007
08 to 2012-13.
2.
3.
CHAPTER-2
REVIEW OF LITERATURE
The investment in inventories constitutes the most significant part of
current assets / working capital in most of the undertakings. Thus, it is very
essential to have proper control and management of inventories.
The purpose of inventory management is to ensure availability of
materials in sufficient quantity as and when required and also to minimize
investment in inventories.
Meaning and Nature of Inventory:
In accounting language, inventory may mean the stock of finished
goods only. In a manufacturing concern, it may include raw materials, workin progress and stores etc.
Inventory includes the following things:
a)
Raw Material: Raw material from a major input into the organization.
They are required to carry out production activities uninterruptedly.
The quantity of raw materials required will be determined by the
rate of consumption and the time required for replenishing the
supplies. The factors like the availability of raw materials and
Government regulations etc., too affect the stock of raw materials.
b)
c)
d)
Finished goods: These are the goods, which are ready for the
consumers. The stock of finished goods provides a buffer between
production and market, the purpose of maintaining inventory is to
ensure proper supply of goods to customers.
e)
on such spares and the costs that may arise due to their non availability.
BENEFITS OF HOLDING INVENTORIES
Although holding inventories involves blocking of a firms and the
costs of storage and handling, every business enterprise has to be maintain
certain level of inventories of facilitate un interrupted production and
smooth running of business. In the absence of inventories a firm will have to
make purchases as soon as it receives orders. It will mean loss of time and
delays in execution of orders which sometimes may cause loss of customers
and business.
2.
3.
2.
3.
4.
2.
3.
4.
5.
6.
7.
8.
9.
of liquidity but also increases profit and causes substantial reduction in the
working capital of the concern.
The following are the important tools and techniques of inventory
management and control.
1.
firm. If the inventory level is too little, the firm will face frequent stock outs
involving heavy ordering cost and if the inventory level is too high it will be
unnecessary tie up of capital.
An efficient inventory management requires that a firm should
maintain an optimum level of inventory where inventory costs are the
minimum and at the same time there is no stock out which may result in loss
or sale or shortage of production.
a)
allowed to fall.
Lead time: A purchasing firm requires sometime to process the order
and time is also required by the supplying firm to execute the order.
10
The time in processing the order and then executing it is know as lead
time.
Rate of Consumption: It is the average consumption of materials in
the factory. The rate of consumption will be decided on the basis of past
experience and production plans.
Nature of materials: The nature of material also affects the minimum
level. If a material is required only against the special orders of the customer
then minimum stock will not be required for such material.
Minimum stock level can be calculated with the help of following
formula.
Minimum stock level Re ordering level (Normal consumption x
Normal re order period)
b)
Re ordering Level:
When the quantity of materials reaches at a certain figure then fresh
order is sent to get materials again. The order is sent before the materials reach
minimum stock level.
Re ordering level is fixed between minimum level maximum level.
c)
Maximum Level:
It is the quantity of materials beyond which a firm should not exceeds
its stocks. If the quantity exceeds maximum level limit then it will be over
stocking.
Overstocking will mean blocking of more working capital, more space
for storing the materials, more wastage of materials and more chances of
losses from obsolescence.
Maximum stock level Reordering Level + Reorder Quantity
(Maximum Consumption x Minimum reorder period)
d)
emergency of stock position and urgency of obtaining fresh supply at any cost.
11
2)
The demand for materials may fluctuate and delivery of inventory may also be
delayed in such a situation the firm can be face a problem of stock out.
In order to protect against the stock out arising out of usage
fluctuations, firms usually maintain some margin of safety stocks.
Two costs are involved in the determination of this stock that is
opportunity cost of stock outs and the carrying costs.
If a firm maintains low level of safety frequent stock outs will occur
resulting into the larger opportunity costs. On the other hand, the larger
quantity of safety stocks involves carrying costs.
3)
12
Ordering Cost:
It is the cost of placing orders for the purchase of materials.
EOQ can be calculated with the help of the following formula
EOQ = 2CO / I
Where C = Consumption of the material in units during the year
O = Ordering Cost
I = Carrying Cost or Interest payment on the capital.
4)
viz., A, B and C.
Almost 10% of the items contribute to 70% of value of consumption
and this category is called A category.
About 20% of the items contribute about 20% of value of category C
covers about 70% of items of materials which contribute only 10% of value of
consumption.
5)
13
(Or)
Net sales
=
________________________
(Average) Inventory
And,
Inventory conversion period
Days in a year
______________________
Inventory Turnover ratio
7)
14
The class of materials is assigned two digits and then two or three
digits are assigned to the categories of items divided into 15 groups. Two
numbers will be category of materials in that class.
The third distinction is needed for the quality of goods and decimals
are used to note this factor.
8)
15
16
Need of Inventory:
Inventories are maintained basically for the operational smoothness
which they can be affected by uncoupling successive stages of production,
whereas the monetary value of the inventory serves as a guide to indicate the
size of the investment made to achieve this operational convenience. The
materials management departments primary function is to provide this
operational convenience with a minimum possible investment in inventories.
Materials department is accused of both stock outs as well a large investment
in inventories. The solution lies in exercise a selective inventory control and
application of inventory control techniques. Inventories build to act as a
cushion between supply and demand. It is sufficient to take care of the
requirements of demand till the next supply arrives. It is sufficient to take care
of probable delays in supply as well as probable variations in demand.
The size of the inventory depends upon the factors such as size of
industry internal lead time for purchase, suppliers lead time, vendor relations
availability of the materials, annual consumption of the materials. Inventory
coat can be controlled by applying Modern Techniques viz., ABC analysis,
SDE, ESN, HMC, VED etc. These techniques can be used effectively with the
help of computerization.
What is meant by inventory cost :
A.
B.
C.
17
Basically there are four costs for consideration in developing and inventory
model.
1.
2.
3.
4.
supply side costs and help in the determination of the quantity to be ordered
for each replenishment.
The under stocking and over stocking costs are viewed as the demand
side costs and help in the determination of the amount of variations in demand
and the delay in supplies which the inventory should withstand.
Whenever an order placed for stock replenishment, certain costs are
involved, and, for most practical purpose it can be assumed that the cost per
order is constant. The ordering cost may vary depending upon the type of
items, for example raw material like steel against production component like
castings in steel plants, support materials in the case of coal industry.
The cost ordering includes:
1)
2)
Follow up costs the follow up, the telephones, telex and postal bills
etc.,
3)
4)
5)
18
Interest on capital.
2)
3)
4)
5)
6)
7)
Obsolescence.
The inventory carrying cost varies and a major portion of this is
19
20
2)
3)
4)
2)
21
II.
III.
IV.
2)
Perishable type.
Base Stock Method:
This method is based on the contention that each enterprise maintains
at all times a minimum quantity of materials or finished goods in its stock.
This quantity is termed as base stock. The base stock is always valued at this
price and its carried forward as a fixed asset. Any quantity over and above the
base stock is valued in accordance with any other appropriate method. As this
method aims at matching current costs to current sales, the LIFO method will
be most suitable for valuing stock of materials or finished goods other than the
base stock. The base stock method has advantage of charging out material /
22
goods at actual cost. Its other merits or demerits will depend on the method
which is used for valuing materials other than the base stock.
Weighted average price method:
This method is based on the presumption that once the materials are
put into a common bin, they lose their identity. Hence, the inventory consists
of no specific batch of goods. The inventory is thus priced on the basis of
average priced on the quantity purchased at each price.
Weighted average price method is very popular on account of its being
based on the total quantity and value of materials purchased besides reducing
number of calculations. As a matter of fact the new average price is to be
calculated only when a fresh purchase of materials is made in place of
calculating it every now and then as is the case with FIFO, LIFO methods.
However, in case of this method different prices of materials are charged from
production particularly when the frequency of purchases and issues/sales in
quite large and the concern is following perpetual inventory system.
Valuation of inventories impact on the flow of costs:
As should be quite evident, the different methods of calculating
inventory values will all have their impact on the flow of costs through the
balance sheet into the income statement. The dollars that are paid to acquire
inventory are always divided between the balance sheet (inventories) and the
income statement (cost of goods sold), there is not other place to put them.
Thus if the different methods of calculating inventory produce differing
inventory values, they will also produce differing cost of goods sold figures,
and the differing cost of goods sold figures will naturally produce differing
profit figures.
In order show the impact of inventory valuation on cost flows, the
preceding exhibits are summarized. Each method produces a different figure
for the transfer of raw materials to work in process. These differences appear
23
small, but the only reason for this is that the dollar amounts have been kept
small to make the illustration workable.
With the transfer of materials to work in process, the cost flow or
transfer with have its impact on the work in process inventory and the transfer
of completed merchandise to finished gods. Ultimately when goods are sold;
the varying methods of valuing inventories will have their impact on cost of
goods sold and these profits. The effects of the cost flows on cost of gods sold
and profits can be accentuated further it the differing methods of valuing
inventories are applies to work in process and finished goods.
Evaluation of methods What causes the differences?
The differences in inventory values and flows for each of the method
illustrated result from only one factor, that it, changing purchases prices or
unit costs. If purchase prices had remained stable or unchanged, each method
would have produced the same inventory value and cost flow.
Cost flows and inventory are exactly the some under stable prices.
With a falling price level, the LIFO method produces the highest cost flow and
the lowest inventory. With a falling price level, the LIFO method produces the
lowest cost flow and highest inventory. The cost flow under LIFO follows the
price level, LIFO produces larger cost flows when prices are rising and
smaller cost flows when prices are falling. A final item to consider is that the
average method produces results which fall between the extremes of LIFO and
FIFO.
Evaluation of methods can we justify the differences?
The best method of inventory valuation might be specific
identification, that is, the units in inventory should be identified with the
specific invoices and thus specific unit costs to which they apply.
Fortunately, the FIFO method constitutes a very useful approximation
to the specific identification method if on can reasonably assume that the
24
25
Description
Order Point: ..
Available
Received Issued
On order On hand
On order
As shown above, there is need only for physical quantities since the
inventory values is the physical quantity multiplied by the standard cost. With
the cost and value columns disposed off, a perpetual inventory card can
include additional data such as quantities on order, quantities reserved, and
quantities available. These additional data are very useful for inventory and
production control purpose. On the basis of a few calculations concerning into
inventories on a FIFO, a LIFO, or an average cost basis.
Inventory of Obsolescence:
26
Original value, the entry would be only for the amount of write down. Some
companies carry a selvage inventory and transfer to it materials which may be
sold or used at reduced values. Where this is done, the entry would be:
Dr. Salvage inventory
Dr. Inventory Obsolescence. Cr. Raw Material inventory or Supplies
inventory.
Inventory cost in relation HERITAGE FOODS shall to classifieds follows:
Inventory can be classified as capital and revenue certain items through
titled as capital in nature. Hence, due care is to be take whole drawing the
material.
Materials which are to be imported from other countries have to be
planned well in advance nearly about 24 months are to initiate the proposals
for procurement.
Similarly some of the items do not require any lead time some they are
available in the local market.
Cement is highly energy intensive industry, the inputs like power and
coal are the major part of the variable cost since Government controls the coal
& fuel sector, and increase is rates adversely effects the cement industry.
27
Kesoram cement has it own power plant and through which it saves
energy consumption. By this the cost since Government controls the coal &
fuel sector, any increase rates adversely effects the cement industry.
Inventory cost of any organization also adversely affects by retaining
obsolete / scraps and inventory costs can be reduced by management with an
advance planning of procurement of materials, periodical reviews of existing
spares with reference to the fast consumption, ascertaining the information
regarding the availability of spares in other areas. Holding of extra inventory
will be an additional financial burden to the company due to payment of
interest charges on the materials purchased, diminishing value of materials
purchased, diminishing value of materials by keeping them in stores for a log
time, handling charges, spare rent etc.,
The inventory of Kesoram cement mainly includes Limestone,
Bauxite, Gypsum, Fly ash.
Inventory in Kesoram Cement during 2008-09 to 2012-13 are as
follows: (Units in m.t)
Years
2008-09
2009-10
2010-11
2011-12
2012-13
Limestone
1042230
974490
956940
968730
1239443
Bauxite
49637
44256
41872
431151
64961
Gypsum
23243
20703
21747
23091
38765
Fly ash
5752
10301
18101
33695
159344
The value of the above raw materials for the year 2006-10 are as follows:
(Value in Rs.)
28
Years
2008-09
2009-10
2010-11
2011-12
2012-13
Limestone
122161492
13853482
13853482
157130922 243412189
Bauxite
32294775
27971993
27971993
23488745
38552277
Gypsum
19613001
17100574
17100574
19699583
49061196
Fly ash
28203
644473
644473
2546948
20223404
29
Imported
Years
2008-09
2009-10
2010-11
2011-12
2012-13
Raw Materials
95354856
522588043
522588043
Stores spare
parts and
components
30
75345209
131624912
42279637
Indigenous
Years
Raw Materials
2008-09
2009-10
2010-11
2011-12
2012-13
Stores spare
parts and
611204564
981990949
components
31
189149420
1365664385 3868715827
Indigenous
Raw Materials Stores spare parts and components.
II.
TECHNICAL DEPARTMENT
1.
MINES
2.
MECHANICAL
3.
ELETRICAL
4.
CIVIL
COMMERCIAL DEPARTMENTS
1.
STORES
2.
PURCHASE
3.
ACCOUNTS
SPARES.
FOR
SUCH
32
REQUIREMENT
OF
SPARES
ANNUAL INDENTS
FOR
CONSUMABLE
ITEMS
(STORES
ITEMS).
2)
3)
ENQUIRIES:
1)
2)
3)
PURCHASE ORDER:
1)
2)
33
PURCHASE DEPARTMENT:
ACTIVITY RECEIVING INDENTS:
FLOW CHART:
Receipt of annual indents for consumable items / stores items from
stores department.
Checking of indent number an authority of item, delivery time
consumption period.
In case of any deficiency, send the information to concerned
department for clarification.
Segregation of indents for attending at C.P.D. and Hyderabad
Office.
Sent the Hyderabad indents to Hyderabad Office.
Enter the indents details in indent register.
34
PURCHASE DEPARTMENT
PURCHASE ENQUIRY
Ms.
Sl.
No.
Material Code
Department
Quantity
Unit
When
Required
35
PURCHASE DEPARTMENT
ORDER PROCESSING FORM
Sl.
Indent
No.
Ref
Material
Code
No.
PURCHASE DEPARTMENT
36
PURCHASE ORDER
Sl.
Indent
Item
No.
No.
Code
Description
Qty
Rate
Unit
Amount
37
Material Code
Material
Price / Quantity
Amended Price /
as per Order
Quantity
Review the pending order and follow up the pending order for
breakdown requirement.
PURCHASE DEPARTMENT
ACTIVITY: IMPORTS:
38
FLOW CHART:
1) Material code
2) Indent number
3) Material specification & part number
4) Quantity
5) Rate
6) Payment
7) Insurance and other terms and conditions.
39
STORES DEPARTMENT
ACTIVITY: RECEIPTS AND UNLOADING MATERIAL
40
STORES DEPARTMENT
41
42
STORES DEPARTMENT
ACTIVITY: PHYSICAL VERIFCATION OF GOODS:
STORES DEPARTMENT
43
Preparation
general
material
GRNs
through
system
and
STORES DEPARTMENT
44
Verification of MRP.
Issuing to dispensary.
45
CHAPTER 3
46
3.1.1 Growth
An increasing number of people in India are turning to the services sector for
employment due to the relative low compensation offered by the traditional
agriculture and manufacturing sectors. The organized retail market is growing
47
48
Indian market has high complexities in terms of a wide geographic spread and
distinct consumer preferences varying by each region necessitating a need for
localization even within the geographic zones. India has highest number of
outlets per person (7 per thousand) Indian retail space per capita at 2 sq ft
(0.19 m2)/ person is lowest in the world Indian retail density of 6 percent is
highest in the world. 1.8 million Households in India have an annual income
of over 45 lakh.
Delving further into consumer buying habits, purchase decisions can be
separated into two categories: status-oriented and indulgence-oriented.
CTVs/LCDs, refrigerators, washing machines, dishwashers, microwave ovens
and DVD players fall in the status category. Indulgence-oriented products
include plasma TVs, state-of-the-art home theatre systems, iPods, high-end
digital cameras, camcorders, and gaming consoles. Consumers in the status
category buy because they need to maintain a position in their social group.
Indulgence-oriented buying happens with those who want to enjoy life better
with products that meet their requirements. When it comes to the festival
shopping season, status-oriented segment that contributes largely to the
retailers cash register.
While India presents a large market opportunity given the number and
increasing purchasing power of consumers, there are significant challenges as
well given that over 90% of trade is conducted through independent local
stores. Challenges include: Geographically dispersed population, small ticket
sizes, complex distribution network, little use of IT systems, limitations of
mass media and existence of counterfeit goods.
49
countries in West Asia and Africa, some majors are also looking at the US and
Europe. Arvind Brands, Madura Garments, Spykar Lifestyle and Royal Classic
Polo are busy chalking out foreign expansion plans through the distribution
route and standalone stores as well. Another denim wear brand, Spykar, which
is now moving towards becoming a casualwear lifestyle brand, has launched
its store in Melbourne recently. It plans to open three stores in London by
2008-end.
The low-intensity entry of the diversified Mahindra Group into retail is unique
because it plans to focus on lifestyle products. The Mahindra Group is the
fourth large Indian business group to enter the business of retail after Reliance
Industries Ltd, the Aditya Birla Group, and Bharti Enterprises Ltd. The other
three groups are focusing either on perishables and groceries, or a range of
products, or both.
50
51
52
53
efforts, he along with his relatives, friends and associates promoted Heritage
Foods in the year 1992 taking opportunity from the Industrial Policy, 1991 of
the Government of India and he has been successful in his endeavor.
At present, Heritage has market presence in all the states of
South India. More than three thousand villages and five lakh farmers are being
benefited in these states. On the other side, Heritage is serving more than 6
lakh customers needs, employing more than 700 employees and generating
indirectly employment opportunity to more than 5000 people. Beginning with
a humble annual turnover of just Rs.4.38 crores in 1993-94, the sales turnover
has reached close to Rs.300 crores during the financial year 2005-2006.
Sri Naidu held various coveted and honorable positions
including Chief Minister of Andhra Pradesh, Minister for Finance & Revenue,
Minister for Archives & Cinematography, Member of the A.P. Legislative
Assembly, Director of A.P. Small Industries Development Corporation, and
Chairman of Karshaka Parishad.
Sri Naidu has won numerous awards including " Member of the
World Economic Forum's Dream Cabinet" (Time Asia ), "South Asian of the
Year " (Time Asia ), " Business Person of the Year " (Economic Times), and "
IT Indian of the Millennium " ( India Today).
Sri Naidu was chosen as one of 50 leaders at the forefront of
change in the year 2000 by the Business Week magazine for being an
unflinching proponent of technology and for his drive to transform the State of
Andhra Pradesh.
54
3.2.4 Mission
Bringing prosperity into rural families of India through co-operative efforts
and providing customers with hygienic, affordable and convenient supply of
Fresh and Healthy " food products.
3.2.5 Vision
To be a progressive billion dollar organization with a pan India foot print
by2015.
To achieve this by delighting customers with "Fresh and Healthy" food
products those are a benchmark for quality in the industry.
We are committed to enhanced prosperity and the empowerment of the
farming community through our unique "Relationship Farming" Model.
To be a preferred employer by nurturing entrepreneurship, managing
career aspirations and providing innovative avenues for enhanced
employee prosperity.
Heritage Slogan:
55
3.2.9 Commitments:
Milk Producers:
56
Heritage
3.2.10 Customers:
57
3.2.11 Employees:
Heritage forges ahead with a motto "add value to everything you do"
3.2.12 Service:
3.2.13 Suppliers:
Doehlar: technical collaboration in Milk drinks, yogurts drinks and
fruit flavoured drinks Alfa-Laval: supplier of high-end machinery and
technical support Focusing on Tetra pack association for products package.
3.2.14 Society:
58
59
distributes quality milk & milk products in the states of A.P, Karnataka, and
Kerala & Tamil nadu.
During the year 2006-07 liquid milk sales was Rs.28329.79
lakhs against Rs.24525.23 lakhs in the previous year. The sales of miik
products including bulk sales of cream, ghee and butter were recorded Rs
5781.59 lakhs against Rs 4677.21 lakhs.
3.2.18 Outlook:
Considering the growth potential in the liquid milk market, the
company has drawn plans to increase its market share in the existing markets
and to enter into new markets there by doubling revenues in dairy business in
the next 3 years. To achieve this object, company is undertaking major
expansion in dairy business by inverting over Rs 20 crores during 2010-11 and
over Rs 10 crores during the current year to strengthen the milk procurement.
60
to
or
buying
61
fraudulent and unfair trade practices with regard to the securities of the
Company by all Members.
CONFIDENTIALITY OF INFORMATION POLICY
The Company's confidential information is a valuable asset.
Members shall understand that protection of all confidential information is
essential. Members should undertake and be committed to protecting business
and
personal
information
of
confidential
nature
obtained
from
62
63
64
competitor is not in the interest of the Company. Hence all the Directors are
barred in accepting such position without the concurrence of the Board.
3.3.9 Accountability
The Board of Directors (BOD) shall oversee the Company's
adherence to ethical and legal standards. All employees and members of the
BOD shall undertake to stop or prevent actions that could harm customers or
reputation of the Company and to report such actions as soon as they occur to
take corrective steps and see that such actions are not repeated.
65
3. Agri Business:
In this business HFIL employees will go to farmers and have a
deal with them. Those farmers will sell their goods like vegetables, pulses to
HFIL only. And HFIL will transport the goods to retail outlets.
The agricultural professors will examine which area is suitable
to import vegetables from and also examine the vegetables, pulses and fruits in
66
67
CHAPTER-4
68
RATIO ANALYSIS
The investment on raw materials over a period of 5 years from 2005 to
2011 is presented in the following table.
1.
2005-06
(in crores)
13386.80
2008-09
11690.67
2009-10
49950.88
2010-11
42950.66
2011-12
46087.45
2012-13
93605.78
69
Interpretation:
1)
2)
3)
4)
2.
Trend Analysis:
Trend analysis technique is applied to know the growth rate in
investment of raw material of Kesoram Cement over the review period which
is shown in the following table.
Trend Analysis:
70
Year
Raw Material
Trend %
2005-06
(in Lacks)
13386.80
2008-09
11690.67
87%
2009-10
49950.88
373%
2010-11
42950.66
315%
2011-12
46087.45
344%
2012-13
93605.78
699%
100%
Interpretation:
1)
71
2)
The trends in inventories show that inventory have been more in the
year 2012-13 and then it has shown a downward trend and again it
increased to some extent.
3)
3.
during the period & evaluates the efficiency with which a firm is able to
manage its inventory. This ration is calculated by applying the following
formula.
Cost of goods sold
Inventor turn over ration
_________________
Average inventory
Cost of goods
sold
2005-06
60150.35
2008-09
59021.41
2009-10
121551.71
2010-11
127533.58
72
Avg. Inventory
Ratio
7402.31
8.13
37975.30
1.55
95065.28
12.79
12390.06
10.29
2011-12
130392.68
2012-13
311636.92
1333.8.01
9.78
160035.93
1.32
Interpretation:
1.
From the above table 2005 it can be observed that (1) inventory turn
over ratio is 8.13 during 2005 2006 and it gradually decreased to
1.55 during 2006 2007.
2.
In the year 2012-13 it is clear that the ratio is very less i.e., he stock
is not turned into sales quickly.
3.
4.
The average inventory turn over ratio was recorded at 7.3 times during
_____________________
Inventory turnover ratio
Cost of
2005-06
goods sold
60150.35
2008-09
59021.41
2009-10
121551.71
2010-11
127533.58
Avg.
inventory
Ratio
ICP (Days)
7402.31
8.13
44
37975.30
1.55
232
95065.28
12.79
28
12390.06
10.29
34
73
2011-12
130392.68
2012-13
311636.92
1333.8.01
9.78
36
160035.93
1.32
272
Interpretation:
From the above table it can be identified the following observations:
1)
The inventory conversion period was 232 days during the year 2008-09
but it declined to 36 during 2011-12, which indicates that the stock has
been very quickly converted into sales which mean the company is
managing the inventory efficiently.
2)
3)
5.
Inventory
__________ X 100
Current assets
Inventory
2005-06
13386.80
2008-09
11690.67
74
Current Assets
Ratio (%)
24172.33
55%
28770.78
40%
2009-10
49950.88
2010-11
42950.66
2011-12
46087.45
2012-13
93605.78
53063.75
94%
45598.02
92%
49713.32
92%
86811.49
107%
Interpretation:
1)
From the above table it can be understand that the % of inventory over
current assets ratio was showing a declining trend for two years 2005 2006.
2)
3)
The lowest inventory over current assets ratio was recorded at 40%
during the year 2008-09 and the highest inventory over current assets
ratio we recorded at 107% during 2012-13.
4)
The average inventory over current assets ratio was recorded at 80%.
6.
Inventory
2005-06
13386.80
2008-09
11690.67
2009-10
49950.88
75
Current Assets
Ratio (%)
87168.64
15.35%
87468.76
13.36%
117985.89
42.33%
2010-11
42950.66
2011-12
46087.45
2012-13
93605.78
112647.26
37.50%
112637.07
40.91%
197330.50
47.43%
Interpretation:
1)
2)
3)
The lowest inventory over total assets ratio was recorded at 13.36%
during the year 2008-09 and the highest inventory ratio was recorded
at 47.43% during the year 2012-13.
4)
7.
= __________________ X 100
Current liabilities
Current
Inventory
liabilities
13386.80
7862.11
76
Ratio (%)
17%
2008-09
11690.67
2009-10
49950.88
2010-11
42950.66
2011-12
46087.45
2012-13
93605.78
8042.62
145%
16204.14
308%
16204.14
284%
17728.22
259%
36253.41
258%
Interpretation:
1)
From the above table it can be understand that the % inventory over
current liabilities ratio was showing a declining trend for two years
2005-06.
2)
During the year 2008-09 the ratio was it gradually increased to 145 and
there is a net increase to the extent of 128.
3)
4)
5)
8.
Current Ratio:
In order to know the current ratio the percentage of current assets to
= _____________________
Current liabilities
Current
Inventory
liabilities
77
Ratio (%)
2005-06
24172.33
2008-09
28770.78
2009-10
53063.75
2010-11
45598.02
2011-12
49713.32
2012-13
86811.49
7862.11
3.07%
8042.62
3.57%
16204.14
3.27%
16204.14
3.06%
17728.22
2.80%
36253.41
2.39%
Interpretation:
1)
2)
In the year 2005 05 the ratio was 3.07% and has increased to
3.57% in the year 2008-09.
3)
4)
The average current ratio was recorded at 3.02% during the review
period.
9.
Quick Ratio:
The quick ratio is the relationship between quick to current liabilities
78
Year
Current
Inventory
2005-06
10785
2008-09
17080
2009-10
3112
2010-11
3347
2011-12
3625
2012-13
3207
liabilities
Ratio (%)
7862.11
1.37%
8042.62
2.12%
16204.14
0.002%
16204.14
0.22%
17728.22
0.20%
36253.41
0.08%
Interpretation:
1)
2)
The highest quick ratio was recorded at 2.12% during the year
2008-09 and the lowest quick ratio was recorded at 0.002% during
the year 2009-10.
3)
The average quick ratio was recorded at 0.66 during the review
period.
79
CHAPTER-5
80
CONCLUSIONS
1)
2)
3)
4)
The inventory turn over ratio shows that the stock has been
converted into sales is only 1.32 times.
5)
In the year 2009-10 the stock was cleared within 28 days whereas it
took 232 days in the year 2009-10 which took more days for
clearing stock.
6)
7)
8)
81
purchase order and order follow up inform the supplier. Most of the
time was spent in accounts payable.
9)
10)
1)
Though the production is higher is the year 2009-10 and the sales
were very high i.e., as per inventory conversion period it took 272
days. This shows that there is demand for cement and the funds
unnecessarily tied up. So, proper demand forecasting should be
done and according to that it may be manufactured.
2)
3)
Neither too high nor too low inventory turnover ratios may reduce
profit and liquidity position of the industry. So, proper balance
should be made to increase profits and to ensure liquidity.
4)
The raw material should be acquired from the right source at right
quality and at right cost.
5)
The process that was being used by HERITAGE FOODS with the
purchasing department should undergo changes, so that, it seeks
enhance the celerity of the delivery of a product without
compromising its quality by improving the utilization of materials,
labour and equipment.
6)
82
83
BIBLIOGRAPHY
1.
Financial Management
By IM Pandey
2.
Financial Management
By Prasanna Chandra
3.
By K. Shridhara Bai
4.
Management Accounting
R.K.Sharma &S.KGuptha
5.
6.
84