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1.

INTRODUCTION

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INTRODUCTION

INVENTORY & WORKING CAPITAL MANAGEMENT

In every business organization its financial transactions are recorded in the systematic term, which
called ‘Financial Statement’ such as Profit and Loss Account and Balance Sheet. Financial
Statements shows the financial strength and weakness of the firm, hence, the Financial Statements
are prepared for the decision-making. Management becomes able to this purpose such financial
statement are necessary to be analyzed.

The study was useful to understand the Working Capital Management at Morarjee Textiles Ltd. It
was useful in understanding all theoretical concepts, how they are practically implemented. Also
the various types of ratios were studied which helps in analyzing the financial statements.

Management of Inventory & working capital is a challenging task particularly in developing


countries like India. In developing countries generally, there is shortage of funds, frequent changes
in the monetary policy as an instrument of controlling inflation, vast demands on bank funds, high
interest rates, shortage of goods and services luring both business houses and consumers to hold
and maintain large inventories and existence of parallel black economy. A large part of finance
manager’s is devoted in managing working capital to get day-to-day needs of an organization. His
prime attention is devoted to maintain sufficient liquidity in the form of cash, marketable
securities, accounts receivables and inventories to grease the operations of business adequately.

But at the same time he is to take care of the profitability of the organization. Too much liquidity
is a burden on profitability, as these are inversely related to each other. It is to balance between
these two conflicting objectives of liquidity and profitability. For the organization it is a
continuous process.

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2. OBJECTIVES OF THE
PROJECT

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The objectives of the study are –

 To understand and study in general the management of inventory & working capital.

 To analyze the distribution of gross working capital into various components.

 To calculate the operating cycle period.

 To analyze the liquidity position of the company by analyzing the various ratios.

 To understand the valuation of an inventory.

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3. RESEARCH
METHODOLOGY

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METHODOLOGY

Research in common parlance refers to a search for knowledge. Research may be defined as “
manipulation of things, concepts or symbols for the purpose of generalizing to extent, correct or
verify knowledge, whether that knowledge aids in construction of theory or in the practice of an
art”.

Research objectives:
The main objectives of research in management are: -
1. To verify and to test the existing facts and theories.
2. To gain familiarity with a phenomenon or to achieve new insights into it.
3. To establish generalization in various fields of knowledge.
4. To bring to limelight information that could have never been brought to the knowledge
under normal course.

METHODS OF DATA COLLECTION


Primary data collected from: -
Personal interview was the main tool for the collection of primary data and information. This study
has brought in use very little primary data in relation with the elements of working capital.

Secondary data collected from: -


Since the study is based on the financial aspects of the company so the annual report of the
organization, Trial Balance, Income & Expenditure accounts of the company brought in use.
Besides the company profile and theoretical aspects taken from the secondary sources.

PRESENTATION OF THE DATA


The data collected is presented in the form of:
a. Tables
b. Bar diagrams
c. Pie charts

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4. COMPANY PROFILE

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COMPANY PROFILE

Morarjee Textiles Limited (MTL) is a successful member of the diversified Ashok Piramal
Group (APG). Carrying forward the legacy of the erstwhile Morarjee Goculdas Spinning &
Weaving Co. Ltd since 1871, MTL is among the oldest textile units in the country and was the
Ashok Piramal Group's first industrial enterprise when they took over in 1934.

Morarjee Textiles Ltd. (MTL) is a leading player in the premium shirting fabric business and
high fashion printed fabric business for global markets. It has completely integrated
manufacturing plants with spinning, weaving, printing, processing and packing facilities. Its
products are in the high value niche segment. MTL has two divisions - the shirting division
and the printed fabric division.

MTL’s competitive advantage lies in its innovative design, product development and flexible
service offering. It makes premium voiles and high fashion printed fabrics for the Middle
East, Far East, North African and European markets.

Its customer base is spread across 20 countries around the globe and is growing fast. Today it
offers premium cotton shirting fabrics to most of the leading Indian and International brands.
MTL also has a 49% stake in Just Textiles Ltd. which is currently engaged in the business of
processing various textile fabrics with modern machinery installed at its factory in
Ambernath, Mumbai. To ensure growth and provide value to its stakeholders, MTL has
recently entered the garments business in mid 2004 by establishing a subsidiary company -
Integra Apparels & Textiles Pvt. Ltd. The business already has an impressive client list and is
growing rapidly.
Men's Club S.P.A. a premium men’s shirting brand is the Group's latest acquisition.

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 Fashion in genes

The success of their collections is rooted in the design orientation. Their specialized skills in
fashion design and innate ability to forecast trends makes them uniquely positioned to cater to
a discerning clientele around the world.
The commitment to design manifests itself in world-class Design Centers in India and Italy
equipped with state-of-the-art technology and managed by a team of multi-cultural design
professionals.

 Sophisticated technology

The manufacturing plant in Nagpur, India incorporates advanced Italian technology. The fully
integrated production facility and dedicated local yarn sources ensure a world-class product.
Also, this plant is equipped with a loom configuration that offers flexibility in the loom shed,
thereby facilitating customization of color, pattern, texture, weave and finish.

 Upholding global standards

The manufacturing processes and quality control meet the stringent standards of worldwide
clientele. Being a part of the fashion industry for over a century, MTL understand the needs of
premium brands. Morarjee Textiles is the only Indian company to offer fabric in small
quantities off-the-shelf.

 The preferred choice

The fashion fabrics find favour with numerous international brands like DKNY, GAP, Banana
Republic, Ann Taylor, Liz Claiborne, Jones Apparel, Diane Von Furstenberg, Marks &
Spencer, Robert Graham, Abercrombie & Fitch, Tommy Hilfiger, Next, Federated
Department Stores, John Lewis, Zara, Eddie Bauer, and Xandres.
On the domestic front MTL is associated with the likes of Raymond, Blackberry, Wills
Lifestyle, Stori and Century.

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A part of Piramal Enterprises Ltd, Morarjee Textiles Ltd, is India's one of the oldest and
trusted names in premium quality superfine fabrics. With business penetration in over 20
countries, Morarjee Textiles is a distinguished name and a leading player in global textile
market.

More than 50% of Morarjee Textiles Ltd. turnover comprises of exports in international
market, mainly to USA, Europe and Japan. At home front, Morarjee Textiles Ltd. is the
preferred supplier of finest fabrics for brands like Zodiac, Louis Phillipe, etc. For
consolidation of its position in domestic market, Morarjee Textiles Ltd. proposes to further
expand its presence by exploring new markets to take advantage of the recent abolishment of
the quota regime in international markets.
Furthermore, Morarjee Textiles Ltd. is exploring new avenues, partnership and ventures to
help penetrate existing domestic and international markets effectively by selling to both
retailers and distributors.

 CORE VALUES

They abide by these enduring values that are the foundation of our business and at the heart of
all we do each day.

 Customer Focus

They listen to their customers.


They are committed to delivering real value.
They take ownership of a customer’s problem until it is solved.

 Integrity

They hold theirselves and those they work with to the highest ethical standards.
They are honest with each other and constructively give and willingly accept candid feedback.
They build relationships of trust so they can share and accept the truth,
even when its hard to say or hear. They do the right things even when no one is watching.

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 Teamwork
They respect each other and value their ideas and points of view.
They work together and support each other to achieve our goals.
They incorporate fun with hard work.
They have a passion for winning.
They all play an important role.
They are one Enterprise. There is no “you” or “I”.

 Passion for Excellence


They strive to find better ways to solve customer problems.
They embrace change and use it to shape people own future.
They seek innovative solutions to achieve a competitive advantage.
They recognize outstanding performance.
They inspire each other to succeed.
They encourage risk-taking.

 Accountability
 They take ownership of results delivered in each area of work.
They are responsible for and committed to peoples own personal growth and
development.
They work through challenges and obstacles to achieve a successful outcome.

 Respect
They show consideration, listen & seek inputs and treat each other fairly.
They acknowledge work-life balance as a key driver to achieve a competitive edge.
They value diversity of people and ideas irrespective of the level of experience.

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 BOARD OF DIRECTORS

Morarjee Textiles Ltd. is managed by a team of visionaries, entrepreneurs and domain experts.

Mrs. Urvi A. Piramal - Chairperson


Mr. Harsh Piramal - Executive Vice Chairman
Mr. P.K. Gothi - Managing Director
Mr. Mahesh Gupta - Non Executive Non Independent Director
Mr. Takao Yajima - Independent Director
Mr. Ranjan Sanghi - Independent Director
Mr. Shailesh Haribhakti - Alternate Director to Mr. Takao Yajima
Mr. Aditya Mangaldas - Independent Director
Mr. Shobhan Thakore - Independent Director
Mr. Pradipta Mohapatra - Independent Director
Mr. S. C. Kashimpuria - Company Secretary and Head – Finance & Accounts

 PRODUCT LINE

Fashion
Apart from India, MTL’s fashion fabrics find favour with various renowned names from Europe,
the US, and Australia. Their core qualities are evident in the array of fabrics in fine counts, 100%
cotton satins, and premium voiles. MTL has made significant investments in people and design
facilities. Clients leverage the state-of-the-art Design Centers in Italy and India and work in close
partnership with company’s designers to develop fabrics that are distinctive and saleable.

MTL’s designers visit leading fairs in Europe & meet customers regularly to capture the favour of
fashion. The use of a premium high-end design solution, NEDGRAPHICS, enables their creative
team to quickly express all their ideas.

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Shirtings
Morarjee Textiles Ltd. (MTL) is a leading player in the premium shirting fabric business and high
fashion printed fabric business for global markets. It has completely integrated manufacturing
plants with spinning, weaving, printing, processing and packing facilities. Its products are in the
high value niche segment. Morarjee Textiles provides shirting fabric to a worldwide audience.
MTL specialize in premium color woven and distinctive finish to fabrics and meet the niche
requirements and exacting specifications of clientele.

Traditional
Morarjee Textiles is a name synonymous with fashion both contemporary as well as
classic. Morarjee Textiles caters to the Middle East and African Continent along with the
conversion centers in Europe and Far East for its traditional ensembles.

DESIGN CENTER
Morarjee Textiles has been part of the fashion movement for over a century. Fashion design means
the world to MTL. It explains why MTL has invested in three Design Centers in India and one in
Italy.
Strategically situated at Mumbai, Bangalore and Nagpur in India and Milan in Italy, MTL’s state-
of-the-art Design Centers are managed by a team of multi-cultural designers with a penchant for
high fashion, innovation and thinking out of the box.
The facilities available at the new mill at Nagpur comprise Spinning, Weaving, Dyeing and
Printing Departments. MTL also has a technical collaboration with AG Cilander of Switzerland for
developing specialty finishes like anti-microbial, water repellant, frost, fragrant, and UV
protection.

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4. REVIEW OF LITERATURE

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IN TO THE CONCEPT – INVENTORY & WORKING CAPITAL
MANAGEMENT
Working capital management refers to management of the working capital, or more precise, the
management of current assets. A firms working capital consist of its investment in current asset
which include short term asset such as cash and bank balance, inventories, receivables, and
marketable securities.

Working capital management arises from two considerations:


1. Existence of working capital is imperative in any firm.
2. The working capital involves investment of funds of the firm.

Working capital refers to current asset which may be defined as:


1. Those which are convertible into cash or equivalent within a period of one year.
2. Those which are required to meet day to day operations.

Financial manager is faced with decisions involving some of the considerations are as follows:
1. What should be the total investment in working capital of the firm?
2. What should be the level of individual current assets?
3. What should be the relative proportion of different sources to finance the working capital
management?
Thus working capital management may be defined as the management of firms
sources and uses of working capital in order to maximize the wealth of the shareholders.

The term working capital may be used in two different ways.

1. Gross working capital: The gross working capital refers to the firm’s investment in all current
assets taken together.

2. Net working capital: The term net working capital may be defined as the excess of total current
assets over total current liabilities.

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The gross working capital denotes the total working capital or total investment in current assets. A
firm should maintain an optimum level of gross working capital. This will help avoiding:

1. The unnecessarily stoppage of work or chance of liquidation due to insufficient working


capital.

2. Effect on profitability because over flowing working capital implies cost.


Therefore, a firm should have just adequate level of total current assets. The gross working capital
also gives an idea of total funds required for maintaining current assets.

On other hand, net working capital refers to amount of funds that must be invested by the firm,
more or less regularly in current assets. The net working capital also denotes the net liquidity being
maintained by the firm. This also gives an idea of buffer available to the current liability.

4.1] Risk and Return in Working Capital

Another important aspect of working capital policy is to maintain and provide sufficient liquidity
to the firm. Having a large working capital may reduce the liquidity risk faced by the firm, but it
can have a negative effect on the cash flows. Greater liquidity makes the firm meeting its
obligation, but simultaneously greater liquidity involves cost also. Therefore, the net effect on the
value of the firm should be used to determine the optimum amount of working capital.

Risk return trade off in working capital management is tradeoff between the Firms liquidity and its
profitability. By maintaining large investment in current asset firm can reduces chances of
1. Production stoppages and the lost sales from the inventory shortage.
2. Inability to pay the creditors on time.
However if the firms increase in investment does not increase the corresponding return, this mean
that the firms return on investment drops because profit is unchanged.

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The Risk Return Syndrome Can Be Summed Up As Follows:

When liquidity increases, the risk of insolvency is reduced, but profitability also reduced. However
when the liquidity is reduced, the profitability increases but the risk of insolvency also increases.
So profitability and risk move in the same direction.

Moreover, the different elements of current assets should also be appropriately balanced. Each
element and its position in the total working capital should be analyzed in the light of its
characteristics. For e.g. the total current assets may be sufficient to cover the current liabilities but
when the composition of current asset is analyzed, it may be found that it is consisting mainly of
the obsolete and slow moving stock. This stock may not provide desired level of liquidity to pay
off the current liabilities. Similarly, higher level of cash and bank balance may provide liquidity
but affect the profitability because keeping cash and bank balance is not profitable use of the
resources.

The effect of working capital changes on the liquidity risk depend on a number of factor such as:
a) Stand-by sources: A firm with stand-by source of external financing is less exposed to liquidity
risk than the firm, which does not have such access, because the former can tap these sources if it
needs to cover the increasing current liabilities.

b) Economic conditions: Holding other factors constant, firms typically experience larger changes
in liquidity risk as a consequence of working capital change when the economy is in recession than
when in boom.

c) Future uncertainty: To the extent that future operations of the firm are predictable and stable,
the firm can survive with lower investment in working capital than could, otherwise similar firms
which have more uncertainty about the future operations.

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4.2] Need for adequate working capital:
The need and importance of adequate working capital for day to day operation can hardly be
underestimated. Every firm must maintain a sound working capital position otherwise; its business
activities may be adversely affected. Thus every firm must have adequate working capital.

The excess working capital, when the investment in working capital is more than the required
level, may result in
a) Unnecessary accumulation of inventories resulting in waste, theft, damage etc.
b) Delay in collection of receivables resulting in more liberal credit terms to customers than
warranted by the market conditions.
c) Adverse influence on the performance of the management.

On the other hand, inadequate working capital situation is not good for the firm. Such a situation
may have following consequences:

1. The fixed asset may not be optimally used.


2. Firm growth may stagnate.
3. Interruptions in production schedule may occur ultimately resulting in lowering of the profit of
the firm.
4. The firm may not be able to take benefit of an opportunity.
5. Firm goodwill in the market is affected if it is not in a position to meet its liabilities on time.

Thus taking into consideration financial manager must establish:-


a. A well defined working capital policy
b. A self-sufficient working capital management system.

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4.3] WORKING CAPITAL CYCLE
The working capital cycle can be defined as:

The period of time which elapses between the point at which cash begins to be expended on
the production of a product and the collection of cash from a customer

The diagram below illustrates the working capital cycle for a manufacturing firm:-

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4.4] Different types of working capital policies

Current Assets

Conservative

Moderate

Aggressive
Sales Level

Above data show three policies in working capital management.

1) In moderate policy value of current asset increases in proportion with sales level.

2) In conservative policy value of current asset increases more rapidly than sales level. Such a
policy tends to reduce the risk of shortage of working capital by increasing the safety component
of current asset. The conservative policy also reduces the risk of nonpayment to liability.

3) In aggressive type of policy sales level increases more in percentage than increase in current
assets.

This type of aggressive policy has many implications.


a. The risk of insolvency of the firm increases as it maintains law liquidity.
b. The firm is expose to greater risk as it may not be able to face unexpected change in
market.
c. Reduced investment in current asset will result in increase in profitability of the firm.

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4.5] CASH CONVERSION CYCLE

Cash Conversion Cycle (CCC) measures how long a firm will be deprived of cash if it increases its
investment in resources in order to expand customer sales. It is thus a measure of the liquidity risk
entailed by growth. However, shortening the CCC creates its own risks: while a firm could even
achieve a negative CCC by collecting from customers before paying suppliers, a policy of strict
collections and lax payments is not always sustainable.

DEFINITION
CCC = # days between disbursing cash and collecting cash in connection with undertaking a
discrete unit of operations.

Inventory conversion Receivables conversion – Payables conversion


= +
period period period

Avg. Accounts
Avg. Inventory Avg. Accounts Payable
Receivable –
= +
COGS / 365 COGS / 365
Revenue / 365

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4.6] ELEMENTS OF WORKING CAPITAL MANAGEMENT

1) INVENTORY MANAGEMENT:

Inventory is a list for goods and materials, or those goods and materials themselves, held available
in stock by a business. It is also used for a list of the contents of a household and for a list for
testamentary purposes of the possessions of someone who has died. In accounting inventory is
considered an asset.
The reasons for keeping stock/inventory
There are three basic reasons for keeping an inventory:

1. Time - The time lags present in the supply chain, from supplier to user at every stage,
requires that you maintain certain amount of inventory to use in this "lead time"
2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand,
supply and movements of goods.
3. Economies of scale - Ideal condition of "one unit at a time at a place where user needs it,
when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying,
movement and storing brings in economies of scale, thus inventory.

All these stock reasons can apply to any owner or product stage.

 Buffer stock is held in individual workstations against the possibility that the upstream
workstation may be a little delayed in long setup or change-over time. This stock is then used
while that change-over is happening.

Special term used in dealing with inventory:-

 Stock Keeping Unit (SKU) is a unique combination of all the components that are
assembled into the purchasable item. Therefore any change in the packaging or product is a new
SKU. This level of detailed specification assists in managing inventory.
 Stockout means running out of the inventory of an SKU.

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 "New old stock" (sometimes abbreviated NOS) is a term used in business to refer to
merchandise being offered for sale which was manufactured long ago but that has never been used.
Such merchandise may not be produced any more, and the new old stock may represent the only
market source of a particular item at the present time.

The inventory of the company includes the following:

 Raw material
 Work-in-Progress
 Stores and Spares
 Finished goods

The table below gives a brief description of all the types of inventory, the components included,
the valuation methods followed and other relevant details:

Particulars Raw Material Work-in- Finished Goods Stores


Progress and Spares
Wool (Australia) - Fabric Oils,
(fine micron, coarse) Lubricants
Polyester (Reliance etc.
Components Ltd.)Viscose
(Locally)
Yarn
(RSM)(Rajasthan)
Camel hair (Locally)
Soya bean fiber
(Locally)
Fine micron-July and Wedding and festive
At its peak stored for the entire Seasons.
year stable-April-August

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Dec-Jan
Valuation Specific Identification Weighted Weighted Average Weighted
Method Average Cost or market value Average
Which ever is less.
Value as in 14 68-70 110 8-9
May 2012 (in accordance with
(Rs. Crores) AS-2
including Excise duty)
Production and Production and Production and -
Managed by Planning Planning dept. Planning
Dept. Dept., Warehousing
dept
and Marketing dept.

RAW MATERIAL:

Wool: Tops of around 19 microns and less are seasonally imported and of around 21, 22 and 24
microns are imported throughout the year.
The ordering of the raw materials depends on the landing cost, which is the product of the
following:

Price, Availability, and Exchange rate fluctuations.

The maximum demand is during the festive and wedding season i.e. from the month of Oct.
onwards.
The production time being 2-2.5 months, the lead-time (the time from when the order is placed to
When the material stock is actually received) being 2 months, the inventory is accordingly ordered
in the months of June –July and stored for the entire year.

It is expected that the company should maintain 100% raw material inventory as it accounts for
only 27%(approx.) of the ex-mill price which turns out to be around Rs. 18-20 crores.

The company does not maintain any safety stock, as fluctuations are present throughout the year.

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The pricing policy of the raw materials is done by specific identification method, in this method
the raw material stock is imported consignment -wise and the stock identification is done in the
form of lots. There are no standards or norms followed by the company in specific as fluctuations
dominate the market.

WORK-IN-PROGRESS:

The process inventory for the company is fairly stable throughout the year at Rs.68-70 crores
with a minor fluctuation of around Rs.2-3 crores. This is mainly as the following mentioned factors
are more or less constant throughout the year:
 Machine efficiency
 Loading
 Flow

FINISHED GOODS

The finished goods inventory at the company is very volatile. The production is more or less in
stock during the period April – August and starts depleting somewhere in the months of September
/ October, it again starts picking up in the months of December / January (which is the peak).
Exports are more or less constant, though there the predominant exports are in the months of April
– July.

The debtors constitute the major portion of Inventory. As the finished goods and inventory vary
inversely, i.e. when the inventory is at its peak, the debtors are at their lowest and vice versa. Thus
the finished goods inventory levels and debtors are more or less constant.

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 Inventory Valuation

Effectively measuring and managing inventory is essential in keeping a companies financial


statements up to date; inventories are a part of the balance sheet and are represented as short-term
assets. Inventory can be defined as assets that are held for the purpose of sale or inventory can
refer to assets that are being converted to a form which can be sold or even assets that assist in the
production of goods which will be sold.
To determine how much inventory a company has on hand, the following formula can be used. It
is pretty straight forward, take the inventory at hand at the start of the reporting period and add any
new inventory purchases and then subtract the cost of any inventory that has been sold.

Inventory valuation and management is a very important part of managing the current assets
account on the balance sheet. If this aspect is not done properly, the ramifications are far reaching;
total assets and shareholders equity will be affected on the balance sheet while net income will be
affected on the income statement.
In order to properly manage and match up revenues derived from the cost of inventory,
companies use the following inventory valuation methodologies; First-In First-Out (FIFO), Last-
In Last-Out (LIFO), Average Cost, and Specific Identification.

First-in First-out (FIFO)

FIFO matches up sales with inventories in a sequential manner by matching the revenues from the
first sale with the costs associated with the first product that was made. For example, assume that
a textile company created 500 tablecloths at a cost of 1.00 per unit and then created another 1000
with a unit cost of 1.25. The revenue from the sale of the first 500 tableclothes will be matched up
with the tablecloths which have a cost basis of 1.00.

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Last-in First-Out (LIFO)

LIFO takes the opposite approach to FIFO; it matches in the reverse order. The first sale is
matched against the last product produced and therefore, the last good sold will be matched up
with the first good produced. Basically, LIFO is assuming that a company sells off its last product
produced, first. The diagram below takes the same example from above and depicts LIFO
inventory management.

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Average Cost
The average cost method of inventory management is pretty straight forward. This method values
inventory costs as the average unit cost between the assets in the beginning inventory and the
newly acquired assets. There is no inventory matching required.

Specific Identification

Specific identification is more manually intensive method of managing inventory. Companies will
literally identify each item in inventory and record the capital gain(loss) when that specific item is
sold. Each item will remain in the inventory until it is sold.

As per AS-2(Accounting Standards 2) recommendations, FIFO & Average cost is generally


used in companies.

Conclusion

Choosing the appropriate methodology is a difficult task as there are many unknown variables that
go into the decision, such as inflation or shelf life. With high inflation, or in markets with prices
increasing, companies will achieve higher profits by matching sales against inventory which was
produced at lower prices; earnings per share will increase but so will tax liability due to an increase
in profits. Using LIFO on the other hand will produce the opposite effect. In essence, you will be
matching new sales against higher production costs, thereby lowering net income and EPS.

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2) ACCOUNT RECEIVABLE:

In MTL, the goods are sold through the following distribution channel: -
Dealer
Wholesaler, franchisee
As most of the sales are on credit so it is necessary to manage the collection properly
So payment is collected through:
1. Direct payment
2. Collection of bills

The company is not allowing any discount on early payment.

Direct payment is collected through check or Cash Management Service (CMS). 50% of collection
is through CMS, which reduces delay in collection.
In collection of bill MTL send bill to dealers, when dealers accept these Bills, the Banks will
discount them.
Bank discounts the bill in two ways:
1. with recourse
2. without recourse

In with recourse system, company is giving guarantee that if dealer is not paying bill then
company will pay it, which is secure hence bank will not check dealer worthiness it will just check
signature. In this way MTL maintains good relations with bank as well as dealers.
Factoring is done with HSBC, AXIS, Kotak Mahindra, at the rate of 6.25% for 90 days bill.

In without recourse system, bank will check the worthiness of dealer because MTL is not going
to pay the bill, but in case of any default of payment it will help bank by stopping the delivery of
the goods to the customer. This is not true for all dealers, if the company feels that the dealer is
worthy then it will allow supply of goods to default dealer.

Channel financing is done through Centuring financing, ABN Amro HSBC, ICICI bank.

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In this rate is 10-12% depending on bank and worthiness of dealer.
Normally 16 days are allowed for collecting money through check or demand draft, while 10 days
are allowed for bills and Cash Management Service.

The credit period allowed for wholesaler, franchisee, retailers are as follows

Wholesaler 90 days
Franchisee 60 days
Retailers 45 days

Due to credit policy MTL claims that they do not have any bad debt since long year.
In case any dealer made the bad debt then in that case the commission of agent is held and the
amount of bad debt is recovered from that commission.
The commission given to the agent varies from 2.5-3.5% depending on quality of product. For a
particular area there is only one agent and the amount of his commission is in crores of Rupees,
hence the company can say that they will recover the bad debt.

The company also gives free bags, Air conditioner, Generator for franchisee in order to make
payment properly.

3) CASH MANAGEMENT:

MTL is cash rich company. They are using conservative policy for working capital management in
order to not to loose the sales. In case of booming period of sales like marriage season, Diwali,
they require more working capital before two month of booming period of sales.

The company does not have debt so even if they follow conservative approach they are managing
to have less reduction in profit due to liquidity by investing it in to short term investment like
mutual funds for monthly quarterly or semiannually basis. They also manage the liquidity at time
of requirement by investing it in to different period. Kotak Mahindra and DSP Merrill Lynch are
the advisers of MTL. They also invest in Chartered Bank on daily basis.

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Their average rate of return on this investment is 5-6%. Also no other investment gives more rate
of return than this because bank interest rates are low.

4) ACCOUNTS PAYABLE:

The payment section in the Accounts department in the company makes payment to the 20
departments of the company and some part of management expenditure. They also maintain the
records of all payment receipts of the company’s registered office at Mumbai.

The Government and other payments are made through the State Bank of India and Bank of
India. Major payments are made through Axis Bank, Standard Chartered Bank, HSBC because
only these banks gives the facility of free cheques printed with the name of MTL’s while other
banks charge for the same.

At MTL the modes of payment differ according to the amount, which is shown in the following
table---

Amount in Rs. Mode of payment


0-1000 Petty cash
1000-20000 Cash / Cheque
Above 20000 Cheque

The payment to the foreign suppliers is made through the banks by debiting the company’s account
in rupees equivalent to the foreign currency of the concerned supplier including transfer charges.
The salaries are paid through cheques, which is controlled by the Salary department. The company
makes payment after receiving the goods except incase of Reliance to whom they make advance
payment.

The company generally receives 2%-4% cash discount and 15-30 days of credit. Only the Pran
Brothers give regular discounts even on bills of Rs.1000-Rs.5000. The Commercial department
does all the negotiation regarding purchases. The payment structure is revised quarterly.

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4.7] WORKING CAPITAL FINANCE
After determining the level of working capital, then comes the question of financing of the same.
The source of finance for working capital may be categorized as—
a. Trade Credit
b. Bank Finance
c. Accrued Expenses & Deferred Income
d. Commercial Papers

Trade Credit – Trade credit refers to the credit that a customer gets from suppliers of goods in the
normal course of business. The buying firms do not have to pay cash immediately for the purchase
made. This deferral of payments is a short-term financing called trade credit.

Bank Finance – Bank finance is the most commonly negotiated source of the working capital
finance. It can be availed in the forms of overdraft, cash credit, purchase/discount of bills and loan.
Banks are the largest providers of working capital finance to firms. Each company’s working
capital need is determined as per the norms. These norms are based on the recommendations of the
following committees –
 The Tandon Committee
 The Chore Committee

Accrued Expenses & Deferred Income – Accrued expenses represent a liability that a firm has to
pay for the services, which it has already received. For e.g. Salaries & wages, Tax & interest.
Deferred income represents funds received by the firm for goods and services, which it has agreed
to supply in future. For e.g. Advance payments made by the customers.
Accrued expenses and deferred income also provide some funds for financing working capital.

Commercial Paper – Commercial paper is an important money market instrument for raising
short-term finances. The Reserve Bank of India introduced the commercial paper scheme in the
Indian money market in 1989. Commercial paper is a form of unsecured promissory note issued by
the firms to raise short-term funds.

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4.8] OPERATING CYCLE

The working capital requirement of a firm depends, to a great extent upon the operating cycle of
the firm. The operating cycle is defined as the time duration starting from the procurement of
goods or raw materials and ending with the sales realization. The length and nature of the
operating cycle differs from one firm to another depending upon the size and nature of the firm.

A company’s operating cycle typically consists of three primary activities: purchasing resources,
producing the product and selling the product. These activities create fund flows that are both
unsynchronized and uncertain. They are unsynchronized because cash disbursements usually take
place before cash receipts. They are uncertain because future sales and costs, which generate the
respective receipts and disbursements, cannot be forecasted with complete accuracy.

The concept of operating cycle is useful in controlling as well as forecasting working capital.
Longer the operating cycle the more working capital funds the firm needs, while shorter operating
cycle period indicates that the locking up of funds in current assets is relatively for short duration.

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Thus the operating cycle of a firm consists of the time required for the completion of the
chronological sequence of the following:
b. Procurement of raw materials and services.
b. Conversion of raw materials into work-in-progress.
b. Conversion of work-in-progress into finished goods.
b. Sale of finished goods (cash or credit).
b. Conversion of receivables into cash.

The segments of the operating cycle include raw material storage period, conversion period,
finished goods storage period and average collection period before getting back cash along with
profit. The total duration of all the segments mentioned above is known as gross operating cycle
period. When the average payment period of the company to its suppliers is deducted from the
gross operating cycle period the resultant period is called the net operating cycle period or the
operating cycle period.

4.9] RATIOS

Ratios are relative figures reflecting the relation between variables. In simple words, a ratio is an
arithmetical relationship between two figures. They enable analyst to draw conclusions regarding
financial operations. The use of ratios as tool of financial analysis, involves their comparisons, for
a single ratio, like absolute figures, fails to reveal the true position. It predicts strength and
weakness of the firm in various areas as well as helps in assessing corporate excellence, judging
credit worthiness, forecasting bond ratings, predicting bankruptcy and assessing market risk.

A measurement comparing the depletion of working capital to the generation of sales over a given
period. This provides some useful information as to how effectively a company is using its
working capital to generate sales.

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6. ANALYSIS AND
INTERPRETATION OF DATA

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ANALYSIS AND INTERPRETATION OF DATA

1] Working Capital
Working Capital refers to the capital required to meet day to day operations. It is calculated by
deducting current liabilities from current assets.

Calculation of Working Capital

(Rs. In lakhs)

Particulars 2012 2011 2010


Current Assets, Loans and
Advances:
-Inventories 29490.66 27734.83 25883.75
-Sundry Debtors 24614.52 29070.82 32744.55
-Cash and Bank Balances 2675.92 1494.35 3442.47
-Other Current Assets 1887.79 2516.56 2712.77
-Loans and Advances 12122.14 12863.68 12193.74
Gross Working Capital (a) 70791.03 73680.24 76977.28
Current Liabilities and
Provisions:
-Current Liabilities 18037.24 20217.82 19774.42
-Provisions 8373.15 6839.76 6513.40
TOTAL (b) 26410.39 27057.58 26287.82
Net Working Capital (a-b) 44380.64 46622.66 50689.46
Source: Balance Sheet

From the above table, taking individually, the company has favorable working capital. However,
comparing the given years it is seen that there is increase in stock year by year also decrease in
debtors. This may be due to inability to sell the products. This means that the company is
purchasing the material but not able to sell in the market and as such the sales are reducing and so
are the debtors and also the stock is increasing because of increased purchase and reduced sales.

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Thus, many a times it may happened that liquidity position are favorable but in fact, they may not
be this due to increased stock. Cash is fluctuating over the period of three years. Other current
assets are decreasing. Loans and advances are favorably stable along the period of three years.
Current liabilities are decreasing; as such, the company has enough cash reserves to pay-off the
creditors in stipulated time. This may be due to the trust on the suppliers about the material quality.
Provisions on other hand were stable in 2010 and 2011 but sudden shoot up in the year 2012. This
may be due to increase in proposed dividend and tax for the same.

2] OPERATING CYCLE

Introduction:
Operating cycle is the time duration starting from the procurement of goods or raw materials and
ending with the sales realization.

TERMS USED WHILE CALCULATING OPERATING CYCLE

Raw Material Storage Period: To calculate the Raw Material Storage period on an average,
divide the average stock maintain by the organization by daily consumption, resulting in giving the
blocking period. From the observation of the figures it can be seen that increasing consumption of
Raw Material is leading to increasing requirement of higher level of stock, surely affecting
the Raw Material Storage period. Thus the Raw Material storage period is increasing from 46 days
in 2010 up to 55 days in 2012.This shows that more funds are blocked in Raw Material. For 9
days, though increasing production demands more flow of Raw Material.

Conversion Period: The observation is showing increasing daily Cost of Production which is the
obvious result of increasing production pattern of the organization. The organization has
successfully maintained the stock level of Work in Progress with a very little variation. The
average daily Cost of Production is increasing from Rs. 166 lakhs to Rs. 200 lakhs. Over the
period of three years maintaining the same level of Work in Progress is reducing the conversion
period from 46 days to 38 days. It can be said that increased Raw Material storage period of 9 days
is very much compensated by the conversion period which is reduced by 12 days.

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Finished Goods Storage Period: It is mainly dependent on sales trend of the company. Company
is constantly showing increasing turnover and the figures can be taken as indicator of the same
from the operating cycle point of view. Though the average daily Cost of Sales and average stock
of Finished Goods figures are increasing, no specific trend can be observed in their proportion
which can be easily pointed out by Finished Goods storage period which is initially 43 days in
2010 increased to 49 days in 2011 and again came down to 45 days in 2012.

Average Collection Period: It is cumulative figure effect of company’s credit policy, Debtors/BR
maintenance discount policy and other bad debts. Naturally increasing sales will show increased
average daily credit which can be observed in the given figures i.e. Rs. 217 lakhs in 2010 to
Rs.259 lakhs in 2012. But the average debtors maintained by the organization are showing slight
increase in 2010 to 2011 and significant decrease in 2012. The decrease is about Rs. 1000 lakhs,
which is heavily resulting into reduced collection period. Coming down of collection period from
140 days to 104 days is showing the strong receivable policies of the company. These are allowing
more funds (around 36 days (140-104) i.e. Rs. 259 lakhs) at the disposal to the organization.

Average Payment Period: Though the company is allowing enough credit periods to its debtors it
is getting even lesser period from its creditors. Thus, decreasing payment period, calling for more
liquidity or cash, parallels compensates the reducing collection period. The average payment
period is reduced to 33 days from 39 days with increasing average daily purchases from Rs.58
lakhs to Rs.81 lakhs over the period of three years. Increasing purchases are the result of the
increased turnover of the company. It can be said that reducing payment period is observed due to
changing policies of the company.

Operating Cycle Lock-in-Period: This is the jumbled effect of R.M storage period, Conversion
period, F.G storage period, and Collection period reduced by Average payment period to creditors.
Slight increase from 2010 to 2011 and significant reduction in 2012 is the main observation of
total operating cycle. The whole operating cycle was of 236 days which increased by just 3 days
(239 days) in 2011 and came down to 209 days in 2012, showing the favorable working capital
position in comparison of earlier two years.

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Calculation of Operating Cycle
(Rs. In Lakhs)

Particulars 2012 2011 2010


A. Raw Material Storage Period

-Annual consumption Of Raw Material 28296.37 21079.39 20755.09

-Avg. daily consumption of RM 77.52 57.75 56.86


(assume 365 days)

-Avg. stock of RM 4264.37 2956.36 2593.96

RM Storage Period (in days) 55 51 46

-Annual Cost of Production 72973.38 62377.10 60654.02

-Avg. daily COP 199.93 170.90 166.18


(assume 365 days)

-Avg. stock of WIP 7622.03 7598.65 7560.69

Conversion Period (in days) 38 44 46

C. Finished Goods Storage Period

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-Annual Cost of Sales 100819.29 92401.36 90302.23

-Avg. daily COS. (assume 365 days) 276.22 253.15 247.40

-Avg. stock of FG 12553.21 12307.76 10700.63

FG Storage Period (in days) 45 49 43

D. Avg. Collection Period

-Annual Credit Sales 94431.64 85469.15 79352.84

-Avg. daily Credit (assume 365 days) 258.72 234.16 217.41

-Avg. Debtors 26842.67 30907.68 30405.39

Avg. Collection Period (in days) 104 132 140

E. Avg. Payment Period

-Annual Credit Purchases 29712.85 23982.01 21055.46

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-Avg. daily Purchases 81.41 65.70 57.69

-Avg. Creditors 2696.60 2416.38 2235.12

Avg. Payment Period (in days) 33 37 39

Operating Cycle (in days) 209 239 236

A+B+C+D-E

Source: Balance sheet & Income & Expenditure Account

3] RATIO
Ratio basically represents the relationship between two groups of items taken either from profit
and loss account or from the balance sheet or both. In other words, the ratios measure the
relationship among the tangible factors affecting the performance and profitability of the company.

TERMS USED WHILE CALCULATING OPERATING CYCLE

a) LIQUIDITY RATIO

Liquidity mainly relates to the quick availability of cash. While managing the working capital
quick availability of cash against the blocked assets is need to be taken into consideration. Cash is
needed to pay the liabilities relating working capital such as creditors and bank o/d .On the other
hand this cash is collected through debtors or cash sales.

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It is worthy to mention that in emergency to pay-off short term current liabilities, long term debts
can be used but those are rarely covered by the working capital analysis because it is mainly deal
with pay-off of liabilities by realization of current assets.

Current Ratio: This ratio states that how many times the current liabilities can be covered by
current assets. Whether the organization has short-term liquidity (solvency) to cover its debt and
how strong the company is in paying its current liability. Normally 2:1 is the ratio, which is
considered satisfactory.

Quick Ratio: It is modified form of current ratio, which gives the comparison of immediately
available and required cash. It excludes the liabilities and assets, which are accrued but not due;
such as provisions. Thus it is wholly based on the “cash” liquidity aspects.

b) TURNOVER RATIO

Turnover is the total sales of the company i.e. the main source of the organization can gain.
Various turnover ratios are calculated to see the exact proportions of the sales to various other
items, which are related to sales. To build up the figure of the sales there are many other items,
which contributes to it. There are many factors, which are part and parcel of working capital cycle,
which creates the importance in working capital management. Though the “sales” is the important
aspect of any business “cost of sales” blocking of funds into sales also gains important position in
working capital management.

Inventory Turnover Ratio: How the cost of production is blocked in the nature of stock, lying in
the go down is one of the important aspects. Huge nature of cost of production and huge inventory
built up in the go down can affect the liquidity adversely and vice-a-versa. On the other hand
shortage of stock cannot be beneficial to grab the market demand profits. Thus inventory turnover
ratio says about, how the cost of goods sold is blocked in the stock.

Inventory Period: This is more useful form of inventory turnover ratio as it gives the time period
for which the funds are locked. Thus with comparison of inventory turnover and period ratio we
can say that the first gives us the amount blocked and the other says how long it is blocked.

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Debtor’s Turnover Ratio: Debtors turnover ratio is calculated to give an idea about how the
debtors can be covered by the total sales i.e. basically for how much time’s sales realization is
blocked in the debtors. As organization receives credit facility from suppliers, it also allows credit
period to the debtors for larger volume of sales.

Debtor’s Collection Period: In any business, whenever something is sold, the payment has to be
received from the other party. Now, Debtor Collection mean indicated is the average number of
days taken to receive the money from the other party. Low ratio implies quick cash collection and
less working capital required.

Creditors Turnover Ratio: These ratios say that how early you have to make the payments.
Basically these ratios are calculated to know the exact cash flow required at the appropriate time.
Say, on particular day creditors of Rs.’X’ has to be paid then it should be considered that whether
on that bank or cash account has sufficient balance or any debtors or B/R are realizing on that day.
Thus creditor’s turnover ratio is calculated by dividing credit purchase by average creditors carried
by the company i.e. how many times the creditors cover the total purchases.

Creditors Payment Period: In any business, whenever something is purchased from another
party, then the party needs to be paid. Creditor Payment indicates the average number of days
within which other party is paid. High ratio is more credit period and less working capital required.
To find the average credit available by the suppliers can be obtained, by dividing 365 to turnover
ratio.

Working Capital Turnover Ratio: It is the relationship between turnover (sales) and working
capital. It highlights how effectively working capital is being used in terms of the turnover it can
help to generate. It enables to find the structure of working capital cycle of the Organization. No
ideal values, but higher the ratio stronger the position of the working capital.

Current Assets to Total Assets: Total Assets acquired by Finance Manager can be applied by him
in various ways such as expenses and assets. It can be divided into two major aspects Current
Assets and Fixed Assets. It should be worth while to observe that how much of the portion of the
total assets is occupied by the current assets, as current assets are mainly involved in forming in
working capital. Thus the ratio should not be so large to ignore the application of the funds in fixed

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assets. Also care should be taken that main investment of the organization should be in the
operating items. Hence, the ratio of current assets to total assets though depend upon industry to
industry should not vary largely.

Inventory Ratio: It states how much portion of current assets is blocked in current assets. It is
important from the view of quick realization of the current assets. Inventories can be transformed
into cash or debtors depending upon the sales. Thus inventory ratio helps in working capital
management as well as production life cycle, costing and management.

c) PROFITABILITY RATIO

Profitability ratio reveals how good a business or a company is in terms of earnings. It helps in
assessing the adequacy of profits earned by the company and also to discover whether profitability
is increasing or decreasing. The profitability of the firm is net result of large number of policies
and decisions. The profitability ratios show the combined effect of liquidity, asset management and
debt management on operating results. Profitability ratios are measured with reference to sales,
capital employed, total assets employed, shareholders funds etc.

Cash Profit Ratio: This ratio is very important from the point of view of liquidity and working
capital ratio. Cash profit gives all those expenses and incomes, which are accrued due and receive.
The portion of such profit to the sales is a cash profit ratio. Higher the ratio higher will be the
profit gaining position of the company, which gives a liberty to the organization to use the liquid
profit in another income generating operations or projects. The difference between the cash profit
and normal profit is that cash profit is what is actually realized in the hands of the organization to
be used for other purposes.

Return on Capital Employed: This ratio is not very important from working capital management
point of view but to obtain the funds for short term as well as long term purposes, supplier of the
firm will invariably ask of earning capacity of the organization. Return on capital employed is the
major indicator of earning capacity, which is compared with market return and the investment
decision are taken. How the organization is managing to maintain the profit above, the market
level shows the success ratio as compared to the other companies in the industry

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Calculations of Financial ratios:

Introduction:
Ratios are used as tool for financial analysis. They measure the relationship among the tangible
factors affecting the performance and profitability of the company.

Ratio Formula Ratio used for Financial


Year ended

2012 2011 2010


Liquidity
Ratios:

Current Ratio Current Assets, Loans and Advances 3.13 2.72 2.93
Current Liabilities and Provisions

Quick Ratio Liquid Assets


Current Liabilities and Bank O/D 1.81 1.68 1.93
Activity
Ratios:

Inventory COGS
Turnover Ratio Average Inventory 2.80 2.60 2.90
(times)

Inventory 365
Period (days) Inventory Turnover Ratio 130 140 126

Debtors
Turnover Ratio Net Sales 3.52 2.77 2.61
(times) Avg.Debtors
Debtors

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Collection 365 104 132 140
Period (days) Debtors Turnover Ratio

Creditors 11.02 9.92 9.42


Turnover Ratio Purchases
(times) Avg.Creditors

Creditors 365 33 37 39
Payment Creditors Turnover Ratio
Period (days)

Working Net Sales


Capital Net Working Capital 2.24 1.94 1.66
Turnover Ratio

Sales to Capital Sales 0.63 0.61 0.57


Employed Capital Employed
Ratio

Current Assets Current Assets 62.70% 64.47% 66.91%


to Total Assets Total Assets

Inventory Ratio Inventory 33.63% 37.64% 41.65%


Current Assets

Debt to Equity Debt 45.44% 50.44% 59.32%


Ratio Shareholders’ Equity

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Profitability
Ratios:

Cash Profit Cash Profit *100 22.93% 19.05% 17.46%


Ratio
Sales

Return on Profit before Int, dep.& tax *100 15.96% 13.35% 11.73%
Capital Capital Employed
Employed

Source: Balance Sheet & Income & Expenditure Account

NOTES:

1.Cost of goods sold = increase in finished and process stock + material cost + manufacturing and
operating costs + employment cost (85%) + selling related administrative and general expenses.

2. Creditors
(Rs. In lakhs)

Particulars 2012 2011 2010 2009


Raw materials,
Merchanting 2898.47 2494.53 2338.22 2135.02
goods

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4] INVENTORY VALUATION

CALCULATION OF INVENTORY VALUATION

Let's examine the inventory of yarn in Moararjee Textiles Ltd.(MTL) to see how the different
inventory valuation methods can affect the financial analysis of a company.

Monthly Inventory Purchases(Yarn)


Month Units Purchased Cost Total Value
January 1,000 1,000 10,00,000
February 1,000 1,200 12,00,000
March 1,000 500 15,00,000
Total 3,000
Beginning Inventory = 1,000 units purchased at 800 each (a total of 4,000
units)

Income Statement (simplified): January-March*


Item LIFO FIFO Average
Sales = 3,000 units @ 20 each 60,00,000 60,00,000 60,00,000
Beginning Inventory 8,00,000 8,00,000 8,00,000
Purchases 37,00,000 37,00,000 37,00,000
Ending Inventory (appears on B/S)
8,00,000 15,00,0000 11,25,000
*See calculation below
COGS 37,00,000 30,00,000 33,75,000
Expenses 10,00,000 10,00,000 10,00,000
Net Income 13,00,000 20,00,000 16,25,000

*Note: All calculations assume that there are 1,000 units left for ending inventory:
(4,000 units - 3,000 units sold = 1,000 units left)

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Here is figuring out the ending inventory, the results of which depend on the accounting method,
in order to find out what COGS is. All calculation is rearranged the above equation into the
following:

Beginning Inventory + Net Purchases - Ending


Inventory = Cost of Goods Sold

LIFO Ending
1,000 units X 800 each = 8,00,000
Inventory Cost =
The last units in are sold first; therefore, leave the oldest units for ending
inventory.

FIFO Ending
1,000 units X 1500 each = 15,00,000
Inventory Cost =
The first units in (the oldest ones) are sold first; therefore, leave the newest
units for ending inventory.

Average Cost Ending [(1,000 x 800) + (1,000 x 1,000) + (1,000 x


Inventory = 1,200) + (1,000 x 1,500)]/4000 units = 1125
per unit

1,000 units X 1125 each = 11,25,000


It would be a weighted average of all the units in inventory.

Conclusion

As a final note, many companies will also state that they use the "lower of cost or market". This
means that if inventory values were to plummet, their valuations would represent the market value
(or replacement cost) instead of FIFO, LIFO or average cost.

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7. CONCLUSIONS AND
SUGGESSTIONS

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 CONCLUSIONS AND SUGGESSTIONS

FINDINGS
 Despite the difficult conditions in the international market the company continued to be on
the growth path, both in terms of volume and revenue.

Specific Conclusions:
 Though the consumption of Raw Material, cost of production and cost of sales has
increased in 2012, net working capital is decreased by 30 days due to decrease in collection period.
This shows the improvement in the collection policies of the company.
 The operating cycle Lock – In –Period came down to 209 days in 2012 compared to 236
days in 2011 and 239 days in 2010, which shows that the working capital position of the company
is favorable as compared to the earlier 2 years.

SUGGESTIONS
General Suggestions:
 The company has to take steps to counter the rising input cost and domestic competition
through cost reduction, rationalization of products and distribution channels, judicious inventory
management and research and development.
 As China has become a part of World Trade Organization, it is hampering the Indian
Textile market, the company has to leverage a strong brand in the international market.

Specific Suggestions:
 The Raw Material storage period has increased from 46 days in 2010 up to 55 days in
2012, which shows that more funds are blocked in Raw Materials for 9 days though increasing
production demands more flow of Raw Material. Using modern production techniques like ‘Just In
Time’ approach will reduce the Raw Material storage period and increase the liquidity or cash in
hand.
 The company can adopt the aggressive approach to finance current assets. In this approach
the firm finances a part of its permanent current assets with short term financing. This is more
risky but may add to the return on assets.

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8. ANNEXURES

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ANNEXURE NO. 01

BALANCE SHEET AS ON 31st MARCH

Particulars 2012 2011 2010


Sources of Funds:
Shareholders’ Funds 6138.08 6138.08 6138.08
Share Capital 98717.37 89297.33 83388.27
Reserves & Surplus 104855.45 95435.41 89526.35
Loan Funds 22928.24 27179.69 14243.87
Secured Loans 24722.05 20960.20 38864.68
Unsecured Loans 47650.29 48139.89 53108.55
Deferred Tax Liability 5701.71 4912.83 4392.57
TOTAL 158207.45 148488.13 147027.47
Application of Funds:
Fixed Assets 97952.73 90986.31 82238.59
Gross Block 57309.49 51496.69 47096.93
Less: Depreciation 40643.24 39489.62 35141.66
Net Block 1478.85 1112.25 2146.68
Capital WIP --- --- 141.76
Technical Knowhow 42122.09 40601.87 37430.10
Investments 71586.85 61231.64 58765.84
Current Assets, Loans & Advances
Inventories 29490.66 27734.83 25883.75
Sundry Debtors 24614.52 29070.82 32744.55
Cash & Bank Bal. 2675.92 1494.35 3442.47
Other Current Assets 1887.79 2516.56 2712.77
Loans & Advances 12122.14 12863.68 12193.74
Less: 70791.03 73680.24 76977.28
Current liabilities & Provisions
Current Liabilities 18037.24 20217.82 19774.42
Provisions 8373.15 6839.76 6513.40
Net Current Assets 26410.39 27057.58 26287.82
Miscellaneous Expenditure to the extent 44380.64 46622.66 50689.46
not written off or adjusted 117.87 31.96 142.07
TOTAL 158207.45 148488.13 147027.47

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ANNEXURE NO. 02
PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH

Particulars 2012 2011 2010


Income
Sales Services & Export Incentives 102393.56 93327.40 97512.31
Other Income 14459.52 8673.99 9167.06
Total 116853.08 102001.39 106679.37
Expenditure
Material Costs 31134.16 23926.31 22895.67
Manufacturing & Operating Cost 22932.10 21355.82 20428.80
Increase/Decrease in Finished & processed stock (417.46) (298.98) 3307.40
Excise Duties --- --- 10667.62
Employment Costs 18042.16 16803.66 16667.38
Administrative, Selling & General Expenses 18120.12 17286.04 16645.66
Finance Charges 2308.94 3871.85 5993.36
Depreciation & Amortization 6337.85 5810.64 5260.80
Miscellaneous Expenditure written off 82.44 127.03 151.66
Profit for the year before exceptional items 98540.31 88882.37 102018.35
Add/less: Exceptional items 18312.77 13119.02 4661.02
Profit for the year before tax 345.65 194.59 (214.74)
Provision for income tax 18658.42 13313.61 4446.28
Current tax 4660.00 3600.00 2200.00
Deferred tax 788.88 520.26 479.32
Provision for Wealth tax 26.00 50.00 18.00
Profit for the year after tax 13183.54 9143.35 1748.96
Add/Less: Prior period Adjustments(net) (146.98) (117.87) (250.75)
Excess provision for tax written back 192.38 -- 698.43
Balance brought forward 2974.74 4140.68 2188.07
Balance available for Appropriation 16203.68 13166.16 4384.71
Appropriation 250.00 375.00 80.00
Debenture Redemption Reserve 6000.00 6700.00 4016.69
General Reserve 0.41 0.38 ---
Dividend paid including tax thereon 3375.95 2762.14 2762.14
Proposed Dividend 432.54 353.90 --
Tax on Proposed Dividend 10058.90 10191.42 6858.83
Balance carried to Balance Sheet 6144.78 2974.74 4140.68

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9. BIBLIOGRAPHY

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BIBLIOGRAPHY

BOOKS:
Khan M. Y. & Jain P. K., ‘Financial Management (Text & Problems)’, Tata McGraw-Hill
Publishing Co. Ltd., New Delhi, Third Edition.
Chandra Prasanna, ‘Financial Management (Theory & Practice)’, Tata McGraw-Hill Publishing
Co. Ltd., New Delhi, Fifth Edition.
Rustogi R. P., ‘Financial Management (Theory, Concepts and Problems)’, Galgotia Publishing
Co., New Delhi, Second Revised Edition.
Pandey I. M., ‘Financial Management’, Vikas Publishing House Pvt. Ltd., New Delhi, Eighth
Edition.
Annual Reports, Morarjee Textiles Ltd., 2010 to 2012.

WEBSITES:
www.morarjeetextiles.com
www.indiainfoline.com
www.managementor.com
www.kjmc.com
www.icicidirect.com

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