Chapter1

1.1 Introduction

Inventory management is primarily about specifying the size and placement of stocked
goods. Inventory management is recurred at different locations within a facility or within
multiple locations of a supply or network to protect the regular and planned course of
production against the random disturbance of running out of materials or goods. The scope of
Inventory management also concerns the fine lines between replenishment lead time, carrying
costs of inventory, asset management, Inventory forecasting, physical inventory, available
physical space for Inventory, quality management, returns and defective goods and demand
and forecasting.

1.2 Types of inventory

Normally the inventory has divided into two types. These,

1. Merchandising inventory,
2. Manufacturing inventory.

The manufacturing inventory has been subdivided into three types. These,

1. Raw materials,
2. Work in process,
3. Finished goods.

1. Raw materials: Everything the crafter buys to make the product is classified as raw
materials. That includes leather, dyes, snaps and grommets. The raw material
inventory only includes items that have not yet been put into the production process.
2. Work in process: This includes all the leather raw materials that are in various stages
of development. For the leather crafting business, it would include leather pieces cut
and in the process of being sewn together and the leather belts and purse etc. that are
partially constructed.
 In addition to the raw materials, the work in process inventory includes the cost of the
labor directly doing the work and manufacturing overhead. Manufacturing overhead
is a catchall phrase for any other expenses the leather crafting business has that
indirectly relate to making the products. A good example is depreciation of leather
making fixed assets.

3. Finished goods: When the leather items are completely ready to sell at craft shows or
other venues, they are finished goods. The finished goods inventory also consists of the
cost of raw materials, labor and manufacturing overhead, now for the entire product.

Financial Management is concerned with the duties of the finical manager in the business
firm. Financial managers actively manage the financial affairs of any type of business,
namely financial and non-financial, private and public, large and small, profit seeking and
non-profit. They perform such varied task, as budgeting, financial forecasting, cash
management, credit administration, investment analysis, funds management and inventory
management.

A term inventory refers to the stock file of the products a firm is offering for sale and
the components that make up the product. In other words, inventory is composed of assets
that will be showed in future in the normal course of the business operations. The assets
which firms store as inventory in anticipation of need are:

1.3 Raw materials Work in process (Semi Finished goods) Finished goods

The raw material inventory contains item that are purchased by the firm from other
and are converted into finished goods through the manufacturing (production) process.
They are an important input of the final product. The working process inventory consists
of items currently being used in the production process.

They are normally semi finished goods that are at various stages of production in a
multi stage production process. A finished goods represented final or completed products
which are available for sale .The inventory of such goods consists of items that have been
produced but are yet be sold.

Inventory, as a current asset, differs from other current assets because only financial
managers are not involved. Rather all the functional areas, finance, marketing, production,
and purchasing are involved. The views concerning the appropriate level of inventory
would differ among the different functional areas.

The job of the financial manger is to reconcile the conflicting view points of the
various functional areas regarding the maximizing the owners wealth. Thus, inventory
management, like the management of other current assets , should be related to the overall
objective of the firm. It is in this context that the present chapter is devoted to the main
elements of inventory management from the view point of financial management.

The objective of inventory management is explained in some detail sections.

Section two is concerned with inventory management techniques. Attention is given here
to basic concepts relevant to the management and control of inventory.

1.4 Martin and miller identified three general motives for holding inventories

Transaction motive:

This refers to the need of maintaining inventory to facilitate smooth production and
sales operations.

Precautionary motive:

Precautionary motive for holding inventory is to provide a safeguard when then actual
level of activity is differ than anticipated. This inventory serves when there is a
unpredictable changes in the demand and supply forces.
 Speculative motive:

This motive influences the decision to increase or decrease the levels of inventory to
take the advantage of price fluctuations.

Inventories constitute the most significant part of current assets of a large majority
of companies in India. On an average, inventories are approximately 60 percent of current
assets in public limited companies in India. Because of the large size of inventories
maintained by firms, a considerable amount of funds in required to be committed to them. It
is, therefore, absolutely imperative to manage inventories efficiently and effectively in order
to avoid unnecessary investment. A firm neglecting the management of inventories will be
jeopardizing its long-run profitability and may fail ultimately. It is possible for a company to
reduce its levels of inventories to a considerable degree, e.g., 10 to 20 per cent, without any
adverse affect on production and sales, by using simple inventory planning and control
techniques. The reduction in “excessive” inventories carries a favorable impact on a
company’s profitability.

1.5 Meaning:

The directory meaning of inventory is stock of goods or list of goods. Inventories

are unconsumed or unsold goods purchased or manufactured. According to the International
Accounting Standard: 2 inventories are assets.

(a) Held for sale in the ordinary course of business,

(b) In the process of production for such sale, or

(c) To be consumed in the production of goods or services for sale.

Thus, the term inventory includes stock of finished goods, work in progress, raw
materials and components. In case of a trading concern , inventory primarily consists of
finished goods while in case of a manufacturing concern, inventory consists of raw materials,
components , stores , work in process and finished goods. In accounting language it may
mean finished goods only. Inventory management includes raw materials; work-in-progress,
finished goods etc.

Nature:

Inventories are stock of the product a company is manufacturing for scale and
components that make up the product. The various forms in which inventories exist in a
manufacturing company are: raw materials, work-in-progress and finished goods.

Raw Material:

Raw Material form a major input to the organization. They are required to carry out
production activities uninterruptedly. The quantity of raw material are required will be
determined by the rate of consumption

Work-in-Progress:

The work-in-progress is that stage of stocks which in between raw materials and
finished goods. The quantum of work-in-progress depends upon the time taken in
manufacturing process.

Finished Goods:

These are the goods which are ready for the customers. The stock of finished goods
provide on buffer between consumers. The stock of finished goods provides on buffer
between production and market. In some concerns the production is undertaken on an order
basis, in these concerns there will not be need for finished goods. The need for finished goods
inventory will be more when production is undertaken in general without waiting for specific
orders.
1.6 Purpose of inventory management

The cost of storage and handling every day business enterprise as to maintain a certain
level. Generally speaking there are 3 main purposes of Inventory Management.

1. The transaction motive which facilitates continuous production and timely

execution of sales orders.
2. The precautionary motive which necessities the holding of inventories for
meeting the unpredictable changes in demand and supply of materials.
3. The speculative motive which induces to keep the inventories for taking
advantage of price fluctuations.
1.7 Objectives of inventory:

The following purpose should be kept in mind in developing and maintaining a system of
inventory control

1. Effective use of financial resources available to business i.e. to maintain the investment in
inventory at the lowest level consistent with operating requirements.
2. Avoidance of the "out-of-stock" danger i.e., to provide a supply of required materials
without any delay for efficient and uninterrupted operatios.
3. Reduction to a minimum of the risk through obsolescence.
4. Economy in purchasing as affected by quantity buying and favourable raw material
market.
5. Storage of inventory with a minimum of handling time and cost and to protect them from
losses by theft, fire and damage.
6. Services to customers i.e., maintaining sufficient stocks of finished products to meet
reasonable expectations of customers for prompt delivery of their orders.
7. Accurate and regular material reports to management by keeping perpetual inventory and
other up to date records
1.8 Maximum level:

The maximum stock level is that quantity of material above which the stock of any
item should not generally be allowed to go up this maximum level may be exceeding 1
certain, special cases, for instance , if a particular lot is purchased at a reasonably low price,
the maximum level may be crossed. This level is fixed after taking into account such factory
as:

Rate of consumption of material.

1. Amount of capital needed and available.
2. Storage space available.
3. Insurance costs which may be important for some materials.
4. Costs of storing above normal stock.
5. Risk of obsolescence and deterioration and
6. Re- order quantity

1.9 Minimum level:

The minimum level is that level of stock below which it should not normally be
allowed to fall. This is essentially a safety stock and will not normally be touched. In case of
any item falling below this level, there is danger of stoppage in production and, therefore,
management should give top priority to the acquisition of new supplies. This level is fixed
after the consideration if the following factors

1. Rate of consumption
2. Minimum level.
3. Delivery Time.
4. Variation in delivery time.
1.10 Essential requirements of inventory control:

Essential to an adequate control of inventory are the following requirements:

1. There should be proper co-ordination and co-operatio between various concerned,

viz., purchasing, departments receiving, inspections, storage, issues and cost
departments.
2. Purchasing should be centralized under the control of a competent manager.
3. There should be proper planning of materials requirements.
4. There should be proper classification of materials with codes, materials
satisfactorily storage control procedures.
5. There should be planned storage control and issues so that there will be delivery of
 materials upon requisition to departments in the right quantity at the time they are
needed.
6. Appropriate records should be maintained to control issues and utilization of stores in
production.
7. The system of perpetual inventory should be operated so that it is possible to
determine at any time the amount and value of each item of material in stock.
8. Maximum ,minimum and re - ordering levels of stocks should be fixed

9. There should be a system of regular reporting to management regarding

materials purchase, storage and utilization.
10. There should be an efficient system of internal audit and internal checks.
1.11 Inventory systems

Records pertaining to quality and value of inventory-in-hand can be maintained

according to any of the following two systems:

(i) Periodic Inventory system.

(ii) Perpetual inventory system.

1.12 Periodic inventory system

In case of this system the quantity and value of inventory is found out only at the
end of the accounting period after having a physical verification of the units in hand. The
system does not provide the information regarding the quantity and value of materials in hand
on a continuous basis. The cost of materials used is obtained by adding the total value of
inventory purchased during the period to the value of inventory in hand in the beginning of
the period and subtracting the value of inventory at the end of the period.

For example, if the inventory in the beginning was 1,000 units of RS 1000, purchases
during the period were of 5,000 units of RS 50,000 and the closing inventory 1,500 units of
RS 50,000 – RS 15,000). It is, thus, assumed that materials not in stock have been used. No
accounting is done for shrinkage, losses, theft and wastage.
1.13 Perpetual inventory system

It is also known an Automatic Inventory System. According to the Chartered

Institute of Management Accountants London, it is “a system of records maintained by the
controlling department, which reflects the physical movement of stocks and their current
balance.” The definition given by Weldon is more exhaustive and explanatory. According to
him, it is “a method of recording inventory Balances after every receipt and issue, to facilitate
regular checking and to obviate closing down for stocktaking”.

In case of this system the stores ledger gives balance of raw materials, work-in-
progress ledger gives the balance of work-in-progress and finished goods ledger gives the
balance of finished goods in hand on a continuing basis. The basic objective of this system is
to make available details about the quantity and value of stock o each item at all times. The
system, thus, provides are rigid control over stock of materials as physical stock can regularly
be verified with the stock records kept in the stores and the cost office.

1.14 Inventory methods

The methods of valuation of inventories are as follows:

1. First In First Out method

2. LIFO method
3. Highest In First Out method
4. Base Stock method
5. Specific Identification method
Average Cost method

Of the above inventory methods the significant methods are explained below,

1. First in first out: (FIFO)

Under this method material is first issued from the earliest consignment on land and
priced at the cost at which that consignment was placed in the stores. In other words,
materials received first are issued first.
Chapter 2

2.1 Research Methodology

The methodology employed for doing the present study is that the information is collected
from primary and secondary sources. The information was used to calculate the Inventory
Management the basis of these analysis interpretations were made.

2.2 Sources Of Data

2.2.2 secondary Data

Most of the calculations are made on the Inventory statement of the company and the company
provided Inventory statements for 3 years.

Referring standards texts, reference books and Internet collected some of the information regarding to
the theoretical aspects.

2.3 Period of the study

It is proposed to study the sources & Application of funds in Maha Cements, Kurnool for 3 years i.e.,
from the Inventory years 2015-2016,2016-2017,and 2017-2018.

2.4 Need of the study

The sources of funds for a business could be from both the long term and short term. Any
business to survive and growth in the competitive market, funds are needed not only to meet its long-
term Inventory needs but also short-term requirements. The long-Term sources comprising of share
capital, long term debt inclusive of debentures etc., while the short term sources comprises of the
short term loans, Inventory Management collection from commercial banks, loans from the call
money market and among these fall the sales which has two phases the cash sales and the credit sales.
The study is aimed at analyzing the Inventory position of MAHA CEMENT .

.
2.5 Objectives of the study

1 To study and analyze the changes those have taken place in the Inventory position of
the company.
2 To changes in the amount of Inventory Management of the company.
3 To measure the overall Inventory performance of Maha Cement.
4 To offer suitable suggestions for better performance of the company.
2.6 Limitations of the study

1. the study is done only for a period of 3 years i.e 2015-16to 2017-18
2. since financial matters are nagitive in nature the some could not be acquired easily
3. intradaction used primarily for historical annual report avaleble to the public and some does
not indicate the current situvation of the firm
Chapter 3

Review of literature

3.1 Bansal(2018)

In his study on Materials Management: A case Study of Bharat Heavy Electricals Limited,
Bhopal Unit, (BHEL), has evaluated the existing systems of inventory management. He
emphasises. The need for automatic replenishment system in the undertaking offer studying
the application of ABC analysis and EOQ technique of inventory control. He also points out
the accumulation of surplus stores and non-moving items in the organization and
recommends that the surplus and absolute stores which are no longer required should be
disposed off as early as possible at the best available price. Further, he suggests the
preparation of monthly class wise statements on inventories for effective control over them
and the introduction of reconciliation system of stores ledgers with account ledgers to avoid
misappropriation of stores, and spares for production and operation are above their actual
consumption level. The inventories in general are found to be above their routine
requirements. The holdings of stores and spares corresponding to two to three years
requirements should be considered excess.

3.2 Rama krishna rao(2017)

Reviews the inventory position in the central public sector heavy engineering units and
highlights the problems faced by the engineering units in particular and all the central public
sector undertakings in general. Roy Chowdhury(47) outlines some of the salient steps
necessary for the development of research in the area of MM. Rao and Rao(48) emphasis the
need for developing a constructive information system in the MM sphere to achieve good
results.

3.3 Adiseshlyer(2016)

Discusses the methods of valuing inventories and feels that the work-in-progress inventories
be valued as per the cost accounts ledgers instead of physical valuation. Kulkarni(50)
discusses ABC analysis techniques at length. Pillai and Ashok Agrawal(51) discusses the
inventory management in the Indian Air Transport Industry and its weaknesses and suggests
remedial measures for an efficient inventory management. Rao(52) discussed the four costs
viz., replenishment cost, inventory carrying cost, under stocking and overstocking costs in
developing an inventor system. Gopalakrishna(53) stresses the need for inventory control in
view of the Tandon Committee norms and suggests some methods to control inventories.
Gangadhara Rao and Rama Krishna Rao(54) analyse the trends in inventory levels besides
pointing out the causes for inventory accumulation in all the central public sector
undertakings during the period.

3.4 Kulkarni(2015)

Highlights the problems of valuation of work-in-progress in the context of identification of

materials and valuation. Rama Krishna Rao(56) highlights the problems of inventory control
in the public sector units and classifies the causes for inventory accumulation as internal and
external. According to him, Unrealistic Government policies with regard to import licenses
and erratic delivery schedules and long lead times are responsible for inventory accumulation
in the public sector units. Rao and Gupta(57) view that an effective management of
inventories reduces the cost of production and consequently increases the profitability of the
enterprise.

3.5 Morris (2014) stressed that inventory management in its broadest perspective is to
keep the most economical amount of one kind of asset in order to facilitate an increase
in the total value of all assets of the organization – human and material resources.
3.6 Kethetal (2013) in their text also stated that the major objective of inventory
management and control is to inform managers how much of a good to re-order, when
to reorder the good, how frequently orders should be placed and what the appropriate
safety stock is, for minimizing stock-outs. Thus, the overall goal of inventory is to have
what is needed, and to minimize the number of times one is out of stock.
3.7 Ashwini & smita (2012)

Material and inventory management is a key of the project or firm management which
is defined as the process to provide right material at right place at right time in right
quantity so as to minimize the cost. Material Management is concerned with planning,
identification, procuring, storage, receiving and distribution of material.
Chase and aquilano (2011)

Inventory is the stock of an item or resource used in an organization. An inventory

system is the set of policies and controls that monitors levels of inventory and determines
what levels should be maintained, when stock should be replenished, and how large orders
should be.

Olowolaju ( 2010)

Inventory is a vital asset, necessary for effective operation of any

business organization. -
Chapter 4

Industry profile

Introduction

Cement industry has been decontrolled from price and distribution on 1st march and
de-licensed on 25th July 1991. However, the performance of the industry, the constraints
faced by the industry are interviewed in the infrastructure co-ordination committee meeting
held in the cabinet secretariat under the chairmanship of secretary. The committee on
infrastructure also reviews its performance. The industry is subject to equality order issued on
17-02-2003 to ensure quality standards.

Cement industry historical perspective

Cement industry is one of the major and oldest established manufacturing industries
in the modern sector of Indian economy. It is an indigenous industry in which the company is
well endowed with the necessary raw materials, skilled manpower and equipment &
machinery technology.

Firms, bridges, buildings, water supply projects, dams, roads, hydroelectric power
projects, seaports, airports, and irrigation schemes require cement. It is thus a vital industry,
which assumes a crucial part in the economic development of the country, thus it regards as
major nation building industry whose importance in a developing economy never be over
emphasized. The Greek civilizations use some of mortar but Romans has developed it.

When one speaks about the cement industry, it invariably refers to Portland cement,
which has its origin in England, but until the 19th century a mixture of limestone with
Pozzoland of volcanic earth was known as cement. The first cement factory was established
around 1890 in both Canada and Australia, while it was invented in 1884 in New Zealand.
 The Cement industry occupies a position of predominance not only an infrastructure
for development but also it is 8th largest in the world, which directly employs about millions
of persons.

Cement industry in india

In India it came to be establishing during the beginning of 20th century. In fact the
cement era in India commenced with the establishment of a small cement factory at
WASHERMANPET in 1904 by south India industry Ltd, a company that dates to 1879.
There was sufficient demand for that product, but because of technological defects and
inadequate supply of raw materials, the plant did not operate economically, a later on
collapsed. India is ranked 4th in the world after China, Japan and USA in cement production.
Yet the per-capital consumption of cement in India however low at 70 to 80 kgs against the
world average of around 220 kgs.

Cement industry in India is 8th decades old. However, the growth has not kept pace
with period of its existence. Decades of the government control have restricted the growth of
the industry. The real foundation stone of the present industry was laid in the year 1942,
when a small factory was established Porbander in Kathiawar by India cement Limited. This
factory commenced its production in 1914 at the rate of 199 metric tones per day.

This company adopted “dry process”. This plant had easy access of lime stone
quarries of Porbander. The initial attempt could cause the attempt of two or more factories.
One at Kanthi (MP) another at Lakhier (Rajasthan). The government control was lifted
immediately after the world war and the boom period of the industry started. The demand for
cement increased very steadily as the cement was used was used not only for housing but also
for dams, roads, bridges and other developed activities.

Indian cement sector

The boom in the housing market has given birth a higher demand in India cement.
The present initiatives under taken by the Government for infrastructure development hasalso
raised the demand for cement in the country. The cement companies such as Ultratech, ACC,
GACL and Grasim have grown in the country.
Capacities Of Production By Companies

Additional
Commissioning
Company Name Location (By State) Capacities
Date
(In mn tones)

JP Associates Himachal Pradesh 4.55 Dec, 2007

Kothputali,
Grasim 4.08 FY 09 Q1
Rajasthan

JP Associates Uttar Pradesh 3.34 FY 2008

Ultra Tech
Andhra Pradesh 3.19 Q1 FY 2009
Cement

OCL Orissa 3.04 Q1 FY 2009

JK Cement Karnataka 3.00 Sept 2008

Binani Cement Rajsthan 2.57 Dec 2006

JP Associates Madhya Pradesh 2.00 Q3 FY 2008

Zuari Cement Andhra Pradesh 1.98 H1 FY 2009

Penna Cement Andhra Pradesh 1.63 H1 FY 2009

ACC Lakheri Rajsthan 0.94 Dec 2006

Madras Cements Tamil Nadu 1.84 H1 FY 2009

Types of cement in india
The types of cement in India have increased over the years with the advancement in
research, development, and technology. The Indian cement industry is witnessing a boom as a
result of which the production of different kinds of cement in India has also increased. By a
fair estimate, there are around 11 different types of cement that are being produced in India.
The production of all these cement varieties is according to the specifications of the BIS.

Some of the various types of cement produced in India are:

1. Clinker Cement
2. Ordinary Portland Cement
3. Portland Blast Furnace Slag Cement
4. Portland Pozzolana Cement
5. Rapid Hardening Portland Cement
6. Oil Well Cement
7. White Cement
8. Sulphate Resisting Portland Cement

In India, the different types of cement are manufactured using dry, semi-dry, and wet
processes. In the production of Clinker Cement, a lot of energy is required. Using materials
such as limestone, iron oxides, aluminum, and silicon oxides produces it. Among the
different kinds of cement produced in India, Portland Pozzolana Cement, Ordinary Portland
Cement, and Portland Blast Furnace Slag Cement are the most important because they
account for around 99% of the total cement production in India.
Company profile

My Home Industries Pvt. Ltd, part of a leading 4000cr business conglomerate- My Home
Group headquartered at Hyderabad. My Home Industries, manufacturer of world-class
Maha Cement, is a renowned name in the industry. To suit various construction needs of
different geographies, Maha Cement has various brands under its name. All the products
surpass the standards set by Bureau of Indian Standards (BIS).

At My Home Industries Pvt. Ltd. (MHIPL), every process is closely monitored and
controlled, right from the selection of raw materials each process is cautiously carried out
through each and every stage until the finished product is packed and dispatched. The product
ensures easier workability, lesser permeability, guards all the structures against nature’s fury,
shields against corrosion and promises longer life.

MHIPL has a joint venture with CRH Plc Ireland, the international leader in building
materials. The growth and success of CRH is founded on its exceptional commitment and
capabilities. Sharing the common vision of excellence, MHIPL and CRH as one entity, is fast
emerging as a leading force in the Indian cement industry.

MHIPL has grown from an annual capacity of 0.2 million tonnes to a staggering 10 million
tonnes within a short span of 19 years.The company is planning to further increase its annual
capacity in the near future.

Vision:

Our vision is to continue to develop solutions that make “living better”, be it through
Construction of “World Class” Living and Working Spaces or illuminating households
through generation of power or manufacturing products like quality cement to build dream
homes or enriching lives through imparting quality education.

Mission:

Our mission is to contribute to building the future by social and capital infrastructure
development by providing all kinds of cement that are environmentally efficient, enhance our
competitive position and bring value to our customers, shareholders and employees through
creation of an environment of empowerment with respect for company’s values.
Reach:

Maha Cement is marketed through a wide network of 5000+ dealers. The company is spread
all over the country with 25 regional offices and 170+ depots. Maha Cement has achieved
phenomenal success in the states of Andhra Pradesh, Telangana, Tamil Nadu, Karnataka,
Kerala Orissa, Maharashtra, Bihar, Chhattisgarh and West Bengal..
Company has a dedicated fleet of more than 1200 trucks and bulkers that ensure prompt
delivery of Maha Cement to the customers.

Recently, the company has also forayed into international markets by supplying cement and
clinker to Sri Lanka and Bangladesh.

My home constructions pvt. ltd. has been growing from strength to strength since its
inception, over three decades ago. The company has created a new idiom in the art and craft
of construction. Dotting the skyline of Hyderabad city, its projects have a rare quality and a
unique aesthetic appeal.

My home constructions pvt. ltd. is today one of the most trusted and preferred construction
companies in Hyderabad. Over the course of its existence, this vertical has delivered many
successful projects catering to the residential & commercial segments.

My Home Constructions has built as many as 18 residential & commercial projects, with a
total built-up area of more than 10.5 million sq. ft. Currently 14.5 million sft under
construction and tens of millions of sq. ft. are under planning stage.

Beyond these millions of square footage, lie the wide smiles of our satisfied customers.

It is no wonder that My Home Constructions Pvt. Ltd. is recognized as a pioneer in building

superior quality projects and as an icon in the Real Estate industry of Hyderabad.

The business policy of My home group aims at diversification. True to this philosophy, the
Group took small steps in the power sector by acquiring a naphtha-based combined cycle
power plant, in 2000 and formed My Home Power Pvt. Ltd. presently Abia Power Pvt. Ltd.
Within a short time, the plant was converted into a biomass-based conventional plant.
The technology absorption was such that in no time it achieved 100% carbon credit, approved
by the United Nations Framework Convention on Climate Change (UNFCCC). The power
company was also the recipient of several national awards including the prestigious ‘The

Best non-conventional energy company’.

With the successful re-engineering of the plant made possible by a strong technical talent
pool, the next logical step was to venture into power consultancy. The result was the
formation of My home power consultancy services ltd. in 2005.

My home power consultancy services is also providing total engineering for roof-top and
grid connected solar power plants. In addition, the company is venturing into solar power
EPC projects and has firm plans to take up EPC jobs in a big way.

With a vision to have access to the latest technologies, it partnered with internationally
renowned service firms so as to represent them in India and provide the same to the country’s
power industry. The twin power companies of the My Home Group are on a firm growth
trajectory and are slated to cross many milestones in the near future.
Chapter 5
Data analysis

ABC Analysis

* It is based on proposition that

* Managerial items and efforts are scare and limited.
* Some items of inventory are some important than others.

ABC Analysis

ABC analysis classifies various inventory into three sets or groups of priority the
allocates managerial efforts in proportion of

The priority the most important item are classified into class - A,

Those of intermediate importance are classified as “class - B’’ and remaining items are
classified into class - C’.

The financial manager has to monitor the items belonging to monitor the items belonging
to different groups in that order of priority and depending upon the consumptions.

The items with the highest values is given priority and soon and are more controlled
then low value item. The re - rational limits are as follows.

Raw material turnover ratio:

Raw material turnover ratio is velocity at which raw material converted into goods ready for
sale. If raw material turnover ratio is high then company is efficiency converting into finished goods.
Formula: Material consumed / Average raw material

Raw Material Turnover Ratio

Raw material consumed

Year (Rs) Avg R.M Ratio

2015-16 576,484,922 53,608,082 10.75

2016-17 371,223,873 36,137,266 10.27

2017-18 230,779,236 132,002,490 1.74

Graph:

Ratio

12

10

6 Ratio

0
2015-16 2016-17 2017-18
Years

Inter prefation:

Form above graph we come know that raw material turnover ratio is increased rapidly in 2016 from
1.74 in 2017 to 10.27 for 2018 Indicates that company is converting raw material into finished or
semi finished goods very quickly
Holding period of raw material:

It refers to the number of days taken for the production unit to convert raw material
to finish goods.

Formula: 360 /Raw material turnover ratio

Holding period of raw material

Year Total Days Ratio Days

2015-16 360 10.75 33

2016-17 360 10.27 35

2017-18 360 1.74 206

Raw material holding Period

250

200

D 150
RHP
A 100

Y 50

S 0
2015-16 2016-17 2017-18
Years

As the raw material turnover ratio is increasing form to 10.27 for 2016-17 it indicates that firm is
taking less days for conversion as compared to 2015-16. In 2016 conversion period was 206 days but
in decreased to 35 days for 2017. This is shown in above graph.
 Before 2017-18 there was no production process they were converting semi finished goods
into finished products hence to start their own production process they hold the raw material in
2016

Holding period of W.I.P:

It refers to the number of days taken for the production unit to convert semi finished goods
into finish goods.

Formula: 360

W.I.P turnover ratio

Holding period of W.I.P

Year Total Days Ratio Days

2015-16 360 23.12 15.57

2016-17 360 36.98 9.73

2017-18 360 37.01 9.72

 Holding period of W I P

18
16
14
12
D 10
Ratio
8
A
6
Y 4
2
S 0
2015-16 2016-17 2017-18
Years

As the work in process turnover ratio is increasing form 9.72. in 2016 To 15.57 for 2018 it indicates
that firm is taking less days for conversion. Which shown in above graph

Finished goods turnover ratio:

Finished goods turnover ratio is velocity at which finished goods converted into for sale. If
finished goods turnover ratio is high then company is efficient.

Formula: Cost of goods sold

Average finished goods

Finished goods turnover ratio

Year Cost of goods Avg F.G Ratio

sold

2015-16 849,054,442 26,243,339 32.35

2016-17 555,094,500 19,858,482 27.95

2017-18 361,110,197 10,940,008 33.01

 Finished Goods Turnover Ratio

34
33
32
31
D 30
Ratio
29
A
28
Y 27
26
S 25
2015-16 2016-17 2017-18
Years

Form above graph we came know that finished goods turnover ratio is decreasing from 33.01 in
2006 to 27.95 for 2017. Indicates that company is selling goods little slowly as compared to 2016
but it is bit fast as compared to 2018. Where the ratio for that particular period was 32.35

decreased to 11.20 for 2018 it is satisfactory. Which shown in above graph.

Inventory to capital employed:

This ratio indicates the relationship between the total capitals employed and inventories it
shows how much capital utilized to invest in the inventories other than the other assets. The normal
manufacturing firms have low ratio of inventory total capital employed in the organization.

Formula: Inventory / Total capital employed

Inventory to capital employed

Total capital
Year Inventory employed Percentage

2015-16 197,465,069 301,443,215 65.50

2016-17 121,558,000 145,492,599 83.54

2017-18 67,994,623 98,333,324 69.14

 p
Inventory to capital employed
E

R 90
C 80
70
E 60
N 50
ICE
40
T 30
A 20
10
G 0
E 2015-16 2016-17 2017-18
Years

By observing above graph we can say that the firm investing huge amount in inventories
compared to other assets. It invested 83.54% of its capital in inventory in 2017 where as it reduced
to 65.50% in 2018

Inventory to current asset ratio:

1This ratio indicates the relationship between the inventory and current assets. It shows the
per1centage of inventory to current assets, which helps the organizations in deciding the current
as1sets policy which also affect the liquidity position of the organization.
Formula: Inventory / Current assets

Inventory to current asset ratio

Year Inventory current assets Percentage

2015-16 197,465,069 331,314,504 59.60

2016-17 121,558,000 237,687,684 51.14

2017-18 67,994,623 117,022,625 58.10

P
Inventory to current asset ratio
E
62
R
60
C 58

E 56
54 Ratio
N
52
T 50
48
A
46
G 2015-16 2016-17 2017-18
Years
E
The inventory to current assets ratio in the year 2016 was 58.10% and it decreased to 51.14% in the
year 2017 but again it increased to 59.60% in 2018. It shows that the firm investing 59.60% of its
investment is for inventory only.

Inventory to total assets:

This ratio indicates the relationship between the inventory and total assets. The
significance of this ratio is it reflects the portion the inventory as a percentage of the total assets,
which helps the management deciding the utilization remaining resources profitably, since the
inventory will lock up the huge funds and reduces the profitability of the organization

Formula: Inventory / Total assets

Inventory to total assets

Year Inventory Total assets Percentage

2015-16 197,465,069 990,329,087 19.93

2016-17 121,558,000 540,916,088 22.47

2017-18 67,994,623 414,901,234 16.38

 P Inventory to total assets

E
25
R
20
C
15
E Ratio
10
N
5
T
0
A
2015-16 2016-17 2017-18
G Years

During the year 2016 the rate of inventory to total assets was 16.38% it increased to 22.47% in 2017.
But again it reduced to 19.93% in 2018. It indicates that firm investing only 19.93% in inventory out
of total assets.

Inventory to working capital:

This ratio indicates the relationship between inventory to working capital and it also indicates
the amount to inventory tied up in the working capital and it also shows the efficiency of inventory
management.
Formula: Inventory

Working capital

Inventory to working capital

Year Inventory Working capital Percentage

2015-16 197,465,069 199,345,123 99.05

2016-17 121,558,000 146,097,210 83.20

2017-18 67,994,623 46,338,277 146.45

P
Inventory to working capital
E

R 160
140
C
120
E 100
80 Ratio
N
60
T 40
20
A
0
G
2015-16 2016-17 2017-18
Years
E

In the year the ratio was 146.45% in 2016. It decreased to 83.20% for 2017 but it increased it to
99.05% in 2018. It indicates that firm investing huge amount in inventory
Findings:

1. Raw material turnover ratio is increased rapidly in 2017 from 1.74 in 2016 to 10.27 for
2017.

2. As the raw material turnover ratio is increasing form to 10.27 for 2017 it indicates
that firm is taking less days for conversion as compared to 2016.

3.Work in process turnover ratio is decreasing from 37.01 in 2016 to 23.12 2018. The ratio was
high in 2016 as compared to 2017 and 2018.

4. As the work in process turnover ratio is increasing form 9.72. in 2006 To 15.57 for 2018 it
indicates that firm is taking less days for conversion

5.Finished goods turnover ratio is decreasing from 33.01 in 2016 to 27.95 for 2017. Indicates
that company is selling goods little slowly as compared to 2016

but it is bit fast as compared to 2018.

6.Company is selling goods little slowly as compared to 2016 but it is bit fast as compared to
2018. Where the ratio for that particular period was 32.35

7.The inventory to current assets ratio in the year 2017 was 58.10% and it decreased to
51.14% in the year 2018 but again it increased to 59.60% in 2018. It shows that the firm
investing 59.60% of its investment is for inventory only.

8.During the year 2017 the rate of inventory to total assets was 16.38% it icreased to 22.47%
in 2018. But again it reduced to 19.93% in 2019. It indicates that firm investing only 19.93% in
inventory out of total assets.

9.In the year the ratio was 146.45% in 2016. It decreased to 83.20% for 2017 but it increased it
to 99.05% in 2018. It indicates that firm investing huge amount in inventory.

10.As the finished goods turnover ratio is increasing form 10.87 in 2017 to 12.86 for 2018 it
indicates that firm is taking less days for sale. In 2018 conversion period was 12.86 days but in
decreased to 11.20 for 2018 it is satisfactory.
 Suggestions:

I. From the findings it is came to know that in the year 2006 the number of days for
holding Raw material is more, it is not good for the company because it eats
unnecessary investment. To avoid this problem the following points will help.
1. Purchase Raw Materials at the time when the stock reaches the minimum level.
2. The purchases should not cross the Maximum limit otherwise the stock kept in stores
idle.
3. Quantity should be ordered as per the demand. We can assume the demand for the
goods from past experience.
4. We can have more Raw materials which are imported from other countries but carry
reasonable stocks which are available locally.
II. If we purchase less quantity of materials at a time it will reduce the carrying cost but
increases the ordering cost and vise versa. Therefore optimum ordering quantity is
necessary, which minimizes the cost.

III. The company should maintain a safety level and also reordering point so that they
come to know at what time they should order for the supply of material and need not
to suffer from short fall of required material.
 Conclusion

After the study, we can came to a conclusion that, effectiveness of inventory management should
improve in all the aspects, hence the industry can still strengthen its position by looking into the
following.

1. The inventory should be fast moving so that warehouse cost can be reduced.
2. The finished goods have to be dispatched in feasible time as soon as manufacturing is
completed.
3. Optimum order quantity should be maintained, hence cost can be minimized.
4. Proper inventory control techniques are employed by the inventory control
organization within the framework of one of the basic models like ABC, HML and VED
etc.
 Bibliography

Books :

1. Financial Management : I.M.Panday

2. Production Management : K. Ashwatappa

Websites :

www.apexautoltd.com

www.google.com