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A firm should be managed efficiently and effectively. This is only possible when a firm achieves its objectives with the minimum use of the resources. Management of the resources is possible when a firm plans its future course of action. Financial Planning is required for both long-term and short-term. Financial planning for long-term includes investment in capital assets and for short term it includes investment in working capital. These two types of investments are interdependent and will ultimately affect the well-being of the business. A major part of the working capital is invested in inventories of the firm and this will have an effect on the liquidity, solvency and profitability of the firm. Therefore, we are making an attempt to illustrate both these aspects in the project. INVENTORY The word inventory was first recorded in 1601. The French term inventaire, or "detailed list of goods," dates back to 1415. Any stock that a firm keeps to meet its current and future requirements of production and sales is called inventory or stock. The basic reason for holding the inventory is to keep up the production activities unhampered. It is neither physically possible nor economically justifiable to wait for the stocks to arrive at the time when they are actually required. The unforeseen fluctuations in demand and supply of goods also necessitate the want of inventory. The investment in inventories constitutes the most significant part of current assets/ working capital in most of the undertakings. Hence, holding of inventory is a must for the efficient working of a business unit.


1. Raw materials: Raw materials are major input into the organization.They are required to carry out production activities successively. Such type of inventory is purchased and stored for future productions. Example: To make cloth, raw cotton is the basic raw material. 2. Work-in-progress: It is that stage of stocks, which are in between, raw materials and finished goods. These are the semi-manufactured products that need more work before they become finished products for sale. The quantum of work-in-progress depends upon the time taken in the manufacturing process. Example: Cotton is turned into thread by using various processes. 3. Finished goods: These are the goods, which are ready for the customers. The stock of finished good provides a buffer between production and market. Finished goods are the completed goods awaiting sales. This type of inventory is maintained to ensure proper supply of goods to customers. E.g.: Cloth is the finished product. 4. Stores and spares: Spares also form a part of inventory. These are required for the smooth running of Production related operations. The consumption pattern of raw materials, work-inprogress and finished goods are different from that of spares. E.g.: lubricating oil, fuel, etc. The nature of inventory depends upon the type of business carried on. A manufacturing firm will have all types of inventories mentioned above, while a retail or wholesale firm will have a very high level of finished goods inventory only.


Maintaining inventories involves tying up of the companys funds and incurrence of storage and handling costs but at the same time it shrinks ordering costs and helps avail quantity discounts. There are three general motives for holding inventories: Transaction Motive: It facilitates continuous production and timely execution of sales Precautionary Motive: It necessitates the holding of inventories for meeting the Speculative Motive: It induces to keep inventories for taking advantages of price orders. unpredictable changes in demand and supplies of materials. fluctuations and quantity discounts.

Inventory management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply 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, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting. Inventory management ensures that the right material is available in the right quantity at the right time right place with the right amount of investment. In simple words, it is a systematic control over the purchasing, storing and using of materials so as to have the minimum possible cost of material. Efficiently controlled inventories make the firm flexible. Inefficient inventory control results in unbalanced inventory and inflexibility which further increases the level of investment

and makes the firm unprofitable. The purpose of inventory management is to keep the stocks in such a neither way that neither there is over-stocking or under-stocking.


To maintain a proper size of inventory for efficient and smooth production and sales operations. -To maintain minimum investment in inventories to maximize profitability. -To avoid both under stocking and over stocking. -To keep material cost under control so that they contribute in reducing cost of production and overall costs. -To minimize losses through deterioration, pilferage, wastages and damages. -To facilitate furnishing of data for short-term and long-term planning and control of inventory.

OPERATION OF INVENTORY MANAGEMENT:The operating objective of inventory management is to minimize cost. The cost associated with inventory fall into two categories-Ordering Cost and Carrying Cost. The ordering cost is associated with acquisition or ordering of inventory.the ordering cost incurred requisition, purchasing order, transporting, receiving, inspecting and storing. ordering cost increases with the increase in number of orders placed. CARRYING COST: The cost incurred for maintaining the given level of inventory are termed as carrying cost. These costs include storage, insurance, taxes, deterioration and obsolescence.the carrying costs vary with the size of inventory. Further it is divided into two categories: 1. Those that arise due to the storing of inventory :- Here the main components are i) Storage cost i.e. tax, depreciation, insurance, maintainance of building etc. 5 ORDERING COST:

2. The opportunity costs of funds :- This consists of expenses in raising funds to finance the acquisition of inventory. If funds were not locked up in inventory, they would have earned a return. This is the opportunity cost of funds or the financial cost component of the cost.






Relationship between size of order and cost of carrying inventory The ordering and carrying costs have a reverse relationship. The ordering costs go up with the increase in number of orders purchased. On the other hand, carrying costs goes down per unit with the increase in number of units, purchased and stored. Thus, lowering the total costs.

A growth in sales is an important objective of the most firms. Growth in sales will be sustained with the help of investment in assets and inventory will affect the funds available with the firm, therefore effect of investment in inventories upon the liquidity, solvency and profitability of the firm, this requires holding optimum level of the inventory. For finding out the effect of inventory investment upon a business, various liquidity, solvency and profitability ratios can be calculated. The process of financial planning involves the following steps: 1) Evaluating the current financial condition of the firm. 2) Anlysing the future growth prospects and options. 3) Appraising the investment options to achieve the stated growth objective 4) Projecting the future growth and profitability 5) Estimating funds requirement and considering alternative financing options 6) Comparing and choosing from alternative growth plans and financing options 7) Measuring actual performance with the planned performance.

The basis of Inventory accounting

Inventory needs to be accounted where it is held across accounting period boundaries since generally expenses should be matched against the results of that expense within the same period. When processes were simple and short then inventories were small but with more complex processes then inventories became larger and significant valued items on the balance sheet. Inventory accounting has two aspects which are as follows: Financial accounting: An organization's inventory can appear a mixed blessing, since it counts as an asset on the balance sheet, but it also ties up money that could serve for other purposes and requires additional expense for its protection. Inventory may also cause significant tax expenses. Inventory appears as a current asset on an organization's balance sheet because the organization can, in principle, turn it into cash by selling it. Some organizations hold larger

inventories than their operations require in order to inflate their apparent asset value and their perceived profitability. In addition to the money tied up by acquiring inventory, inventory also brings associated costs for warehouse space, for utilities, and for insurance to cover staff to handle and protect it, fire and other disasters, obsolescence, shrinkage (theft and errors), and others. Such holding costs can mount up: between a third and a half of its acquisition value per year. Businesses that stock too little inventory cannot take advantage of large orders from customers if they cannot deliver. The conflicting objectives of cost control and customer service often pit an organization's financial and operating managers against its sales and marketing departments. Sales people, in particular, often receive sales commission payments, so unavailable goods may reduce their potential personal income. This conflict can be minimised by reducing production time to being near or less than customer expected delivery time.

Inventory Accounting:
By helping the organization to make better decisions, the accountants can help the public sector to change in a very positive way that delivers increased value for the taxpayers investment. It can also help to incentivise progress and to ensure that reforms are sustainable and effective in the long term, by ensuring that success is appropriately recognized in both the formal and informal reward systems of the organization. To say that they have a key role to play is an understatement. Finance is connected to most, if not all, of the key business processes within the organization. It should be steering the stewardship and accountability systems that ensure that the organization is conducting its business in an appropriate, ethical manner. It is critical that these foundations are firmly laid. So often they are the litmus test by which public confidence in the institution is either won or lost. Finance should also be providing the information, analysis and advice to enable the organizations service managers to operate effectively. This goes beyond the traditional

preoccupation with budgets how much have we spent so far, how much have we left to spend? It is about helping the organization to better understand its own performance. That means making the connections and understanding the relationships between given inputs the resources brought to bear and the outputs and outcomes that they achieve. It is also about understanding and actively managing risks within the organization and its For the purpose of current project, I have collected data from SHIVALIK BIMETAL CONTROLS LIMITED, SOLAN. The profile of the company is explained below:



Shivalik Bimetal Controls Limited, a Public Limited Company was registered in June 1984 and commissioned in June 1986. Since then it is in commercial production. Company is specialized in the joining of materials through various methods i.e. the core process involves joining of different metals to produce properties in the product that no single metal or alloy can provide. These methods are diffusion bonding/ cladding, electron beam welding, solder reflex and resistance welding. Companys present programs include thermostatic bimetal, clad metal, spring rolled stainless steel, electron beam welding material with multi-gauge and multi material strips and thermostatic edge-welded strip.


Head office of SBCL located at Delhi covers purchase and marketing. Manufacturing unit of the company is positioned in Solan.

Bimetals/ Trimetals are combination of two alloys and three alloys resp. Production of strips is based on certain processes such as: Clad Bonding Electron Beam Welding Precision Stamping Shunts Snap Action Disc Solder Top Lay


Companys production program consists of 51 grades of bimetals/ trimetals. Shivalik offers the largest variety in the world even though all its competitors are multinationals. Products are available in the form of strips as well as customized components. These products are:

Thermostatic Bimetal CRT Components Shunts Solder Reflow Material Precision Stainless Steel Snap Action Disc EB Welded Strip

Strips and components have different usage in different fields:

INDUSTRIAL:Circuit Breakers, Fluorescent Lamp Starters, Motor and Transformer Protection, Air Dryers, Electrical Furnaces, Automatic Fuses, Steam Traps and Light Flashes.

AUTOMOTIVE:Voltage Regulators, Turn Indicators, Volt Meters, Heaters, Cigarette Lighters, Exhaust, Oil Cooking Regulators, Car Brakes.

AVIATION:Altimeters, Circuit Breakers, Instrument and Wiring Protection. Also manufacture parts and components of Color Aviation Tubes.


ELECTRONICS:Coloured Picture Tubes, Mobile Phones, Radio and T.V. Transmitters.

MEDICAL:Medical Stabilizers, Incubators, Dental Furnaces and Heating Pads.

DOMESTIC APPLIANCES:Electric Iron, Refrigerators, Washing Machines, Heat Convectors, Water Heaters, Baking Ovens, Air-Conditioners, Toasters, Cooling Range, Etc.

SALES NETWORK:SBCL has a worldwide marketing or sales network in the following regions: NAFTA BRAZIL EUROPEAN UNION JAPAN KOREA

Company exports to Argentina, Austria, Brazil, China, Columbia, Germany, United Kingdom, Iran, Israel, Italy, Malaysia, Poland, Switzerland, Greece, Thailand, U.S.A., Japan, Pakistan, And Hong Kong, etc.

Companys objective is to win and enhance the confidence of its customers by its continuous endeavor to meet the needs of the customers through the involvement of every individual in the company. Company has a well established quality management system that is


continuously monitored, measured and analyzed in accordance with ISO 9001:2001 STANDARD.


Shivalik Bimetal Controls Ltd has a recognized IN HOUSE RESEARCH AND DEVELOPMENT UNIT. The recognition has been awarded by Department of Scientific and Industrial Research, Ministry of Science & Technology, Govt. of India.

The company will behave in an ethical manner in all its activities whether related to Employees, Customers, Suppliers and Society in general. The company shall not support any child labour or forced labor in any of its activities. The company shall strive to provide a safe, clean and healthy environment for its employees. The company is committed to the welfare of its employees and shall strictly comply with the govt. regulations regarding workers. The company shall not discriminate on basis of castes, gender, race, religion, disability, or political affiliation. The company shall commit to integrity and trust by being open and honest in all its dealings. The company shall not engage in or tolerate any illegal or criminal activity.


1. 2. 3. The financial statements are prepared under historical cost convention and on the basis of going concern in accordance with generally accepted accounting principles. Fixed assets are stated at cost less accumulated depreciation. Foreign currency transactions are accounted at the exchange rate prevailing on the transaction date.


4. 5. 6. 7. 8. 9.

Depreciation on fixed assets is provided on straight line method at the rates specified in Schedule-XIV of THE COMPANIES ACT, 1956(as amended). Sales are exclusive of excise duty and net of returns, claims & discounts, etc. The inter unit sale/ purchase of materials/ job work transactions are accounted for at the prevailing market prices. Leave encashment and Leave Travel Allowance to employees are accounted for on payment basis as per companys rules. Tax on income for the current period is determined on the basis of taxable income and tax credits computed in accordance with the provision of the Income Tax Act, 1961. Expenditure in the nature of Revenue incurred for Research & Development relating to business is charged to profit & loss account.


Raw materials are valued at cost on FIRST IN FIRST OUT basis. Stores and spares are valued at cost on FIRST IN FIRST OUT basis. Work-in-progress are valued at cost including related overheads. Semi- finished goods are valued at cost including related overheads, after providing for cost of depletion in value, wherever applicable. Finished goods are valued at cost or market value whichever is lower. Cost includes cost of production, administrative overheads, excise duty and depreciation, on the basis of overhead absorption. Saleable scrap is valued at estimated realizable value.


1. 2. Short-Term Sources Long-Term Sources Short-Term Sources: Trade Credit Inter Corporate Deposits Bank Credit Commercial Paper Public Deposits Short Term loans from financial institutions Long-Term Sources: Fixed Deposits Preference Shares Equity Shares Debentures Long Term Borrowings from banks and financial institution



Board of Directors

DY. Managing Director Dr. J.S. Sandhu

Managing Director N.S. Ghumman

Manager (Purchase & Marketing) Purchase- Sanjeev verma Marketing- Omish Trikha

Market Researcher

Director H.S.Sidhu

DY. G.M. Plant Bri JM Singh

Assistant Market Researcher

DGM (Fin. & Admn.) Mukesh K. Verma

Engineer Prod. (Strip) Harinand Thakur

Document Control Centre

Engineer Q.A. Sandeep Joshi




NEED FOR THE STUDY Inventories constitute the most important part of current assets. These are the first and most important element of cost as a lot of money is invested in inventories. They are required for the smooth running of the business activities. It is necessary for every business concern to give proper attention to its inventory management. An efficient system of inventory management determineswhat to purchase, how much to purchase, from where to purchase, where to store, etc. The concerned firm requires to manage the inventory for the smooth functioning of production and sales operations. The economic aspect says that the firm needs to invest minimum in inventories and maximize its profits. The other aspect says that the more inventory should be there so that no problem of under-stoking is there. Thus, it is the job of finance manager to maintain a balance between the two as both the situations are not perfect. The firm should control the material cost such that it contributes in reducing cost and problem of understocking is also not there. Therefore, there is a need to invest reasonably and judiciously in inventories. So, it becomes absolutely imperative to manage inventories efficiently and effectively in order to reduce costs and increase profitability. The financial position of the company depends upon the liquidity, solvency and profitability of the company. Liquidity position means a firms ability to meet its current obligations. Solvency position means ability of the firm to pay its long term liabilities in time. Profitability means efficiency and effectiveness. Therefore, keeping in view the importance of inventory management for a manufacturing concern, I undertook this study to stimulate my practical knowledge in the same and also to critically to pay its long term liabilities in time and profitability is a measure of firms efficiency analyze how inventory is valued and controlled at SBCL, Solan.



The present study is confined to Shivalik Bimetal Controls Limited, Solan. The study aims at analyzing the inventory management and financial position of the company. The findings of study will help in throwing light on both the aspects of the company.


To assess how inventory is managed at SBCL, Solan. To analyze the financial position of the company. To suggest possible measures to bring efficiency in the working of the company.




RESEARCH DESIGN Type of my research is exploratory in nature DATA COLLECTION: For the project data has been collected from the following source. Secondary Source: Data for valuation and control of inventory and for analyzing the financial position of the company has been obtained form the Companys Annual Reports, Ledgers, Files and other published records with the company. Some help has also been taken from the course books & Websites.


Data pertaining to the cost & volume provided by the officials of the company are assumed to be true and exact, which forms the basis of the analysis.

Analytical tools and techniques used:

Techniques used for control of inventory are:

Determination Of Stock Levels Determination Of Safety Stocks Determination Of Economic Order Quantity A-B-C Analysis V-E-D Analysis Inventory Turnover Ratio

Tools used for analyzing the financial position are:

Ratio Analysis Tools and Techniques of Inventory Management:


For valuation of inventory: First In First out (FIFO): In this method, the materials received first are issued first. The materials are issued in chronological order. The cost of goods sold is calculated keeping in view the earliest lots exhausted on the presumption that units are sold in the order in which they were acquired. For control of inventory: 1.

Determination of Stock Levels: An efficient inventory management requires that a

firm should maintain an optimum level of inventory where inventory costs are the minimum and at the same time there is no stock-out which may result in loss of sale or stoppage of work. Various stock levels under this are: o Minimum Level: This represents the quantity which must be maintained in hand at all the Stock Level =Reordering Level (Nor Consumption*Normal

times. If stocks are less than the minimum level then the work will stop due to shortage of material. Minimum Reorder Period) o level. Re-Ordering Level = Maximum Consumption * Maximum Re-Order Period o Maximum Level: It is the quantity of materials beyond which a firm stocks. If the quantity exceeds the maximum Minimum Re-Ordering Period) o Danger Level: It is the level beyond which materials should not fall in any case otherwise it will result in stoppage of work. Danger Level = Average Consumption * Maximum Re-Order Period for Emergency Purposes should not exceed its level limit then there will be overstocking. Re-ordering Level: When the quantity of materials reaches at a certain figure then fresh

order is sent to obtain materials again. This level is fixed between minimum level and maximum

Maximum Stock Level = Re-Ordering Level + Re-Ordering Quantity-(Minimum Consumption *



Determination of Safety Stocks: Safety stock is a buffer to meet some unanticipated

increase in usage. The usage of inventory cannot be perfectly forecasted, it fluctuates over a period of time, and therefore, a firm usually maintains some margin of safety stock. Two costs are involved in the determination of this stock i.e. opportunity cost of stock outs and carrying costs.


Determination of Economic Order Quantity (E.O.Q.): Economic order quantity

is a quantity of materials, which can be purchased at minimum costs. It is generally a point at which inventory carrying costs are equal to ordering costs. The quantity to be purchased should neither be small nor big because costs of buying and carrying materials are very high i.e. the cost of managing inventory made up of two parts - ordering costs and carrying costs. o Ordering Costs: These are the costs which are associated with the purchasing, acquiring or ordering of materials. It includes costs incurred in the following activities: requisitioning, purchasing order, transporting, receiving, inspecting and storing. Maintenance of large inventory levels means low ordering costs. o Carrying Costs: These are the costs for holding or maintaining the inventories. These include storage, insurance, taxes, deterioration, and obsolescence. Carrying costs vary with inventory size. Relationship between size of order and cost of carrying inventory The ordering and carrying costs have a reverse relationship. The ordering costs go up with the increase in number of orders purchased. On the other hand, carrying costs goes down per unit with the increase in number of units, purchased and stored. Thus, lowering the total costs. The determination of EOQ can be done with the following formula: EOQ = 2AS/ I Where, A=Annual Consumption (in Rupees) S=Cost Of Placing an Order I=Inventory Carrying Costs of One Unit



A-B-C Analysis: This analysis helps to divide materials in to three categories for the

purpose of exercising selective control on materials i.e. A, B & C. It is generally seen in a manufacturing concern that almost 10 percent of the items contribute to 70 percent of the value of consumption and is termed category A. About 20 percent of the items add to 20 percent of the value of consumption and is branded as categoryB. Category C covers about 70 percent of items of materials which contribute to 10 percent of value of consumption. This analysis concentrates on important items only.


V-E-D Analysis: It is generally used for spare parts. The demand for spares depends upon

the performance of the plant and machinery. Spare parts are classified as Vital (V), Essential (E) and Desirable (D).The vital spare parts are a must for running the concern smoothly otherwise it ill cause havoc in the concern. The (E) types of spare parts are also necessary but their stocks cn be kept at low figures. If the lead time of D kind of spare parts is less, then their stocking can be avoided. 6.

Inventory Turnover Ratio (I.T.R): This ratio is calculated to indicate whether

inventories have been used resourcefully or not. The purpose is to ensure the blocking of only required minimum funds in inventory. Inventory conversion period is also calculated to find the average time taken for clearing the stocks. Inventory Turnover Ratio = Cost of Goods Sold Average Inventory Inventory Conversion Period= Days in a Year/ Inventory Turnover Higher the ratio, better it is for the company. Ratio Analysis FINANCIAL POSITION An analysis of financial position helps in identifying the financial strengths and weaknesses of a firm. Financial position of a firm is exhibited by its liquidity, solvency and profitability positions. Liquidity refers to the firms ability to meet its current obligations out of current resources. It helps to assess the short term financial position of a firm. High liquidity position is an indicator of reduced profitability, as idle funds do not earn anything. Solvency position indicates the 25

ability of a firm to pay its long term liabilities in time. The long term liabilities of a firm include debenture holders, financial institutions providing medium and long term loans and other creditors. Profitability is a measure of firms efficiency and effectiveness. Profit is considered essential for the survival of the business. It is also needed for expansion and diversification purposes.

Tools for Determining Financial Position: Ratio Analysis: It is the most powerful tool in analyzing and interpreting the financial
statements to arrive at a conclusion. On the basis of purpose ratios may be classified as under: Liquidity Ratios: These ratios indicate the firms ability to meet its current obligations out of current resources. These are used to assess the short-term financial position of a firm. It includes: Current Ratio: This ratio is intends to ascertain the short-term solvency of a firm. A ratio of 2:1 is considered an ideal ratio. Higher the ratio, the better it is for the firm. Current Ratio = Current Assets Current Liabilities Quick Ratio: The ratio expresses the relationship between liquid assets and current liabilities. A quick ratio of 1:1 is considered encouraging. Quick Ratio = Liquid Assets Current Liabilities Cash Ratio: Cash and marketable securities are considered to be the most liquid assets of the company. The company can use it any time. A ratio of 0.5:1 is considered first-class for the concern. Cash Ratio = Cash + Marketable Securities 26

Current Liabilities Solvency Ratios: The ratio indicates the ability of a firm to pay its long-term liabilities in time. Solvency ratios measure the relationship between external equities and internal equities. It includes: Debt-Equity Ratio: Debt-equity ratio also known as external internal equity ratio is calculated to measure the relative claim of outsider and owner against the firms assets. The ratio between 0.75-1 is considered ideal. Debt Equity Ratio = Debt (Long Term Loans) Shareholders Fund Fixed Assets to Current Assets Ratio: The ratio is calculated to know whether investment in current assets is more or less in comparison to fixed assets. Fixed Assets to Current Assets Ratio = Fixed Assets Current Assets Profitability Ratios: This ratio measures the overall performance of a firm by determining the effectiveness of a firm in generating profits and is computed by establishing relationships between profit figures and sales. It includes: Gross Profit ratio: The gross profit margin reflects the efficiency with which management produces each unit of product. A high ratio implies that the firm is able to produce at relatively lower cost. Gross Profit ratio: = Gross Profit X 100 Net Sales


Return on Investment: The ratio point outs the returns on net assets. It measures overall efficiency and profitability of a business in relation to investments made in the business. High ratio is considered good. Return on Investment = Earnings before Interest & Tax Net Assets Return on Equity: It is quite helpful in calculating the profitability on owners funds. It indicates how well a firm uses the resources of its owners. Return on Equity = Profit after Tax Shareholders Funds




This chapter is an attempt to analyse the data collected from the financial statements of the Shivalik Bimetals Controls Limited. The aspects covered are inventory management and financial position of the company. For this purpose various stock levels and financial ratios are calculated. Before continuing with these tools and techniques, it is worth mentioning that the method adopted by the company for valuation of its inventory is first-in first-out method as it affects the valuation of the inventory in any organization. Under this method the materials first received in the factory are issued or released first for the production. The cost considered for the valuation is original cost of the raw material. .


ANALYSIS FOR INVENTORY CONTROL: 1. i. DETERMINATION OF STOCK LEVELS: MINIMUM STOCK LEVELIt signifies the quantity that must be maintained in hand at all times by the firm. If stocks are less than this level then the work will stop due to the shortage of materials. TABLE 3.1 TABLE FOR MINIMUM STOCK LEVEL ALLOYS A-36 A-206 A-223 A-72 Copper Nickel MINIMUM (in kgs) 20522 7741 6901 9067 4802 853 STOCK LEVEL

Source: Data collected from the company.


Table 3.1 depicts the minimum stock levels for different alloys. Minimum stock level for alloy A-36 is 20522 kgs, for alloy A-206 it is 7741 kgs whereas it is 6901 kgs for alloy A-223.Nickel is also used for making bimetals/ trimetals having least level of minimum stock i.e. 853 kgs.


RE-ORDERING LEVEL: It is an inventory level at which an order should be placed to replenish the inventory. The order is sent before the materials reach minimum stock level. TABLE 3.2 TABLE FOR RE-ORDERING LEVEL Re-ordering Level (in kgs) A-36 46914 A-206 17536 A-223 15780 A-72 20730 Copper 11312 Nickel 1956 Source: Data collected from the company ALLOYS

Table 3.2 highlights the Re-ordering level for various alloys.


The Re-ordering level for alloy A-36 is 46914 kgs, for alloy A-206 it is 17536 kgs and for alloy A-72 the reordering level is 20730 kgs, whereas for copper it is 11312 kgs and for nickel it is only 1956 kgs. . iii) MAXIMUM STOCK LEVEL: It is the quantity of materials beyond which a firm should not exceed its stocks. If the quantity surpasses maximum level limit then there will be over stocking TABLE 3.3 TABLE FOR MAXIMUM STOCK LEVEL Maximum stock level (in kgs) A-36 35961 A-206 13779 A-223 12247 A-72 16050 Copper 8781 Nickel 1596 Source: Data collected from the company ALLOYS

The Table 3.3 shows the maximum stock level for different alloys. Here the maximum stock level for alloy A-36 is highest i.e.35961 kgs, for alloy A-206 it is 13779 kgs. For alloy A-223 maximum stock level is 12247 kgs and for alloy A-72 it is 16050 kgs. Nickel has the lowest level of maximum stock level and it is 1596 kgs.


iv) DANGER LEVELIt is the level beyond which the materials should not fall short in any case. Immediate arrangements for materials has to be made so that the production work does not stop due to the shortage of resources. TABLE 3.4 TABLE FOR DANGER LEVEL ALLOYS A-36 A-206 A-223 A-72 Copper Nickel Source: Data collected from the company Danger Level (in kgs) 35190 13054 11836 15546 8486 1470


The table 3.4 highlights the danger level for various alloys. The danger level for alloy A-36 is 35190 kgs, for alloy A-206 it is 13054 kgs. For alloy A-223, danger level is 11836 kgs and for alloy A-72 it is 15546 kgs, whereas for Copper danger level is 8486 kgs. The danger level for Nickel is 1470 kgs only. TABLE 3.5 TABLE FOR SAFETY STOCKS ALLOY A- 36 A- 206 A- 223 A- 72 Copper Nickel TOTAL RE-ORDERING LEVEL (in kgs) 46914 17536 15780 20730 11312 1956 114228 MINIMUM STOCK SAFETYSTOCK LEVEL (in kgs) (In kgs) 20521 26393 7741 6902 9067 4802 853 49886 9795 8878 11663 6510 1103 64342

Source: Data collected from the company `


Table 3.5 shows the safety stock level for all the alloys. The company maintains a margin of safety stock for alloy A-36 at 26393 kgs, for alloy A-206 at 9795 kgs, for alloy A-223 at 8878 kgs. Alloy A-72 has a safety stock level of 11663 kgs and for Nickel it is 1103 kgs.

ECONOMIC ORDER QUANTITY (EOQ): This technique is used to determine the quantity to be ordered at one time. It is generally, the point where inventory carrying costs equates ordering costs. TABLE 3.6 TABLE FOR ECONOMIC ORDER QUANTITY: A ALLOYS A-36 A-206 A-223 A-72 Copper Nickel Economic Order Quantity kgs) 779 528 413 500 299 132 (In

Source: Data collected from the company

The economic order quantity for various alloys has been shown in table 3.6. The economic order quantity for alloy A-36 is maximum i.e. 779 kgs and for nickel it is


minimum i.e. 132 kgs, while for alloy A-206 this quantity is 528 kgs. Economic order quantity for Alloys A-223 and A-72 is 413 kgs and 500 respectively.

A-B-C ANALYSIS: It is a selective inventory control technique where the materials are divided into three categories to identify which item needs most effort in its management. TABLE 3.7 TABLE FOR A-B-C ANALYSIS Source: Data collected from the company


SR.NO. ALLOY/ITEM STOCKVALUE STOCKQUANTITY PRICE CATEGORY (RS.) (KGS) PER (KGS.) A 1 A-36 13369536 3985782 2 3 4 A-72 2658835 A-206 A A-223 12519761 27664 453 C 5 Nickel (Ni) 1313047 606 2167 4083 651 B 14914 5048 896 790 B

6 Total

Copper (Cu)

2850883 36697844

5535 57850


Table 3.7 highlights the A-B-C Analysis table. The table shows that the alloys A-36 & A223 are of highest value and are classified as A items, which means these are kept under high control by the management of the firm. Alloy A-72, alloy A-206 & Copper are classified as category B items and are kept under reasonable management attention. There is only one alloy i.e. nickel in category C with least stock value and is kept under simple control. TABLE 3.8 A-B-C ANALYSIS SUMMARY TABLE

CLASSIFICATION STOCK VALUE Percentage STOCK QUANTITY 25889297 A 25.87 B C TOTAL 9495500 1313047 36697844 3.57 100 38 14666 606 57850 70.54 42578

Percentage 73.60 25.35 1.04 100

Table no. 3.8 shows the summary of ABC analysis. In this table different categories are shown with their respective stock values and stock quantities. It can be seen that category A is having the highest percent for stock value and stock quantity and they are 70.54 percent and 73.60 percent respectively of the total value of inventory. For category B stock value is 25.87 percent of total value and stock quantity is 25.35 percent and category C has the least percent for both stock value and stock quantity and they are 3.57 percent and 1.04 percent respectively of the total value for inventory.

V-E-D ANALYSIS: The VED analysis is used generally for stores and spares. The requirements and urgency of spare parts is different from that of materials and therefore on the basis of urgency they can be divided into three categories- Vital (V), Essential (E) & Desirable (D). TABLE 3.9 V-E-D ANALYSIS TABLE


SR. NO. ITEMS NAME 1 2 3 4 5 6 7 Packing Material General Consumables Electric Item Stock Tools Stock Plant & Machinery Spare Stock Chemical Oil & Lubricants Others

AMOUNT (RS.) 789050 890789 180900 378000 1297560 89790 100475


Table 3.9 depicts the VED analysis table. The table reveals that packing material, general consumables and electric items are of great importance and are utilized very frequently on day to day basis, therefore, they are categorized as Vital (V). Items like tools stock, plant & machinery spare stock, chemical oil & lubricants, building material stock are labeled as Essential (E) as their need does not arise on daily basis as compared to items in vital (V) category. Other s include items like furnace stock, hydraulic system spare, old rolling mill spare, rolling mill panel spare and these are classified as Desirable (D) as their utility is as per the requirement only and that too not very often.



This ratio measures the velocity of conversion of stock into sales. It indicates whether inventories have been used resourcefully or not. TABLE 3.10 TABLE FOR INVENTORTY TURNOVER RATIO

The above table shows that the inventory turnover ratio is highest in the year 2007-08 i.e. 3.88 times and it is lowest in the year 2008-09.

INVENTORY CONVERSION PERIOD: It is calculated to find the average time taken for clearing the stocks.


TABLE 3.11 TABLE FOR INVENTORTY CONVERSION PERIOD YEARS 2005-06 2006-07 2007-08 2008-09 2009-10 INVENTORY CONVERSION PERIOD (days) 98 100 94 105 103

The table 3.11 shows that the average time taken for clearing the stocks is maximum in the year 2008-09 and in year 2007-08, it is minimum.



TABLE 3.12 Table For liquidity ratios YEAR Current ratio Quick ratio Cash ratio 2005-06 2.19 1.25 0.07 2006-07 2.44 1.46 0.09 2007-08 2.52 1.56 0.06 2008-09 2.75 1.63 0.04 2009-10 2.60 1.62 0.09

Source: Data collected from the Companys Annual Report.

Table 3.12 depicts the liquidity ratio of the firm.

Three liquidity ratio have been

calculated i.e. Current ratios, quick ratio and cash ratio. Current ratio is representing an increase over the period of years except in year 2009-10 where the current ratio decreases a little bit i.e. from 2.75 to 2.60. It can be seen that the companys quick ratio also has an increasing trend. In year 2005-06 it was 1.25 and in year 2005-06 the quick ratio increased to 1.62 gradually increasing over the years. The third ratio calculated is Cash ratio and it is clear from the table that there has been a mixed trend over the years. It was 0.09 in year 2006-07 and decreased for next two years and came down to 0.04 in 2008-09 and then in year 2009-10 the cash ratio increased to 0.09. SOLVENCY RATIOS OF SBCL 43

TABLE 3.15 Table For Solvency Ratios Fixed assets to 0.33 0.40 0.42 0.35 Year 2005-06 2006-07 2007-08 2008-09 current assets Debt equity ratio 1.06 1.03 0.85 0.69 Source: Data collected from the Companys Annual Report. 0.33 2009-10 0.48

Table 3.15 demonstrates the solvency ratios for the company. The ratios calculated are debt equity ratio and fixed assets to current assets ratio. Debt equity ratio is showing a decreasing trend. The calculated figures indicate that the debt equity ratio of the firm is 1.06 in year 200506and decreasing over the years, it came down to 0.48 in year 2009-10. The Fixed Assets to current asset ratio above highlights a fluctuating trend over the period of five years. It is interesting that the Fixed Assets to current asset ratio is 0.33 in year 2005-06 and fluctuating over the years , it again comes down to 0.33 in the year 2009-10.

ACTIVITY RATIOS OF SBCL TABLE 3.16 Table For Activity Ratios


Year Debtors turnover ratio Asset turnover ratio Working capital tturnover Ratio

2005-06 3.53 1.64 2.63

2006-07 3.64 1.61 2.73

2007-08 2.71 1.27 2.58

2008-09 2.41 1.12 2.11

2009-10 2.82 1.27 2.54

Source: Data collected from the Companys Annual Report.

Table 3.16 indicates the Activity Ratios. Three Activity Ratios have been calculated and these ratios are Debtors turnover Ratio, Asset turnover Ratio, Working capital turnover Ratio. The Debtors Turnover Ratio for 2005-06 is 3.53 and increases to 3.64 in year 2006-07, after this it started decreasing and came down to 2.82 in the year 2009-10. The assets turnover ratio has been decreasing over the years. In the Year 2005-06 it was 1.64 and decreased to 1.27 in the year 2009- 10. the last activity ratio calculated is Working Capital turnover ratio. The trend has been mixed for the ratio as it was 2.63 in the year 2005-06 then it increased to 2.73 in the next year. After this it started to decline and came down to 2.11 in the year 2008-09. In the year 2009-10 Working Capital turnover ratio again increased to 2.51.


PROFITABILITY RATIOS OF SBCL Table 3.17 Table For Profitability Ratio Year Gross profit ratio ( percent) Return on investment ( percent) Return on equity ( percent) 2005-06 10.18 14.40 25.50 2006-07 12.02 16.56 16.56 2007-08 10.15 15.29 21.36 2008-09 10.93 16.78 20.43 2009-10 9.81 14.22 18.70

Source: Data collected from the Companys Annual Report.

Table 3.17 highlights the profitability ratios of the company. The ratios calculated are Gross profit ratio, Return on investment and Return on equity. Figures for gross profit ratio has a mixed trend. For company, gross profit margin is maximum in year 2006-07 (12.02 percent) and minimum in year 2009-10 (9.81 percent) The return on investment is 14.40 percent in year 200506 and then it increases to 16.56 percent in year 2006-07. After that in year 2005-06 it decreases to 15.29 percent and in year 2008-09 goes up to 16.78 percent. In year 2009-10 the return on investment is 14.22 percent. The next ratio is return on equity. Figures for return on equity are


quite confusing as there is an uneven trend. It is clear from the table that the return on equity is fluctuating between 16.56 percent in year 2006-07 to 25.50 percent in the year 2005-06. the return on equity had been varying between these two extremes.

This chapter provides a summary of the study conducted and tries to give conclusions on the basis of data analysis. By looking at the conclusion some suggestions are also being forwarded which will help the company improve its performance in future.


SUMMARY Inventories are the most significant part of Current assets. A considerable amount of

funds are required to be committed to them, because of large size of inventories maintained by the firms. Thus, to avoid unnecessary investment it is essential to manage inventories properly. Inventories are stock of the product which a company is manufacturing for sale and components that make product. It ensures that the right material is available in the right quantity at right place. Therefore, it is a systematic control over the purchasing, storing and utilization of materials. In Shivalik Bimetals Controls Limited special attention is being made to manage the inventory for the smooth running of production and sales operations. The main methods used for valuation and control of inventories in the company are First-In First-Out, Safety stock, Minimum stock Level, ABC Analysis, VED Analysis. These methods are generally used in the company to maintain minimum investment in inventory, avoid under-stocking and over stocking, cost control and to prevent the wastage of the materials used in production. In this study we have analyzed inventory management and financial position of the company. For this the data has been collected through the secondary sources such as companys annual reports, Ledgers, Files, Published records etc. Books and internet are also consulted. The data has been collected from the last five years. The tools and techniques used for data analysis and interpretation of inventory management are Minimum Stock Level 47

Re-ordering Level Maximum Stock Level Danger Level Safety Stock Economic Order Quantity ABC Analysis VED Analysis

The financial position helps to identify the financial strength and weakness of the firm. The financial position of the firm is determined by the Liquidity, Solvency and Profitability Ratios. This aspect has been included besides the inventory management as the investment in inventories affects the finances available with the firm. To determine the financial position of the company, Ratio Analysis is done. The tools used are Current Ratio Quick Ratio Cash Ratio Debt-Equity Ratio Fixed assets to Current assets Ratio Debtors Turnover Ratio Assets Turnover Ratio Working Capital Turnover Ratio Gross Profit Ratio Return On Investment Return On Equity




4.2 CONCLUSIONS INVENTORY POSITION : 1. The minimium stock level maintained for the alloy A- 36 is highest and it is lowest for Nickel which reveals that the alloy A-36 is in more use in the bimetals/ trimetals of the company where as Nickel is least used. 2. The reodering level for alloy A-36 is highest which means that A-36 is ordered maximum to replenish the inventory in comparison to other alloys. The reodering level of Nickel is lowest which shows that the order for Nickel in the company is placed at lowest level 3. The maximum stock level of alloy A-36 is highest whereas it is lowest for nickel. 4. As compare to the other alloys, the danger level is highest in case of A-36 and lowest for Nickel. It shows that the alloy A-36 does not fall short in any case to continue the production. 5. To meet the usage of inventory, the safety stock of alloy A-36 is highest in the company and lowest in the case of Nickel. 6. To determine the quantity to be ordered, the Economic Order Quantity of the A-36 at Shivalik Bimetals Controls Limited is highest and to it is lowest for the alloy Nickel. 7. (a) In Shivalik Bimetals Controls Limited, the alloys A-36 and A-223 are of highest value and are categorized under A which reveals that these alloys need high control by the management. (b) the alloy A-72, A-206 and copper are classified as category B items and are kept under reasonable management attention (c) The alloy Nickel is categorized under C which requires simple control 8. (a) Packing material, General consumables and electric items stock are categorized as Vital (V) that reveals that they are utilized very frequently


(b) tools stock, plant/machinery spare stock and chemicals oil and lubricants are labeled as Essential (E) which means that they are not required daily as compare to the other alloys categorized as (V) (c) Other items (furnace stock, hydraulic systems spare , old rolling mill panel spare etc.) are classified as Desirable (D) shows, their utility is not as much as the other items under the categories E and V. 9. The company has been proficient enough in converting its inventory into sales in the year 2005-06.

The lesser days are favourable from the companys viewpoint. The number of days holding inventory are quite satisfactory at Shivalik Bimetals Controls Limited and further the company has potential to reduce them.

FINANCIAL POSITION Liquidity Ratios: Current ratio reveals thats company has sufficient funds to meets its current obligations in the time. It is in accordance with the bankers rule of thumb (2:1). Also, as per the quick ratio the company is quite liquid in meeting its current liabilities. It is seen that the company liquid ratio is according to the standard (1:1). Cash ratio which disclose the real picture of the firm about its liquidity shows that the firm liquid is below the acceptable standard (0.5:1) therefore, the company has unsatisfactory amount of cash to meet its requirements.

Solvency Ratios


The debt-equity ratio reveals that lenders contribution is decreasing as compare to the owners contribution. It is not in confirmation with the bankers rule of thumb (ideal ratio = 1). Thus, the long term solvency position of the company is not satisfactory. Fixed assets to current assets ratio signifies that the companys investments in current assets have been more then in fixed assets.

Activity Ratios Activity ratios are not good as debtors turnover ratio explains that the company is becoming inefficient in recovering amount due from debtors. Working capital turnover ratio discloses a mixed trend over the years in the initial year, it increased a bit placing company in a good situation but decreased in the later years, thus describing that the period for conversion of sales into working capital has increased and thus situation is not favourable for the company. Profitability ratios Gross Profit ratio shows that the companys management is enough capable to control their expenses and thus giving investors a satisfactory level of Gross Profit. Return On Investment reveals that investors are able to earn handsome amount on their investment as the ratio for the company is quite satisfactory. Return On Equity shows that the returns for equity shareholders are decreasing year by year, which indicates that the firm has not used their resources well.





Due to lack of time, busy schedule of the employees and unavailability of information, the present study has a narrow scope. The study has been restricted to one organization only. The actual figures have been rounded off or their estimated value has been taken for the purpose of convenience in analysis & interpretation.

4.3 SUGGESTIONS 1. The company can reduce its inventory costs by acquiring material domestically rather depending completely on imports. 2. In domestic market they can get the terms in their favour by placing bulk orders for the materials which are used in large amounts. 3. Liquidity position of the company is satisfactory but it needs to maintain higher amounts of cash as the cash ratio is not in confirmation with the standards. 4. The company is highly relying on owners equity and therefore Debt-equity ratio is falling below standards. The company should increase debts ratio in its capital structure. 5. The company has not been able to manage its debts properly and therefore the debts collection policy should be changed, it can be made more stringent. 6. The return on equity has been decreasing in the company. This is mainly because of high use of equity by the company. The situation can be improved by more debt financing.





Pandey I.M. (1997) Financial Management, New Delhi, Vikas Publishing House Pvt. Ltd. Sharma R.K. and Gupta S.K. (1996), Management Accounting: Principles and Practice, Ludhiana, Kalyani Publishers. Jain S.P. & Narang K.L. (1998), Cost Accounting: Principles & Practice, Ludhiana, Kalyani Publishers. Company Annual Reports, Solan, Shivalik Bimetal Controls Ltd. Internet ( Website, Shivalik Bimetal Controls Ltd. MY Khan & PK Jain, Financial Management, New Delhi, Tata Mc Graw- Hill Publishing company Ltd.