iimt group of college

Project Report on inventory management

By- Shubhra Sharma
shubhasharma14@gmail.com

2012

Jindal and steel private limited

BALKUDRA, PATRATU, RAMGRAH JHARKHAND

A PROJECT ON INVENTORY MANAGMENT JINDAL STEEL & POWER LIMITED

(BALKUDRA, PATRATU, RAMGARH, JHARKHAND829143)
BY MS. SHUBHRA SHRAMA M.B.A SESSION-2011-13

Submitted in Partial fulfillment for the award of degree of Post Graduate Programmed in IIMT GROUP OF COLLEGE MEERUT (UP)

IIMT GROUP OF COLLEGE MEERUT (U.P.)250001

2

CERTIFICATE
This is to certify that the summer internship project entitled on MANAGEMENT OF INVENTORY at

Jindal Steel &

Power Limited, Patratu

has been prepared by Ms. Shubhra

kumari in partial fulfillment of the requirements for the MBA in Finance at IIMT group of college, Meerut. The study embodies data collected, analyzed and compiled by the researcher under the guidance of the undersigned guide of the institute and thereby approved as indicating the proficiency of the researcher.

Mr.Vivek Agarwal
Sr. DGM- F&A, JSPL, Patratu

DECLARATION

I hereby declare that the project report entitled MANAGENENT OF INVENTORY, at Jindal Steel & Power Limited has been prepared by me during the period 26TH OF JUNE 2012 to 5th JULY, 2012. Under the guidance of MR. VIVEK AGARWAL (Sr. DGM- F&A, JSPL).

I also declare that the project will not be submitted to any other University or Institute for the award of any other degree or diploma in future.

Shubhra kumari DATE: PLACE:

Acknowledgement

I have to thank IIMT GROUP OF COLLEGE giving me an opportunity to undertake my project work and for giving me knowledge in the field of finance during my two years course.

I would like to thanks Mr. VIVEK AGARWAL, Sr. DGM- F&A - Finance for their valuable guidance and support in completion of live project at the Jindal steel & Power Ltd. I would express my sincere thanks to all the staff members of Jindal Steel & Power Ltd, without their support, this project would not have been a success. Last but not the least I would like to thank those person whose encouragement and ideas enriched my project.

Shubhra kumari

CONTENTS
s.n o.

TITLE

page no.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

About

JSPL

6 7 8 10 11 12 14 18 22 26 28 30 32 33 34 35 36 37 45

The house of JSPL company profile Map of JSPL location in India Map of JSPL location in world Group Company Product of Company Introduction of inventory management Technique of inventory management JSPL patratu plant Production process at patratu Inventory management at JSPL patratu Statement of P&L Balance sheet as at 31st mar Analysis of profitability Test of solvency Activity ratio Analysis and graphical representation of all ratio finding and suggestion

Objective of study
This project was undertaken to analyze the inventory management, working capital management of the company and to reduce down their problems and finding the solutions with respect to the inventory management of the company. The objective of the study is to provide the solutions for reducing down the duration of the operating cycle, to analyze the working capital position of the company and the liquidity position, finding out the problems that the company is facing in managing the inventory and showing trend of particular ratios in future and at same suggesting them to solve their problems. To study the inventory management. To see how the day-to-day operations of the company takes place. To compare the performance of W/C for a particular year with previous years. To assess Liquidity position, Long term solvency, operational efficiency, and overall profitability of JSPL. Providing suggestions to solve the problems of the company.

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THE HOUSE OF JINDALS

Late shri o.p. Jindal founding chairmain

Mr. Naveen Jindal, CMD

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JINDAL STEEL & POWER LTD

Company Profile:
Mr. O.P. Jindal promoted JSPL as Orbit Steel Private Limited (OSPL) in 1979. OSPL became a public limited company in 1998 and its name was changed to the current JSPL (Jindal Steel & Power Limited) Jindal Steel & Power Limited (JSPL), a O.P. Jindal Group Company, was formed by hiving off the Raigarh and Raipur facilities of Jindal Stainless Limited into a separate Company as part of a scheme of arrangement, w.e.f. April 2, 1998.

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The Company has plant at Raigarh (Chhattisgarh) for manufacture of sponge iron with an installed capacity of 13,70,000 tons per annum, & it is the only sponge iron producer in the country with its own raw material source and power generation making it one of the most cost effective producers of sponge iron in the country. Power Generation plants with a capacity of 290 MW, Steel Melting plant with a capacity of 24,00,000 TPA with Blast Furnace of 250,000 TPA capacity

International collaboration: JSPL produces rails, H-beams, columns and sheet piles with JFE's technical services assistance.JSPL has entered into technical services assistance agreement with JFE (earlier known as NKK Corporation), Japan for technology transfer to produce superior quality, world s longest rails of 120m finished length, along with Parallel Flange Beams, Columns and Sheet Piles for the first time in the country. This technical collaboration shall enable production of long rails requiring far less joints in tracks, ushering a new era in safer rail-travel and making introduction of fast trains in India a reality.

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Map of JSPL Locations in India

14

Map Of JSPL Locations In World

15

p Companies
1,000 MW O. P. Jindal Super Thermal power plant at Tamnar, Chhattisgarh

Gr o u

Jindal petroleum

Exploration activity in process at Georgia

Jindal Petroleum Limited As part of its diversification process, in 2008, the Group forayed into the oil and gas sector, operating under Jindal Petroleum Limited. The organization has acquired five oil and gas blocks in Georgia. Extensive exploration activities are in progress across all the five blocks in Georgia. The major exploration activities comprise: acquisition, processing and interpretation of 388 sq. km of 3D seismic

16

data by Global Geophysical Services (USA), Weinman Geosciences (USA) and RPS Energy (UK). Based on the interpretation of data, locations for three exploratory wells have already been finalized. Drilling of exploratory wells is expected to commence from the third quarter of 2011-12.

jindal cement

Jindal Cement plant at Raigarh, Chhattisgarh

Jindal Cement Ltd. JSPL has diversified its business operations and set up a slag and fly ash cement plant at Raigarh, Chhattisgarh in order to utilise the waste from steel making. Phase I consisted of constructing a grinding unit of 0.5 MTPA, whereas Phase II consisted of setting up a 2 MTPA integrated cement plant. The cement plant was envisaged to manage solid waste generated from the power and steel sector. The utilisation of waste from the blast furnace (slag) is being value-added by converting it into cement, commonly known as Portland Slag Cement (PSC). The commercial production started from the 0.5 MTPA grinding unit in 2010. It is marketing cement under the brand name of Jindal Cement. The organisation is also making a special product --- Jindal Global Road Stabiliser (JGRS) --- for which it is the first and the only manufacturer in India. A pioneering product of innovation, JGRS was developed to stabilise a wide spectrum.

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Companys Products
Rail:

Giving impetus to the significant rail sector, JSPL has pioneered the manufacturing of 121 metre long track rails in the Indian sub-continent. The worlds longest track rails are a testimony of JSPLs manufacturing capabilities where continuous innovation is a practice rather than an exception. What differentiates JSPLs 121 m long rails from others is that there is a drastic reduction in the welded joints, providing enhanced safety, cost reduction and travel comfort. Our products are subjected to stringent quality norms and can therefore match all international standards.

Parallel Flange Sections:

JSPL pioneered the production of medium and large size Hot Rolled Parallel

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Flange Beams and Column Sections (H-Beams) in India. The beams are cost effective and provide design-flexibility

Plates & Coils

JSPL is equipped with India's first 'one of a kind' state- of- the -art plate mill that produces plates and coils of 3.5 and 3 metres width, respectively, for the first time in the private sector. JSPL epitomizes its performance-oriented service by producing plates ranging from 7-120mm in thickness & widths of 1500 -3500 mm and coils varying in thickness of 7 -25 mm and widths of 1500 - 3000 mm. The products are of premium quality, owing to its sound steel refining properties. The total production capacity of the plant is 1 MTPA. JSPL adheres to stringent international standards and the steel grades are manufactured under various specifications like EN, DNV, BS, ASTM, JIS, LRS, ABS, etc

Power:

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order to contribute significantly to India's growing need for power we started power generation over a decade back. In the beginning it was a captive power facility using waste heat from the rotary kiln boilers facility using waste heat from the rotary kiln boilers and the coal rejects of the washery. Over the years how subsidiary Jindal Power Ltd. (JPL) have come up in a ever, Jindal Steel and Power Ltd (JSPL) and its big way and are producing about 1400 MW power through both captive and commercial facilities.

Sponge iron:

JSPL has world's largest coal-based sponge iron manufacturing facility and stands out as the market leader in coal-based sponge iron industry within India. Efficient backward integration has rendered JSPL as the only sponge iron manufacturer in the country, with its own captive raw material resources and power generation capacity helping the company to monitor both price and quality of its products.

Semi-Finished Products
JSPL has a capacity to produce about three million tonne per annum of

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semis which are primarily used for captive use in JSPLs 0.75 million tonne per annum capacity Rail & Universal Beam Mill and 1.0 million tonne per annum capacity Plate & Stackle Mill.

Wire rods:

In line with our corporate philosophy of continuing efforts to expand our product range to offer a complete product basket to the customer, JSPL now offers Wire Rods from its first unit of 6 Million Tonne Steel Plant at Patratu, Jharkhand.

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Inventory Management

Introduction of inventory

The dictionary meaning of inventory is stock of goods. The word inventory is understood differently by various authors. In accounting language it may mean stock of finished goods only. In a manufacturing concern, it may include raw material, work in process, and finished goods only.

Elements of inventory
Inventory includes the following things:

Raw material: It includes direct material used in the manufacture of a product.

E.g- if a company manufactured hammers, then steel would be its primary direct material.

Work-in-progress: Include partly finished goods and material held between manufacturing stages. It can also be stated that those raw material which are

22

used in production process but are not finally converted into final product are work-in-process.

Consumable: consumable are products that consumers buy recurrently, i.e, item which get used-up or discarded.

For example- consumable office supplies are such product as paper, pens, file folders, computer disks, or ink cartridges. Not include capital goods such as computer, fax machines.

Finished goods: the good ready for sale or distribution comes under this class.

Store and spares: this includes those products, which are accessories to main products produced for the purpose of sale. For example- bolt, nuts, screws,etc.

Motives of holding inventories

There are three main motive of holding inventories:

Transaction motive: every firm has to maintain some level of inventory to meet day to day requirements of sales, production process, customer demand etc. This motive makes the firm to keep the inventory of finished goods as well as raw material.
1)

Precautionary motive: a firm should keep some inventory for unforeseen circumstances also.
2)

For e.g. - the fresh supply of raw material may not reach the factory due to strike by the transporters or due to natural calamities in a particular areas.

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Speculative motive: the firm may be tempted to keep some inventory in order to capitalize an opportunity to make profit e.g. sufficient level of inventory may help the firm to earn extra profit in case of expected shortage in the market.
3)

Types of inventory

1. Movement

inventories: movement inventories are also called transit or pipeline inventory. Transit inventories result from the need to transport items or material from one location to another, and from the fact that there is some transportation time involved in getting from one location to another.

2. Buffer

inventory: buffer inventories are held to protect against the uncertainties of demand and supply. These inventory are often referred to as safety stock.

3. Anticipation

inventories: anticipation inventory are held for the reason that a future demand for the product is anticipated. E.g. fans while summers are approaching, or the pilling up of inventory stock when a strike is on the anvil, are all example of anticipation inventory.

4. Cycle

inventory: It occurs because the one or more stages in the operation are notable to supply all the goods they produce simultaneously.

5. Decoupling

inventories: the idea of decoupling inventories is to decouple different parts of the production system. As we can observe easily, different

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machine and people normally work at different rate, some slower and some faster.

1. Meaning of inventory management

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.

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Inventories consist of raw materials, stores, spares, packing materials, coal, petroleum products, works-in-progress and finished products in stock either at the factory or deposits. Successful inventory management involves creating a purchasing plan that will ensure that items are available when they are needed (but that neither too much nor too little is purchased) and keeping track of existing inventory and its use. Two common inventory-management strategies are the just-intime method, where companies plan to receive items as they are needed rather than maintaining high inventory levels, and materials requirement planning, which schedules material deliveries based on sales forecasts.

Objective of inventory management

The objective of inventory management may be discussed under two heads:
1.

Operation objective: it refers to material and other parts which are

available in sufficient quantity. It include.
i.

Availability of materials: the first and foremost objective of inventory management is to make all type of material available at all

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times whenever they are needed by the production departments so that the production may not be held up for want of materials.

ii.

Minimising the wastage: inventory control is essential to minimize the wastage at all levels i.e. during its storage in the godown or at factory. normal wastage should only be permitted.

iii.

Better sevice to customer: in order to meet the demand of customer, it is the responsibility of concern to produce sufficient stock of finished goods to execute the order received. It meas flow of production should be maintained.

iv.

Control of production level: the concern may decide to increase or decrease the production level in favourable time and the inventory may be control accordingly.

v.

Optimal level of inventory: proper control of inventories help the managenenmt to procure material in time in order to run the plan efficiently.

2.

Financial objectives:
i.

it means that investment in inventories must not remain idle and minimum capital must be locked in it. It include Economy in purchasing : proper inventory control brings certain advantage and economic in purchasing in raw material, it should be purchase in bulk quantity.

ii.

Reasonable price: management should ensure the supply of raw material at low price but without scarifying quality of it.
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iii.

Minimising cost: minimising inventory cost such as handling, ordering and carrying cost etc, is one of the main objective of inventory management. Financial management should help controlling the inventory cost in a way that reduces the cost per unit of inventory. Inventory cost are the part of total cost of production hence cost of production can also a minimised by controlling the inventory cost.

Techniques of inventory management

Following are the techniques use for inventory management.

A.

EOQ(economic order quantity): according to EOQ model, optimal investment in inventory is one where total cost of inventory comprising carrying and acquisition cost will be minimum. Economic order quantity is the order quantity that minimizes total inventory holding costs and ordering costs. It is one of the oldest classical production scheduling models. Formula

. Where,

Q= optimal order quantity S= fixed cost per order (not per unit, typically cost of ordering and shipping and handling. This is not the cost of goods)

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H= annual holding cost per unit (also known as carrying cost or storage cost) (warehouse space, refrigeration, insurance, etc. usually not related to the unit cost) D= annual demand quantity

B.

ABC (always better control): the materials are divided into a number of categories for adopting a selective approach for material control. It is generally seen that in manufacturing concern, a small percentage of item of item contribute a large percentage of value of consumption and a large percentage of item of material contribute a small percentage of value. Under ABC analysis, the materials are divided into three categories i.e. A, B, and C. past experience has shown that almost 10% of the items contributes to 70% of value consumption and this category is called A category. About 20% of the items contribute about 20% of value consumption and this is known as category B material. Category C covers about 70% of item of materials, which contribute only 10% of value of consumption. There may be some variation in different organisation and an adjustment can be made in these percentages.

class A B C

No. of items % 10 20 70

Value of Items % 70 20 10

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C.

SDE (scarce difficult easily): this uses the criterion of the availability of item. In this analysis,

S stand for scarce item which are in short supply, D stand for difficult item- meaning the items that might be available in the indigenous market but cant be procure easily, E represent easily available item, from the local markets may be.

3.

VED(vital essential desirable): VED analysis classified on the basis of production process or other services. V stand for vital item without which the production process would come to a standstill. E stand for essential item whose stock out would affect the efficiency of item. D stand for desirable items which are required but do not immediately cause a loss of production.

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HML(high medium low): this is similar to ABC analysis except that in this analysis, the items are classified on tne basis of unit cost rather than their usage value.
4.

The item are classified accordingly, as their cost per unit is, H- high M- medium L- low

This type of analysis is useful for keeping control over materials consumption at departmental level.

5.

FSN(fast slow non-moving): based on consumption pattern of item, the FSN classification calls for classification of item, as F-fast S-slow N-non-moving When analysis is carried out on the basis of rate of movement of material in the store on the basis of consumption pattern of components, it is know as the FSN analysis..

6.

XYZ analysis: items.

it is based on the closing inventory value of different

Item whose value are high, are classed as X items. Those with low investment in them are termed as Z item,

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Other items are the Y items whose inventory value is neither to high nor too low.

JSPL PATRATU PLANT

WRM

BRM

WRM

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33

BRM

WIRE ROD MILL (0.6 MTPA CAPACITY) AT PATRATU

DEDICATED TO

NATION ON 24.04.2010

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PRODUCTION PROCESS AT PATRATU

Order by party
Market departme nt

PPC

WRM
Billet planning
Grade defining for WIRE ROD
Grad e Mild steel E.g.- SAE 1008, SAE 1018, SAE 1010 High carbon e.g.- HC 76/80, HC81/85, HC36/46

BRM

Grade defining for TMT BAR

Grad e Length of billet12m e.g. Fe 500D TMT bar(termo mechanical

Rolling at 1540C

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Convert in to wire rod or TMT bar Inform to marketing Send to logistic department Dispatc h to party

Steps are:
2.

Receive order from customer by marketing department, Marketing department send info to the PPC department,

3.

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4.

There is two plant i.e. WRM and BAR mill, WRM produce wire rod and BAR mill produce TMT bar,

5.

6.

If order comes for wire rod than it comes under WRM department and if order comes for TMT bar than it comes under BAR mill department, After receiving information billet planning is done by PCC department, Under billet planning, grades are define, According to grade, billet are convert into wire rod or TMT bar TMT bar or wire rod as finished good dispatched by logistic department.

7.

8.

9.

10. Lastly

material.

Here billet is use as raw

Inventory Management at jspl patratu:

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Here the inventory is categorized in to: (1) A B C analysis (2) X Y Z analysis 1) ABC Analysis: - Items which constitutes to 70% of total consumption (of stores and spares) value when arranged in descending order of consumption value will be termed as A class items. Next 20% of total consumption value will be termed as B class items and the rest 10% as the C class items.

2) XYZ Analysis: - Items which constitute top 70% of total stock of stores and spares holding value when arranged in descending order of stock holding will be termed a X class items next 20% of total stock holding value is Y class items and the rest 10% as the Z class.

Higher than necessary stock levels tie up cash and cost more in insurance, accommodation costs and interest charges. Four basic levels will need to be established for each line/category of stock. There are the: a) Maximum level achieved at the point a new order of stock is physically received; b) Minimum level the level at point just prior to delivery of a new order (sometimes called buffer stocks those held for short term emergencies); c) Reorder level point at which a new order should be placed so that stocks will not fall below the minimum level before delivery is received; and the

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d) Reorder quantity or economic order quantity the quantity of stock, which must be reordered to replenish the amount held at the point delivery, arrives up to the maximum level. Once these controls are implemented an efficient system of recording receipts and issues is vital to exercise full control of inventories.

Inventory Management at JSPL patratu:

Inventory is stock of a company, which is manufacturing for sale and component that make up the product. In managing inventories the objective of the company is to determine an maintain optimum level of inventory investment. The optimum level of inventory lies between two danger points of excess and inadequate inventories. Inventory is monitored differently for raw material, work in progress, finished goods and spares. Monthly inventory report is sent to the finance department in the corporate office. Obviously the inventory report is prepared at plant level. Procurement Department gives the data of closing stock of raw materials, finished goods as well as the work in progress.

STATEMENT
LOSS

OF PROFIT AND

JINDAL STEEL AND POWER LIMITED

Statement of profit & loss for the year ended 31st march 2012 In crore Particulars for the year ended 31st march 2012 for the year ended 31st march 2011

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Revenue Revenue from operation (gross) Less:exise duty Revenue from operation(net) Other income Total revenue Expenses: Cost of raw materials consumed Purchase of stock in trade Change in inventory of FG, WIP, stock in trade Employee benefit expense Finance cost Depreciation Other expense Total expense Profit before tax Tax expense Current tax Deferred tax Profit for the year

14,741.81 1407.86 13333.95 184.48 13518.43 4529.84 452.75 (379.24) 385.44 536.77 867.19 4282.67 10675.42 2843.01 542.88 189.48 732.36 2110.65

10,460.97 886.80 9574.17 143.16 9717.33 2730.35 176.80 (333.45) 277.78 285.00 687.77 3140.14 6964.39 2752.94 525.49 163.33 688.33 2064.12

BALANCE

SHEET AS AT

31

ST

MARCH,2012

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41

nalysis of profitability of the year 31st march 2012

1.

Gross profit ratio

=
2.

21.03%

Expense ratio

= =
3. Net profit ratio

78.96%

= = 15.61%

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43

 Test of solvency of the year 2012

1. Current ratio

= = 0.70:1

2. Acid test ratio

= = 0.46:1

3. Current assets to total asset ratio =

= = 0.27 times

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 Activity ratio for the year 2012

1.

Inventory turnover ratio =

= 5.144 times

2.

Inventory holding period

= =

= 69.984 days

3.

Inventory to current asset ratio =

=20.33 times

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 Analysis and graphical representation of all ratio from 2006 to2012

L I QUI DI TY
RATIOS:

Snapshot of Liquidity Ratios:

Liquidity ratios For the year ended 31 Mar 31 Mar 31 Mar 31 Mar
736.4:594.15 09

Basic Ratios

31 Mar 31 Mar 31 Mar

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06 31-Mar-06 Current Assets: Current Liabilities 07 08 1.23:1 Current ratio Current 1.24:1 Current Liabilities 31-Mar-07 Assets: 1.39:1 1 0.76:1 Acid test ratio Current 0.80:1 Current Liabilities 31-Mar-08 Assets: 0.82:1

1.24:1 11
1.03:1 1.39:1 0.73:1

12 0.70:1 0.46:1

1.87:1 1.19:1 1403.56:1007.37 1.27:1 0.85:1 1698.51:1377.83

1.23:1 1.87:1 1.19:1 1.03:1 0.70:1

31-Mar-09 Current Assets: Current Liabilities 31-Mar-10 Current Assets: Current Liabilities 31-Mar-11 Current Assets: Current Liabilities 31-Mar-12 Current Assets: Current Liabilities

3060:1636.17 4216.08:3516.15 4603.1:4447.45 9101.2:12991.01

Current Ratio:

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Graphical representation of above data of current ratio

A n al ysis: The current ratio is the measure of whether a company has enough short-term assets to cover its short-term debt and is index of strength of working capital. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. A ratio of greater than one means that the firm has more current assets then current claims. Current ratio of the company has increased from 1.20 in Year 2004-05 to 1.39 in Year 200607. Current Ratio of the company depicts that for every Re.1 worth of current liability there are assets worth Re.1.39. The company has sufficient liquidity as the ratio is increasing. This year there is an increase in ratio due to almost double inventory level in current year in comparison with previous year. But during the year 2009 there was steep increase in the current ratio of the

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company, not due to increase in the inventory level, but due to huge holding of the cash which was recovered from the debtors & not invested during that year. During last year i.e. 2012, the current ratio was found to be decreased because of the increase in sundry debtors and decrease in current investments..

Suggestions :

In order to increase current ratio current assets should be

increased. If we look into the detailed schedule of current assets then we can find out that major portion of current assets is due to debtors and inventories.

Company should make market survey and should decide first

that what should be the optimum amount of finished goods so that major portion of it can be sold off in the market. This will help in reducing the locking of funds or working capital in the finished goods.

Acid Test Ratio:

Current Assets - Stocks: Current Liabilities Current Assets - Stocks: Current Liabilities Current Assets - Stocks: Current Liabilities Current Assets - Stocks: Current Liabilities Current Assets - Stocks: Current Liabilities Current Assets - Stocks: Current Liabilities 478.85:594.15 834.91:1007.37 1056.07:1377.83 2079.02: 1636.17 3005.62: 3516.15 3274.6: 4447.45 0.80:1 0.82:1 0.76:1 1.27:1 0.85:1 0.73:1

31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11

31-Mar-12 Current Assets - Stocks: Current Liabilities

6049.43:12991.01 0.46:1

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Graphical representation of above data of acid test ratio

Analysis: Acid test ratio is a more rigorous test of liquidity than the current ratio and when used in conjunction with it, gives a better picture of the firm s ability to meet its short-term debts out of short-term assets. This ratio is used to determine risk that is not detected by the Working Capital ratio. A quick or liquid ratio of 1:1 is considered as satisfactory as the firm can easily or readily meets all of its current liabilities. Here JSPL had its acid test ratio around 0.8:1 during the year 2005-2008 which is constant from last three years, which indicates company was not having satisfactory financial position. But during the year 2009, the acid test ratio of the company was highly excellent and was able to pay its current liabilities which were followed by a decrease in the ratio. So it should be looked at with extreme care and also implies that current assets are highly dependent on inventory.

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Current Asset to Total Assets Ratio:

Graphical representation of above data

Current Asset to Total Asset Ratio for the JSPL 31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-06 599.82 / 2319.78 736.40 / 3250.62 1403.56 / 5250.55 1698.51 / 6783.63 3060 / 8456.31 4216.08 / 12279.99 4603.1 / 17742.44 9101.24/33558.31 = 0.25 times = 0.22 times = 0.26 times = 0.25 times = 0.36 times = 0.34 times = 0.25 times =0.27times

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51

Analysis: If we analyse the structural health of working capital for JSPL, the proportion of current assets to total assets has been showing decreasing trend as compared to financial year 2009 & 2010 , which shows that the company was having certain problems with its current asset management. This was due to increase in the application of funds in the fixed assets.

A CTIVITY

RATIO

Inventory Turnover Ratio:

31-Mar-05 31-Mar-06 31-Mar-07 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 1261.61 / 196.47 2253.60 / 257.55 2590.25 / 568.65 3519.81 / 642.44 5410.75 / 980.56 7653.19 / 1209.96 7367.59 / 1328.50 13518.43/2627.71 = 6.42 times = 8.75 times = 4.55 times = 5.47 times = 5.51 times = 6.32 times = 5.54 times

=5.14 times

Graphical representation of above data

52

Analysis: It measures approximately the number of times an entity is able to acquire the inventories and convert them into sales. The higher turnover ratio is good for the firm while A low turnover is usually a bad sign because products tend to deteriorate as they sit in a warehouse, but several aspects of inventory holding policy have to be balanced like lead time, seasonal fluctuations in orders, alternative use of warehouse space. Inventory turnover has decreased in 2012, than the previous years due to increase in inventory and decrease in sales

Inventory holding period

53

Graphical representation of above data

Inventory Holding Period for the JSPL 31 March 2005 31 March 2006 31 March 2007 31 March 2008 31 March 2009 31 March 2010 31 March 2011 31 March 2012 360 / 6.42 360 / 8.75 360 / 4.55 360 / 5.47 360 / 5.51 360 / 6.32 360 / 5.5 360/5.14 = 56.07 days = 41.14days = 79.12days = 65.81 days = 65.33 days = 56.96 days = 64.98 days =69.98 days

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Analysis The companys inventory holding period was found to be fluctuating up and down during the year 2005 2007 , which is not good for the company as it was unnecessary locking up of working capital in the inventory and it shows inefficiency of the management. After hree year constant inventory holding period, during last year i.e.2011,the inventory holding period has increased from 56.96 to 64.98, this shows unnecessary locking up of working capital in the inventory and it shows inefficiency of the management

Inventory to current assets ratio

Inventory to Current Asset Ratio for the JSPL 31 Mar 05 31-Mar-06 31-M/ar-07 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12 196.5 / 599.82 257.55 / 736.40 568.65 / 1403.56 642.44 / 1698.51 980.56 / 3060 1209.96 /4216.08 1328.50/4603.1 3051.31/9010.24 = 0.32 times = 0.34 times = 0.40 times = 0.37 times = 0.32 times = 0.28 times = 0.28 times

=0.33times

Graphical representation of above data

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Analysis: Here, the company shows an unfavorable trend of increase in the proportion of the inventory to current assets during the year 2005 2007, which represents that the company was locking up the working capital unnecessarily in the inventory. But since 2007, the ratio is showing decreasing trend which is a good sign for the company as they are decreasing the locking up of working capital in the inventory.

Finding & Suggestions

Findings:
The study conducted on working capital management of Jindal Steel & Power Limited shows the evaluation of management performance in this context. Major findings and suggestions thereon are narrated as under: 1. Current asset of the year 2009-10 is comprised of 25% of total investment in assets of the company. As current ratio is showing a decreasing trend year on year, which implies that current asset, are less
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compared to current liabilities. 2. High current assets turnover ratio is more judicious and shows efficiency of management and proper utilization of the assets. 3. Current ratio (1.03:1) and quick ratio (0.73:1) of the year 2009-10 are lesser than that of the ideal figures i.e. ideal current ratio is 2:1 while quick ratio is 1:1. 4. Inventory turnover ratio depict the fluctuating trend which indicates the accumulation of inventory in turn which cause loss to the company by way of deterioration of stock, interest loss on blockage of stock etc. 5. Debtors Turnover ratio reveals an increasing trend during the period of study and average collection period came down from 60 to 30 days which shows that company is having specific policy for debtors management. 6. From regression analysis the working capital requirement for the next year is estimated to be 515.36 Rs/Crs. 7. The operating cycle of the firm is disturbed, as it is continuously increasing which is not good for the company. 8. The optimum need for working capital on an average basis company roughly will require more than 455.26 Rs/Crs as its working capital Suggestions: Keeping in view of detailed analysis for the 4 years of study and findings mentioned in above paragraphs, the following suggestions shall be helpful in increasing the efficiency in working capital management. 1. In case of inventory management ABC analysis, FSN technique, VED technique should be adopted to increase the efficiency of inventory management. Further a inventory monitoring system should be introduced
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to avoid holding of excess inventory. 2. It is suggested to maintain a favourable current and quick ratios which shows a lesser than ideal figures. It can be done either through increasing current assets or decreasing liabilities. 3. With the help of proper inventory management systems, like demandbased management, etc. the company can reduce the need for working payable. 4. The company should try and maintain an optimum level of working capital in order to improve upon the workings of the company. Limitations: 1. Availability of the financial data was very limited which is not disclosed due to sensitive nature for the company. 2. The main component of working capital is cost of capital, which is not described in the project because of confidential nature. 3. External environment influence was not considered while doing the theoretical standard rather than the industrial standard because of unavailability of any such specific standard. 4. The scope of the study was limited to Jindal Steel & Power Limited. capital and inventories can be financed through accounts

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