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DECLARATION I hereby declare that this Project Report titled A Study on INVENTORY MANA EMENT O! "O#I$ $T%& ' sub(itted by (e is a bona )ide *or+ underta+en by (e and it is not sub(itted to any other Institution or uni,ersity )or the a*ard o) any certi)icate or published any ti(e be)ore& de-ree.diplo(a
AC7NO8LEDGEMENT I ta+e this opportunity to e2press (y pro)ound -ratitude and deep re-ards to (y -uide #0&"YOT0I Mada( )or her e2e(plary -uidance3 (onitorin- and constant encoura-e(ent throu-hout the course o) this internship& The blessin-3 help and -uidance -i,en by her ti(e to ti(e shall carry (e a lon- *ay in the journey o) li)e on *hich I a( about to e(bar+& I also ta+e this opportunity to e2press a deep sense o) -ratitude to Mr& SES0A -uidance3 *hich helped (e in co(pletin- this tas+ throu-h ,arious sta-es& I a( obli-ed to sta)) (e(bers o) "O#I$ $td3 )or the ,aluable in)or(ation pro,ided by the( in their respecti,e )ields& I a( -rate)ul )or their cooperation durin- the period o) (y internship& $astly3 I than+ al(i-hty3 (y parents3 brother and )riends )or their constant encoura-e(ent *ithout *hich this internship *ould not be possible& IRI RAO3
%eputy !inance Mana-er3 "O#I$ $td3 )or his cordial support3 ,aluable in)or(ation and
PAGE NO.
1.
15 15 11 14 14 14 17 18 19 1: 1: 1; 11 11 11 17 18 41 41 41 47 48 4= 4: 4;
A& Objecti,es O) !inancial Mana-e(ent 6& Meanin- and nature o) in,entory #& Need o) the study %& Methodolo-y o) study E& $i(itations o) the study !& Objecti,es o) the study 2.
INDUSTRY : COMPANY PROFILE
A& Industry pro)ile 6& #o(pany pro)ile #& 0istory o) co(pany E& !inancial per)or(ance ;.
THEORETICAL FRAME 8OR7
A& Meanin- and nature o) in,entory 6& 6ene)its o) holdin- in,entory #& Objecti,es o) in,entory (ana-e(ent %& In,entory ,aluation and cash )lo*s 4.
TO STUDY ON INVENTORY AT JOCIL MANAGEMENT
A& In,entory ratios 6& In,entory turno,er ratio #& In,entory to current assets ratio %& #urrent ratio E& <uic+ ratio !& Asset turno,er ratio & In,entory to *or+in- capital ratio
<
71 74 74 78 79 7= 7; 81 88 95 =1 =4 =7
0& Pro)itability ratios I& Net pro)it ratio "& ross pro)it ratio >& Return on in,est(ent $ &Return on e?uity M& I(pact on other pro)itability ratios = > @ 9 10
CASH CONVERSION CYCLE SND ITS IMPACT ON PROFITA!ILITY OF COMPANY TOOLS AND TECHNI?UES OF INVENTORY MANAGEMENT
LIST OF TA!LES S.NO 1 2 ; 4 < = > @ 9 10 11 12 1; 14 1< 1= 1> 1@ NAME OF THE TA!LES T-(." 1 T-(." 2 T-(." ; T-(." 4 T-(." < T-(." = T-(." > T-(." @ T-(." 9 T-(." 10 T-(." 11 T-(." 12 T-(." 1; T-(." 14 T-(." 1< T-(." 1= T-(." 1> T-(." 1@ PAGE NO. ;2 ;4 ;< ;> ;@ 40 4; 4< 4= 4> <2 <2 <; <; =0 =2 == =@
LIST OF DIAGRAMS
S.NO 1 2 ; 4 NAME OF THE DIAGRAM G%-#0 1 G%-#0 2 G%-#0 ; G%-#0 4 PAGE NO. ;; ;4 ;= ;>
G%-#0 < G%-#0 = G%-#0 > G%-#0 @ G%-#0 9 G%-#0 10 G%-#0 11 G%-#0 12 G%-#0 1; G%-#0 14 G%-#0 1< G%-#0 1= G%-#0 1> G%-#0 1@
E9ECUTIVE SUMMARY
E,ery or-ani@ation needs in,entory )or s(ooth runnin- o) its acti,ities& It ser,es as a lin+ bet*een production and distribution processes& The in,est(ent in in,entories constitutes the (ost si-ni)icant part o) current assets.*or+in- capital in (ost o) the underta+in-s& Thus3 it is ,ery essential to ha,e proper control and (ana-e(ent o) in,entories& The purpose o) in,entory (ana-e(ent is to ensure a,ailability o) (aterials in su))icient ?uantity as and *hen re?uired and also to (ini(i@e in,est(ent in in,entories&
Ra* (aterials3 -oods in process and )inished -oods all represent ,arious )or(s o) in,entory& Each type represents (oney tied up until the in,entory lea,es the
co(pany as purchased products& 6ecause o) the lar-e si@e o) the in,entories (aintained by )ir(s3 a considerable a(ount o) )unds is re?uired to be co((itted to the(& It is there)ore absolutely i(perati,e to (ana-e in,entories e))iciently and e))ecti,ely in order to a,oid unnecessary in,est(ents& A )ir( ne-lectin- the (ana-e(ent o) in,entories *ill be jeopardi@in- its lon- run pro)itability and (ay )ail ulti(ately& The reduction in e2cessi,e in,entories carries a )a,orable i(pact on the co(panyAs pro)itability& The study starts *ith an introduction to in,entory (ana-e(ent3 #o(panyAs pro)ile3 its Vision B Mission3 Achie,e(ents and also the need )or study3 and objecti,es are set out )or the study& Research (ethodolo-y3 %ata analysis B Interpretation3 !indin-s and Su--estions o) the study )ollo*&One o) the (ain areas o) the project is the analysis part3 *here the data are analy@ed B interpreted3 to )ind out ho* the in,entories *ere (ana-ed&
CHAPTER 1
INTRODUCTION
INTRODUCTION
INTRODUCTION TO FINANCEA In our present day econo(y3 )inance de)ined as the pro,ision o) (oney at the ti(e *hen it is re?uired& E,ery enterprise3 *hether bi-3 (ediu( o) s(all needs )inance to carry on its operations and to achie,e its tar-et& In )act )inance is so indispensable today that is
ri-htly )inance3 no enterprise can possibly acco(plish3 its objecti,e& Money (a+es (any thin-s& It is the -ood old pro,ed *hich e2plains the i(portance o) (oney on the li+e on not only hu(an bein-s but also or-ani@ation resources in the or-ani@ation3 Money is necessary to ac?uire and utili@e the resources in the or-ani@ation3 both hu(an and (aterial resources& A business enterprise that is not ha,in- proper )inancial plannin- and control losses its&resources and conse?uently o) its e2istence& It is the CMaster +eyC& Dhich pro,ider access to all
(anu)acturin- transactions& the sources used in
1& 1&
P%$/*& )-D*)*E-&*$, It is stated in ter(s3 o) return on in,est(ent or pro)it to sales ratio& Ace& To this objecti,e3 all actions li+e increase in inco(e and cut do*n in cost& This helps in pro)itable utili@ation o) societyEs econo(ic resources& 8"-.&0 )-D*)*E-&*$, Dealth (a2i(i@ationAs is a *idely reco-ni@ed criteria *ith the per)or(ance o)
business enterprise is e,aluated& The *ord E*ealth (eans the (et present *orth o) the )ir(& There )ore3 it is stated that the net present *orth is di))erence bet*een -ross present *orth and the a(ount o) capital
,alue o) e2pected cash in)lo*s discounted at a rate& E,ery enterprise needs in,entory o) s(ooth runnin- o) its acti,ities3 it a Ser,ice as lin+ bet*een production and distribution process& There is -enerally3 a ti(e la- bet*een the reco-nition o) a need and its )ul)ill(ent3 the -reater the ti(e la-3 the hi-her the re?uire(ent )or in,entory it also pro,ides a cushion )or )uture price )luctuations& The in,est(ent in in,entories constitutes the (ost si-ni)icant part o) current assets.*or+in- capital in (ost i) the under ta+in-& Thus3 it is ,ery essential to ha,e proper control and (ana-e(ent o) in,entories& The purpose o) in,entory (ana-e(ent is to ensure a,ailability o) (aterials in su))icient ?uantity as and *hen re?uired and also to (ini(i@e in,est(ent in in,entories&
ra* (aterials re?uired *ill be deter(ined by the rate o) consu(ption and the ti(e re?uired )or replenishin- the supplies3 the )actors li+e the a,ailability o) ra* (aterials and -o,ern(ent3 re-ulations etc3 too a))ect the stoc+ o) ra* (aterials& !) 8$%F *, P%$3%"22 G The *or+ in pro-ress is that sta-e o) stoc+s3 *hich
are in bet*een ra* (aterials and )inished -oods& The ?uantu( o) *or+ in pro-ress depends upon the ti(e ta+en in the (anu)acturin- process&
The -reater the ti(e ta+en in (anu)acturin- the (ore *ill be the
a(ount o) *or+ in pro-ress& C) C$,2')-(."2A These are the (aterials3 *hich & are needed to s(oother the process o) production& These (aterials do not directly enter production but they act as catalysts& #onsu(ables (ay be classi)ied accordin- to their consu(ption and criticality& enerally consu(able stores do not create any supply proble( and the )ir( a s(all part o) production cost& There can be instances *here these (aterials (ay account )or (uch ,alue then the ra* (aterials& The )uel oil (ay )or( a substantial part o) cost& D) F*,*20"+ 3$$+2A These are the -oods3 *hich areE ready )or the consu(ers the stoc+ o) )inished -oods pro,ides a bu))er bet*een production and (ar+et&
The purpose o) (aintainin- in,entory is to ensure proper supply o)
-oods to custo(ers& E) S#-%"2A The stoc+in- policies o) spares di))er )ro( industry to industry so(e industries li+e transport *ill re?uire (ore spares then the other concerns& The costly spare parts li+e en-ine3 (aintenance spares etc are not discarded a)ter use3 rather they +ept in ready position )or )urther use&
All decisions about spares are based on the )inancial cost o)
11
in,entory on such spares and the costs (at arise due to their nonF a,ailability& !","/*&2 $/ H$.+*,3 I,4",&$%*"2A
Althou-h holdin- in,entories in,ol,es bloc+in- o) a )ir(s )unds and the cost o)
stora-e and handlin-3 e,ery business enterprise has to be (aintain certain le,el o) in,entories o) )acilitate unFinterrupted production and s(ooth runnin- o) business&
In the absence o) in,entories a )ir( *ill ha,e to (a+e purchases as soon as it recei,es orders3 it *ill (ean loss o) ti(e and delays in e2ecution o) orders *hich
so(eti(es (ay causes loss o) custo(ers and business& A )ir( also needs to (aintain in,entories to reduce orderin- cost and a,ail ?uantity discounts etc&3 T0"%" -%" &0"*% )-*, #'%#$2"2 $/ 0$.+*,3 *,4",&$%*"2A
*) **) ***) T0" T%-,2-C&*$, M$&*4"A Dhich necessitates the holdin- o) in,entories )or T0" P%"C-'&*$,-%5 M$&*4"A Dhich necessitates the holdin- o) in,entories )or the unpredictable chan-es in de(and and supplies o) (aterials& (eetin- the unpredictable chan-es in de(and and supplies o) (aterials& T0" S#"C'.-&*4" M$&*4" G Dhich includes +eepin- in,entories )or ta+inad,anta-e o) price )luctuations3 sa,in- in reForderin- costs and ?uantity discounts&
process& The o,erall in,entory (ana-e(ent includes desi-n and in,entory control or-ani@ation *ith proper accountability establishin- procedure )or in,entory handlindisposal o) scrap si(pli)ication3 standardi@ation and codi)ication o) in,entories3 deter(inin- the si@e o) in,entory&
The study is li(ited only )or a period 8 years i&e&3 )ro( 155=F5: to 1511F11
The li(itations o) ratio analysis can be applicable o) the study& There (ay be appro2i(ation in calculatin- ratios and ta+in- the )i-ure )ro( the annual reports&
14
1& To study on the in,entory (ana-e(ent at "O#I$ li(ited (ana-e(ent& 4& To study the in,entory le,els )or last )i,e years and its i(pact on other pro)itability ratios& 7& To understand the ,arious techni?ues o) in,entory (ana-e(ent and in,entory control (echanis( at "ocil& 8& To present the obser,ations and su--estions )or opti(u( in,entory le,els thus pro)itability&
17
IN D U S T R Y P R O F I L E A
Personal *ash (ar+et in India is ,ery hi-h& E,eryone is usin- toilet Soaps& It is one o) the )ast (o,in- consu(er products in personal care se-(ent&
18
The consu(ption percenta-e o) toilet soaps *as increased year by year& The total consu(ption o) toilet soaps in India is 8&4 la+h tones per year& The -ro*th rate is 1F4 percent per annu(& 6ut the consu(ption rate o) soap used per an Indian is lo*3 *hen *e co(pare *ith Thailand3 Italy and 6ra@il people& Their consu(ption rate is 7:5 (s3 =55 -(s and 195 -(s per head in a (onth& There are a nu(ber o) reputed co(panies in the toiIet soap (ar+et& %ue to increased co(petition3 alon- *ith those co(panies se,eral s(all scale (anu)acturers are also entered in to the (ar+et& The cro*ded (ar+et place has also brou-ht to the consu(er as (ar+eters o) soap ha,e tried to *oo consu(ers throu-h up-raded o))erin-s and better ?uality soaps& The (ar+eters o) toiletsE soaps ha,e increased the T!M ITotal !atty MatterJ content in their brands3 to o))er better ?uality soaps at a lo*erF price& Industry *atchers &say that the 1!M content on so(e brands has (o,ed up )ro( theE8F5F95&per cent earlier to o,er =5 per cent o) late& F-&&5 AC*+ I,+'2&%5A These are co(pounds o) carbon3 o2y-en and 0ydro-en& In the )atty acid Molecule the carbon ato(s are lin+ed to-ether in the )or( o) a lon- chain co((only re)erred to as a hydrocarbon chain& Accordin- to scienti)ic data and no(enclature3 lon- strai-ht chain or-anic acids *ith carbon ato(s o) (ore than 7 are called )atty acids3 because they are obtained )ro( natural ,e-etable.ani(al oils.)ats& 0o*e,er (ost o) the co((only used )atty acids are *ith carbon chain 917& These )atty acids are (ainly -rouped into t*o cate-ories ,i@&3 saturated and unsaturated )atty acids& !atty Acids are ha,in- di,ersi)ied application in ,arious )ields o) industries li+e rubber (anu)acturin- industries3 Tyres3 Plastic3 #os(etics3 !oods and Phar(aceuticals& P%"2",& S&-&'2 $/ I,+'2&%5A Present (anu)acture o) !atty Acids is dispersed all o,er the country *ith units in ,arious states& Production o) )atty acid in India *as insi-ni)icant3 prior to the period o) second *orld *ar& Production on a s(all scale *as initially started in the (id )orties that too *ith obsolete e?uip(ent& The ?ualities o) )atty acid co(in- &out )ro( these units are )ar )ro( desirable and reco,ery o) -lycerin *as ine))icient&
19
It is in 1;843 the )irst hi-h pressure !at Splittin- Plant in our country *ent into strea( in 6o(bay& It started production as a batchF operatin- unit3 *hich *as soon con,erted to a se(iFcontinuous one& The industry *hich started ta+in- shape in the early )i)ties *as established on a )ir( )ootin- *ithin a decade3 ac?uirin- considerable +no*Fho* in process technolo-y&
In the year 1;873 the installed capacity o) !atty Acid Plants *as belo* 7855 tonnes per annu(& The annual production )ro( the )our operatin- units at that ti(e
*as belo* 1555 tonnes per annu(& Since then the !atty Acid industry in India has (ade raid pro-ress durin- the ne2t t*o decades&
SOAP INDUSTRYA
HISTORYA Traditionally3 soap has been (anu)actured )ro( al+ali IlyeJ and ani(al )ats Itallo*J3 althou-h ,e-etable products such as pal( oil and coconut oil can be substituted )or tallo*& The (ajor uses )or soap *ere in the household3 )or *ashin- clothes and )or toilet soap3 and in te2tile (anu)acturin-3 particularly )or )illin-3 cleansin- and scourin- *oolen stu))s& In 1;15s three )ir(s had co(e to do(inate the industryG I1J #ol-ate Pal(oli,eFPeet3 I1J $e,er 6rothers3 an En-lish co(pany that de,eloped a )ull line o) hea,ily ad,ertised soaps in the nineteenth century and in 1:;= and 1:;; purchased )actories in 6oston and PhiladelphiaK &and I4J In 1;44 Procter and a(ble introduced a pioneer deter-ent3 %ri)t3 *hich tar-eted the dish*ashin- (ar+et because it *as too li-ht )or launderin- clothes& In urban sales o) pre(iu( toilet soaps in 1;:73 the $iril brand (anu)actured by 0industan le,er had sales o) 4855 MT3 representin- 17&7H o) the (ar+et share3 Mysore sandal (ade by >arnata+a soaps sold 18:: MT or 11H o) the (ar+et share3 and shi+a+i (anu)actured by s*asti+a sold 1855MT representin- 15&9H o) the (ar+et share )or the sa(e year 0industan le,er produced the three top brands o) popular Toilet soapsF$i)e boy *ith sales o) 49555MT and 4:&8 (ar+et share& $u2 *ith sales 1=955 MT )or 1:&9H (ar+et shareG and Re2ona3 11455MT )or an 11&;H (ar+et share&
COMPANY PROFILEA
H*2&$%5 $/ J$C*. L*)*&"+A
1=
"ocil li(ited *as incorporated on 15 th !ebruary3 1;=: as per the #erti)icate o) incorporation No&1195 -ranted by the Re-ister o) co(panies A&P& 0yderabad /nder the na(e and style o) LAN%0RA PRA%ES0 OI$ AN% #0EMI#A$ IN%/STRIES $IMITE%' IAPO#I$J& P%$)$&"%2 $/ &0" C$)#-,5A The unit *as pro(oted as public $i(ited #o(pany in joint ,enture by the Andhra Pradesh Industrial %e,elop(ent #orporation $i(ited3 0yderabad IAPI%#J and "ayala+sh(i #otton and Oil Products Pri,ate $irnited3 I"#OPJ3 Perecherla3 &#o(pany belon-s to "ayala+sh(i roup& O%3-,*E-&*$,-. S&%'C&'%" O1,"%20*# -,+ M-,-3")",& !$-%+ $/ D*%"C&$%2A P&Narendranadh cho*dary "& Murali Mohan P& Narendranath #ho*dary Mullapudi Thi((araja Y& Narayanarao #ho*dary #hair(an Mana-in- %irector %irector %irector untur %ist
%irector %irector
%irector %irector
V&S& Raju
>& Srini,asa Rao M& opala+rishna Subbarao V& Tipirneni SENIOR E9ECUTIVESA P& >esa,ulu Reddy !AN7ERSA Andhra ban+ State 6an+ o) India
%irector
PresidentB Secretary
untur untur
FINANCIAL PERFORMANCEA
1:
F*,-,C*-.A "ocil li(ited uses both its o*n #apital and debt to per)or( its acti,ities& The co(pany ai(s at *ealth (a2i(i@ation3 rather earnin- (ore pro)its& The co(pany declares di,idend to its shareholders out o) its pro)its and trans)ers the rest to -eneral reser,e& Retained earnin-s are used )or ReFin,est(ent such as purchase o) )i2ed assets3 in,est(ents in )i2ed deposits and repay(ent o) loans& J$C*. L*)*&"+ ACC$',&*,3 P$.*C*"2G
1& G","%-.
The Accounts are prepared on historical cost con,ention and in accordance *ith nor(ally accepted Accountin- Standards&
4& D"#%"C*-&*$,
%epreciation is pro,ided on the *ritten do*n ,alue (ethod at the rates and in the (anner speci)ied in Schedule MIV o) the #o(panies Act3 1;89& I,4"2&)",&2 $on- ter( in,est(ents are stated at cost and inco(e thereon are accounted )or on accrual& Pro,ision to*ards decline in the ,alue o) lon- ter( in,est(ents in (ade only *hen
1;
In,entory includes the )ollo*in- thin-s& RA8 MATERIALA Ra* (aterial is a (ajor input into the or-ani@ation& They are re?uired to carry out production acti,ities uninterruptedly3 the ?uantity o) ra* (aterials re?uired *ill be deter(ined by the rate o) consu(ption and the ti(e re?uired )or replenishin- the supplies3 the stoc+s li+e the a,ailability o) ra* (aterial and o,ern(ent re-ulations etc&3 too a))ect the stoc+ o) ra* (aterials& 8OR7 IN PROGRESSA The *or+ in pro-ress is that sta-e o) stoc+s *hich are in bet*een ra* (aterial and
)inished -oods3 the ?uantu( o) *or+ in pro-ress depends upon the ta+en in the (anu)acturin- process3 the ?uantu( o) *or+ in pro-ress depends upon the ti(e ta+en in the (anu)acturin- process3 the -reater the ti(e ta+en in (anu)acturin-3 the (ore *ill be the a(ount o) *or+ in pro-ress&
CONSUMA!LESA These are the (aterials *hich are needed to s(oother the process o)
production but they act as catalysts& #onsu(ables (ay be classi)ied accordin- to their consu(ption add critically& enerally3 #onsu(able stores dose not supply proble( and )un a s(all part o) production cost& There can be instances *here these (aterials (ay account )or (uch ,alue than the ra* (aterial& The )uel oil is a substantial part o) cost&
FINISHED GOODSA These are the -oods3 *hich are ready )or the consu(ers& The stoc+ o) )inished -oods pro,ides a bu))er bet*een production and (ar+et3 the purpose o) (arinatinin,entory is to ensure proper supply o) -oods to custo(ers& SPARESA The stoc+ policies o) spares )i)er )ro( the industry to industry& So(e industries li+e transport *ill re?uire (ore spares than the other concerns& The costly spares parts li+e en-ines3 (aintenance spares etc&3 are not discarded a)ter use3 rather they 11
are +ept in ready position )or )ather use& All decisions about spares are based on the )inancial cost o) in,entory on such spares and the cots that (ay arise due to their nonF a,ailability& !ENEFITS OF HOLDING INVENTORIESA All thou-h holdin- in,entories in,ol,es bloc+in- o) a )ir(Es and the costs o)
stora-e and handlin-3 e,ery business enterprise has to be (aintainin- certain le,el o) in,entories o) )acilities unFinterrupted production and s(ooth runnin- o) business&
In hi( absence o) in,entories a )ir( *ill ha,e to (a+e purchase as soon as it recei,es orders& It *ill (ean loss o) ti(e and delays in e2ecution o) orders *hich so(eti(es (ay cause loss o) custo(ers and business& A )ir( also needs to (aintain in,entories to reduce orderin- cost and a,ail ?uantity discounts etc& There are three (ain purpose o) holdin- in,entories& T0" &%-,2-C&*$, )$&*4"A Dhich )acilities continuous production and ti(ely e2ecution o) sales orderN T0" #%"C-'&*$,-%5 )$&*4"A Dhich necessitates the holdin- o) in,entories )or (eetin- the unpredictable chan-es
11
The )unds (ay be arran-ed )ro( o*n resources or )ro( outsiders& 6ut in both the cased3 the )ir( incurs a cost& In the )o*ler case3 there is an opportunity cost o) in,est(ent *hile in the later caseK the )ir( has to pay interest to the outsiders& S&$%-3" -,+ 0-,+.*,3 C$2&2A 0oldin- o) in,entories also in,ol,es costs on stora-e as *ell as handlin- o) (aterials& The stora-e o) costs includes the rental o) the -o do*n3 insurance char-es etc& Ris+ o) price declineG there is al*ays a ris+ o) reduction in the prices o) in,entories by the supplies3 co(petition or -eneral depression in the (ar+et& Ris+ o) obsolescenceG the in,entories (ay beco(e absolute due to i(pro,ed technolo-y3 chan-es in re?uire(ents3 chan-e in custo(er tastes etc& Ris+ deter(ination in ?ualityG the ?uality o) (aterials (ay also deteriorate *hile the in,entories are +ept&
14
)inancial& The operational objecti,e (ean that the (aterials and spares should be a,ailable in su))icient ?uantity so that *or+ is not disrupted )or *ant o) in,entory& The )inancial objecti,e (eans that in,entory should not re(ain idle and (ini(u( *or+in- capital should be loc+ed in it& T0" /$..$1*,3 -%" &0" $(B"C&*4"2 $/ *,4",&$%5 )-,-3")",&A To ensure continuous supply o) (aterials3 spares and )inished -oods so that production should not su))er at any ti(e and the custo(ers de(and should also be (et& To a,oid both o,erFstoc+in- and underFstoc+in- o) in,entory&
To +eep (aterial cost under control so that they contribute in reducin- the cost o)
production and o,erall costs&
To (ini(i@e loses throu-h & deterioration3 pil)era-es *asta-es and da(a-es& To ensure perpetual in,entory control so that (aterials sho*n in stoc+ led-ers should be actually lyin- in the stores&
To ensure ri-ht ?uality -oods at reasonable prices& Suitable ?uality standards *ill ensure proper ?uality o) stoc+s& The priceFanalysis3 the cost analysis and ,alueFanalysis *ill ensure pay(ent o) proper prices& To )acilitate )urnishin- o) data )or shortFter( and lon- ter( plannin- and control o) in,entory&
physical count or by use o) perpetual in,entory records& Dhen this ?uantity is deter(ined3 it (ust be (ultiplied by a unity cost in order to deter(ine the in,entory ,alue that is used on )inancial state(ent&
Trade and ?uantity discount are to be e2clude )ro( unit cost since these discount
e2ist )or the purpose o) de)inin- the true in,oice cost o) (erchandise& #ash discounts3 on the other hand3 ha,e been considered as a re*ard )or early pay(ent and as a penalty )or late pay(ent& The Cre*ardC has o)ten been interpreted as a loss rather than as a part o) unit cost& Thus in *ould not be di))icult to )ind di))erence o) opinion as to *hether in,oice cost includes or e2cludes cash discount&
Dhen the Lcurrent replay che(ical costC o) (aterial on hand at the close o) a year is less than the actual cost3 the in,entory ,alue is reduced to replay che(ical cost Icurrent (ar+et priceJ& Thus the acceptable basis in,entory ,aluation is he Clo*er o) cost or (ar+er or (ore properly the Clo*er o) actual cost or replay che(ical costC&
The deter(ination o) in,entory ,alues is ,ery i(portant )ro( the point o) ,ie* o) the balance sheet and the inco(e state(ent &since costs not included in the in,entory Ithe balance sheetJ are considered to be e2pensi,e and are thus included in the inco(e state(ent& V-.'-&*$, $/ *,4",&$%*"2 I )"&0$+ $/ +"&"%)*,-&*$,A
Althou-h the pri(e consideration in the ,aluation o) in,entories is cost3 there are a nu(ber o) -enerally accepted (ethods o) deter(inin- the cost o) in,entories at the 18
close o) an accountin- period& The (ost co((only used (ethods are )irst in )irst out I!I!OJ a,era-e3 and last in )irst out I$I!OJ& The selection o) the (ethod )or deter(inin- cost )or in,entories ,aluation is i(portant )or its has a direct bearin- on the cost o) -oods sold and conse?uently on pro)it& Dhen a (ethod is selected3 it (ust be used conse?uently and cannot be chan-e )ro( year to year in order to secure the (ost )a,orable pro)it )or each year&
A+4-,&-3"2A
T0" FIFO )"&0$+ 0-2 &0" /$..$1*,3 -+4-,&-3"2. It ,alues stoc+ nearer to current (ar+et prices since stoc+ is presu(ed to be consistin- o) the (ost recent purchases& It is based on cost and3 there)ore3 no unreali@ed pro)it enters *, the )inancial accounts o) the co(pany& The (ethod is realistic since it ta+es into account the nor(al procedure o) utili@inor sellin- those (aterials or -oods *hich ha,e been lon-er in stoc+&
D*2-+4-,&-3"2A
T0" )"&0$+ 2'//"%2 /%$) &0" /$..$1*,3 +*2-+4-,&-3"2. It in,ol,es co(plicated calculations and hence increases the possibility o) clerical errors& #o(parison bet*een di))erent jobs3 usin- the sa(e type o) (aterial beco(es so(eti(es di))icult& A job co((enced a )e* (inutes a)ter another job (ay& 0a,e to bear an entirely di))erent chan-e )or (aterials because the )irst jobs co(pletely e2hausted the supply o) (aterials o) the particular lot&
19
The !I!O (ethod o) ,aluation o) in,entories is particularly suitable in the )ollo*in- circu(stance&
The (aterials o) -oods are o) a perishable nature& The )re?uency o) purchase is not lar-e&
There are only (oderate )luctuations in the prices o) (aterials or -oods purchased3 Materials are easily identi)iable as belon-in- to a particular purchase lot&
A+4-,&-3"2A
This (ethod has the )ollo*in- ad,anta-es&
It ta+es not account the current (ar+et conditions *hile ,aluin- (aterials issued to di))erent jobs or calculatin- the cost o) -oods sold& The (ethod is based on cost and3 there)ore3 no unreali@ed pro)it or loss is (ade on account o) use o) this (ethod& The (ethod is (ost suitable )or (aterials *hich are o) bul+y and nonperishable type&
1=
1:
e2tre(es o) $I!O and !I!O& E4-.'-&*$, O/ M"&0$+2 C-, 8" J'2&*/5 T0" D*//"%",C"2H
The best (ethod o) in,entory ,aluation (i-ht be Cspeci)ic identi)icationC3 that is3 the units in in,entory should be identi)ied *ith the speci)ic in,oices and thus speci)ic unit costs to *hich they apply&
!ortunately3 the !I!O (ethod constitutes a ,ery use)ul appro2i(ation to the speci)ic identi)ication (ethod i) one can reasonably assu(e that the actual )lo* o) (aterials is )irstFin )irstFout& This assu(ption is not unreasonable and thus *e ha,e stated the (ain ar-u(ent )or the !I!O in,entory sche(e&
That is3 the physical )lo* o) (aterials *ould (a tch the )lo* o) costs under the
any speci)ic pattern o) physical )lo*3 the a,era-e cost syste( *ould seen to appropriate&
The pri(ary di))erence bet*een the !I!O and a,era-e (ethods is centered on the phys ical )lo* s ince both (ethods could in,ol,e identical and interchan-eable 1;
units& The !I!O (ethods )it a )irstFin )irstFout physical )lo*& The a,era-e (ethod )its a syste( *hich has no speci)ic pattern o) physical )lo*& !indin- a situation *here there is no speci)ic pattern o) physical )lo* should be ?uite di))icult because o) the )act that (ost in,entory ite(s are subject to deterioration by institutin- a person *ould atte(pt to reduce such deterioration and any reasonable person *ould atte(pt Eto reduce such deterioration by institutin- a physical )lo* appro2i(atin- )irstFin )irstFout& The (ajor reason )or the use o) the a,era-e (ethod
is so(ethin- other than the lac+ o) speci)ic physical )lo*& Ordinarily the $I!O (ethod cannot be justi)ied on the basis o) the physical )lo* o) (aterial& /nder conditions o) chan-in- prices3 the ad,ocate o) $I!O says that the only (ethod *hich (atches costs and re,enues is the $I!O (ethod& The $I!O (ethod assu(es that the latest ite( is the )irst ite( out3 and thus the current costs o) (aterials are (atched *ith the other hand3 assu(es that the )irst ite( in is the )irst ite( out K and thus the nonFcurrent costs o) (atchin- currents costs *ith current re,enues is the essence o) the ar-u(ent )or the $I!O (ethod&
As can be seen by the abo,e co((ents3 there is no one best (ethod o)
,aluin- in,entories& The (ethod chosen should )ir the situation& A physical )lo* pattern co(parable to !I!O *ould )orce one to consider the !I!O (ethod& The lac+ o) discernible physical )lo* pattern *ould )orce one to consider the a,era-e (ethod& #oncentration on cost )lo*s3 as distinct )ro( physical )lo*s3 *ould )orce to consider the $I!O (ethod especially *here there appears to be a discernible trend to*ards risin- prices )or )allin- prices as has been the case in our econo(y durin- recent years&
45
41
INVENTORY RATIOSA
1& In,entory turno,er ratio& 1& In,entory to current assets ratio& 4& Dor+in- capital ratio 7& Assets turno,er ratio 8& <uic+ ratio&
1.INVENTORY TURNOVER RATIOA
This ratio indicates the nu(ber o) ti(es the stoc+ has been turned o,er durin- the period B e,aluated the e))iciency *ith *hich a )ir( is able to (ana-e its in,entory& This ration is calculated by applyin- the )ollo*in- )or(ula&
41
Y"-%
A43. I,4",&$%5
1581;1748 144;78514 19:;9:591 1:8;71881 141758545
R-&*$
:&;: ;&85 11&9= 11&41 ;&1:
44
I,&"%#%"&-&*$,A More in,entory ratio is desirable to any co(pany and it indicates that the co(pany usin- lo* ,alue o) in,entory& The in,entory decreased in 1511 *hen co(pared to 1511& Actually the )ir( has to (aintain (ore in,entories )or the purpose production o) (ore products& 0ere the in,entory is decreased due to less orders )ro( 0/$ 3IT#&
2. INVENTORY TO CURRENT ASSETSA In order to +no* the percenta-e o) in,entory o,er current assets the ratio o) in,entory to current assets is calculated and *hich is presented in the )ollo*in- table& I,4",&$%5 I,4",&$%5 &'%,$4"% C'%%",& -22"&2 %-&*$ J C'%%",& -22"&2
Y"-%
155=F155: 155:F155; 155;F1515 1515F1511 1511F1511
I,4",&$%5
144;78514 14:;1:544 14:;9:591 1:8;71881 1581;1748
C'%%",& -22"&2
977:7:=91 917:998=: :881==911 15181=114: 858118;=:
R-&*$
5&11 5&11 5&1; 5&1= 5&11
47
I,&"%#%"&-&*$,A The in,entory to current assets ratio had been decreased to5&15 in the year 155;F15 this is due to )all in the in,entories and current assets the si-ni)icant drop in the le,el o) in,entory is due to )allin- trend in de(and thus leadin- to )all in purchases and )inally on sales leads to )all in debtors and in turn on the current assets& In the year 1515F11 in,entory is increased to 5&1= due to i(pro,e(ent o) in,entory to current assets& The in,entory to current assets ratio had )allen to 5&11 in the year 1511F11&
;. CURRENT RATIOA It indicates the ability o) a co(pany in (eetin- the current obli-ation& It is si-ni)icant short ter( creditors and (ana-e(ent& C'%%",& -22"&2 C'%%",& %-&*$ J
48
C'%%",& .*-(*.*&*"2
Y"-%
155=F155: 155:F155; 155;F1515 1515F1511 1511F1511
C'%%",& -22"&2
977:7:=91 917:998=: :881==911 15181=114: 858118;=:
C'%%",& .*-(*.*&*"2
151:1;8;: 1;57=;88=1 451=89554 4;1941;:= 19::91411
R-&*$
4&1: 4&1: 1&:4 1&91 4&55
G%-#0 ;AC'%%",& %-&*$ I,&"%#%"&-&*$,A In "O#I$ the current ratio is 1&: in 1511& It (eans that )or one rupee o) current liabilities3 the current assets are 1&: rupee is a,ailable to the(& In other *ords the current assets are 1&: ti(es the current liabilities& Al(ost the past 7years current ratio is )luctuatin- but current ratio in 1511 it is bit hi-her than be)ore3 *hich (a+es co(pany (ore sound& The consistency increase in the ,alue o) current assets *ill increase the ability o) the co(pany to (eets its
49
obli-ations B there)ore )ro( the point o) ,ie* o) creditors the co(pany is in -ood condition&
4.?UIC7 RATIOA The ?uic+ ratio is the relationship bet*een ?uic+ to current liabilities ?uic+ assets is (ore ri-orous test o) liability position o) a )ir( it is co(puted by applyin- the )ollo*in)or(ula& ?'*CF %-&*$ J K'*CF -22"&2 L C'%%",& .*-(*.*&5 Dhere K'*CF -22"&2 J C'%%",& -22"&2 G *,4",&$%*"2
Y"-%
155=F155: 155:F155; 155;F1515 1515F1511 1511F1511
?'*CF -22"&2
815;54=4: 7:8;7:878 9:8141559 =4;41:9:= 4;;:17874
C'%%",& .*-(*.*&*"2
151:1;8;: 1;57=;8=1 451=89554 4;1941;:= 19::91411
T-(." 4A?'*CF %-&*$
R-&*$
1&7 1&9 1&4 1&5 1&7
4=
G%-#0 4A?'*CF %-&*$ I,&"%#%"&-&*$,A Al(ost in past 7 years the li?uid ratio is )luctuatin-& The ?uic+ ratio o) the "O#I$ #o(pany has increased )ro( 1&: to 1&4 )ro( 1511F1511& It indicates -ood sound o) co(pany &This indicates that the dependence on the shortFter( liabilities B creditors are less B the co(pany is )ollo*in- a conser,ati,e *or+in- capital policy& <uic+ ratio o) #o(pany is not )a,orable because the ?uic+ assets o) the co(pany are (ore than the ?uic+ liabilities& The li?uid ratio sho*s the co(panyAs inability to (eet its i((ediate obli-ations is -ood& So3 as per the current year ratio o) the co(pany is satis)actory&
<.ASSETS TURNOVER RATIOA Assets are used to -enerate sales& There)ore a )ir( should (ana-e its assets e))iciently to (a2i(i@e sales& The relationship bet*een sales and assets is called assets turno,er ratio& -22"&2 &'%,$4"% %-&*$ J ,"& 2-."2 L &$&-. -22"&2
4:
Y"-%
155=F155: 155:F155; 155;F1515 1515F1511 1511F1511
N"& 2-."2
;79555175 11==148;4= 11714=;1;7 4148541915 :15=47749
T$&-. -22"&2
977:7:=91 917:998=: 158=18158 119::;8;5 858118;=:
T-(." <AA22"&2 &'%,$4"% %-&*$
R-&*$
1&7= 1&57 1&51 1&87 1&87
G%-#0 <A A22"&2 &'%,$4"% %-&*$ I,&"%#%"&-&*$,A The ratio o) total assets is =1H o) the total assets sho*s that the co(pany has been utili@in- its assets to the )ullest& It (a+es use o) its )ull assets to (a+e the best )or the pro)its& Or else these assets in the co(pany *ill be nonFper)or(in- assets *hich could brin- additional cost )or the co(pany&
4;
This ratio indicates the e))iciency *ith *hich the )ir( is utili@in- its in,est(ents in assets to -enerate re,enue& 0o*e,er since "O#I$ ltd has hu-e in,est(ent *ith respect to production o) soaps and che(icals3 it re?uires hu-e in,est(ent& =. INVENTORY TO 8OR7ING CAPITAL RATIOA The in,entory to *or+in- capital ratio (easures ho* *ell the co(pany is able to a--re-ate cash usin- *or+in- capital at its current in,entory le,el& As increasinin,entory to *or+in- capital ratio is -enerally a ne-ati,e si-n3 sho*in- the co(pany (ay be ha,in- the operational proble(s& I) it has too (uch *or+in- capital in,ested in in,entory3 they (ay ha,e di))iculty ha,in- enou-h *or+in- capital to (a+e pay(ent on shortFter( liabilities and accounts payable& I,4",&$%5 &$ 1$%F*,3 C-#*&-. %-&*$JI,4",&$%5L1$%F*,3 C-#*&-.
Y"-%
155=F5: 155:F155; 155;F1515 1515F1511 1511F1511
I,4",&$%5
144;78514 14:;1:544 14:;9:591 1:8;71881 1158:1:=5
8$%F*,3 C-#*&-.
77151;194 7474:=55= 881777597 94494;181 9=185=441
R-&*$
5&45 5&41 5&45 5&78 5&41
75
G%-#0 =A I,4",&$%5 &$ 1$%F*,3 C-#*&-. %-&*$ I,&"%#%"&-&*$,A Percenta-e (easure o) a )ir(Es capability to )inance its in,entories )ro( its a,ailable cash& Nu(bers lo*er than 155 are pre)erable as they indicate hi-h li?uidity& Nu(bers hi-her than 155 su--est that the in,entories are too lar-e in relation to the )ir(Es )inancial stren-th& The in,entory turno,er ratio had been decreased to 5&41 in the year 1511F11 the reason )or this decrease in turno,er *hich is (ainly pre,ailin- condition in the industry&
71
71
ROFITA!ILITY RATIOSA
NET PROFIT RATIOA Net pro)it ratio is co(puted by di,idin- the net pro)it Ia)ter ta2J by net sales& It is a ,ery popular pro)itability ratio that sho*s the net operatin- earnin-s& This ratio sho*s the net earnin-s Ito be distributed to both e?uity and pre)erence shareholdersJ as a percenta-e o) net sales& It (easures the o,erall e))iciency o) production3 ad(inistration3 sellin-3 )inancin-3 pricin- and ta2 (ana-e(ent& "ointly considered3 the -ross and net pro)it (ar-in ratios pro,ide an understandin- o) the cost and pro)it structure o) a )ir(& N"& #%$/*& %-&*$J N"& #%$/*&( -/&"% &-D)L2-."2M100
S.N$
155=F5: 155:F5; 155;F15 1515F11 1511F11
N"& P%$/*&
:19&1; ;9;&59 1149&=5 1=89&1; 1;91&15
S-."2
R-&*$
8&5;H 8&15H =&11H =&;=H =&;1H
19151&19 1:951&1; 1;948&5= 47891&15 4=741&1; T-(." >A N"& #%$/*& %-&*$
74
G%-#0 >A N"& #%$/*& %-&*$ I,&"%#%"&-&*$,A E,ery co(pany is able to (aintain (ore percenta-e o) net pro)it on sales due to lo* ,alue o) interest char-e in e,ery year& The table sho*s there is increase in net pro)it )ro( year to year& So the ratio o) this co(pany )ound to be ,ery satis)actory and the co(pany has been success)ul in controllin- the e2penses& It is a clear inde2 o) cost control3 (ana-erial e))iciency B sales pro(otion&
77
o,er the direct cost3 ho* producti,e the concern 3 ho* (uch a(ount is le)t to (eet other e2penses B earn net pro)it& G%$22 #%$/*& %-&*$J G%$22 #%$/*&L,"& 2-."2M100
S.N$
155=F5: 155:F5; 155;F15 1515F11 1511F11
G%$22 P%$/*&
1=&=; 15&:5 4=&=4 4=&;4 41&59
N"& S-."2
R-&*$
8&9: 15&=1 11&81 ;&;1 =&;4
I,&"%#%"&-&*$,A
78
The table sho*s that -ross pro)it is )luctuatin- in e,ery year due to chan-e in the sales and chan-e in the -ross pro)it& The ratio is hi-h in 1511 and it a-ain -ot decreased in 1511 due to chan-e in the -ross pro)it (ar-in because o) chan-es in (ar+et and hea,y co(petition&
RETURN ON INVESTMENTA
This is also called as o,erall pro)itability ratio and percenta-e o) returns on total capital e(ployed in the business& ROI (easure the pro)it3 *hich a )ir( earns on in,estin- a unit o) capital& It is desirable to ascertain this periodically the pro)it bein- the result o) the operation& It also e2plains all e))iciencies o) a business collecti,ely thus& It is a dependable (easure )or jud-in- the o,erall e))iciency o) the co(pany& R"&'%, $, *,4"2&)",& %-&*$ J (,"& #%$/*& -/&"% *,&"%"2& &-D L &$&-. ,"& -22"&2) D 100 Y"-% 2007-08 2008-09 2009-10 2010-11 2011-12 EAT :&9= ;&9; 11&4= 1;&74 11&85 N"& -22"&2 :8&:1 ;7&=7 119&17 19:&1: 18=&88 R"&'%, $, *,4"2&)",& (N) 15&15 15&11 1:&7 11&87 =&;4
I,&"%#%"&-&*$,A
It -i,es the relation bet*een net pro)it and total assets& The table sho*s an decreasin- ratio )ro( last 1 year to study period *hich results in less return on in,ested capital& ROI (easure the pro)it3 *hich a )ir( earns on in,estin- a unit o) capital& It is desirable to ascertain this periodically the pro)it bein- the result o) the operation& It also e2plains all e))iciencies o) a business collecti,ely thus& It is a dependable (easure )or jud-in- the o,erall e))iciency o) the co(pany&
Y"-%
NPAIT
S0-%"0$.+"%O2 "K'*&5
I,&"%#%"&-&*$,A
%ecreasin- in,entory turno,er translates into less sales nu(bers3 *hich can result in lo* total re,enues& Assu(in- costs re(ain the sa(e or increase3 hi-her re,enues ulti(ately decrease net inco(e3 *hich results in )all do*n o) ROE& A lo*er ROE nu(ber is al*ays less desirable&
7:
The in,entory (ethod a co(pany uses a))ects its costs o) -oods sold3 or #O S3 *hich has an i(pact on its pro)itability ratios& The )or(ula )or #O S is be-innin- in,entory plus purchases less endin- in,entory& A co(pany usin- !I!O to ,alue its in,entory reports lo*er #O S3 *hich increases its -ross pro)it (ar-in Isales less #O SJ and its net inco(e all else bein- e?ual& 0i-her net inco(e (eans hi-her pro)it (ar-in& A co(pany usin- $I!O reports hi-her #O S3 translatin- into lo*er -ross pro)it3 net inco(e and pro)it (ar-ins& This (eans earnin-s per share Inet inco(e di,ided by e?uity shares outstandin-J is hi-her usin!I!O all else bein- e?ual& A -ood rule o) thu(b is that i) in,entory turno,er ratio (ultiply by -ross pro)it (ar-in Iin percenta-eJ is 155 percent or hi-her3 then the a,era-e in,entory is not too hi-h& Accordin- to this rule by (ultiplyin- turno,er ratio and -ross pro)it ratio o) "O#I$ $td in the year 1515F11 the percenta-e is 117&89H this sho*s that the co(pany a,era-e in,entory is not too hi-h& 6ut in the year 1511F11 the percenta-e is the percenta-e is :9&;1H this sho*s that the co(pany a,era-e in,entory is so(e*hat hi-h *hen co(pared to be)ore year so "O#I$ should (aintain the in,entory as per the re?uire(ent& %ecreasin- in,entory turno,er translates into less sales nu(bers3 *hich can result in lo* total re,enues& Assu(in- costs re(ain the sa(e or increase3 hi-her re,enues ulti(ately decrease net inco(e3 *hich results in )all do*n o) ROE& A lo*er ROE nu(ber is al*ays less desirable& The ROI also results the sa(e it -ot decreased )ro( last 1 years *hich -i,es less return on in,est(ents )or the co(pany&
7;
85
81
T-(." 11A O#"%-&*,3 C5C." Y"-% 200708 200809 200910 201011 201112 R"C"*4-(."2 228771563 355316081 438561908 500071735 555178532 S-."2 #"% +-5 5866792.312 8863100.329 11329792.12 11784864.5 12423659.68 T-(." 12A D"(&$%2 C$,4"%2*$, #"%*$+ D"(&$%2 C$,4"%2*$, P"%*$+ 38.99431765 40.08936691 38.70873386 42.43338859 44.68719735
T-(." 1;A I,4",&$%5 C$,4"%2*$, #"%*$+ Y"-% 2007-08 2008-09 P-5-(."2 107456953 109907275 C$2& $/ 3$$+2 2$.+ 1661425560 2553416692 81 C%"+*&$%2 P-5-(." #"%*$+ 23.60730976 15.7107751
84
the pro)itability o) the co(pany decreased& So the co(pany should e,aluate the cash in)lo*s and out)lo*s be)ore shorta-e o) the cash raises&
87
cost and i) the in,entory le,el is too hi-h it *ill be unnecessary tie up o) capital& An e))icient in,entory (ana-e(ent re?uires that a )ir( should (aintain an opti(u( le,el o) in,entory *here in,entory costs are the (ini(u( and at the sa(e ti(e there is no stoc+ out *hich (ay result in loss or sale or stora-e o) production& M*,*)') 2&$CF ."4".A It represents the ?uantity belo* its stoc+ o) any ite( should not be allo*ed to )all& $ead ti(eG a purchasin- )ir( re?uires so(eti(e to process the order and ti(e is also re?uired by the supplyin- )ir( to e2ecute the order& The ti(e in processin- the order and then e2ecutin- it is +no* as lead ti(e& R-&" $/ C$,2')#&*$,A It is the a,era-e consu(ption o) (aterials in the )actory& The rate o) consu(ption *ill be decided on the basis o) past e2perience and production plans& Nature o) (aterialsG the (ature o) (aterials also a))ects the (ini(u( le,el& I) a (aterial is re?uired only a-ainst the special orders o) the custo(er then (ini(u( stoc+ *ill not be re?uired )or such (aterial& Mini(u( stoc+ le,el can be calculated *ith the help o) )ollo*in)or(ula& M*,*)') 2&$CF ."4".J ReForderin- le,elFINor(al consu(ption 2 Nor(al reForder periodJ
R" $%+"%*,3 L"4".A Dhen the ?uantity o) (aterials reaches at a certain )i-ure the )resh order is sent to -et (aterials a-ainG the order is sent be)ore the (aterials reach (ini(u( stoc+ le,el& ReF orderin- le,el *2 )i2ed bet*een (ini(u( le,el (a2i(u( le,els& M-D*)') ."4".A It is the ?uantity o) (aterials beyond *hich a )ir( should not e2ceeds its stoc+s& I) the ?uantity e2ceeds (a2i(u( le,el li(it then it *ill be o,erFstoc+in-& O,erstoc+in- *ill (ean bloc+in- o) (ore *or+in- capital3 (ore space )or storin- the (aterials3 (ore *asta-e o) (aterials and (ore chances o) losses )ro( obsolescence& M-D*)') 2&$CF ."4". J%"$%+"%*,3 ."4". O %"$%+"% K'-,&*&5 I (M-D*)') C$,2')#&*$, D M*,*)') %"$%+"% #"%*$+)
89
D-,3"% 2&$CF ."4".A It is )i2ed belo* (ini(u( stoc+ le,el& The dan-er stoc+ le,el indicates e(er-ences o) stoc+ position and ur-ency o) obtainin- )resh supply at any cost& D-,3"% 2&$CF ."4". P -4"%-3" %-&" $/ C$,2')#&*$, D ")"%3",C5 +".*4"%5 &*)" A4"%-3" 2&$CF ."4".A This stoc+ le,el indicates the a,era-e stoc+ held by the concern& A,era-e stoc+ le,el P Mini(u( stoc+ le,el P 2 order3 ?uantity D"&"%)*,-&*$, $/ 2-/"&5 2&$CF2A Sa)ety stoc+ is a bu))er to (eet so(e unanticipated increase in usa-e& The de(and )or (aterials (ay )luctuate and deli,ery o) in,entory (ay also be delayed and in such a situation the )ir( can be )ace a proble( o) stoc+ out& In order to protect a-ainst the static out arisin- out o) usa-e )luctuations3 )ir(s usually (aintain so(e (ar-in o) sa)ety stoc+s& T*o costs are in,ol,ed in the deter(ination o) this stoc+ that is opportunity cost o) stoc+ outs and the carryin- costs& I) a )ir( (aintains lo* le,el o) sa)ety )re?uent stoc+ outs *ill occur resultininto the lar-er ?uantity o) sa)ety stoc+s in,ol,es carryin- costs&
8=
O%+"%*,3 C$2&A It is the cost o) placin- orders )or the purchase o) (aterials& EO< can be calculated *ith the help o) the )ollo*in- )or(ula& EO< Q1 #O.I Dhere #P consu(ption o) the (aterial in units durin- the year OP orderin- cost IP carryin- cost or interest pay(ent on the capital&
C$2& $/ 3$$+2 2$.+ I,4",&$%5 &'%,$4"% %-&*$ J A4"%-3" *,4",&$%5 -& C$2&
8:
(OR) N"& S-."2 J A4"%-3" I,4",&$%5 D-52 *, - 5"-% A,+6 I,4",&$%5 C$,4"%2*$, #"%*$+ J I,4",&$%5 &'%,$4"% %-&*$
8;
2.,$
,-)" $/ ',*&2
*, N*/ &$&-.
C')'.-&*4"
',*&
C-&"3$%5
41;1 8 4495 ;
15=4991 1;89151 7
Pitch
17 5&8=
;;&78
Industria l o2y-en
:55
41&= 1
155
=&5=
898=
5&51
;;&78 S#A
others Total
F 1779 F 155
457;91 8871817 1
5&88 155
155
95
G%-#0 12A N?'-,&*&5 $/ *,4",&$%5 I,&"%#%"&-&*$,A There are t*o ite(s *hich co(es under cate-ory A *hich co(prises o) )atty acids 3-lycerin&These ite(s co,er 95H o) total cost and 75H o) total ,olu(e&These ite(s are to be controlled strictly and are to be )orcasted accurately& The 6 cate-ory in,entory co(prises o) t*o ite(s i&e&soap products3pitch *hich occupy about 47&;9H o) total cost and 1:&=5H ,olu(e&These ite(s re?uire only a (oderate control& There is one ite( i&e& industrial o2y-en3others consu(e under # cate-ory&This ite(s occupied 7&:4H o) total cost and 1:&9H o) total ,olu(es&$ose control is acceptable )or these ite(s&
91
A!C A,-.52*2 T"C0,*K'" O/ I,4",&$%5 M-,-3")",& A& J$C*. L&+ F$% T0" Y"-% 2009 10A S.,$ N-)" $/ U,*&2 &0" *&") *, NI/ &$&-. C')'.-&*4 " N$/ &$&-. ',*&2 U,*& C$2& T$&-. C$2& N $/ C') C-& '.-&* "3 $% 5
K'-,&*& ',*&2 5
&$&- 4"N . $/
C$2& &$&-. 1 !atty acids 1 4 7 -lycerin Soap product Industrial o2y-en S#A 8 Others Total F F F F 4:41711 9;=:9147 8&7; 155 155 179&5; 48&79 =51&189 1;&41 1971 78&15 48&7: 87&: 155 19;91&:= 4;4::95 41=7=5&= 11;95:5: 9&:: 11451 8&97 91&8: 41&; ;7&81 S6A 5&54 ;7&81 1171&75 41&79 41&79 471=9&;8 4;574=88 C$2& 88&; 88&;7 SAA
4945&97 155
T-(." 1= A A!C A,-.52*2 /$% &0" 5"-% 2009 10
91
I,&"%#%"&-&*$,2A 94
There are t*o ite(s *hich co(es under cate-ory A *hich co(prises o) )atty acids3 -lycerin& These ite(s co,er 91H o) total cost and 44&7:H o) total ,olu(e&These ite(s are to be controlled strictly and are to be )orecasted accurately&
The 6 cate-ory in,entory co(prises o) t*o ite(s i&e& Soap products pitch *hich occupy about 41&;5H o) total cost and 1;&41H,olu(e&These ite(s re?uire only a (oderate control&
There is one ite( i&e& industrial o2y-en 3others *hich co(es under # cate-ory&This ite( occupied 8&81H o) total cost and 78&15H o) total ,olu(e&$ose control is acceptable )or these ite(s&
A!C A,-.52*2 T"C0,*K'" O/ I,4",&$%5 M-,-3")",& A& JOCIL L&+ F$% T0" Y"-% 2010 11A
97
S., $
N-)" *&")
U,*& C$2&
C')'.-&
C-&"3$
*4" N $/ %5 &$&-.
$/ &$&-.
',*& ',*&2 1 !atty acids 11=7&=1 8 -lycerin 1 4 Soap product ==&4;8 9=1&194 81&99 4&57 19&1 =:&=: 1 S6A 7 8 Toilet soap Industrial o2y-en 99&7;7 7=; 1&8: :1&49 1:&9 155 7 S#A 9 Others Total F 49:9&97 9
T-(." 1>A A!C A,-.52*2 /$% &0" 5"-% 2010 11 98
2 7;&9 7;&91 1
71:4:&==
84441;47
8=&;7
8=&;7
19=8;&17 4;715
15=1541 1978=179
1&17 1:&=7
95&1: ::&;1
:9141&=; 9&:7
8=44:;= 41=:
9&11 5&54
;8&17 ;8&1=
F F 155
777;9:7 88718171
7&:4 155
155
I,&"%#%"&-&*$,G 99
There are t*o ite(s *hich co(es under cate-ory A *hich co(prises o) )atty acids3 -lycerin these ite(s co,er 95&1:H o) total cost and 71H o) total ,olu(e& These ite(s are to be controlled strictly and are to be )orecasted accurately&
The 6 cate-ory in,entory co(prises o) t*o ite(s i&e& soap products3 pitch *hich occupy about 47&;9H o) total cost and 1:&=5H ,olu(e& These ite(s re?uire only a (oderate control&
There is one ite( i&e& industrial o2y-en3 others *hich co(es under # cate-ory& This ite( occupied 7&:4H o) total cost and 1:&97H o) total ,olu(es& $ose control is acceptable )or these ite(s&
A!C A,-.52*2 T"C0,*K'" O/ I,4",&$%5 M-,-3")",& A& J$C*. L&+ F$% T0" Y"-% 2011 12. 2.,$ N-)" $/ U,*&2 *, N*/ *&") 1 !atty acids 1 lycerin 45 K'-,&*&5 &$&-. ==9 C')'.-&*4" U,*& N$/ &$&-. C$2& 4181: 1779915 8 95&18 741;8 11;:::7 =5&5: 41:81 4 7119481 4&:: 11&9 9 :;&97
&$&-. C$2& N $/ C')'.-&*4" C-&"3$%5 &$&-. C$2& =4&1 5 =9&;: SAA N$/ C$2& =4&15 &$&-.
Soap product
144
=5&5 :
9=
S6A
Pitch
4;8 ;;&8
:557
41917; 9
Industrial 9 o2y-en
9 5&77
155
;&4
Other Total
1475
451111 44797;= 1
T-(." 1@A A!C A,-.52*2 /$% &0" 5"-% 2011 12
5&;5 155
155
9:
I,&"%#%"&-&*$,A There are t*o ite(s *hich co(e under cate-ory a *hich co(prises o) )atty acids3-lycerin&These ite(s co,er =5H o) total cost and1=H o) total ,olu(e&These are to be controlled strictly and are to be )orecasted accurately& The 6 cate-ory in,entory co(prises o) t*o ite(s i&e& soap products3pitch *hich occupy about 14H o) total ,olu(e &The ite(s re?uire only a (oderate control& There is one ite( i&e& industrial o2y-en 3others *hich co(es under # cate-ory this ite( occupy =H o) total cost and 75H o) total ,olu(e&lose control is acceptable )or these ite(s&
9;
CHAPTER
F*,+*,326 S'33"2&*$,2
=5
FINDINGS
In the year turno,er ratio is -ood *hen co(pared in year 1559F5= and 1515F 11&!ro( this it has been obser,ed that the in,est(ent on ra* (aterials has been decreased )ro( 1515F11 to 1511F11& !ro( the study it has been obser,ed that the in,entory to *or+in- capital ratio *as )luctuatin- )ro( year to year& 6ut as o,erall this ratio is satis)actory& !ro( the study it has been obser,ed that the in,entory to current ratio o) "O#I$ $i(ited )luctuatin- )or the period o) 155=F11 the co(pany is (aintainin- satis)actory current ratio& Dhich is (ore than idle ratio 1G1 due to current assets are (ore than the current liabilities& !ro( this study it has been obser,ed that the ?uic+ ratio o) the co(pany (aintained (ediu( le,el li?uidity3 *hich (i-ht slo*ly decrease its pro)itability& Since the return on assets is not so bad& !ro( the study it has been obser,ed that the assets turno,er ratio o) the co(pany is increasin- due to the net sales are (ore than the net assets&
=1
SUGGESTIONS
The in,est(ent on ra* (aterial has decreased )ro( 155=F11 and there is need to i(pro,e in,est(ent on ra* (aterial )or the production. The in,entory turno,er ratio is increasin- le,el so it is su--ested that "O#I$ li(ited is to ta+e the steps so as to (aintain the opti(u( in,entory turno,er ratio& It is su--ested that the "O#I$ ltd is re?uired to ta+e necessary steps so as to (aintain the sa(e in,entory to *or+in- capital ratio satis)actory& It has been su--ested that the co(pany needs to (aintain the better le,el than the pre,ious le,el o) in,entory turno,er ratio3 *hich is increasin- sales& It has been su--ested that the co(pany needs to (aintain the sa(e le,el current ratio3 *hich is use)ul to (eet current obli-ations& It has been su--ested that the co(pany should e2a(ine the ?uic+ ratio to the bene)icial o) "O#I$ $td& It has been reco((ended that the co(pany needs to (aintain hi-h le,el o) assets turno,er ratio3 *hich increases the pro)it&
=1
CONCLUSION
Total econo(ic li)e o) a co(pany depends up on so(e )inancial aspects li+e pro)its3 e2penses3 turno,er etc&& A care)ul analysis o) these areas is ,ery (uch essential )or the success and sur,i,al o) the co(pany& !or this purpose in,entory (ana-e(ent *ith help o) techni?ues li+e A6# analysis is to be carried out& A study o) this type is ,ery (uch use)ul to any co(pany to +eep in the di))erent )inancial aspects and to ta+e (easures to i(pro,e.
In (y ,ie* the in,entory (ana-e(ent o) the co(pany is supplyin- ,ital in)or(ation about the in,entory o) the co(pany in all aspects as per the A6# analysis& The co(pany is (aintainin- opti(u( le,el o) in,entory as per the re?uire(ent and reached their -oals& O,erall in,entory (ana-e(ent in "O#I$ pro,ides to be in -ood trend&
=4
!I!ILOGRAPHY
F$% &0" #%"#-%*,3 &0" %"#$%& 1" '2"2 &0" /$..$1*,3A 1 & Annual Report o) the co(pany o) 155=F5:& 2. 8"(2*&"2A ***&jocil ltd&co( ***&-oo-le&co( ***&+ota+securities&co( ***&(oneycontrol&co( ;& !$$FA !inancial Accountin-3 4rd Edition3 P0I $earnin- P,t& $td&3 AuthorF R& Narayans*a(y3 Part III3 #hapter113 !inancial State(ent Analysis&
=7
=8