1

CHAPTER 1- INTRODUCTION

1.1 INTRODUCTION

The dictionary meaning of inventory is stock of good or list of goods.

Different authors have different opinion about the meaning of inventory. In the accounting
language it may be a finished goods only. But in case of manufacturing concern point of view
it may be raw material, work in progress and finished goods. ―Adequate inventories facilitates
production activities help to customer satisfaction by providing goods and service‖

1.1.1 Meaning of inventory

Inventory management is a science primarily about specifying the shape and percentage of
stocked goods. It is required at different locations within a facility or within many locations of
a supply network to precede the regular and planned course of production and stock of
materials.

Inventory is an important constituent of working capital in most of the industrial

undertaking. The organization must take utmost care for the proper control and management
of inventories. The ultimate aim of the inventory management is to assume adequate supply of
materials as and when required by the production department and also minimize huge amount
of funds invested in inventories.

1.1.2 Kinds of inventories

 Finished goods
Finished goods are those which are completed from the production process and also
ready for the sale.
 Work in progress
Work in progress is one of the elements of the current assets. It is the stage of
stocks in between raw materials and finished goods. Simply it is the semi finished
products.
2

 Raw material
It is the basic input into the organization for commencing the production activities.
It should be very essential for the continuous flow of production. The quality of raw
material required will be determined by the level of production function.
 Consumables and spares
Consumables and spares may be a part of the inventories. But these materials do
not directly enter into production process.

1.1.3 Inventory management of objective

1) To provide regular supply of material and also meet out the customer‘s demand.
2) To minimize the investment in inventories and also maximize profitability.
3) To employ suitable techniques to minimize losses due to wastages and damages.
4) To ensure the quality standards of the final output.
5) Enable to provide data for formulating inventory planning and control techniques.
6) Enable to minimize the cost of production and overall cost of the product.
7) To ensure continuous flow of production and also easily achieve large scale production.

1.1.4 Tools and techniques of inventory management

Effective and efficient inventory management requires an effective control system

over inventories. Inventory controls means a system which assures regular supply of raw
materials to the production process at the required time and also minimize excessive
investment in inventories. The techniques of inventory management and control.

(1) Determination of Economic Order Quantity(EOQ)

Economic order quantity refers to that size of the lot to be purchased which is economically
vible.In other words it is the quantity of material that should be purchased by the organization
at a minimum cost. Simply economic order quantity is that inventory level or quantity of
material to place an order at a point that minimize the total ordering cost and carrying cost. It
is fixed mainly after considering the two aspects.
3

A) Ordering cost. Ordering costs are those which can be incurred for placing an order and
securing the supplies.

B) Carrying cost. Carrying cost are those costs which can be incurred for holding inventories.

Formula for computation of economic order quantity.

EOQ=√ 2CO/I

EOQ=Economic Order Quantity

C=Annual dement

O=Cost of placing one order

I=Annual carrying cost per unit.

A=annual consumption

O=cost of placing an order

C=carrying cost per unit.

(2) ABC Analysis

ABC analysis is otherwise known as ‗Always Better Control‘. It is one of the

techniques used for exercising selective control over inventory items. According to this
technique a firm could not exercise the same degree of control on inventory items which are
costly as compared to those of less costly items. Under this approach the inventory item can
be classified into three parts A,B,C.Category A may include more costly items,category B
include less costly items and category C include least costly items. This approach is also
known as proportional value analysis. The inventories are classified according to their
importance and its relative value.
4

(3) VED Analysis

VED analysis is known as vital (V) essential (E) desirable (D). ABC analysis may not
be properly used for spare parts. In this respect VED analysis is generally applicable foe spare
parts. Smooth running of the concern need certain parts. In this spare parts are classified into
three categories for an important decision.

(4) Determination of stock levels

The organization has to maintain sufficient levels of inventory in order to meet out the
continuous flow of production. It may carry too much or too little of inventories seriously
affects the smooth running of the business. So the firm must give greater attention for
maintaining optimum level of inventory and not only minimize inventory cost but also
minimize the loss of sale or stoppage of production. The various stock levels are

1) Minimum level

2) Re order level

3) Maximum level

4) Danger level

(5)Determination of safety stocks:

Safety stock is a stock which is maintained by an organization in order to meet out

any of the unanticipated increase in the usage of materials. But one of the basic problem for
inventory management is to determine the level of quantity of safety stocks to be maintained
by the organization at all the times.

(6)Inventory turnover ratio:

The purpose of calculating inventory turnover ratio to find out whether inventories
have been used efficiently or not. The ultimate aim of this ratio is to minimize the investment
5

in inventories. From the outcome of this ratio the organization must know its inventory
conversion period and also find average time taken for clearing the stock.

Cost of goods sold=cost of goods sold/average inventory at cost

(or)

Cost of goods sold=net sales/average inventory

(7) Just in time (JIT)inventory system

Allthe manufacturing organization has to maintain three kinds of inventories raw

materials, work in process, and finished goods. JIT inventory system means all the inventories
are received and maintain by concern in time. Symbolically raw materials are purchased from
the supplier just in the to go into production manufacturing part are completed just in time to
be assembled for final product, and products are completed just in time to be dispatched to the
ultimate customer or consumer hands.

(8) Inventory reports

Inventory report is a statement prepared by the organization to show the latest stock
position of different items. This report should contain all the relevant information for
managerial administrative action. As and when necessary the management can take corrective
actions base upon the guidelines from the inventory report.

(9) Classification and codification

Materials in stores are classified either on the basis of their nature or on the basis of
their usage. Efficient storekeeping is essential for the effective inventory management. This is
possible only on the scientific classification and codification of various items of materials in
the organization.

1.1.5 Methods of inventory valuation

(1) First in first out method

6

(2) Last in first out method

(3) Average price method

(i) Simple average price method

(ii) Weighted average price method

(4) Base stock method

(5) Inflated price method
(6) Highest in first out method
(7) Current standard price method
(8) Replacement price method
(9) Current standard price method

1.1.6 Reason for keeping stock

There are five basic reasons for keeping an inventory

 Lead time

The time lags present in the supply chain, from supplier to user at every stage, requires
that you maintain certain amounts of inventory to use. However, in practice, inventory is to be
maintained for consumption during 'variations in lead time'. Lead time itself can be addressed
by ordering that many days in advance.

 Seasonal demand
A demand varies periodically, but producer‘s capacity is fixed. This can lead to stock
accumulation; consider for example how goods consumed only in holidays can lead to
accumulation of large stocks on the anticipation of future consumption.
 Uncertainty
Inventories are maintained as buffers to meet uncertainties in demand, supply and
movements of goods.
7

 Economic scale
Ideal condition of "one unit at a time at a place where a user needs it, when
heneeds. Principle tends to incur lots of costs in terms of logistics. So bulk buying, movement
and storing brings in economies of scale, thus inventory.
 Appreciation in Value

In some situations, some stock gains the required value when it is kept for some time
to allow it reach the desired standard for consumption, or for production. For example;
beer in the brewing industry.
8

1.2 OBJECTIVE OF THE STUDY

Primary Objective:

To study the Inventory management at Roots Industries India

Secondary Objective:

1. To study the tools and techniques of inventory management adopted at Roots

industries India Ltd.
2. To study the inventory control measures in inventory management.
3. To study the demand forecast of inventory management at Roots industries India Ltd.
4. To study how ABC analysis and aging schedule is implemented in inventory management.
5. To determine the stock level in inventory management at Roots industries India Ltd.
6. To identify problems related to inventory management and to find out suitable measures to
overcome them.
7. To study the methods of valuation of inventory on Roots industries India Ltd.
8. To study the inventory management procedure.
9

1.3 SCOPE OF THE STUDY

1) This study is to find the facts and opinions of inventory management and control at Roots
industries India Ltd.
2) In accordance with the present trends it aims mainly at finding out the inventory
management procedures at Roots industries India Ltd.
3) This study gives the brief information about the inventory management of the indo Roots
industries India Ltd.
4) The study was done by using annual reports, inventory manual etc.
10

1.4 LIMITATION OF THE STUDY

1)Secondary data is used to analyze the financial analysis and comparative balance sheet
analysis.

2)The research only study about the past position of the company not the future position of
the company.

3) The research depends on there liability of the historical data.

4) The research is based on the financial implications of inventory management& doesn‘t

involve other.

5) The research study has done for the year 2016.

11

CHAPTER II- PROFILE

2.1 COMPANY PROFILE

2.1.1History of Company

Roots industries India is a leading manufacturer of horns in India and the 11th largest
horn manufacturing company in the world, Head quartered in Coimbatore, India.The founder
of the company was Mr.k.Ramasamy. It establishment in 1970 in roots industries India.
Number worker in the company was 100-500. The annual turnover of the company was 50 to
100 corers.

2.1.2 Product of Company

Roots have been a dominant player in the manufacture of Horns, Casting products,
Industrial cleaning machines, Precision products and other products like Electronic horns,
Brake Shoes, Brake pads, Halogen lamps, Relays, Melody makers, Roots parking guide
system, Piston & Rings, Flashes, etc. The company offers wide variants of electrical horns,
Halogen bulbs, Disc brake pads, Reverse sensors, Automobile batteries & clutch plates. Roots
auto products pvt ltd is the country‘s largest supplier of air horns with a sizeable market share
and a preferred supplier of air horns to auto majors like Ashok Leyland, Caterpillar, JCB and
Navistar. Letrika Roots private limited is a new JV company of Roots Industries India
Limited.
.
2.1.3 Vision of the Company
 Sustaining a lead position as a trusted solution provider to customer.
 Adding value in every way from technology to quality to customer
relation.Ensuring individual social responsibility plays a collective role in
building impactful corporate social responsibility.
 Commitment to produce and deliver quality products adhering to international
standards.
12

2.1.4 Mission of the Company

 We will provide the highest quality & product our customer.

 We will achieve a reasonable profit continues to the leader in country.
 We will give our employee the opportunities

2.1.5 Certification of the Company

Roots industries India manufacturing company in the world to getISO / TS 16949

Certification based on effective implementation of QS 9000 Certification andVDA 6.1
Certification. Other certifications like E – Certification from Europe, ISO 14001Certification,
and Q1 Certification add crowns to it.

2.1.6 Competitors of the Company

Their competitors includes Bosch, Lucas-TVS, Minda Industries, Harley &

Co, Vibrant Auto components, National Electric company, etc.,Its customers include the
massive automobile giants like Mercedes, Ford, Mitsubishi, Mahindra & Mahindra,
Toyota, Fiat, Tata Motors, Bajaj Tempo Ltd, Kinetic Honda, TVS, Leyland, etc.,

2.1.7 TPM in roots:

Roots have its strong desire in producing world quality products compete in
the global market. It has assigned a lot of R&D activities to deliver high quality and
innovative products satisfying the needs of its customers. To make it true, ROOTS has been
involved in various activities like 5S, KAIZEN, ISO, etc. And to add a few to its milestone
TPM activity has been started in ROOTS since 2005.
13

2.1.8The Divisions
Roots experimenting TPM areRPCL, RMCL, ROOTS Component Division and
ROOTS Horn Division. Now the ROOTS Industries are at KICK-OFF stage in implementing
TPM.This project involves in the implementation of TPM in Model machine –
PRESSMASTER PSPR20. Primarily 5s is the base and we found problems cannot
be clearly seenwhen the work place is unorganized. Cleaning and organizing the workplace
helps to uncover problems and making problems visible is the first step of
improvement. Next we have to be involved in TPM in analyzing the machine,
rectifying the sources of contamination .
Mechanical components
Electrical components
Electric horn
Accessories
Front cover plates, Back cover plates, Diaphragm plates
Pressing.

2.1.9 Corporate Objective

Initiate and implement long-term growth strategies that are focused on holistic
development of products, services and organisational goals Ensure all strategic initiatives
reflect positively on all stakeholders involved Identify key sectors for new growth initiatives.

2.1.10 Quality Policy

 To ensure customer delight through quality of our products, timely deliveries,

efficient client servicing, fair dealing , guaranteeing performance to the user in
term of function price competiveness and safety.

2.1.11Quality objectives

 To be a customer driven organization this is focused an innovation.

14

 To train motive and provide growth oriented environment to our employee

encourage creativity team work to achieve performance.
 To make quality the key elements of our process and follow TQM & achieve
ISO 9000 certification for our production .The activity likes a 5s, KEIZEN
followed for cleaning and organizing. It will be started in 2005.

2.1.12 Social responsibility of company

Social responsibility and the will to serve immediate communities are both values
deeply embedded in the DNA of the Roots Group. From implementing environment safety
norms to devising policies for judicious use of resources within the organization, Roots and its
team takes its commitment to betterment seriously. A pre-determined percentage of the total
group turnover has always been allocated to community development causes. Roots Care
Trust has five divisions that focus on key areas of social development: environment, medical,
education, social and spiritual.

All members of the Roots community volunteer in medical camps and take an active
role in spreading awareness of diseases and disorders. Education initiatives include providing
uniforms and study support material, addressing basic infrastructure in local schools and
construction of amenities like toilets and water tanks for the schools. Academically brilliant
students are encouraged to pursue higher education and are funded by the Trust.

Social development is focused on the adopted village of the group

Kathirnaickenpalayam. From building toilets and other sanitation facilities, members of the
group have been able to magically transform the hamlet. Roots are a powerful propagator of
road safety. In liaison with the government and traffic divisions of Coimbatore city, the group
embarked on a series of road safety signboards. Members also volunteer at traffic signals
during peak hours, to ease out traffic. Every member of the group engages in active tree
planting and awareness programmers‘ on environmental preservation.
15

2.1.13 Roots Multiclean limited

RMCL started the manufacture of mechanized cleaning equipment in the early 1990s
through a techno-financial collaboration with HakoWerke, Germany. The alliance became
one of the most successful in the Indian industry.

Today, in India Roots Multiclean is the largest manufacturer and exporter of cleaning
equipment. A state of the art manufacturing facility and a comprehensive marketing and After
Sales Service network, enabled the company to deliver optimum solutions for customer‘s
cleaning needs. Products from Roots Multiclean are built around eco friendly concepts and
comply with international quality and safety norms.

Today, Roots Multiclean has grown into a leader in the Indian cleaning equipment
manufacturing industry and has a significant market presence in the world market. Its domain
expertise spans design, development and manufacture of cleaning equipment. Strategic
alliances have strengthened its presence and broadened the scope of its product offerings.
Roots Multiclean is also the exclusive representative in India for several well known and
specialized manufacturers of cleaning equipment across the world.The company derives its
strength from an experienced talent repository, comprising experts in technology, product
design and development, research, manufacturing and marketing.
16

2.1.14 Corporate hierarchy

2.1.15 Group companies

 Roots Industries India private Ltd

The flagship company of the group is the largest manufacturer of electric horns in India
and one among the largest manufacturing companies in the world.
17

 Roots Auto Products Private Ltd

RAPPL is the country‘s largest supplier of air horns with a sizeable market share of
close to 50%.

 Roots precision products private ltd

RPP is one of the most sought after solution providers for a variety of precision
products in the country.

 Roots cast private ltd

This division of Roots caters to specialized Aluminium / Zinc pressure die casting and
has proven expertise in tool design, manufacturing, die casting, machining and surface
finishing.

 Roots Polycraft

This division was established in 1988 to manufacture precision injection moulding

components and has established itself as a trusted solutions provider to discerning customer
organizations.

2.1.16 Products
The Roots Multiclean product stable comprises of comprehensive cleaning solutions
for a wide variety of industrial, commercial and domestic cleaning requirements. In India, all
products are backed by a wide network of After Sales Service centers. Products from Roots
Multiclean are backed by critical research and design insights to suit specific Indian
conditions and reflect international styling. The Comprehensive ranges of cleaning machines
cater to a numerous industrial cleaning applications.
18

2.2 INDUSTRY PROFILE

2.2.1 History of Industry

An embryonic automotive industry emerged in India in the 1940s.Hindustan motors

was launched in 1942, long-time competitor premier in 1944, and building GM and fiat
products respectively. Mahindra &Mahindra was established by two brothers in 1945, and
began assembly of utility vehicles. Following independence in 1947, the Government of India
and the private sector launched efforts to create an automotive-component manufacturing
industry to supply to the automobile industry. In 1953, an import substitution programmer
was launched, and the import of fully built-up cars began to be restricted.

However, growth was relatively slow in the 1950s and 1960s, due to nationalization
and the which hampered the Indian private sector. After 1970, with restrictions on the import
of vehicles set, the automotive industry started to grow; but the growth was mainly driven by
tractors, commercial vehicles and scooters. Cars were still a major luxury item. In the 1970s,
price controls were finally lifted, inserting a competitive element into the automobile market.
However, by the 1980s, the automobile market was still dominated byHindustan and premier,
who sold superannuated products in fairly limited numbers. During the eighties, a few
competitors began to arrive on the scene.

In 1986, to promote the auto industry, the government established the Delhi auto expo.
The 1986 Expo was a showcase for how the Indian automotive industry was absorbing new
technologies, promoting indigenous research and development, and adapting these
technologies for the rugged conditions of India. The nine-day show was attended by then
Prime Minister Rajiv Gandhi.

2.2.2 Liberalization

Eventually multinational automakers, such as,suzukiandtoyota of Japan andhyundai of

South Korea, were allowed to invest in the Indian market, furthering the establishment of an
automotive industry in India.Maruti Suzuki was the first, and the most successful of these new
19

entries, and in part the result of government policies to promote the automotive industry
beginning in the 1980s. As India began to liberalise its automobile market in 1991, a number
of foreign firms also initiated joint ventures with existing Indian companies. The variety of
options available to the consumer began to multiply in the nineties, whereas before there had
usually only been one option in each price class. By 2000, there were 12 large automotive
companies in the Indian market, most of them offshoots of global companies.

2.3 GOVERNMENT INITIATIVES

The Government of India encourages foreign investment in the automobile sector and
allows 100 per cent FDI under the automatic route.

Some of the major initiatives taken by the Government of India are:

 The Government of India aims to make automobile manufacturing the main driver of
"Make in India" initiative, as it expects the passenger vehicles market to triple to 9.4
million units by 2026, as highlighted in the Auto Mission Plan (AMP) 2016-26.
 In the Union budget of 2015-16, the Government has announced plans to provide
credit of Rs 850,000 crore (US$127.5 billion) to farmers, which is expected to boost
sales in the tractors segment.
 The government plans to promote eco-friendly cars in the country—i.e. CNG-based
vehicles, hybrid vehicles, and electric vehicles—and also to make mandatory 5 per
cent ethanol blending in petrol.
 The government has formulated a Scheme for Faster Adoption and Manufacturing of
Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission
2020, to encourage the progressive introduction of reliable, affordable, and efficient
electric and hybrid vehicles into the country.

2.3.1The Automobile Mission Plan (AMP)

For the period 2006–2016, designed by the government is aimed at accelerating and
sustaining growth in this sector. Also, the well-established Regulatory Framework under the
20

Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to this
sector.

2.3.2 Investments

In order to keep up with the growing demand, several auto makers have started
investing heavily in various segments of the industry during the last few months. The industry
has attracted foreign direct investment (FDI) worth US$13.48 billion during the period April
2000 to June 2015, according to data released by Department of Industrial Policy and
Promotion (DIPP).

Some of the major investments and developments in the automobile sector in India are as
follows:

 Global auto maker Ford plans to manufacture in India two families of engines by
2017, a 2.2 liter diesel engine code-named Panther, and a 1.2 liter petrol engine code-
named Dragon, which are expected to power 270,000 Ford vehicles globally.
 The world‘s largest air bag suppliers AutolivInc, Takata Corp, TRW Automotive Inc
and Toyoda Gosei Co are setting up plants and increasing capacity in India.
 General Motors plans to invest US$1 billion in India by 2020, mainly to increase the
capacity at the Talegaon plant in Maharashtra from 130,000 units a year to 220,000 by
s2025.
 US-based car maker Chrysler has planned to invest Rs 3,500 corer (US$525 million)
in Maharashtra, to manufacture Jeep Grand Cherokee model.
 Mercedes Benz has decided to manufacture the GLA entry SUV in India. The
company has doubled its India assembly capacity to 20,000 units per annum.
 Germany-based luxury car maker BayerischeMotorenWerke AG‘s (BMW) local unit
has announced to procure components from seven India-based auto parts makers.
 Mahindra Two Wheelers Limited (MTWL) acquired 51 per cent shares in France-
based Peugeot Motorcycles (PMTC).
21

2.4 CHALLENGE OF INDUSTRY

The expensive, and because auto product in electric car need to be able to hold
massive amounts of charge to make the car practical for most drivers, they have to be built
using expensive materials, most of which are tough to procure. Because electric cars cost a lot
to build they also cost more than comparable gasoline cars to buy. That make consumer
reluctant to adopt them. Electric cars could be less expensive if electric car makers could
ramp up production volume and use economic of scale. But for that to happen lot of
consumers needs to buy electric car something that likely won‘t happen without price coming
down. That big manure pile created a major problem, though, in the summer when it had to be
moved to the field. Farmers in the LeSueur area had for years been tackling this problem by
hand, one ―forkful‖ at a time, loading the spreader full from the pile and trying to get a load to
the field during brief lulls in their field work. It was a summer-long effort to reduce a manure
pile! No wonder, then, the hydraulic farm tractor loader was such an attraction to farmers. It
promised a much quicker and easier method of disposing large piles of manure.

Top 10 companies in India;

TVS
Tata motors
Mahindra & Mahindra
Ashoke Leyland
Maruthi Suzuki
Toyota
Ford
Bajaj
Kinetic Honda
Bosch
22

CHAPTER III-REVIEW OFLITERATURE

3.1 THEORITCAL REVIEW

Success of any industrial undertaking depends upon the 6 m‘s

1) Money

2) Manpower

3) Machine

4) Market

5) Material

6) Management

Materials are pivotal importance not less than any other M‘s. Problems have their root
in material affects the efficiency of all men, machine, money & marketing decisions of the
firms and thus become the grave concern of management at all levels. If there were too much
of material problems like ideal funds lied up in excessive inventory storage and obsolesces
difficulties market pressure would arise. Thus the importance of inventory management is
realized. A number of studies have been done in the field of inventory management by
various researchers. Some of them are given below;

3.1.1 Bern at de William year 2008

This study tells that the main focus of inventory management is on transportation and
warehousing. The decision taken by management depend s on the traditional method of
inventory control models. The traditional method of inventory management is how much
useful in these days the author tell about it. He is also saying that the traditional method is
23

not a cost reducing, it is so much expensive. But the managing the inventory is most
important work for any manufacturing unit.

3.1.2 JonSchreibfeder 1992

He said that it is easy to turn cash into inventory, the challenge is to turn inventory
back into cash. In early 1990‘s many distributor recognize that they needed help controlling
and managing their largest asset inventory. In response to this need several companies
developed comprehensive inventory management modules and systems. These new package
include many new features designed to help distributors effectively managed warehouse
stock. But after implementing this many distributors donot feel that they have gained control
of their inventory.

3.1.3 Wolf Bagby, Managing inventory

In this study Mr. W.Bagby explains that by managing the inventory it becomes easier
for the organization to meet the profit goals, shorter the cash cycle, avoid inventory shortage,
avoid excessive carrying costs for unused inventory, and improve profitability by decreasing
cash conversion and adopt JIT system. According to this study companies need to get smart
about inventory. Boosting financial performance is another benefit that comes from better
inventory management. Infect large number of manufacturers enjoy savings and better
performance by choosing the approach of inventory reduction. For this company needs to
maximize the cash flow and profitability and this includes keeping a watchful discerning eye
on charge in supply and demand

3.1.4 Asfaque Ahmed October 12, 2004 (Article from master requirement planning)

He said that most of the manufacturing company vendors have planning and
scheduling product which assume either infinite production capacity for calculating
quantities of row material and work in progress (WIP) requirements or infinite quantities of
raw material and WIP materials for calculating production capacity. There are many
problems with this approach and how to avoid these by making sure that the product you are
24

buying indeed takes into account finite quantities of required materials aswell as finite
capacities of work centers in your manufacturing facilities.

3.1.5 D.Hoopman April 7, 2003 (Article from inventory planning and optimization)

In this article he said that inventory optimization recognize that different industry have
different inventory profiles and requirements. Research has indicated that solutions are
priced in a large range from tens of thousands of dollars to millions of dollars. In this niche
market sector price is definitely not an indicator of the quality of solution, ROI and usability
are paramount.

3.1.6 Silver, Edward A Dec22, 2002 (Article from production and inventory management)

This article considers the context of a population of items for which the assumption
underlying the EOQ derivation holds reasonably well. However as is frequently the cash in
practices there is an aggregate constraint that applies to the population as a whole. Two
common forms of constraints are: 1) The existence of budget to be allocated among the
stocks of the items and 2) A purchasing production facility having the capability to process at
most a certain number of replenishment per year. Because of the constraint the individual
replenishment quantities cannot be selected independently.
25

3.2 ANALITICAL REVIEW

3.2.1 Charles Atkinson (A study on inventory management)

In the study by Mr. Charles Atkinson, he explained the inventory management and
assessment of inventory levels. As per this study inventory management need to address two
issue Part I. How to optimize average inventory levels. Part II. How to assess (evaluate)
inventory levels. This study tells about what the manager should do and not to do, and how
much amount should be order in one placed orders. Average inventory can be calculated by
simplistic method. Average inventory = beginning inventory +end inventory.

3.2.2 Delaunay C, Sahin E, 2007.

A lots of work has been done but now if we want to go ahead we must have good visibility
upon this field of research. That is why we are focused on frame work for an exhaustive
review on the problem of supply chain management with inventory inaccuracies. The author
said that their aim in this work is also to present the most important criterion that allow a
distinction between the different type of inventory.

3.2.3 Johnson(2009)

Conducted a study on inventory management patterns on which he found that the

properties and characteristics of financial ratios have received considerable attention in recent
year with interest primarily focused on determining the predictive ability of inventory
management and related financial data. Related studies have examined the characteristics of
merged firms the differences in inventory average averages among industries whether firms
seek to adjust their inventory toward industry averages the relationship between accounting –
determined and market determined risk measures, and the influence of inventory management
on analysis judgments about impending bankruptcy. The general conclusion to emerge from
these various research efforts s that a number of inventory management have predictive and
descriptive utility when properly employed.
26

3.2.4 Lee (2008)

Conducted a study on inventory management on which he observed that financial

researchers, including those concentrating on the loding industry, use various inventory
measures for their studies. The findings of this study suggest that strategic and stock
performance risk factors better represent a lodings firm‘s inventory management than do bank
ruptcy and firm performance risk factors.

3.2.5 Mcmahon (2005)

Conducted a study on inventory management on which he found that financial

statement means little to the uninitiated. This paper, explains, in layman‘s terms, how to
understand inventory information. It covers measures of profitability. The second article will
cover measures of company liquidity and the use of inventory. It deals with measures of
liquidity, solvency and fund flows and describes how to establish standards against which a
company‘s inventory compared.

3.2.6 Schmidgall (2003)

Conducted a study on inventory management using the statement of the stock deals
which he observed that managers use many inventory turnover ratio to judge the health of
their business.With the recent requirement of the statement of the ratio by the financial
accounting standards board, manager now have a new set of the inventory.
27

CHAPTER IV- RESEARCH METHODOGY

4.1 RESEARCH DESIGN

Research design is the conceptual structure with in which the research is

conducted.Bemand Philips has described the research design as a blue print for the
collection, measurement and analysis of data.

Research methodology is the way to systematically solve the research problem.

Objective of research study is to analysis of inventory of SFP Sons and analyzing of
inventory, we determining following inventories- 1. Raw materials inventory, 2. Work in
progress inventory, 3.Packaging material inventory & 4. Finished goods inventory In this
section of inventories, we should analyze the annual investment in inventories, Valuation of
inventory after closing balance of items in inventory. In this manner, we calculate reorder
point, safety stock levels, minimum & maximum levels of inventory. Working hypothesis of
the objective is that inventories are the stock piles of goods in an organization. SFP invests
about 40% of total assets inventory should be analyzed their records.

The analysis of inventory according to their data is available in the company. The data
collection of inventory for analysis is by the direct store department. I went to the all
inventories as raw material, work in progress inventory, finished goods inventory by the
proper observation of data‘s of the company. The particular method for data collection used
direct interview with assistants and telephone interview with friends to known about annual
investment of inventories and other important data.

4.1.1 Period of study

The study was conducted in a period between January 2010 to April 2010 during which the
researcher studied the company‘s relationship with dealers and distributors and obtained their
view.
28

4.1.2 Method of data collection

In analysis of inventory of SFP, We collect the data by the different sources. We

collect the primary and secondary data.

4.1.3 Secondary data

The secondary data are those data that are already in presence for specific purpose,
we use the secondary data about inventory to look old records of the company .For the daily
information about the items are show the MRN, ledger register and daily issue slip of
materials, the purchase register and other documentary evidence used for the findings. In the
analysis of inventory, the secondary data provided is not sufficient then we collected primary
data.

4.1.4 Primary data

Primary data or fresh data are those data that are originated very first time with the
help of primary data we formulated the research objectives. Primary data are the accurate,
attainable, reliable and useful data.1. Inventory control techniques used by the company2.
Inventory systems as perpetual and periodic systems.3. Stock levels etc.4. Company‘s website
inventory management techniquesIn managing inventories, the firm‘s objective should be in
consonance with the wealth maximization principle. To achieve this, the firm should
determine the optimum level of stock.

4.1.5 Investment in inventory

To deal with the problems of inventory management effectively, it becomes necessary

to be conversant with the different techniques of inventory control. Although the concepts
involved in inventory management are production-oriented and are not strictly financial it is
important that the financial manager understand them since they have certain built-in financial
costs. The different techniques of inventory control may be summarized as follows:(1)
Inventory level Technique The main objective of stock control is to determine and maintain
29

the optimum level of stock so that there is neither shortage of any material nor unnecessary
investment in inventory. For this purpose, determination of maximum and minimum limits of
inventory and ordering level is necessary.(2) Maximum stock Limit: This represents the
quantity of inventory above which it should not be allowed to be kept. The main object of
fixing this limit is to ensure that unnecessary working capital is not blocked in stores. The
quantity is fixed keeping in view the disadvantages of overstocking.

4.1.6 Economic order quantity (eoq)

Inventory management system is to minimize investment in inventory at minimum

level to maximize profitability and to minimize carry cost of inventory. To attend these
objectives, a question arrives that how much quantity an organization should order. This given
to concept economic order quantity basic decision that must be made in any stock control
system is the determining the quantity to order since investment in inventories largely
depends upon the quantities in which the items are order for replenishment.

Formula for computation of economic order quantity.

EOQ=√ 2CO/I

EOQ=Economic Order Quantity

C=Annual demant

O=Cost of placing one order

I=Annual carrying cost per unit.

A=annual consumption

O=cost of placing an order

C=carrying cost per unit.

30

4.1.7 ABC analysis

The ABC has many terms like always better control etc. ABC analysis is a business
term used to define an inventory categories technique often used in materials
management.ABC analysis provides a mechanism for identifying items which will have a
significant impact on over all inventories.ABC analysis is inventory management technique in
which the items are classified and clubbed according to their values.The items comprising the
top 5-10vpercent of the total values of inventory are termed as Class A,Bthe next 10-15
percent classified as Class B the remaining as ClassC.

4.1.8 Ratio analysis

Term ratio is numerical relationship between. It is expressed when number is divided by

another.

4.1.9 Inventory turnover ratio

Inventory turnover ratio is also known as stock velocity ratio. It is effective to

determine the efficiency of the inventory. It shows relationship between the cost of goods sold
and average inventory.

Cost of goods sold

Inventory turnover ratio=
Average stock

Cost of goods sold means sales-Gross profit

4.1.10 Debtors turnover ratio

Debtors‘ turnover is also called account receivable ratio or Debtors‘ turnover ratio
indicates the r of times the receivable are rotated in a year in terms of sales. This ratio shows
the effiency of credit collection and credit policy.
31

Net credit sales

Debtors turnover ratio =
Average receivable

4.1.11Creditors‘ turnover ratio

Creditors‘ turnover ratio is also called as account payable or creditors‘ velocity.A

firm usually purchase raw materials services and goods on credit. Creditors‘ turnover ratio
indicates the numbers of time the payable rotate in a year . The account payable includes
sundry creditors and bills payable.

Net credit purchase

Creditors turnover ratio=
Average account payable

4.1.12 Fixed assets turnover ratio

This ratio determine efficacy of utilization of fixed assets and profitability of business
concern. Higher ratio more is the efficacy in utilization of fixed assets. A lower ratio is the
indication of under utilization of fixed assets.

Cost of sales
Fixed assets turnover ratio =
Net fixed assets

4.1.13 Current ratio

The ratio of current assets to current liability is called current ratio. Current ratio
indicates the ability of a concern to meet its current obligation as and when they are for
payment.
32

Current assets
Current ratio =
Current liabilities
4.1.14 Liquid ratio

Liquid ratio is also known as quick ratio or acid test ratio. This is calculated by
comparison of quick assets and current liabilities.

Liquid assets
Liquid ratio =
Current liabilities

4.1.15 Working capital turnover ratio

Working capital turnover ratio measures the effective utilization working capital.The
ratio measures the relationship between cost of sales and net working capital.

Cost of sales
Working capital turnover ratio =
Net working capital
33

4.2 ANALYSIS & INTERPRETATION

4.2.1 ABC Analysis

ABC analysis is otherwise known as ‗Always Better Control‘. It is one of the

techniques used for exercising selective control over inventory items. According to this
technique a firm could not exercise the same degree of control on inventory items which are
costly as compared to those of less costly items. Under this approach the inventory item can
be classified into three parts A,B,C.Category A may include more costly items, category B
include less costly items and category C include least costly items. This approach is also
known as proportional value analysis. The inventories are classified according to their
importance and its relative value.
34

Table no 4.2.1

ABC analysis for the year 2010

Item no Usage Value Cumulative Cumulative Component

(Crore) (Crore) Percentage
1 11.98 11.98 36.08 A
2 5.37 17.36 52.29 A
3 2.47 19.83 59.74 A
4 2.38 22.21 66.92 A
5 2.36 24.58 74.03 B
6 2.00 26.58 82.57 B
7 0.87 27.46 82.73 B
8 0.87 28.34 85.36 B
9 0.84 29.18 87.90 B
10 0.74 29.93 90.15 C
11 0.71 30.64 92.31 C
12 0.71 31.35 94.45 C
13 0.68 32.04 96.52 C
14 0.50 32.55 98.04 C
15 0.27 32.82 98.87 C
16 0.25 33.07 99.63 C
17 0.12 33.20 100 C
35

Table no 4.2.2

Item Product Name

CRCS sheet strips & coils
Copper wire
A CRSS (Import)
E Core stack assembly
Other
Tungsten contacts
B Nylon polymers
ABS black (Imported)
Alu-zinc alloy coated steel sheet
Terminal connectors
Rubber bush
C Codensors
Zin galv spring steel
Rods
Powder coating materials
Anabond
Aluminium Ingots

Source: Secondary data

Interpretation

ABC categorication was made for the financial 2010 . A cayegory reveals that value of the
goods consumed is high and the volume of is least in terms of percentage . The cumulative percentage
was arrived on the percentage of consumptions upto 70% it was categories ‗A‘,71-90percentage as ‗B‘
and 91-100 as ‗C‘.The total value of consumption for category was A ₨(Crores) 22.20 and B
category was ₨(Crores)6.94and C category was ₨(Crores) 3.98.
36

Chart no 4.2.1

The flowchart for the above ABC analysis is as follows:

120

100

80

A
60
B
C
40

20

0
6.27
9.67

4.74
4.16
3.89
3.45
1.97

1.79
1.61
1.42
1.29
1.25
0.46
0.42
0.22

0.01
16.89
12.12

1.9

0.1 Usage value

37

Table no 4.2.3

ABC analysis for the year 2011

Item no Usage Value Cumulative Cumulative Percentage Component

(Crore) (Crore)

1 16.59 16.59 34.34141112 A

2 8.28 24.87 51.47575956 A
3 5.43 30.30 62.71576786 A
4 3.57 33.88 70.11629017 B
5 3.19 37.08 76.73021447 B
6 2.96 40.04 82.85655118 B
7 1.26 41.31 85.48338831 B
8 1.18 42.49 87.93557331 B
9 0.95 43.45 89.91721061 B
10 0.91 44.36 91.80526959 C
11 0.86 45.22 93.5886518 C
12 0.77 46.00 95.18926358 C
13 0.71 46.71 96.66217047 C
14 0.66 47.38 98.04446945 C
15 0.32 47.70 98.72223542 C
16 0.32 48.03 99.39862906 C
17 0.29 48.32 100 C
38

Table no 4.2.4

Item Product Name

CRCS sheet strips& coils

Copper wire
A Other
E Core stack assembly
Tungsten contacts (Import)
CRSS(Import)
B ABS black(Import)
Nylon polymers
Alu-zinc alloy coated steel sheet
Condensor
Terminal connectors
C Zinc galv spring steel
Rubber bush
Rods
Powder coating materials
Anabond
Aluminium ingots

Source: Secondary data

Interpretation

ABC categorication was made for the financial 2011 . A cayegory reveals that value of the
goods consumed is high and the volume of is least in terms of percentage . The cumulative percentage
was arrived on the percentage of consumptions upto 70% it was categories ‗A‘,71-90percentage as ‗B‘
and 91-100 as ‗C‘.The total value of consumption for category was A ₨(Crores) 30.30 and B category
was ₨(Crores)13.11and C category was ₨(Crores) 4.84.
39

Chart no 4.2.2

The flowchart for the above ABC analysis is as follows:

120

100

80

60 A
B

40 C

20

0
40

Table no 4.2.5

ABC analysis for the year 2012

Item no Usage value Cumulative Cumulative percentage Component

(Crore) (Crore)
1 17.29 17.29 29.02011415 A
2 10.18 27.48 46.11748142 A
3 5.75 33.24 55.77983081 A
4 5.42 38.66 64.87838497 A
5 4.37 43.04 72.22617113 B
6 3.12 46.16 77.46892453 B
7 1.67 47.84 80.27793056 B
8 1.65 49.49 83.05241324 B
9 1.53 51.03 85.63597333 B
10 1.40 52.43 87.99166304 B
11 1.38 53.82 90.31338165 C
12 1.31 55.13 92.52203832 C
13 0.93 56.06 94.08483291 C
14 0.77 56.84 95.38548615 C
15 0.64 57.48 96.46183939 C
16 0.49 57.98 97.29655536 C
17 0.45 58.43 98.06332577 C
18 0.31 58.75 98.59739385 C
19 0.30 59.05 99.1039087 C
20 0.26 59.32 99.54631149 C
21 0.16 59.49 99.83001141 C
22 0.10 59.59 100 C
41

Table no 4.2.6

Item no Product name

CRCS sheet strips & coils
A Copper wire
Other
Tungsten contacts(Import)
E Core stack assembly
CRSS(Import)
ABS black (Import)
B
Rubber bush
Zinc galv spring steel
Nylon polymer
Terminal connectors
C Condensors
Copper sheet
Alu-zinc alloy coated steel sheet
Base casting engstorm cart
Rods
Caster swivel /lock
Powder coating materials
Anabond
Front cover
MS flat
Aluminium ingots
Source: Secondary data

Interpretation

ABC categorication was made for the financial 2012 . A cayegory reveals that value of the
goods consumed is high and the volume of is least in terms of percentage . The cumulative percentage
was arrived on the percentage of consumptions upto 70% it was categories ‗A‘,71-90percentage as ‗B‘
and 91-100 as ‗C‘.The total value of consumption for category was A ₨(Crores) 42.22 and B
category was ₨(Crores)13.86and C category was ₨(Crores) 7.21.
42

Chart no 4.2.3

The flowchart for the above ABC analysis is as follows:

120

100

80
Percentage(%)

60 A
B
40 C

20

0
5.75
5.42
4.37
3.12
1.67
1.65
1.53

1.38
1.31
0.93
0.77
0.64
0.49
0.45
0.31

0.26
0.16
17.29
10.18

0.1
1.4

0.3
Usage Value
43

Table no 4.2.7

ABC analysis for the year 2013

Usage value Cumulative Cumulative Categoriesof

Item No (₨.Crore) (₨.Crore) percentage component
1 13.91 13.91 21.98597002 A
2 10.22 24.14 38.1364447 A
3 9.52 33.67 53.18880084 A
4 4.54 38.21 60.36168504 A
5 4.01 42.22 66.70268061 A
6 3.60 45.82 72.39053623 B
7 2.39 48.22 76.17334566 B
8 2.27 50.49 79.7592708 B
9 1.95 52.44 82.84196999 B
10 1.86 54.30 85.78036276 B
11 1.79 56.09 88.60863784 B
12 1.68 57.78 91.27664312 C
13 1.46 59.25 93.59706833 C
14 1.39 60.64 95.80057529 C
15 1.28 61.92 97.82659779 C
16 0.55 62.48 98.70472832 C
17 0.36 62.85 99.28729917 C
18 0.29 63.14 99.7532974 C
19 0.13 63.28 99.96993158 C
20 0.01 63.30 100 C
44

Table no 4.2.8

Items PRODUCT NAME

CRCS Sheets strips & coils
Grill
Copper wire
A Tungsten contacts
E core stack assembly
GE component
Others
B ABS black(Import)
Alu-Zinc alloy coated steel sheet
Rubber component
GE component(Import)
CRSS(Import)
Nylon polymers
Terminal connector
Condensers
C Zinc galu spring steel
Rods
Anabond
Power coating chemicals
Aluminum ingots

Source: Secondary data

45

Interpretation

ABC categorication was made for the financial 2013 . A cayegory revials that value of the
goods consumed is high and the volume of is least in terms of percentage . The cumulative percentage
was arrived on the percentage of consumptions upto 70% it was categories ‗A‘,71-90percentage as ‗B‘
and 91-100 as ‗C‘.The total value of consumption for category was A ₨(Crores) 42.22 and B
category was ₨(Crores)13.86and C category was ₨(Crores) 7.21.

Chart no 4.2.4

The flowchart for the above ABC analysis is as follows:

120

100

80
percentage(%)

60
A
B
40
C

20

0
4.01

1.86
9.52
4.54

2.39
2.27
1.95

1.79
1.68
1.46
1.39
1.28
0.55
0.36
0.29
0.13
0.19
13.91
10.22

3.6

Usage Values
46

Table no 4.2.9

ABC analysis for the year 2014

Item Usage value Cumulative Cumulative Category of

No (₨.Crore) (₨.Crore) Percentage Component
1 15.12 15.12 23.66791414 A
2 11.66 26.78 41.91929803 A
3 8.47 35.26 55.18664903 A
4 5.68 40.94 64.07464849 A
5 3.62 44.57 69.74147893 A
6 3.50 48.07 75.2261424 B
7 3.43 51.50 80.60020768 B
8 1.81 53.32 83.43365655 B
9 1.65 54.97 86.01803387 B
10 1.50 56.47 88.37608274 B
11 1.39 57.86 90.55157877 B
12 1.37 59.24 92.69712851 C
13 1.27 60.51 94.69434192 C
14 1.21 61.73 96.60125656 C
15 1.12 62.86 98.36103004 C
16 0.44 63.30 99.05963757 C
17 0.27 63.58 99.49461554 C
18 0.25 63.84 99.89816351 C
19 0.05 63.89 99.98387347 C

20 0.01 63.90 100 C

47

Table no 4.2.10

Items PRODUCT NAME

CRCS Sheets strips & coils
Grill
Copper wire
A Tungsten contacts
Others
E Core stacks assembly
GE component
B Alu-Zinc alloy coated steel sheet
Rubber component
GE component(Import)
Condensors
Nylon polymers
CRSS(Import)
Terminal connectors
C ABC black(Import)
Zinc galu spring steel
Anabond
Rods
Power coating chemicals
Aluminum ingots

Source:Secondary data
48

Interpretation

ABC categorication was made for the financial 2014 . A category revials that value of
the goods consumed is high and the volume of is least in terms of percentage . The cumulative
percentage was arrived on the percentage of consumptions upto 70% it was categories ‗A‘,71-
90percentage as ‗B‘ and 91-100 as ‗C‘.The total value of consumption for category was A
₨(Crore)44.57 and B category was ₨(Crore)13.29 and C category was ₨(Crore)6.48.

Chart no 4.2.5

The flowchart for the above ABC analysis is follows:

120

100

80
Percentage(%)

60
A
40 B
C
20

0
1.39

1.21
8.47
5.68
3.62

3.43
1.81
1.65

1.37
1.27

1.12
0.44
0.27
0.25
0.54
15.12
11.66

3.5

1.5

0.1

Usage Value
49

Table no 4.2.11

ABC analysis for the year 2015

Item no Usage Value Cumulative Cumulative Component

(Corer) (Corer) Percentage
1 16.89 16.89 22.9 A
2 12.12 29.01 39.35 A
3 9.67 38.69 52.47 A
4 6.27 44.96 60.98 A
5 4.74 49.71 67.42 A
6 4.16 53.88 73.07 B
7 3.89 57.77 78.35 B
8 3.45 61.23 83.04 B
9 1.97 63.20 85.71 B
10 1.90 65.11 88.3 B
11 1.79 66.90 90.73 C
12 1.61 68.51 92.91 C
13 1.42 69.94 94.85 C
14 1.29 71.23 96.61 C
15 1.25 72.49 98.31 C
16 0.46 72.96 98.95 C
17 0.42 73.38 99.52 C
18 0.22 73.61 99.83 C
19 0.10 73.72 99.97 C
20 0.01 73.73 100 C
50

Table no 4.2.12

Item Product Name

CRCS Sheet strips & coils
Grill
A Copper wire
Contact points (Import)
GE Components
GRSS (Import)
E Core stack assembly
B Others
Rubber components
Alu zinc alloy coated steel sheet
GE Components(Import)
Nylon polymer
C Condensors
Terminal connectors
ABS black(Import)
Zinc galv spring steel
Rods
Anabond
Powder coating chemicals
Aluminium ingots
Source: Secondary data

Interpretation

ABC categorication was made for the financial 2015 . A cayegory reveals that value of the
goods consumed is high and the volume of is least in terms of percentage . The cumulative percentage
was arrived on the percentage of consumptions upto 70% it was categories ‗A‘,71-90percentage as ‗B‘
and 91-100 as ‗C‘.The total value of consumption for category was A ₨(Crores) 49.69 and B
category was ₨(Crores)15.37and C category was ₨(Crores) 8.57.
51

Chart no 4.2.6

The flowchart for the above ABC analysis is as follows:

120

100

80

A
60
B
C
40

20

0
6.27
9.67

4.74
4.16
3.89
3.45
1.97

1.79
1.61
1.42
1.29
1.25
0.46
0.42
0.22

0.01
16.89
12.12

1.9

0.1
Usage value
52

4.3 RATIO ANALYSIS

The ratio analysis is one of the most powerful tools of financial analysis. It is
process of establishing and interpreting various ratios. It is with help of ratio that the financial
statement can be analyzed more clearly and decisions made from such analysis.

A ratio nothing but a simple arithmetical expression of the relationship of one number
to another. It may be defined as the indicated quoticatent of two mathematical expression.

According to Wixon,Kell and Bedford, a ratio ―is an expression of the quantitative

relationship between two members‖.

4.3.1 Inventory turnover ratio

Inventory turnover ratio is also known as stock velocity ratio. It is effective to

determine the efficiency of the inventory. It shows relationship between the costs of goods
sold and average inventory.

Cost of goods sold

Inventory turnover ratio=
Average stock
53

Table 4.2.12

Cost of goods sold means sales-Gross profit

Year Cost of goods sold Average stock Inventory turnover ratio

₨(Crore) ₨(Crore)
2010 86.21 14.60 5.7
2011 11.11 14.60 7.6
2012 86.21 18.72 4.6
2013 88.41 18.71 4.72
2014 97.92 20.48 4.78
2015 88.17 22.50 3.9

Source: Secondary data

Interpretation

Inventory turnover ratio of the company is continuously decreased and increased for
5 years . 2010 was 5.7% and 2011 was 7.6% and 2012 was 4.6% and 2013 was 4.72%and for
2014 it was 4.78% and 2015 was 3.9%. From this we concludethat there is increase in the
turnover ratio year 2011.
54

Chart no 4.2.7

The flowchart for the above ratio is as follows:

7
6
Percentage(%)

5
4

3 year

2
1

0
2010 2011 2012 2013 2014 2015

Year
55

4.3.2 Debtor turnover ratio

Debtors‘ turnover is also called account receivable ratio or Debtors‘ turnover ratio
indicates the of times the receivable are rotated in a year in terms of sales. This ratio shows
the effiency of credit collection and credit policy.

Net credit sales

Debtor turnover ratio =
Average receivable

Table no 4.2.13

Table shows Debtor turnover ratio

Year Net credit sales Average receivables Debtor turnover ratio

₨(Crore) ₨(Crore)

2010 99.74 27.56 3.6

2011 130.39 40.85 3.1

2012 164.16 50.04 3.2

2013 163.97 51.53 3.1

2014 176.04 54.27 3.2

2015 195.43 56.68 3.4

Source: Secondary data

Interpretation

Debtor turnover ratio is increase 2010 when compared to five year 2010 was 3.6%
and 2011 was 3.1% and 2012 was 3.2% and 2013 was 3.18% and 2014 was 3.24% and 2015
was 3.4%.
56

Chart no 4.2.8

The flowchart for the above ratio is as follows:

3.6

3.5

3.4

3.3

3.2
Percentage(%)

year
3.1

2.9

2.8
2010 2011 2012 2013 2014 2015

Year
57

4.3.3 Creditor turnover ratio

Creditors‘ turnover ratio is also called as account payable or creditors‘ velocity.A

firm usually purchase raw materials services and goods on credit. Creditors‘ turnover ratio
indicates the numbers of time the payable rotate in a year . The account payable includes
sundry creditors and bills payable.

Net credit purchase

Creditor turnover ratio =
Average account payable

Table no 4.2.14

Table shows Creditor turnover ratio

Year Net credit purchase Average account payable Creditor turnover ratio
₨(Crore) ₨(Crore)

2010 36.42 34.95 1.0

2011 58.33 21.73 2.6
2012 67.38 21.73 3.1
2013 69.39 19.70 3.5
2014 70.41 18.80 3.7
2015 82.08 21.38 3.8

Source: Secondary data

Interpretation

Creditor turnover ratio year 2010 was 1.0% and 2011 was 2.6% and 2012 was
3.1% and 2013 year was 3.55% and 2014 was 3.75% and 2015 was 3.8 compared to the five
year ratio was increase 2015.
58

Chart no 4.2.9

The flow chart for the above ratio is as follows :

3.5

3
Percentage(%)

2.5

2
Year
1.5

0.5

0
2010 2011 2012 2013 2014 2015

Year
59

4.3.4 Working capital ratio

Working capital turnover ratio indicates the number of times the working capital is
turned over the course of the year.

Cost of sales
Working capital ratio =
Net working capitals

Working capital=Current asset-current liabilities

=75. 08 - 45. 23

Table no 4.2.15

Table shows Working capital ratio

year Cost of sales Net working capital Working capital ratio

₨(Crore) ₨(Crore)
2010 94.82 18.19 5.2
2011 138.94 19.55 7.1
2012 176.48 25.97 6.7
2013 161.47 29.85 5.4
2014 172.60 32.14 5.3
2015 194.79 38.51 5.0

Source: Secondary data

Interpretation

Working capital ratio is five of the year 2010 was 5.2% and 2011 was 7.1% and
2012 was 6.7% and 2013 was 5.4% and 2014 was 5.3% and 2015 was 5.0%.In increase ratio
was 2011. The highest ratio was 7.1 times in 2011.
60

Chart no 4.2.10

The flow charts for the above ratio is as follows:

6
Percentage(%)

2
year
0
2010
2011
2012
2013
2014
2015

Year
61

4.3.5 Fixed asset turnover ratio

Another name of the ratio is called turnover ratios because they indicate the speed
with which assets are converted or turned over in to sales .It indicates the extent to which the
investments in fixed assets contribute towards sales.

Cost of goods sold or sales

Fixed assets turnover ratio=
Net fixed assets

Table no 4.2.16

Table shows fixed asset turnover ratio

year Cost of goods sold Net fixed assets Fixed assets turnover
₨(Crore) ₨(Crore) ratio
2010 94.82 20.61 4.5
2011 138.94 25.12 5.5
2012 176.45 30.56 5.7
2013 161.47 75.08 2.1
2014 172.60 80.22 2.1
194.79 41.75
2015 4.6
Source: Secondary data

Interpretation

The ratio indicates the extent to which the investment in fixed assets contributed
towards to sales. Financial position of the company for the 2010 was 4.5% and 2011 was
5.5% and 2012 was 5.7% and 2013 was 2.15% and 2014 was 2.15% and 2015 4.6% compare
for five year for increase in 2012.
62

Chart no 4.2.11

The flow chart for the above ratio is as follows:

4
Percentage(%)

3
year
2

0
2010 2011 2012 2013 2014 2015

Year
63

4.3.6 Current ratio

The ratio of current assets to current liability is called current ratio. Current ratio
indicates the ability of a concern to meet its current obligation as and when they are for
payment.

Current assets
Current ratio =
Current liabilities

Table no 4.2.17

Table shows current ratio

year Current assets Current liabilities Current ratio

₨(Crore) ₨(Crore)

2010 53.14 34.95 1.52

2011 73.86 48.99 1.50

2012 72.83 46.86 1.55

2013 75.08 45.23 1.65

2014 80.22 48.08 1.66

2015 89.65 51.13 1.7

Source: Secondary data

Interpretation

The current ratio is 2:1 the firm current ratio indicates that the firm is in a position to
meet its obligations because the ratio is in trend. Company 2010 was 1.52% and 2011 was
1.5% and 2012 was 1.55% and 2013 was 1.65% and 2014 was 1.66% and 2015 was 1.7% it
increase for the year 2015.
64

Chart no 4.2.12

The flowchart for the above ratio is as follows:

1.7

1.65
Percentage(%)

1.6

1.55
year
1.5

1.45

1.4
2010 2011 2012 2013 2014 2015

Year
65

4.3.7 Liquid ratio

Liquid ratio is also known as quick ratio or acid test ratio. This is calculated by
comparison of quick assets and current liabilities.

Liquid assets
Liquid ratio =
Current liabilities

Table no 4.2.18

Table shows Liquid ratio

year Liquid assets Current liabilities Liquid ratio

₨(Crore) ₨(Crore)

2010 42.34 34.95 1.2

2011 55.47 48.99 1.1

2012 55.93 46.86 1.1

2013 56.36 45.23 1.24

2014 59.74 48.08 1.24

2015 65.12 51.13 1.2

Source: Secondary data

Interpretation

The standard liquate ratio 1:1 is considered to represent a satisfactory current financial
condition of the company. The company liquate ratio for 2010 was 1.2% and 2011was 1.1%
and 2012 was 1.1% and 2013 was 1.24% and 2014 was 1.24% and 2015 was 1.2% if
company was safe zone in the liquate assets ratio.
66

Chart no 4.2.13

The flowchart for the above ratio is as follows:

1.25

1.2

1.15
Percentage(%)

year
1.1

1.05

1
2010 2011 2012 2013 2014 2015

Year
67

4.3.8 Owned capital turnover ratio

The capitals turnover ratio is means for cost of sales .The company has been rotated in
the process of carrying on business. Efficient utilization of capital would lead to higher
profitability.

Cost of sales
Owned capital turnover ratio =
Shareholder‘s funds

Table no 4.2.19

Table shows owned capital turnover ratio

year Cost of sales Shareholder‘s fund Owned capital

₨(Crore) ₨(Crore) turnover ratio

2010 94.82 16.0 5.9

2011 138.94 47.64 2.9
2012 176.48 58.18 3.0
2013 161.47 66.61 2.42
2014 172.60 75.20 2.29
2015 194.79 86.32 2.25

Source: Secondary data

Interpretation

The ratio indicates the extent to which the turnover of employed contributed towards
to sales. Owned capital turnover ratio 2010 was 5.9% and 2011 was 2.9% and 2012 was 3.0%
and 2013 was 2.42% and 2014 was 2.29% and 2015 was 2.25% for increase in the 2010.
68

Chart no 4.2.14

The flowchart for the above ratio is as follows:

4
Percentage(%)

3
year
2

0
2010 2011 2012 2013 2014 2015

Year
69

4.4 Economic order quantity

Inventory management system is to minimize investment in inventory at minimum level

to maximize profitability and to minimize carry cost of inventory. To attend these objectives,
a question arrives that how much quantity an organization should order. This given to
concept economic order quantity basic decision that must be made in any stock control
system is the determining the quantity to order since investment in inventories largely
depends upon the quantities in which the items are order for replenishment.

Formula for computation of economic order quantity.

EOQ=√ 2CO/I

EOQ=Economic Order Quantity

C=Annual demand

O=Cost of placing one order

I=Annual carrying cost per unit.

A=annual consumption

O=cost of placing an order

C=carrying cost per unit.

70

Table no 4.2.20

Table shows Economic order quantity

Year EOQ(in units)

2010 49,341
2011 36,097
2012 67,896
2013 44,758
2014 39,531
2015 29,052

Source: Secondary data

Interpretation

The Economic Order Quantity for the year 2010-2015 was 49,341&36,097&67,896&
44,758 & 39,531&29,052 units respectively. At this level of units the storage & carrying cost
was optimized.
71

Chart 4.2.15

The flowchart for the above EOQ is follows:

70,000

60,000
Percentage(%)

50,000

40,000

30,000 YEAR

20,000

10,000

0
2010 2011 2012 2013 2014 2015

Year
72

CHAPTER V-CONCLUSION

5.1 FINDINGS

1. ABC categorization was made for the financial year 2010-2015.A category reveals the
value of goods consumed is high but least in item of percentage.70% it was categories
‗A‘,20% as ‗B‘, and 10% as ‗C‘.
2. From the Inventory turnover ratio it is found that the year 2015 has been sold slow as
3.9.And there is an increase in the movement of the inventories in 2010 to 2014.
3. From the Debtor turnover ratio increase & decrease by 3.6, 3.1, 3.2, 3.1, 3.2, 3.4 from
the year of 2010 to 2015 respectively.
4. From the Creditor turnover ratio has been gradually increasing like 1.04, 2.6, 3.1, 3.5,
3.7, and 3.8 in the years 2010, 2011,2012,2013,2014, 2015 respectively.
5. From the Working capital turnover ratio of the company is decreased to 5.0 in the year
2015. The increase in capital turnover ratio is favorable to the company because it
shows the efficient utilization of working capital.
6. From the Fixed asset turnover ratio is measuring the solvency of the company. This
ratio indicates the extent to which the owner cash is frozen in the form of fixed asset.
The ratio increase & decrease by 4.5, 5.5, 5.7, 2.1, 2.1, and 4.6 from the years of 2010
to 2015 respectively.
7. From the Current ratio it is found that the ratio is satisfactory because the % increase
in the current assets is less than the % increase in current liabilities during the year
2010 to 2015.The highest ratio recorded is 1.7 in the year 2015 & the lowest ratio
recorded is 1.50 in the year 2011.
8. From the Liquid ratio it is found that the ratio is satisfactory because the ratios
recorded during the standard ratio. In the year 2011, 2012 the ratio recorded is 1.1, 1.1
and the ratio recorded highest was 1.2 in the years 2010, 2013, 2014, 2015.
9. From the Capital turnover ratio it shows the ratio as in 2010, 2011, 2012,the capital
turnover ratio is 5.9,3.0, 2.9 and it decreases in 2013, 2014, 2015 in respectively.
73

10. From the Economic Order Quantity is no of unit purchased. Year 2010-2015 was
49,341&36,097&67,896& 44,758 & 39,531&29,052 units respectively. At this level
of units the storage & carrying cost was optimized.
74

5.2SUGGESTIONS

1) Economic Order Quantity for its purchasing the company can be adjusted to order
materials. This will reduce the cost & help to enhance the profit of the company.
Company is required to maintain safety stock & continuous production flow.

2) ABC analysis is A class constitutes more of higher values. There should be tight
control exercised on stock level to avoid deterioration. This is done through
maintaining low safety stock continuous check on schedules & ordered frequently in
inventories in order to avoid over investment.

3) The fixed asset turnover ratio indicates the extent to which the owner‘s cash is frozen in
the form of fixed asset. Usually the ratio standards on 0.75 or it exceeds, is
undesirable. The ratio of the company is continuously decreased from the year of 2010
to 2015 respectively. By observing 5 year it has above 0.75 ratios. The company must
important to fixed asset.

4)Inventory turnover ratio is showing increasing trend. Inventory is within proper limit or
not. It also measures how quickly inventory is sold.
75

5.3 CONCLUSION

A better inventory management will surely be helpful in solving the problems the
company is facing with respect to inventory and will pave way for reducing the huge
investment or blocking of money in inventory. From the analysis we can conclude that the
company can follow the EOQ for optimum purchase and it can maintain safety for its
components in order to avoid stock out condition & help in continuous production flow.

Inventory turnover ratio shows the increase trend there will be more demand for they
could properly implement and follow the norms & techniques of inventory management they
can enhance to profit with minimum cost.

Ratio analysis helps to know the financial position of the company and it also helps to
know the profit and loss of the company. It helps them to overcome form the loss. Ratio
analysis helps the financial statement to reflect how far the corporation is able to achieve its
objectives. And it also helps to know the past and present financial performance of the
company.
76

31.03.2014 31.03.2013
EQUITY AND LIABILITIES
Shareholder’s Funds
Share capital 1,60,00,000 1,60,00,000
Reserves and surplus 73,60,89,587 65,01,84,340

75,20,89,587 66,61,84,340

Non-Current liabilities
Long-term borrowings 6,47,29,984 9,91,66,623
Deferred tax liabilities(Net) 1,73,90,521 1,92,34,161

8,21,20,505 11,84,00,784

Current Liabilities
9,89,54,682 10,56,70,603
Short-term borrowing
18,80,31,861 19,70,99,158
Trade payable
5,67,91,163 6,16,31,925
Other current liabilities
13,70,38,183 8,79,34,870
Short-term provision
48,08,15,889 45,23,36,556
TOTAL 1,31,50,25,981
1,23,69,21,680

ASSETS
Non-current assets
Fixed assets
(1) Tangible assets 41,51,98,425
29,74,04,138
(2) Capital work-in-progress 55,57,512 7,26,32,942
Non-current investment 7,99,37,803 7,23,37,803
Long term loans and advances 1,20,41,886 4,37,10,135

51,27,35,626 48,60,85,018

Current assets
Inventories 20,48,57,362 18,71,49,230
Trade receivable 54,27,82,830 51,53,00,934
Cash and bank advances 98,43,297 74,35,580
Other current assets 3,28,70,991 3,09,20,653
1,19,35,875 1,00,30,265

80,22,90,355 75,08,36,662

TOTAL 1,31,50,25,981 1,23,69,21,680

77

Balance sheet as at 31st march, 2015

78

31.03.2015 31.03.2014
EQUITY AND LIBILITIES
Shareholder’s Funds
Share Capital
Reserves and surplus 1,60,00,000 1,60,00,000
84,72,00,697 73,60,89,587

86,32,00,697 75,20,89,587

Non-current liabilities
Long-term borrowing 3,64,88,302 6,47,29,984
Deferred tax liabilities(Net) 1,13,25,303 1,73,90,521

4,78,13,605 8,21,20,505

Current liabilities
Short-term borrowings 11,17,06,603 9,89,54,682
Trade payable 21,38,77,997 18,80,31,861
Other current liabilities 4,11,02,531 5,67,91,163
Short-term provision 14,46,75,644 13,70,38,183

51,13,62,775 48,08,15,889

TOTAL 1,42,23,77,077 1,31,50,25,981

ASSETS
Non-current assets
Fixed assets
(1) Tangible assets 40,55,34,583 41,51,98,425
(2) Capital work-in- 1,20,47,794 55,57,512
progress
Non-current investment 9,66,37,803 7,99,37,803
Long term loans and advances 1,16,42,507 1,20,41,886

52,58,62,687 51,27,35,626
Current Assets
Inventories 24,52,16,873 20,48,57,362
Trade receivable 59,08,86,869 54,27,82,830
Cash and bank balance 98,92,297 98,43,297
Short-term loans and advance 3,93,36,506 3,28,70,991
Other current assets 1,11,81,845 1,19,35,875
89,65,14,390 80,22,90,355
TOTAL 1,42,23,77,077 1,31,50,25,981
79

REFERENCE

1. I M Pandey, Financial Management, VIKAS Publication, Tenth Edition.

2. M Y Khan, P K Jain, Financial Management, TATA McGraw Hill, Fifth Edition.
3. Dr.S.N.Maheswari, Financial Management, Sultan publication, Fourteen Edition.
4. E.Gnanasekaran, Accounting and Financial Management, A.R.S publication, Third
Edition.
5. M.Wilson, Accounting For Management, SCITECH Publication, Second Edition.

WEB REFERENCE

 http://www.Rootsindia.com
 www.inventorymanagementreview.org/justintime/index
 www.inventorymanagementreview.org/inventory_control/index
 www.Groupof Rootsindia.com