IIMT SHUBHRA

7/30/2019 IIMT SHUBHRA

1/59

iimt group ofcollege

2012

Project Report on

inventory managementBy- Shubhra Sharma

[email protected]

Jindal and steel privatelimited

B A L K U D R A , P A T R A T U , R A M G R A H J H A R K H A N D


2/59

n

A PROJECT ON

INVENTORY MANAGMENT

JINDAL STEEL & POWER LIMITED

(BALKUDRA, PATRATU, RAMGARH, JHARKHAND-

829143)BY

MS. SHUBHRA SHRAMAM.B.A

SESSION-2011-13

Submitted in Partial fulfillment for the award of

degree of Post Graduate Programmed in

IIMT GROUP OF

COLLEGE MEERUT (UP)

IIMT GROUP OF COLLEGE

MEERUT (U.P.)250001

2


3/59

CERTIFICATE

This is to certify that the summer internship project entitled on

MANAGEMENT OF INVENTORY at Jindal Steel &

Power Limited, Patratu has been prepared by Ms. Shubhra

kumari in partial fulfillment of the requirements for the MBA in

Finance at IIMT group of college, Meerut.

The study embodies data collected, analyzed and compiled by the

researcher under the guidance of the undersigned guide of the

institute and thereby approved as indicating the proficiency of the

researcher.

Mr.Vivek Agarwal

Sr. DGM- F&A, JSPL, Patratu

3


4/59

DECLARATION

I hereby declare that the project report entitled MANAGENENT OF

INVENTORY, at Jindal Steel & Power Limited has been prepared by me

during the period 26TH OF JUNE 2012 to 5th JULY, 2012. Under the

guidance of MR. VIVEK AGARWAL (Sr. DGM- F&A, JSPL).

I also declare that the project will not be submitted to any other University

or Institute for the award of any other degree or diploma in future.

Shubhra kumari

DATE:

PLACE:

4


5/59

A c k n o w l e d g e m ent

I have to thank IIMT GROUP OF COLLEGE giving me an opportunity to

undertake my project work and for giving me knowledge in the field of

finance during my two years course.

I would like to thanks Mr. VIVEK AGARWAL, Sr. DGM- F&A - Finance for

their valuable guidance and support in completion of live project at the Jindal

steel & Power Ltd. I would express my sincere thanks to all the staff

members of Jindal Steel & Power Ltd, without their support, this project

would not have been a success.

Last but not the least I would like to thank those person whose encouragement

and ideas enriched my project.

Shubhra kumari

5


6/59

6


7/59

CONTENTS

7

s.no.

TITLE page no.

1 About JSPL 6

2 The house of JSPL 7

3 company profile 8

4 Map of JSPL location in India 10

5 Map of JSPL location in world 11

6 Group Company 12

7 Product of Company 14

8 Introduction of inventory management 18

9 Technique of inventory management 22

10 JSPL patratu plant 26

11 Production process at patratu 28

12 Inventory management at JSPL patratu 30

13 Statement of P&L 32

14 Balance sheet as at 31st mar 33

15 Analysis of profitability 34

16 Test of solvency 35

17 Activity ratio 36

18 Analysis and graphical representation of all ratio 37

19 finding and suggestion 45


8/59

8


9/59

Objective of study

This project was undertaken to analyze the inventory management, working capital

management of the company and to reduce down their problems and finding the solutions

with respect to the inventory management of the company.

The objective of the study is to provide the solutions for reducing down the duration of the

operating cycle, to analyze the working capital position of the company and the liquidity

position, finding out the problems that the company is facing in managing the inventory and

showing trend of particular ratios in future and at same suggesting them to solve their

problems.

To study the inventory management.

To see how the day-to-day operations of the company takes place.

To compare the performance of W/C for a particular year with previous years.

To assess Liquidity position, Long term solvency, operational efficiency, and

overall profitability of JSPL.

Providing suggestions to solve the problems of the company.

9


10/59

10


11/59

THE H O USE O F

J I NDALS

Late shri o.p. Jindal founding chairmain

Mr.Naveen Jindal, CMD

11


12/59

JI N D A L S T EE L & P OWER L TD

Company Profile:

Mr. O.P. Jindal promoted JSPL as Orbit Steel Private Limited(OSPL) in 1979. OSPL became a public limited company in 1998 and its

name was changed to the current JSPL (Jindal Steel & Power Limited)

Jindal Steel & Power Limited (JSPL), a O.P. Jindal Group Company, was

formed by hiving off the Raigarh and Raipur facilities of Jindal Stainless

Limited into a separate Company as part of a scheme of arrangement,

w.e.f. April 2, 1998.

12


13/59

The Company has plant at Raigarh (Chhattisgarh) for manufacture of

sponge iron with an installed capacity of 13,70,000 tons per annum, & it is

the only sponge iron producer in the country with its own raw material

source and power generation making it one of the most cost effective

producers of sponge iron in the country. Power Generation plants with

a capacity of 290 MW, Steel Melting plant with a capacity of

24,00,000 TPA with Blast Furnace of 250,000 TPA capacity

International collaboration: JSPL produces rails, H-beams, columns and

sheet piles with JFE's technical services assistance.JSPL has entered into

technical services assistance agreement with JFE (earlier known as NKK

Corporation), Japan for technology transfer to produce superior quality,

world s longest rails of 120m finished length, along with Parallel Flange

Beams, Columns and Sheet Piles for the first time in the country. This

technical collaboration shall enable production of long rails requiring far

less joints in tracks, ushering a new era in safer rail-travel and makingintroduction of fast trains in India a reality.

13


14/59

Map of JSPL Locations in India

14


15/59

Map Of JSPL Locations In World

15


16/59

Grou

p

Companies1,000 MW O. P. Jindal Super Thermal power plant at Tamnar, Chhattisgarh

Jindal petroleum

Exploration activity in process at Georgia

Jindal Petroleum Limited

As part of its diversification process, in 2008, the Group forayed into the oil and

gas sector, operating under Jindal Petroleum Limited. The organization has

acquired five oil and gas blocks in Georgia. Extensive exploration activities are

in progress across all the five blocks in Georgia. The major exploration activities

comprise: acquisition, processing and interpretation of 388 sq. km of 3D seismic

16


17/59

data by Global Geophysical Services (USA), Weinman Geosciences (USA) and

RPS Energy (UK). Based on the interpretation of data, locations for three

exploratory wells have already been finalized. Drilling of exploratory wells is

expected to commence from the third quarter of 2011-12.

jindal cement

Jindal Cement plant at Raigarh, Chhattisgarh

Jindal Cement Ltd.

JSPL has diversified its business operations and set up a slag and fly ash

cement plant at Raigarh, Chhattisgarh in order to utilise the waste from steel

making. Phase I consisted of constructing a grinding unit of 0.5 MTPA,

whereas Phase II consisted of setting up a 2 MTPA integrated cement plant.

The cement plant was envisaged to manage solid waste generated from the

power and steel sector. The utilisation of waste from the blast furnace (slag) is

being value-added by converting it into cement, commonly known as PortlandSlag Cement (PSC). The commercial production started from the 0.5 MTPA

grinding unit in 2010. It is marketing cement under the brand name of Jindal

Cement. The organisation is also making a special product --- Jindal Global

Road Stabiliser (JGRS) --- for which it is the first and the only manufacturer

in India. A pioneering product of innovation, JGRS was developed to stabilise

a wide spectrum.

17


18/59

Companys Products

Rail:

Giving impetus to the significant rail sector, JSPL has pioneered the

manufacturing of 121 metre long track rails in the Indian sub-continent.

The world s longest track rails are a testimony of JSPL s manufacturing

capabilities where continuous innovation is a practice rather than an exception.

What differentiates JSPL s 121 m long rails from others is that there is adrastic reduction in the welded joints, providing enhanced safety, cost

reduction and travel comfort. Our products are subjected to stringent quality

norms and can therefore match all international standards.

Parallel Flange Sections:

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

18


19/59

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

effective and provide design-flexibility

Plates & Coils

JSPL is equipped with India's first 'one of a kind' state- of- the -art plate mill

that produces plates and coils of 3.5 and 3 metres width, respectively, for the

first time in the private sector.

JSPL epitomizes its performance-oriented service by producing plates ranging

from 7-120mm in thickness & widths of 1500 -3500 mm and coils varying in

thickness of 7 -25 mm and widths of 1500 - 3000 mm. The products are of

premium quality, owing to its sound steel refining properties. The total

production capacity of the plant is 1 MTPA. JSPL adheres to stringent

international standards and the steel grades are manufactured under various

specifications like EN, DNV, BS, ASTM, JIS, LRS, ABS, etc

Power:

19


20/59

order to contribute significantly to India's growing need for power we started

power generation over a decade back. In the beginning it was a captive

power facility using waste heat from the rotary kiln boilers facility using

waste heat from the rotary kiln boilers and the coal rejects of the washery.

Over the years how subsidiary Jindal Power Ltd. (JPL) have come up in a

ever, Jindal Steel and Power Ltd (JSPL) and its big way and are producing

about 1400 MW power through both captive and commercial facilities.

Sponge iron:

JSPL has world's largest coal-based sponge iron manufacturing facility and

stands out as the market leader in coal-based sponge iron industry within

India. Efficient backward integration has rendered JSPL as the only sponge

iron manufacturer in the country, with its own captive raw material resourcesand power generation capacity helping the company to monitorboth price

and quality of its products.

Semi-Finished Products

JSPL has a capacity to produce about three million tonne per annum of

20


21/59

semis which are primarily used for captive use in JSPLs0.75 million tonne

per annum capacity Rail & Universal Beam Mill and 1.0 million tonne per

annum capacity Plate & Stackle Mill.

Wire rods:

In line with our corporate philosophy of continuing efforts to expand

our product range to offer a complete product basket to the customer, JSPL

now offers Wire Rods from its first unit of 6 Million Tonne Steel Plant at

Patratu, Jharkhand.

21


22/59

Inventory Management

Introduction of inventory

The dictionary meaning of inventory is stock of goods. The word inventory is

understood differently by various authors. In accounting language it may mean stock

of finished goods only.

In a manufacturing concern, it may include raw material, work in

process, and finished goods only.

Elements of inventory

Inventory includes the following things:

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

product.

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

material.

Work-in-progress: Include partly finished goods and material held between

manufacturing stages. It can also be stated that those raw material which are

22


23/59

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

work-in-process.

Consumable: consumable are products that consumers buy recurrently, i.e,

item which get used-up or discarded.

For example- consumable office supplies are such product as paper, pens, file

folders, computer disks, or ink cartridges. Not include capital goods such as

computer, fax machines.

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

class.

Store and spares: this includes those products, which are accessories to main

products produced for the purpose of sale. For example- bolt, nuts, screws,etc.

Motives of holding inventorie sThere are three main motive of holding inventories:

1) Transaction motive: every firm has to maintain some level of inventory to

meet day to day requirements of sales, production process, customer demand etc.

This motive makes the firm to keep the inventory of finished goods as well as

raw material.

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

circumstances also.

For e.g. - the fresh supply of raw material may not reach the factory due to strike

by the transporters or due to natural calamities in a particular areas.

23


24/59

3) Speculative motive: the firm may be tempted to keep some inventory in order

to capitalize an opportunity to make profit e.g. sufficient level of inventory may

help the firm to earn extra profit in case of expected shortage in the market.

Types of inventory

1.Movement inventories: movement inventories are also called transit orpipeline inventory. Transit inventories result from the need to

transport items or material from one location to another, and

from the fact that there is some transportation time involved in

getting from one location to another.

2. Buffer inventory: buffer inventories are held to protect against the

uncertainties of demand and supply. These inventory are oftenreferred to as safety stock.

3. Anticipation inventories: anticipation inventory are held for the reason that

a future demand for the product is anticipated. E.g. fans while summers are

approaching, or the pilling up of inventory stock when a strike is on the

anvil, are all example of anticipation inventory.

4. Cycle inventory: It occurs because the one or more stages in the operation are

notable to supply all the goods they produce simultaneously.

5. Decoupling inventories: the idea of decoupling inventories is to decouple

different parts of the production system. As we can observe easily, different

24


25/59

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

faster.

1. Meaning of inventory management

Inventory

management is primarily about specifying the size and placement of stocked

goods. Inventory management is required at different locations within a facility

or within multiple locations of a supply network to protect the regular and

planned course of production against the random disturbance of running out of

materials or goods.

25


26/59

Inventories consist of raw materials, stores, spares, packing materials, coal,

petroleum products, works-in-progress and finished products in stock either at

the factory or deposits.

Successful inventory management involves creating a purchasing planthat will ensure that items are available when they are needed (but that neither

too much nor too little is purchased) and keeping track of existing inventory

and its use. Two common inventory-management strategies are the just-in-

time method, where companies plan to receive items as they are needed rather

than maintaining high inventory levels, and materials requirement planning,

which schedules material deliveries based on sales forecasts.

Objective of inventory management

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

1. Operation objective: it refers to material and other parts which areavailable in sufficient quantity. It include.

i. Availability of materials: the first and foremost objective of

inventory management is to make all type of material available at all

26


27/59

times whenever they are needed by the production departments so that

the production may not be held up for want of materials.

ii. Minimising the wastage: inventory control is essential to minimize

the wastage at all levels i.e. during its storage in the godown or at

factory. normal wastage should only be permitted.

iii.Better sevice to customer: in order to meet the demand of customer, itis the responsibility of concern to produce sufficient stock of finished

goods to execute the order received. It meas flow of production should

be maintained.

iv. Control of production level: the concern may decide to increase or

decrease the production level in favourable time and the inventory may

be control accordingly.

v. Optimal level of inventory: proper control of inventories help the

managenenmt to procure material in time in order to run the plan

efficiently.

2. Financial objectives: it means that investment in inventories mustnot remain idle and minimum capital must be locked in it. It include

i. Economy in purchasing : proper inventory control brings certain

advantage and economic in purchasing in raw material, it should be

purchase in bulk quantity.

ii. Reasonable price: management should ensure the supply of raw

material at low price but without scarifying quality of it.

27


28/59

iii. Minimising cost: minimising inventory cost such as handling,ordering and carrying cost etc, is one of the main objective of

inventory management. Financial management should help

controlling the inventory cost in a way that reduces the cost per unit

of inventory. Inventory cost are the part of total cost of production

hence cost of production can also a minimised by controlling the

inventory cost.

Techniques of inventory management

Following are the techniques use for inventory management.

A. EOQ(economic order quantity): according to EOQ model, optimal

investment in inventory is one where total cost of inventory comprising

carrying and acquisition cost will be minimum.

Economic order quantity is the order quantity that minimizes

total inventory holding costs and ordering costs. It is one of the oldest

classical production scheduling models.

Formula

.

Where,

Q= optimal order quantity

S= fixed cost per order (notper unit, typically cost of ordering and shipping

and handling. This is not the cost of goods)

28


29/59

H= annual holding cost per unit (also known as carrying cost or storage cost)

(warehouse space, refrigeration, insurance, etc. usually not related to the unit

cost)

D= annual demand quantity

B. ABC (always better control): the materials are divided into a number of

categories for adopting a selective approach for material control. It is generally

seen that in manufacturing concern, a small percentage of item of itemcontribute a large percentage of value of consumption and a large percentage

of item of material contribute a small percentage of value.

Under ABC analysis, the materials are divided into three

categories i.e. A, B, and C. past experience has shown that almost 10% of the

items contributes to 70% of value consumption and this category is called A

category.

About 20% of the items contribute about 20% of valueconsumption and this is known as category B material. Category C covers

about 70% of item of materials, which contribute only 10% of value of

consumption. There may be some variation in different organisation and an

adjustment can be made in these percentages.

class No. of items % Value of Items %

A 10 70

B 20 20

C 70 10

29
http://en.wikipedia.org/wiki/Carrying_costhttp://en.wikipedia.org/wiki/Carrying_cost


30/59

C. SDE (scarce difficult easily): this uses the criterion of the availability of

item. In this analysis,

S stand forscarce item which are in short supply,

D stand fordifficult item- meaning the items that might be available in theindigenous market but cant be procure easily,

E represent easily available item, from the local markets may be.

3. VED(vital essential desirable): VED analysis classified on the basis of

production process or other services.

V stand forvital item without which the production process would come toa standstill.

E stand foressential item whose stock out would affect the efficiency of

item.

D stand for desirable items which are required but do not immediately

cause a loss of production.

30


31/59

4. HML(high medium low): this is similar to ABC analysis except that

in this analysis, the items are classified on tne basis of unit cost rather thantheir usage value.

The item are classified accordingly, as their cost per unit is,

H- high

M- medium

L- low

This type of analysis is useful for keeping control over materials

consumption at departmental level.

5. FSN(fast slow non-moving): based on consumption pattern of item, the

FSN classification calls for classification of item, as

F-fast

S-slow

N-non-moving

When analysis is carried out on the basis of rate of movement of material

in the store on the basis of consumption pattern of components, it is know

as the FSN analysis..

6. XYZ analysis: it is based on the closing inventory value of different

items.

Item whose value are high, are classed as X items.

Those with low investment in them are termed as Z item,

31


32/59

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

too low.

JSPL PATRATU PLANTJSPL PATRATU PLANT

WRM

32

WRM BRM


33/59

33


34/59

BRMBRM

WWIREIRE RRODOD MMILLILL (0.6 MTPA C(0.6 MTPA CAPACITYAPACITY)) ATAT PPATRATUATRATU

DEDICATEDDEDICATEDTOTO NNATIONATIONONON 24.04.201024.04.2010

34


35/59

PPRODUCTIONRODUCTIONPROCESSPROCESSATATPATRATUPATRATU

35

Order by

Market

departme

nt

WRM BRM

Billetplanning

Grade defining for Grade defining for

Grad

e

Mild steel

E.g.- SAE 1008,

SAE 1018,

SAE 1010

High carbon

e.g.- HC 76/80,

HC81/85,

Grad

e

Length of billet-12m

e.g. Fe 500D

TMT bar(termomechanical

Rolling at


36/59

Steps are:2. Receive order from customer by marketing department,

3. Marketing department send info to the PPC department,

36

Convert in to wire

rod or TMT bar

Inform tomarketin

Send tologistic

Dispatch

toparty


37/59

4. There is two plant i.e. WRM and BAR mill,

5. WRM produce wire rod and BAR mill produce TMT bar,

6. If order comes for wire rod than it comes under WRMdepartment and if order comes for TMT bar than itcomes under BAR mill department,

7. After receiving information billet planning is done byPCC department,

8. Under billet planning, grades are define,

9. According to grade, billet are convert into wire rod orTMT bar

10.Lastly TMT bar or wire rod as finished good dispatchedby logistic department.

Here billet is use as rawmaterial.

I n v ent o ry M a na g e ment at jspl patratu:

37


38/59

Here the inventory is categorized in to:

(1) A B C analysis

(2) X Y Z analysis

1) ABC Analysis: - Items which constitutes to 70% of total consumption (of

stores and spares) value when arranged in descending order of consumption value

will be termed as A class items. Next 20% of total consumption value will be

termed as Bclass items and the rest 10% as the Cclass items.

2) XYZ Analysis: - Items which constitute top 70% of total stock of stores

and spares holding value when arranged in descending order of stock holding will

be termed a X class items next 20% of total stock holding value is Y class

items and the rest 10% as the Z class.

Higher than necessary stock levels tie up cash and cost more in insurance,accommodation costs and interest charges.

Four basic levels will need to be established for each line/category of stock.

There are the:

a) Maximum level achieved at the point a new order of stock is

physically received;

b) Minimum level the level at point just prior to delivery of anew order

(sometimes called buffer stocks those held for short term

emergencies);

c) Reorder level point at which a new order should be placed so that

stocks will not fall below the minimum level before delivery is

received; and the

38


39/59

d) Reorder quantity or economic order quantity the quantity of stock,

which must be reordered to replenish the amount held at the point

delivery, arrives up to the maximum level.

Once these controls are implemented an efficient system of recording receipts and

issues is vital to exercise full control of inventories.

Inventory Management at JSPL patratu:

Inventory is stock of a company, which is manufacturing for sale and component

that make up the product. In managing inventories the objective of the companyis to determine an maintain optimum level of inventory investment. The

optimum level of inventory lies between two danger points of excess and

inadequate inventories.

Inventory is monitored differently for raw material, work in progress, finished

goods and spares. Monthly inventory report is sent to the finance department in

the corporate office. Obviously the inventory report is prepared at plant level.

Procurement Department gives the data of closing stock of raw materials, finishedgoods as well as the work in progress.

STATEMENTOFPROFITANDLOSS

JINDALSTEELANDPOWERLIMITED

Statement of profit & loss for the yearended 31st march 2012

In crore

Particulars for the year ended for the year ended

31st march 2012 31st march 2011

39


40/59

Revenue

Revenue from operation (gross) 14,741.81 10,460.97

Less:exise duty 1407.86 886.80

Revenue from operation(net) 13333.95 9574.17Other income 184.48 143.16

Total revenue 13518.43 9717.33

Expenses:

Cost of raw materials consumed 4529.84 2730.35

Purchase of stock in trade 452.75 176.80

Change in inventory of FG, WIP, stock in trade (379.24) (333.45)

Employee benefit expense 385.44 277.78

Finance cost 536.77 285.00

Depreciation 867.19 687.77

Other expense 4282.67 3140.14 Total expense 10675.42 6964.39

Profit before tax 2843.01 2752.94

Tax expense

Current tax 542.88 525.49

Deferred tax 189.48 163.33

732.36 688.33

Profit for the year 2110.65 2064.12

BALANCESHEETASAT 31ST MARCH,2012

40


41/59

41


42/59

A

nalysis of profitability of the year 31st

march 2012

1. Gross profit ratio =

=

= 21.03%

2. Expense ratio =

=

= 78.96%

3. Net profit ratio =

=

= 15.61%

42


43/59

43


44/59

Test of solvency of the year 2012

1. Current ratio =

=

= 0.70:1

2. Acid test ratio =

=

= 0.46:1

3. Current assets to total asset ratio =

=

= 0.27 times

44


45/59

Activity ratio for the year 2012

1. Inventory turnover ratio =

=

= 5.144 times

2. Inventory holding period =

=

= 69.984 days

3. Inventory to current asset ratio =

=

=20.33 times

45


46/59

Analysis and graphical representation of

all ratio from 2006 to2012

Snapshot of Liquidity Ratios:

Liquidity ratios

For the year ended

Basic Ratios 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar

06 07 08 09 10 11 12

Current ratio 1.24:1 1.39:1 1.23:1 1.87:1 1.19:1 1.03:1 0.70:1

Acid test ratio 1 0.80:1 0.82:1 0.76:1 1.27:1 0.85:1 0.73:1 0.46:1

C urrent R a t i o :

46

31-Mar-06 Current Assets: Current Liabilities 736.4:594.15 1.24:1



31-Mar-09 Current Assets: Current Liabilities 3060:1636.17 1.87:1





47/59

Graphical representation of above data of current ratio

A

n

al

ysis:

The current ratio is the measure of whether a company has enough short-term

assets to cover its short-term debt and is index of strength of working capital.

Anything below 1 indicates negative W/C (working capital). While anything

over 2 means that the company is not investing excess assets. A ratio of

greater than one means that the firm has more current assets then current

claims.

Current ratio of the company has increased from 1.20 in Year 2004-05 to 1.39

in Year 2006-

07. Current Ratio of the company depicts that for every Re.1 worth of current

liability there are assets worth Re.1.39. The company has sufficient liquidity as

the ratio is increasing. This year there is an increase in ratio due to almost

double inventory level in current year in comparison with previous year.

But during the year 2009 there was steep increase in the current ratio of the

47


48/59

company, not due to increase in the inventory level, but due to huge holding of

the cash which was recovered from the debtors & not invested during that year.

During last year i.e. 2012, the current ratio was found to be decreased because

of the increase in sundry debtors and decrease in current investments..

Suggestions

:

In order to increase current ratio current assets should be

increased. If we look into the detailed schedule of current assets then we

can find out that major portion of current assets is due to debtors and

inventories.

Company should make market survey and should decide first

that what should be the optimum amount of finished goods so that

major portion of it can be sold off in the market. This will help in

reducing the locking of funds or working capital in the finished goods.

A c i d Te s t R a t io :

48

31-Mar-06 Current Assets - Stocks: Current Liabilities 478.85:594.15 0.80:1



31-Mar-09 Current Assets - Stocks: Current Liabilities 2079.02: 1636.17 1.27:1





49/59

Graphical representation of above data of acid test ratio

Analysis:

Acid test ratio is a more rigorous test of liquidity than the current ratio and

when used in conjunction with it, gives a better picture of the firm sability to meet its short-term debts out of short-term assets. This ratio is

used to determine risk that is not detected by the Working Capital ratio. A

quick or liquid ratio of 1:1 is considered as satisfactory as the firm can

easily or readily meets all of its current liabilities. Here JSPL had its acid

test ratio around 0.8:1 during the year 2005-2008 which is constant from

last three years, which indicates company was not having satisfactory

financial position. But during the year 2009, the acid test ratio of the

company was highly excellent and was able to pay its current liabilities

which were followed by a decrease in the ratio. So it should be looked at

with extreme care and also implies that current assets are highly

dependent on inventory.

49


50/59

C urrent As s et t o T o t a l A ss e ts R a t io :

Graphical representation of above data

50

Current Asset to Total Asset Ratio for the JSPL

31-Mar-05 599.82 / 2319.78 = 0.25 times

31-Mar-06 736.40 / 3250.62 = 0.22 times

31-Mar-07 1403.56 / 5250.55 = 0.26 times

31-Mar-08 1698.51 / 6783.63 = 0.25 times

31-Mar-09 3060 / 8456.31 = 0.36 times31-Mar-10 4216.08 / 12279.99 = 0.34 times

31-Mar-11 4603.1 / 17742.44 = 0.25 times

31-Mar-06 9101.24/33558.31 =0.27times


51/59

51


52/59

Analysis:

If we analyse the structural health of working capital for JSPL, the

proportion of current assets to total assets has been showing decreasing trendas compared to financial year 2009 & 2010 , which shows that the company

was having certain problems with its current asset management. This was

due to increase in the application of funds in the fixed assets.

Inventory Turnover Ratio:


52

31-Mar-05 1261.61 / 196.47 = 6.42 times

31-Mar-06 2253.60 / 257.55 = 8.75 times

31-Mar-07 2590.25 / 568.65 = 4.55 times

31-Mar-08 3519.81 / 642.44 = 5.47 times

31-Mar-09 5410.75 / 980.56 = 5.51 times

31-Mar-10 7653.19 / 1209.96 = 6.32 times

31-Mar-11 7367.59 / 1328.50 = 5.54 times

31-Mar-12 13518.43/2627.71 =5.14 times


53/59

Analysis:

It measures approximately the number of times an entity is able to acquire

the inventories and convert them into sales. The higher turnover ratio is

good for the firm while A low turnover is usually a bad sign becauseproducts tend to deteriorate as they sit in a warehouse, but several aspects

of inventory holding policy have to be balanced like lead time, seasonal

fluctuations in orders, alternative use of warehouse space. Inventory

turnover has decreased in 2012, than the previous years due to increase in

inventory and decrease in sales

Inventory holding period

53


54/59


54

Inventory Holding Period for the JSPL

31 March 2005 360 / 6.42 = 56.07 days

31 March 2006 360 / 8.75 = 41.14days

31 March 2007 360 / 4.55 = 79.12days

31 March 2008 360 / 5.47 = 65.81 days31 March 2009 360 / 5.51 = 65.33 days

31 March 2010 360 / 6.32 = 56.96 days

31 March 2011 360 / 5.5 = 64.98 days

31 March 2012 360/5.14 =69.98 days


55/59

Analysis

The companys inventory holding period was found to be fluctuating up and

down during the year 2005 2007 , which is not good for the company as it was

unnecessary locking up of working capital in the inventory and it shows

inefficiency of the management. After hree year constant inventory holding

period, during last year i.e.2011,the inventory holding period has increased from

56.96 to 64.98, this shows unnecessary locking up of working capital in the

inventory and it shows inefficiency of the management

Inventory to current assets ratio


55

Inventory to Current Asset Ratio for the JSPL

31 Mar 05 196.5 / 599.82 = 0.32 times

31-Mar-06 257.55 / 736.40 = 0.34 times

31-M/ar-07 568.65 / 1403.56 = 0.40 times

31-Mar-08 642.44 / 1698.51 = 0.37 times

31-Mar-09 980.56 / 3060 = 0.32 times

31-Mar-10 1209.96 /4216.08 = 0.28 times31-Mar-11 1328.50/4603.1 = 0.28 times

31-Mar-12 3051.31/9010.24 =0.33times


56/59

Analysis:

Here, the company shows an unfavorable trend of increase in the proportion of

the inventory to current assets during the year 2005 2007, which represents

that the company was locking up the working capital unnecessarily in the

inventory. But since 2007, the ratio is showing decreasing trend which is a

good sign for the company as they are decreasing the locking up of working

capital in the inventory.

Finding & Suggestions

Findings:

The study conducted on working capital management of Jindal Steel & Power

Limited shows the evaluation of management performance in this context.

Major findings and suggestions thereon are narrated as under:

1. Current asset of the year 2009-10 is comprised of 25% of total

investment in assets of the company. As current ratio is showing a

decreasing trend year on year, which implies that current asset, are less

56


57/59

compared to current liabilities.

2. High current assets turnover ratio is more judicious and shows

efficiency of management and proper utilization of the assets.

3. Current ratio (1.03:1) and quick ratio (0.73:1) of the year 2009-10 are

lesser than that of the ideal figures i.e. ideal current ratio is 2:1 while quick

ratio is 1:1.

4. Inventory turnover ratio depict the fluctuating trend which indicates the

accumulation of inventory in turn which cause loss to the company by

way of deterioration of stock, interest loss on blockage of stock etc.

5. Debtors Turnover ratio reveals an increasing trend during the period

of study and average collection period came down from 60 to 30 days

which shows that company is having specific policy for debtors

management.

6. From regression analysis the working capital requirement for the next

year is estimated to be 515.36 Rs/Crs.

7. The operating cycle of the firm is disturbed, as it is continuously

increasing which is not good for the company.

8. The optimum need for working capital on an average basis company

roughly will require more than 455.26 Rs/Crs as its working capital

Suggestions:

Keeping in view of detailed analysis for the 4 years of study and findings

mentioned in above paragraphs, the following suggestions shall be helpful in

increasing the efficiency in working capital management.

1. In case of inventory management ABC analysis, FSN technique,

VED technique should be adopted to increase the efficiency of inventory

management. Further a inventory monitoring system should be introduced

57


58/59

to avoid holding of excess inventory.

2. It is suggested to maintain a favourable current and quick ratios which

shows a lesser than ideal figures. It can be done either through increasing

current assets or decreasing liabilities.

3. With the help of proper inventory management systems, like demand-

based management, etc. the company can reduce the need for

working capital and inventories can be financed through accounts

payable.

4. The company should try and maintain an optimum level of working

capital in order to improve upon the workings of the company.

Limitations:

1. Availability of the financial data was very limited which is not

disclosed due to sensitive nature for the company.

2. The main component of working capital is cost of capital, which is not

described in the project because of confidential nature.

3. External environment influence was not considered while doing

the theoretical standard rather than the industrial standard because of

unavailability of any such specific standard.

4. The scope of the study was limited to Jindal Steel & Power Limited.

58


59/59

IIMT SHUBHRA

Documents

Transcript of IIMT SHUBHRA