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INTRODUCTION
Capital is essential for the setting up and smooth running of any
business. The capital required for a business may be classified into:
Fixed capital
Working capital
Fixed capital:-
Capital required for acquisition of long-term assets, which are
called “Fixed assets” is termed as “fixed capital”. The amounts invested in these
assets get blocked up for a long period. Examples are land, buildings, plant,
machinery, furniture etc. These assets are purchased to facilitate production and
sale. They are not expected to be converted into cash.
Working Capital:-
Working capital may be regarded as the lifeblood of a business. Its
effective provisions can do much ensure the success of a business. Its inefficient
management can lead to not only loss of profits but also to the downfall of a
business. A study of working capital is of major importance to internal and
external analysis because of its close relationship with the current day-to-day
operations of a business. Every to create production facilities through purchase
of fixed assets, such as plants, machinery’s, land, building etc, and investment in
these assets represents that part of firm’s capital which is blocked on a permanent
or fixed basis and is called fixed capital. Funds are also needed for short-term
purposes for the purchase of raw material, payment of wages, and other day-to-
day expenses etc. These funds are known as Working Capital.
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Working Capital refers so that part of firm’s capital, which is
required for financing short-term or current assets, such as cash, marketable
securities, debtors, Inventories, bills receivables etc. These assets of this type
are relatively temporary in nature. Unfortunately there is much disagreement
among financers, accounts, economics and businessman as to the exact meaning
of the term “Working Capital”, However, Working Capital is also known as
revolving of circulating capital of short-term capital.
Components of working capital:-
There are two components of working capital. They are
Gross Working Capital.
Net Working Capital.
Gross working capital:-
Gross working capital usually referred to as working capital, represents
investment in current assets such as marketable securities, inventories, and Bills
Receivables etc. Current Assets are those assets, which are normally converted
into cash with in one year.
Examples of current assets:
Cash and bank balances
Short term loans and balances
Bill receivables
Sundry Debtors
Inventory
Prepaid Expenses
Accrued Incomes
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Net working capital :-
Net working capital represents the difference between current
assets and current liabilities. Current Liabilities are those claims of outsiders,
which are expected to mature for payment within one year and include creditors,
bills payable, bank over draft and expenses out standing. The net working capital
may be positive or negative. When current assets exceed current liabilities the
net working capital becomes positive. When current liabilities exceed current
assets, the working capital becomes negative.
Examples of Current Liabilities:
Bills payable
Sundry creditors
Accounts payable
Short-term Borrowings
Dividends payable
Statutory Liabilities accrued or Outstanding expenses
Bank over draft &Provident Fund Dues
Any other payment due with in 12 months
NET WORKING CAPITAL=CURRENT ASSETS – CURRENT LIABILITIES
The Inventory Concept
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The dictionary meaning of the word inventory is “Stock of
goods”. The term ‘Inventory’ refers to the commodities supplied to an
undertaking for the purpose of consumption in the process of manufacture or of
rendering service or for transformation into products.
To the finance executive, ‘Inventory’ can be taken as the value of
raw materials, consumables, spares, work in progress and finished goods in
which the company’s working capital funds have been invested.
Classification of Inventories
The Inventories in an Industrial concern is generally classified as
following:
Raw material Inventory - This is used in manufacturing. When the
demand arises, they are drawn from stores and processed or use value is
added during the process and finally finished product comes out.
Semi finished goods - When the material being processed, it may have to
wait between two processes, such materials are known as semi finished
goods or semi finished material or Work in process inventory.
Components - The parts used in assembly of product, are known as
components. When these components are purchased from outside, it is
known as bought out components or bought out material.
Spare parts Inventory - When manufacturing or servicing facility
breakdown, it is to be repaired. In such case, the defective or worn-out
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parts of the machine are to be replaced by new one. These new parts of the
machine are known as spares or spare parts.
Obsolete Inventory - When any facility becomes unserviceable, and it is
to be replaced by a new one, after replacing, the old machine/facility is to
disposed. Such machines, which have become useless, are termed as
obsolete inventory.
Waste, Scrap and rejects - This type of inventory occurs in
manufacturing firms or in service organizations. While processing
material, chips are produced and it is of no use for the organization and it
is to be disposed. Similarly, defective components, which cannot be
reprocessed (rejects) and materials which cannot be used in any way in the
organization (waste), all these are to be disposed. They may not be having
any use value for the organization, but they may be reprocessed by some
other organizations to produce a useful product.
Motives for holding Inventories
Economists have established three motives for holding inventories.
–
1. Transaction motive.
2. Precautionary motive.
3. Speculative motive.
Transaction motive – Firms may require holding certain amount of finished
products perpetually in stock for display or demonstration purpose. They may
also hold inventories to meet a sudden demand, thus reducing the delivery tags.
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Precautionary motive – Firms may hold inventories for fear of stock outs and
losing its goodwill. Some of the precautionary motives give rise to ‘safety stock’
to deal with uncertainty in supply and demand.
Speculative motive – A firm may also hold both raw materials and finished
products when it expects a price in future, thereby realizing a stock profit.
Inventories held for speculative motive are termed as profit-making inventory.
Of the three motives, precautionary motive requires much
attention. Besides accumulation of inventory due to the three motives mentioned
above, inventories also get accumulated because of inefficient management of
working capital. This type of inventory is called, flabby inventory.
In addition, there may be a contractual reason for holding some
inventories.
Contractual Requirements – Occasionally it may be necessary to carry a
certain level of inventory to meet a contractual agreement. Some manufacturers
require dealers to maintain a specified level of inventory in order to be the sole
representative in a particular territory.
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Inventory Management
Inventories represent a substantial amount of firm’s current assets.
Proper management of Inventory is necessary so that this investment does not
become too large, as it would result in blocking capital which could be used in
productive aspect in some where else.
Inventory Management covers efficient management of inventories
in all its aspects including Inventory planning and programming, Purchasing,
Inventory Control, receiving, ware Housing and Store keeping, Inventories
handling and Disposal of scrap.
In this context of Inventory Management the firm is faced with the
problem of meeting two conflicting needs.
1. To maintain a large size of inventory for efficient and smooth production
and sales operations.
2. To maintain a minimum investment in inventories to maximize
profitability.
The aim of Inventory management, thus, is to avoid excessive and
inadequate levels of inventories and to maintain sufficient inventory for the
smooth production and sales operations.
An effective inventory management should
1. Ensure continuous supply of materials to facilitate uninterrupted
production.
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2. Maintain sufficient stocks of raw materials in periods of short supply and
anticipate price changes.
3. Maintain sufficient finished goods inventory for smooth sales operations,
and efficient customer services.
4. Minimize the earnings cost and time.
5. Control investment in inventories and keep it at an optimum level.
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OBJECTIVES OF INVENTORY MANAGEMENT
The objectives of the inventory management are discussed under two heads:
Operating objectives.
Financial objectives.
OPERATING OBJECTIVES
The Operating objectives of Inventory management is further
divided as follows -
Availability of materials
The first and the foremost of inventory management is make all types of
materials available at all times they needed by the production departments. So
that the production may not be held up for want of materials. It is therefore
advisable to maintain the minimum quantity of all types of materials to move on
production schedule.
Minimizing the wastage
Inventory management has to minimize the wastage at all levels that is
during its storage in the go downs or at work in the factory. Normal wastage, in
other words uncontrollable wastage, should only be permitted. Any abnormal but
controllable wastage should strictly be controlled. Wastage of materials by
leakage, theft and spoilage due to rust, dust or dirt should be avoided.
Promotion of manufacturing efficiency
The manufacturing efficiency of the enterprise increases if right types of
raw material are made available to production department at the right time. It
reduces wastage & cost of production & improves the moral of workers.
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Better service to customers
In order to meet to the demand of the customers, it is the responsibility of
inventory management to produce sufficient stock of finished goods to execute
the orders received from customers.
Optimum level of inventories
Proper control of inventories helps management to procure materials in
right time in order to run the plant efficiently. Maintaining the optimum level of
inventories keeping in view the operational requirements avoids the out of stock
danger.
FINANCIAL OBJECTIVES
The Operating objectives of Inventory management is further
divided as follows -
Economy in purchasing
Proper inventory management system brings certain advantages and
economies in purchasing the raw materials. Management makes every attempt to
purchase raw materials in bulk quantity and to take advantage of favorable
market conditions.
Optimum investment and efficient use of capital
The primary objective of inventory management, from financial point of
view, is to have an optimum level of investment in inventories. Inventory
management has to setup minimum and maximum levels of inventories to avoid
deficiency or surplus stocks.
Reasonable prices
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Inventory management has to ensure the supply of raw materials at a
reasonable low price, but without sacrificing the quality. It helps to reduction of
cost of production and improvement in the quality of finished goods in order to
maximize the profits of the organization.
Minimizing the costs
Minimizing inventory costs such as handling, ordering and carrying costs
etc is one of the main objective of inventory management. It helps in reduction of
inventory costs in a way that it reduces the costs per unit of inventory and there
by reduction of total cost of production.
Inventory Systems
For an effective inventory management, an efficient inventory
system should be maintained. Thus the importance of inventory systems cannot
be neglected in the Inventory Management. The two important types of inventory
systems available are
Periodic Inventory System.
Perpetual Inventory System.
Just-In-Time Inventory System.
Periodic Inventory System
In this system the quantity and value of inventory is found out only
at the end of the accounting period after having a physical verification of the
units in hand.
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The cost of materials used or goods sold is obtained by adding the
total of inventory purchased during the period to the value of the inventory in
hand in the beginning of the period and subtracting the value of inventory at the
end of the period.
In this system the inventory level is not monitored at all during the
time interval between the orders, so it has the advantage of little or no required
record keeping. The disadvantage is less control.
Perpetual Inventory system
It is a system of tracking and knowing the value of inventory and
quantity of merchandise on hand at any time by tracking sales, returns and
receipts with information systems.
A positive feature of a perpetual system is that inventory level is
continuously monitored, so management always knows the inventory status. This
is advantageous for critical parts or raw materials and supplies. However, it can
be costly.
The perpetual inventory system consists of:
1. Bin Cards.
2. Stores ledger.
3. Continuous Stock taking.
Bin cards – Bin cards are printed cards used for accounting the stock of material,
in stores. For every item of materials, separate bin cards are kept.
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The details regarding the material such as the name of the material,
the part number, the date of receipt and issue, the reference number, the name of
the supplier, the quantity received and issued, the value of the material, the rate,
the balance quantity, etc. are recorded in the bin cards.
Stores ledger – Like bin cards, a stores ledger is maintained to record all the
receipts and issues in respect of materials with the difference that along with the
quantities, the values are entered in the receipt, issue and balance columns.
Continuous stock taking – The perpetual inventory system is not complete
without a systematic procedure for physical verification of the stores. The bin
cards and the stores ledger record the balances, but their correctness can be
verified by means of physical verification only.
Just-In-Time Inventory System
Now-a-days organizations are becoming more and more interested
in getting potential gains from making smaller and more frequent purchase
orders. In other words, they are becoming interested in just-in-time purchasing
system.
In Just-In-Time system the materials arrive exactly when they are
needed in the production process. Inventory remaining in warehouse collects dust
and cost instead of revenue. Just-In-Time system avoids this cost.
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Costs for Holding Inventory
The three important costs considered in holding inventories are
Inventory Carrying Cost (or) Stock Holding Cost.
Procurement Cost or Setup Cost.
Shortage Cost or Stock-out Cost.
Inventory Carrying Costs or Stock Holding Costs
They arise on account of maintaining the stocks and the interest
paid on the capital tied up with the stocks. They vary directly with the size of the
inventory as well as the time the item is held in stock. Various components of the
stockholding cost are:
Cost of Storage Space – This consists of rent for the space occupied by
the inventory. Besides space expenses, this will also include heating,
lighting and other atmospheric control expenses.
Depreciation and deterioration – They are especially important for
fashion items or items undergoing chemical changes during storage.
Fragile items such as crockery which are liable to damage, breakage, etc.
Pilferage Cost – It depends upon the nature of the item. Valuable items
may be more tempting, while there is hardly any possibility of heavy
casting or forging being stolen.
Obsolescence Cost – It depends upon the nature of the item in stock.
Electronic and computer components are likely to be fast outdated.
Changes in design also led to obsolescence.
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Handling cost – These include all costs associated with movement of
stock, such as cost of labour, overhead cranes, gantries and other
machinery used for this purpose.
Procurement Cost or Setup Cost
They include the fixed and variable costs associated with placing of
an order. In case of purchase models it is known as Ordering cost. In case of
manufacturing model, it is known setup cost.
To place an order certain paper work is to be done. The cost of this
paper work is taken as cost of ordering. In case of manufacturing, before starting
production, the machine is to be set up. Only on setting of machine, the material
is loaded and the production is started. The ordering cost is distributed over the
items purchased in that order. Similarly, the setup cost is distributed equally over
the products manufactured in that setup. This cost is also known as
replenishment cost.
Shortage Cost or Stock-out Cost
These costs are associated with either a delay in meeting demands
or the inability to meet it at all. Therefore, shortage costs are usually interpreted
in two ways. In case the unfilled demand can be filled at a later stage (backlog
case), these costs are proportional to quantify that is short as well as the delay
time. They represent loss of goodwill and cost of idle equipment. In case the
unfilled demand is lost (no backlog case), these costs become proportional to
only the quantity that is short. These results in cancelled orders, lost sales, profit
and even the business itself.
TECHNIQUES OF INVENTORY MANAGEMENT
The following are the techniques of the inventory management
Economic order quantity.
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ABC analysis.
VED classification.
HML Classification.
SDE Classification.
FSN Analysis.
SOS classification.
XYZ Analysis.
Golf classification.
MNG Analysis.
Economic order quantity
A firm should not place either too large or too small orders. On the
basis of a trade-off between benefits derived from the availability of inventory
and the cost of carrying that level of inventory, the appropriate or optimum level
of the order to be placed should be determined. The optimum level of inventory
is popularly referred to as the economic order quantity (EOQ). It is also known as
economic lot size.
The economic order quantity may be defined as that level of
inventory order that minimizes the total cost associated with inventory
management. i.e. it refers to the level of inventory at which the total cost of
inventory comprising acquisition/ordering/set-up costs and carrying cost is
minimal.
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EOQ = √2AO/C
A = Total annual requirement
O = Ordering cost per order
C = Convey in cost per unit
ABC analysis
Usually a firm has to maintain several types of inventories. It is not
desirable to keep same degree of control on all the items. The firm should pay
maximum attention to those items whose value is highest. The firm should
therefore classify inventories to identify which items should receive the most
effort in controlling. This classification is done by the ABC analysis.
The ABC analysis technique is based is based on the assumption
that a firm should not exercise the same degree of control on all items of
inventory. It should rather keep a more rigorous control on items that are (i) the
most costly, and/or (ii) the slowest-turning, while items that are less expensive
should be given less control effort.
On the basis of the cost involved, the various inventory items are
categorized into three classes:
i. ‘A’ category.
ii. ‘B’ category.
iii. ‘C’ category.
Category ‘A’ items -- More costly and valuable consumption
items are classified as A items. But the
A category items are very less in volume
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(Generally 20%) when compared to the
total volume of inventory.
Category ‘B’ items -- The items having average consumption
Value items are classified as B items.
But the A category items are very avg in
Volume (generally 30%) when compared
to the total volume of inventory.
Category ‘C’ items -- The items having less consumption
Value items are classified as C items. But
the C category items are very high in
Volume (generally 50%) when compared
to the total volume of inventory.
VED Classification
VED – Vital, Essential and Desirable classification is applicable
largely to spare parts. Stocking of spare parts is based on strategies different from
those of raw materials because of there consumption pattern is different. Here the
spare parts are classified in to three categories.
Vital - The spares, the stock out of which even for a
Short time will stop the production.
Essential - The spares, the absence of which cannot be
Tolerated for more than a few hours or a day.
Desirable - The desirable spares are those spares which are
needed but this absence for even a week or so will
not stop the production.
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HML Classifications
The High, medium and Low (HML) classification follows the same
procedure as is adopted in ABC classification. Only difference is that in HML,
the classification unit value is the criterion and not the annual consumption value.
The items of inventory should be listed in the descending order of unit value and
it is up to the management to fix limits for three categories. For examples, the
management may decide that all units with unit value of Rs. 2000 and above will
be ‘H’ items, Rs. 1000 to 2000 ‘M’ items and less than Rs. 1000 ‘L’ items.
The HML analysis is useful for keeping control over consumption
at departmental levels, for deciding the frequency of physical verification, and
for controlling purchases.
SDE Classification
The SDE analysis is based upon the availability of items and is
very useful in the context of scarcity of supply. In this analysis, ‘S’ refers to
‘scarce’ items, generally imported, and those which are in short supply. ‘D’
refers to difficult items which are available indigenously but are difficult items to
procure. Items which have to come from distant places or for which reliable
suppliers are difficult to come by fall into ‘D’ category. ‘E’ refers to items which
are easy to acquire and which are available in the local markets.
The SDE classification, based on problems faced in procurement, is
vital to the lead time analysis and in deciding on purchasing strategies.
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FSN Analysis
FSN stands for fast moving slow moving and non-moving. Here,
classification is based on the pattern of issues from stores and is useful in
controlling obsolescence.
To carry out an FSN analysis, the date of receipt or the last date of
issue, whichever is later, is taken to determine the number of months, which have
lapsed since the last transaction. The items are usually grouped in periods of 12
months.
FSN analysis is helpful in identifying active items which need to be
reviewed regularly and surplus items which have to be examined further. Non-
moving items may be examined further and their disposal can be considered.
SOS Classification
Raw materials, especially agricultural inputs are generally
classified by the seasonal, off-seasonal systems since the prices during the season
would generally be lower.
The seasonal items which are available only for a limited period
should be procured and stocked for meeting the needs of the full year. The prices
of the seasonal items which are available throughout the year are generally less
during the harvest season. The quantity required of such items should, therefore,
be determined after comparing the cost savings on account of lower prices, if
purchased during season, with the higher cost of carrying inventories if
purchased throughout the year.
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A Buying and stocking strategy for seasonal items depend on a
large number of factors and more and more sophistication is taken place in this
sphere and operational techniques are used to obtain optimum results.
XYZ Analysis
While the ABC analysis is based on the assumption on value, XYZ
analysis is based on the value of inventory undertaken during the closing of
annual accounts. X items are those having high value, Y items are those whose
inventory values are medium and Z items are those whose inventory values are
low.
The percentages are similar to ABC analysis. This analysis helps
find items with heavy stock.
Golf Classification
The letter stands for Government, Ordinary, Local and Foreign.
There are mainly imported items which are channelised through the State
Trading Corporation (STC) Minerals and Metals Trading Corporation, etc.
Indian Drugs and Pharmaceutical Ltd (IDPL), Mica trading corporation etc.
These are special procedures of inventory control which may not applicable to
ordinary items as they require special procedures.
MNG Analysis
The grouping of inventory items in this analysis takes place as:
M- Moving items – The items which are consumed from time to time are
normally referred to as moving items.
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N- Non moving items – These items which are not and consumed in last
one year are covered under this group.
G- Ghost items – This group refers to such items which neither have been
received nor issued during the year. The balance of such items shown in
stock registers of the organization will be nil, both at the beginning and at
the end of the previous financial year.
Advantages of Inventory Management
The advantages gained by the firm by managing the inventory
effectively are
Introduction of a proper inventory management system helps in keeping
the investment in the inventories as low as feasible.
Ensures availability of material by providing adequate protection against
uncertainties of supplies and consumption of materials.
Allows full advantage of economics of bulk purchases and transportation.
Leads to reduction in inventory levels.
Releases more of capital for other operations.
Adequate customer service.
Advantage of price discounts by bulk pricing.
Providing flexibility to allows change in production lines due to changes in
demands on any other reason.
Even out the work loads on the soaps in the face fluctuations demands.
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Causes of poor Inventory Management
There are certain instances, which leads to poor inventory
management. They are:
1. Over buying without regard to the forecast or proper estimate of demand
to take advantage of favorable market.
2. Over production or production of goods much before the customer
requires them.
3. Over stocking may also result from the desire to provide better service to
the customers. Bulk production or purchase to cut down production costs
also will result in large inventories.
4. Cancellation of orders and minimum quantity stipulations by the suppliers
may also give rise to large inventories.
Various stock levels in Inventory Management
The levels of inventory in any organization depend upon several
factors including social, political, economic, ethic, fiscal, governmental policies
at the global and national levels, which determine the demand and supply
parameters of an item. At the unit level, cost, criticality, availability, service
level, stock out, lead time, powers of delegation, consumption pattern, etc. affect
the levels.
The various stock levels fixed for effective management of
inventories are -
Minimum level.
Maximum level.
Ordering or Reordering level.
Danger level.
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These levels serve as indices for initiating action on time so that the
quantity of each item of material, i.e. the inventory holding is controlled or
managed. Stock levels are not fixed on a permanent basis but are liable to
revision in accordance with the changes in the factors determining the levels.
Minimum level – It indicates the lowest figure of inventory balance, which must
be maintained in hand at all times, so that there is no stoppage of production due
to non-availability of inventory.
The main considerations for the fixation of minimum level of
inventory are as follows:
1. Information about maximum consumption and maximum delivery period
in respect of each item to determine its reorder level.
2. Average rate of consumption for each inventory item.
3. Average delivery period for each item. This period can be calculated by
averaging the maximum and minimum period.
The formula used for its calculation is as follows:
Minimum level of Inventory = Reorder level – (Average rate
of consumption * Average time of
Inventory delivery).
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Maximum Level – It indicates the maximum figure of inventory quantity held in
stock at any time.
The important considerations which should govern the fixation of
maximum level for various inventory items are as follows:
1. The fixation of maximum level of an inventory item requires information
about its reorder level. The reorder level itself depends upon its maximum
rate of consumption and maximum delivery period. It in fact is the product
of maximum consumption of inventory item and its maximum delivery
period.
2. Knowledge about minimum consumption and minimum delivery period
for each inventory item should also be known.
3. The determination of maximum level also requires the figure of economic
order quantity.
4. Availability of funds, storage space, nature of items and their price per
unit are also important for the fixation of maximum level.
5. In the case of imported materials due to their irregular supply, the
maximum level should be high.
The formula used for its calculation is as follows:
Maximum level of Inventory = Reorder level+ Reorder quantity
(Minimum consumption *
Minimum reorder period)
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Reorder level – This level lies between minimum and maximum levels in such a
way that before the material ordered is received into the stores, there is sufficient
quantity on hand to cover both normal and abnormal consumption situations. In
other words, it is the level at which fresh order should be placed for
replenishment stock. The reorder level must be sufficient to cover the maximum
possible consumption of stock during lead time (reorder period).
It is set after consideration of the following factors.
1. Rate of consumption.
2. Minimum level.
3. Lead time, i.e. delivery time.
4. Variation in lead time.
The formula used for its calculation is as follows:
Reorder level = Maximum reorder period * Maximum Usage.
Danger level – It is the level at which normal issues of the raw material
inventory are stopped and emergency issues are only made.
Danger level = Avg consumption * Lead time for emergency purchases
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Objectives of Inventory Valuation
The objectives of inventory valuation are discussed here below as
follows
Determination of Income - The valuation of inventory is necessary for
determining the true income earned by business during a period.
Determination of Financial position - The inventory at the end of period
is to be shown as a current asset in the balance sheet of the business. In
case of the inventory is not properly valued the balance sheet will not
disclose the correct financial position of the business.
Methods of Inventory Valuation
Since Inventory is the single largest asset in the balance sheet of most
organizations, the valuation of inventory becomes of utmost importance and
crucial to the financial executives.
Methods of Valuation of Inventories
The different methods used for valuation of inventories may be
enumerated as follows –
Methods based on Actual cost
First-in-First-out method.
Last-in-First-out method.
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Highest-in-First-out method.
Specific identification price.
Base stock price.
Adjusted selling price.
Methods based on Average cost
Simple average price.
Weighted average price.
Methods based on Actual cost
The methods of actual cost are as follows -
First-in-First-out Method – The First-in-First-out Method of pricing
materials is based on the assumption that the materials which are purchases
first are issued first. The flow of cost of materials should also be in the
same order.
Last-in-First-out Method – This method is just reverse of FIFO. It
operates on the assumption that the latest received materials are issued first
for production and those received first issued last. The price of the last lot
of materials received is used for all the issues until all units from this lot
have been issued after which the price of the previous lot received
becomes the issue price.
Highest-in-First-out method – Under this method, the highest priced
materials are treated as being issued first. The closing inventory is kept at
the lowest possible price. It is undervalued in times of rising prices and
thus secret reserves are created.
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Specific identification price – The specific identification method may be
used for inventories of items that are not ordinarily inter-changeable, or for
goods manufactured for a specific purpose. This method is best suited for
job order industries which carry out individual jobs or contracts against
specific orders.
Base stock price – The base stock formula proceeds on the assumption
that a minimum quantity of inventory (base stock) must be held at all times
in order to carry on business. Inventories up to this quantity are stated at
the cost at which the cost at which the base stock was acquired.
Adjusted Selling price – Under this method which is adopted by retailers,
inventory is estimated at selling price and to value it at cost, the estimated
gross profit is deducted there from. The alternative approach is to deduct
current sales from the total goods available for sale at retail price. This
gives the value of Inventory.
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Methods based on Average cost
The methods of average cost are as follows -
Simple average price – Simple average price is the average of the prices
without any regard to quantities. Simple average price is calculated by
adding up different prices and then dividing by the number of different
prices.
Weighted average price method – Weighted average price is calculated
by dividing the total cost of material in stock by the total quantity of
material in hand. Under this method, prices are averaged after weighting
(i.e. multiplying) by their quantities. The average price at any time is
simply the balance value figure divided by the balance units figure.
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OBJECTIVES OF THE STUDY
To present the conceptual theoretical framework relating to inventory
management.
To conduct a study on existing practices of inventory management in the
company.
To determine the inventory status of the company and analyze them.
To study the Inventory valuation methods of company.
To make pertinent suggestions for the effective management of inventory
of Ramya Spinning mills Pvt. Ltd.
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NEED FOR THE STUDY
This study on inventory management is needed by the firms for
To avoid excessive and inadequate levels of inventories in the
company.
To gain the customer satisfaction through short time delivery.
To maintain sufficient inventory in the company for the smooth
production and sales operations.
For running the business operations of the company in smooth and
efficient manner.
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METHODOLOGY OF THE STUDY
The following is the methodology of the study. The collection of data
is done in two principle sources. They are as follows:
Primary data.
Secondary data.
PRIMARY DATA
The primary data needed for the study is gathered through
interview with concerned officers and staff, either individually or collectively.
Some of the information has been verified or supplemented with personal
observation conduct.
SECONDARY DATA
The secondary data needed for the study was collected from
published sources such as pamphlets of annual reports, returns and internal
records, reference from text book and journals of financial management.
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IMPORTANCE OF THE STUDY
The study is significant to the following groups.
To the organization :By this study the organization can get
benefits by adopting various methods
and techniques to various problems
that they are facing in inventory
management.
To the Government : The government can adopt special
policies and strategies for the further
development of such organizations
To me : This study is useful to me too, in
getting first hand experience of an
industrial concern.
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LIMITATIONS OF THE STUDY
As the details of inventory are maintained confidentially, the project
deals with fewer areas of inventory.
As the time spent on project is only 5 weeks, it is not possible to go in
to detail study of item wise.
The project covers the area of stores and spares under inventory
management system of the company. It does not deal with other
inventories like raw materials, finished goods and work in progress.
The collected information is mainly through secondary data.
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INTRODUCTION
Cotton
Cotton is a soft, staple fiber that grows around the seeds of the
cotton plant. It is a natural fiber harvested from the cotton plant. The fiber most
often is spun into yarn or thread and used to make a soft, breathable textile,
which is the most widely, used natural-fiber cloth in clothing today.
Processing of Cotton in India
In India the raw cotton, also called as Kapas is processed in a
multi-stage process described as below. The Products of processing are
I. Yarn.
II. Cottonseed Oil.
III. Cottonseed Meal.
I. Production of Yarn
KAPAS TO LINT: Kapas (also known as raw cotton or seed cotton) is
unginned cotton or the white fibrous substance covering the seed that is obtained
from the cotton plant. The first step in the process is, the cotton is vacuumed into
tubes that carry it to a dryer to reduce moisture and improve the fiber quality.
Then it runs through cleaning equipment to remove leaf trash, sticks and other
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foreign matter. In ginning a roller gin is used to grab the fiber. The raw fiber,
now called lint.
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LINT TO BALE: The lint makes its way through another series of pipes to a
press where it is compressed into bales (lint packaged for market). After baling,
the cotton lint is hauled to either storage yards, textile mills, or shipped to foreign
countries.
BALE TO LAP: Here the bales are broken down and a worker feeds the cotton
into a machine called a "breaker" which gets rid of some of the dirt. From here
the cotton goes to a "scutcher". (Operated by a worker also called a scutcher).
This machine cleans the cotton of any remaining dirt and separates the fibers.
The cotton emerges in the form of thin "blanket" called the "lap".
LAP TO CARDING: Carding is the process of pulling the fibers into parallel
alignment to form a thin web. High speed electronic equipment with wire
toothed rollers performs this task. The web of fibers is eventually condensed into
a continuous, untwisted, rope-like strand called a sliver.
SLIVER TO ROVING: The silver is then sent to combing machine. Here, the
fibers shorter than half-inch and impurities are removed from the cotton. The
sliver is drawn out to a thinner strand and given a slight twist to improve
strength, then wound on bobbins. This Process is called Roving.
ROVING TO YARN (SPINNING): Spinning is the last process in yarn
manufacturing. Spinning draws out the short fibers from the mass of cotton and
twists them together into a long. Spinning machines have a metal spike called a
spindle which the thread winds around.
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II. Production of Cotton Seed Oil
Processing of cottonseed in modern mills involves a number of steps. They are as
follows:
The first step is its entry into the shaker room where, through a number
of screens and air equipment, twigs, leaves and other trash are removed.
The cleaned seed is then sent to gin stands where the linters are removed
from the seed (delinted). The linters of the highest grade, referred to as
first-cut linters are used in manufacturing non-chemical products, such as
medical supplies, twine, and candle wicks. The second-cut linters
removed in further delinting steps, are incorporated in chemical products,
found in various foods, toiletries, film, and paper.
The delinted seeds now go to the huller. The huller removes the tough
seed coat with a series of knives and shakers. The knives cut the hulls
(tough outer shell of the seed) to loosen them from the kernels (the inside
meat of the seed, rich in oil) and shakers separate the hulls and kernels.
The kernels are now ready for oil extraction. They pass through flaking
rollers made of heavy cast iron, spinning at high speeds. This presses the
meats into thin flakes. These flakes then travel to a cooker where they are
cooked at 170 degrees F to reduce their moisture levels. The prepared
meats are conveyed to the extractor and washed with hexane (organic
solvent that dissolves out the oil) removing up to 98% of the oil.
Crude cottonseed oil requires further processing before it may be used
for food. The first step in this process is refining. With the scientific use
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of heat, sodium hydroxide and a centrifuge (equipment used to separate
substances through spinning action), the dark colored crude oil is
transformed into a transparent, yellow oil. This clear oil may then be
bleached with a special bleaching clay to produce a transparent, amber
colored oil.
The refined cotton seed oil has several advantages other than edible oils. It
contains mere advantage over other edible oils. It contains a large percentage of
Poly Unsaturated Fatty Acids (PUFA) which maintain cholesterol in the blood
at a healthy level. The quality of cotton oil depends on the weather prevailing
during the time that cotton stands in the fields after coming to maturity. Hence
quality of oil varies from place to place and season to season. The quality of oil is
high in dry seasons and low when the seed is exposed to wet weather in the fields
or handled or stored with high moisture. Further cotton seed cooking oil has a
long span of life due to the presence of vitamin E.
III. Production of Cottonseed Meal/Cake/Kapaskhalli
Kapaskhalli (cottonseed extraction/meal) is a byproduct of the cottonseed
industry.
Cottonseed is a by-product of the cotton plant, which is primarily grown
for its fiber. Although cotton has been grown for its fiber for several
thousand years, the use of cottonseed on a commercial scale is of
relatively recent origin.
Cottonseed was a raw agricultural product, which was once largely
wasted. Now it is being converted into food for people; feed for livestock;
fertilizer and mulch for plants; fiber for furniture padding; and cellulose
for a wide range of products from explosives to computer chip boards.
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Cotton Varieties in India
Bengal Deshi mainly produced in the states of Punjab, Haryana, and
Rajasthan.
Jayadhar mainly produced in the state of Karnataka.
Bunny (or) Brahma is mainly produced in the states of Maharashtra,
Madhya Pradesh, Andhra Pradesh, and Karnataka.
Suvin is another variety produced in the state of Tamil Nadu.
H-4 (or) MECH1 is mainly produced in the states of Maharashtra,
Madhya Pradesh, and Andhra Pradesh.
Role of Cotton Industry in Indian Economy
Over the years, country has achieved significant quantitative
increase in cotton production. Till 1970s, country used to import massive
quantities of cotton in the range of 8.00 to 9.00 lakh bales per annum. However,
after Government launched special schemes like intensive cotton production
programmers through successive five-year plans, that cotton production received
the necessary impetus through increase in area and sowing of Hybrid varieties
around mid 70s.
Since then country has become self-sufficient in cotton production
barring few years in the late 90s and early 20s when large quantities of cotton
had to be imported due to lower crop production and increasing cotton
requirements of the domestic textile industry.
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Cotton production Areas in India
India is an important grower of cotton on a global scale. It ranks
third in global cotton production after the United States and China; with 9.50
million hectares grown each year, India accounts for approximately 21% of the
world's total cotton area and 13% of global cotton production.
The Cotton producing areas in India are spread throughout the
country. But the major cotton producing states which account for more than 95%
of the area under and output are:
1. Punjab.
2. Haryana.
3. Rajasthan.
4. Maharastra.
5. Gujarat.
6. Madhya Pradesh.
7. Andhra Pradesh.
8. Tamil Nadu.
9. Karnataka.
Of the nine cotton producing States in India, average yields are
highest in Punjab where most of the cotton area is irrigated.
But the yields of cotton in India are low, with an average yield of
503 kg/ha compared to the world average of 734 kg/ha. The problem is also
compounded by higher production costs and poor quality in terms of varietals
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purity and trash content. However the Cotton plays an important role in the
National economy providing large employment in the farm, marketing and
processing sectors. Cotton textiles along with other textiles also contribute about
1/3rd of the Indian exports.
Steps taken by the Cotton Producers in India
Now-a-days the Indian Cotton producers are continuously working
to up-grade the quality and increase the cotton production to cope up with the
increased global demand for cotton textiles and to meet the needs of the 39
million spindles capacity of the domestic textile industry which presently
consumes about 12-14 million bales annually.
In India, cotton yields increased significantly in the 1980’s and
through the first half of 1980’s but since 1996 there is no increase in yield. In the
past, the increase in cost of production of cotton was partially offset by increase
in yield but now with stagnant yield the cost of production is raising. Besides low
yield, Indian cotton also suffers from inconsistent quality in terms of length,
micron ire and strength.
Policy of Government of India towards Cotton Industry
The Cotton production policies in India historically have been
oriented toward promoting and supporting the textile industry. The Government
of India announces a minimum support price for each variety of seed cotton
(kapas) based on recommendations from the Commission for Agricultural Costs
and Prices. The Government of India is also providing subsidies to the
production inputs of the cotton in the areas of fertilizer, power, etc…
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Markets for Indian Cotton
The three major groups in the cotton market are
Private traders,
State-level cooperatives,
The Cotton Corporation of India Limited.
Of these three groups, private traders handle more than 70
percent of cottonseed and lint, followed by cooperatives and the CCI.
The Cotton Corporation of India Ltd. for the year 2007-08 had
purchased 60.30 lakh quintals of kappa’s equivalent to 11.77 lakh bales valuing
Rs.1218.70 crores in Andhra Pradesh, Maharashtra, Madhya Pradesh, Orissa and
Karnataka. Beside these the Corporation had also carried out commercial
operations and purchased 2.71 lakh bales valuing Rs.285.82 crores in the year
2006-07 as compared to around 1.00 lakh bales valuing Rs.108.81 crores during
the previous year (i.e. for the year 2006-07).
Exports of Cotton
The main market for Indian cotton export is China. The other
markets also include Taiwan, Thailand and Turkey. In July 2001, the union
government removed all curbs on cotton exports. As a result of these, now the
exporters are not required to obtain any certificate from the Textile
Commissioner on the registration, allocation, quality and quantity of export.
India exported around 25 per cent cotton during 2006-07 and it is estimated
nearly 62 per cent exported to China.
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During the year 2006-07 the prices of Indian cotton in early part of
the season being lower than the international prices, had been attractive to
foreign buyers and there was good demand for Indian cotton, especially S-6, H-4
and Bunny, which had resulted in sustained cotton exports, which are estimated
at 55.00 lakh bales
The Cotton Advisory Board estimated an 18-20 percent increase in
cotton exports to 65 lakh bales for Oct 2007- Sep 2008, as against its Aug 2007
estimate of 58 lakh bales.
Imports of Cotton
Despite good domestic crops, India is importing cotton because of
quality problems or low world prices particularly for processing into exportable
products like yarns and fabrics.
India imported just 721,000 bales of cotton in 2003-04. The
imports rose to 1,217,000 lakh bales in 2004-05, 4,700,000 lakh bales in 2005-06
and the anticipated imports for the year 2006-07 are 550,000 lakh bales.
For the year 2006-07 the cotton imports into the country had once
again remained limited mainly to Extra Long staple cottons, like as previous
year, which were in short supply at around 6 lakh bales inclusive of import of
around 2 lakh bales of long staple varieties contracted by mills during April-May
2007.
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Role of Cotton seed oil in Indian Economy
The global production of cottonseed oil in the recent years has been
at around 4-4.5 million tons. Around 2 lakh tons are traded globally every year.
The major seed producers, viz., China, India, United States, and Pakistan are the
major producers of oil. United States (60000 tons) is the major exporter of
cottonseed oil, while Canada is the major importer.
Cottonseed is a traditional oilseed of India. In India the average
production of cotton oil is around 4 lakh tons a year. It is estimated that, if
scientific processing is carried out the oil production can be increased by another
4 lakh tons.
In India, the oil recovery from cottonseed is around 11%. Gujarat is
the major consumer of cottonseed oil in the country. It is also used for the
manufacture of vanaspati. The price of cottonseed oil is generally dependent on
the price behavior of other domestically produced oils, more particularly
groundnut oil. India used to import around 30000 tons of crude cottonseed oil,
before palm and soy oil became the only imports of the country. Currently, the
country does not import cottonseed oil.
Role of cottonseed meal in Indian Economy
India produces around 2 million tons of cottonseed meal a year.
However, in India mainly undecorticated meal is largely produced. Several
associations are promoting the production of decorticated cake in India and the
production of this is expected to increase in the country.
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India used to be a major exporter of cottonseed extraction around
two decades ago. However, the demand for other oil meals like soy meal has
lowered the cottonseed demand globally. In addition, the low availability of
decorticated meal in India has also been a major reason for the fall in exports.
The major importers of Indian cottonseed meal (undecorticated)
used to be Thailand. India in 2002-03 exported only 50 tons of decorticated
cottonseed meal. In 2003-04, too there have been no significant exports. India
does not import cottonseed meal.
The Organizations dealing with the promotion of Cotton
Industry in India:
The organizations that try to promote the quantity and quality of Cotton in India
are
I. The Cotton corporation of India Ltd.,
II. Cotton Advisory boards,
III. Cotton Association of India.
IV. Central Institute of Cotton Research.
I. The Cotton Corporation of India Limited
The Cotton Corporation of India Ltd. was established on 31st July
1970 as a Government Company registered under the Companies Act 1956. In
the initial period of setting up, as an Agency in Public Sector, Corporation was
charged with the responsibility of equitable distribution of cotton among the
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different constituents of the industry and to serve as a vehicle for the canalization
of imports of cotton.
With the changing cotton scenario, the role and functions of the
Corporation were also reviewed and revised from time to time. As per the Policy
directives from the Ministry of Textiles, Government of India in 1985, the
Corporation is nominated as the Nodal Agency of Government of India, for
undertaking Price Support Operations, whenever the prices of kappa’s (seed
cotton) touch the support level.
The Cotton Corporation of India Ltd. Operations covers all the
cotton growing states in the country comprising of:
Punjab, Haryana and Rajasthan in Northern Zone.
Gujarat, Maharashtra and Madhya Pradesh in Central Zone.
Andhra Pradesh, Karnataka & Tamil Nadu in Southern Zone.
II. Cotton Advisory Board
The Cotton Advisory Board is a representative body of
Government/ Growers/ Industries/ Traders. It advises the Government generally
on matters pertaining to production, consumption and marketing of cotton, and
also provides a forum for liaison among the cotton textile mill industry, the
cotton growers, the cotton trade and the Government. It functions under the
Chairmanship of Textile Commissioner with Deputy Textile Commissioner as a
Member Secretary.
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III. The Cotton Association of India
The Cotton Association of India also called as the East India
Cotton Association (EICA) was declared as the statutory body by the Bombay
Cotton Contract Act on 28th December, 1922. Its purpose is to
Provide and maintain suitable buildings or rooms or a
Cotton
Exchange in the city of Bombay or elsewhere in India.
Provide forms of contracts and regulate the marketing, etc.
of
the contracts.
Fix and adopt standards or classifications of cotton.
Adjust by arbitration or otherwise controversies between
Persons engaged in the cotton trade.
Acquire, preserve or disseminate useful information connected with the
cotton interests.
IV. Central Institute of Cotton Research
With a view to develop a Centre of excellence for carrying out long
term research on fundamental problems limiting cotton production the Indian
Council of Agricultural Research has established the Central Institute for Cotton
Research at Nagpur in April, 1976. CICR was simultaneously established at
Coimbatore to cater to the needs of southern cotton zone. CICR was established
at Sirsa in the year 1985, to cater to the needs of northern irrigated cotton zone.
All the three research farms are well equipped with tractors and other farm
implements and efforts are underway to initiate further developmental work in all
the farms.
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The Vision of the CICR is to improve production and quality of
Indian Cotton with reduced cost to make cotton production cost effective and
competitive in the national and global market. The Mission of CICR is to
develop economically viable and eco-friendly production and protection
technologies for enhancing quality cotton production by 2-3% every year on a
sustainable basis for the next twelve years (till 2020).
The Current Scenario of Cotton Industry (2007-08)
The cotton production in the country has been increasing
continuously since last three years and the same has further gone up by around
11% during cotton season 2007-08 at a record level of 270 lakh bales as against
244 lakh bales during 2006-07. Gujarat has turned into a largest cotton producing
State with a record production-level of 93 lakh bales constituting around 34% of
the country’s total production.
The area under cotton cultivation during 2007-08 has also gone up
by around 6% at 91.58 lakh hectares as against 86.77 lakh hectares during 2005-
06.
With wide usage of hybrid seeds throughout the country as well as
changed mindset of cotton farmers for adoption of better and improved farm
practices, the average productivity of cotton has crossed 503 kgs per hectare as
against 478 kgs during the previous year. The prices of Indian cotton in early part
of the season being lower than the international prices had been attractive to
foreign buyers and there was good demand for Indian cotton.
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Due to expectation of bumper crop, the mill demand in the
beginning of the season was subdued which put pressure on the cotton prices
right from the beginning of the season and has resulted into fall in cotton prices
between October 2006 & January 2007. Cotton prices reached its peak level by
end-March 2007 and there was some correction in cotton prices in April and May
2007. However, on the whole, cotton prices remained better by almost Rs.1000
per candy in almost all varieties as compared to previous year.
Future of Cotton Industry in India
The Cotton Advisory Board (CAB) has estimated the cotton crop at
310 lakh bales for the current season 2008-09. This is a historic high and
represents a 11% jump over last year's crop estimate of 280 lakh bales. The
increase in cotton production area is also expected to increase to 95.30 lakh
hectares for the season 2007-08 against 91.42 lakh hectares for the season 2006-
07.
Cotton Advisory Board expects exports to be higher at 65 lakh
bales as against 55 lakh bales in 2007-08. Imports in 2008-09 are projected at
6.50 lakh bales as compared to 5.50 lakh bales in 2007-08, because mills have to
rely on foreign growths to spin some finer counts of yarn.
It is also estimated that the cotton industry is going to provide 12
million new jobs mainly for the semi-skilled and unskilled labor.
Despite the progress enunciated above, cotton yield per hectare in
India is one of the lowest in the world. Reliance on rain, a week seed supply
system, small land holding, poor weed control and scanty use of integrated pest
management technologies are responsible for the low yield.
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COMPANY PROFILE
INTRODUCTION
Ramya spinning mills pvt ltd will produce high quality yarn to meet the
expectations of the Indian and International market. We aim to become a leading world
class integrated production house of fine yarn, quality fabric and related processed
goods. We believe in embracing newer technologies, working with state-of-the-art
processes and continuous research & development to improve the quality of our
products. We will develop long term relationships with our customers by providing
products exceeding industry standards and at competitive prices. We will provide our
staff with a healthy and rewarding work culture; our suppliers with a beneficial
association; and the society with a caring support.
Ramya spinning mills pvt ltd is a Public Limited Company established with an
objective of setting up of a fully integrated state of the art textile complex right in the
heart of the cotton hub of Andhra Pradesh at Timmapuram Village, Edlapadu Mandal,
Guntur District.
The Promoter and CEO of the company is a young and dynamic entrepreneur Sri
Ramya spinning Venkata Krishna Prasad. His dynamic leadership has received
accolades all across. His prudent approach with deep insight into all aspects of the
business, led the 'Ramya spinning Group' from a humble inception to a brand of great
reputation and good standing in the market. His experience spanning over a decade and
half in real estate and construction of premium residential colonies has well woven
itself into setting up of highest standards for the Company.
In its first phase of establishment, i.e. Cotton Spinning Mill, the Company has
completed the construction, installation of machinery and commenced its commercial
operations within a stipulated short time from 29th January 2007 onwards and has
achieved 100% Capacity installation of 26,400 Spindles and utilization from August
2007 onwards. Ever since, we are proud yet humble in surpassing the expectations of
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one and all and achieving the highest quality standards well below the Uster 5% in both
Weaving and Knitting with count ranges of 40’s, 50’s and 60’s – carded and koomed.
The Company’s successful operations have prompted the Management to enhance the
capacity by 25% i.e. by 6720 spindles. This addition brought the company’s total
spinning strength to 33120 spindles by April 2009. The Management further proposes
to enhance the capacity in the next few months with an average count pattern of 35’s.
The Company’s quality achievement is a result of the fine mixing of Customer Oriented
Management Policy, Sophisticated Manufacturing Methods, highly dedicated and self
motivated team, well planned and co-ordinated operations and stringent quality checks.
Exceeding the customer expectations in all parameters have been a motivating factor in
all our operations.
Our Yarn Conditioning Plant helps extracting better warping and loom shed efficiency.
The yarn is packed as per the customer requirement including that of Carton Packing (5
Ply with 150 gsm) and Pallet Packing. Our normal cone weight is 1.89 Kg and paper
cone is ‘Conitex with 5.57’ conacity’.
The Company will continue its strides in the textile industry with backward integration
i.e. Ginning and Forward integration i.e. Weaving and Processing along with lateral
expansion in spinning up to 1,00,000 spindles.
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BOARD OF DIRECTORS:
Ramya spinning mills pvt ltd is promoted by a highly motivated team of individuals,
who with their vast experience and exemplary vision have made it a leading brand.
Sri Ramya spinning Venkata Krishna Prasad, Managing Director
Sri Krishna Prasad, a young and dynamic entrepreneur, is the Promoter and CEO of the
Company. His leadership is the strength of the Company in all its business avenues,
expansions and explorations. With a vast, rich and multi dimensional experience
spanning a decade and half, he promises to lead this Company to great shores of
success.
Smt Ramya spinning Hymavathi, Executive Director
Smt Hymavathi is a motivational factor behind all the enterprises of the Company. Her
experience and insights in to various aspects of business and her directional guidance is
an added asset to the Company. She has an experience of more than a decade in real
estate and construction sectors.
Sri Parupalli Nageswara Rao, Director & COO
Sri Nageswara Rao has over three decades of experience in Cotton buying and trading
activities in and around Guntur. He has represented various spinning mills in the past as
an experienced and seasoned cotton buyer. His presence is an added advantage in raw
material purchases.
Sri Yalavarthi Ramesh, Director
Sri Ramesh is a well acknowledged and senior business man in Guntur with his interests
in Tobacco trading and occasional cotton ginning and trading. He has an experience of
more than two and half decades in tobacco business. He oversees the finance and
personnel departments.
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VISION
RAMYA SPINNING PVT LTD will produce high quality yarn to meet the
expectations of the Indian and International market. We aim to become a leading world
class integrated production house of fine yarn, quality fabric and related processed
goods.
We believe in embracing newer technologies, working with state-of-the-art processes
and continuous research & development to improve the quality of our products.
We will develop long term relationships with our customers by providing products
exceeding industry standards and at competitive prices. We will provide our staff with a
healthy and rewarding work culture; our suppliers with a beneficial association; and the
society with a caring support.
MISSION
To manufacture a high quality yarn thereby with standing competitiveness.
Developing a long team relationship with our customers and suppliers.
To use latest technological strategies during production there by for approach.
To provide a safe, fulfilling and rewarding work environment.
Servicing and supporting the comities in the us operate.
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FUNCTIONS OF HEAD OF DEPARTMENTS IN RAMYA SPINNING MILLS
PVT LTD:
The following are functions of the Heads of Departments that are mostly relevant to the
Project.
Functions of Finance Manager:
1. 1. He looks after day-to-day accounting and financial operations in the Accounts
Departments.
2. He is closely associated in completion of statutory audit of The Company under
Companies Act 1956 and also in connection with the annual Tax Audit under
Income-tax Act.
3. He is independently responsible for submitting working capital renewal
application to Banks and also furnishers required information under Quarterly
Information System.
4. Further, he provides information to Board Meeting relating to Profit and Loss
Account, Balance Sheet, Turnover particulars and Un-audited results etc., for
each quarter.
5. Apart from the above he looks after sales tax matters of the company and attends
before Sales Tax Departments for completion of Assessments.
Functions of Marketing Manager:
1 He coordinates with production department, quality control & dispatch section
for planning of the production, supply of right product and at the right time to
the customers.
2 He continuously explores new markets or customers.
3 In order to promote the producers of the organization regular customer contacts
are maintained.
4 In view of the limited growth of the industry, maintaining the market situation in
order to retain the customers.
5 He keeps an eye on the competitor’s strategies by analyzing the market situation
in order to retain the customers.
6 Monitoring the overall performance of sales organization is also one of the
functions.
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Functions of Production Manager:
1 He is in charge of the Production Department.
2 He prepares requirements of raw materials as per the indents given by the
Marketing Department.
3 He takes total responsibility from the stage of processing raw material to the
stage of packing of finished products.
4 His efforts include minimizing the labor cost, inventory, wastage in order to
achieve high productivity.
5 His responsibility includes advising the Management with respect to capacity
utilization and further requirements.
ACCOUNTING POLICIES OF RAMYA SPINNING MILLS PVT LTD:
General
To Prepare financial statements in accordance with applicable with applicable
accounting standards in India.
The financial statements have also been prepared in accordance with relevant
presentational requirements of the companies act, 1956.
Revenues
It is the corporate policy to state turnover, which represents invoiced value of
goods sold net of taxes, insurance and freights.
The company is following mercantile system of accounting i.e.,
revenues/expenses are recognized as and when they are earned/ incurred.
Inventories
In our opinion and to the best of our information and according to explanations
given to us, they said accounts read with the significant accounting policies, the
Inventories are valued as follows:
Raw materials, Stores & Spares and materials in transit have been valued at the
lower of cost or net realizable value.
Saleable Stock of scrap is valued at estimated net realizable value.
Cost of inventories is generally assigned by using the first in first out method.
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Fixed Assets
Fixed Assets are stated at cost / original value according to the accounting
standard-10.
Expenditure incurred for construction of new plant was capitalized.
Cost of fixed assets comprises of its purchase price and other costs directly attributable
to bringing the asset to its working condition for its intended use like site preparation,
initial delivery and handling charges, installation cost such as for special foundation and
professional fees paid to architects and engineers..
Depreciation
Depreciation on fixed assets is provided on SLM method at rates and in the
manner prescribed by the schedule XVI of the companies act, 1956 (as amended) and
according to the accounting standard –6 issued by ICA I
Prior period items
Insurance on plant and machinery and building was posted to building
accounting i.e. capitalized. The insurance expenditure Rs.204421/-. Wrongly capitalized
during the financial year 2007-08 was written back and claimed as revenue expenditure.
Taxes on Income
Current tax is determined as per the provisions of Income Tax Act, 1961 in
respect of taxable income for the year. Deferred tax liability is recognized. Subject to
the consideration of prudent on timing differences, being the difference between taxable
incomes and accounting income that originate in one period and is capable of reversal in
one of more subsequent periods.
Deferred tax assets arising on account of brought forward losses and unabsorbed
depreciation as per Income Tax laws are recognized only when there is virtual certainty
supported by convincing evidence that such assets will be realized.
Provision is made in the Accounts for the Dividends payable by the company as
recommended by the Board of Directors, pending approval of the Shareholders at the
Annual General Meeting, Tax on distributable Profits is provided for in the year to
which such distributable Profits relate.
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INFORMATION RELATED TO RAMYA SPINNING PVT LTD:
1 The company has maintained proper records showing full particulars, including
quantitative details & situation of fixed assets is performed by the management
in accordance with a rotational plan, which is intended.
2 The management has conducted physical verification of inventory at
reasonable intervals during the year; the procedures of physical verification
of inventory followed by the management are reasonable & adequate.
3 There are adequate internal control procedures commensurate with the size of the
company and the nature of its business, for the purchase of inventory & financial
accounts and for sale of goods.
4 The company has accepted 64 lakhs as deposits from the public.
5 The company has an internal audit system, commensurate with the size of the
company and the nature of the business.
6 The company has no accumulated losses at the end of financial year and it
has not incurred any cash losses in the current & immediately preceding
financial year.
7 The company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore
the provisions of clause 4(xiii) of the companies (auditor’s report) order, 2003
are not applicable to the company.
8 The company is not dealing in or trading in shares, securities, debentures and
other investments. Accordingly the provisions of clause 4(xiv) of the companies
(auditor’s report) order, 2003 are not applicable to the company.
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9 The central government has not prescribed maintenance of cost records by the
company under section 209(1) (d) of the act.
10 According to the records of the company, the company is regular in depositing
undisputed statutory dues including withholding of taxes, provident fund,
employees state insurance, income tax, vat, wealth tax, custom duty, & other
statutory dues with the appropriate authorities.
11 The company has not given any guarantee for loans taken by others from bank
or financial institutions.
12 The term loans were applied for the purpose for which the loans were obtained -
no term loans for the company.
13 The company did not have any outstanding debentures during the year –
company is not having debentures.
PRODUCTION:
The Textiles Spinning Synthetic and blended industry is highly fragmented and in
addition to the established player there are many unorganized players that operate in the
industry. The capacities are interchangeable for spinning natural fiber and manmade
fiber, so definitive comparable information on competitors operating in natural fibers
and manmade fibers is not publicly available. Also PSM operates in a customer order
market segment and produces variety of yarn based on the requirement of customers
and the standardizations are strictly not comparable because of the unique nature of the
products, the counts and the fineness of the yarn and the machinery used.
MANUFACTURING PROCESS:
The present activities of the company involve processes that go into producing quality
yarn. The best quality raw cotton is processed in state-of-the-art machineries using the
latest technical know-how, to produce the finest quality yarn.
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Mixing
To get an uniform end product consistently from highly variable characteristics of input
fibres, mixing of different lots is done. Grading or segregation takes place before
mixing to remove unwanted contamination in cotton.
Blow Room
Blow room consists of a sequence of different machines that carry out Opening,
Cleaning, thorough Mixing and decreasing the tuft size smaller and smaller, to feed
material to Carding uniformly and continuously.
Carding
"Card is the heart of the spinning mill" and "Well carded is half spun" are two proverbs
of the experts. The purpose of Carding is to open tufts to individual fibres, neps
reduction, elimination of dust and orientation of fibres into sliver form.
Br. Drawing
The object of draw frame is to double and draft the slivers and thereby make even sliver
and parallelization of fibres i.e. hooks created at Carding are removed.
Lap Former
The object of Lap Former is preparation of Lap from slivers with optimum parallelized
fibres and feeding of trailing hooks from Carding as leading hooks at Comber to reduce
long fibre loss in the noil.
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Comber
Combing is the process which is used to upgrade the raw material and to produce an
improvement in yarn quality by elimination of short fibres, elimination of remaining
impurities and elimination of neps.
Fr. Drawing
The object of Fr. draw frame is to double and draft the slivers and thereby make even
sliver, parallelization of fibres and auto leveling of linear density variations in feeding
to get constant linear density of output sliver.
Simplex
The object of Simplex is to produce roving suitable to feed Ring frame by means
ofattenuation - drafting of sliver, twisting the drafted strand and winding the twisted
roving on a bobbin.
Spinning
Functions of Ring frame are to draft the roving until the required fineness is achieved,
to impart strength to the fibre, by inserting twist and to wind up the twisted strand
(yarn) in a form suitable for storage, transportation and further processing.
Auto Coner
The object of Autoconer is to eliminate the faults and contamination in yarn and joining
the ends with splice and winding of long and continuous yarn into conical shape to
facilitate at further processes.
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Reeling
The object of Reeling is to convert yarn in the form of hanks which are mostly suitable
for hand looms or dyeing purpose.
Packing
The object of packing is to check visual defects and pack the material suitable for
storage and transportation with necessary labels.
Exports
Because of growing customer interest in products from around the world, Ramya
spinning mills pvt ltd has explored international markets and exports products to many
countries to meet those demands.
Russia
Peru
HongKong
Thailand
Netherlands
Bangladesh
Dubai
Bahrain
Korea
Brazil
Egypt
Italy
Turkey
Germany
Greece
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Poland
Iran
China
Quality
Quality is the buzzword at RAMYA SPINNING PVT LTD. Quality control begins
from the raw cotton itself, which undergoes stringent checks. Each process is inspected
at all stages to ensure that it adheres to the standards that have been prescribed.
The company’s quality policy is emphasized and brought to the notice of each and
every employee. The quality policy’s ultimate motive is the supply of consistently high
quality goods on time, to all the consumers.
Strict quality standards coupled with the constant desire for innovation and
implementation of latest technology, have resulted in consistent progress.
The company has successfully implemented 5 'S' in the organization to achieve
excellence and perfection in all operations:
1S Seiri Sort (Clearing) 2S Seiton Set (Organising) 3S Seiso Shine (Cleaning) 4S Seiketsu Standard (Standardising) 5S Shitsuke Sustain (Training & Discipline)
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Welfare
We promise to 'Care while we Grow'. Social forestry, reducing pollution, conserving
energy, efficient waste management and many such practices are strictly followed at
RAMYA SPINNING PVT LTD. We will always work towards giving a better
tomorrow to the coming generations.
Taking care of our staff is a way of life at RAMYA SPINNING PVT LTD. We strive to
give our staff a healthy and rewarding work culture. Our care extends beyond the
factory premises, covering the employees and their family.
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SOCIAL FORESTRYWe are actively involved in social forestry and work towardsbettering the environment.
STAFF ACCOMODATIONThe staffs are provided with modern and well planned accommodation in a self contained atmosphere.
STAFF CAFETERIA
On duty staffs are given healthy and hygienic food in the cafeteria.
KIDS PLAY AREAThe employee township also has a children’s play area.
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Contact Us:
RAMYA SPINNING PVT LTD is located right in the heart of the cotton hub of Andhra
Pradesh at Ganapavaram Village, Nadendla Mandal, Guntur District. It is strategically
located on the National Highway offering easy and faster connectivity.
The coastal district of Guntur occupies a very strategic place in the Indian textile
industry as it is the biggest cotton market and has a well established manufacturing
base. Guntur is well connected by Air, Rail and Road. The city is also a major part of
the Golden Quadrilateral national transportation project. To cater to the export markets,
Guntur is well connected to the Chennai port.
Key Contact & Business Development:
Mr. Ramya spinning Venkata Krishna Prasad - Managing Director
Mobile: +91 - 9849981990
Email: md@ramya spinning spinners.com
Corporate Office:
Flat No. 302, Ramya spinning Classic Apartment,
Ramya spinning Emerald Gardens,
Madhapur, Hyderabad - 500081.
Phone: +91 - 40 - 23115997
Fax: +91 - 40 - 23115998
Factory:
RAMYA SPINNING PVT LTD
NH-5, Ganapavaram Village,
Nadendla Mandal, Guntur District - 522233.
Andhra Pradesh
Phone: +91 - 8647 - 276668 , 276669
Fax: +91 - 8647 - 276668
Email: info@ ramya spinning pvt ltd .com
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SWOT ANALYSIS:
Strengths:
Abundant Raw Material availability that helps industry to control costs and
reduces the lead-time across the operation.
Availability of Low Cost and Skilled Manpower provides competitive advantage
to industry.
Availability of large varieties of cotton fiber and has a fast growing synthetic
fiber industry.
India has great advantage in Spinning Sector and has a presence in all process of
operation and value chain.
Industry has large and diversified segments that provide wide variety of
products.
Industry has Manufacturing Flexibility that helps to increase the productivity.
Good brand equity.
Many persons are working here. This shows commitment of employees towards
of the organization.
Weaknesses:
Industry is highly dependent on Cotton.
Lower Productivity in various segments.
Lack of Technological Development that affect the productivity and other
activities in whole value chain.
Unfavorable labor Laws.
Lack of Trade Membership, which restrict to tap other potential market.
Lacking to generate Economies of Scale.
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Opportunities:
Growth rate of Domestic Textile Industry is 6-8% per annum.
Large, Potential Domestic and International Market.
Product development and Diversification to cater global needs.
Elimination of Quota Restriction leads to greater Market Development.
Market is gradually shifting towards Branded Readymade Garment.
Increased Disposable Income and Purchasing Power of Indian Customer open
New Market Development.
Emerging Retail Industry and Malls provide huge opportunities for the Apparel,
Handicraft and other segments of the industry.
Threats:
Continuous Quality Improvement is need of the hour as there are different
demand patterns all over the world.
Geographical Disadvantages.
To balance the demand and supply.
To make balance between price and quality.
Increase in minimum wage rates
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Analysis using ratios
Current Ratio
A liquidity ratio that measures a company's ability to pay short-
term obligations. The ratio is mainly used to give an idea of the company's ability
to pay back its short-term liabilities (debt and payables) with its short-term assets
(cash, inventory, receivables). If the current assets of a company are more than
twice the current liabilities, then that company is generally considered to have
good short-term financial strength. If current liabilities exceed current assets,
then the company may have problems meeting its short-term obligations. The
conventional current ratio is 2:1.
Current ratio = Current assets / Current liabilities.
Table 4.1
Year Current Assets Current Liabilities Ratio
2007-08 52,66,42,016/- 18,55,64,081/- 2.83:1
2008-09 46,60,76,935/- 9,01,97,262/- 5.16:1
2009-10 69,33,82,521/- 13,80,70,153/- 4.02:1
2010-11 57,46,56,641/- 10,68,33,433/- 5.37:1
2011-12 55,50,12,846/- 10,23,58,861/- 6.77:1
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Interpretation:
The current ratio of the Ramya Spinning mills pvt ltd in 2007-08 was
2.83; it has been increased to 5.16 in the year 2008-09 and further
decreased to 4.02 in the year 2009-10.
The current ratio had increased to 5.37 in the year 2010-11. At present the
current ratio of the company was 6.77 i.e. in the year 2011-2012.
It is maximum (6.77) in the year 2010-11, the reason for maximum
current ratio (in 2010-11) is due to decrease in current liabilities and
increase in current assets when compared to 2007-08.
It is minimum (2.83) in the year 2007-08, the reason for this is due to high
current liabilities and low current assets.
The overall trend of the current ratio is in increasing pattern and
percentage change in current ratio is 1.39 between the period 2007-08and
2011-12.
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Quick Ratio
Quick ratio is an indicator of a company's short-term liquidity. The
quick ratio measures a company's ability to meet its short-term obligations with
its most liquid assets. The higher the quick ratio, the better the position of the
company. It is also known as the "acid-test ratio" or the "quick assets ratio". It is
obtained by subtracting inventories from current assets and then dividing by
current liabilities. The conventional quick ratio is 1:1.
Quick ratio = Current assets – Inventory
Current liabilities
(or)
= Quick assets / Current liabilities.
Table 4.2
Year Quick Assets Current Liabilities Ratio
2007-08 21,62,93,228/- 18,55,64,081/- 1.16:1
2008-09 15,96,92,453/- 9,01,97,262/- 1.77:1
2009-10 20,74,79,783/- 13,80,70,153/- 1.50:1
2010-11 21,66,06,426/- 10,68,33,433/- 2.02:1
2011-12 21,85,49,696/- 10,23,58,861/- 2.13:1
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Interpretation:
The quick ratio of the company in 2007-08 was 1.16; it has been slightly
increased to 1.77 in the year 2008-09 and further decreased to 1.50 in the
year 2009-10.
The quick ratio had increased to 2.02, in the year 2010-11. At present the
current ratio of the company was 2.13 i.e. in the year 2011-12.
It is maximum (2.13) in the year 2011-12, the reason for maximum quick
ratio (in 2008-09) is due to decrease in current liabilities when compared
to 2007-08.
It is minimum (1.16) in the year 2007-08, this is mainly due to higher
current liabilities.
The overall trend of the quick ratio is in increasing pattern and percentage
change in quick ratio is 0.83 between the period 2007-08 and 2011-12.
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Inventory Turnover Ratio
Inventory turnover ratio indicates the efficiency of the firm in
producing and selling its product. It is calculated by dividing cost of goods sold
by average inventory. Average inventory consists of opening stock plus closing
stock divided by 2. A high inventory turnover ratio indicated that the product is
selling well. A low turnover ratio implies poor sales and, therefore, excess
inventory. The following formula is frequently used for calculation of ratio:
Inventory turnover ratio = Sales / Average inventory
Avg. Inventory = Opening Stock + Closing Stock
2
Table 4.3
Year Sales Avg. Inventory Ratio
2007-08 1,76,44,15,544/- 29,93,42,725/- 5.89:1
2008-09 1,42,17,41,107/- 30,83,66,635/- 4.61:1
2009-10 1,57,24,07,472/- 32,69,58,772/- 4.80:1
2010-11 1,75,47,60,942/- 35,47,91,639/- 4.94:1
2011-12 1,96,24,83,183/- 41,84,41,520/- 4.68:1
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Interpretation:
The Inventory turnover ratio of Ramya Spinning mills Pvt Ltd. in 2007-
08 was 5.89; it has been slightly decreased to 4.61 in the year 2008-09 and
then increased to 4.80 in the year 2009-10.
The Inventory turnover ratio then raised up to 4.94 in the year 2010-11. At
present the inventory turnover ratio of the company was 4.68 i.e. in the
year 2011-12.
It is maximum (5.89) in the year 2007-08 and the reason for maximum
inventory turnover ratio is due to high sales in 2007-08 when compared to
2006-07.
It is minimum (4.61) in the year 2008-09 and the reason for this fall in
turnover.
The overall trend of the inventory turnover ratio is in decreasing pattern
and percentage change in inventory turnover ratio is 0.28 between the
period 2007-08 and 2011-12.
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Inventory to Current assets ratio
This ratio indicates the relationship between inventory to current
assets. Higher the ratio shows that inventory is properly utilized in the
organization. Inventory to current assets ratio is calculated as follows:
Inventory to current assets ratio = Inventory / Current assets.
Table 4.4
Year Inventory Current assets Ratio
2007-08 31,03,48,788/- 52,66,42,016/- 0.58:1
2008-09 30,63,84,482/- 46,60,76,935/- 0.65:1
2009-10 34,75,33,063/- 55,50,12,846/- 0.62:1
2010-11 36,20,50,215/- 57,86,56,641/- 0.62:1
2011-12 47,48,32,825/- 69,33,82,521/- 0.68:1
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Interpretation:
The Inventory to current assets ratio of the company in 2007-08 was 0.58;
it has been slightly increased to 0.65 in the year 2008-09 and then
decreased to 0.62 in the year 2009-10.
The Inventory to current ratio had raised up to 0.44 in the year 2010-11.
At present the current ratio of the company was 0.68 i.e. in the year 2011-
12.
It is maximum (0.68) in the year 2011-12 the reason for maximum
inventory to current assets ratio is due to increase in both inventory and
current assets when compared to 2007-08.
The ratio is minimum (0.58) in the year 2007-08 and the reason for this is
due to high in both current assets and current liabilities.
The overall trend of the inventory to current assets ratio is in increasing
pattern and percentage change in inventory to current assets ratio is 0.15
between the period 2007-08 and 2011-12.
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Inventory to Total assets ratio
This ratio shows the relationship between inventory to total assets.
Inventory is a part of the current assets of the company. It shows the portion of
assets tied up in inventory. Generally, a lower ratio is considered better.
Inventory to total assets ratio = Inventory / Total assets.
Table 4.5
Year Inventory Total Assets Ratio
2007-08 31,03,48,788/- 80,64,50,832/- 0.38:1
2008-09 30,63,84,482/- 83,33,33,223/- 0.36:1
2009-10 34,75,33,063/- 10,18,81,15,43/- 0.34:1
2010-11 36,20,50,215/- 1,22,36,42,213/- 0.29:1
2011-12 47,48,32,825/- 1,55,05,29,465/- 0.30:1
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Interpretation:
The Inventory to total assets ratio of the company in 2007-08 was 0.38, it
has been slightly decreased to 0.36, in the year 2008-09 and then
decreased to 0.34, in the year 2009-10.
The ratio had then decreased to 0.29, in the year 2010-11. At present the
current ratio of the company was 0.30 i.e. in the year 2011-12.
It is minimum (0.29) in the year 2010-11. The reason for minimum
inventory to total assets ratio is due to increase in total assets when
compared to 2007-08.
The ratio is maximum (0.38) in the year 2007-08, the reason for this is
low inventory and total assets.
The overall trend of the inventory to total assets ratio is in decreasing
pattern and percentage change in inventory to total assets ratio is 0.31
between the period 2007-08 and 2009-10.
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Inventory to Working Capital Ratio
The Inventory to Working Capital ratio measures how well the
company is able to generate cash using Working Capital at its current inventory
level. An increasing Inventory to Working Capital ratio is generally a negative
sign, showing the company may be having operational problems. If a company
has too much Working Capital invested in Inventory, they may have difficulty
having enough Working Capital to make payments on Short-Term Liabilities and
Accounts Payable. This is a great ratio to be used with several others to really
pick apart the inner workings of a company.
Inventory to working capital ratio = Inventory / Working capital.
(or)
Inventory / (current assets - current liabilities).
Table 4.6
Year Inventory Working Capital Ratio
2007-08 31,03,48,788/- 34,10,77,935/- 0.90:1
2008-09 30,63,84,482/- 37,58,79,673/- 0.81:1
2009-10 34,75,33,063/- 41,69,42,693/- 0.83:1
2010-11 36,20,50,215/- 47,18,23,208/- 0.76:1
2011-12 47,48,32,825/- 59,10,23,660/- 0.80:1
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Interpretation:
The Inventory to working capital ratio of the company in 2007-08 was
0.90. It has been slightly decreased to 0.81 in the year 2008-09 and then
increased to 0.83 in the year 2009-10.
The ratio had then falled down to 0.76 in the year 2010-11. At present the
current ratio of the company was 0.80 i.e. in the year 2011-12.
The ratio is minimum (0.76) in the year 2010-11. The reason for this is
due to increase in working capital when compared to 2007-08.
The ratio is maximum in the (0.90) in the year 2007-08 and the reason is
low working capital in all the analyzed five years.
The overall trend of the inventory to working capital ratio is in decreasing
pattern and percentage change in inventory to working capital ratio is 0.18
between the period 2007-08 and 2010-11.
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Tools and Spares to Inventory Ratio
This ratio shows the relationship between spares to Inventory. The
tools and spares are one of the important elements. Inventory means not only raw
materials, work-in-progress and finished goods. Tools and spares are also to be
taken as Inventory of the company. The high ratio shows that there is more
useless inventory in the company as the spares are used only occasionally.
Spares to Inventory ratio = Spares / Inventory
Table 4.7
Year Tools and Spares Inventory Ratio
2007-08 2,60,11,666/- 31,03,48,788/- 0.08:1
2008-09 2,61,29,141/- 30,63,84,482/- 0.08:1
2009-10 3,31,89,196/- 34,75,33,063/- 0.09:1
2010-11 3,74,99,504/- 36,20,50,215/- 0.10:1
2011-12 5,19,08,109/- 47,48,32,825/- 0.10:1
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Interpretation:
The spares to inventory ratio of the company in 2007-08 was 0.08, it
remains same in the year 2008-09 also, and then increased to 0.09 in the
year 2009-10
The ratio then raised up to 0.10 in the year 2010-11. At present the current
ratio of the company was 0.10 i.e. in the year 2011-12.
It is maximum (0.10) in the years 2010-11 & 2011-12 and minimum
(0.08) in the year 2007-08 & 2008-09. The reason for maximum tools &
spares to inventory ratio is due to increase in both tools & spares and
inventory when compared to 2007-08 & 2008-09.
The overall trend of the tools & spares to inventory ratio is in increasing
pattern and percentage change in tools & spares to inventory ratio is 0.25
between the period 2007-08 and 2011-12.
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Interpretation:
There are three items in which comes under category A Ramya Spinning
mills Pvt. Ltd.. These items comprise 76% of total cost and 21% of total
volume which includes cotton lint, cotton yarn, cotton seed oil.
The B category inventory in Ramya Spinning mills Pvt. Ltd.comprises of
one item which occupy about 18% of total cost and 47% of total volume
which includes cotton seed extraction.
There are three items which comes under C category in Ramya Spinning
mills Pvt. Ltd.. These generally occupy 6% of total cost and 32% of total
volume which includes cotton seed, cotton seed hulls, linters.
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Interpretation:
There are three items in Ramya spinning mills Pvt. Ltd. which comes
under category A. These items comprise 75% of total cost and 21% of
total volume. These items include cotton lint, cotton yarn, cotton seed oil.
The B category inventory in Ramya Spinning mills Pvt. Ltd. comprises of
one item which occupy about 16% of total cost and 46% of total volume.
These items include cotton seed extraction.
There are three items which comes under C category in Ramya Spinning
mills Pvt. Ltd. These generally occupy 9% of total cost and 33% of total
volume which includes cotton seed, cotton seed hulls, and linters.
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Interpretation:
There are two items in Ramya Spinning mills Pvt. Ltd. which comes
under category A. These items comprise 70% of total cost and 16% of
total volume. These items include cotton yarn, cotton seed oil.
The B category inventory in Ramya Spinning mills Pvt. Ltd. comprises of
one item which occupy about 22% of total cost and 51% of total volume.
These items include cotton seed extraction.
There are two items which comes under C category in Ramya Spinning
mills Pvt. Ltd. These generally occupy 8% of total cost and 33% of total
volume which includes cotton seed hulls, linters.
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Interpretation:
There are two items in Ramya Spinning mills Pvt. Ltd. which comes
under category A. These items comprise 71% of total cost and 17% of
total volume. These items include cotton yarn, cotton seed oil.
The B category inventory in Ramya Spinning mills Pvt. Ltd. comprises of
one item which occupy about 20% of total cost and 50% of total volume.
These items include cotton seed extraction.
There are two items which comes under C category in Ramya Spinning
mills Pvt. Ltd. These generally occupy 9% of total cost and 33% of total
volume which includes cotton seed hulls, linters.
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Interpretation:
There are two items in Ramya Spinning mills Pvt. Ltd. which comes
under category A. These items comprise 67% of total cost and 21% of
total volume. These items include cotton yarn, cotton seed oil.
The B category inventory in Ramya Spinning mills Pvt. Ltd. comprises of
one item which occupy about 24% of total cost and 68% of total volume.
These items include cotton seed extraction.
There are two items which comes under C category in Ramya Spinning
mills Pvt. Ltd. These generally occupy 9% of total cost and 11% of total
volume which includes cotton seed hulls, linters.
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Findings:
From the study it has been observed that the ABC analysis in the year
2007-08 indicates that the category ‘A’ items forms a proportion i.e. 21%
of total units of inventory, but represents highest ratio 76% of total value.
On the other hand category ‘C’ items represent 32% of total units and only
6% of total value. ‘B’ items occupies in between i.e. 47% of total units
and 18% of total value.
From the study it has been observed that the ABC analysis in the year
2008-09 indicates that the category ‘A’ items forms a proportion of 21%
of total units of inventory, but represents highest ratio 75% of total value.
On the other hand a ‘C’ item occupies 33% of total units and 9% of total
value. Category ‘B’ items represents 46% of total units and only 16% of
total value.
From the study it has been observed that the ABC analysis in the year
2009-10 indicates that the category ‘A’ items forms a proportion of 16%
of total units of inventory, but represents highest ratio 70% of total value.
On the other hand ‘B’ items occupies 51% of total units and 22% of total
value and category ‘C’ items represents 33% of total units and a nominal
value of 8% of total value.
From the study it has been observed that the ABC analysis in the year
2010-11 indicates that the category ‘A’ items forms a proportion i.e. 17%
of total units of inventory, but represents highest ratio 71% of total value.
On the other hand category ‘C’ items represent 33% of total units and only
9% of total value. ‘B’ items occupies in between i.e. 50% of total units
and 20% of total value.
ECE
110
MBA Programme
From the study it has been observed that the ABC analysis in the year
2011-12 indicates that the category ‘A’ items forms a proportion i.e. 21%
of total units of inventory, but represents highest ratio 67% of total value.
On the other hand category ‘C’ items represent 11% of total units and only
9% of total value. ‘B’ items occupies in between i.e. 68% of total units
and 24% of total value.
For the period of the study on an average ‘A’ category items of total
inventory comprises of 19% of total units and 71% of total value.
For the period of the study on average ‘B’ category items of total
inventory comprises of 49% of total units and 20% of total value.
For the period of the study on average ‘C’ category items of total
inventory comprises of 32% of total units and 9% of total value.
The overall trend of the current ratio at Ramya Sppining Mills Pvt Ltd., is
in increasing pattern & percentage change in current ratio is 4.85 which is
satisfied.
The overall trend of the quick ratio at Ramya Sppining Mills Pvt Ltd. is in
fluctuating & pattern and percentage change in quick ratio is 2.89 which is
satisfied.
The overall trend of the inventory Turnover ratio at Ramya Sppining Mills
Pvt Ltd is decreasing pattern & percentage change in inventory turnover
ratio is 53.56 which is satisfied.
The overall trend of the inventory to current assets ratio at Ramya
Sppining Mills Pvt Ltd, is increasing pattern and percentage changing is
0.38 which is unsatisfied.
The overall trend of the inventory to total assets ratio at Ramya Sppining
Mills Pvt Ltd, is increasing pattern and percentage change in inventory to
total assets ratio is 0.07 which is unsatisfied.
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MBA Programme
Suggestions:
It is suggested that Ramya Spinning mills Pvt. Ltd. needs to have a strict
inventory control and better inventory management in relation to category
‘A’ which includes cotton lint, cotton yarn, cotton seed oil.
It has been recommended that Ramya Spinning mills Pvt. Ltd. needs to
give nominal importance and moderate control in relation to category ‘B’
which includes cotton seed extraction.
It is suggested that Ramya Spinning mills Pvt. Ltd. needs to give least
importance in relation to category ‘C’ which includes cotton seed, linters,
cotton seed hull.
It has been recommended that the company needs to maintain the
inventory turnover ratio at optimum level.
It is suggested that the inventory to current assets has to be maintained
optimum level.
It is suggested that the company has to maintain same level of inventory
and total assets as to retain the inventory to total assets ratio.
It has been recommended that the inventory to working capital ratio of
Ramya Spinning mills Pvt. Ltd. should be improved.
It is suggested that the tools & spares in the inventory of Ramya Spinning
mills Pvt. Ltd. should be reduced.
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110
MBA Programme
The higher current ratio of company indicates inadequate of funds. It is
suggested that the company has better to invest the funds in different
investment alternatives.
The company has high quick ratio, so it is an indication that the firm is
liquid and has ability to meet its current or liquid liabilities in time. It is
suggested that the company has to maintain the same level.
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110
MBA Programme
CONCLUSION:
The economic life of any company depends on some important
financial aspects like profits, expenses, turnover etc. A careful analysis of these
areas are very much essential for the success and survival of the company. For
this purpose Inventory management with help of technique like ABC analysis is
to be carried out. A study of this type is very much useful to any company to
keep in to the different financial aspects and to take some measures to improve.
In my view the inventory management of the company is supplying a vital
information about the inventory of the company in all aspects as per the ABC
analysis. The company as maintain optimum level of inventory as for the
requirements and reached their goals.
ECE
110
MBA Programme
BIBILOGRAPHY:-
FINANCIAL MANAGEMENT - I.M PANDEY
FINANCIAL MANAGEMENT – PRASANNA CHANRDRA
FINANCIAL MANAGEMENT – M.Y.KHAN & JAIN
FINANCIAL MANAGEMENT – V.K.BHALLA
WEBSITES:
www.ramya spinning mills.com
www.cci.com
www.cab.gov.in
www.aboutcotton.com
www.historyofcotton.com
ECE
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