1. Financial management refers to planning and controlling a firm's financial resources, including finding sources of funds and ensuring funds are suitable, economical, and maximize business value.
2. Modern financial management covers a wide scope, including assessing needs, maintaining liquidity, lending/borrowing policies, and dividend policy, not just raising capital.
3. Financial management functions include investment, financing, dividend, and liquidity decisions to maximize shareholder wealth while balancing returns and risks.
1. Financial management refers to planning and controlling a firm's financial resources, including finding sources of funds and ensuring funds are suitable, economical, and maximize business value.
2. Modern financial management covers a wide scope, including assessing needs, maintaining liquidity, lending/borrowing policies, and dividend policy, not just raising capital.
3. Financial management functions include investment, financing, dividend, and liquidity decisions to maximize shareholder wealth while balancing returns and risks.
1. Financial management refers to planning and controlling a firm's financial resources, including finding sources of funds and ensuring funds are suitable, economical, and maximize business value.
2. Modern financial management covers a wide scope, including assessing needs, maintaining liquidity, lending/borrowing policies, and dividend policy, not just raising capital.
3. Financial management functions include investment, financing, dividend, and liquidity decisions to maximize shareholder wealth while balancing returns and risks.
Financial management refers to that part of management activity, which is concerned with the planning and controlling of firms financial resources. It deals with finding out various sources for raising funds for the firm. The sources must be suitable and economical for the need of the business. In simple words, financial management study about the procuring and judicious use of financial resources with a view to maximize the value of a business enterprise there by the value to the owner is maximized. Financial management is very important to every type of organization. It refers to that part of managerial activity concerned with the procurement and utilization of funds for the business purposes. Finance is an important function in any business, as money is required to support its various activities. It has given birth to Financial management as a separate subject. As a separate subject, Financial management is of recent origin and has not acquired a body knowledge of its own. It draws heavily on Economics for its theoretical concepts. In the early half of the last century, the job of financial management was largely confined to the acquisition of funds. But as business firms continued to expand their markets and they became larger and more diversified, greater control of financial operation became highly important. Thus now the scope of financial management is very wide and it should not be considered to be merely restricted for raising of capital. It also covers other aspects of financing such as assessing the needs of budgeting, maintaining liquidity lending and borrowing policies, dividend policy and so on.
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DEFINITIONS:
Ezra Solomon has defined The financial management deals with the efficient use of an important economic resource namely capital funds. Financial management is the activity concerned with the planning, raising, controlling and administrating the funds used in the business. - Guthman and Dougall. Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. -I.M.Panday. Financial management is concerned with the efficient use of an important economic resource namely capital funds. -Ezra Soloman
Financial management is the operation activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations. - Joseph and Massie.
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SCOPE OF FINANCIAL MANAGEMENT The approach to the scope and the functions of financial management is divided for the purpose of expositions into two broad categories Traditional Approach: Traditional approach to the finance function relates to the initial stages of its evolution during 1920s and 1930s when term corporate finance was used to describe in the academic world today as the financial management. The approach was focused on procurement of long-term funds. In that issue allocation of funds which is so important today is completely ignored. The utilization of funds was considered beyond the pure view of finance function.
B) MODERN APPROACH
The Modern approach views finance function in broader sense. It includes both rising of funds as well as this effective utilization under the preview of finance. The cost of raising funds and the returns from their use should be compared. The utilization of funds requires decision making. Finance functions covers financial planning rising of funds, allocation of funds, financial control etc. Modern approach is an analytical way of dealing with financial problems of firms. In that approach considers there are three basic management decisions i.e., investment decisions, financing & dividend decisions within the scope of finance functions.
OBJECTIVES OF FINANCIAL MANAGEMENT
The objectives of financial management are: A) Profit Maximization:- According to this approach actions that increase profits should be under taken and those that decrease profits are to be avoided. In specific operational terms as applicable to financial management, the profit maximization implies that the investment financing and dividend policy decisions of affirm should be oriented to the maximization of profits. 4
B) Wealth Maximization:- This is also known as value maximization or net present wealth maximization. In current academic literature value maximization is almost universally accepted and appropriate operational criterion for financial management divisions as it removes the technical limitation criterion. It operational features satisfy all the three requirements of a suitable operational objective of financial courses of actions namely exactness, quality of the benefits and the time value of money AN OVER VIEW OF FINANCIAL MANAGEMENT
Trade -off
The financial manager in a bid to maximize owners wealth should strive to maximize returns relation to given risk. To ensure maximum return funds flowing in and out of the firm should be constantly monitored to assure that they are safe guarded and properly utilized. Financial Management
FUNCTIONS OF FINANCIAL MANAGEMENT: The financial functions can be divided into four broad categories: 1. Investment decisions. 2. Financing decisions 3. Dividend decisions. 4. Liquidity decisions. 1. Investment decision: Investment decision or capital budgeting involves the decision of allocation of capital or commitment of funds to long-term assets, which would yield, benefits in future. Its one very significant aspect is the task of measuring the prospective profitability of new investments. Future benefits are difficult to measure and cannot be predicted with certainty. 2. Financing decision: Financing decision is the second important function to be performed by the financial manager. Broadly, he must decide when, where and how to acquire funds to meet the firms investment needs. The central issue before him is to determine the proportion of equity and debt. The mix of debt and equity is known as the firms capital structure. The firms capital structure is considered to be optimum when the market value of shares is maximized. 3. Dividend decision: Dividend decision is the third major financial decision. The financial manager must decide whether the firm should distribute a portion and retain the balance. Like the debt policy, the dividend policy should be determined in terms of impact on the shareholders value. The optimum dividend policy is one, which maximizes the market value of the firms shares.
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4. Liquidity decision: Current assets management, which affects a firms liquidity, is an important finance function. Current assets should be managed efficiently for safe guarding the firm against the dangers of liquidity and insolvency. Investment in current assets affects firms profitability, liquidity and insolvency. Investment in current assets affects firms profitability, liquidity and risk. A conflict exists between profitability and liquidity while managing current assets. Financial analysis is the process of identifying the financial strengths and weaknesses of the firm. It is done by establishing relationships between the items of financial statements viz., balance sheet and profit and loss account. Financial analysis can be undertaken by management of the firm or by parties outside the firm viz., owners creditors, investors and others.
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INTRODUCTION TO INVENTORY MANAGEMENT The dictionary meaning of inventory is stock of goods or list of goods. In accounting language it may mean stock of finished goods only. In a manufactured concern it may include raw material, work in process stores. Every enterprise needs inventory for smooth running of its activities. It serves as link between production and distribution process. There is, generally it time lay, the higher the requirement for inventory. The unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It also provides cushion for future price fluctuations. The investments in inventories constitute the most significant part of currents assets and working capital most of the undertaking. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity and when required and also to minimize investment in inventories. Inventory management deals with purchasing stocking and issuing of materials to various departments at right time, right quantity and at right quality. MEANING OF INVENTORY Every enterprise needs inventory for smooth running of its activities; it serves as a link between the recognition of a need and its fulfillment the greater the time leg. The higher the requirements of inventory, the unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It also serves as a cushion for future prices fluctuations. The simple meaning of inventory is stock of goods or list of goods the word inventory is understood differently by various authors. In accounting language it means stock of finished goods only, for a manufacturing concern it includes raw-materials, work-in-progress, finished goods etc.
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Inventories constitute the most significant part of current assets. Many companies maintain 60% of current assets as inventories. Because of the large size of the inventories maintained by the firms, a considerable amount of funds is required to be committed to them. It is therefore absolutely imperative to manage inventories efficiently in order to avoid unnecessary investment. A firm neglecting the management of inventories will be failed in its long run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree within the range of 10 to 20% without any adverse effect by using simple inventory planning and control techniques. The reduction in excess inventories has a favorable impact on the profitability of the firm. DEFINITION OF INVENTORY MANAGEMENT: Inventory is an idle stock of physical goods that contain economic value, and are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time. Any organization which is into production, trading, sale and service of a product will necessarily hold stock of various physical resources to aid in future consumption and sale. While inventory is a necessary evil of any such business, it may be noted that the organizations hold inventories for various reasons, which include speculative purposes, functional purposes, physical necessities etc. Inventory management is mainly about identifying the amount and the position of the goods that a firm has in their inventory. Inventory management is imperative as it helps to defend the intended course of production against the chance of running out of important materials or goods. Inventory management also includes making essential connections between the replenishment lead time of goods, asset management, the carrying costs of inventory, future inventory price forecasting, physical inventory, available space for inventory, demand forecasting and much more.
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CONCEPT: Inventories are the stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories may exist in a manufacturing company are: Raw materials Work-in-progress Finished goods Raw Materials: Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units, which have been purchased and stored for future productions. A company should maintain adequate stock of a continuous supply to the factors for an uninterrupted production. If it is not possible for a company to produce raw materials whenever needed, a time lag exists between demand for materials and its supply also there will be some uncertainty on procuring raw materials in time on many occasions. The procurement of materials is delayed because of uncertain factors like strike, transport, disruption or short supply. Therefore the firm should maintain sufficient stock of raw materials at a given time to streamline production. Other factors which may necessitate purchasing and holding raw materials are quantity discounts and anticipated price increase. The firm may purchase large quantities of raw materials than needed for the desired production and sales levels to obtain quantity discounts of bulk purchasing. Work In Progress: The inventories are semi-finished products. They represent products that need more work before they become finished products for sale. Work in progress inventory builds up because of production cycle. Production cycle is the time span between introduction of raw-materials and emergence of finished products at the completion of 10
production cycle. Still, production cycle completes, stock of work in progress has to be maintained. Efficient firms constantly try to make production cycles smaller by improving their production techniques. Finished Goods: Finished goods are the completely manufactured products, which are for sale. Stocks of raw materials and work in progress facilitate production, while stock of finished goods is required for smooth marketing operations. Stock of finished goods has to hold because production and sales are not instantaneous. A firm cannot produce immediately when customers demand goods. Therefore to supply finished goods on a regular basis, their stock has to be maintained for sudden demand from customers. In case the firm sales are seasonal in nature, substantial finished goods should be kept to meet the peak demand. Failure to supply products to customers would mean loss to firms sales to competitors. The level of finished goods inventories would depend upon the co-ordination between sales and production as well as on production time. Inventory Decisions: In an inventory control situation, there are three basic questions to be answered. They are: How much to order? That is to say, what is the optimal quantity of an item that should be ordered whenever an order is placed? When should the order be placed? How much safety stock should be kept? Thus, what quantity of an item in excess of the expected requirements should be held as buffer stock in anticipation of the variations in its demand and/or the time involved in acquiring fresh supplies.
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Inventory Cost: In determining optimal inventory policy, the criterion most often is the cost function. The classical inventory analysis identifies four major cost components. Depending on the structure of an inventory situation, some or all of these are included in the objective function. Purchase Cost: This refers to nominal cost of inventory. It is the purchase price for the items that are bought outside sources, and the production cost if the items are produced within the organization. This may be constant per unit, or it may vary as the quantity purchased/ produced increases or decreases. Quite often, situation is found when it may be stipulated that, for example the unit price is rest 20 for an order unto 100 units and rest 19.50 if the order is for more than 100 units. Ordering Costs/Set-Up Costs: This category of costs is associated with the acquisition or ordering of inventory. Firms have to place orders with suppliers to replenish inventory of raw materials. It includes costs associated with the processing and chasing of the purchase order, transformation, inspection for quality, expediting overdue orders and so on. The parallel of the ordering cost when units are produced within the organization and the cost of acquiring materials consists of clerical costs and costs of stationery. It is therefore called a set-up cost. The ordering cost is likely and taken to be independent of the order size. Therefore the unit ordering/setup cost declines as the purchase order/ production run increases in size. Ordering costs are costs involved in: 1. Preparing a purchase order 2. Receiving, inspecting and recording the goods received to ensure both quantity and quality. 12
Carrying Costs: They are involved in maintaining or carrying the inventory. It represents the cost that is associated with storing an item in inventory. Carrying costs are also known as holding cost or the storage cost. The main components of this category of carrying costs are : 1. Storage cost i.e. tax, depreciation and maintenance of the building, utilities etc. 2. Deterioration in inventory because of pilferage, fire, technical obsolescence, style obsolescence etc. VED Analysis: In VED analysis, the items are classified on the basis of their criticality to the production process or other service. In the VED classification of materials, V stands for Vital items without which the production process would come to a standstill. E in the system denotes Essential items whose stock out would adversely affect the efficiency of the production system. Although the system would not altogether stop for want of these items, yet their non-availability might cause temporary losses in, or dislocation of production. The D items are the Desirable items which are required but do not immediately cause a loss to production. The VED analysis is done mainly in respect of spare parts. HML Analysis: This is similar to the ABC analysis except that, in this analysis, the items are classified on the basis of unit value rather than usage value. The item are classified accordingly as their cost per unit is H-high, M-medium and L-low. This type of Analysis is useful for keeping control over materials consumption at their department levels. SDE Analysis: This uses the criterion of the availability of the items. In this analysis S-stands for scarce items which are short in supply, D-refers to the difficult items meaning the 13
items that might available in indigenous market but cannot procured easily, While E represents easily available items even from local markets. S-OS Analysis: S-OS analysis is based on the nature of supplies, wherein S represents the seasonal items and Os represents the off seasonal items. This classification of items is done with the aim of determining proper procurement of strategies. FSN Analysis: Based on the consumption pattern of the items, the FSN classification calls for classification of items, as F-Fast Moving, S-Slow Moving and N-Non Moving goods. This speed classification helps in the arrangement of stocks in the stores and in determining the distribution and handling patterns. XYZ Analysis: XYZ analysis is based on the closing inventory value of different items. Items, whose inventory values are high, are classed as X-items while those with low investment in them are termed as Z- items. Other items are the Y-items whose inventory value is neither too high nor too low. It can be easily visualized that the several types of analysis discussed are not mutually exclusive. They can be, and often are, used jointly to ensure better control over materials. For example ABC and XYZ analysis may be combined to classify and control depending on whether the items are AX, BY, CZ, AY of and so on. Similarly XYZ FSN combine classification exercise will help in timely prevention of obsolesce. Receiving and Inspection of Materials: Receiving Materials: Receiving is an important control point in the material control system. It is sometimes considered that receiving is a routine clerical work where the materials shipped by the supplies are received, unpacked, checked and compared with the 14
purchasing and material management, stated that, any problem or error in specific purchase transaction should come to light during the receiving operation. If the problem (shortage in quantity, damaged material, wrong item shipped etc.) is the detected and corrected during the receiving operation, the cost of to correct the mistake later is much higher. Many hours are frequently spent in determining what really happened and rectifying the situation. Hours are required to correct the error that could have been corrected at the receiving station in minutes. Receiving Procedure: The receiving involves much of the paper work and it varies from firm to firm. However the key issues involved in the receiving function are commodity described in the following standard procedure. The receiving division unloads the goods at the delivery bay and verifies the condition of the consignment to satisfy that it is not received in a damaged condition. The receiving clerk opens the consignment and verifies the contents with the packing slip and the purchase order. Inspection of Materials: Inspection is the process of examining an object for identification or checking it for verification of quality and quantity in any of its characteristics. It is an important tool for ascertaining and controlling the quality of a product. In the words of Alford and Beatty Inspection is the art of applying tests. Preferably by the aid of measuring appliances to observe whether a given item or product is within the specified limits of variability or not. According to Sprigged and Ransburg Inspection is the process of measuring the qualities of a product or services in terms of established standard. The standards can be in terms of strength, hardness, shape etc. The purpose of inspection is to items are produced within the specified items of variability. Inspection in list broadest sense is the art of comparing materials, product or performances with established standards. 15
By means of inspection one can take a decision to accept are reject certain item. The items are accepted if these conform to the given specifications otherwise rejected. Functions of Inspection: The following are some important functions of inspection: Maintenance of specified standards of the quality of products. Devising means for conducting inspection at lower cost. Segregating spoilt work, which may be salvaged by recuperation? Maintaining inspection equipment in good condition. Detection of defects at source to reduce scraps and defective work. Store Management: After inspection the purchased materials are taken to store for preservation, it they are meant for stock. Non-stock items are directly taken to the assembly lines from the inspection. Preservation or storage is another aspect of materials management. Nature of Stores: Stores or storage is the function of receiving, storing and issuing materials. It involves the supervision clearance of incoming supplies, to ensure that they are maintained in good condition, safety and in readiness for use when required, while they are in storage and issuing them against authorized requisition. In short, it is connected with the physical handling and well- being of the stocks. It should be mentioned that, stores is not meant for stocking purchased materials alone. Importance: Efficient storage of stores yields the following benefits: Ready accessibility of major materials permitting efficient service to users. Efficient space utilization and flexibility of arrangement. A reduced need for materials handling equipment. A minimization of materials deterioration and pilferage. Ease of physical counting. Protecting against waste deterioration, damage and pilferage. 16
Storage System: Choosing the most suitable storage system means dealing with a number of interacting and often conflicting factors. Inevitably, the degree of mechanization affects layout while the scarcity of space affects the height to which racking is erected. The need for rapid, intensive order packing means a need for rapid and easy access to stock. Fixed location means that, goods of a particular type have a position in the store assigned to them exclusively. It means that while stock can be found immediately without a complex system for recording its position there can be considerable waster space, because when stocks of any one item are low, the space left vacant cannot be filled. The assignment of fixed position to a particular type of goods is made on any one of the following basis. 1. On the basis of the supplier 2. On the basis of similarity of items. 3. On the basis of the joint issue of the items. 4. On the basis of the size and frequency of use. Methods of Valuation: The government of India has given sufficient flexibility for companies to introduce scientifically developed methods of valuation of their stocks. In order to prevent malpractices, it has been stipulated that such methods must be studied and approved by the Board of Directors, and must be followed for a minimum prior of three years. The various methods of valuation available are given below. First in first out [FIFO] Last-in first out [LIFO] Periodical Simple Average Method Normal cost/ Standard cost method Weighted average method Replacement price method
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FIFO: (First in first out) In this case it is assumed that the stores follow the principal that oldest stock issued first so that stock left out is from the later arrivals. Hence all issues are assumed to have come out from older stocks. These are valued at old price. The cumulative value of stock out will give the net value of the existing stock. LIFO: (Last-in first out) Here stores are issued from the last stock. This means issues have taken place from later arrivals. Hence all issued are valued as per the price of the latest arrivals to compute value of stock left in stores. Periodical Simple average In this case after each receipt of material, adding the cost of materials in hand with the cost of materials received and dividing the same by the total number of units calculate the average cost. This process is repeated every time new items are received. This average cost is used for computing the value of items issued and value of items remaining in the stock. Normal Cost /Standard Cost Method: This method is mostly used for items manufactured in house. Here the average cost of a certain lot is calculated and used as cost of items issued. Since this method is used for items manufactured, one can use standard costing method also for valuation of such stocks. Weighted Average Method: This method is used when the quantity and prices of items vary widely from each purchase. In this case, the weighted average price is calculated for each item. This price is used for computing the value of items and those remaining in stock.
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Replacement Prices Method: This is a modern method developed by George Tarboro. However without application it is difficult to price each item. This has not yet become popular. FIFO, LIFO and Weighted Average methods are popular and acceptable to the government tax authorities. Inventory control System: Inventory control keeps track of inventories. It is observed that too much, too little or badly balanced inventories are all to be avoided because they cost too much on many counts. Too much leads to undue carrying charges in the form of taxes, insurance, storage, obsolescence and depreciation and undue proportion of total working capital is invested in them. Too little implies of too frequent ordering, loss of quantity discounts and higher transportation charges. It may be too low in view of likely shortages in future or future increases the prices or shortfall in output. Again due to dynamic and unpredictable environmental situation Too little at one. Time can be very quickly become Too much in a subsequent period. Similarly inventory purchased at higher prices remaining unused in stock or un cancelable order represents loss to the organizations. The balance between too much and too low can be done by means of effective inventory control. Some of the definitions of inventory control are: Inventory control is a system of ordering based on the maintenance of the stock in store using reorder rule based on the stock level. Inventory control is the technique of maintaining the size of the inventory at some desired level keeping in view the best economic interests of an organization. Inventory control is concerned with various items stocked at predetermined level or within some safe limits.
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Objectives of Inventory Control: Though inventory control may not be treated as an executive function but it is one of the most important functions in an enterprise. The following are the main objectives of inventory control: The demand foreseen of any product can never be exact or accurate. There is likely to become difference that too of varying magnitude, in predicted demand and actual demand of the product. If sufficient items are available in the inventory, then the fluctuations in demand can be easily adjusted and the organizations can protect it from unforeseen economic losses. Better use of men machines and materials: In manufacturing system producing for stock the production planning can be done with an object to have optimum use of resources namely men, machines and materials. Here the resources can remain engaged during slack period of demand and there will be no need of generating additional resources in the boom periods as then the inventory enlarged in slack period can utilize. This will lead to uniform and proper utilization of resources available with the enterprise. Protection against fluctuations in output: Another important function of inventory is to reduce the gap between actual and scheduled production. In practice, production scheduled cannot be adhered due to a number of reasons e.g. sudden breakdown in supply of raw-materials, machines, labor strikes etc. Control of stock volume: Inventory control is concerned with the size and the value of goods present in stock. It is responsible to forecast the value of the stocks on a regular intervals, so that Capital invested in inventories does not exceed the funds available for the purpose. The amount invested in inventory is correctly recorded in account books. 20
Protection against theft is ensured. 1. Control of stock volume: Stock analysis is done to be sure that it is in balance and that obsolescence and depreciation are determines the appropriate size of the inventory keeping in view the interest of 2. The production department as well as of the outside customer and side by side holds down the costs.\Inventory is maintained due to the following reasons. To carry reserves in order to prevent stock outs or cost sales. 1. Never having much of anything on hand. 2. To gain economies in purchases by buying items beyond the desired amount. 3. To maintain reserves in stocks for the period of replenishment Thus a well formulated inventory policy of an enterprise in likely to ensure smooth and efficient running of production operation providing optimum Utilization of man, machine and material. The decision regarding the appropriate size of the inventory is of paramount significance Limitations of Inventory Control: The control of inventories is complex because of the many functions it performs. It should be viewed as a shared responsibility. The objectives of better sales through improved service to customer, reduction in inventories to reduce size of investment and reducing cost of production by smoother production operations are conflicting with each other. Methods of Inventory Control: The fundamental purpose of inventory analysis is to keep the stock of items at such level that there is a balance between the costs which increase or decrease with the size of the inventory. This needs determination of i)quantities should be ordered each time and ii) the time at which this order should be placed so that both inventory carrying costs and the losses arising out of 21
stock-outs are kept at the minimum. These objectives are accomplished by determining. 1) Economic lot size 2) Re-order level Economic Lot Size: The amount of material procured or quantity produced during one production run by any enterprise is known as lot size. The quantity to be ordered, whether from inside sources or from out agencies depends on a number of factors. The size of inventory depends on lot size. Due to increase in inventory size expenditure on storage, deterioration etc., is likely to increase whereas expenditure on setting up plant, procurement of materials etc., will increase. Thus with lot size, there are two sets of factors having opposite contribution towards the expenditure i.e. one encourages the lot size and other discourage. The total cost associated with particular lot size is a combination of expenditures on all these factors. These opposing forces exhibit an interesting behavior towards total cost. It is observed that the factors whose costs decrease with lot size has a tendency at a faster rate than the rate of increase in cost of those factors whose costs increase with inventory size. Safety or Buffer stock: The demand and supply rates can never be assessed exactly. There is bound to be discrepancy between actual and estimated demand and supply quantities with fair degree of uncertainty. The organization with a policy of safeguarding interest. Against these uncertainties maintain the level of inventory at some desired minimum level. This minimum level of inventory to cover some unforeseen and uncalled for situations is known as safety or Buffer stock available in inventory when fresh supply arrives. It is presumed that this stock will be able to, cope with the emergency if and when experienced. Generally, buffer stock is maintained at the desired level by discontinuous replenishments at varying intervals of time. 22
Factors effecting choice of Buffer stocks are: 1. Uncertainty in demand. 2. Degree of insurance for any item. 3. Uncertainty in lead time Re-order Level/Point: The concept of re-order point is basically related with lead time demand. The problem is that demand can never be accurately projected over the lead-time. Once we know the demand in lead time, re-order level can be easily determined mathematically Re-order Level=Lead Time demand + Safety Stock. Organization for Inventory Management: In a fairly large size production unit we might be holding stocks worth cores of rupees and their proper accounting, prevention, security and safety is of paramount importance. An effective and efficient stores management shall help in improving service level. Higher inventory is another area of concern to management because it affects the working capital. Stores department in order to discharge its functions effectively, it has to have close interaction and co- ordination with various departments of the organization. The stores department mainly should have good communication between purchase and production departments. Without active integration and cooperation of each of the other departments, it is very difficult to ensure smooth and efficient functioning of the stores department. But a stores department is dependent on each of them for its day to day operation. The smooth functioning of either stores department or the main production units is just not possible without interactive relations. This need has been merely identified by the Krishna District Milk Union stores department and a lot of negotiations have been taken by stores to have a better working relationship with of these departments. 23
The inventory refers to stockpile of the products of the firm offering for sale and various components that make up these products. The inventory consists of raw- materials, work-in-progress, finished goods.
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OBJECTIVES OF THE STUDY To analyze inventory classifications, its managements and control. To examine the methods and techniques of inventory control in ML group To determine and maintain optimum level of inventory managements. To study and analyze the various categories of inventory items and its management and control. To find out the method of stocking of inventory. To know the technique of reducing cost. To know the monitoring and control of stores and spares inventory classifying.
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NEED FOR THE STUDY This project report entitled A CRITICAL STUDY ON INVENTORY MANAGEMENT, starts with the necessity of realization of definition, concepts and importance of inventory. Inventory may be defined as usual, but idle resource. If resource may be tangible and physical such as materials then it is termed as inventory. Inventory Management has acquired a great significance and sound position in recent years with an objective of profitability and liquidity. The success or failure of a business enterprise largely depends upon the management of inventory management.
No firm can be maintained without inventory management, but the requirement of inventory differs from firm to firm. Inventory management is needed to every business enterprise because it indicates liquidity position of the firm. The problem of inventory management is one of the maintenance, with in a financial investment, an adequate supply of goods to meet an expected supply of demand pattern. This could be raw-materials, work in progress (semi-finished goods) and finished foods. Moreover inventory can be one of the indicators of the management effectiveness on the material management front. Inventory management deals with determinants if optimal policies and procedure for Procuring of commodities. Inventories constitute, in every business concern, the most significant part of working capital or current assets.
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SCOPE OF THE STUDY The current study focuses on inventory management of ML group Ltd. The study covers the composition of Raw materials, Work-in-Process, Finished Goods in total inventory and also concentrates on various inventory management techniques uses in the company. The scope of the study includes the ABC analysis for four financial years.
The study provides insight to the management of high value items and also brings attention of management towards procurement, purchasing, strong supply of A class items over period of four years. The current study also analyzes the investment in inventory during the study period. At the end an in depth analysis will be made on the inventory control system of the company.
The current study focuses on inventory management of ML group Ltd. The study covers the composition of Raw materials, Work-in-Process, Finished Goods in total inventory and also concentrates on various inventory management techniques uses in the company. The scope of the study includes the ABC analysis for four financial years.
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LIMITATIONS OF THE STUDY Any study is having of its own advantages and certain disadvantages. Among such few of the limitations are expressed below such as,
The reliability of the study depends upon the information furnished by the officials. Due to time constraint it is difficult to go into details of the organization. This study is entirely based on the given information by the stores department, purchase department, production department and sales department. The reliability of the study depends upon the information furnished by the officials. The study is entirely based on the given by the stores department, purchase department, production department and sales departments of Swathi Cottons Pvt.Ltd. The study is limited for a period of 6 weeks.
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RESEARCH METHODOLOGY Methodology is a systematic procedure of collecting information in order to analyze and verify a phenomenon. The collection is done through two principle sources. Primary Data: The primary data, which is collected, is entirely based on the details given by the purchase, stores, production and sales department Secondary Data: The secondary data is entirely based on the data obtained for the officers, Managers and staff of ML group ltd Managers and supervisors of the organization have also been interviewed to elicit necessary information on the basis of non- structured schedules. And secondary was collected from the companys manuals and office records pertaining to production, marketing, personal and financial position. when compare the Swathi Cottons Pvt.Ltd data analysis with the ABC and VED technical used.
Chapter 1:I learn about introduction about the Swathi Cottons Pvt.Ltd objectives and need scope and methodology of the inventory management.
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INDUSTRY PROFILE 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: 1) Kapas to Lint 2) Lint to Bale 3) Bale to lap 4) Lap to Carding 5) Sliver to Roving 6) Roving to Yarn (Spinning) 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 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.
Note: The cotton seed is delivered to a seed storage area from where it is loaded into trucks and transported to a cottonseed oil mill.
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 sliver 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, and 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. 31
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 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 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 special bleaching clay to produce 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. 32
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. Diagram 3.1
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The figure showing the products obtained from processing the raw cotton. Source: The Cotton Corporation of India Ltd.: 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 programmes 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: Punjab. Haryana. Rajasthan. Maharastra. Gujarat. Madhya Pradesh. Andhra Pradesh. Tamil Nadu. 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 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.
Contribution of Cotton Industry for Textile Industry: Cotton is the most important raw material for India's Rs. 1, 50,000 crores textile industry, which accounts for nearly 20% of the total national industrial production.
The cotton Industry is the backbone of our textile industry, accounting for 70% of total fiber consumption in textile sector. It also accounts for more than 30% of exports, making it India's largest net foreign exchange industry. India earns foreign exchange to the tune of $10-12 billion annually from exports of cotton yarn, thread, fabrics, apparel and made-ups.
The cotton Industry provides employment to over 15 million people. And the area under cotton cultivation in India (9.5 million ha) is the highest in the world, i.e., 25% of the world area. 35
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 1980s and through the first half of 1980s 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, micronaire 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.
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 2009-10 had purchased 60.30 lakh quintals of kapas equivalent to 11.77 lakh bales valuing Rs.1218.70 cores 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 cores in the year 2009-10 as compared to around 1.00 lakh bales valuing Rs.108.81 cores during the previous year (i.e. for the year 2009-10).
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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 2009-10 and it is estimated nearly 62 per cent exported to China.
During the year 2009-10 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 2009- Sep 2010, as against its Aug 2008 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 2006-07. The imports rose to 1,217,000 lakh bales in 2007-08, 4,700,000 lakh bales in 2008-09 and the anticipated imports for the year 2009-10 are 550,000 lakh bales.
For the year 2009-10 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 2010. 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.
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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 soyoil 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 under corticated 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.
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 (under corticated) 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: The Cotton Corporation of India Ltd. Cotton Advisory Board. Cotton Association of India. 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 different constituents of the industry and to serve as a vehicle for the canalisation 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, 38
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 kapas (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.
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.
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. 39
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. 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 (2009- 10):
The cotton production in the country has been increasing continuously since last three years and the same has further gone up by around 12.5% during cotton season 2009-10 at a record level of 315 lakh bales as against 280 lakh bales during 2008-09. Gujarat has turned into a largest cotton producing State with a record production-level of 93 lakh bales constituting around 34% of the countrys total production.
The area under cotton cultivation during 2009-10 has also gone up by around 4.5% at 95.55 lakh hectares as against 91.44 lakh hectares during 2008-09. 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 591 kgs per hectare as against 560 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. 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 2009 & January 2010. Cotton prices reached its peak level by end-March 2010 and there was some correction in cotton prices in April and May 2010.
Future of Cotton Industry in India: The Cotton Advisory Board (CAB) has estimated the cotton crop at 322 lakh bales for the current season 2008-09. This is a historic high and represents a 2.22% jump over last year's crop estimate of 315 lakh bales. The increase in cotton production area is also expected to increase to 92.60 lakh hectares for the season 2008-09 against 91.55 lakh hectares for the season 2007-08.
Cotton Advisory Board expects exports to be higher at 85 lakh bales as against 65 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. 40
Future Challenges for the Indian Cotton Industry: The challenges that are going to face by the cotton producers in India for the season 2009-10 are:
Rupee Appreciation: The increase in the value of the rupee gives only smaller import orders to the cotton producers. Cheaper Imports: The appreciated rupee value makes the cotton imports cheaper when compared to past. So this aspect is also required to consider by the cotton producers.
Low Quality: The Quality of cotton is also far from satisfactory considering the presence of a large number of contaminants. So the cotton producers are also required to take care in this aspect. 41
COMPANY PROFILE
About The Swathi Cotton Pvt.Ltd Swathi Cotton Pvt.Ltd with its diverse interests in core areas is surging ahead with drive and determination. with all the companies superbly integrated in one single campus, the group harnesses an entrepreneurial spirit, state-of-art technology and financial strengths to emerge as an industrial force to reckon with.
Swathi Cotton Pvt.Ltd is driven by a passion be the best in all the areas it operates. Backed by a high density of advanced technology and sophisticated manufacturing facilities, its only natural that the group is leaf fogging for an outstanding future. The total group turnover is around 300 crores per annum.
About The Company: The founder of Swathi Cotton Pvt.Ltd who has drawn its future planned growth. A Man whose spirit of Dynamism has helped the group to achieve manifold growth. Thanks to his pioneering vision, the groups operation grew and market extended . Today Swathi Cottons is a multi-activity group with a Rs.300crores turnover, comprising 6 divisions with diverse interest in.. Cotton Oil Spinning Power &Textile
A Ab bo ou ut t S Sw wa at th hi i C Co ot tt to on ns s P Pr ri iv va at te e L Li im mi it te ed d Swathi Cottons Private Limited was registered on 03 April, 1998. Swathi Cottons Private Limited's Corporate Identification Number (CIN) is U17100AP1998PTC029188, Registeration Number is 029188. Their registered address on file is 6-179, G T Road,g.t.roadganapavarm-522 619,, Guntur Dist. - 522619, Andhra Pradesh, India. 42
Swathi Cottons Private Limited is currently in Active Status.
Company Name SWATHI COTTONS PRIVATE LIMITED Cin U17100AP1998PTC029188 Registration Date 03/04/1998 Registeration No. 029188 Address 6-179, G T Road,g.t.roadganapavarm-522 619,, Guntur Dist. - 522619, Andhra Pradesh, India Company Status Active
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The Birth of a Dream: Prathipati Pullarao set up a cotton ginning mill in 1998. The operations grew rapidly to lay solid foundations for giant surging ahead in diverse environments. To the group, the future is rich in possibilities. A future where the best of minds and men will work. And will have the most resources to draw upon. Its vision of the future where change will be embraced as the very basis of opportunity and endeavor.
The managing Director of Swathi Cottons Private Limited. Relentless pursuit of perfection is the hallmark of this young and dynamic. His rich and professionals experience in the spinning line enabled Swathi Cottons to scale new heights.
His enterprising zeal and cautious planning have been the pivotal points in driving the group towards trailblazing progress. Mr. Boggavarapu Ankamma rao is committed to labour welfare and his visionary leadership has earned him a wealth of respect among the employees of Swathi Cottons. An astute professional by habit, he is forever aiming higher.
He is widely acknowledged as the man who has fostered a can do culture which starts at top and filters down to every employee at Swathi Cottons. He is powered by just one belief..
Success is a matter of excellence, and not chance.
Social service has always been a matter of prime concern to him. Which is why he perennially strives to provide the best education and undertake multi- pronged schemes towards the betterment of the community. While nurturing a corporate culture that encourages individual growth, he is committed to a vision that encompasses everybodys up liftmen. 44
Cotton Division: The COTTON GINNING & PRESSING UNIT was started in 1998. The Division maintains 54 Gins and 1 Hydraulic press with an annualized turnover of Rs.40crores. The company firmly believes that unmatched capabilities plus an in- depth knowledge of various cotton growing areas alone can put it on the path to speedy growth.
This Division also processes Indias best long staple cotton DCH-32 at Dharwad Branch, Karnataka. The division is poised to excel and is confidently geared to post an impressive growth rate. This Division has stayed big thinking big and keeping an eye on the details that sustain quality.
Manufacture of Cotton I.E. By Ginning& Pressing Activities:
LICENSED : Licensed under Industries (D&R) Act, 1951 PROCESSING : 12000 MTs of cotton seed INSTALLED CAPACITY : 392 MTs of seed per day of 24 hours working RAW MATERIAL : Cotton kapas FINISHED PRODUCTS : Cotton lint Cotton Lint will be supplied to Spinning Mills and Cotton Seed to Oil Mills.
Oil Division: A totally Integrated Agro Industry extensively engaged in extracting both Crude Oil and Edible Oil from high quality Cotton Seed Oil is a popular cooking medium thanks to its low tat and nutritional content. On the other hand., Crude oil finds an immediate industrial application. Besides these two core oil extractions, the Division has also extensively diversified into high quality extractions from a variety of other seeds and beans. Capability on its competence and knowledge of agro industry, the Division was set up in 1998.
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The Mills capacity of processing Cotton Seed and Cotton Seed Cake has jumped to 80 tones. At this division, the De-oiled Cake is further processed in the solvent extraction plant which gives about 3-4% oil. The De-oiled Cake is then utilized as cattle, Poultry and Fish feed which is immensely popular.
Success comes with a fierce will to perform. This philosophy to excel has placed the division on the summit. The Division has consistently bagged excellence awards for highest Cotton Seed processing and crushing. These awards recognize Swathi Cottons pursuit of excellence which is achieved through enhanced productivity, quality, up gradation and a shared of commitment. Indeed, this outstanding recognition sets an example to all the other oil and extracting industries in the country. Oil Division consist of cotton seed processing Plant, Expeller (Oil Mill), Refinery and solvent Extraction Plant.
LICENCIED : Registered with DGTD, New Delhi. Processing : manufacturing of double refined oil Installed Capacity : 40 MB Edible oil per day of 24 hours of working Raw material : Cotton seed, sun flower seed, Soya been seed, rice bran, other seeds. Finished products : Cotton linters, Edible refined oil, hulls, extraction
Environmental Protection and Safety A Top Priority: We believe that environmental protection requires attitude, action and right application technology. The group is an eco-friendly entity whose concern is conservation of life and situation. The division does not release any toxic wastes and pollutants.
And, across every unit of the group, humidity, moisture and temperature are constantly monitored to ensure top most safety. The very fact that we have made wearing of masks mandatory for the personnel bears amp witness to our commitment to industrial safety. 46
The environmental protection commitment of the company firmly believes that when we use the bounties of mother earth, we have to give back an environment that is conductive to healthy living. Count Range: We are running from 50 to 100 counts in single s well as double (TFO) yarns. We are running compact yarn with 12000 spindles (suessen). We will achieve 25000 spindles compact yarn shortly.
Statement of Accounting Policies: General Fixed Assets Investments Depreciation Inventories Excise Duty Sales Taxes On Income Segment Reporting Retirement Benefits Proposed dividend Foreign Currency Transactions Impairment of Assets Contingent Liabilities Foreign Exchange Earnings and Out Go
General: The accountings are prepared on historical cost convention and in accordance with normally accepted Accounting Principles.
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Fixed Assets: Fixed assets are stated at cost less accumulated depreciation. Cost of acquisition of fixed assets is inclusive of directly attributable cost of bringing the assets to their working condition for the intended use and interest on borrowings till the date of commissioning of the assets, CENVAT/VAT credit availed, if any, on fixed assets is not included in the cost of such fixed assets capitalized. Investments: Long-Term investments are valued at cost price less provision for diminution on account other than temporary decline in the valve of investment.
Depreciation: Depreciation is a written off in accordance with the provisions of schedule XIV of the companies Act 1956 as follows: Under straights Line Method in respect of the assets of Spinning, Power and Textile Divisions. Under written down valve method on the assets of all other divisions of the company. Inventories: Valuation of inventories is made as follows: Raw-Material and Finished goods at cost or net realizable valve whichever is lower. Work-in-Progress at cost inclusive of direct production overheads. Stores and spares at cost. Electronic power at net releasable valve.
Excise Duty: Liability on finished goods is accounted for as and when goods are cleared from factory and there is no liability on closing stock of finished goods at the year end.
Sales: Sales are exclusive of sales tax collections due to implementation of AP VAT Act 2005. 48
Taxes on Income: Current taxes are determined as per the provisions of income Tax Act 1961 in respect of taxable income for the year ended 31st march, 2010.
Deferred tax liability is recognized, subject to the consideration of timing differences, being the difference between the taxable income and accounting income the originate in one period and are capable of reversal in one or more subsequent periods. In case of power division which eligible for tax Holiday. Deferred Tax Asset/ liabilities for timing differences which reverse after the Tax Holiday period are recognized. Segment Reporting: The accounting policies adopted for segment reporting are in line with the accounting policies of the company with the following additional policies for segment reporting. Inter-segment revenue has been accounted for based on the market related prices.
Revenue and Expenses other than interest have been identified to segments on the basis of their relationship to the operating activities of the segment. Revenue and expense which related to the enterprise as a whole and are not allocable to segments on a reasonable basis have been included under Unallocated head.
Retirement Benefits: The Company makes regular monthly contribution to provident fund which are deposited with the Government and Group term Insurance is routed through L.I.C, and are charged against the revenue.
The company has taken Group Gradually (Cash Accumulation) scheme with Life Insurance Corporation of India. The premium on policy and the difference between the amounts of gratuity paid on retirement and recovered from the Life Insurance Corporation of India debited to profit and Loss Account. Leave encashment is accounted as and when the employees claimed and paid.
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Proposed Dividend: Provision is made in the account for the dividend payable (including of all tax thereon) by the company as recommended by the Board of Directors, Pending approval of the shareholders at the annual General Meeting. Foreign Currency Transactions:
Import of material /capital Equipment is accounted at the rates at which actual payments are effected. The profit/ Loss arising out of foreign Exchange transactions on sale of goods are accounted on actual realization basis. Foreign Currency loans covered by forward contracts are stated at the forward contracts rates while those not covered are calculated at year end rate.
Impairment of Assets: At the date of each balance sheet the company evaluates internally, indications of the impairment if any, to carrying amount of its fixed and other assets. No impairment loss has been recognized.
Contingent Liabilities: Contingent Liabilities are not recognized in the accounts, but are disclosed after a careful evaluation of the concerned facts and legal issues involved.
Foreign Exchange Earnings and Out Go: The company has earned foreign exchange of Rs.725.72 lakhs of its finished goods and Rs.1493.16 lakhs by export through merchant /trade house of its finished goods. The company has spent Rs.58.95 lakhs of foreign exchange towards import of raw-material, Rs.4.18 lakhs towards import of components & spare parts, Rs.1166.37 lakhs towards import of capital goods including advance paid, Rs.5.02 lakhs towards interest on foreign currency loan and Rs.11.90 lakhs towards freight, commission & traveling.
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Board of Directors: Sri. Parthipati Pullarao. B.E. - Chairman & MD. Sri. Boggavarapu Satyanarayana. Director. Man Power in Swathi Cotton Pvt.Ltd: Table 3.1:
Future Outlook: Operations on consolidated basis continue to pose healthy trends. However, changes in the industrial trends are bound to influence spinning operations.
Company has acquired 48 looms under first phase of project implementation for textile division. Textile operations have come out of teething problem but have to reach estimated levels in operations and profits. This shall take some more time in view of dip in dollar valuation and decline in exports.
Thus, company has to grapple with an industrial scenario that calls for alert and caution. Oil division is showing immense potential to reach higher levels in all spheres of operations. Power division shall perform well in the current year also. In view of this, we are hopeful of improved performance in 2007-08 despite the difficulties posed.
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Analysis on Capital Budgeting In Swathi Cotton Pvt.Ltd: Importance of Investment Decision: Investment decisions require special attention because of the following reasons. They influence the firms growth in the long term. They affect the risk of the firm. They involve commitment of large amount of funds. They are irreversible, or reversible at substantial loss. They are among the most difficult decisions to make. Investment Evaluation Criteria: Three steps are involved in the evaluation of investment.
Estimation of cash flows Estimation of the required rate of return (the opportunity cost of capital) Application of a decision rule for making the choice. EVALUTION OF INVESTMENT PROPOSAL: At each point of time a business firm has a number of proposals regarding various projects in which it can invest funds. But the funds available with the firm are always limited and it is not possible to invest funds in all the proposals at a time. Hence, it is very essential to select from amongst the various competing proposals, those which give the highest benefits. The crux of the capital budgeting is the allocation of available non economic, which influence the capital budgeting decision is the profitability of the prospective investment. Yet the risk involved in the proposal cannot be ignored because profitability and risk are directly related, i.e., higher profitability, the risk vice versa.
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DATA ANALYSIS AND INTERPRETAION
Inventories are the stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories may exist in a manufacturing company are ABC Analysis is basic tool, which helps the management to place their efforts where the results would be useful to the greatest possible extent. The first important step in inventory management is to have a selective approach to fix-up inventory levels and the extent to which the control can be exercised in Swathi Cottons Pvt.Ltd. Raw materials Work-in-progress Finished goods Table No:1.1 Raw material
Items 2009-10 2010-11 2011-12 2012-13 2013-14 raw materials 818 849 918 976 871 working in process 371
380
391
449
408 Finished goods 1189 1859 2015 2066 1634 54
GRAPHICAL REPRESENTAION: 2.1
Interpretation: From the above table we have seen that the raw material of phi lips was increased in the year 2012&2013 and decreased in 2014&2011. When comparing to the working progress 2011 was increasedan2009decreased.and finished goods was increased in the year 2012when comparing to the 2013.
818 849 918 976 871 371 380 391 449 408 1189 1859 2015 2066 1634 0 500 1000 1500 2000 2500 2009-10 2010-11 2011-12 2012-13 2013-14 raw material work in process finished goods 55
ABC (Always Better Control) Analysis: ABC analysis is the selective inventory control technique and this is the first step in the inventory control process. This is the process in which 1000s of different types of inventories are classified to determine the type an degree of control required for each. This technique is based on the assumption that the firm should not exercise the same degree of control on the items of inventory. On the basis of unit price and consumption, various inventory items are categorized into three classes of this analysis: A B C A group involves the largest investment and inventory control must be rigorous and intensive and the most sophisticated inventory control technique should be applied to these items. Type A is of higher cost and highly scarce resource without which the production process cannot be imagined, which will be very less in quantity when compared to the investor level A type of items is only about 10% in number. But account for 75% of the annual inventory usage value. B group stands mid-way. It deserves less attention than A and more than C. Employing less sophisticated techniques can also control it. Type B is of moderate cost and moderately important. These are freely available when compared type A. B types of items are only about 20% in number. . But account for next 50% of the annual inventory usage value.
C group consists of items of inventory, which involve relatively small investments although the number of items is fairly large. These items deserve minimum attention. Type c items are of lowest cost and less importance when compared to A and B. As these type of inventories are freely available in the market and can immediately replace or purchase. C types of items are about 70% in number. . But account for next 10% of the annual inventory usage value. 56
ABC ANALYSIS AT BULK ACTIVES DIVISION Table: 1.2 RAW MATERIAL (AT COST*) * Rs In million
Particula rs % of values 2009- 10 % of values 2010 -11 % of value s 2011- 12 % of value s 2012- 13 % of value s 2013 -14 Raw Material( at cost) 819 849 918 871 976
Interpretation: Consumption of raw material A graduall y increased every year from 2011, raw material Bs consumption increased from 2012 and decreased thereafter and raw material Cs consumption increased and decrease from 2013-14. Such items have largest investment but not much in number i.e., 10% of items account of 70% of total capital invested in inventory.
Table: 1.3 WORK IN PROCESS (AT COST) * Rs In million
Particulars % of values 2009- 10 % of values 2010- 11 % of values 2011- 12 % of values 2012- 13 % of values 2013- 14 Work in progress
361 380 391 449 408
A 68 239 70% 266 69% 269.79 72% 323.28 70% 285.6
B 22
84 20% 76 23% 89.93 19% 85.31 17% 69.36
C 10
38
10% 38 8% 31.28 9% 40.41 13% 53.04 59
WORK IN PROCESS (AT COST): 2.3 * Rs In million
Interpretation: The consumption of work-in-progress A gradually increased from 2011 to 2012 and 2013, and decrease in 2014work-in-progress Bs consumption increased from 2011 and 2013,2014 decreased thereafter and work-in- progress 2014 is increase Cs consumption increased in the year 2012 when compared to Decreased in 2012and increased in 2013 and decreased in 2014.
361 380 391 449 408 239 266 269.79 323.28 285.6 84 76 89.93 85.31 69.36 38 38 31.28 40.41 53.04 0 50 100 150 200 250 300 350 400 450 500 2009-10 2010-11 2011-12 2012-13 2013-14 work in progress A B C 60
Table: 1.4
Finished goods (at cost): * Rs In millions
Particulars % of values 2009- 10 % of values 2010- 11 % of values 2011- 12 % of values 2012- 13 % of values 2013- 14 Finished goods
Interpretation: The consumption of finished goods A increased in the year 2011when compared 2014 and then it decreased in year 2012 and again it increased in 2012. Finished goods Bs consumption increased in the year 2011 and it is decreased in the year 2010 and again it decreased in the year 2014. Finished goods Cs consumption gradually decreased and increase.
Table: 1.5 Inventory total assets ratio This ratio shows the relationship between inventories 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 Inventory to total assets ratio = Total assets
YEAR INVENTORY TOTAL ASSETS RATIO 2009-10 239880075 269237494 0.890960 2010-11 236975762 356119739 0.665438 2011-12 327412543 370204018 0.884411 2012-13 341906868 498340760 0.686090 2013-14 357607317 182308772 1.961547
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Inventory total assets ratio : 2.5
INTERPRETATION: During the period 2009-10 the inventory to total assets ratio was 0.8909. This is due to rise in inventory resulting due to increase of turnover. This ratio is not a satisfactory one as it is above. The quick ratio had inventory 0.8844 in the year 2011-12. At present the current ratio of the company was 0.686 i.e. in the year 2012-13. It is maximum our in the year 2009-10 the reason for our quick ratio is due to increase in current liability when compared 2009-10. It is minimum 0.159 in the year 2010-11 this is mainly due to high current liability.
Table: 1.6 INVENTORY TO CURRENT ASSETS RATIO This ratio indicates the relationship between inventories 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 Inventory to current assets ratio = Current assets
YEAR INVENTORY CURRENT ASSETS RATIO 2009-10 239880075 129613310 1.85073 2010-11 236975762 153670425 1.54210 2011-12 327412543 211751872 1.54620 2012-13 341906868 354979800 0.96317 2013-14 357607317 563126567 0.63503
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INVENTORY TO CURRENT ASSETS RATIO: 2.6
INTERPRETATION: The inventory to current assets ratio in the year 2009-10 was 1.85 during this period there is high demand in the mark thus leading to maintain of the inventories at a satisfactory ratio. The inventory to current assets ratio had been increases to 1.542 in the year 2010-11. This due to fail in both inventories and current assets. The significant drop in the level of inventory in due falling trend in demand thus leading to fail in prelates and finally on sales. The decrees in sales lead to fail in debtors and in turn and the current assets. The inventory to current assets ratio had increased to 0.041 in the year 2011- 12. The main reason for this is due to environmental conditions per prevailing in the market, i.e. lack of demand resulted in maintaining of law inventory levels. During the period the industry had response from lack of demand thus leading to incrassating laves of inventory. As a result of this we find a substantial increase in the inventory to current assets ratio. The inventory to current assets ratio in the period 2012-13 was 0.963.
The inventory to sales ratio measures the percentage of inventory the company currently has a hand to support the current amount of sales. An increasing inventory to sales ratio is generally a negative sign. Showing the company may be having trouble keeping inventory down and /or net sales have slowed and can sometimes indicate larger financial problems the company may be facing viewing this ratio over several periods reveals the important aspect of the companys ability to manage inventory while attempting to increases sale.
Inventory Inventory to sales ratio = Net sales
INVENTORY TO SALES RATIO YEAR INVENTORY NET SALES RATIO 2009-10 239880075 96695127 2.48078 2010-11 236975762 255762587 0.92684 2011-12 327412543 257993866 1.26907 2012-13 341906868 280678564 1.21814 2013-14 357607317 588655944 0.60749
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Inventory to sales ratio: 2.7
INTERPRETATION: The inventory to sales ratio in the year 2009-10 was 2.4807. The reason for this is increases in inventory which is generally due increase in demand at the market. The increases in sales also controlled this ratio to a certain extent. The ratio in the year 2010-11 also remains same as in previous year. Here in this we find a fail in both inventory and net easel thus balancing the ratio. But this is not a satisfactory one. For the period 2011-12 the ratio had fall down to 1.554. This is mainly due to fall in inventory which is due fall in purchases made by the company. The ratio had increases a little bit in the year 2013-14, but it remains satisfactory on a whale because we find a falling trend in the ratio.
Table: 1.8 Inventory to working capital ratio The inventory to working capital measures how well the company is able to generate cash using working capital at its current inventory levels. 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 account payment. Inventory Inventory to working capital ratio = Working capital
YEAR INVENTORY WORKING CAPITAL RATIO 2009-10 187934012 10010874 23.96195 2010-11 239880075 48778889 4.85816 2011-12 236975762 53299726 6.14285 2012-13 327412543 211618840 1.61567 2013-14 341906868 561868362 0.63646
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Inventory to working capital ratio: 2.8
INTERPRETATION: The inventory to working capital ratio in the year 2009-10 was 23.961 which is not a positive sign for the company. The main reason for this is increases in inventory level of reason for this are increases in inventory levels of the company. As the turnover of the company in this period is high the company had convened in maintain a high inventory level that leading to this negative inventory to working capital ratio. The ratio increased to 4.858 in the year 2010-11 which is mainly due to the fall of inventory. The treason for this lack of demand in the industry forcing the company to make little purchases and these leading to fall in the inventory. The ratio further increased to 6.142 in the year 2011-12 here we find a fall in tremendous fall in inventory. The ratio shows appositive sign. In the year 2012-13 the ratio has decreed to 1.615. This is due to decreased in inventory level as there is decreased in the purchases made by the company due to changing economic conditions. In the year 2013-14 has decreased to 0.636. In this period we find a decreed in both inventory and working capital making the ratio satisfactory, the decreed in current assets and decreed in current liability leads to the decrees of working capital.
Table: 1.9 Inventory turnover ratio Inventory turnover ratio indicates the efficiency of the firm in producing and selling its product. It is calculates by deciding cost of goods sold by averse inventory. Average inventory consists of opening stock plus closing stock divided by two a high inventory turnover ratio indicated that the product is selling well. A low turnover ratio poor sales and therefore, excess investment.
Interpretation: During the period 2009-10 the inventory ratio of the company was 0.757. It is satisfactory one as the company is able to generate sales around The inventory turnover ratio had been decreased to 1.182 in the year 2010-11. The reason for this is decrease in turnover which is mainly due to prevailing conditions in the industry. The inventory turnover ratio had been increased to 1.940 in the year 2011-12. The reason for this decrease in turnover which is mainly due to prevailing condition in the industry. The main fall in average inventory is due to management decision to dispose opening stock of the year and only to make miner purchaser. The inventory turnover ratio had been decrees 0.185 in the year 2012-13. The reason for this is decrease in turnover which is mainly due to prevailing conditions in the industry. In this year also depressed trend has been there beware of floods were effected on the production of tobacco. In the year 2013-14 the IR has been increased 1.30. The main reason for this is due to increase in turnover and due to fall in average inventory is due. The reason for fall in average inventory is due minor purchases of the company in the year thus leading to low closing stock. 0.75 1.18 1.94 0.18 1.3 0 0.5 1 1.5 2 2.5 2009-10 2010-11 2011-12 2012-13 2013-14 Ratio 72
Table: 1.10 Size of inventory The size of inventory depends on several factors such as sales volume, capacity of plant, availability of raw materials, fluctuations in prices of raw materials and finished goods, length of production cycle etc., generally progressive organization inventory levels continuously increase as increase in sales and production. As already stated the prime objective of inventory management is to optimize size of inventory so that smooth performance of production and sales are possible. Increase in size of inventory involves extra cost apart from adversely effecting profitability and liquidity. The size of net working capital is measured with the help of following ration.
Inventory Size of inventory = a Total current assets
Interpretation: The above table shows the size of inventory in the selected enterprise during the period of 2009-14. It is evident from the table that inventory constituted the most important element of total current assets in this study as it is found on an average around 50 percent of the total current assets.
It is observed from the table that the size of inventory of ML &co has gradually decreased from 47% to 44% in 2009-11and increased in 2012 from 44% to 51% in the study period. Reason: This is due to fluctuations in price and monopoly supplier. Suggestion: It is better to start own manufacturing unit
Table: 1.11 Days of Inventory Holding The reciprocal of inventory turnover ratio gives average inventory holding in percentage term. When the number of days in the year (say 365) is divided by inventory turnover, we obtain days of inventory holdings. The size of the days of inventory holding is measured with the help of the following ratio
365 Days of Inventory Holding = a Inventory Turnover Ratio
The results of this ratio as applied to ML&co:
Year No. of Days in Year Inventory Turnover Ratio Period (Days) 2009-10 365 9.56 38.1 2010-11 365 12.24 30 2011-12 365 12.01 30 2012-13 365 12.72 28.69 2013-14 365 13.09 27.88
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Days of Inventory Holding: 2.11
Interpretation: From the above table the trend of inventory holding period of the company. It is understood that the days of inventory holding has gradually decreased from 38 days to 30 days, because the inventory turnover ratio and the inventory holding period are interrelated. If the inventory turnover ratio increases then the days of the inventory holding decreases and vice-versa. It indicates the improvement in the management efficiency in converting their inventories into sales as fast as possible.
Table: 1.12 Current ratio A liquidity ratio that measures a companys ability to pay short-term obligations. the ratio is mainly used to give an idea of the companys ability to pay back its short-term liability (debt and paybles0 with its short-term assets (cash, inventory, receivables). if the current assets of a company are more than twice the current liability 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.
Current assets Current ratio = Current liabilities
YEAR CURRENT ASSETS CURRENT LAIBILITY RATIO 2009-10 129613310 139624184 0.92830 2010-11 153670425 202449314 0.7590 2011-12 211751872 158452146 1.336377 2012-13 354979800 143360960 2.47612 2013-14 563126567 125982205 4.46988
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Current ratio: 2.12
Interpretation: The current ratio in 2009-10was 0.9283 it has been decreased to 0.759 in the year 2009-10 and further increased in the year. The current ratio in 2010-11 was 0.7590 it has been decreased to in the year 2009-10. It is maximum 6.604 in the year 2009-10. The reason for maximum current ratio is due to the in current liabilities and increased in current assets when competent to 2010-11. It is minimum 0.75 in the year 2010-11 the reason for this is due to high current liabilities low current asset.
Table: 1.13 QUICK RATIO Quick ratio is indicator of a companys short term liquidity. The quick ratio measures a companys ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the quick ratio, the better the position of the company. It is also known as the algid-test ratio or the quick assets ratio. It is obtained by subtracting inventories from current assets and then dividing by current liability.
Current assets Inventory Quick ratio = Current liabilities
Table: 1.13 YEAR QUICK ASSETS CURRENT LIABILITY RATIO 2009-10 58320702 139624184 0.416 2010-11 86209650 202449314 0.425 2011-12 25223890 158452146 0.159 2012-13 27567257 143360960 0.1922 2013-14 528935699 125982205 4.1984
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QUICK RATIO 2.13
Interpretation: The quick ratio of the company in 2009-10 was 0.4176 it has been slightly increase to 0.425 in the year 2010-11 and further decreased to 0.159 in the year 2011-12. The quick ratio had increased 0.197 in the year 2012-13. at present the current ratio of the company was 4.198 i.e. in the year 2013-14. It is maximum 0.42 in the year 2010-11 the reason for 0.42 quick ratio is due to increased in current liabilities when compared 2011-12. It is minimum 0.159 in the year 2012-13 this is mainly due to higher current liability.
VED Analysis The items can be classified according to their use. A-B-C classifition is an oldest and commonly used method, but now-a-days VED and SDE analyses are also being used, VED analysis is do not consider essential V- Stands for vital items, without which production would come to halt, E- Stands for Essential items without which dislocation of production work occurs. D- Stands for Desirable items. Reaming items, which do not cause immediate loss in production fall under this category Thus according to this system of analysis basis is critically of items, whereas in A-B-C analysis consumption of values 1. Vital 2. Essential 3. Desirable Now company will see the each one Vital: V- STANDS FOR VITAL ITEMS, WITHOUT WHICH PRODUCTION WOULD COME TO HALT. These types of spare parts are most important to the organization. Of their types of Items are not available the organization couldnt run For example: power supply analog Hydraulic cylinder Cluster contact.
Item Description Category 01211471 415/440 V ACUN VITAL 0121501 110/125 V DCSH VITAL 1211552 CLUSTER CONTACT VITAL 07030762 BEARING UCHB X VITAL 81
Nearly the vital inventory valuation is around Rs: 80,836.23
VITAL 7000042 I/O CHASIS ASSE 7000051 I/O CHASIS 7 SLO VITAL 70000123 POWER SUPPLY UN VITAL 71000046 2 CHANNERL DEVIC VITAL 71000054 FLEXI/O/CONT VITAL 71000071 24 V DCSINK IN VITAL 71000089 24 V DCSOURCE IN VITAL 71000097 ANALOG INPUT MO VITAL 71000101 DIGITAL O/ P MOD VITAL 82
Essential: E- Is for Essential items, without which dislocation of production work occurs. These types of spare parts are very important but non as vital items. Only because these items are not available sometimes there is no effect to organization. For example: Needle Bearing. Adapter assembles Resistance unit taper roller bearing. Bearing owed.
54000149 BY PASS CONTACT ESSENTIAL 54000335 ADAPTOR(135730) ESSENTIAL 54000343 PUMP SEAL KITP ESSENTIAL 54000769 SPRING WASHER M ESSENTIAL 54000874 POWER PACK UNIT ESSENTIAL 54000891 POTENTIMETER P ESSENTIAL 54000955 ANALOG OUTPUT M ESSENTIAL 71000127 CONTROL NET COA ESSENTIAL 71000186 PHOTOCELL MAKE ESSENTIAL 77000031 630A4POLE S/C ESSENTIAL Nearly this Essential inventory valuation is around Rs.57, 17, 111/-
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Desirable: D- Is for Desirable items. Remaining items, which do not cause immediate loss in production fall under this category. These types of spare parts are required to organization, nut not essential these types of spare parts are only used in supportive nature. For example: Moving contacts, choke-20, main contacts, Are chute, 240V
Nearly this Desirable inventory valuation around Rs. 4, 39,413.69/
Item Description Category 01020016 PHILPS MAKE 36 DESIRABLE 01020102 CHOKE 20W DESIRABLE 01040260 ELEMEX MAKE CHS DESIRABLE 01062204 DOWELLS MAKE 9 DESIRABLE 01200381 SIMENS MAKE 10 DESIRABLE 01201034 MAIN CONTACTS K DESIRABLE 01201239 240V AC 50HZ CO DESIRABLE 01201255 MAIN CONTATS K DESIRABLE 01211404 3 POLE BACK PAN DESIRABLE 01211413 MOVING CONTACT DESIRABLE 101211439 ISOLATING CONTA DESIRABLE 85
Swathi Cottons Pvt.Ltd, Ganapavaram has been procuring the spare parts from various locations. These locations are very important to the Swathi Cottons Pvt.Ltd, Ganapavaram. Items Items Description Supplier Location I1020111 Ge make 36 ballast for fluoresce Sigma technocrat Vijayawada DC_Electri Tap aria make Allen keys sets inches Gayatri engineering Vijayawada 79000436 63A3Pswith disconnected make tell Gayatri engineering Vijayawada 77000056 Power contactor make Siemens cat. No.3v Sri gurudatta Vijayawada 76000036 6 to 10ampcb make Siemens cat.no.3v Sri gurudatta elec Vijayawada 79000576 Trojan 5 safety swith make, guarcm Electro optics pvt Pondicherry Pondicherry 1061003 Comet make cbw_03doble compress Comet brass produ Mumbai 1061658 Coment make cbw_1 double compress Comet brass produ Mumbai 86
DC_ Electri Illuminated flush integral led spring Swathi engineering Vijayawada DC_Electri Illuminated flush integral led spring Swathi engineering Vijayawada 1020064 Ge make 18w 2 fluorescent lamp-ge Sigma technocraft Vijayawada DC_Electri Auto drain value, size port conne Al_ Aqmar trading Secunderbad DC_Electri Siemens make 4way oystic cat no:3se Swathi engineering Vijayawada 1061011 Siemes make cbw 01 Comet brass Mumbai
87
FINDINGS In the year 2009 and 2014. The decreased inventory turnover ratio indicates the inefficiency of the firm in the years 2011, 10 and13 it is efficient and satisfactory. When compare to the years 2009, 13, in the years 2009,10,11,12 the inventory size of the ML Group &co raged 25 percent because of sales volume and capacity utilization of plant which leads to adversely affects the liquidity and profitability. Over all the inventory management in ML Group & co up to the mark where by adequate supply of materials and avoided costly interruptions in operations. Raw materials of category A increased continually from 2010-13 even though it in values the largest investment and intensive without which the production process we cant be imagine. B also the followed the same for annual inventory use age. In the year 2012 work in progress of category A products. Drastically increased because of demand. Category C products of finished goods are as usually when we observed the past four years which indicates on easily of demand. Cluster conduit, Hydraulic value, Moralistic us like such products are vital without which production would come to fact. Cage bearing dry, Star wheel comp, helical pinion, such like products are essential without which causes dislocation of the production. Moving contacts k, pole back pan, elemis matches, and such products under the desirable product the products are his loss in the production even having the adverse effect on the production. 88
SUGGESTIONS A plan should be drawn to use the surplus tobacco in same seasons for the manufactures of long live-b products. The company should introduce continuous stock verification system for all the materials. The company should introduce some of major inventory classification method like XYZ analysis and FSW analysis for better control of inventories. The composition of current assets is dominated by inventory and other current assets in this regarded it is regard advised to the company to maintain a balance among the different components of current assets It is better to start own manufacturing unit for materials like which has monopoly supplier. So that ordering costs and carrying casts reduce and can have materials in time The Swathi Cottons Pvt.Ltd has maintained the stares of inventory cure satisfactory. But kepi up continues for the time period according to the company. It is suggested to the company that the current assets improve so as to improve the net working capital. It is suggested to the company that the current assets as to improve so as to improve the current ratio. It is suggested to follow liberal rules to debtors in order to have good inventory turnover ratio.
89
Conclusion Finally it is concluded that inventory of tobacco in Swathi Cottons Pvt.Ltd is very important segment to gain the high profits. Inventory management of engineering stores is also very important area to the Swathi Cottons Pvt.Ltd. It maintains the total inventory cost is around Rs 52, 00,000. This inventory management of engineering stores is marinating mini-max system and VED analyses. Inventory management is the heart of organization for Swathi Cottons Pvt.Ltd and as well as the necessaries too. Inventory management helps the organization to keep the production without breaks and it help to the productions of the future. Inventory management will also help the managers to show their efficiency in the work. It will help the production growth as well as to minimize the cost of the production and price of the product. It is the area which is very important to any of the organization and this too.
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BIBLIOGRAPHY :
Title of the book Author name Financial Management : IM Panday Financial Management MY Khan Financial Management S.N.Maheswari Financial Management Prasannachandra Financial Management : V.K.Bhalla Manual of Stores Department Five Year balance Sheets ( 2006-11)
Website : www.google.com www.mlgroup.com
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Annual reports of Swathi Cottons Pvt.Ltd for year 2007-08 Particulars Amount Sources of Funds: Share capital 13000000 Reserves & Surplus 130270036 Loan Funds Secured loans 390364244 Unsecured loans 199239493 Differed Tax liabilities 5796209 Total 738669982 Applications of Funds Fixed Assets: Gross Block 711492129 Less Depreciation 105478021 Net Block 606014108 capital work in progress 59399 Investments 2983165 Current Assets: Inventories 187934012 Sundry Debtors 26860540 Cash & Bank Balance 6059037 Other Current Assets 48679846 Loans & Advances 11723019 281256454 (-)Current liabilities: Current Liabilities 139624184 Provisions 12018960 151643144 Net current Assets 129613310 total 738669982 Particulars Amount Sources of Funds:
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Annual reports of Swathi Cottons Pvt.Ltd for year 2008-09 Share capital 13000000 Reserves & Surplus 151136957 Loan Funds Secured loans 379475270 Unsecured loans 193040880 Differed Tax liabilities 6247531 Total 742900638 Applications of Funds Fixed Assets: Gross Block 746114635 Less Depreciation 145033137 Net Block 581081498 capital work in progress 5165551 Investments 2983165 Current Assets: Inventories 239880075 Sundry Debtors 35992686 Cash & Bank Balance 7150276 Other Current Assets 69640943 Loans & Advances 12529745 365193725 (-)Current liabilities: Current Liabilities 202449314 Provisions 9073986 211523300 Net current Assets 153670425 total 742900638 93
Annual reports of Swathi Cottons Pvt.Ltd for year 2009-10
Particulars Amount Sources of Funds: Share capital 13000000 Reserves & Surplus 194200158 Loan Funds Secured loans 478682475 Unsecured loans 81595729 Differed Tax liabilities 5523986 Total 773002348 Applications of Funds Fixed Assets: Gross Block 738903208 Less Depreciation 182491726 Net Block 556411482 capital work in progress 1855829 Investments 2983165 Current Assets: Inventories 236975762 Sundry Debtors 36258591 Cash & Bank Balance 13998934 Other Current Assets 93687132 Loans & Advances 10864119 391784538 (-)Current liabilities: Current Liabilities 158452146 Provisions 21580520 180032666 Net current Assets 211751872 total 773002348 94
Annual reports of Swathi Cottons Pvt.Ltd ted for year 2010- 11
Particulars Amount Sources of Funds: Share capital 13000000 Reserves & Surplus 345901071 Loan Funds Secured loans 429126132 Unsecured loans 83386203 Differed Tax liabilities 42151888 Total 913565294 Applications of Funds Fixed Assets: Gross Block 772553600 Less Depreciation 218501632 Net Block 554051968 capital work in progress 1550361 Investments 2983165 Current Assets: Inventories 327412543 Sundry Debtors 22361498 Cash & Bank Balance 73891461 Other Current Assets 151568707 Loans & Advances 13966691 589200900 (-)Current liabilities: Current Liabilities 143360960 Provisions 90860140 234221100 Net current Assets 354979800 total 913565294 95
Annual reports of Swathi Cottons Pvt.Ltd for year 2011-12
Particulars Amount Sources of Funds: Share capital 13000000 Reserves & Surplus 590704185 Loan Funds Secured loans 438254754 Unsecured loans 35892612 Differed Tax liabilities 61117474 Total 1138969025 Applications of Funds Fixed Assets: Gross Block 981830657 Less Depreciation 326591828 Net Block 655238829 capital work in progress 4423165 Investments 2983165 Current Assets: Inventories 357607317 Sundry Debtors 92904975 Cash & Bank Balance 54394425 Other Current Assets 70889326 Loans & Advances 7838168 583634211 (-)Current liabilities: Current Liabilities 108045990 Provisions 555334814
Net current Assets 475588221 total 1138969025 96
Annual reports of Swathi Cottons Pvt.Ltd for year 2012-13
Particulars Amount Sources of Funds: Share capital 13000000 Reserves & Surplus 579641764 Loan Funds Secured loans 119794068 Unsecured loans 393499008 Differed Tax liabilities 76495357 Total 1182430197 Applications of Funds Fixed Assets: Gross Block 660559839 Less Depreciation 132111968 Net Block 528447871 capital work in progress 5683165 Investments 2983165 Current Assets: Inventories 382659410 Sundry Debtors 36716835 Cash & Bank Balance 18354375 Other Current Assets 3797003 Loans & Advances 67381751 508909374 (-)Current liabilities: Current Liabilities 238466742 Provisions 556145249 791611991 Net current Assets 387818206 total 1182430197