CHAPTER V

INVENTORY MANAGEMENT
OF
SELECTED
CEMENT COMPANIES
 CHAPTER V

INVENTORY MANAGEMENT OF SELECTED

CEMENT COMPANIES

Inventory serves as a link between production and distribution

processes. There is generally a time lag between the recognition of a
need and its fulfillment. The greater the time lag, the higher would be
the requirements for inventory. The fluctuations in demand and
supply of goods also necessitate the need for inventory. It also
provides a cushion for future price fluctuations. Generally, inventory
means stock of goods, which means finished goods. But in a
manufacturing firm, in addition to the stock of finished goods, there
will be stock of raw materials, work-in progress and stores also all of
which, form parts of inventories. The term inventory means the entire
stock of a company that makes up the production and also can be
offered for sale. So, inventory is that stock which is held for sale in
ordinary course of business and which is used in the process of
manufacturing and which is yet to be used for the purpose of
production of goods or services to be available for sale. The various
forms in which inventories exist in a manufacturing company are:-

1. Raw materials: These are those basic inputs which are

required to carry out production activities uninterruptedly.
Raw materials are those which have been purchased and
stored for future production. The quantity of raw materials
required is determined by the rate of consumption and the
time required for replenishing the supplies. The factors like
the availability of raw material and government regulations,
etc. affect the stock of raw materials.

190
 2. Work-in-Process: The work in process is that stage of stock
which is in between raw material and finished goods. The raw
materials enter the process of manufacture but they are yet to
attain the final stage of finished goods. These are also known
as semi manufactured products.
3. Finished Goods: These are the goods which are ready for the
consumers. The stock of finished goods provides a buffer
between production and market. These are completely
manufactured products which are ready for sale. Stock of raw
material and work-in-process facilitate production, while
stock of finished goods is required for smooth marketing
operations. The inventories serve as a link between the
production and consumption of goods.
4. Consumables fit Spares: Consumables are the materials which
are needed to smoothen the process of production. These
materials do not directly enter into production but act as
catalysts like fuel oil which may form a substantial part of
cost.
5. Spares: spares also form part of inventory. The policies of
spares are different from industry to industry, like transport
industry requires more spares than the other concerns. The
spare parts like engines, maintenance spares etc. are not
discarded after use but they are kept in ready position for
further use.

There are different motives of every company to hold inventories.

These are:-

Transaction Motive: The inventories are held to make up smooth

production and sales operations.

191
 Precautionary Motive: It helps in holding of inventories to guard
against the risk of unpredictable changes in demand and supply
forces and other factors.
Speculative Motive: Influences the decision to increase or reduce
inventory levels to take advantage of price fluctuations.

Although holding of inventory involves blocking of firms funds

and the cost of storage and handling, a firm needs to maintain
inventories to reduce ordering costs and avail quantity discounts. For
this purpose, proper management of inventories is necessary.
Designing a sound Inventory control system is a measure for
balancing operations. The aim of sound Inventory Control System is to
secure the best balance between too much and too little.

Thus, the main objective of inventory management is to avoid the

situation of over investment and under-investment in inventories to
maintain sufficient size of inventory for efficient and smooth
production, sales operations and to maintain minimum investment in
inventories to maximize profitability.

The tools and techniques of inventory management provide the

means for determining an optimal average level of inventory for the
firm. The main objective of inventory control is to avoid sales losses,
efficient production, gaining quantity discount and reducing ordering
cost. Efficient production and avoidance of sales losses are the
primary objectives of inventory management in cement manufacturing
firms. Weighted average cost is very popular in cement industry as
mostly, companies are following different methods for valuing
inventory. All the companies adopt techniques like 'ABC Analysis' and
'Inventory Turnover Ratio' as inventory control tools. Comparatively, it
enables the management to put in efforts at a place where results will

192
be attractive. The analysis of inventory management of selected
Cement Companies h a s been done in the present study as explained.

5.1 PROPORTION OF INVENTORY IN TERMS OF NET SALES

Turnover analysis is the basic and fundamental tool for

controlling investment in Inventory. An excessive investment in
inventory results in less cash available for other cash outflow
purposes. The sale of a concern directly affects the profits and holding
of inventory involves cost. Every increase in inventory is expected to be
accompanied by adequate increase in sales. So that increased cost of
inventory may be recovered from increased profits but companies
build inventory due to planned promotion. So, it is incorrect to
conclude that the larger amount of inventory causes higher sales.
According to stock out or scarcity effects, the sales increase with
inventory even though demand is independent of inventory, which has
been explained in the following table. The high amount of inventory if
accompanied with high amount of sales will lead to effective and
sufficient liquidity for the concern. But if there is excess inventory
blocked with the concern having low amount of sales will involve cost
of carrying the inventory or holding the inventory. The table ahead
describes the proportion of inventory kept by the companies in
relation to net sales. The table depicts that Grasim Industries and
India Cements have high proportion of inventory in relation to net
sales of the company.

193
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 The table 5.1 envisages the percentage of inventory of
selected cement companies in terms of net sales. All the
selected cement companies have maintained approximately,
lowest of 5 to 6 percent inventory of net sales. In an industry
like cement, which is already over stocked, it is expected that
growth in sales during a period must be at a faster rate thgm
inventory growth so, that profits are favourably affected. But
this trend h a s not been found in actual practice in the
industry. Companies failed to generate more sales in
comparison to inventory the situation can be made clear from
the table. The position of J.K. Cements is worse, as per the
analysis. The highest level of inventory is 24.3 percent in the
year 2011-12, the level of stock is high but the sales are only
of Rs. 1317.26 crores when compared from the industry point
of view.

On the other hand, Grasim and Shree Cements are

doing well in terms of net sales and their inventory levels are
high at 15 percent and 12.9 percent, all other companies are
doing well and the proportion of inventory is also appropriate.
Besides, Binani Cements is having highest inventory of 22.6
percent as compared to the sales of Rs. 963.04 crores which is
not too high, ACC is having second highest inventory of 21.3
percent with sales of Rs. 2810.63 crores.

The achievement of maximum possible profit is the goal

of an enterprise. This object can be achieved by accelerating
sales to the extent possible. In order to have uninterrupted
flow of production and sales, inventories are to be made
available, whenever needed at an appropriate level. Thus, the

195
volume of sales and size of inventory holdings are related to
each other. For the purpose of having an indepth insight into
the extent of inventory, the table ahead reveals the magnitude
or size of inventory.

5.2 SIZE OR MAGNITUDE OF INVENTORY OF

SELECTED CEMENT COMPANIES

The magnitude of inventory of selected cement

companies in India indicates Grasim at the very outset
followed by ACC, Ambuja, Ultratech, India Cement, Shree,
Madras, Birla, J.K and Binani. The following table 5.1 depicts
magnitude of inventory

196
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Pig 5.2: Size of Inventory of Cement Companies

•2012-13

• 2013-14

•2014-15

•2016-17

•2017-18

2018-19

•2019-20

2020-21

^w\/^^^^ ^A/^*^^^^ i^ -2021-22

Companies

Fig 5.2.1: Projected Inventory of Cement Companies

200
 As it is evident from the table-5.2, ACC's inventory is constantly
increasing year by year. In the year 2000-01, it was Rs. 294 crores
and then increased to Rs. 313 crores in the next year. In 2002-03, it
reduced to Rs. 300 crores and further, it increased. ACC has
maintained good level of inventory throughout the study period of
twelve years which shows that good level of working capital is
maintained due to it. Ambuja Cements started with low level of
inventory i.e. Rs. 148 crores in the year 2000-01 which started
increasing to a high of Rs. 940 crores in the year 2008-09. Ambuja
Cement has also shown improvement in maintaining good level of
inventory due to which, inventory and working capital management
are good. Ultratech Cement, since its incorporation in 2003-2004, also
maintained good level of inventory in the year 2011. The inventory
level rose to all time high of Rs. 1957 crores. Grasim industries is
showing fluctuating trend in the past twelve years period. In the year
2000-01, its inventory was Rs. 644 crores which increased to Rs. 82
crores and Rs. 726 crores. In the following years, it constantly
decreased which shows that the company is maintaining low level of
inventory. However, its inventory turned up to increase in the later
years. India Cements had low level of inventory, throughout the study
period from Rs. 188 crores in the year 2000-01 followed by a slight
increase till 2011-12. J.K. Cements recorded low track record of
inventory throughout the study period but it constantly improved.
Binani Cement had Rs. 40 crores inventory in the year 2002-03 that
increased in the next year but at a very low rate then again showed a
fall (Rs. 34 crores in two years) and again increased to Rs. 57 crores
and to Rs. 217 crores in the year 2008-09 followed by a decrease at
last. The inventory of Madras Cements was Rs. 72 crores in the year
2004-05 against its maximum inventory in the year 2010-11 at Rs.413
crores. Birla Corporation had a moderate level of inventory with

201
minimum inventory at Rs.l02 crores and maximum at Rs. 360 crores.
Moreover, Shree Cements had also moderate level of inventory. Earlier
it had low level of inventory which continuously increased.

Table 5.2.1 depicts trend or projected inventory of selected

cement companies. The figures of projected inventory have been drawn
by applying extrapolation on the data of twelve year period from 2000-
01 to 2011-12. The trend or projected inventory is calculated on the
basis of the statistical technique (least square method) i.e Yc=a+bX
where, parameters 'a' and TD' are constants, 'X' and 'Y' are the
variables. In case of ACC equation comes to Yc=551.32+30.074(X), in
case of Ambuja equation is Yc=402.33+34.53(X), Ultratech has the
equation Yc=449.99+65.62(X), Grasim Industry with equation
Yc=697.24+6.89(X), India Cement's equation is Yc=273.55+15.23(X),
J.K Cement with equation Yc=89.15+13.18(X), Binani Cements
equation is Yc=83.80+9.54(X), Madras Cement's equation is
Yc=171.92+16.68(X), in case of Birla equation comes to
Yc=161.02+9.76(X) and Shree Cement has the equation
Yc=177.91+19.80(X).

The projected inventory of ACC for the year 2012-13 is Rs.

942.282 crores, which will gradually increase in the future years and
estimated to reach Rs. 1483.614 crores in the year 2021-22. Ultratech
Cements have the projected inventory of Rs. 1303.05 crores and
estimated to reach Rs.2484.21 crores in the year 2021-22 and out of
all the selected cement companies, Binani Cements depicts the lowest
projected inventory of Rs. 207.82 crores in the year 2012-13 and Rs.
379.54 crores in the year 2021-22. After Binani, J.K, Birla, India,
Madras and Shree have moderate projected inventories. Besides ACC,
Ambuja and Grasim estimated to score well in the future for their
projected inventory.

202
5.3 INDICES OF INVENTORY OF CEMENT COMPANIES

Obviously, Shree Cement and Ambuja Cement are the two

cement companies which are quite ahead in terms of growth and
efficiency in comparison to the other cement companies of the
Country. This is the reason that the requirement of inventory as a
safety measure, has been increased by these two cement companies
more than the others. However, the indices of inventory of cement
companies taken for the analysis under this research, reveal growth
with the exception of a few in few years as stated in table 5.3.

203
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Fig 5.3: Indices of Inventory

As it is be observed from table 5.3, the inventory of all the

selected cement companies increased. The year 2000-01 is taken as
the base year and for the companies incorporated later on, the year of
inception is taken as the base year considering 100 index value. In
case of ACC, there has been increase in inventory as there is
unanticipated increment in the total investment in the inventory.
Similarly, Ambuja registered increase. Ultratech on the other hand,
was incorporated in 2003-04 and its inventory moved forward with
positive and increasing trend. Grasim recorded ups and downs in
inventory from decreasing trend that rose in the year 2006-07 and had
a sharp fall in the last years. This might be because of huge
fluctuation in its demand. India cement has also the similar
fluctuation but during the last years, it showed good performance. J.K
Cements indicated increase in inventory. Binani Cements, Madras and
Birla showed huge fluctuation. Shree Cements registered increasing

205
trend with small fluctuation in 2003-04 that is Rs. 169.29 and in all
the years under study, it h a s shown continuous increase. In case of
J.K. Cements there h a s been observed a kaleidoscopic change in the
inventory of the company.

Overall the position of ACC and Ambuja is found to be excellent

because they have shown positive and increasing trend and the
company which reduced the investment in total inventory, is found to
be Grasim.

5.4 BASIS OF SIZE OF INVENTORY

The basis of size of inventory of the cement companies is

analyzed as under:
Table- 5.4
Descriptive Statistics on the Basis of Size of Inventory of Selected
Cement Companies (2000-01 to 2011-12)
(Rs. in crores)

Companies Mean S.D C.V% Kurtosis Skewness Maximum Minimum

ACC 551.321 209.139 37.934 -1.4972 0.1993 914.98 293.99

Ambuja 479.421 301.713 62.932 -1.493 0.5359 939.75 147.54

Ultratech 449.998 567.663 126.14 4.849 1.9849 1956.52 223.17

Grasim 697.244 301.795 43.283 2.653 1.4733 1378.24 417.24

India 273.555 132.406 48.402 -0.39 1.0221 517.73 153.41

J.K 89.1566 105.57 118.40 0.915 1.1883 321.05 66.56

Binani 83.8066 79.365 94.700 -1.1821 0.7842 217.44 33.6

Madras 171.922 139.954 81.405 -0.739 0.9748 412.54 52.74

Birla 161.023 89.445 55.548 1.8138 1.5967 359.6 101.98

Shree 177.919 157.467 88.505 0.11428 1.1645 503.32 34.72

Total 3135.37 2084.52 66.484 5.0433 10.924 7521.1 1524.9

Source: Annual Reports of Selected Cement Companies till 2011-12

206
 The descriptive statistics of inventory of selected cement
companies analyzes that mean value of Grasim is Rs. 697.244 crores
which is highest in the industry. The Grasim Company catches the
focus in highest mean value of inventory. Its investment showed sharp
increase in trend also which may be because of some demand
forecasting or hike in the demand.
Companies with minimum size of inventory mean are Binani,
J.K., Birla and Madras. As far as the industry is concerned, it has
mean total inventory of Rs. 3135.37 crores with standard deviation of
Rs. 2084.522 crores, skewness of value 10.924, skewed to the right
side and kurtosis with leptokurtic distribution i.e. 5.0433. The
maximum toted inventory is Rs.7521.17 crores and minimum total
inventory is Rs. 1524.95 crores. This shows that this industry is
affected by the cyclic and seasonal variation because the difference
between the maximum level and minimum level is very high of
Rs.5996.22 crores.
The second highest mean value is of ACC Cement with value of
Rs. 551.3217 crores with standard deviation of Rs. 209.1392 crores,
skewness and kurtosis have been calculated to 0.19937 and -1.49729
crores respectively. It holds inventory with maximum value of
Rs.914.98 crores and minimum value of Rs. 293.99 crores. Highest
standard deviation is found of Ultratech Cement accounted for Rs.
567.6632 crores with a mean of Rs. 449.9983 crores. The highest
investment in inventory is found Rs. 1956.52 crores and lowest is
Rs.223.17 crores. Ambuja Cement, India, Binani and Madras Cements
registered negative kurtosis having platykurtic distribution against
other companies having positive kurtosis and ACC, Ambuja, Binani
and Madras have low degree of skewness which is less than one but
greater than zero having right side distribution i.e. 0.199337,
0.535902, 0.784236 and 0.974872 crores respectively. Regarding co-

207
variance, the maximum variance is found to be in case of ACC i.e
37.934 percent and maximum variation o£ 126.147 percent of
Ultratech in case of inventory.
Out of all companies, second minimum value of inventory is
Rs.34.72 crores which is too low in case of Shree Cements while
Binani had Rs. 33.6 crores and minimum Rs. 417.24 crores of Grasim
Industries. Maximum value of inventory was calculated to be of
Ultratech (Rs. 1956.52 crores). This is the highest maximum value out
of all companies and lowest maximum is Rs. 217.44 crores of Binani
Cement.

5.5 INVENTORY TURNOVER RATIO OF CEMENT COMPANIES

This ratio is also called as stock velocity ratio. It is cadculated to

ascertain the efficiency of inventory management in terms of capital
investment. It shows the relationship between costs of goods sold and
average inventory. This ratio is helpful in evaluation and review of
inventory policy. It indicates the number of times finished stock is
turned over during a particular accounting period. This ratio indicates
the efficiency in company's inventory Management. The inventory
turnover ratio can be computed by dividing net sales with Inventory at
year end. The equation is generally used to calculate inventory
turnover, here the net sales are valued at market price, the inventory
at the year end is valued at cost. Besides there can be wide
fluctuations in the value of inventory during the years. Hence, an
average of the inventory at year end and beginning is used. Also cost
of goods sold can be used in place of sales to make the ratio more
logical.

208
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 The inventory turnover ratio is a good measure of selling
efficiency and the general rule of analyzing this ratio is 'the higher-the
better'. The inventory turnover ratio is good enough but a need for
further probing would arise if the ratio falls too much or rises too high.

A high inventory ratio indicates efficient inventory management

and efficiency of business operations. Inventory turnover ratio
measures the velocity of conversion of stock into sales. A high
turnover ratio shows that the stocks are sold frequently and a lesser
amount of money is required to finance the inventory. On the other
hand low ratio indicates over-investment in inventory or over stocking
which shows inefficiency of management.

Total inventory turnover ratio shows the number of times a

company's total inventory is turned into sales. Investment in total
inventory represents idle cash. The lesser the inventory, the greater
the cash available for meeting operating needs.

Circulation of Inventory is measured by different turnover ratios.

The behaviour of inventory can be studied from inventory turnover
ratio i.e. inventory with sales is analyzed to measure the weightage of
total inventory with sales of the company. The inventory turnover ratio
of the selected cement companies is analyzed from the table 5.5.

The inventory turnover ratio of cement industry in table 5.5

indicates average of 5.038. The ratio of ACC was 8.24 times in the year
2000-01 which was fairly constant till 2004-05 showing an increase in
the ratio gradually declined in 2005-06. However, in the last four
years, it reached a high of 27.51 times which shows that ACC has
considerably maintained its inventory turnover ratio and at the end, it
210
reached to its high at a very fast pace. This shows that ACC has been
selling its inventory very frequently and converted it into sales.
Ambuja Cement recorded minimum inventory turnover ratio in the
year 2008-09 and maximum in 2006-07 while in rest of the years, it
showed various fluctuations in the first half a s the ratio was near to
7.92 times and in the later half, it increased which is a good sign of
improved ratio. Ultratech Cement assessed highest inventory turnover
ratio during the year 2008-09 which is 31.16 crores and lowest during
the year 2006-07 to Rs. 8,75 crores. Very low inventory turnover ratio
implies inefficient management of inventory. It means there was slow
process of sale of inventory during the Year 2006-07 and it was very
high during 2008-09 which indicates very frequent selling of
inventory. Madras Cement registered inventory of Rs.37.03 crores. The
company was necessarily keeping the stock in warehouses.

Grasim Industries had Rs. 6.76 crores and Rs. 6.77 crores
inventory turnover ratio in the years 2000-01 and 2001-02 and then it
showed improvement in the following years by selling its stock and
reaching to 8.73 times having considerably slow growth in the
following years and the ratio was continuously rising. This shows that
Grasim Industry h a s taken due care in selling off its ideal lying stock
and converted it into cash to maintain proper liquidity. India Cements
had also 6.41 and 6.44 times inventory turnover ratio in the initial
two years but in next two years, it declined to 5.23 times and 5.59
times showing decrease and in the later half, its inventory turnover
ratio drastically increased recording high in 2008-09 to 27.47 times.
J.K. Cement started with 5.45 times in 2004-05 and it showed great
improvement in the later years by making a high of 49.34 in 2008-09.
Very high ratio indicates the situation of shortage of goods or stock
out, having no inventory in relation to demand and that may be due to

211
a conservatism of valuing inventory at lower values or the policy of the
firm to buy frequently in small lots. The inventory turnover ratio of
Binani Cement in all the years under research fluctuated with a
sluggish increase of 9.28 times in 2002-03 and declined in 2007-08
following with high inventory turnover ratio in the last years showing
maximum in the year 2011-12 of 47.65 times. Madras Cement also
started with 7.22 times inventory turnover ratio in the year 2000-01
and increased in all the years except the year 2005-06 which showed
very low ratio of 5.68 times then it reached its high in 2008-09 to
37.03 times. So, Madras Cement has maintained good inventory
turnover ratio throughout the research period. Birla Cement has
maintained moderate level of inventory. The ratio was minimum
during 2005-06, 2006-07 and 2007-08 and was high of 26.19 times in
the year 2009-10.

Shree Cements which is the leading cement company, had

minimum inventory turnover ratio in the Years 2006-07 and 2007-08
which was 6.18 times and the maximum ratio of the company was
63.70 times in the year 2002. This shows that the company has
maintained low ratio during the recent past except in 2-3 years.
During 2003-04 to 2004-05, the ratio was quite stable indicating that
its investment in stock is within proper limits.

Out of all the selected companies, J.K. Cement had highest

inventory turnover ratio i.e. 49.34 times.

212
 5.6 ANOVA (Single Factor) F-Test

Hypotheses Testing

1. Null Hypothesis: Inventory Turnover Ratio of Cement Companies

does not differ significantly among the years.

TABLE 5.6 (a)

ANOVA (Year Wise Analysis) Inventory Turnover Ratio

Source of Mean
variation Sum of Squares Df F Sig.
Square

Between
Groups 5568.472 11 506.225
9.320 .000
Within
5268.541 97 54.315
Groups

Total 10837.013 108

Significant at 5% level

Above table 5.6 (a) above states that the calculated value of F
(.000) is less than the value (.05) at 5% significance level; This leads to
the acceptance of null hypothesis. Hence, it can be concluded that
inventory turnover ratio of cement companies does not differ
significantly among the years.

213
 2. Null hypothesis: Inventory Turnover Ratio does not differ
significantly among the various Cement Companies over the
years.

TABLE 5.6 (b)

ANOVA (Company Wise Analysis) Inventory Turnover Ratio

Source of Mean
Sum of Squares Df F Sig.
variation Square

Between
1076.241 9 119.582
Groups
1.213 .296
Within Groups 9760.773 99 98.594

Total 10837.013 108

Significant at 5% level

Above table 5.6 (b) states that the calculated value of F (.296) is
higher than the value (.05) at 5% significance level; This leads to the
rejection of null hypothesis. Hence, it can be concluded that inventory
turnover ratio differs significantly among the various cement
companies over the years.

5.7 CHI-SQUARE TEST

To test the significance of Inventory on Gross Working Capital of

Cement Companies under study, chi-square test has been applied.
The calculated values of chi-square of selected companies are

214
described in the table below. According to the table values of chi-
square calculated for selected Cement Companies to study the
influence of Inventory on Gross Working Capital at 5 percent level of
significance, it h a s been analyzed that except Ambuja and JK
Cements, p values of ACC, Ultratech, Grasim and others were less
than 0.05 indicating significant influence.

Table 5.7
Chi-Square test of Selected Cement Companies on the basis of

Sr.No. Company Value Df Asymp.Sig.

(2-Sided)
1. ACC Pearson Chi- 48. 11 .000
Square 355a
2. Ambuja Pearson 8.128 11 .702
Chi-Square
3. Ultratech Pearson 33.848a 8 .000
Chi-Square
4. Grasim Pearson 99.589a 11 .000
Chi-Square
5. India Pearson Chi- 51.243a 11 .000
Square
6. J.K Pearson Chi- 10.021a 10 .439
Square
7. Binani Pearson 26.076a 9 .002
Chi-Square
8. Madras Pearson 45.893a 11 .000
Chi-Square
9. Birla Pearson Chi- 24.731a 11 .010
Square
10. Shree Pearson Chi- 81.793 11 .000
Square
Inventory to Gross Working Capital

5% level of Significance,

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Null Hypothesis (Ho)

There is no significant influence of inventories on Gross Working

Capital of the compamies.

Alternate Hypothesis (Hi)

There is significant influence of inventories on Gross Working

Capital of the companies.

The inferential statistics of chi-square i.e there is significant

influence of Inventories on Gross Working Capital of the cement
companies was tested and the results revealed that calculated value of
chi square of ACC is .001, which is less than the chi-square value at 5
percent level of significance. So, the null hypothesis which states that
there is no significant influence of Inventories on Gross Working
Capital of ACC is accepted. This implies that alternate hypothesis is
rejected indicating that there is significant influence of inventories on
Gross Working Capital of ACC.

In case of Ambuja, the chi-square test results reveal that the

calculated value of chi-square i.e .702 at vn is higher than the
significant value .05. So, the null hypothesis h a s been rejected and
alternate hypothesis h a s been accepted. During the chi-test results of
Ultratech, the calculated value is .000 at vg is less than significant
value of .05. So, hypothesis is accepted and alternative is rejected. In
case of Grasim India, Madras and Shree Cements all the four
companies are having same calculated value of .000 at vn, the
calculated value is found to be less than the significant value .05, in
case of all these companies null hypothesis has been accepted that
there is no significant influence of Inventories on Gross Working
Capital of the company and alternate hypothesis is rejected. Similarly,

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J.K. Cement h a s calculated value .439 at Vio which is higher than the
significant value .05 due to which the null hypothesis is rejected and
alternate is accepted. In case of Binani it has been analyzed that there
is influence of inventories on Gross Working Capital, because the
calculated value of chi-square is .02 at vg is less than the significant
value .05. Hence, null hypothesis is accepted and alternate is rejected.
In the case of Biria Cements the calculate value is .010 at vio which is
less than the significant value .05. So, the null hypothesis has been
accepted which states that there is no significant influence of
Inventories on Gross Working Capital of the company and alternate
being rejected, signifying that there is significant influence of
inventories on the Gross Working Capital of the company.

5.8 VARIANCE RATIO TEST IN RELATION TO INVENTORY AND

GROSS WORKING CAPITAL

F- test in the study has been calculated by dividing larger

estimates of variance with smaller estimate of variance. The calculated
values have been depicted in the table below.
Table 5.8
Variance-Ratio Test of Selected Cement Companies in relation to
Inventory and Gross Working Capital

Sr.No. COMPANY TEST-VALUE

1. ACC 0.7162
2. AMBUJA 0.53
3. ULTRATECH 579973.29
4. GRASIM 0.5551
5. INDIA 0.2372
6. J.K 76.7314
7. BINANI 0.41213
8. MADRAS 0.5793
9. BIRLA 0.4688
10. SHREE 0.010407

5% level of Significance.

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Testing of Hypotheses

Null Hypothesis (Ho)

There is no significant variance between Inventory and Gross

Working Capital.

Alternate hypothesis (Hi)

There is significant variance between Inventory and Gross

Working Capital.

According to the table 5.8, the value of f-test h a s been calculated

for the Selected Cement Companies to study the variance between
Inventory and Gross Working Capital at 5 percent level of significance
for Vi=ll i.e. degree of freedom for sample having larger variance and
V2=ll i.e. degrees of freedom for sample having smaller variance. In
case of ACC the calculated value of F is 0.7162 as compared to the
table value of 2.8206, the calculated values is less than the table
value. Hence, null hypothesis has been accepted, and found that there
is no significant variance between Inventory and Gross Working
Capital of ACC, so alternate hypothesis has been rejected. The
calculated value of Ambuja is 0.53 having table value 2.8206 the
calculated value of F is less than the table value. So, null hypothesis
has been accepted that there is no significant variance between
Inventory and Gross Working Capital of Ambuja. Hence, it may be
concluded that the two populations have the same variance. The
calculated value of Ultratech is 579973.29 which is too high as
compared to the tabulated value of 2.8206. So, the null hypothesis is
rejected and alternate hypothesis is accepted and it may be concluded
that two populations do not have the same variance. Grasim
Industries is having calculated value of 0.5551 as compared to the
tabulated value of 2.8206 the calculated value is less than the table

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value. So, the null hypothesis is accepted and alternate hypothesis is
rejected and it has been found that two samples have same variance.
J.K. Cements is having calculated value of 76.7314 which is found to
be greater than the table value of 2.8206. Hence, the null hypothesis
has been rejected and the alternate is accepted and found that the two
samples do not have the same variance. Rest all the companies
Binani, Madras, Birla and Shree having calculated value of 0.41213,
0.5793, 0.4688 and 0.010407 respectively, when compared with the
table value 2.8206, it h a s been found that all the four companies have
calculated value less that the table value, which indicates that null
hypothesis is accepted and there is no significant variance between
Inventory and Gross Working Capital. So, alternate hypothesis has
been rejected.

It has been found that only two companies Ultratech and J.K.
Cements have high calculated value of F.

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SUMMARY

The effective management of inventory is crucial to the

performance of many organizations. Inventory is the key determinant
of the productivity of the Cement Industry. Inventory Management
plays an important role in the Cement Industry both in terms of
production of new assets and operational maintenance of existing
assets. Therefore, the continuous availability of inventory is a prime
requirement for the uninterrupted working and better capacity
utilization by the companies. All the ten companies covered in the
study, ensure availability of raw material in sufficient quantity and
quality as and when required to minimize investment in inventories to
avoid excessive investment without any adverse effect on production
and sales by using simple inventory planning and control techniques
creating favourable impact on the profitability of the company. But in
terms of comparison of all these companies, Shree Cement and
Ambuja Cement have contributed in the growth potential and
efficiency of the Cement Companies by handling their inventories in
most efficient way. ACC has also maintained good level of inventory
throughout the study period. Whereas, J.K. Cement recorded low
track record in proper maintenance of inventory. Due to this, the
company h a s faced problems regarding production. In terms of the
mean values, Grasim Industries contributed to the maximum average
of Rs. 697.244 crores and Binani envisages lowest of all i.e. Rs. 83.806
crores. In the context of percentage of co-efficient of variation,
Ultratech registered highest variation and the second highest is J.K.
Cements due to low maintenance of inventory. Also the inventory
turnover ratio of J.K. Cement is very high i.e. 49.34 times.

220