ABSTRACT

Inventories constitute the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 percent of current assets in public limited companies in India. Because of the large size of inventories maintained by firms, a considerable amount of funds in required to be committed to them. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long-run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree, e.g., 10 to 20 per cent, without any adverse affect on production and sales, by using simple inventory planning and control techniques. The reduction in excessive inventories carries a favorable impact on a companys profitability. Inventories are stock of the product a company is manufacturing for scale and components that make up the product. The various forms in which inventories exist in a manufacturing company are: raw materials, work-in-progress and finished goods. Inventory management important role in the financial management. In this term inventory includes stock of finished goods, work in progress, raw materials and components. In case of a trading concern , inventory primarily consists of finished goods while in case of a manufacturing concern, inventory consists of raw materials, components , stores , work in process and finished goods. In accounting language it may mean finished goods only. Inventory management includes raw materials; work-in-progress, finished goods etc.

INTRODUCTION FINANCIAL MANAGEMENT

Financial management is that activity which is concerned with the planning and controlling of the firms financial resources. It was a branch of economies till 1890, and as a separate discipline, it is of recent origins. Still, it has no unique body of knowledge of its own, draws heavily on economies for its theoretical concept even today.

Financial management is of immense interest to both academicians and practicing managers. It is of great interest to academicians because the subject is still developing, and there are still certain areas where controversies exist no unanimous solutions have been reached as yet. Financial management provides them with

conceptual and analytical insights to make those decisions skillfully.

Definitions of financial management:

According to Solomon, Financial management is concerned with the efficient use of an important economic resource, namely, capital funds. According to J. L. Massie, Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation. According to Weston & Brigham, Financial management is an area of financial decision making harmonizing individual motives & enterprise goals. According to Howard & Upton, Financial management is the application of the planning & control functions of the finance

Financial management is that activity which is concerned with the planning and controlling of the firms financial resources. Function. Sound financial management is essential in all types of organizations whether it be profit or non-profit. Financial management is essential in a planned Economy as well

as in a capitalist set-up as it involves efficient use of the resources. From time to time it is observed that many firms have been liquidated not because their technology was obsolete or because their products were not in demand or their labor was not skilled and motivated, but that there was Amis management of financial affairs. Even in a boom period, when a company make high profits there is also a fear of liquidation because of bad

Scope of the financial management Financial Management involves the application of general management
principles to particular financial operation

Sound financial management is essential in all types of organizations whether it be profit or non-profit.

Financial management is essential in planned Economy as well as in a capitalist set-up as it involves efficient use of the resources. From time to time it is observed that many firms have been liquidated not because their technology was obsolete or because their products were not in demand or their labor was not skilled and motivated, but that there was Amis management of financial affairs.

Even in a boom period, when a company make high profits there is also a fear of liquidation because of bad.

Importance of financial management

Financial management importance can be explained as

management of money matters. It deals with managing money in all areas of life. Financial management includes personal financial management and organizational financial management. Personal finance management will help you manage the finance of your home which includes budgeting; saving, investing, debt management and other aspects related to personal money where by an individual can achieve personal goals. Whereas organizational finance management means the management of finance of a business or organization in order to achieve financial objectives. In an
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organization the key objectives of financial management would be to create wealth for business, generate cash and gain maximum profits from the investments of the business considering the risks involved. Financial management is very important for both individuals and organizations because it deals with managing the funds. It guides a company and individual to make optimum use of money to achieve maximum returns. For an individual financial management will help to save more and thus invest more. Since in includes debt management, it will guide the individual to create a financial plan whereby all the debts are paid on time. It will help to spend less and earn more, this will lead to more savings and thus a secure future. Financial management will help in retirement and investment planning. Lack of financial management in business will lead to losses and closure of business. With the study of financial management we can protect the business from miss management of money. Without proper financial management debts will not be paid in time and may make the businessman insolvent. Financial management will study the balance sheet of the company and keeps a watch on all sensitive facts that can endanger business into loss. It teaches us that we should think about cost, risk and control in any business and borrowed money must be minimum. It also explains the importance of time, risk and returns on investment. The return on investment must always be more than the cost of capital, risk investment should be least. We should get our money within a short period of time, all these facts are important for success of any business. Financial management consists of several aspects of business where a finance manager makes decisions on the basis of the financial data with regards to allocating funds, financing business and to develop policies to achieve business goals. Different types of accounting tools are used to manage finance in any business. For example ratios are used to compare performance of the business periodically and also with other businesses. The profitability ratio measure the profit margin, return on assets and return on equity. The liquidity ratio measures the current ratio and quick ratio that provide information on the companys ability to pay off debts. This ratio analysis enables the organization to compare and measure its performance.
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Functions of financial management

1.

Financial decisions

- They relate to the raising of finance from various

resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.
2.

Dividend decision - The finance manager has to take decision with regards to

the net profit distribution. Net pro Dividend for shareholders- Dividend and the rate of it has to be decided. 1.Retained profits- Amount of retained profits has to be finalized which will depend The financial management is upon expansion and diversification plans of the enterprise. 2.generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be3.

Investment decisions-

includes investment in fixed assets (called as capital

budgeting). Investments in current assets are also a part of investment decisions called as working capital decisions. Investment decision can be divided into two types these are 1 .long term investment 2. .short term investment Short term investment is also known as working capital. Long term investment is also known as capital budget.

Working Capital Introduction

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The term current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the Operations of the firm. The major current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities are those liabilities which are intended, at their inception, to pay in the ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic current liabilities are accounts payable, bills payable, bank overdraft, and outstanding expenses. The goal of working capital management is to manage the firms current assets and liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may even be forced into bankruptcy. The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of the current assets must be managed efficiently in order to maintain the liquidity of the firm while not keeping too high a level of any of them. Each of the short-term sources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The interaction between current assets and current liabilities is, therefore, the main theme of the working management there are two concepts of working capital:

Definition of Working Capital

Workin g capital is defined as the excess of current assets over current liabilities and provisions. According to shubin define working capital is the amount of funds necessary for the cost of operating the enterprise. According to Hoagland define working capital is descriptive of that capital which is not fixed. but the more common use of working capital is as the difference between the book value of current assets and current liabilities. A measure of both a companys efficiency and its short-term financial health. The working capital ratio is calculated as: Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory).

Gross and net

The term gross working capital, also referred to as working capital, means the total current assets.

The term net working capital can be in two ways:

The most common definition of net working capital (NWL) is the difference between current assets and current liabilities; and Alternate definition of NWC is that portion of current assets which is financed with long-term.

The common definition of NWC and its Implication

NWC is commonly defined as the difference between current assets and current liabilities. Efficient working capital management requires that firms should operate with some amount of NWC, the exact amount varying from firm to firm and depending, among other things, on the nature of industry.
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The theoretical justification for the use of NWC to measure liquidity is based on the premise that the greater the margin by which the current assets cover the shortterm obligations, the more is the ability to pay obligations when they become due for payment. The NWC is necessary because the cash outflows and inflows do not coincide. In other words, it is the non-synchronous nature of cash flows that makes NWC necessary. In general, the cash outflows resulting from payment of current liabilities are relatively predictable. The cash inflows are, however, difficult to predict. The more predictable the cash inflows are, the less NWC will be required. A firm, say an electricity generation company, with almost certain and predictable cash inflows can operate with little or no NWC. But where cash inflows are uncertain, it will be necessary to maintain current assets at a level adequate to cover current liabilities, that is, there must be NWC.

Alternative Definition of NWC

NWC can alternatively be defined as that part of the current assets which are financed with long-term funds. Since current liabilities represent sources of short-term funds, as long as current assets exceed the current liabilities, the excess must be financed with long-term funds. This alternative definition, as shown subsequently, is more useful for the analysis of the trade-off between profitability and risk.

Scope of the Working Capital

Working Capital Management is concerned with the problems that arise in attempting to manage the Current Assets, the Current Liabilities and the inter-relationship that exists between them. The term Current Assets refers to those Assets which in the ordinary course of business can be, or will be, converted into Cash within one year without undergoing a diminution in value and without disrupting the operations of the firm. The Major Current Assets are Cash, Marketable Securities, Accounts ReceivablesandInventory. Current Liabilities are those Liabilities, which are intended at their inception, to be paid in the ordinary course of business, within a year out of the current assets or the earnings of the concern
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The Current Assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each of the current assets must be managed efficiently in order to maintain the liquidity of the firm while not keeping too high a level of any one of them. Each of the short term sources of financing must be continuously managed to ensure that they are obtained and used in the best possible way. The interaction between current assets and current liabilities is, therefore, the main theme of the theory of management of working capital. Working Capital Management we are talking here. for any business as software or software require same way working capital management is also required. Insurance Software helps insurance company to deal with its day to day business with help of insurance cry software, same way working capital management helps business to plan for their capital management. working capital deficiency, also called a working capital deficit. A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable, and cash. Current assets and current liabilities include three accounts which are of special importance. These accounts represent the areas of the business.

Investment in Current Assets

Determination of appropriate level of investment in current assets is the first and foremost responsibility of working capital manager. Although the amount of investment in any current asset ordinary varies from day-to-day, the average amount or level over a period of time can be used in determining the fluctuating and permanent investment in current assets. This distinction is of great import in devising appropriate financing strategies. We shall elaborate this point a little later. Besides the level of investment, the types of current assets to be held are equally important decision variables. Think of the inventory of a dealer in construction equipment. The dealer must decide how many bulldozers to keep in stocks, as well as whether to stocks bulldozers or dump trucks.
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From the viewpoint of the financial manager, all the decisions as to particular items add up to an average level of inventory for a given item, and these averages for all items add up to the total average inventory investment of the firm. Investment in receivables and marketable securities also pose a similar choice. here managers have the most direct impact:

accounts receivable (current asset) inventory (current assets), and accounts payable (current liability) The current portion of debt (payable within 12 months) is critical, because it

represents a short-term claim to current assets and is often secured by long term assets. Common types of short-term debt are bank loans and lines of credit. An increase in working capital indicates that the business has either increased current assets (that is has increased its receivables, or other current assets) or has decreased current liabilities.

Components of working
In the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities. Networking capital=current assets current liabilities. Current assets refer to those assets which in the ordinary course of business can be, or will be, turned in to cash within one year without undergoing a

diminution in value and with out disuping the operations of the firm. Current liabilities are those liabilities which are intended at their inception to be paid in the ordinary course of business. The components of current assets and current liabilities are

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Current assets:

Sundry debtors Bills receivable Cash and bank balance Short term investments

Inventories

Raw materials and components Work-in-progress Finished goods Accrued or outstanding income Marketable securities Loan and advances extended for a short period of time

Current liabilities:

Sundry creditors Bills payable Advance payment Bank overdraft Short term borrowings Dividend payable Accured or outstanding expenses Provision for taxation Dividends unclaimed acceptance

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Current assets cycle

Bills receivables

Cash

sales

Raw Material

Finished goods

Work-inprogress

We can called as the inventory goods from raw material to finished goods.

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INVENTORY MANAGEMENT
Introduction
Inventories constitute the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 percent of current assets in public limited companies in India. Because of the large size of inventories maintained by firms, a considerable amount of funds in required to be committed to them. It is, therefore, absolutely imperative to manage inventories efficiently and effectively in order to avoid unnecessary investment. A firm neglecting the management of inventories will be jeopardizing its long-run profitability and may fail ultimately. It is possible for a company to reduce its levels of inventories to a considerable degree, e.g., 10 to 20 per cent, without any adverse affect on production and sales, by using simple inventory planning and control techniques. The reduction in excessive inventories carries a favorable impact on a companys profitability.

Meaning:
The directory meaning of inventory is stock of goods or list of goods. Inventories are unconsumed or unsold goods purchased or manufactured. According to the International Accounting Standard: 2 inventories are assets. a. Held for sale in the ordinary course of business, b. In the process of production for such sale, or c. To be consumed in the production of goods or services for sale. Thus, the term inventory includes stock of finished goods, work in progress, raw materials and components. In case of a trading concern , inventory primarily consists of finished goods while in case of a manufacturing concern, inventory consists of raw materials, components , stores , work in process and finished goods. In accounting language it may mean finished goods only. Inventory management includes raw materials; work-in-progress, finished goods etc.

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Nature:
Inventories are stock of the product a company is manufacturing for scale and components that make up the product. The various forms in which inventories exist in a manufacturing company are: raw materials, work-in-progress and finished goods.

Raw Material:
Raw Material form a major input to the organization. They are required to carry out production activities uninterruptedly. The quantity of raw material are required will be determined by the rate of consumption

Work-in-Progress:
The work-in-progress is that stage of stocks which in between raw materials and finished goods. The quantum of work-in-progress depends upon the time taken in manufacturing process.

Finished Goods:
These are the goods which are ready for the customers. The stock of finished goods provide on buffer between consumers. The stock of finished goods provides on buffer between production and market. In some concerns the production is undertaken on an order basis, in these concerns there will not be need for finished goods. The need for finished goods inventory will be more when production is undertaken in general without waiting for specific orders.

Purpose of Inventory Management

The cost of storage and handling every day business enterprise as to maintain a certain level. Generally speaking there are 3 main purposes of Inventory Management. The transaction motive which facilitates continuous production and timely execution of sales orders.

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The precautionary motive which necessities the holding of inventories for meeting the unpredictable changes in demand and supply of materials. The speculative motive which induces to keep the inventories for taking advantage of price fluctuations.

Objectives of Inventory Management

The main objectives of Inventory Management are operational and financial. The operational means the materials and spares should be available. The financial means investments in inventories. The following are objectives:

To ensure continuous supply of materials and finished goods. To avoid both over stocking and under stocking cost of production. To eliminate duplication in ordering stocks. To design proper organization for Inventory Management.

Inventory Systems
Records pertaining to quality and value of inventory-in-hand can be maintained according to any of the following two systems:

Periodic Inventory system. Perpetual inventory system.

Periodic Inventory System

In case of this system the quantity and value of inventory is found out only at the end of the accounting period after having a physical verification of the units in hand. The system does not provide the information regarding the quantity and value of materials in hand on a continuous basis. The cost of materials used is obtained by adding the total value of inventory purchased during the period to the value of inventory in hand in the beginning of the period and subtracting the value of inventory at the end of the period. For example, if the inventory in the beginning was 1,000 units of Rs 1000, purchases during the period were of 5,000 units of Rs 50,000 and the closing
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inventory 1,500 units of Rs 50,000 Rs 15,000). It is, thus, assumed that materials not in stock have been used. No accounting is done for shrinkage, losses, theft and wastage.

Perpetual Inventory System

It is also known an Automatic Inventory System. According to the Chartered Institute of Management Accountants London, it is a system of records maintained by the controlling department, which reflects the physical movement of stocks and their current balance. The definition given by Weldon is more exhaustive and explanatory. According to him, it is a method of recording inventory Balances after every receipt and issue, to facilitate regular checking and to obviate closing down for stocktaking. In case of this system the stores ledger gives balance of raw materials, workin-progress ledger gives the balance of work-in-progress and finished goods ledger gives the balance of finished goods in hand on a continuing basis. The basic objective of this system is to make available details about the quantity and value of stock o each item at all times. The system, thus, provides are rigid control over stock of materials as physical stock can regularly be verified with the stock records kept in the stores and the cost o

Methods of Valuation of Inventories

According to International Accounting Standard: 2(IAS: 2), the inventories should be valued at the lower of historical cost and net realizable value.

Historical Cost Method:

Historical cost of inventories is the aggregate of costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Thus Historical cost includes not only the price paid for acquisition of inventories but also all costs incurred for bringing and making them fit for use in production or for sale e.g.

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Transportation costs, duties paid, insurance-in-transit, manufacturing expenses, wages paid or manufacturing expenses incurred for converting raw materials into finished products etc. selling expenses such an advertisement expenses or storage costs should not be included. A major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues. It requires assigning of proper costs to inventory as well as goods sold. However, it should be noted that assigning of such costs need not conform to the physical flow of goods. The various methods for assigning historical costs to inventory and goods sold are listed below.

Specific Identification method. First in First out Method (FIFO) Last In First Out Method (LIFO) Highest in First out Method (HIFO) Base Stock Method. Next If First Out Method (NIFO) Weighted Average Price

Inventory control
Control of inventory, which typically represents 45% to 90% of all expenses for business, is needed to ensure that the business has the right goods on hand to avoid stock-outs, to prevent shrinkage (spoilage/theft), and to provide proper accounting. Many businesses have too much of their limited resource, capital, tied up in their major asset, inventory. Worse, they may have their capital tied up in the wrong kind of inventory. Inventory may be old, worn out, shopworn, obsolete, or the wrong sizes or colors, or there may be an imbalance among different product lines that reduces the customer appeal of the total operation. Inventory control systems range from eyeball systems to reserve stock systems to perpetual computer-run systems. Valuation of inventory is normally stated at original
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cost, market value, or current replacement costs, whichever is lowest. This practice is used because it minimizes the possibility of overstating assets. Inventory valuation and appropriate accounting practices are worth a book alone and so are not dealt with here in depth. The ideal inventory and proper merchandise turnover will vary from one market to another. Average industry figures serve as a guide for comparison. Too large an inventory may not be justified because the turnover does not warrant investment. On the other hand, because products are not available to meet demand, too small an inventory may minimize sales and profits as customers go somewhere else to buy what they want where it is immediately available. Minimum inventories based on reordering time need to become important aspects of buying activity. Carrying costs, material purchases, and storage costs are all expensive. However, stock-outs are expensive also. All of those costs can be minimized by efficient inventory policies. Inventory control involves the procurement, care and disposition of materials. There are three kinds of inventory that are of concern to managers:

Raw materials, In-process or semi-finished goods, Finished goods. If a manager effectively controls these three types of inventory, capital

can be released that may be tied up in unnecessary inventory, production control can be improved and can protect against obsolescence, deterioration and/or theft, The reasons for inventory control are: o Helps balance the stock as to value, size, color, style, and price line in proportion to demand or sales trends. o Help plan the winners as well as move slow sellers o Helps secure the best rate of stock turnover for each item. o Helps maintain a business reputation for always having new, fresh merchandise in wanted sizes and colors.
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Inventory control techniques Importance of inventory control techniques:

Economic Order Quantity(EOQ) Fixation of stock levels A B C analysis Techniques of codification Inventory turnover ratio Input output ratio analysis Perpetual inventory Pricing of raw materials

Economic order quantity:

The quantity of material to be ordered at one time is known as Economic Order Quantity. This quantity is fixed in such a manner as to minimize the cost of carrying and ordering the stock. The concept of carrying cost and ordering cost are explained as under:

Carrying Cost:
It is the cost of holding the materials in the stores.

Ordering Cost:
It is the cost of placing orders for the purchase of materials. 2CO EOQ = ---------I C = Consumption of the material O = Cost of placing one order I = Interest payment
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Fixation of stock level:

Material control involves physical control of materials, preservation of stores, minimization of obsolescence and damages through timely disposal and efficient handling. Effective stock control system should ensure the minimization of inventory carrying cost and materials holding cost.

A B C analysis:
A B C Analysis is one of the important techniques which is based on grading the item to the important of material. This method is popularly known as always control. This is also termed as proportional value analysis. A-High value B-Medium value materials C-Low value materials. A, B and C. Expensive items go into A, less-expensive items go into B, and small parts and other inexpensive items go into C. This way, you can organize your data and know how long it will take to order different parts and products, based on which group theyre in.

Inventory turnover ratio:

This ratio is also called as stock turnover ratio or stock velocity inventory turnover ratio may be defined as a ratio which measures the number of items a firms average inventory is sold during the year.

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Inventory cost
Inventory procurement, storage and management is associated with huge costs associated with each these functions. Inventory costs are basically categorized into three headings: 1. Ordering Cost 2. Carrying Cost 3. Shortage or stock out Cost & Cost of Replenishment
a. Cost of Loss, pilferage, shrinkage and obsolescence etc.

b. Cost of Logistics Sales Discounts, Volume discounts and other related costs.

1. Ordering Cost
Cost of procurement and inbound logistics costs form a part of Ordering Cost. Ordering Cost is dependant and varies based on two factors - The cost of ordering excess and the Cost of ordering too less. Both these factors move in opposite directions to each other. Ordering excess quantity will result in carrying cost of inventory. Where as ordering less will result in increase of replenishment cost and ordering costs. These two above costs together are called Total Stocking Cost. If you plot the order quantity vs the TSC, you will see the graph declining gradually unti certain point after which with every increase in quantity the TSC will proportionately show an increase. This functional analysis and cost implications form the basis of determining the Inventory Procurement decision by answering the two basic fundamental questions How Much to Order and When to Order. How much to order is determined by arriving at the Economic Order Quantity or EOQ.

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2. Carrying Cost
Inventory storage and maintenance involves various types of costs namely: o Inventory Storage Cost o Cost of Capital

Inventory carrying involves Inventory storage and management either using in house facilities or external warehouses owned and managed by third party vendors. In both cases, inventory management and process involves extensive use of Building, Material Handling Equipments, IT Software applications and Hardware Equipments coupled managed by Operations and Management Staff resources.

1. Inventory Storage Cost

Inventory storage costs typically include Cost of Building Rental and facilitmaintenance and related costs. Cost of Material Handling Equipments, IT Hardware and applications, including cost of purchase, depreciation or rental or lease as the case may be. Further costs include operational costs, consumables, communication costs and utilities, besides the cost of human resources employed in operations as well as management.

2. Cost of Capital
Includes the costs of investments, interest on working capital, taxes on inventory paid, insurance costs and other costs associate with legal liabilities. The inventory storage costs as well as cost of capital is dependant upon and varies with the decision of the management to manage inventory in house or through outsourced vendors and third party service providers. Current times, the trend is increasingly in favor of outsourcing the inventory management to third party service provides. For one thing the organizations find that managing inventory operations requires certain core competencies, which may not be
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inline with their business competencies. They would rather outsource to a supplier who has the required competency than build them in house. Secondly in case of large-scale warehouse operations, the scale of investments may be too huge in terms of cost of building and material handling equipments etc. Besides the project may span over a longer period of several years, thus blocking capital of the company, which can be utilized into more important areas such as R & D, Expansion etc. than by staying invested into the project.

Inventory Types
Inventory is defined as a stock or store of goods. These goods are maintained on hand at or near a business's location so that the firm may meet demand and fulfill its reason for existence. If the firm is a retail establishment, a customer may look elsewhere to have his or her needs satisfied if the firm does not have the required item in stock when the customer arrives. If the firm is a manufacturer, it must maintain some inventory of raw materials and work-in-process in order to keep the factory running. In addition, it must maintain some supply of finished goods in order to meet demand. Sometimes, a firm may keep larger inventory than is necessary to meet demand and keep the factory running under current conditions of demand. If the firm exists in a volatile environment where demand is dynamic (i.e., rises and falls quickly), an on-hand inventory could be maintained as a buffer against unexpected changes in demand. This buffer inventory also can serve to protect the firm if a supplier fails to deliver at the required time, or if the supplier's quality is found to be substandard upon inspection, either of which would otherwise leave the firm without the necessary raw materials. Other reasons for maintaining an unnecessarily large inventory include buying to take advantage of quantity discounts (i.e., the firm saves by buying in bulk), or ordering more in advance of an impending price increase. Generally, inventory types can be grouped into four classifications: raw material, work-in-process, finished goods, and MRO goods.

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Raw materials
Raw materials are inventory items that are used in the manufacturer's conversion process to produce components, subassemblies, or finished products. These inventory items may be commodities or extracted materials that the firm or its subsidiary has produced or extracted. They also may be objects or elements that the firm has purchased from outside the organization. Even if the item is partially assembled or is considered a finished good to the supplier, the purchaser may classify it as a raw material if his or her firm had no input into its production. Typically, raw materials are commodities such as ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food items. However, items such as nuts and bolts, ball bearings, key stock, casters, seats, wheels, and even engines may be regarded as raw materials if they are purchased from outside the firm. The bill-of-materials file in a material requirements planning system (MRP) or a manufacturing resource planning (MRP II) system utilizes a tool known as a product structure tree to clarify the relationship among its inventory items and provide a basis for filling out, or "exploding," the master production schedule. Consider an example of a rolling cart. This cart consists of a top that is pressed from a sheet of steel, a frame formed from four steel bars, and a leg assembly consisting of four legs, rolled from sheet steel, each with a caster attached. An example of this cart's product structure tree is presented . Generally, raw materials are used in the manufacture of components. These components are then incorporated into the final product or become part of a subassembly. Subassemblies are then used to manufacture or assemble the final product. A part that goes into making another part is known as a component, while the part it goes into is known as its parent. Any item that does not have a component is regarded as a raw material or purchased item. From the product structure tree it is apparent that the rolling cart's raw materials are steel, bars, wheels, ball bearings, axles, and caster frames.

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work in progress
Work-in-process (WIP) is made up of all the materials, parts (components or are waiting to be processed within the system. This generally includes all materialrom raw material that has been released for initial processing up to material WORK-INprogress assemblies, and subassemblies that are being processed that has been completely processed and is awaiting final inspection and acceptance before inclusion in finished goods. Any item that has a parent but is not a raw material is considered to be work-inprocess. A glance at the rolling cart product structure tree example reveals that workin-process in this situation consists of tops, leg assemblies, frames, legs, and casters. Actually, the leg assembly and casters are labeled as subassemblies because the leg assembly consists of legs and casters and the casters are assembled from wheels, ball bearings, axles, and caster frames.

Finished goods
A finished good is a completed part that is ready for a customer order. Therefore, finished goods inventory is the stock of completed products. These goods have been inspected and have passed final inspection requirements so that they can be transferred out of work-in-process and into finished goods inventory. From this point, finished goods can be sold directly to their final user, sold to retailers, sold to wholesalers, sent to distribution centers, or held in anticipation of a customer order. Any item that does not have a parent can be classified as a finished good. By looking at the rolling cart product structure tree example one can determine that the finished good in this case is a cart. Inventories can be further classified according to the purpose they serve. These types include transit inventory, buffer inventory, anticipation inventory, decoupling inventory, cycle inventory, and MRO goods inventory. Some of these also are know by other names, such as speculative inventory, safety inventory, and seasonal inventory. We already have briefly discussed some of the implications of a few of these inventory types, but will now discuss each in more detail.
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SCOPE OF THE STUDY

This study is confined to the sree rayalaseema alkalis and allied chemicals pvt ltd only. It covered about the management of the inventories such as raw material, work-in-progress, finished goods and the analysis followed by the company to manage the inventories. Is considered for research and projected the evolutionary study on INVENTORY MANAGEMENT. The scope of the study is limited to only one organization. The report is confined itself to study a period of 2006 2007 to 2010 2011. .As most of the financial information is considered confidential the access to the information was restricted.

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NEEDS FOR THE STUDY

The need of management to make decisions regarding inventory arises because of alternative courses of action i.e. strategies available to any organization. Thus, a set of decision rules are sought which satisfy an objective function such as minimization of costs, subject to certain constraints such as available facilities, availability of finance etc. imposed by the firm policy. Hence, it becomes essential for an organization to have inventory because of the following reasons:
Procurement of materials involves some lead-time (i.e., the time-gap between order

placing and materials receiving). The stock carrying is decided on the lead-time expressed in days and the average daily consumption. Large order placing avails certain economies like cost of order placing, quantity discount, economies, in transportation and other favorable conditions. Inventory carrying ensures safety against certain contingencies like strikes as suppliers plant, transport bottlenecks etc. It is also advantageous to hold inventories when price rise is anticipated.
The business customers require keeping the finished goods in ready stock. The

inventory carrying helps in replacing these finished goods at faster speed once they are sold. Production and control can be made more effectively if the inventories are available in the stockroom. The imported raw materials are generally purchased through a single order and they are stocked till their use.

The costs of stock outs are relatively high as it results into production stoppages. Inventory carrying eliminates the risk of stock outs. It helps in minimize the loss due to deterioration, obsolescence, damage or pilferage etc.

27

OBJECTIVES OF THE STUDY

The study is primarily intended to scan the financial health Condition of SREE RAYALASEEEMA ALKALIES AND ALLIED CHEMICALS LTD. It Includes the following objectives: To understand the structure of working capital. To analyze the Inventory Management with the help of Inventory Analysis as a principal tool. To evaluate the performance of the company on the basis of these analysis. To know the measures and techniques followed to value the inventory. To know the efficiency of inventory management.

28

LIMITATIONS OF THE STUDY

The results of the study are limited to the available information. The project is based mainly on secondary sources of information. Time is important constraint as it was restricted only to a period of 6 weeks. The topic itself is a constraint as Inventory Management is an evolving concept. Another major constraint is the method adopted for collecting the data.

29

RESEARCH METHODOLOGY
This study was only done in SREE RAYALASEEEMA ALKALIES AND ALLIED CHEMICALS PVT LTD. This methodology includes the conducted bases upon the financial statements in annual reports and accounts of firm, which are made annually by the company.

Sources of data:
1.primary data 2.secondary data

1. Primary data:
The present project is related to finance areas hence for the collecting data no formal questionnaires is prepared, but the organization has been observed thoroughly and discussions are held which the research directly with the officials of the organization. 2. Secondary data: The secondary data is mainly done through the collection of information from company website, library books, gathering of information from friends Any data that was gathered earlier for some other purpose is called secondary data. Advantage in using secondary data is that it is more economical and time saving. However, the entire study was based on the secondary data, which are collected from the books, records, journals and profiles of the organization

30

INDUSTRY PROFILE
GROUP PROFILE
The USD 150 million/Rupees 750 cores TGV conglomerate, backed by a rich and varied experience spanning more than two glorious decades, is a rapidly growing, well-diversified one, with interests in Chemicals, Financial services, Merchant Banking, Securities, Real Estate, Power, Pharmaceuticals, Healthcare, Hospitality, Entertainment, Information Technology, Personal Products, Salt and Aquaculture. A constant effort to keep pace with change underlines all its endeavors. A 3000+ strong manpower base strengthens base strengthens the conglomerates resolve to excel. The conglomerates quality consciousness and achievements have not gone unrecognized. National Awards for Unity, Safety. Scientific & Industrial Research, Environmental Protection, Research and Development and Energy Conservation. Adorn the office walls as testimonials of its dedicated efforts in these directions. The conglomerate has also made significant philanthropic contributions to the society. Ltd, is the flagship company of the conglomeratrate. The company also manufactures Castor Derivatives and Fatty Acids. It has the unique distinction of being the pioneer of the Bipolar Membrane Cell Technology from Donora. Spa. Italy, in India. The company uses only state-of the-art equipment and up-to-the minute technologies including the Costruzionai Mecca niche Bernardino (CMB) technology form Italy for its fatty acids division. A captive power plant assures uninterrupted and cost-effective power supply to the manufacturing plant. Consistent overseas demands for its products have made the company a recognised export house today.

Group Companies:
Sree Rayalaseema Alkalis and Allied Chemicals Ltd. Sree Rayalaseema Hi-Strength Hypo Ltd. Sree Rayalaseema Dutch kasenbouw Ltd. Sree Rayalaseema Agro Chemicals.
31

S.R.A and A.C.L Chloro-Alkalis Products. The Group spans a range of industries and services. With the commitment to bring out quality products and services through pioneering innovations. And imbued with a singular vision and purpose to grow and reach the pinnacle of success. The motivation and inspiration for the group springs from Mr. T.G. Venkatesh, a visionary who head this Group. He is the chairman of the Rs.300 crore asset based TGV Group which include industries in such varied field as Chemicals. Petrochemical. Power Generation. Finance. Bulk Drugs, Floriculture. Aqua foods. Hospitals, Hotels.

PRODUCT RNAGE AND APPLICATON CHLOR-ALKALI PRODUCTS

Caustic Soda (Lye/Flakes) (Mercury-free) Liquid Chlorine Hydrochloric Acid Caustic Potash (Lye/Fakes) Sodium Hypochlorite (Liquid)

CASTOR DERIVATIVES
Hydrogenated Castor Oil (Flakes) 12 Hydroxy Steris Acid (Flakes) Ricinoleic Grade Stearic Acid Methyl 12 H S A (Flakes)

32

FATTY ACIDS Stearic Acid Hard Fatty Acids Soft Fatty Acids Soap Noodles Glycerin The chlor alkali product find varied applications and from the raw-material base for a wide range of industries. Caustic Soda is used by aluminum. Paper & pulp, pharmacy, soap, textile and rayon industries. Liquid Chlorine hleps in water treatment and is also used by paper manufactures. Hydrochloric acied finds extensive usage in water treatment and is also used by paper and pulp production. Barium Slphate is used in the manufacture of storages batteries. Paints and adhesives. The castor derivatives are used widely by various industries, Hydrogenated Castor Oil is used in the manufacture of calcium-based greases. Cosmetics. Pencils and lubricants. Hydroxy Stearic Acid goes into greases and lubricants and Ricinoleic Acid is used by confectionery makers, Methyl 12 HAS is used produce complex grease and other lubricants. While Rubber grade Stearic Acid is used by synthetic rubber (tubes and tyres) manufacturers. And foorwear industry. Sree Rayalaseema Alkalis and allied Chemicals Ltd. is also a full-scale provider of fatty acids like stearic Acids. Glycerin and soap noodles which from the raw material for a wide range of industries from toothpastes. Soaps, cosmetics and textile auxiliaries to paints, water proofing cements, leather and tobacco tanning. Metal polishes and drugs & pharmaceuticals. An ultra-modern fatty acid complex greases and other lubricants. While rubber grade Steris Acid is used by synthetic rubber (tubes and tyres) manufactures, and the footwear industry.

33

Sree Rayalaseema Alkalis and Allied Chemicals This study was only done in SREE RAYALASEEMA ALKALIES. This methodology includes the conducted bases upon the financial statements in annual reports and accounts of firm, which are made annually by the company. The methodology followed to collect the data is secondary data. Ltd, is also a full-scale provider of fatty acids like Stearic Acids. Glycerin and soap noodles while from the raw material for a wide range of industries from toothpastes, soaps. Cosmetics and textile auxiliaries to paints, plastics, water proofing cements, leather and tobacco tanning, metal polishes and drugs & pharmaceuticals. An ultra-modern fatty acid complex caters to these production requirements.

THE SOAPS DIVISION

The company is also a key provide of Mercury-free caustic 1ye for leading soap manufactures. It was only a matter of well planned forward intergrton for the company to venture into soap manufacturing. The fragrant Royal Sandal Saffron Soap is the first and only one of its kind to bring goodness of both saffron and sandal together and offer the fairnessbenefit to the users. Cool lime is the companys answer to the freshness and frangrnace segment. Royal He-man is an economically-pricedd bathing bar for the common man on the move. Baby Doctor caters to the babies segment and is manufactured with speical attention to the soft, tender skin of the babies. Lady Doctor, beauty soap, is trgetted at women and ocmes with the promise of a lingering fragrance. Attractive packaging and sustained marketing strategies have made them all popularly preferred brands today.

34

SREE RAYHALASEEMA HI-STRENGTH HYPO LTD GEARED UP FOR EXPORTS:

Sree Rayalaseema Hi-Strength Hypo Ltd. the torch bearer of the conglomerate, is the only Indian manufacturer of Calcium Hypochlorite, and on of the very few in the world. A state-of-the-art sodium process technology developed through in-house R&D efforts helps the company in manufacturing the product with a chlorine content of 65% to 70%. Sree Rayalaseema Hi-Strength Hypo Ltd. Calcium Hypochlorite touches vital facets of human existence and is of proven importance in many areas of day-to-day activity. Sree Rayalaseema Hi-Strength Hypo Ltd. has a distinctive edge in the manufacture of this product, thanks to the twin advantages of indigenous a raw materials availability and supply of some specialized chemicals by Sree Rayalaseema Alkalies and Allied Chemicals Ltd. The Company is also a front-ranking producer of Monochord Acetic Acid. Manufactured by the scientific crystallizer technology, the product meets international quality standards. Monochord Acetic Acid is used by all leading manufacturers of Non-Steroid Anita-Inflammatory Drugs, other

pharmaceuticals, pesticides, organic chemicals etc.

SREE RAYALSEEMA DUTCH KASEENBOUW LIMITED PURIFYING WATER FOR HEALTH

Sree Rayalaseema Dutch Kasenbouw Limited is a leading producer of premium Stable Bleaching powder (tropical chloride of lime) under the name Rayalaseema Stable Bleaching powder. The state-of-the-art manufacturing facility has an output capacity of 15 TPD. The company specializes in the production of approved ISI Grade -1 ISI Grade II and TGV Super 9 brands of belching powder. The company has the credit of contributing hygienic water to all the surrounding areas. Stable Bleaching Powder manufactured by the Industries and Commerce Department. Govt. of Andhra Pradesh.

35

SREE RAYALASEEMA AGRO-CHEMICALS PVT.LTD. HIGH-YIELDS FOR THE RARMING COMMUNITY.

The company helps farmers get better yields by manufacturing agro-chemicals of proven quality, Its flagship product. Royalton, a suckericide. Has been accepted instantly by tobacco growers, for its positive qualities. The chief ingredients for Royalton are imported from renowned overseas as manufacturers. The company manufactures 30KL p.a of Royalten, which has been seen to improve leaf quality, while protecting its essential chemistry. Its efficacy and potency have been certified by the Central Tobacco Research Institute. Rajahmundry and by the Gujarat Agricultural University, Anand. ISO quality certification for the procedures followed by the company is under process. The company was incorporated in the year 1995 with the objective of undertaking broad based acivities in the field of securities trading and financial services. A high profile expert team at the helm, has transformed the company into a hi-tech securities trading house providing a gamut of financial services to both corporate clients and high net worth individuals. A member of the prestigious National Stock Exchange, OTCEI, and the Bangalore Stock Exchange, the company is an active trader in the Mumbai, Bangalore. Ahmadabad and Hyderabad bourses. Headquartered at Hyderabad, bourses. Headquartered at Hyderabad, it serves the investing needs of a very large clientele with well- equipped branches across the country, in Mumbai, Bangalore, Chennai, Vijayawada, Visakhapatnam. And Kurnool.

36

COMPANY PROFILE
SREE RAYALASEEEMA ALKALIES AND ALLIED CHEMICALS LTD is the Flagship Company of the TGV Group, it has been incorporated in the year 1986 and it has its Corporate Office at 40-304, II Floor Krishna Jyothsna complex Bhagyanagar and Registered office & factory at Gondiparla Village, Kurnool. It is a listed company in Bombay stock exchange. It is the leading producer of Chlor-Alkali products and also manufactures Castor Derivatives and Fatty Acids, besides operating a commercial power project of 38MW; its facet of the conglomerate is its power generation measures for captive and commercial purposes. A unique feature of this division is that both conventional and non-conventional methods have been adopted. Conventional plants for power generation have been set up at various places in the states of Andhra Pradesh and Karnataka. It also produces 5 different types soups namely Royal saffron sandal, Cool lime, Royal HE-MAN, Baby doctor and Royal Rose. Sri T.G.VENKATESH, who is pioneer in the development of T.G.V Group, promoted the companys T.G. Venkatesh has accredited With the distinction of establishing a number of companies like Sree Rayalaseema Petrochemical Ltd., Sree Rayalaseema Hi-Strength HypoLtd., manufacturing of chemicals and other allied products. The company is a board-based company. All the matters are looking after by MR.V.RADHAKRISHNA MURTHY Chief General Manager & Company Secretary of SRAAC Ltd, Who has more than 20 years Experience in various fields. He is assisted by department heads that are a qualified and competent to handle any situation. The company is a SSI Unit and has obtained ISI Certificate for its Products together with ISO-9001 for quality management system, renowned body as Indian Register quality systems. (IRQS), ISO 14001 Certification for environment

management system and OSSAS 18001 certification for safety management system Further the company has obtained DRUG LICENSE from Drug controlling authority of India (DCAI) to manufacture stable bleaching powder.

37

The company has the mission as to provide products and services of international standards through pioneering innovations, while keeping in sight, our responsibility towards the society we dwell in.

COMPANY PROFILE Kurnool, Andhra Pradesh, India Chemicals Products Manufacturer, Export / Import, Pvt, Ltd, Firms Since 1985
It gives us pleasure to write to you from one of the leading producers of Castor Derivatives in India. We are in Flagship Company of US$ 150 Million TGV Group, a conglomerate of diversified activities with major interests in Chlor Alkali products, Fatty Acids besides Castor Derivatives. We have also diversified into Information Technology and FMCG business recently. We are an ISO an 9001-2000, ISO 14001 and 18001 Certified Company. We have to our credit National Awards for best R&D and many more awards environmental friendliness and social awareness. We have been supplying the Castor Derivatives to International Markets since the inception in 1996. Today; we have got a very articulated Marketing Network and operational system to satisfy the International Standards of Quality and practice. To further strengthen our market presence towards attaining market leadership, we felt it appropriate to approach a World Class Company like yours for Castor Derivatives. Our quality CASTOR DERIVATIVES PRODUCTS includes: Refined Castor Oil (BSS Grade)
Hydrogenated Castor Oil (Flakes / Power)

12 Hydroxy Stearic Acid (Flakes) Ricinoleic Acid (Liquid)

38

Further, you may please note that we have the strengths and capabilities to deliver international quality Castor Derivatives. Our additional strength to day is excellent logistic control system, which facilitates faster order processing and shipment. We have even atomized most of the production chain to ensure faster production and accuracy.

Products:
Manufactures, Exporters and Distributors of chemicals are as follows. * Caustic Potash Flakes (KOH 90% * Caustic Soda Flakes (NaOH 48% / 98%) * Refined Glycerin* Stearic Acid (Various Grades) * Soap Noodles (80:20, 90:10) * Hydrochloric Acid (HCL) * Liquid Chlorine * Barium Sulphate (Ba2SO4) * Sodium Sulphate (Na2SO4) * Sodium Hypochlorite * Potassium Carbonate (K2CO3) * Toilet Soaps Our Group of Companies manufacture * Calcium Hypochlorite * Mono Chloro Acetic Acid * Alum * Bleaching Powder * Sulphuric Acid The TGV Group a fast emerging industrial conglomerate is renowned for setting impeccable quality standards and rendering committed services. The activities of the Group span a range of industries and services. With the commitment to bring out quality products and services through pioneering innovations. And imbued with a singular vision and purpose to grow and reach the pinnacle of success. The motivation and inspiration for the Group springs form Shari. T G Venkatesh, a visionary who head this Group. He is the chairman of the Rs.300 crore asset based TGV Group which include industries in such varied field as Chemicals, Petrochemicals, Power Generation, Finance, Bulk Drugs, Floriculture. Aqua foods. Hospitals, Hotels The TGV Group was incorporated in 1987, while the familys history of being in the oil industry goes back to 1907. Over the years, with innovation the company has forayed into other areas. One of these was the active involvement in the areas of fatty
39

Acids and Chemical Alkalies. This operation included raw material used for different industries, right form cosmetics, chemicals, textile auxiliaries, plastics, water proofing cements, metal polishes, tyre rubber compounding, general rubber compounding to greases. With a stronghold in this area for over a decade, the TGV group has been a key provider of Mercury-Free Caustic Lye for leading soap manufactures. This strength was what the TGV Group explored in its forward integration processes endowed with expertise in the manufacture of soaps TGV Group has diversified into IT area with the twin objectives of (a) Providing education and training in Software development (b) To provide the best software packages for complex problems world over. For both the purposes, the best brain ware has been assembled to provide the outstanding brainpower that crates solutions, packages suiting individual needs. We will have high tech solutions and high touch in training.

Chemical Industry Overview

India ranks twelfth in the world for production of chemicals by volume, Indias chemical industry contributes about 3% to the nations Gross Domestic Produce (GDP). The industry has a turnover of about US$ 30 billion, and accounts for abut 14% in the general Index of Industrial Production (IIP) and 17.6%in the manufacturing sector. It also about 13-14% of total exports and 8-9% of total imports of the country. The industry is mostly concentrated in western India, which accounts for 45-50% of the total industry size

Major Players in Chemical Industry:

Chemical Industry is highly heterogeneous with following major sectors Petrochemicals Inorganic Organic Chemicals Fine and specialties Bulk Drugs Agrochemicals
40

Petrochemicals
Petrochemicals are chemicals made from petroleum (Crude oil) and natural gas. Petroleum and natural gas are made up of hydrocarbon molecules, which are comprised of one or more carbon atoms, to which hydrogen atoms are attached. Currently, oil and gas are the main sources of the raw materials because they are the least expensive, most readily available, and can be processed most easily into the primary petrochemicalslistedontheleft. `Only abut five percent of the oil and gas consumed each year is needed to make all the petrochemical products. Petrochemicals have had a dramatic impact on our food, clothing, shelter and leisure. Some synthetics, tailored for particular uses, actually perform better than products made by nature because of theiruniqueproperties.

Primary Petrochemicals:
Primary Petrochemicals include olefins (ethylene, propylene and butadiene), aromatics (benzene, toluene, and xylenes) and methanol. Olefins are unsaturated molecules of carbon ( C ) and hydrogen (H) that appear as short chains, of two, three or four carbons in length. Aromatics contain a six carbon ring structure. The oxygen / hydrogen (OH) group in methanol denotes that it is an alcohol.

Intermediates and Derivatives

Petrochemical intermediates are generally produced by chemical conversion of primary petrochemicals to form more complicated derivative products (see graphic on the left). Petrochemical derivative products can be made in a variety of ways: directly from primary petrochemicals; through intermediate products which still contain only carbon and hydrogen; and, through intermediates which incorporate chlorine, nitrogen or oxygen in the finished derivative. In some cases, they are finished products; in others, more steps are needed to arrive at the desired composition. Of all the process used, one of the most important is polymerization.

41

Typical petrochemical Intermediates

Vinyl acetate for paint, paper and textile coatings Vinyl chloride for polyvinyl chloride (PVC) Resin manufacture Ethylene glycol for polyester textile fibers Styrene which is important in rubber and plastic manufacturing

Major Players in Petrochemicals are as follows:

Reliance Industries Ltd IPCL Baroda Nag thane Gondar Halide Petrochem GAIL NOCIL

Inorganic Chemical
An inorganic chemical reaction describes a chemical reaction of an inorganic compound. There are four main categories of inorganic chemical reactions: Combination Reactions Decomposition Reactions Single Displacement Reactio Double Displace

Combination Reactions
A Combination Reaction or a Synthesis Reaction is a general category of a chemical reaction (the term usually refers to an inorganic chemical reaction), in which two or more reagents are chemically bonded together to produce a single product. For example, the addition of sulphur and iron to form iron sulphide is a combination reaction. A combination reaction can be of three types:
42

Between 2 Elements Between 2 compounds Between an element and a compound

Examples:

2Mgo 2Mg+O2 Ca(OH)2 CaO+H2o 2CO2 2CO+O2

THE VISION
The irreversible, privatization and globalization process initiated by the Government of India has ensured that Indian products are finding ready acceptance in the World markets and the opening up of the economy has made International brands make their presence in India. Thus creating an idealistic World without boundaries. At the TGV Group. Our winning philosophy has always been to strive for leadership through excellence in every. Aspect of our organizational culture. It is this striving for excellence that helps us to produce Internatinal quality products. Serval prestigious awards like the Natonal Award for Safety. Natonal Award for Environment and National Award for R&D have been received by us from the Government of India. Our constant pursuit for perfection, particularly in the area of Human Resources Development is helping us to march into the 21st century with a much stronger vigor. At the helm is Mr. T.G. Venkatesh, who spearheads this dynamic group. His experience of expertise, of over two decades in the Chemical Industry has made the TGV a successful business.

Mission of the group

To constantly Endeavour to produce International quality products through excellence and leadership. To monitor every aspect of production that finds its way into the local or Internatinal markets, and to pioneer perfection in all areas of development while moving into the next millennium.

43

VISION
To empower ourselves with excellence and to thus, grow and reach the pinnacle of market leadership

MISSION
To provide products and services of international standards through pioneering innovations, while keeping in sight, our responsibility towards the society

44

DATA ANALYSIS & INTERPRETATION

1. STATEMENT SHOWING THE STRUCTURE AND COMPOSITION OF INVENTORY OF SREERAYALASEEEMA ALKALIES AND ALLIED CHEMICALS LTD DURING YEAR 2006-07 TO 2010-11 INVENTORY /YEAR Raw materials - in transit Stores and spares and packing materials (100) 2006 07 2007 08 2008 09 2009 10 2010 11

8,03,663 (100) 1,22,98,56 0

17,62,893 (219.35)

23,44,865 (291.77)

35,48,250 (441.50)

58,85,392 (732.32) 33,60,472

36,52,404 (29.69)

51,68,369 (42.02)

8,08,300 (27.32) (6.57)

28,86,956 Stocks in process 16,65,496 (100) 16,85,133 (101.17) 84,89,998 (509.75) 15,65,358 (173.33) (93.98)

1,30,20,40 Finished Goods 1 (100) 2,77,88,12 0 Total inventory (100)

21,48,343 (16.49)

63,03,352 (48.40)

20,33,069 (15.61)

56,90,576 (43.70)

92,48,773 (33.28)

2,23,06,584 (80.27)

79,54,977 (28.62)

1,78,23,396 (64.14)

45

percentage

The structure and composition of inventory

120 100 80 60 40 20 0 2006-07 2007-08 2008-09 2009-10 2010-11 33.28 28.62 100 80.27 64.14

2006-07 2007-08 2008-09 2009-10 2010-11

inventory
Interpretations: The table reveals that the inventory in SREE RAYALASEEEMA ALKALIES AND ALLIED CHEMICALS LTD consists of raw materials, stores &spares, packaging material, stock in process, finished goods etc. The major component has been stores & spares, packing material. The proportion of finished goods occupied major share after inventory &stores. The raw material & other inventory showed fluctuation trend. The fourth place is occupied by the stock in progress. The above composition analysis reveals that in SREE RAYALASEEEMA ALKALIES AND ALLIED CHEMICALS LTD, major proportion of inventory has been stores, followed by finished goods, raw materials & stock in progress during the study period.

46

2. STATEMENT SHOWING THE RATIO OF INVENTORY TO CURRENT

ASSETS IN SREE RAYALASEEEMA ALKALIES AND ALLIED CHEMICALS LTD DURING.

2006-07 TO 2010-11

YEAR

INVENTORY

CURRENT ASSETS

INVENTORY RATIO

2006 07

2,77,88,120

6,81,06,320

40.8

2007 08

92,48,773

6,20,39,947

14.9

2008 09

2,23,06,584

5,97,05,731.39

37.3

2009 10

79,54,977

8,11,03,552.97

09.8

2010 11

1,78,23,396

8,47,55,133.29

21.0

AVERAGE

123.8

47

The Ratio of inventory to Current assets

50 40 40.8
Percentage 30
37.3

20
14.9

21 9.8

10 0

2006-07 2007-08 2008-09 2009-10 2010-11

Current assets
Interpretation: A high & increasing trend in the ratio indicates that the risk of technical insolvency of the firm is high as its liquidity would be lower and vice versa The table reveals that the proportion of inventory in current assets has showed increasing trend. It was 40.8 % in 2005-06 and increased to 21% in 2009-10 and it on an average during the study period.

48

3. STATEMENT SHOWING THE GROWTH RATE OF INVENTORYAND

SALES & INVENTORY TURNOVER RATIO OF SREE RAYALASEEEMA ALKALIES AND ALLIED CHEMICALS LTD DURING YEAR 2006 07 TO 2010 11

YEAR

INVENTORY

NET SALES

Growth Amount (Rs) (In %) 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 Averag e 38,10,13,523 rate Amount (Rs)

Growth rate (In %)

2,77,88,120

0.72

75.06

92,48,773

66.716

27,36,30,389

28.183

0.33

11.06

2,23,06,584

19.276

35,65,74,550. 48 33,23,96,494. 49 35,92,77,141. 83

6.414

0.62

58.87

79,54,977

71.372

12.759

0.23

15.86

1,78,23,396

35.859

5.704

0.49

74.44

38.644

10.612

0.478

32.59

49

percentage

80 70 60 50 40 30 20 10 0

Inventory turnover ratio 75.06 74.44 & convertion

58.87

11.06 0.72 200607 0.33 200708 0.62 200809

15.86 0.23 200910 0.49 201011

i-turnover Ratio i-Convertion period

invetory turnover
Interpretation: The table shows that the rate of growth of inventory was less than that of net sales in all years, except in 2006 07 & 2010 11. However, average growth rate of net sales (16.25%) was less than that of inventory (5.78%) during the study period. This has to be given consideration by the company. The inventory turnover ratio has been increasing from 8.67 times in 2006 -07 to 12.85 times in 2010 11, and on an average, it was 11.42 times. The overall inventory management is satisfactory there is still scope for further improvement.

50

4. CAPITAL REQUERIMENTS OF SREE RAYALASEEEMA ALKALIES

AND ALLIED CHEMICALS LTD DURING YEAR 2006 07 TO 2010 11

CURRENT ASSETS:

2006 07

2007 08

2008 09

2009 -10

2010 11

Cash and bank 1,26,80,162.1 balance 0 3,54,94,571.7 Sundry Debtors 2

4,12,017.87

4,89,987.94

10,30,357.33

12,75,758. 21 90,20,956. 63 2,77,88,12 0 1,20,68,08 1 84,755,133 .29

1,58,05,553

88,76,129.86

1,01,04,429.37

Inventories Loans advances &

2,77,88,120

2,77,88,120

2,77,88,120

2,77,88,120

66,17,386.77

1,97,21,730. 74

85,29,097

96,83,354

TOTAL(A): CURRENT LIABILITES:

6,81,06,320

6,20,39,947

5,97,05,731. 40

8,11,03,552.97

3,25,63,827.2 Sundry creditors 7 75,86,069 65,26,566.07

1,20,29,082. 58 19,24,653.21 65,84,639.88

Others liabilities

29,30,744.45 3,54,94,571.7 2

82,19,488 1,58,05,553

23,49,563.78 88,76,129.86

3 1,01,04,429. 37

24,36,316.75 90,20,956.63

TOTAL(B): NET WORKING CAPITAL (A B):

3,26,11,748.28

4,62,34,394

5,08,29,601.5 3

7,09,99,123.6 0

7,57,34,176.6 6

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CURRENTS ASSETS

CURRENT LIABILITIES

NET WORKING CAPITAL

AMOUNT (RS)

BASE YEAR GROWTH

AMOUNT (RS)

BASE YEAR GROWTH

AMOUNT (RS)

BASE

YEAR

GROWTH

2006 07

6,81,06,320

100

3,54,94,571. 72

100

3,26,11,74 8.28

100

2007 08

6,20,39,947

91.89

1,58,05,553

44.52

4,62,34,39 4

87.39

2008 09

5,97,05,731.39

87.66

88,76,129.8 6 1,01,04,429. 37 90,20,956.6 3

25.00

5,08,29,60 1.53

90.92

2009 10

8,11,03,552.97

119.08

28.44

7,09,99,12 3.60

72.19

2010 11

8,47,55,133.29

124.44

25.41

7,57,34,17 6.66

72.65

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2006 07 TO 2010

Size & growth of C.A&C.L&N.W.C

140 120 100 percentage 80 60 40 20 0 200607 200708 200809 years 200910 201011 C.Assets C.Liabilities N.W.C

Interpretation: Current Assets increased from RS. 91.89, 87.66,119,124 in 2006 07 to in 201011 registering 58.98%. Decreasing over base year (2006 07). Current liabilities from 87.39, 90.39, 72.19, 72.65 in 2005 06 to RS. 19, 28, 97,765 in 2010 11 registering a growth rate of 77.44% over base year. Net working capital which is the difference between current assets and current liabilities has been fluctuating between 87,90,72,72.6 and during the study period.

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5. STATEMENT SHOWING RATIO OF CURRENT ASSETS TO TOTAL ASSETS AND CURRENT ASSETS TO FIXED ASSETS DURING YEAR 2006 07 TO 2010 11
CURRENT ASSETS CURRENTS (RS) YEAR ASSETS TOTAL NET ASSETS (RS) TOTAL ASSETS RATIO (%) TO NET

2006 07

6,81,06,320

5,66,67,463.28 120.1

2007 08

6,20,39,947

7,92,61,853 78.2

2008 09

5,97,05,731.39

7,12,40,478.48 83.8

2009 10

8,11,03,552.97

8,89,77,044.55 91.1

2010 11

8,47,55,133.29

9,22,27,498.61

91.89

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2010-11, 91.89 2009-10, 91.1 2008-09, 83.8

2006-07, 120.1 2007-08, 78.2

2010-11, 91.89 2006-07, 120.1 2009-10, 91.1

2007-08, 78.2

2008-09, 83.8

Interpretation: The proportion of currents assets in total net assets has increased from 44.76% in 2006 07 to 26.78% in 2010 11. The proportion of currents in net fixed assets has also showed same trend. It has increased from 34.04% to 47.90%.

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6. STATEMENT SHOWING THE NET WORKING CAPTIAL TURNOVER

RATIO

OF

SREE

RAYALASEEEMA

ALKALIES

AND

ALLIED

CHEMICALS LTD DURING YEAR 2006 07 TO 2010 11

NET YEAR WORKINGCAPITAL

SALES VOLUME

TURN OVER RATIO (%)

2006 07 2007 08 2008 09 2009 10 2010 11

3,26,11,748.28

38,10,13,523

8.56

4,62,34,394

27,36,30,389

16.89

5,08,29,601.53

35,65,74,550.48

35.09

7,09,99,123.60

33,23,96,494.49

28.96

7,57,34,176.66

35,92,77,141.83

19.86

AVERAGE

33.28

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Turn Over Ratio

2006-07 8% 2007-08 15%

2010-11 18%

2009-10 27% 2008-09 32%

Interpretation: Net working capital turnover ratio has decreased from 8.56% in 2006-07.To 19.86% in 2010-11 and on an average 33.28% times during the study period.

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7.

STRUCTURE OF WORKING CAPITAL (Brackets indicate percentage to total)

COMPONE NT

2006-07

2007-08

2008-09

2009-10

2010-11

2,77,88,120 Inventories (100)

92,48,773 (33.28)

2,23,06,584 (80.27)

79,54,977 (28.62) 1,01,04,429.3 7 (28.46) 10,30,357.33 (8.12)

1,78,23,396 (64.14)

Sundry Debtors

3,54,94,571.72 (100)

1,58,05,553 (44.52)

88,76,129.86 (25.01)

90,20,956.63 (25.41)

Cash and bank balance

1,26,80,162.10 (100)

4,12,017.87 (3.2) 1,97,21,730.7 4 (298.02)

4,89,987.94 (3.86)

12,75,758.21 (10.06)

Loans & advances

66,17,386.77 (100)

85,29,097 (128.88)

96,83,354 (146.33)

1,20,68,081 (182.36)

6,81,06,320 TOTAL: (100)

6,20,39,947 (91.09)

5,97,05,731.4 0 (87.66)

8,11,03,552.9 7 (119.08)

84,755,133.2 9 (124.44)

AVERAG E

100

94.75

59.50

52.88

70.49

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Structure of working capital

2006-07 2007-08 2008-09 2009-10 2010-11

19% 26%

14%

25% 16%

Interpretations: Dominant component in the structure of working capital was sundry debtors(30.85% on an average), followed by loans & advances (188.89% on an average), inventory(51.57% on an average) and cash & bank balance(6.31% on an average) of SREE RAYALASEEEMA ALKALIES AND ALLIED CHEMICALS LTD during the study period. Therefore it can be concluded that a major portion of current assets are in the form of sundry debtors and loans & advances followed by inventories and cash & bank balances.

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8. FINANCING OF WORKING CAPITAL

SOURCE S

2006 07

2007 08

2008 09

2009 -10

2010 11

Sundry creditors

3,25,63,827.27 (100) 29,30,744.45 (100)

75,86,069 (23.29) 82,19,488 (280.45)

65,26,566.07 (20.04) 23,49,563.78 (80.16)

1,20,29,082.58 (36.94) 19,24,653.213 (65.84)

65,84,639.88 (20.22) 24,36,316.75 (83.12)

Others liabilities

TOTAL:

3,54,94,571.72

1,58,05,553

88,76,129.86

1,01,04,429.37

90,20,956.63

(Brackets indicate percentage to total)

Interpretations: Major portion of working capital are financed from creditors followed by other liabilities, short-term and advances, provisions. Therefore, it can be concluded that particular company was heavily dependant on creditors.

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FINDINGS
The structure of working capital of the company contains 141.77%; 155.86%; 217.71% and 23.65% respectively for 06, 07, 08 and 2010 based on 2006. It denotes that it has an increased and decreased in trend of Working Capital.

The proportion of working capital on Current Assets is showing an increased trend but it in between (5 to 10%) for all the years.

The proportion of current assets to total assets and current assets to fixed assets is in between 18.76% and 64.10%.

Due to stock in transit the working capital has been decreased in the following years.

The size and trend of inventory in has increased from Rs 2,77,88,120 in 200607 to Rs 1,78,23,396 in 2010-11 registering a growth rate of 116.90% during the study period.

The raw material & other inventory showed fluctuation trend

The table shows that the rate of growth of inventory was less than that of net sales in all years, excess 2006 07 & 2010 11. However, average growth rate of net sales (16.25%) was less than that oinventory (5.78%) during the study period. This has to be given consideration by the company

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SUGGESTIONS
The company is suggested to follow the EOQ & various methods of inventory handling by taking this project into consideration. The inventory methods which can be used by the company are FIFO, LIFO & WAC Setting up of an exclusive department to towards planning of finished goods and other materials and integration of all the functions of the organization, enhances the prospects of the company as a global player. The company can divert the excessive cash to pay off the creditors or to reduce the other liabilities.

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CONCLUSIONS
Thought sree rayalaseema alkalis and allied chemicals pvt ltd,is doing goods in manufacturing many Products or items it was found that a little rectification has to be made They are Order is placed monthly or quarterly. It may heavy expenditure for placing order so many times. Cost will be beard each time an order is placed. So it is suggestible that order should be placed annually depending on demand. Storage facilities should be modified. A stores manager should be appointed separately to look after product at hand Separate department of research should be placed. Especially for inventory of goods.

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