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    MBA PROGRAMME

    INTRODUCTION

    The Inventory Concept

    The dictionary meaning of the word inventory is “Stock of goods”. The term

    ‘Inventory’ refers to the commodities supplied to an undertaking for the purpose of

    consumption in the process of manufacture or of rendering service or for

    transformation into products.

    To the finance executive ‘Inventory’ can !e taken as the value of raw

    materials consuma!les spares work in progress and finished goods in which the

    company’s working capital funds have !een invested.

    MEANING:

    “Inventory can !e defined as stock of materials of any king stored for future use

    mainly for production processes”.

    “Inventory is !asically the money !locked !y an organi"ation to secure future and

    present throughput for the organi"ation”

    Classification of InventoriesThe Inventories in an Industrial concern is generally classified as following#

    • Raw material Inventory This is used in manufacturing. $hen the demandarises they are drawn from stores and processed or use value is added during

    the process and finally finished product comes out.• !emi finishe" #oo"s $hen the material !eing processed it may have to wait

    !etween two processes such material are known as semi finished goods or

    semi finished material or $ork in process inventory.• Components The parts used in assem!ly of product are known as

    components. $hen these components are purchased from outside it is known

    as !ought out components or !ought out material.• !pare parts Inventory $hen manufacturing or servicing facility !reakdown

    it is to !e repaired. In such case the defective or worn%out parts of the machine

    are to !e replaced !y new one. These new parts of the machine are known as

    spares or spare parts.

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    • O$solete Inventory $hen any facility !ecomes unservicea!le and it is to !ereplaced !y a new one after replacing the old machine&facility is to disposed.

    Such machines which have !ecome useless are termed as o!solete inventory.•

    %aste& !crap an" re'ects This type of inventory occurs in manufacturingfirms or in service organi"ations. $hile processing material chips are produced

    and it is of no use for the organi"ation and it is to !e disposed. Similarly

    defective components which cannot !e reprocessed 're(ects) and materials

    which cannot !e used in any way in the organi"ation 'waste) all these are to !e

    disposed. They may not !e having any use value for the organi"ation !ut they

    may !e reprocessed !y some other organi"ations to produce a useful product.

    Motives for hol"in# Inventories*conomists have esta!lished three motives for holding inventories. +

    () Transaction motive)*) +reca,tionary motive)-) !pec,lative motive)

    Transaction motive. ,irms may re-uire holding certain amount of finished products

    perpetually in stock for display or demonstration purpose. They may also holdinventories to meet a sudden demand thus reducing the delivery tags.

    +reca,tionary motive . ,irms may hold inventories for fear of stock outs and losingits goodwill. Some of the precautionary motives give rise to ‘safety stock’ to deal with

    uncertainty in supply and demand.

    !pec,lative motive . firm may also hold !oth raw materials and finished productswhen it expects a price in future there!y reali"ing a stock profit. Inventories held for

    speculative motive are termed as profit%making inventory.The three motives

    preca,tionary motive re-uires much attention. /esides accumulation of inventorydue to the three motives mentioned a!ove inventories also get accumulated !ecause

    of inefficient management of working capital. This type of inventory is called fla$$yinventory)

    In addition there may !e a contract,al reason for holding some inventories.

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    Contract,al Re/,irements + 0ccasionally it may !e necessary to carry a certainlevel of inventory to meet a contractual agreement. Some manufacturers re-uire

    dealers to maintain a specified level of inventory in order to !e the sole representative

    in a particular territory.

    Inventory Mana#ement

    Inventories represent a su!stantial amount of firm’s current assets. 1roper

    management of Inventory is necessary so that this investment does not !ecome too

    large as it would result in !locking capital which could !e used in productive aspect

    in some where else.

    Inventory 2anagement covers efficient management of inventories in all its

    aspects including Inventory planning and programming 1urchasing Inventory

    3ontrol receiving ware 4ousing and Store keeping Inventories handling and

    5isposal of scrap. In this context of Inventory 2anagement the firm is faced with the

    pro!lem of meeting two conflicting needs.

    To maintain a large si"e of inventory for efficient and smooth production and

    sales operations.

    To maintain a minimum investment in inventories to maximi"e profita!ility.

    The aim of Inventory management thus is to avoid excessive and inade-uate

    levels of inventories and to maintain sufficient inventory for the smooth

    production and sales operations.

    n effective inventory mana#ement should

    6. *nsure continuous supply of materials to facilitate uninterrupted production.

    7. 2aintain sufficient stocks of raw materials in periods of short supply and

    anticipate price changes.

    8. 2aintain sufficient finished goods inventory for smooth sales operations and

    efficient customer services.

    9. 2inimi"e the earnings cost and time.

    :. 3ontrol investment in inventories and keep it at an optimum level.

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    O01ECTI2E! O3 IN2ENTOR4 MANAGEMENT

    The o!(ectives of the inventory management are discussed under two heads#

    0perating o!(ectives.• ,inancial o!(ectives.

    O+ERATING O01ECTI2E!

    The 0perating o!(ectives of Inventory management is further divided as follows %

    • Availa$ility of materials

    The first and the foremost of inventory management is make all types of

    materials availa!le at all times they needed !y the production departments. So that

    the production may not !e held up for want of materials. It is therefore advisa!le to

    maintain the minimum -uantity of all types of materials to move on production

    schedule

    • Minimi5in# the wasta#e

    Inventory management has to minimi"e the wastage at all levels that is during

    its storage in the godowns or at work in the factory. ;ormal wastage in other words

    uncontrolla!le wastage should only !e permitted. ny a!normal !ut controlla!le

    wastage should strictly !e controlled. $astage of materials !y leakage theft and

    spoilage due to rust dust or dirt should !e avoided.

    • +romotion of man,fact,rin# efficiency

    The manufacturing efficiency of the enterprise increases if right types of raw

    material are made availa!le to production department at the right time. It reduces

    wastage < cost of production < improves the moral of workers.

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    0etter service to c,stomers

    In order to meet to the demand of the customers it is the responsi!ility of

    inventory management to produce sufficient stock of finished goods to execute the

    orders received from customers.

    Optim,m level of inventories

    1roper control of inventories helps management to procure materials in right

    time in order to run the plant efficiently. 2aintaining the optimum level of inventorieskeeping in view the operational re-uirements avoids the out of stock danger.

    3INANCIA6 O01ECTI2E!

    The 0perating o!(ectives of Inventory management is further divided as

    follows +

    • Economy in p,rchasin#

    1roper inventory management system !rings certain advantages and economiesin purchasing the raw materials. 2anagement makes every attempt to purchase raw

    materials in !ulk -uantity and to take advantage of favora!le market conditions.

    • Optim,m investment an" efficient ,se of capitalThe primary o!(ective of inventory management from financial point of view

    is to have an optimum level of investment in inventories. Inventory management has

    to setup minimum and maximum levels of inventories to avoid deficiency or surplus

    stocks.

    • Reasona$le pricesInventory management has to ensure the supply of raw materials at a

    reasona!le low price !ut without sacrificing the -uality. It helps to reduction of

    cost of production and improvement in the -uality of finished goods in order to

    maximi"e the profits of the organi"ation.

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    positive feature of a perpetual system is that inventory level is continuously

    monitored so management always knows the inventory status. This is advantageous

    for critical parts or raw materials and supplies. 4owever it can !e costly.

    The perpetual inventory system consists of#

    6. /in 3ards.

    7. Stores ledger.

    8. 3ontinuous Stock taking.

    0in car"s + /in cards are printed cards used for accounting the stock of material instores. ,or every item of materials separate !in cards are kept.The details regarding

    the material such as the name of the material the part num!er the date of receipt and

    issue the reference num!er the name of the supplier the -uantity received and issued

    the value of the material the rate the !alance -uantity etc. are recorded in the !in

    cards.

    !tores le"#er + =ike !in cards a stores ledger is maintained to record all the receiptsand issues in respect of materials with the difference that along with the -uantities the

    values are entered in the receipt issue and !alance columns.

    Contin,o,s stoc7 ta7in# + The perpetual inventory system is not complete without asystematic procedure for physical verification of the stores. The !in cards and the

    stores ledger record the !alances !ut their correctness can !e verified !y means of

    physical verification only.

    1,st In Time Inventory !ystem

    ;ow%a%days organi"ations are !ecoming more and more interested in getting

    potential gains from making smaller and more fre-uent purchase orders. In other

    words they are !ecoming interested in (ust%in%time purchasing system.

    In >ust%In%Time system the materials arrive exactly when they are needed in the

    production process. Inventory remaining in warehouse collects dust and cost instead

    of revenue. >ust%In%Time system avoids this cost.

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    Economic or"er /,antity

    firm should not place either too large or too small orders. 0n the !asis of a

    trade%off !etween !enefits derived from the availa!ility of inventory and the cost of

    carrying that level of inventory the appropriate or optimum level of the order to !e

    placed should !e determined. The optimum level of inventory is popularly referred to

    as the economic order -uantity '*0@). It is also known as economic lot si"e.

    The economic order -uantity may !e defined as that level of inventory order

    that minimi"es the total cost associated with inventory management. i.e it refers to the

    level of inventory at which the total cost of inventory comprising

    ac-uisition&ordering&set%up costs and carrying cost is minimal.

    EO; > ?*AO@C

    A Total annual re-uirement

    0 A 0rdering cost per order

    3 A 3onvey in cost per unit

    A0C analysis

    Bsually a firm has to maintain several types of inventories. It is not desira!le to

    keep same degree of control on all the items. The firm should pay maximum attention

    to those items whose value is highest. The firm should therefore classify inventories to

    identify which items should receive the most effort in controlling. This classification

    is done !y the /3 analysis.

    The /3 analysis techni-ue is !ased is !ased on the assumption that a firm

    should not exercise the same degree of control on all items of inventory. It should

    rather keep a more rigorous control on items that are 'i) the most costly and&or 'ii) the

    slowest%turning while items that are less expensive should !e given less control effort.

    0n the !asis of the cost involved the various inventory items are categori"ed

    into three classes#

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    i) AB cate#ory)ii) 0B cate#ory)

    iii) CB cate#ory)

    • 3ategory ‘ A’ items # 2ore costly and valua!le consumptionitems are classified as items. /ut the

    category items are very less in volume

    'generally 7CD) when compared to the

    total volume of inventory.

    • 3ategory ‘ 0 ’ items# The items having average consumption

    ?alue items are classified as / items.

    /ut the category items are very avg in

    ?olume 'generally 8CD) when compared

    to the total volume of inventory.

    • 3ategory ‘ C’ items# The items having less consumption

    ?alue items are classified as 3 items. /ut

    the 3 category items are very high in

    volume 'generally :CD) when compared

    to the total volume of inventory.

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    2ED Classification

    ?*5 + ?ital *ssential and 5esira!le classification is applica!le largely to spare parts. Stocking of spare parts is !ased on strategies different from those of raw

    materials !ecause of there consumption pattern is different. 4ere the spare parts are

    classified in to three categories.

    • ?ital % The spares the stock out of which even for a

    Short time will stop the production.

    • *ssential % The spares the a!sence of which cannot !e

    Tolerated for more than a few hours or a day.

    • 5esira!le % The desira!le spares are those spares which are

    needed !ut this a!sence for even a week or so will not stop

    the production.

    8M6 Classifications

    The 4igh medium and =ow '42=) classification follows the same procedure

    as is adopted in /3 classification. 0nly difference is that in 42= the classification

    unit value is the criterion and not the annual consumption value. The items of

    inventory should !e listed in the descending order of unit value and it is up to the

    management to fix limits for three categories. ,or examples the management may

    decide that all units with unit value of Es. 7CCC and a!ove will !e ‘4’ items Es. 6CCC

    to 7CCC ‘2’ items and less than Es. 6CCC ‘=’ items.

    The 42= analysis is useful for keeping control over consumption at

    departmental levels for deciding the fre-uency of physical verification and for

    controlling purchases.

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    !DE Classification

    The S5* analysis is !ased upon the availa!ility of items and is very useful in

    the context of scarcity of supply. In this analysis ‘S’ refers to ‘scarce’ items generally

    imported and those which are in short supply. ‘5’ refers to difficult items which are

    availa!le indigenously !ut are difficult items to procure. Items which have to come

    from distant places or for which relia!le suppliers are difficult to come !y fall into ‘5’

    category. ‘*’ refers to items which are easy to ac-uire and which are availa!le in the

    local markets.

    The S5* classification !ased on pro!lems faced in procurement is vital to the

    lead time analysis and in deciding on purchasing strategies.

    3!N Analysis

    ,S; stands for fast moving slow moving and non%moving. 4ere classification

    is !ased on the pattern of issues from stores and is useful in controlling o!solescence.

    To carry out an ,S; analysis the date of receipt or the last date of issue

    whichever is later is taken to determine the num!er of months which have lapsed

    since the last transaction. The items are usually grouped in periods of 67 months.

    ,S; analysis is helpful in identifying active items which need to !e reviewed

    regularly and surplus items which have to !e examined further. ;on%moving itemsmay !e examined further and their disposal can !e considered.

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    !O! Classification

    Eaw materials especially agricultural inputs are generally classified !y the

    seasonal off%seasonal systems since the prices during the season would generally !e

    lower.

    The seasonal items which are availa!le only for a limited period should !e

    procured and stocked for meeting the needs of the full year. The prices of the seasonal

    items which are availa!le throughout the year are generally less during the harvest

    season. The -uantity re-uired of such items should therefore !e determined after

    comparing the cost savings on account of lower prices if purchased during season

    with the higher cost of carrying inventories if purchased throughout the year.

    /uying and stocking strategy for seasonal items depend on a large num!er of

    factors and more and more sophistication is taken place in this sphere and operational

    techni-ues are used to o!tain optimum results.

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    procedures of inventory control which may not applica!le to ordinary items as they

    re-uire special procedures.

    MNG Analysis

    The grouping of inventory items in this analysis takes place as#

    • M Movin# items + The items which are consumed from time to time arenormally referred to as moving items.

    • N Non movin# items + These items which are not and consumed in last oneyear are covered under this group.

    • G Ghost items + This group refers to such items which neither have !eenreceived nor issued during the year. The !alance of such items shown in stock

    registers of the organi"ation will !e nil !oth at the !eginning and at the end of

    the previous financial year.

    A"vanta#es of Inventory Mana#ement

    The advantages gained !y the firm !y managing the inventory effectively are

    • Introduction of a proper inventory management system helps in keeping the

    investment in the inventories as low as feasi!le.

    • *nsures availa!ility of material !y providing ade-uate protection against

    uncertainties of supplies and consumption of materials.

    • llows full advantage of economics of !ulk purchases and transportation.

    • =eads to reduction in inventory levels.

    • Eeleases more of capital for other operations.

    • de-uate customer service.

    • dvantage of price discounts !y !ulk pricing.

    • 1roviding flexi!ility to allows change in production lines due to changes in

    demands on any other reason.

    • *ven out the work loads on the soaps in the face fluctuations demands.

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    Ca,ses of poor Inventory Mana#ementThere are certain instances which leads to poor inventory management.

    They are#

    6. 0ver !uying without regard to the forecast or proper estimate of demand to

    take advantage of favora!le market.

    7. 0ver production or production of goods much !efore the customer re-uires

    them.

    8. 0ver stocking may also result from the desire to provide !etter service to the

    customers. /ulk production or purchase to cut down production costs also will

    result in large inventories.

    9. 3ancellation of orders and minimum -uantity stipulations !y the suppliers may

    also give rise to large inventories.

    2ario,s stoc7 levels in Inventory Mana#ement

    The levels of inventory in any organi"ation depend upon several factors

    including social political economic ethic fiscal governmental policies at the glo!al

    and national levels which determine the demand and supply parameters of an item. t

    the unit level cost criticality availa!ility service level stock out lead time powers

    of delegation consumption pattern etc. affect the levels.

    The various stock levels fixed for effective management of inventories are %

    • 2inimum level.

    • 2aximum level.

    • 0rdering or Eeordering level.

    • 5anger level.

    These levels serve as indices for initiating action on time so that the -uantity of

    each item of material i.e. the inventory holding is controlled or managed. Stock levels

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    are not fixed on a permanent !asis !ut are lia!le to revision in accordance with the

    changes in the factors determining the levels.

    Minim,m level + It indicates the lowest figure of inventory !alance which must !emaintained in hand at all times so that there is no stoppage of production due to non%

    availa!ility of inventory.

    The main considerations for the fixation of minimum level of inventory are as

    follows#

    6. Information a!out maximum consumption and maximum delivery period in

    respect of each item to determine its reorder level.

    7. verage rate of consumption for each inventory item.8. verage delivery period for each item. This period can !e calculated !y

    averaging the maximum and minimum period.

    The formula used for its calculation is as follows#

    Minim,m level of Inventory > Reor"er level . 9Avera#e rateofcons,mption Avera#e time of

    Inventory "elivery )

    Ma im,m 6evel . It indicates the maximum figure of inventory -uantity held instock at any time.

    The important considerations which should govern the fixation of maximum

    level for various inventory items are as follows#

    6. The fixation of maximum level of an inventory item re-uires information a!out

    its reorder level. The reorder level itself depends upon its maximum rate of

    consumption and maximum delivery period. It in fact is the product of

    maximum consumption of inventory item and its maximum delivery period.7. Jnowledge a!out minimum consumption and minimum delivery period for

    each inventory item should also !e known.

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    8. The determination of maximum level also re-uires the figure of economic

    order -uantity.

    9. vaila!ility of funds storage space nature of items and their price per unit are

    also important for the fixation of maximum level.:. In the case of imported materials due to their irregular supply the maximum

    level should !e high.

    The formula used for its calculation is as follows#

    Ma im,m level of Inventory > Reor"er level Reor"er /,antity

    9Minim,m cons,mption

    Minim,m reor"er perio"

    Reor"er level + This level lies !etween minimum and maximum levels in such a waythat !efore the material ordered is received into the stores there is sufficient -uantity

    on hand to cover !oth normal and a!normal consumption situations. In other words it

    is the level at which fresh order should !e placed for replenishment stock. The reorder

    level must !e sufficient to cover the maximum possi!le consumption of stock duringlead time 'reorder period).

    It is set after consideration of the following factors.

    6.Eate of consumption.

    7.2inimum level.

    8.=ead time i.e. delivery time.9.?ariation in lead time.

    formula used for its calculation is as follows

    #

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    Reor"er level > Ma im,m reor"er perio" Ma im,m Usa#e)

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    Dan#er level + It is the level at which normal issues of the raw material inventory arestopped and emergency issues are only made.

    Dan#er level > Av# cons,mption 6ea"time for emer#ency p,rchases

    O$'ectives of Inventory 2al,ation

    The o!(ectives of inventory valuation are discussed here !elow as follows

    • Determination of Income The valuation of inventory is necessary for determining the true income earned !y !usiness during a period.

    • Determination of 3inancial position % The inventory at the end of period is to

    !e shown as a current asset in the !alance sheet of the !usiness. In case of theinventory is not properly valued the !alance sheet will not disclose the correct

    financial position of the !usiness.

    Metho"s of Inventory 2al,ationSince Inventory is the single largest asset in the !alance sheet of most

    organi"ations the valuation of inventory !ecomes of utmost importance and crucial to

    the financial executives.

    Metho"s of 2al,ation of Inventories

    The different methods used for valuation of inventories may !e enumerated as

    follows +

    Metho"s $ase" on Act,al cost

    • =ast%in%,irst%out method.• 4ighest%in%,irst%out method.• Specific identification price.• /ase stock price.• d(usted selling price.

    Metho"s $ase" on Avera#e cost• Simple average price.

    • $eighted average price.

    Metho"s $ase" on Act,al cost

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    The methods of actual cost are as follows %

    • 3irst in 3irst o,t Metho" + The ,irst%in%,irst%out 2ethod of pricing materialsis !ased on the assumption that the materials which are purchases first are

    issued first. The flow of cost of materials should also !e in the same order.

    • 6ast in 3irst o,t Metho" + This method is (ust reverse of ,I,0. It operates onthe assumption that the latest received materials are issued first for production

    and those received first issued last. The price of the last lot of materials received

    is used for all the issues until all units from this lot have !een issued after which

    the price of the previous lot received !ecomes the issue price.• 8i#hest in 3irst o,t metho" + Bnder this method the highest priced

    materials are treated as !eing issued first. The closing inventory is kept at the

    lowest possi!le price. It is undervalued in times of rising prices and thus secret

    reserves are created.• !pecific i"entification price + The specific identification method may !e used

    for inventories of items that are not ordinarily inter%changea!le or for goods

    manufactured for a specific purpose. This method is !est suited for (o! order

    industries which carry out individual (o!s or contracts against specific orders.• 0ase stoc7 price + The !ase stock formula proceeds on the assumption that a

    minimum -uantity of inventory '!ase stock) must !e held at all times in order to

    carry on !usiness. Inventories up to this -uantity are stated at the cost at which

    the cost at which the !ase stock was ac-uired.

    • A"',ste" !ellin# price + Bnder this method which is adopted !y retailersinventory is estimated at selling price and to value it at cost the estimated gross

    profit is deducted there from. The alternative approach is to deduct current sales

    from the total goods availa!le for sale at retail price. This gives the value of

    Inventory.

    Metho"s $ase" on Avera#e costThe methods of average cost are as follows %

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    • !imple avera#e price + Simple average price is the average of the priceswithout any regard to -uantities. Simple average price is calculated !y adding

    up different prices and then dividing !y the num!er of different prices.

    • %ei#hte" avera#e price metho" + $eighted average price is calculated !ydividing the total cost of material in stock !y the total -uantity of material in

    hand. Bnder this method prices are averaged after weighting 'i.e. multiplying)

    !y their -uantities. The average price at any time is simply the !alance value

    figure divided !y the !alance units figure.

    O01ECTI2E! O3 T8E !TUD4

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    • To gain the customer satisfaction through short time delivery.• To maintain sufficient inventory in the company for the smooth production and

    sales operations.•

    ,or running the !usiness operations of the company in smooth and efficient

    manner.

    !CO+E O3 T8E !TUD4

    This study on Inventory 2anagement has a wider scope as it assists the firms in

    5efining the policies of inventory control programs to stock levels5etermining the most appropriate organi"ation structure.

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    5etermining the economic order -uantities stock outs safety stock

    and lead time.In minimi"ing handling and storing cost.

    IM+ORTANCE O3 T8E !TUD4

    The study is significant to the following groups.

    • To the or#ani5ation #/y this study the organi"ation can get

    !enefits !y adopting various methods

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    and techni-ues to various pro!lems

    that they are facing in inventory

    2anagement.

    • To the Government # The government can adopt special policies and strategies for the further

    development of such organi"ations

    • To me # This study is useful to me too inetting first hand experience of an

    Industrial concern.

    MET8ODO6OG4 O3 T8E !TUD4

    The following is the methodology of the study. The collection of data is done in

    two principle sources. They are as follows#

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    • 1rimary data.• Secondary data.

    +RIMAR4 DATAThe primary data needed for the study is gathered through interview with

    concerned officers and staff either individually or collectively. Some of the

    information has !een verified or supplemented with personal o!servation conduct.

    !ECONDAR4 DATA

    The secondary data needed for the study was collected from pu!lished sources

    such as pamphlets of annual reports returns and internal records reference from text

    !ook and (ournals of financial management.

    The collected information is mainly through secondary data

    6IMITATION! O3 T8E !TUD4

    s the details of inventory are maintained confidentially the pro(ect deals with

    fewer areas of inventory.

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    s the time spent on pro(ect is only 9:days it is not possi!le to go in to detail

    study of item wise.

    The study is restricted to six depts. 0nly remaining depts. are not considered

    The pro(ect covers the area of stores and spares under inventory management

    system of the company. It does not deal with other inventories like raw

    materials finished goods and work in progress.

    INDU!TR4 +RO3I6ECotton

    3otton is a soft staple fi!er that grows around the seeds of the cotton plant. It

    is a natural fi!er harvested from the cotton plant. The fi!er most often is spun into

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    yarn or thread and used to make a soft !reatha!le textile which is the most widely

    used natural%fi!er cloth in clothing today.

    +rocessin# of Cotton in In"ia

    In India the raw cotton also called as Japas is processed in a multi%stage

    process descri!ed as !elow. The 1roducts of processing are

    I. Garn.

    II. 3ottonseed 0il.

    III. 3ottonseed 2eal.

    I) +ro",ction of 4arn

    FA+A! TO 6INT # Japas 'also known as raw cotton or seed cotton) isunginned cotton or the white fi!rous su!stance covering the seed that is o!tained from

    the cotton plant. The first step in the process is the cotton is vacuumed into tu!es that

    carry it to a dryer to reduce moisture and improve the fi!er -uality. Then it runs

    through cleaning e-uipment to remove leaf trash sticks and other foreign matter. In

    ginning a roller gin is used to gra! the fi!er. The raw fi!er now called lint.

    6INT TO 0A6E# The lint makes its way through another series of pipes to a press where it is compressed into bales 'lint packaged for market). fter !aling the

    cotton lint is hauled to either storage yards textile mills or shipped to foreign

    countries.

    NOTE# The cotton seed is delivered to a seed storage area from where it is loaded intotrucks and transported to a cottonseed oil mill.

    0A6E TO 6A+# 4ere the !ales are !roken down and a worker feeds the cotton into amachine called a K!reakerK which gets rid of some of the dirt. ,rom here the cotton

    goes to a KscutcherK. '0perated !y a worker also called a scutcher). This machine

    cleans the cotton of any remaining dirt and separates the fi!ers. The cotton emerges inthe form of thin K!lanketK called the KlapK.

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    6A+ TO CARDING# 3arding is the process of pulling the fi!ers into parallelalignment to form a thin we!. 4igh speed electronic e-uipment with wire toothed

    rollers performs this task. The we! of fi!ers is eventually condensed into a

    continuous untwisted rope%like strand called a sliver.

    !I62ER TO RO2ING # The silver is then sent to com!ing machine. 4ere the fi!ersshorter than half%inch and impurities are removed from the cotton. The sliver is drawn

    out to a thinner strand and given a slight twist to improve strength and then wound on

    !o!!ins. These 1rocesses is called Eoving.

    RO2ING TO 4ARN 'S1I;;I; )# Spinning is the last process in yarnmanufacturing. Spinning draws out the short fi!res from the mass of cotton and twists

    them together into a long. Spinning machines have a metal spike called a spindle

    which the thread winds around.

    II) +ro",ction of Cotton !ee" Oil

    1rocessing of cottonseed in modern mills involves a num!er of steps. They are as

    follows#

    • The first step is its entry into the shaker room where through a num!er of

    screens and air e-uipment twigs leaves and other trash are removed.

    • The cleaned seed is then sent to gin stands where the linters are removed from

    the seed 'delinted). The linters of the highest grade referred to as first%cut

    linters are used in manufacturing non%chemical products such as medical

    supplies twine and candle wicks.

    The second%cut linters removed in further delinting steps are

    incorporated in chemical products found in various foods toiletries film and

    paper.

    • The delinted seeds now go to the huller. The huller removes the tough seed

    coat with a series of knives and shakers. The knives cut the hulls 'tough outer

    shell of the seed) to loosen them from the kernels 'the inside meat of the seedrich in oil) and shakers separate the hulls and kernels.

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    • The kernels are now ready for oil extraction. They pass through flaking rollers

    made of heavy cast iron spinning at high speeds. This presses the meats into

    thin flakes. These flakes then travel to a cooker where they are cooked at 6LC

    degrees , to reduce their moisture levels. The prepared meats are conveyed tothe extractor and washed with hexane 'organic solvent that dissolves out the

    oil) removing up to MND of the oil.

    • 3rude cottonseed oil re-uires further processing !efore it may !e used for food.

    The first step in this process is refining. $ith the scientific use of heat sodium

    hydroxide and a centrifuge 'e-uipment used to separate su!stances through

    spinning action) the dark colored crude oil is transformed into a transparent

    yellow oil. This clear oil may then !e !leached with special !leaching clay to

    produce transparent am!er colored oil.

    The refined cotton seed oil has several advantages other than edi!le oils. It

    contains mere advantage over other edi!le oils. It contains a large percentage of 1oly

    Bnsaturated ,atty cids '1B, ) which maintain cholesterol in the !lood at a healthy

    level.

    The -uality of cotton oil depends on the weather prevailing during the time that

    cotton stands in the fields after coming to maturity. 4ence -uality of oil varies from

    place to place and season to season. The -uality of oil is high in dry seasons and low

    when the seed is exposed to wet weather in the fields or handled or stored with high

    moisture. ,urther cotton seed cooking oil has a long span of life due to the presence of

    vitamin *.

    III) +ro",ction of Cottonsee" Meal@Ca7e@Fapas7halli

    • Japaskhalli 'cottonseed extraction&meal) is a !yproduct of the cottonseed

    industry.

    • 3ottonseed is a !y%product of the cotton plant which is primarily grown for its

    fi!er. lthough cotton has !een grown for its fi!er for several thousand years

    the use of cottonseed on a commercial scale is of relatively recent origin.

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    • 3ottonseed was a raw agricultural product which was once largely wasted.

    ;ow it is !eing converted into food for peopleO feed for livestockO fertili"er and

    mulch for plantsO fi!er for furniture paddingO and cellulose for a wide range of

    products from explosives to computer chip !oards.

    The figure showing the products o!tained from processing the raw cotton#

    5iagram 7.6

    Source# The 3otton 3orporation of India =td.

    3otton ?arieties in India

    • /engal 5eshi mainly produced in the states of 1un(a! 4aryana and Ea(asthan.

    • >ayadhar mainly produced in the state of Jarnataka.

    • /unny 'or) /rahma is mainly produced in the states of 2aharashtra 2adhya

    1radesh ndhra 1radesh and Jarnataka.

    • Suvin is another variety produced in the state of Tamil ;adu.

    • 4%9 'or) 2*346 is mainly produced in the states of 2aharashtra 2adhya

    1radesh and ndhra 1radesh.

    Role of Cotton In",stry in In"ian Economy

    0ver the years country has achieved significant -uantitative increase in cotton

    production. Till 6MLCs country used to import massive -uantities of cotton in the

    range of N.CC to M.CC lakh !ales per annum. 4owever after overnment launched

    special schemes like intensive cotton production programmes through successive five%

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    year plans that cotton production received the necessary impetus through increase in

    area and sowing of 4y!rid varieties around mid LCs.

    Since then country has !ecome self%sufficient in cotton production !arring few

    years in the late MCs and early 7Cs when large -uantities of cotton had to !e imported

    due to lower crop production and increasing cotton re-uirements of the domestic

    textile industry.

    Cotton pro",ction Areas in In"ia

    India is an important grower of cotton on a glo!al scale. It ranks third in glo!al

    cotton production after the Bnited States and 3hinaO with M.:C million hectares grown

    each year India accounts for approximately 76D of the worldPs total cotton area and

    68D of glo!al cotton production. The 3otton producing areas in India are spread

    throughout the country. /ut the ma(or cotton producing states which account for more

    than M:D of the area under and output are#

    6. 1un(a!.

    7. 4aryana.

    8. Ea(asthan.

    9. 2aharastra.

    :. u(arat.

    Q. 2adhya 1radesh.

    L. ndhra 1radesh.

    N. Tamil ;adu.

    M. Jarnataka.The nine cotton producing States in India average yields are highest in 1un(a!

    where most of the cotton area is irrigated.

    /ut the yields of cotton in India are low with an average yield of :C8 kg&ha

    compared to the world average of L89 kg&ha. The pro!lem is also compounded !y

    higher production costs and poor -uality in terms of varietals purity and trash content.

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    4owever the 3otton plays an important role in the ;ational economy providing

    large employment in the farm marketing and processing sectors. 3otton textiles along

    with other textiles also contri!ute a!out 6&8rd of the Indian exports.

    Contri$,tion of Cotton in",stry for Te tile In",stry

    3otton is the most important raw material for IndiaPs Es. 6 :C CCCcrores textile

    industry which accounts for nearly 7CD of the total national industrial production.

    The cotton Industry is the !ack!one of our textile industry accounting for LCD

    of total fi!er consumption in textile sector. It also accounts for more than 8CD of

    exports making it IndiaPs largest net foreign exchange industry. India earns foreign

    exchange to the tune of R6C%67 !illion annually from exports of cotton yarn thread

    fa!rics apparel and made%ups.

    The cotton Industry provides employment to over 6: million people. nd the

    area under cotton cultivation in India 'M.: million ha) is the highest in the world i.e.

    7:D of the world area.

    !teps ta7en $y the Cotton +ro",cers in In"ia ;ow%a%days the Indian 3otton producers are continuously working to up%grade

    the -uality and increase the cotton production to cope up with the increased glo!al

    demand for cotton textiles and to meet the needs of the 8M million spindles capacity of

    the domestic textile industry which presently consumes a!out 67%69 million !ales

    annually.

    In India cotton yields increased significantly in the 6MNC’s and through the first

    half of 6MNC’s !ut since 6MMQ there is no increase in yield. In the past the increase in

    cost of production of cotton was partially offset !y increase in yield !ut now with

    stagnant yield the cost of production is raising. /esides low yield Indian cotton also

    suffers from inconsistent -uality in terms of length micronaire and strength.

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    +olicy of Government of In"ia towar"s Cotton In",stry

    The 3otton production policies in India historically have !een oriented toward

    promoting and supporting the textile industry.

    The overnment of India announces a minimum support price for each variety

    of seed cotton 'kapas) !ased on recommendations from the 3ommission for

    gricultural 3osts and 1rices. The overnment of India is also providing su!sidies to

    the production inputs of the cotton in the areas of fertili"er power etc

    Mar7ets for In"ian Cotton

    The three ma(or groups in the cotton market are

    • 1rivate traders

    • State%level cooperatives

    • The 3otton 3orporation of India =imited.

    0f these three groups private traders handle more than LC percent of cottonseed and

    lint followed !y cooperatives and the 33I.

    The 3otton 3orporation of India =td. for the year 7C66%67 had purchased QC.8C

    lakh -uintals of kapas e-uivalent to 66.LL lakh !ales valuing Es.676N.LC crores in

    ndhra 1radesh 2aharashtra 2adhya 1radesh 0rissa and Jarnataka. /eside these

    the 3orporation had also carried out commercial operations and purchased 7.L6 lakh

    !ales valuing Es.7N:.N7 crores in the year 7C66%67 as compared to around 6.CC lakh

    !ales valuing Es.6CN.N6 crores during the previous year 'i.e. for the year 7C6C%66).

    E ports of Cotton

    The main market for Indian cotton export is 3hina. The other markets also

    include Taiwan Thailand and Turkey. In >uly 7CC6 the union government removed all

    cur!s on cotton exports. s a result of these now the exporters are not re-uired to

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    o!tain any certificate from the Textile 3ommissioner on the registration allocation

    -uality and -uantity of export.

    India exported around 7: per cent cotton during 7C67%68 and it is estimated

    nearly Q7 per cent exported to 3hina.

    5uring the year 7C67%68 the prices of Indian cotton in early part of the season

    !eing lower than the international prices had !een attractive to foreign !uyers and

    there was good demand for Indian cotton especially S%Q 4%9 and /unny which had

    resulted in sustained cotton exports which are estimated at ::.CC lakh !ales

    The 3otton dvisory /oard 6N%7C percent increase in cotton exports to Q: lakh

    !ales for 0ct 7C6C% Sep 7C66 as against its ug 7CCM of :N lakh !ales.

    Imports of Cotton

    5espite good domestic crops India is importing cotton !ecause of -uality

    pro!lems or low world prices particularly for processing into exporta!le products like

    yarns and fa!rics.

    India imported (ust L 76 CCC lakh !ales of cotton in 7CC:%CQ. The imports rose

    to 67 6L CCC lakh !ales in 7CC:%CQ 9L CC CCC lakh !ales in 7CCQ%CL and the

    anticipated imports for the year 7CCL%CN are : :C CCC lakh !ales.

    ,or the year 7CCL%CN the cotton imports into the country had once again

    remained limited mainly to *xtra =ong staple cottons like as previous year which

    were in short supply at around Q lakh !ales inclusive of import of around 7 lakh !ales

    of long staple varieties contracted !y mills during pril%2ay 7CCM.7C66%67 the import

    of long staple !ales are 8.: lakhs.

    Role of Cotton see" oil in In"ian Economy

    The glo!al production of cottonseed oil in the recent years has !een at around

    9%9.: million tons. round 7 lakh tons are traded glo!ally every year.

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    The ma(or seed producers vi". 3hina India Bnited States and 1akistan are

    the ma(or producers of oil. Bnited States 'QCCCC tons) is the ma(or exporter of

    cottonseed oil while 3anada is the ma(or importer.

    3ottonseed is a traditional oilseed of India. In India the average production of

    cotton oil is around 9 lakh tons a year. It is estimated that if scientific processing is

    carried out the oil production can !e increased !y another 9 lakh tons.

    In India the oil recovery from cottonseed is around 66D. u(arat is the ma(or

    consumer of cottonseed oil in the country. It is also used for the manufacture of

    vanaspati. The price of cottonseed oil is generally dependent on the price !ehavior of

    other domestically produced oils more particularly groundnut oil.

    India used to import around 8CCCC tons of crude cottonseed oil !efore palm

    and soyoil !ecame the only imports of the country. 3urrently the country does not

    import cottonseed oil.

    Role of cottonsee" meal in In"ian Economy

    India produces around 7 million tons of cottonseed meal a year. 4owever inIndia mainly undecorticated meal is largely produced. Several associations are

    promoting the production of decorticated cake in India and the production of this is

    expected to increase in the country.

    India used to !e a ma(or exporter of cottonseed extraction around two decades

    ago. 4owever the demand for other oil meals like soymeal has lowered the cottonseed

    demand glo!ally. In addition the low availa!ility of decorticated meal in India hasalso !een a ma(or reason for the fall in exports.

    The ma(or importers of Indian cottonseed meal 'undecorticated) used to !e

    Thailand. India in 7CC8%C9 exported only :C tons of decorticated cottonseed meal. In

    7CC9%C: too there have !een no significant exports. India does not import cottonseed

    meal.

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    The Or#ani5ations "ealin# with the promotion of Cotton In",stry in In"ia

    The organi"ations that try to promote the -uantity and -uality of 3otton in India are

    I. The 3otton corporation of India =td.II. 3otton dvisory !oardsIII. 3otton ssociation of India.I?. 3entral Institute of 3otton Eesearch.

    I) The Cotton Corporation of In"ia 6imite"

    The 3otton 3orporation of India =td. was esta!lished on 86st >uly 6MLC as a

    overnment 3ompany registered under the 3ompanies ct 6M:Q. In the initial period

    of setting up as an gency in 1u!lic Sector 3orporation was charged with the

    responsi!ility of e-uita!le distri!ution of cotton among the different constituents of

    the industry and to serve as a vehicle for the canalisation of imports of cotton.

    $ith the changing cotton scenario the role and functions of the 3orporation

    were also reviewed and revised from time to time. s per the 1olicy directives from

    the 2inistry of Textiles overnment of India in 6MN: the 3orporation is nominated

    as the ;odal gency of overnment of India for undertaking 1rice Support

    0perations whenever the prices of kapas 'seed cotton) touch the support level.

    The 3otton 3orporation of India =td. 0perations covers all the cotton growing

    states in the country comprising of#

    • 1un(a! 4aryana and Ea(asthan in ;orthern Hone.

    • u(arat 2aharashtra and 2adhya 1radesh in 3entral Hone.

    • ndhra 1radesh Jarnataka < Tamil ;adu in Southern Hone.

    II) Cotton A"visory 0oar"

    The 3otton dvisory /oard is a representative !ody of overnment& rowers&

    Industries& Traders. It advises the overnment generally on matters pertaining to

    production consumption and marketing of cotton and also provides a forum for

    liaison among the cotton textile mill industry the cotton growers the cotton trade and

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    the overnment. It functions under the 3hairmanship of Textile 3ommissioner with

    5eputy Textile 3ommissioner as a 2em!er Secretary.

    III) The Cotton Association of In"ia

    The 3otton ssociation of India also called as the *ast India 3otton

    ssociation '*I3 ) was declared as the statutory !ody !y the /om!ay 3otton

    3ontract ct on 7Nth 5ecem!er 6M77. Its purpose is to

    • 1rovide and maintain suita!le !uildings or rooms or a 3otton

    *xchange in the city of /om!ay or elsewhere in India.

    • 1rovide forms of contracts and regulate the marketing etc. of the

    contracts.

    • ,ix and adopt standards or classifications of cotton.

    • d(ust !y ar!itration or otherwise controversies !etween

    1ersons engaged in the cotton trade.

    • c-uire preserve or disseminate useful information connected with the cotton

    interests.

    I2) Central Instit,te of Cotton Research

    $ith a view to develop a 3entre of excellence for carrying out long term

    research on fundamental pro!lems limiting cotton production the Indian 3ouncil of

    gricultural Eesearch has esta!lished the 3entral Institute for 3otton Eesearch at

    ;agpur in pril 6MLQ. 3I3E was simultaneously esta!lished at 3oim!atore to cater to

    the needs of southern cotton "one. 3I3E was esta!lished at Sirsa in the year 6MN: to

    cater to the needs of northern irrigated cotton "one. ll the three research farms are

    well e-uipped with tractors and other farm implements and efforts are underway to

    initiate further developmental work in all the farms.

    The ?ision of the 3I3E is to improve production and -uality of Indian 3otton

    with reduced cost to make cotton production cost effective and competitive in the

    national and glo!al market. The 2ission of 3I3E is to develop economically via!le

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    and eco%friendly production and protection technologies for enhancing -uality cotton

    production !y 7%8D every year on a sustaina!le !asis for the next twelve years 'till

    7C7C).

    The C,rrent !cenario of Cotton In",stry 9* (* (-

    The cotton production in the country has !een increasing continuously since

    last three years and the same has further gone up !y around 66D during cotton season

    7C66%67 at a record level of 7LC lakh !ales as against 799 lakh !ales during 7C6C%

    66. u(arat has turned into a largest cotton producing State with a record production%

    level of M8 lakh !ales constituting around 89D of the country’s total production.

    The area under cotton cultivation during 7C67%68 has also gone up !y around

    QD at M6.:N lakh hectares as against NQ.LL lakh hectares during 7C66%67.

    $ith wide usage of hy!rid seeds throughout the country as well as changed

    mindset of cotton farmers for adoption of !etter and improved farm practices the

    average productivity of cotton has crossed :C8 kgs per hectare as against 9LN kgs

    during the previous year. The prices of Indian cotton in early part of the season !eing

    lower than the international prices had !een attractive to foreign !uyers and there was

    good demand for Indian cotton.

    5ue to expectation of !umper crop the mill demand in the !eginning of the

    season was su!dued which put pressure on the cotton prices right from the !eginning

    of the season and has resulted into fall in cotton prices !etween 0cto!er 7C6C <

    >anuary 7C66. 3otton prices reached its peak level !y end%2arch 7C66 and there was

    some correction in cotton prices in pril and 2ay 7C66. 4owever on the whole

    cotton prices remained !etter !y almost Es.8CCC per -uintal in almost all varieties as

    compared to previous year.

    3,t,re of Cotton In",stry in In"ia

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    3onsidering the continual capital investments in the textile industry the ovt.

    of India may extend the Technology Bpgradation ,und Scheme 'TB,S) !y the end of

    the 66th ,ive Gear 1lan 'till 7C67%7C68) in order to support the industry. Indian textile

    industry is massively investing to meet the targeted output of RN:!n !y the end of 7C66 aiming exports of R:C!n. There is huge development foreseen in Indian textile

    exports from the R6L!n attained in 7CCQ%CL to R:C!n !y 7C67%68. The estimation for

    the exports in the current financial year is a!out R6M!n. There is su!stantial potential

    in Indian exports of technical textiles and home%textiles as most *uropean companies

    want to set up facilities near%!y the emerging markets such as 3hina and India.

    The glo!al demand for apparel and woven textiles is likely to grow !y 7: percent !y year 7C66 to over 8:mn tons and sia will !e responsi!le for N: percent

    output of this growth. The woven products output will also rise in 3entral and

    Southern merican countries however at a reasona!le speed. 0n the other hand in

    ma(or developed countries the output of woven products will remain sta!le. $eaving

    process is conducted to make fa!rics for a !road range of clothing assortment

    including shirts (eans sportswear skirts dresses protective clothing etc. and also

    used in non%apparel uses like technical automotive medical etc

    It is !een forecasted that the woven textile and apparel markets will sustain

    their growth from current till 7C66.

    The imports of apparel and textiles will rise from developed economies like the

    BS and the western countries of *urope and >apan along with some newly emerged

    economies such as South Jorea and Taiwan. 3ertainly import growth has !eenwitnessed vertical rise in the previous year.

    pparel is the most preferred and important of all the other applications.

    $oven fa!rics are widely used in apparel assortments including innerwear outerwear

    nightwear and underwear as well as in speciali"ed apparels like protective clothing

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    and sportswear. 4ome textile also contri!utes considera!ly in woven fa!ric in

    products assortments like curtains furnishing fa!rics carpets ta!le cloths etc.

    Special kind of woven fa!rics are utili"ed in medical as well as industrial

    applications. The medical applications include adhesives dressing !andages plasters

    etc.

    $here as industrial applications includesO

    eotextile % interior upholstery trim air!ags and seat !elts and lyre fa!rics.

    Sailcloth % tent and fa!rics used architectures transportation and taraulins.

    nd many more applications

    The Indian Industry foresees huge demand for industrial woven products for

    medical and automotive applications. 5emand for woven fa!rics is anticipated to !e

    rise vertically in the sector of home textiles.

    ;on woven sector has great future in terms of glo!al demand thus ma(or

    facilities of cotton yarn are currently concentrating (ust on home textiles. It is

    mandatory that the peak management of the cotton yarn manufacturers analy"e the

    future prospect and growing graph of demand for non woven products.

    Concl,sion:

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    nticipating massive growth in medical and automo!ile sectors these sectors

    assures su!stantial demand for non woven facilities in India. l!eit home textiles also

    will lure higher demand there are specific demands for home textile facilities also.The

    Lth ,ive Gear 1lan has huge consideration on agricultural growth that also includescotton textileindustry resulting a prosperous future forecast for the textile industry in

    India. Indian cotton yarn manufacturers should rush forward for (oint ventures and

    integrated plans for esta!lishing processing and weaving facilities in home textiles and

    technical textiles in order to meet export target of R:C!n and a total textile production

    of RN:!n !y 7CCM%7C6C.

    3,t,re Challen#es for the In"ian Cotton In",stry The challenges that are going to face !y the cotton producers in India for the

    season 7C66%67 are#

    • R,pee appreciation

    The increase in the value of the rupee gives only smaller import orders to the

    cotton producers.

    • Cheaper Imports

    The appreciated rupee value makes the cotton imports cheaper when compared

    to past. So this aspect is also re-uired to consider !y the cotton producers.

    • 6ow /,ality

    The @uality of cotton is also far from satisfactory considering the presence of a

    large num!er of contaminants. So the cotton producers are also re-uired to take care inthis aspect.

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    A$o,t the !ri Dhana 6a7shmi Cottons H Rice Mills +vt) 6t"):

    SEI 54 ; = JS42I roup with its diverse interests in core areas is surging

    ahead with drive and determination with all the companies super!ly integrated in one single

    campus the group harnesses an entrepreneurial spirit state%of%art technology and financial

    strengths to emerge as an industrial force to reckon with.

    SEI 54 ; = JS42I group is driven !y a passion !e the !est in the all areas it

    operates. /acked !y a high density of advance technology sophisticated manufacturing

    facilities it’s only natural that the group is leaf fogging for an outstanding future. The total

    group turnover is around 8CC crores per annum.

    A$o,t the company:

    The founder of SEI 54 ; = JS42I group who as drawn its future planned

    growth. 2an whose spirit of 5ynamism has helped the group to achieve manifold growth.

    Today SEI 54 ; = JS42I is multi%activity group with an Es.8CC crores turnover

    comprising Q divisions with diverse interest in

    3ottonEice0ilSpinning1ower < textile

    A TRADITION O3 ENTER+RI!E:

    s per !ack as 6M:Q Sri Sadineni 3howadaraiah left in pursuit of a dream. $ith (ust

    two !ags of grain he ventured to cultivate 6CC acres of land. nd with the tell%tale spirit

    gleaming in his eyes. This man had set the !all of a 67C crore conglomerate rolling. 4is value

    + oriented strategy and adventurous spirit !ore fruit consistently.

    4is farmland grew and from a model farmer he evolved into a dynamitic entrepreneur.

    4e proved that success start with a proactive attitude. vigorous confidence that one can

    effectively integrate ideas with enterprise.

    Sadineni’s first trip to EBSSI gave him the power of conviction to stride !oldly into

    the industrial environment. nd validity into the future.

    The 0irth of a Dream:

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    MBA PROGRAMME

    SEI S 5I;*;I 340$ 5 E I 4 set up a cotton ginning mill in 6MLL. Theoperation grew rapidly to lay solid foundations for giant surging ahead in diverse

    environments. To the group the future is rich in possi!ilities.

    future where the !est of minds and men will work. nd will have the most resource

    to drawn upon. It’s vision of the future where change will !e em!raced as the very !asis of

    opportunity and *ndeavour.

    The managing 5irectors of SEI 54 ; = JS42I 30TT0; < EI3* 2I==*S '1)

    =T5. Eelentless pursuit of perfection is the hall mark of this young and dynamic /.Tech.

    Textiles graduate. 4is rich and professionals experience in the spinning line ena!led SEI

    54 ; = JS42I’s Spinning 5ivision to scale new heights.

    4is enterprising "eal and cautious planning have !een the pivotal points in driving the

    group towards trail!la"ing progress. 2r.E 4 ? E 0 is committed to la!our welfare and

    his visionary leadership has earned him a wealth of respect among the la!our of SEI

    54 ; = JS42I. n astute professional !y ha!it he is forever aiming higher.

    4e is widely acknowledged as the man has fostered a ‘can do’ culture which starts attop and filters down to every employee at SEI 54 ; =JS42I. 4e is powered !y (ust one

    !elief

    !,ccess is a matter of e cellence& an" not chanceJ)

    Social service has always !een a matter of prime concern to him. $hich is why he

    perennially strives to provide the !est education and undertake multi%pronged schemes

    towards the !etterments of the community.

    $hile nurturing a corporate culture that encourages individual growth he is

    committed to a vision that encompasses every!ody’s up liftmen.

    Cotton Division:

    The 30TT0; I;;I; < 1E*SSI; B;IT was started in 6ML8. The division

    maintains :9 ins and 6 4ydraulic press with a turnover of Es.9Ccrores. The company firmly

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    MBA PROGRAMME

    !elieves that unmatched plus an in%depth knowledge of various cotton growing areas alone

    can put it on the path to speedy growth.

    This division also processes India’s !est long staple cotton 534%87 at 5harwad

    /ranch Jarnataka. The division is poised to excel and is confidently geared to post an

    impressive growth rate. This 5ivision has stayed !ig thinking !ig and keeping an eye on the

    details that sustain -uality.

    Man,fact,re of cotton I)E) 0y Ginnin# H +ressin# Activities:

    • =I3*;S*5 # =icensed under Industries '5

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    MBA PROGRAMME

    These awards recogni"e SEI 54 ; =JS42I’s pursuit of excellence which is

    achieved through enhanced productivity -uality up gradation and a shared of commitment.

    Indeed this outstanding recognition sets an example to all the other oil and extraction

    industries in the country.

    0il 5ivision consists of cotton seed processing plant *xpeller '0il 2ills) Eefinery

    and solvent *xtraction 1lant.

    =I3*;3I*5 # Eegistered with 5 T5 ;ew 5elhi.1rocessing # 2anufacturing of dou!le refined oil.Installed 3apacity # 9C 2/ *di!le oil per day of 79 hours of working.Eaw material # 3otton Seed Sun flower seed Soya !een seed rice !ran other

    seeds.,inished products # 3otton linters *di!le refined oil hulls extraction.

    !pinnin# Division:

    The SEI 54 ; =JS42I S1I;;I; 2I==S 5I?ISI0; has !een a trend setter

    ever since it’s commissioning. *sta!lished in 6MM6 the plant started commercial production

    of world class yarn to the re-uirement of glo!al markets as well as indigenous markets.

    3onceived in a sprawling area in the midst of rich cotton hori"on. $e are having a

    capacity of QC CCC spindles. The impressive performance reflects SEI 54 ; =JS42I’s

    commitment to continue machine moderni"ation.

    The division through a concerted *ndeavour assures exemplary -uality !y

    undertaking rigid -uality control measures which start right at the stage of procuring raw

    material ingredients down to the last level.

    It is the dedicated -uality consciousness that as covered the way for a phenomenal

    demand for SEI 54 ; =JS42I products.

    ll this translate into utmost customer satisfaction. The unit is envia!ly well%

    esta!lished as a leading player for the highly competitive export markets ever since 6MMQ.

    SEI 54 ; =JS42I’s magnificent with exports has won for it important international

    markets. In facts over LCD of the produce was ma(or *uropean countries.

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    MBA PROGRAMME

    In recognition of its excellent -uality conforming to the highest international

    standards the products of SEI 54 ; =JS42I have won widespread appreciation and

    repeat orders.

    /y exporting world class cotton yarn glo!ally the mill is leap fogging for the further

    growth.

    The thrust on higher capacity utili"ation uncompromising productivity standards

    -uality management astute focus on niche markets prompt delivery schedules com!ined

    with competitive pricing have in higher sales and profits

    =I3*;3I*5 # Eegistered with 0ffice of the Textile commissioner 1rocessing # MQ loomsInstalled 3apacity # Q8 QCC SpindlesEaw material # 3otton lint,inished products # 3otton yarn

    Environmental protection an" !afety . A Top priority:

    $e !elieve that environmental protection re-uires attitude action and right

    application technology. The group is an eco% friendly entity whose concern is conservation of

    life and situation. The division does not release any toxic wastes and pollutants.

    nd across every unit of the group humidity moisture and temperature are

    constantly monitored to ensure top most safety. The very fact we have made wearing of

    marks mandatory for the personnel !ear’s amp witness to our commitment to industrial

    safety.

    The environmental protection commitment of the company firmly !elieves that when

    we use the !ounties of mother earth we have to give !ack an environmental that is

    conductive to healthy living.

    Co,nt Ran#e:

    $e are running from :C to 6CC counts in singles well as dou!le 'T,0) yarns. $e are

    running compact yarnwith 67CCC spindles 'suessen). $e will achieve 7:CCC spindles

    compact yarn shortly.

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    MBA PROGRAMME

    Rice Division:

    This division conducts Eice 2illing ctivities#

    1ara /oiled Eice 2ill # 2illing of 9NC @tls of paddy per day 79 hrs working.Eice 2ill # 2illing of 9NC @tls of paddy per day of 79 hrs workingEaw 2aterial # paddy,inished 1roducts # Eice /ran

    Te tile Division:

    The 5ivision was started in 7CC:. The units e-uipped with imported machinery.

    1resently we are running with 9N /rand ;ew =ooms.

    $e have sucker wrapping and si"ing. Total plant planned for MN =ooms. In phased

    manner we are expanding the looms capacity.

    +ower Division:

    The future is a limitless expense of changes waiting for the strongest to step in and

    con-uer. 0nly those with all the answers will emergency victorious. In the wake of fast

    depleting fuel resources and an increasing drive for self% reliance SEI 54 ; =JS42I

    E0B1 reali"es the alarming glo!al concern.

    To reach the goal of self%reliance the progressive dynamic and growth oriented

    roup has naturally moved into the core sector% power. mere 9C Jms away from the

    company’s factories at anapavaram.The power pro(ect will not only serve as a ma(or !oost

    to the company !ut will meet the ever growing captive consumption needs. To SEI

    54 ; =JS42I relia!ility is an acronym missionary self%confidence.

    Eeason why SEI 54 ; =JS42I is fully geared to meet any emerging power need.SEI 54 ; =JS42I is harnessing its technology resources and inherent strengths to gain

    the competitive edge.

    !tatements of Acco,ntin# +olices:

    eneral,ixed ssetsInvestments5epreciationInventories

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    *xcise 5utySalesTaxes 0n IncomeSegment EeportingEetirement /enefits1roposed dividend,oreign 3urrency TransactionsImpairment of ssets3ontingent =ia!ilities,oreign *xchange *arnings and 0ut o

    General:

    The accounting is prepared on historical cost convention and in accordance with

    normally accepted ccounting 1rinciples.

    3i e" Assets:

    ,ixed assets are stated at cost less accumulated depreciation. 3ost of ac-uisition of

    fixed assets is inclusive of directly attri!uta!le cost of !ringing the assets to their working

    condition.

    The intended use and interest on !orrowings till the date of commissioning of the

    assets 3*;? T&? T credit availed if any on fixed assets is not included in the cost of such

    fixed assets capitali"ed.

    Investments:

    =ong% term investments are valued at cost price less provision for diminution on

    account other than temporary decline in the value of investment.

    Depreciation:

    5epreciation is a written off in accordance with the provisions of schedule FI? of the

    companies act 6M:Q as follows#

    Bnder straights% =ine method in respect of the assets of Spinning 1ower and Textile

    5ivisions.Bnder written down value method on the assets of all other division of the company.

    Inventories:

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    MBA PROGRAMME

    ?aluation of inventories is made as follows#

    Eaw%material and ,inished goods at cost or net reali"a!le value whichever is lower.$ork%in%progress at cost inclusive of direct production overheads.Stores and spares at cost.*lectronic power at net releasa!le value.

    E cise D,ty:

    =ia!ility on finished goods is accounted for as and when goods are cleared from

    factory and there is no lia!ility on closing stock of finished goods at the year end.

    !ales:

    Sales are exclusive of sales tax collection due to implementation of 1 ? T ct 7CC:

    Ta es on Income:

    current taxes are determined as pert the provisions of income Tax ct 6MQ6 in respect

    of taxa!le income for the year ended 86 st march 7C6C.

    5eferred tax lia!ility is recogni"ed su!(ect to the consideration of timing differences

    !eing the difference !etween the taxa!le income and accounting income the originate in one

    period and are capa!le of reversal in one or more su!se-uent periods. In case of power

    division which eligi!le for tax 4oliday. 5eferred Tax sset&lia!ilities for timing differences

    which reverse after the Tax 4oliday period are recogni"ed.

    !e#ment Reportin#:

    The accounting policies adopted for segment reporting are in line with the accounting

    policies of the company with the following additional policies for segment reporting. Inter%

    segment revenue has !een accounted for !ased on the market related prices.

    Eevenue and *xpense other than interest have !een identified to segments on the

    !asis of their relationship to the operating activities of the segment. Eevenue and expense

    which related to the enterprise as a whole and are not alloca!le to segments on a reasona!le

    !asis have !een included under “Bnallocated” head.

    Retirement 0enefits:

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    MBA PROGRAMME

    The company makes regular monthly contri!ution to provident fund which are

    deposited with the overnment and roup term Insurance is routed through =.I.3 and are

    charged against the revenue. The company has taken roup radually '3ash ccumulation)

    scheme with =ife Insurance 3orporation of India.

    The premium on policy and the difference !etween the amounts of gratuity paid on

    retirement and recovered from the =ife Insurance 3orporation of India de!ited to profit and

    =oss ccount. =eave encashment is accounted as and when the la!our claimed and paid.

    +ropose" Divi"en":

    1rovision is made in the account for the dividend paya!le 'including of all tax

    thereon) !y the company as recommended !y the /oard of 5irectors 1ending approval of theshareholders at the annual eneral 2eeting.

    3orei#n C,rrency Transactions:

    Import of material&capital *-uipment is accounted at the rates at which actual

    payments are effected.The profit &=oss arising out of foreign *xchange transactions on sale of goods are

    accounted on actual reali"ation !asis.,oreign 3urrency loans covered !y forward contracts are stated at the forward

    contracts rates while those not covered are calculated at year end rate.

    Impairment of Assets:

    t the date of each !alance sheet the company evaluates internally indication of the

    impairment if any to carrying amount of its fixed and other assets. ;o impairment loss has

    !een recogni"ed.

    Contin#ent 6ia$ilities:

    3ontingent =ia!ilitie s are not recogni"ed in the accounts !ut are disclosed after acareful evaluation of the concerned facts and legal issues involved.

    Achievements H Awar"s:

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    MBA PROGRAMME

    Gear 3otton seed processed <

    extraction sales 2.Ts

    chievements

    7CCM%7C6C 6697:M.CCC

    :::68.NNQ

    Stood first in scientific processing of cotton

    seed.Stood first in India in domestic sales of cotton

    seed *xtraction7C6C%7C66 667LNM.CCC

    :M6::.7NC

    Stood first in scientific processing of cotton

    seed.

    Stood first in India in domestic sales of cotton

    seed *xtraction7C66%7C67 669MQC.CCC

    ::C9Q.CN9

    Stood first in scientific processing of cotton

    seed.

    Stood first in India in domestic sales of cotton

    seed *xtraction7C67%7C68 66N779.77:

    :7M7L.Q79

    Stood first in scientific processing of cotton

    seed.

    Stood first in India in domestic sales of cotton

    seed *xtraction

    7C68%7C69 66QL77.CCC

    :86::.6MC

    Stood first in scientific processing of cotton

    seed.

    Stood first in India in domestic sales of cotton

    seed *xtraction

    0oar" of Directors:

    • Sri. ;.raghava Eao. /.*.%3hairman < 25.• Sri. 1. Eaghava Eeddy. /.*.*lectronics%5irector.• Sri. 2.=ingaiah. 2.Sc + 5irector.• Sri. S. 4anumantha Eao. /.3om + 5irector.• Sri. 3a 1v. ;arayana ca cs + 5irector < Secretary.

    Man +ower in Dhanala7shmi Gro,p:

    Ta$le -)(:

    0il 5ivision 8CC

    Spinning 5ivision 7:C

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    MBA PROGRAMME

    Textile 5ivision 6CC

    3otton 5ivision 8CC

    1ower 5ivision 9Q

    Eice 5ivision 8C3,t,re O,tloo7:

    0peration on consolidated !asis continues to pose healthy trends. 4owever changes

    in the industrial trends are !ound to influence spinning operations.

    3ompany has ac-uired 9N looms under first phase of pro(ect implementation for

    textile division. Textile operations have come out of teething pro!lem !ut have to reach

    estimated levels in operation and profits. This shall take some more time in view of dip in

    dollar valuation and decline in exports.

    Thus company has to grapple with an industrial scenario that calls for alert and

    caution.0il division is showing immense potential to reach higher levels in all spheres of

    operations.1ower division shall perform well in the current year also.In view of this we are hopeful of improved performance in 7CCL%CN despite the

    difficulties posed.

    3orei#n E chan#e Earnin#s an" O,t Go:

    The company has earned foreign exchange of Es.L7:.L7 lakhs of its finished goods

    and Es.69M8.6Q lakhs !y export through merchant & trade house of its finished goods.

    The company has spent Es.:N.M: lakhs of foreign exchange towards import of raw%

    material Es.9.6N lakhs towards import of components < spare parts Es.66QQ.8L lakhstowards import interest on foreign currency loan and Es.66.MC lakhs towards freight

    commission < traveling.

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    MBA PROGRAMME

    DATA ANA64!I! AND INTER+RETATION

    C,rrent Ratio

    li-uidity ratio that measures a companyPs a!ility to pay short%termo!ligations. The ratio is mainly used to give an idea of the companyPs a!ility to pay

    !ack its short%term lia!ilities 'de!t and paya!les) with its short%term assets 'cash

    inventory receiva!les). If the current assets of a company are more than twice the

    current lia!ilities then that company is generally considered to have good short%term

    financial strength. If current lia!ilities exceed current assets then the company may

    have pro!lems meeting its short%term o!ligations. The conventional current ratio is

    7#6.

    Ta$leK)(

    4ear C,rrent Assets C,rrent 6ia$ilities Ratio7C6C%66 9: 7Q 8N L:9&% M ML C6 97M&% 9.:8M#6

    7C66%67 Q: 87 L8 68:&% 6L 7C :Q 66:&% 8.LMQ#6

    7C67%68 LM QN 79 6LM&% 7: L: QN L9N&% 8.CM8#6

    7C68%69 N7 :6 69 6:6&% 6: L6 98 86N&% :.7:C#6

    7C69%6: 6C6 LN NL 9NC&% 79 77 7Q 77C&% 9.7C7#6

    HND COLLEGE 54

    C,rrent ratio > C,rrent assets @ C,rrent lia$ilities)

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    INTER+RETATION

    The current ratio of the Sri 5hana =akshmi 3ottons < Eice 2ills 1vt. =td in

    7C6C%66wa 9.:8MO it has !een increased to 8.LMQ in the year 7C66%67 and

    further decreased to 8.CM8 in the year 7C67%68.The current ratio had increased to :.7:C in the year 7C68%69. t present the

    current ratio of the company was Q9.7C7 i.e. in the year 7C69%6:.It is maximum ':.7:C) in the year 7C68%69 the reason for maximum current

    ratio 'in 7C68%69) is due to decrease in current lia!ilities and increase in current

    assets when compared to 7C6C%66.It is minimum '8.CM8) in the year 7C67%68 the reason for this is due to high

    current lia!ilities and low current assets.

    The overall trend of the current ratio is in increasing pattern and percentage

    change in current ratio is C.88L!etween the period 7C6C%66 and 7C69%6:

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    MBA PROGRAMME

    ;UICF RATIO

    @uick ratio is an indicator of a companyPs short%term li-uidity. The -uick ratio

    measures a companyPs a!ility to meet its short%term o!ligations with its most li-uid

    assets. The higher the -uick ratio the !etter the position of the company. It is also

    known as the Kacid%test ratioK or the K-uick assets ratioK. It is o!tained !y su!tracting

    inventories from current assets and then dividing !y current lia!ilities. The

    conventional -uick ratio is 6#6.

    Ta$le K)*

    HND COLLEGE 56

    ;,ic7 ratio > C,rrent assets . Inventory

    C,rrent lia$ilities9or

    > ;,ic7 assets @ C,rrent lia$ilities)

    4ear ;,ic7 Assets C,rrent 6ia$ilities Ratio

    7C6C%66 77 89 LN 8NM&% M ML C6 97M&% 7.79#6

    7C66%67 8N 97 7Q 696&% 6L 7C :Q 66:&% 7.78#6

    7C67%68 8N 67 C6 76Q&% 7: L: QN L9N&% 6.9N#6

    7C68%69 88 7C 6Q Q88&% 6: L6 98 86N&% 7.66#6

    7C69%6: 9C Q7 LM 6L8&% 79 77 7Q 77C&% 6.QN#6

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    Interpretation:

    The -uick ratio of the company in 7C6C%66 was 7.79O it has !een slightly

    increased to 7.78 in the year 7CCM%C6C and further decreased to 6.9N in the year

    7C67%68.

    The -uick ratio had increased to 7.66 in the year 7C68%69. t present the

    current ratio of the company was 6.QN i.e. in the year 7C69%6:.It is maximum '7.79) in the year 7C6C%66 the reason for maximum -uick ratio

    'in 7C6C%66) is due to decrease in current lia!ilities when compared to 7C66%67.It is minimum '6.9N) in the year 7C67%68 this is mainly due to higher current

    lia!ilities.The overall trend of the -uick ratio is in increasing pattern and percentage

    change in -uick ratio is C.:Q !etween the period 7C6C%66and 7C69%6:.

    Inventory T,rnover Ratio

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    MBA PROGRAMME

    Inventory turnover ratio indicates the efficiency of the firm in producing and

    selling its product. It is calculated !y dividing cost of goods sold !y average

    inventory. verage inventory consists of opening stock plus closing stock divided !y

    7. high inventory turnover ratio indicated that the product is selling well. lowturnover ratio implies poor sales and therefore excess inventory. The following

    formula is fre-uently used for calculation of ratio#

    Ta$le K)-

    4ear !ales Av#) Inventory Ratio

    7C6C%66 :7 QC QC 8LL&% 7 :6 L7 878&% 7C.MC#6

    7C66%67 QN ML :8 :QN&% 9 M8 CN QC7.:&% 68.MN#6

    7C67%68 L8 M7 79 C6Q&% M CM MC 9:N.:&% N.67#6

    7C68%69 NN M8 6M 66:&% 66 8M 88 LC9.:&% L.NC#6

    7C69%6: 679 8L :L MC6&% M ML :6 :Q9&% 67.9L#6

    HND COLLEGE 58

    Inventory t,rnover ratio> !ales @ Avera#e inventory

    Av#) Inventory > Openin# !toc7 Closin# !toc7

    *

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    Interpretation:

    The Inventory turnover ratio of Sri 5hana =akshmi 3ottons < Eice 2ills 1vt.

    =td. in 7C6C%66 was 7C.MCO it has !een slightly decreased to 68.MN in the year

    7C66%67 and then increased to N.67 in the year 7C67%68.

    The Inventory turnover ratio then raised up to L.NC in the year 7C68%69. t present the inventory turnover ratioof the company was 67.9L i.e. in the year

    7C69%6:.

    It is maximum '7C.MC) in the year 7C6C%66 and the reason for maximum

    inventory turnover ratio is due to high sales in 7C6C%66 when compared to

    7C66%67.

    It is minimum 'L.NC) in the year 7C68%69 and the reason for this fall in

    turnover.

    The overall trend of the inventory turnover ratio is in decreasing pattern and

    percentage change in inventory turnover ratio is N.98 !etween the period 7C6C%

    66 and 7C69%6:.

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    MBA PROGRAMME

    Inventory to C,rrent assets ratio

    This ratio indicates the relationship !etween inventory to current assets. 4igher

    the ratio shows that inventory is properly utili"ed in the organi"ation. Inventory to

    current assets ratio is calculated as follows#

    Inventory to c,rrent assets ratio > Inventory @ C,rrent assets)

    Ta$le K)K

    4ear Inventory C,rrent assets Ratio

    7C6C%66 77 M6 QC 8Q:&% 9: 7Q 8N L:9&% C.:6#6

    7C66%67 7Q MC 9Q MM9&% Q: 87 L8 68:&% C.96#6

    7C67%68 96 :Q 77 MQ8&% LM QN 79 6LM&% C.:7#6

    7C68%69 9M 8C ML :6N&% N7 :6 69 6:6&% C.:M#6

    7C69%6: Q6 6Q CN 8CL&% 6C6 LN NL 9NC&% C.QC#6

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    MBA PROGRAMME

    Interpretation:

    The Inventory to current assets ratio of the company in 7C6C%66 was C.:6O it

    has !een slightly increased to C.96 in the year 7C66%67 and then decreased to

    C.:7 in the year 7C67%68.

    The Inventory to current ratio had raised up to C.:M in the year 7C68%69. t

    present the current ratio of the company was C.QC i.e. in the year 7C69%6:.

    It is maximum 'C.QC) in the year 7C69%6: the reason for maximum inventory to

    current assets ratio is due to increase in !oth inventory and current assets when

    compared to 7C68%69.

    The ratio is minimum 'C.96) in the year 7C66%67 and the reason for this is due

    to high in !oth current assets and current lia!ilities.

    The overall trend of the inventory to current assets ratio is in increasing pattern

    and percentage change in inventory to current assets ratio is C.6: !etween the period 7C6C%66 and 7C69%6:.

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    MBA PROGRAMME

    Inventory to Total assets ratio

    This ratio shows the relationship !etween inventory to total assets. Inventory isa part of the current assets of the company. It shows the portion of assets tied up in

    inventory. enerally a lower ratio is considered !etter.

    Inventory to total assets ratio > Inventory @ Total assets)

    Ta$le K)L

    4ear Inventory Total Assets Ratio

    7C6C%66 77 M6 QC 8Q:&% MC N8 9C :67&% C.7:#6

    7C66%67 7Q MC 9Q MM9&% 6 7N 9L NQ 8:M&% C.76#6

    7C67%68 96 :Q 77 MQ8&% 6 N7 M: :C 877&% C.78#6

    7C68%69 9M 8C ML :6N&% 7 6: L6 Q: :99&% C.78#6

    7C69%6: Q6 6Q CN 8CL&% 7 9M :6 98 L9Q&% C.79#6

    HND COLLEGE 62

  • 8/18/2019 Ali Finalproject

    63/88

    MBA PROGRAMME

    Interpretation:

    The Inventory to total assets ratio of the company in 7C6C%66 was C.7: it has

    !een slightly decreased to C.76 in the year 7C66%67 and then decreased to C.78

    in the year 7C67%68

    The ratio had then decreased to C.78 in the year 7C68%69. t present the

    current ratio of the company was C.79 i.e. in the year 7C69%6:.

    It is minimum 'C.76) in the year 7C6C%66.The reason for minimum inventory to

    total assets ratio is due to increase in totNl assets when compared to 7C6C%66.

    The ratio is maximum 'C.7:) in the year 7C6C%66 the reason for th