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 company’s 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.

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INTRODUCTION

FINANCIAL MANAGEMENT

Financial management is that activity which is concerned with the planning

and controlling of the firm’s 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 firm’s 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

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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 company’s 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 be-

3. 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.

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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 firm’s 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:

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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 company’s 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 short-

term 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

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

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CashRaw

Material

Work-in-progress

Finished goods

sales

Bills receivab

les

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 company’s 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, work-

in-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 they’re 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 firm’s

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.

23

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.

24

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-in-

process. A glance at the rolling cart product structure tree example reveals that work-

in-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.

25

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.

26

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:

Ø 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.

Ø Large order placing avails certain economies like cost of order placing, quantity

discount, economies, in transportation and other favorable conditions.

Ø Inventory carrying ensures safety against certain contingencies like strikes as

suppliers plant, transport bottlenecks etc.

Ø It is also advantageous to hold inventories when price rise is anticipated.

Ø 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.

Ø Production and control can be made more effectively if the inventories are

available in the stockroom.

Ø The imported raw materials are generally purchased through a single order and

they are stocked till their use.

ØThe costs of stock outs are relatively high as it results into production stoppages.

Inventory carrying eliminates the risk of stock outs.

Ø 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 conglomerate’s resolve to excel.

 The conglomerate’s 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 ‘fairness’benefit to the

users.

Cool lime is the company’s 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

material’s 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 company’s 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 family’s 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, India’s chemical industry contributes about 3% to the nation’s 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.

 Typical petrochemical Intermediates

41

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:

Between 2 Elements

Between 2 compounds

42

Between an element and a compound

Examples:

2Mgo2Mg+O2

Ca(OH)2CaO+H2o

2CO22CO+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.

VISION

43

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

DATA ANALYSIS & INTERPRETATION

44

The structure and composition of inventory

100120

1. STATEMENT SHOWING THE STRUCTURE AND COMPOSITION OF

INVENTORY OF SREERAYALASEEEMA ALKALIES AND ALLIED CHEMICALS

LTD DURING YEAR

2006-07 TO 2010-11

INVENTORY

/YEAR2006 – 07 2007 – 08 2008 – 09 2009 – 10 2010 –11

Raw materials

- in – transit

8,03,663

(100)

17,62,893

(219.35)

23,44,865

(291.77)

35,48,250

(441.50)

58,85,392

(732.32)

Stores and

spares and

packing

materials

1,22,98,56

0

(100)

36,52,404

(29.69)

51,68,369

(42.02)

8,08,300

(6.57)

33,60,472

(27.32)

Stocks – in –

process

16,65,496

(100)

16,85,133

(101.17)

84,89,998

(509.75)

15,65,358

(93.98)

28,86,956

(173.33)

Finished Goods

1,30,20,40

1

(100)

21,48,343

(16.49)

63,03,352

(48.40)

20,33,069

(15.61)

56,90,576

(43.70)

Total inventory

2,77,88,12

0

(100)

92,48,773

(33.28)

2,23,06,584

(80.27)

79,54,977

(28.62)

1,78,23,396

(64.14)

percentage

45

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 ASSETSINVENTORY

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

40.8

14.9

37.3

9.8

21

0

10

20

30

40

50

Current assets

The Ratio of inventory to Current assets

2006-07

2007-08

2008-09

2009-10

2010-11

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

Percentage

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

Amount

(Rs)

Growth

rate

(In %)

Amount (Rs)

Growth

rate

(In %)

2006–

20072,77,88,120 -

38,10,13,523- 0.72 75.06

2007 –

200892,48,773 66.716

27,36,30,38928.183 0.33 11.06

2008–

20092,23,06,584 19.276

35,65,74,550.48 6.414 0.62 58.87

2009 –

201079,54,977 71.372

33,23,96,494.49 12.759 0.23 15.86

2010–

20111,78,23,396 35.859

35,92,77,141.83 5.704 0.49 74.44

Averag

e38.644 10.612 0.478 32.59

49

Inventory turnover ratio & convertion

0.72 0.33 0.62 0.23 0.49

75.06

11.06

58.87

15.86

74.44

0

10

20

30

40

50

60

70

80

2006-

07

2007-

08

2008-

09

2009-

10

2010-

11

invetory turnover

i-turnover Ratioi-Convertion period

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

percentage

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

balance

1,26,80,162.1

04,12,017.87 4,89,987.94 10,30,357.33

12,75,758.

21

Sundry Debtors

3,54,94,571.7

21,58,05,553 88,76,129.86 1,01,04,429.37

90,20,956.

63

Inventories2,77,88,120 2,77,88,120 2,77,88,120 2,77,88,120

2,77,88,12

0

Loans &

advances66,17,386.77

1,97,21,730.

7485,29,097 96,83,354

1,20,68,08

1

TOTAL(A):6,81,06,320 6,20,39,947

5,97,05,731.

408,11,03,552.97

84,755,133

.29

CURRENT

LIABILITES:

Sundry creditors

3,25,63,827.2

7 75,86,069 65,26,566.07

1,20,29,082.

58 65,84,639.88

Others liabilities 29,30,744.45 82,19,488 23,49,563.78

19,24,653.21

3 24,36,316.75

TOTAL(B):3,54,94,571.72

1,58,05,553 88,76,129.861,01,04,429.37

90,20,956.63

NET

WORKING

CAPITAL (A –

B):

3,26,11,748.28 4,62,34,3945,08,29,601.53

7,09,99,123.60

7,57,34,176.66

51

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 1003,54,94,571.

72100 3,26,11,74

8.28100

2007 – 08 6,20,39,947 91.89 1,58,05,553 44.52 4,62,34,394

87.39

2008 – 09 5,97,05,731.39 87.6688,76,129.8

625.00 5,08,29,60

1.5390.92

2009 – 10 8,11,03,552.97 119.081,01,04,429.

3728.44 7,09,99,12

3.6072.19

2010 – 11 8,47,55,133.29 124.4490,20,956.6

325.41 7,57,34,17

6.6672.65

52

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

0

20

40

60

80

100

120

140

2006-07

2007-08

2008-09

2009-10

2010-11

years

per

cen

tag

e C.Assets

C.Liabilities

N.W.C

2006 – 07 TO 2010 –

Interpretation:

Current Assets increased from RS. 91.89, 87.66,119,124 in 2006 – 07 to in

2010–11 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.

53

5. STATEMENT SHOWING RATIO OF CURRENT ASSETS TO TOTAL

ASSETS AND CURRENT ASSETS TO FIXED ASSETS DURING YEAR

2006– 07 TO 2010 – 11

YEAR

CURRENTS ASSETS

(RS)

TOTAL NET ASSETS

(RS)

CURRENT

ASSETS TO

TOTAL NET

ASSETS

RATIO (%)

2006 – 076,81,06,320 5,66,67,463.28

120.1

2007 – 086,20,39,947 7,92,61,853

78.2

2008 – 095,97,05,731.39 7,12,40,478.48

83.8

2009 – 108,11,03,552.97 8,89,77,044.55

91.1

2010 – 118,47,55,133.29 9,22,27,498.61

91.89

54

2006-07; 120.1

2007-08; 78.2

2008-09; 83.8

2009-10; 91.1

2010-11; 91.89

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%.

6. STATEMENT SHOWING THE NET WORKING CAPTIAL TURNOVER

RATIO OF SREE RAYALASEEEMA ALKALIES AND ALLIED

CHEMICALS LTD DURING YEAR

55

2006 – 07 TO 2010 – 11

YEAR

NET

WORKINGCAPITALSALES VOLUME

TURN

OVER RATIO (%)

2006 – 07 3,26,11,748.28 38,10,13,523 8.56

2007 – 08 4,62,34,394 27,36,30,389 16.89

2008 – 09 5,08,29,601.53 35,65,74,550.48 35.09

2009 – 10 7,09,99,123.60 33,23,96,494.49 28.96

2010 – 11 7,57,34,176.66 35,92,77,141.83 19.86

AVERAGE 33.28

56

2006-078%

2007-0815%

2008-0932%

2009-1026%

2010-1118%

Turn Over Ratio

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.

57

7. STRUCTURE OF WORKING CAPITAL

(Brackets indicate percentage to total)

COMPONE

NT2006-07 2007-08 2008-09 2009-10 2010-11

Inventories2,77,88,120

(100)

92,48,773

(33.28)

2,23,06,584

(80.27)

79,54,977

(28.62)

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)

1,01,04,429.3

7

(28.46)

90,20,956.63

(25.41)

Cash and

bank

balance

1,26,80,162.10

(100)

4,12,017.87

(3.2)

4,89,987.94

(3.86)

10,30,357.33

(8.12)

12,75,758.21

(10.06)

Loans &

advances

66,17,386.77

(100)

1,97,21,730.7

4

(298.02)

85,29,097

(128.88)

96,83,354

(146.33)

1,20,68,081

(182.36)

TOTAL:6,81,06,320

(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

E100 94.75 59.50 52.88 70.49

58

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.

8. FINANCING OF WORKING CAPITAL

59

26%

25%16%

14%

19%

Structure of working capital2006-07 2007-08 2008-09 2009-10 2010-11

SOURCE

S2006 – 07 2007 – 08 2008 – 09 2009 -10 2010 –11

Sundry

creditors

3,25,63,827.27

(100)

75,86,069

(23.29)

65,26,566.07

(20.04)

1,20,29,082.58

(36.94)

65,84,639.88

(20.22)

Others

liabilities

29,30,744.45

(100)

82,19,488

(280.45)

23,49,563.78

(80.16)

19,24,653.213

(65.84)

24,36,316.75

(83.12)

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.

FINDINGS

The structure of working capital of the company contains 141.77%; 155.86%;

60

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 2006-

07 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

SUGGESTIONS

61

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.

CONCLUSIONS

62

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.

63