INTRODUCTION

Finance is the lifeblood of business and plays an important role in any

organization. The dictionary meaning of finance is money affairs or the art of

managing or administrating the public money. Hence the name financial

management could be referred to as money management. The function of finance is

not only arranging funds for the business organization but also it includes planning,

forecasting of cash flows, both receipts and payments, rising of funds, allocation of

funds and financial control.

1.1Nature Scope of the study

Entails planning for the future of a person or a business enterprise to ensure

a positive cash flow. It includes the administration and maintenance of financial

assets. Besides, financial management covers the process of identifying and

managing risks. The primary concern of financial management is the assessment

rather than the techniques of financial quantification. A financial manager looks at

the available data to judge the performance of enterprises. Managerial finance is an

interdisciplinary approach that borrows from both managerial accounting and

corporate finance. Some experts refer to financial management as the science of

money management. The primary usage of this term is in the world of financing

business activities. However, financial management is important at all levels of

human existence because every entity needs to look after its finances.

Financial Management Levels

Broadly speaking, the process of financial management takes place at two

levels. At the individual level, financial management involves tailoring expenses

according to the financial resources of an individual. Individuals with surplus cash

or access to funding invest their money to make up for the impact of taxation and

inflation. Else, they spend it on discretionary items. They need to be able to take the

financial decisions that are intended to benefit them in the long run and help them

achieve their financial goals. From an organizational point of view, the process of

financial management is associated with financial planning and financial control.

Financial planning seeks to quantify various financial resources available and plan

the size and timing of expenditures. Financial control refers to monitoring cash

flow. Inflow is the amount of money coming into a particular company, while

outflow is a record of the expenditure being made by the company. Managing this

movement of funds in relation to the budget is essential for a business.

At the corporate level, the main aim of the process of managing finances is

to achieve the various goals a company sets at a given point of time. Businesses

also seek to generate substantial amounts of profits, following a particular set of

financial processes. Financial managers aim to boost the levels of resources at their

disposal. Besides, they control the functioning on money put in by external

investors. Providing investors with sufficient amount of returns on their investments

is one of the goals that every company tries to achieve. Efficient financial

management ensures that this becomes possible. Financial management is broadly

concerned with the acquisition and use of funds by a business firm. The important

tasks of financial management are as follows:

A) Financial Analysis, Planning and Control

Analysis of financial condition and performance

Profit planning

Financial Forecasting

Financial Control

B) Financing

Identification of sources of finance and determination of financing mix.

Cultivating sources of funds and raising funds

Disposition of profits between dividends and retained Earnings.

C) Investing

Management of current Assets

Capital Budgeting

Importance of Financial Management:

Finance is the lifeblood and nerve center of a business, which is very

essential to smooth running of it. Right from the beginning i.e., conceiving an idea

to do business, finance is needed to promote or establish the business, acquire the

fixed assets for expansion of the existing one.

Some important functions of Financial Management:

Financial planning and successful promotion of an enterprise.

Acquisition of funds as and when required at the minimum possible cost.

Proper use and allocation decisions.

Improving the profitability through financial control.

Increasing the wealth of the investor and the nation

Promoting the mobilizing individual and corporate saving.

Financial System:

The purpose of financial management is to help the decision makers to make

the better financial decisions. These decisions are made in the context of a financial

system that both constrains and facilitates them. The financial system comprises a

variety of intermediaries, markets and instruments that are related in a complex

manner .It provide the principal means by which savings are transformed in to

investments. Given its role in the allocation of resources, the efficient functioning

of the financial system is critical to a modern economy.

Functions of the Financial System:

The financial system performs the following interrelated functions that are

essential to modern economy:

It provides a payment system for the exchange of goods and services.

It enables the pooling of funds for undertaking large-scale enterprises.

It provides a mechanism for spatial and temporal transfer of resources.

It provides a way for managing uncertainty and controlling Risk.

It generates information that helps in coordinating

Decentralized decision making.

It helps in dealing with the incentive problem when one

Party has an Informational advantage.

Financial Manager – Job Description

A financial manager is responsible for providing financial advice and

support to clients and colleagues to enable them to make sound business decisions.

Specific settings vary enormously and include both public and private sector

organizations, such as multinational corporations, retailers, financial institutions,

charities, small manufacturing companies and universities. Financial

considerations are at the root of all major business decisions. Clear budgetary

planning is essential for future planning, both short and long term, and companies

need to know the financial implications of any decision before proceeding. In

addition, care must be taken to ensure that financial practices are in line with all

statutory legislation and regulations. Financial managers may also be known as

financial analysts or business analysts.

Typical Work Activities

The roles of financial managers vary significantly. The generic nature of the

job title can be misleading and job descriptions should be scrutinised carefully as

the level and scope of the responsibilities involved in any role coming under the

banner of financial management can differ enormously. In larger companies, for

instance, the role is more concerned with strategic analysis; in smaller

organizations, a financial manager may be responsible for the collection and

preparation of accounts.

1.2 Need for the Study

The Industry sectors and the financial system are undergoing rapidly

changes following the process of liberalization and reforms. The underlying

principle behind every reform measure re-orientation of monetary policy

techniques, introduction of new money market instruments and institutions, suggest

structural changes in the financial system and strengthening regulatory

arrangements has been to make the system more competitive, efficient and

profitable. Every performance indicator seems to reflect the impact of the reform

measures. Profitability of the industry has witnessed a steady improvement mainly

as a result of these measures, Capital adequacy rations have crossed the norms

prescribed for almost all industries. The industries have begun to focus on

minimizing their asset liability mismatches and on risk management. Further, after

the enactment of securitization Act 2002, the industries get a weapon to tackle the

challenge of Non Performing Assets (NPAs). At this backdrop, it is felt essential to

study the financial performance of the Lead Acid Division, HBL Power Systems

Ltd, which is one of the representatives of the industrying system. Which is

experiencing the recent reforms?

1.3 Objectives of the Study

The following are the objectives of the present study titled “Inventory

Management at Hyderabad Batteries Ltd., Pydibhimavaram”.

1. To understand the concept of inventory management in general and

to know about the methods of inventory management in particular,

2. To know the profile of Hyderabad Batteries Ltd located at

Pydibhimavaram, Srikakulam District,

3. To learn the HBL is organizing its inventory management methods

and techniques,

4. To give suggestions if necessary for the better improvement of

inventory management at HBL.

1.4 Methodology of the study

To fulfill the objectives mentioned above, the present study requires both

primary and secondary data. The primary data and the collection of secondary data

details are given as follows:

1 Primary data.

2 Secondary data.

Primary Data

It consists of information disclosed by the financial heads of various

authorities of the respective Departments of H.B.L. Conducting personal interviews

with the concerned officers of financial department at H.B.L battery ltd.

Secondary data:

It consists of information obtained from annual reports. Balance-sheet and

other financial statements are also collected. Files and same other important

documents maintained by the organization. In addition to that, collecting data from

referred text books. Collection of required data from annual records of H.B.L

battery ltd had become necessary. Reference from textbooks and journals relating

to financial management are also included.

1.5 Limitations of the Study

The study has been conducted is a systematic and comprehensive way so as

to make the project work an enviable one. However the topic under my study not is

free from limitations due to these factors. The following are the limitations of the

present study:

1. Due to the time constraints it is difficult to study the performance of a big

organization of the size Lead Acid Division, HBL Power Systems Ltd.

2. The main source of information is the published annual reports which are

not sufficient to make a proper study.

3. The figures in the balance sheet are furnished according to the guidelines

issued by the Reserve Industry of India from time to time. Thus the Study

Looses its significance as the figures over the period may not be

comparable.

1.6 Framework of the Study

Chapter 1 Contains Need For The Study, Objectives Of The Study, Methodology

Of The Study, And Limitations Of The Study.

Chapter 2 Deals With Organization Profile, Company Introduction, Company

Operations And Product Profile, Board Of Directors.

Chapter 3 Provides Theoretical Frame Work Of Inventory Management,

Techniques Of Inventory Management, And Determination Of Safety Stocks,

Benefits Of Inventory Management, Nature Of Inventory Management.

Chapter 4 analyzes Interpretation of Inventory Management.

Chapter 5 has the Summary and Suggestions of the Study.

PROFILE OF HYDERABAD BATTERIES LIMITED, PYDIBHIMAVARAM

2.1 Company Introduction

HBL Power Systems Limited is a public limited company. It was established

in 1977 as a Small Scale Industry but today it has grown into a well-diversified

batteries technologies group. It has its units on the outskirts of Hyderabad.HBL

Power Systems Ltd. is the pioneer in the design, development and manufacture of

specialized batteries and DC systems in India. With over 3 decades of experience in

this field, the company offers a wide range of batteries and associated electronics

providing its customers, custom built solutions to meet critical requirements.

HBL Power Systems Limited is engaged in the manufacturing of widest range of

specialized batteries, electronic equipment and other telecommunication, railways,

aviation, defense, power and other industrial sectors.

The Company’s operations are divided into 3 Segments

Batteries

Electronics

Others

Further, the company is divided into various divisions depending upon the

nature of the product; each division is treated as a separate company, each having

its own funds allocation and manpower in various departments. The company

manufactures various types of batteries viz., VRLA, Tubular, Monobloc, Nickel-

Cadmium, Lithium, Silver-Zinc, and Thermal etc.The electronics segment

comprises of various divisions manufacturing electronic equipment like rectifiers,

IPS etc Apart from batteries and electronics, the company also manufactures

bulletproof jackets, windmills etc. The company has recently taken up railway

singnaling works contracts. The company has 3 divisions catering to the ancillary

needs of the company, material components divisions at Shamirpet, Nandigaon,

Bhoothpure, Kandivalasa and VSEZ (Duvvada) units indulge in various ancillary

activities like sheet metal fabrication making of racks, cutting, bending, plating etc.

Plastic molding division at Nandigaon manufactures various types of boxes, and

cell & battery containers. Annual turnover of the company is around 800 crores.

Profile of Hyderabad Batteries Limited, Pydibhimavaram.

An Overview on HBL:

The Widest range of specialized Direct Current (DC) Power Systems. HBL

IS THE LARGEST MANUFACTURER OF SPECIALIZED BATTERIES in India.

HBL offers to the customers the Most Appropriate Technology based on the

Requirement. from the wide range of batteries

Nickel-cadmium batteries

Silver Zinc batteries

Lead-acid batteries and

Lithium batteries

Chargers for Rechargeable batteries are also manufactured in both TR and

SMR versions from 24Volts to 220Volts. The company has sales of about US $ 50

millions and very substantial Design and Development capabilities. Over 25 years

of Experience in the Domestic Market and over 10 years in Exporting to many

countries including USA, South Korea, West Asia and South East Asia, has given

HBL an understanding of the Customers special varied requirements. Several Major

Customers have found the company’s products to be Reliable over the years and

have placed repeat orders. The company has adequate marketing and service

personnel who can support the customers at short notice. The Triumph-HP series is

a Premium Design Valve Regulated lead acid battery based and features offered by

world class companies. The battery works on the gas recombination principle and

has been designed to meet the requirements of a wide range of applications. This

product has been manufactured under the controls. Established by a for

Quality/Environmental Management system that meets the requirements of ISO

9001-2000: ISO 14001:1996, which has been independently certified by BVQI.

Vision of HBL

To organize India's engineering talent into a globally competitive business.

Whether in manufacturing or in services. We want to become a learning

organization to export technology from India. Our choice is for businesses with

technological barriers and / or engineering intensity. Our location at Hyderabad

makes this vision feasible, because Hyderabad has India's largest cluster of

scientific and technical training institutions providing high caliber Human

Resources.

HBL Offers:

A wide range of individual battery types, in the major technologies of

Nickel Cadmium, Lead Acid, and Silver Zinc along with associated Electronic

Equipment. Conveniently located in Hyderabad, backed-up with processing and

testing facilities to provide full product support and back-ups.An in-depth technical

resource based on years of experience to help you select batteries according to the

requirements. “Off the shelf "products in many popular sizes to meet quick

delivery requirements.Products manufactured to International Standards and

Certified by Independent Testing Agencies.

Certifications and Approvals

Nickel Cadmium:

ISO 9001

ISO 14001

IEC 60623 Certification (CSA)

Bump Test

Vibration Test

Seismic Test

OHSAS 18001 Certification (NCPP & NCFP)

International Railway Industry Standard (IRIS)

Lead Acid:

ISO 9001

ISO 14001

IEC 60896-Part 21 & 22

( Intertek SEMKO) for VRLA single cells and Monblocks

Electronics:

Thyristor Control Rectifiers, DC-DC Convertors,

Defence Chargers

ISO 9001

Social Activities

Medical camps conducted on regular basis

Blood Donation Camps

Sponsorship of Village Schools

Foundation for Girl Child Education

Child Development Programmed in surrounding our Units

Environment Protection Measures:-

Full fledged Effluent Treatment Plant to treat plant waste and Sewage

Reverse Osmosis plant to purify water 

Water from Treatment plant used for Gardens

OHSAS 18001 Certified

Approved Battery Recycling plants.

Specifications at a Glance

Positive Plate: Flat pasted type with Lead-calcium High Tin alloy grid to resist

corrosion & longer life.

Negative Plate: Flat pasted type with Lead-calcium alloy grid for maintenance free

characteristics.

Container: High impact Polypropylene co-polymer, ribbed jar design for better

heat dissipation and strength. Flame retardant polypropylene UL 94V0/28% LOI is

optional.

Separator: Low resistance, high porosity and highly Absorbent type Glass mat

Separator (AGM).

2.1: Range and Applications:

Cell Type Capacity

Range

Typical Back- up Typical

Application

L-Low Rate

KPL (Single)

KBL (Block)

11 to 480

8 to 1540

Above 3 Hours Fire Alarm Panels

Emergency

Lighting

Telecommunication

Switchgear

Protection

M-Medium

Rate

KPM (Single)

KBM (Block)

10 to 395

12 to 1460

60 Minutes to

3

Hours

Switchgear

Protection

Instrumentation

And

Process Control

U.P.S

Motive Power

Emergency

Lighting

H-High Rate

Starting

KPM (Single)

KBM (Block)

10 to 265

9 to 930

Below

60 minutes

Generator

U.P.S

Diesel locomotive

Cracking

Electrolyte: High purity Sulphuric acid to maximize shelf life.

Terminals: Lead plated Copper inserts high conductivity.

Safety Valve: Self-Resealing, pressure regulated and explosion proof.

Container and cover sealing: Heat Sealing Method for better joint strength.

Products of HBL:

Nickel Cadmium Pocket Plate Batteries:

HBL offers a very wide range of Nickel Cadmium Pocket Plate Batteries that

match diverse applications and operating conditions.

Benefits:

Exceptionally long life

Adaptability to a wide temperature range

No emission of corrosive gases, Safe from flame & explosion

Minimal maintenance, Low life time cost, quick recharging

Table 2.2: Range and Applications

Cell Series

L-Low Rate

KFL Range

(Single Block)

M-Medium Rate

KFM Range

(Single & Block)

H-High Rate

KFH Range

(Single & Block)

Capacity Range

Ah

20 to 1500

11 to 1391

11 to 1026

11 to 120

Typical Backup

Above 3 hours

60 minutes

to 3 hours

Below

60 minutes

Typical Applications

Fire alarms, Emergency

Lighting, Telecom,Railway

Signaling,

Switchgear protection,

Photovoltaic, Cathodic

Protection.

Switchgear protection,

Emergencylighting, Motive

Power, Train lighting,

Instrumentation

and process

Control, UPS, Electric

vehicles

Generator Starting, UPS,

Diesel

Aircraft/

X – Ultra High

Rage

KFX Range

(Single & Block)

Below

10 minutes

Helicopter

Nickel Cadmium Fiber Plate Batteries

These batteries use Fiber Plate electrodes. The three Dimensional Fiber

Structure in the plate provides a very high conducting density. The Advantages of

this technology is its low internal resistance, high rates of discharge, improved

recharge capability and lower weight with a high cycle life.

Features:

Consistent Voltage Output

Long Service life and reliable Operation

Can be used in extreme temperature zones

Ease of recharging the battery

Low maintenance and low water consumption

Sealed Cylindrical NICKETL CADMIUM Battery Packs

For Defense Communications:

HBL’s Sealed Cylindrical NICAD Batteries are designed incorporating the

latest technology ensuring high standards. They are available in packs using a wide

range of cells from 110mAH to 8000m Ah for various applications.

Applications:

     Radio communication User friendly

     Easy re-chargeability

     Optimal Cell life

Pure Lead-Tin Vrla Monoblocks

The Pure Lead-Tin range offers the customer the highest energy density of

any lead acid battery anywhere. The battery is constructed around a complex thin

plate, pure lead-tin grid which packages more power in a smaller space. The plates

being made of high purity lead last longer, offering excellent life.

Benefits:

Maintenance-free and spill-proof. This enables flexible mounting

Wide operating temperature range (-40o C to + 50oC)

High energy density

Good charge retention leading to long storage life

Low internal resistance ensures quick recharge

Superior raw materials for good performance and life

Excellent deep discharge recovery characteristics

Tubular GEL VRLA Batteries:

The solar powered shelter carry batteries that expose them to higher

temperatures. Net result is the need for a heavy duty, robust, deep cycling battery

that is also less sensitive to high temperature. To meet such rigors of temperatures

and varying pattern of usage, HBL introduces “Tubular Gel VRLA Battery” with

unbeatable combination of “Tubular plate and gelled electrolyte.

Applications:

Wireless: Base Transceiver, station (BTS), Base Switches (MSO), CDMA/3G

base stations, main switches. Applications other than Telecom:

Telecommunications, Solar energy systems, Wind energy systems, Power plants

and substations. Train lighting, Coach Air conditioning and signaling in Railways.

Tubular Ultra Low Maintenance Lead Acid Battery

Tubular LMLA battery is the combination of traditional advantage of tubular

plate with ultra-low-maintenance feature.

Tubular LMLA battery is a preferred choice for the applications with float, semi

cyclic and cyclic operations along with long service life, high cycle life, Partial state

of Charge (PSOC) & deep cycling requirements.

Taurus

The “Taurus” Tubular plate low maintenance lead acid battery is the results of the

strong R&D Expertise gained by HBL over a decade of supplying millions of lead

acid batteries to various applications. “Taurus” batteries offer outstanding reliability

over an expected service life of around 15 years in float applications.

This battery offers very low maintenance, extended topping up frequency due to

low antimony alloy & high acid reservoir.

Stormz

Stormz motive power (Traction) batteries for material handling equipment

provide a very high level of performance and reliability in all industrial truck

applications. These batteries are designed according to the relevant DIN, BS

Standards.

Lithium Batteries

Primary: Lithium Thiony1 Chloride/Lithium Sulphur Di-Oxide

Secondary: Lithium Ion Lithium batteries have been developed with support from

DRDO in the year 1990

Defence Electronics

HBL Microwave is focused on defence electronics. Unlike Batteries and Railway

products where almost all development was done in house.

HBL has collaborated with companies abroad for most of its defence electronics

products.

Radar and Electronic Warfare: Joint venture with ELTA, Israel

Several other such plans are under discussion.

The company’s infrastructure in manufacturing and national sales service network

will be of value in each of these projects because it can be shared

Thyristor Controlled Battery Chargers

HBL Battery chargers use Thyristor switching principle for achieving the

desired DC output. The sophisticated power electronics design and production

facility in the company enables it to meet the specific requirements of its customers.

Applications:

These chargers find use in a variety of applications such as Process

Control, Telecommunications, Emergency Lighting, Switch Gear Protection,

Engine Starting and Power Station Control

Maintenance

These chargers can work for many years, without any special attention Long life

through design and excellent thermal management.

High Reliability

better design and high quality standards ensure absolute reliability of the equipment

and fail safe operation Stackable design minimizes place requirement and enables

faster installation.

Silver Start- Pure Lead Tin VRLA Monoblock Batteries for Civil Aviation:

The “Silver Sart” range of On-board Aircraft starting batteries from HBL

are designed using the Thin-plate Pure Lead tin Technology. Features that make

these batteries the right choice for Aircraft starting

Applications:

   Sealed, maintenance-free: no filling of acid or water

Excellent starting capability: very high peak power

Fast-charge capability: 100% recharge in 2 hours

More flying hours: long life.

Operation in very low temperature:-40o C to + 50o C

Nickel Cadmium Pocket Plate Batteries for Aircraft Ground Start:

HBL offers vented type NICAD Pocket Plate High Rate Batteries for

ground starting of MIG Aircrafts. The Batteries are mounted on an electrically

driven trolley unit. It consists of two banks of KPH 140P, each bank consisting of

24 cells.

These Batteries are primarily used for meeting the ground starting and servicing

electric power requirements for MIG Series of aircrafts. Additionally it supplies

critical power to the DC motor as the prime mover of the electrically driven trolley.

Benefits:

Excellent resistance to shock, vibrations, temperature and corrosion.

Exceptionally long and reliable service life

Low maintenance and low life time cost

Flame and explosion proof vent

No sudden death and negligible annual ageing

Quick Recharging and no memory effect.

Defense

Nickel Cadmium Pocket Plate Batteries for Aircraft Ground Start

HBL offers Vented type NICAD Pocket Plate High Rate Batteries for ground

starting of MIG Aircrafts. The Batteries are mounted on an electrically driven

trolley unit. It consists of two banks of KPH 140P, each bank consisting of 24 cells.

These Batteries are primarily used for meeting the ground starting and servicing

electric power requirements for MIG Series of aircrafts.

Benefits:

Excellent resistance to shock, vibrations, temperature and corrosion.

Exceptionally long and reliable service life

Low maintenance and low life time cost

Aircrafts

These Batteries are primarily used for meeting the starting and servicing electric

power requirements for MIG series of aircrafts. The Batteries are mounted on an

electric driven trolley unit. These Batteries use High Rate Fiber Nickel Electrodes

there by giving an excellent Electrical performance. The benefits of these batteries

are low internal resistance, High rates of discharge and improved recharge

capability coupled with long cycle life.

Benefits

Consistent Voltage Output and stable capacity over life time

Long service Life

Ease of handling due to light weight

Fast recharge

Can be used in extreme temperature zones Most reliable

HBL’s Sintered Plastic Bonded Batteries are best suited for applications requiring

high reliability coupled with low maintenance and high performance. The sintered

Plastic Bonded batteries are manufactured using sintered positive plates and Plastic

Bonded negative plates. These are specially designed for High Power Density and

Reduced Water Consumption. These batteries use polypropylene cell containers

with thermally welded lids for high impact resistance.

2.3 Product Profile

Batteries

Nickel Cadmium Sintered Plated batteries

Nickel Cadmium Pocket Plated batteries

Nickel Cadmium Fibre Plated batteries

Silver-zinc aircraft batteries

Silver-zinc torpedo batteries

Sealed Cylindrical Nicked Cadmium batteries

Lithium batteries

Valve Regulated Lead Acid batteries

Sealed Lead Acid batteries

Tubular Vent batteries

Thermal batteries

Monobloc batteries

Electronics

Switch Mode Rectifiers

Integrated Power Supplies

Universal Battery Chargers

Rectifiers

Data Loggers

Thyristor based charged

HFTCs

SSIs

Fuzes

Moving Target Detectors

RF Power Amplifires

BIT Units

2.4 BOARD OF DIRECTORS

Dr.A.J.Prasad Chairman And Managing Director

Mr. Ashok Nagarkatti Director-Battery Technology

Mr.J K Verma Director-Operations

Mrs. Kavitha Prasad Member

Mr.P.Ganapathi Rao Member

Mr. M.S.Rama Krishna Member

Mr. V V Rao Member

Mrs. Preeti Khandelwal Member

Audit Committee :

Mr.P.Ganapathi Rao Chairman

Mrs. Kavitha Prasad Member

Mr. V V Rao Member

M/s Satyanarayana & co.

Charted Accountants

Secundrabad

Auditor

M/s. Narasimha Murthy & co.

Cost Accountants

Hyderabad

Cost Auditors:

Mr. D. Mabu Basha

Registered Offices:

8-2-601,Road no.10,

Banjara Hills,

Hyderabad-500 034

Bankers:

State Bank of India

State Bank of Hyderabad

IDBI Bank Ltd

State Bank of Indore

Location of Plants:

1. Aliabad (V), Shameerpet(M), Ranga Reddy District,

Andhra Pradesh.

2. Nandigoan(V), Kothur(M), Mahabubnagar District,

Andhra Pradesh

3. Seripally(V), Bhoothpur(M), Mahabubnagar District,

Andhra Pradesh.

4. Kandivalasa (V), Poosapaitrega(M), Vizianagaram District,

Andhra Pradesh.

5. VSEZ, Visakhapatnam, Andhra Pradesh.

6. Thumkunta(V), ShameerpetM), Ranga Reddy District,

Andhra Pradesh.

7. Haridwar, Uttarakhand.

8. IMT, Manesar, Haryana.

THEORETICAL FRAMEWORK OF INVENTORY MANAGEMENT

3.1 Meaning and Nature of Inventory

The dictionary meaning of inventory is stock of goods or a list of goods. The

inventory can be defined as the sum of the value of raw materials, fuels and

lubricants, spare parts, maintenance consumables; semi processed materials and

finished goods stock at any given point of time. The term inventory refers to the

study stockpile of the products a firm is offering for sale and the components that

make up the product. The various forms in which inventories exists in a

manufacturing are:

Raw Materials.

Work-in-process (Semi finished goods).

Finished goods.

Consumables.

Spares.

Introduction of Inventory Management

The Dictionary meaning of inventory is stock of goods or list of goods. In

accounting language it may mean stock of finished goods only. In a

manufactured concern, it may include raw material, work-in-process &

Stores.Every enterprise needs inventory for smooth running of its activities. It

serves as a link between production & distribution process. There is, generally a

time lag between the recognition of a need and its fulfillment. The greater the

time lag, the higher the requirements for inventory. The unforeseen fluctuations

in demand and supply of goods also necessitate the need for inventory. It also

provides a cushion for future price fluctuations. The investment in inventories

constitutes the most significant part of current assets/working capital most of the

undertakings. Thus, it is very essential to have proper control and management

of inventories. The purpose of inventory management is to ensure availability of

materials in sufficient quantity as and when required & also to minimize

investment in inventories. Most of the manufacturing industries spend more

than 60% of the money for materials. Materials include raw material, bought out

finished components, semi-finished components, spare parts, work-in-progress.

Even a small saving in material will lead to heavy reduction in production cost.

Inventory management deals with purchasing stocking & issuing of materials to

various departments at right time, right quantity & at right quality. Inventory

management involves controlling the quantity, kind, location, movements and

timings of purchase of various materials used in industry.

Concept Of Inventory Management

The job of the financial management is to reconcile the conflicting

view points of various financial areas regarding the appropriate inventory levels in

order to fulfill the overall objective of maximizing the owner’s wealth. Thus,

inventory management like the management of other current assets should be

related to the overall objective of the firm. Inventories appears in various forms in

manufacturing company raw materials, work in progress, and finished goods. Since

the inventories constitute a large part of current assets, substantial amounts of

money are required to maintain them. In industry like sugar, the raw material cost

is high as 68.75% of total cost. Similarly, about the 90% of working capital is

invested in inventories. Hence, it is necessary for every management to give proper

attention to inventory management. An efficient system of the inventory

management will determine what to purchase, how much to purchase, from where

to purchase and when to store etc.

Raw Materials

The raw material inventory contains items that are purchased by the firm

from others and are converted into finished goods through the manufacturing

process. They are an important input of the final product.

Work-in-proces

The work-in-process inventory consists of items currently being used in the

production process. They are normally semi-finished goods that are at various

stages of production process.

Finished goods

Finished goods inventories are those final or completed products which

are available for sale. The inventory of such goods consists of items that have

been produced but are yet to be sold. These are the goods which are ready for

the customers. The purpose of maintain inventory is to ensure proper supply

of goods to customers.

Consumables

These are the materials which are needed to smoother the process of

production. These materials do not directly enter the production but they act

as catalysts etc. consumables and be classified according their consumption

and critically. There can be instances where these materials may account for

much value than the raw materials.

Spares

The consumption pattern of raw materials, consumables finished goods

are different from that of spares. The stocking policies of spares are different

from industry to industry. All decisions about spares are based on the financial

cost of inventory on such spares and the costs that may arise due to their non-

availability.

Benefits of Holding Inventories

A company should maintain adequate stock of materials for a

continuous supply to the factory for an uninterrupted production. Maintaining

inventories involves tying up of company’s funds and incurrence of storage and

handling costs. A firm also needs to maintain inventories to reduce ordering costs

and available quality discounts etc. There are 3 main general motives of holding

inventories:

Transaction Motive

Precautionary Motive

Speculative Motive

Transaction Motive

This motive emphasizes the need to maintain inventories to facilitate smooth

production and sales operations.

Precautionary Motive

This motive is necessitates holding of inventories to guard against the risk of

unpredictable demand and supply forces and other factors.

Speculative Motive

This motive is influenced the decision to increase or reduce inventory

levels to take advantage of price fluctuations.

Objectives of Inventory Management

The main aim of inventory management should be to avoid excessive and

inadequate levels of inventories and to maintain sufficient inventory for the

smooth production and sales operations. The main objectives of inventory

management are operational and financial. Efforts should be made to place an

order at the right time with the right source to acquire the right quantity at the

right price and quality.

The following are the objectives of inventory management:

To ensure continuous supply of raw materials, spares and finished goods

to  facilitate uninterrupted production.

To avoid both over stocking and under stocking of inventory.

To maintain sufficient finished goods inventory for smooth sales

operations and efficient customer service.

To maintain a minimum investment in inventories to maximize

profitability.

To minimize loses through determination, pilferage, wastages and

damages.

To minimize the carrying cost and time.

To maintain sufficient stock of raw materials in periods of short supply

and   anticipate price changes.

To control investment in inventory and keep it an optimum level.

To design proper organization for inventory management. Clear-cut

accountability should be fixed at various levels of the organization.

Techniques of Inventory Management

In managing inventories, the firm’s objective should be in consonance with

the shareholder, wealth maximization principles. To achieve this principle the

organization should maintain appropriate levels of inventory. Effective inventory

management requires an effective control system for inventories. A proper

inventory control not only helps in solving the acute problem of liquidity but also

increases profits and causes substantial reduction in the working capital of the

concern.

The following are the important tools and techniques of Inventory

Management and control.

Determination of Economic Order Quantity.

Determination of Stock levels.

ABC analysis

VED analysis

Determination of safety stocks.

Selecting a proper system of ordering for inventory.

Inventory turnover ratios

Aging schedule of inventories.

Classification and modifications of inventories.

Preparation of inventory reports.

1) Economic Order Quantity

Every organization will think about how much to order, when ordering the

inventories to solve this problem economic order quantity will fix the appropriate

order size. EOQ is the size of the lot order to be purchased which is economically

viable. This is the quantity of materials which can be purchased at minimum costs.

The EOQ is an optimum quantity of materials to order after consideration of the

following categories of costs, such as ordering costs, carrying costs, stock out costs.

a) Ordering Costs

These are the costs which are associated with the purchasing of ordering of

materials. These costs include:

Costs of placing an order.

Costs of receiving goods.

Transport costs.

Documentation processing costs.

Additional costs of frequent or small quantity orders.

Cost of stationary, typing postage, telephone charges etc.

b) Carrying Costs

These are the costs for holding inventories. These costs will not be incurred

if inventories are not carried. These costs include:

Stores staffing equipment maintenance and running costs.

Handling costs.

Insurance and security costs.

Cost of storage which could have been for other purpose.

Pilferage and damage cost.

Obsolescence and determination costs.

Audit, stock taking or perpetual inventory costs

c) Stock-Out Costs

The stock out costs is associated with running out of stock, includes the

following:

Lost contribution through the lost sale caused by the stock out.

Loss of future sales because customers go elsewhere.

Loss of customer goodwill.

Cost of production stoppages caused by stock out of work in progress of raw

material.

Labor frustration over stoppages.

Extra costs associated with urgent often-small quantity replenishment

purchases.

2) Determination Of Stock Levels

Various levels of inventory are fixed to see that no excess inventory is

carried and simultaneously there will not be any stock out. If the inventory levels

are too little, the firm will face frequent stock outs involving heavy ordering costs

and if the inventory level is too high it will be unnecessary tie-up of capital.

a) Reordering Level

Reorder level is the level of stock availability when a new order should be raised.

The stores department will initiate the purchase material when the stock of material

reaches at this point. This level fixed between the minimum and maximum stock

levels.

The following formula is used for this purpose:

Reorder level = (maximum usage) (maximum lead time).

b) Minimum Stock Level

Minimum stock level is the lower limit below which the stock of any stock

item should not normally be allowed to fall. Their level is also called safety stock or

buffer stock. The main object of establishing this level is to protect against stock out

of a particular stock item and in fixation of which average rate of consumption and

time required for replenishment i.e., lead time are given prime consideration.

Minimum stock level =Reorder level – (average or normal usage * average lead

time).

c) Maximum Stock Level

Maximum level represents the upper limit beyond which the quantity of any

item is not normally allowed to rise to ensure that unnecessary working capital is

not blocked in stock items. Maximum stock level represents the total of safety stock

level and EOQ. Maximum stock level can be expressed in the following

Formula: Maximum stock level = reorder level + economic reordering quantity –

(Minimum usage * minimum lead time)

d) Danger Level

Danger level of stock is fixed below the minimum stock level and if stock reaches

below this level. Urgent action for the replenishment of stock should be taken to

prevent stock out position.

Danger level = Average consumption * lead time for emergency purchases.

e) Average Stock Level

Average stock level is calculated as such:

Average stock level = (Minimum stock level + maximum stock level) /2

(Or)

Minimum stock level +1/2 * ROQ

3) ABC ANALYSIS

In this technique the items of inventory are classified according to value of

usage. This method divides inventory in classes namely.

A: Items in class a constitute the most important class of inventories so far

as the proportion in the total values of inventories is concerned.

B: Items in class B constitute an intermediate position.

C: Items in class C are quite negligible.

It is seen a very small percentage of the items say 15-20% account for the 75-80%

of the total material usage and large number of items say 75-80% of the total items

accounting 15-20% of the monetary value.

4) VED Analysis

The VED analysis is used generally to spare parts. The requirements and

urgency or spare parts is different from that material. The VED system is widely

used classification technique to identify critically of various items for inventory

control. This technique is based on the assumption that a firm need not exercise

same degree of control on all items of inventory. On the basis of critically, the

various items of inventory are categorized into 3 categories.

Vital

Essential

Desirable

Highly critical items like vital requires much closer attention by senior

management compared to that or less critical items. The reorder level depends on

the criticality of the items. For vital items relatively more inventory is maintain

compared to that of criticality level ‘E’. These items are essential but not as much

important as ‘V’ items.

5) Determination of Safety Stocks

Safety stock is a buffer to meet some unanticipated increase in usage. The

usage of inventory cannot be perfectly forecasted. If fluctuated over a period of

time. The demand for materials may fluctuate and delivery of inventory may also be

delayed and in such a situation the firm can face a problem of stock out. The stock-

out can prove costly by affecting the smooth working of the concern. In order to

protect against the stock out arising out of usage fluctuations, firms usually

maintain some margin of safety or safety stocks. The basic problem is to determine

the level of quantity of safety stocks. Two costs are involved in the determination of

this stock i.e., opportunity cost of stock-outs and the carrying costs.

6) Ordering systems of inventory

The basic problem of inventory is to decide the reorder point. This point

indicates when an order should be placed. The reorder point is determined with the

help of these things:

Average consumption rate.

Duration of lead time.

EOQ when the inventory is depleted to lead time consumption the order should

be placed.

There are 3 prevalent systems or ordering and a concern can choose any one of

these:

1. Fixed order quantity system generally known as economic order quantity system.

2. Fixed period order system or periodic reordering system or periodic review

system.

3. Single order and scheduled part delivery system.

7) Inventory Turnover Ratio

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

selling its products. These ratios are calculated to indicate whether inventories have

been use efficiently or not. The purpose is to ensure the blocking of only required of

minimum funds in inventory. It is calculated by dividing the cost of goods sold by

the average inventory.

Inventory Turnover Ratio = Cost of goods sold Average inventory.

(Or)

Inventory Turnover Ratio = net sales/average inventory.

Inventory holding period = Days in a year Inventory turnover ratio.

8) Aging Schedule of Inventories

Classification of inventories according to the period (age) of their holding also

helps in identifying slow moving inventories there by helping in effective control

and management of inventories.

9) Classification and Codification Of Inventories

The inventories of a manufacturing concern may consist of raw material;

work in process, finished goods, spares, consumable stocks etc. All these categories

may be classified either according to their nature or according to use. Generally,

materials are classified according to their nature such as construction materials,

consumable stocks, spares, lubricants etc. After classification, the materials are

given code members. The coding may be done alphabetically or numerically. The

later method is generally used for coding. The class of materials is assigned to the

category of materials in that class. The third distinction is needed for the quality of

goods and decimals are used to note this factor.

10) Inventory Reports

From effective inventory control, the management should be kept informed

with the latest stock position of different items. This is usually done by preparing

periodical inventory reports. These reports should contain all information necessary

for managerial action. These reports management takes corrective action wherever

necessary. The more frequently these reports are prepared the less will be the

chances of lapse in the administration of inventories.

Just In Time Inventory Management

The just-in-time inventory control system, originally developed by Taichi Okno of

Japan, simply implies that the firm should maintain a minimal level of inventory

and rely of suppliers to provide parts and components “just-in-time” to meet its

assembly requirements. The major emphasis of just in time philosophy is inventory

management. It begins by identifying the problems and forcing firms to tackle

them. The main tactic used to reveal such problems in inventory reduction. The

just-in-time inventory system, while conceptually very appealing is difficult to

implement because it involves a significant change in the total production and

management system. It requires interalias:

A strong and dependable relationship with suppliers who are geographically not

very remote who are geographically not very remote from the manufacturing

facility.

An easy physical access in the form of enough doors and conveniently located

docks and storage areas to dove tail incoming suppliers to the needs of assembly

line.

It attempts to minimize inventories through small incremental reduction rather than

prescribe particular techniques or methodologies.

Valuation of Inventories

According to accounting standard -2 the valuation of inventories is given by the

Institute of Chartered Accounts of India. Items such as expenses, revenues, or book

debts can be recorded in the books of accounts with a fair degree of accuracy.

However, an element of subjectively is involved in the measurement of items such

as depreciation or inventory value. Methods of valuing the inventory may vary

between different business and even between undertaking within the same trade or

industry.

Taking all these significant aspect into account, this standard deal with:

1) The determination of value at which inventories are carried until related

revenues or         recognized.

2) Ascertainment of cost thereof.

3) The circumstances in which carrying amount of inventory is written down

below       cost.

Valuation of Inventory Is Critical Importance Reasons

Individual items may not be of significant value but taken together, would

constitute a significant portion of total assets.

Rapid turn over exception being rare or seasonal turn over.

Susceptible to obsolescence and spoilage, slow or fast moving.

Held at different places.

Physical condition.

It may involve varying degrees of estimation.

Inventory is the second largest item after the fixed assets, in financial statements

of manufacturing concerns.

It affects both the results of operations as well as the financial position as

reflected in balance sheet.

Inventories

Inventories are assets

a) Held for the purpose of sale in the ordinary course of business.

b) In the process of production for such sale.

c) In the form of material or supplies to be consumed in production process or in

rendering of services.

Inventory includes the following

a) Goods purchased and held for resale.

b) Finished goods produced for sale.

c) Work in progress generally.

d) Materials, maintenance supply consumables and loose tools awaiting use in

production process.

3) Measurement

The critical operative part of the study is that inventories should be valued at the

lower of a) coast and b) Net reliable value.

Cost Includes

Cost of purchase, net of trade discounts, rebates, duty drawbacks, Convert credit

availed etc.

But, Cost doesn’t include

Selling and distribution cost.

Abnormal wastage, storage cost.

Cost Formulae

In as much as cost do not remain static and vary from time to time, several

types of cost formulae can be used. In inventory valuation, therefore, the question

that is with reference to the flow of production, which inventory has been sold and

which continued to remain in inventory. In this backdrop, inventory valuation

depends on cost flow assumptions such as LIFO, FIFO base stock methods etc., but

the standard favours only 3 methods are as follows:

Specific Identification method.

First in First out Method.

Weighted Average cost method.

Specific Identification Method

This method is also known as specific price method. This is also known as

actual cost method because specific job bears the actual cost of material bought for

the job. When using this method, units in inventory are specifically identified and

each unit cost is identified with a particular invoice. The advantage of this method

is that cost changed to jobs is factual and not notional. Cost of items forming part of

inventory, that are not ordinarily interchangeable as also goods or services produced

and segregated for specific projects, should be assigned by specific identification of

t heir individual costs. This formula has to be applied whenever materials are

purchased and set aside for specific job or work order.

(1)First In First Out

This method is based on the assumptions that the materials, which are

purchased first, are issued first. Issues of materials are priced in the sequence of

incoming order of purchases. The flow of cost of materials should also be in the

same order.Issues are priced on the same basis until the first lot received i.e.,

exhausted, after which the price of the next lot received becomes the basis of cost

for issues. This materials issued are priced at the cost pertaining to the earliest lot,

and as a corollary the inventory in hand is valued a price representing recent

purchases.The FIFO method is most successfully used when

a) Size of raw materials is very large and cost is high.

b) Materials are easily identified as belonging to a particular purchase lot.

c) Not more that two or three different receipts are on material card at one time.

d) Price of materials does not fluctuate widely, so that clerical labour involvement

is minimized.

e) Materials are subject to deterioration and obsolescence.

(2) Weighted Average Cost Method

This is calculated by dividing the total cost of material in stock by the total

quantity of material in stock. Under this method costs are averaged after weighing

by their quantities. The weighted average cost is determined, either at periodical

intervals or each item when fresh materials arrived on purchase. The average cost at

any time is thus balance valued figure divided by the balance unit figure. This

method evens out the effect of widely varying prices of different lots of purchases,

which makes up the stock. There will be no profit or no loss arising out of pricing

issues.

(A)Net Realizable Value

Net Realizable Value is defined as the estimated selling price in the ordinary

course of business less the estimated costs of completion and the estimated costs

necessary to make for sale.

CHAPTER-4

ANALYSIS AND INTREPRETATION OF INVENTORY

MANAGEMENT ON HBL

Now a day’s inventory management is gaining importance in every

organization. A firm’s inventory management reveals its strength against their

smooth flow of production. In any firm inventory management plays a vital role; by

this a firm can achieve its goals. The organization should maintain optimum and

sufficient level of inventory management. The importance of inventory

management can be viewed from the following facts.

There is a continuous supply of materials, spares and finished goods so that

production should not suffer at any time and the customers demand should also be

met.

To remove both over stocking & under stocking

Maintain investments in inventories at the optimum level of as required by

operational sales activities.

Eliminate duplication in ordering or replenishing stocks.

Minimize losses and get profit maximization.

4.1: Inventory Status in HBL Power Systems Ltd

(During the year 2004 to 2010) (Rs In Lakhs)

Year Stores

Spares

Tools

Fixtures

Work-in

progress

Finished

Goods

Raw

Materials

Total

2004-05 64.76 41.71 1585.97 173.90 3,314.81 5,181.15

2005-06 91.79 31.14 2358 298.20 3635.27 6,414.40

2006-07 96.22 39.45 2372 264.97 4741.50 7,514.15

2007-08 131.24 52.20 7483.06 1185.64 8380.06 17,232.20

2008-09 270.88 49.64 5058.16 3373.40 9195.48 17,947.56

2009-10 305.55 51.25 6873.85 1008.95 7538.69 19568.55

Interpretation

From the above table it can be said that the total inventory for the year 2004-05

was 5,181.15 lakhs and has been increased to 6414.40 in the year 2005-06.Due to

the movement of inventory into sales is takes place accordingly.In the year 2006-07

the inventory level indicates of growth to 7514.15, further years continuously

increase in inventory levels into sales slowly by taking the marketing conditions in

consideration. At last in the year 2008-09 increased at 17,947.56 which shows a

good profit position of company.

1. Cost of goods sold

Formula: Cost of Goods Sold = Net Sales – Gross Profit

Table 4.2: Cost of Goods Sold During 2004-10 by H.B.L Company

(In Rs. Lakhs)

Year Net sales Percent

change

Gross

profit

Per cent

change

Costofgoods

sold

Percent

Change

2004-05 28,380 -- 2,772 -- 25,608 --

2005-06 36,798 22.87 3,858 28.14 32,940 22.25

2006-07 51,185 28.10 5,152 25.11 46,033 28.45

2007-08 92,276 44.53 1,108 78.49 82,193 43.99

2008-09 1, 24,390 25.81 13,814 91.9 1, 10,576 25.66

2009-10 132690 28.52 12000 105.85 120786 28.65

Interpretation:

The net sales in the 2004-05 recorded as Rs. 28,380 lakhs, the gross profit for the

same was recorded as Rs. 2,722 crore leading towards the total cost of goods sold in

the same year accounted to Rs. 25.608 lakhs.In the year 2005-06 the sales are

increased to Rs. 36, 798 lakhs which recorded an increase of 22.87 per cent. For

the same year the per cent of change of gross profit recorded at 28.14 per cent with

Rs. 3,858 lakhs leading towards the total cost of goods sold at Rs. 22.25.In the year

2006-07 the sales are increased to Rs 51,185 lakhs which recorded an increase of

28.10 percent. For the same year the per cent of change of gross profit recorded at

25.11 percent with Rs 5,152 lakhs leading towards the total cost of goods sold at Rs

28.45.In the year 2007-08 the sales are increased to Rs 92,276 which recorded an

increase of 44.53 percent. for the year the percentage of change of gross profit

recorded at 78.41percent with Rs 1,108 lakhs leading towards the total cost of

goods sold at Rs43.99In the year 2008-09 the sales are increased to Rs1,24,390

which recorded an decrease to 25.81 for the year the percentage of change of gross

profit recorded at 91.9 percent with Rs13,814 lakhs leading towards the total cost of

goods sold at Rs25.66.

Average Raw Materials

Formula:

Average Raw Materials = (Opening stock + closing stock)/2

4.3: Opening &closing stock of raw materials By HBL Company

(During 2004-10) (Rs in Lakhs)

Year Opening stock

of

Raw materials

Closing stock of

Raw materials

Total

stock of

Raw materials

Opening Ratio Closing Ratio

2004-05 2,040 3,274 5,314 0.623 0.6160

2005-06 3,274 3,635 6,909 0.473 0.526

2006-07 3,635 4,742 8,377 0.433 0.566

2007-08 4,742 8,380 13,122 0.361 0.638

2008-09 8,380 9,195 17,575 0.476 0.528

2009-10 9,630 10,658 25,636 0.576 0.856

Interpretation

from the above table we can come to a conclusion that in the year2005-

06 opening ratio is increased to 24.07and closing ratio is decreased by 14.61,in the

year 2006-07 opening ratio is decreased to 8.4 and closing ratio is decreased to

7.06.in the year 2007-08 the opening ratio is changed as increased to 16.62 and

closing ratio increased to 21.30 .in the year 2008-09 opening stock changed to an

increase of 30.71 and the closing stock is increased to 20.83.

3. Average Work In Progress:-

(Semi-finished goods)

Formula:

Average work in process = opening WIP + closing WIP/2

4.4: Opening &Closing Stock of Work In Progress by HBL (During 2004-10)

(Rs In Lakhs)

Year Opening

Stock of

Work in

Progress

ClosingStockof

Work In Progress

Total

Work in

Progress

Opening

Ratio

Closing

Ratio

2004-05 1,110 1,586 2,696 0.141 0.588

2005-06 1,586 2,358 3,944 0.402 0.597

2006-07 2,358 2,372 4,730 0.498 0.501

2007-08 2,372 7,483 9,855 0.316 0.780

2008-09 7,483 5,058 12,541 0.596 0.403

2009-10 8,743 6,874 15,683 0.876 0.874

Interpretation: from the table 4.4 we can come to conclusion that the opening ratio

is

64.92percent in the year 2005-06 and closing ratio is decreased to 1.50percent.in the

Year 2006-07 the opening ratio is decreased to 19.27 percent and closing ratio is

Increased to16.08.the next year 2007-08opening ratio is increased to 36.54 and

closing

Ratio is also changed increased to 35.76,in the year 2008-09 opening ratio is

increased

Drastically to 46.97percent and closing ratio is also increased to39.10percent than

before years. This is a total over view of closing and opening stock of work in

progress, where the changes occur due to what reasons can find out easily.

4. Average Finished Goods

Formula: Average Finished Goods =

Opening Finished Goods + closing Finished Goods/2

4.5 Opening& closing stock of finished goods by HBL Company

(During 2004-10)

(In Lakhs)

Year Opening

stock of

finished

goods

Closing stock

of finished

goods

Total finished

goods

Opening

ratio

Closing ratio

2004-05 24 173 197 0.121 0.878

2005-06 173 293 466 0.371 0.628

2006-07 298 264 562 0.530 0.469

2007-08 264 1,185 1,449 0.182 0.817

2008-09 1.185 3.373 4.558 0.259 0.740

2009-10 1.865 4.856 5.678 0.965 0.874

Interpretation: from the above table exhibit that the opening and closing stock of

inventory in HBL (finished goods)that in the year 2005-06 opening ratio is

increased to 67 percent and closing ratio is increased to 39.8 percent but in the year

2006-07 the opening ratio is decreased to 30 percent and closing ratio also

decreased to 25.31 percent. In the year 2007-08 opening ratio is increased

to65percent and closing ratio is also increased to 42percent.In the year 2008-09

opening ratio is drastically changed decreased to 42percentand the closing stock

very badly dropped as to9.42percent

5. Raw Material Turnover Ratio

The Raw Material turnover shows how rapidly the raw material is turning

into receivables through sales. Generally a high turnover implies excessive

inventory levels than warranted by production & sales activities.

Formula:

Raw Material Turnover Ratio = Cost of Goods sold /Average raw material.

4.5 Raw material turn over ratio (During 2004-10) (Rs In Lakhs)

Year Sales Inventory

Inventory Turnover

Ratio

2004-05 25608 2657 9.6

2005-06 32940 3455 9.5

2006-07 46033 4189 10.9

2007-08 81193 6561 12.37

2008-09 110576 8788 12.58

2009-10 125683 9857 15.68

Graph representation

Interpretation

The Higher Raw Material Turnover ratio is better for the firm. From the above

graph, that the raw materials turn over (RMTR) ratio in the year 2008-09 is the

highest (12.58) as compared to the past four years. Raw materials turn over ratio

keeps increasing year after year expect in the Year 2005-06.Finally the company is

keeping inventory levels according to their requirements for future production

6. Raw materials holding period

The ratio shows the period till which the company holds the raw material.

When calculated in days this ratio focuses in the number of days till which the

company holds the raw material. The less the number of days of which the company

holds the raw materials, the better it is considered for the firm. It proves the

efficiency with which the firm converts the raw material into finished goods.

Formula: Raw material holding period =

Average Raw materials / cost of goods sold * 360 days

4.6: Raw material Holding Period

(During 2004-10) (Rs In Lakhs)

Year Inventory ratio Inventory

holding period

2004-05 37.35 2657

2005-06 37.35 3454.5

2006-07 32.75 4188.5

2007-08 29.90 6561

2008-09 28.60 8787.5

2009-10 35.60 9.5784

Graph Representation

Interpretation

This ratio shows the period till which a firm holds the raw materials. When

calculated in days the less the raw material holding period (RMHP) the better it is

for the firm. It can be pointed out from the graph that the firm holding the raw

material for 28.60 days in the year 2008-09 where as raw material holding period

was decreasing from the year 2004 to 2008 so reflects the company performance in

a efficiency way on Raw material holding Method.

7. Work In Progress Turnover Ratio

The work in process turn over ratio shows how rapidly the semi

finished goods is turning into receivable through sales. Generally a high turnover is

indicative of good inventory management. A low turn over implies excessive

inventory levels than warranted by production sales activities.

Formula:

Work in process turnover ratio = Costs of goods sold

Average work in process

4.7: Work in progress turns over ratio (During 2004-10) (In Lakhs)

YearCost of

Goods sold

Average

Work-in-process

Work-in-process

Turn over ratio

2004-05 25,608 1,348 18.99

2005-06 32,940 1,972 16.70

2006-07 46,033 2,365 19.46

2007-08 81,193 4,927.5 16.47

2008-09 1,10,576 6,270.5 17.60

2009-10 2,20,675 7,567.8 18.90

Graph Representation

Interpretation:

The higher the turn over ratio, the better it is for the firm. The ratio shows

how fast time work in process goods. The intermediate products are converted into

goods. The work in process turn over ratio is highest in the year2007 (19) but it is

least in 2008 (16). It can be interpreted from graph above; the turn over ratio has

fluctuations from year to year.

8. Work in Process Holding Period

The ratio shows the period till which the company holds the raw material. When

calculated in days this ratio focuses on the number of days till which the company

holds the raw material. The less the number of days for which the company holds in

the raw material the better it is considered for the firm. Since it proves the

efficiency with which the firm converts the raw material into finished goods.

Formula:

Work in progress holding period =

(Average work in process/ Cost of goods) * 360

4.8: Work in progress holding period (During 2004-10)(Rs In Lakhs)

YearAverage work in

processCost of goods sold

Work in process holding

period

(in days)

2004-05 1,348 25,608 19

2005-06 1,972 32,940 22

2006-07 2,365 46,033 19

2007-08 4,927.5 81,193 22

2008-09 6,270.5 1,10,576 20

2009-10 8,065 1,25,268 26

Graph representation:

Interpretation:

It is observed from table

This ratio shows the period till which a firm holds as the semi finished goods. It can

point out firm the graph that the firm has held the work in process goods for 19days

during the year 2004-05. Where it holds the work in progress goods is 18 days in

the year 2006-07. It can be said that work in process holding period has been

consistently fluctuating.

9. Finished Goods Turn Over Ratio:

Finished goods turn over ratio shows how rapidly the finished goods is turning into

receivable through sales. Generally a high turn over is indicative of good inventory

management. A low turnover implies excessive inventory levels than warranted by

production and sales activities.

Formula:

Finished goods turnover ratio = Cost of goods sold / Average finished good

4.9: Finished goods turnover ratio (During2004-10) ( In Lakhs)

YearCost of Goods

Sold

Average Finished

GoodsFinished Good Turn Over Ratio

2004-05 25,608 197 129.99

2005-06 32,940 235.5 139.87

2006-07 46,033 281 163.81

2007-08 81,193 724.5 112.07

2008-09 1,10,576 2,279 48.52

2009-10 1,20,675 2,520 52.65

Graph Representation

Interpretation

It is observed from table, In this case the finished goods turnover ratio is

highest in 2006-07 (163.81) but it is least in 2008-09 (48.52). This is increasing

from 2004 and 2005 years. But while coming to 2009 it was 48.52 This is happened

due to increase in cost of goods sold along with increase in average finished goods.

10. Finished Goods Holding Period:

This ratio shows the period till which the company holds the finished goods. When

calculated in days this ratio focuses on the number of days till which the company

holds the finished goods. The less the number of days for which the company holds

the finished goods the better it is considered for the firm. Since it proves the

efficiency of the firm.

Formula:

Finished goods holding period = (Average finished goods / cost of goods sold)*360

4.10: Finished goods turn over ratio

(During2004-10) (In Lakhs)

YearAverage Finished Goods

Cost of Goods SoldFinished Goods Holding Period(in days)

2004-05 197 25,608 3

2005-06 235.5 32,940 3

2006-07 281 46,033 2

2007-08 724.5 81,193 3

2008-09 2,279 1,10,576 7

2009-10 2,252 99004 5

Graph Representation

Interpretation:

It is observed from above table,

Finished goods holding period is 3days in the year 2005-06 and very less in

comparing to all years. It resembles firm efficiency is good. While comparing with

2009 it is 7 days so efficiency is decrease but sales within 7 days are also good

performance in this competitive world.

11. Gross Profit Ratio:

The Gross Profit Ratio is also called the average mark up ratio. The Gross Profit

Ratio reflects the efficiency with which the firm produces / purchases the goods.

Formula

Gross Profit Ratio = (Gross Profit / sales) * 10

4.11: Gross profit ratio during 2004-10)(In Lakhs)

Graph

Rep resent

atio n

GROSS PROFIT RATIO

0

2

4

6

8

10

12

2004-05 2005-06 2006-07 2007-08 2008-09

YEARS

RATIOS

Year Gross Profit Sales Gross profit Ratio

2004-05 2,772 32,575 8.50

2005-06 3,858 36,798 10.47

2006-07 5,152 51,185 10.06

2007-08 11,082 97,276 11.39

2008-09 11,130 1,24,390 8.95

2009-10 12,052 12547 9.35

Interpretation:

It is observed from table,

Higher the Gross Profit Ratio is better for the firm. From the past five years we can

observe, the highest gross profit earned by the firm is 11.39 in the year 2007-08 and

lowest is 8.50 in the year2004-05. In this case of Gross Profit Ratio of the firm is

fluctuating.

12. Cost of Goods Sold Ratio:

Formula: Cost of goods sold ratio = (cost of goods sold / net sales) * 100

4.12: Cost of goods sold during 2004-10 By HBL Company

( In Lakhs)

Year Cost of goods sold Net sales Cost of goods sold ratio

2004-05 25,608 32,575 78.61

2005-06 32,940 36,798 89.51

2006-07 46,033 51,185 89.93

2007-08 81,193 97,276 83.47

2008-09 1,10,576 1,24,390 88.89

Graph representation

COST OF GOODS SOLD RATIO

0

20

40

60

80

100

2004-05 2005-06 2006-07 2007-08 2008-09

YEARS

RA

TIO

S

RATIOS

Interpretation

It is observed from the above table, that net sales for the year 2006-07 net

sales increased to 51,185.cost of goods sold for the same year is46,033.The

same year that as

Cost of Goods Sold Ratio is high in the year 2006-07 and low in the year 2004-

05.the cost of goods ratio reflects company performance in a positive way only.

13. Inventory Turn over Ratio:

The Inventory Turn over Ratio shows how rapidly the inventory is turning

into receivables through sales. Generally a high inventory turn over is indicative of

good inventory management. A low inventory implies excess inventory levels than

warranted by production and sales activities or a slow moving or obsolete

inventory.

Formula:

Inventory Turnover Ratio = cost of goods sold / average inventory

4.13: Inventory turnover ratio during 2004-10 By HBL

Company

(In Lakhs)

Year Cost of goods sold Average inventoryInventory

Turn over ratio

2004-05 25,608 5,359 4.77

2005-06 32,940 6,767 4.86

2006-07 46,033 7,545 6.10

2007-08 81,193 17,246 4.70

2008-09 1,10,576 17,998 6.14

Graph Representation:

INVENTORY TURNOVER RATIO

0

1

2

3

4

5

6

7

2004-05 2005-06 2006-07 2007-08 2008-09

YEARS

RA

TIO

S

RATIO

Interpretation

It is observed from table, Inventory which is a combination of raw material,

work in process and finished goods naturally, reflects the overall inventory position

of the firm. The more the Inventory Turn over Ratio the faster the inventory is

converted into sales it is better for the firm. In case the Inventory Turn over Ratio is

more in 2008-09 (6.14) and least in 2007-08 (4.70).

14. Inventory Holding Period Ratio

However, the sales do not convert into cash instantly. There is invariably a

time lag between the sales of the sales of the goods and receipt of cash. Technically

this is referred to as a operating cash cycle. The operating cycle include the holding

period of inventory there is a positive relation between these two. If the inventory-

holding period is more automatically the operating cycle will also be extended.

There is positive relation between the operating cycle and the Inventory Holding

Period Ratio, longer the Inventory Holding Period Ratio the larger will be the

operating cycle. Thus to reduce the operating cycle, it is necessary that the

Inventory Holding Period Ratio is should be less.

Formula:

Inventory Holding Period Ratio =

(Average inventory / cost of goods sold) * 360 days

4.14: Inventory holding period ratio during 2004-10

( In Lakhs)

Year Average inventoryCost of goods

sold

Inventory holding period ratio

(in days)

2004-05 5,359 25,608 75.33

2005-06 6,767 32,940 73.95

2006-07 7,545 46,033 59.24

2007-08 17,246 81,193 76.46

2008-09 17,998 1,10,576 58.59

Graph Representation

INVENTORY HOLDING PERIOD RATIO

0

10

20

30

40

50

60

70

80

90

2004-05 2005-06 2006-07 2007-08 2008-09

YEARS

HO

LD

ING

PE

RIO

D

(IN

D

AY

S)

DAYS

Interpretation

It is observed from table

In the above graph the Inventory Holding Period Ratio is least in 2008-09

(58.59days) and highest in 2007-08 (76.46days).so the the Inventory Holding

Period Ratio of the firm resembles a positive way.

Raw Material Consumed Ratio

There is positive relation between the operating cycle and the Inventory

Holding Period Ratio, longer the Inventory Holding Period Ratio the larger will be

the operating cycle. Thus to reduce the operating cycle, it is necessary that the

Inventory Holding Period Ratio is should be less.

Formula:

Raw Material Consumed Ratio = (Raw material consumed / sales) * 100

4.15: Raw Material Consumed Ratio during 2004-10

(Rs. In Lakhs)

Year Raw material consumed Sales Raw material consumed ratio

2004-05 1,245 32,575 3.82

2005-06 320 36,798 0.87

2006-07 1,107 51,185 2.16

2007-08 3,639 92,276 3.94

2008-09 815 1,24,390 0.66

Graprepersentation

Interpretation

In the above graph the Inventory Holding Period Ratio is least in the year 2008-09

(0.66d) and highest in the year 2007-08 (3.94).

The firm utilizing the raw material very quickly it helps to decreases carrying and

ordering costs. This ratio indicates efficiency of firm.

16. Inventory to Working Capital Ratio:

This ratio indicates to know how much of amount using for inventory from

the working capital. Working capital is a capital uses for regular transactions of the

firm. Promoting sufficient funds for inventory helps to keeps smooth promotion of

sales.

Formula:

Inventory to working Capital Ratio = Average Inventory / Working Capital

4.16: Working capital ratio during 2004-09 (Rs. In lakhs)

Year Average inventory Working

Capital

Inventory

to working capital

ratio

2004-05 5359 19210 0.27

2005-06 6767 24977 0.27

2006-07 7545 30417 0.25

2007-08 17246 53550 0.32

2008-09 17998 58678 0.31

Graph Representation

INVENTORY TO WORKING CAPITAL RATIO

0

0.1

0.2

0.3

0.4

0.5

2004-05 2005-06 2006-07 2007-08 2008-09

YEARS

RA

TIO

S

RATIO

Interpretation:

From the above table, we can observe there are increase inventory funds

from

2004 - 2008. In the year 2004, firm providing part of funds for inventory

maintenance

Is 0.27 and in 2009 is 0.31 and working capital so firm concentrating on inventory

management by promoting more funds for smooth production.

4.17: various inventory ratios for 2004 to 2009

Ratio 2004-05 2005-06 2006-07 2007-08 2008-09

Raw Material

Turn Over Ratio9.6 9.5 10.9 12.37

12.58

Raw Material

Holding Period37.35 37.75 32.75 29.09

28.60

Work In Process

Turn Over Ratio18.99 16.7 19.46 16.47

17.6

Work In Process

Holding Period18.95 21.55 18.49 21.84

20.41

Finished Goods Turn

Over Ratio129.99 139.87 163.81 112.07

48.52

Finished Goods

Holding Period2.77 2.57 2.20 3.21

7.42

Inventory To Working Capital

Ratio0.27 0.27 0.25 0.32

0.31

Gross Profit Ratio 8.50 10.48 10.06 11.39 8.95

Cost Of Goods Sold Ratio 78.61 89.51 89.93 83.47 88.89

Raw Materials

Consumed Ratio3.82 0.87 2.16 3.94

0.66

Inventory Turn Over 4.77 4.86 6.10 4.70 6.14

Inventory Holding Period 027 0.27 0.25 0.32 0.31

5.1 summary and suggestions

Entails planning for the future of a person or a business enterprises a

positive cash flow. It includes the administration and maintenance of financial

assets. besides, financial management covers the process of identifying and

managing risks. The primary concern of financial management is the assessment

rather than the techniques of financial quantification. A financial manager looks at

the available data top judge the performance of enterprises. Managerial finance is

an interdisciplinary approach that borrows from both managerial accounting and

corporate finance. some experts refer to financial management at the science of

money management. The primary usage of this term is in the world of financing

business activities However, financial management is important at all levels of

human existence because every entity needs to look after its finances.

Broadly speaking, the process of financial management takes place at two

levels. At the individual level, financial management involves tailoring expenses

according to the financial resources of an individual. Individuals with surplus cash

or access to funding invest their money to make up for the impact of taxation and

inflation. Else, they spend it on discretionary items. they need to able to take the

financial decisions that are intended to benefit them in the long run and help them

achieve their financial goals. From an organizational point of view, the process of

financial management is associated with financial planning and financial control.

Financial planning seeks to quantify various financial resources available and plan

the size and timing of expenditures. Financial control refers to monitoring cash

flow. Inflow is the amount of money coming in to a particular company, while out

flow is a record the expenditure being made by the company. Managing this

movement of funds in relation to the budget is essential for business.

The purpose of financial management is to help the decision makers to make the

better financial decisions. These decisions are made in the context of a financial

system that both constrains and facilitates them. The financial system comprises a

variety of intermediaries, markets and instrument that are related in a complex

manner. It provides the principal means by which savings are transformed in to

investments. Given its role in the allocation of resources, the efficient functioni9ng

of the financial system is critical to a modern economy.

A financial manager is responsible for providing financial advice and

support to clients and colleagues to enable them to make sound business decisions.

Specific settings very enormously and include both public and private sector

organizations, such as multinational corporations, retailers, financial institutions,

charities, small manufacturing companies and universities. Financial considerations

are at the root of all major business decisions. Clear budgetary planning is essential

for future planning. Both short and long term and companies need to know the

financial implications of any decision before proceeding. In addition, care must be

taken to ensure that financial practices are in line with all statutory legislation and

regulations. Financial managers may also be known as financial analysts or

business analysts.

The Industry sectors and the financial system are undergoing rapidly

changes following the process of liberalization and reforms. The underlying

principle behind every reform measure re-orientation of monetary policy

techniques, introduction of new money market instruments and institutions, suggest

structural changes in the financial system and strengthening regulatory

arrangements has been to make the system more competitive, efficient and

profitable. Every performance indicator seems to reflect the impact of the reform

measures. Profitability of the industry has witnessed a steady improvement mainly

as a result of these measures, capital adequacy rations have crossed the norms

prescribed for almost all industries. The industries have begun to focus on

minimizing their asset liability mismatches and on risk management. Further, after

the enactment of securitization Act 2002, the industries get a weapon to tackle the

challenge of Non Performing Assets (NPAs). At this backdrop, it is felt essential to

study the financial performance of the lead Acid Division, HBL Power Systems

Ltd, which is one of the representatives of the Indus trying system. Which is

experiencing the recent reforms?

It consists of information obtained from annual reports. Balance-sheet and

other financial statements are also collected. Files and same other important

documents maintained by the organization. In addition to that, collecting data from

referred text books. Collection of required data from annual records of H.B.L

battery Ltd had become necessary. Reference from textbooks and journals relating

to financial management are also included.

HBL Power Systems Limited is a public limited company. It was

established in 1977 as a small scale industry but today it has grown into a well-

diversified batteries technologies group. It has its units on the outskirts of

Hyderabad. HBL power systems Ltd. Is the pioneer in the design, development and

manufactures of specialized batteries and DC systems in India? With over 3

decades of experience in this field, the company offers a wide range of batteries and

associated electronics providing its customers, custom built solutions to meet

critical requirements.

HBL Power Systems Limited is engaged in the manufacturing of widest

range of specialized batteries, electronic equipment and other telecommunication,

railways, aviation, defence, power and other industrial sectors. Further, the

company is divided into various divisions depending upon the nature of the product,

each division is treated as a separate company, each having its own funds allocation

and manpower in various departments. The company manufactures various types of

batteries viz., VRLA, Tubular, Monobloc, Nickel-Cadmium, Lithium, Silver-Zinc,

and Thermal etc. The electronics segment comprises of various divisions

manufacturing electronic equipment like rectifiers, IPS etc A part from batteries and

electronics, the company also manufacturing bulletproof jackets, windmills etc. the

company has recently taken up railway signaling works contracts. The company has

3 divisions catering to the ancillary needs of the company, material components

divisions at Shamirpet, Nandigaon, Bhoothpure, Kandivalsa and VSEZ (Duvvada)

units indulge in various ancillary activities like sheet metal fabrication making of

racks, cutting, bending, plating etc. plastic molding divisions at Nandigaon

manufactures various types of boxes and cell and battery container. Annual

turnover of the company is around 800 crores.

Charges for Rechargeable batteries are also manufactured in bother TR and

SMR versions 24 Volts to 220 Volts. The company has sales of about US $ 50

millions and very substantial Design and Development capabilities. Over 25 years

of Experience in the Domestic Market and over 10 year in Exporting to many

countries including USA, South Korea, West Asia and South East Asia, has given

HBL an understanding of the customers special varied requirements. Several Major

customers have found the company’s products to be Reliable over the years and

have placed repeat orders. The company has adequate marketing and service

personnel who can support the customers at short notice. The Triumph-HP series is

a Premium Design Valve Regulated lead acid battery based and features offered by

world class companies. The battery works on the gas recombination principle and

has been designed to meet the requirements of a wide range of applications. This

product has been manufactured under the controls. Established by a for

Quality/Environmental Management system that meets the requirements of ISO

9001-2000: ISO 14001:1996, which has been independently certified by BVQI.

A wide range of individual battery types, in the major technologies of nickel

Cadmium, Lead Acid, and Silver Zinc along with associated Electronic

Equipment. Conveniently located in Hyderabad, backed-up with processing and

testing facilities to provide full product support and back-ups. An in-depth

technical resource based on years of experience to help you select batteries

according to the requirements. “Off the shelf” products in many popular sizes to

meet quick delivery requirements. Products manufactured to international

standards and certified by independent testing agencies.

The solar powered shelters carry batteries that expose them to higher

temperatures. Net results are the need for a heavy duty, robust, deep cycling

battery that is also less sensitive to high temperature. To meet such rigors to

temperatures and varying pattern of usage, HBL introduces “Tubular Gel VRLA

Battery” with unbeatable combination of Tubular plate and gelled electrolyte.

These batteries are primarily used for meeting the starting and servicing electric

power requirements for MIG series of aircrafts. The batteries are mounted on an

electric driven trolley unit. These batteries use High Rate Fiber Nickel Electrodes

there by giving an excellent Electrical performance. The benefits of these batteries

are low internal resistance, High rates of discharge and improved recharge

capability coupled with long cycle life.

HBL’s sintered Plastic Bonded Batteries are best suited for applications

requiring high reliability coupled with low maintenance and high performance.

The sintered plastic bonded batteries are manufactured using sintered positive

plates and plastic bonded negative plates. These are specially designed for High

Power Density and Reduced Water Consumption. These batteries use

polypropylene cell containers with thermally welded lids for high impact

resistance. The dictionary meaning of inventory is stock of goods or a list of

goods. The inventory can be defined as the sum of the value of raw materials,

fuels and lubricants, spare parts, maintenance consumables; semi processed

materials and finished goods stock at any given point of time. The term inventory

refers to the study stockpile of the products a firm is offering for sale and the

components that make up the products a firm is offering for sale and the

components that make up the product. The various forms in which inventories

exists in a manufacturing are:

The job of the financial management is to reconcile the conflicting view

points for various financial areas regarding the appropriate inventory levels in

order to fulfill the overall objective of maximizing the owner’s wealth. Thus,

inventory management like the management of other current assets should be

related to the overall objective of the firm. Inventories appear in various forms in

manufacturing company raw materials, work in progress, and finished goods.

Since the inventories constitute a large part of current assets, substantial amounts

of money are required to maintain them. In industry like sugar, the raw material

cost is high as 68.75% of total cost. Similarly, about the 90% of working capital is

invested in inventories. Hence, it is necessary for every management to give

proper attention to inventory management. An efficient system of the inventory

management will determine what to purchase, how munch to purchase, from

where to purchase and when to store etc.

Minimum stock level is the lower limit below which the stock of any stock

item should not normally be allowed to fall. Their level is also called safety stock

or buffer stock. The main object of establishing this level is to protect against

stock out of a particular stock item and in fixation of which average rate of

consumption and time required for replenishment i.e., lead time are given prime

consideration.

Minimum stock level = Reorder level- (average or normal usage* average

lead time).

The VED analysis is used generally to spare parts. The requirements and

urgency or spare parts is different from that material. The VED system is widely

used classification technique to identify critically of various items for inventory

control. This technique is based on the assumption that a firm need not exercise

same degree of control on all items of inventory. On the basis of critically, the

various items of inventory are categorized into 3 categories.

Safety stock is a buffer to meet some unanticipated increase in usage. The

usage of inventory cannot be perfectly forecasted. If fluctuated over a period of

time. The demand for materials may fluctuate and delivery of inventory may also

be delayed and in such a situation the firm can face a problem of stock out. The

stock out can prove costly by affecting the smooth working of the concern. In

order to protect against the stock out arising out of usage fluctuations, firms

usually maintain some margin of safety or safety stocks. The basic problem is to

determine the level of quantity of safety stocks. Two costs are involved in the

determination of this stock i.e., opportunity cost of stock outs and the carrying

costs.

An inventory ratio indicates the efficiency of the firm in producing and

selling its products. These ratios are calculated to indicate whether inventories hae

been uses efficiently or not. The purpose is to ensure the blocking of only

required of minimum funds in inventory. It is calculated by dividing the cost of

goods sold by the average inventory.

The inventories of a manufacturing concern may consist of raw material;

work in process, finished goods, spares, consumable stocks etc. All these

categories may be classified according to their nature such as construction

materials, consumable stocks, spares, lubricants etc. After classification, the

materials are given code members. The coding may be done alphabetically or

numerically. The later method is generally used for coding. The class of materials

is assigned to the category of materials in that class. The third distinction is

needed for the quality of goods and decimals are used to note this factor.

The just-in-time inventory control system, originally developed by Taichi

Okna of Japan, simply implies that the firm should maintain level of inventory

and rely of suppliers to provide parts and components “just-in-time” to meet its

assembly requirements. The major emphasis of just in time philosophy is

inventory management. It begins by identifying the problems and forcing firms to

tackle them. The main tactic used to reveal such problems in inventory reduction.

The just-in-time inventory system, while conceptually very appealing is difficult

to implement because it involves a significant change in the total production and

management system. It requires interalias:

A strong and dependable relationship with suppliers who are

geographically not very remote who are geographically not very remote from the

manufacturing facility. An easy physical access in the form of enough doors and

conveniently located docks and storage areas to dove tail incoming suppliers to

the needs of assembly line. It attempts to minimize inventories through small

incremental reduction rather than prescribe particular techniques or

methodologies.

5.1 Findings

The following are the finding of the present study:

1. The turnover of inventory may be improved in order to reduce inventory

maintenance expenditure and working capital investments over inventory

levels.

2. Adequate supervision an administration is to be exercised for better

inventory control.

3. Material coding system and items verification procedure may be improved

in stores department.

4. There were fluctuations in the grass profit. So necessary actions must take

to reduce express in order to get profits.

5. HBL power systems may adopt latest techniques like just in time (JIT)

concept for supply of materials in the time to need, supply cum application

contracts, where materials are to be produced by the contractor for

fixation, etc., for producing the materials. This saves a lot of investment in

the inventory of stores and spares and avoids further stock out situations.

6. The appropriate action plan for disposal of inventory in HBL power

systems may be taken for making the provisions in the books of accounts

on a systematic manner for writing-off slow and non moving inventories

in the future.

7. HBL power systems is required to fix minimum, maximum, reordering

level in a scientific manner to control the further growth of slow moving

or non moving inventories.

8. In the year 2007-2008 the gross profit is 78.94 and the cost of goods sold

is 43.99 and in the year 2008-2009 gross profit ratio is increased to 91.9%

which causes a slight changes in the percentage of cost of goods sold is

25%.

9. In the year 2008-2009 net sales increased to 25.81 and gross profit also

increased to 91.9% which causes to a change in cost of goods sold is noted

as 25.66%

10. Work in progress turnover ratio is satisfactory. The cost of goods sold is

increasing year by year accordingly average of work in progress also

increase which leads to the automatic increase in the work in progress

ratio.

11. Finished goods turnover ratio is satisfactory. As the cost of goods sold

increased year by year accordingly changes occur in the average finished

goods leads to the increase in the finished goods turnover ratio.

12. As the cost of goods sold has increased from the year 2004-05 to 2008-09,

there is an increase in inventory turnover ratio.

13. The inventory holding system when compared to the previous years is

satisfactory.

BIBLOGRAPHY

Books:

Financial Management :

Financial Management :

Production & Operation Management :

Production & Operation Management :

HBL POWER SYSTEMS LTD

JOURNALS

ANNUAL REPORTS

REPORTS FROM INVENTORY & STORES DEPARTMENT OF HBL power

SYSTEM Ltd.

WEB SITE : www.hbl.com