INTRODUCTON

Every enterprise needs inventory for smooth running of its activities; it

serves as a link between the recognition of a need and its fulfillment the greater
the time lag. The higher the requirement of inventory, the unforeseen
fluctuations in demand and supply of goods also necessitate the need for
inventory. It also serves as a cushion for future prices fluctuations. The simple
meaning of inventory is "stock of goods' or "list of goods". The work inventory
is understood differently by various authors. In accounting language it means
stock of finished goods only, for a manufacturing concern it includes rawmaterials, work-in-progress, finished goods etc.

Inventories constitute the most significant part of current assets. Many

companies maintain 60% of current assets as inventories. Because of the large
size of the inventories maintained by the firms, a considerable amount of funds
is required to be committed to them. It is therefore absolutely imperative to
manage inventories efficiently in order to avoid unnecessary investment. A firm
neglecting the management of inventories will be failed in its long run
profitability and may fail ultimately. It is possible for a company to reduce its
levels of inventories to a considerable degree within the range of 10 to 20%
without any adverse effect by using simple inventory planning and control
techniques. The reduction in excess inventories has a favorable impact on the
profitability of the firm.

Inventory control keeps tracks of inventories. It is observed that too

much too little or badly balanced inventories are all to be avoided because
they cost too much and may counts. Too much leads to undue carrying charges
in the form of taxes, insurance, storage, obsolescence and deprecation and
undue proportion of

Total working capital is invested in them. Too little impels of too

frequent ordering, loss of quantity discounts and higher transportation charges.
It may be Too low in view of likely shortages in future or increased in prices
or shortfall in output. Again due to dynamic and unpredictable environmental
situation too little at one time can be very quickly become too much in a
subsequent period.
Inventories constitute the most significant part of current assets of a large
majority of companies in India. On an average inventories are approximately
60% of current assets in public limited companies in India. Besides of the large
size of inventories maintained by firms, a considerable amount of funds is
required to be committed to them. So therefore, it is necessary to manage
inventories efficiently, effectively in order to avoid unnecessary investment.
An under neglecting the management of inventories will be jeopardizing its
long-run profitability and may fail ultimately. It is possible for a company to
reduce its levels of inventories to a considerable degree by using simple
inventory palling. And control techniques. The reduction in excessive
inventories carries a favorable on a companys profitability.
FINANCIAL MANAGEMENT
Finance in the modern business world is regarded as life and blood of a
business enterprise. Finance function has become so important that it has given
birth to financial management as a separate subject. So this subject is acquiring
a universal applicability.
Financial management is that managerial activity which is concerned with the
planning and controlling of the firms financial resources. As a separates
activity or discipline is of recent origin it was a branch of economics till 1890.
Still today it has no unique body of knowledge of its own, and it draws heavily
on economics for its theoretical concepts.

Financial management is a service activity, which is associated with providing

quantitative information of financial nature and that, which may be needed for
making economic decision regarding the choice among alternative course of
action.
Thus, financial management is a process of identification, accumulation,
analysis preparation, interpretation and communication of financial information
of plan, evaluate and control a business firm.
Financial management is that specialized function of general management
which is related to the procurement of finance and its effective utilization for
the achievement of the goals of the organization.
The modern thinking in financial management accords a far greater importance
to management in decision making and formulation of policy. Financial
management occupies key position in top management and plays a dynamic
role in solving complex management problems. They are now responsible for
shaping the fortunes of the enterprise and are involved in allocation of capital.
The subjects of financial management are of immense
interest to both academicians and practicing managers. It is of great interest to
academicians because the subject is still certain areas where controversies exist
for which no unanimous solutions have been reaching as yet. Practicing
managers are interested in this subject because among the most crucial
decisions of the firms are those which relate to finance and un understandings
of theory of financial management provides them with conceptual and
analytical insights to make decisions skillfully.

DEFINITIONS
3

Financial Management is an area of financial division making, harmonizing

individual motives and enterprise goals.
Weston and Brigham

Financial Management is the application of the planning and control functions

to the finance function.
Howard and Upon

Financial Management is the operational activity of a business that is

responsible of a business that is responsible for obtaining and effectively
utilizing the funds necessary for efficient operations.
Joseph and Messie

SCOPE OF FINANCIAL MANAGEMENT

Traditional Approach
The traditional approach which was popular in the early part of this century,
limited role of financial management to rising and administering of funds
required by the enterprise to meet their financial needs. It broadly converted the
following three aspects.
Arrangements of funds from financial institutions.
Arrangement of funds through issue of financial instruments.
Looking after the legal and accounting relationship between a
corporation and its sources of funds.

Modern Approach
4

The modern approach views the term financial management in a broad sense
and provides a conceptual and analytical framework for financial decision
making. According to it, the finance function covers both acquisitions of funds
as well as their allocations. Thus, apart from the issues involved in acquiring
external funds, the main concern of financial management is the efficiency and
wise allocation of funds to various uses. Defined in a broad sense, it is viewed
as an integral part of overall management. The new approach is analytical way
of viewing the financial problems of a firm.
OBJECTIVES OF FINANCIAL MANAGEMENT
Financial management is an academic discipline which is concerned with
decision-making. This decision is concerned with the size and composition of
assets and the level and structure of financing. In order to make right decision,
it is necessary to have a clear understanding of the objectives. Such an
objective provides a framework for right kind of financial decision making.
The objectives are concerned with designing a method of operating the Internal
Investment and financing of a firm. There are two widely applied approaches,
viz.
(a) Profit maximization and
(b) Wealth maximization.
The term 'objective' is used in the sense of an object, a goal or decision
criterion. The three decisions - Investment decision, financing decision and
dividend policy decision are guided by the objective. Therefore, what irrelevant
- is not the over-all objective but an operationally useful criterion. It should
also be noted that the term objective provides a normative frameworks
Therefore, a firm should try to achieve and on policies which should be
followed so that certain goals are to be achieved. It should be noted that the
firms do not necessarily follow them.
Functions of Finance
5

 Investment decisions
Working capital Management
Financing decisions
Dividend policy decisions
Liquidity decisions
Investment decisions (or) capital budgeting involve the decision of allocation
of capital or commitment of funds to long term assets that would yield
benefits in the future. Tow importance aspects of the investment decision are:

The evaluation of the prospective profitability of new investments.

The measurement of a cut off rate against that the prospective return of

new investment could be compared.

Financial Decision is the important function to be performed by financial
manager. He must strive to obtain the best financing mix or the optimum
capital structure of the firm. The firms capital structure is considered to be
optimum when the market value of shares is maintained.
Dividend decision deals whether the firm should distribute all profits or retain
them or distribute a portion and retain the balance. The optimum dividend
policy is one that maximizes the market value of the firms shares.

Liquidity decision shows the current assets of the firms and its movement.
Investment in current assets affects the firms profitability, liquidity and risk. A
conflict exists between profitability and liquidity while managing current
assets. In order to ensure that neither insufficient nor unnecessary funds are
invested in current assets. The financial manager should develop sound
techniques.
The changing role of financial management
6

Many things in the contemporary world, financial management has undergone

significant changes over the years. The financial management had a very
limited role in business enterprise. Financial manager is responsible only for
maintaining financial records, preparing reports of the companys status,
performance and arranging funds recorded by the company so that it would
meet its obligations in time.
Financial manager as a matter of act was regarded as specializes officer in the
company concerned only with administering sources of funds, he was called
upon only when the company experience the problem of shortage of funds. The
management relates the financial managers to locate the suitable sources of
funds and additional funds. The emphasis on decision-making has continued in
recent years. First there was been increased belief the sources of capital
producer the required accurate measurements of the cost of capital. Secondly,
capital has been in short supplies the old interest in the ways of raising funds.
Thirdly, there has been a continued managerial activity that has led to revealed
interests in takeovers. Fourthly, accelerated progress in transportation and
communication has brought the countries of the world close together.

1.1NEED OF THE STUDY

The main need of the study is to analysis the financial information
of NSL TEXTILES (P) Ltd,
7

 To allow the relationship among various aspects in such a way that is allow drawing
conclusion about the performance, strengths and weakness of the company.
S

To maintain sufficient inventory in the company for the smooth production and sales
operations

OBJECTIVES OF THE STUDY

To present the conceptual framework relating to inventory management.

 To conduct a study on existing practices of inventory management in the

company.

To determine the inventory status of the company and analyze them.

To study the inventory valuation methods of company.

To study and analyze the stock levels maintained by the company.

1.3 SCOPE OF THE STUDY

The study on inventory relates to NSL TEXTILES (Ltd).
As it has a wider scope in terms of i.e. a period of fast 5 years between 2009 to 2014.
9

Defining the policies of inventory control programs to stock levels.

Determining the most appropriate organization structure.

In minimizing the handling and storage cost.

1.4 METHODOLOGY OF THE STUDY

Methodology is specific and systematic search for pertinent
information on specific topic. The reliability of management decision depends upon

10

the quality of data. Basically we have two types of data these are primary and
secondary data.
Collection of primary data
Collection of secondary data
Collection of primary data:Primary data can be collected either through serves. That which is collected a fresh
and for the first time and this happens to be original in character is called primary
data. Can be collected in the following

By observer

Through personal interview.

Collection of secondary data:Secondary data means that is already available which was collected and analyzed by
someone else and which have already been passed through the statistical process.
Secondary data may either to publish data or unpublished.

1.5LIMITATIONS OF THE STUDY

In present study the analysis is mainly based on secondary data given in annual
audited Balance Sheet and profit & loose account in company.
11

 The study does not touch all the units of company.

Limited span of time is major limits of this project.
The present study cannot be used for inter firm comparisons.
The result does not reflect day to day transaction.

INDUSTRY PROFIE
2.1. INTRODUCTION
The Indian textile industry has a significant presence in the economy as well as in
the international textile economy. Its contribution to the Indian economy is manifested
12

in terms of its contribution to the industrial production, employment generation and

foreign exchange earnings. It contributes 20 percent of industrial production, 9
percent of excise collections, and 18 percent of employment in the industrial sector,
nearly 20 percent to the countries total export earnings and 4 percent to the Gross
Domestic Product. In human history, past and present can never ignore the importance
of textile in a civilization decisively affecting its destinies, effectively changing its
social Scenario.
A brief but thoroughly researched feature on Indian textile culture.
TEXTILE HISTORY
The term 'Textile' is a Latin word originating from the word 'texere' which
means 'to weave' Textile refers to a flexible material comprising of a network of
natural or artificial fibers, known as yam. Textiles are formed by weaving, knitting,
crocheting, knotting and pressing fibers together. Textile Museum is that specialized
category of museum which primarily preserves different types of textile and textile
products. The history of textile is almost as old as that of human civilization and as
time moves on the history of textile has further enriched itself. In the 6th and 7th
century Be, the oldest recorded indication of using fiber comes with the invention of
flax and wool fabric at the excavation of Swiss lake inhabitants.
In India the culture of silk was introduced in 400AD, while spinning of cotton traces
back to 3000BC. In China, the discovery and consequent development of sericulture
and spin silk methods got initiated at 2640 BC while in Egypt the art of spinning linen
and weaving developed in 3400 Scathe discovery of machines and their widespread
application in processing natural fibers was a direct outcome of the industrial
revolution of the 18thand 19th centuries.

2.2. HISTORY OF TEXTILE IN INDIA

Origin of Textile
Indian textile enjoys a rich heritage and the origin of textiles in India traces
back to the Indus valley Civilization where people used homespun cotton for weaving
their clothes. Rig-Veda, the earliest of the Veda contains the literary information about
13

textiles and it refers to weaving. Ramayana and Mahabharata, the eminent Indian
epics depict the existence of wide variety of fabrics in ancient India. These epics refer
both to rich and stylized garment worn by the aristocrats and ordinary simple clothes
worn by the common people. The contemporary Indian textile not only reflects the
splendid past but also cater to the requirements of the modem times.
INDIAN TEXTILE INDUSTRY
Textile Industry in India is the second largest employment generator after
agriculture. It holds significant status in India as it provides one of the most
fundamental necessities of the people. Textile industry was one of the earliest
industries to come into existence in India and it accounts for more than 30% of the
total exports. In fact Indian textile industry is the second largest in 'the world, second
only to China. Textile Industry is unique in the terms that it is an independent
industry, from the basic requirement of raw materials to the final products, with huge
value-addition at every stage of processing.
Textile industry in India has vast potential for creation of employment
opportunities in the agricultural, industrial, organized and decentralized sectors &
rural and urban areas, particularly for women and the disadvantaged. Indian textile
industry is constituted of the following segments: Readymade Garments, Cotton
Textiles including Handlooms, Man-made Textiles, Silk Textile, Woolen Textiles,
Handicrafts, Coir, and Jute. Till the year 1985, development of textile sector in India
took place in terms of general policies. In 1985, for the first time the importance of
textile sector was recognized and a separate policy statement was announced with
regard to development of textile sector. In the year 2000, National Textile Policy was
announced.
Its main objective was: to provide cloth of acceptable quality at reasonable prices for
the vast majority of the population of the country, to increasingly contribute to the
provision of sustainable employment and the economic growth of the nation.
India Textile Industry is one of the leading textile industries in the world.
Though was predominantly unorganized industry even a few years back, but the
scenario started changing after the economic liberalization of Indian economy in1991.

14

The opening up of economy gave the much-needed thrust to the Indian textile
industry, which has now successfully become one of the largest in the world.
India textile industry largely depends upon the textile manufacturing and
export. It also plays a major role in the economy of the country. India earns about27%
of its total foreign exchange through textile exports. Further, the textile industry of
India also contributes nearly 14% of the total industrial production of the country.
It also contributes around 3% to the GDP of the country. India textile industry is also
the largest in the country in terms of employment generation. It not only generates
jobs in its own industry, but also opens up scopes for the other ancillary sectors. India
textile industry currently generates employment to more than 35 million people. It is
also estimated that, the industry will generate 12 million new jobs by the year 2010.
VARIOUS CATEGORIES
Indian textile industry can be divided into several segments, some of which can be
listed as below:
Silk Textiles
Woolen Textiles
Readymade Garments Hand-crafted Textiles
Jute and Coir

THE INDUSTRY:
India textile industry is one of the leading in the world. Currently it is
estimated to be around US$ 52 billion and is also projected to be around US$ 115
billion by the year 2013. The current domestic market of textile in India is expected to
be increased to US$ 60 billion by 2013 from the current US$ 34.6 billion. The textile

15

export of the country was around US$ 19.14 billion in 2008-09, which saw a stiff Rise
to reach US$ 22.13 in 2008-09.
The share of exports is also expected to crease from 4% to 7% within 2013.
Though during the year 2008-09, the industry had to face adverse agroc1imaticconditions, it succeeded in producing 290 laky bales of cotton comparing to
315lakh bales last year, yet managed to retain its position as world's second highest
cotton producer.

2.3. STRENGTHS
Vast textile production capacity
Large pool of skilled and cheap work force
Entrepreneurial skills
Efficient multi-fiber raw material manufacturing capacity
Large domestic market
Enormous export potential
Very low import content
Flexible textile manufacturing systems

2.4. WEAKNESSES
Increased global competition in the post 2005 trade regime under WTO
Imports of cheap textiles from other Asian neighbors
16

 Use of outdated manufacturing technology

Poor supply chain management
Huge unorganized and decentralized sector
High production cost with respect to other Asian competitors

Cotton Exports from India

Year

Quantity(in laky bales of 170

kegs)
17

Value(in
Rs./Cores)

1999-00

16.82

1655.00

2000-01

3.50

313.62

2001-02

1.01

86.72

2002-03

0.65

52.15

2003-04

0.60

51.43

2004-05

0.50

44.40

2005-06

0.83

66.31

2006-07

12.11

1089.15

2007-08

9.14

657.34

2008-09

47.00

3951.35

2009-10

58.00

5267.08

2010-11

85.00

8365.98

2011-12

50.00

NA

2012-13

50.1

NA

18

Year

Quantity(in laky bales of 170 kegs)

Value(in
Rs./Corers)

1999-00

0.30

56.42

2000-01

4.13

497.93

2001-02

7.87

772.64

2002-03

22.01

1967.92

2003-04

22.13

2001-02

2004-05

25.26

2150.01

2005-06

17.67

1789.92

2006-07

7.21

880.10

2007-08

12.17

1338.04

2008-09

5.00

695.77

2009-10

5.53

752.29

2010-11

6.50

986.33

2011-12

7.00

N.A.

2012-13

7.10

N.A

CURRENT FACTS ON INDIA TEXTILE INDUSTRY

19

 India retained its position as world's second highest cotton producer.

Acreage under cotton reduced about 1 % during 2009-10
The productivity of cotton which was growing up over the years has decreased in
2009-10.
Substantial increase of Minimum Support Prices (MSPs).
Cotton exports couldn't pick up owing to disparity III domestic and International
cotton prices.
[

Imports of cotton were limited to shortage in supply Extra Long staple Cotton.

INDIAN MAJOR COMPETITIORS IN THE WORLD

To understand Indias position among other textile producing the industry
contributes 9% of GDP and 35% of foreign exchange earnings, Indias share in global
exports is only 3% compared to Chinas 13.75% percent. In addition to China, other
developing countries are emerging as serious competitive threats to India. Looking at
export shares, Korea (6%) and Taiwan (5.5%) are ahead of India, while Turkey (2.9%)
has already caught up and others like Thailand (2.3%) and Indonesia (2%) are not
much further behind.
The reason for this development is the fact that India lags behind these countries in
investment levels, technology, quality and logistics. If India were competitive in some
key segments it could serve as a basis for building a modem industry, but there is no
evidence of such signs, except to some extent in the spinning industry.
2.5. PROBLEM FACED BY THE TEXTILE INDUSTRY IN INDIA
The cotton textile industry is reeling under manifold problems. The major problems
share the following:

SICKNESS
20

Sickness is widespread in the cotton textile industry. After the engineering

industry, the cotton textile industry has the highest incidence of sickness. As many as
125 sick units have been taken over by the Central Government. Sickness is Cause by
various reasons like the problems mentioned below.
OBSOLESCENCE
The plant and machinery and technology employed by a number of units are
obsolete. The need today is to make the industry technologically up-to-date rather
than expand capacity as such. This need was foreseen quite some time back and
schemes for modernization of textile industry had been introduced. The soft loan
scheme was introduced a few years back and some units were able to take advantage
of the scheme and modernize their equipment. However, the problem has not been
fully tackled and it is of utmost importance that the whole industry is technologically
updated. Not many companies would be able to found resources internally and will
have to depend on financial institutions and other sources.
GOVERNMENT REGULATIONS
Government regulations like the obligation to produced controlled cloth are against
the interest of the industry. During the last two decades the excessive regulations
exercised by the government on the mill sector has promoted inefficiency in both
production and management.
LOW YIELD AND FLUCTUATION OF COTTON OUTPUT
The cotton yield per hectare of land is very low in India. This results in high cost and
price. Further, being largely dependent on the climatic factors, the total raw cotton
production is subject to wide fluctuation causing serious problems for the mills In
respect of the supply of this vital raw material.

[[[

COMPETION FROM MAN-MADE FIBRES

21

One of the serious challenges facing the cotton textile industry is the
competition from the man-made fibers and synthetics. These textures are gradually
replacing cotton textiles. This substitution has in fact been supported by a number of
people on the ground that it is not possible to increase substantially the raw cotton
production without affecting other crops particularly food crops.
COMPETITION FROM OTHER COUNTRIES
In the international market, India has been facing severe competition from
other countries like Taiwan, South Korea, China and Japan The high cost of
production of the Indian industry is serious adverse factor.
LABOUR PROBLEMS
The cotton textile industry is frequently plagued by labor problems. The very long
strike of the textile workers of Bombay caused losses amounting to millions of rupees
not only to the workers and industry but also to the nation in terms of excise and other
taxes and exports.
ACCUMULATION OF STOCK
At times the industry faces the problems of very low off take of stocks resulting in
accumulation of huge stocks. The situation leads to price cuts and the like leading to
loss or low profits.
MISCELLANEOUS
The industry faces a number of other problems like power cuts,
infrastructural problems, lack of finance, exorbitant rise in raw material prices
and production costs etc.

2.6. STRENTHS OF INDIAN TEXTILE INDUSTRY

22

 India has rich resources of raw materials of textile industry. It is one of the largest
producers of cotton in the world and is also rich in resources of fibers like polyester,
silk, viscose etc.
India is rich in highway trained manpower. The country has a huge advantage due to
lower wage rates. Because of low laborites the manufacturing cost in textile
automatically comes down to very reasonable rates.
India is highway competitive in spinning sector and has presence in almost all
processes of the value chain.
Indian government industry is very diverse in size, manufacturing facility, type of
apparel produced, quantity and quality of output, cost, requirement for fabric etc. It
comprises suppliers of ready-made garments for both, domestic or export markets.

2.7. WEAK NESSES OF INDIAN TEXTILE INDUSTRY

Indian textile industry is highway fragmented in industry structure, and is led by small
scale companies. The reservation of production for very small companies that was
imposed with the intention to help out small scale companies across the country, led
substantial fragmentation that distorted the competitiveness of industry. Smaller
companies do not have the fiscal resources to enhance technology or invest in the
high-end engineering of processes. Hence they lose in productivity.
Indian labor laws are relatively unfavorable to the trades and there is an urgent need
for labor reforms in India.
India seriously lacks in trade pact memberships, which leads to restricted access to the
other major markets.
OUTLOOK FOR INDIAN TEXTILE INDUSTRY
The outlook for textile industry in India is very optimistic. It is expected that Indian
textile industry would continue to grow at an impressive rate. Textile industry is being
modernized by an exclusive scheme, which has set aside $5bn for investment in
improvisation of machinery.
ROLE OF TEXTILE INDUSTRY IN INDIA GDP
23

Role of Textile Industry in Indian GDP has been quite beneficial in the
economic life of the country. The worldwide trade of textiles and clothing has boosted
up the GDP of India to a great extent as this sector has brought in a huge amount of
revenue in the country. In the past one year, there has been a massive upsurge in the
textile industry of India. The industry size has expanded from USD 37 billion in
2004-05 to USD 49 billion in 2006-07.
During this era, the local market witnessed a growth of USD 7 billion, that is, from
USD 23 billion to USD 30 billion. The export market increased from USD 14 billion
to USD 19 billion in the same period. The textile industry is one of the leading sectors
in the Indian economy as it contributes nearly 14 percent to the total industrial
production. The textile industry in India is claimed to be the biggest revenue earners
in terms of foreign exchange among all other industrial sectors in India. This industry
provides direct employment to around 35 million people, which has made it one of the
most advantageous industrial sectors in the country.
Some of the important benefits offered by the Indian textile industry are as follows:
India covers 61 percent of the international textile market India covers 22 percent of
the global market.
India is known to be the third largest manufacturer of cotton across the globe.
India holds around 25 percent share in the cotton yam industry across the globe.
India contributes to around 12 percent of the world's production of cotton yam and
textiles.
The Role of Textile Industry in India GDP had been undergoing a moderate
increase till the year 2004 to 2005. But ever since, 2005-06, Indian textiles industry
has been witnessing a robust growth and reached almost USD 17 billion during the
same period from USD 14 billion in 2004-05. At present, Indian textile industry holds
3.5 to 4 percent share in the total textile production across the globe and 3 percent
share in the export production of clothing.

24

The growth in textile production is predicted to touch USD 19.62 billion during
2007-08. USA is known to be the largest purchaser of Indian textiles.
Following are the statistics calculated as per the contribution of the sectors in Textile
industry in India GDP:
India holds 22 percent share in the textile market in Europe and 43 percent share in
the apparel market of the country. USA holds 10 percent and 32.6 percent shares in
Indian textiles and apparel.
Few other global countries apart from USA and Europe, where India has a marked
presence include UAE, Saudi Arabia, and Canada.
Readymade garments accounts for 45 percent shareholding in the total textile exports
and 8.2 percent in export production of India.
Export production of carpets has witnessed a major growth of 42.23 percent, which
apparently stands at USD 654.32 million during 2004-05 to USD 930.69 million in
the year 2008-09. India holds 36 percent share in the global textile market as has been
estimated during April-October 2008.
The technical textiles market in India is assumed to touch USD 10.63 billion by 200809 from USD 5.09 billion during 2006-07, which is approximately double. It is also
assumed to touch USD 19.76 billion by the year 2014-15.
By 2010, India is expected to double its share in the international

technical

textile market
The entire sector of technical textiles is

estimated to

reach

USD 29

billion

during 2007-2012.
The Role of Textile Industry in India GDP also includes a hike in the investment flow
both in the domestic market and the export production of textiles. The investment
range in the Indian textile industry has increased from USD 2.94 billion to USD 7.85
billion within three years, from 2005 to 2008. It has been assumed that by the year
2013, the investment ratio in textile industry is most likely to touch USD 38.14
billion.

INDIAN TEXTILES INDUSTRY-AT A GLANCE

25

The Indian textiles industry is a highly established sector. The advantages of

the Indian Textile industry are fully equipped manufacturing units, vast multi-fiber
raw material base, advanced designing capabilities, highly skilled and effective
human resources.
In the future, India has good scope of becoming the global textile and apparel
sourcing center. The Indian textiles sourcing market is expected to grow at the rate of
12% per year. The market value is US$ 22-25 billion which is expected to grow to
US$ 35-37 billion by the year 2013
FDI INFLOWS TO TEXTILES-FACTS
The textiles industry in India is experiencing an increase in the collaboration between
national and international companies International apparel companies like Hugo Boss,
Liz Claiborne, Diesel, Ahlstorm,Kanz,BairdMcNutt, etc have already started their
operations .
India and these companies are trying to increase it to a considerable level National
and the international companies that are involved in collaborations include Rajasthan
Spinning & Weaving Mills, Armani, Raymond, Levi Strauss, De Witte Lietaer,
Barbara, Jockey, Yardman Group, Gokaldas, Vincenzo Zucchini, Arvind brands,
Benetton, Esprit, Matzoth, We spun, etc.
FDI INFLOWS TO TEXTILES-GOVERNMENT INITIATIVES
Foreign Direct Investments (FDI) up to 100% is allowed in this sector through the
automatic route by the Reserve Bank of India.
In order to provide quality cotton raw materials at reasonable price to the
manufacturers, the Technology Mission on Cotton was launched.
In order to facilitate the technological advancement in the textile industry, the
Technology Up gradation Fund Scheme (TUFS) was set up.
The Scheme for Integrated Textile Park (SITP) is set up to provide world standard
infrastructure facilities the reservations for the small scaled units in textiles were
abolished.
GLOBALIZATION OF INDIAN TEXTILE INDUSTRY
26

The initiation and development of globalization and Indian textile industry took place
simultaneously in the 1990s. The Indian textile industry, until the economic
liberalization of Indian economy was predominantly an unorganized industry. The
economic liberalization of Indian economy in the early 1990s led to stupendous
growth of this Indian industry. The Indian textile industry is one of the largest textile
industries in the world and India earns around 27% of the foreign exchange from
exports of textiles and its related products.
Further, globalization of India textile Industry has
seen a paradigm increase in the 'total industrial production' factor of this Industry,
which presently stands at 14%. Furthermore, the contribution of the Indian textile
Industry towards the gross domestic product (GDP) of India is around 3% and the
numbers are steadily increasing. The process of globalization and Indian textile
industry development was the effect of rapid acceptance of 'open market' policy by
the developing countries, much in the lines of the developed countries of the world.
The initiation and its subsequent development of globalization and Indian textile
industry respectively, were effected by the Ministry of Textiles under the Government
of India. The aggressive policy that was undertaken for the rapid development of
globalization and Indian textile industry were really praiseworthy.
The most significant step amongst them was introduction of "The National Textile
Policy 2000". This policy envisaged to address the following issues Increased global competition in the post 2005 trade regime under WTO
High production cost with respect to other Asian competitors
Use of outdated manufacturing technology
Poor supply chain management and huge transit cost
Huge unorganized and decentralized sector
Further, this policy also aims at increasing the foreign exchange earnings to the tune
of US $ 50 billion by the end of the year 2010. It includes rational projections for the
overall development and promotion of all the sectors involved directly or indirectly
with the Indian textile industry.
[

27

Furthermore, this policy also envisages the inclusion of the huge unorganized and
decentralized Indian textile sector under the organized textile industry. This is because
the unorganized textile manufacturing sector in India accounts for 76% of the total
textile production.
The globalization of the Indian textile sector was the cumulative effect of the
following factors
Huge textile production capacity
Efficient multi-fiber raw material manufacturing capacity
Large pool of skilled and cheap work force
Entrepreneurial skills
Huge export potential
Large domestic market
Very low import content
Flexible textile manufacturing systems
The Indian textile industry consist of the following sectors Man-made Fiber
Filament Yam Industry
Cotton industry
Jute Industry
Silk and Silk Textile Industry
Wool & Woolen Industry
Power loom Sector
An approximate number of textile manufacturing companies operating in India are
given below
Badges, emblems ribbons and allied products - 175
Bed covers, curtains, cushions and other draperies 2471
Carpets and rugs - 270
Miscellaneous garments, textile and leather accessories 1658
Yarns and threads - 1201
Wool, woolen garments, blankets and accessories 46
28

The overall growth of the Indian textile industry can be attributed to the
globalization. Today, the Indian textile industry employs around 35 million.
Personnel directly and it accounts for 21 % of the total employment generated in the
economy. Globalization of the Indian textile industry has also facilitated introduction
of modem and efficient manufacturing machineries and techniques in the Indian
textile sector. Thus, much of India's economic growth is largely dependent on textile
manufacturing and exports.
2.8. TEXTILE EXPORTS
The Indian textile industry contributes about 14 per cent to industrial production, 4
per cent to the country's gross domestic product (GDP) and 17 per cent to the
country's export earnings, according to the Annual Report 2009-10 of the Ministry of
Textiles.

It provides direct employment to over 35 million people and is the

second largest provider of employment after agriculture.

According to the Ministry of Textiles, the cumulative production of cloth during
April'09-March'10 has increased by 8.3 per cent as compared to the corresponding
period of the previous year.

Moreover, total textile exports have increased to US$

18.6 billion during April'09-January' 10, from US$ 17.7 billion during the
corresponding period of the previous year, registering an increase of 4.95 per cent in
rupee terms.
Further, the share of textile exports in total exports has increased to 12.36 per
cent during April'09-January' 10, according to the Ministry of Textiles. As per the
Index of Industrial Production (lap) data released by the Central Statistical
Organization (CSO), cotton textiles has registered a growth of 5.5 per cent during
April-March 2009-10, while wool, silk and man-made fiber textiles have registered a
growth of 8.2 per cent while textile products including wearing apparel have
registered a growth of 8.5 per cent.

TECHNICAL TEXTILE SEGMENT

29

According to the Ministry of Textiles, technical textiles are an important part of the
textile industry. The Working Group for the Eleventh Five Year Plan has estimated the
market size of technical textiles to increase from US$ 5.29 billion in 2007-08 to US$
10.6 billion in 2011-12, without any regulatory framework and to US$ 15.16 billion
with regulatory framework.
GOVERNMENT INITIATIVE
According to the Ministry of Textiles, investment under the Technology Us Gradation
Fund Schemes (TUFS) has been increasing steadily. During the year 2009-10, 1896
Applications have been sanctioned at a project cost of US$ 5.23 billion. The
cumulative progress as on December 31, 2009, includes 27,477 applications
sanctioned, which has
Triggered investment of US$ 45.5 billion.
The Scheme for Integrated Textile Park (SITP) was approved in July
2005 to facilitate setting up of textiles parks with world class infrastructure facilities.
40 textiles park projects have been sanctioned under the SITP. According to the
Minister of State for Textiles, Panabaak Lakshmi, under the SITP, a cumulative
expenditure of US$ 204.3 million has been incurred against allocation of US$ 220.7
million in the last three years.
In the Union Budget 2010-11 presented in February 2011-12, the Finance Minister
made the following announcements to benefit the textile industry:
INVESTMENTS
According to the Minister for Textiles, Mr. DayanidhiMaran, around US$ 5.35 billion
of foreign investment is expected to be made in India in the textile sector over the
next five years. The textiles industry has attracted foreign direct investment (FDI)
worth US$ 817.26 million between April 2 000 and March 2010, according to data
released by the Department of Industrial Policy and Promotion.
S Kumars Nationwide has formed a joint venture (N) with Donna Karan International
to design, produce and distribute the entire range of DKNY menswear apparel across
the world except Japan for 10 years.
30

 The new venture will invest US$ 25 million for expansion of Donna Karan's
menswear brand and expects to record sales of about US$ 140 million in the next
three years.
The Andhra Pradesh government has allocated over 1000 acres of land for the Brandy
India Apparel City (BIAC) in the state's special economic zone (SEZ), which was
inaugurated in May 2010. The apparel city is expected to attract an investment of US$
1.2 billion (around Rs 5,400 corer).
Private equity firms TPG and Bain Capital have picked up stakes in children apparel
retailer Lilliput Kids wear for US$ 27 million and US$ 60.7 million respectively.
Italian sportswear maker Lotto is planning to invest US$ 10 million over the next five
years to capture 7 per cent of India's branded sports apparel and equipment market.
The brand, which started its stand-alone retail chain in India in 2008, has 31 standalone stores across the country and plans to open 200 more such stores by 2015.

World's leading lingerie brand, Germany-based, Triumph International, plans to

invest over US$ 217 million in India to open 12 more flagship outlets and 30
additional EPS (Exclusive Partner Stores) during 2010.
THE ROAD AHEAD
The Synthetic and Rayon Textile Export Promotion Council (SRTEPC) has
set a target to more than double the export of man-made textile from the country.
Presently, the global man-made fibro (MMF) trade accounts for 60 per cent of the
total trade in textiles. SR TEPC plans to increase exports to US$ 6.2 billion by
capturing four per cent market share by 2012-13.
NATIONAL TEXTILE POLICY 2000
Faced with new challenges and opportunities in a changing global trade
environment, the GOI unveiled its National Textile Policy 2000 (NTP 2000) on
November 2, 2000. The NTP 2000 aims to improve the competitiveness of the Indian
textile industry in order to attain $50 billion per year in textile and apparel exports by
2010.86 The NTP 2000 opens the country's apparel sector to large firms and allows up
to 100 percent FDI in the sector without any export obligation.
THE MINISTRY OF TEXTILES
31

The Ministry of Textiles is responsible for policy formulation, planning, and

development export promotion and trade regulation in respect of the textile sector.
This included all natural and manmade cellulosic fibers that go into the making of
textiles, clothing and handicrafts.
2.9. TEXTILE INDUSTRY ANDHRA PRADESH
Andhra Pradesh has also emerged as a large textile processing center with over 100
units with a processing capacity of 13metres of cloth per annum.
Andhra Pradesh is a frontline State in gearing up for Post-MFA era effective
from jan2005 .chances are abound for creation of employment avenues a Dearing
foreign exchange through textile industry. New vistas are laid to wear serializing this
goal and strategy evolution. Moves are afoot to implement apparel Export Park across
the state as envisaged in the strategy.

32

ANDHRA PRADESH GOVT. TEXTILE POLICY

[

TEXTILE AND APPAREL PROMOTION POLICY 2005-10

Government of Andhra Pradesh recognizing the strengths and opportunities in the
Handloom, Textiles and Garment sector envisions emerging as a facilitator in the
production and export of textiles by 2010. The multi-fiber agreement, which envisage
equates of production to different countries, has expired on 31 st December, 2004. The
Handloom, Textile and Garment Industry being labor intensive in nature enjoys the
inherent strength of providing large scale employment, mostly to women and offers high
potential for growth, through exports of a wide range of textile products.
In the context of opening of free world trade, Government of Andhra
Pradesh aspires to transform the State into a Textile and clothing hub by creating the right
climate, investor friendly atmosphere, world class infrastructure with the state of art
technology. Andhra Pradesh is endowed with good raw material base required for the
growth and development of textiles in the State and it ranks second in production of raw
silk, second in production of cotton, fourth in production of wool and fourth in the
number of textile mills in the country. It is one of the leading textile processing centers
with a total capacity of 13 million meters of cloth per annum. It is right time for the local
industry to expect a Textile and Apparel Promotion Policy conducive to the vertical
growth of the industry.
Objectives
The following are the objectives of the Textile Policy: It is the target of the
Government to generate employment opportunities to youth additionally by 15 laky
persons, mostly women weavers and educated unemployed in Handloom, Textile and
Apparel sectors by the year 2010 ; and
Achieve textile and clothing exports from the present scale of US $ 0.08 billion (Rs.384
cores) to US $ 5 billion (Rs.25, 000crores).

COMPANY PROFILE
33

NSL TEXTILE was established in 2000 with 13,000 spindles with the expansion of
10,000 spindles every year, it is now equipped with 60,000 spindles capacity and have the
capacity to produce 20 tons of ring spun, 6 tons of open and 4 tons of ring doubling and
to yarns 100% cotton yarns per day.

The mill has a complete range of Lakshmi

Trumac Machinery from blow room to spinning departments with Muratec and savio auto
corners.
All the blow lines are connected to the cards with the chute system,
which in turn is connected with automatic waste collection system.
The company has a strong clientele based at different regions of Andhra Pradesh,
Gujarat, Karnataka, Maharastra, Rajasthan and TamilNadu.
MISSION

To manufacture a high quality yarn thereby withstanding high level of

competitiveness.

Developing a long term relationships with our customers and suppliers.

To use latest technological strategies during production thereby forming an

innovative approach.

To provide a safe, fulfilling and rewarding work environment for our

employees.

Serving and supporting the communities in which we operate.

Policy:
34

Quality is integral to everything at NSLTEXTILES We adopt a holistic quality

assurance, system and in integrated system which covers the entire production process.
All lots are tested before giving to the mixing with high send machinery.
We believe quality is a continual process. With a focus clearly on delivering
quality products and services, we integrate to constantly innovate and excel. As a result
our clients are assured of top notch quality that is consistent across our product range.
Value:
2000 No. of workers and 250 Nos of staff engaged in the industry. The main motive of
the company is to provide more jobs for the poor and middle class people.
The company is supplying its products in various states like Tamilnadu,
Karnataka, Maharashtra, Gujarat, Bombay, and Rajasthan.
There are product of yarn is useful for weaving industry. The company is providing
indirectly jobs in the textile industry.
FOREIGN CURRENCY:
The company is also doing some exports directly and indirectly by doing exports.
The company is earning foreign currency.
The main motive is to provide jobs and giving support price to farmers and earn foreign
currency.
The company has successfully completed erection of 65000 spindles and
it is going to textile industry by putting weaving unit by using the spinning product of
yarn. If the company established weaving unit there is a possibility of more jobs in the
industry like weaving, dying, garments etc.
BUSINESS EXPERIENCE OF J.M.D:

35

The joint managing director of the company is Mr. K. SRINIVAS RAO. He is

qualified in B.Tech (Textile) 1st Class. He joined in the company in May 2005 as a
Director. Later he was appointed as Joint Managing Director. He was well trained in
Spinning now he is looking weaving. Now he is in Coimbatore he had taken some sizing
& weaving units in and around Coimbatore. With in a 2 months period under his
supervision 1, 00,000 mtrs of grey cloth produced and sold with a good quality and rate.
MAJOR CUSTOMERS OF THE COMPANY:
1) Paramount Textiles Mills Pvt. Ltd

Madurai

2) Siva Sankari Mills

- Coimbatore

3) PEC Ltd

- Delhi

4) Indus Fila Pvt. Ltd

- Bangalore

5) Alok Industries

- Silvassa

6) R.M. Mohite Textilies

- Kolhapur

7) Sachin Textiles

- Lehalkaranji

8) Kayaar Exports

- Tiruchengode.

9) GTN industries

- Hyderabad

10) GTN Enterprises

Kochin

11) Prathibha Syntex

- Ahmedabad

12) Mandhana Weaving House

- Tarapur

13) Bombay Royan Fashions

- Sangli

Cotton Manufactured Product Range:

36

Our major counts range from 40s to 60s 100% combed cotton yarns. We
manufacture carded counts from 30s to 40s cotton yarns. Adding to these counts we
have the setup of doubling of yarns in TFO and RING DOUBLING Conditioning of
yarns can be done with yarn conditioning machine available in packing department.
Production Capacity:
Ring spun yarns

20 tons

Open and spinning

6 tons

TFO

2 tons

Ring Doubling

2 tons

Contamination Removal:
25% of the production is from in house processed material which is free from
contamination.
The total bales are opened manually and maximum care is taken to remove the
contamination.
People are educated with the type of contamination effects in further process.
Their effectiveness is monitored meticulously by measuring the contamination
level in the final yarn. The contamination controllers in the blow room help us to
alarm the contamination level in the material.
Adequate care is taken for material in handling in order to avoid contamination
during the process.
All the auto corners are equipped with siro cleaners to remove the residual
contamination in the yarn.

Ginning Division:
37

Selection of raw materials is the important criterion in order to produce

high quality yarn. Moreover the cotton is selected personally by the managing director or
the director of the ginning mill.
An Idupulapadu Cotton mill has been equipped with modern ginning facilities. The
important features are:

The ginning factory is equipped with automatic machinery.

The cotton pre-cleaner eliminates the cotton bolls and unopened cotton in the feed
material.

The seeds are collected through the seed conveyer and are dumped in separate
area.

The cotton lint is connected to chute system which connects to the trash separator
and the lint cleaner.

The lint cleaner eliminates the UN ginned cotton, if any, and reduces the short
fiber content in the ginned cotton fiber.

The entire chute system is designed in such a way that there shouldnt be any
harsh effect on the cotton fibers.

The lint is sent to be baleing to preserve the cotton properties for later use.

Zero handling (human interference) of cotton in the ginning process after the feed.

ENVIRONMENTAL PROTECTION AND SAFETY A TOP PRIO

We believe that environmental protection requires attitude, action and right application
of technology. The group is an eco-friendly entity whose concern is preservation of life
and environment. The division does not release any toxic wastes and pollutants. And
across every unit of the group, humidity, moisture and temperature are constantly
monitored to ensure top most safety.

38

The very fact that we have made wearing of masks mandatory for the
personnel bears amp witness to our commitment to industrial safety. The environmental
protection commitment of the company firmly believes that when we use the bounties of
mother earth, we have to give back an environment that is conductive to healthy living.

TEXTILE DIVISION:
The division unit was equipped with modern imported machinery. Presently we
are running with 48 brand new looms. We have sucker wrapping and sizing. Total plant
planned for 98 looms. In phased manner we are expanding the looms capacity.

STATEMENT OF ACCOUNTING POLICIES:

GENERAL:
The financial statements are prepared on historical cost convention and in
accordance with generally accepted accounting practices FIXED ASSETS:
Fixed assets are stated at historical cost less accumulated depreciation.

INVESTMENTS:
Long term investment is stated at cost and income thereon accounted for an
accrual. Provision to wards decline in the value of long term investments is made only
when such decline id other than temporary.

39

Depreciation:
Deprecation is a written off in accordance with the provisions of schedule XIV OF
the companies act 1956 as follows:
Under straights-line method in respect of the assets of Spinning, power and Textile
divisions.

Under written down value method on the assets of all other divisions of the
company.

Inventories:
Valuation of inventories is made as follows
Raw material and finished goods at cost or net realizable value which ever is
lower.
Work-in-progress at cost inclusive of direct production over heads.
Stores and spares at cost.
Electronic power at net releasable value.

Taxes on income:
40

A current tax is determined as per the provisions of income tax act 1961 in respect
of taxable income for the year ended.
Differed tax liability is recognized, subject to the consideration of prudence on
timing differences, being the difference between taxable incomes and accounting that
originate in one period and are capable of reversal in one or more subsequent periods.
SEGEMENT REPORTING:
The accounting policies adopted for segment reporting are in line with the
accounting policies of the company with the following additional policies for segment
reporting.
Inter-segment revenue has been accounted for based on the market related prices.
RETIREMENT BENEFITS:
The company makes regular monthly contribution to provident fund which are
deposited with the government and group term insurance is routed through L.I.C, and are
charged against the revenue. The company has taken group gradually scheme with life
insurance corporation of India. The premium on policy and the difference between the
amounts of gratuity paid on retirement and recovered from the life insurance corporation
of India debited to profit and loss account. Leave encashment is accounted as and when
the employees claimed and paid.
PROPOSED DIVIDEND:
Provision is made in the account for the dividend payable (including of all tax
thereon) by the company as recommended by the board of dir directors, pending approval
of the shareholders at the annual general meeting.

FOREIGN CURRENCY TRANSACTIONS:

41

 Import of material /capital equipment is accounted at the rates at which

actual payments are effected.
The profit/loss arising out of foreign exchange transactions on sales of
goods are accounted on actual realization basis.

Organizational Chart
Chart 3.1
Managing Director-Board of
Directors Division Head
(Director)

Finance
Manager
Accounts
Officer
Sr. Accountant
Accountant

Purchase
Manager
Sr. Accountant

Personnel
Manager
Dep-Clerk

Purchase Clerks

Time Keeper

Accountant

Security Officer

Supervisors
Assistants

General Manager
(Technical)

Textile Division

General Manager
(Technical)

Power Division

BOARD OF DIRECTORS
Dr.Mullapudi Harischandra Prasad

Director
42

Sales Manager
Sr. Accountant
Accountant
Assistants
Supervisors

J.Murali Mohan

Director

P. Narendranath Chowdary

Director

Mullapudi Thimmaraja

Director

Y.Narayanarao Chowdary

Director

V.S.Raju

Director

K.Srinivasa Rao

Director

M. Gopalakrishna Subbarao
V.Tipirneni
SENIOR EXECUTIVE
Mr.P.Kesavulu reddy

president & secretary

BANKERS
ANDHRA BANK

Guntur

STATE BANK OF INDIA

Guntur

AUDITORS
Brahmmaaih & co

Guntur

BOARD OF DIRECTORS

43

The board of directors of the company consists of 9 directors comparing of

promoter directors, additional directors and outside directors. Normally, the chairman
would be elected from the promoter director. The board of director will meet once in
three months to review the working results, operations, financial and administrative
matters and any other policy matters of the company. The managing director being
responsible to the board shall appraise the board of directors about the progress of the
company.

MANAGINIG DIRECTOR
The managing director is the chief executives of the organization and looks after
the day to day operations of the company. He is the top person in the hierarchical system
of organization. He does business operations with the assistance of all the departmental
heads. He is the pivotal of the organization.

PRESIDENT & SECRETARY

He is in charge of administrative and finance departments. He looks after all the
meters relating to general administrative, secretarial, central excise, purchase, account,
store, personnel and all other matters relevant for smooth operations of the company. He
coordinates matters with all the departments heads and takes policy decisions in the
absence of the managing director.

GENERAL MANAGER
44

He is the head of the production department. He looks after the fatty acid plant &
glycerin plant. He controls the overall production activities a term of engineers,
supervisors and helper assists him.

SENIOR MANAGER ELECTRICAL

He is in charge of power house and responsible for all electrical installation in the
company. With the help of engineers, supervisors and electricians he looks after the
matters like power supply, operation of diesel generation sets etc?

INTROUDUCTION
45

The Inventory Concept:

The dictionary meaning of the word inventory is Stock of goods. The term
Inventory refers to the commodities supplied to an undertaking for the purpose of
consumption in the process of manufacture or for transformation into products.
To the finance executive, Inventory can be taken as the value of raw materials,
consumables, spares, work in progress and finished goods in which the companys
working capital funds have been invested.
Inventories constitute the most significant part of current assets of a larger
majority of companies in India. On an average inventories are approximately 60% of
current assets in public ltd companies in India. Because of the large size of inventories
maintained by firms, a considerable amount funds is required to the committed to them. It
is, therefore absolutely imperative to manage inventories efficiently and effectively in
order to avoid unnecessary investment.
A firm neglecting the management of inventories will be jeopardizing its long run
profitability and may fail ultimately. It is possible for a company to reduce its levels of
inventories to a considerable degree, e.g.: 10 to 20 %, without any adverse effect on
production and sales, by using simple inventory planning and control techniques.
The reduction in excessive inventories carries a favorable impact on a
companys profitability

Classification of Inventories:-

46

The Inventories in an Industrial concern is generally classified as

following:

Raw material Inventory - This is used in manufacturing. When the demand arises, they
are drawn from stores and processed or use value is added during the process and finally
finished product comes out.

Semi-finished goods - When the material being processed, it may have to wait between
two processes, such materials are known as semi-finished goods or semi-finished material
or Work in process inventory.

Components - The parts used in assembly of product, are known as components. When
these components are purchased from outside, it is known as bought out components or
bought out material.
[

Spare parts Inventory - When manufacturing or servicing facility breakdown, it is to be

repaired. In such case, the defective or worn-out parts of the machine are to be replaced
by new one. These new parts of the machine are known as spares or spare parts.

Obsolete Inventory - When any facility becomes unserviceable, and it is to be replaced

by a new one, after replacing, the old machine/facility is to disposed. Such machines,
which have become useless, are termed as obsolete inventory.

Waste, Scrap and Rejects - This type of inventory occurs in manufacturing firms or in
service organizations. While processing material, chips are produced and it is of no use
for the organization and it is to be disposed. Similarly, defective components, which
cannot be reprocessed (rejects) and materials which cannot be used in any way in the
organization (waste), all these are to be disposed. They may not be having any use value
for the organization, but they may be reprocessed by some other organizations to produce
a useful product.

Need for Holding Optimum Inventory

47

Though inventory of materials is an idle resource (as they are not used
immediately and stocked for future use), almost every business must maintain it for
efficient and smooth running of its operations. If an enterprise has no inventory of
material at all, on receiving a manufacturing order, it will have to place order for
purchase of raw material, wait for arrival and receive of material and then start
production.
The customer will have to wait for a long period for the delivery of his product and
may frustrated and turn to another manufacturer. Maintaining of inventory becomes
necessary for the following reasons:

It helps in smooth and efficient running of the production system and the enterprise. It
decouples the production from the customers and vendors.

It provides services to the customers at a short notice. Timely deliveries may increase the
goodwill of the company.

In the absence of inventory, the enterprise may have to pay very high prices because of
piecemeal purchasing. Maintaining inventory may earn price discounts on bulk
purchases. It also takes advantage of favorable market.

It reduces the product cost, since there is an added advantage of batch production and
mass production runs.

It acts as a buffer stock when raw materials are received late and shop rejects are too
many.

Bulk purchases reduce the number of orders and hence less clerical work.

It helps in maintaining economy by absorbing some of the fluctuations when the demand
for an item fluctuates or is seasonal

Motives for Holdings Inventories

Economists have established three motives for holding inventories.
48

1. Transaction motive.
2. Precautionary motive.
3. Speculative motive.
1. Transaction motive Firms may require holding certain amount of finished products
perpetually in stock for display or demonstration purpose. They may also hold inventories
to meet a sudden demand, thus reducing the delivery tags.
2. Precautionary motive Firms may hold inventories for fear of stock outs and losing
its goodwill. Some of the precautionary motives give rise to safety stock to deal with
uncertainty in supply and demand.
3. Speculative motive A firm may also hold both raw materials and finished products
when it expects a price in future, thereby realizing a stock profit. Inventories held for
speculative motive are termed as profit-making inventory.
Of the three motives, Precautionary motive requires much attention. Besides
accumulation of inventory due to the three motives mentioned above, inventories also get
accumulated because of inefficient management of working capital. This type of
inventory is called, Flabby inventory.
In addition, there may be a Contractual reason for holding some inventories.
Contractual Requirements Occasionally it may be necessary to carry a certain level of
inventory to meet a contractual agreement. Some manufacturers require dealers to
maintain a specified level of inventory in order to be the sole representative in a
particular territory.

Inventory Management:

49

Inventories represent a substantial amount of firms current assets. Proper management of

Inventory is necessary so that this investment does not become too large, as it would
result in blocking capital which could be used in productive aspect in somewhere else.
Inventory Management covers efficient management of inventories in all its aspects
including Inventory planning and programming, Purchasing, Inventory Control,
receiving, ware Housing and Store keeping, Inventories handling and Disposal of scrap.
Definition:
Inventory management is concern with the determination of optimum level of
investment for each components of inventory and effective use of components and the
operation of components and the operation of an effective control and review of
mechanism. The main objectives of inventory management are operational and
financial.
In this context of Inventory Management the firm is faced with the problem of
meeting two conflicting needs.
1. To maintain a large size of inventory for efficient and smooth production and sales
operations.
2. To maintain a minimum investment in inventories to maximize profitability.
The aim of Inventory management, thus, is to avoid excessive and inadequate levels
of inventories and to maintain sufficient inventory for the smooth production and sales
operations.
An effective inventory management should
1. Ensure continuous supply of materials to facilitate uninterrupted production.
2. Maintain sufficient stocks of raw materials in periods of short supply and anticipate price
changes.
3. Maintain sufficient finished goods inventory for smooth sales operations, and efficient
customer services.
4. Minimize the earnings cost and time.
50

5. Control investment in inventories and keep it at an optimum level.

OBJECTIVES OF INVENTORY MANAGEMENT
The objectives of the inventory management are discussed under two heads:
Operating objectives.
Financial objectives.
OPERATING OBJECTIVES: -The operating objectives of inventory management are
further divided as follows:

Availability of materials: - The first and the foremost of inventory management are
making all types of materials available at all times they needed by the production
departments. So that the production may not be held up for want of materials. It is
therefore advisable to maintain the minimum quantity of all types of materials to move on
production schedule.

Minimizing the wastage: - Inventory management has to minimize the wastage at all
levels that is during its storage in the go downs or at work in the factory. Normal wastage,
in other words uncontrollable wastage, should only be permitted.

Promotion of manufacturing efficiency: - The manufacturing efficiency of the

enterprise increases if right types of raw material are made available to production
department at the right time. It reduces wastage & cost of production & improves the
moral of workers.

Better service to customers: - In order to meet to the demand of the customers, it is the
responsibility of inventory management to produce sufficient stock of finished goods to
execute the orders received from customers.

Optimum level of inventories: - Proper control of inventories helps management to

procure materials in right time in order to run the plant efficiently. Maintaining the
optimum level of inventories keeping in view the operational requirements avoids the out
of stock danger.
51

FINANCIAL OBJECTIVES: - The Financial objectives of Inventory management is

further divided as follows

Economy in purchasing: - Proper inventory management system brings certain

advantages and economies in purchasing the raw materials. Management makes every
attempt to purchase raw materials in bulk quantity and to take advantage of favorable
market conditions.

Optimum investment and efficient use of capital: - The primary objective of inventory
management, from financial point of view, is to have an optimum level of investment in
inventories. Inventory management has to setup minimum and maximum levels of
inventories to avoid deficiency or surplus stocks.

Reasonable prices:- Inventory management has to ensure the supply of raw materials at
a reasonable low price, but without sacrificing the quality it helps to reduction of cost of
production and improvement in the quality of finished goods in order to maximize the
profits of the organization

Minimizing the costs: - Minimizing inventory costs such as handling, ordering and
carrying costs etc. is one of the main objectives of inventory management. It helps in
reduction of inventory costs in a way that it reduces the costs per unit of inventory and
there by reduction of total cost of production.
Other Objectives of Inventory Management:

Minimize investment in inventories in order to maximize profits.

In order to minimize carrying costs and ordering costs of inventory.

To minimize obsolescence in stores.

To avoid excess and inadequate stocks.

Inventory Systems

52

For an effective inventory management, an efficient inventory system should be

maintained.

Thus the importance of inventory systems cannot be neglected in the

Inventory Management. The two importance types of inventory systems available are

Periodic Inventory Systems.

Perpetual Inventory Systems.

Just In-Time Inventory Systems.

Periodic Inventory Systems
In this systems the quantity and value of inventory is found out only at the end of the
accounting period after having a physical verification of the units in hand.
The cost of materials used or goods sold is obtained by adding the total of inventory
purchased during the period to the value of the inventory in hand in the beginning of the
period and subtracting the value of inventory at the end of period.
In this system the inventory level is not monitored at all during the time interval
between the orders, so it has advantage of little or no required record keeping. The
disadvantage is less control.
Perpetual Inventory Systems
It is a system of tracking and knowing the value of inventory and quantity of
merchandise on hand at any time by tracking sales, returns and receipts with
information systems.
A positive feature of a perpetual system is that inventory level is continuously
monitored, so management always knows the inventory status. This is advantageous for
critical parts or raw materials and supplies. However, it can be costly.

The perpetual inventory system consists of:

53

1. Bin Cards.
2. Stores Ledger.
3. Continuous Stock taking.
Bin Cards Bin Cards are printed cards used for accounting the stock of material, in
stores. For every item of materials, separate bin cards are kept.
The details regarding the material such as the name of the material, the part
number, the date of receipt and issue, the reference number, the name of the supplier,
the quantity, etc. are recorded in the bin cards.
Stores Ledger Like bin cards, a stores ledger is maintained to record all the receipts
and issues in respect of materials with the difference that long with the quantities, the
values are entered in the receipt, issue balance columns.
Continuous Stock taking The perpetual inventory system is not complete without a
systematic procedure for physical verification of the stores. The bin cards and the stores
ledger record the balances, but their correctness can be verified by means of physical
verification only.
Just-In-Time Inventory System
Now-a-days organizations are becoming more and more interested in getting potential
gains from making smaller and more frequent purchase orders. In other words, they are
becoming interested in just-in-time purchasing system.
In Just-In-Time system the materials arrive exactly when they are needed in the
production process. Inventory remaining in warehouse collects dust and cost instead of
revenue. Just-In-Time system avoids this cost.

Costs for Holding Inventory

The three important costs considered in holding inventories are
54

Inventory Carrying cost (or) stock holding cost.

Procurement cost or setup cost.

Shortage cost or stock-out cost.

Inventory Carrying cost (or) stock holding cost
They arise on account of maintaining the stocks and the interest paid on the capital
tied up with the stocks. They vary directly with the size of the inventory as well as the
time the item is held in stock. Various components of the stockholding cost are:

Cost of Storage Space This consists of rent for the space occupied by the inventory.
Besides space expenses, this will also include heating, lighting and other atmospheric
control expenses.
[

Depreciation and deterioration They are especially important for fashion items or
items undergoing chemical changes during storage. Fragile items such as crockery
which are liable to damage, breakage, etc.

Pilferage Cost It depends upon the nature of the item in stock. Valuable items may
ne mote tempting. While there is hardly any possibility of heavy casing or forging
being stolen?

Obsolescence Cost It depends upon the nature of the item in stock. Electronic and
computer components are likely to be fast outdated. Changes in design also led to
obsolescence.

Handling Cost These include all costs associated with movement of stock, such as
cost of labor, overhead cranes, gantries and other machinery used for this purpose.
Procurement Cost or Setup Cost:
55

They include the fixed and variable costs associated with placing of an order. In
case of purchase models it is known as ordering Cost. In case of manufacturing
model, it is known Setup Cost.
To place an order certain paper work is to be done. The cost of this paper work
is taken as cost of ordering. In case of manufacturing, before starting production, the
machine is to be set up. Only on setting of machine, the material is loaded and
production is started. The ordering cost is distributed over the items purchased in that
order. Similarly, the setup cost is distributed equally over the products manufactured in
that setup. This cost is also known as replenishment cost.
Shortage Cost or Stock Cost
These costs are associated with either a delay in meeting demands or the
inability to meet it at all. Therefore, shortage costs are usually interpreted in two ways.
In case the unfilled demand can be filled at a later stage (backlog case), these costs are
proportional to quantify that is short as well as the delay time. They represent loss of
goodwill and cost of idle equipment. In case the unfilled demand is lost (no backlog
case), these costs become proportional to only the quantity that is short. These results in
cancelled orders, lost sales, profit and even the business itself.
Advantages of Inventory Management
The advantages gained by the firm by managing the inventory effectively are
Introduction of a proper inventory management system holds in keeping the investment
in the inventories as low as feasible.
Ensures availability of material by providing adequate protection against uncertainties of
supplies and consumption of materials.
Allows full advantage of economics of bulk purchases and transportation.
Leads to reduction in inventory levels
Releases more of capital for other operations.
Adequate customer service.
Advantage of price discounts by bulk pricing.
56

 Providing flexibility to allows change in production lines due to changes in demands on

any other reason.
Even out the workloads on the soaps in the face fluctuations demands.
TECHNIQUES OF INVENTORY MANAGEMENT
The following are the techniques of the inventory management

Economic order quantity.

ABC analysis.

VED classification.

HML Classification.

SDE Classification.

FSN Analysis.

SOS classification.

XYZ Analysis.

Golf classification

MNG Analysis.
Economic order quantity:[

A firm should not place either too large or too small orders. On the basis of a
trade-off between benefits derived from the availability of inventory and the cost of
carrying that level of inventory, the appropriate or optimum level of the order to be
placed should be determined. The optimum level of inventory is popularly referred to as
the economic order quantity (EOQ). It is also known as economic lot size.
The economic order quantity may be defined as that level of inventory order that
minimizes the total cost associated with inventory management. I.e. it refers to the level
of inventory at which the total cost of inventory comprising acquisition/ordering/set-up
costs and carrying cost is minimal.
57

EOQ =

2AO /

A = Total annual requirement

O = Ordering cost per order
C = Convey in cost per unit
ABC analysis:Usually a firm has to maintain several types of inventories. It is not desirable to
keep same degree of control on all the items. The firm should pay maximum attention to
those items whose value is highest. The firm should therefore classify inventories to
identify which items should receive the most effort in controlling. This classification is
done by the ABC analysis.
The ABC analysis technique is based is based on the assumption that a firm
should not exercise the same degree of control on all items of inventory. It should rather
keep a more rigorous control on items that are most costly, while items that are less
expensive should be given less control effort.
On the basis of the cost involved, the various inventory items are categorized into
three classes:
A category.
B category.
C category.

Category An Items - More costly and valuable consumption items are classified as an
items. But the A category items are very less in volume (generally 20%) when compared
to the total volume of inventory.

Category B Items - The items having average consumption value items are classified as
B items. But the B category items are very average in volume (generally 30%) when
compared to the total volume of inventory.
58

Category C Items - The items having less consumption value items are classified as C
items. But the C category items are very high in volume (generally 50%) when
compared to the total volume of inventory.
VED Classification:VED Vital, Essential and Desirable classification is applicable largely to spare
parts. Stocking of spare parts is based on strategies different from those of raw materials
because of their consumption pattern is different. Here the spare parts are classified in to
three categories.
Vital

The spares, the stock out of which even for a short time will stop

the production.
Essential

The spares, the absence of which cannot be tolerated for more than

a few hours or a day.

Desirable

The desirable spares are those spares which are needed but this

absence for even a week or so will not stop the production.

HML Classifications:The High, medium and Low (HML) classification follows the same procedure as
is adopted in ABC classification. Only difference is that in HML, the classification unit
value is the criterion and not the annual consumption value. The items of inventory
should be listed in the descending order of unit value and it is up to the management to
fix limits for three categories. For examples, the management may decide that all units
with unit value of Rs. 2000 and above will be H items, Rs. 1000 to 2000 M items and
less than Rs. 1000 L items.
The HML analysis is useful for keeping control over consumption at departmental
levels, for deciding the frequency of physical verification, and for controlling purchases.
SDE Classification:59

The SDE analysis is based upon the availability of items and is very useful in the
context of scarcity of supply. In this analysis, S refers to scarce items, generally
imported, and those which are in short supply. D refers to difficult items which are
available indigenously but are difficult items to procure.
Items which have to come from distant places or for which reliable suppliers are
difficult to come by fall into D category. E refers to items which are easy to acquire
and which are available in the local markets.
The SDE classification, based on problems faced in procurement, is vital to the
lead time analysis and in deciding on purchasing strategies.
FSN Analysis:FSN stands for fast moving slow moving and non-moving. Here, classification is
based on the pattern of issues from stores and is useful in controlling obsolescence.
To carry out an FSN analysis, the date of receipt or the last date of issue,
whichever is later, is taken to determine the number of months, which have lapsed since
the last transaction. The items are usually grouped in periods of 12 months.
FSN analysis is helpful in identifying active items which need to be reviewed
regularly and surplus items which have to be examined further. Non-moving items may
be examined further and their disposal can be considered.
SOS Classification:Raw materials, especially agricultural inputs are generally classified by the
seasonal, off-seasonal systems since the prices during the season would generally be
lower.
The seasonal items which are available only for a limited period should be procured and
stocked for meeting the needs of the full year. The prices of the seasonal items which are
available throughout the year are generally less during the harvest season.
60

The quantity required of such items should, therefore, be determined after comparing the
cost savings on account of lower prices, if purchased during season, with the higher cost
of carrying inventories if purchased throughout the year.
A Buying and stocking strategy for seasonal items depend on a large number of
factors and more and more sophistication is taken place in this sphere and operational
techniques are used to obtain optimum results.
XYZ Analysis:While the ABC analysis is based on the assumption on value, XYZ analysis is
based on the value of inventory undertaken during the closing of annual accounts. X
items are those having high value, Y items are those whose inventory values are medium
and Z items are those whose inventory values are low.
The percentages are similar to ABC analysis. This analysis helps find items with
heavy stock.

GOLF Classification:The letter stands for Government, Ordinary, Local and Foreign. There are mainly
imported items which are canalized through the State Trading Corporation (STC)
Minerals and Metals Trading Corporation, etc. Indian Drugs and Pharmaceutical Ltd
(IDPL), Micktrading corporation etc. These are special procedures of inventory control
which may not applicable to ordinary items as they require special procedures.
MNG Analysis:61

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

M- Moving items The items which are consumed from time to time are normally
referred to as moving items.

N- Nonmoving items These items which are not and consumed in last one year are
covered under this group.

G- Ghost items This group refers to such items which neither have been received nor
issued during the year. The balance of such items shown in stock registers of the
organization will be nil, both at the beginning and at the end of the previous financial
year.
Causes of poor Inventory Management
There are certain instances, which leads to poor inventory management. They are:

1. Over buying without regard to the forecast or proper estimate of demand to take
advantage of favorable market.
2. Over production or production of goods much before the customer requires them.
3. Over stocking may also result from the desire to provide better service to the customers.
Bulk production or purchase to cut down production costs also will result in large
inventories.

Various stock levels in Inventory Management

The level of inventory in any organization depend upon several factors including
social, political, economic, ethic, fiscal, governmental policies at the global and national
levels, which determine the demand and supply parameters of an item. At the unit level,
cost, criticality, availability, service level, stock out, lead time, powers of delegation,
consumption pattern, etc. affect the level.
The various stock levels fixed for effective management of inventories are
62

Minimum level.

Maximum level.

Ordering or reordering level.

Danger level.
These levels serve as indices for initiation action on time so that the quantity of each
item of material, i.e. the inventory holding is controlled or managed. Stock levels are
not fixed on a permanent basis but are liable to revision in accordance with the changes
in the factors determining the levels.
Minimum level It indicates the lowest figure of inventory balance, which must be
maintained in hand at all times, so that there is no stoppage of production due to nonavailability of inventory.
The main considerations for the fixation of minimum level of inventory are as
follows:

1. Information about maximum consumption and maximum delivery period in respect of

each item to determine its reorder level.
2. Average rate of consumption for each inventory item.
3. Average delivery period for each item. This period can be calculated by averaging the
maximum and minimum period.

The formula used for its calculation is follows:

Minimum level of inventory = Reorder level (average rate of
consumption *
Average time of
Inventory

63

Maximum Level It indicates the maximum figure of inventory quantity held in stock
at any time.
The important considerations which should govern the fixation of maximum level
for various inventory items are as follows:
1. The fixation of maximum level of an inventory item requires information about its
reorder level. The reorder level itself depends upon its maximum rate of consumption
and maximum delivery period. It in fact is the product of maximum consumption of
inventory item and its maximum delivery period.
2. Knowledge about minimum consumption and minimum delivery period for each
inventory item should also be known.
3. The determination of maximum level also requires the figure of economic order
quantity.
4. Availability of funds, storage space, nature of item and their price per unit are also
important for the fixation of maximum level.
5. In the case of imported materials due to their irregular supply, the maximum level
should be high.
The formula used for its calculation is as follows:
Maximum level of Inventory = Reorder level +Reorder
quantity (Minimum consumption * Minimum reorder period)

Reorder level This level lies between minimum and maximum levels in such a way
that before the material ordered is received into the stores, there is sufficient quantity on
hand to cover both normal and abnormal consumption situations. In other words, it is
the level at which fresh order should be placed for replenishment stock. The reorder
64

level must be sufficient to cover the maximum possible consumption of stock during
lead time (reorder period).
It is set after consideration of the following factors.
1. Rate of consumption.
2. Minimum level.
3. Lead time, i.e. delivery time.
4. Variation in lead time.
The formula used for its calculation is an n follows:
Reorder level = Maximum reorder period *
Maximum Usage.

Danger level It is the level at which normal issues of the raw material inventory are
stopped and emergency issues are only made.
Danger level = Avg consumption * Lead time for
emergency purchases.

Objectives of Inventory Valuation

The objectives of inventory valuation are discussed here below as follows

Determination of Income The valuation of inventory is necessary for determining

the true income earned by business during a period.

Determination of Financial position- The inventory at the end of period is to be

shown as a current asset in the balance sheet of the business. In case of the inventory is
not properly valued the balance sheet will not disclose the correct financial position of
the business.
65

METHODS OF INVENTORY VALUATION

Since Inventory is the single largest asset in the balance sheet of most
organizations, the valuation of inventory becomes of utmost importance and crucial to the
financial executives.
[[

Methods of Valuation of Inventories

The different methods used for valuation of inventories may be

enumerated as follows
Methods based on Actual cost:

First-in-First-out method.

Last-in-First-out method.

Highest-in-First-out method.

Specific identification price.

Base stock price.

Adjusted selling price.

Methods based on Average cost:

Simple average price.

Weighted average price.

Methods based on Actual cost:The methods of actual cost are as follows:-

First-in-First-out Method -The First-in-First-out Method of pricing materials is based

on the assumption that the materials which are purchases first are issued first. The flow of
cost of materials should also be in the same order.

66

Last-in-First-out Method -This method is just reverse of FIFO. It operates on the

assumption that the latest received materials are issued first for production and those
received first issued last. The price of the last lot of materials received is used for all the
issues until all units from this lot have been issued after which the price of the previous
lot received becomes the issue price.

Highest-in-First-out method -Under this method, the highest priced materials are
treated as being issued first. The closing inventory is kept at the lowest possible price. It
is undervalued in times of rising prices and thus secret reserves are created.

Specific identification price The specific identification method may be used for
inventories of items that are not ordinarily inter-changeable, or for goods manufactured
for a specific purpose. This method is best suited for job order industries which carry out
individual jobs or contracts against specific orders.

Base stock price The base stock formula proceeds on the assumption that a minimum
quantity of inventory (base stock) must be held at all times in order to carry on business.
Inventories up to this quantity are stated at the cost at which the cost at which the base
stock was acquired.

Adjusted selling price Under this method which is adopted by retailers, inventory is
estimated at selling price and to value it at cost, the estimated gross profit is deducted
there from. The alternative approach is to deduct current sales from the total goods
available for sale at retail price. This gives the value of Inventory.

Methods based on Average cost:The methods of average cost are as follows

Simple average price Simple average price is the average of the prices without any
regard to quantities. Simple average price is calculated by adding up different prices and
then dividing by the number of different prices.

Weighted average price method Weighted average price is calculated by dividing the
total cost of material in stock by the total quantity of material in hand. Under this method,
67

prices are averaged after weighting (i.e. multiplying) by their quantities. The average
price at any time is simply the balance value figure divided by the balance units figure.

Analysis Using Ratios

Current Ratio: Current assets include cash and those assets, which can be converted into
cash within a year, such as Marketable Securities, Debtors and Inventories. Prepaid
expenses are also include in current assets as they represent the payments that will not be
made by the firm in future. Current Liabilities include Creditors, Bill payable, Accrued
expenses, Short-term bank loan, and Income Tax Liability and Long-term debt maturing
in the current year.

68

The current ratio is a measure of the firms` short-term solvency. The higher the
current ratio, the larger is the amount of rupees available per Rupee of current liability,
the more is the firms` ability to meet current obligations and the greater is the safety of
funds of short-term creditors.

Curent ratio = Current assets / Current

liabilities.

YEAR

Current Assets

Current Liabilities

Ratio

2010-11

15,74,33,120

3,52,27,132

4.47

2011-12

34,97,03,600

4,65,80,476

7.51

2012-13

44,31,66,140

3,69,52,955

11.99

27,50,82,025

0.92

30,68,85,586

0.72

2013-14
2014-15

25, 58, 06,311

22,29,12,089

69

INTERPRETATION:
The current ratio of the NSL TEXTILES (Ltd) in 2010-11 was 4.47; it has been
increased to 7.51; in the year 2011-12 and it has been increased to 11.99; in the year201112. The current ratio had decreased to 0.92; in the year 2012-13. At present the current
year ratio of the company was 0.72 i.e. in the year 2013-14. It is maximum (11.99) in the
year 2011-12 the reason for this is due to high current assets and low current liabilities. It
is minimum (1.87) in the year 2014-15. The overall trend of the current assets is in
increasing and decreased patterns and percentage change in current ratio is 0.20 between
the 2013-14 and 2014-15.

70

Quick Ratio
Quick ratio is an indicator of a companys short-term liquidity. The quick ratio
measures a companys ability to meet its short-term obligations with its most liquid
assets. The higher the quic ratio, the better the position of the company. It is also known
as the acid-test ratio or the quick assets ratio.

It is obtained by subtracting

inventories from current assets and then dividing by current liabilities. The conventional
quick ratio is 1:1.

Quick ratio = Quick assets / Current

Liabilities.

Year

Quick Assets

Current

Ratio

Liabilities
2010-11

6,33,37,989

3,52,27,132

1.80

2011-12

14,70,24,470

4,65,80,476

3.16

2012-13

10,91,96,196

3,69,52,955

2.99

2013-14

6,87,27,209

2,75,08,2025

0.24

2014-15

6,68,40,553

3,06,88,558

2.17

71

INTERPRETATION:
The quick ratio of the NSL TEXTILES (Ltd) in 2010-11 was 1.80 it has been
increased to 3.16 in the year 2011-12 and it has been in decreased to 2.99; in the
year2012-13... The quick ratio had decreased to 0.24; in the year 2013-14. At present the
current year ratio of the company was 2.17; i.e. in the year 2014-15 It is maximum (3.16)
in the year 2011-12The reason for maximum quick ratio in2010-11 is due to decreased
current liabilities when compared to2009-10. It is minimum (0.24) in the year 2013-14
this is mainly due to high current liabilities. The overall trend of the quick ratio is
increasing patterns and present quick ratio is decreased in 2013-14 to 2014-15

72

Inventory Turnover Ratio

Inventory turnover ratio indicates the efficiency of the firm in producing and
selling its product. It is calculated by dividing cost of goods sold by average inventory.
Average inventory consists of opening stock plus closing stock divided by 2. A high
inventory turnover ratio indicated that the product is selling well. A low turnover ratio
implies poor sales and, therefore, excess inventory. The following formula is frequently
used for calculated of ratio:

Inventory Turnover Ratio = Sales / Average

Inventory.

Average Inventory = opening stock + Closing

Year

Sales

Avg. Inventory

2010-11

39,08,91,848

15,14,59,360

2.58

2011-12

45,04,12,750

17,09,43,131

2.63

2012-13

65,04,96,396

32,41,45,074

2.01

2013-14

63,51,01,047

45,21,61,076

1.40

2014-15

715055167

111456044

6.41

73

Ratio

INTERPRETATION:
The inventory turnover ratio of the NSL TEXTILES (Ltd) in

2010-11 was 2.58;

it has been increased to 2.63; in the year 2011-12and it has been decreased to 2.01; in the
year2012-13. The inventory turnover ratio had decreased to 1.40; in the year 2013-14.
At present the current year ratio of the company was 6.41; i.e. in the year 2014-15. It is
maximum (6.41) in the year 2014-15 the reason for maximum inventory turnover ratio is
due to high sales in 2014-15

The overall trend of the inventory turnover ratio in

increasing patterns and percentage change in current ratio is 5.01 between the 201314and 2014-15.

74

Inventory to Current Assets Ratio

This ratio indicates the relationship between Inventories to current assets. Higher
the ratio shows that inventory is properly utilized in the organization. Inventory to
current assets ratio is calculated as follows:

Inventory to Current Assets Ratio = Inventory /

Current assets.

Year

Inventory

Current Assets

Ratio

2010-11

9,40,95,131

15,74,33,120

0.60

2011-12

20,08,79,130

34,97,03,600

0.57

2012-13

33,39,69,944

44,31,66,140

0.75

2013-14

18,60,69,102

25,58,063,11

0.73

2014-15

22,29,12,089

28,97,52,642

INTERPRETATION:

0.77

The Inventory to current assets ratio of the NSL TEXTILES (Ltd) in

2010-11 was 0.60; it has been decreased to 0.57; in the year 2011-12 and it has been increased to
0.75; in the year2012-13. The Inventory to current assets ratio had decreased to 0.73; in the year
2013-14. At present the current year ratio of the company was 0.77; i.e. in the year 2014-15. It
is maximum (0.77) the reason for Inventory to current assets ratio is due to increase in both
inventory and current assets when compared 2010-11. It is minimum (0.57) in the year 2011-12
the reason for this is due to high current assets and current liabilities. The overall trend of the
inventory to current assets ratio current assets is in increasing patterns and percentage change in
inventory to current assets ratio is 0.17between the 2010-11 and 2014-15.

Inventory to Total Assets Ratio

75

This ratio shows the relationship between inventories to total assets. Inventory is
a part of the current assets of the company. It shows the portion of assets tied up in
inventory. Generally, a lower ratio is considered Bette
Inventory to Total Assets Ratio = Inventory / Total
Assets.

Year

Inventory

Total Assets

Ratio

2010-11

9,40,95,131

50,32,04,673

0.19

2011-12

20,0879,130

66,63,34,804

0.30

2012-13

33,39,69,944

79,40,16,239

0.42

2013-14

18,60,69,102

64,26,68,658

0.28

2014-15

22,29,12,089

66,08,44,573

0.34

76

INTERPRETATION:
The Inventory Total assets ratio of the NSL TEXTILES (LTD). Is 0.19 in the
year2010-11? The Inventory to total assets ratio had increased to 0.30; in the year 201112. And decreased ratio of the company was 0.28; i.e. in the year 2013-14. And increased
in the year 2014-15 by 0.34 And It is maximum (0.42) in the year 2012-13 the reason for
minimum Inventory to total assets ratio is due to increase in total assets when compared
2010-11. It is minimum (0.19) in the year 2010-11 the reason for low inventory to total
assets.

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

increasing patterns.

77

Inventory to working capital ratio

The inventory to working capital ratio measures how well the company is able to
generate cash using working capital at its current inventory level. An increasing to
working capital ratio is generally negative sing showing the company may be having
operational problems if a company has too much working capital invested in inventory
they may be have difficulty having enough working capital to make payments on short
term liabilities and accents payable. This is a great ratio to be used with several others to
really pick apart the inner working of a company.

Inventory to working capital ratio = Inventory / Working

Capital.
(Or)
= Inventory / (Current Assets Current

Year

Inventory

Working Capital

Ratio

2010-11

9,40,95,131

12,22,05,988

0.77

2011-12

20,08,79,130

30,31,23,124

0.66

2012-13

33,39,69,944

40,62,13,185

0.82

2013-14

18,60,69,102

19,27,57,174

9.65

2014-15

22,29,12,089

1,71,32,944

13.01

78

INTERPRETATION:
The Inventory to working capital ratio of the NSL TEXTILES(.Ltd) in 2010-11
was 0.77; it has been decreased to 0.66; in the year 2011-12 and it has been increased to
0.82; in the year2012-13. The Inventory to working capital ratio had increased to 9.65; in
the year 2013-14.At present the current year ratio of the company was 13.01; i.e. in the
year 2014-15. It is maximum (13.01) in the year 2014-15 the reason for low working
capital in all the analyzed five years. It is minimum (0.66) in the year 2011-12 the reason
increase in working capital when compared to 2010-11.

The overall trend of the

Inventory to working capital ratio current assets is in decreasing and in increasing

patterns and percentage change in inventory to working capital ratio is.12.24 between the
2010-11 and 2014-15.

79

INVENTORY STOCK LEVELS

MINIMUM STOCK LEVEL
Minimum stock level=reorder level (normal consumption*normal re-order period)
Minimum stock level in year 2010-11
Re-order level = 4, 00,000 tons
Normal consumption = 9,000
Normal re-order period = 40 days
Minimum stock level = 4, 00,000 (9,000*40) =40,000.

Minimum stock level in year 2011-12

Re-order level = 3, 40,000 tons
Normal consumption = 8,500
Normal re-order period = 35 days
Minimum stock level = 3, 40,000(8,500*35) =42,500
Minimum stock level in year 2012-13
Re-order level = 4, 00,000 tons
Normal consumption = 9,000
Normal re-order period = 35 days
Minimum stock level = 4, 00,000 (9,000*35) =85,000.

80

Minimum stock level in year 2013-14

RE- order level

=375000 tons

Normal consumption

=8000

Normal re order period

=30 days

Minimum stock level =375000-(8000*30) 135000

Minimum stock level in year 2014-15
Re order level 425000
Normal consumption 8500
Normal re order period 45days
Minimum stock level =4, 25000-(8500*45) =42500
Table showing the minimum stock levels
Year

Minimum stock level

2010-11

40,000

2011-12

42,500

2012-13

85,000

2013-14

135000

2014-15

42500

81

INTERPRETATION:
The minimum stock level of the NSL TEXTILES (Ltd) increased year by year up to
2013-14And after it was decreased till 2014-15.The Company maintain sufficient stock
MAXIMUM STOCK LEVEL
Re-order + re-order quantity (minimum consumption * minimum re-order period).
Maximum stock level in 2010-11
Re-order level = 4, 00,000 tons
Re-order quantity = 16,500
Minimum consumption = 9,000
Minimum re-order period = 40 days
Maximum stock level = 4, 00,000 +16,500 (9,000*40) = 56,500.

82

Maximum stock level in 2011-12

Re-order level = 3, 40,000 tons
Re-order quantity = 17,000
Minimum consumption = 8,500
Minimum re-order period = 40 days
Maximum stock level = 3, 40,000 +17,000 (8,500*40) = 59,500.
Maximum stock level in 2012-13
Re-order level = 4, 00,000 tons
Re-order quantity = 16,000
Minimum consumption = 9,000
Minimum re-order period = 35 days
Maximum stock level = 4, 00,000 +16,000 (9,000*35) = 1, 01,000
Maximum stock level in 2013-14
Re order level 375000 tons
Re order quantity =18000
Minimum consumption=8000
Minimum reorder period=40 days
Maximum stock level

=375000+18000 (8000*40) = 73000

Maximum stock level in 2014-15

Re order level 4, 25,000
Reorder quantity=16000
Minimum consumption =7000
83

\minimum reorders period 40 days

Maximum stock level

=425000+16000 (7000*40) = 161000

Table showing the maximum stock level

Year

Maximum stock level

2010-11

56,000

2011-12

59,000

2012-13

1,01,000

2013-14

73000

2014-15

161000

84

INTERPRETATION:
The maximum stock level of the NSL TEXTILES (LTD) has
fluctuated are taken place. The maximum consumption of the stock level will be
fluctuated decreased pattern up to 2013-14. 2014-15 year was increased. Company
maintains sufficient stock
RE-ORDER STOCK LEVEL
Re-order stock level = Maximum consumption * maximum re-order period
Reorder stock level in the year 2010-11
Maximum consumption = 10,000 tons
Maximum re-order period = 40days
Re-order stock level=10,000*40= 4, 00,000 tons.
Reorder stock level in the year 2011-12
Maximum consumption = 9,000 tons
Maximum re-order period = 35days
Re-order stock level=9,000*35= 3, 15,000 tons
Reorder stock level in the year 2012-13
Maximum consumption = 9500 tons
Maximum re-order period = 40days
Re-order stock level=9500*40= 380000 tons.
Reorder stock level in the year 2013-14
85

Maximum consumption = 10500 tons

Maximum re-order period = 45days
Re-order stock level=10500*45= 4, 72,500 tons.
Reorder stock level in the year 2014-15
Maximum consumption =10000 tons
Maximum re-order period = 45days
Re-order stock level=10000*45= 450000 tons
8. Table showing the Re-order stock level

Year

Re-order
level

2010-11

4,00,000

2011-12

3,15,000

2012-13

38,00,00

2013-14

472500

2014-15

450000

stock

86

INTERPRETATION:
The reorder stock level increased year by year up to 2011-12. And thereafter it
was decreased in 2012-13. And it is maintain quality.

Table showing Re-order, Minimum &maximum stock level

Year

Re-order
level

stock Minimum stock Maximum stock

level
level

2010-2011

4,00,000

40,000

56,000

20011-12

315000

42,500

59,500

2012-13

380000

85000

101000

2013-14

472500

135000

73000

2014-15

450000

42500

161000

87

INTERPRETATION
From the above table it is understood that the minimum stock level increases year by year
by comparing re-order stock level and maximum stock level the reorder level is very high
and in both the cases the stock levels are fluctuations

ABC Analysis technique of Inventory management for the year 2010-11

Sol

Name of

Unit

% of

Cumu Unit cost

an

the Item

s in

total

lative
88

Total cost

% of

Cumul

Total

ative

t
M.T

o.

% of
units

% of

total

cost

units

total
cost

e
g
o
r
y

1.

Cotton lint

103

1.05

1.05

84756/-

87,29,939/-

4.35

4.35

2.

Cotton

560

5.74

6.79

146952/-

8,22,93,223/- 41.04

45.39

yarn
3.

4.

Cotton
Seed oil

Cotton

A
1376 14.11

4421

45.35

20.90

42890/-

66.25 7236/-

5,90,17,105/- 29.43

3,19,92,151/-

15.95

74.82

90.77

seed

extraction
5.

Cotton
Seed Hulls

2490 25.54

91.79

3484/-

86,76,034/-

51

0.52

92.3

1223/-

5,72,403/-

746

7.69

100.00 12368/-

92,27,174/-

4.32

95.09

Cotton
6.

Seed

0.28

95.37

Linters
7.

4.60

100.00

Chart 4.16:- Pie diagra m showing

the % quantity of i nventory
Category
A
21%

Category
C
34%

89

Category
B
45%

INTERPRETATION
There are three items in The NSL TEXTILES (LTD) which comes under category A.
These items comprise 76% of total cost and 21% of total volume which includes cotton
lint, cotton yarn, and cotton seed oil.
The B category inventory in the s Pvt...Ltd comprises of one item which occupy about
18% of total cost and 47% of total volume which includes cotton seed extraction.
There are three items which comes under C category in. These generally occupy 6% of
total cost and 32% of total volume which includes cotton seed, NSL TEXTILES (LTD)
cotton seed hulls, and linters.

ABC Analysis technique of Inventory management for the year 2011-12

Sol

Name of

Unit

% of

Cumul

Unit

an

the Item

s in

total

ative

cost

M.Ts

units

90

Total cost

% of

Cum

Cat

Total

ulativ

ego

cost

ry

1.

Cotton

% of

% of

total

total

units

cost

103

1.05

1.05

84756/-

87,29,939/-

4.35

4.35

560

5.74

6.79

146952/-

8,22,93,223/-

41.04

45.39

1376

14.11

20.98

42890/-

5,90,17,105/-

29.43

74.82

4421

45.35

66.25

7236/-

3,19,92,151/-

15.95

90.77

lint
2.

Cotton
yarn

3.

4.

Cotton

seed oil

Cotton
seed

extraction
5.

Cotton
seed hulls

6.

7.

2490

25.54

91.79

3484/-

86,76,034/-

4.32

95.09

seed

51

0.52

92.31

11223/-

5,72,403/-

0.28

95.37

Linters

746

7.69

100

12368/-

92,27,174/-

4.60

100

Cotton
C

Char t 4.18:- Pie diagram showing

the % quantity of inventory
Category
A
21%

Category
C
34%
Category
B
45%

91

INTERPRETATION
There are three items in The NSL TEXTILES (LTD) which comes under category A.
These items comprise 75% of total cost and 21% of total volume. These items include
cotton lint, cotton yarn, and cotton seed oil.
The B category inventory in The NSL TEXTILES (LTD) comprises of one item which
occupy about 16% of total cost and 46% of total volume. These items include cotton seed
extraction.
There are three items which comes under C category in NSL TEXTILES (.LTD). These
generally occupy 9% of total cost and 33% of total volume which includes cotton seed,
cotton seed hulls, and linters.

ABC Analysis technique of Inventory management for the year 2012-13

Sl.n

Name

Units

% of

Cumu

o.

of the

in

total

lative

Item

M.Ts

units

Unit cost

Total cost

% of

Cumu

Cat

Total

lative

ego

cost

% of
total

% of
total

92

ry

units

cost

.
1.

Cotton

566

3.56

3.56

155478/-

8,80,00,633/-

yarn
2.
3.

Cotton

36.52

36.52

33.82

70.34

7,90
2030

12.8

16.36

38952/-

,72,898/-

seed oil
Cotton
seed

5,
7953

50.15

66.51

6904/-

49,13,161/-

21.79 92.13

extracti
on
4.

Cotton
seed

1,2
4795

30.25

96.76

2526/-

1,15,826/-

hulls
5.

Linters

5.02

97.15

2.82

100.00

68
513

3.24

100

13260/-

,02,691/-

Chart 4.20:- Pie dia gram

showing the % quantity of
inventory
Categor
yC
34%

Categor
yA
16%

Categor
yB
50%

93

INTERPRETATION
There are two items in The NSL TEXTILES (LTD) which comes under category A.
These items comprise 70% of total cost and 16% of total volume. These items include
cotton yarn, cotton seed oil.
The B category inventory in The NSL TEXTILES (LTD) comprises of one item which
occupy about 22% of total cost and 51% of total volume. These items include cotton seed
extraction.
There are two items which comes under C category in NSL TEXTILES (LTD). These
generally occupy 8% of total cost and 33% of total volume which includes cotton seed
hulls, linters.

ABC Analysis technique of Inventory management for the year 2013-14

Cumul
Sl

Name

Units

% of

ative

.N

of the

in

total

% of

o.

Item

M.Ts

units

total

Cumula

Unit cost

Total cost

% of

tive

Cat

Total

% of

ego

cost

total

ry

units
1.

Cotton

602

3.43

3.43

cost
159102/-

yarn

9,57,79,629/-

38.07

38.07
A

94

2.

Cotton

2357

13.46

16.89

34433/-

8,11,58,803/-

32.26

70.33

8875

50.73

67.62

5732/-

5,08,71,601/-

20.22

90.55

4892

27.96

95.58

2869/-

1,40,39,228/-

5.58

96.13

775

4.42

100.00

12535/-

97,15,082/-

3.86

100.00

see oil
3.

Cotton
seed

extracti
on
4.

Cotton
seed
hulls

5.

Linters

Chart 4.22:- Pie diagram

showing the % quantity of
inventory
Catego
ry C
32%

Catego
ry A
17%

Catego
ry B
51%

INTERPRETATION

95

 There are two items in The NSL TEXTILES (LTD) which comes under category A.
These items comprise 71% of total cost and 17% of total volume. These items include
cotton yarn, cotton seed oil.
The B category inventory in The NSL TEXTILES (LTD) comprises of one item which
occupy about 20% of total cost and 50% of total volume. These items include cotton seed
extraction.
There are two items which comes under C category in NSL TEXTILES (.Ltd). These
generally occupy 9% of total cost and 33% of total volume which includes cotton seed
hulls, linters.

ABC Analysis technique of Inventory management for the year 2014-15

Cumul
Sl
.N
o.

Name of
the Item

Units

% of

ative

in

total

% of

M.Ts

units

total

Cumul

Unit cost

Total cost

% of

ative

Cat

Total

% of

ego

cost

total

ry

units
1.

cost

Cotton
yarn

621

3.04

3.04

151468/-

96

9,40,61,964/-

30.35

30.35

Cotton
2.

seed oil

3.

Cotton
seed

2738

13.41

16.45

41665/-

11,40,79,590/-

36.81

67.16

11069

54.21

70.66

6587/-

7,29,11,593/-

23.52

90.68

5213

25.53

96.19

3448/-

1,79,74,988/-

5.80

96.48

776

3.81

100.00

14021/-

1,08,80,727/-

3.52

100.00

extractio
n
4.

Cotton
seed
hulls

5.

Linters

Chart 4.22:- Pie diagram showing

the % value of inventory for the
year 2014-15

Category
B
24%

Chart 4.24:- Pie diagram showing the

% quantity of inventory
Category
C
29%

Category
C
9%

Category
A
17%

Category
B
54%

Category
A
67%

INTERPRETATION
There are two items in The NSL TEXTILES (LTD) which comes under category A.
These items comprise 67% of total cost and 21% of total volume. These items include
cotton yarn, cotton seed oil.
97

 The B category inventory in The NSL TEXTILES (LTD) comprises of one item which
occupy about 24% of total cost and 68% of total volume. These items include cotton seed
extraction.

EOQ ANALYSIS
EOQ =

2AO /

A = Total annual requirement

O = Ordering cost p
C = Convey in cost per unit
2010-11: -EOQ=

2*37,874.73*6276.96
2,068.45

479.45

2011-12: -EOQ
=

2*39874.73*6276.96
98

926.88
= 818.2
2012-13: -EOQ
2*45689.48*9389.92
=

1955.95

662.33

2*16774.33*5565.26.92

2013-14: EOQ

2338.81
=271.3

2014-2015 EOQ;

2* 33563.48*5565.26
14370

161.23

9 Table showing the Economic order quantity

YEAR

EOQ

2010-11

479.45

2011-12

818.2

2012-13

662.33

99

2013-14

271.3

2014-15

161.23

INTERPRETATION
The Economic ordered Quantity of the NSL TEXTILES (Ltd) in2010-2011 is 161.23it

has been decreased to 479.45.3 in the year 2011-2012and it has been increased to 818.2
in the year 2012-2013.The Economic ordered Quantity had decreased to 662.33. In the
year 2013-2014.At present the economic Ordered Quantity to 662.33 in the year 20142015.It is minimum (161.23) in the year 2010-2011 the reason for annual usage decrease
when compared 2011-2012. It is maximum (818.20) in the year 2012-2013 the reason for
100

annual usage increase when compared 2013-2014.The overall trend of the Economic
Ordered Quantity in increasing patterns.

FINDINGS

The current ratio is increasing in the last five years. It is due to current assets excess than
current liabilities.

The quick ratio is increasing in the last four years, because the current liabilities are
decreasing year by year.

Inventory turnover ratio is fluctuated every year because the average inventory is
decreased when compared to the sales.

Inventory to current assets ratio is increasing through the past years. The current assets
are increasing more than inventory in every year.

Inventory to total assets ratio is fluctuating but in the current year it is increased. Because
the total assets are increasing in every year.

Inventory to working capital ratio is in decreasing pattern year by year. Because the
working capital is fluctuating.

Minimum stock levels are increased for first two years. After it is would fluctuating due
to increase in material storage.

Maximum stock levels are fluctuating year by year due to maintenance of overstock. And
less space for storage in materials. Wastage of materials and other costs are increased.

101

Re-order stock levels are increasing pattern first three years. And afterwords fluctuating.
Because it is these years lead time of stock arrived accurately. The lead time of on order
was not maintained in sequential manner.

EOQ was increased due to increase in consumption of raw materials increased. And then
fluctuated because of increase in the quality of raw materials.

102

SUGGESTIONS

It is better to increase the level of inventory to retain the optimum position.

As the inventory to current assets of the company is satisfactory, so as to maintain the

same level of current assets of the company.

The company has to maintain the material requirement of total annual...

The volume of the order level is fixed between minimum level and maximum level by
considering carefully how many days are required to replenish the stock, on that time the
firm would require the information about the lead time and usage volume.

103

CONCLUSION
The economic life of any company depends on some important financial aspects
like profits, expenses, turnover etc. a careful analysis of these areas are very much
essential for the success and survival of the company. For this purpose inventory
management with help of technique like INVENTORY STOCK LEVELS and EOQ
analysis is to be carried out. A study of this type is very much useful to any company to
keep in to the financial aspects and to take some measures to improve.
In my view the inventory management of the company is supplying vital
information about the inventory of the company in all aspects as per the EOQ analysis.
The company as maintain optimum level of inventory as per the requirements and
researched their goals.

104

BIBLIOGRABPHY
FINANCIAL MANAGEMENT PRASANNA CHANRDRA
FINANCIAL MANAGEMENT - V.K. BHALLA
FINANCIAL MANAGEMENT - I.M.PANDEY
FINANCIAL MANAGEMENT - M.Y.KHAN & JAIN

WEBSITES:
nsltextiles@yahoo.co.in

105