INTRODUCTION

Finance is the lifeblood of business and plays an important role in any organization. The dictionary meaning of finance is money affairs or the art of managing or administrating the public money. Hence the name financial management could be referred to as money management. The function of finance is not only arranging funds for the business organization but also it includes planning, forecasting of cash flows, both receipts and payments, rising of funds, allocation of funds and financial control. 1.1Nature Scope of the study Entails planning for the future of a person or a business enterprise to ensure a positive cash flow. It includes the administration and maintenance of financial assets. Besides, financial management covers the process of identifying and managing risks. The primary concern of financial management is the assessment rather than the techniques of financial quantification. A financial manager looks at the available data to judge the performance of enterprises. Managerial finance is an interdisciplinary approach that borrows from both managerial accounting and corporate finance. Some experts refer to financial management as the science of money management. The primary usage of this term is in the world of financing business activities. However, financial management is important at all levels of human existence because every entity needs to look after its finances. Financial Management Levels Broadly speaking, the process of financial management takes place at two levels. At the individual level, financial management involves tailoring expenses according to the financial resources of an individual. Individuals with surplus cash or access to funding invest their money to make up for the impact of taxation and inflation. Else, they spend it on discretionary items. They need to be able to take the financial decisions that are intended to benefit them in the long run and help them achieve their financial goals. From an organizational point of view, the process of

financial management is associated with financial planning and financial control. Financial planning seeks to quantify various financial resources available and plan the size and timing of expenditures. Financial control refers to monitoring cash flow. Inflow is the amount of money coming into a particular company, while outflow is a record of the expenditure being made by the company. Managing this movement of funds in relation to the budget is essential for a business. At the corporate level, the main aim of the process of managing finances is to achieve the various goals a company sets at a given point of time. Businesses also seek to generate substantial amounts of profits, following a particular set of financial processes. Financial managers aim to boost the levels of resources at their disposal. Besides, they control the functioning on money put in by external investors. Providing investors with sufficient amount of returns on their investments is one of the goals that every company tries to achieve. Efficient financial management ensures that this becomes possible. Financial management is broadly concerned with the acquisition and use of funds by a business firm. The important tasks of financial management are as follows:

A) Financial Analysis, Planning and Control Analysis of financial condition and performance Profit planning Financial Forecasting Financial Control

B) Financing Identification of sources of finance and determination of financing mix. Cultivating sources of funds and raising funds Disposition of profits between dividends and retained Earnings.

C) Investing Management of current Assets Capital Budgeting

Importance of Financial Management: Finance is the lifeblood and nerve center of a business, which is very essential to smooth running of it. Right from the beginning i.e., conceiving an idea to do business, finance is needed to promote or establish the business, acquire the fixed assets for expansion of the existing one.

Some important functions of Financial Management: Financial planning and successful promotion of an enterprise. Acquisition of funds as and when required at the minimum possible cost. Proper use and allocation decisions. Improving the profitability through financial control. Increasing the wealth of the investor and the nation Promoting the mobilizing individual and corporate saving.

Financial System: The purpose of financial management is to help the decision makers to make the better financial decisions. These decisions are made in the context of a financial system that both constrains and facilitates them. The financial system comprises a variety of intermediaries, markets and instruments that are related in a complex manner .It provide the principal means by which savings are transformed in to investments. Given its role in the allocation of resources, the efficient functioning of the financial system is critical to a modern economy. Functions of the Financial System: The financial system performs the following interrelated functions that are essential to modern economy:

It provides a payment system for the exchange of goods and services. It enables the pooling of funds for undertaking large-scale enterprises. It provides a mechanism for spatial and temporal transfer of resources. It provides a way for managing uncertainty and controlling Risk. It generates information that helps in coordinating Decentralized decision making. It helps in dealing with the incentive problem when one Party has an Informational advantage.

Financial Manager Job Description A financial manager is responsible for providing financial advice and support to clients and colleagues to enable them to make sound business decisions. Specific settings vary enormously and include both public and private sector organizations, such as multinational corporations, retailers, financial institutions, charities, small manufacturing companies and universities. Financial considerations are at the root of all major business decisions. Clear budgetary planning is essential for future planning, both short and long term, and companies need to know the financial implications of any decision before proceeding. In addition, care must be taken to ensure that financial practices are in line with all statutory legislation and regulations. Financial managers may also be known as financial analysts or business analysts. Typical Work Activities The roles of financial managers vary significantly. The generic nature of the job title can be misleading and job descriptions should be scrutinised carefully as the level and scope of the responsibilities involved in any role coming under the banner of financial management can differ enormously. In larger companies, for instance, the role is more concerned with strategic analysis; in smaller

organizations, a financial manager may be responsible for the collection and preparation of accounts.

1.2 Need for the Study The Industry sectors and the financial system are undergoing rapidly changes following the process of liberalization and reforms. The underlying principle behind every reform measure re-orientation of monetary policy techniques, introduction of new money market instruments and institutions, suggest structural changes in the financial system and strengthening regulatory arrangements has been to make the system more competitive, efficient and profitable. Every performance indicator seems to reflect the impact of the reform measures. Profitability of the industry has witnessed a steady improvement mainly as a result of these measures, Capital adequacy rations have crossed the norms prescribed for almost all industries. The industries have begun to focus on minimizing their asset liability mismatches and on risk management. Further, after the enactment of securitization Act 2002, the industries get a weapon to tackle the challenge of Non Performing Assets (NPAs). At this backdrop, it is felt essential to study the financial performance of the Lead Acid Division, HBL Power Systems Ltd, which is one of the representatives of the industrying system. Which is experiencing the recent reforms? 1.3 Objectives of the Study The following are the objectives of the present study titled Inventory Management at Hyderabad Batteries Ltd., Pydibhimavaram. 1. 2. To understand the concept of inventory management in general and To know the profile of Hyderabad Batteries Ltd located at to know about the methods of inventory management in particular, Pydibhimavaram, Srikakulam District,

3. 4.

To learn the HBL is organizing its inventory management methods To give suggestions if necessary for the better improvement of

and techniques, inventory management at HBL.

1.4 Methodology of the study To fulfill the objectives mentioned above, the present study requires both primary and secondary data. The primary data and the collection of secondary data details are given as follows: 1 Primary data. 2 Secondary data. Primary Data It consists of information disclosed by the financial heads of various authorities of the respective Departments of H.B.L. Conducting personal interviews with the concerned officers of financial department at H.B.L battery ltd. Secondary data: It consists of information obtained from annual reports. Balance-sheet and other financial statements are also collected. Files and same other important documents maintained by the organization. In addition to that, collecting data from referred text books. Collection of required data from annual records of H.B.L battery ltd had become necessary. Reference from textbooks and journals relating to financial management are also included. 1.5 Limitations of the Study The study has been conducted is a systematic and comprehensive way so as to make the project work an enviable one. However the topic under my study not is free from limitations due to these factors. The following are the limitations of the present study: 1. Due to the time constraints it is difficult to study the performance of a big

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

2.

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

not sufficient to make a proper study. 3. The figures in the balance sheet are furnished according to the guidelines

issued by the Reserve Industry of India from time to time. Thus the Study Looses its significance as the figures over the period may not be comparable. 1.6 Framework of the Study Chapter 1 Contains Need For The Study, Objectives Of The Study, Methodology Of The Study, And Limitations Of The Study. Chapter 2 Deals With Organization Profile, Company Introduction, Company Operations And Product Profile, Board Of Directors. Chapter 3 Provides Theoretical Frame Work Of Inventory Management, Techniques Of Inventory Management, And Determination Of Safety Stocks, Benefits Of Inventory Management, Nature Of Inventory Management. Chapter 4 analyzes Interpretation of Inventory Management. Chapter 5 has the Summary and Suggestions of the Study.

PROFILE OF HYDERABAD BATTERIES LIMITED, PYDIBHIMAVARAM 2.1 Company Introduction HBL Power Systems Limited is a public limited company. It was established in 1977 as a Small Scale Industry but today it has grown into a well-diversified batteries technologies group. It has its units on the outskirts of Hyderabad.HBL Power Systems Ltd. is the pioneer in the design, development and manufacture of specialized batteries and DC systems in India. With over 3 decades of experience in this field, the company offers a wide range of batteries and associated electronics providing its customers, custom built solutions to meet critical requirements. HBL Power Systems Limited is engaged in the manufacturing of widest range of specialized batteries, electronic equipment and other telecommunication, railways, aviation, defense, power and other industrial sectors. The Companys operations are divided into 3 Segments Batteries Electronics Others Further, the company is divided into various divisions depending upon the nature of the product; each division is treated as a separate company, each having its own funds allocation and manpower in various departments. The company manufactures various types of batteries viz., VRLA, Tubular, Monobloc, NickelCadmium, Lithium, Silver-Zinc, and Thermal etc.The electronics segment comprises of various divisions manufacturing electronic equipment like rectifiers, IPS etc Apart from batteries and electronics, the company also manufactures bulletproof jackets, windmills etc. The company has recently taken up railway singnaling works contracts. The company has 3 divisions catering to the ancillary

needs of the company, material components divisions at Shamirpet, Nandigaon, Bhoothpure, Kandivalasa and VSEZ (Duvvada) units indulge in various ancillary activities like sheet metal fabrication making of racks, cutting, bending, plating etc. Plastic molding division at Nandigaon manufactures various types of boxes, and cell & battery containers. Annual turnover of the company is around 800 crores. Profile of Hyderabad Batteries Limited, Pydibhimavaram. An Overview on HBL: The Widest range of specialized Direct Current (DC) Power Systems. HBL IS THE LARGEST MANUFACTURER OF SPECIALIZED BATTERIES in India. HBL offers to the customers the Most Appropriate Technology based on the Requirement. from the wide range of batteries Nickel-cadmium batteries Silver Zinc batteries Lead-acid batteries and Lithium batteries Chargers for Rechargeable batteries are also manufactured in both TR and SMR versions from 24Volts to 220Volts. The company has sales of about US $ 50 millions and very substantial Design and Development capabilities. Over 25 years of Experience in the Domestic Market and over 10 years in Exporting to many countries including USA, South Korea, West Asia and South East Asia, has given HBL an understanding of the Customers special varied requirements. Several Major Customers have found the companys products to be Reliable over the years and have placed repeat orders. The company has adequate marketing and service personnel who can support the customers at short notice. The Triumph-HP series is a Premium Design Valve Regulated lead acid battery based and features offered by world class companies. The battery works on the gas recombination principle and has been designed to meet the requirements of a wide range of applications. This product has been manufactured under the controls. Established by a for Quality/Environmental Management system that meets the requirements of ISO 9001-2000: ISO 14001:1996, which has been independently certified by BVQI.

Vision of HBL To organize India's engineering talent into a globally competitive business. Whether in manufacturing or in services. We want to become a learning organization to export technology from India. Our choice is for businesses with technological barriers and / or engineering intensity. Our location at Hyderabad makes this vision feasible, because Hyderabad has India's largest cluster of scientific and technical training institutions providing high caliber Human Resources. HBL Offers: A wide range of individual battery types, in the major technologies of Nickel Cadmium, Lead Acid, and Silver Zinc along with associated Electronic Equipment. Conveniently located in Hyderabad, backed-up with processing and testing facilities to provide full product support and back-ups.An in-depth technical resource based on years of experience to help you select batteries according to the requirements. Off the shelf "products in many popular sizes to meet quick delivery requirements.Products manufactured to International Standards and Certified by Independent Testing Agencies. Certifications and Approvals

Nickel Cadmium: ISO 9001 ISO 14001 IEC 60623 Certification (CSA) Bump Test Vibration Test Seismic Test OHSAS 18001 Certification (NCPP & NCFP) International Railway Industry Standard (IRIS)

Lead Acid: ISO 9001 ISO 14001 IEC 60896-Part 21 & 22 ( Intertek SEMKO) for VRLA single cells and Monblocks Electronics: Thyristor Control Rectifiers, DC-DC Convertors, Defence Chargers ISO 9001 Medical camps conducted on regular basis Blood Donation Camps Sponsorship of Village Schools Foundation for Girl Child Education Child Development Programmed in surrounding our Units

Social Activities

Environment Protection Measures: Full fledged Effluent Treatment Plant to treat plant waste and Sewage Reverse Osmosis plant to purify water Water from Treatment plant used for Gardens OHSAS 18001 Certified Approved Battery Recycling plants.

Specifications at a Glance Positive Plate: Flat pasted type with Lead-calcium High Tin alloy grid to resist corrosion & longer life. Negative Plate: Flat pasted type with Lead-calcium alloy grid for maintenance free characteristics.

Container: High impact Polypropylene co-polymer, ribbed jar design for better heat dissipation and strength. Flame retardant polypropylene UL 94V0/28% LOI is optional. Separator: Low resistance, high porosity and highly Absorbent type Glass mat Separator (AGM).

2.1: Range and Applications:

Cell Type L-Low Rate KPL (Single) KBL (Block) Capacity Range 11 to 480 8 to 1540 Typical Back- up Above 3 Hours Typical Application Fire Alarm Panels Emergency Lighting Telecommunication Switchgear Protection M-Medium Rate KPM (Single) KBM (Block) 10 to 395 12 to 1460 60 Minutes to 3 Hours Switchgear Protection Instrumentation And Process Control U.P.S Motive Power Emergency H-High Rate Starting KPM (Single) KBM (Block) 9 to 930 10 to 265 Below 60 minutes Lighting Generator U.P.S Diesel locomotive Cracking

Electrolyte: High purity Sulphuric acid to maximize shelf life.

Terminals: Lead plated Copper inserts high conductivity. Safety Valve: Self-Resealing, pressure regulated and explosion proof. Container and cover sealing: Heat Sealing Method for better joint strength.

Products of HBL: Nickel Cadmium Pocket Plate Batteries: HBL offers a very wide range of Nickel Cadmium Pocket Plate Batteries that match diverse applications and operating conditions. Benefits: Exceptionally long life Adaptability to a wide temperature range No emission of corrosive gases, Safe from flame & explosion Minimal maintenance, Low life time cost, quick recharging Table 2.2: Range and Applications
Cell Series Capacity Range Ah L-Low Rate KFL Range (Single Block) 20 to 1500 Above 3 hours Fire alarms, Emergency Lighting, Telecom,Railway Signaling, Switchgear protection, Photovoltaic, Cathodic M-Medium Rate KFM Range (Single & Block) 11 to 1391 60 minutes to 3 hours Protection. Switchgear protection, Emergencylighting, Motive Power, Train lighting, Instrumentation 11 to 1026 H-High Rate KFH Range (Single & Block) Generator Starting, UPS, Below 60 minutes and process Control, UPS, Electric vehicles Typical Backup Typical Applications

Diesel 11 to 120 X Ultra High Rage KFX Range (Single & Block) Below 10 minutes Aircraft/ Helicopter

Nickel Cadmium Fiber Plate Batteries These batteries use Fiber Plate electrodes. The three Dimensional Fiber Structure in the plate provides a very high conducting density. The Advantages of this technology is its low internal resistance, high rates of discharge, improved recharge capability and lower weight with a high cycle life. Features: Consistent Voltage Output Long Service life and reliable Operation Can be used in extreme temperature zones Ease of recharging the battery Low maintenance and low water consumption

Sealed Cylindrical NICKETL CADMIUM Battery Packs For Defense Communications: HBLs Sealed Cylindrical NICAD Batteries are designed incorporating the latest technology ensuring high standards. They are available in packs using a wide range of cells from 110mAH to 8000m Ah for various applications. Applications: Radio communication User friendly Easy re-chargeability Optimal Cell life The Pure Lead-Tin range offers the customer the highest energy density of any lead acid battery anywhere. The battery is constructed around a complex thin

Pure Lead-Tin Vrla Monoblocks

plate, pure lead-tin grid which packages more power in a smaller space. The plates being made of high purity lead last longer, offering excellent life. Benefits: Maintenance-free and spill-proof. This enables flexible mounting Wide operating temperature range (-40o C to + 50oC) High energy density Good charge retention leading to long storage life Low internal resistance ensures quick recharge Superior raw materials for good performance and life Excellent deep discharge recovery characteristics

Tubular GEL VRLA Batteries: The solar powered shelter carry batteries that expose them to higher temperatures. Net result is the need for a heavy duty, robust, deep cycling battery that is also less sensitive to high temperature. To meet such rigors of temperatures and varying pattern of usage, HBL introduces Tubular Gel VRLA Battery with unbeatable combination of Tubular plate and gelled electrolyte. Applications: Wireless: Base Transceiver, station (BTS), Base Switches (MSO), CDMA/3G base stations, main switches. Applications other than Telecom: Telecommunications, Solar energy systems, Wind energy systems, Power plants and substations. Train lighting, Coach Air conditioning and signaling in Railways. Tubular Ultra Low Maintenance Lead Acid Battery Tubular LMLA battery is the combination of traditional advantage of tubular plate with ultra-low-maintenance feature. Tubular LMLA battery is a preferred choice for the applications with float, semi cyclic and cyclic operations along with long service life, high cycle life, Partial state of Charge (PSOC) & deep cycling requirements.

Taurus The Taurus Tubular plate low maintenance lead acid battery is the results of the strong R&D Expertise gained by HBL over a decade of supplying millions of lead acid batteries to various applications. Taurus batteries offer outstanding reliability over an expected service life of around 15 years in float applications. This battery offers very low maintenance, extended topping up frequency due to low antimony alloy & high acid reservoir. Stormz Stormz motive power (Traction) batteries for material handling equipment provide a very high level of performance and reliability in all industrial truck applications. These batteries are designed according to the relevant DIN, BS Standards. Lithium Batteries Primary: Lithium Thiony1 Chloride/Lithium Sulphur Di-Oxide Secondary: Lithium Ion Lithium batteries have been developed with support from DRDO in the year 1990 Defence Electronics HBL Microwave is focused on defence electronics. Unlike Batteries and Railway products where almost all development was done in house. HBL has collaborated with companies abroad for most of its defence electronics products. Radar and Electronic Warfare: Joint venture with ELTA, Israel Several other such plans are under discussion. The companys infrastructure in manufacturing and national sales service network will be of value in each of these projects because it can be shared Thyristor Controlled Battery Chargers HBL Battery chargers use Thyristor switching principle for achieving the desired DC output. The sophisticated power electronics design and production facility in the company enables it to meet the specific requirements of its customers. Applications:

These chargers find use in a variety of applications such as Process Control, Telecommunications, Emergency Lighting, Switch Gear Protection, Engine Starting and Power Station Control Maintenance These chargers can work for many years, without any special attention Long life through design and excellent thermal management. High Reliability better design and high quality standards ensure absolute reliability of the equipment and fail safe operation Stackable design minimizes place requirement and enables faster installation. Silver Start- Pure Lead Tin VRLA Monoblock Batteries for Civil Aviation: The Silver Sart range of On-board Aircraft starting batteries from HBL are designed using the Thin-plate Pure Lead tin Technology. Features that make these batteries the right choice for Aircraft starting Applications: Sealed, maintenance-free: no filling of acid or water Excellent starting capability: very high peak power Fast-charge capability: 100% recharge in 2 hours More flying hours: long life. Operation in very low temperature:-40o C to + 50o C HBL offers vented type NICAD Pocket Plate High Rate Batteries for ground starting of MIG Aircrafts. The Batteries are mounted on an electrically driven trolley unit. It consists of two banks of KPH 140P, each bank consisting of 24 cells. These Batteries are primarily used for meeting the ground starting and servicing electric power requirements for MIG Series of aircrafts. Additionally it supplies critical power to the DC motor as the prime mover of the electrically driven trolley. Benefits:

Nickel Cadmium Pocket Plate Batteries for Aircraft Ground Start:

Excellent resistance to shock, vibrations, temperature and corrosion. Exceptionally long and reliable service life Low maintenance and low life time cost Flame and explosion proof vent No sudden death and negligible annual ageing Quick Recharging and no memory effect. Defense Nickel Cadmium Pocket Plate Batteries for Aircraft Ground Start HBL offers Vented type NICAD Pocket Plate High Rate Batteries for ground starting of MIG Aircrafts. The Batteries are mounted on an electrically driven trolley unit. It consists of two banks of KPH 140P, each bank consisting of 24 cells. These Batteries are primarily used for meeting the ground starting and servicing electric power requirements for MIG Series of aircrafts. Benefits: Excellent resistance to shock, vibrations, temperature and corrosion. Exceptionally long and reliable service life Low maintenance and low life time cost Aircrafts These Batteries are primarily used for meeting the starting and servicing electric power requirements for MIG series of aircrafts. The Batteries are mounted on an electric driven trolley unit. These Batteries use High Rate Fiber Nickel Electrodes there by giving an excellent Electrical performance. The benefits of these batteries are low internal resistance, High rates of discharge and improved recharge capability coupled with long cycle life. Benefits Consistent Voltage Output and stable capacity over life time Long service Life Ease of handling due to light weight Fast recharge

Can be used in extreme temperature zones Most reliable

HBLs Sintered Plastic Bonded Batteries are best suited for applications requiring high reliability coupled with low maintenance and high performance. The sintered Plastic Bonded batteries are manufactured using sintered positive plates and Plastic Bonded negative plates. These are specially designed for High Power Density and Reduced Water Consumption. These batteries use polypropylene cell containers with thermally welded lids for high impact resistance. 2.3 Product Profile Batteries Nickel Cadmium Sintered Plated batteries Nickel Cadmium Pocket Plated batteries Nickel Cadmium Fibre Plated batteries Silver-zinc aircraft batteries Silver-zinc torpedo batteries Sealed Cylindrical Nicked Cadmium batteries Lithium batteries Valve Regulated Lead Acid batteries Sealed Lead Acid batteries Tubular Vent batteries Thermal batteries Monobloc batteries Electronics Switch Mode Rectifiers Integrated Power Supplies Universal Battery Chargers Rectifiers Data Loggers Thyristor based charged HFTCs

SSIs Fuzes Moving Target Detectors RF Power Amplifires BIT Units

2.4 BOARD OF DIRECTORS Dr.A.J.Prasad Mr. Ashok Nagarkatti Mr.J K Verma Mrs. Kavitha Prasad Mr.P.Ganapathi Rao Mr. M.S.Rama Krishna Mr. V V Rao Mrs. Preeti Khandelwal Audit Committee : Mr.P.Ganapathi Rao Mrs. Kavitha Prasad Mr. V V Rao M/s Satyanarayana & co. Charted Accountants Secundrabad Auditor M/s. Narasimha Murthy & co. Cost Accountants Hyderabad Chairman Member Member Chairman And Managing Director Director-Battery Technology Director-Operations Member Member Member Member Member

Cost Auditors: Mr. D. Mabu Basha Registered Offices: 8-2-601,Road no.10, Banjara Hills, Hyderabad-500 034

Bankers: State Bank of India State Bank of Hyderabad IDBI Bank Ltd State Bank of Indore Location of Plants: 1. Aliabad (V), Shameerpet(M), Ranga Reddy District, Andhra Pradesh. 2. Nandigoan(V), Kothur(M), Mahabubnagar District, Andhra Pradesh 3. Seripally(V), Bhoothpur(M), Mahabubnagar District, Andhra Pradesh. 4. Kandivalasa (V), Poosapaitrega(M), Vizianagaram District, Andhra Pradesh. 5. VSEZ, Visakhapatnam, Andhra Pradesh. 6. Thumkunta(V), ShameerpetM), Ranga Reddy District, Andhra Pradesh. 7. Haridwar, Uttarakhand. 8. IMT, Manesar, Haryana.

THEORETICAL FRAMEWORK OF INVENTORY MANAGEMENT

3.1 Meaning and Nature of Inventory

The dictionary meaning of inventory is stock of goods or a list of goods. The inventory can be defined as the sum of the value of raw materials, fuels and lubricants, spare parts, maintenance consumables; semi processed materials and finished goods stock at any given point of time. The term inventory refers to the study stockpile of the products a firm is offering for sale and the components that make up the product. The various forms in which inventories exists in a manufacturing are: Raw Materials. Work-in-process (Semi finished goods). Finished goods. Consumables. Spares.

Introduction of Inventory Management The Dictionary meaning of inventory is stock of goods or list of goods. In accounting language it may mean stock of finished goods only. In a manufactured concern, it may include raw material, work-in-process & Stores.Every enterprise needs inventory for smooth running of its activities. It serves as a link between production & distribution process. There is, generally a

time lag between the recognition of a need and its fulfillment. The greater the time lag, the higher the requirements for inventory. The unforeseen fluctuations in demand and supply of goods also necessitate the need for inventory. It also provides a cushion for future price fluctuations. The investment in inventories constitutes the most significant part of current assets/working capital most of the undertakings. Thus, it is very essential to have proper control and management of inventories. The purpose of inventory management is to ensure availability of materials in sufficient quantity as and when required & also to minimize investment in inventories. Most of the manufacturing industries spend more than 60% of the money for materials. Materials include raw material, bought out finished components, semi-finished components, spare parts, work-in-progress. Even a small saving in material will lead to heavy reduction in production cost. Inventory management deals with purchasing stocking & issuing of materials to various departments at right time, right quantity & at right quality. Inventory management involves controlling the quantity, kind, location, movements and timings of purchase of various materials used in industry. Concept Of Inventory Management The job of the financial management is to reconcile the conflicting view points of various financial areas regarding the appropriate inventory levels in order to fulfill the overall objective of maximizing the owners wealth. Thus, inventory management like the management of other current assets should be related to the overall objective of the firm. Inventories appears in various forms in manufacturing company raw materials, work in progress, and finished goods. Since the inventories constitute a large part of current assets, substantial amounts of money are required to maintain them. In industry like sugar, the raw material cost is high as 68.75% of total cost. Similarly, about the 90% of working capital is invested in inventories. Hence, it is necessary for every management to give proper attention to inventory management. An efficient system of the inventory management will determine what to purchase, how much to purchase, from where to purchase and when to store etc.

Raw Materials The raw material inventory contains items that are purchased by the firm from others and are converted into finished goods through the manufacturing process. They are an important input of the final product.

Work-in-proces The work-in-process inventory consists of items currently being used in the production process. They are normally semi-finished goods that are at various stages of production process. Finished goods Finished goods inventories are those final or completed products which are available for sale. The inventory of such goods consists of items that have been produced but are yet to be sold. These are the goods which are ready for the customers. The purpose of maintain inventory is to ensure proper supply of goods to customers. Consumables These are the materials which are needed to smoother the process of production. These materials do not directly enter the production but they act as catalysts etc. consumables and be classified according their consumption and critically. There can be instances where these materials may account for much value than the raw materials. Spares The consumption pattern of raw materials, consumables finished goods are different from that of spares. The stocking policies of spares are different from industry to industry. All decisions about spares are based on the financial cost of inventory on such spares and the costs that may arise due to their nonavailability. Benefits of Holding Inventories A company should maintain adequate stock of materials for a continuous supply to the factory for an uninterrupted production. Maintaining

inventories involves tying up of companys funds and incurrence of storage and handling costs. A firm also needs to maintain inventories to reduce ordering costs and available quality discounts etc. There are 3 main general motives of holding inventories: Transaction Motive Precautionary Motive Speculative Motive

Transaction Motive
This motive emphasizes the need to maintain inventories to facilitate smooth production and sales operations.

Precautionary Motive
This motive is necessitates holding of inventories to guard against the risk of unpredictable demand and supply forces and other factors.

Speculative Motive
This motive is influenced the decision to increase or reduce inventory levels to take advantage of price fluctuations.

Objectives of Inventory Management

The main aim of inventory management should be to avoid excessive and inadequate levels of inventories and to maintain sufficient inventory for the smooth production and sales operations. The main objectives of inventory management are operational and financial. Efforts should be made to place an order at the right time with the right source to acquire the right quantity at the right price and quality. The following are the objectives of inventory management: to To ensure continuous supply of raw materials, spares and finished goods facilitate uninterrupted production.

To avoid both over stocking and under stocking of inventory. To maintain sufficient finished goods inventory for smooth sales To maintain a minimum investment in inventories to maximize To minimize loses through determination, pilferage, wastages and To minimize the carrying cost and time. To maintain sufficient stock of raw materials in periods of short supply To control investment in inventory and keep it an optimum level. To design proper organization for inventory management. Clear-cut

operations and efficient customer service. profitability. damages.

and anticipate price changes.

accountability should be fixed at various levels of the organization.

Techniques of Inventory Management

In managing inventories, the firms objective should be in consonance with the shareholder, wealth maximization principles. To achieve this principle the organization should maintain appropriate levels of inventory. Effective inventory management requires an effective control system for inventories. A proper inventory control not only helps in solving the acute problem of liquidity but also increases profits and causes substantial reduction in the working capital of the concern. The following are the important tools and techniques of Inventory Management and control. Determination of Economic Order Quantity. Determination of Stock levels. ABC analysis VED analysis Determination of safety stocks.

Selecting a proper system of ordering for inventory. Inventory turnover ratios Aging schedule of inventories. Classification and modifications of inventories. Preparation of inventory reports. Every organization will think about how much to order, when ordering the

1) Economic Order Quantity inventories to solve this problem economic order quantity will fix the appropriate order size. EOQ is the size of the lot order to be purchased which is economically viable. This is the quantity of materials which can be purchased at minimum costs. The EOQ is an optimum quantity of materials to order after consideration of the following categories of costs, such as ordering costs, carrying costs, stock out costs. a) Ordering Costs These are the costs which are associated with the purchasing of ordering of materials. These costs include:

Costs of placing an order. Costs of receiving goods. Transport costs. Documentation processing costs. Additional costs of frequent or small quantity orders. Cost of stationary, typing postage, telephone charges etc. These are the costs for holding inventories. These costs will not be incurred

b) Carrying Costs if inventories are not carried. These costs include: Stores staffing equipment maintenance and running costs. Handling costs. Insurance and security costs.

Cost of storage which could have been for other purpose. Pilferage and damage cost. Obsolescence and determination costs. Audit, stock taking or perpetual inventory costs The stock out costs is associated with running out of stock, includes the following: Lost contribution through the lost sale caused by the stock out. Loss of future sales because customers go elsewhere. Loss of customer goodwill. Cost of production stoppages caused by stock out of work in progress of raw material. Labor frustration over stoppages. Extra costs associated with urgent often-small quantity replenishment

c) Stock-Out Costs

purchases. 2) Determination Of Stock Levels Various levels of inventory are fixed to see that no excess inventory is carried and simultaneously there will not be any stock out. If the inventory levels are too little, the firm will face frequent stock outs involving heavy ordering costs and if the inventory level is too high it will be unnecessary tie-up of capital. a) Reordering Level Reorder level is the level of stock availability when a new order should be raised. The stores department will initiate the purchase material when the stock of material reaches at this point. This level fixed between the minimum and maximum stock levels. The following formula is used for this purpose: Reorder level = (maximum usage) (maximum lead time). b) Minimum Stock Level Minimum stock level is the lower limit below which the stock of any stock item should not normally be allowed to fall. Their level is also called safety stock or

buffer stock. The main object of establishing this level is to protect against stock out of a particular stock item and in fixation of which average rate of consumption and time required for replenishment i.e., lead time are given prime consideration. Minimum stock level =Reorder level (average or normal usage * average lead time). c) Maximum Stock Level Maximum level represents the upper limit beyond which the quantity of any item is not normally allowed to rise to ensure that unnecessary working capital is not blocked in stock items. Maximum stock level represents the total of safety stock level and EOQ. Maximum stock level can be expressed in the following Formula: Maximum stock level = reorder level + economic reordering quantity (Minimum usage * minimum lead time) d) Danger Level Danger level of stock is fixed below the minimum stock level and if stock reaches below this level. Urgent action for the replenishment of stock should be taken to prevent stock out position. Danger level = Average consumption * lead time for emergency purchases. e) Average Stock Level Average stock level is calculated as such: Average stock level = (Minimum stock level + maximum stock level) /2 (Or) Minimum stock level +1/2 * ROQ 3) ABC ANALYSIS In this technique the items of inventory are classified according to value of usage. This method divides inventory in classes namely. A: Items in class a constitute the most important class of inventories so far as the proportion in the total values of inventories is concerned. B: Items in class B constitute an intermediate position. C: Items in class C are quite negligible.

It is seen a very small percentage of the items say 15-20% account for the 75-80% of the total material usage and large number of items say 75-80% of the total items accounting 15-20% of the monetary value. 4) VED Analysis The VED analysis is used generally to spare parts. The requirements and urgency or spare parts is different from that material. The VED system is widely used classification technique to identify critically of various items for inventory control. This technique is based on the assumption that a firm need not exercise same degree of control on all items of inventory. On the basis of critically, the various items of inventory are categorized into 3 categories. Vital Essential Desirable Highly critical items like vital requires much closer attention by senior management compared to that or less critical items. The reorder level depends on the criticality of the items. For vital items relatively more inventory is maintain compared to that of criticality level E. These items are essential but not as much important as V items. 5) Determination of Safety Stocks Safety stock is a buffer to meet some unanticipated increase in usage. The usage of inventory cannot be perfectly forecasted. If fluctuated over a period of time. The demand for materials may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock out. The stockout can prove costly by affecting the smooth working of the concern. In order to protect against the stock out arising out of usage fluctuations, firms usually maintain some margin of safety or safety stocks. The basic problem is to determine the level of quantity of safety stocks. Two costs are involved in the determination of this stock i.e., opportunity cost of stock-outs and the carrying costs. 6) Ordering systems of inventory

The basic problem of inventory is to decide the reorder point. This point indicates when an order should be placed. The reorder point is determined with the help of these things: Average consumption rate. Duration of lead time. EOQ when the inventory is depleted to lead time consumption the order should There are 3 prevalent systems or ordering and a concern can choose any one of these: 1. Fixed order quantity system generally known as economic order quantity system. 2. Fixed period order system or periodic reordering system or periodic review system. 3. Single order and scheduled part delivery system. 7) Inventory Turnover Ratio An Inventory ratio indicates the efficiency of the firm in producing and selling its products. These ratios are calculated to indicate whether inventories have been use efficiently or not. The purpose is to ensure the blocking of only required of minimum funds in inventory. It is calculated by dividing the cost of goods sold by the average inventory. Inventory Turnover Ratio = (Or) Inventory Turnover Ratio = net sales/average inventory. Inventory holding period = Days in a year Inventory turnover ratio. 8) Aging Schedule of Inventories Classification of inventories according to the period (age) of their holding also helps in identifying slow moving inventories there by helping in effective control and management of inventories. 9) Classification and Codification Of Inventories Cost of goods sold Average inventory.

be placed.

The inventories of a manufacturing concern may consist of raw material; work in process, finished goods, spares, consumable stocks etc. All these categories may be classified either according to their nature or according to use. Generally, materials are classified according to their nature such as construction materials, consumable stocks, spares, lubricants etc. After classification, the materials are given code members. The coding may be done alphabetically or numerically. The later method is generally used for coding. The class of materials is assigned to the category of materials in that class. The third distinction is needed for the quality of goods and decimals are used to note this factor. 10) Inventory Reports From effective inventory control, the management should be kept informed with the latest stock position of different items. This is usually done by preparing periodical inventory reports. These reports should contain all information necessary for managerial action. These reports management takes corrective action wherever necessary. The more frequently these reports are prepared the less will be the chances of lapse in the administration of inventories. Just In Time Inventory Management The just-in-time inventory control system, originally developed by Taichi Okno of Japan, simply implies that the firm should maintain a minimal level of inventory and rely of suppliers to provide parts and components just-in-time to meet its assembly requirements. The major emphasis of just in time philosophy is inventory management. It begins by identifying the problems and forcing firms to tackle them. The main tactic used to reveal such problems in inventory reduction. The just-in-time inventory system, while conceptually very appealing is difficult to implement because it involves a significant change in the total production and management system. It requires interalias: A strong and dependable relationship with suppliers who are geographically not very remote who are geographically not very remote from the manufacturing facility.

An easy physical access in the form of enough doors and conveniently located docks and storage areas to dove tail incoming suppliers to the needs of assembly line. It attempts to minimize inventories through small incremental reduction rather than prescribe particular techniques or methodologies.

Valuation of Inventories According to accounting standard -2 the valuation of inventories is given by the Institute of Chartered Accounts of India. Items such as expenses, revenues, or book debts can be recorded in the books of accounts with a fair degree of accuracy. However, an element of subjectively is involved in the measurement of items such as depreciation or inventory value. Methods of valuing the inventory may vary between different business and even between undertaking within the same trade or industry. Taking all these significant aspect into account, this standard deal with: 1) 2) 3) below The determination of value at which inventories are carried until related recognized. Ascertainment of cost thereof. The circumstances in which carrying amount of inventory is written down cost. revenues or

Valuation of Inventory Is Critical Importance Reasons

Individual items may not be of significant value but taken together, would constitute a significant portion of total assets. Rapid turn over exception being rare or seasonal turn over. Susceptible to obsolescence and spoilage, slow or fast moving. Held at different places. Physical condition. It may involve varying degrees of estimation. Inventory is the second largest item after the fixed assets, in financial statements

of manufacturing concerns. It affects both the results of operations as well as the financial position as reflected in balance sheet.

Inventories

Inventories are assets a) Held for the purpose of sale in the ordinary course of business. b) In the process of production for such sale. c) In the form of material or supplies to be consumed in production process or in rendering of services. Inventory includes the following a) Goods purchased and held for resale. b) Finished goods produced for sale. c) Work in progress generally. d) Materials, maintenance supply consumables and loose tools awaiting use in production process. 3) Measurement The critical operative part of the study is that inventories should be valued at the lower of a) coast and b) Net reliable value. Cost Includes Cost of purchase, net of trade discounts, rebates, duty drawbacks, Convert credit availed etc. But, Cost doesnt include Selling and distribution cost. Abnormal wastage, storage cost. Cost Formulae

In as much as cost do not remain static and vary from time to time, several types of cost formulae can be used. In inventory valuation, therefore, the question that is with reference to the flow of production, which inventory has been sold and which continued to remain in inventory. In this backdrop, inventory valuation depends on cost flow assumptions such as LIFO, FIFO base stock methods etc., but the standard favours only 3 methods are as follows: Specific Identification method. First in First out Method. Weighted Average cost method.

Specific Identification Method This method is also known as specific price method. This is also known as actual cost method because specific job bears the actual cost of material bought for the job. When using this method, units in inventory are specifically identified and each unit cost is identified with a particular invoice. The advantage of this method is that cost changed to jobs is factual and not notional. Cost of items forming part of inventory, that are not ordinarily interchangeable as also goods or services produced and segregated for specific projects, should be assigned by specific identification of t heir individual costs. This formula has to be applied whenever materials are purchased and set aside for specific job or work order. (1)First In First Out This method is based on the assumptions that the materials, which are purchased first, are issued first. Issues of materials are priced in the sequence of incoming order of purchases. The flow of cost of materials should also be in the same order.Issues are priced on the same basis until the first lot received i.e., exhausted, after which the price of the next lot received becomes the basis of cost for issues. This materials issued are priced at the cost pertaining to the earliest lot, and as a corollary the inventory in hand is valued a price representing recent purchases.The FIFO method is most successfully used when a) Size of raw materials is very large and cost is high.

b) Materials are easily identified as belonging to a particular purchase lot. c) Not more that two or three different receipts are on material card at one time. d) Price of materials does not fluctuate widely, so that clerical labour involvement is minimized. e) Materials are subject to deterioration and obsolescence.

(2) Weighted Average Cost Method This is calculated by dividing the total cost of material in stock by the total quantity of material in stock. Under this method costs are averaged after weighing by their quantities. The weighted average cost is determined, either at periodical intervals or each item when fresh materials arrived on purchase. The average cost at any time is thus balance valued figure divided by the balance unit figure. This method evens out the effect of widely varying prices of different lots of purchases, which makes up the stock. There will be no profit or no loss arising out of pricing issues. (A)Net Realizable Value Net Realizable Value is defined as the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make for sale.

CHAPTER-4

ANALYSIS AND INTREPRETATION OF INVENTORY MANAGEMENT ON HBL

Now a days inventory management is gaining importance in every organization. A firms inventory management reveals its strength against their smooth flow of production. In any firm inventory management plays a vital role; by this a firm can achieve its goals. The organization should maintain optimum and sufficient level of inventory management. The importance of inventory management can be viewed from the following facts. There is a continuous supply of materials, spares and finished goods so that

met.

production should not suffer at any time and the customers demand should also be To remove both over stocking & under stocking Maintain investments in inventories at the optimum level of as required by operational sales activities. Eliminate duplication in ordering or replenishing stocks. Minimize losses and get profit maximization. 4.1: Inventory Status in HBL Power Systems Ltd (During the year 2004 to 2010)
Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Stores Spares 64.76 91.79 96.22 131.24 270.88 305.55 Tools Fixtures 41.71 31.14 39.45 52.20 49.64 51.25 Work-in progress 1585.97 2358 2372 7483.06 5058.16 6873.85 Finished Goods 173.90 298.20 264.97 1185.64 3373.40 1008.95 Raw Materials 3,314.81 3635.27 4741.50 8380.06 9195.48 7538.69

(Rs In Lakhs)
Total 5,181.15 6,414.40 7,514.15 17,232.20 17,947.56 19568.55

Interpretation

From the above table it can be said that the total inventory for the year 2004-05 was 5,181.15 lakhs and has been increased to 6414.40 in the year 2005-06.Due to the movement of inventory into sales is takes place accordingly.In the year 2006-07 the inventory level indicates of growth to 7514.15, further years continuously increase in inventory levels into sales slowly by taking the marketing conditions in consideration. At last in the year 2008-09 increased at 17,947.56 which shows a good profit position of company. 1. Cost of goods sold Formula: Cost of Goods Sold = Net Sales Gross Profit Table 4.2: Cost of Goods Sold During 2004-10 by H.B.L Company (In Rs. Lakhs) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Interpretation: The net sales in the 2004-05 recorded as Rs. 28,380 lakhs, the gross profit for the same was recorded as Rs. 2,722 crore leading towards the total cost of goods sold in the same year accounted to Rs. 25.608 lakhs.In the year 2005-06 the sales are increased to Rs. 36, 798 lakhs which recorded an increase of 22.87 per cent. For the same year the per cent of change of gross profit recorded at 28.14 per cent with Rs. 3,858 lakhs leading towards the total cost of goods sold at Rs. 22.25.In the year 2006-07 the sales are increased to Rs 51,185 lakhs which recorded an increase of 28.10 percent. For the same year the per cent of change of gross profit recorded at 25.11 percent with Rs 5,152 lakhs leading towards the total cost of goods sold at Rs 28.45.In the year 2007-08 the sales are increased to Rs 92,276 which recorded an Net sales 28,380 36,798 51,185 92,276 1, 24,390 132690 Percent Gross change profit -2,772 22.87 3,858 28.10 5,152 44.53 25.81 28.52 1,108 13,814 12000 Per cent change -28.14 25.11 78.49 91.9 105.85 Costofgoods Percent sold 25,608 32,940 46,033 82,193 1, 10,576 120786 Change -22.25 28.45 43.99 25.66 28.65

increase of 44.53 percent. for the year the percentage of change of gross profit recorded at 78.41percent with Rs 1,108 lakhs leading towards the total cost of goods sold at Rs43.99In the year 2008-09 the sales are increased to Rs1,24,390 which recorded an decrease to 25.81 for the year the percentage of change of gross profit recorded at 91.9 percent with Rs13,814 lakhs leading towards the total cost of goods sold at Rs25.66. Average Raw Materials Formula: Average Raw Materials = (Opening stock + closing stock)/2 4.3: Opening &closing stock of raw materials By HBL Company (During 2004-10) Year Opening stock Closing stock of Total of 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Raw materials 2,040 3,274 3,635 4,742 8,380 9,630 Raw materials 3,274 3,635 4,742 8,380 9,195 10,658 stock of Raw materials 5,314 6,909 8,377 13,122 17,575 25,636 0.623 0.473 0.433 0.361 0.476 0.576 0.6160 0.526 0.566 0.638 0.528 0.856 (Rs in Lakhs) Opening Ratio Closing Ratio

Interpretation from the above table we can come to a conclusion that in the year200506 opening ratio is increased to 24.07and closing ratio is decreased by 14.61,in the year 2006-07 opening ratio is decreased to 8.4 and closing ratio is decreased to 7.06.in the year 2007-08 the opening ratio is changed as increased to 16.62 and closing ratio increased to 21.30 .in the year 2008-09 opening stock changed to an increase of 30.71 and the closing stock is increased to 20.83. 3. Average Work In Progress:(Semi-finished goods) Formula: Average work in process = opening WIP + closing WIP/2

4.4: Opening &Closing Stock of Work In Progress by HBL (During 2004-10) (Rs In Lakhs) Year Opening Stock of Work 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Progress 1,110 1,586 2,358 2,372 7,483 8,743 in 1,586 2,358 2,372 7,483 5,058 6,874 ClosingStockof Total Progress 2,696 3,944 4,730 9,855 12,541 15,683 0.141 0.402 0.498 0.316 0.596 0.876 0.588 0.597 0.501 0.780 0.403 0.874 Opening Closing Ratio

Work In Progress Work in Ratio

Interpretation: from the table 4.4 we can come to conclusion that the opening ratio is 64.92percent in the year 2005-06 and closing ratio is decreased to 1.50percent.in the Year 2006-07 the opening ratio is decreased to 19.27 percent and closing ratio is Increased to16.08.the next year 2007-08opening ratio is increased to 36.54 and closing Ratio is also changed increased to 35.76,in the year 2008-09 opening ratio is increased Drastically to 46.97percent and closing ratio is also increased to39.10percent than before years. This is a total over view of closing and opening stock of work in progress, where the changes occur due to what reasons can find out easily. 4. Average Finished Goods Formula: Average Finished Goods = Opening Finished Goods + closing Finished Goods/2 4.5 Opening& closing stock of finished goods by HBL Company (During 2004-10) (In Lakhs) Year Opening stock of Closing stock Total finished Opening of finished goods ratio Closing ratio

finished 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 goods 24 173 298 264 1.185 1.865

goods 173 293 264 1,185 3.373 4.856 197 466 562 1,449 4.558 5.678 0.121 0.371 0.530 0.182 0.259 0.965 0.878 0.628 0.469 0.817 0.740 0.874

Interpretation: from the above table exhibit that the opening and closing stock of inventory in HBL (finished goods)that in the year 2005-06 opening ratio is increased to 67 percent and closing ratio is increased to 39.8 percent but in the year 2006-07 the opening ratio is decreased to 30 percent and closing ratio also decreased to 25.31 percent. In the year 2007-08 opening ratio is increased to65percent and closing ratio is also increased to 42percent.In the year 2008-09 opening ratio is drastically changed decreased to 42percentand the closing stock very badly dropped as to9.42percent 5. Raw Material Turnover Ratio The Raw Material turnover shows how rapidly the raw material is turning into receivables through sales. Generally a high turnover implies excessive inventory levels than warranted by production & sales activities. Formula: Raw Material Turnover Ratio = Cost of Goods sold /Average raw material. 4.5 Raw material turn over ratio (During 2004-10) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Sales 25608 32940 46033 81193 110576 125683 Inventory 2657 3455 4189 6561 8788 9857 (Rs In Lakhs) Ratio 9.6 9.5 10.9 12.37 12.58 15.68 Inventory Turnover

Graph representation

Interpretation The Higher Raw Material Turnover ratio is better for the firm. From the above graph, that the raw materials turn over (RMTR) ratio in the year 2008-09 is the highest (12.58) as compared to the past four years. Raw materials turn over ratio keeps increasing year after year expect in the Year 2005-06.Finally the company is keeping inventory levels according to their requirements for future production

6. Raw materials holding period The ratio shows the period till which the company holds the raw material. When calculated in days this ratio focuses in the number of days till which the company holds the raw material. The less the number of days of which the company holds the raw materials, the better it is considered for the firm. It proves the efficiency with which the firm converts the raw material into finished goods. Formula: Raw material holding period = Average Raw materials / cost of goods sold * 360 days

4.6: Raw material Holding Period (During 2004-10) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Inventory ratio 37.35 37.35 32.75 29.90 28.60 35.60 (Rs In Lakhs)

Inventory holding period 2657 3454.5 4188.5 6561 8787.5 9.5784

Graph Representation

Interpretation This ratio shows the period till which a firm holds the raw materials. When calculated in days the less the raw material holding period (RMHP) the better it is for the firm. It can be pointed out from the graph that the firm holding the raw material for 28.60 days in the year 2008-09 where as raw material holding period was decreasing from the year 2004 to 2008 so reflects the company performance in a efficiency way on Raw material holding Method.

7. Work In Progress Turnover Ratio The work in process turn over ratio shows how rapidly the semi finished goods is turning into receivable through sales. Generally a high turnover is indicative of good inventory management. A low turn over implies excessive inventory levels than warranted by production sales activities. Formula: Work in process turnover ratio = Costs of goods sold Average work in process

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

(In Lakhs)

Year

Cost of Goods sold

Average Work-in-process

Work-in-process Turn over ratio

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

25,608 32,940 46,033 81,193 1,10,576 2,20,675

1,348 1,972 2,365 4,927.5 6,270.5 7,567.8

18.99 16.70 19.46 16.47 17.60 18.90

Graph Representation

Interpretation: The higher the turn over ratio, the better it is for the firm. The ratio shows how fast time work in process goods. The intermediate products are converted into goods. The work in process turn over ratio is highest in the year2007 (19) but it is least in 2008 (16). It can be interpreted from graph above; the turn over ratio has fluctuations from year to year.

8. Work in Process Holding Period The ratio shows the period till which the company holds the raw material. When calculated in days this ratio focuses on the number of days till which the company holds the raw material. The less the number of days for which the company holds in the raw material the better it is considered for the firm. Since it proves the efficiency with which the firm converts the raw material into finished goods. Formula: Work in progress holding period = (Average work in process/ Cost of goods) * 360 4.8: Work in progress holding period (During 2004-10)(Rs In Lakhs)

Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Average work in process 1,348 1,972 2,365 4,927.5 6,270.5 8,065

Work in process holding Cost of goods sold 25,608 32,940 46,033 81,193 1,10,576 1,25,268 period (in days) 19 22 19 22 20 26

Graph representation:

Interpretation: It is observed from table This ratio shows the period till which a firm holds as the semi finished goods. It can point out firm the graph that the firm has held the work in process goods for 19days

during the year 2004-05. Where it holds the work in progress goods is 18 days in the year 2006-07. It can be said that work in process holding period has been consistently fluctuating. 9. Finished Goods Turn Over Ratio: Finished goods turn over ratio shows how rapidly the finished goods is turning into receivable through sales. Generally a high turn over is indicative of good inventory management. A low turnover implies excessive inventory levels than warranted by production and sales activities. Formula: Finished goods turnover ratio = Cost of goods sold / Average finished good 4.9: Finished goods turnover ratio (During2004-10) ( In Lakhs) Cost of Goods Sold 25,608 32,940 46,033 81,193 1,10,576 1,20,675 Average Finished Goods 197 235.5 281 724.5 2,279 2,520 Graph Representation

Year

Finished Good Turn Over Ratio

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

129.99 139.87 163.81 112.07 48.52 52.65

Interpretation It is observed from table, In this case the finished goods turnover ratio is highest in 2006-07 (163.81) but it is least in 2008-09 (48.52). This is increasing from 2004 and 2005 years. But while coming to 2009 it was 48.52 This is happened due to increase in cost of goods sold along with increase in average finished goods. 10. Finished Goods Holding Period: This ratio shows the period till which the company holds the finished goods. When calculated in days this ratio focuses on the number of days till which the company holds the finished goods. The less the number of days for which the company holds the finished goods the better it is considered for the firm. Since it proves the efficiency of the firm.

Formula: Finished goods holding period = (Average finished goods / cost of goods sold)*360 4.10: Finished goods turn over ratio (During2004-10) Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 (In Lakhs) Finished Goods Holding Average Finished Cost of Goods Sold Period Goods (in days) 197 235.5 281 724.5 2,279 2,252 25,608 32,940 46,033 81,193 1,10,576 99004 3 3 2 3 7 5

Graph Representation

Interpretation: It is observed from above table, Finished goods holding period is 3days in the year 2005-06 and very less in comparing to all years. It resembles firm efficiency is good. While comparing with 2009 it is 7 days so efficiency is decrease but sales within 7 days are also good performance in this competitive world. 11. Gross Profit Ratio: The Gross Profit Ratio is also called the average mark up ratio. The Gross Profit Ratio reflects the efficiency with which the firm produces / purchases the goods.

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

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

Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Gross Profit 2,772 3,858 5,152 11,082 11,130 12,052

Sales 32,575 36,798 51,185 97,276 1,24,390 12547

Gross profit Ratio 8.50 10.47 10.06 11.39 8.95 9.35

GraphRepresentation

GROSS PROFIT RATIO

12 10 8 6 4 2 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09 RATIOS

Interpretation: It is observed from table, Higher the Gross Profit Ratio is better for the firm. From the past five years we can observe, the highest gross profit earned by the firm is 11.39 in the year 2007-08 and lowest is 8.50 in the year2004-05. In this case of Gross Profit Ratio of the firm is fluctuating.

12. Cost of Goods Sold Ratio:

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

4.12: Cost of goods sold during 2004-10 By HBL Company ( In Lakhs) Year 2004-05 2005-06 2006-07 2007-08 2008-09 Cost of goods sold 25,608 32,940 46,033 81,193 1,10,576 Net sales 32,575 36,798 51,185 97,276 1,24,390 Cost of goods sold ratio 78.61 89.51 89.93 83.47 88.89

Graph representation

COST OF GOODS SOLD RATIO

100 80 RATIOS 60 40 20 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09 RATIOS

Interpretation It is observed from the above table, that net sales for the year 2006-07 net sales increased to 51,185.cost of goods sold for the same year is46,033.The same year that as Cost of Goods Sold Ratio is high in the year 2006-07 and low in the year 200405.the cost of goods ratio reflects company performance in a positive way only. 13. Inventory Turn over Ratio: The Inventory Turn over Ratio shows how rapidly the inventory is turning into receivables through sales. Generally a high inventory turn over is indicative of good inventory management. A low inventory implies excess inventory levels than warranted by production and sales activities or a slow moving or obsolete inventory.

Formula: Inventory Turnover Ratio = cost of goods sold / average inventory

4.13: Inventory turnover ratio during 2004-10 By HBL Company (In Lakhs) Year 2004-05 2005-06 2006-07 2007-08 2008-09 Cost of goods sold 25,608 32,940 46,033 81,193 1,10,576 Average inventory 5,359 6,767 7,545 17,246 17,998 Inventory Turn over ratio 4.77 4.86 6.10 4.70 6.14

Graph Representation:
INVENTORY TURNOVER RATIO
7 6 5 RATIOS 4 3 2 1 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09 RATIO

Interpretation It is observed from table, Inventory which is a combination of raw material, work in process and finished goods naturally, reflects the overall inventory position

of the firm. The more the Inventory Turn over Ratio the faster the inventory is converted into sales it is better for the firm. In case the Inventory Turn over Ratio is more in 2008-09 (6.14) and least in 2007-08 (4.70). 14. Inventory Holding Period Ratio However, the sales do not convert into cash instantly. There is invariably a time lag between the sales of the sales of the goods and receipt of cash. Technically this is referred to as a operating cash cycle. The operating cycle include the holding period of inventory there is a positive relation between these two. If the inventoryholding period is more automatically the operating cycle will also be extended. There is positive relation between the operating cycle and the Inventory Holding Period Ratio, longer the Inventory Holding Period Ratio the larger will be the operating cycle. Thus to reduce the operating cycle, it is necessary that the Inventory Holding Period Ratio is should be less. Formula: Inventory Holding Period Ratio = (Average inventory / cost of goods sold) * 360 days 4.14: Inventory holding period ratio during 2004-10 ( In Lakhs)

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

Average inventory 5,359 6,767 7,545 17,246 17,998

Cost of goods sold 25,608 32,940 46,033 81,193 1,10,576

Inventory holding period ratio (in days) 75.33 73.95 59.24 76.46 58.59

Graph Representation
INVENTORY HOLDING PERIOD RATIO
(IN HOLDING PERIOD DAYS) 90 80 70 60 50 40 30 20 10 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09 DAYS

Interpretation It is observed from table In the above graph the Inventory Holding Period Ratio is least in 2008-09 (58.59days) and highest in 2007-08 (76.46days).so the the Inventory Holding Period Ratio of the firm resembles a positive way. Raw Material Consumed Ratio There is positive relation between the operating cycle and the Inventory Holding Period Ratio, longer the Inventory Holding Period Ratio the larger will be the operating cycle. Thus to reduce the operating cycle, it is necessary that the Inventory Holding Period Ratio is should be less. Formula:
Raw Material Consumed Ratio = (Raw material consumed / sales) * 100 4.15: Raw Material Consumed Ratio during 2004-10

(Rs. In Lakhs) Year 2004-05 2005-06 2006-07 Raw material consumed 1,245 320 1,107 Sales 32,575 36,798 51,185 Raw material consumed ratio 3.82 0.87 2.16

2007-08 2008-09

3,639 815

92,276 1,24,390

3.94 0.66

Graprepersentation
RAW MATERIAL CONSUMED RATIO
4.5 4 3.5 RATIOS 3 2.5 2 1.5 1 0.5 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09 RATIO

Interpretation In the above graph the Inventory Holding Period Ratio is least in the year 2008-09 (0.66d) and highest in the year 2007-08 (3.94). The firm utilizing the raw material very quickly it helps to decreases carrying and ordering costs. This ratio indicates efficiency of firm. 16. Inventory to Working Capital Ratio: This ratio indicates to know how much of amount using for inventory from the working capital. Working capital is a capital uses for regular transactions of the firm. Promoting sufficient funds for inventory helps to keeps smooth promotion of sales. Formula: Inventory to working Capital Ratio = Average Inventory / Working Capital

4.16: Working capital ratio during 2004-09 (Rs. In lakhs) Year Average inventory Working Capital 2004-05 2005-06 2006-07 2007-08 2008-09 5359 6767 7545 17246 17998 19210 24977 30417 53550 58678 Inventory to working capital ratio 0.27 0.27 0.25 0.32 0.31

Graph Representation
IN VE NT ORY TO WORK ING CAPITAL RATIO
0.5 0.4 RATIOS 0.3 0.2 0.1 0 2004-05 2005-06 2006-07 YEARS 2007-08 2008-09 RATIO

Interpretation: From the above table, we can observe there are increase inventory funds from 2004 - 2008. In the year 2004, firm providing part of funds for inventory maintenance Is 0.27 and in 2009 is 0.31 and working capital so firm concentrating on inventory management by promoting more funds for smooth production.

4.17:

various inventory ratios for 2004 to 2009

Ratio Raw Material Turn Over Ratio Raw Material Holding Period Work In Process Turn Over Ratio Work In Process Holding Period Finished Goods Turn Over Ratio Finished Goods Holding Period Inventory To Working Capital Ratio Gross Profit Ratio Cost Of Goods Sold Ratio Raw Materials Consumed Ratio Inventory Turn Over Inventory Holding Period

2004-05 9.6 37.35 18.99 18.95 129.99 2.77 0.27 8.50 78.61 3.82 4.77 027

2005-06 9.5 37.75 16.7 21.55 139.87 2.57 0.27 10.48 89.51 0.87 4.86 0.27

2006-07 10.9 32.75 19.46 18.49 163.81 2.20 0.25 10.06 89.93 2.16 6.10 0.25

2007-08 12.37 29.09 16.47 21.84 112.07 3.21 0.32 11.39 83.47 3.94 4.70 0.32

2008-09 12.58 28.60 17.6 20.41 48.52 7.42 0.31 8.95 88.89 0.66 6.14 0.31

5.1 summary and suggestions Entails planning for the future of a person or a business enterprises a positive cash flow. It includes the administration and maintenance of financial assets. besides, financial management covers the process of identifying and managing risks. The primary concern of financial management is the assessment

rather than the techniques of financial quantification. A financial manager looks at the available data top judge the performance of enterprises. Managerial finance is an interdisciplinary approach that borrows from both managerial accounting and corporate finance. some experts refer to financial management at the science of money management. The primary usage of this term is in the world of financing business activities However, financial management is important at all levels of human existence because every entity needs to look after its finances. Broadly speaking, the process of financial management takes place at two levels. At the individual level, financial management involves tailoring expenses according to the financial resources of an individual. Individuals with surplus cash or access to funding invest their money to make up for the impact of taxation and inflation. Else, they spend it on discretionary items. they need to able to take the financial decisions that are intended to benefit them in the long run and help them achieve their financial goals. From an organizational point of view, the process of financial management is associated with financial planning and financial control. Financial planning seeks to quantify various financial resources available and plan the size and timing of expenditures. Financial control refers to monitoring cash flow. Inflow is the amount of money coming in to a particular company, while out flow is a record the expenditure being made by the company. Managing this movement of funds in relation to the budget is essential for business. The purpose of financial management is to help the decision makers to make the better financial decisions. These decisions are made in the context of a financial system that both constrains and facilitates them. The financial system comprises a variety of intermediaries, markets and instrument that are related in a complex manner. It provides the principal means by which savings are transformed in to investments. Given its role in the allocation of resources, the efficient functioni9ng of the financial system is critical to a modern economy. A financial manager is responsible for providing financial advice and support to clients and colleagues to enable them to make sound business decisions. Specific settings very enormously and include both public and private sector

organizations, such as multinational corporations, retailers, financial institutions, charities, small manufacturing companies and universities. Financial considerations are at the root of all major business decisions. Clear budgetary planning is essential for future planning. Both short and long term and companies need to know the financial implications of any decision before proceeding. In addition, care must be taken to ensure that financial practices are in line with all statutory legislation and regulations. Financial managers may also be known as financial analysts or business analysts. The Industry sectors and the financial system are undergoing rapidly changes following the process of liberalization and reforms. The underlying principle behind every reform measure re-orientation of monetary policy techniques, introduction of new money market instruments and institutions, suggest structural changes in the financial system and strengthening regulatory arrangements has been to make the system more competitive, efficient and profitable. Every performance indicator seems to reflect the impact of the reform measures. Profitability of the industry has witnessed a steady improvement mainly as a result of these measures, capital adequacy rations have crossed the norms prescribed for almost all industries. The industries have begun to focus on minimizing their asset liability mismatches and on risk management. Further, after the enactment of securitization Act 2002, the industries get a weapon to tackle the challenge of Non Performing Assets (NPAs). At this backdrop, it is felt essential to study the financial performance of the lead Acid Division, HBL Power Systems Ltd, which is one of the representatives of the Indus trying system. Which is experiencing the recent reforms? It consists of information obtained from annual reports. Balance-sheet and other financial statements are also collected. Files and same other important documents maintained by the organization. In addition to that, collecting data from referred text books. Collection of required data from annual records of H.B.L battery Ltd had become necessary. Reference from textbooks and journals relating to financial management are also included.

HBL Power Systems Limited is a public limited company. It was established in 1977 as a small scale industry but today it has grown into a welldiversified batteries technologies group. It has its units on the outskirts of Hyderabad. HBL power systems Ltd. Is the pioneer in the design, development and manufactures of specialized batteries and DC systems in India? With over 3 decades of experience in this field, the company offers a wide range of batteries and associated electronics providing its customers, custom built solutions to meet critical requirements. HBL Power Systems Limited is engaged in the manufacturing of widest range of specialized batteries, electronic equipment and other telecommunication, railways, aviation, defence, power and other industrial sectors. Further, the company is divided into various divisions depending upon the nature of the product, each division is treated as a separate company, each having its own funds allocation and manpower in various departments. The company manufactures various types of batteries viz., VRLA, Tubular, Monobloc, Nickel-Cadmium, Lithium, Silver-Zinc, and Thermal etc. The electronics segment comprises of various divisions manufacturing electronic equipment like rectifiers, IPS etc A part from batteries and electronics, the company also manufacturing bulletproof jackets, windmills etc. the company has recently taken up railway signaling works contracts. The company has 3 divisions catering to the ancillary needs of the company, material components divisions at Shamirpet, Nandigaon, Bhoothpure, Kandivalsa and VSEZ (Duvvada) units indulge in various ancillary activities like sheet metal fabrication making of racks, cutting, bending, plating etc. plastic molding divisions at Nandigaon manufactures various types of boxes and cell and battery container. Annual turnover of the company is around 800 crores. Charges for Rechargeable batteries are also manufactured in bother TR and SMR versions 24 Volts to 220 Volts. The company has sales of about US $ 50 millions and very substantial Design and Development capabilities. Over 25 years of Experience in the Domestic Market and over 10 year in Exporting to many countries including USA, South Korea, West Asia and South East Asia, has given HBL an understanding of the customers special varied requirements. Several Major

customers have found the companys products to be Reliable over the years and have placed repeat orders. The company has adequate marketing and service personnel who can support the customers at short notice. The Triumph-HP series is a Premium Design Valve Regulated lead acid battery based and features offered by world class companies. The battery works on the gas recombination principle and has been designed to meet the requirements of a wide range of applications. This product has been manufactured under the controls. Established by a for Quality/Environmental Management system that meets the requirements of ISO 9001-2000: ISO 14001:1996, which has been independently certified by BVQI. A wide range of individual battery types, in the major technologies of nickel Cadmium, Lead Acid, and Silver Zinc along with associated Electronic Equipment. Conveniently located in Hyderabad, backed-up with processing and testing facilities to provide full product support and back-ups. An in-depth technical resource based on years of experience to help you select batteries according to the requirements. Off the shelf products in many popular sizes to meet quick delivery requirements. Products manufactured to international standards and certified by independent testing agencies. The solar powered shelters carry batteries that expose them to higher temperatures. Net results are the need for a heavy duty, robust, deep cycling battery that is also less sensitive to high temperature. To meet such rigors to temperatures and varying pattern of usage, HBL introduces Tubular Gel VRLA Battery with unbeatable combination of Tubular plate and gelled electrolyte. These batteries are primarily used for meeting the starting and servicing electric power requirements for MIG series of aircrafts. The batteries are mounted on an electric driven trolley unit. These batteries use High Rate Fiber Nickel Electrodes there by giving an excellent Electrical performance. The benefits of these batteries are low internal resistance, High rates of discharge and improved recharge capability coupled with long cycle life.

HBLs sintered Plastic Bonded Batteries are best suited for applications requiring high reliability coupled with low maintenance and high performance. The sintered plastic bonded batteries are manufactured using sintered positive plates and plastic bonded negative plates. These are specially designed for High Power Density and Reduced Water Consumption. These batteries use polypropylene cell containers with thermally welded lids for high impact resistance. The dictionary meaning of inventory is stock of goods or a list of goods. The inventory can be defined as the sum of the value of raw materials, fuels and lubricants, spare parts, maintenance consumables; semi processed materials and finished goods stock at any given point of time. The term inventory refers to the study stockpile of the products a firm is offering for sale and the components that make up the products a firm is offering for sale and the components that make up the product. The various forms in which inventories exists in a manufacturing are: The job of the financial management is to reconcile the conflicting view points for various financial areas regarding the appropriate inventory levels in order to fulfill the overall objective of maximizing the owners wealth. Thus, inventory management like the management of other current assets should be related to the overall objective of the firm. Inventories appear in various forms in manufacturing company raw materials, work in progress, and finished goods. Since the inventories constitute a large part of current assets, substantial amounts of money are required to maintain them. In industry like sugar, the raw material cost is high as 68.75% of total cost. Similarly, about the 90% of working capital is invested in inventories. Hence, it is necessary for every management to give proper attention to inventory management. An efficient system of the inventory management will determine what to purchase, how munch to purchase, from where to purchase and when to store etc. Minimum stock level is the lower limit below which the stock of any stock item should not normally be allowed to fall. Their level is also called safety stock or buffer stock. The main object of establishing this level is to protect against

stock out of a particular stock item and in fixation of which average rate of consumption and time required for replenishment i.e., lead time are given prime consideration. Minimum stock level = Reorder level- (average or normal usage* average lead time). The VED analysis is used generally to spare parts. The requirements and urgency or spare parts is different from that material. The VED system is widely used classification technique to identify critically of various items for inventory control. This technique is based on the assumption that a firm need not exercise same degree of control on all items of inventory. On the basis of critically, the various items of inventory are categorized into 3 categories. Safety stock is a buffer to meet some unanticipated increase in usage. The usage of inventory cannot be perfectly forecasted. If fluctuated over a period of time. The demand for materials may fluctuate and delivery of inventory may also be delayed and in such a situation the firm can face a problem of stock out. The stock out can prove costly by affecting the smooth working of the concern. In order to protect against the stock out arising out of usage fluctuations, firms usually maintain some margin of safety or safety stocks. The basic problem is to determine the level of quantity of safety stocks. Two costs are involved in the determination of this stock i.e., opportunity cost of stock outs and the carrying costs. An inventory ratio indicates the efficiency of the firm in producing and selling its products. These ratios are calculated to indicate whether inventories hae been uses efficiently or not. The purpose is to ensure the blocking of only required of minimum funds in inventory. It is calculated by dividing the cost of goods sold by the average inventory. The inventories of a manufacturing concern may consist of raw material; work in process, finished goods, spares, consumable stocks etc. All these

categories may be classified according to their nature such as construction materials, consumable stocks, spares, lubricants etc. After classification, the materials are given code members. The coding may be done alphabetically or numerically. The later method is generally used for coding. The class of materials is assigned to the category of materials in that class. The third distinction is needed for the quality of goods and decimals are used to note this factor. The just-in-time inventory control system, originally developed by Taichi Okna of Japan, simply implies that the firm should maintain level of inventory and rely of suppliers to provide parts and components just-in-time to meet its assembly requirements. The major emphasis of just in time philosophy is inventory management. It begins by identifying the problems and forcing firms to tackle them. The main tactic used to reveal such problems in inventory reduction. The just-in-time inventory system, while conceptually very appealing is difficult to implement because it involves a significant change in the total production and management system. It requires interalias: A strong and dependable relationship with suppliers who are geographically not very remote who are geographically not very remote from the manufacturing facility. An easy physical access in the form of enough doors and conveniently located docks and storage areas to dove tail incoming suppliers to the needs of assembly line. It attempts to minimize inventories through small incremental reduction rather than prescribe particular techniques or methodologies.

5.1 Findings
The following are the finding of the present study: 1. The turnover of inventory may be improved in order to reduce inventory maintenance expenditure and working capital investments over inventory levels.

2. Adequate supervision an administration is to be exercised for better inventory control. 3. Material coding system and items verification procedure may be improved in stores department. 4. There were fluctuations in the grass profit. So necessary actions must take to reduce express in order to get profits. 5. HBL power systems may adopt latest techniques like just in time (JIT) concept for supply of materials in the time to need, supply cum application contracts, where materials are to be produced by the contractor for fixation, etc., for producing the materials. This saves a lot of investment in the inventory of stores and spares and avoids further stock out situations. 6. The appropriate action plan for disposal of inventory in HBL power systems may be taken for making the provisions in the books of accounts on a systematic manner for writing-off slow and non moving inventories in the future. 7. HBL power systems is required to fix minimum, maximum, reordering level in a scientific manner to control the further growth of slow moving or non moving inventories. 8. In the year 2007-2008 the gross profit is 78.94 and the cost of goods sold is 43.99 and in the year 2008-2009 gross profit ratio is increased to 91.9% which causes a slight changes in the percentage of cost of goods sold is 25%. 9. In the year 2008-2009 net sales increased to 25.81 and gross profit also increased to 91.9% which causes to a change in cost of goods sold is noted as 25.66%

10. Work in progress turnover ratio is satisfactory. The cost of goods sold is increasing year by year accordingly average of work in progress also increase which leads to the automatic increase in the work in progress ratio. 11. Finished goods turnover ratio is satisfactory. As the cost of goods sold increased year by year accordingly changes occur in the average finished goods leads to the increase in the finished goods turnover ratio. 12. As the cost of goods sold has increased from the year 2004-05 to 2008-09, there is an increase in inventory turnover ratio. 13. The inventory holding system when compared to the previous years is satisfactory.

BIBLOGRAPHY
Books: Financial Management :

Financial Management Production & Operation Management Production & Operation Management

: : :

HBL POWER SYSTEMS LTD JOURNALS ANNUAL REPORTS REPORTS FROM INVENTORY & STORES DEPARTMENT OF HBL power SYSTEM Ltd. WEB SITE : www.hbl.com