Project Akash

Contents
Sl. No. Titles Page No.

I Chapter 1
 Introduction 3
 Statement of the Problem 4
 Purpose of the Study 4

5
 Scope of the study
5
 Objectives of the Study
II Chapter 2
 Organization Profile 5
 Organization Chart 27
III Chapter 3
 Results & discussion with Charts & graphs 28
 Recommendations and Conclusion 50
IV Chapter 4
• Bibliography 51
BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 1

Introduction
Inventory Management and Inventory Control must be designed to meet the dictates of
the marketplace and support the company's strategic plan. The many changes in market
demand, new opportunities due to worldwide marketing, global sourcing of materials,
and new manufacturing technology, means many companies need to change their
Inventory Management approach and change the process for Inventory Control.
Despite the many changes that companies go through, the basic principles of Inventory
Management and Inventory Control remain the same. Some of the new approaches and
techniques are wrapped in new terminology, but the underlying principles for
accomplishing good Inventory Management and Inventory activities have not changed.
The Inventory Management system and the Inventory Control Process provides
information to efficiently manage the flow of materials, effectively utilize people and
equipment, coordinate internal activities, and communicate with customers. Inventory
Management and the activities of Inventory Control do not make decisions or manage
operations; they provide the information to Managers who make more accurate and
timely decisions to manage their operations.

Statement of the problem
“Inventory management and its effects on working capital”
Management problem
Management is feeling that their huge amount of working capital is held up, so
the management wants to know whether they can reduce it through inventory
management.
Research problem
As above stated management problem the study was carried to know how
inventory management helps in proper maintenance of working capital, so the title of
this study is “ inventory management and its effect on working capital”
Objectives of the study
1. To study the inventory management based on the ratios
2. To find out the impact of inventory on working capital.
3. To study the inventory management and its effective control through various
techniques.
4. To suggest the measures for improving the inventory level.

Scope of the study
Inventory management being a very important concept in all the company’s
having a void coverage often calls for the managerial attention. In the modern times
inventory management has become the integral part of the all companies. So all the firm
gives special importance for inventory management. The major objective of the study is
to examine the effectiveness of inventory management system adopted by Akash
industry; the study mainly focuses on the techniques used by the company to control the
inventory. The study also covers other areas like the financial ratios for the period of
2004 to 2007.

Methodology:
 The methodology includes the personal interaction with the finance manager.
 Selection of data: From the financial statements of the Company for last three
years; i.e. from
Financial statement for the year 2004-05
 Period: The Study covers a period of three years data from 2004-05, 2005-06, and
2006-07
 To mean an Accounting year of the company consisting of 360 working days.

INVENTORY MANAGEMENT
In modern competitive one of the burning problem of every business and
industries that of cost control and cost reduction. An all pervasive effort for cost control
and cost reduction is of paramount, importance for survival and growth of every
industrial enterprise. This is why inventory management as a scientific device for
controlling inventory costs and eliminating wastage, is now regarded as an integral part
of industrial management. Inventory management does not involve any human factor, as
it concerns itself not with men but with inventory.
Inventories constitute the most significant part of current assets of a large majority of
companies in India. Because of the large inventories maintained by firms, a considerable
amount of funds is required to be committed to them. It is therefore absolutely imperative
to manage inventories efficiently and effectively in order to avoid unnecessary
investment. A firm neglecting the management of inventory will be endanger its long run
profitability and may fail ultimately. The reduction in ‘excessive’ inventories carries a
favorable impact on a company’s profitability.
The term ‘Inventory’ refers to the stockpile of the products a firm is offering for sale and
the components that make up the product.
In other words, inventory is the composed of assets that will be sold in the future in the
normal course of business operations.

The various forms of Inventories which exist in any manufacturing industry are raw
materials, work-in-progress, and finished goods.
The level of three kinds of inventories for a firm depends on the nature of its business. A
manufacturing industry will have substantially high levels of all three kinds of
inventories, while a retail or wholesale firm will have a very high level of finished goods
and no raw material and work-in-process.
The fourth kind of inventory i.e. Supplies or Stores and Spares. Supplies include office
and plant cleaning materials like soap, brooms, oil, fuel etc. But these are not directly
enter into production but are necessary for process.
Inventory includes the following things
1. Raw materials
Raw material form a major input into the organization. They are required to carry
out production activities uninterruptedly. The liquidity of raq materials required
will be determined by the rate of consumption and time required for replenishing
the supplies. The factors like the availability of our materials and the government
regulations, etc. to affect the stock of raw materials.
2. work in progress
the work in progress is that stage of stocks, which are in between the materials
and initial goods. The raw materials enter the process of manufacture but them yet
party in a final shape of initial goods. The quantum of work in progress depends
upon the time taken in the manufacturing the more will be the amount of work in
progress.

3. Consumables:
These are the materials, which are needed to smoothen the process of production.
These materials were not directly entering production but they act as catalysts etc.
consumables may be classified according to their consumption and criticality.
Generally consumables stores to not create any supply problem and form a small
part of production costs. They can instances where these materials may account
for much value than the materials. The fuel oil may form a substantial part of cost.
4. finished goods:
there are the goods, which are ready for the consumers. The stock of initial goods
provides a buffer between production and market. The purpose o maintaining
inventories to ensure proper supply of goods to customers. In some concerns the
production is undertaken on order basis, in these concerns they will not be need
for finished goods the need for finished goods inventory will be more when
production is undertaken in general without waiting for specific orders.
The area of inventory management covers the following individual phases:
• Determining the size of inventory to be carried
• Establishing the timing schedules

• Procedures
• Lot sizes for new orders
• Ascertaining minimum safety levels
• Providing proper storage facilities
• Determining the Economic order Quantity
Objectives of Inventory management are,
• To avoid over investment and under investment in inventories
• To provide the right quantity of goods of right quality at proper time and at proper
value.
Inventory control:
Inventory control keeps track of inventories, It is observed that’ too much’,’ too little’
or badly balanced inventories are all to be avoided because they cost too much on
many counts. Too much leads to undue carrying costs in the form of taxes, insurance,
storage, obsolescence and depreciation. Too little implies of too frequent ordering,
loss of quantity discounts and high transportation charges.
Maintaining inventories involves trying up of the company’s funds and incurrence of
the storage and handling costs. If it is expensive to maintain inventories, why do
companies hold inventories .There are three general motives for holding inventory.

1. Transactions motive: Emphasizes the need to maintain inventories to
facilitate smooth production and sales operations.
2. Precautionary motive: Necessitates holding of inventories to guard against
the risk of unpredictable changes in demand and supply forces and other
factors.
3. Speculative motive: Influences the decision to increase or reduce inventory
levels to take advantage of price fluctuation.
Managing inventory is a juggling act, Excessive stocks can place a heavy
burden on the cash resources of a business. Insufficient stocks results in lost
sales, delays for customers etc.
The key is to know how quickly overall stock is moving or how long each item
of stock sit on shelves before being sold. Obviously average stock holding
period is influenced by the nature of the business.For ex, a fresh vegetable shop
might turn over its stock every few days while a motor company would be
much slower as it may carry a wide range of rarely used stock.
The key issue for a business is to identify how fast or slow the stock movers
with the objectives of establishing optimum level of stock for each category and
reduce the cost tied up in that.
While determining optimum stock level certain factors are to be considered
like,
• What are the projected sale of each product?

• Availability of raw materials, components etc.
• How long does it take for delivery by supplier.
Stock sitting on shelves for a long period of time ties up money which is not
useful. The following points will helpful in better control stock.
 Review the effectiveness of existing purchasing and inventory systems.
 Know the stock turn for all major items of inventory.
 Apply tight control to the significant few items and simplify controls to
the trivial many.
 Sell off out dated or slow moving merchandise because it gets difficult
to sell as we keep it longer.
 Review the security procedures to ensure that no stock is going out the
back door.
INVENTORY COSTS
One operating objective of inventory is to minimize cost The inventory
costs are fall into two types like,
1. Ordering Cost
2. Carrying costs

1. Ordering Costs: This cost is associated with acquisition or ordering of
inventory. Firms have to place an order to renew the inventory of raw materials.
Any expenditure involved in this is
2. Preparing a purchase order
3. Receiving, inspecting and recording the goods received to ensure both quantity
and quality.
It is said that the larger the inventory the fewer are the acquisitions and lower are the
order costs. Hence, the acquisition costs are inversely related to the size of inventory.
2. carrying costs: The second broad category of costs associated with inventory are
carrying cost. They involved in maintaining inventory. The cost of holding inventory may
be divided into two types.
1.Those that arise due to the storing of inventory: It includes storage cost i.e. tax,
depreciation, insurance, maintenance of the building. Deterioration in inventory
because of pilferage, fire, technical obsolescence, style obsolescence and price
decline. Serving costs such as labor for handling inventory, clerical and account
cost.
2.The opportunity cost of funds: This consists of expenses in raising funds to
finance the acquisition of inventory. If funds are not blocked in inventory they
will earn an income.

BENEFITS OF HOLDING INVENTORIES:
1. It enables the firm to undertake continuous production and reduce the set-up cost.
2. It enables the firm to reduce variable costs associated with placing small orders.
3. It enables the firm to get an advantages of bulk buying such as higher rate of
discount, avoidance of shortages etc
4. It enables the firm to reduce losses arising on account of losing the customer for
non supply of goods
TECHNIQUES OF INVENTORY CONTROL
1. Determination of stock levels.
2. Fixation of economic order quantity.
3. ABC analysis.
4. Two bin system
5. Order cycling system
Explanation is as follows,
1. Determination of stock levels:
In order to ensure the steady supply of material as and when
required, the different levels of stock are fixed.

1. Maximum Stock Level: It indicates maximum quantity of material that can be
stored at any time. It is the maximum quantity , and the stock of any material
should exceed this limit. The formula is,
Maximum Level= Reorder level+ Reorder quantity- (Minimum consumption*
Minimum delivery period)
2. Minimum Stock Level: It indicates lowest possible quantity of materials to be
held in stock. It is the lower limit of inventory. The formula is,
Minimum Level= Reorder level-(average consumption*average delivery period.
3. Re-order Level: It is an indication for replenishment of stock. At this level steps
for purchasing are to be initiated. Reorder level lies between maximum and
minimum level. The formula is,
Re-order Level= Maximum consumption*Maximum delivery period
4. Danger Level: When stocks falls below the minimum stock level, it is called
danger level. When the stocks reached this level, it is an indication that if no steps
are taken, the stores will be exhausted and normal production will be stopped. The
formula is,
Danger level= Minimum rate of consumption* Emergency delivery period.
2. Fixation Economic Order Quantity:

The economic order quantity is an ideal quantity of stock to be held at any time.
This is also known as optimum ordering quantity. The main object of fixing
economic order quantity is to minimize cost of holding the inventory and at the
same regular supply of materials.
The economic ordering cost locates at the point where trade-off
between carrying cost and ordering cost is reached. The formula is,
E.O.Q= √ 2AO/C
Where as A= annual demand
O= ordering cost
C= carrying cost
3. ABC analysis: An organization uses different kinds of materials in its production
activities. Some may be costly, slow moving whereas, others may be less
expensive and fast moving. It is advisable for store keeper to exercise better
control over such items which are very costly.
ABC approach is also known as Always Better Control.
This approach to the inventory management determines degree of control to be
exercise on materials. in large organizations materials are classified into a number of
categories according to their value, importance, frequency in use and replenishment.
Category ‘A’ items may constitute a small percentage of total inventories in terms of
quantity but the value of such items may constitute major portion of total stock
holding of the inventories.

Category ‘B’ may consists of such items which may be less important, less costly and
slow moving.
In category ‘C’ least important items may be placed. This group consists large
quantity of low value.
4. Two- Bin system: Under this system the inventory items are grouped into two
categories. In one group or bin, sufficient quantity is kept to meet the current
needs over a designated period of time. In another bin a safety stock is maintained
to meet the requirements of inventory at times when the stock in the first bin is
exhausted and reordering occurs.
5. Order Cycling System: In this system a periodic review of each item of the
inventory is made and orders are placed to restore the stock to a predetermined
level of inventory.
The stores records can broadly be classified into two.

1. The bin card and
2. The stores ledger.
When the stores-keeper issues materials to any department or job against

the materials requisition, a copy of material requisition is sent to the stores ledger
clerk. He makes entry in the “issue” section of the card, specifying the date,
requisition number, the department or job, the quantity, the unit costs and the total
cost. Finally the new balance is calculated and entered in the balance column.

ISSUE OF MATERIALS:
The materials stored in the stock room are issued to the various jobs or
production department against the authorized materials requisition. The issues are
recorded in the store ledger and the respective jobs or production dept are debited
with the price of the material issued. As the time of purchase and the time of issue
are mostly different and the market price of the materials are tends to vary, the
problem of pricing of the materials issued necessitates certain policy formulation.
It is an important consideration not only under stores management but also for
costing and pricing policies. The fundamental consideration is whether to price the
issue at historical price i.e. the original purchase price, at the replacement price i.e.
the prevailing market price at the time of issue or at some price.
The various methods are used for pricing the material issue, which are
based on different principles. The following are the important methods of pricing
the materials issues:
1. First in first out method (FIFO Method)

2. Last in first out Method. (LIFO)
3. Average Cost Method.
4. Replacement Price Method.
5. Standard Price Method.
6. Actual Price Method.
7. Inflated Price Method.

Orgnizational profile

Akash Industries, a pioneer in the manufacture of sheet metal pressed components was
established in the year 1977. Ever since, it has grown into a big organization with a focus
in quality in everything.
An ISO 9001-2000 Company with a good customer base in the domestic as well as
the International market activities of Akash Industries include tool design also with a
highly skilled & professional work force, tools is designed for the components as per the
customer requirements. Our speciality being the deep drawn components, we cater the
electrical, elevator, home appliances automobile industry and the defence.
We are in it for a long haul with a focus on continual improvement. We are having
mechanical presses ranging from 10T to 80T capacity & hydraulic presses ranging from
10T to 250T capacity, out of which 50T, 80T, 160T & 250T hydraulic presses are double
acting presses to carry out deep drawing operations. We also use triple acting
arrangement for some of these machines to carryout more precision items & to make
multiple operations at a time.
Apart from this, shearing machine of capacity 3.0mm x 2500mm & 10mm x
2000mm both hydraulically operated are installed for better cutting accuracy. The other
relevant machineries such as welding transformers, spot welding, grinding, and circle
cutting machines are installed to support our manufacturing activity with maximum

productivity. The two material handling equipments for loading & unloading of tools are
in place to make setting faster and easier. The separate tool maintenance area to carry out
maintenance of tool is provided with surface grinding & drilling machines to attend
immediate rectification, such as sharpening of punches & dies. We are equipped with 62
KVA generators to overcome power failure. The painting facility with 7 tank process of
components before painting is available. The painting booth & drier for quick drying is
also installed to give our customers a complete satisfaction by supplying ready for
fitment components.
We are pride to have clients from various industries many of them are well - known in
the global industrial community. Some of our esteemed clients are as under:-
Cummins Generator Technologies
• OTIS Elevator (I) Ltd.
• Trident Power craft Pvt. Ltd.
• Crompton Greaves Ltd
• Kaytee Switch Gears Ltd.
• IFB India
For each and every industry, it’s very important to have strong infrastructural profile to
keep consistent quality and quantity of the products. We are proudly having excellent
infrastructure at our works.
Paint Shop

Our paint shop is equipped with 7 tank process, where in the material to be painted
will be degreased, derusted & phosphated by trained people under the supervision of
technically qualified supervisors & with frequent quality checks such as weight of
phosphate coating, Adhesion test etc. The duly 7 tank processed component is then taken
for primer / painting, which is carried out in a water scurbing painting both with the help
of spray gun. The coating thickness of paint & drying time etc are strictly monitored to
give our customers specified coating & hard dry components

Press Shop
We are having mechanical presses ranging from 10T to 80T capacity & hydraulic
presses ranging from 10T to 250T capacity, out of which 50T, 80T, 160T & 250T
hydraulic presses are double acting presses to carry out deep drawing operations. We also
use triple acting arrangement for some of these machines to carryout more precision
items & to make multiple operations at a time.
Apart from this, shearing machine of capacity 3.0mm x 2500mm & 10mm x
2000mm both hydraulically operated are installed for better cutting accuracy. The other
relevant machineries such as wielding transformers, spot wielding, grinding, and circle
cutting machines are installed to support our manufacturing activity with maximum
productivity. The two material handling equipments for loading & unloading of tools are

in place to make setting faster and easier. The separate tool maintenance area to carry out
maintenance of tool is provided with surface grinding & drilling machines to attend
immediate rectification, such as sharpening of punches & dies. We are equipped with 62
KVA generators to overcome power failure. The painting facility with 7 tank process of
components before painting is available. The painting booth & drier for quick drying is
also installed to give our customers a complete satisfaction by supplying ready for
fitment components.

Human Resource
Highly professional & skilled workforce is available, at Akash Industries. Skilled
press operators & a thoroughly professional supervision staff is an important asset of our
organization. Experienced tool makers cater to the periodic & daily maintenance of the
tools. This helps to eliminate the bottlenecks caused due to tool breakages & other minor
maintenance work. Also our skilled operators have been in the organization from the
inception & hence know the job thoroughly.

Raw material turnover ratio:
Raw material turnover ratio is velocity at which raw material converted into
goods ready for sale. If raw material turnover ratio is high then company is efficiency
converting into finished goods.
Formula:
Material consumed__
Average raw material

Raw Material Turnover Ratio
Year Raw material consumed Avg R.M Ratio
2007 43017662 1546000 27.83
2006 43211340 1464543 29.51
2005 26661400 873743.5 30.51

Raw Material turnover ratio
31 30.51
30 29.51
29
Ratio
27.83 Ratio
28
27
26
2007 2006 2005
Ratio 27.83 29.51 30.51
Years
Form above graph we come know that raw material turnover ratio is decreasing from
30.51 in 2004-2005 to 27.83 for 2006-2007. Indicates that company is converting raw
material into finished or semi finished goods slowly.
Holding period of raw material:
It refers to the number of days taken for the production unit to
convert raw material to finish goods.
Formula:

360
Raw material turnover ratio
Holding period of raw material
Year Total Days Ratio Days
2007 360 27.83 12.94
2006 360 29.51 12.19
2005 360 30.51 11.8

Holding p eriod of raw m aterial
14
12.94
13
12.19
Days
11.8 D ays
12
11
2007 2006 2005
D ays 12.94 12.19 11.8
Year
As the raw material turnover ratio is decreasing form 30.15 to 27.83 for 2006-07 it
indicates that firm is taking more days for conversion as compared to 2005. In 2004-05
conversion period was 11.8 days but in increased to 12.94 for 2006-07. This is shown in
above graph.
Work in Process Turnover ratio:

Work in process turnover ratio is velocity at which W.I.P converted into goods
ready for sale. If W.I.P turnover ratio is high then company is efficiency converting into
finished goods.
Formula:
Cost of production
Average W.I.P
W.I.P turnover ratio
Year cost of production Avg W.I.P Ratio
2007 48430668 1851281 26.16
2006 47232042 1486970 31.76
2005 29554866 1345168 21.97

W ork in process turnover ratio
40
31.76
26.16
21.97
R atio 20
Ratio
0
2007 2006 2005
Ratio 26.16 31.76 21.97
Years
Form above graph we come know that Work in process turnover ratio is increasing from
21.97 in 2004-2005 to 26.16 for 2006-2007. The ratio was high in 2006 as compared to
2007 and 2005. The ratio was 31.76. Indicates that company is converting semi finished
into finished goods little slowly.

Holding period of W.I.P:
It refers to the number of days taken for the production unit to convert
semi finished goods into finish goods.
Formula:
360
W.I.P turnover ratio
Holding period of W.I.P
Year Total Days Ratio Days
2007 360 26.16 13.76
2006 360 31.63 11.38
2005 360 21.97 16.39

Holding period of W .I.P
20
16.39
15 13.76
11.38
Days 10
5 Days
0
2007 2006 2005
Days 13.76 11.38 16.39
Years

As the work in process turnover ratio is increasing form 21.97. To 26.16 for 2006-07 it
indicates that firm is taking less days for conversion. In 2004-05 conversion period was
16.39 days but in decreased to 13.76 for 2006-07. Which shown in above graph.
Finished goods turnover ratio:
Finished goods turnover ratio is velocity at which finished goods converted into
for sale. If finished goods turnover ratio is high then company is efficient.
Formula:
Cost of goods sold
Average finished goods

Finished goods turnover ratio
Year cost of goods sold Avg F.G Ratio

200
7 52593816 1700698 30.92
200
6 47482634 1209469 39.26
200
5 30816840 1831501 16.3

40 39.26
30.92
Ratio 20 1 6.3
0 Ratio
2007 2006 2005
R atio 30.92 39.26 16.3
Year
Form above graph we come know that finished goods turnover ratio is increasing from
16.3 in 2004-2005 to 30.26 for 2006-2007. Indicates that company is selling goods little
fastly as compared to 2005 but it is slow as compared to 2006. Where the ratio for that
particular period was 39.26.
Holding period of F.G:

It refers to the number of days taken form the firm to sell their finished
goods.
Formula:
360
Holding period of F.G
Year Total days Ratio Days
2007 360 30.92 11.64
2006 360 39.26 9.17
2005 360 16.83 21.39

Holding period of finshed goods
30
21.39
20
Days 11.64
10 9.17
D ays
0
2007 2006 2005
D ays 11.64 9.17 21.39
Years
As the finished goods turnover ratio is increasing form 16.3 to 30.92 for 2006-07 it
indicates that firm is taking less days for sale. In 2004-05 conversion period was 21.39

days but in decreased to 11.64 for 2006-07 it is satisfactory. Which shown in above
graph.
Inventory to capital employed:
This ratio indicates the relationship between the total capitals employed and
inventories it shows how much capital utilized to invest in the inventories other than the
other assets. The normal manufacturing firms have low ratio of inventory total capital
employed in the organization.
Formula:
Inventory
Total capital employed

Inventory to capital employed
Total capital
Year Inventory employed Percentage
2007 2095450 11894401 18
2006 3042944 12082963 25
2005 1801643 11435999 16

Inventory to capital employed
25
25
20 18
16
15
Ratio
10
Percenta
5 ge
0
2007 2006 2005
Percentage 18 25 16
Years
By observing above graph we can say that the firm invest reasonable amount in
inventories compared to other assets. It invested 25% of its capital in inventory in 2006
where as it reduced to 18% in 2007.
Inventory to current asset ratio:

This ratio indicates the relationship between the inventory and current assets. It
shows the percentage of inventory to current assets, which helps the organizations in
deciding the current assets policy which also affect the liquidity position of the
organization.
Formula:
Inventory
Current assets
Inventory to current asset ratio

Year Inventory current assets Percentage
2007 2095450 9217748 23
2006 3042944 9978619 31
2005 1801643 8145942 22

Inventory to current assets ratio
40
31
23 22
R atios 20
0 Percenta
2007 2006 2005 ge
P ercentag 23 31 22
e
Year
The inventory to current assets ratio in the year 2005 was 22% and it increased to 31% in
the year 2006 but again it reduces to 23% . it show that the firm investing 23% of its
investment is for inventory only.
Inventory to total assets:

This ratio indicates the relationship between the inventory and total assets.
The significance of this ratio is it reflects the portion the inventory as a percentage of the
total assets, which helps the management deciding the utilization remaining resources
profitably, since the inventory will lock up the huge funds and reduces the profitability of
the organization
Formula:
Inventory
Total assets
Inventory to total assets
Year Inventory Total assets Percentage
2007 2095450 12520507 17
2006 3042944 15205973 20
2005 1801643 13072267 14

inventory to total assets
20 20
17
15 14
R atio 10
5 Percenta
ge
0
2007 2006 2005
P ercentage 17 20 14
Y e ars
During the year 2005 the rate of inventory to total assets was 14% it increased to 20% in
2006. But again it reduced to 17% in 2007. It indicates that firm investing only 17% in
inventory out of total assets.

Inventory to working capital:
This ratio indicates the relationship between inventory to working capital
and it also indicates the amount to inventory tied up in the working capital and it also
shows the efficiency of inventory management.
Formula:
Inventory
Working capital
Inventory to working capital
Year Inventory Working capital Percentage
2007 2095450 6732851 31
2006 3042944 9287513 33
2005 1801643 8400961 21

Inventory to working capital ratio
40
33
31
30
21
Ratio 20
A
10 Percenta
ge
0
2007 2006 2005
Percentage 31 33 21
Years
In the year the ratio was 21% in 2005. It increased to 33% for 2006 but it reduced to 31%
in 2007. It indicates that firm investing huge amount in inventory.
Findings

1. Raw material turnover ratio decreased to 27.83 in 2007 as compared to 30.51 in
2005. It indicates that the firm is taking more time to converting raw material into
semi finished goods.
2. The firm is taking 12.98 days for conversion of raw material into semi finished
goods
3. Work in process turnover ratio decreased to 26.16 in 2007 as compared to 31.97
in 2006 but increased as compared to 2005. It indicates that the firm is taking little
ess time to convert semi finished goods into finished goods.
4. The firm is taking 13.96 days to convert semi finished goods into finished goods
5. Finished goods turnover ratio is increasing from 16.3 in 2004-2005 to 30.26 for
2006-2007. Indicates that company is selling goods little fastly as compared to
2005 but it is slow as compared to 2006. Where the ratio for that particular period
was 39.26.
6. The firm is taking 11.76 days to sell the goods.
7. Inventory to capital employed is reduced to 18% in 2007 as compared to 25% in
2006.
8. Inventory to current assets is reduced to 23% in 2007 as compared to 31% in
2006.

9. Inventory to total assets is increased to 17% in 2007 as compared to 14% in 2005.
10. Inventory to working capital is reduced to 31% in 2007 as compared to 33% in
2006.
Suggestions

a) From the findings it is came to know that in the year 2006-07 the number of days
for holding Raw material is more, it is not good for the company because it eats
unnecessary investment. To avoid this problem the following points will help.
• Purchase Raw Materials at the time when the stock reaches the
minimum level.
• The purchases should not cross the Maximum limit otherwise the stock
kept in stores idle.
• Quantity should be ordered as per the demand. We can assume the
demand for the goods from past experience.
• We can have more Raw materials which are imported from other
countries but carry reasonable stocks which are available locally.
b) If we purchase less quantity of materials at a time it will reduce the carrying cost
but increases the ordering cost and vise versa. Therefore optimum ordering
quantity is necessary, which minimizes the cost.
c) They can also follow ABC analysis. Where the materials required can be divide
according to there cost and requirements. Such as the more imported and costly
goods are categorized as group ‘A’ and then little less important then group ‘A’
materials are grouped as ‘B’ and other materials falls in category ‘B’. So there is
need not to waste the unnecessary expenses in unimportant goods.

d) The company should maintain a safety level and also reordering point so that they
come to know at what time they should order for the supply of material and need not to
suffer from short fall of required material.

Bibliography
• Financial management : I.M.Panday
• Theory and practices
of Inventory Management : B.K.Mishra
• Production management : K.Ashwatappa
• Web-site : www.akashmetaform.com
www.google.com


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Contents

Sl. No. Titles Page No.

 Purpose of the Study 4

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 1

demand, new opportunities due to worldwide marketing, global sourcing of materials,

equipment, coordinate internal activities, and communicate with customers. Inventory

timely decisions to manage their operations.

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 3

“Inventory management and its effects on working capital”

inventory management helps in proper maintenance of working capital, so the title of

this study is “ inventory management and its effect on working capital”

Objectives of the study

1. To study the inventory management based on the ratios

2. To find out the impact of inventory on working capital.

4. To suggest the measures for improving the inventory level.

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 4

Inventory management being a very important concept in all the company’s

to examine the effectiveness of inventory management system adopted by Akash

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 5

years; i.e. from

Financial statement for the year 2004-05

Financial statement for the year 2005-06

Financial statement for the year 2006-07

 To mean an Accounting year of the company consisting of 360 working days.

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 6

In modern competitive one of the burning problem of every business and

industrial enterprise. This is why inventory management as a scientific device for

it concerns itself not with men but with inventory.

companies in India. Because of the large inventories maintained by firms, a considerable

amount of funds is required to be committed to them. It is therefore absolutely imperative

to manage inventories efficiently and effectively in order to avoid unnecessary

favorable impact on a company’s profitability.

the components that make up the product.

normal course of business operations.

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 7

materials, work-in-progress, and finished goods.

and no raw material and work-in-process.

enter into production but are necessary for process.

Inventory includes the following things

out production activities uninterruptedly. The liquidity of raq materials required

regulations, etc. to affect the stock of raw materials.

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 8

consumables may be classified according to their consumption and criticality.

provides a buffer between production and market. The purpose o maintaining

inventories to ensure proper supply of goods to customers. In some concerns the

production is undertaken in general without waiting for specific orders.

The area of inventory management covers the following individual phases:

• Determining the size of inventory to be carried

• Establishing the timing schedules

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 9

• Lot sizes for new orders

• Ascertaining minimum safety levels

• Providing proper storage facilities

• Determining the Economic order Quantity

Objectives of Inventory management are,

• To avoid over investment and under investment in inventories

loss of quantity discounts and high transportation charges.

Maintaining inventories involves trying up of the company’s funds and incurrence of

the storage and handling costs. If it is expensive to maintain inventories, why do

BELGAUM ISTITUTE OF MANAGEMENT STUDIES (MBA). BGM 10

facilitate smooth production and sales operations.

2. Precautionary motive: Necessitates holding of inventories to guard against

3. Speculative motive: Influences the decision to increase or reduce inventory