INVENTORY MANAGEMENT: AN INTRODUCTION

The products or supplies utilised by a company for manufacturing and sale are referred to as
inventory. It also covers things that are utilised as support materials throughout the
manufacturing process. Raw materials, work-in-progress, and completed products are the
three fundamental kinds of inventory. Raw materials are things that businesses buy to utilise
in the manufacture of finished goods. All products presently in the manufacturing process are
classified as work-in-progress. These are items that have been partially produced. Finished
products are things that have previously been manufactured but have not yet been sold.

Inventory is one of the most essential types of current assets, since it allows a company's
production and sales processes to run smoothly. Inventory management is the part of current
asset management that deals with keeping the right amount of inventory on hand and using a
good control system to keep the overall inventory cost down.

1
INVENTORY MANAGEMENT OBJECTIVES

 Keeping Dead Stock at Bay

 Getting the Most Out of Your Storage Cost
 Keeping Sufficient Stocks
 Increasing Cash Flow
 lowering the cost of goods purchased

STUDY REQUIREMENTS

Inventory management is critical because it allows you to handle two critical issues:

1. The company must have enough inventory on hand to ensure that production and
sales go smoothly.
2. It must reduce inventory investment to increase company profitability.

Inventory investment should be neither excessive nor insufficient. It should only be at its
best. Inventory management's primary goal is to maintain an optimal amount of inventory.
Excessive inventory investment ties up more funds, reducing profitability. In addition,
inventories may be utilised, lost, or destroyed, and retain expenses in terms of big space and
other factors. At the same time, a lack of inventory investment leads to stock-out issues, as
well as interruptions in production and sales. When a result, the company may lose
consumers as they go to rivals. When it comes to inventory management, financial managers
should constantly strive to invest neither too much nor too little in inventory. The following
are some examples of the relevance or significance of inventory management:

* Inventory management aids in the maintenance of a trade-off between carrying costs and
ordering costs, lowering overall inventory costs.

* Inventory management makes it easier to have enough inventory on hand for seamless
production and sales activities.

* Inventory management prevents a company from going out of business due to a lack of
effective inventory management.

* Inventory management refers to a company's inventory control system for avoiding losses,
damages, and misuses.

2
THE STUDY'S OBJECTIVE

Inventory management is a straightforward idea. Make sure you don't have too much or too
little supply.

Because going over or below the optimum range may be costly, proper inventory
management can make a big difference. Finding the correct balance can be a difficult and
time-consuming job without the appropriate technologies.

For "SAI MURARITRADERS," inventory management is critical. It allows the company to

meet or exceed consumer expectations by making goods easily accessible.

METHODOLOGY OF RESEARCH

The descriptive research method was used in this study. The researcher has no control over
the factors in this study. Only what has occurred or is occurring is reported. The study can
only find causes, but it can't change the factors.

Obtaining information

This research is based on secondary and primary data sources. Annual reports, books,
journals, and websites were used to compile the data.

Method of data collection:

The following are examples of data collecting methods:

Primary data is gathered from internal sources such as accountants and management via
interviews and discussions, as well as yearly reports.

Secondary data was gathered from books and articles on the internet.

Analytical tools

In the current research, the following tools were used. The following is a list of them.

Analyzing ratios (inventory)

3
THE STUDY'S LIMITATIONS

The following are the study's limitations:

The research is restricted to the dates and information given by Sai Murari Traders in their
annual reports, and it only covers the years 2015-2019.

Due to time constraints, a thorough examination of all of the materials was not feasible.

The shops department kept some of the information private.

The study was limited to just a few components in the shops category.

4
 CHAPTER-II

REVIEW OF LITERATURE

5
 REVIEW OF LITERATURE

INTRODUCTION:

Every business need inventory to keep its operations operating smoothly. It connects the
manufacturing and distribution processes. Between the identification of a need and its
realisation, there is usually a temporal lag. The longer the time lag, the more inventory is
required. It also acts as a buffer against future price changes.

In a complicated Industries Limited, it was clearly examined of how things are being done
and what is the actual influence of these on industry, as well as how efficiently the inventory
is used, which is of significant interest to researchers because of its enormous importance in
the study.

In most businesses, inventories account for the majority of current assets / working capital.
As a result, inventory control and management are very important.

The goal of inventory management is to guarantee that supplies are available in adequate
quantities when needed and to reduce inventory investment.

Inventory's Purpose and Characteristics:

In accounting terms, inventory may solely refer to the stock of completed products. It may
contain raw materials, work-in-progress, and stores, among other things, in a manufacturing
company.

The following items are included in inventory:

a) Raw Material: A significant contribution into the organization's raw material. They must
continue their manufacturing operations without interruption. The amount of raw materials
needed will be decided by the rate of consumption and the amount of time it takes to refill
supply. Factors like as raw material availability and government restrictions, among others,
have an impact on raw material stock.

a) Work in progress: Work in progress refers to stocks that are in the process of being
transformed from raw materials to completed products. The amount of work in progress is
determined by the length of time it takes to complete the manufacturing process. The amount
of work in progress is determined by the length of time it takes to complete the

6
manufacturing process. The longer it takes to manufacture anything, the more work in
progress there will be.

b) Consumables: These are materials that are required to make the manufacturing process go
more smoothly, but they also serve as catalysts. Consumables may be categorised based on
how often they are consumed. Consumable stores, in general, do not provide a supply issue
and account for just a tiny portion of total production costs. It's possible that the materials are
worth more than the raw ingredients in certain cases. Fuel oil may account for a significant
portion of the cost.

c) Finished products: These are things that are ready for sale to the general public. The aim of
keeping inventory is to guarantee appropriate supply of products to consumers. The stock of
completed items serves as a buffer between production and market.

d) Spares: Spares stock rules differ from one sector to the next. Some sectors, such as
transportation, may need more spare parts than others. Costly spare components, such as
engines and maintenance spares, are not destroyed after use; instead, they are stored in a
ready-to-use condition.

THINGS TO KNOW ABOUT HOLDING INVENTORIES

Despite the fact that keeping stocks means restricting a company's cash flow and incurring
storage and handling expenses, every business has to keep a certain amount of inventory to
ensure uninterrupted production and smooth operations. In the lack of inventory, a company
will be forced to make purchases as soon as orders come in. It will result in a loss of time and
delays in order execution, which may result in the loss of clients and business.

A company must also keep inventory in order to save money on orders and take advantage of
bulk discounts.

Keeping inventory serves three primary purposes.

1. The transaction motive: This enables continuous manufacturing and fast sales order
execution.

7
2. The precautionary motive: This requires the keeping of inventories in order to satisfy the
unpredictability of changes in material demand and supply.

3. The speculative motive: This motivates people to maintain inventory in order to profit
from price changes, save re-ordering costs, and take advantage of quantity discounts.

HOLDING INVENTORY RISK AND COSTS:

Holding inventory necessitates the depletion of a company's cash as well as the incurring of
capital and other expenses.

The following are some of the costs and hazards associated with stockpiles:

Maintaining inventory leads in a blockage of a company's financial resources. As a result, the

company will need to set aside extra cash to cover the cost of inventory.

The money may come from inside the company or from other sources. However, the business
incurs a cost in both cases. There is an opportunity cost of investing in the first scenario,
while the latter one requires the company to pay interest to the outsiders.

1. Storage and Handling Expenses: Keeping inventory entails both storage and material
handling costs. The renting of the go down, insurance charges, and other expenses are
included in the storage price.

2. Danger of Price Decline: There is always the risk of inventory prices being reduced by
supply, competition, or a general market downturn.

3. Risk of Obsolescence: As technology advances, needs change, and consumer preferences

change, stocks may become obsolete.

4. Quality Risk Determination: While inventories are maintained, the quality of commodities
may degrade.

Inventory Management Objects:

Inventory management is defined as the process of determining the best amount of

investment for each component of inventory and keeping track of it.

8
the functioning and evaluation of an efficient control system

Inventory management has two primary goals: operational and financial.

The operational goal states that supplies and spares must be available in sufficient quantities
to prevent work from being halted due to a lack of inventory.

The financial goal dictates that inventory should not sit idle and that a minimum amount of
working capital be kept on hand.

INVENTORY MANAGEMENT TOOLS AND TECHNIQUES

Proper inventory management not only helps to solve the acute issue of liquidity, but it also
helps to improve profit and reduce the company's working capital.

The following are some of the most significant inventory management and control
technologies and methods.

1. Stock level determination:

Having too much or too little inventory may be harmful to a business. If the inventory level is
too low, the company will experience frequent stock outs, which will result in excessive
ordering costs, and if the inventory level is too high, the company will experience needless
capital tie-up.

In order to maintain an optimal amount of inventory, a company must keep inventory

expenses to a low while also ensuring that there is no stock out, which may result in a loss of
sales or a production shortfall.

a) Stock level minimum:

It indicates the amount of any item that should not be permitted to go below its stock level.
Lead time: It takes time for a buying company to complete an order, and it also takes time for
the providing firm to fulfil the order. The time it takes to process an order and then execute it
is referred to as lead time.

9
The average consumption of materials in the plant is known as the rate of consumption. The
consumption rate will be determined based on previous experience and production plans.

The nature of the materials has an impact on the minimal threshold as well. If a material is
only needed for special orders from a client, no minimum stock is necessary.

The following formula may be used to determine the minimum stock level.

(Normal usage multiplied by normal reordering time) a) Re-ordering level – Minimum stock
level – Minimum stock level When the quantity of materials required reaches a certain
threshold, a new order is made to get the supplies. The order is sent before the materials reach
the minimum stock level.

The re-ordering level is chosen between the lowest and highest levels.

a) MaximumLevel: This is the maximum quantity of commodities that a business should not
stockpile. If the quantity exceeds the maximum level permitted, it is considered overstocking.

Overstocking implies more working capital will be stymied, more storage space will be
required, more resources will be squandered, and the risk of obsolescence will increase.

Maximum Stock Level + Reordering Level + Reorder Quantity (Maximum Consumption x

Minimum reorder period)

b) Danger StockLevel: It's set to a value that's lower than the stock's minimum level. The
danger stock level denotes a critical stock condition in which fresh supplies must be acquired
at any costs.

Danger Stock Level = Average Rate of Consumption x Emergency Supply Time

c) Average Stock Level: The average stock holdings of the business are represented by this
stock level.

The average stock level is equal to the minimum stock level plus 12 times the reorder
quantity.

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2) Safety Stocks Determination: A safety stock is a reserve in the event of an unexpected
increase in demand. Commodity demand may fluctuate, and inventory delivery may be
delayed; in this scenario, the business may face a stock-out situation. Firms often maintain a
buffer of safety stocks to avoid stock outs due to changes in demand.

Two variables that go into calculating this stock are the opportunity cost of stock outs and the
carrying costs.

Stock outs will occur often if a business maintains a low level of safety, resulting in greater
opportunity costs. On the other side, the larger the number of safety stocks, the higher the
carrying costs.

Economic Order Quantity (EOQ): The amount of material that will be ordered all at once is
referred to as the economic order quantity. This figure is chosen so that ordering and
transportation costs are kept to a minimum.

Total Material Cost = Acquisition Cost + Cost + Carrying Costs + Ordering Cost. The
carrying cost is the expense of maintaining the materials in the store.

The ordering cost is the cost of placing orders for the purchase of materials. The EOQ may be
calculated using the formula below. EOQ = 2CO / I

Where C indicates the unit consumption of the substance over the course of a year. The letter
O stands for "Ordering Cost."

The capital's carrying cost or interest payment is denoted by the letter I.

4) A – B – C – Analysis: (It's always preferable to do a control analysis):

11
In relation to the A, B, and C analyses. The objects have been divided into three categories:
A, B, and C. Almost 10 percent of items in the "A" category account for 70 percent of overall
consumption value.

Approximately 20% of the goods provide approximately 20% of the value of category "C,"
which comprises roughly 70% of the materials contributing just 10% of the value of
consumption.

CRITERIA FOR INVENTORY SYSTEM JUDGING

While the inventory system's ultimate objective is to decrease costs while maintaining a risk
level that management is comfortable with, the inventory system's more immediate criteria
for evaluation are:

Adaptability s Timeliness s Comprehensibility

In India, inventory management may be improved in a number of ways. As a consequence,

improvements may be made.

Computerization that is effective: Computers should be used for more than simply
accountancy. They should also be utilised to help people make better decisions.

Review of ABC and FSN classifications: ABC and FSN classifications must be reviewed on
a frequent basis.

Improved Collaboration: Inventory management efficiency will be aided by better

coordination between the procurement, production, marketing, and finance departments.

Long-term relationship building: Companies should strive to build long-term connections

with their suppliers. This would help to improve quality and timeliness.

Disposal of obsolete/surplus inventory: Procedures for removing obsolete/surplus inventory

must be simplified.

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CRITERIA FOR INVENTORY SYSTEM JUDGING

While the ultimate objective of the inventory system is to decrease costs while keeping a risk
level that management is comfortable with, comprehensibility, flexibility, and timeliness are
the more immediate criteria for assessing the inventory system.

13
 CHAPTER-III
COMPANY PROFILE

14
INTRODUCTION:

M/s SAI MURARI TRADERS is a proprietor concern duly registered under the APVAT act
2005 with registration number 28180244499 dated 1st April 2005, and promoted by qualified
and experienced individuals, with its principal place of business located at plot no. 91-3,
phase-2, IDA, cherlapally, Hyderabad-500 051. The proposed manufacturing plant will be
exclusively for the manufacture of wooden cable drums.

A BRIEF HISTORY OF THE PROMOTERS:

M/s SAI MURARI TRADERS was founded by Mr. T.A.PL. Narsimha Rao, who built a
manufacturing plant with a monthly capacity of 5000 drums.

The promoter's background is summarised here.

Mr. T.A.P.L. Narsimha Rao is a cable drum manufacturer with a lot of experience. Working
in this field for over 12 years in the private sector.

SIZE OF MANUFACTURING:

The following partners are required for M/s Sai Murari Traders' acquisitions:

RohaniEnterprises is a company founded by Rohani.

The second company on the list is Sai woodIndustries.

15
TURNOVER DETAILS WITH CUSTOMERS:

S. NO CUSTOMER NAME 2014-16 2016-17 2017-18 2018-19

1 Bhaghya Nagar India Ltd 650000 775000 625500 140000

2 Surana Telecom & Power 800000 725000 1475000 700000

Ltd
3 Spm Power & Telecom Ltd 750000 865000 4100000 360000

The owner has been in business under the name and style of Sai Murari Traders since May 1,
2005. The company's registered office is located at 10-510 EC Nagar, Cherlapally,
Hyderabad-50051. [Telangana]

The company began with the following primary goal:

To conduct business by manufacturing, processing, reprocessing, converting,

commercialising, designing, developing, displaying, discovering, moulding, remoulding,
blowing, extruding, drawing, dyeing, equipping, fitting up, fabricating, manipulating,
preparing, promoting, remodelling, service, supervising, supplying, importing, exporting,
buying, selling, turning to account, and acting as an agent, concessionaries, consultant,
collaborator, consignor, job worker,

T.A.P.L. NARSIMHARAO, a first-generation entrepreneur, founded and successfully

managed the company.

Currently, the promoter is in charge of all important issues. For the administrative and
promotion job, he has selected competent personnel.

ABOUT THE PROMOTERS AND THEIR BACKGROUND:

T.A.P.L. Narsimha Rao was the company's promoter. He is still one of the venture's most
ardent supporters.

He has more than 16 years of experience operating a similar kind of company in Hyderabad.
Despite the sluggish demand for communications cables, the group's revenue for the most

16
recent year 2006-07 was more than Rs. 40.79 lacs. With the increase in demand for the
goods, the same is anticipated to be more than 70 shortages in 2007-08.

He has colleagues that work in the same area of business as him, as well as those who work
in finance. He gained experience in marketing and manufacturing in the same firm, resulting
in a significant decrease in freight costs. As a consequence, the company will be able to offer
wooden drums at lower prices than its rivals.

UTILITIES:

The business requires a 10 HP power load, which is more than enough for the company's
existing capacity. The Goa Electric Company would be able to provide you with an electrical
connection.

The business requires 150 litres of water each day for production and drinking purposes,
which is readily accessible. Other services, such as infrastructure improvements, such as
roads, are sufficient for the company's needs. The company's personnel requirements will
also be met locally, since qualified and unskilled employees are readily accessible.

REQUIREMENTS FOR MACHINERY:

The business currently has the necessary equipment to produce the reels, but it wishes to
acquire the following additional machineries for the expansion area.

The following is a list of extra apparatus that is required:

S. NO ITEM NOS POWERREQUIREMENT

1 Plainer and Cutters 2 4HP

2 Surface 1 2HP

3 Hand Drill Machines 4 Single Phase

4 Grinders 4 Single Phase

5 Tank 1 -

6 Drill Machines 1 3HP

7 Avery Machine &Misc 1 1HP

The company's main product is a range of hardwood reels in different diameters that are
mostly used by cable producers as packaging material. The cables are mainly utilised for

17
communications or power, which are both critical infrastructure sectors that the Indian
government has identified as having significant development potential. As the need for cable
packaging materials rises, so does the demand for cable packaging materials. M/s Finolex
Cables has established the Usgon facility in Ponda, Goa. Commercial manufacturing will
begin in earnest in the year 2000. This company was founded mainly to provide M/s Finolex
cables in Goa. For the last 15 years, the promoters' group companies have done business
together. Due to its favourable location and price, this company believes it will be able to
provide the majority of the cable reels required by M/s Finolex. There are also a few cable
units in Goa where this company may conduct business if required. The company anticipates
success based on the promoters' considerable experience and track record.

MANUFACTURING PROCESS:

Hardwood drums/reels of different sizes will be the company's main product.

The most typical size is 1500*700*810. The manufacturing process may be summarised
using the steps below:

The first to be drilled were the Round Wooden Flanges.

a) Centrebole b) Studehole c) Plate hole/hubhole d) Pinhole e) Cablehole a) Centrebole b)

Studehole c) Plate hole/hubhole d) Pinhole e) Cablehole a) Centrebole b) Studehole c) Plate
hole/hubhole d) Pinhole e) Cablehole a) Centrebole b) Studehole c) Plate hole/hubhole d)
Pinhole e) Cablehole

The plainer machine's inner lagging was then transferred to the makebevelededge machine.

All wood products will be treated with wood preservatives.

Stretchers, studs, washers, and innerleggings are used to fasten flanges.

The plate is secured in the centerhole using bolts and washers.

Repairs are being made to the cable guides.

Drums are prepared, painted, and stencilled before being used.

Using a cutter, prepare wooden outer leggings by cutting wood to the necessary sizes.

18
Outer leggings, nails, and steelstrips are used to load the drum.

The project is complete and ready to ship. The methods do not generate any effluents that
harm the air or water. Furthermore, no chemical reaction takes place throughout the process.

LOCATION AND COST OF THE SITE:

The manufacturing facility is 1000 square metres and is located in the Verna industrial
district. The construction costs about Rs.3500. The entire built-up area of the shed is 184
square metres. The position is close to key customers such as FINOLEX CABLES,
SURANA TELECOM, and GOA OPTIC FIBER, which are all located in and around
Vernaor, Goa, around 15-20 kilometres away. The aforementioned area has been classified as
a particular industrial zone, and the company will benefit from the designation in the
following ways.

1. A tax advantage since the company is a sole proprietorship.

2. You are entitled to a VAT discount if you have input credit.

3. Exemption from the octroi.

4. Electricity that is tax-free.

In addition, Finolex Cables Goa, which is located in the same zone, will get the company's
finished product. Because of the benefits listed above and the handy location.

THE COURSE'S OBJECTIVES INCLUDE:

The aim of this two-day course is to enhance credit skills and equip participants with the tools
and methods they need to evaluate a commodities trader's commercial and financial viability,
as well as the major credit, market, and nation risks that may emerge in commodity trading
transactions. Case studies and activities will be utilised to highlight key ideas throughout the
session, which will be highly participative.

The following will be possible for participants to do:

19
• Using a systematic approach, identify, quantify, and evaluate credit, market, and nation
risks in commodities trading transactions.

• Recognize the dangers of different types of credit exposure.

• When assessing a commodities trader's performance and financial health, focus on financial
and ratio analysis.

• Uses qualitative, quantitative, and market data to spot possible problems early.

• Recommend facility levels and arrangements that are appropriate for the client's risk profile
while safeguarding the bank's interests sufficiently.

Analytical Framework:

Introduce and strengthen a four-step credit evaluation methodology for commodities

companies: purpose, payback, risks, and structure.

Purpose:

Decide if the money will be used by a pure trader, an integrated trader, a manufacturer, a
finance firm, or a holding company.

Determine the stage of the business cycle for which funding is required.

The Structure's Characteristics:

Consider how to create an exposure profile and implement safeguards to protect the lender's
interests.

Debt profiles:

Draw downlimits depending on the exposure tone and amount.

The structure's tone and the amount of lines

Ranking:

20
Various ways for obtaining seniority/paripassu status; increasing security interests

Safeguards:

Those that are not collateralized vs. transactions that are.

LTV and top-up criteria, as well as loan margins, haircuts, and thresholds, are all defined.

It's a smart idea to use features to reduce risks.

Pricing:

Risk and reward are taken into account.

Payback:

Credit transactions: the primary sources of payback for commodities producers and traders
are assets, refinancing, cash flow, and external help.

Risks:

The external environment is influenced by macroeconomic and geopolitical variables.

Energy, soft and hard commodities, and company-specific commodities are all sector-
specific.

Structure:

Debt profile, credit rating, and safeguards Examples of different goals and sources of
payback.

The Business Cycle's Challenges:

21
The company's operations, according to the business cycle model, include sourcing,
delivering, and warehousing goods.

The business cycle and accounting are intertwined.

Balance sheet and income statement performance

Set your financial sheet and profit margin estimates.

When negotiating positions, it's critical to understand the dynamics of suppliers and buyers.

Drivers of Earnings:

Sales quality and consistency, profitability, and cashflow are all important profits drivers.

Quantify your performance.

Compare and apply important ratios and cash flow performance indicators.

Financial Preparation:

A measure for evaluating the appropriate level of financial risk is business risk.

Tenure matching, financing, and liquidity needs are all objectives of corporate treasury.

Risk management and the use of derivatives

The Impact of Credit Strength on Market Access:

The importance of financial flexibility and liquidity cannot be overstated.

Traditional working capital measures: what they are, how they function, and where they fall
short.

Two key things to examine are payment readiness and the ability to meet short-term financial
requirements.

Calculators for ratios and cash flow

22
As an exercise, check the liquidity of atrader.

Solvency:

Define, analyse, and evaluate the solvency of atrader.

Examine the solvency of a dealer and a processor.

Early warning signs of financial distress.

23
 CHAPTER - IV

DATA ANALYSIS AND INTERPRETATION

24
1. The accompanying table depicts raw material investment during a five-year period from
2015 to 2019.

Raw Materials Investment is a kind of investment that is made in raw materials.

Year Investment on Raw- Material (in crores)

2014 – 2015 13386.8
2015 – 2016 11690.67
2016 – 2017 49950.88
2017 – 2018 42950.66
2018 – 2019 46087.45

Investment on Raw- Material

13386.8
11690.67
46087.45
2014 –2015
2015 –2016
2016 –2017
49950.88 2017 –2018
2018 –2019
42950.66

Interpretation:

1) The inventory of samurai merchants was registered at 13,386.80 in 2014-15, and it grew to
42950.66 in 2017-18, according to the above data.

2) Samurai merchants' average inventory was reported at Rs. 42950.66.

3) The most inventory investment was made in the years 2016-17.

25
26
2. The trend analysis method is used to determine the growth rate in saimurari traders' raw
material investment during the review period, as indicated in the table below.

Analysis of the Trends:

Year Raw Material (in Lacks)

2014 - 2015 13386.8

2015 - 2016 11690.67
2016 - 2017 49950.88
2017 - 2018 42950.66
2018 - 2019 46087.45

Raw Material

2018 - 2019 46087.45

2017 - 2018 42950.66

2016 - 2017 49950.88

Raw Material (in…
2015 - 2016 11690.67

2014 - 2015 13386.8

0 1000020000300004000050000

Interpretation:

1) The investment on investment increased in the 2016-17 fiscal year. Year after year, the
investment has been considered a loss. In 2018-19, the percentage was 344 percent, which
was higher than in prior years.

2) Inventory trends show that inventory was greater in 2016-17, decreased in 2017-18, and
then increased to some extent in 2018-19.

27
3) In the early years, inventory investment fluctuated, then rose to 373 percent before
fluctuating once again.

28
3. Inventory turnover The ratio indicates how efficiently a business can manage its inventory
by showing how many times the stock has been turned over over a certain time period. This
ratio is calculated using the formula below.

Inventor turnover ratio: = Cost of goods sold

Average inventory

Inventory turnover ratio:

Cost of goods
Year Avg. Inventory Ratio
sold
2014 - 2015 60150.35
7402.31 8.13
2015 - 2016 59021.41
37975.30 1.55
2016 - 2017 121551.71
95065.28 12.79
2017 - 2018 127533.58
12390.06 10.29
2018 - 2019 130392.68
1333.801 9.78

140000

120000

100000

80000

60000 Cost of goods

40000

20000

0
ar 15 16 17 18 19
Ye 0 0 0 0 0
-2 -2 -2 -2 -2
14 15 16 17 18
20 20 20 20 20

29
Interpretation:

1) The inventory turnover ratio was 8.13 in 2014-15 and progressively dropped to 1.55 in
2015-16, as shown in the table above.

2) In 2016-17, it is obvious that the ratio is extremely low, i.e., the stock is undervalued.

3) When compared to previous years, the ratio in 2014–15 is very high.

4) During the viewing period, the average inventory turnover ratio was 10.29 times.

30
4. The inventory conversion period is being studied to see how long it takes to clear stocks on
average. Calculating the inventory conversion time may be beneficial in this regard. The
number of days multiplied by the inventory turnover rate yields this time.

This formula might look like this:

Conversion period for inventory = number of days in a year (365days)

Inventory

Ratio of turnover Time it takes to convert inventory: (in crores)

Cost of goods Avg.

Year Ratio ICP (Days)
sold inventory
2014 - 2015 60150.35
7402.31 8.13 44

2015 - 2016 59021.41 37975.30 1.55 232

2016 - 2017 121551.71 95065.28 12.79 28

2017 - 2018 127533.58

12390.06 10.29 34

2018 - 2019 130392.68 13338.01 9.78 36

Cost of goods sold

60150.35

130392.68 2014 -2015

59021.41 2015 -2016
2016 -2017
2017 -2018
2018 -2019

121551.71
127533.58

31
Interpretation:

The following observations may be made from the preceding table:

1) The inventory conversion time was 44 days in 2014-15, but it fell to 16 days in 2016-17,
indicating that the stock was rapidly turned into revenues, indicating that the business is
effectively managing its inventory.

2) In the years 2016-17 and 2015-16, the lowest inventory conversion time was 28 days,
while the greatest inventory conversion period was 232 days.

32
5. Inventory as a percentage of current assets is to figure out what proportion of current assets
is made up of inventories. The inventory-to-current-assets ratio is computed, and the results
are shown in the table below:

Inventory as a percentage of current assets

Inventory X100 = Ratio

Assets in use now Inventory as a percentage of current assets:

Current
Year Inventory Ratio (%)
Assets
2014 - 2015 13386.80 24172.33 55%

2015 - 2016 11690.67 28770.78 40%

2016 - 2017 49950.88 53063.75 94%

2017 - 2018 42950.66 45598.02 92%

2018 - 2019 46087.45 49713.32 92%

60000

50000

40000

30000 Inventory
Current

Ratio (%)
20000

10000

0
2014 -2015 -2016-2017 -2018-
20152016201720182019

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Interpretation:

1) The 55 percent inventory over current assets ratio has been decreasing for two years, 2014-
2015, as seen in the above table.

2) However, it has been on a downward trend since 2015-16.

3) The lowest inventory over current assets ratio was recorded at 40% in 2015-2016, while
the greatest inventory over current assets ratio was recorded at 94% in 2016-17.

4) The inventory-to-current-assets ratio was found to be 92 percent on average.

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6. Inventory as a percentage In terms of total current and fixed assets:

Inventories / Current Assets + Long-Term Assets.

Year Inventory Current Assets Ratio

(%)
2014 - 2015 13386.80 87168.64 15.35%

2015 - 2016 11690.67 87468.76 13.36%

2016 - 2017 49950.88 117985.89 42.33%

2017 - 2018 42950.66 112647.26 37.50%
2018 - 2019 46087.45
112637.07 40.91%

42.33%
45.00% 40.91%
37.50%
40.00%

35.00%

30.00%

25.00%

20.00% 15.35%
13.36%
15.00%

10.00%

5.00%

0.00%
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

Column2

Interpretation:

1) In the 2014-2015 fiscal year, the ratio was 15.35 percent, but in the 2015-2016 fiscal year,
it fell to 13.36 percent.

2) It has been oscillating since 2016-17, although it is rising in comparison to the previous
two years.

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3) During the 2015-2016 fiscal year, the lowest inventory over total assets ratio was 13.36
percent, while the highest inventory ratio was 42.33 percent in 2016-17.

4) During the study period, the average inventory to total assets ratio was 37.50 percent.

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7. The proportion of inventory over current obligations is computed, and the ratio of
inventory to current liabilities is given in the following table.

Inventory X 100 = Inventory X Current Liabilities Ratio

Liabilities in the present Inventory as a percentage of current liabilities:

Current
Year Inventory Ratio (%)
liabilities
2014 - 2015 13386.80 7862.11 17%
2015 - 2016 11690.67 8042.62 145%
2016 - 2017 49950.88 16204.14 308%
2017 - 2018 42950.66 16204.14 284%
2018 - 2019 46087.45 17728.22 259%

Ratio (%)
2%

14%
26%

30%

28%

2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

37
Interpretation:

1) It is clear from the above table that the 17 percent inventory over current liabilities ratio
has been on the decline for the last two years, 2014-15.

2) During the 2015-2016 fiscal year, the ratio steadily rose to 145, resulting in a net increase
of 128.

3) The lowest inventory-to-total-amounts ratio was 17 in the 2014-2015 fiscal year.

4) During the 2016-17 fiscal year, the highest inventory to current liabilities ratio of 308 was
achieved.

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8. Current Ratio In order to compute the current ratio, the proportion of current assets to
current liabilities is determined, as shown in the table below.

Current Assets/Current Ratio = Current Assets/Current Ratio Liabilities in the present

Current Ratios Calculation:

Year Current assets Current liabilities Ratio (%)

2014 - 2015 24172.33 7862.11 3.07%

2015 - 2016 28770.78 8042.62 3.57%

2016 - 2017 53063.75 16204.14 3.27%

2017 - 2018 45598.02 16204.14 3.06%

2018 - 2019 49713.32 17728.22 2.80%

18% 19%

19%

23%

21%

2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

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Interpretation:

1. The 3.07 percent of current assets over current liabilities ratio, i.e., current ratio, showed a
declining trend from 2015 to 2016.

2. In 2014-15, the ratio was 3.07 percent, and in 2015-2016, it was 3.57 percent.

3. The lowest current ratio, 2.80 percent, was recorded in 2018-19, while the highest current
ratio, 3.57 percent, was recorded in 2015-2016.

4. During the evaluation period, the average current ratio was 3.06 percent.

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9. The quick ratio is the proportion of current liabilities to fast liabilities. The following
formula is used to calculate fast assets, which is a more stringent evaluation of a firm's
liabilities situation.

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