WORKING

CAPITAL

MANAGEMENT

Introduction: Working capital is th circulation o! "lood is )orking capital is # r' li! "lood and n r# c ntr o! a "usin ss$ %ust as

ss ntial in th

hu&an "od' !or &aintaining li! ( s&ooth running o! a a&ount o!

ss ntial to &aintain th

"usin ss$ No "usin ss can run succ ss!ull' )ith out an ad *uat )orking capital$

Working capital r ! rs to that part o! !ir&+s capital )hich is r *uir d !or !inancing short t r& or curr nt ass ts such as cash( &ark ta"l d "tors( and in# ntori s$ In oth r )ords )orking capital is th !unds n c ssar' to co# r th cost o! op rating th nt rpris $ s curiti s( a&ount o!

M aning: Working capital & ans th !unds ,i$ $- capital. a#aila"l and us d !or da'

to da' op rations ,i$ $- )orking. o! an

nt rpris $ It consists "roadl' o! us d in or r lat d to its us d during an accounting

that portion o! ass ts o! a "usin ss )hich ar curr nt op rations$ It r ! rs to !unds )hich ar p riod to g n rat &a/or purpos a curr nt inco& 0ist nc $ o! a t'p

)hich is consist nt )ith

o! a !ir&

O"/ cti# s o! )orking capital:

E# r' "usin ss n

ds so&

a&ount o! )orking capital$ It is n

d d !or

!ollo)ing purpos s1

2 3or th

purchas

o! ra) &at rials( co&pon nts and spar s$

2 To pa' )ag s and salari s$ 2 To incur da' to da' o!!ic 0p ns s tc$ 0p ns s and o# rh ad costs such as !u l( po) r( and

2 To pro#id

cr dit !aciliti s to custo& rs

tc$

3actors that d t r&in Th

)orking capital: nu&" r o!

)orking capital r *uir & nt o! a conc rn d p nd upon a larg

!actors such as 4 5i6 4 Natur o! "usin ss o! charact r o! "usin ss$

4 5 asonal #ariations )orking capital c'cl 4 Op rating !!ici nc'

4 Pro!it l # l$ 4 Oth r !actors$ 5ourc s o! )orking capital: Th )orking capital r *uir & nts should " & t "oth !ro& short t r& as ) ll

as long t r& sourc s o! !unds$

3inancing o! )orking capital through short t r& sourc s o! !unds has th " n !its o! lo) r cost and sta"lishing clos r lationship )ith "anks$

3inancing o! )orking capital through long t r& sourc s pro#id s th " n !its o! r duc s risk and incr as s li*uidit'

T'p s o! )orking capital:

Working capital an "

di#id d into t)o cat gori s1

P r&an nt )orking capital:

It r ! rs to that &ini&u& a&ount o! in# st& nt in all curr nt ass ts )hich is r *uir d at all ti& s to carr' out &ini&u& l # l o! "usin ss acti#iti s$

T &porar' )orking capital:

Th

a&ount o! such )orking capital k "asis o! "usin ss acti#iti s$

ps on !luctuating !ro& ti&

to ti&

on th

Ad#antag s o! )orking capital:

2 It h lps th 2 It can arrang 2 It

"usin ss conc rn in &aintaining th loans !ro& "anks and oth rs on "usin ss crisis in

good)ill$ as' and !a#ora"l t r&s$

na"l s a conc rn to !ac

& rg nci s such as

d pr ssion$ 2 It cr at s an n#iron& nt o! s curit'( con!id nc ( and o# r all

!!ici nc' in a "usin ss$ 2 It h lps in &aintaining sol# nc' o! th "usin ss$

7isad#antag s o! )orking capital:

2 Rat

o! r turn on in# st& nts also !all )ith th

shortag

o! )orking

capital$ 2 E0c ss )orking capital &a' r sult into o# r all in !!ici nc' in organi6ation$ 2 E0c ss )orking capital & ans idl 2 Inad *uat ti& $ !unds )hich arn no pro!its$

)orking capital can not pa' its short t r& lia"iliti s in

Manag & nt o! )orking capital:

A !ir& &ust ha# !ir&$ It should "

ad *uat n ith r

)orking capital( i$ $- as &uch as n 0c ssi#

d d th

nor inad *uat $ 8oth situations ar !ir& has idl !unds )hich

dang rous$ E0c ssi#

)orking capital & ans th

arn no pro!its !or th do s not ha#

!ir&$ Inad *uat

)orking capital & ans th

!ir&

su!!ici nt !unds !or running its op rations$ It )ill " r lationship " t) n )orking capital( risk

int r sting to und rstand th and r turn$ Th "asic o"/ cti#

o! )orking capital &anag & nt is to &anag

!ir&s curr nt ass ts and curr nt lia"iliti s in such a )a' that th satis!actor' l # l o! )orking capital is &aintain d( i$ $- n ith r inad *uat nor 0c ssi# $ Working capital so& can " ti& s is r ! rr d to as said to " t th h art o! th

9circulating capital:$ Op rating c'cl n d !or )orking capital$ Th

!lo) " gins )ith con# rsion o! cash into ra)

&at rials )hich ar ( in turn trans!or& d into )ork1in1progr ss and th n to !inish d goods$ With th pr su&ing goods ar th Th c'cl to cash$ n !! cti# in carr'ing )orking capital c'cl o"s r# d that th )ith lo) sal !inish d goods turn into accounts r c i#a"l (

sold as cr dit$ Coll ction o! r c i#a"l s "rings "ack

co&pan' has "

)orking capital li&its$ It &a' also " t r&s has " a"o# ta"l

P8T in a"solut s n !ro& th

n incr asing as a ' ar to ' ar "asis as could " although pro!it p rc ntag turno# r &a' "

lo) r "ut in pro!it

a"solut

t r&s it is incr asing$ In ord r to !urth r incr as th ir &argins "'

&argins( 55L can incr as

0t nding cr dit to good to g t " tt r rat s$

custo& rs and also "' pa'ing th

cr ditors in ad#anc

WORKING CAPITAL AN7 RATIO ANAL;5I5

Ratio Anal'sis is on th

o! th

i&portant t chni*u s that can "

us d to ch ck

!!ici nc' )ith )hich )orking capital is " ing &anag d "' a !ir&$ Th as !ollo)s

&ost i&portant ratios !or )orking capital &anag & nt ar

N t Working Capital:

Th r

ar

t)o conc pts o! )orking capital na& l' gross )orking capital and di!! r nc " t) n curr nt

n t )orking capital$ N t )orking capital is th

ass ts and curr nt lia"iliti s$ An anal'sis o! th " Th # r' h lp !ull !or kno)ing th !ollo)ing ta"l pro#id s th op rational

n t )orking capital )ill co&pan'$

!!ici nc' o! th

data r lating to th

n t )orking capital

o! 55L$

NET WORKING CAPITAL < C=RRENT A55ET51C=RRENT LIA8ILITI5

;EAR C=RRENT A55ET5 C=RRENT LIA8ILITIE5 NET WORKING CAPITAL >??@ >ABC@@D?E DEA@AD?BF B>>DA?A@ >??B >EGFGAADB DBGFA>B?F D>??@DEDF >??C FFCGE>>G? DECB?>ECC D@?FCGADF >??E FBFAA@@A >DCGCFBBD DA@ACDEGF

Graph

IN3ERENCE:

3ro& th

a"o#

ta"l

it can "

in! rr d that th

proportion o! n t )orking d in th ' ar

capital had incr as d !ro& th >??E co&par )ith >??C$

' ar >??@ to>??C and d cr

Working capital turno# r ratio:

This is also kno)n as sal s to )orking capital ratio and usuall' r pr s nt d in ti& s$ This sta"lish s th r lationship o! sal s to n t

)orking capital$ This ratio indicat s 1h ath r or not )orking capital has " n !! cti# l' utili6 d in &aking sal s$ In cas i! a co&pan' can achi #

high r #olu&

o! sal s )ith r lati# l' s&all a&ount o! )orking capital( it op rating !!ici nc' o! th co&pan'$ It is

is an indication o! th calculat d as !ollo)s1

;EAR NET 5ALE5,R5. WORKING CAPITAL,R5. RATIO >??@ A>GD>E>GB B>>DA?A@ B$EG >??B B>>DEDBD? D>??@DEDF @$> >??C BBE>D@CGD D@?FCGADF A$A >??E B@@>>GFDG DA@ACDEGF A$@

INTERPRETATION:

3ro& th

a"o#

ta"l

can conclud

that )orking capital ratio is

d cr asing$ In th th

' ar >??@ it is B$EG ti& s it d cr as d to A$A ti& s in ' ar >??E$

' ar >??C$ And it is incr asing A$@ ti& s in th

C=RRENT A55ET5 TO TOTAL A55ET5 RATIO:

Curr nt ass ts pla' an i&portant rol organi6ation$ 5o( to & t th

in da'1to1da' !unctioning o! an curr nt ass ts so as

# r' !ir& should &aintain ad *uat

dail' r *uir & nts o! "usin ss$ I! th 0c ds th n th

proportion o! curr nt )ill " so&

ass ts in total ass ts idl

r *uir d li&it( th r ti& ( th

in# st& nts on such ass ts$ At th

proportion o! curr nt # r' !ir& should situations

ass ts in total should not l ss than r *uir & nts$ 5o( &aintain th ad *uat

*uantit' o! curr nt ass ts$ 8ut during th &plo' &or curr nt ass ts and #ic 1# rsa$

o! p ak d &and( should Particularl' in cas to th th

o! production organi6ations( th r

is h a#' i&portanc na"l

curr nt ass ts than !i0 d ass ts$ This kind o! anal'sis )ill )orking capital position o! th

&anag rs to und rstand th

!ir&$ 7ata

r lating to th as !ollo)s1

proportion o! )orking capital in total ass ts is d pict d

This ratio

sta"lish s th

r lationship " t)

n th

curr nt ass ts and

total ass ts$

;EAR C=RRENT A55ET5,R5. TOTAL A55ET5,R5. RATIO H >??@ >DCGCFBBD FG??D>CC? @@$EE >??B DECB?>ECC F>CBA?C?@ @C$>@ >??C DBGFA>B?F AC@GG@BBA F@$@C >??E DEA@AD?BF AGDGF@DED FC$@D

IN3ERENCE: 3ro& th a"o# ta"l it can " in! rr d that th proportion o! curr nt ' ar >??@$ In th ' ar

ass ts to total ass ts had d cr as d @@$EE in th >??@ it had incr as d to @C$>@( again in th F@$@CH( again in th ' ar >??E incr as

' ar >??C it has d cr as d

in FC$@D

Curr nt ass ts to sal s ratio: Th curr nt ass ts ar us d !or th purpos o! g n rating sal s$ A ratio o! ass ts ar appli d in

curr nt ass ts to sal s r # als that ho) " st th "usin ss !or turno# r$ As p r th a"o#

said ratio( a lo) proportion o!

curr nt ass ts in r lation to sal s indicat s " tt r turno# r o! th co&pan' and #ic 1# rsa( )hich )ill sho) positi# Th i&pact on pro!ita"ilit'$

data r lating to this asp ct is pro#id d as !ollo)s and it is

calculat d as !ollo)s$

;EAR C=RRENT A55ET5,R5. NET 5ALE5,R5. RATIO

H >??@ >ABC@@D?E A>GD>E>GB @C$@ >??B >EGFGAADB B>>DEDBD? AB$@ >??C FFCGE>>G? BBE>D@CGD @?$@ >??E FBFAA@@@A B@@>>GFDG @@$A

IN3ERENCE: 3ro& th a"o# ta"l it can " in! rr d that th proportion o! curr nt ' ar >??B

ass ts to sal s had incr as d to @C$@H in th it had d cr as d AB$@H$ In th th

' ar >??@$ In th

' ars >??C it had incr as d to @?$@H and in

' ar >??E had incr as d @@$AH$

Curr nt ass ts to !i0 d ass ts ratio:

Total ass ts in an' "usin ss contain "oth !i0 d and curr nt ass ts$ 3or prop rl' !unctioning o! th organi6ation in t r&s o! production and " t) n th &$ I! i&pact on

&ark ting it is n c ssar' to &aintain a prop rl' "alanc th th proportion o! !i0 d ass ts incr as s( it )ill "

a n gati#

!ir&+s li*uidit' and i! curr nt ass ts incr as ( production incr as s

and )hich caus s i&pact on th

d &and !or th

product$ In #i ) o!

!! cti#

&anag & nt o! !unds and to in# st on "oth !i0 d and curr nt ass ts( it is n c ssar' to tak ratio " t) th d cision as soon as possi"l $ 7ata r lating to th

n curr nt ass ts to !i0 d ass ts is d pict d as !ollo)s$

;EAR C=RRENT A55ET5,R5. 3IIE7 A55ET5,R5. RATIO H >??@ >ABC@@D?E DBCA@A>DG DA$DF >??B >EGFGAADB DEA@GC?@G D@$BC >??C FFCGE>>G? DFE?DFFCB >A$A >??E FBFAA@@@A >?>?EAC>@ DE$?

IN3ERENCE: 3ro& th a"o# ta"l it can " in! rr d that th proportion o! curr nt ' ar >??@$ In th ' ar

ass ts to !i0 d ass ts had d cr as d DA$DFH in th >??B it had incr as d to D@$BCH$ In th had d cr as in ' ar >??E in DE$?H$

' ar >??C it had incr as d >A$AHit

RATIO ANAL;5I5

INTRO7=CTION:

Ratio Anal'sis is a po) r!ul tool o !inancial anal'sis$ Al 0and r Jall !irst pr s nt d it in DGGD in 3 d ral R s r# proc ss o! co&parison o! on th appraisal o! th !igur 8ull tin$ Ratio Anal'sis is a

against oth r( )hich &ak s a ratio and ratios to &ak prop r anal'sis a"out th t r& ratio r ! rs to

ratios o! th

str ngths and ) akn ss o! th th nu& rical or *uantitati#

!ir&+s op rations$ Th r lationship " t)

n t)o accounting !igur s$ proc ss o!

Ratio anal'sis o! !inancial stat & nts stands !or th d t r&ining and pr s nting th th stat & nts$

r lationship o! it &s and group o! it &s in

Ratio anal'sis can " cr ditor )ould lik

us d "oth in tr nd anal'sis and static anal'sis$ A to kno) th a"ilit' o! th co&pan'( to & t its curr nt

o"ligation and th r !or tr nd o! r c i#a"l $

)ould think o! curr nt and li*uidit' ratio and

Ma/or tool o! !inancial ar

thus ratio anal'sis and 3unds 3lo) proc ss o! id nti!'ing th !inancial

anal'sis$3inancial anal'sis is th str ngth and ) akn ss o! th " t) n th it &s o! th

!ir& "' prop rl' sh t and th

sta"lishing r lationship pro!it account

"alanc

Th

!inancial anal'st &a' us

ratio in t)o )a's$ 3irst h

&a' co&par

pr s nt ratio )ith th

ratio o! th

past ! ) ' ars and pro/ ct ratio o! th th tr nd in r lation that particular

n 0t ' ar or so$ This )ill indicat !inancial asp ct o! th

nt rpris $ Anoth r & thod o! using ratios !or a !inancial ratio !or th co&pan' )ith !or

!inancial anal'sis is to co&par

industr' as a )hol ( or !or oth r( th o"ligation$ It & asur s th gr at r th

!ir&+s a"ilit' to & gr at r th

t its curr nt ratio( th

!ir&+s li*uidit'$ Th

!ir&s li*uidit' and #ic 1# rsa$

A ratio can "

d !in d as a nu& rical r lationship " t)

n t)o nu&" rs

0pr ss d in t r&s o! ,a. proportion ,". rat d !in as a !inancial tool to d t r&in

,c. p rc ntag $ It is also

an int rpr t nu& rical r lationship o! r lation

"as d on !inancial stat & nt 'ardstick that pro#id s a & asur ship " t) n t)o #aria"l or !igur s$

M aning and I&portanc :

Ratio anal'sis is conc rn d to " appraisal o! !inancial condition( J r

on

o! th

i&portant !inancial tools !or

!!ici nc' and pro!ita"ilit' o! "usin ss$

ratio anal'sis id us !ul !ro& !ollo)ing o"/ cts$

D$ 5hort t r& and long t r& planning >$ M asur & nt and #aluation o! !inancial p r!or&anc

F$ 5tud o! !inancial tr nds A$ 7 cision &aking !or in# st& nt and op rations @$ 7iagnosis o! !inancial ills B$ pro#iding #alua"l insight into !ir&s !inancial position or pictur

A7KANTAGE5L 7I5A7KANTAGE5 O3 RATIO ANAL;5I5

Ad#antag s: Th !ollo)ing ar th &ain ad#antag s d ri# d o! ratio anal'sis( )hich ar

o"tain d !ro& th

!inancial stat & nt #ia Pro!it L Loss Account and 8alanc

5h

t$ anal'sis h lps to grasp th r lationship " t) n #arious it &s in

a. Th th

!inancial stat & nts$ us !ul in pointing out th tr nds in i&portant it &s and thus

". Th ' ar h lp th

&anag & nt to !or cast h lp o! ratios( int r !ir& co&parison &ad to #ol# !utur

c. With th

&ark t strat gi s$ d. Out o! ratio anal'sis standard ratios ar actual )ith standards r # als th tak . Th ar corr cti# action$ n t)o accounting th dat s co&put d and co&parison o! &anag & nt to

#arianc s$ This h lps th

co&&unication o! that has happ n d " t) !! cti# action$

r # al d

!. 5i&pl th

ass ss& nts o! li*uidit'( sol# nc' pro!ita"ilit' indict d "' ratio anal'sis$ Ratios &

!!ici nc' o!

!ir& ar

t co&parisons &uch &or

#alid$

7isad#antag s:

Ratio anal'sis is to calculat

and

as' to und rstand and such statistical

calculation sti&ulation thinking and d # lop und rstanding$ 8ut th r i. Th r ar c rtain dra)"acks and dang rs th ' ar $ to ratio anal'sis pro!us l'$

is a tr nd' to us

ii. Accu&ulation o! &ass data o"scur d rath r than clari!i s r lationship$ iii. Wrong r lationship and calculation can l ad to )rong conclusion$ D$ In cas o! int r !ir& co&parison no t)o !ir& ar 0a&pl :on !ir& &a' purchas si&ilar in si6 ( ag th ass t at lo) r

and product unit$,3or

pric

)ith a high r r turn and anoth r !ir& )itch purchas )ill ha# a lo) r r turn.

th

ass t at

ass t at high r pric >$ 8oth th

int r p riod and int r !ir& co&parison ar in pric l # l can a!! ct th

a!! ct d "' pric #alidit' o! ratios

l # l chang s$ A chang

calculat d !or di!! r nt ti& F$ =nl ss #ari s t r&s lik

p riod$ group pro!it( op rating pro!it( n t pro!it( tc$( ar prop rl' d !in ( co&parison

curr nt ass t( curr nt lia"ilit' " t) n t)o #aria"l s " co& si&pl

& aningl ss$ as' to calculat $ Th d cision on a singl anal'st ratio$ J has

A$ Ratios ar should not tak to tak

to und rstand and

d cision should not tak

s # ral ratios into consid ration$

5TAN7AR75 O3 COMPARI5ION:

D$ Ratios calculat d !ro& th >$ Ratio d # lop d using th th sa& !ir&

past !inancial stat & nts o! th

sa&

!ir&$

pro/ ct d or p r!or& !inancial stat & nt o!

F$ Ratios o! so& succ ss!ul( at th A$ Ratios o! th

s l ct d !ir& sa&

sp ciall' th

&ost progr ssi#

and

point o! ti& $ !ir& " longs$

industr' to )hich th

IMPORTANCE O3 RATIO ANAL;5I5

In th

pr c ding discussion in th

!or&( )

ha#

illustrat d th

co&pulsion 8alanc

and i&plication o! i&portant ratios that can " 5h

calculat d !ro& th

t and Pro!it L Loss account o! a !ir&$ As a tool o! !inancial o! crucial signi!icanc $ Th !act and na"l s th i&portanc o! ratio

&anag & nt( th ' ar anal'sis li s in th

dra)ing o! in! r nc s r garding

th

p r!or&anc

o! a !ir&$ Ration anal'sis is a r l #ant in ass ssing th !ollo)ing asp ct$

p r!or&anc

o! a !ir& in r sp ct o! th

CA=5TION IN =5ING RATIO5:

D$ It is di!!icult to d cid >$ Th

on th

prop r "as s o! co&parison$ o! di!! r nc in situation o!

co&parison r nd r d di!!icult " caus

t)o co&pani s or o! on 1co&pan' !or di!! r nt ' ars$ F$ Th A$ Th pric l # l chang in th &ak th int rpr tation o! ratios in#alid "alanc sh t and

di!! r nc

d !inition o! it &s in th th

Pro!it L Loss stat & nt &ak @$ Th

int rpr tation o! ratios di!!icult$ ar l ss in!or&ati# and

ratios calculat d at a point o! ti&

d ! cti# B$ Th

as th ' su!! r !ro& sort t r& chang s$ g n rall' calculat d !ro& th past !inancial stat & nt

ratios ar

and thus ar

no indicators o! !utur $

LIM=T7IT; Ks PRO3ITA8ILIT;

INTRO7=CTION

3inancial anal'sis is th and ) akn ss o! th it &s o! th

proc ss o! id nti!'ing th

!inancial str ngths n th

!ir& "' prop rl' sh

sta"lishing r lationship " t)

"alanc

t and pro!it loss account$ Manag & nt should

particularl' int r st in kno)ing !inancial str ngths and ) akn ss o! th !ir& to &ak o! th th ir " st us !ir& to and to " tak a a"l to spot out !inancial ) akn ss corr cti# actions$ using an'

suita"l

3inancial anal'sis is th

starting point o! &aking plans( " !or

sophisticat d !or casting and planning proc dur s$

Ma/or

tools

o!

!inancial

anal'sis

ar

ratio

anal'sis

and

!unds

!lo)

anal'sis$ 3inancial anal'sis is th str ngths and ) akn ss o! th " t) n th it &s o! th

proc ss o! id nti!'ing th

!inancial

!ir& "' prop rl' sh t and th

sta"lishing r lationship pro!it and loss account$

"alanc

M aning and i&portanc

Ratio anal'sis is conc rn d to " appraisal o! !inancial condition( J r

on

o! th

i&portant !inancial tools !or

!!ici nc' and pro!ita"ilit' o! "usin ss$

ratio anal'sis is us !ul !ro& !ollo)ing o"/ cti# s$

D$ 5hort t r& and long t r& planning$ >$ M asur & nt and #aluation o! !inancial p r!or&anc $

F$ 5tud' o! !inancial tr nds$ A$ 7 cision &aking !or in# st& nt and op rations$ @$ 7iagnosis o! !inancial ills$ B$ Pro#iding #alua"l insight into !ir&+s !inancial position or pictur $

Ratio+s D$ Curr nt Ratio >$ Muick Ratio F$ A"solut Muick Ratio

A$ N t Pro!it Ratio @$ 7 "tors Turno# r Ratio B$ In# ntor' Turno# r Ratio

C=RRENT RATIO

Th

curr nt ratio is calculat d "' di#iding curr nt ass ts "'

curr nt

lia"iliti s$

Curr nt

ratio

<

curr nt

ass tsNcurr nt

lia"iliti s

Th

curr nt ratio is a & asur

o! th

!ir&+s short1t r& sol# nc'$ It s !or # r' on rup

indicat s th

a#aila"ilit' o! curr nt ass ts in rup

o! curr nt lia"iliti s$ A ratio o! gr at r than on &or curr nt ass ts than curr nt lia"iliti s

& ans that th clai&s against

!ir& has th &$ A

standard ratio " t) o! ANNAP=RNA

n th & is >:D$ Th EARCANAL LIMITE7

data r lationship th is d pict d

curr nt ratio as !ollo)s:

;EAR >??@ >??B >??C >??E

C=RRENT

A55ET5

C=RRENT

LIA8ILITIE5

Curr nt

Ratio

,H. D$FA D$CD D$E D$BC

>ABC@@D?E >EGFGAADB FFCGE>>G? FBFAA@@@A

DEA@AD?BF DBGFA>B?F DECB?>ECC >DCGCFBBD

Graph

In! r nc :

Th

standard nor& !or this ratio is >:D th

&pirical anal'sis o! th

data

r lating to th !ro& D$CD in

curr nt ratio o! Annapurna Ear canal Ltd$ Jas d cr as d th ' ar >??B to D$E in th ' ar >??C

M=ICK

RATIO:

This ratio

sta"lish s a r lationship " t)

n *uick o! li*uid ass ts and o! li*uidit' &anag & nt o! " con# rt d in to cash

curr nt lia"iliti s$ It is an a"solut th conc rn$ An ass t is li*uid i!

& asur it can

i&& diat l' or r asona"l' soon )ithout a loss o! #alu ( i! ignor s totall' th stocks$ 8 caus in# ntori s nor&all' r *uir so& ti& !or r ali6ing standard *uick D:D$

into cash: th ir #alu ratio

also has a t nd nc' to !luctuat $ Th is

Muick

Ratio

<

Muick

Ass tsNCurr nt

Lia"iliti s

;EAR >??@ >??B >??C

M=ICK

A55ET5

C=RRENT

LIA8ILITIE5 DEA@AD?BF DBGFA>B?F DECB?>ECC

M=ICK

RATIO,H. D$D D$A D$@E

>?FCAAB>F >AF?FG?D? >GBED@CE@

>??E

F>FAFCCDD

>DCGCFBBD

D$AE

M=ICK

RATIO

GRAPJ

In! r nc :

Th

standard nor& !or this ratio is D:D( & ans !or co&pan' &ust ha# D rup

# r' D rup o! *uick

o! curr nt ass ts$

lia"ilit'(

Th in

*uick ratio o! Annapurna >??C$ It ha# &or than

arcanal ltd$D$Din >??@( D$A in >??B andD$@E D rup o! *uick ass ts !or all A' ars$

A"solut

*uick

ratio:

5inc

cash is th

&ost li*uid ass ts n c ssar' to

0a&in

th

ratio o! cash

and its

*ui#al nt to curr nt lia"iliti s$ Trad

in# st& nt or &ark ta"l includ d in th

s curiti s ar

*ui#al nt o! cash$ Th r !or ( th ' &a' "

consu&ption

o!

a"solut

*uick

ratio$

A"solut

*uick

ratio

<

A"solut

Muick

Ass tsNCurr nt

Lia"iliti s

;EAR >??@ >??B >??C >??E

CA5JLEM=IKLENT

C=RRENT

LIA8ILITIE5

A85OL=TE

M=ICK

RATIO ?$?>A ?$?@@ ?$?EC ?$DDD

A@AEF>E G>C>G>G DB>GCEBG >AFFBGAB

DEA@AD?BF DBGFA>B?F DECB?>ECC >DCGCFBBD

A"solut

*uick

ratio

graph

In! r nc :

Th th

standard nor&s o! a"solut !ir& not &aintain th

*uick ratio is ?$@:D$3ro& th

a"o#

ta"l o! th

su!!ici nt l # l o! *uick ass ts " caus

da'1to1da'

0p ns s $It is !luctuating " t)

Th

standard nor& !or this ratio is D:> & ans !or D rup

# r' > rup

s o! curr nt and

Lia"iliti s( Co&pan' &ust ha# &ark ta"l s curiti s$

o! cash and "ank "alanc

N t Pro!it Ratio:

As

# r' "usin ss is to

arn pro!it( this ratio is # r' i&portant " caus

it & asur s th inco&

pro!ita"ilit' o! sal s$ A "usin ss &a' 'i ld high gross " caus o! incr asing op rating and non1op rating d t ct d "' calculating this ratio$

"ut lo) n t inco&

0p ns s$ This situation can

asil' "

Th

pro!its us d !or this purpos !igur

&a' "

pro!its a!t rN" !or

ta0$ To

o"tain this ratio( th !igur

o! n t pro!its a!t r ta0 is di#id d "' th !igur o! sal s th ratio &argin

o! n t pro!its a!t r ta0 is di#id d "' th

is also kno)n as sal s &argin as ) )hich th sal s l a#

can asc rtain )ith its h lp th 0p ns s$ Th unit o!

lat r d ducting all th cas

0pr ssion is p rc ntag ( as is th

)ith pro!ita"ilit' ratios$

;EAR5 NET PRO3IT NET 5ALE5 RATIO H >??@ C?@@C>EB A>GD>E>EB D$BA >??B >AE@D>BB B>>DEDBD? F$GG >??C >>?C>C>A BBE>D@CGD F$FD >??E DA>F@@BB B@@>>GFDG >$DC

Graph

In! r nc : Jigh r th ratio " tt r is th pro!ita"ilit'$ 3ro& th ta"l in th th ratio is ' ar >??E

d clining !ro& >??@ to >??B is incr as $ Again d cr as

N t Pro!it Ratio is not control o# r th distri"ution 5o( !! cti#

!! cti#

o# r th

p riod o! stud'$ Co&pan' has not and

cost o! goods sold( s lling( ad&inistrati#

0p ns s$ st ps ar to " tak n to incr as th pro!its$

CA5J MANAGEMENT

Introduction: Cash &anag & nt is on is th o! th k ' ar as o! )orking capital &anag & nt$ Cash &ain dut' o! th !inanc &anag r is to

li*uid curr nt ass t$ Th

pro#id

ad *uat

cash to all s g& nts o! th

organi6ation$ Th

i&portant

r ason !or &aintaining cash "alanc s is th

transaction &oti# $ A !ir&

nt rs into #ari t' o! transactions to acco&plish its o"/ cti# s )hich ha# to " paid !or in th !or& o! cash$

M aning o! cash:

Th

t r& 9cash: )ith r ! r nc

to cash &anag & nt us d in t)o s ns s$ In a

narro) r s ns

it includ s coins( curr nc' not s( ch *u s( "ank dra!ts h ld it also includ s 9n ar1cash ass ts: such as d posits )ith "anks$

"' a !ir&$ n a "road r s ns &ark ta"l s curiti s and ti&

O"/ cti# s o! cash &anag & nt:

Th r

ar

t)o "asic o"/ cti# s o! cash &anag & nt$ Th ' ar 1

4 To &

t th

cash dis"urs & nt n th

ds as p r th

pa'& nt sch dul $

4 To &ini&i6

a&ount lock d up as cash "alanc s$

8asic pro"l &s in Cash Manag & nt: Cash &anag & nt in#ol# s th !ollo)ing !our "asic pro"l &s$

4 Controlling l # l o! cash 4 Controlling in!lo)s o! cash 4 Controlling out!lo)s o! cash and 4 Opti&u& in# st& nt o! surplus cash$

7 t r&ining sa! t' l # l !or cash:

Th th

!inanc

&anag r has to tak

into account th

&ini&u& cash "alanc

that

!ir& &ust k

p to a#oid risk or cost o! running out o! !unds$ 5uch t r& d as 9sa! t' l # l o! cash:$ Th !inanc &anag r

&ini&u& l # l &a' " d t r&in s th

sa! t' l # l o! cash s parat l' "oth !or nor&al p riods and d cid s a"out t)o "asic !actors$ Th '

p ak p riods$ =nd r "oth cas s h ar 1

7 sir d da's o! cash:

It & ans th

nu&" r o! da's !or )hich cash "alanc

should "

su!!ici nt to

co# r pa'& nts$

A# rag

dail' cash !lo)s:

This & ans a# rag dail'$

a&ount o! dis"urs & nts )hich )ill ha#

to "

&ad

Crit ria !or in# st& nt o! surplus cash:

In &ost o! th

co&pani s th r

ar

usuall' no !or&al )ritt n instructions discr tion and /udg& nt

!or in# sting th

surplus cash$ It is l !t to th

o! th

!inanc

&anag r$ Whil

0 rcising such /udg& nt( h

usuall' tak s

into consid ration th

!ollo)ing !actors1

5 curit':

This can " &or

nsur d "' in# sting &on ' in s curiti s )hos

pric

r &ains

or l ss sta"l $

Li*uidit':

This can "

nsur d "' in# sting &on ' in short t r& s curiti s including

shaOort t r& !i0 d d posits )ith "anks$

;i ld:

Most corporat

&anag rs gi#

l ss

&phasis to 'i ld as co&par d to s curit'

and li*uidit' o! in# st& nt$ 5o th ' pr ! r short t r& go# rn& nt s curiti s !or in# sting surplus cash$

Maturit':

It )ill " th !inanc

ad#isa"l

to s l ct s curiti s according to th ir &aturiti s so th 'i ld as ) ll as &aintain th

&anag r can &a0i&i6

li*uidit' o! in# st& nts$

Cash Manag & nt in 55L:

Th

cash &anag & nt is carri d out in s a)a's "' CTM ,Corporat in &ost o! th

Tr asur' co&pani s$

Manag & nt.$ CTM is a co&&onl' !ollo) d proc dur

Ratio Anal'sis is on th

o! th

i&portant t chni*u s that can "

us d to ch ck

!!ici nc' )ith )hich cash &anag & nt is " ing &anag d "' a !ir&$ Th as !ollo)s1

&ost i&portant ratios !or cash &anag & nt ar

Cash to curr nt ass ts ratio:

This ratio

sta"lish s th

r lationship " t)

n th

cash and th

curr nt

ass ts$ It is calculat d as !ollo)s

;EAR CA5J ,R5. C=RRENT A55ET5,R5. RATIO >??@ FAB?>?B >ABC@@D?E D$A >??B EDEAE?C >EGFGAADB >$E> >??C D@>?GCAC FFCGE>>G? A$@ >??E >FACBF>A FBFAA@@@A B$A@

Graph

IN3ERENCE:

3ro& th

a"o#

ta"l

it can "

in! rr d that th

cash to curr nt ass ts

Ratio is sho)n it is D$AH in th

' ar >??@ and incr as d till >??E$

CA5J TO C=RRENT LIA8ILITIE5 RATIO:

This ratio

sta"lish s th

r lationship " t)

n th

cash and curr nt

lia"iliti s$ It is calculat d as !ollo)s$

;EAR Cash ,Rs. C=RRENT LIA8ILITIE5,R5. Ratio >??@ FAB?>?B DEA@AD?BF D$EC >??B EDEAE?C DBGFA>B?F A$EF >??C D@>?GCAC DECB?>ECC E$D >??E >FACBF>A >DCGCFBBD D?$CC

Graph

INTERPRETATION:

3ro& th

a"o#

ta"l

it can "

in! rr d that th

proportion cash to curr nt ' ar >???1

lia"iliti s ratio is sho)n d cr asing tr nd$ It is DF$A?H in th ?D L d cr as d to ?$CAH in th ' ar >??@1?B$

RECEIKA8LE5 MANAGEMENT

Introduction: R c i#a"l s constitut a signi!icant portion o! th total ass ts o! th pa'& nts ar

"usin ss$ Wh n a !ir& s ll r goods or s r#ic s on cr dit( th postpon d to !utur dat s and r c i#a"l s ar

cr at d$ I! th ' s ll !or

cash no r c i#a"l s cr at d$

M aning:

R c i#a"l

ar

ass t accounts r pr s nting a&ounts o) d to th o! goods or s r#ic s in th ordinar' cours

!ir& as a

r sult o! sal

o! "usin ss$

Purpos

o! r c i#a"l s:

Accounts r c i#a"l s ar

cr at d " caus

o! cr dit sal s$ Th

purpos

o!

r c i#a"l s is dir ctl' conn ct d )ith th sal s$ Th o"/ cti# s o! cr dit sal s ar

o"/ cti# s o! &aking cr dit as !ollo)s1

4 Achi #ing gro)th in sal s$ 4 Incr asing pro!its$ 4 M ting co&p tition$

3actors a!! cting th

si6

o! R c i#a"l s:

Th

&ain !actors that a!! ct th

si6

o! th

r c i#a"l s ar 1

4 L # l o! sal s$ 4 Cr dit p riod$ 4 Cash discount$

Costs o! &aintaining r c i#a"l s:

Th

costs )ith r sp ct to &aint nanc

o! r c i#a"l s ar

as !ollo)s1

Capital costs:

This is " caus and th

th r

is a ti&

lag " t)

n th

sal

o! goods to custo& rs !or additional

pa'& nt "' th &$ Th

!ir& has( th r !or

to arrang

!unds to &

t its o"ligations$

Ad&inistrati#

costs:

3ir& incur this cost !or &anu!acturing accounts r c i#a"l s in th salari s to th custo& rs$

!or& o!

sta!! k pt !or &aintaining accounting r cords r lating to

Coll ction costs: Th !ir& has to incur costs !or coll cting th pa'& nts !ro& its cr dit

custo& rs$ 7 !aulting costs:

Th

!ir& &a' not a"l

to r co# r th

o# r du s " caus

o! th

ina"ilit' o!

custo& rs$ 5uch d "ts tr at d as "ad d "ts$

R c i#a"l s &anag & nt:

R c i#a"l s ar

dir ct r sult o! cr dit sal $ Th

&ain o"/ cti#

o!

r c i#a"l s &anag & nt is to pro&ot r ach d )h r th

sal s and pro!its until that point is

ROI in !urth r !unding o! r c i#a"l s is l ss than th that additional cr dit ,i$ $- cost o!

cost o! !unds rais d to !inanc capital.$ Incr as

in r c i#a"l s also incr as s chanc s o! "ad d "ts$

Thus( cr ation o! r c i#a"l s is " n !icial as ) ll as dang rous$ 3inall' &anag & nt o! accounts r c i#a"l & ans as th proc ss o! &aking d cisions

r lating to in# st& nt o! !unds in this ass t )hich r sult in &a0i&i6ing th o# r all r turn on th in# st& nt o! th !ir&$

R c i#a"l s &anag & nt and Ratio Anal'sis:

Ratio Anal'sis is on th

o! th

i&portant t chni*u s that can "

us d to ch ck

!!ici nc' )ith )hich r c i#a"l s &anag & nt is " ing &anag d "' a &ost i&portant ratios !or r c i#a"l s &anag & nt ar as !ollo)s1

!ir&$ Th

7E8TOR5 T=RNOKER RATIO: 1

7 "tors constitut th *ualit' o! th

an i&portant constitu nt o! curr nt ass ts and th r !or d "tors to a gr at 0t nt d t r&in s a !ir&+s li*uidit'$ con# rt d into cash$ In d "tors o! a !ir&$

It sho)s ho) *uickl' r c i#a"l s or d "tors ar oth r )ords( th Th 7TR is a t st o! th

li*uidit' o! th

li*uidit' o! !ir&+s r c i#a"l s can " Coll ction P riod$

0a&in d in t)o )a's th ' ar

7TR and A# rag

;EAR CRE7IT 5ALE5 ,R5. AKG 7E8TOR5 ,R5. RATIO >??@ A>GD>E>EB BGAFFGFB B$DE >??B B>>DEDBD? CCB>ABDB E$?D >??C BBE>D@CGD ECABAGEB C$BF >??E B@@>>GFDG DD@?EE@FB @$BG

INTERPRETATION:

3ro& th a# rag

a"o#

ta"l

it can "

in! rr d that th

proportion sal s to ' ar >??@ is B$DE$ It

d "tors is sho)ing !luctuating tr nd in th

incr as d to D$EF ti& s in >??B and incr as s r &aining t)o ' ars d cri s$

7E8TOR5 COLLECTION PERIO7: 7ata coll ction p riod is nothing "ut th &on ' !ro& th th custo& rs a!t r th p riod r *uir d to coll ct th d coll ction r duc s

cr dit sal s$ A sp # rsa

l ngth o! op rating c'cl

and #ic

;EAR5 AKG 7 "tors,in Rs. N t cr dit sal s ,in Rs. 7 "tors coll ction p riod ,in da's. >??@ BGAFFGFB A>GD>E>EB @G >??B CCB>ABDB B>>DEDBD? AB >??C ECABAGEB BBE>D@CGD AE >??E DD@?EE@B B@@>>GFDG BA

5ourc : data co&pil d !ro& th

annual r ports o! Annapurna

arcanal ltd$

IN3ERENCE5:

3ro& th

a"o#

ta"l

it can "

in! rr d that th

d "tors turn o# r ratios

sho)ing !luctuating tr nd$ In th is @G da's and r duc d in th up to >??E$

' ar >??@ it is d "tors coll ction p riod

' ar >??B to AB da's th n incr as d slightl'

INKENTOR; MANAGEMENT

Introduction:

In# ntori s ar

stock o! th

product a co&pan' is &anu!acturing !or sal products$ Th #arious !or&s in )hich

and co&pon nts$ That &ak up th in# ntori s

0ist in a &anu!acturing co&pan' ar : Ra)1&at rials( )ork1in1

proc ss( !inish d goods$

4 Ra)1Mat rials: 1 Ar products through th thos

thos

"asic inputs that ar

con# rt d into !inish d

&anu!acturing proc ss$ Ra)1&at rials in# ntori s ar " n purchas d and stor d !or !utur production$

units( )hich ha#

4 Work1In1Proc ss in# ntori s ar products that n d &or )ork " !or

s &i1&anu!actur d products$ Th th ' " co&

r pr s nt

!inish d products !or sal $

4 3inish d Goods in# ntori s ar )hich ar !acilitat

thos

co&pl t l' &anu!actur d products(

r ad' !or sal $ 5tocks o! ra)1&at rials and )ork1in1proc ss production )hich stock o! !inish d goods is r *uir d !or s&ooth in# ntori s s r# as a link " t) n production

&ark ting op rations$ Th s and consu&ption o! goods$

4 5tor s and spar s ar

also &aintain d "' so&

!ir&s$ This includ s o!!ic

and plant cl aning &at rials lik tc$ Th s

soaps( "roo&s( oil( !u l( light( "ul"s nt r in production$ 8ut ar n c ssar'

&at rials do not dir ctl'

!or production proc ss$

d to holding in# ntor'

Th

*u stion o! &anaging in# ntori s aris s onl' )h n th

co&pan' holds co&pan'Ps to thr

in# ntori s$ Maintaining in# ntori s in#ol# s t'ing up o! th !unds and incurr nc o! storag and handling cost$ It is

0p nsi# ar

&aintain in# ntori s( )h' do s co&pan' hold in# ntori s4 Th r g n ral &oti# s !or holding in# ntori s$ D$Transaction Moti# : 1 E&phasi6 s th !acilitat n

d to &aintain in# ntori s to

s&ooth production and sal s op rations$

>$Pr cautionar' &oti# : 1 N c ssitat s holding o! in# ntori s to guard against th risk o! unpr dicta"l chang s in d &and and suppl' !orc s and

oth r !actors$ F$5p culati# &oti# : 1 In!lu nc s th d cision to incr as in!lu nc s$ or r duc

in# ntor' l # ls to tak

ad#antag s o! pric

A co&pan' should &aintain ad *uat suppl' to th !actor' !or th

stock o! &at rials !or a continuous

unint rrupt d production$ It is not possi"l d d$ A ti& 0ists lag

!or a co&pan' to procur 0ists " t)

ra) &at rials )h n # r it is n

n d &and !or &at rials and its suppl'$ Also th r

unc rtaint' in procuring ra) &at rials in ti& procur & nt o! &at rials &a' " d la' d " caus

on &an' occasions$ Th o! such !actors as strik ( !ir& should &aintain

transport disruption or short suppl'$ Th r !or ( th su!!ici nt stock o! ra) &at rials at a gi# n ti& production$

to str a& lin

O"/ cti#

o! In# ntor' Manag & nt

In th o! &

cont 0t o! in# ntor' &anag & nt th ting t)o con!licting n si6 ds

!ir& is !ac d )ith th

pro"l &

4 To &aintain a larg

o! in# ntor' !or su!!ici nt and s&ooth

production and sal s op rations$ 4 To &aintain a &ini&u& in# st& nt in in# ntori s to &a0i&i6 pro!ita"ilit'$

8oth

0c ssi#

and inad *uat

in# ntori s ar

not d sira"l $ Th s o"/ cti#

ar o!

t)o

dang rous points )ithin )hich th in# ntor' &anag & nt should " in# ntor' in# st& nt$ Th t)o dang r points o!

!ir& should op rat $ Th

to d t r&in

and &aintain opti&u& l # l o! " t) n th

opti&u& l # l o! in# ntor' )ill li and inad *uat in# ntori s$

0c ssi#

Th

!ir& should al)a's a#oid a situation o! o# r in# st& nt or und r &a/or dang rous o! o# r in# st& nt ar

in# st& nt in in# ntori s$ Th

4 =nn c ssar' ti 1up o! th 4 E0c ssi# carr'ing cost

!ir&s !unds loss s o! pro!it

4 Risk o! *ualit' Th ai& o! in# ntor' &anag & nt thus should " to a#oid 0c ssi# and

inad *uat

l # ls o! in# ntori s and to &aintain su!!ici nt in# ntor' !or &ad th to plac an

s&ooth production and sal s op rations$ E!!orts should " ord r at th at th 4 Ensur right ti& )ith th right sourc !! cti# to ac*uir

right *uantit'

right pric

and *ualit'$ An

in# ntor' &anag & nt should unint rrupt d

a continuous suppl' o! ra) &at rials to !acilitat

production$ 4 Maintain su!!ici nt stock o! ra) &at rials in p riods o! short suppl' and anticipat pric chang s$

4 Maintain su!!ici nt !inish d goods in# ntor' !or s&ooth sal s op rations and !!ici nt custo& r s r#ic $ th carr'ing cost and ti& $ p it at an opti&u& l # l$

4 Mini&i6

4 Control in# st& nt in in# ntori s and k

In# ntor' &anag & nt t chni*u s

In &anaging in# ntori s th

!ir& o"/ cti#

should "

in consonanc

)ith th

shar hold rsP ) alth &a0i&i6ation principl $ To achi # d t r&in th

this !ir& should

opti&u& l # l o! in# ntor'$ E!!ici ntl' controll d th !ir& !l 0i"l $ In !!ici nt in# ntor' control r sults !ir& &a so& ti& s run out o!

in# ntori s &ak

in un"alanc d in# ntor' and in!l 0i"ilit'1th

stock and so& ti& s &a' pil up unn c ssar' stocks$ This incr as s l # l o! in# st& nt and &ak s th !ir& unpro!ita"l $

To &anag

in# ntori s

!!ici nc'( ans) rs should "

sought to th

!ollo)ing

t)o *u stions$ D.Jo) &uch should " >.Wh n should it " ord r d4 ord r d4

Th

!irst *u stion ho) &uch to ord r( r lat s to th

pro"l & o! d t r&ining

cono&ic ord r *uantit' ,EOM.( and is ans) r d )ith an anal'sis o! costs o! &anu!acturing c rtain l # l o! in# ntori s$ Th ord r aris " caus o! d t r&ining th s cond *u stion )h n to

r ord r point$

EOM

On

o! th

&a/or in# ntor' pro"l &s to "

r sol# d is ho) &an' in# ntori s !ir& is "u'ing ra) purchas d on issu ach is ho) call d

should "

add d )h n in# ntor' is r pl nish d$ I! th lots in )hich it has to "

&at rials it has to d cid r pl nish& nt$ I! th

!ir& is planning a production run( th or ho) &uch to &ak $ Th s task o! th

&uch production to sch dul

pro"l &s ar th

ord r *uantit' pro"l &s and th opti&u& or

!ir& is to d t r&in

cono&ic ord r *uantit' ,or

cono&ic lot si6 . d t r&ining an

opti&u& in# ntor' l # l in#ol# s t)o t'p s o! costs$

D.Ord ring cost >. Carr'ing cost Th cono&ic ord r *uantit' is that in# ntor' l # l )hich &ini&i6 s th

total o! ord ring and carr'ing costs$

Ord ring cost

Th

t r& ord ring cost is us d in cas ntir

o! ra) &at rials ,or suppli s. and includ costs

includ s th

cost o! ac*uiring ra) &at rials$ Th

incurr d in !ollo)ing acti#iti s$ R *uisitioning purchas transporting( r c i#ing( insp cting and storing ,stor

ord ring(

plac & nt.$

Carr'ing cost

Cost incurr d !or &aintaining a gi# n l # l o! in# ntor' is call d carr'ing cost$ Th ' includ o"sol sc nc $ Econo&ic ord r *uantit' ,EOM. <#>ACNc storag ( ta0 s( insuranc s( d t rioration and

Wh r

A < annual r *uir & nt o! ra) &at rials

C<ord ring cost c<carr'ing cost

EOM Graphical Approach

Th !igur

cono&ic ord ring *uantit' can also " is as !ollo)s:

!ound out graphicall'$ Th

EOM

In th

a"o#

!igur

costs1carr'ing( ord ring and total ar ord r si6 $ W not

plott d on that total

# rtical a0is is us d to r pr s nt th carr'ing costs incr as s as th a# rag

ord r si6

incr as s( " caus ( on an

a larg r in# ntor' l # l " in ord r si6 " caus

&aintain d( and ord ring costs d clin larg ord r si6 is notic a"l & ans l ss nu&" r o! sinc it is a su& o! total

)ith incr as ord rs$ Th

" ha#ior o! total costs lin

t)o t'p s o! costs( )hich " ha# costs d clin

di!! r ntl' )ith ord r si6 $ Th

in th ir !irst instanc

"ut th ' start rising )h n th than o!!s t "' th incr as s

d cr as s in an a# rag in carr'ing costs$ Th th

ord ring costs is &or

cono&ic ord r *uantit' occurs at th

point M$ Wh r

total cost is &ini&u&$ Thus th

!ir&s op rating pro!it is &a0i&i6 d at

point$ R ord r Point ,ROP.

Th

pro"l & ho) &uch to ord r is sol# d d t r&ining th ans) r should th sought to th

cono&ic ord r

*uantit' ' t th

s cond pro"l &( )h n to

ord r this is a pro"l & o! d t r&ining th l # l at )hich an ord r should " d t r&in th

r ord r point is that in# ntor' in# ntor'$ To

plac d to r pl nish d th should kno)

r ord r point und r c rtaint'( )

a. L ad ti& ". A# rag usag

c. Econo&ic ord r *uantit'

L ad ti&

is th

ti&

nor&all' tak n is r pl nishing in# ntor' a!t r th & an th usag and l ad ti& do not

ord r has " !luctuat )ill "

n plac d "' c rtaint' )

und r such a situation ROP is si&pl' that in# ntor' l # l )hich &aintain d !or consu&ption during th l ad ti& $ i$ ( usag usag $

R ord r point ,und r c rtaint'. <l ad ti& R 1ord r Point ,und r c rtaint'. < L ad ti&

I A# rag I A# rag

In# ntor' &anag & nt at Annapurna Earcanal Ltd

Th

Annapurna Ear canal Ltd &anag & nt all th

unit and corporat

l # l

# r' &onth r #i )s in# ntor'$ All th &inut s and th in# ntor' holdings ar

!unctional h ad ar

call d !or & ting

discuss d in d tail at th

# r' &onth $A$E$Ltd purchas s th ord r( sinc th product o! ar

&at rial )h n th

custo& r plac s th

tailor1&ad

to custo& r+s r *uir & nts$ stock d

A!t r purchasing th at on plac

ra) &at rials( )hich is &ostl'( still )ill "

all oth r procur d against production ord rs ar

stor d$ ra)

7 p nding up on th

r *uir & nt in #arious production d part& nts th r sp cti# d part& nts or production shops$

&at rial is s nt to th

Wh n th

ord r is plac d !or ra) &at rial c rtain ra) &at rial is in

transit( such ra) &at rial is call d as ra) &at rial in transit$ E0a&pl QRa) &at rial on o# r s as$

Th

ra) &at rial can "

trans! r !ro& unit to anoth r unit or !ro& on

d part& nt to anoth r is call d trans! r1in Qtransist$It is nothing "ut to th trans! r o! ra) &at rial a&ong th int r !ir& units o! Annapurna

Earcanal Ltd$

Th Th

ra) &at rial( )hich is production proc ss( is call d )ork1in proc ss$ )ork in proc ss " co& s !inish d goods in# ntor'$ Th k pt !or a long r ti& $ Th ' should " !inish d should

not " ntir

sold o!! to cl ar o!! th !or

in# ntor'$ Jo) # r( !inish d goods in# ntor' is not th r production is &ainl' don

Annapurna Earcanal Li&it d( sinc ord r and sp ci!ications$ Th

on custo& r )hol

ra) &at rial is purchas d and th call it as in# ntor' c'cl $

proc ss is r p at d again )hich )

In# ntor' turno# r Ratio:1 In# ntor' turno# r ratio indicat s th !!ici nc' o! th !ir& in producing cost o! goods a# rag o! op n

and s lling its products$ It is calculat d "' di#iding th sold "' th a# rag in# ntor'$ Th a# rag in# ntor' is th

and closing "alanc

o! in# ntor'$

In# ntor' turno# r Ratio< Cost o! Goods 5old N A# rag

In# ntor'

; ars Cost o! goods sold A# rag >??@ F?CB@BFDD F>CC@?>A G$FE >??B B?BB?AEAA BAC@>FBC G$FB >??C FGG>GE??E BCFD@GC> @$G >??E FG?FEB?EF AFFFG>D@ G

in# ntor' ITR, in Ti& s.

5ourc : 7ata co&pil d !ro& th annual r port o! Annapurna Earcanal Ltd$

In! r nc s:

3ro& th to a# rag

a"o#

ta"l

it can in! rr d that th

proportion cost o! good sold ' ar>??@ and again ' ar

stock it is incr as d to G$FEti& s in th

d cr as d @$G ti& s in th >??E$

' ar >??Cand again incr as d G ti& s in th

In# ntor' holding p riod:1

In# ntor' holding p riod is th This can " & asur

r ciprocal o! in# ntor' turn o# r ratio$

in t r&s o! nu&" r o! da's$

In# ntor' holding p riod< A# rag Cost o! goods o! sold

in# ntor' 0FB@da's

; ars AKG INKENTOR; CG5 ,In Rs$. INKENTOR; JOL7ING PERIO7,In da's. >??@ F>CC@?>A F?CB@BFDD FG >??B BAC@>FBC B?BB?AEAA A? >??C BCFD@GC> FGG>GE??E B> >??E AFFFG>D@ FG?FEB?EF AD

Graph

In! r nc s:

3ro& th

a"o#

ta"l

it can in! r that th

proportion o! a# rag

in# ntor'

to cost o! goods sold had FG da's in >??@$ In th incr as d that is B> da's and again d cri s$

' ar >??C it can "