CHAPTER 1.

INTRODUCTION
INTRODUCTION TO THE
TOPIC
COMPANY PROFILE
INDUSTRY PROFILE

OBJECTIVES

INTRODUCTION
TO THE TOPIC

1. PRODUCTION MANAGEMENT

MEANING
Production management deals with converting raw material into finished goods or
products. It brings together the 6 Ms i.e. men, material, machine, money and
management to satisfy the wants of the people. It also deals with decision making
regarding the quality, quantity, cost, etc. of production. It applies management principles
to production.
DEFINATION
"Production management deals with decision-making related to production processes so
that the resulting goods or service is produced according to specification, in the amount
and by the schedule demanded and at minimum cost."
FEATURE
Production management is the process of making decision.
Decisions are made regarding transformation of inputs into outputs.
Production may involve more than one process.
Production process involves combination of resources, such as material, men, money,
machinery, management.
Outputs are products, which may include both goods and services.
Quality, quantity and cost are main causes of concern for a production manager.
SCOPE
The various activities that form scope of production can be studied in two broad areas:
Activities relating to production system designing: This activity concerns the
production engineering and includes problem regarding design of tools and jigs. The
design, development, installation of equipment and selection of optimum size of firm.
All these areas require the technical expertise on the part of production manager and
his staff.
Apart from this, there are two important problems i.e. human factors, research and
development activities.
Activities relating to analysis and control of activities :It includes all decisions
regarding production administration and therefore all function of management so far

as they are applicable to production system form the subject matter of production
management. These activities are:
Production planning: It includes preparation of short- term production
schedules, plan for maintain the records of raw materials and finished and
semi- finished stock, specifying how the production resources of the concern
are to be employed over some future time in response to predict demand for

products and services.

Production control: production control is to be done production plans
because production plans cannot be activated unless they are properly guides
and controlled. For this purpose, production manager has to regulate work
assignment; review work progress and check remove discrepancies if any in

the actual and planned performances.

Quality control: Product quality refers to the composite product
characteristics of engineering and manufacturing that determines the degree to
which product in use will meet the expectation of customers. It can be ensured
through techniques of inspection and statistical quality control.

FUNCTIONS
The functions of production management are:
Production planning: Productionmanagement includes production planning.
Here, the production manager decides about routing and scheduling.
Routingmeans deciding the path of work and sequence of operations. The
main objective of routing is to find out the best and most economical
sequence of operations to be followed in manufacturing process routing

ensures smooth flow of work.

Scheduling means to decide when to start and when to complete a
particular production activity.

Production control: The responsibility of pro manager is to control the pro by

taking steps to utilize the various factors of pro in an efficient manner so that the
goods are produced at the lowest possible cost and according to the requirements

and satisfaction of customers and are supplied to them on delivery datesin the
ordered quantity.
Quality and cost control: The production manager is also responsible for
maintaining a specific quality of product. Steps should be taken to produce the
goods according to specifications and to minimize the amount of defective work.
Industrial

engineering:

industrial

engineering

is

concerned

with

the

determinations of methods and processes of manufacturing activities. It also

design tools, zigs, fixtures, gauges and other accessories require for operations.
Finally, it determines standards on the basis of time and motion studies, which lie
at the basis of incentive schemes.
Purchasing: Purchasing is partially a production function. It plays a significant
role in arriving at making or buy decisions. Specifications and quality
requirements of materials and equipments etc. are laid down either by the staff or
production management.

Manufacturing: It is the actual process of converting material into output. All the
above set stage for actual manufacturing operations by providing production
programs, schedules, routes, ; by specifying methods process and standards of
operations; by taking care of maintenance of plant and equipment; by making
supplies and raw material available to person in-charge of operations.
Inventory control: Production manager is supposed to control on the wastage of
man and material. For this purpose he has to determine the economic lot size,
economic order quantity so that the problem of over and under stock may not
arise. Thus one has to procure raw material.

 Plant layout and material handling: It is an arrangement of materials to

maintain the flow uninterruptedly. It aims at material handling so as to reduce
wastage of man and material and cost of production.
Work measurement: Main responsibility is to reduce labour cost per unit. It
means the level of performance of work by a worker.
TYPES
1. Intermittent production
Job or unit production
Batch or quantity production
2. Continuous or mass production
3. Flexible manufacturing system (FMS)
4. Computer Integrated manufacturing (CIM)
Batch production: It is as a form of manufacturing in which the jobs pass through the
functional department in lots or batches and each lot may have a different routing.
Job production: They are characterized by manufacturing of one or few quantity of
product is designed and produced as per the specification of customers with in prefixed
time and cost.
Continuous / mass production: Manufacture of discrete parts or assemblies using a
continuous process are called mass production. The machineries are arranged in a line or
product layout.
Flexible manufacturing system (FMS): A Flexible manufacturing system is a
configuration of computer. Controlled, semi-independent workstations where materials
are automatically handled and machine loaded. An FMS is a type of flexible
manufacturing system that builds on the programmable automation of NC and CNC
machines.
CIM: Computer Integrated manufacturing is an interdisciplinary science applied to
manufacturing. It involves the amalgamation of information science with automated
manufacturing.
2. INVENTORY MANAGEMENT

 MEANING
Inventory management is a science primarily about specifying the shape and percentage of
stocked goods. It is required at different locations within a facility or within many locations of a
supply network to precede the regular and planned course of production and stock of materials.

DEFINATION
Inventory management refers mainly to when a firm strives to attain and uphold an
optimal inventory of goods while also taking note of all orders, shipping and handling,
and other associated costs.

OBJECTIVES
Protect your company against theft: Make sure that the only people in your warehouse
belong in your warehouse. Pilferage is a larger problem than most distributors realize.
Establish an approved stock list for each warehouse: Most dead inventory is "D.O.A"
(dead on arrival). Order only the amount of non-stock or special order items that your
customer has committed to buy. Before adding an item to inventory, try to get a purchase
commitment from your customer. If this is not possible, inform the salesperson who
requests the item that he or she is personally responsible for half the carrying cost of any
part of the initial shipment that isn't sold within nine months.
Assign and use bin locations: Assign primary and surplus bin locations for every
stocked item. All picking and receiving documents should list the primary bin location (in
either characters or a bar code). With correct bin locations on documents, order picking is
probably the least complicated job in your warehouse. Assign inexperienced people to
this task and your most experienced warehouse workers to receiving inventory and stock
management.
Record all material leaving your warehouse: There should be appropriate paperwork
for every type of stock withdrawal. Under no circumstances should material leave the
warehouse without being entered in the computer. Eliminate "no charge/no paperwork"
material swaps. Product samples should be charged to a salesperson's account until they
are either returned to stock or charged to the customer.
Process paperwork in a timely manner: All printed picking documents should be filled
by the end of the day. Stock receipts should be put away and entered in the computer
system within 24 hours of arrival.

 Set appropriate objectives for your buyers: Buyers should be judged and rewarded
based on the customer service level, inventory turns, and return on investment for the
product lines for which they are responsible.
Ensure that stock balances are accurate and will remain accurate: Implement a
comprehensive cycle counting program. A good cycle counting program can replace your
traditional year-end physical inventory.

PROBLEMS FACED BY MANAGEMENT

To maintain a large size inventories for efficient and smooth production and sales
operation.
To maintain only a minimum possible inventory because of inventory holding cost and
opportunity cost of funds invested in inventory.
Control investment in inventories and keep it at the optimum level.
Inventory management, therefore, should strike a balance between too much inventory
and too little inventory. The efficient management and effective control of inventories
help in achieving better operational results and reducing investment in working capital. It
has a significant influence on the profitability of a concern.
INVENTORY CONTROL
Inventory control is concerned with the acquisition, storage, handling and use of
inventories so as to ensure the availability of inventory whenever needed, providing
adequate provision for contingencies, deriving maximum economy and minimizing
wastage and losses.
Hence Inventory control refers to a system, which ensures the supply of required
quantity and quality of inventory at the required time and at the same time prevent
unnecessary investment in inventories.
INVENTORY CONTROL TECHNIQUES
ABC (Analysis of Inventories)
The ABC inventory control technique is based on the principle that a small portion of the
items may typically represent the bulk of money value of the total inventory used in the
production process, while a relatively large number of items may from a small part of the

money value of stores. The money value is ascertained by multiplying the quantity of
material of each item by its unit price.
According to this approach to inventory control high value items are more
closely controlled than low value items. Each item of inventory is given A, B or C
denomination depending upon the amount spent for that particular item. A or the
highest value items should be under the tight control and under responsibility of the most
experienced personnel, while C or the lowest value may be under simple physical
control.
EOQ (Economy Order Quantity)
The EOQ refers to the order size that will result in the lowest total of order and carrying
costs for an item of inventory. If a firm place unnecessary orders it will incur unneeded
order costs. If a firm places too few order, it must maintain large stocks of goods and will
have excessive carrying cost. By calculating an economic order quantity, the firm
identifies the number of units to order that result in the lowest total of these two costs.
Pricing of Raw Materials
When issues are made out of various lots purchased at varying prices, the problem arises
as to which of the receipt price should be adopted for valuing the materials requisitions.
FIFO (First in first out): Materials received first will be issued first. The price of
the earliest consignment is taken first and when that consignment is exhausted the
price of the next consignment is adopted and so on. This method is suitable in
times of falling prices, because the material charge to production will be high
while the replacement cost of materials will be low.
LIFO (Last in first out): Materials received last will be issued first. The price of the last
consignment is taken first and when that consignment is exhausted the price of the second
last consignment is adopted and so on. In timing of rising prices this method will show a
charge to production, which is closely related to current price levels provided that the last
purchase is made recently.
FACTORS AFFECTING INVENTORY
1. The volume of safety stock against material shortages that interrupt production.
2. Considerations of economy in purchase.
3. The outlook for future movements in the price of materials.
4. Anticipated volume of usage and consumption.

5. The efficiency of procurement and inventory control function.

6. The operating costs of carrying the stocks.
7. The costs and availability of funds for investment in inventory.
8. Storage capacity.
9. Re-component cycle.
10. Indigenous or foreign.
11. The lead-time of supply.
12. Formalities for importing.

10

COMPANY
PROFILE

CAREWELL GLASS & AMPOULES PVT. LTD.

11

We help clients achieve sustainable competitive advantage through

market intelligence and strategic decision making.
Corporate Office
E- 42, Sec 63, Noida 201301 (U.P.)
Production Unit 1
153 - 155, Sec -2, Industrial Area,
Kurukshetra 136118 (Haryana)
Production Unit 2
52, Sec -2, Industrial Area,
Kurukshetra 136118 (Haryana)

HISTORY
Carewell Glass & Ampoules Pvt. Ltd. was incepted in the year 1994 at Kurukshetra,
Haryana.

12

 From a modest beginning with mere 3 machines producing around 100k pieces of glass
ampoules per day, the company has registered 5 times growth within short span of time.
Over a period of 5 years, company diversified in glass vials.
Carewell is spearheaded by three achievers who have made it to the top leading their
company to new heights by dint of their merit, grit and experience.
Mr. Rajan Gupta (Comm. & Law Graduate) Managing Director
Mr. Deepak Bansal (BE - Electronics)
Director
Mr. Suresh Singhal (BE Mechanical, MBA)
Director
PRESENT
Today, Carewell enjoys approx 12% market share in Indian ampoules market, its glass
products are used on national scale.
We have experienced steady growth by providing various packaging products for
healthcare industry which accurately respond to the need of the hour.
The Group diversified into manufacturing of PET/PP/PC/HDPE/LDPE containers and
closures in the name of Himalayan Packaging Industries.
Over the past 18 years, management has strategically expanded through organic and
inorganic route, with prime focus on market penetration and brand recognition.
FUTURE
To survive and thrive in this challenging time, we will continue to pursue technological
innovation toward developing more advanced packaging solutions for pharmaceutical
industry.
VISION
To see Carewell scale lofty heights and emerge as an integrated and reliable packaging
solution provider, creating a bond of long lasting relationships on its way and leave
permanent imprints on the sands of time.
MISSION
We aspire to become a leader in the core area of our operation. Leadership requires
vision, vision requires idea and idea requires determination, at Carewell, we are

13

completely determined to reach at a height where we will become the benchmark for the
others to look up to.
BUSINESS STRATEGIES
Capacity Expansion: Planned organic expansion to ~ 5 Million pieces per day by FY
2014.
Expanding Product Portfolio: To capitalize on enormous opportunities in the pre-filled
syringes and dental cartridges.
Adapting New Technology:
Importing European make 30 head high speed machines to produce large volume of glass

ampoules.
Horizontal ampoules machine of Chinese make under installation process having a

production capacity of 300k pieces of glass ampoules per day.

In process of ordering Italian make Spami vial machine.

ORGANIZATION STRUCTURE

14

RAJAN
GUPTA
MANAGIN
G
DIRECTO
R
DEEPAK
BANSAL
DIRECTO
R
PRODUCT
ION

QUALITY

SURESH
SINGHAL
DIRECTO
R
PURCHAS
E

MARKETI
NG

CAPACITY OVERVIEW
Current capacity of 2.5 Million pieces per day
Expanding to ~ 5 Million pieces per day over the next 2 years.

Turn Over (Million INR)

Production Capacity

INORGANIC GROWTH
Jan 2001
Capacity acquired: 1 Million Pieces per day.

15

HR &
ADMIN

FINANCE

 May 2008
Capacity acquired: 2 Million Pieces per day.
Oct 2011
Acquired land area 23000 Square meter 4km away from existing plant on Ladwa road
Kurukshetra.
Capacity acquired 2.5 million pieces per day.
RATING AND ACCREDITS
CRISIL Equity Rating- SE 2B
Accredited with ISO 9001:2008 certification, ensuring stringent quality standards.
OUR PRODUCTS

Vials
Screw Neck Vials
Large Volume Vials
Lyophilizer
Ampoules
Form B
Form D
QUALITY ASSURANCE
Carewell provide its clients with high quality Ampoules and Vials conforming to ISO
standard 9001:2000. We have highly skilled, fully dedicated workforce in QC and a well
equipped laboratory to conduct physical and chemical test of tubing and finished product
as per the specifications of our customers. Adopted stringent quality tests and quality
parameters right from raw material procurements to dispatch of the finished goods. With
consistency in quality, we are privileged to have many loyal customers associated with us
over the years.

16

 ENVIRONMENTAL POLICIES
In order to make ourselves environment friendly at all levels, we adhere to the necessary
legal and Environmental compliances and adopt various measures as a part of the
process. The different facets of environmental issues like air pollution, water pollution
and solid waste disposals are some of the areas we are committed to work for. Needless
to say that Go green, breathe clean is the mantra we have adopted to elevate the quality
of life of the society we are a part of. We segregate clear and amber glass cullet for
recycling process.
CSR at Carewell
At Carewell, social responsibility is of utmost concern. The desire to bring about a
positive change, both in terms of quality of life and a healthy lifestyle is the guiding force
in some of our endeavors.
Besides, we arrange various free medical camps for the poor and downtrodden people in
addition to blood donations camps.
We also actively participate in various state government and central government
sponsored health related schemes from time to time.

FUTURE PLANS
Acquired a piece of land measuring 23000 square meters.
Proposed covered area of 10000 square meters.
To install 30 Head European make machines.
By 2014 production to touch 5 million pieces per day with a turnover aiming at INR 1

billion
By 2017 production to touch 10 million pieces per day with a turnover aiming at INR
2.5 billion.
By 2022 production target of 20 million pieces per day with a desired turnover of INR
5 billion.

17

INDUSTRY
PROFILE
18

An ampoule is a small sealed vial which is used to contain and preserve a sample, usually
a solid or liquid. Ampoules are commonly made of glass, although plastic ampoules do
exist. Modern ampoules are most commonly used to contain pharmaceuticals and
chemicals that must be protected from air and contaminants. They are hermetically
sealed by melting the thin top with an open flame, and usually opened by snapping off
the neck. If properly done, this last operation creates a clean break without any extra
glass shards or slivers; but the liquid or solution may be filtered for greater assurance.
The space above the chemical may be filled with an inert gas before sealing. The walls of
glass ampoules are usually sufficiently strong to be brought into a glove box without any
difficulty.
Glass ampoules are more expensive than bottles and other simple containers, but there are
many situations where their superior imperviousness to gases and liquids and all-glass
interior surface are worth the extra cost.

HISTORIC AMPOULES
Historically ampoules were used to contain a small sample of a person's blood after
death, which was entombed alongside them in many Christian catacombs. It was
originally believed that only martyrs were given this burial treatment, though it is
suspected to have been a widely-practiced tradition.
PRODUCTION
Modern glass ampoules are produced industrially from short lengths of glass tubing,
shaped by heating with gas torches and gravity in automated production lines. Computer
vision techniques are usually employed for quality control.
The filling and sealing of ampoules may be done by automated machinery on an
industrial scale, or by hand in small-scale industries and laboratory settings. Blank

19

ampoules can be purchased from scientific glass supply houses and sealed with a small
gas torch. This forms a membrane allowing someone to turn the open ampule upside
down without spilling. A line may be used for sealing under inert atmospheres.
OTHER USES
Ampoules are common practice as containers of low frequency RFID tags. These are
used mainly for tagging animals, such as dogs for identification.

AMPOULE CODES

Ampoules often have colored rings of paint or enamel around their necks. Color coding
of modern ampoules is done during the manufacturing process. A machine paints colored
rings on the ampoule shortly after it's been sealed. The rings are made of a substance that
is readable by other machines. These color codes identify the substance inside the
ampoule so that it does not need to be tested to verify the contents. The machine-readable
color codes allow for accurate handling of the substance for the purposes of storage,
labeling, and secondary packaging.
GROWTH IN RESPECTIVE ECONOMIES

20

Decline

Low Growth
Medium Growth

High Growth
Not Illustrated

Stagnant Growth

Global Packaging Industry

As per World Packaging Organization, the global packaging industry at present is
estimated to be US $500 bn in revenues, with ten year historical grow that ~ 3.1%
CAGR.
Projected to grow at~3.6% CAGR in the next five years mainly driven by growth in
emerging markets (Asia Pacific region).

21

Global10-year historical growth (1999-2009E)

Forecasted growth (2008-2013E)

Asia Pacific

Latin America

Europe

North America

Global

INDIAN GLASS PACKAGING INDUSTRY

The Indian Glass industry has transformed from a mere cottage industry in 1980s to one
of the largest globally, with Container glass industry growing over 11% p.a. Glass
packaging and containers for the food industry are major demand drivers of container
glass. The liquor and pharmaceutical industries are other major users of container glass.
Liquor, Pharma and F&B industries are expected to grow at CAGR of 10%, 14% and
17% respectively over FY11-FY13E. We believe strong growth in the user industries will
lead to further demand in the container glass segment.

22

OBJECTIVES

23

To study the inventory management based on the ratios

To find out the impact of inventory on working capital.
To study the inventory management and its effective control through various techniques.
To suggest the measures for improving the inventory level.

24

CHAPTER 2.
RESEARCH
METHODOLOGY
25

Research methodology is a way to systematically solve the research

problem. In this step by step methods are followed to solve a particular
problem. It refers to a search for knowledge. It can also be defined as a
scientific search for pertinent information on a specific topic. In fact,
research is an art of scientific investment.
Redman & Mary defines research systematized effort to gain new
knowledge.
RESEARCH DESIGN
Research Designs the way in which the research is carried out. It works
as a blue print. Research Design is the arrangement of the conditions
for the collections and analysis of data in a manner that to combine
relevance to the research purpose with economy in procedure.
TYPES OF RESEARCH DESIGN

26

 Exploratory Research Design

Descriptive & Diagnostic Research Design
Experimental Research Design
SAMPLE DESIGN
It is not possible for any researcher to include each and every member
of the universe in his research process. So, he selects small portion of
the universe, which is its true representative. This group is known as
sample and this process is called sampling.
Sampling Techniques can be categorized into two broad categories
namely:
Non-probability Sample
Probability Sampling

RESEARCH PROCESS
Specifying the Research
objective
Preference the list of needed
information

Research Design

Collection of Data

Analysis of Data

Report Writing
27

 There Are Six Steps Of Designing A Research Report: Specifying the Research objective: As my research project is about the comprehensive
study of PRODUCTION AND INVENTORY MANAGEMENT in CAREWELL GLASS
AND AMPOULES PVT. LTD. providing them so first of all the various objectives of the
project were specified.
Preference the list of needed information : The second step in designing the project
work is the preparation of list of need information. There is basic information on which
the research project is to structure. In this project, the various information is headed in
starting of the project.
Designing the data collection process: During the data collection process a
questionnaire was made for the collection of the data from the customers personally
because in the research project both primary as well as secondary data is required. So
primary data was collected with the help of the questionnaires. The following types of
question were asked from the customers.
Dichotomous
A question with two possible answers says Yes or No.
Multiple Choices
A question with three or more answers.
Selecting the sample size: Taking the sample of the study was not an easy task. The
objective and the limitation of the study have to be kept in mind before deciding about
the sample type.
In the sample type all levels of its customers have been covered. Basically the present
customers as well as prospective customers were questioned with help of the
questionnaire.

28

 Organizing and carrying out the field work: After deciding upon the sample size &
preparing the questionnaire, the fieldwork had to be carried out. In the field work the
place had to be chosen where you want to do your study.
Analyzing the collected data & reporting the finding: After the survey work was over
& the data had been collected the analysis of the data was must & its graphical
representation was needed. So after the data collection process step by step analysis of
data was done on the basis of the analysis.
SOURCES OF DATA COLLECTION
To make the research complete it is very necessary to have useful and authentic data there
are two types of data collection sources.
PRIMARY SOURCE OF DATA COLLECTION
Primary data are those which are collected a fresh & for the first time, & this happens to
be original in character. Simple well drafted questionnaire was circulated among all
respondents full freedom was provided to an individual to answer the questions.
Personal & Telephonic Interviews & observation of the respondents about the various
schemes helped in completion of the project.

SECONDARY SOURCES OF DATA COLLECTION

These are those which are collected by someone else & which have been pass-through
statically process. Internet, books, data of the company, Site of company and various
Articles provided lot many inputs for successful completion of project.

29

CHAPTER 3.
30

DATA ANALYSIS
AND RESEARCH
METHODOLOGY
ANALYSIS OF SHORT TERM FINANCIAL POSITION OR TEST OF
LIQUIDITY
The short term creditors of a company such as suppliers of goods of credit and
commercial banks short-term loans are primarily interested to know the ability of a firm
to meet its obligations in time. The short term obligations of a firm can be met in time
only when it is having sufficient liquid assets. So to with the confidence of investors,
creditors, the smooth functioning of the firm and the efficient use of fixed assets the
liquid position of the firm must be strong. But a very high degree of liquidity of the firm
being tied up in current assets. Few types of ratios are as follows:
LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current,
floating or circulating assts. The current assets should either be liquid or near about

31

liquidity. These should be convertible in cash for paying obligations of short-term nature.
The sufficiency or insufficiency of current assets should be assessed by comparing them
with short-term liabilities. If current assets can pay off the current liabilities then the
liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met
out of the current assets then the liquidity position is bad. To measure the liquidity of a
firm, the following ratios can be calculated:
1. CURRENT RATIO
2. QUICK RATIO
3. ABSOLUTE LIQUID RATIO

CURRENT RATIO: The current ratio is the first of three financial ratios that we will
examine. The formula for the current ratio is as follows:
Current Ratio = Current Assets Current Liabilities
Liquidity ratios measure a companys ability to pay off its short-term debt using assets
that can be easily liquidated. In this case, the current ratio measures a companys current
assets against its current liabilities. Generally, higher numbers are better, implying that
the firm has a higher amount of current assets when compared to current liabilities and
should easily be able to pay off its short-term debt.
A balance sheet account that represents the value of all assets that are reasonably
expected to be converted into cash within one year in the normal course of business.
Current assets include cash, accounts receivable, inventory, marketable securities, prepaid
expenses and other liquid assets that can be readily converted to cash.
A company's debts or obligations that are due within one year. Current liabilities appear
on the company's balance sheet and include short term debt, accounts payable, accrued
liabilities and other debts.
Acceptable current ratio values vary from industry to industry. Generally, a current ratio
of 2:1 is considered to be acceptable. The higher the current ratio is, the more capable the
company is to pay its obligations.
CALCULATION:
108531810
=2.40
CURRENT RATIO = 45118592

32

Interpretation:- As we know that the ideal current ratio is 2:1. And here the current ratio
is 2.4:1 which is a high ratio. And a high ratio indicates "safe" liquidity, but also it can be
a signal that the company has problems getting paid on its receivable or have long
inventory turnover, both symptoms that the company may not be efficiently using its
current assets.

QUICK RATIO: The quick ratio, also known as the acid-test ratio, is a liquidity ratio
that is more refined and more stringent than the current ratio. Instead of using current
assets in the numerator, the quick ratio uses a figure that focuses on the most liquid
assets. The main asset left out is inventory, which can be hard to liquidate at market value
in a timely fashion. The quick ratio is more conservative than the current ratio and
focuses on cash, short-term investments and accounts receivable. The formula is as
follows:
Quick Ratio = (Cash & Equivalents + Short-Term Investments + Accounts Receivable)
Current Liabilities
Ideally, quick ratio should be 1:1.
CALCULATION:

QUICK RATIO =

3958665+ 85151836
=1.97
45118592

Interpretation:- As we can see that the quick ratio is higher than the ideal ratio. If quick
ratio is higher, company may keep too much cash on hand or have a problem collecting
its accounts receivable. Higher quick ratio is needed when the company has difficulty
borrowing on short-term notes. A quick ratio higher than 1:1 indicates that the business
can meet its current financial obligations with the available quick funds on hand.

33

ABSOLUTE LIQUID RATIO: The absolute liquid ratio is the most conservative of the
three liquidity ratios covered in this article. As the name implies, this ratio is simply the
ratio of cash and equivalents compared to current liabilities. This ratio looks only at
assets that can be most easily used to pay off short-term debt, and it disregards
receivables and short-term investments. The argument for using the cash ratio is that
receivables and short-term investments often cannot be liquidated in a timely manner.
Receivables can be sold, or monetized, but the firm will not be able to get the full value
of the receivables sold. Keep in mind that, due to their high liquidity, short-term
Treasuries are considered cash equivalents, not short-term investments. The formula for
the absolute liquid ratio is as follows:
Absolute Liquid Ratio = Cash & Equivalents Current Liabilities
Liquidity ratios greater than 1 indicate that the company is in good financial health and it
is less likely fall into financial difficulties.
CALCULATION:

ABSOLUTE LIQUID RATIO =

3958665
=0.08
45118592

Interpretation:As we know that the ideal Absolute liquidity ratio is greater than 1. And here the
Absolute liquidity ratio is .08 which is a lower ratio. So it does not indicates "safe"
liquidity and show that the company has problems getting paid on its receivable or have
long inventory turnover, both symptoms that the company may not be efficiently using its
cash and marketable securities. And company does not easily pay its short term debts.

34

 INVENTORY TURNOVER RATIO: Inventory turnover is the ratio of cost of goods

sold by a business to its average inventory during a given accounting period. It is an
activity ratio measuring the number of times per period, a business sells and replaces its
entire batch of inventory again.
Inventory turnover ratio is calculated using the following formula:
Cost of Goods Sold
Average Inventory

Inventory Turnover =

Cost of goods sold figure is obtained from the income statement of a business whereas
average inventory is calculated as the sum of the inventory at the beginning and at the
end of the period divided by 2. The values of beginning and ending inventory are
obtained from the balance sheets at the start and at the end of the accounting period.
Inventory Turnover Ratio is figured as "turnover times". Average inventory should be
used for inventory level to minimize the effect of seasonality.
CALCULATION:

INVENTORY TURNOVER RATIO =

89097702
89097702
=
=10.02
7130331+10299417 8714874
2

Interpretation:- A high inventory turnover ratio implies either strong sales or ineffective
buying (the company buys too often in small quantities, therefore the buying price is
higher). As a high inventory turnover ratio can indicate better liquidity, but it can also
indicate a shortage or inadequate inventory levels, which may lead to a loss in business.

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 ASSETS TURNOVER RATIO: Asset turnover ratio is the ratio of a company's sales to
its assets. It is an efficiency ratio which tells how successfully the company is using its
assets to generate revenue.
There are a number of variants of the ratio like total asset turnover ratio, fixed asset
turnover ratio and working capital turnover ratio. In all cases the numerator is the same
i.e. net sales (both cash and credit) but denominator is average total assets, average fixed
assets and average working capital respectively.

TOTAL ASSET TURNOVER RATIO: The total asset turnover ratio measures the
ability of a company to use its assets to efficiently generate sales. This ratio considers all
assets, current and fixed. Those assets include fixed assets, like plant and equipment, as
well as inventory, accounts receivable, as well as any other current assets.
Net Sales
Average Total Assets

Total Asset Turnover Ratio =

CALCULATION:

TOTAL ASSET TURNOVER RATIO =

168910891
60816956

= 2.77

Interpretation:- The lower the total asset turnover ratio (the lower the # Times), as
compared to historical data for the firm and industry data, the more sluggish the firm's
sales. This may indicate a problem with one or more of the asset categories composing
total assets - inventory, receivables, or fixed assets. The small business owner should
analyze the various asset classes to determine in which current or fixed asset the problem
lies. The problem could be in more than one area of current or fixed assets.

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FIXED ASSET TURNOVER RATIO: A financial ratio of net sales to fixed assets. The
fixed-asset turnover ratio measures a company's ability to generate net sales from fixedasset investments - specifically property, plant and equipment (PP&E) - net of
depreciation. A higher fixed-asset turnover ratio shows that the company has been more
effective in using the investment in fixed assets to generate revenues.
Net Sales
Average Fixed Assets

Fixed Asset Turnover Ratio =

CALCULATION:

FIXED ASSET TURNOVER RATIO =

168910891
=13.40
12602951

Interpretation:- If the fixed asset turnover ratio is low as compared to the industry or
past years of data for the firm, it means that sales are low or the investment in plant and
equipment is too high. This may not be a serious problem if the company has just made
an investment in fixed asset to modernize, for example.

WORKING CAPITALTURNOVER RATIO: A company uses working capital (current

assets - current liabilities) to fund operations and purchase inventory. These operations
and inventory are then converted into sales revenue for the company. The working capital
turnover ratio is used to analyze the relationship between the money used to fund
operations and the sales generated from these operations. In a general sense, the higher
the working capital turnover, the better because it means that the company is generating a
lot of sales compared to the money it uses to fund the sales.
Following formulas are used to calculate Working capital turnover ratios:

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Net Sales
Average Net Working Capital

Working Capital Turnover Ratio =

CALCULATION:

WORKING CAPITAL TURNOVER RATIO =

168910891
=2.43
69341656

Interpretation:- If the industry average working capital turnover ratio was 3 for the same
year, the company would be rated as a better performer than most businesses in the
industry.

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Chapter 4.
FINDINGS AND
SUGGESTIONS

39

FINDINGS

40

The following are the findings of the company which were carried out through
calculations of ratios from the balance sheet of last year:
CURRENT RATIO:- It is the most widely used test of liquidity of a business and
measures the ability of a business to repay its debts over the period of next 12 months.
The current ratio should be 2:1. And here we find that the current ratio is 2.40:1 which is
a high ratio which indicates it as a safe liquidity.
QUICK RATIO:- It helps us to determine whether a business would be able to pay off
all its debts by using its most liquid assets (i.e. cash, marketable securities and accounts
receivable). Here we conclude that, generally, a higher quick ratio is preferable because
it means greater liquidity. However a quick ratio which is quite high, say 1.97, is not
favorable to a business as whole because this means that the business has idle current
assets which could have been used to create additional projects thus increasing profits. In
other words, very high value of quick ratio may indicate inefficiency.
ABSOLUTE LIQUID RATIO:- The reason of computing absolute liquid ratio is to
eliminate accounts receivables from the list of liquid assets because there may be some
doubt about their quick collection. This ratio is useful only when used in conjunction
with current ratio and quick ratio. An absolute liquid ratio of 0.5:1 is considered ideal for
most of the companies. And we find out our absolute liquid ratio is 0.8:1 which is sound
in nature.

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 INVENTORY TURNOVER RATIO:- Inventory turnover ratio is used to measure the

inventory management efficiency of a business. In general, a higher value of inventory
turnover indicates better performance and lower value means inefficiency in controlling
inventory levels. We find that our inventory turnover ratio is 10.04 times which is a
higher value. A very high value of this ratio may be accompanied by loss of sales due to
inventory shortage.

TOTAL ASSET TURNOVER RATIO:- Total asset turnover ratio is a key driver of
return on equity. The total asset turnover ratio measures the ability of a company to use
its assets to efficiently generate sales. Companies with low profit margins tend to have
high asset turnover, while those with high profit margins have low asset turnover. Here
we find our total asset turnover ratio is 2.77 which is higher value. Companies tend to
have a very high turnover ratio due mainly to cut-throat and competitive pricing.
FIXED ASSET TURNOVER RATIO:- The fixed asset turnover ratio measures the
company's effectiveness in generating sales from its investments in plant, property, and
equipment. We find our fixed turnover ratio is 13.40 as a higher value. If the fixed asset
turnover ratio is too high, then the business firm is likely operating over capacity and
needs to either increase its asset base (plant, property, equipment) to support its sales or
reduce its capacity.
WORKING CAPITAL TUROVER RATIO:- The working capital turnover ratio
measures how well a company is utilizing its working capital to support a given level
of sales. Generally, a high working capital turnover ratio is better. A low ratio
indicates inefficient utilization of working capital. We find out the working capital

42

turnover ratio is 2.43 as a high ratio. The ratio should be carefully interpreted because
a very high ratio may be a sign of insufficient working capital.

SUGGESTIONS

43

 Flexibility:
How rapidly and economically a system can adjust its production rate, shift
production facilities from one operation to another and change equipment from
one product to another determines the magnitude of flexibility. Inventory policies

44

should aim towards balancing the production facility, capability, inventory levels
and customers service needs.
Production capacity and storage facility:
The capacity of production system as well nature of storage facilities considerably
affects the inventory policy of an organization. If for any product the cost of
facility is high then it sets a limit on the storage capacity.
Detail of demand forecast:
Fluctuation in stock exist when forecast are not exact. The responsibility of
forecast errors for inventory needs should be clearly recognized.
Break down:
Protection against breakdown or other interruptions in production.
Other factors:
These are related to the overall business environment of the region, viz:

Inflation

Strike situation in communication facilities

Wars or some other natural calamities like famines, floods etc.

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CONCLUSION

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Company which does not have inventory management will get problem when check
whether the products known from the brand are available or not. Beside that, in the day to
day activity, without inventory management system, sometimes employees need to check
to inventory especially if the products are out of stock.
Benefit of inventory management system for shop day to day activity are list the product
that still available in data base, update the database whether by reducing the number of
stock available in database if the product has been sold or adding the number of stock if

47

there were products come from distributor or producer, and also keep transaction history
in database what happen.
By using inventory system , employee will be easier to check required product based on
quantity, quality, price so the activity of employee more effective and more efficient..
Inventory management system is provided with automatic reporting system. So each
transactions happened will be archiving and organizing in the computer rather than using
paper or excel. By record the transaction, it could also help the manager or boss to
understand each days profit or loss so it could be said as the tool for decision support
system because it will help boss the most to add most sell product and no more adding or
unproductive stock in warehouse.

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