Professional Documents
Culture Documents
A Project Report Submitted for the Partial fulfilment of the Award of the
Degree of
By
RASHMI GOWDA KM
(ISY17MBA45)
TO
SIDDAGANGA INSTITUTE OF TECHNOLOGY
I further declare that the work or any part of this has not been submitted by me for
the award of any other degree/diploma in this institution/university or any other
university.
CHAPTER 2
Company Profile ....................................................................................................... 15
CHAPTER 3
Mc Kinsey’s 7s Framework ...................................................................................... 30
CHAPTER 4
SWOT Analysis ........................................................................................................ 36
PART-B
CHAPTER 5
Literature Review ..................................................................................................... 38
CHAPTER 6
Research Design ...................................................................................................... 41
CHAPTER 7
Theoritical Background............................................................................................. 44
CHAPTER 8
Data Analysis And Interpretation .............................................................................. 58
CHAPTER 9
Findings And Suggestions........................................................................................ 90
CHAPTER 10
Conclusion And Learning Outcomes ........................................................................ 92
BIBLOGRAPHY
ANNEXURES
LIST OF TABLES
CHAPTER 5
CHAPTER 8
The study was done in PepsiCo India Holding Pvt Ltd, T-Begur, Nelamangala,
Bangalore Rural district, with the objective of finding out the efficiency of inventory
management in the organization. As inventory management plays a major role in
reducing the cost of production and helps the company in increasing its profit.
From the data analysis it’s found that inventory management is quite good in the
organization, the average inventory turnover ratio of the company is 9.46 indicating
that the company has turned its inventory nearly 9 times a year. The average
inventory holding period is 39 days. And the average inventory to working capital
ratio is 0.18 indicating good liquidity position of the firm.
The financial position of the company is also analysed using ratios. The average
current ratio of the company is found to be 7.32 which is very much higher than the
standard ratio. The average quick ratio is 6.24, which is above the industry average.
And even the fixed asset ratio, working capital ratio, net profit ratios are analysed
and the financial position is found to be satisfactory
CHAPTER-1
INDUSTRY PROFILE
1.1 Beverage Industry
Beverage industry is the industry that produces drinks, in particular ready to drink
beverages. Beverages almost always largely consist of water. The beverage industry
consists of two major categories namely, non-alcoholic and alcoholic. The non-
alcoholic category is comprised of soft drink syrup manufacture, soft drink and water
bottling and canning; fruit juices bottling, canning and boxing; the coffee industry and
the tea industry. Alcoholic beverage categories include distilled spirits, wine and
brewing.
Beverage
--
Fruit juice,
Coffee and Colas,
Wine, Bear,
tea, Soda,
Brandy Whisky
Packaged Tonic water
water
This industry has a turnover of around USD 230 million. With the entry of major
international players the market has evolved and has grown big. The emergence of
various brands has given boost to this category over the last couple of years. Now
consumers can choose beverages of almost all flavours, colours, health and nutritional
values. Pepsi, Nestle and Coca cola are the leading brands that are ruling the Indian
beverage market. Among all the beverages, tea and coffee are manufactured as well
as exported heavily in the international markets around the world. Half of the tea and
coffee products are available in unpacked form.
The global beverage market is good with opportunities for both alcoholic and non-
alcoholic sectors of the beverage industry. Emerging trends which have a direct
impact on the industry include the use of natural flavours and sweeteners to meet the
consumer health concerns.
India offers the greatest potential for the beverage industry. The country accounts for
almost 10% of global market
1.3Market Share
The Indian beverage industry has come very far from the days when tea was the ‘holy’
beverage of the commoners, coffee was the ‘sophisticated’ beverage of the upper
class, Cola was the ‘cool’ beverage of the youngsters and hard drinks were the man’s
thing. Today, right from whiskey, wine and cocktails to health drinks and powdered
juices, the Indian beverage market is flooded with a sea of options and variants for
alcoholic as well as non-alcoholic lovers with all kinds of tastes and preference.
Currently revenue in the Non-Alcoholic Drinks market amounts to USD 10370 million.
The market is expected to grow annually by 12.8 %( CAGR 2018-21)
Revenue in the alcoholic Drinks market amounts to USD 67661 million and the market
is expected to grow annually by 7.9 %( CAGR 2018-21)2
A global study revealed that alcohol consumption has risen by 55% over a period of
20 years in India. In fact, India is the 3 rd largest growing liquor markets in the world.
The rise has been mainly owing to the growing influence of the pub culture, changing
demographics (53% of the Indian population are above the age of 25 years), increase
in disposable income and rapid urbanization.
However, the growth journey of the alcohol market has met with a roadblock after the
recent ban on the liquor sales within 500m of state and national highways upheld by
the Supreme Court in India. While the ban has been made in the ‘good spirit’ to curb
high drunk driving deaths, it will not only affect the liquor producers and shops, but
also the hospitality industry. The loss of state revenue is estimated at Rs 50,000
crores, while high end hotels such as Taj, Oberoi, Hyatt and Accor may lose revenue
to the tune of Rs65,000 crores collectively. Even the pubs and restaurants will lose up
to Rs 15, 000 crores. The ban will also cost 100,000 people their jobs.3
According to a report, the beverage category contributes 8-9% of the Indian FMCG
market. The market is growing at 20-23% and is expected become three times the
current size by 2020. The recent liquor ban could turn the game in the favor of non-
alcohol beverages and can fuel further growth than the estimated projection.
• Hot beverages
• Carbonated drinks
Hot Beverages
The coffee & tea industry is expected to reach Rs41,800 crores by the end of 2017 as
the domestic consumption is rising swiftly. There is no denying the fact that the
Indians love their tea and coffee when it comes to something garam. India is the
largest tea producing and consuming country and still rules over coffee. However, the
coffee has gradually evolved into a lifestyle beverage with the mushrooming of
branded coffee outlets as a popular hangout with friends or colleagues.
Carbonated Drinks
Coca Cola introduced Indians to the taste of cola in 1970, before exiting the country in
1977 due to changes in the government policies. Parle which was facing stiff
competition from Coca Cola then took over the reins by launching new carbonated
drinks such as Thumbs Up, Gold Spot and Limca. However, Parle’s supremacy lasted
only until 1990 when Coca Cola and Pepsi forayed into the Indian market. Today,
Coca Cola and Pepsi together contribute to more than 60% of the carbonated drinks
market. The rest is controlled by Parle, Dabur, Bisleri and other local brands.
However, over the past few years, non-cola aerated drinks, especially those with fruit
content has gained traction.
Remember Rasna, the soft drink that every home served in the 80s? Rasna has
evolved over the years, but has lost its market share to other non-alcoholic beverages
and its only competitor Tang. There isn’t much product innovation in this category, so
its growth potential is not very optimistic.
It is the juice market, which are flourishing extremely well in India. It is valued at Rs
1,100 crore ($200 million) and is projected to grow at a CAGR of 15 per cent over the
next three years. The key drivers of growth of juices market are rise in the disposable
income, people adopting Western culture, health awareness and import of fruits to
India.
In fact, juice and juice based drinks are growing 2.5 times faster than aerated drinks.
As per the sales figure of 2016, juices and juice drinks such as Real, Slice, Tropicana,
Rooh Afza, and Tang toppled Pepsi and Coca-Cola out of the top 5 highest sold
brands across modern retail chains.4
This particular category has created its unique place in the beverage market because
it is growing much faster than carbonated drinks. This market is expected to grow at a
CAGR of 22 percent, to reach Rs160 billion in 2018. Nearly 67 per cent market share
of the sector is held by the top five players such as Bisleri, PepsiCo, Coca-Cola, Parle
and Dhariwal. Mineral and packaged water bottles which were considered a luxury
and that too, only during
travelling are now
commonly available at
every nook and corner of
the country. The rise in the
consumption of mineral
water has been mainly due
to increasing awareness
about health, increase in
tourism and easy
availability of bottled
4
The Indian Beverage Market Story, www.linkedin.com
water. There is a new variant called flavoured water that has taken over the luxury tag
from mineral water bottles. The target market is the people who prefer healthy lifestyle
on the go and love to drink water infused with vitamins, natural flavours or nature
identical flavouring substances such as basil, lemon, mint, orange, hibiscus, fruits, etc.
O’cean, Blue and Qua are some brands in this category.
With so many players in the beverage market, it is definitely a war of the brands worth
watching.
90% 83%
80%
70%
60%
50%
40%
30%
20%
11%
10% 5%
1%
0%
Pakaged or flavoured Other non-alcoholic Bottled /canned drinks Tea and Coffee
water drinks and juices
Source: www.statista.com
This statistic represents the Indian beverages market in 2016, distributed by type.
Canned or Bottled drinks and juices, for instance, accounted for about eleven percent
of the country’s beverage market during the measured time period.
Ministry of Health & Family Welfare, Government of India is the Administrative Ministry
for the implementation of FSSAI. The Chairperson and Chief Executive Officer of Food
Safety and Standards Authority of India (FSSAI) have already been appointed by
Government of India. The Chairperson is in the rank of Secretary to Government of
India.
FSSAI has been mandated by the FSS Act, 2006 for performing the following
functions:
Collect and collate data regarding food consumption, incidence and prevalence
of biological risk, contaminants in food, residues of various, and contaminants
in foods products, identification of emerging risks and introduction of rapid alert
system.
Creating an information network across the country so that the public,
consumers, Panchayats etc receive rapid, reliable and objective information
about food safety and issues of concern.
Provide training programmes for persons who are involved or intend to get
involved in food businesses.
Contribute to the development of international technical standards for food,
sanitary and phyto-sanitary standards.
Promote general awareness about food safety and food standards.
Different laws govern the food & beverage sector in India. The prevailing laws and
standards adopted by the government to verify the quality is one of the best in the
world. Multiple laws/regulations prescribe varied standards regarding food additives,
contaminants, food colours, preservatives and labelling. In order to rationalize the
multiplicity of food laws, a group of Ministers (herein after referred as GoM) was
recently set up to suggest legislative and other changes to formulate a modern,
integrated food law, which will be a single reference point in relation to the regulation
of food products. The food laws in India are enforced by the director general of health
services, Ministry of Health and Family Welfare, Government of India (GOI).
These are various food laws applicable to food and related products in India
1. Prevention of Food Adulteration Act (PFA), 1954 and Rules (Ministry of Health
&Family Welfare).
2. The standards of Weights and Measurements Act, 1976, and Standards of
Weights and Measures (Packaged commodities) Rules, 1977.
3. Agriculture Produce (Grading & Marketing) Act (Ministry of Rural Development).
4. Essential Commodities Act, 1955 (Ministry of food &Consumer Affairs).
5. Fruit Products Order (FPO), 1995.
6. Meat Food Products Order, 1973 (MFPO)
7. Milk and Milk Products Order, 1992.
8. The Infant Milk Substitutes, Feeding Bottles and Infants Foods (Regulation of
Production, Supply and Distribution) Act, 1992 and Rules 1993.
9. The Insecticide Act, 1968.
10. Export (Quality control and Inspection) Act, 1963.
11. Environmental Protection Act, 1986.
12. Pollution Control (Ministry of Environmental and Forests).
13. Industrial Licenses.
14. BIS Act, 1986.
Leading Indian companies with direct and allied interests in the non-alcoholic
beverage industry have come together to form the Indian Beverage Association (IBA).
These companies include Dabur India Ltd, Red Bull India Pvt. Ltd, Tetra Pak India
Pvt. Ltd, Pearl Drinks Ltd, Bengal Beverages Ltd, Jain Irrigation Systems Ltd,
Coca-Cola India and PepsiCo India Holdings Pvt. Ltd. The Indian Soft Drinks
Manufacturers Association (ISDMA) is also a member of the IBA. IBA aims to bring
together all stakeholders to a common platform to promote growth of the non-alcoholic
industry.
With a PEST analysis, the company can see a longer horizon of time, and be able to
clarify strategic opportunities and threats that the organisation faces. By looking to the
outside environment to see the potential forces of change looming on the horizon,
firms can take the strategic planning process out of the arena of today and into the
horizon of tomorrow.
1. Political/Legal Factors
It is the influence of government policies and initiatives on the food and beverage
business such as tax policy, labour law, environmental law etc. and political stability.
For instance:
All the food products manufacturers and producers are under the control of FDA. For
instance, the food and drug administration certifies and tests new ingredients such as
high concentration sweeteners prior to they are permitted to be used in beverages and
soft drink production.
Multinational corporations are facing different human rights issues, rules, regulations,
laws and policies of different governments in operating countries.
Decrease the quantity of packaging material inflowing the nation’s solid waste
management system
Diminish the consumption of natural scarce resources
Increase the reuse and recycling packaging materials
To shelter the natural environment and human health from undesirable effects related
with the dumping of packaging materials. For instance, Connecticut has now passed a
law that controls packaging to enlarge its recyclability.
2. Economic Factors
The main factors taken into deliberation are the market risks, which a Pepsi company
is bared to commodity prices, foreign exchange rate and interest rate. These elements
are described as follows.
Commodity prices
Commodity prices distress the raw material cost, Company is opened to market risk
due to the commodities prices, because in competitive environment where company is
operating, would limit its capability from improving costs during higher pricing.
Interest rate
Pepsi and Coca Cola could control their general financing in term of harmonizing risks
and investment opportunities. To minimize overall borrowing costs firms in beverage
industry are using currency swaps and interest rate to significantly adapt the rates in
order to minimize the borrowing cost.
3. Socio-cultural factors
Now-a-days consumers are not brand loyal as they were previously, now they can
easily switch to another product. Consumer choice for beverages and soft drinks is
affected by factors such as health consciousness, population growth, age of the
population, career attitudes etc.
Due to health reason, age factor plays very important role when choosing a soft drink
or beverage. Some studies have been conducted and found that soft drinks and cola
products in general may result health problems specially, kidney stones. In compare to
adults, younger consumers specially teens and twenties have fewer interest spans for
products and have a preference of products that seems different and to be fun. Now
players in beverages industry changes to non-cola products for instance bottled water,
sports drinks, tea etc.
4. Technological factors
Having a soft drink or a healthy juice is something Indians crave for. They die for a
drink that refreshes, energizes and offers happiness of every kind. Here are the major
players of Beverage Industry in India:
Coca Cola
It is an American multinational beverage company that offers 500 brands in over 200
countries in the world. It was established in the year 1886 and is the leader of all the
beverages globally. When we speak of any cold drinks or any beverage, Coca Cola is
the one company which has got a very rich history. It is one the pioneer in the sector
and Coke is still one of the favourite for all. Coke is a product which has a very loyal
following over the years globally and even in India. Much of the advertising for this
mega brand revolves around the festivities and traditions. So be it Diwali, Christmas or
Durga Puja Coke is a big part of all the celebrations. On the huge beverage market in
India, Coca Cola is a brand which is undoubtedly one of the leaders which many other
brands try to emulate. Along with
Coke, Sprite is one of its top
selling brands. In keeping with the
health concerns of high calorie
intake the company also has Diet
Coke and Coca Cola Zero.
Pepsi
Nestle India
Tata Tea
CHAPTER-2
COMPANY PROFILE
PepsiCo ia a world leader in convenient foods and beverages, with 2015 revenues of
more than $63 billion dollars and 274,000 employees. PepsiCo has since expanded
from its namesake product Pepsi to a broader range of food and beverage brands, the
largest of which included an acquisition of Tropicana Products in 1998 and the Quaker
Oats Company in 2001, which added the Gatorade brand to its portfolio. PepsiCo's
product portfolio includes a wide range of enjoyable foods and beverages, including
22 brands that generate more than US $1 billion dollars each in estimated annual
retail sales.
Based on net revenue, PepsiCo is the second largest food and beverage business in
the world. Within North America, PepsiCo is the largest food and beverage business
by net revenue. In India distribution and bottling is conducted by PepsiCo as well as
by licensed bottlers in certain regions.
2.1Origin
It was first introduced in North Carolina in 1898 by Caleb Bradham, who made it at his
pharmacy. Known back then as “Brad’s Drink”, it was later named Cola possibly due
to the digestive enzyme pepsin and kola nuts used in the recipe. That year, Bradham
sold 7,968 gallons of syrup. The next year, Pepsi was sold in six-ounce bottles, and
sales increased to 19,848 gallons. The Pepsi-Cola Company was first incorporated in
the state of Delaware in 1919. In 1926, Pepsi received its first logo redesign since the
original design of 1905. In 1929, the logo was changed again. In 1929 automobile race
In 1931, the Pepsi-Cola Company went bankrupt during the Great Depression- in
large part due to financial losses incurred by speculating on widely fluctuating sugar
prices as a result of World war 1. Assets were sold and Roy C. Megargel bought the
Pepsi trademark. Eight years later, the company went bankrupt again. Pepsi’s assets
were then purchased by Charles Guth, the President of Loft Inc. Loft was a candy
manufacturer with retail stores that contained soda fountains. In 1965, the Pepsi-Cola
Company merged with Frito-Lay, Inc. to become PepsiCo, Inc. At the time of its
foundation, PepsiCo was incorporated in the state of Delaware and headquartered in
Manhattan, New York. The company's headquarters were relocated to their present
location of Purchase, New York in 1970
2.2Rise
During the Great depression, Pepsi gained popularity following the introduction in
1936 of a 12- ounce bottle. Initially priced at 10 cents, sales were slow, but when the
price were slashed to 5 cents, sales increased substantially. With a radio advertising
campaign featuring the jingle “Pepsi-Cola hits the spot/ Twelve full ounces, that’s a lot/
Twice as much for a nickel too/ Pepsi-Cola is the drink for you,” arranged in such a
way that the jingle never ends. Pepsi encouraged price-watching consumers to switch,
obliquely referring to the Coca-cola standard of six ounces per bottle for the price of
five cents (a nickel), instead of the 12 ounces Pepsi sold at the same price. Coming at
a time of economic crisis, the campaign succeeded in boosting Pepsi’s status. In 1936
500,000,000 bottles of Pepsi were consumed. From 1936 to 1938, Pepsi-Cola profits
doubled.
Between the late-1970s and the mid-1990s, PepsiCo expanded via acquisition of
businesses outside of its core focus of packaged food and beverage brands. PepsiCo
also previously owned several other brands that it later sold so it could focus on its
primary snack food and beverage lines, according to investment analysts reporting on
the divestments in 1997. Brands formerly owned by PepsiCo include: Pizza Hut, Taco
Bell, KFC, Hot 'n Now, East Side Mario's, D'Angelo Sandwich Shops, Chevys
Fresh Mex, California Pizza Kitchen, Stolichnaya (via licensed agreement), Wilson
Sporting Goods, and North American Van Lines.
In August 2009, PepsiCo made a $7 billion offer to acquire the two largest bottlers of
its products in North America: Pepsi Bottling Group and PepsiAmericas. In 2010 this
acquisition was completed, resulting in the formation of a new wholly owned
subsidiary of PepsiCo, Pepsi Beverages Company. In February 2011, the company
made its largest international acquisition by purchasing a two-thirds (majority) stake in
Wimm-Bill-Dann Foods, a Russian food company that produces milk, yogurt, fruit
juices, and dairy products.[ When it acquired the remaining 23% stake of Wimm-Bill-
Dann Foods in October 2011, PepsiCo became the largest food and beverage
company in Russia.
In July 2012, PepsiCo announced a joint venture with the Theo Muller Group which
was named Muller Quaker Dairy. This marked PepsiCo's first entry into the dairy
space in the U.S. The joint venture was dissolved in December 2015.
On May 25, 2018, PepsiCo announced that it would acquire fruit and veggie snack
maker Bare Foods. They will also quarter-own allMotti in late November 2018 and it
will be PepsiCo's first owned Tech and Computer Service Company.
2.3Nature of Business
The PepsiCo manufacturing and distributing the soft drinks, snacks and other food
items in different brand names
Company Logo
Vision
Its vision is put into action through programs and a focus on environmental
stewardship, activities to benefit society, and a commitment to build shareholder value
by making PepsiCo a truly sustainable company.
Mission
2.5Product Portfolio
Nectars, Tropicana Twister and Slice, non-carbonated beverage and a new innovation
Nimbooz by 7UP.
The group has built an expansive beverage and foods business. To support its
operations, PepsiCo has 36 bottling plants in India, of which 13 are company owned
and 23 are franchisee owned. In addition to this, PepsiCo’s Frito Lay foods division
has 3 state-of-the art plants. PepsiCo’s business is based on its sustainability vision of
making tomorrow better than today. PepsiCo’s commitment to living by this vision
every day is visible in it’s contribution to the country, consumers and farmers.
Brands
Foods
PepsiCo’s food division, Frito-lay, is the leader in the branded salty snack market and
all Frito-Lay products are free of
trans-fat and MSG. It manufactures
Lay’s Potato Chips, Cheetos
extruded snacks, Uncle Chipps
and traditional snacks under the
Kurkure and Lehar brands. The
company’s high fibre breakfast
cereal, Quaker Oats, and low fat
and roasted snack options
enhance the healthful choices
available to consumers. Frito Lay’s
core products, Lay’s, Kurkure,
Uncle Chipps and Cheetos are cooked in Rice Bran Oil to significantly reduce
saturated fats and all of its products contain voluntary nutritional labelling on their
packets.
Beverages
Pepsi
7UP
7UP, the refreshing clear drink with natural lemon and lime
flavour was created in 1929. 7UP was launched in India in 1990
and its international mascot Fido Dido was used for advertising
in 1992 to position the brand as a cool drink for youngsters.
7UP’s brand communication is premised on the product’s natural
lemon flavour, guaranteed to provide uplifting lemon refreshment
that raises one’s spirits.
Aquafina
Gatorade
Mountain Dew
It is a soft drink that exhilarated like no other because of its daring, high-energy,
active, extreme citrus taste. Challenge, a can do
attitude, adventure and exhilaration is deeply
entrenched in its brand DNA and the brand has
always celebrated the bold and adventurous spirit
of the youth. This exhilaration and excitement of
Mountain Dew has always been reflected in the
high-adrenaline advertising of the brand that connected it to the outdoor adventure. In
2007, the brand was re-launched with a completely new, punchier formulation with
communication that aimed at forging a strong emotional connect with our audience.
Nimbooz
Nimbooz was launched in India on 28th February 2009 and its folio
expanded with the introduction of its variant, 7UP Nimbooz Masala
Soda. With real lemon juice, 7UP Nimbooz adds to the lemon
credentials of the 7UP portfolio and firmly established it as a
dominant player of the juice based drinks category.
Slice
Tropicana
Mirinda
2.6Company Leadership
Leadership is the
ability of a company's
management to set
and achieve
challenging goals,
take swift and
decisive action,
outperform the
competition, and
inspire others to
perform well. It is
tough to place a value
on leadership or other
qualitative aspects of
a company,
compared to quantitative metrics that are commonly tracked and much easier to
compare between companies. Individuals with strong leadership skills in the business
world often rise to executive positions such as CEO (Chief executive officer), COO
(Chief operating officer), CFO (Chief financial officer), president and chairman
Ramon Laguarta
Other top leaders who lead the company and their designations are:
Falling sales, rising competition, and changing customer preferences...You name it.
Squeezed from all sides, American food and beverage giant PepsiCo Inc. is struggling
to find its feet in India, 28 years after it first stepped into the country.
PepsiCo India Holdings Pvt. Ltd, maker of a range of foods and beverages including
Kurkure, Quaker Oats, Pepsi and Gatorade, ended fiscal year 2017 (FY17) with a
revenue of Rs6,540 crores, its filings with Registrar of Companies (RoC) show, less
than its 2012-13 figure of Rs6,994.8 crores. The decline also shows up on market
share data provided by independent research agencies, confirming PepsiCo has been
losing fizz in India. Source: Registrar of companies
Revenue(in crores)
10000
8130
8000 6994.8 7216.7
6626 6540
6000
4000
2000
0
FY13 FY14 FY15 FY16 FY17
Revenue(in crores)
-150 FY17
-538 FY16
-177 FY15
-280 FY14
17.6 FY13
Declining sales
For FY14, PepsiCo India reported a loss of Rs280 crores, against a profit of Rs17.6
crores in the previous year, its RoC filings show. Revenue growth too fell to 3.1% in
FY14 from 14.8% a year ago.
In FY15 it managed to reduce the loss to Rs177 crores but just a year later it jumped
to Rs538 crores after it restructured bottling operations in India.
Not just this. After many years, PepsiCo India reported a decline in revenue that year,
down 18% to Rs6,626 crores from Rs8,130 crores in FY15.
In the year ended 31 March 2017, the company reported revenue of Rs6,540 crores,
majority of which came from non-carbonated beverages and packaged food.
While it is yet to file detailed results with RoC, it is estimated that the company
managed to lower its loss to around Rs150 crores in FY17.
2.8PepsiCo in India
PepsiCo entered India in 1989 by creating a joint venture with the Punjab government-
owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited. And has
grown to become one of the largest food and beverage businesses in India. PepsiCo
India has been consistently investing in the country and has built an expansive
beverage and snack food business supported by 38 beverage bottling plants and 3
food plants.
Indian headquarters:
Level 3-6, Pioneer Square, Sector 62,
Near Golf Course Extension Road
Gurgaon – 122001, Haryana, India.
Board Line: (91) 124 7190000
Facilities:
38 bottling plants
3 food plants.
Having begun in the year 1997, with an initial investment of Rs 40 crores, which over a
period of time has reached close to Rs150 crores, Nelamangala plant PepsiCo
Holding Pvt Ltd, is a fairly young and dynamic one. However it has come a long way in
more ways than one.
Nelamangala plant owns bottling operation plant. It services the entire Bangalore unit
and up country markets covering most of Karnataka.
1. Aquafina line
2. Pet line
3. Ketner line
4. Slice line
The plant produces products like Pepsi, 7UP, Slice, Mountain Dew, Mirinda and
Aquafina.
Plant Address:
34th KM stone, NH4 Road,
Tumkur road, T.Begur,
Nelamangala, Bangalore,
Karnataka 562123
a) Nelamangala Plant under the umbrella of Pepsi India business unit is one of the
biggest plants in South Asia business operations.
b) The plant acts as capacity building centre for new joiners in the system.
c) The plant has been awarded with “Nehru Rastriya Parisara Premi” by
Karnataka State Pollution Control board in 2004.
d) The plant has been rated the 4th best plant in line productivity across the
PepsiCo beverages international.
e) The plant stands at the No.1 position in Line productivity across Pepsi India
business unit.
f) The plant has been awarded as “Silver standard for its system quality in the
international quality awards 2003.”
Infrastructure facility
The PepsiCo India holdings limited Nelamangala has five production lines to produce
beverages which are fully automated and systematized. The company is located in 43
acres plot of which 14 acres is occupied for production of beverages. Remaining
space is used for company related activities like workshops, engineering works etc.
Production Lines
1. OPT production line established in 1998 which produce 220 bottles per minute
(BPM).
2. Slice production line established in 1999 which produces 270 BPM.
3. Aquafina production line started in 2001 which produces 196 BPM.
4. New pet production line started in 2013 which produces 400 BPM (includes 300
ML & 250ML small bottles).
5. CSD ketneer, a recently established production line produces 220 BPM.
Welfare facilities
1. Statutory
Rest rooms
Hospitality
2. Non-statutory
Recreational facilities
General Holidays
3. Training facilities
On the job training
CHAPTER-3
MC KINSEY’S 7S FRAMEWORK
The McKinsey 7-S framework was developed in the early 1980s by Tom Peters and
Robert Waterman, two consultants working at the McKinsey & Company consulting
firm, the basic premise of the model is that there are seven internal aspects of an
organization that need to be aligned to be successful.
PepsiCo McKinsey 7s framework explains how important elements of business can
be aligned to increase the overall effectiveness. According to McKinsey 7S framework,
strategy, structure, and systems are hard elements, whereas shared values, skills,
style and staff represent soft elements of businesses. The way the model is presented
below depicts the interdependency of the elements and indicates how a change in one
affects all the others. Shared values are positioned at the core of PepsiCo McKinsey
7S framework, since shared values guide employee behaviour with implications in
their performance.
"Hard" elements are easier to define or identify and management can directly
influence them. "Soft" elements, on the other hand, can be more difficult to describe,
and are less tangible and more influenced by culture.
1. Strategy: the plan devised to maintain and build competitive advantage over
the competition.
2. Structure: the way the organization is structured and who reports to whom.
3. Systems: the daily activities and procedures that staff members engage in to
get the job done.
4. Shared Values: called "superordinate goals" when the model was first
developed, these are the core values of the company that are evidenced in the
corporate culture and the general work ethic.
5. Style: the style of leadership adopted.
6. Staff: the employees and their general capabilities.
7. Skills: the actual skills and competencies of the employees working for the
company.
3.1 Strategy
PepsiCo had focused on a growth strategy and market leadership in all snack food
and beverage categories through merger and acquisition, for example, In 1965
PepsiCo was formed with the merger of the Pepsi-Cola Company and Frito-Lay, Inc.
In 1988, Tropicana Juice Company was acquired, soon in 2001 company merged with
Quaker oats
3.2 Structure
PepsiCo’s structure is based upon products and geography. The recent restructuring
will help to coordinate improvements in its international business. It mainly focus on
improving revenue and decrease operating cost. PepsiCo has a divisional
organizational structure and the business is divided into six divisions. Each division
is led by a divisional CEO, who report to PepsiCo CEO Ramon Laguarta. The
company comprises the following divisions:
3. Latin America
Plant
Secretary
Purchase
coordinator Maintenance Shipping
Coordinator Executive
Production F coordinator QC
HR Coordinato
Executive Coordinator
r Stores
Maintenance
cooerdinat Executiv
executive
or e
Production executive Finance executive QC executive
3.3 Systems
The most noteworthy systems employed by the company also include Smart Spending
policies to rein in expenses and Lean Six Sigma training to cut waste and boost
efficiency.
3.4 Skills
The company knows that success of the company depends on the work of skilled,
talented and dedicate people who are committed to making an impact every day.
Global trends such as urbanization, demographic changes, and technology
developments are changing the talent landscape.
challenges facing corporations today is attracting, developing and retaining skilled and
talented workforce.
Let’s get to know the level of skill sets required at various levels in PepsiCo
Skill Matrix
Top Level 1 2 3
Middle Level 3 3 3
Operational Level 3 3 1
Where: Top level includes Plant Manager, Plant Secretary, Middle Level Includes
Managers and Head of different departments and Operational Level includes
Executives and Coordinates.
3.6 Staff:
In Nelamangala plant they are over all 51 staff members including Plant Manager
and Plant Secretary & 205 associative employees.
Department No of Staffs
Production 6
Quality 20
Maintenance 4
2HR 2
LDT(shipping) 11
Finance 3
Safety 1
Purchase 1
Facilities provided for staff:
Welfare facilities:
Rest rooms
Hospitality
General holidays
3.7 Style
The type of leadership style followed by the company helps in maintaining a good
relationship with employees.
PepsiCo follows the democratic, socialized, charismatic leadership. The company
encourages employees to participate in the process of decision making i.e. it listen to
opinions from employees and takes them into consideration but still the important and
final decisions are made by the responsible executives.
CHAPTER-4
SWOT ANALYSIS
4.1 Strength
1. Strong Product diversification strategy
2. High-Profile Global presence
3. Product Innovation
4. Decentralized Operation
5. Aggressive marketing Strategies
6. Access to global employees base
7. Brand equity: it is one of the most prominent and famous brands in the world
in the food and beverage sector. It is also known as the brand recognition and
reputation. It has a brand valuation of $19.4 billion and it is ranked 29 in the
Forbes most valuable brands list.
8. Strong Leadership: Under the leadership of Indra Nooyi PepsiCo has been
doing really well. It has managed to stay at number two position in the complete
food and beverage sector only behind Nestle in that field.
9. Customer Loyalty: PepsiCo has an extremely loyal customer base. In its
beverage category all its soft drinks have an iconic taste and that’s why their
customers do not prefer to shift brands. They have emerged as a very strong
brand when it comes to juices and bottled water category
10. Strong distribution: Pepsi has a global presence in more than 200 countries
providing them with a very good distribution network.
4.2 Weakness
1. Targeting only youth population
2. High spending on promotional activities
3. It becomes difficult to adopt to changes due to its large size
4. Failed Products: Failed products such as ‘Crystal Pepsi’ hurts the brand
image of the PepsiCo and thereby giving chance to the competitors to grow.
4.3 Opportunities
1. Changing consumer preferences (healthy style)
2. Low barriers to entry.
3. Diversification: Business diversification into different market segments is a
huge opportunity. They have the talent, resources and financial strength to do
the same. Diversification can also be done through acquisitions.
4.4 Threats
1. Technological Innovation.
2. Economic and Political instability of the country of operation.
3. Competitors: It has heavy competition from Coca-Cola in their soft drinks
category. This competition thereby provides a room for not so loyal customer
base to switch brands quickly. PepsiCo’s main competitors are Coca-Cola,
Kraft foods, Nestle, Dr Peppers Snapple Group etc.
4. Health Factor: The unhealthy factor associated with its products can take a toll
on the health conscious customers and might lose them. This can be clearly
seen by the fall of soft drinks sale.
5. Government Norms: Different norms of different countries might prove difficult
to handle and compliance with it as well.
CHAPTER-5
LITERATURE REVIEW
Lakshminarayanan Latha (2017)
Inventory valuation Methods in Indian Manufacturing Sector is the study which was
published in Abhinav National Monthly Refereed Journal of Research in Commerce &
Management. Adopting the well-structured and appropriate practices in their
operations will help in achieving sustained growth and profitability. An efficient
inventory valuation is one of that practices. Inventory consumed in the production
process amounts to greater than 50% of the total cost of the product. Hence inventory
valuation is very important in manufacturing sector. Being an important parameter in
cost management, the incorrect valuation method will lead to incorrect profit reporting.
It is also said that the use of incorrect inventory values for decision will lead to high
risks in terms of sale plan, pricing decisions and future profits.
Darya Plinere, Arkady Borisov (2015)
In this paper on ‘Inventory management improvement’, it is discussed about the usage
of inventory management which aims at decreasing company’s inventory level and
holding costs by avoiding overstocks and to apply the agent system in order to
automate the inventory management process
G. Sekeroglu, M. Altan (2014)
In the research paper “The Relationship between Inventory Management and
Profitability” it is said that inventories which are one of the working capital elements
are very important among current assets for firms. Because, profitability is an indicator
for firm’s financial success is provided with minimum cost and optimum inventory
quality. And hence at the end of the research it is found that there exist a positive
relation between them and efficiency in inventory management is also reflected in the
profitability ratios.
Dinesh Dhoka, Dr. Y. Lokeswara Choudary (2013)
In the research paper “ABC Classification for Inventory optimization”, the author
discussed about the inventory classification which is very important to manage
inventory efficiently. Importance and Exception is employed to ensure that efficiency is
maximized with least effort. Here the most common classification i.e Pareto Analysis is
the main focus.
Research Gap: In all the above research the authors have discussed about the
inventories of raw materials or the final finished products but here I am trying it with
the inventories of engineering spares which aid production activities and its impact on
the profitability or performance of the firm, it is also to be noted that these form the
major part of the current assets than the raw materials in the PepsiCo.
CHAPTER-6
RESEARCH DESIGN
Inventory or Stock is the goods or materials which the business holds with the
ultimate goal of resale. It forms the major part of current assets category. Inventory
management includes aspects such as controlling inventory, storage of inventory and
controlling the amount of product for sale. Simply put, inventory management is all
about all about having the right inventory at the right place, at the right time, and at the
right cost. But the actual challenge lies at implementing the best inventory
management techniques to ensure the best result.
Inventory is an asset, if not properly utilized it will become liability for the company.
Therefore it is absolutely very important and necessary to manage inventories
efficiently in order to overcome unnecessary investment. It is very necessary for
management to give proper attention to inventory as they form the major part of
current assets. A proper planning of purchasing, handling, storing and accounting
should form a part of inventory management.
Neither too high nor too low level of inventory should be maintained. A high level of
inventory indicates the higher carrying costs and higher risk of stocks becoming
obsolete whereas on the other hand too low level of inventory may mean the loss of
business. Hence this study is undertaken to evaluate inventory levels and to give
suggestions for attaining optimum inventory levels at PepsiCo India Holding Pvt Ltd.
OBJECTIVES
The study is limited to inventory management of PepsiCo India Holding Pvt Ltd.
Nelamangala Plant and not to other units across India. And the study covers 5
financial years.
RESEARCH METHODOLOGY
The present study is the analytical study and it was based on the secondary data
Secondary Data
Secondary data is the data obtained from published sources or any primary data
being used for the second time to serve the purpose. The sources of this study are:
Organizational literature,
Financial statements (balance sheet, Annual Reports)
Records like purchase ledger and stores ledger relating to Inventory
Present study was done at PepsiCo India Holding Pvt Ltd. In T-Begur, Nelamangala,
Bangalore Rural District-562123. It was started in the year 1997, with an initial
investment of Rs 40 crores, which over a period of time has reached close to Rs150
crores, Nelamangala plant PepsiCo Holding Pvt Ltd, is a fairly young and dynamic
one.
PepsiCo India Holding Pvt Ltd is a very big organization and its very difficult to
study the entire system.
All the information was not disclosed to maintain confidentiality.
The study was limited only to 5 financial years so it become difficult to draw the
conclusion on the performance of the company
The Project was done within a limited period of 8 weeks
Level of accuracy of the research is restricted.
CHAPTER- 7
THEORITICAL BACKGROUND
7.2What is an Inventory?
Inventory is actually the major part of current assets category, and must be accurately
valued at end of every financial year to compute the profitability and to measure the
performance of the company. Organizations carrying inventory whose value is very
high should have accurate and on-going control.
(OR)
Inventory is an accounting term that refers to goods that are in various stages of
production process, getting ready for sale, including:
Finished goods (those are the items or goods which are available or ready for
sale)
Work-in-progress (includes those items which are in the process of being
made)
Raw materials (includes those items which go into the process of
manufacturing)
The most important or the main objective of holding inventory is to make sure that
the customer needs are met without compromising or going out of stock. When
customers do not get what they need, in time, they often cease to be customers. Thus
as a result of customers shifting to other competitors, and/or increased holding costs
due to unsold inventories that is no longer in demand pushes the business into losses.
To avoid the losses of sales: The demand of the customers can’t be met, if
sufficient amount of finished goods or items are not held by the company. As a
result, the customers who are in need of immediate supply of goods will move
towards or shift to the competitors, which leads to loss of revenue.
To Gain Quantity Discounts: We know that suppliers will usually provide
quantity discount on bulk purchase of materials. Therefore, a firm can maintain
relatively larger investment in inventories to profit from these quantity discounts,
permitted the holding cost of inventories is less.
To Reduce Order Costs: If a firm's ordering cost is higher for each order
placed, of purchasing in small quantity is not economical. Therefore, the costs
associated with ordering of material can be reduced by placing less number of
orders in relatively large quantities.
To ensure smooth production
Inventory Management is the collection of tools, techniques and strategies for storing,
tracking, delivering and ordering inventory or stock.
Inventory Management is the process of tracking and controlling the inventory orders,
its usage and storage along with the management of finished goods that are ready to
move out. If the inventory in not managed properly, it would increase the holding cost,
tying up of working capital, wastage of human resources, disturbance in the supply
chain, increase in idle time etc. All this would result in decreased sales and customer
dissatisfaction. Hence, inventory management is a very important aspect of the
business which should not be ignored.
These are the variable costs associated in placing order by the firm with suppliers to
replenish inventory of raw materials. Ordering costs include the cost of requesting,
purchasing, transporting, receiving and inspecting. The ordering costs increases as
the number of orders placed increase.
They also include clerical costs and stationery costs (Hence called a set-up cost). The
more frequent the acquisition of inventory made, the higher are such costs. Similarly,
the fewer the frequency of orders, the lower the order cost will be for the firm. Thus,
the ordering /acquisition /set-up costs are inversely related to the level of inventory.
b) Carrying Cost:
It is the expenses involved in carrying inventory. The cost of holding inventory may be
divided into: of orders, the lower the order cost will be for the firm. Thus, the
This includes the expenses involved in raising funds (i.e. Interest) which are used in
acquisition of inventory.
The level of inventory and the carrying costs are directly proportionate i.e., if
inventory level decreases, the carrying costs also decrease and vice-versa.
One of the most widely used techniques of control of inventories is ABC analysis. It is
an inventory categorization method which consists in dividing items into three
categories A, B and C: A being most valuable items, C being the least valuable ones.
Class A or Group A- these items forms 20% of the stock quantity but commands 70%
of the annual usage value.
Class B or Group B- these items forms 30%of the stock quantity but commands 20%
of the annual usage value.
Class C or Group C- these items forms 50% of the stock in terms of quantity but
commands only 10% of the annual usage value
Thus, class A items forms the minor portion of the physical units and they are very
valuable in terms of the revenue it brings to the company. Since it involves highest or
largest-investment in such items, they would require the tightest control. In any cases
of not having them in stock, the company would suffer from loss of revenue which
would have brought by them.
Class B is mid-range stock items, they form the slightly high portion of the quantity but
their value is less compared to group A items. Business should closely monitor them
as there exist a chance, for these items to join group A or their popularity may just
further drop and join the group C.
And finally, Class C items are a large collection of small items whose values is less
but they are very essential for smooth running the business. Here the holding cost
(space rentals, salaries of staff, insurance charges etc.) must be reduced as these
items forms the 50% of the inventory
In V-E-D analysis, ‘V’ stands for vital, ‘E’ stands for essential, ‘D’ stands for desirable.
This classification is used mainly for spare parts that should be stocked for
maintenance of machines and equipment’s based on the criticality. The vital spare
parts are those items whose non-availability would cause the stoppage in production
activities. When their availability is limited (i.e., supplied from foreign country) at least
one of such vital spare should be stocked irrespective of its value. Essential spare
parts are those whose non-availability may not adversely affect production. However
low level of such spares should be held by the company. The desirable spare parts
are those which if not available can be manufactured within or can be procured from
local suppliers and hence no stock is held usually.
V. S-D-E Analysis
This stands for scarce items, difficult to procure items and easy to procure items. A
scarce item is one which is not easily available in the market and reliable source have
to be developed. For e.g. imported items may have to be stocked because it is difficult
to procure and will have long lead time.
It is one of the modern technique of inventory control, in which the company keeps no
excess inventory in hand but maintains only as much inventory as it needs for the
production process. It simply means making what is needed, when it’s needed, in the
amount needed.
JIT is also known as “zero inventory” system. In this system company manufactures
goods to order. It generally operates on a “pull” system (i.e., when an order comes
through, it initiates the necessary activities to manufacture them).
Benefits of just-in-time:
Decreased Cost (i.e. rent and insurance by reducing the level of inventory)
Decreased ordering cost by ordering stock only when necessary,
Reduction in wastage and increase in efficiency,
Reduced chances for obsoleteness, outdated, and spoilage of inventory
Apart from all these benefits, it is risky because any delay in ordering inventory can
lead to stock out situation which leads to loss. Hence this method requires proper
planning which results in increased profitability and customer satisfaction.
Specific Identification
This method can be applied only in those situations where different purchases are
identified separately. Under this method, each item which is sold and remaining in the
inventory is identified. The cost of specific items that are sold during a period is
included in the cost of goods sold for that period and the cost of specific items
remaining on hand at the end of a period is included in the ending inventory of that
period.
FIFO and LIFO are accounting methods which are very popular in valuing inventory
and reporting profitability. FIFO (first in, first out) is an inventory valuation method
which says that those items which enter first to the inventory are the first to leave (i.e.
to get rid of oldest inventory first). Usually business with perishable items follow this
method of inventory valuation.
LIFO (last in, first out) is an inventory valuation method according to which the last
items that enter the inventory leaves first (i.e. to get rid of the newest inventory first). It
is used in those business which deals with non-perishable items.
The WAC method of valuation assumes that the goods available for sale are
homogeneous. Average cost is calculated by dividing the cost of goods available for
sale, which consists of the cost of the beginning inventory and all purchases, by the
number of units available for sale.
7.7RATIO ANALYSIS:
Introduction
Ratio analysis is a major, important and powerful tools of the financial analysis. Ratio
is the relationship between two numbers or figures. It acts as a yardstick in evaluating
and measuring the performance and financial position of the company, because the
absolute data will not help us in understanding and interpretation. Thus ratio analysis
is the process which helps in determining and presenting the relationship between
items or group of items. Ratio Analysis aids in making quantitative judgement
regarding company’s financial position and performance.
7.7.2Important Ratios:
Current ratio
The current ratio helps in measuring company’s short-term liquidity position and
provides a quantitative relationship between current assets (CA) and current liabilities
(CL). It shows whether the company is in position to pay off or meet its current
obligations or liabilities with its current assets
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 (𝐨𝐫) 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐑𝐚𝐭𝐢𝐨 =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬
If Current Assets > Current Liabilities, then CR>1.0, which is good for the company
to be in. If Current Assets = Current Liabilities, then CR>1.0, then Current Assets are
adequate to meet its current liabilities. And if Current Assets < Current Liabilities, then
CR<1.0, it means company does not have adequate current assets to pay for its short
term obligations.
Quick ratio is a liquidity ratio which helps in measuring the ability of the company to
meet its current obligation. It helps in finding out whether the business has sufficient
assets that can be easily translated into cash which can be used to pay its bills or
meet current obligations.
It helps the management to find out if they are maintaining optimal or adequate levels
of quick assets that helps in taking care of its short term obligations.
It is the ratio of net sales and working capital. It indicates how efficiently the company
is utilizing or using its working capital. It is calculated using the below formula
𝐒𝐚𝐥𝐞𝐬
𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨 =
𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐜𝐚𝐩𝐢𝐭𝐚𝐥
A higher working capital turnover ratio indicates that the company is having sufficient
working capital that aids in smooth running and there is no need for any additional
funds in carrying out its smooth run. The business will be provided with flexibility due
to regular inflow and outflow of money. And it is to be noted that this ratio should not
be extremely very high, which indicates that the business doesn’t have sufficient
working capital to support its growth in operations.
Fixed Asset Turnover (FAT) is an efficiency ratio which helps the management in
knowing how well or efficiently the company is using its fixed assets to generate sales.
𝐍𝐞𝐭 𝐒𝐚𝐥𝐞𝐬
𝐅𝐢𝐱𝐞𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨 =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐟𝐢𝐱𝐞𝐝 𝐚𝐬𝐬𝐞𝐭𝐬
The high fixed asset turnover ratio that more efficient the company is in utilizing its
fixed assets. On the other side, a decreasing fixed asset turnover ratio indicates that a
company has over-invested in fixed assets. Thus it is very helpful for both investors
and company management in to knowing how efficient the company is in utilizing its
fixed assets by comparing with historical records or industry average.
A higher debtor’s turnover is desirable for a company. It indicates the time gap
between the credit sales and the money collected is less and it also indicates that the
firm is quite efficient in collecting the accounts receivables.
Collection period may differ from company to company. It represents the time given by
the company to its debtors to pay back the debts.
𝟑𝟔𝟓 𝐝𝐚𝐲𝐬
𝐴𝐯𝐞𝐫𝐚𝐠𝐞 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧 𝐏𝐞𝐫𝐢𝐨𝐝 =
𝐃𝐞𝐛𝐭𝐨𝐫𝐬 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐨 𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬 𝐑𝐚𝐭𝐢𝐨 =
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬
If the ratio is increasing, it means that the inventory level is increasing which may be a
sign of low demand or oversupply of the inventoried asset. On the other way this a
negative sign. If this ratio is decreasing, it is a sign of profitability which may be due to
increased demand.
Inventory turnover ratio is an important efficiency ratio. It indicates how quickly and
how fast a company replaces its current stock of inventories.
Inventory turnover ratio indicates how a company is handling its inventory. If the
inventory turnover ratio of a company is very high, it means that the company is
managing its inventory quite well and it also indicates fewer chances of obsolescence.
On the other hand, if the inventory turnover ratio of a company is lower, the company
is not managing its inventory well. And there’s also a greater chances of risk of
obsolescence.
Inventory holding period tells us how many days a company may take to turn or sell its
inventory.
𝐍𝐨 𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐡𝐨𝐥𝐝𝐢𝐧𝐠 𝐩𝐞𝐫𝐢𝐨𝐝 =
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨
So, if the day’s inventory outstanding or inventory holding period of a company is low,
it means that company is efficient in managing its inventory. High inventory holding
period means that the company is not in a position of turning its inventories..
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐨 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐫𝐚𝐭𝐢𝐨 =
𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐜𝐚𝐩𝐢𝐭𝐚𝐥
The lower ratio indicates the good liquidity position of a company. However, inventory
to working capital ratio varies from industry to industry and company to company. So it
is always better and good to compare with the industry average.
Net profit ratio (NP ratio) is a very important and popular profitability ratio that shows
relationship between net profit after tax and net sales. It is the percentage of net profit
after tax to the net sales.
Net profit Ratio is used as a tool to measure the overall profitability of the company. A
higher ratio indicates the efficient management of business. There is no standard
which can be used in interpreting the net profit ratio, to check if there is a constant
profitability or not. The net profit ratio is hence compared with the historical records or
industry averages.
CHAPTER-8
It is also known as working capital ratio which indicates the relationship between
current assets and current liabilities. Thus it measures the ability of the firm to meet its
short term obligations using its current assets
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 (𝐨𝐫) 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐑𝐚𝐭𝐢𝐨 =
𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬
TABLE 8. 1
SHOWING CURRENT RATIO
(Amount in Rs Million)
Analysis:
The above table shows that current ratio in the year 2013-14 is 5.0:1 , which thereafter
keep increasing in 2014-15 it increases to 6.4:1, which thereafter reaches the highest
in 2015-16 with 9.7:1. And further the current ratio keeps decreasing to 9.4 and 6.1 in
the following respective years.
GRAPH 8. 1
SHOWING CURRENT RATIO
Current Ratio
3,500M 12.0
3,054M
3,000M 9.7
10.0
Amount in Rs Millions
2,560M 9.4
2,500M 2,268M 2,222M 8.0
2,000M
Ratios
1,652M 6.4 6.1 6.0
1,500M 5.0
4.0
1,000M
M 0.0
2013-14 2014-15 2015-16 2016-17 2017-18
Current Assets 1,652M 2,268M 2,560M 3,054M 2,222M
Current Liabilities 327M 353M 263M 324M 361M
Current Ratio 5.0 6.4 9.7 9.4 6.1
Years
Interpretation:
Current Ratio is calculated because the investor wants to know how liquid a firm is. It
shows, if the firm has enough current assets to pay off its current liabilities. If a
company has more current assets and less current liabilities, it is a great position for a
company to be in, in terms of liquidity. The ideal ratio is generally 2:1. From the graph
it is clear that company has enough current assets to meet all of its liabilities, with all
ratios much higher than the ideal ratio (highest being 9.7 in the year 2015-16). Though
it is comfortable for the creditors, for the concern it is the indicator of idle funds and a
lack of enthusiasm for work.
Quick ratio helps in measuring the ability of the organization in meeting its current
obligation. It is utilised to assess whether a business has sufficient assets that can be
translated into cash to pay its bills
TABLE 8. 2
SHOWING QUICK RATIO
(Amount in Rs Million)
Year Quick Assets Current Liabilities Quick Ratio
2013-14 1,354M 327M 4.1
2014-15 1,876M 353M 5.3
2015-16 2,180M 263M 8.3
2016-17 2,683M 324M 8.3
2017-18 1,893M 361M 5.2
Analysis:
From the above table it is known that the quick ratio has increased from 4.1:1 in the
year 2013-14 to 5.3:1 in the year 2014-15. Further it reaches the highest of 8.3:1 in
the following year of 2015-16 and continues this trend in the following year of 2016-17.
It then shows a decrease to 5.2:1 in the year 2017-18.
GRAPH 8. 2
SHOWING QUICK RATIO
Quick Ratio
3,000M 2,683M 9.0
8.3
8.3 8.0
2,500M
2,180M 7.0
Amount in Millions
1,893M
2,000M 1,876M 6.0
5.3 5.2
Ratios
5.0
1,500M 1,354M
4.1 4.0
1,000M 3.0
361M 2.0
500M 327M 353M 263M 324M
1.0
M 0.0
2013-14 2014-15 2015-16 2016-17 2017-18
Quick Assets 1,354M 1,876M 2,180M 2,683M 1,893M
Current Liabilities 327M 353M 263M 324M 361M
Quick Ratio 4.1 5.3 8.3 8.3 5.2
Years
Interpretation:
Quick ratio shows a firm’s ability to meet current liabilities using its most liquid assets.
A quick ratio of 1: 1 indicates highly solvent position. This ratio serves as a
supplement to the current ratio in analysing liquidity. From the above graph it is very
clear that quick ratio of the company is too high( highest in the year 2015-16 and
2016-17 with 8.3:1) than the average industry ratio, which means the company is
investing too many resources in the working capital of the business which may more
profitably be used elsewhere.
Working capital turnover ratio is net sales to working capital. It shows how efficiently
the company uses its working capital. It is calculated using the below formulas
𝐒𝐚𝐥𝐞𝐬
𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨 =
𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐜𝐚𝐩𝐢𝐭𝐚𝐥
TABLE 8. 3
SHOWING WORKING CAPITAL TURNOVER RATIO
(Amount in Rs Million)
WC Turnover
Year Net Sales Working Capital Ratio
2013-14 3,080M 1,325M 2.3
2014-15 3,210M 1,915M 1.7
2015-16 3,670M 2,297M 1.6
2016-17 3,493M 2,730M 1.3
2017-18 3,181M 1,860M 1.7
Analysis:
From the above table it is can be understood that the working capital turnover ratio
has decreased from 2.3 in the year to 2013-14 to 1.7 in the year2014-15. It further
decreases to 1.6 and 1.3 in the following further years and then it increases to 1.7 in
the year 2017-18.
GRAPH 8. 3
SHOWING WORKING CAPITAL TURNOVER RATIO
2,730M
1.7 1.6 1.7
2,500M 2,297M
1.5
Ratios
1,915M 1.3 1,860M
2,000M
1,000M
0.5
500M
M 0.0
2013-14 2014-15 2015-16 2016-17 2017-18
Net Sales 3,080M 3,210M 3,670M 3,493M 3,181M
Working Capital 1,325M 1,915M 2,297M 2,730M 1,860M
WC Turnover Ratio 2.3 1.7 1.6 1.3 1.7
Years
Interpretation:
A high working capital ratio shows a company is running smoothly and has a limited
need for additional funding giving the business flexibility to spend capital on expansion
or inventory. However a very high turnover of working capital indicates that business
doesn’t have enough capital to support its sales growth. Here the graph doesn’t show
the very high working capital turnover ratio but high which is ideal for the company i.e.
2.3 in the year 2013-14 and 1.7 in the year 2014-15 and 2017-18.
Fixed Asset Turnover is one of the efficiency ratio that indicates how well the company
is using its fixed assets to generate sales.
𝐍𝐞𝐭 𝐒𝐚𝐥𝐞𝐬
𝐅𝐢𝐱𝐞𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨 =
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐟𝐢𝐱𝐞𝐝 𝐚𝐬𝐬𝐞𝐭𝐬
TABLE 8. 4
SHOWING FIXED ASSET TURNOVER RATIO
(Amount in Rs Million)
Fixed Assets turnover
Year Sales Fixed Assets Ratio
2013-14 3,080M 1,477M 2.1
2014-15 3,210M 1,384M 2.3
2015-16 3,670M 1,393M 2.6
2016-17 3,493M 1,481M 2.4
2017-18 3,181M 1,436M 2.2
Analysis:
From the above table it is understood that the fixed assets turnover ratio increases
from 2.1 in the year 2013-14 to 2.3 and then to 2.6 in the year 2014-15 and 2015-16
respectively. Further this turnover ratio keeps decreasing in the following respective
year to 2.4 and 2.2
GRAPH 8. 4
SHOWING FIXED ASSET TURNOVER RATIO
2.3 2.2
2.1 2.0
2,500M
Ratios
2,000M 1.5
1,477M 1,384M 1,393M 1,481M 1,436M
1,500M
1.0
1,000M
0.5
500M
M 0.0
2013-14 2014-15 2015-16 2016-17 2017-18
Sales 3,080M 3,210M 3,670M 3,493M 3,181M
Fixed assets 1,477M 1,384M 1,393M 1,481M 1,436M
Fixed Assets turnover Ratio 2.1 2.3 2.6 2.4 2.2
Years
Interpretation:
This ratio measures the efficiency of assets used. This ratio is very much important for
manufacturing companies like PepsiCo as it not only uses current assets but also fixes
assets in producing its sales. Higher ratio indicates that the fixed assets are efficiently
used and business has less money tied up in fixed assets. A declining ratio may
indicate that the business is over-invested in plant, equipment, or other fixed assets. In
the above graph we can understand that fixed assets turnover ratio has increased
from 2.1 in the year 2013-14 to 2.6 in the year 2015-16 showing a positive sign, but
thereafter it continuously decreases to 2.2 in the year 2017-18 which is really not a
good sign for the company.
TABLE 8. 5
SHOWING DEBTORS TURNOVER RATIO
(Amount in Rs Million)
Year Sales Avg debtors Debtors Turnover Ratio
2013-14 3,080M 2,108M 1.5
2014-15 3,210M 2,721M 1.2
2015-16 3,670M 3,074M 1.2
2016-17 3,493M 3,499M 1.0
2017-18 3,181M 2,609M 1.2
Analysis:
The table shows the decrease in the debtor’s turnover ratio from 1.5 in the year 2013-
14 to 1.2 in the next two consecutive years. Further the ratio shows the same
decreasing trend and decreases to 1 in the year 2016-17 and then slightly increases
to 1.2 in the year 2017-18.
GRAPH 8. 5
SHOWING DEBTORS TURNOVER RATIO
3,000M 1.2
2,721M 1.0 2,609…
2,500M 1.0
2,108M
Ratios
2,000M 0.8
1,500M 0.6
1,000M 0.4
500M 0.2
M 0.0
2013-14 2014-15 2015-16 2016-17 2017-18
Sales 3,080M 3,210M 3,670M 3,493M 3,181M
Avg debtors 2,108M 2,721M 3,074M 3,499M 2,609M
Debtors Turnover Ratio 1.5 1.2 1.2 1.0 1.2
Years
Interpretation:
It is an efficiency ratio used to see how many times receivables accounts have been
collected during a year. From the graph it is understood that debtors turnover ratio is
high when compared to other years in the year 2013-14 i.e. 1.5 indicating that the firm
is quite efficient in collecting the account receivables. On the other side, it keeps
decreasing and reaches the least in the year 2016-17 with ratio 1.0, a lower debtor’s
turnover is not good for a company and there is always a risk of not receiving the due
amount. Further a small increase in the ratio has been seen in the following year.
Since company needs to decide how much credit term it should provide, it needs to
know its collection period. Collection period may differ from company to company.
𝟑𝟔𝟓 𝐝𝐚𝐲𝐬
𝑨𝐯𝐞𝐫𝐚𝐠𝐞 𝐃𝐞𝐛𝐭 𝐂𝐨𝐥𝐥𝐞𝐜𝐭𝐢𝐨𝐧 𝐏𝐞𝐫𝐢𝐨𝐝 =
𝐃𝐞𝐛𝐭𝐨𝐫𝐬 𝐓𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐑𝐚𝐭𝐢𝐨
TABLE 8. 6
SHOWING DEBT COLLECTION PERIOD
(Amount in Rs Million)
No of days in a Debtors Turnover Debt collection
Year year Ratio Period
2013-14 365 1.461 250
2014-15 365 1.180 309
2015-16 365 1.194 306
2016-17 365 0.998 366
2017-18 365 1.220 299
Analysis:
From the above table it could be understood that the debtors turnover ratio is very
high all the years .Though it increases from 250 days in the year 2013-14 to 309 days
which further increases to 366 days in the year 2016-17. Then it shows a slight
decrease to 299 days in the year 2017-18
GRAPH 8. 6
SHOWING DEBT COLLECTION PERIOD
200 0.800
150 0.600
100 0.400
50 0.200
0 0.000
2013-14 2014-15 2015-16 2016-17 2017-18
Debt collection Period 250 309 306 366 299
Debtors Turnover Ratio 1.461 1.180 1.194 0.998 1.220
Year
Interpretation:
It indicates the time taken by the company to collect trade debts, the result of credit
sales. A reducing period of time indicates the increasing efficiency. But unfortunately
the company has got a very large debt collect period which is really not good for the
company. Especially in the year 2016-17 the debt collection period is 365 days i.e. a
year which is very bad. This high collection period indicates that their customers are
not prompt in paying their bills. However it also indicates more problems or
possibilities that may negatively affect the business.
Inventory to total assets ratio shows the portion of assets which is tied up in inventory.
A low inventory to total assets ratio is indicates that the performance and profitability
of the company is good and satisfactory. It is calculated using
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐨 𝐓𝐨𝐭𝐚𝐥 𝐚𝐬𝐬𝐞𝐭𝐬 𝐑𝐚𝐭𝐢𝐨 =
𝐓𝐨𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭𝐬
TABLE 8. 7
SHOWING INVENTORY TO TOTAL ASSETS RATIO
(Amount in Rs Million)
Inventory to Total
Year Avg Inventory Total assets Assets Ratio
2013-14 297M 3,129M 0.10
2014-15 391M 3,651M 0.11
2015-16 380M 3,953M 0.10
2016-17 371M 4,535M 0.08
2017-18 329M 3,658M 0.09
Analysis:
From the above table it is understood that the Inventory to total assets ratio in the year
2013-14 is 0.10 and in the year 2014-15 it is 0.11 and again it decreases to 0.10, 0.08
and 0.09 in the further respective years of 2015-16, 2016-17 and 2017-18
GRAPH 8. 7
SHOWING INVENTORY TO TOTAL ASSETS RATIO
Ratios
2,500M 0.06
2,000M
0.04
1,500M
1,000M
0.02
297M 391M 380M 371M 329M
500M
M 0.00
2013-14 2014-15 2015-16 2016-17 2017-18
Avg Inventory 297M 391M 380M 371M 329M
Total assets 3,129M 3,651M 3,953M 4,535M 3,658M
Inventory to Total Assets Ratio 0.10 0.11 0.10 0.08 0.09
Year
Interpretation:
From the above graph it is understood that that the inventory to total assets ratio in the
year 2013-14 is 0.10 and further it slightly increases to 0.11 indicating a slightly
decreased demand in the year 2014-15 when compared to the previous year. But the
inventory to total assets ratio keeps decreasing in the further years of 2015-16 and
2016-17 from 0.11 to 0.10 and 0.08. And again in the year 2017-18 it shows a slight
increase to 0.09.
TABLE 8. 8
SHOWING INVENTORY TURNOVER RATIO
(Amount in Rs Million)
Inventory Turnover
Year Sales Avg Inventory Ratio
2013-14 3,080M 297M 10.4
2014-15 3,210M 391M 8.2
2015-16 3,670M 380M 9.6
2016-17 3,493M 371M 9.4
2017-18 3,181M 329M 9.7
Analysis:
The above table shows that the Inventory turnover ratio in 2013-14 is 10.4 times then
decreases to 8.2 in 2014-15, which thereafter shows no much fluctuations with 9.6,
9.4 and 9.7 times in respective further years.
GRAPH 8. 8
SHOWING INVENTORY TURNOVER RATIO
Ratio
2,000M 6.0
1,500M
4.0
1,000M
297M 391M 380M 371M 329M 2.0
500M
M 0.0
2013-14 2014-15 2015-16 2016-17 2017-18
Sales 3,080M 3,210M 3,670M 3,493M 3,181M
Avg Inventory 297M 391M 380M 371M 329M
Inventory Turnover Ratio 10.4 8.2 9.6 9.4 9.7
Year
Interpretation:
A high inventory or stock turnover velocity indicates efficient management of
inventory. From the above graph, inventory turnover ratio, in the year 2013-14 is 10.4
which means that the inventory has been sold or turned approximately over 10 times
in that year. Further the graph shows no much fluctuations. However the inventory
turnover has been reduced in the current year when compared to 2013-14.
Inventory holding period is also known popularly as day’s inventory holding. This is the
period that the company actually takes in converting its inventories into sales
𝐍𝐨 𝐨𝐟 𝐝𝐚𝐲𝐬 𝐢𝐧 𝐚 𝐲𝐞𝐚𝐫
𝑰𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐡𝐨𝐥𝐝𝐢𝐧𝐠 𝐩𝐞𝐫𝐢𝐨𝐝 =
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐮𝐫𝐧𝐨𝐯𝐞𝐫 𝐫𝐚𝐭𝐢𝐨
TABLE 8. 9
SHOWING INVENTORY HOLDING PERIOD
(Amount in Rs Million)
Inventory Turnover Inventory Holding
Year Days Ratio Period
2013-14 365 10.4 35.2
2014-15 365 8.2 44.5
2015-16 365 9.6 37.8
2016-17 365 9.4 38.8
2017-18 365 9.7 37.8
Analysis:
The above table shows that the inventory holding period in the year 2013-14 is 35.2
days, whereas the same is 44.5 days in the year 2014-15 showing a great increase
there after which it decreases to 37.8 days, then it shows a similar trend in the next
two respective years i.e., 38.8 days in 2016-17 and 37.8 days in the year 2017-18.
GRAPH 8. 9
SHOWING INVENTORY HOLDING PERIOD
30.0
25.0 6.0
20.0
4.0
15.0
10.0
2.0
5.0
0.0 0.0
2013-14 2014-15 2015-16 2016-17 2017-18
Inventory Holding Period 35.2 44.5 37.8 38.8 37.8
Inventory Turnover Ratio 10.4 8.2 9.6 9.4 9.7
Year
Interpretation:
Inventory holding period indicates the number of days the inventory is being held
within the company, If the inventory holding period of a company is low, it means that
company has been effectively using its inventory. High inventory holding period means
that the company has failed to convert its inventory into sale. From the above graph it
can be understood that in the year 2013-14 the inventory holding period is low (35.2
days) when compared to other years indicating the efficient use of inventory by the
company. But in the year 2014-15 inventory period was high showing that the
company is not been able to translate its inventory into sales.
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲
𝐈𝐧𝐯𝐞𝐧𝐭𝐨𝐫𝐲 𝐭𝐨 𝐰𝐨𝐫𝐤𝐢𝐧𝐠 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐫𝐚𝐭𝐢𝐨 =
𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐜𝐚𝐩𝐢𝐭𝐚𝐥
TABLE 8. 10
SHOWING INVENTORY TO WORKING CAPITAL RATIO
(Amount in Rs Million)
Year Avg Inventory Working Capital Inventory to WC Ratio
2013-14 297M 1,325M 0.22
2014-15 391M 1,915M 0.20
2015-16 380M 2,297M 0.17
2016-17 371M 2,730M 0.14
2017-18 329M 1,860M 0.18
Analysis:
The table shows a decrease of inventory to working capital ratio from 0.22 in the year
to 0.20 in the year 2014-15. In the further decreases in the years 2014-15 and 2015-
16 to 0.17 and 0.14 respectively. Then it shows a slight increase to 0.18 in the year
2017-18.
GRAPH 8. 10
SHOWING INVENTORY TO WORKING CAPITAL RATIO
Inventory to WC Ratio
3,000M 2,730M 0.25
0.22
2,500M 2,297M
Amount in Rs Million
0.20 0.20
1,915M 0.18
2,000M 0.17 1,860M
0.15
Ratio
1,325M 0.14
1,500M
0.10
1,000M
M 0.00
2013-14 2014-15 2015-16 2016-17 2017-18
Avg Inventory 297M 391M 380M 371M 329M
Working Capital 1,325M 1,915M 2,297M 2,730M 1,860M
Inventory to WC Ratio 0.22 0.20 0.17 0.14 0.18
Year
Interpretation:
From the financial point of view, the inventory value should not exceed amount of
working capital. From the graph it can be clearly known that inventory never exceeded
the working capital amount. Lower the ratio is, more is the liquidity of the firm. From
the graph it is understood that the ratio is lower in all the years, with lowest of 0.14 in
the year 2016-17.
Net profit ratio (NP ratio) is the very popular and most widely used profitability ratio
that shows relationship between net profit after tax and net sales. It is the percentage
of net profit after tax to the net sales
TABLE 8. 11
SHOWING NET PROFIT RATIO
(Amount in Rs Million)
Net Profit Ratio
Year Net Profit Sales (%)
2013-14 825M 3,080M 26.79
2014-15 801M 3,210M 24.96
2015-16 723M 3,670M 19.69
2016-17 785M 3,493M 22.46
2017-18 751M 3,181M 23.60
Analysis:
From the table it is understood that the net profit ratio of the firm decreases from 0.27
in the year 2013-14 to 0.25 in the year 2014-15, which further shows the same
decrease to 0.20 in the year 2015-16. Further the net profit ratio keeps increasing to
0.22 and 0.24 in the years of 2016-17 and 2017-18 respectively.
GRAPH 8. 11
SHOWING NET PROFIT RATIO
23.60
22.46 20.00
Percentage
2,500M 19.69
2,000M 15.00
1,500M
10.00
1,000M 825M 801M 723M 785M 751M
5.00
500M
M 0.00
2013-14 2014-15 2015-16 2016-17 2017-18
Net Profit 825M 801M 723M 785M 751M
Sales 3,080M 3,210M 3,670M 3,493M 3,181M
Net Profit Ratio 26.79 24.96 19.69 22.46 23.60
Year
Interpretation:
Higher ratio indicates the improved efficiency of the concern. From the above it can be
understood that there is an improved efficiency. In the year 2013-14 it the highest with
26.79% and it is lowest in the year 2015-16 i.e. 19.69%
% of Total
Category ACV
A 70%
B 20%
C 10%
The rest 10% i.e. from 74 to 150 items form the "Group C"
41,64,667.98
Exact % of AVC of (A+B) items= (
46,24,638.15
) ∗ 100 = 90.06%
% of group B Items= 90.08 - 69.99 =20.07%
% of group C Items= 100 - 90.05=9.95%
% of ACV % of Items
69.99 20
90.06 49
100.00 100
GRAPH 8. 12
ABC ANALYSIS
ABC Analysis
100.00
90.00
80.00
Percentage of ACV
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
0 10 20 30 40 50 60 70 80 90 100
Percentage of Items
TABLE 8. 13
LAST IN FIRST OUT
TABLE 8. 14
WEIGHTED AVERAGE COST METHOD
/17
30/11 823 10 6,878.90 68,789.01 13 7,342.02 95,446.32
/17
06/01 823 1 7,342.00 7342 12 7,342.02 88,104.30
/18
09/01 043 60 485 29,100.00 60 485 29,100.00
/18
22/01 243 12 546.00 6,552.00 20 537.60 10,752.00
/18
24/01 243 2 537.60 1,075.20 18 537.60 9,676.80
/18
29/01 823 1 7,342.02 7342.02 11 7,342.02 80,762.27
/18
12/03 823 1 7,342.02 7342.02 10 7,342.02 73,420.25
/18
03/04 823 1 7,342.02 7342.02 9 7,342.02 66,078.22
/18
05/04 823 1 7,342.02 7342.02 8 7,342.02 58,736.20
/18
06/04 823 2 7,342.02 14684.05 6 7,342.02 44,052.15
/18
14/04 243 4 702.00 2,808.00 22 567.49 12,484.80
/18
21/04 823 3 7,342.02 22026.07 3 7,342.02 22,026.07
/18
28/04 823 1 7,342.02 7342.02 2 7,342.02 14,684.05
/18
17/05 823 1 7,342.02 7342.02 1 7,342.02 7,342.02
/18
18/05 823 30 6,734.25 2,02,027.50 31 6,753.86 2,09,369.52
/18
22/05 823 2 6,753.86 13507.71 29 6,753.86 1,95,861.81
/18
30/05 823 1 6,753.86 6753.86 28 6,753.86 1,89,107.96
/18
Here the prices are decreasing hence the ending inventory value will me more in
LIFO.
i.e. LIFO> WAC>FIFO
Total Cost of Issues will be more in FIFO. i.e. FIFO> WAC> LIFO
Hence the company should follow LIFO method which increases the gross profit of
the company.
CHAPTER 9
Findings:
OBJECTIVE 2
1. It is found that the company has got sufficient or enough current assets to meet
all of its liabilities indicated by an average current ratio of 7.32, which is much
higher than the standard ratio.
2. The average quick ratio of the company is 6.24 which is too high than the
average industry ratio indicating the firm’s ability to meet its current liabilities
using its most liquid assets.
3. It is found that the average working capital turnover ratio is 1.72 which is not
very high but high which is ideal for the company indicating the firm’s smooth
running.
4. The average fixed assets ratio is 2.32 indicating the efficiency with which the
fixed assets are used.
5. Average debtor’s turnover ratio which shows how many times the accounts
receivables have been collected during a year is 1.22
6. The company has got a very large average debt collect period of 306 days
which is really not a good indication for the company.
7. The average net profit ratio of the company is 23.5%
OBJECTIVE 1
8. Average inventory to total asset ratio of the company is 0.09
9. The average inventory turnover ratio is 9.46 indicating that the company has
turned or sold its inventory nearly about 9 times in the year
10. The inventory holding period is about approximately 39 days
11. The average inventory to Working Capital ratio is 0.18.
OBJECTIVE 3
12. The company is using ABC analysis as a tool of inventory management
13. The value of closing balance in LIFO method of inventory valuation is more
when compared to WAC and FIFO methods
Suggestions:
1. The average quick ratio of the company is 6.24 which is too high than the
average industry ratio, indicating that the company is investing too many of its
resources in the working capital which may more profitably be used somewhere
else. Thus the company should try to decrease its quick ratio.
2. The decreasing fixed asset turnover ratio trend indicates that the company is
over investing in the plant and other fixed assets. Thus the company should
increase its fixed asset ratio to improve its efficiency in using its fixed assets.
3. The average debt collection period of the company is 309 days, which is too
high and it may affect the business negatively. Thus the company should
increase its efforts in collection of receivables.
4. The average inventory holding period is 39 days. The company can try to
reduce this which increases the ability of the company to convert its inventory
to sales.
5. The net profit ratio is decreased in the year 2017-18, when compared to the
year 2013-14. Thus the company should make all those efforts to increase its
sales, so that the profit of the company can be increased.
6. The ending inventory value will me more in LIFO method of inventory valuation,
thus the company should follow the LIFO method which increases the
profitability of the firm.
CHAPTER 10
CONCLUSION AND LEARNING OUTCOMES
Conclusion:
Inventory management every much essential for any company, having inventories.
Inventory management being one of the elements of working capital management is
very important. The inventory turnover ratio, which shows the success of business in
inventory management, should be positively associated with return on assets, profit
margin etc.
From the analysis made using the past five year’s data given by the company, it can
be concluded that financial ratios like current ratios, quick ratios, total assets turnover
ratio, net profit all are in favour to the company. This indicates that the overall financial
position is satisfactory.
In this study the existing inventory management situation is analysed, and it is found
that the company uses ABC analysis as one of the tool of inventory management,
which helps in controlling. Further various inventory valuation methods are analysed
which is an important parameter in the cost management function of the firm and it is
found that, since the prices are decreasing , the ending inventory value will me more
in LIFO method of valuation and the company is advised to follow FIFO method of
valuation which increases the profitability of the company
Learning Outcomes
1. Exposure to the actual numbers in the industry
2. Understanding the importance of financial ratios in company’s performance
analysis.
3. Understanding about the various inventory management and controlling
procedures followed and their impact on the profitability of the company
4. Thus helped in understanding the weak and strong areas of the company
Books referred
a. “Accounting for Managers” by S.P Jain, K.L Narang, Simmi Agarwal, Kalyani
Publications
b. R. Narayanaswamy, “Financial Accounting” 6th Edition PHI Learning Private
Limited, Delhi
c. Prasanna Chandra “Financial Management” Mc Graw Hill Publish Home, New
Delhi
Websites
a. www.wallstreetmojo.com
b. efinancemanagement.com
c. www.pepsico.com
d. www.ukessays.com
e. www.investopedia.com