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iimt group ofcollege
2012
Project Report on
inventory managementBy- Shubhra Sharma
Jindal and steel privatelimited
B A L K U D R A , P A T R A T U , R A M G R A H J H A R K H A N D
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n
A PROJECT ON
INVENTORY MANAGMENT
JINDAL STEEL & POWER LIMITED
(BALKUDRA, PATRATU, RAMGARH, JHARKHAND-
829143)BY
MS. SHUBHRA SHRAMAM.B.A
SESSION-2011-13
Submitted in Partial fulfillment for the award of
degree of Post Graduate Programmed in
IIMT GROUP OF
COLLEGE MEERUT (UP)
IIMT GROUP OF COLLEGE
MEERUT (U.P.)250001
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CERTIFICATE
This is to certify that the summer internship project entitled on
MANAGEMENT OF INVENTORY at Jindal Steel &
Power Limited, Patratu has been prepared by Ms. Shubhra
kumari in partial fulfillment of the requirements for the MBA in
Finance at IIMT group of college, Meerut.
The study embodies data collected, analyzed and compiled by the
researcher under the guidance of the undersigned guide of the
institute and thereby approved as indicating the proficiency of the
researcher.
Mr.Vivek Agarwal
Sr. DGM- F&A, JSPL, Patratu
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DECLARATION
I hereby declare that the project report entitled MANAGENENT OF
INVENTORY, at Jindal Steel & Power Limited has been prepared by me
during the period 26TH OF JUNE 2012 to 5th JULY, 2012. Under the
guidance of MR. VIVEK AGARWAL (Sr. DGM- F&A, JSPL).
I also declare that the project will not be submitted to any other University
or Institute for the award of any other degree or diploma in future.
Shubhra kumari
DATE:
PLACE:
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A c k n o w l e d g e m ent
I have to thank IIMT GROUP OF COLLEGE giving me an opportunity to
undertake my project work and for giving me knowledge in the field of
finance during my two years course.
I would like to thanks Mr. VIVEK AGARWAL, Sr. DGM- F&A - Finance for
their valuable guidance and support in completion of live project at the Jindal
steel & Power Ltd. I would express my sincere thanks to all the staff
members of Jindal Steel & Power Ltd, without their support, this project
would not have been a success.
Last but not the least I would like to thank those person whose encouragement
and ideas enriched my project.
Shubhra kumari
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CONTENTS
7
s.no.
TITLE page no.
1 About JSPL 6
2 The house of JSPL 7
3 company profile 8
4 Map of JSPL location in India 10
5 Map of JSPL location in world 11
6 Group Company 12
7 Product of Company 14
8 Introduction of inventory management 18
9 Technique of inventory management 22
10 JSPL patratu plant 26
11 Production process at patratu 28
12 Inventory management at JSPL patratu 30
13 Statement of P&L 32
14 Balance sheet as at 31st mar 33
15 Analysis of profitability 34
16 Test of solvency 35
17 Activity ratio 36
18 Analysis and graphical representation of all ratio 37
19 finding and suggestion 45
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Objective of study
This project was undertaken to analyze the inventory management, working capital
management of the company and to reduce down their problems and finding the solutions
with respect to the inventory management of the company.
The objective of the study is to provide the solutions for reducing down the duration of the
operating cycle, to analyze the working capital position of the company and the liquidity
position, finding out the problems that the company is facing in managing the inventory and
showing trend of particular ratios in future and at same suggesting them to solve their
problems.
To study the inventory management.
To see how the day-to-day operations of the company takes place.
To compare the performance of W/C for a particular year with previous years.
To assess Liquidity position, Long term solvency, operational efficiency, and
overall profitability of JSPL.
Providing suggestions to solve the problems of the company.
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THE H O USE O F
J I NDALS
Late shri o.p. Jindal founding chairmain
Mr.Naveen Jindal, CMD
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JI N D A L S T EE L & P OWER L TD
Company Profile:
Mr. O.P. Jindal promoted JSPL as Orbit Steel Private Limited(OSPL) in 1979. OSPL became a public limited company in 1998 and its
name was changed to the current JSPL (Jindal Steel & Power Limited)
Jindal Steel & Power Limited (JSPL), a O.P. Jindal Group Company, was
formed by hiving off the Raigarh and Raipur facilities of Jindal Stainless
Limited into a separate Company as part of a scheme of arrangement,
w.e.f. April 2, 1998.
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The Company has plant at Raigarh (Chhattisgarh) for manufacture of
sponge iron with an installed capacity of 13,70,000 tons per annum, & it is
the only sponge iron producer in the country with its own raw material
source and power generation making it one of the most cost effective
producers of sponge iron in the country. Power Generation plants with
a capacity of 290 MW, Steel Melting plant with a capacity of
24,00,000 TPA with Blast Furnace of 250,000 TPA capacity
International collaboration: JSPL produces rails, H-beams, columns and
sheet piles with JFE's technical services assistance.JSPL has entered into
technical services assistance agreement with JFE (earlier known as NKK
Corporation), Japan for technology transfer to produce superior quality,
world s longest rails of 120m finished length, along with Parallel Flange
Beams, Columns and Sheet Piles for the first time in the country. This
technical collaboration shall enable production of long rails requiring far
less joints in tracks, ushering a new era in safer rail-travel and makingintroduction of fast trains in India a reality.
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Map of JSPL Locations in India
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Map Of JSPL Locations In World
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Grou
p
Companies1,000 MW O. P. Jindal Super Thermal power plant at Tamnar, Chhattisgarh
Jindal petroleum
Exploration activity in process at Georgia
Jindal Petroleum Limited
As part of its diversification process, in 2008, the Group forayed into the oil and
gas sector, operating under Jindal Petroleum Limited. The organization has
acquired five oil and gas blocks in Georgia. Extensive exploration activities are
in progress across all the five blocks in Georgia. The major exploration activities
comprise: acquisition, processing and interpretation of 388 sq. km of 3D seismic
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data by Global Geophysical Services (USA), Weinman Geosciences (USA) and
RPS Energy (UK). Based on the interpretation of data, locations for three
exploratory wells have already been finalized. Drilling of exploratory wells is
expected to commence from the third quarter of 2011-12.
jindal cement
Jindal Cement plant at Raigarh, Chhattisgarh
Jindal Cement Ltd.
JSPL has diversified its business operations and set up a slag and fly ash
cement plant at Raigarh, Chhattisgarh in order to utilise the waste from steel
making. Phase I consisted of constructing a grinding unit of 0.5 MTPA,
whereas Phase II consisted of setting up a 2 MTPA integrated cement plant.
The cement plant was envisaged to manage solid waste generated from the
power and steel sector. The utilisation of waste from the blast furnace (slag) is
being value-added by converting it into cement, commonly known as PortlandSlag Cement (PSC). The commercial production started from the 0.5 MTPA
grinding unit in 2010. It is marketing cement under the brand name of Jindal
Cement. The organisation is also making a special product --- Jindal Global
Road Stabiliser (JGRS) --- for which it is the first and the only manufacturer
in India. A pioneering product of innovation, JGRS was developed to stabilise
a wide spectrum.
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Companys Products
Rail:
Giving impetus to the significant rail sector, JSPL has pioneered the
manufacturing of 121 metre long track rails in the Indian sub-continent.
The world s longest track rails are a testimony of JSPL s manufacturing
capabilities where continuous innovation is a practice rather than an exception.
What differentiates JSPL s 121 m long rails from others is that there is adrastic reduction in the welded joints, providing enhanced safety, cost
reduction and travel comfort. Our products are subjected to stringent quality
norms and can therefore match all international standards.
Parallel Flange Sections:
JSPL pioneered the production of medium and large size Hot Rolled Parallel
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Flange Beams and Column Sections (H-Beams) in India. The beams are cost
effective and provide design-flexibility
Plates & Coils
JSPL is equipped with India's first 'one of a kind' state- of- the -art plate mill
that produces plates and coils of 3.5 and 3 metres width, respectively, for the
first time in the private sector.
JSPL epitomizes its performance-oriented service by producing plates ranging
from 7-120mm in thickness & widths of 1500 -3500 mm and coils varying in
thickness of 7 -25 mm and widths of 1500 - 3000 mm. The products are of
premium quality, owing to its sound steel refining properties. The total
production capacity of the plant is 1 MTPA. JSPL adheres to stringent
international standards and the steel grades are manufactured under various
specifications like EN, DNV, BS, ASTM, JIS, LRS, ABS, etc
Power:
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order to contribute significantly to India's growing need for power we started
power generation over a decade back. In the beginning it was a captive
power facility using waste heat from the rotary kiln boilers facility using
waste heat from the rotary kiln boilers and the coal rejects of the washery.
Over the years how subsidiary Jindal Power Ltd. (JPL) have come up in a
ever, Jindal Steel and Power Ltd (JSPL) and its big way and are producing
about 1400 MW power through both captive and commercial facilities.
Sponge iron:
JSPL has world's largest coal-based sponge iron manufacturing facility and
stands out as the market leader in coal-based sponge iron industry within
India. Efficient backward integration has rendered JSPL as the only sponge
iron manufacturer in the country, with its own captive raw material resourcesand power generation capacity helping the company to monitorboth price
and quality of its products.
Semi-Finished Products
JSPL has a capacity to produce about three million tonne per annum of
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semis which are primarily used for captive use in JSPLs0.75 million tonne
per annum capacity Rail & Universal Beam Mill and 1.0 million tonne per
annum capacity Plate & Stackle Mill.
Wire rods:
In line with our corporate philosophy of continuing efforts to expand
our product range to offer a complete product basket to the customer, JSPL
now offers Wire Rods from its first unit of 6 Million Tonne Steel Plant at
Patratu, Jharkhand.
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Inventory Management
Introduction of inventory
The dictionary meaning of inventory is stock of goods. The word inventory is
understood differently by various authors. In accounting language it may mean stock
of finished goods only.
In a manufacturing concern, it may include raw material, work in
process, and finished goods only.
Elements of inventory
Inventory includes the following things:
Raw material: It includes direct material used in the manufacture of a
product.
E.g- if a company manufactured hammers, then steel would be its primary direct
material.
Work-in-progress: Include partly finished goods and material held between
manufacturing stages. It can also be stated that those raw material which are
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used in production process but are not finally converted into final product are
work-in-process.
Consumable: consumable are products that consumers buy recurrently, i.e,
item which get used-up or discarded.
For example- consumable office supplies are such product as paper, pens, file
folders, computer disks, or ink cartridges. Not include capital goods such as
computer, fax machines.
Finished goods: the good ready for sale or distribution comes under this
class.
Store and spares: this includes those products, which are accessories to main
products produced for the purpose of sale. For example- bolt, nuts, screws,etc.
Motives of holding inventorie sThere are three main motive of holding inventories:
1) Transaction motive: every firm has to maintain some level of inventory to
meet day to day requirements of sales, production process, customer demand etc.
This motive makes the firm to keep the inventory of finished goods as well as
raw material.
2) Precautionary motive: a firm should keep some inventory for unforeseen
circumstances also.
For e.g. - the fresh supply of raw material may not reach the factory due to strike
by the transporters or due to natural calamities in a particular areas.
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3) Speculative motive: the firm may be tempted to keep some inventory in order
to capitalize an opportunity to make profit e.g. sufficient level of inventory may
help the firm to earn extra profit in case of expected shortage in the market.
Types of inventory
1.Movement inventories: movement inventories are also called transit orpipeline inventory. Transit inventories result from the need to
transport items or material from one location to another, and
from the fact that there is some transportation time involved in
getting from one location to another.
2. Buffer inventory: buffer inventories are held to protect against the
uncertainties of demand and supply. These inventory are oftenreferred to as safety stock.
3. Anticipation inventories: anticipation inventory are held for the reason that
a future demand for the product is anticipated. E.g. fans while summers are
approaching, or the pilling up of inventory stock when a strike is on the
anvil, are all example of anticipation inventory.
4. Cycle inventory: It occurs because the one or more stages in the operation are
notable to supply all the goods they produce simultaneously.
5. Decoupling inventories: the idea of decoupling inventories is to decouple
different parts of the production system. As we can observe easily, different
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machine and people normally work at different rate, some slower and some
faster.
1. Meaning of inventory management
Inventory
management is primarily about specifying the size and placement of stocked
goods. Inventory management is required at different locations within a facility
or within multiple locations of a supply network to protect the regular and
planned course of production against the random disturbance of running out of
materials or goods.
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Inventories consist of raw materials, stores, spares, packing materials, coal,
petroleum products, works-in-progress and finished products in stock either at
the factory or deposits.
Successful inventory management involves creating a purchasing planthat will ensure that items are available when they are needed (but that neither
too much nor too little is purchased) and keeping track of existing inventory
and its use. Two common inventory-management strategies are the just-in-
time method, where companies plan to receive items as they are needed rather
than maintaining high inventory levels, and materials requirement planning,
which schedules material deliveries based on sales forecasts.
Objective of inventory management
The objective of inventory management may be discussed under two heads:
1. Operation objective: it refers to material and other parts which areavailable in sufficient quantity. It include.
i. Availability of materials: the first and foremost objective of
inventory management is to make all type of material available at all
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times whenever they are needed by the production departments so that
the production may not be held up for want of materials.
ii. Minimising the wastage: inventory control is essential to minimize
the wastage at all levels i.e. during its storage in the godown or at
factory. normal wastage should only be permitted.
iii.Better sevice to customer: in order to meet the demand of customer, itis the responsibility of concern to produce sufficient stock of finished
goods to execute the order received. It meas flow of production should
be maintained.
iv. Control of production level: the concern may decide to increase or
decrease the production level in favourable time and the inventory may
be control accordingly.
v. Optimal level of inventory: proper control of inventories help the
managenenmt to procure material in time in order to run the plan
efficiently.
2. Financial objectives: it means that investment in inventories mustnot remain idle and minimum capital must be locked in it. It include
i. Economy in purchasing : proper inventory control brings certain
advantage and economic in purchasing in raw material, it should be
purchase in bulk quantity.
ii. Reasonable price: management should ensure the supply of raw
material at low price but without scarifying quality of it.
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iii. Minimising cost: minimising inventory cost such as handling,ordering and carrying cost etc, is one of the main objective of
inventory management. Financial management should help
controlling the inventory cost in a way that reduces the cost per unit
of inventory. Inventory cost are the part of total cost of production
hence cost of production can also a minimised by controlling the
inventory cost.
Techniques of inventory management
Following are the techniques use for inventory management.
A. EOQ(economic order quantity): according to EOQ model, optimal
investment in inventory is one where total cost of inventory comprising
carrying and acquisition cost will be minimum.
Economic order quantity is the order quantity that minimizes
total inventory holding costs and ordering costs. It is one of the oldest
classical production scheduling models.
Formula
.
Where,
Q= optimal order quantity
S= fixed cost per order (notper unit, typically cost of ordering and shipping
and handling. This is not the cost of goods)
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H= annual holding cost per unit (also known as carrying cost or storage cost)
(warehouse space, refrigeration, insurance, etc. usually not related to the unit
cost)
D= annual demand quantity
B. ABC (always better control): the materials are divided into a number of
categories for adopting a selective approach for material control. It is generally
seen that in manufacturing concern, a small percentage of item of itemcontribute a large percentage of value of consumption and a large percentage
of item of material contribute a small percentage of value.
Under ABC analysis, the materials are divided into three
categories i.e. A, B, and C. past experience has shown that almost 10% of the
items contributes to 70% of value consumption and this category is called A
category.
About 20% of the items contribute about 20% of valueconsumption and this is known as category B material. Category C covers
about 70% of item of materials, which contribute only 10% of value of
consumption. There may be some variation in different organisation and an
adjustment can be made in these percentages.
class No. of items % Value of Items %
A 10 70
B 20 20
C 70 10
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C. SDE (scarce difficult easily): this uses the criterion of the availability of
item. In this analysis,
S stand forscarce item which are in short supply,
D stand fordifficult item- meaning the items that might be available in theindigenous market but cant be procure easily,
E represent easily available item, from the local markets may be.
3. VED(vital essential desirable): VED analysis classified on the basis of
production process or other services.
V stand forvital item without which the production process would come toa standstill.
E stand foressential item whose stock out would affect the efficiency of
item.
D stand for desirable items which are required but do not immediately
cause a loss of production.
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4. HML(high medium low): this is similar to ABC analysis except that
in this analysis, the items are classified on tne basis of unit cost rather thantheir usage value.
The item are classified accordingly, as their cost per unit is,
H- high
M- medium
L- low
This type of analysis is useful for keeping control over materials
consumption at departmental level.
5. FSN(fast slow non-moving): based on consumption pattern of item, the
FSN classification calls for classification of item, as
F-fast
S-slow
N-non-moving
When analysis is carried out on the basis of rate of movement of material
in the store on the basis of consumption pattern of components, it is know
as the FSN analysis..
6. XYZ analysis: it is based on the closing inventory value of different
items.
Item whose value are high, are classed as X items.
Those with low investment in them are termed as Z item,
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Other items are the Y items whose inventory value is neither to high nor
too low.
JSPL PATRATU PLANTJSPL PATRATU PLANT
WRM
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WRM BRM
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BRMBRM
WWIREIRE RRODOD MMILLILL (0.6 MTPA C(0.6 MTPA CAPACITYAPACITY)) ATAT PPATRATUATRATU
DEDICATEDDEDICATEDTOTO NNATIONATIONONON 24.04.201024.04.2010
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PPRODUCTIONRODUCTIONPROCESSPROCESSATATPATRATUPATRATU
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Order by
Market
departme
nt
WRM BRM
Billetplanning
Grade defining for Grade defining for
Grad
e
Mild steel
E.g.- SAE 1008,
SAE 1018,
SAE 1010
High carbon
e.g.- HC 76/80,
HC81/85,
Grad
e
Length of billet-12m
e.g. Fe 500D
TMT bar(termomechanical
Rolling at
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Steps are:2. Receive order from customer by marketing department,
3. Marketing department send info to the PPC department,
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Convert in to wire
rod or TMT bar
Inform tomarketin
Send tologistic
Dispatch
toparty
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4. There is two plant i.e. WRM and BAR mill,
5. WRM produce wire rod and BAR mill produce TMT bar,
6. If order comes for wire rod than it comes under WRMdepartment and if order comes for TMT bar than itcomes under BAR mill department,
7. After receiving information billet planning is done byPCC department,
8. Under billet planning, grades are define,
9. According to grade, billet are convert into wire rod orTMT bar
10.Lastly TMT bar or wire rod as finished good dispatchedby logistic department.
Here billet is use as rawmaterial.
I n v ent o ry M a na g e ment at jspl patratu:
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Here the inventory is categorized in to:
(1) A B C analysis
(2) X Y Z analysis
1) ABC Analysis: - Items which constitutes to 70% of total consumption (of
stores and spares) value when arranged in descending order of consumption value
will be termed as A class items. Next 20% of total consumption value will be
termed as Bclass items and the rest 10% as the Cclass items.
2) XYZ Analysis: - Items which constitute top 70% of total stock of stores
and spares holding value when arranged in descending order of stock holding will
be termed a X class items next 20% of total stock holding value is Y class
items and the rest 10% as the Z class.
Higher than necessary stock levels tie up cash and cost more in insurance,accommodation costs and interest charges.
Four basic levels will need to be established for each line/category of stock.
There are the:
a) Maximum level achieved at the point a new order of stock is
physically received;
b) Minimum level the level at point just prior to delivery of anew order
(sometimes called buffer stocks those held for short term
emergencies);
c) Reorder level point at which a new order should be placed so that
stocks will not fall below the minimum level before delivery is
received; and the
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d) Reorder quantity or economic order quantity the quantity of stock,
which must be reordered to replenish the amount held at the point
delivery, arrives up to the maximum level.
Once these controls are implemented an efficient system of recording receipts and
issues is vital to exercise full control of inventories.
Inventory Management at JSPL patratu:
Inventory is stock of a company, which is manufacturing for sale and component
that make up the product. In managing inventories the objective of the companyis to determine an maintain optimum level of inventory investment. The
optimum level of inventory lies between two danger points of excess and
inadequate inventories.
Inventory is monitored differently for raw material, work in progress, finished
goods and spares. Monthly inventory report is sent to the finance department in
the corporate office. Obviously the inventory report is prepared at plant level.
Procurement Department gives the data of closing stock of raw materials, finishedgoods as well as the work in progress.
STATEMENTOFPROFITANDLOSS
JINDALSTEELANDPOWERLIMITED
Statement of profit & loss for the yearended 31st march 2012
In crore
Particulars for the year ended for the year ended
31st march 2012 31st march 2011
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Revenue
Revenue from operation (gross) 14,741.81 10,460.97
Less:exise duty 1407.86 886.80
Revenue from operation(net) 13333.95 9574.17Other income 184.48 143.16
Total revenue 13518.43 9717.33
Expenses:
Cost of raw materials consumed 4529.84 2730.35
Purchase of stock in trade 452.75 176.80
Change in inventory of FG, WIP, stock in trade (379.24) (333.45)
Employee benefit expense 385.44 277.78
Finance cost 536.77 285.00
Depreciation 867.19 687.77
Other expense 4282.67 3140.14 Total expense 10675.42 6964.39
Profit before tax 2843.01 2752.94
Tax expense
Current tax 542.88 525.49
Deferred tax 189.48 163.33
732.36 688.33
Profit for the year 2110.65 2064.12
BALANCESHEETASAT 31ST MARCH,2012
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A
nalysis of profitability of the year 31st
march 2012
1. Gross profit ratio =
=
= 21.03%
2. Expense ratio =
=
= 78.96%
3. Net profit ratio =
=
= 15.61%
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Test of solvency of the year 2012
1. Current ratio =
=
= 0.70:1
2. Acid test ratio =
=
= 0.46:1
3. Current assets to total asset ratio =
=
= 0.27 times
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Activity ratio for the year 2012
1. Inventory turnover ratio =
=
= 5.144 times
2. Inventory holding period =
=
= 69.984 days
3. Inventory to current asset ratio =
=
=20.33 times
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Analysis and graphical representation of
all ratio from 2006 to2012
Snapshot of Liquidity Ratios:
Liquidity ratios
For the year ended
Basic Ratios 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar 31 Mar
06 07 08 09 10 11 12
Current ratio 1.24:1 1.39:1 1.23:1 1.87:1 1.19:1 1.03:1 0.70:1
Acid test ratio 1 0.80:1 0.82:1 0.76:1 1.27:1 0.85:1 0.73:1 0.46:1
C urrent R a t i o :
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31-Mar-06 Current Assets: Current Liabilities 736.4:594.15 1.24:1
31-Mar-07 Current Assets: Current Liabilities 1403.56:1007.37 1.39:1
31-Mar-08 Current Assets: Current Liabilities 1698.51:1377.83 1.23:1
31-Mar-09 Current Assets: Current Liabilities 3060:1636.17 1.87:1
31-Mar-10 Current Assets: Current Liabilities 4216.08:3516.15 1.19:1
31-Mar-11 Current Assets: Current Liabilities 4603.1:4447.45 1.03:1
31-Mar-12 Current Assets: Current Liabilities 9101.2:12991.01 0.70:1
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Graphical representation of above data of current ratio
A
n
al
ysis:
The current ratio is the measure of whether a company has enough short-term
assets to cover its short-term debt and is index of strength of working capital.
Anything below 1 indicates negative W/C (working capital). While anything
over 2 means that the company is not investing excess assets. A ratio of
greater than one means that the firm has more current assets then current
claims.
Current ratio of the company has increased from 1.20 in Year 2004-05 to 1.39
in Year 2006-
07. Current Ratio of the company depicts that for every Re.1 worth of current
liability there are assets worth Re.1.39. The company has sufficient liquidity as
the ratio is increasing. This year there is an increase in ratio due to almost
double inventory level in current year in comparison with previous year.
But during the year 2009 there was steep increase in the current ratio of the
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company, not due to increase in the inventory level, but due to huge holding of
the cash which was recovered from the debtors & not invested during that year.
During last year i.e. 2012, the current ratio was found to be decreased because
of the increase in sundry debtors and decrease in current investments..
Suggestions
:
In order to increase current ratio current assets should be
increased. If we look into the detailed schedule of current assets then we
can find out that major portion of current assets is due to debtors and
inventories.
Company should make market survey and should decide first
that what should be the optimum amount of finished goods so that
major portion of it can be sold off in the market. This will help in
reducing the locking of funds or working capital in the finished goods.
A c i d Te s t R a t io :
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31-Mar-06 Current Assets - Stocks: Current Liabilities 478.85:594.15 0.80:1
31-Mar-07 Current Assets - Stocks: Current Liabilities 834.91:1007.37 0.82:1
31-Mar-08 Current Assets - Stocks: Current Liabilities 1056.07:1377.83 0.76:1
31-Mar-09 Current Assets - Stocks: Current Liabilities 2079.02: 1636.17 1.27:1
31-Mar-10 Current Assets - Stocks: Current Liabilities 3005.62: 3516.15 0.85:1
31-Mar-11 Current Assets - Stocks: Current Liabilities 3274.6: 4447.45 0.73:1
31-Mar-12 Current Assets - Stocks: Current Liabilities 6049.43:12991.01 0.46:1
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Graphical representation of above data of acid test ratio
Analysis:
Acid test ratio is a more rigorous test of liquidity than the current ratio and
when used in conjunction with it, gives a better picture of the firm sability to meet its short-term debts out of short-term assets. This ratio is
used to determine risk that is not detected by the Working Capital ratio. A
quick or liquid ratio of 1:1 is considered as satisfactory as the firm can
easily or readily meets all of its current liabilities. Here JSPL had its acid
test ratio around 0.8:1 during the year 2005-2008 which is constant from
last three years, which indicates company was not having satisfactory
financial position. But during the year 2009, the acid test ratio of the
company was highly excellent and was able to pay its current liabilities
which were followed by a decrease in the ratio. So it should be looked at
with extreme care and also implies that current assets are highly
dependent on inventory.
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C urrent As s et t o T o t a l A ss e ts R a t io :
Graphical representation of above data
50
Current Asset to Total Asset Ratio for the JSPL
31-Mar-05 599.82 / 2319.78 = 0.25 times
31-Mar-06 736.40 / 3250.62 = 0.22 times
31-Mar-07 1403.56 / 5250.55 = 0.26 times
31-Mar-08 1698.51 / 6783.63 = 0.25 times
31-Mar-09 3060 / 8456.31 = 0.36 times31-Mar-10 4216.08 / 12279.99 = 0.34 times
31-Mar-11 4603.1 / 17742.44 = 0.25 times
31-Mar-06 9101.24/33558.31 =0.27times
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Analysis:
If we analyse the structural health of working capital for JSPL, the
proportion of current assets to total assets has been showing decreasing trendas compared to financial year 2009 & 2010 , which shows that the company
was having certain problems with its current asset management. This was
due to increase in the application of funds in the fixed assets.
Inventory Turnover Ratio:
Graphical representation of above data
52
31-Mar-05 1261.61 / 196.47 = 6.42 times
31-Mar-06 2253.60 / 257.55 = 8.75 times
31-Mar-07 2590.25 / 568.65 = 4.55 times
31-Mar-08 3519.81 / 642.44 = 5.47 times
31-Mar-09 5410.75 / 980.56 = 5.51 times
31-Mar-10 7653.19 / 1209.96 = 6.32 times
31-Mar-11 7367.59 / 1328.50 = 5.54 times
31-Mar-12 13518.43/2627.71 =5.14 times
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Analysis:
It measures approximately the number of times an entity is able to acquire
the inventories and convert them into sales. The higher turnover ratio is
good for the firm while A low turnover is usually a bad sign becauseproducts tend to deteriorate as they sit in a warehouse, but several aspects
of inventory holding policy have to be balanced like lead time, seasonal
fluctuations in orders, alternative use of warehouse space. Inventory
turnover has decreased in 2012, than the previous years due to increase in
inventory and decrease in sales
Inventory holding period
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Graphical representation of above data
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Inventory Holding Period for the JSPL
31 March 2005 360 / 6.42 = 56.07 days
31 March 2006 360 / 8.75 = 41.14days
31 March 2007 360 / 4.55 = 79.12days
31 March 2008 360 / 5.47 = 65.81 days31 March 2009 360 / 5.51 = 65.33 days
31 March 2010 360 / 6.32 = 56.96 days
31 March 2011 360 / 5.5 = 64.98 days
31 March 2012 360/5.14 =69.98 days
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Analysis
The companys inventory holding period was found to be fluctuating up and
down during the year 2005 2007 , which is not good for the company as it was
unnecessary locking up of working capital in the inventory and it shows
inefficiency of the management. After hree year constant inventory holding
period, during last year i.e.2011,the inventory holding period has increased from
56.96 to 64.98, this shows unnecessary locking up of working capital in the
inventory and it shows inefficiency of the management
Inventory to current assets ratio
Graphical representation of above data
55
Inventory to Current Asset Ratio for the JSPL
31 Mar 05 196.5 / 599.82 = 0.32 times
31-Mar-06 257.55 / 736.40 = 0.34 times
31-M/ar-07 568.65 / 1403.56 = 0.40 times
31-Mar-08 642.44 / 1698.51 = 0.37 times
31-Mar-09 980.56 / 3060 = 0.32 times
31-Mar-10 1209.96 /4216.08 = 0.28 times31-Mar-11 1328.50/4603.1 = 0.28 times
31-Mar-12 3051.31/9010.24 =0.33times
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Analysis:
Here, the company shows an unfavorable trend of increase in the proportion of
the inventory to current assets during the year 2005 2007, which represents
that the company was locking up the working capital unnecessarily in the
inventory. But since 2007, the ratio is showing decreasing trend which is a
good sign for the company as they are decreasing the locking up of working
capital in the inventory.
Finding & Suggestions
Findings:
The study conducted on working capital management of Jindal Steel & Power
Limited shows the evaluation of management performance in this context.
Major findings and suggestions thereon are narrated as under:
1. Current asset of the year 2009-10 is comprised of 25% of total
investment in assets of the company. As current ratio is showing a
decreasing trend year on year, which implies that current asset, are less
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compared to current liabilities.
2. High current assets turnover ratio is more judicious and shows
efficiency of management and proper utilization of the assets.
3. Current ratio (1.03:1) and quick ratio (0.73:1) of the year 2009-10 are
lesser than that of the ideal figures i.e. ideal current ratio is 2:1 while quick
ratio is 1:1.
4. Inventory turnover ratio depict the fluctuating trend which indicates the
accumulation of inventory in turn which cause loss to the company by
way of deterioration of stock, interest loss on blockage of stock etc.
5. Debtors Turnover ratio reveals an increasing trend during the period
of study and average collection period came down from 60 to 30 days
which shows that company is having specific policy for debtors
management.
6. From regression analysis the working capital requirement for the next
year is estimated to be 515.36 Rs/Crs.
7. The operating cycle of the firm is disturbed, as it is continuously
increasing which is not good for the company.
8. The optimum need for working capital on an average basis company
roughly will require more than 455.26 Rs/Crs as its working capital
Suggestions:
Keeping in view of detailed analysis for the 4 years of study and findings
mentioned in above paragraphs, the following suggestions shall be helpful in
increasing the efficiency in working capital management.
1. In case of inventory management ABC analysis, FSN technique,
VED technique should be adopted to increase the efficiency of inventory
management. Further a inventory monitoring system should be introduced
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to avoid holding of excess inventory.
2. It is suggested to maintain a favourable current and quick ratios which
shows a lesser than ideal figures. It can be done either through increasing
current assets or decreasing liabilities.
3. With the help of proper inventory management systems, like demand-
based management, etc. the company can reduce the need for
working capital and inventories can be financed through accounts
payable.
4. The company should try and maintain an optimum level of working
capital in order to improve upon the workings of the company.
Limitations:
1. Availability of the financial data was very limited which is not
disclosed due to sensitive nature for the company.
2. The main component of working capital is cost of capital, which is not
described in the project because of confidential nature.
3. External environment influence was not considered while doing
the theoretical standard rather than the industrial standard because of
unavailability of any such specific standard.
4. The scope of the study was limited to Jindal Steel & Power Limited.
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