A PROJECT REPORT ON

INVENTORY AND STORE MANAGEMENT

OF
HMT TOOLS LIMITED INDUSTRIES LIMITED
HYDERABAD

ACKNOWLEDGEMENT
Behind every successful achievement lies great contribution
by those without whom that could have been achieved to
them, although more words of gratitude is insufficient for
their unlimited contribution, I take this opportunity to revel
my heart felt gratitude imprinted deep within me. I am very
much thankful to the finance manager Mr. MURALI
KRISHNA GARU and the staff of HMT TOOLS LIMITED
Industries
cooperation.

for

giving
I

am

encouragement
extremely

and

their

kind

to

Mr.

grateful

SOMASUNDARAM assistant general manager (IR & HRD)

of HMT TOOLS LIMITED; kindly guiding me without
whose kind help it would not have been possible for me to
complete this project work. I wish to express my sincere
thanks to (H.O.D) & Guide and also the management and staff
of my college for providing the guidance and support.
B.BABU

DECLARATIONS

I here by declare that the enclosed project entitled

INVENTORY AND STORE MANAGEMENT done at
HYDERABAD in HMT TOOLS LIMITED is submitted to
JNTU, HYDERABAD in partial fulfillment of MASTER
OF BUSINESS ADMINISTRATION, the project is an
original work done by me and to the best of my knowledge
this work is not submitted to any other university or college
for award of any other degree, diploma or fellowship.

B.BABU

ABSTRACT
To build and sustain learning organization of competent world calls professionals to
institutionalize core values and create as culture of team building, empowerment, equity,
innovation and openness which world motivate. To ensure continuous supply of materials,
spares and finished goods so that production should not suffer at any time and the customers
demand should also be met.
Absolvent inventories cannot be used or disposed off at values carried on the books.
Frequent reviews should be made of all inventories, and when obsolescence is indicated a
request for revaluation should be prepared for approval by management.
The under stocking and over stocking costs are viewed as the demand side costs and
help in the determination of the amount of variations in demand and the delay in supplies
which the inventory should withstand.
Inventories are maintained basically for the operational smoothness which key can
be affected by uncoupling successive stages of production, whereas the monetary value of
the inventory serves as a guide to indicate the size of the investment made to achieve this
operational convenience.
The materials management departments primary function is to provide this
operational convenience with a minimum possible investment in inventories. Materials
department is accused of both stock outs a well as a large investments in inventories. The
solution lies in exercise a selective inventory control and application of inventory control
techniques. Inventories build to act as a cushion between supply and demand.
.

CONTENTS

TOPICS
CHAPTER- I

PAGE NO.
1

INTRODUCTION
NEED OF THE STUDY
OBJECTIVE OF THE STUDY
METHODOLOGY OF THE STUDY
LIMITATION OF THE STUDY

CHAPTER- IV

18-58

CONCEPTUAL BACKGROUND

CHAPTER- III

5-17

ORGANISATIONAL PROFILE
CHAPTER- V

59-77

ANALYSIS AND ITERPRETATION

CHAPTER- VI
CONCULSIONS & SUGGESTIONS
BIBLIOGRAPHY

78-81

CHAPTER I

INTRODUCTION

INVENTORY MANAGEMENT
INTRODUCTION:

The materials means and includes the goods an services being sold by the firm and the
raw materials are other components being used in the manufacturing of such goods and
services. A retail shop keeper keeps an inventory of finished goods to be offered to customers
when ever demanded by them. On the other hand, a manufacturing concern has to keep a
stock pile of not only the finished goods it is producing, but also of all physical ingredients
being used in the production process.
inventories are assets of the firm, and as such they represent an investment. Because such
investment requires a commitment of funds, mangers must ensure that the firm maintains
inventories at the correct level. If they become too large, the firm loses the opportunity to
employee those funds more effectively. Similarly, if they are too small, the firm may lose
sales. Thus, there is an optimal level of inventories and there is an economic order quantity
model for determining the correct level of inventory.
In a complex industry like HMT TOOLS Limited it studied clearly of how the thing
are being performed and what is the real impact of these on industry and how effectively the
inventory is utilized is interested to be known by researcher because of its great significance
in the research.

NEED OF THE STUDY:

Every industry on average spends 70% - 80% on raw materials (inventory). Therefore
there is a need to know the raw material cost and also there is great importance to understand
the inventory management system of this industry.
The study helps a log to various departments to take steps to control the inventory
process.

OBJECTIVES OF THE STUDY:

1.

To examine the organization structure of inventory management in the stores of

HMT TOOLS LIMITEDs.

2.

To discuss pattern, levels and trends of inventories in HMT TOOLS LIMITEDs.

3.

To understand the various inventory control techniques followed by studies in

HMT TOOLS LIMITEDs.

4.

To access the performance of inventory management of the HMT TOOLS

LIMITEDs by selected accounting ratios.

5.

To know the inventory control techniques of HMT TOOLS LIMITEDs.

METHODOLOGY OF THE STUDY:

The study is based on both primary and secondary data.

Primary Data: Consists of information gathered for some specific purposes and primary
data is also that u collects through researches, surveys and experiments.
The collected data is tabulated and suitable interpretation had been made by
considering the data collection through secondary data like annual reports purchase registers,
storage records of the organization.

LIMITATIONS OF THE STUDY:

The study has the following limitations:

1.

The study is limited only for a period of 5 years i.e., from 2003 04 to 2007 08.

2.

The limitations of ratio analysis can be applicable of the study.

3.

There may be approximation in calculating ratios and taking the figures from the
annual reports.

CHAPTER II
REVIEW OF LITERATURE

CONCEPTUAL BACKGROUND
The investment in inventories constitutes the most significant part of current assets /
working capital in most of the undertakings. Thus, it is very essential to have proper control
and management of inventories.
The purpose of inventory management is to ensure availability of materials in
sufficient quantity as and when required and also to minimize investment in inventories.

Meaning and Nature of Inventory:

In accounting language, inventory may mean the stock of finished goods only. In a
manufacturing concern, it may include raw materials, work- in progress and stores etc.,

Inventory includes the following things:

a)

Raw Material: Raw material from a major input into the organization. They are
required to carry out production activities uninterruptedly. The quantity of raw
materials required will be determined by the rate of consumption and the time
required for replenishing the supplies. The factors like the availability of raw
materials and Government regulations etc., too affect the stock of raw materials.

b)

Work in progress: The work in progress is that stage of stocks which are in
between raw materials and finished goods. The quantum of work in progress
depends upon the time taken in the manufacturing process. The quantum of work
in progress depends upon the time taken in the manufacturing process. The greater
the time taken in manufacturing, the more will be the amount of work in progress.

c)

Consumables: These are the materials which are needed to smoother the process
of production but they act as catalysts. Consumables may be classified according
to their consumption add critically. Generally, consumable stores doe not create
any supply problem and firm a small part of production cost. There can be
instances where these materials may account for much value than the raw
materials. The fuel oil may form a substantial part of cost.

d)

Finished goods: These are the goods, which are ready for the consumers. The
stock of finished goods provides a buffer between production and market, the
purpose of maintaining inventory is to ensure proper supply of goods to
customers.

e)

Spares: The stock policies of spares fifer from industry to industry. Some
industries like transport will require more spares than the other concerns. The
costly spare parts like engines, maintenance spares etc., are not discarded after
use, rather they are kept in ready position for further use.
All decisions about spares are based on the financial cost of inventory on such spares

and the costs that may arise due to their non availability.

BENEFITS OF HOLDING INVENTORIES

Although holding inventories involves blocking of a firms and the costs of storage
and handling, every business enterprise has to be maintain certain level of inventories of
facilitate un interrupted production and smooth running of business. In the absence of
inventories a firm will have to make purchases as soon as it receive orders. It will mean loss
of time and delays in execution of orders which sometimes may cause loss of customers and
business.
A firm also needs to maintain inventories to reduce ordering cost and avail quantity
discounts etc.

There are three main purpose of holding inventories.

1.

The transaction motive: This facilitates continuous production and timely execution
of sales order

2.

The precautionary motive: This necessitates the holding of inventories for meeting
the unpredictable changes in demand and supplies of materials.

3.

The speculative motive: This induces to keep inventories for taking advantage of
price fluctuations, saving in re ordering costs and quantity discounts.

RISK AND COSTS OF HOLDING INVENTORIES

The holding of inventories involves blocking of firms funds and incurrence of capital
and other costs.
The various costs and risks involved in holding inventories are:

Capital costs: Maintaining of inventories results in blocking of the firms financial

resources. The firm has therefore to arrange for additional funds to meet the cost of
inventories.
The funds may be arranged from own resources or from outsiders. But in both the
cased, the firm incurs a cost. In the former case, there is an opportunity cost of investment
while in the later case; the firm has to pay interest to t he outsiders.

1.

Storage and Handling Costs: Holding of inventories also involves costs on storage
as well as handing of materials. The storage of costs include the rental of the godown,
insurance charges etc.

2.

Risk of Price decline: There is always a risk of reduction in the prices of inventories
by the supplies, competition or general depression in the market.

3.

Risk of Obsolescence: The inventories may become absolute due to improved

technology, changes in requirements, change in customer tastes etc.

4.

Risk Determination in quality: The quality of materials may also deteriorate while
the inventories are kept.

Objects of Inventory Management

Definition of Inventory Management: Inventory Management is concerned with the
determination of optimum level of investment for each components of inventory and the
operation of an effective control and review of mechanism.
The main objectives of inventory management are operational and financial.
The operational objective mean that the materials and spares should be available in
sufficient quantity so that work is not disrupted for want of inventory.
The financial objective means that inventory should not remain idle and minimum
working capital should be locked in it.

The following are the objectives of inventory management:

1.

To ensure continuous supply of materials, spares and finished goods so that

production should not suffer at any time and the customers demand should also be
met.

2.

To avoid both over stocking and under stocking of inventory.

3.

To maintain investment in inventories at the optimum level as required by the

operational and sales activities.

4.

To keep material cost under control so that they contribute in reducing the cost of
production and overall costs.

5.

To eliminate duplication in ordering or replenishing stocks. This is possible with the

help of centralizing purchases.

6.

To minimize loses through deterioration, pilferages, wastages and damages.

7.

To ensure perpetual inventory control so that materials shown in stock ledgers should
be actually lying in the stores.

8.

To ensure right quality goods at reasonable prices. Suitable quality standards will
ensure proper quality of stocks. The price analysis, the cost analysis and value
analysis will ensure payment of proper prices.

9.

To facilitate furnishing of data for short term and long term planning and control
of inventory.

TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT

A proper inventory control not only helps in solving the acute problem of liquidity but
also increases profit and causes substantial reduction in the working capital of the concern.
The following are the important tools and techniques of inventory management and
control.
1.

Determination of stock levels:

Carrying of too much and too little of inventory is detrimental to the firm. If the

inventory level is too little, the firm will face frequent stock outs involving heavy ordering
cost and if the inventory level is too high it will be unnecessary tie up of capital.
An efficient inventory management requires that a firm should maintain an optimum
level of inventory where inventory costs are the minimum and at the same time there is no
stock out which may result in loss or sale or shortage of production.
a)

Minimum stock level:

It represents the quantity below its stock of any item should not be allowed to fall.
Lead time: A purchasing firm requires sometime to process the order and time is also

required by the supplying firm to execute the order.

The time in processing the order and then executing it is know as lead time.

Rate of Consumption: It is the average consumption of materials in the factory. The

rate of consumption will be decided on the basis of past experience and production plans.
Nature of materials: The nature of material also affects the minimum level. If a
material is required only against the special orders of the customer then minimum stock will
not be required for such material.

Minimum stock level can be calculated with the help of following formula.
Minimum stock level Re ordering level (Normal consumption x Normal re order
period)
b)

Re ordering Level:
When the quantity of materials reaches at a certain figure then fresh order is sent to

get materials again. The order is sent before the materials reach minimum stock level.
Re ordering level is fixed between minimum level maximum level.
c)

Maximum Level:
It is the quantity of materials beyond which a firm should not exceeds its stocks. If the

quantity exceeds maximum level limit then it will be over stocking.

Overstocking will mean blocking of more working capital, more space for storing the
materials, more wastage of materials and more chances of losses from obsolescence.
Maximum stock level Reordering Level + Reorder Quantity (Maximum
Consumption x Minimum reorder period)
d)

Danger Stock Level:

It is fixed below minimum stock level. The danger stock level indicates emergency of

stock position and urgency of obtaining fresh supply at any cost.

Danger Stock level = Average rate of consumption x emergency delivery time.

e)

Average Stock Level:

This stock level indicates the average stock held by the concern.
Average stock level = Minimum stock level + x reorder quantity.

2)

Determination of Safety Stocks:

Safety stock is a buffer to meet some unanticipated increase in usage. The demand for
materials may fluctuate and delivery of inventory may also be delayed in such a situation the
firm can be face a problem of stock out.
In order to protect against the stock out arising out of usage fluctuations, firms usually
maintain some margin of safety stocks.
Two costs are involved in the determination of this stock that is opportunity cost of
stock outs and the carrying costs.
If a firm maintains low level of safety frequent stock outs will occur resulting into the
larger opportunity costs. On the other hand, the larger quantity of safety stocks involves
carrying costs.

3)

Economic Order Quantity (EOQ):

The quantity of material to be ordered at one time is known as economic ordering

quantity.
This quantity is fixed in such a manner as to minimize the cost of ordering and
carrying costs.
Total cost material = Acquisition Cost + Cost + Carrying Costs + Ordering Cost.
Carrying Cost:
It is the cost of holding the materials in the store.

Ordering Cost:
It is the cost of placing orders for the purchase of materials.
EOQ can be calculated with the help of the following formula
EOQ = 2CO / I
Where C = Consumption of the material in units during the year
O = Ordering Cost
I = Carrying Cost or Interest payment on the capital.

4)

A B C Analysis: (Always better control analysis):

Under A B C Analysis. The materials are divided into 3 categories viz., A, B and

C.
Almost 10% of the items contribute to 70% of value of consumption and this category
is called A category.

About 20% of the items contribute about 20% of value of category C covers about
70% of items of materials which contribute only 10% of value of consumption.

5)

VED Analysis : (Vitally Essential Desire)

The VED analysis is used generally for spare parts. Spare parts classified as Vital(V),

Essential (E) and Desirable (D).

The vital spares are a must for running the concern smoothly and these must be stored
adequately. The E type of spares are also necessary but their stocks may be kept at low
figures. The stocking of D type spares may be avoided at times. If the lead time of these
spares is less, then stocking of these spares can be avoided.

6)

Inventory Turnover ratio:

Inventory turnover ratios are calculated to indicate whether inventories have been

used efficiently or not.

The inventory turnover ration also known as stock velocity is normally calculated as
sales / average inventory of cost of goods sold / average inventory.
Inventory conversion period may also be calculated to find the average time taken for
clearing the stocks. Symbolically.
Inventory Turnover Ratio =

Cost of goods sold

__________________________
Average inventory at cost

Or
=

Net sales
_____________________
(Average) Inventory

And, Inventory conversion period =

Days in a year
______________________
Inventory Turnover ratio

7)

Classification and Codification of Inventories:

The inventories should first be classified can then code numbers should be assigned
for their identification. The identification of short names are useful for inventory

management not only for large concerns but also for small concerns. Lack of proper
classification may also lead to reduction in production.
Generally, materials are classified accordingly to their nature such as construction
materials, consumable stocks, spares, lubricants etc. After classification the materials are
given code numbers. The coding may be done alphabetically or numerically. The later
method is generally used for coding.
The class of materials is assigned two digits and then two or three digits are assigned
to the categories of items divided into 15 groups. Two numbers will be category of materials
in that class.
The third distinction is needed for the quality of goods and decimals are used to note
this factor.

8)

Valuation of inventories Method of valuation:

FIFO method
LIFO method
Base Stock method
Weighted average price method

CRITERIA FOR JUDGING THE INVENTORY SYSTEM

While the overall objective of the inventory system is to minimize the cost to the firm
at the risk level acceptable to management, the more proximate criteria for judging the
inventory system are:
Comprehensibility
Adaptability
Timeliness

Area of improvement:
Inventory management in India can be improved in various ways. Improvements
could be affected through.

Effective Computerization: Computers should not be used merely for accounting purpose
but also for improving decision making.
Review of Classification: ABC and FSN classification must be periodically reviewed.

Improved Coordination: Better coordination among purchase, production, marketing and

finance departments will be help in achieving greater efficiency in inventory management.

Development of long term relationship:

Companies should develop long term relationship with vendors. This would help in
improving quality and delivery.

Disposal of obsolete / surplus inventories:

Procedures for disposing obsolete / surplus inventories must be simplified.

Adoption of challenging norms:

Companies should set benchmarks with global competitors and use ideals like JIT to
improve inventory management.
Inventory cost an overall view

Introduction:
In financial parlance, inventory is defined as the sum of the value of the raw
materials, fuels and lubricants spare parts maintenance consumable semi processed
materials and finished goods stock at any giving point of time. The operational definition of
inventory would be amount of raw materials, fuel and lubricants, spare parts and semi
processed materials to be stock for the smooth running of the plant / industry.

Need of Inventory:
Inventories are maintained basically for the operational smoothness which they can be
affected by uncoupling successive stages of production, whereas the monetary value of the
inventory serves as a guide to indicate the size of the investment made to achieve this
operational convenience. The materials management departments primary function is to

provide this operational convenience with a minimum possible investment in inventories.

Materials department is accused of both stock outs as well a large investments in inventories.
The solution lies in exercise a selective inventory control and application of inventory control
techniques. Inventories build to act as a cushion between supply and demand. It is sufficient
to take care of the requirements of demand till the next supply arrives. It is sufficient to take
care of probable delays in supply as well as probable variations in demand.
The size of the inventory depends upon the factors such as size of industry internal
lead time for purchase, suppliers lead time, vendor relations availability of the materials,
annual consumption of the materials. Inventory coat can be controlled by applying Modern
Techniques viz., ABC analysis, SDE, ESN, HMC, VED etc. These techniques can be used
effectively with the help of computerization.

What is meant by inventory cost:

A.

The total value of stores and spares and capital spares.

B.

Stores in transit and under inspection and

C.

Stock of finished products.

Normally, there are certain problems in maintaining optimum level of

inventory. Problems of inventory can be resolved by the cost implications. Costs which are
relevant for consideration are discussed in the following lines;
Basically there are four costs for consideration in developing and inventory model.
1.

The cost of placing a replenishment order.

2.

The cost of carrying inventory.

3.

The cost of under stocking and

4.

The cost of over stocking.

The cost of ordering and inventory carrying cost are viewed as the supply side costs
and help in the determination of the quantity to be ordered for each replenishment.
The under stocking and over stocking costs are viewed as the demand side costs and
help in the determination of the amount of variations in demand and the delay in supplies
which the inventory should withstand.
Whenever an order placed for stock replenishment, certain costs are involved, and, for
most practical purpose it can be assumed that the cost per order is constant. The ordering cost
may vary depending upon the type of items, for example raw material like steel against

production component like castings in steel plants, support materials in the case of coal
industry.

The cost ordering includes:

1)

Paper work costs, typing and dispatching an order.

2)

Follow up costs the follow up, the telephones, telex and postal bills etc.,

3)

Costs involved in receiving of the order, inspection, checking and handling in the
stores.

4)

Any set up cost of machines charged by the supplier, either directly indicated in
quotations or assessed through quotations of various quantities.

5)

The salaries and wages of the purchase department.

Cost of Inventory carrying:

This cost in measured as of the unit cost of the item. This measure gives basis for
estimating what is actually costs a company to carry stock.

This cost includes:

1)

Interest on capital.

2)

Insurance and tax charges.

3)

Storage costs labour costs, provision of storage area and facilities like bins,
racks etc.,

4)

Transport bills and hamali charges.

5)

Allowance for deterioration or spoilages.

6)

Salaries of stores staff.

7)

Obsolescence.
The inventory carrying cost varies and a major portion of this is

accounted for by the interest on capital.

Under stocking cost:

This cost is the cost incurred when an item is out of stock. It includes cost of lost
production during the period of stock out and the extra cost per unit which might have to be
paid for an emergency purchase.

Over stocking cost:

This cost is the inventory carrying cost (which is calculated per year) for a specific
period of time. The time varies in different contexts it could be the lead time of
procurement of entire life time of machine. In the case of one time purchases, over cost
would be = Purchase Price Scrap Price.

INVENTORY VALUATION AND COST FLOWS:

What is the cost of inventory?

One can readily visualize the determination of inventory quantities by physical count
or by use of perpetual inventory records. When this quantity is determined, it must be
multiplied by a unity cost in order to determine the inventory value that is used on financial
statements.
Trade and quantity discount are to be excluded from unit cost since these discount
exist for the purpose of defining the true invoice cost of merchandise. Cash discounts, on the
other hand, have been considered as a reward for early payment and as a penalty for late
payment. The reward has often been interpreted as a loss rather than as a part of unit cost.
Thus it would not be difficult to find difference of opinion as to whether invoice cost includes
or excludes cash discount.
When the current replaMACHINES cost of material on hand at the close of a year
is less than the actual cost, the inventory value is reduced to replaMACHINES cost (current
market price). Thus the acceptable basis inventory valuation is the lower of cost or market
or more properly the lower of actual cost or replaMACHINES cost.
The determination of inventory values is very important from the point of view of the
balance sheet and the income statement since costs not included in the inventory (the balance
sheet) are considered to be expensive and are thus included in the income statement.

Valuation of inventories methods of determination:

Although the prime consideration in the valuation of inventories is cost, there are a
number of generally accepted methods of determining the cost of inventories at the close of
an accounting period. The most commonly used methods are first in first out (FIFO)
average, and last in first out (LIFO). The selection of the method for determining cost for

inventory valuation is important for it has a direct bearing on the cost of goods sold and
consequently on profit. When a method is selected, it must be used consequently and cannot
be changed for year to year in order to secure the most favorable profit for each year.
THE FIFO METHOD (FIRST IN FIRST OUT METHOD)

Under this method it is assumed that the materials or goods first received are the first
to be issued or sold. Thus, according to this method, the inventory on a particular date is
presumed to be composed of the items which were acquired most recently.
The value inventory would remain the same even if the perpetual inventory system
is followed.
Advantage:- The FIFO method has the following advantages.

1)

It values stock nearer to current market prices since stock is presumed to be

consisting of

2)

The most recent purchases.

3)

It is based on cost and, therefore, no unrealized profit enters into the financial
accounts of the company.

4)

The method is realistic since it takes into account the normal procedure of
utilizing or selling those materials or goods which have been longer longest in
stock.

Disadvantages:- The method suffers from the following disadvantages.

1)

It involves complicated calculations and hence increases the possibility of clerical

errors.

2)

Comparison between different jobs using the same type of material becomes
sometimes difficult. A job commenced a few minutes after another job may have
to bear an entirely different charge for materials because the first job completely
exhausted the supply of materials of the particular lot.
The FIFO method of valuation of inventories is particularly suitable in

the following circumstances.

I.

The materials or goods are of a perishable nature.

II.

The frequency of purchases is not large.

III.

There are only moderate fluctuations in the prices of materials or goods

purchased.

IV.

Materials are easily identifiable as belonging to a particular purchase lot.

The LIFO method (Last in First Out method)

This method is based on the assumption that last item of materials or goods purchased
are the first to be issued or sold. Thus, according to this method, inventory consists of items
purchased at the earliest cost.
Advantages:- This method has the following advantages:
1)

It takes into account the current market conditions while valuing materials issued
to different jobs or calculating the cost of goods sold.

2)

The method is base on cost and, therefore, no unrealized profit or loss is made on
account of use of this method.
The method is most suitable for materials which are of bulky and non

perishable type.

Base Stock Method:

This method is based on the contention that each enterprise maintains at all times a
minimum quantity of materials or finished goods in its stock. This quantity is termed as base
stock. The base stock is always valued at this price and its carried forward as a fixed asset.
Any quantity over and above the base stock is valued in accordance with any other
appropriate method. As this method aims at matching current costs to current sales, the LIFO
method will be most suitable for valuing stock of materials or finished goods other than the
base stock. The base stock method has advantage of charging out material / goods at actual
cost. Its other merits or demerits will depend on the method which is used for valuing
materials other than the base stock.

Weighted average price method:

This method is based on the presumption that once the materials are put into a
common bin, they lose their identity. Hence, the inventory consists of no specific batch of
goods. The inventory is thus priced on the basis of average priced on the quantity purchased
at each price.

Weighted average price method is very popular on account of its being based on the
total quantity and value of materials purchased besides reducing number of calculations. As a
matter of fact the new average price is to be calculated only when a fresh purchase of
materials is made in place of calculating it every now and then as is the case with FIFO,
LIFO methods. However, in case of this method different prices of materials are charged
from production particularly when the frequency of purchases and issues/sales in quite large
and the concern is following perpetual inventory system.
Valuation of inventories impact on the flow of costs:
As should be quite evident, the different methods of calculating inventory values will
all have their impact on the flow of costs through the balance sheet into the income statement.
The dollars that are paid to acquire inventory are always divided between the balance sheet
(inventories) and the income statement (cost of goods sold), there is not other place to put
them. Thus if the different methods of calculating inventory produce differing inventory
values, they will also produce differing cost of goods sold figures, and the differing cost of
goods sold figures will naturally produce differing profit figures.
In order show the impact of inventory valuation on cost flows, the preceding exhibits
are summarized. Each method produces a different figure for the transfer of raw materials to
work in process. These differences appear small, but the only reason for this is that the dollar
amounts have been kept small to make the illustration workable.
With the transfer of materials to work in process, the cost flow or transfer with have
its impact on the work in process inventory and the transfer of completed merchandise to
finished gods. Ultimately when goods are sold; the varying methods of valuing inventories
will have their impact on cost of goods sold and these profits. The effects of the cost flows on
cost of gods sold and profits can be accentuated further it the differing methods of valuing
inventories are applies to work in process and finished goods.
Evaluation of methods What causes the differences?
The differences in inventory values and flows for each of the method illustrated result
from only one factor, that it, changing purchases prices or unit costs. If purchase prices had
remained stable or unchanged, each method would have produced the same inventory value
and cost flow.

Cost flows and inventory are exactly the some under stable prices. With a falling price
level, the LIFO method produces the highest cost flow and the lowest inventory. With a

falling price level, the LIFO method produces the lowest cost flow and highest inventory. The
cost flow under LIFO follows the price level, LIFO produces larger cost flows when prices
are rising and smaller cost flows when prices are falling. A final item to consider is that the
average method produces results which fall between the extremes of LIFO and FIFO.
Evaluation of methods can we justify the differences?
The best method of inventory valuation might be specific identification, that is, the
units in inventory should be identified with the specific invoices and thus specific unit costs
to which they apply.
Fortunately, the FIFO method constitutes a very useful approximation to the specific
identification method if on can reasonably assume that the actual flow of materials is first-in
first-out. This assumption is not unreasonable and thus we have stated the main argument for
the FIFO inventory scheme, that is, the physical flow of materials would match the flow of
costs under the first in first out method.
When the units in inventory are identical, interchangeable and do not follow any
specific pattern of physical flow, the average cost system would seen to appropriate.
The primary difference between the FIFO and average methods is centered on the
physical flow since both methods could involve identical and interchangeable units. The
FIFO method fits a first-in first-out physical flow. The average method fits a system which
has no specific pattern of physical flow. Finding a situation where there is no specific pattern
of physical flow should be quite difficult because of the fact that most inventory items are
subject to deterioration by instituting a person would attempt to reduce such deterioration and
any reasonable person would attempt to reduce such deterioration by instituting a physical
flow approximating first-in-first-out. The major reason for the use of the average method is
something other than the lack of specific physical flow.
Ordinarily the LIFO method cannot be justified on the basis of the physical flow of
materials. Under conditions of changing prices, the advocate of LIFO says that the only
method which matches costs and revenues is the LIFO method. The LIFO method assumes
that the latest item is the first item out, and thus the current costs of materials are matched
with the other hand, assumes that the first item in is the first item out, and thus the noncurrent costs of matching current costs with current revenues is the essence of the argument
for the LIFO method.
As can be seen by the above comments, there is no one best method of valuing
inventories. The method chosen should fit the situation. A physical flow pattern comparable

to FIFO would force one to consider the FIFO method. The lack of a discernible physical
flow pattern would force one to consider the average method. Concentration on cost flows, as
distinct from physical flows, would force to consider the LIFO method especially where there
appears to be a discernible trend towards rising prices (or falling prices) as has been the case
in our economy during recent years.

Inventories valued at standard cost:

A very useful method of valuing inventories is at a standard cost. With a standard cost
system is no need of spending a great deal of time and money tracing unit cost through
perpetual inventory record.

PERPETUAL INVENTORY CARD UNDER A STANDARD COST

SYSTEM
Perpetual inventory Plant: Standard cost:
Location: Order Quantity:.....
Order Point: ..
Date

Description

On order

Received

Issued

Available
On order

On hand

As shown above, there is need only for physical quantities since the inventory values
is the physical quantity multiplied by the standard cost. With the cost and value columns
disposed off, a perpetual inventory card can include additional data such as quantities on
order, quantities reserved, and quantities available. These additional data are very useful for
inventory and production control purpose. On the basis of a few calculations concerning into
inventories on a FIFO, a LIFO, or an average cost basis.

Inventory of Obsolescence:

Absolvent inventories cannot be used or disposed off at values carried on the books.
Frequent reviews should be made of all inventories, and when obsolescence is indicated a
request for revaluation should be prepared for approval by management. The difference
between original and obsolete value should be recorded by a change to an operating account.
Inventory obsolescence, and a credit to inventory. If the material is scrapped, this will be for
the full inventory value or used in areas where it will be work less than its

Original value, the entry would be only for the amount of write down. Some companies carry
a salvage inventory and transfer to it materials which may be sold or used at reduced values.
Where this is done, the entry would be:
Dr. Salvage inventory
Dr. Inventory Obsolescence. Cr. Raw Material inventory or Supplies inventory.

Inventory cost in relation HMT TOOLS LIMITEDs shall to classifieds follows:

Inventory can be classified as capital and revenue certain items through titled as
capital in nature. Hence, due care is to be take whole drawing the material.
Materials which are to be imported from other countries have to be planned well in
advance nearly about 24 months are to initiate the proposals for procurement.
Similarly some of the items do not require any lead time some they are available in
the local market.
MACHINES is highly energy intensive industry, the inputs like power and coal are
the major part of the variable cost since Government controls the coal & fuel sector, and
increase is rates adversely effects the MACHINES industry.
HMT TOOLS LIMITED has it own power plant and through which it saves energy
consumption. By this the cost since Government controls the coal & fuel sector, any increase
rates adversely effects the MACHINES industry.
Inventory cost of any organization also adversely affects by retaining obsolete / scrap
and inventory costs can be reduced by management with an advance planning of procurement
of materials, periodical reviews of existing spares with reference to the fast consumption,
ascertaining the information regarding the availability of spares in other areas. Holding of
extra inventory will be an additional financial burden to the company due to payment of
interest charges on the materials purchased, diminishing value of materials purchased,

diminishing value of materials by keeping them in stores for a log time, handling charges,
spare rent etc.,
The inventory of HMT TOOLS LIMITED mainly includes Watches, Stepper motors,
CNC machines, Ball scrums.
Inventory in HMT TOOLS LIMITED during 2003 04 to 2007 08 are as follows:
(Units in m.t)

Years

2009-10

2010-11

2011-12

2012-13

2013-14

Watches

1096560

995650

976750

925720

1569543

51526

47567

43748

452256

67561

27567

25567

25567

250275

39565

5956

12567

19102

35765

179555

Stepper
motors
CNC
machines
Ball
scrums

The value of the above raw materials for the year 2009 14 is as follows: (Value in
Rs.)

Value of imported and indigenous raw materials, stores, spare parts and components
consumed
Years

2009-10

2010-11

2011-12

Watches

147261597

12554678

13853482

157130922 253512287

31696775

28081883

26991793

23577845

Stepper
motors

2012-13

2013-14

39525576

CNC
machines

18515031

16561576

16561576

18679683

50022296

27506

745573

745573

2557949

20523505

Ball
scrums

Value of imported and indigenous raw materials, stores, spare parts and components
consumed during the year:

Imported

Years

2009-10

2010-11

2011-12

2012-13

Raw Materials

97365976

602775622 766175615

596226625

517577053

517577053

121656916

Stores spare
parts and

75646207

2013-14
1554236
729
5106973
6

components

Indigenous

Years

2009-10

2010-11

2011-12

2012-13

2013-14

Raw Materials

115567978

4025674929 3787749527 5115402137 81251651616

712504256

991790149

Stores spare
parts and

199159560

1465764286

4978515267

components

MACHINES FACTORY RUNS WITH VARIOUS EQUIPMENTS:

I.

TECHNICAL DEPARTMENT
1.

BEARINGS

2.

MECHANICAL

3.

ELETRICAL

4.

CIVIL

II.

COMMERCIAL DEPARTMENTS
1.

STORES

2.

PURCHASE

3.

ACCOUNTS

TO RUN THE PLANT AND MAINTAIN EQUIPMENTS DEPARTMENTS REQUIRE

SPARES.
FOR SUCH REQUIREMENT OF SPARES DEPARTMENTS RAISE INDENTS AND
SEND THE INDENTS TO PURCHSE DEPARTMENT THROUGH STORES.

INDENTS:
1)

ANNUAL INDENTS FOR CONSUMABLE ITEMS (STORES ITEMS).

2)

REGULAR INDENTS RAISED BY CONSUMING DEPARTMENTS.

3)

ANNUAL REQUIREMENT OF RAW MATERIALS PROMOP & QC.

ENQUIRIES:
1)

ENQUIRES WILL BE SENT APPROVED SUN CONTRACTORS.

ORDER PROCESSING FORM:

1)

RECEIVING QUOTATIONS FROM SUB CONTRACTORS.

2)

ENTER THE PRICE DETAILS OF ENQUIRY SENT IN THE

ORDER PROCESSING FORM.

3)

SELECTION OF PARTY ON MERIT BASIS.

PURCHASE ORDER:
1)

PREPARE PURCHSE ORDER ON SELECTED PARTY.

2)

SEND PURCHASE ORDER COPIES TO PARTY, STORES AND

DEPARTMENTS.

GOODS RECEIPT NOTE:

1)

RECEIVING GOODS RECEIPT NOTE FROM STORES.

PURCHASE DEPARTMENT:
ACTIVITY RECEIVING INDENTS:
FLOW CHART:
Receipt of annual indents for consumable items / stores items from stores department.
Checking of indent number an authority of item, delivery time consumption period.
In case of any deficiency, send the information to concerned department for
clarification.
Segregation of indents for attending at C.P.D. and Hyderabad Office.
Sent the Hyderabad indents to Hyderabad Office.
Enter the indents details in indent register.

PURCHASE DEPARTMENT
PURCHASE ENQUIRY

Ms.
Sl.
No.

Material Code

Department

Quantity

Unit

When
Required

ACTIVITY: FLOATING ENQUIRIES:

FLOW CHART:

Checking indented items and equipment name.

Taking previous suppliers information form previous supply. If new equipment /

item, information to be taken from concerned department or from competitors /
journals / yellow pages.

Prepare enquiry to approved sub contractors through enquiry format.

If emergency requirement, send the enquiries through fax / e-mail.

Enter the details of enquiries sent in order processing form.

PURCHASE DEPARTMENT
ORDER PROCESSING FORM

Sl. In Ma De Siz Qt 1
No. de teri scr e

nt al ipti

6 Re
ma
rks

Ref Co on
de
No.

ACTIVITY : PREPARATION OF ORDER PROCESSING FROM

FLOW CHART:

Receiving quotation against enquiries sent.

Enter price and other of the quotation received from sub contractors in the order
processing from.

Mention the earlier purchase details of indented items against each item in the
order processing form if available.

Put up the processing from with enquiry and quotations to head (purchase).

Examine order processing from with decide the sub contractor to whom
purchase order to be placed.

PURCHASE DEPARTMENT
PURCHASE ORDER
Sl. No.

Indent

Item

No.

Code

Description

Qty

Rate

Unit

Amount

ACTIVITY: PREPARATION OF PURCHASE ORDER

FLOW CHART:

Prepare purchase order after finalization of price and other technical terms
mentioning the following details.
1. Material code
2. Indent number
3. Material specification & part number
4. Quantity
5. Rate
6. Payment and other terms & conditions

Stipulation of terms of test certificate / ibr / manufactures certificate where

applicable.

Fill in and attach the purchase order review proforma to purchase order.

Send the prepared purchase order to head (purchase) and competent authority for
approval.

Send the purchase order to identified approved sub contractor.

Send the purchase order copies to store and concerned departments.

Enter the details of purchase order in purchase order register.

PURCHASE DEPARTMENT
AMENDMENT / CANCELLATION OF ORDER

Material Code

Material

Price / Quantity

Amended Price /

as per Order

Quantity

ACTIVITY: ORDER AMENDMENT, ORDER FOLLOW UP AND INFORM THE

SUPPLIER FOR THE REJECTIONS / DAMAGES / SHORTAGES:
FLOW CHART:

Issue of amendments in case of modification to purchase order.

Review the pending order and follow up the pending order for breakdown
requirement.

Send regular reminders to suppliers against pending purchase order every month.

Receive shortage / excess / damages report from stores for the material received.

Information the supplier for the rejections / damage / excess / shortage.

PURCHASE DEPARTMENT
ACTIVITY: IMPORTS:
FLOW CHART:

Receipt of indents for import items from stores department.

Taking previous / item, information to be taken from concerned department or

from competitors / journals / Yellow pages.

Send enquiry to overseas supplier.

Receiving quotations against enquiries sent.

Enter price and other terms of the quotations received from overseas supplier in
the order processing form.

Examine order processing form and decide the sub contractor to whom purchase
order to be placed.

Prepare purchase order after finalization of price and other technical terms
mentioning the following details.

1) Material code
2) Indent number
3) Material specification & part number
4) Quantity
5) Rate
6) Payment
7) Insurance and other terms and conditions.

Send the prepared purchase order to head (purchase) and competent authority for
approval.

Send the purchase order to overseas supplier.

Send the purchase order copies to stores and concerned departments.

Prepare IC documents and submit to bank for onward transmission to overseas

supplier.

Receive shipping documents from overseas supplier and send same to clearing
agents for collection of the material.

STORES DEPARTMENT
ACTIVITY: RECEIPTS AND UNLOADING MATERIAL

Receiving of Goods through Trunk / Personnel Delivery.

Entry of vehicle at Gate Office.

Stamping on Dispatch Advise / Delivery challan by Gate Office.

Checking of challans / Dispatch Advise with purchase order.

Unloading of Goods at allotted place or in case of urgency direct at works site.

All safety precautions are taken while unloading of material like workers should
wear safety shoes, helmets, leather head gloves, noise respirator, nose mask.

Training is given to workers for unloading Heavy & Bulky material by using
chain pulley Blocks, Wire Rope Ceilings, Fork Lift. After UIL receipt
acknowledgement given to driver maintaining Lorry receipts register.

STORES DEPARTMENT
ACTIVITY: PREPARATION OF RECEIPT AND APPROVAL BOOK FOR
GENERAL MATERIAL / D.C. ENTER OF BLOCK, REPAIR AND STATIONARY
MATERIAL MANUALLY IN REGISTER

Sorting of Delivery challans as below:

a) General
b) Stationery
c) Repairs
d) Block

Checking with P.O. and mentioning Material Code, Party Code, Indent No.
Department Name on each & every challans.

Creation of D.C. entry in system for general materials.

Preparation of identification tags for General Materials through system.

Preparation of Receipt & Approval Book for General materials.

Manual entry of block, stationery, repair materials.

Preparation of intimations for block, stationery, repair materials.

STORES DEPARTMENT
ACTIVITY: PHYSICAL VERIFCATION OF GOODS:

All D.C. handed over to stores assistant physical verification like measuring,
counting and tallying with D.C.s Quantity / Description of the materials by the
Stores Assistant.

Identification tags to be attached to the verified material. Shortage / Excess /

Damages if any found to be noted on challans and inform to section incharge.

Preparation of Shortage / Excess / Reports if any sending to parties under copy to

purchase / bills sections.

STORES DEPARTMENT
ACTIVITY: APPROVAL OF MATERIAL AND PREPARATION OF GOODS
RECEIPT NOTES:

Intimation is be sent to all the concerned departments. Showing materials to

concern person.

Taking approval of the material in receipt & approval book.

Preparation general material in receipt & approval book.

Preparation general material GRNs through system and stationery / block /

repairs GRNs manually.

Forwarding true copy to issue section of GRN for general material forwarding true
copy to issue section of GRN for General material forwarding true copy of block /
Repair / Stationery GRN to issue section and copy to purchase department.

STORES DEPARTMENT
ACTIVITY: REJECTED MATERIALS

Rejected materials kept in allotted area of rejected materials.

Packing of rejected materials.

Preparation of gate passes for rejected materials.

Sending back to suppliers through our Hyderabad Office.

Sending consignee copy to party vide Register Letter for booking of Register
goods to partys other than.

STORES DEPARTMENT
ACTIVITY: EXCISE GATE PASSES

Sending duplicate for transport copy of excise invoice from suppliers delivery
challans.

Mentioning A.B. Sl. No. and named of concerned department.

Duplicate for transport copy of excise invoice over to bills section for sending the
same to Excise Department.

Corresponding with supplier. If the Excise Invoice is not found with delivery
challans.

STORES DEPARTMENT
ACTIVITY: RECEIPTS OF MEDICINES

Physical verification of Medicines as per Invoices.

Verification of expiry date on medicines.

Verification of MRP.

Sending shortage / excess note if any found.

Taking approval of Medical Officer.

Sending Rejection notes if any medicine is rejected.

Issuing to dispensary.

Bills forwarding to Account Department vide IOM for making the payment.

CHAPTER III

COMPANY PROFILE

COMPANY PROFILE
HMT is one of the major public sector undertakings in India for over 50 years.
The government of the India establish HMT in 1953-54 at Bangalore in collaboration with
m/s Oerlikons. Switzerland to manufacture machine tools with a service motive the second
machine tools unit was also set up in Bangalore in 1961 and the third unit at pinjore
(Haryana) in 1963. HMT diversified into new production line.
Gradually HMT established its name in the international market today HMT is a
multi-unit, multi-product central government undertaking with, 18 manufacturing units and
35 product divisions these divisions are spread over 10 different states in the country known
for its quality products all over the world.
HMT manufacturing Hi-tech product is employing 21850 well-qualified and
motivated employee.

HMT Product Range:

HMT is one of the worlds 10 largest machine tools house it manufacturing the worlds
widest range of machine tools and several engineering product.
The total output of five factories in full production is estimated at Rs.25crores per
annum.
Machine tools find implementation in all manufacturing activities not in engineering
industries but also in four sectors like transportation coal generation and defiance.
Hindustan tools one of the India machine tools manufacturing is a multi product
company with 18 production units and 22 product divisions.

PROFILE OF HMT LTD

Name of the company

Established in

HMT MACHINE TOOLS LIMITED

: 1953 PUBLIC SECTOR ENTERPRISE

Turnover of the company

: 50 CRORES AS ON 31-3-2008

Multi Product Company

: BROADLY CLASSIFIED INTO 5 HEADS

They are:1. Machine tools

2. Tractors
3. Industrial Machinery
4. Consumer Components
5. Engineering components

Work force in HMT machine tools division, Hyderabad

Total work force

: 778

Work men

: 568

Direct work men

: 210

Indirect work men

: 320

Supervisory & Executive staff

G.M

: 1

J.G.M

: 8

D.G.M

: 31

A.G.M

: 41

Managers

: 60

Deputy Managers

: 42

Officers

: 78

Supervisors

: 20

Total

: 281

SHIFTS IN HMT, HYDERABAD

There are 3 shifts in HMT:
A from 6.00 AM to 2.00 PM
B from 2.00 PM to 10.00 PM

General from 8.00 AM to 4.00 PM

The administrative department work in general shift.

BRIEF HISTORY
The first industry police resolution was issued by the government of India on 1st April
1948 which divided the industrial sector in to three categories they were:

1. Industrial where state is having monopoly

2. Mixed of government control
3. The field private Enterprise

So in the third category which is fielding government control the industries of

national importance were included. Hence the government considered them of such
importance that their regulation and direction was necessary.

The machine tools heavy machinery, tractors belonged to this category.

In 1948 industrial policy resolution remained in effect for 8 years this period was
marked by some significance changes in the economy like the country had completed 1 st five
year planning during the period of 1951-56 and also the industrial development act was
passed in 1951 so the promoted deceleration on new industrial policy resolution 1956 in this
deceleration the machine tools and heavy machine were subjected to the monopoly of state.

Some machine tools industries exists few places like Mumbai, Punjab since 1890. But
they were not able to fulfill the demands for machine tools in domestic market and also
during world war-11.

COMPANY PROFILE
HMT LTD HYDERABAD
(THE FIFTH UNIT OF HMT LTD)
HMT Hyderabad, 5th in the chain of machine tools factories
built by the HMT Ltd. Is a multi division and multi products organization started in the
year 1963 in a 50 acres plot on the out skirts of Hyderabad HMT has two divisions at
present namely

1. The machine tools division

2. Press division

The machine tools division:

In this division special purpose machine are custom built in various sizes.
A notable feature of these SPMS is that each has to be designed for a specific
component based on requirement of the customer since each machine has to be designed
individually there is a large designed office with more than 200 designers work on the board
bulk of the requirements of these types machine in India is met by HMT ltd. Hyderabad
veering in cost form a low value of rs. 5 lacs to has high 25 crores these machine laying a
vital role in producing engineering products in large quantities.
A concert effort also being made to increase the export of there high technology
machines and to gain good base in the world, machine tools mark.

HMT, Hyderabad has entered into a technical collaboration with m/s cross company us. A
who is one of the world lenders in building SPMS.

It has already exported SPM and horizontal boring machines to Iran, Taiwan, Algeria,
Sweden and Srilanka.

The press division:

Here Hyderabad press and press breakers of tonnage up to 200 are designed and
manufactured meeting the bulk of requirement of the defense sector and automobile industry
these high precision presses made originally built in collaboration coming to an end.

HMT is now its own it helps country to space substantial mount of importing a
complete press. Since the business for the major products of the about two diversion highly to
have a strong engineering base enable it diversify into products other than machine tools and
press. It has successfully executed orders for coil winding machine. Hailers for coal
instruments, equipment for rather etc.

HMT FAST FORWARD

It was in the early post independents are that HMT began a small way to meet a big
commitment.

To manufacture mother machine to built modern industrial India

HMT was convinced by the government of India in 1949, and was incorporated in
1953, with the objective of producing a limited range of machine tools required for building
and industrial edifice for the country.

THE 1960S

In 1967 recession struck the Indian engineering industry and the consumption of
machine tolls dipped drastically. The traumatic years of recession did indeed serve to bring to

the fore two latent strengths of HMT namely the urge to survive and the confidence to
innovate with these strengths a full play the company

emerged from the recession. With the world widest range of machine tools and associated
services under a single corporate entity.

1. With action plan firmly launched for diversification into tractors presses and press brakes
printing machine, die casting and plastic. Injection moulding machines, homological
machinery etc., which were considered to have economic cycles that are different from
those of machine tools.

2. With a watch factory already established in 1961 to 1962, additional capacities from for
watch production a greater cushion against cyclical fluctuation in capital goods market and
also to meet the burgeoning demand for watches.

THE 1970S
The 70s witnessed the fructification of all the diversification of plans as envisaged.

HMT SETUPS
1. HMT International limited as a subsidiary company to channel HMTS
Products and technical service aboard.
2. Two more units for manufacture of watches one at Srinagar and one at
Tumkar.
HMT took over machine tool Corporation at Ajmer as its sixth
machine tool unit.

THE 1980S
In the 80s HMT as a part of vertical integration efforts, launched units to manufacture

1. Watches cases at Bangalore.

2. Watches at ranibagh.
3. Stepper motors at tumkur.
4. CNC systems at Bangalore.
5. Ball scrums for use on CNC machines at Bangalore etc., Also

1. HMT took over indo-Nippon precision bearing ltd, a state owned unit as a subsidiary, which
was renamed HMT- bearing ltd.
2. HMT took over praga tools ltd as another subsidiary.

THE 1990S
The company restructured itself into four business groups machine tools, watches
tractors, industrial machinery and engineering components as part of business reorganization.

THE NEW MILLIENNIUM

HMT is now restructured with addition of there more subsidiaries to those already
existing HMT now comprises of six subsidiaries under the ambit of the holding company
which also manages the tractors business directly.

1. HMT machine tools limited Bangalore.

2. HMT watches limited Bangalore
3. HMT chinar watches limited Jammu.
4. HMT bearing limited Hyderabad

5. Praga tools limited Hyderabad.

6. HMT (international) limited Bangalore.

The Strategic plan of the HMT group is coordinated by the holding company at
Bangalore.

Anticipating that basic requisition for rapid industrial was self-efficiency in machine
tools segment. Government entered in to technical collaboration with M/s oerlikons
machine tools factory at Bangalore. But how the government till 1953 when HMT was
established as a registered company in Bangalore.

It was 1961 the HMT had show a profit setting of crores and riding the high up the
success HMT decides that the amount generated as profit would be

utilized for up of

another unit Bangalore i.e. unit-1 1.

The HMT- 11 was inaugurated by the late. Prime Minister Jawaharlal Nehru on 21st
July, 1961 the second factory described as Gift of Nation.

HUMAN RESOURCE MANAGEMENT:

The company has continuously added to its installed capacity, yet the Man-MW ration
has been consistently improving. The total strength of employees of the company including
that on secondment to different associated organization stands at 23080 as on March 31, 2004
as against 23427 as on March 31, 2003. All efforts were made to improve the work force
utilization. The overall man-MW ration for the year 2003-04 was 0.98 as against 1.02 for
year 2002-03.
In tune with companys HR initiatives, training & development given a renewed
thrust to build competence and commitment among the employees. The target of seven days
training per employees achieved by most of the plants.
In order to bring more objectivity and transparency in performance evaluation and
building high performance culture, key performance area based performance, monitoring
system is being implemented from 2004-05.

Considering the importance of knowledge management, a detailed IT enabled KM

system has designed which provides for various domains of knowledge to be
comprehensively captured. The system under implementation and would benefit a large
number of users in the company.
Employee morale continued to remain high facilitating smooth working of the
company and contributing to higher generation of power. All efforts to achieve employee
development were made through measures like job-rotation, re-deployment etc.

EMPLOYEE RELATIONS:

Employee relations In HMT, rooted in the philosophy of bipartisan, continued to be

cordial & harmonious during the year.
1. effectively leverage information technology to drive process efficiencies.
2. aim for performance excellence in the diversification businesses.

HUMAN RESOURCE DEVELOPMENT:

To enhance organizational performance by institutionalizing an objective and

open performance management system.

To align individual and organizational needs and develop business leaders by

implementing a career development system.

To enhance commitment of employees by recognizing and rewarding high

performance.

To build and sustain learning organization of competent world- calls

professionals.

To institutionalize core values and create a culture of team building,

empowerment, equity, innovation and openness which would motivate
employees and enable achievement of strategic objectives.

FINANCIAL SOUNDNESS:

To maintain and improve the financial soundness of HMT by prudent

management of the financial resources.
To cautiously strive to reduce the cost of capital through prudent management
of deployed founds, leveraging opportunities in domestic and international financial markets.
To develop appropriate commercial policies and processes which would ensure remunerative
tariffs and minimize receivables?
To continuously strive for reduction in cost of power generation by improving
operating practice.

CHAPTER IV
DATA ANALYSIS &
INTERPRETATION

The investment on raw materials over a period of 5 years from 2000 to 2008 is
presented in the following table.
1. Investment on Raw Materials:

Year

Investment on Raw Material (in crores)

2008 2009

12376.95

2009 2010

11750.75

2010 2011

47550.86

2011 2012

41572.77

2012 2013

47265.66

2013 2014

92505.68

Interpretation:

1)

From the above table it can be understood that the inventory of HMT TOOLS
LIMITED was recorded at 12376.95 during the year 2008 09 and it is increased to
92505.68 during the year 2009 10.

2)

It shows that there is on increase in the inventory to the more extent of 82208.91.

3)

The average inventory of HMT TOOLS LIMITED was recorded at Rs.47260.15.

4)

The highest investment in inventory was recorded in the years 2009-10

2.

Trend Analysis:
Trend analysis technique is applied to know the growth rate in investment of raw

material of HMT TOOLS LIMITED over the review period which is shown in the following
table.
Trend Analysis:
Year

Raw Material (in Lacks)

Trend %

2008 2009

12376.95

100%

2009 2010

11750.75

97%

2010 2011

47550.86

344%

2011 2012

41572.77

295%

2012 2013

47265.66

359%

2013 2014

92505.68

710%

Interpretation:
1)

The investment on investment has increased in the year 2006 08. And the lost year
investment has declared continuously. The percentage in 2003 04 was 295% as
compared to years 2004 05 to 2007 08.

2)

The trends in inventories show that inventory have been more in the year 2007 08
and then it has shown a downward trend and again it increased to some extent.

3)

The investment in inventories has shown fluctuating trend is initial years and then it
raised to 710% and again showing fluctuating trend.

3.

Inventory Turnover Ratio:

This ratio indicates the number of times the stock has been turned over during the

period & evaluates the efficiency with which a firm is able to manage its inventory. This
ration is calculated by applying the following formula.
Cost of goods sold
Inventor turn over ration

_________________
Average inventory

Inventory turn over ration:

years
2008 2009
2009 2010
2010 2011
2011 2012
2012 2013
2013 2014

Cost of goods sold

59567.65
57046.56
118561.78
126368.65
129568.89
299726.18

Avg. Inventory
7200.12
36822.20
94022.27
11365.07
12225.77
155627.91

Ratio
8.27
1.54
1.26
11.11
10.59
1.92

Interpretation:
1.

From the above table 2002 it can be observed that (1) inventory turn
over ratio is 8.27 during 2007 2008 and it gradually decreased to 1.26 during 2009
2010.

2.

In the year 2009 10 it is clear that the ratio is very less i.e., he stock
is not turned into sales quickly.

3.

As compared to all the years the ratio is very less in 2009 10.

4.

The average inventory turn over ratio was recorded at 6.3 times during
the review period.

4.

Inventory conversion period:

It may also be of interest to see average time taken for clearing the stocks. This can be

possible by calculating inventory conversion period. This period is calculated by dividing the
number of the days by inventory turn over.
This formula may be as:
Days in a year (360 days)
Inventory conversion period

_____________________
Inventory turnover ratio

Inventory conversion period: (in crores)

Year
2008 2009
2009 2010
2010 2011
2011 2012
2012 2013
2013 2014

Cost of goods
sold
59567.65
57046.56
118561.78
126368.65
129568.89
299726.18

Avg. inventory
7200.12
36822.20
94022.27
11365.07
12225.77
155627.91

Ratio

ICP (Days)
8.27
1.54
1.26
11.11
10.59
1.92

43
233
285
32
33
187

Interpretation:
From the above table it can be identified the following observations:
1)

The inventory conversion period was 233 days during the year 2008 09 but it
declined to 285 during 2009 - 10, which indicates that the stock has been very quickly
converted into sales which mean the company is managing the inventory efficiently.

2)

The lowest inventory conversion period was recorded at 285 days in the year 2009
10 and the highest inventory conversion was recorded at 187 days in the year 2013
14.

3)

The average inventory conversion period was recorded at 97days during the review
period.

5.

Percentage of Inventory over current assets:

In order to know the percentage of inventory over current assets the

Ratio of inventory to current assets is calculated and which is presented in the

following table.
Inventory
__________ X 100
Current assets
Percentage of Inventory Over current assets:
Inventory over current assets ratio =

Year

Inventory

Current Assets

Ratio (%)

2008 2009

12376.95

20272.23

61%

2009 2010

11750.75

29672.56

39%

2010 2011

47550.86

57522.66

82%

2011 2012

41572.77

49627.06

83%

2012 2013

47265.66

52726.32

89%

2013 2014

92505.68

90277.56

102%

Interpretation:
1)

From the above table it can be understand that the % of inventory over current assets
ratio was showing a declining trend for two years 2007 - 2008.

2)

However from the year2013 14 it is showing an increasing trend.

3)

The lowest inventory over current assets ratio was recorded at 39% during the year
2008 09 and the highest inventory over current assets ratio we recorded at 102%
during 2013 14.

4)

The average inventory over current assets ratio was recorded at 65%.

6.

Percent of Inventory Over total current assets & fixed assets:

Inventory / Current + Fixed assets
Year

Inventory

Current Assets

Ratio (%)

2008 2009

12376.95

85272.56

14.51%

2009 2010

11750.75

85262.95

13.78%

2010 2011

47550.86

106567.28

44.62%

2011 2012

41572.77

110643.47

37.57%

2012 2013

47265.66

110347.39

42.83%

2013 2014

92505.68

182256.16

50.75%

Interpretation:
1)

During the year 2007 08the ratio was 14.51% on it declined to 13.78% in the year
2008 09

2)

From the year 200809 it is showing fluctuating trend but as compared to above 2
years it is increasing.

3)

The lowest inventory over total assets ratio was recorded at 13.78% during the year
2008 09 and the highest inventory ratio was recorded at 50.75% during the year
20013 14.

4)

The average inventory to total assets ration was recorded at 34.81% during the review
period.

7.

Percentage of Inventory over current liabilities:

In order to know the percentage of inventory over current liabilities the

ration of inventory to current liabilities is calculated and which is presented in

the following table.
Inventory
Inventory over current liabilities ratio

= __________________ X 100
Current liabilities

Percentage of Inventory Over current liabilities:

Year
2008 2009
2009 2010
2010 2011
2011 2012
2012 2013
2013 2014

Inventory
12376.95
11750.75
47550.86
41572.77
47265.66
92505.68

Current liabilities
7212.21
7900.56
13502.15
13502.15
16756.13
33567.24

Ratio (%)
17%
148%
352%
307%
282%
275%

Interpretation:
1. From the above table it can be understand that the % inventory over current
liabilities ratio was showing a declining trend for two years 2007 08.
2. During the year 2008 09 the ratio was it gradually increased to 148and there
is a net increase to the extent of 352.
3. The lowest inventory over total amounts ratio was recorded at 17 during the
year 2007 08.
4. The highest inventory to current liabilities ratio was recorded at 275 during the
year 2007 08.

5. The average inventory to current liabilities ratio was recorded at 256 during
the review period.

8.

Current Ratio:
In order to know the current ratio the percentage of current assets to current liabilities

is calculated and which is presented in the following table.

Current assets
Current Ratio

= _____________________
Current liabilities

Calculation of Current Ratios:

Year
2008 2009

Inventory
22275.16

Current liabilities

Ratio (%)

7212.21

3.08%

2009 2010

25650.75

7900.56

3.24%

2010 2011

50052.02

13502.15

3.70%

2011 2012

42626.78

13502.15

3.15%

2012 2013

47722.14

16756.13

2.84%

2013 2014

82521.156

33567.24

2.45%

Interpretation:
1.

From the above table it can be interpreted that the % of current assets over current

liabilities ratio i.e., current ratio was showing a decreasing trend from year 2003 04.
In the year 2007 08 the ratio was 3.08% and has increaser to 3.24% in the year 2003

2.
04.
3.

The lowest current ratio was recorded at 2013 14 which is 2.45% and the highest

current ratio was recorded at 3.70% during the year 2010 11.
4.

The average current ratio was recorded at 3.75% during the review period.

9.

Quick Ratio:
The quick ratio is the relationship between quick to current liabilities quick assets is

more rigorous test of liability position of a firm it is computed by applying the following
formula.
Quick ratio

Quick assets / Current Liabilities

Where Quick assets = Current Assets Inventory

Year

Inventory

Current liabilities

Ratio (%)

2008 2009

12720.76

7212.21

1.76%

2009 2010

19560.52

7900.56

2.47%

2010 2011

5216.24

13502.15

0.38%

2011 2012

3775.78

13502.15

0.27%

2012 2013

4026.95

16756.13

0.24%

2013 2014

3600.57

33567.24

0.10%

Interpretation:
1.

From the above table it can be understand as that the % of quick assets to

current liabilities i.e., the quick ratio was 0.38% in 2009 10 and from that year it is
showing decreasing trend.
2.

The highest quick ratio was recorded at 2.47% during the year 2008 09 and

the lowest quick ratio was recorded at 0.10% during the year 2013 14.
3.

The average quick ratio was recorded at 0.78 during the review period.

CHAPTER V

CONCLUSIONS;
1)

Over all the inventory of HMT TOOLS LIMITEDs is up to the mark

2)

Inventory procurement is also based on and does not confirm to

economic batch quantities leading to surplus inventories and nonmoving inventories.

3)

The production of clinker and MACHINES during 2003-2004was7,47,436 and

7,77,092 respectively which is higher as compared to 2006 2007 which is
6,87,373 and 7,27,447.

4)

there is a regular physical verification for A and B class items by internal audit
department to highlight on non-moving inventories.

5)

Investment on raw material is 92505.68 crores which very high as compared to

2006 07 which is only 47265.66 crores.

6)

The inventory turn over ratio shows that the stock has been converted into sales is
only 1.92 times.

7)

In the year 2005 06 the stock was cleared within 32 days whereas it took 233
days in the year 2003 2004 which took more days for clearing stock.

8)

In this type of process, it requires more number of employees and supplier should
also wait for until the accounts are matched.

9)

This process takes an input, adds value to it and provides an output to an internal
or external customer.

SUGGESTION:

1. A regular reporting system on inventory should be in place to highlight on carrying

costs and liquidity covering all the business groups and at the corporate level.
2. Once non-moving inventory is observed and declared a quick disposal action has to be
initiated. This exercise has to be carried on through out the year.
3. Though the production is higher is the year 2004 05 and the sales were very high i.e.,
as per inventory conversion period it took 272 days. This shows that there is demand for
MACHINES and the funds unnecessarily tied up. So, proper demand forecasting should
be done and according to that it may be manufactured.
4. The investment on raw material should be made as per the requirement. Unnecessary
investment may block up the funds.
5. Neither too high nor too low inventory turnover ratios may reduce profit and liquidity
position of the industry. So, proper balance should be made to increase profits and to
ensure liquidity.
6. The raw material should be acquired from the right source at right quality and at right
cost.
7. The process that was being used by HMT TOOLS LIMITEDs with the purchasing
department should undergo changes, so that, it seeks enhance the celerity of the delivery
of a product without compromising its quality by improving the utilization of materials,
labour and equipment.
8. To reduce the work, the purchasing department may enter the purchasing order into
database and did not send a copy to any one. When the merchandise arrived, the
receiving clerk would enter the database and determine whether the order agreed with
the electronic purchase order.

BIBLIOGRAPHY
1.

Financial Management

By IM Pandey

2.

Financial Management

By Prasanna Chandra

3.

Total Quality Management

By K. Shridhara Bai

4.

Companys Stores Manual

5.

Companys Annual Reports