CHAPTER-1

INTRODUCTION
Introduction:
Financial management is a managerial activity which is
concerned with the planning and controlling of the firms financial resources.
Financial management is an integral part of overall management. Financial
department of the organization is responsible for the financial management of the
firm.
Definition:
Financial management is concerned with the acquisition,
financing and management of assets with some overall goal in mind.
------- Van Horne & Wachowitz.
Financial management is concerned with the raising
financial resources and their effective utilization towards achieving
organizational goals.
---------- S.N.Maheswari.

Functions of Financial Management:

The functions of raising funds, investing them in assets and distributing returns
earned from assets to shareholders are respectively known as Financing Decision,
Investment Decision, and Dividend Decision. A firm attempts to balance cash
inflows and outflows which performing these functions. This is called Liquidity
Decision. These functions are depicted as follows:
1. Investment Decision
2. Financing Decision
3. Dividend Decision
4. Liquidity Decision

1. Investment Decision: These decisions relate to the selection of assets in

which funds will be invested by a firm. The investment of funds in a project
has to be made after careful assessment of the various projects through capital
budgeting.
A firms investment decision involves capital
expenditure. They are, therefore referred as capital budgeting decision. A
capital budgeting decision involves the decision of allocation of capital to long
term assets that would yield benefits in the future. Two important aspects of
investment decisions are:
a. Evaluation of the prospective profitability of new investment, and
b. The measurement of a cut-off rate against the future returns of new
investment could be compared.
2. Financing Decision: It is the second important function to be performed by
finance manager. Broadly he/she must decide when, where from and how to
acquire funds to meet the firms investment needs.
The financial manager needs to possess a good
knowledge of the sources of available funds and their respective costs and
needs to ensure that the company has to a sound capital structure, i.e., a proper
balance between equity capital and debt.
3. Dividend Decision: It is the third financial function performed by the
financial manager. The financial manager must decide whether the firm should
distribute all profits or retain them or distribute a portion and retain the
balance. The proportion or profits distributed as dividends is called the
dividend-payout ratio and the retained portion of profits is known as the
retention ratio.
4. Liquidity Decision:

Investment in current assets affects the firms

profitability and liquidity. Current assets should be managed efficiently for

safeguarding the firm against the risk of liquidity. Lake of liquidity in extreme
conditions can lead to the firms insolvency. If the firm does not invest
sufficient funds in current assets, it may become illiquid and therefore risky.
2

OBJECTIVES OF THE STUDY

To know the overall effectiveness of inventory management in HMT Ltd.

To study the methods of inventory control in HMT

To know how the procurement of material is done.

To study the inventory valuation in HMT.

To suggest a remedial measure for better decision making by the organization.

SCOPE OF THE STUDY

The Inventory Management discipline encompasses all system and data network
elements from the mainframe to the server level throughout the enterprise.

Financial and technical product information must be available through the

Inventory System, as needed to support the functional responsibilities of
personnel within the finance and contracts management departments.

Asset criticality must be included with asset descriptive and financial

information, so that the Recovery Management department is supplied with the
information it requires. Recovery actions must be implemented to safeguard
critical assets.

Asset status must be included in the Inventory Management system, so that the
components) can be serviced in adherence to legal, environmental, business, and
industry requirements.

The Standards and Procedures Manual section relating to Inventory Management

must be created and published. This section must describe the process by which
assets are identified, entered into the inventory Management System, tracked,
and finally deleted.

LIMITATIONS OF THE STUDY

Though the project would be completed successfully a few limitations
are expected. Since the procedures and policies of the company do not allow
disclosing of all financial information of the project has to be completed with the
available data collected with maximum effort.
Time is main constraint in completing the study with in the stipulated period
allowed.
It has become difficult to analyze all the documents in detail within six weeks.
Confidentiality of the information is also a limited factor.
The analysis is made on the basis of secondary data only.
As there is a more dependency on secondary data realistic conclusions may
not be possible to be made.
The Available of data is only pertaining to five years is one of the constraint.

RESEARCH METHODOLOGY
Methodology:
Methodology is a systematic procedure of collecting information in order to
analyze and verify a phenomenon. Methodology plays a vital role in the analysis of
the study. It refers to the way adopted for collecting the facts and information
formally presented for drawing inference.

Sources of Data:
The data that is necessary for doing this project is collected through the two
types of data:
1. Primary data
2. Secondary data

Primary Data:
The primary data is the first hand information collected a fresh. It deals with
the original information. The primary data for this is collected through personal
interviews and discussion with the concerned personnel in the organization, mainly
from finance department.

Secondary Data:
Secondary data is that which already exists, it is collected from the secondary
sources viz., and companys annual reports, published records, company manuals and
the theoretical concepts were complied and scrutinized for the relevance to the study
from various reference books.

NEED FOR THE STUDY

Inventory is needed to regulate the flow of raw materials and work in progress
for purchasing and finished goods for sale. Inventory does not earn interest, and is
expensive to store, insure, protect and stock out costs. Therefore, inventory should b
held so as to hold enough to operate but not too much. The inventories are needed for
the following reasons.
1.

Avoiding Losses of Sales

If the firm is not having enough stock of finished goods it will result in the

loss of sales normally, unless the product is being made to order as per the specific
requirement of the customer. In most cases, however, firm must be in a position to
deliver goods on demand.
2.

Gaining quantity Discounts

Suppliers of raw materials usually offer quality discounts if purchase are made

in bulk. These discounts will reduce the cost of goods increase the profit when it is
7

sales. Thus, the firm would like to purchase raw materials in quantities greater than
their requirements.
3.Reducing Ordering Cost
Each time a firm places an ordered; it incurs certain expenses, which are called
as ordering cost. Forms have to be filled, approvals have to be obtained, and goods
that arrive must be accepted, inspected, and counted. Later, an invoice must be
processed and payment made.

The greater the number of orders greater is the

ordering cost.
4.Achieving efficient Production Runs
Each time a firm organized works and machine to produce an item, startup
costs are incurred. These are then absorbed as production begins. Frequent setups
will result in high startup costs; larger runs involve lower costs.
5.Reducing risk of production shortages
Once the production process starts all the required raw materials, components
etc, should be made available to the production department without any delay.

CHAPTER 2
PROFILE OF AUTOMOBILE INDUSRTY
HMT Limited, the pioneer in Machine Tools Industry in India and
manufacturers of a diversified range of products has incorporated HMT
MACHINE TOOLS LIMITED as its fully owned subsidiary on 9th August 1999.

HMT MACHINE TOOLS LIMITED (HMT-MTL) is a Multi-unit, Multi

location, Multi technology Company manufacturing a wide variety of
STATE-OF-THE-ART Machine Tools.

Comprehensive

Customer

Support

services

including

Application

Engineering, Customer Training and after sales service.

The best of products in terms of technology, productivity and cost effectiveness

All manufacturing units of HMT Machine Tools are ISO9001 certified.

8

NATURE OF BUSINESS CARRIED:

HMT limited, the pioneer in machine tools industry in India and
manufacturers of a diversified range of products has incorporated HMT MACHINE
TOOLS LIMITED as its fully owned subsidiary on 9th August 1999.
HMT MACHINE TOOLS LIMITED (HMT-MTL) is a multi-unit, multilocation, multi Technology Company manufacturing a wide variety of STATE-OFTHE-ART machine Tools. HMT-MTL has its manufacturing units at five locations
with each unit specialized in a particular family of Machines. The sales and service
network is spread across the length and breadth of the country. As leading
manufacturer of Machine Tools in India, HMT-MTL provides the best of products in
terms of technology, productivity and cost effectiveness.
VISION, MISSION AND QUALITY POLICY
Corporate Vision

To be a leading GLOBAL ENGINEERING CONGLOMERATE Focused on

CUSTOMER DELIGHT in our fields of Endeavour.

Corporate Mission

To establish ourselves as one of the worlds premier companies in the

engineering field having strong international competitiveness.

To achieve market leadership in India through ensuring customer satisfaction

by supplying internationally competitive products and services.

To achieve sustained growth in the earnings of the group on behalf of

shareholders.

Quality Policy

To maintain QUALITY LEADERSHIP in all our PRODUCTS &

SERVICES

TOTAL CUSTOMER SATISFACTION through Quality Goods and

Services
9

COMMITMENT of management to Quality

To create a CULTURE amongst all Employees towards TOTAL QUALITY

CONCEPTS

TOTAL QUALITY through PERFORMANCE LEADERSHIP

CHAPTER 3
COMPANY PROFILE

BACKGROUND AND INCEPTION OF THE COMPANY

H.M.T. is one of the leading public sector companies, in India, HMT I & II
Bangalore plant was inaugurated in 1953 by PANDIT JAWAHARLAL NEHRU; it
10

has 16 manufacturing units spread over 10 states, 24 divisions and 29,000 employees
in 10 different states.
DR.S.M.Patil started HMT limited as a Hindustan Machine Tools Limited on
7th February 1953 in technical and financial collaboration with the DERLIKON
MACHINE TOOLS WORKS of Switzerland. The first product produced by HMT
was lathe on 6thOctober 1953.Then the government of India bought the shares held by
Derlikon thereby transforming HMT as a Government undertaking
INTRODUCTION OF MACHINE TOOLS LIMITED
HMT Limited, the pioneer in Machine Tools Industry in India and
manufacturers of a diversified range of products has incorporated HMT
MACHINE TOOLS LIMITED as its fully owned subsidiary on 9th August 1999.

HMT MACHINE TOOLS LIMITED (HMT-MTL) is a Multi-unit, Multi

location, Multi technology Company manufacturing a wide variety of
STATE-OF-THE-ART Machine Tools.

Comprehensive

Customer

Support

services

including

Application

Engineering, Customer Training and after sales service.

The best of products in terms of technology, productivity and cost effectiveness

All manufacturing units of HMT Machine Tools are ISO9001 certified.

NATURE OF BUSINESS CARRIED:

HMT limited, the pioneer in machine tools industry in India and
manufacturers of a diversified range of products has incorporated HMT MACHINE
TOOLS LIMITED as its fully owned subsidiary on 9th August 1999.
HMT MACHINE TOOLS LIMITED (HMT-MTL) is a multi-unit, multilocation, multi Technology Company manufacturing a wide variety of STATE-OFTHE-ART machine Tools. HMT-MTL has its manufacturing units at five locations
with each unit specialized in a particular family of Machines. The sales and service
network is spread across the length and breadth of the country. As leading
manufacturer of Machine Tools in India, HMT-MTL provides the best of products in
terms of technology, productivity and cost effectiveness.
11

VISION, MISSION AND QUALITY POLICY

Corporate Vision

To be a leading GLOBAL ENGINEERING CONGLOMERATE Focused on

CUSTOMER DELIGHT in our fields of Endeavour.

Corporate Mission

To establish ourselves as one of the worlds premier companies in the

engineering field having strong international competitiveness.

To achieve market leadership in India through ensuring customer satisfaction

by supplying internationally competitive products and services.

To achieve sustained growth in the earnings of the group on behalf of

shareholders.

Quality Policy

To maintain QUALITY LEADERSHIP in all our PRODUCTS &

SERVICES

TOTAL CUSTOMER SATISFACTION through Quality Goods and

Services

COMMITMENT of management to Quality

To create a CULTURE amongst all Employees towards TOTAL QUALITY

CONCEPTS

TOTAL QUALITY through PERFORMANCE LEADERSHIP

12

1.3 PRODUCT PROFILE:

13

Our Business Domain

HMT PRODUCTS

14

TRACTORS

BEARINGS

WATCHES

15

HMT is synonymous withexcellence in precision engineering in India. HMT is

built on a strong foundation of technical know how acquitted from world leaders in
machine tools, such as ORELIKON, MANURCHIN,GILD MEISTER, LEE BEER,
RINO BERADI, FRITZ WEMER PEGARD. Today HMT Machine Tools expertise
has been developed to such an extent that HMT can design and develop any kind of
machines. From simple lathe to multi station transfer lines, from stand alone CNC
machine to flexible manufacturing systems (FMS) leading to factory automation
HMTs broad range of machine tools covers.
General purpose machines and CNC machines are produced to meet the
application needs of every engineering industry.
1. Computer Networking Control (CNC) machines.
2. Turning machines.
3. Milling machines.
4. Drilling machines.
5. Grinding machines.
6. Boring machines.
7. Broaching machines.
8. Special purpose machines.
16

9. Other products:

Metal forming.

Die costing and plastic machinery.

Printing machines.

Food processing machines.

Tractors.

Quartz watches.

Bearings.

Prcising ball screw.

Recondition.

17

ORGANIZATION STRUCTURE OF HMT

GM (MBX)
DGM
DGM
(CNC)
(CNC)

JGM
JGM
(PSB)
(PSB)

GM
GM (P)
(P)
PRODUCTION
PRODUCTION
GM
GM (F)
(F)
FINANCE
FINANCE

SALES
SALES
ENGG.
ENGG.
JGM(S
JGM(S)

DESIGN
DESIGN
DEVELOPME
DEVELOPME
NT
NT
JGM
JGM (D
(DD)

HRM
HRM
SECURITY
SECURITY
TRAINING
TRAINING
CANTEEN
CANTEEN
JGM
JGM (HRM)
(HRM)

QUALITY
QUALITY &
&
INSPECTION
INSPECTION
JGM
JGM (QI
(QI)

FINANCE
FINANCE

ENGG.
ENGG.
SUBCONTRACT
SUBCONTRACT
COMPR
COMPR &
& MIS
MIS
JGM(E
JGM(E)

BALL
BALL
SCREW
SCREW
TOOL
TOOL
ROOM
ROOM

PLANT
PLANT
SERVICE
SERVICE
DGM
DGM (PS
(PS)

(MFG)
MFG)
JGM
JGM

PROGRESS
PROGRESS
AGM
AGM (PR)
(PR)

FOUNDAR
FOUNDAR
Y
Y JGM
JGM (F)
(F)

ASSEMBLY
ASSEMBLY
JGM
JGM (AY
(AY)

HOSPITAL
HOSPITAL CMO
CMO

18

TRAIL
TRAIL &
&
SERVICING
SERVICING
SPARES
SPARES DGM
DGM
(TS)
(TS)

MATERIAL
MATERIAL &
&
STORES
STORES
JGM
JGM (M)
(M)

ORGANIZATION STRUCTURE OF PRODUCTION DEPARTMENT

General Manager

Joint General Manager

Deputy General Manager

Assistant General Manager

Manager

Deputy Manager

Foremen

Supervisor

Junior Superior

Worker

19

CUSTOMERS OF HMT

HAL

BHEL

RAILWAYS

SHIP BUILDING INDUSTRIES

CEMENT INDUSTRIES

GENERAL ENGINEERING INDUSTRIES

BAJAJ AUTOS

TVS

COMPETITORS OF HMT

MICROMETRICS-TURNING CENTRE& GRINDING MACHINES.

PERISHED- GHAZI BAD GRINDING MACHINES.

HEC (HEAVY ENGINEERING CORPORATION- HEAVY DUTY LATHE.

ACE DESIGNERS AT BANGALORE - TURNING CENTER, MACHINING

CENTERS.

LMW TURNING AND DRILL TAP CENTERS.

TAL PUNE SPAM.

JYOTHI TURNING CENTER& MACHINING CENTER.

ASKAR MICRON- MYSORE TURNING CENTERS.

WIDIA- BANGALORE- SPAM.

KIRLOSKAR - MYSORE.

20

21

CHAPTER 4
THEORITICAL FRAMEWORK :
MEANING OF INVENTORY MANAGEMENT
Inventory management means safeguarding the companys property in the form of
inventories and maintaining it at the optimum level, considering the operating
requirements and financial resources of the business. Inventory management
emphasizes control over for each item of inventory. The reduction in an excessive
inventory. i.e. Excesses above the optimum level carries a favourable impact on
companys profitability, line wise maintaining inventory below optimum level
negatively affects the companys profitability. Hence, inventory management should
be comprehensive enough to cover the flow of materials starting from the point when
for the purchase, up to the stage when the finished products are sold.
Efficient inventory management reduces levels of inventories to a considerable
degree without effect on production and sales by using simple inventory planning and
control techniques. An understanding neglecting the management of inventory will be
jeopardizing its long run profitability and survival.
S.K. Kuchal Good inventory management is good financial management.
Inventory comprises stock of raw materials ; work in process, finished
products, stores and components.
John HAMPTON treats inventories, the major element in the Woking
capital (approximately 60% of current assests) of many business undertaking in
india.

22

FUNCTIONS OF INVENTORY MANA GEMENT

The necessity of holding inventory is due to the following functions of
inventory:

Specialization
A firm can either produce all the required variety products at a plant at one
Locations, or, produce different products at separate plant locations.

Locating

Separately will enable the firm to select the location of each different product
Manufacturing plant based on the particular requirements of that product, thus
Achieving specialization efficiencies like geographical facilities and economies of
scale. This specialization approach creates inventory at diverse locations. Also,
Pipeline inventories are created due to transport linkage required between Different
manufacturing plants and with distribution warehouses.

23

INVENTORY CONTROL TECHNIQUES

Effective inventory management requires an effective control for inventories.
Excess inventory holding leads to excessive carrying cost on account of interest of
interest, storage and handling changes, insurance, record keeping, inspection and the
risk of deterioration in quality and thus adversely affects the profitability of the
organization. Even through the optimum level of inventory varies from industry to
industry, it is generally considered that the value of inventory as a percentage of
annual consumption may not exceed 33 percent and the value of finished goods to net
sales may be about one months sales. Managing inventory levels in an ongoing
balance between the costs of carrying extra inventory, versus the revenue losses
incurred by not having enough inventories available. A proper inventory control not
helps in solving the acute problem of liquidity but also increases profits and causes
substantial reduction in the working capital of the concern. The following are the
important tools and techniques of inventory management and control.
A.B.C. ANALYSIS :( Always better control)
An ABC analysis offers an important solution to be problem of a scientific
planning and control of inventories and is on important technique of inventory
management. It is based up on the value of different items constituting inventory. It
may be concerned with several items, raw materials, factory and office supplies,
machine tools and handling equipments. The idea underlying on ABC analysis is in
recognition of the principle that some items of inventory are more important than
other. The ABC techniques enables the enterprise to keep its investment low avoid
stock out of critical items. Its objective is to reduce the minimum stock as well as the
working stock. ABC analysis underlines a very important principal Vital few trivial
many statistics reveal that just a handful of times account for bulk of the annual
expenditure on materials. These few items called A items are numerous in numbers,
and their contribution is less significant.ABC analysis trends to segregate all items
into categories, A, B and C based on their annual usage. The categorization so made
enable us to pay the right amount of attention and minimum of effort and
expenditures.

24

A.B.C CLASSIFICATION:
The following steps have been undertaken to implement ABC analysis.

The price per unit for each purchased item is obtained.

The total consumption value is determined by multiplying consumption

quantity by its unit price.

The consumption value is arrived by the above calculations for each of the
items.

The items are ranked in accordance with the total consumption value, giving
first rank to the item with highest total value. The items are arranged in the
order of decreasing annual consumption value.

The ratio of total value of all items is determined.

The list of value is divided into three groups, namely, A-high value, B-medium
value, and C-low value. In making that division, a graph with y-axis as
cumulative percentage of value of inventory, and x-axis as percentage of
inventory items can be used.

F.S.N CLASSIFICATION:
This classification is based on the pattern of issues from stores and is useful in
controlling obsolescence. To carry out FSN analysis, the data of receipt or the last
date of issue, whichever is later, is taken to determine the number of months, which
have lapsed since the last transaction, the items are usually grouped in period of 12
month. It is found that many companies maintain huge stocks of non-moving items.

If the item is ordered in all 0-12 months, the item is classified as fast-moving.

If the item is ordered in all 12-60 months, the item is classified as slowmoving.

If the item is ordered in all above 60 months, the item is classified as Nonmoving.
In HMT Ltd, inventories that are lying in stores for more than 5 years are

considered as non-moving items. To verify the items, stock verification has to be done
25

by the stores department and result must be given to the inventory control department
for reconciliation.

3.1 NEED FOR THE STUDY

To maintain a buffer for doing different operations

To avoid a mistakes between supply and demand

To need un expected demand.

To have a smooth running of production.

To avoid a ideal time due to lakh of inventory.

To make on time delivery.

26

3.3 OBJECTIVE OF THE STUDY

The main objectives of inventory management are:

Investment in inventory like any other current asset involves a tradeoff. The investment in inventory should strike a balanced between
efficient and smooth production or sales operation and profitability.
This is so because both excessive and inadequate inventories are not
desirable.

Excessive investments in inventory would ensure that there are no

shortages in production or sales operation.

To keep material cost under control so that they contribute in reducing

cost of production and overall cost.

To avoid both over stocking and under stocking of inventory.

To minimize losses through deterioration, wastages and demand.

To maintain investment in inventory at the optimum level as required

by operational and sales activity.

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

27

CHAPTER-4
DATA ANALYSIS AND INTERPRETATION

ABC ANALYSIS

CLASSIFICATION OF ITEMS:

ABC classification is based on value

10% in number and 70% by value classified as CLASS A.

10% in number and 20% by value classified as CLASS B.

80% in number and 10% by value classified as CLASS C.

In HMT Machine Tools Limited ABC classification of items is as follows:

A Class Items: Consumption value more than and above. Example, etc

B Class Items: Consumption value more than but less than. Example, etc

C Class Items: Consumption value less than Rs... Example, bolts, nuts, etc

28

Polices adopted by A class items:

A class items account for bulk of the annual usage value, hence it is required
for at most attention of senior level in administration and is responsible for
regular reviewing of these items.

The inventory control department maintains up-to-date and accurate records: It

will be sent more frequently to the top management.

The inventory is at minimum level.

The purchase department maintains better vendor relations confiding with

VRM (Vendor Relation Management).

The concept of first in and first out is adopted.

Polices adopted by B class items:

The policies for these items are intermediate between A and C items.

These items are ordered more frequently than A class items.

Stock and issue cards are maintained.

Polices adopted by C class items:

Since the items are too much value is less, the policies are aimed at reducing the
ordering and stock keeping work to an extent possible and ensuring the availability
at all times by stocking liberal quantities.

Liberal quantities are kept in stock, since it does not involve much capital tie up.

Bulk purchase is done to take advantage of quantity discounts.

For ordering these items, a combination of review period system and 2-bit system is
maintained.
29

ABC ANALYSIS
Type

Quantity

Rate

Inventory

Ranking

Percentage

Cumulative

Value (Rs)
1

95

8069

7,66,562

51504825

0.4600

0.4600

8508

6054

5,15,04,825

23733679

0.2119

0.6719

1931

3683

71,11,949

13241796

0.1182

0.7901

98

2443

2,39,433

8226838

0.0734

0.8635

173

7804

13,50,016

7111949

0.0635

0.9270

1791

13252

2,37,33,679

3135454

0.0280

0.9550

355

6525

23,16,198

2316198

0.0206

0.9756

361

34188

1,23,41,796

1350016

0.0120

0.9876

25820

2,32,377

993269

0.0088

0.9964

10

128

24496

31,35,454

766562

0.0035

0.9999

11

626

13142

82,26,838

239433

0.0021

1.0020

12

42

23649

9,93,269

232377

0.0020

1.0040

11,19,52,397

INVENTORY MOVEMENT SUMMARY

In this analysis, the quantity and rates of consumption is to be analyzed

and is to classify the items fast moving (F), slow moving(S) and non moving (N)
items. Fast and slow moving classification held in arrangements of stock in the
stores and in deciding the distribution handling methods. It is found that many
companies maintain huge stocks of non-moving items.

FAST AND SLOW MOVING INVENTORY TABLE:

Type Description
13

Accessories

Total-inventory

20010 fast moving

Count Value

Count Value

626

127

30

82,26,838

15,64,821

12

Auxiliary materials

128

31,35,454

56

18,23,102

07

Electrical parts

1791

2,37,33,679

690

78,26,120

04

Electrical spares

98

2,39,433

39,757

14

Foundry materials

42

9,93,269

39

9,64,980

08

Non-ferrous castings

355

23,16,198

35

6,11,030

09

Production steels

361

1,23,41,769

168

89,62,899

01

Shop stores

95

7,66,562

50

5,48,901

02

Standard parts

8508

51,5,04,825

3067

2,05,19,372

10

Timber

23,2,377

2,16,687

03

Tools

1931

71,11,949

326

17,31,119

06

Mechanical spares

173

13,50,013

13,725

Total

14117

11,19,52,397 4577

31

4,48,22,515

SLOW MOVING INVENTORY

Type

Description

2010-11
Count Value

13

Accessories

35

770603

12

Auxiliary materials

256529

07

Electrical parts

143

1317059

04

Electrical spares

418

14

Foundry materials

08

Non-ferrous castings

58

297605

09

Production steels

32

305882

01

Shop stores

40013

02

Standard parts

850

4544383

10

Timber

03

Tools

183

774036

06

Mechanical spares

6099

Total

1323

8312629

NON-MOVING SURPLUS ITEMS

Items, which have not moved for 5 years and more than the date of lost
issue, will be considered as NON-MOVING ITEMS, non-moving items list
32

will be prepared the end of the year and the material register for March is printed.
The surplus committee declares at last either the item to surplus / obsolete.
After the approval, the stock items will be transferred to salvage stores and
stock transfer will not be received in material account section to remove the value
from the respective inventory accounts to the obsolescence.

NON-MOVING INVENTORY
Type

Description

2011-12 (slow)

2012-13

Count Value

Count Value

13

Accessories

34

377321

401

5144066

12

Auxiliary materials

190

217828

24

219159

07

Electrical parts

170

1715183

648

9125934

04

Electrical spares

3017

88

196150

14

Foundry materials

08

Non-ferrous castings

93

549525

146

381929

09

Production steels

44

971166

62

1383664

01

Shop stores

11

12202

1144

02

Standard parts

947

4222857

2853

19226689

10

Timber

15690

03

Tools

255

1036833

1003

2656270

06

Mechanical spares

127783

142

1182141

Total

1581

9233713

5371

39532935

Table showing non-moving inventory value for last 3 years

Years

Non-moving inventory value

2010-11

69115099

2011-12

63904124

2012-13

54037536

33

Reason for Non-moving inventory

Change in design of the equipment

The sale order may be cancelled

Change in the production pal

COMPONENTS OF INVENTORY

All efforts of the management to control inventories should aim at maintaining

various components of inventory at economic levels and in proper proportions.
In HMT Machine Tools Ltd, Inventory is divided into the following
categories.

Raw material and components

Stores and maintenance spare parts

34

Tools and Instruments

Work in progress

Stock in trade

Material and components in transit

Scrap

Table showing the % change in components of inventory from 2010

Inventory

2010
Value (Rs)

Raw material and components

88292234

21.73%

Stores and maintenance spare parts

70424054

17.33%

Tools and Instruments

11623924

2.86%

Work in progress

210808944

51.88%

Stock in trade

128566842

31.64%

Material and components in transit

12199115

3.00%

Scrap

506206

0.12%

Less: provision for obsolescence

116086789

-28.56%

TOTAL

406334530

100%

Components of Inventory 2010

35

Table showing the % change in components of inventory from 2010 and 2011

Inventory

2011

Raw material and components

2012

Value(Rs)

Value(Rs)

9,52,63,294

31.97%

10,41,55,2

27.00%

99
Stores and maintenance spare parts

7,87,08,704

26.41%

6,15,00,00

15.94%

0
Tools and Instruments

98,34,637

3.30%

1,19,58,16

3.10%

9
Work in progress

14,66,01,361

49.19%

16,45,12,2

42.65%

33
Stock in trade

7,88,74,816

26.47%

11,536,1,8

29.91%

00
Material and components in transit

1,21,99,115

4.09%

Scrap

4,78,992

0.16%

20,00,000

0.52%

Less: provision for obsolescence

12,39,59,548

7,37,68,49

-19.13%

41.29%

TOTAL

Inventory

29,80,01,371 100%
2013

38,57,20,0

Value (Rs)

07
%

8,22,58,478

28.68%

Stores and maintenance spare parts 4,62,17,359

16.12%

Tools and Instruments

93,10,239

3.24%

Work in progress

15,47,81,231 53.98%

Stock in trade

7,48,94,837

26.19%

36
Material and components in transit

11,20,000

0.39%

Scrap

7,51,000

0.26%

Less: provision for obsolescence

8,25,78,544

-28.80%

TOTAL

28,67,54,600 100%

Raw material and components

100%

Interpretation:

From the above, we can say that the components of inventory fluctuating
during the study period. If we study the composition of inventory in HMT
Machine tools ltd the major portion of its total inventory consist of work in
progress and components and stock in trade.

37

Components of Inventory 2011

Components of Inventory 2012

Components of Inventory 2013

38

SIZE AND GROWTH OF INVENTORY

The size of inventory and growth shows of the company. The effective
regulation of inventory calls for the maintenance of inappropriate level of inventory.
All though
Inventory is necessary to run a plant efficiently the excess of inventory serves
no purpose and also affects the profitability of the firm.

Growth rate of inventory shows the ratio of current Asset as it is a part

of current Asset reflects on current ratio establishes relationship between the current
asset and current liabilities. The ability of a company to meet its short-term
commitment is normally assessed by comparing current asset whit current liabilities.
Table showing % Increase in inventory & Sales from 2010 to 2013

Year

Inventory (Rs)

Sales (Rs)

% Increase in % Increase in
inventory

sales

2010

40,63,34,134

71,10,49,820

58.77%

26.48%

2011

29,80,01,371

74,91,45,908

-26.66%

05.36%

2012

38,57,20,007

48,00,30,182

29.44%

-35.92%

2013

28,67,54,600

51,94,15,843

25.65%

-07.58%

SIZE AND GROWTH OF INVENTORY

39

Size and growth of inventory

711049820
749145908

480030182
519415843

406334134

298001371

2010

2011

385780007

2012

286754600

2013

Interpretation:
The graph it shows that inventory of the HMT Machine Tools Limited as
increased at high rate in the year for 2011 & 2012. The size of inventory Bares a
relation with the sales of an undertaking. The table shoes that inventory has increased
considerably when compared to increase in sales . Graph showing the growth of
inventory and net sales of HMT Machine in the changed market conditions the
organization needs to focus on the custemer satisfaction in reaching out this goal or
conclusion basis the management has toconstantly upgrade technology

product

profile internal works process & Plant & machinery in the end ultimately it is the
employees who will change of the company .

During the short period of my study various departement I found HMT a wellstructured organization capable to maintain interpersonal relationships among
employees. Employees are very experienced & very dedicated where they feel
company a home
(1) INVENTORY TURNOVER RATIO:
40

Inventory turnover or stock turnover ratio is the indicates the number of times
the stock is turnover (i.e., sold) during the year. In other words, it is relation between
the stock and cost of goods sold. This ratio indicates whether investments in inventory
are efficiently used or not.
A high inventory turnover ratio indicates brisk sales. The ratio is a measure to
discover the possible trouble in form of over stocking or over valuation. A low
inventory turnover ratio results in blocking of funds in inventory, which may
ultimately result in losses due to inventory becoming absolute, or deteriorating in
quality.
The ratio is expressed as: = Annual sales /Average stock of Inventory
TABLE NO : 4.1
Annual sales

Average stock of

(Rs)

Inventory(Rs)

2010

74,91,45,908

35,21,67,951

2.13

2011

48,00,30,182

34,18,60,689

1.4

2012

51,94,15,843

33,62,05,679

1.5

2013

51,76,09,558

24,98,68,315

2.1

Year

GRAPH NO 4.1
41

ITR

INVENTORY TURNOVER RATIO

2.5

2.13

2.1

2
1.5

1.4

1.5

2011

2012

1
0.5
0
2010

2013

Interpretation:
From the above graph NO 4.1, it is Cleary shows that the inventory turnover
ratio fluctuating year over year. Inventory turnover ratio has a declining trend from
2010-2.13,2011-1.4,2012-1.5,2013-2.1 which indicates that inventory utilized
efficiently without blocking of inventors in stock and making them obsolete.

2. Raw Material turnover ratio:

42

Raw Material turnover ratio shows the ratio of turnover of inventory based
raw material consumed and average inventory. Raw material is those basic inputs that
are converted into finished product through the production process. Raw material
inventories are those units which have been purchased are stored for future
productions. This ratio shows the number of times the raw materials were replaced
during a fiscal year.
The ratio is expressed as:
Annual consumption of raw materials / average raw materials
TABLE NO : 4.2
Material

Average stock of raw

consumed(Rs)

material(Rs)

2010

25,83,54,512

7,22,75,937

3.57

2011

23,27,68,231

9,17,77,764

2.53

2012

23,27,93,494

9,97,09,297

2.33

2013

20,15,83,439

8,87,60,886

2.27

Year

RMTR

Raw Material's Turnover Ratio

4

3.57

3.5
3

NO :

2.53

2.5

2.33

2.27

GRAPH
4.2

2
1.5
1

43

0.5
0
2010

2011

2012

2013

Interpretation:
From the above graph no 4.2, raw material ratio has shown a decline in
previous two years2011-2.53,2012-2.33 giving a good sign of effective use of raw
materials for the production process.

44

3. Work in Progress turnover ratio

Work in progress goods are those which are in the process of production in the
manufacturing unit. They are also called as semi finished goods.
The ratio is expressed as:

Cost of completed works / average working progress

TABLE NO : 4.3
Year

Cost

completed Average stock of WIP WIPTR

works (Rs)

(Rs)

2010

64,41,00,000

18,43,95,990

3.49

2011

62,96,00,000

17,87,05,152

3.52

2012

51,03,00,000

15,55,56,797

3.28

2013

47,28,00,000

3,01,38,32,592

1.7

GRAPH NO :4.3
45

Work in progress turnover ratio

4
3.5
3
2.5
2
1.5
1
0.5
0

3.49

3.52

3.28

1.7

2010

2011

2012

2013

Interpretation: From the above graph no 4.3 it is clear that work in progress ratio
has declined in previous year but it is high when compared to 2010-3.49.also this ratio
was in the year 2011-3.53 and 2012-3.28.

46

4. Finished goods turnover ratio:

Finished goods are those which are read for delivery to the customers, but
lying in the inventory due to some delay of sales. This ratio indicates the average
finished goods turnover in one fiscal year.

It is expressed as:

Cost of goods sold / average finished goods inventory.

TABLE NO : 4.4
Year

Cost

of

sold(Rs)

goods Average

stock

finished

of FGTR

goods

inventory(Rs)
2010

21,79,02,752

8,63,97,708

2.52

2011

51,02,09,350

10,37,20,829

4.92

2012

39,17,47,173

9,71,18,808

4.03

2013

47,58,25,957

95,12,88,185

0.50

GRAPH NO :4.4

47

Finished goods turnover ratio

6

4.92

4.03

4
3

2.52

2
0.5

1
0
2010

2011

2012

2013

Interpretation:
From the above graph no 4.4 it shows that this ratio, throughout the period of
study showed fluctuating trend 2011-4.92,2013-0.5 which shows that finished goods
are deign in the inventory depending on sales.

5. Inventory to working capital ratio:

48

Inventory to working capital is the liquidity ratio, which helps to measure the
short term solvency of the company. This ratio indicates that the proposition of the
working capital tied up in the inventories. As we know that inventory is a current asset
and component of working capital, this ratio shows the percentage of inventory in
working capital.

The ratio is expressed as:

Inventory / working capital

TABLE NO : 4.5
Years

Inventory(Rs)

Working capital (Rs)

I TO WCR

2010

40,63,34,134

18,48,80,590

2.19

2011

29,80,01,371

10,26,06,769

2.9

2012

38,57,20,007

15,91,19,142

2.42

2013

28,67,54,600

8,72,08,510

3.29

Inventory to working capital ratio

3.5
3
2.5
2
1.5
1
0.5
0

3.29

2.9
2.42

2.19

GRAPH.NO 4.5

49

2010

2011

2012

2013

Interpretation:

From the above graph no 4.5 it can be observed that inventory carries steep
ratio in last few years when compared to 2010-2.19,2011-2.9,&2013-3.29 figures
giving a positive indication of inventory.

6. Inventory holding period:

50

Inventory holding period should be minimum. Number a day for which

inventory is holding is calculated by the following formula.
Inventory holding period = inventory / annual sales * 365 days
TABLE NO : 4.6
Year

Inventory(Rs)

Annual sales (Rs)

IHP(Days)

2010

40,63,34,134

71,10,49,820

208

2011

29,80,01,371

74,91,45,908

145

2012

38,57,20,007

48,00,30,182

293

2013

28,67,54,600

51,94,15,843

202

Inventory holding period

350
300
250
200
150
100
50
0

GRAPH

293

NO : 4.6

208

202
145
51

2010

2011

2012

2013

Interpretation:

As we know that IHP should be minimum. Here in the above graph no 4.6 it
shows that HMT Machine tools ltd is holding inventories for longer period in the
previous year 2010-208,2011-145,2012-293,2013-202 This is due to decline in sales
and other reason like change in design, order being cancelled etc.

CHAPTER-5
52

FINDINGS,SUGGESTIONS,CONCLUSION.

5.1 FINDINGS

The growing competition and technological developments in this sector are

having inevitable effects on the Indian machine tool industry as a whole. The HMT
machine tool limited is facing typical problems in the emerging globalization scenario
as under:

HMT machine tool has a regular system for determining unserviceable or

damaged stores, raw materials and finished goods.

The unit has maintained proper records showing full particulars including
quantitative details and situations of fixed assets.

Materials are classified as A B and C class items.

The unit has maintained good relationship with the employer and employees.

The unit has maintained up to date records and submitted to respective

authorities.

Inventory has been physically verified during the year by the management.

The technology is not advanced. This is one of the reasons for low
productivity.

Most of the machines are obsolete. Thus production process is costly and time
consuming.

53

5.2 SUGGESTIONS

The company should make efforts in making the whole use of installed and
licensed capacity.

The company should fix competitive prices for the productions in order to
compete in the global market.

The company should adopt modern costing systems, balance scorecard

concept etc.

The company inventory management is at moderate level. Hence effective

steps have to be taken to see that the inventory management is made more
efficient so that capital is blocked in inventory can be used for working capital
required.

Major part of revenue earned is spent on payment of interest: therefore

measures should be taken to reduce the amount of credit.

Since the company is incurring loss for the past few years, the management
should take measures to bring such a situation under control in order to
flourish in the near future.

The material cost is high in the company, thus the company should make
efforts to buy the materials at reasonable price.

The company should update its technology so that it can beat the competitors
price and also produce higher quality products.

The company has to concentrate much on credit policy for speedy collections
of accounts receivable.

54

5.3 CONCLUSION

HMT is a very popular name among every Indian, because of its innovation of
technology quality assurance durability affordability to its people or customer. HMT
has created the brand image that symbolizes machine tools to a manufacturer, tractors
to a farmer and watches to millions of people in India.
In the changed market condition the organization needs to focus on the
customer satisfaction, in reaching out this goal are conclusion basis the management
has to constantly upgrade technology product profile internal work process and plant
and machinery in the end ultimately it is the employees who will change the
performance of the company. Therefore motivation must find priority.

55

HMT Machine Tools Ltd

HMT Profit and Loss A/c

Dr

Particulars

Cr

Schedu
le

Earnings
Sales

6.1

Less: Excise duty

Net Sales
Transfer to Plant
Other income

6.2
6.3

Charges Recovered
Inter factory Transfers Cr
Accretion/ (Discretion to
WIP/finished
Stock/Scrap
Total

6.4

Less: OUTGOINGS
Materials

7.1

Personnel

7.2

Depreciation
Other Expenses

7.3

Interest
Charges paid
VRS compensation W/of

7.4

56

As AT
31.03.201
0

As At
31.03.201
1

74,91,45,90
8
3,60,42,110
48,33,73,7
33
11,87,853
4,98,03,739

48,00,30,18
2
4,61,82,011
43,38,48,1
71
21,57,460
10,45,13,46
4
33,98,792
87,11,211
5,59,19,864

53,33,938
1,19,06,192
5,14,47,965
50,01,57,4
90

60,85,48,9
62

20,15,83,43
9
29,61,58,73
0
2,49,78,777
10,67,36,65
4
2,14,43,408
3,23,76,377
0

23,27,93,49
4
29,98,76,97
3
1,74,30,105
9,42,76,334
15,48,942
2,93,02,958
2,91,33,719

Less: Expenses allocated to jobs

done for internal use
Total
Profit (+)/loss (-) before prior
period adjustments and extra
ordinary items
Less: prior period adjustments
Add: extra ordinary items (EOI)
Profit (+)/loss (-) before tax

6.2

42,60,624

20,18,410

7.5

67,90,16,7
63
17,88,59,27
3
-11,43,051

71,62,84,5
95
10,77,35,63
3
1,35,69,643
4,68,12,125
7,44,93,151

7.6

0
18,00,02,32
4
0

Less: provision for fringe

benefits
Profit (+)/loss (-) before tax
Transferred To Machine Tool
Directorate A/c

18,00,02,3
24

-24,94,135

7,69,87,28
6

Machine Tools Ltd

Balance Sheet

Particulars

As AT
31.03.20
10

As AT
31.03.2011

LOANS
Secured
Unsecured
HMT Machine Tools Cr A/c

1.1
1.2
57

11,25,09,194
71,64,58,227
0

TOTAL

82,89,67,42
1

FIXED ASSETS
Gross Block
Less: Depreciation
NET BLOCK
Machinery & Equipment in Transit
Capital Work in Progress
CURRENT ASSETS, LOANS & ADVANCE
Inventories
Sundry debtors
Cash & Bank balance
Other current assets
Loans & Advances
Less: CURRENT LIABILITIES &
PROVISION
Current liabilities
Provisions
Net current assets
HMT Machine Tools Cr A/c
Misc.Exp Net W/o:
Voluntary Retirement Compensation
(DRE)

TOTAL

2.1

83,52,15,972
73,43,44,879
10,08,71,093
1,972
0

3.1
3.2
3.3
3.4
3.5

34,18,60,689
27,68,14,884
1,49,45,754
43,80,499
15,81,88,613
88,30,90,582

4.1
4.2

52,50,32,010
28,67,31,720
81,17,63,730
7,13,26,852
40,78,08,200

5.1

24,89,59,304

82,89,67,42
1

58

HMT Machine Tools Ltd

HMT Profit and Loss A/c
Dr

Particulars

Cr

Schedu
le

As AT
31.03.201
1

As At
31.03.2012

6.1

48,00,30,18
2
8,27,03,710
66,64,42,1
98

51,94,15,843

Earnings
Sales
Less: Excise duty
Net Sales
Transfer to Plant
Other income
Charges Recovered
Inter factory Transfers Cr
Accretion/ (Discretion to
WIP/finished
Stock/Scrap
Total

6.2
6.3

6.4

Less: OUTGOINGS
Materials

7.1

Personnel

7.2

Depreciation
Other Expenses
Interest
Charges paid
VRS compensation W/of
Less: Expenses allocated to

7.3
7.4

6.2
59

71,10,49,82
0

4,69,87,145
19,70,219
30,84,179
11,39,26,82
3

11,32,10,940
1,30,97,778
47,52,771
-3,61,00,539

60,45,56,9
18

80,60,10,77
0

23,27,68,23
1
31,63,28,48
7
1,49,58,672
7,08,57,861
13,72,467
3,14,11,816
7,06,43,865
40,11,465

25,83,54,512
32,14,35,107
1,62,11,663
18,36,07,030
4,11,69,468
3,93,21,342
24,65,44,105
24,74,537

jobs done for internal use

Total
Profit (+)/loss (-) before prior
period adjustments and
extra ordinary items
Less: prior period
adjustments
Add: extra ordinary items
(EOI)
Profit (+)/loss (-) before tax

1,10,41,68,
690
29,81,57,920

7.5

74,01,29,9
34
13,55,73,01
6
-50,11,629

7.6

13,78,00,534

14,05,84,63
8
-23,10,234

Less: provision for fringe

benefits

-4,85,725

-64,597
-19,85,968

Profit (+)/loss (-) before tax

Transferred To Machine Tool
Directorate A/c

14,28,94,87
2

HMT Machine Tools Ltd

60

16,28,93,676

Balance Sheet
Dr

Cr

Particulars

Earnings
Sales
Less: Excise duty
Net Sales
Transfer to Plant
Other income
Charges Recovered
Inter factory Transfers Cr
Accretion/ (Discretion to
WIP/finished
Stock/Scrap
Total

6.1

51,94,15,843

6.4

79,99,13,00
6
0
3,44,60,770
1,96,28,884
0
5,55,094

85,45,57,75
4
7.1
7.2
7.3
7.4

6.2

29,28,69,759
42,54,08,432
2,28,81,252
20,68,12,263
7,70,17,273
4,59,51,966
5,13,59,006
3015056
111928489
5
-264727141

Profit (+)/loss (-) before prior

period adjustments and extra
ordinary items
Less: prior period adjustments
Add: extra ordinary items (EOI)

Profit (+)/loss (-) before tax

Transferred To Machine Tool
Directorate A/c

As AT
31.03.2012

6.2
6.3

Less: OUTGOINGS
Materials
Personnel
Depreciation
Other Expenses
Interest
Charges paid
VRS compensation W/of
Less: Expenses allocated to jobs
done for internal use
Total

Profit (+)/loss (-) before tax

Less: provision for fringe benefits

As AT
31.03.20
11

7.5
7.6

61

14,21,860
1,28,31,83,8
89
0

1,01,70,34,
888

HMT Machine Tools Ltd

HMT Profit and Loss A/c
Dr

Cr

Particulars

Schedu
le

As AT
31.03.201
2

As AT
31.03.201
3

6.1

51,94,15,8
43
4,01,41,76
8
47,74,67,7
90
0
4,73,52,33
2
52,65,526

51,76,09,55
8
3,60,42,110

Earnings
Sales
Less: Excise duty
Net Sales
Transfer to Plant
Other income

6.2
6.3

Charges Recovered
Inter factory Transfers Cr
Accretion/ (Discretion to
WIP/finished
Stock/Scrap
Total

6.4

Less: OUTGOINGS
Materials

7.1

Personnel

7.2

Depreciation
Other Expenses

7.3

Interest

7.4
62

6,37,33,52
8

48,33,73,7
33
11,87,853
4,98,03,739
53,33,938
1,19,06,192
5,14,47,965

46,63,52,1
20

50,01,57,4
90

21,08,36,7
87
38,34,70,7
76
3,19,48,65
6
7,66,13,61
1
2,10,08,94

20,15,83,43
9
29,61,58,73
0
2,49,78,777
10,67,36,65
4
2,14,43,408

Charges paid
VRS compensation W/of
Less: Expenses allocated to jobs
done for internal use
Total

6.2

Profit (+)/loss (-) before prior

period adjustments and extra
ordinary items
Less: prior period adjustments
Add: extra ordinary items (EOI)
Profit (+)/loss (-) before tax

7.5
7.6

Less: provision for fringe benefits

Profit (+)/loss (-) before tax
Transferred To Machine Tool
Directorate A/c

63

5
3,70,13,39
4
0
7,62,729

3,23,76,377
0
42,60,624

76,01,29,4
40
29,37,77,3
20
-13,24,453
0
2,951,01,7
73
0

67,90,16,7
63
17,88,59,27
3
-11,43,051
0
18,00,02,32
4
0

29,51,01,7
73

18,00,02,3
24

HMT MACHINE TOOLOS LTD

Balance Sheet

Particulars

Schedul As AT
e
31.03.2012

As AT
31.03.2013

LOANS
Secured

1.1

9,15,43,275

Unsecured

1.2

14,76,10,26
0
9,93,98,667
13,97,54,86
8

10,75,37,61
2
14,27,12,38
5
13,51,62,14
9
38,54,12,14
6

2.1

1,12,23,30,
059
83,57,71,61
4
28,65,58,44
5
1

1,04,85,23,
770
80,39,39,74
7
24,45,84,02
3
5,30,53,863

5,65,750

33,62,05,67
9
10,50,73,22
8
23,20,296
23,51,400

24,98,68,31
5
15,62,13,18
6
40,25,465
28,93,088

HMT Machine Tools Cr A/c

TOTAL
FIXED ASSETS
Gross Block
Less: Depreciation
NET BLOCK
Machinery & Equipment
Transit
Capital Work in Progress
CURRENT ASSETS, LOANS
ADVANCE
Inventories

in

&
3.1

Sundry debtors

3.2

Cash & Bank balance

Other current assets

3.3
3.4
64

Loans & Advances

3.5

Less: CURRENT LIABILITIES &

PROVISION
Current liabilities
4.1
Provisions

4.2

Net current assets

HMT Machine Tools Cr A/c

5.1
Misc.Exp Net W/o:
Voluntary
Retirement
Compensation (DRE)
TOTAL

BIBLIOGRAPHY

65

17,71,75,65
6
49,99,02,61
0

17,72,40,57
8
62,71,26,91
7

30,07,25,97
8
34,59,80,21
0

24,68,87,66
6
29,34,30,74
1
53,99,18,40
7
8,72,08,510

14,68,03,57
8
0

13,97,54,86
8

38,54,12,14
6

S.P GUPTHA (1995) Statistical methods,sulthan chand and co new delhi.

I.M PANDEY (1999), Financial Management Vikas Publishing Home Pvt Ltd,
New Delhi.

M.Y.KHAN & PK JAIN (1998), Management Accounting, Tata MC Graw

Hill Publishing Company Ltd, Himalaya Publishing House, Mumbai.

WEBSITES:

www.hmtindia.com

www.hmtmachinetools.com

66