Venu Project Report 1

7/30/2019 Venu Project Report 1

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Introduction

1.1 Introduction to the study

The importance of inventory management cannot be over emphasized. Inventory and the

management thereof belong to everyone in the company but nobody wants to own it. Inventory

Management is truly interdisciplinary and spans from financial and managerial accounting, to

operations research, material handling to logistics. Inventories represent the second largest assets

category for manufacturing companies next only to plant and equipment. The proportion of

inventories to total assets generally varies between 15 and 30 percent. Given substantial

investment in inventories, Decisions relating to inventories are taken primary by executives in

production, purchasing and marketing departments. Lowering inventories is one of the quickest

ways to decrease working capital needs. Performance measurements, such as the old standby

ROA (return on assets) and the newer EVA (economic value added), as well as other measures

that gauge how efficiently capital is used, have become more common organizational drivers. In

fact, many times an executive's bonus depends, at least in part, on how efficiently capital is used.

Couple the drive for efficient capital use with the need to respond more quickly to changes in

customer demand, with shorter and shorter order-to-delivery cycle times, and you have a

problem that is challenging many organizations.


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1.2 Need of Study

The purpose of doing this project is to know how effective Inventory Control

Management can help in effective functioning of the organization. To assess the

companys trends for the last 5 years with regard to Inventory Control Management. To

find out how total turnover of Inventory Management can result in improving the profits

of the organization.

1.3 Scope of Study

The scope of the study is confined to the sources that Kesoram Cements Limited tapped over the

years under study i.e. 2008-13.

1.4 Objectives of the Study

To know the performance ofInventory Control Management.

To analyze the performance of the inventory management and making

suggestions for modifications.


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1.5 Sources of Data

Secondary Sources

Secondary information relating to the company is collected from the financial

statements and the information Brochures of the organization some of the industrys

information is collected through the financial reports and monthly business Magazines and

journals.

1.6 Limitations of The Study

The Study is conducted within the selected unit of Kesoram Cements Limited

Hyderabad.

The study may not fulfill all the requirements of a detailed investigation since it is

conducted within a period of one month.

The study was conducted with the data available and the analysis was made

accordingly


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2.1 Industry Profile

Cement Industry

In the most general sense of the word, cement is a binder, a substance which sets and hardens

independently, and can bind other materials together. The word "cement" traces to the Romans,

who used the term "opus caementicium" to describe masonry which resembled concrete and was

made from crushed rock with burnt lime as binder. The volcanic ash and pulverized brick

additives which were added to the burnt lime to obtain a hydraulic binder were later referred to

cement. Cements used in construction are characterized as hydraulic or non-hydraulic. The most

important use of cement is the production ofmortarand concretethe bonding of natural or

artificial aggregates to form a strong building material which is durable in the face of normal

environmental effects. Concrete should not be confused with cement because the term cement

refers only to the dry powder substance used to bind the aggregate materials of concrete. Upon

the addition of water and/or additives the cement mixture is referred to as concrete, especially if

aggregates have been added. It is uncertain where it was first discovered that a combination of

hydrated non-hydraulic lime and a pozzolanproduces a hydraulic mixture (see also: Pozzolanic

reaction), but concrete made from such mixtures was first used on a large scale by engineers.

They used both natural pozzolans and artificial pozzolans (ground brick or pottery) in these

concretes. Many excellent examples of structures made from these concretes are still standing,

notably the huge monolithic dome of the Pantheon in Rome and the massive Baths of Caracalla.

Modern Cement

Modern hydraulic cements began to be developed from the start of the Industrial Revolution

(around 1800), driven by three main needs: Hydraulic renders for finishing brick buildings in wet
http://en.wikipedia.org/wiki/Ancient_Romehttp://en.wikipedia.org/wiki/Calcium_oxidehttp://en.wikipedia.org/wiki/Mortar_%28masonry%29http://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Slaked_limehttp://en.wikipedia.org/wiki/Pozzolanhttp://en.wikipedia.org/wiki/Pozzolanic_reactionhttp://en.wikipedia.org/wiki/Pozzolanic_reactionhttp://en.wikipedia.org/wiki/Pantheon,_Romehttp://en.wikipedia.org/wiki/Romehttp://en.wikipedia.org/wiki/Baths_of_Caracallahttp://en.wikipedia.org/wiki/Industrial_Revolutionhttp://en.wikipedia.org/wiki/Stuccohttp://en.wikipedia.org/wiki/Stuccohttp://en.wikipedia.org/wiki/Industrial_Revolutionhttp://en.wikipedia.org/wiki/Baths_of_Caracallahttp://en.wikipedia.org/wiki/Romehttp://en.wikipedia.org/wiki/Pantheon,_Romehttp://en.wikipedia.org/wiki/Pozzolanic_reactionhttp://en.wikipedia.org/wiki/Pozzolanic_reactionhttp://en.wikipedia.org/wiki/Pozzolanhttp://en.wikipedia.org/wiki/Slaked_limehttp://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Mortar_%28masonry%29http://en.wikipedia.org/wiki/Calcium_oxidehttp://en.wikipedia.org/wiki/Ancient_Rome


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climates Hydraulic mortars for masonry construction of harbor works etc, in contact with sea

water.

Types Of Modern Cement

Portland Cement is made by heating limestone (calcium carbonate), with small quantities of

other materials (such as clay) to 1450C in a kiln, in a process known as calcinations, whereby a

molecule ofcarbon dioxide is liberated from the calcium carbonate to form calcium oxide, or

lime, which is then blended with the other materials that have been included in the mix . The

resulting hard substance, called 'clinker', is then ground with a small amount ofgypsum into a

powder to make 'Ordinary Portland Cement', the most commonly used type of cement (often

referred to as OPC).

Portland cement is a basic ingredient ofconcrete, mortarand most non-speciality grout. The

most common use for Portland cement is in the production of concrete. Concrete is a composite

material consisting ofaggregate (gravel and sand), cement, and water. As a construction

material, concrete can be cast in almost any shape desired, and once hardened, can become a

structural (load bearing) element. Portland cement may be gray or white.

Portland Cement Blends

These are often available as inter-ground mixtures from cement manufacturers, but similar

formulations are often also mixed from the ground components at the concrete mixing plant.

Portland blast furnace cement contains up to 70% ground granulated blast furnace slag, with the

rest Portland clinker and a little gypsum. All compositions produce high ultimate strength, but as

slag content is increased, early strength is reduced, while sulfate resistance increases and heat

evolution diminishes. Used as an economic alternative to Portland sulfate-resisting and low-heat

cements. Portland flash cement contains up to 30% fly ash. The fly ash is pozzolanic, so that
http://en.wikipedia.org/wiki/Limestonehttp://en.wikipedia.org/wiki/Clayhttp://en.wikipedia.org/wiki/Kilnhttp://en.wikipedia.org/wiki/Calcinationhttp://en.wikipedia.org/wiki/Carbon_dioxidehttp://en.wikipedia.org/wiki/Calcium_oxidehttp://en.wikipedia.org/wiki/Gypsumhttp://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Mortar_%28masonry%29http://en.wikipedia.org/wiki/Grouthttp://en.wikipedia.org/wiki/Construction_aggregatehttp://en.wikipedia.org/wiki/Ground_granulated_blast_furnace_slaghttp://en.wikipedia.org/wiki/Fly_ashhttp://en.wikipedia.org/wiki/Pozzolanichttp://en.wikipedia.org/wiki/Pozzolanichttp://en.wikipedia.org/wiki/Fly_ashhttp://en.wikipedia.org/wiki/Ground_granulated_blast_furnace_slaghttp://en.wikipedia.org/wiki/Construction_aggregatehttp://en.wikipedia.org/wiki/Grouthttp://en.wikipedia.org/wiki/Mortar_%28masonry%29http://en.wikipedia.org/wiki/Concretehttp://en.wikipedia.org/wiki/Gypsumhttp://en.wikipedia.org/wiki/Calcium_oxidehttp://en.wikipedia.org/wiki/Carbon_dioxidehttp://en.wikipedia.org/wiki/Calcinationhttp://en.wikipedia.org/wiki/Kilnhttp://en.wikipedia.org/wiki/Clayhttp://en.wikipedia.org/wiki/Limestone


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ultimate strength is maintained. Because fly ash addition allows a lower concrete water content,

early strength can also be maintained. Where good quality cheap fly ash is available, this can be

an economic alternative to ordinary Portland cement. Portland pozzolan cement includes fly ash

cement, since fly ash is a pozzolan, but also includes cements made from other natural or

artificial pozzolans. In countries where volcanic ashes are available (e.g. Italy, Chile, Mexico,

the Philippines) these cements are often the most common form in use.

Portland silica fume cement. Addition ofsilica fume can yield exceptionally high strengths,

and cements containing 5-20% silica fume are occasionally produced. However, silica fume is

more usually added to Portland cement at the concrete mixer.

Masonry cements are used for preparing bricklaying mortars and stuccos, and must not be used

in concrete. They are usually complex proprietary formulations containing Portland clinker and a

number of other ingredients that may include limestone, hydrated lime, retarders, water proofers

and coloring agents. They are formulated to yield workable mortars that allow rapid and

consistent masonry work. Subtle variations of Masonry cement in the US are Plastic Cements

and Stucco Cements. These are designed to produce controlled bond with masonry blocks.

Expansive cements contain, in addition to Portland clinker, expansive clinkers and are designed

to offset the effects of drying shrinkage that is normally encountered with hydraulic cements.

This allows large floor slabs (up to 60 m square) to be prepared without contraction joints.

Very finely ground cements are made from mixtures of cement with sand or with slag or other

pozzolan type minerals which are extremely finely ground together. Such cements can have the

same physical characteristics as normal cement but with 50% less cement particularly due to

their increased surface area for the chemical reaction. Even with intensive grinding they can use

up to 50% less energy to fabricate than ordinary Portland cements.
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Non-Portland hydraulic cements

Pozzolan-lime cements. Mixtures of ground pozzolan and lime are the cements used by the

Romans, and are to be found in Roman structures still standing (e.g. the Pantheon in Rome). The

hydration products that produce strength are essentially the same as those produced by Portland

cement. Slag-lime cements. Ground granulated blast furnace slag is not hydraulic on its own, but

is "activated" by addition of alkalis, most economically using lime. They are similar to pozzolan

lime cements in their properties. Only granulated slag (i.e. water-quenched, glassy slag) is

effective as a cement component. Super sulfated cements. These contain about 80% ground

granulated blast furnace slag, 15% gypsum or anhydrite and a little Portland clinker or lime as an

activator. Calcium aluminates cementsare hydraulic cements made primarily from limestone and

bauxite. The active ingredients are mono calcium aluminates CaAl2O4 (Ca O Al2O3 or CA in

Cement chemist notation, CCN) and magenta Ca12Al14O33 (12 Ca O 7 Al2O3, or C12A7 in

CCN). Strength forms by hydration to calcium aluminates hydrates. They are well-adapted for

use in refractory (high-temperature resistant) concretes, e.g. for furnace linings. Calcium sulfa

aluminates cements are made from clinkers that include (Ca4(AlO2)6SO4 or C4A3 in Cement

chemist's notation) as a primary phase. They are used in expansive cements, in ultra-high early

strength cements, and in "low-energy" cements. Their use as a low-energy alternative to

Portland cement has been pioneered in China, where several million tons per year are produced.

Energy requirements are lower because of the lower kiln temperatures required for reaction, and

the lower amount of limestone (which must be endothermic ally de carbonated) in the mix. In

addition, the lower limestone content and lower fuel consumption leads to a CO 2 emission

around half that associated with Portland clinker.
http://en.wikipedia.org/wiki/Pozzolanic_ashhttp://en.wikipedia.org/wiki/Ground_granulated_blast_furnace_slaghttp://en.wikipedia.org/wiki/Calcium_aluminate_cementshttp://en.wikipedia.org/wiki/Calcium_aluminate_cementshttp://en.wikipedia.org/wiki/Calcium_aluminate_cementshttp://en.wikipedia.org/wiki/Cement_chemist_notationhttp://en.wikipedia.org/wiki/Mayenitehttp://en.wikipedia.org/wiki/Cement_chemist_notationhttp://en.wikipedia.org/wiki/Cement_chemist_notationhttp://en.wikipedia.org/wiki/Cement_chemist_notationhttp://en.wikipedia.org/wiki/Cement_chemist_notationhttp://en.wikipedia.org/wiki/Mayenitehttp://en.wikipedia.org/wiki/Cement_chemist_notationhttp://en.wikipedia.org/wiki/Calcium_aluminate_cementshttp://en.wikipedia.org/wiki/Ground_granulated_blast_furnace_slaghttp://en.wikipedia.org/wiki/Pozzolanic_ash


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2.2 Company Profile

Kesoram Cement Limited

Kesoram Cement Industry is one of the leading manufacturers of cement in India. It is a day

process cement Plant. The plant capacity is 8.26 lakh tones per annum It is located at

Basanthnagar in Karimnagar district of Andhra Pradesh. Basanthnagar is 8 km away from the

Ramagundram Railway station, linking Madras to New Delhi. The Chairman of the Company is

Sri. B.K. Birla.

History

The first unit at Basanthnagar with a capacity of 2.1 lakh tones per annum incorporating

humble suspension preheated system was commissioner during the year 1969. The second unit

was setup in year 1971 with a capacity of 2.1 lakh tones per annum went on stream in the year

1978. The coal for this company is being supplied from Singereni Collieries and the power is

obtained from APSEB. The power demand for the factory is about 21 MW. Kesoram has got 2

DG sets of 4 MW each installed in the year 1987. Kesoram Cement has setup a 15 KW captor

power plant to facilitate for uninterrupted power supply for manufacturing of cement at 24th


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august 1997 per hour 12 mw, actual power is 15 mw. The Company was incorporated on 18th

October, 1919 under the Indian Companies Act, 1913, in the name and style of Kesoram Cotton

Mills Ltd. It had a Textile Mill at 42, Garden Reach Road, Calcutta 700 024. The name of the

Company was changed to Kesoram Industries & Cotton Mills Ltd. on 30th August, 1961 and the

same was further changed to Kesoram Industries Limited on 9th July, 1986. The said Textile

Mill at Garden Reach Road was eventually demerged into a separate company. The First Plant

for manufacturing of rayon yarn was established at Tribeni, District Hooghly, West Bengal and

the same was commissioned in December, 1959 and the second plant was commissioned in the

year 1962 enabling it to manufacture 4,635 metric tons per annum (mtpa) of rayon yarn. This

Unit has 6,500 metric tons per annum (mtpa) capacity as on 31.3.2009. The Company

diversified into manufacturing of cast iron spun pipes and pipe fittings at Bansberia, District

Hooghly, West Bengal, with a production capacity of 45,000 metric tons per annum (mtpa) of

cast iron spun pipes and pipe fittings in December, 1964. The Company subsequently diversified

into the manufacturing of Cement and in 1969 established its first cement plant under the

name 'Kesoram Cement' at Basantnagar, Dist. Karimnagar (Andhra Pradesh) and to take

advantage of favorable market conditions, in 1986 another cement plant, known as

'Vasavadatta Cement', was commissioned by it at Sedam, Dist. Gulbarga (Karnataka). The

cement manufacturing capacities at both the plants were augmented from time to time according

to the market conditions and as on 31.3.2009 Kesoram Cement and Vasavadatta Cement have

annual cement manufacturing capacities of 1.5 million metric tons and 4.1 million metric tons

respectively. The Company in March 1992, commissioned a plant at Balasore known as Birla

Tires in Orissa, for manufacturing of 10 lack MT p.a. automotive tires and tubes in the first phase

in collaboration with Pirelli Ltd., U.K., a subsidiary company of the world famous Pirelli Group


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of Italy - a pioneer in production and development of automotive tires in the world. The

Company as on 31.3.2009 had the manufacturing capacities of 3.71 million tires, 2.95 million

tubes and 1.53 million flaps per annum in the Plants including at Uttarakhand Plant. It has small

manufacturing capacities of various Chemicals at Kharda in the State of West Bengal also. It has

the annual manufacturing capacities of 12,410 mtpa of Caustic Soda Lye, 5,045 mtpa of Liquid

Chlorine, 6,205 mtpa of Sodium Hypochlorite, 8,200 mtpa of Hydrochloric Acid, 3,200 mtpa of

Ferric Alum, 18,700 mtpa of Sulphuric Acid and 1,620,000 m3pa of purified Hydrogen Gas.

The Company is a well-diversified entity in the fields of Cement, Tire, Rayon Yarn, Transparent

Paper, Spun Pipes and Heavy Chemicals with two core business segments i.e. Cement and Tires.

In Spun Pipes & Foundries, a unit of the Company, work suspended from 2nd May, 2008 still

commences till further notice. The Company as of now is listed on three major Stock

Exchanges in India i.e. Bombay Stock Exchange Ltd., Mumbai, Calcutta Stock Exchange

Association Ltd., Kolkata and National Stock Exchange of India Ltd., The commercial

production of cement in the aforesaid unit IV has commenced in June 2009. The Board has

further approved a Motor Cycle Tire Project of 70 MT per day capacity at the same site

involving a capital outlay of Rs.190 crore. The civil construction of both the Projects is in full

swing. The commercial production in both the Projects is likely to start by December 2009/

January 2010. Birla Supreme in popular brand of Kesoram cement from its prestigious plant of

Basantnagar in AP which has outstanding track record. In performance and productivity serving

the nation for the last two and half decades. It has proved its distinction by bagging several

national awards. It also has the distinction of achieving optimum capacity utilization. Kesoram

offers a choice of top quality portioned cement for light, heavy constructions and allied

applications. Quality is built every fact of the operations. The day process technology uses in


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the latest computerized monitoring overseas the manufacturing process. Samples are sent

regularly to the bureau of Indian standards. National council of construction and building

material for certification of derived quality norms. The company has vigorously undertaking

different promotional measures for promoting their product through different media, which

includes the use of news papers magazine, hoarding etc. Kesoram cement industry

distinguished itself among all the cement factories in Indian by bagging the National

Productivity Award consecutively for two years i.e. for the year 1985-1987. The federation of

Andhra Pradesh Chamber & Commerce and Industries (FAPCCI) also conferred on Kesoram

Cement. An award for the best industrial promotion expansion efforts in the state for the year

1984. Kesoram also bagged FAPCCI awarded for Best Family Planning Effort in the state for

the year 1987-1988.

Kesoram cement undertaking marketing activities extensively in the state of Andhra Pradesh,

Karnataka, Tamilnadu, Kerala, Maharashtra and Gujarat. In A.P. sales Depts., are located in

different areas like Karimnagar, Warangal, Nizamabad, Vijayawada and Nellore. In other states

it has opened around 10 depot One among the industrial giants in the country today, serving the

nation on the industrial front. Kesoram industry ltd., has a checked and eventful history dating

back to the twenties when the Industrial House of Birlas acquired it. With only a textile mill

under its banner 1924, it grew from strength to strength and spread its activities to newer fields

like Rayon, Transparent papers. The market share of Kesoram Cement in AP is 7.05%. The

market share of the company in various states is shown as under.

STATES MARKET SHARE

Karnataka 4.09%

Tamilnadu 0.94%


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Kerala 0.29%

Maharashtra 2.81%

Process and Quality Control

It has been the endeavor of Kesoram to incorporate the Worlds latest technology in the plant and

today the plant has the most sophisticated.

Supreme performance

One of the largest Cement Plants in Andhra Pradesh, the plant corporate the latest technology in

Cement - making. It is professionally managed and well established Cement Manufacturing

Company enjoying the confidence of the consumers. Kesoram has outstanding track record in

performance and productivity with quite a few national and state awards to its credit. BIRLA

SUPREME, the 43 Grade Cement, is a widely accepted and popular brand in the market,

commanding a premium. However to meet the specific demands of the consumer, Kesoram

bought out the 53 grade BIRLA SUPREMEGOLD, which has special qualities like higher

fineness, quick-setting, high compressive strength and durability.

Supreme Strength

Kesoram Cement has huge captive Limestone Deposits, which make it possible to feed high-

grade limestone consistently, Its natural Grey color is anion- born ingredient and gives good

shade. Both the products offered by Kesoram, i.e. BIRLA SUPREME-43 Grade and BIRLA

SUPREME-GOLD-53 Grade cement are outstanding with much higher compressive strength and

durability.


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D.C. System:

Clinker making process is a key step in the overall cement making process. In the case of BIRLA

SUPREME/GOLD, the clinker-making process is totally computer. control. The Distributed

Control System (DCS) constantly monitors the process and ensures operating efficiency. This

eliminates variation and ensures consistency in the quality of Clinker.

Supreme Expertise

The Best Technical Team, exclusive to Kesoram, mans the Plant and monitors the process, to

blend the cement in just the required proportions, to make BIRLA SUPREME/GOLD OF Rock

Strength.

18 Million Tones Of Solid Foundation

Staying at the top for over a Quarter Century, Quarter Century is no less an achievement. Infact.

Kesoram is synonymous with for over 28 years.

Over the years, Kesoram has dispatched 18 million tons of cement to the nook and corners of the

country and joined hands in strengthening the Nation. No one else in Andhra Pradesh has this

distinction. The prestigious World Bank aided Ramagundam Super Thermal Power Project of

KESORAM and Mannair Dam of Pochampad project in AP arc a couple of projects for which

Kesoram Cement was exclusively uses: to cite an example.

Kesoram Cement - Advantages

Helps in designing sleeker and more elegant. Structures, giving greater flexibility in design

concept. Due to its fine quality, super fine construction can be achieved.. Its gives maximum

strength at Minimum use of cement with water in the water cement ratio, especially the 53 grade

Birlas supreme-gold.


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I.S.O. 9002

All quality systems of Kesoram have been certified under I.S.O. 9002/1.S. 4002, which proves

the worldwide acceptance of the products. All quality systems in production and marketing of

the product have been certified by B.I.S. under ISO 9002/1S 14002. The first unit was installed

at Basantnagar with a capacity of 2.5lakhs TPA (tones per annum) incorporating humble

supervision, preheated system, during the year 1969. The second unit followed suit with added a

capacity of 2 lakhs TPA in 1971. The plant was further expanded to 9 lakhs by adding 2.5 lakhs

tones in august 1978, 1.13 lakhs tones in January 1981 and 0.87 lakhs tones in September 1981.

Power

Singereni collieries make the supply of coal for this industry and the power was obtained from

AP TRANSCO. The power demand for the factory is about 21MW. Kesoram has got 2-diesel

generator seats of 4 MW each installed in the year 1987. Kesoram cement now has a

15MWcaptive power plant to facilities for uninterrupted power supply for manufacturing of

cement.

Performance

The performance of kesoram cement industry has been outstanding achieving over cent percent

capacity utilization all through despite many odds like power cuts and which most 40% was

wasted due to wagon shortage etc. The company being a continuous process industry works

round the clock and has excellent records of performance achieving over 1005 capacity

utilization. Kesoram has always combined technical progress with industrial performance. The

company had glorious track record for the last 27 years in the industry.


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The raw materials used for manufacturing cement are

Lime stone

Bauxite

Hematite

Gypsum

Environmental and Social Obligations

For environmental promotion and to keepup the ecological balance, this section has planted

over two lakhs trees .on social obligation front ,this section has undertaken various social welfare

programs by adopting ten nearly villages, organizing family welfare campus, surgical camps,

animal health camps blood donation camps, children immunization camps, seeds, training for

farmers etc were arranged.

Board of Directors of Kesoram Cements Limited

NAME AND ADDRESS DESIGNATION

1 Sri N.Radhakrishna Reddy Chairman & Managing Director

2 Sri N.Jagan Mohan Reddy Director

3 Sri N. Sujith Kumar Reddy Director

4 Sri G. Krishna Prasad Director

5 Sri P. Koteswara Rao Director

6 Sri G. Ram Prasad Director

Awards

Kesoram cement bagged many prestigious awards including national awards for productivity,

technology, conservation and several state awards since 1984. The following are the some of

important awards.


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Products Of Te Organization:


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3. Theoretical Review

Inventory Management

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- inprogress 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


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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 nonavailability.

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


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interrupted production and smooth running of business. In the absence of inventories a firm will

have to make purchases as soon as it receives 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: Which necessitates the holding of inventories for meeting

the unpredictable changes in demand and supplies of materials

3. The speculative motive: Which induces to keep inventories for taking advantage of price

fluctuations, saving in reordering 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.


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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.


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The Following Are The Objectives Of Inventory Management:

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.

To avoid both overstocking and understocking of inventory.

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

operational and sales activities.

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

production and overall costs.

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

help of centralizing purchases.

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

To ensure perpetual inventory control so that materials shown in stock ledgers should

be actually lying in the stores.

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.

To facilitate furnishing of data for short term and longterm planning and control

of inventory.

Tools And Techniques Of Inventory Management


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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.

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 known 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 Reordering level(Normal consumption x Normal re order

period)


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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) ABCAnalysis: (Always Better Control Analysis):

Under ABC 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)


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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 is 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


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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 InventoriesMethod Of Valuation:

FIFO method

LIFO method

Base Stock method

Weighted average price method

Criteria For Judging The Inventory System


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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.


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Adoption Of Challenging Norms:

Companies should set benchmarks with global competitors and use ideals like JIT to

improve inventory management.

Inventory CostAn 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 semiprocessed 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 investment 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


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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.

The cost of placing a replenishment order.

The cost of carrying inventory.

The cost of under stocking and

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.


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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 Steel industry.

The Cost Ordering Includes:

Paper work costs, typing and dispatching an order.

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

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

stores.

Any set up cost of machines charged by the supplier, either directly indicated in

quotations or assessed through quotations of various quantities.

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:

Interest on capital.

Insurance and tax charges.

Storage costs labor costs, provision of storage area and facilities like bins, racks

etc.,


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Transport bills and hamali charges.

Allowance for deterioration or spoilages.

Salaries of stores staff.

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 contextsit 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?


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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 replaAutomobial cost of material on hand at the close of a year is less

than the actual cost, the inventory value is reduced to replaAutomobial 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 replaAutomobial 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 InventoriesMethods 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 firstin 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


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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 (FirstIn FirstOut 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.

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

consisting of

The most recent purchases.

It is based on cost and, therefore, no unrealized profit enters into the financial

accounts of the company.

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.

It involves complicated calculations and hence increases the possibility of clerical

errors.

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


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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 nonPerishable type.

Base Stock Method:


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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 InventoriesImpact On The Flow Of Costs:


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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 MethodsWhat 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.


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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 MethodsCan 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 one 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 firstin firstout 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


39/85

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 non-current 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:.....


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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 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 solvage inventory and transfer to it materials

which may be sold or used at reduced values. Where this is done, the entry would be:


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Data Analysis and Interpretation

Share Capital:

Particulars

As at

31.03.2010

As at

31.03.2009

Authorised

1,20,00,000 Equity Share of Rs.10/- each 12,00,00,000 12,00,00,000


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ScheduleB

Reserves And Surplus:

20,00,000 Preference Share of Rs.10/- each 2,00,00,000 2,00,00,000

Issued And Subscribed & Paid-Up

*1,11,52,300 Equity shares of Rs.10/- each 11,.53,23,000 11,15,23,000

Total 11,.53,23,000 11,15,23,000

*400 Equity Shares of Rs.10/- each were issued for consideration other than

cash


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Particulars

As at

31.03.2010

Rupees

As at

31.03.2009

Rupees

Capital Reserve 34,98,687 29,98,687

General Reserve 70,83,300 70,83,300

Balance in Profit and Loss Account 6,37,23,445 59198440

Share Premium 4,71,06,110 4,71,06,110

TOTAL 12,14,11,542 11,63,86,537

ScheduleC

Secured Loans:


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Particulars

As at 31.03.2010 As at 31.03.2009

Rupees Rupees Rupees Rupees

A. Terms Loans

Industrial Development

Bank Of India

4,50,00,00

0

12,67,50,00

0

The Industrial Credit and

Investment Corporation of

India Ltd. 0 5,75,00,000

Indian Renewable Energy

Development Agency

Limited (IREDA) 0 14,000

State Bank of India 0 33,47,225

Funded Interest

1,42,78,83

1 1,19,09,901

Interest Accrued and Due 0

5,92,78,831

22,14,82,64

9

B. Cash Credit and Bills 5,50,59,18 6,29,82,019


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Discounting State Bank

of Hyderabad

3

Punjab National Bank

2,32,87,31

9 2,69,90,958

State bank Of India

2,10,07,84

2 2,35,74,120

9,93,54,344

11,35,47,09

6

TOTAL

15,86,33,17

5

33,50,29,74

5

ScheduleD

Unsecured Loans:


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SCH

EDU

LE -

I

Current Liabliates & Provisions:

Particulars As at31.03.2010 As at 31.03.2009

Particulars

As at

31.03.2010

Rupees

As at

31.03.2009

Rupees

26,000 Equity shares of Rs.10/- each in

Panchvati Polyfibres ltd., fully paid-up at cost 2,60,000 2, 60,000

500 Equity shares of Rs.10/- each in Kesoram

Priya Investments and Finance Ltd. 5,000 5,000

27,72,430 Equity Shares of Rs.10/- each in

Kesoram Power Limited (Previous Year :

27,72,430 Shares)

2

,77,24,300

2

,77,24,300

TOTAL

2

,79,89,300

2

,79,89,300


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Rupees Rupees Rupees Rupees

CURRENT LIABILITIES

Sundry Creditors

1. For Materials 2,44,15,272 2,08,69,197

2. For Capital Goods 82,71,577 1,58,34,649

3. For Expenses 1,22,88,732 2,14,75,707

4. For Other Liabilities 1,80,33,912 3,15,05,515

6,30,09,494 8,96,85,068

Interest accrued but not due 10,05,068 10,27,910

Deposits/ Advances from

Selling Agents, stockiest and

others 4,97,90,161 3,91,47,108

Provisions

taxation

Dividend

30,99,267

1, 27,16,410

2,01,574

TOTAL 12,96,20,400 13,00,61,660

ScheduleJ

Income From Operations:


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ScheduleK

Particulars

As at

31.03.2010

As at

31.03.2009

Rupees Rupees

Sale of Cement 70,28,79,691 71,43,09,723

Sale of Cement - Second Sale 23,76,99,856 22,77,26,201

Sale of Clinker 1797,07,789 16,78,65,780

Sale of GCBS 71,974 19,29,890

TOTAL 112,03,59,310 111,18,31,603


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Adjustment For Stocks (Process):

Particulars

As at 31.03.2010 As at 31.03.2009

I. Work-in- process

Opening stock 3,28,74,681 78,42,308

Less: Closing

stock

2,00,55,080 32,74,681

1,28,19,601 (2,50,32,373)

Finished Goods

Opening Stock 66,05,349 1,04,59,660

Less: Closing

stock

16,27,777 66,05,349

49,77,572 38,54,311

TOTAL 1,77,97,173 (2,11,78,062)

Management Discussion and Analysis:

Industry Back Ground:-


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Cement is the core industry and the product is the basic requirement for the

development of housing and infrastructure. India is the largest producer of cement

is Asia after china, with an installed capacity of more than 142 million tons per

year. This comprises more than 400 major and mini cement plants. However, more

than 53% of the installed capacity is controlled by the 6 top players in India.

Lime stone is a major raw material used by the cement industry and

based on its availability, the industry is concentrated in Madhya Pradesh, Andhra

Pradesh and Rajasthan. Thus more than 50% of the installed capacity have come

up in 7 cluster with plenty of limestone deposits. The public sector accounts for

only 8% of the capacity, as against the private sector share of 92% of the installed

capacity. The southern region had the highest installed capacity, estimated at

around 46 million tons per annum where in Andhra Pradesh alone accounted for

about 21 mtpa

Demand and Supply:


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Cement is essential and basic input material for the construction activity. The

development of infrastructure is on the top of the Government agenda which

assures good growth for the cement industry in the coming years.

Demand for cement is linked to the economic activity in any country. It can be

categorized into demand for housing construction and infrastructure and hence

cement demand in developing economies is much higher than any developed

countries. The demand for cement is proportionately related to the spending on

infrastructure including housing. In India, housing accounts for about 55% of

cement consumption. After the decontrolling of cement industry, supply and

demand situation has become a sensitive and critical factor in determining the over

all profitability of the industry. Any small imbalance in demand and supply of the

cement results in disproportionate change in the cement prices.

The per capital consumption of cement in India is very low at 99 Kg

against the Asian average of 200 Kgs. Over the last 15 years, the consumption of

cement by the Governments has fallen drastically from 15% to 50% creating stiff

competition between the market players. The trend is likely to be reversed in future

as the Governments focused in infrastructure development like express highways

and other large projects.


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Measures Of Effectiveness:-

The effectiveness of inventory management it is helpful to look in to the following

ratio.

Cost of goods sold

* Inventory turnover ratio =

Average total inventory ratio

Annual consumption of raw material

* Raw material inventory turn over ratio =

Average raw materialinventory

Cost of manufacture

* Work in process inventory turnover ratio =

Avg. work in process inventory at cost

Cost of goods sold

* Finished goods inventory turnover ratio =

Avg. inventory of finished goods at costs


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Average raw material inventory at cost

* Average age if raw materials inventory =

Average daily purchases of raw material

Avg. finished goods inventory at costs

* Average age of finished goods inventory =

Avg. cost of goods manuf. per day

Inventory Turn Over Ratio

COST OF GOODS SOLD

Inventory Turn Over Ratio =

INVENTORY


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Inventory Turn Over Ratio:

SL.NO. YEARS COST OF

GOODS SOLD

AVERAGE

INVENTORY

RATIO

1 2005-06 67,66,06,220 6,60,02,620 1.25

2 2006-07 75,74,53,452 7,97,18,757 9.50

3 2007-08 95,53,18,880 8,62,93,250 11.07

4 2008-09 100,73,54,664 8,28,73,616 12.15

5 2009-10 81,19,63,689 7,43,38,239 10.92

Interpretation: -The above table reveals that every year the inventory increasing in

the above table the year 2009-10 used more inventory than other years.

10.259.5

11.0712.15

10.92

0

2

4

6

8

10

12

14

RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

YEARS

INVENTORY TURN OVER RATIO


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INVENTORY TO CURRENT ASSETS

0.29

0.26

0.27

0.24

0.26

0 0.05 0.1 0.15 0.2 0.25 0.3 0.35

2005-06

2006-07

2007-08

2008-09

2009-10

YEARS

RATIOS


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Production Of Inventory:

Interpretation: -The above table reveals that every year the production

Particulars Year

2005-06

Year

2006-07

Year

2007-08

Year

2008-09

Year

2009-10

Average

Store and spares

to inventory

37.52 35.89 42.14 51.02 53.33 43.98

Raw materials to

inventory

6.36 5.98 9.01 8.15 8.52 7.60

Coal to

inventory

10.52 11.10 14.87 8.41 8.15 10.61

Packing

materials to

inventory

1.22 0.84 3.15 2.57 5.36 2.62

Work in process

to inventory

35.87 35.33 24.08 21.74 10.54 25.51

Finished goods

to inventory

8.47 10.82 6.72 8.08 14.07 9.63


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Inventory:

Average increasing in the above table the stores and spares average increased.

Raw Material Inventory Turnover Ratio

Annual consumption of raw material

Raw material inventory turnover ratio =

Average raw materialinventory

43.98

7.610.61

25.51

9.63

0

5

10

15

20

25

30

35

40

45

AVERAGE

2005-06 2006-07 2007-08 2008-09 2009-10

YEARS

PRODUCTION OF INVENTORY


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SL.NO. YEARS MATERIAL

CONSUMPTION

AVERAGE RAW

MATERIAL

RAW MATERAL

TURNOVER

RATIO

1 2005-06 7,36,24,597 42,01,752 17.52

2 2006-07 8,92,96,824 47,72,995 18.70

3 2007-08 11,54,49,499 77,79,106 14.84

4 2008-09 12,22,98,007 67,58,858 18.09

5 2009-10 9,29,78,177 63,38,250 14.66

Interpretation :- The above table reveals that every year the raw material inventory

turn over ratio increasing in the above table the year 2008-09 used more raw

material inventory turn over ratio than others years.


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Work In Process Inventory Turnover Ratio

Cost of manufacture

Work in process inventory turnover ratio =

Average work in process inventory


MANUFACTURE

AVERAGE

WORK IN

PROCESS

WORK IN PROCESS

INVENTORY RATIO

1 2005-06 65,99,09,48 2,36,80,986 27.86

2 2006-07 75,21,06,280 2,81,68,422 26.70

3 2007-08 91,35,78,281 2,67,83,057 34.11

4 2008-09 97,72,90,734 1,80,20,774 54.23

5 2009-10 89,00,47,316 1,78,42,309 49.88


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Interpretation :- The above table reveals that every year the work in process

inventory turn over ratio increasing in the above table the year 2008-09 used more

process inventory turn over ratio than others years.

27.86 26.7

34.11

54.23

49.88

0

10

20

30

40

50

60

AVERAGE

WORK IN

PROCESS

2005-06 2006-07 2007-08 2008-09 2009-10

YEARS

WORK IN PROCESS INVENTORY TURN OVER RATIO


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Finished Goods Inventory Turnover Ratio


GOODS

SOLD

AVERAGE

INVENTORY

OF FINISHED

GOODS

FINISHED

GOODS

TURNOVER

RATIO

1 2005-06 67,66,06,220 55,92,962 12.09

2 2006-07 75,74,53,452 86,27,805 8.77

3 2007-08 95,53,18,880 58,05,978 16.45

4 2008-09 100,73,54,664 67,00,383 15.03

5 2009-10 81,19,63,689 1,04,59,661 7.76

Interpretation :- The above table reveals that every year the finished goods

inventory turn over ratio current increasing in the above table the year 2008-09

used more finished goods inventory turn over ratio than others years.


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FINISHED GOODS INVENTORY TURNOVER RATIO

12.09

8.77

16.45

15.03

7.76

0

2

4

6

8

10

12

14

16

18

2005-06 2006-07 2007-08 2008-09 2009-10

YEARS

INVENTORY TURNOVER RATIO


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Average Age Of Raw Material Inventory

SL.NO. YEARS RAW

MATERIAL

INVENTORY

AT COST

DAILY

PURCHASES

OF RAW

MATERAL

AVERAGE AGE

OF RAW

MATERAL

INVENTORY

1 2005-06 42,01,752 65,29,869 0.64

2 2006-07 47,72,995 3,13,13,588 0.15

3 2007-08 77,79,106 ------------- ------

4 2008-09 67,58,858 6,89,49,706 0.09

5 2009-10 63,38,250 11,60,62,197 0.05

Interpretation :- The above table reveals that every year the average age of raw

material inventory turn over ratio increasing in the above table the year 200001

used more average age raw material inventory turn over ratio than others years.


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Average Age Of Finished Goods Inventory

SL.NO. YEARS FINISHED

GOODS

INVENTORY

AT COST

COST OF GOODS

MANUFACTURED

PER DAY

AVERAGE AGE

OF FINISHED

GOODS

INVENTORY

1 2005-06 55,92,962 65,99,09,481 0.008

2 2006-07 86,27,805 75,21,06,280 0.011

3 2007-08 58,05,978 91,35,78,281 0.006

4 2008-09 67,00,383 97,72,90,734 0.006

5 2009-10 1,04,59,661 89,00,47,316 0.011

0.64

0.15

0

0.090.05

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

AVERGE AGE

OF RAW

MATERIALS

INVENTORY

2005-062006-072007-082008-092009-10

YEARS

AVERAGE AGE OF RAW MATERIALS INVENTORY

Series1


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Interpretation :- The above table reveals that every year the average age of

finished goods inventory turnover ratio increasing in the above table the year 2005-

06 and 2009-10 used more average age of finished inventory turnover ratio than

others years.

0.008

0.011

0.006 0.006

0.011

0

0.002

0.004

0.006

0.008

0.01

0.012

FINISHED

GOODS

INVENTORY

RATIO

2005-06 2006-07 2007-08 2008-09 2009-10

YEARS

AVERAGE AGE OF FINISHED GOODS INVENTORY


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INVENTORY TO FIXED ASSETS

Inventory

Inventory to fixed assets =

Fixed assets

SL.NO. YEARS INVENTORY FIXED ASSETS TOTAL

1 2005-06 6,60,02,620 35,48,81,491 0.18

2 2006-07 7,97,18,757 48,45,39,817 0.16

3 2007-08 8,62,93,250 46,65,88,545 0.18

4 2008-09 8,28,73,616 52,54,88,379 0.15

5 2009-10 7,43,38,239 61,71,41,364 0.12

Interpretation: - The above table reveals that every year the inventory to fixed asset

increasing in the above table the year 2005-06 and 2008-09 used more inventory to

fixed assets than other years.


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INVENTORY TO FIXED ASSETS

0.18

0.16

0.18

0.15

0.12

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

0.16

0.18

0.2

2005-06 2006-07 2007-08 2008-09 2009-10

YEARS


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Debtors Turnover Ratio

Net current sales

Debtors turnover ratio = ----------------------------------------

Average debtors

SL.NO. YEARS NET CREDIT

SALES

AVERAGE

DEBTOR

TOTAL

1 2005-06 67,66,06,220 14,39,91,394 4.69

2 2006-07 75,74,53,452 15,95,78,999 4.74

3 2007-08 95,53,18,800 10,44,64,642 9.14

4 2008-09 100,73,54,664 21,15,02,047 4.76

5 2009-10 81,19,63,689 22,53,07,679 4.60


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Debtors Turnover Ratio

Interpretation :- The above table reveals that every year the debtors turnover ratio

increasing in the above table the year 2009-10 used more debtors turnover ratio

than other years.

SL.NO. YEARS NO OF DAYS IN

A YEAR

DEBTOR

TURNOVER

RATIO

TOTAL

1 2005-06 365 4.69 77.82

2 2006-07 365 4.74 77.00

3 2007-08 365 9.14 39.93

4 2008-09 365 4.76 76.68

5 2009-10 365 4.60 79.34


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77.82 7700%

39.93

76.68 79.34

0

10

20

30

40

50

60

70

80

TOTAL

2005-06 2006-07 2007-08 2008-09 2009-10YEARS

DEBTOR TURNOVER RATIO


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76/85

Findings

From 2005-2006 there is an increase in the inventory turnover ratio 1.25 to

9.5 and from 2006-07 to 2007-08 inventory turn over ratio increases to 12.5

and decreases to 10.92. But, the inventory turn over Ratio from 2003-04 to

2007-08 was increased 1.25 to 10.92.

In the years 2007-08 the inventory to current asset was decreased from 0.29

to 0.26

in Production of Inventory the average ratio of stores & spares was 43.98,

Raw Material to inventory was 7.60, Coal to Inventory was 10.61, Packing

to Inventory was 2.62, Work in process to inventory was 25.51 & Finished

Goods to inventory was 9.63

From 2005-2006 there is an decrease in the Raw material inventory turnover

ratio 17.52 to 14.84 and from 2006-07 to 2007-08 current ratio 18.09

decreases to 14.66. But, the Raw Material inventory turn over Ratio from

2003-04 to 2007-08 was decreased 17.52 to 14.66.

From 2005-2006 there is an increase in the WIP inventory turnover ratio

27.86 to 34.11 and from 2006-07 to 2007-08 WIP inventory turnover ratio


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increases to 54.23 and decreases to 49.88 But, the WIP inventory turnover

Ratio from 2003-04 to 2007-08 was increased 27.86 to 49.88

From 2005-2006 there is an increase in the Finished Goods inventory

turnover ratio 12.09 to 16.45 and from 2006-07 to 2007-08 Finished Goods

inventory turnover ratio decreases to 15.03 to 7.76 But, the Finished Goods

inventory turnover Ratio . 2007-08 was decreased 12.09 to 7.76

The Average Age of inventory was decreased from 0.64 to 0.05 in the year

2007-08. There was no average of inventory for the year 2007-08.

The Average Age Finished Goods inventory was increased from 0.008 to

0.01 in the year 2007-08. there was a constant average of finished goods

inventory for the year 2007-08 to 20062007

In the year 2007-08 the inventory to fixed asset was decreased from 0.18 to

0.12

The Debtors Turnover Ratio has maintained consistency throughout the

project. It maintained average of 4.69 to 4.60


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Suggestions

In most recent years. Kesoram Cement Limited has worked to its full capacity. This

reflects that the efficiency of men and machines in the organization. A company of this

nature can multiply its profits by increasing in Inventory Control Management.

The proportion of inventory to the total current assets has not been showing a consistent

increase. The size of inventory should be increased so as to meet the demand.

The size of Inventory Control Management, which has shown tremendous increase

during first two years, has remained static thereafter. Between the inventories on current

assets, is not more profitable.

Thought the sale of Kesoram Cements Limited is showing an increasing trend, the profits

have not registered an increasing trend as well. This is due to the increase in the cost of

production. Therefore, company should take care of controlling cost of production.

The company must concentrate on new and improved technology to increase production

and there by decrease cost of production.

The company should aim at minimizing cost by implementing strict cost control and

maintain cost records for each department to identify the risk in controllable costs.


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More Innovation techniques are to be introduced to meet an increased demand in the

market.

References provided by prospective customers should be consulted and necessary follow-

up action should be taken.


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Conclusion

1. The Inventory Control Management of Kesoram Cements Limited has registered an

increasing trend throughout the period under study from 2005-06 to 2009-10. The

Inventory Control Management indices show a continuous increase.

2. Inventories the major components of raw materials, work in process and finished goods,

which range from 25% to 30% in almost all years.

3. The percentage of inventory on current assets is increasing in 4.14% in the year 2008-09.

4. In the year 2008-09, there has been an increase in the inventory turnover ratio from

12.5%. This reveals improvement in the inventory turnover of the company.

5. There has been a study increase in the inventory turnover ratio of Kesoram Cement

Limited and in the year 2008-09 it has increased to 12.15%.

6. The indices of inventory are at a comfortable position.

7. The sales of the company have an upward trend. It represents the operational

achievement of the company.


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8. The financial charges of Kesoram Cements Limited are comparatively lower and it has a

decreasing trend, which is not a healthy sign to the company.

9. The average collection period 77 days i.e. just over 2 & half months, which indicates

normal debtors turn over ratio. But, it is maintaining an average collection. Company

should try to bring down the collection period to improve liquidity.

10.The company efficiency in turning its inventory is increasing sales is good, the years

holding of all types of inventory is decreasing. There is a positive trend.


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BIBLOGRAPHY


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S.P.Jain, K.L.NaraNG, 2003, ADVANCED ACCOUNTANCY, 10th Edition,

Kalyani Publishers, Ludhiana.

Prasanna Chandra, 2002, FINANCIAL MANAGEMENT, 5th Edition,

TATA-McGRAW HILL, New Delhi.

I.M. Pandey, 2002, FINANCIAL MANAGEMENT, 8th Edition, Vikas

Publishing House Private Limited, New Delhi.

R.K.Sharma, Shashi K.Gupta, MANAGEMENT ACCOUNTING, 2nd

Edition, Kalyani Publishers, Ludhiana.

JOURNALS:

The ICFAI Journal of Applied Finance

Finance India (Indian Institute of Finance)

Investment Monitor.

www.kesoram.com

www.inventorycontrols.com

www.wikkepedia.com
http://www.kesoram.com/http://www.kesoram.com/http://www.inventorycontrols.com/http://www.inventorycontrols.com/http://www.wikkepedia.com/http://www.wikkepedia.com/http://www.wikkepedia.com/http://www.inventorycontrols.com/http://www.kesoram.com/


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Documents

Venu Project Report 1