4.

1 FINANCIAL RATIOS RELATED TO INVENTORY

Raw material turnover ratio

Raw material turnover ratio is velocity at which raw material converted into goods
ready for sale. If raw material turnover ratio is high then company is efficiency
converting into finished goods.

Formula: Material consumed / Average raw material

Table 4.1 Raw Material Turnover Ratio

Year Raw material consumed (Rs) Avg R.M Ratio

2019 576,484,922 53,608,082 10.75
2018 371,223,873 36,137,266 10.27
2017 230,779,236 132,002,490 1.74

2019 2018 2017

Year

Fig 4.1 Raw Material Turnover Ratio

Form above graph we come know that raw material turnover ratio is increased
rapidly in 2018 from 1.74 in 2017 to 10.27 for 2018. Indicates that company is converting
raw material into finished or semi finished goods very quickly

Holding period of raw material

 It refers to the number of days taken for the production unit to convert raw
material to finish goods.

Formula:

360 /Raw material turnover ratio

Table 4.2 Holding period of raw material

Year Total Days Ratio Days

2019 360 10.75 33
2018 360 10.27 35
2017 360 1.74 206

2019 2018 2017

Year

Fig 4.2 Holding period of raw material

As the raw material turnover ratio is increasing form to 10.27 for 2018 it indicates
that firm is taking less days for conversion as compared to 2006. In 2017 conversion
period was 206 days but in decreased to 35 days for 2018. This is shown in above graph.
Before 2018 there was no production process they were converting semi finished goods
into finished products hence to start their own production process they hold the raw
material in 2017.

Work in Process Turnover ratio

 Work in process turnover ratio is velocity at which W.I.P converted into goods
ready for sale. If W.I.P turnover ratio is high then company is efficiency converting into
finished goods. Formula:

Cost of production/ Average W.I.P

Table 4.3 Work in Process Turnover ratio

Year Cost of production RatioAvg W.I.P Ratio

2019 849,054,442 36,720,702 23.12
2018 555,094,500 15,010,347 36.98
2017 361,110,197 9,755,839 37.01

2019 2018 2017

Year

Fig 4.3 Work in Process Turnover ratio

Form above graph we came to know that Work in process turnover ratio is
decreasing from 37.01 in 2006 to 23.12 2019. The ratio was high in 2017 as compared to
2018 and 2019. The ratio was 37.01. Indicates that company is converting semi finished
into finished goods quickly.

Holding period of W.I.P

It refers to the number of days taken for the production unit to convert semi
finished goods into finish goods.

Formula:
 360 /W.I.P turnover ratio

Table 4.4 Holding period of W.I.P

Year Total Days Ratio Days

2019 360 23.12 15.57
2018 360 36.98 9.73
2017 360 37.01 9.72

2019 2018 2017

Year

Fig 4.4 Holding period of W.I.P

As the work in process turnover ratio is increasing form 9.72. in 2017 To 15.57 for
2018 it indicates that firm is taking less days for conversion. Which shown in above
graph.

Finished goods turnover ratio

Finished goods turnover ratio is velocity at which finished goods converted into
for sale. If finished goods turnover ratio is high then company is efficient.

Formula:

Cost of goods sold/ Average finished goods

Table 4.5 Finished goods turnover ratio

Year Cost of goods sold Avg F.G Ratio
2019 849,054,442 26,243,339 32.35
2018 555,094,500 19,858,482 27.95
2017 361,110,197 10,940,008 33.01

2019 2018 2017

Year

Fig 4.5 Finished goods turnover ratio

Form above graph we came know that finished goods turnover ratio is decreasing
from 33.01 in 2017 to 27.95 for 2018. Indicates that company is selling goods little
slowly as compared to 2006 but it is bit fast as compared to 2019. Where the ratio for that
particular period was 32.35 decreased to 11.20 for 2019 it is satisfactory. Which shown in
above graph.

Inventory to capital employed

This ratio indicates the relationship between the total capitals employed and
inventories it shows how much capital utilized to invest in the inventories other than the
other assets. The normal manufacturing firms have low ratio of inventory total capital
employed in the organization.

Formula: Inventory / Total capital employed

Table 4.6 Inventory to capital employed

Year Inventory Total capital employed Percentage
2019 849,054,442 26,243,339 32.35
2018 555,094,500 19,858,482 27.95
2017 361,110,197 10,940,008 33.01

2019 2018 2017

Year

Fig 4.6 Inventory to capital employed

By observing above graph we can say that the firm investing huge amount in
inventories compared to other assets. It invested 83.54% of its capital in inventory in
2018 where as it reduced to 65.50% in 2019.

Inventory to current asset ratio

This ratio indicates the relationship between the inventory and current assets. It
shows the percentage of inventory to current assets, which helps the organizations in
deciding the current assets policy which also affect the liquidity position of the
organization.

Formula:

Inventory / Current assets

Table 4.7 Inventory to current asset ratio

Year Inventory current assets Percentage

2019 197,465,069 331,314,504 59.60
2018 121,558,000 237,687,684 51.14
2017 67,994,623 117,022,625 58.10

2019 2018 2017

Year

Fig 4.7 Inventory to current asset ratio

The inventory to current assets ratio in the year 2006 was 58.10% and it decreased
to 51.14% in the year 2007 but again it increased to 59.60% in 2008. It shows that the
firm investing 59.60% of its investment is for inventory only.

Inventory to total assets

This ratio indicates the relationship between the inventory and total assets. The
significance of this ratio is it reflects the portion the inventory as a percentage of the total
assets, which helps the management deciding the utilization remaining resources
profitably, since the inventory will lock up the huge funds and reduces the profitability of
the organization

Formula:

Inventory / Total assets

Table 4.8 Inventory to current asset ratio

Year Inventory current assets Percentage

2019 197,465,069 331,314,504 59.60
2018 121,558,000 237,687,684 51.14
2017 67,994,623 117,022,625 58.10
 2019 2018 2017
Year

Fig 4.8 Inventory to current asset ratio

During the year 2006 the rate of inventory to total assets was 16.38% it increased
to 22.47% in 2018. But again it reduced to 19.93% in 2019. It indicates that firm
investing only 19.93% in inventory out of total assets.

Inventory to working capital

This ratio indicates the relationship between inventory to working capital and it
also indicates the amount to inventory tied up in the working capital and it also shows the
efficiency of inventory management.

Formula: Inventory /Working capital

Table 4.9 Inventory to working capital

Year Inventory current assets Percentage

2019 197,465,069 199,345,123 99.05
2018 121,558,000 146,097,210 83.20
2017 67,994,623 46,338,277 146.45
 2019 2018 2017
Year

Fig 4.9 Inventory to working capital

In the year the ratio was 146.45% in 2006. It decreased to 83.20% for 2018 but it
increased it to 99.05% in 2008. It indicates that firm investing huge amount in inventory