CHAPTER V

INVENTORY MANAGEMENT

OF

SELECTED

CEMENT COMPANIES

CHAPTER V

INVENTORY MANAGEMENT OF SELECTED

CEMENT COMPANIES

Inventory serves as a link between production and distribution

processes. There is generally a time lag between the recognition of a

need and its fulfillment. The greater the time lag, the higher would be

the requirements for inventory. The fluctuations in demand and

supply of goods also necessitate the need for inventory. It also

provides a cushion for future price fluctuations. Generally, inventory

means stock of goods, which means finished goods. But in a

manufacturing firm, in addition to the stock of finished goods, there

will be stock of raw materials, work-in progress and stores also all of

which, form parts of inventories. The term inventory means the entire

stock of a company that makes up the production and also can be

offered for sale. So, inventory is that stock which is held for sale in

ordinary course of business and which is used in the process of

manufacturing and which is yet to be used for the purpose of

production of goods or services to be available for sale. The various

forms in which inventories exist in a manufacturing company are:-

1. Raw materials: These are those basic inputs which are

required to carry out production activities uninterruptedly.

Raw materials are those which have been purchased and

stored for future production. The quantity of raw materials

required is determined by the rate of consumption and the

time required for replenishing the supplies. The factors like

the availability of raw material and government regulations,

etc. affect the stock of raw materials.

190

2. Work-in-Process: The work in process is that stage of stock

which is in between raw material and finished goods. The raw

materials enter the process of manufacture but they are yet to

attain the final stage of finished goods. These are also known

as semi manufactured products.

3. Finished Goods: These are the goods which are ready for the

consumers. The stock of finished goods provides a buffer

between production and market. These are completely

manufactured products which are ready for sale. Stock of raw

material and work-in-process facilitate production, while

stock of finished goods is required for smooth marketing

operations. The inventories serve as a link between the

production and consumption of goods.

4. Consumables fit Spares: Consumables are the materials which

are needed to smoothen the process of production. These

materials do not directly enter into production but act as

catalysts like fuel oil which may form a substantial part of

cost.

5. Spares: spares also form part of inventory. The policies of

spares are different from industry to industry, like transport

industry requires more spares than the other concerns. The

spare parts like engines, maintenance spares etc. are not

discarded after use but they are kept in ready position for

further use.

There are different motives of every company to hold inventories.

These are:-

Transaction Motive: The inventories are held to make up smooth

production and sales operations.

191

Precautionary Motive: It helps in holding of inventories to guard

against the risk of unpredictable changes in demand and supply

forces and other factors.

Speculative Motive: Influences the decision to increase or reduce

inventory levels to take advantage of price fluctuations.

Although holding of inventory involves blocking of firms funds

and the cost of storage and handling, a firm needs to maintain

inventories to reduce ordering costs and avail quantity discounts. For

this purpose, proper management of inventories is necessary.

Designing a sound Inventory control system is a measure for

balancing operations. The aim of sound Inventory Control System is to

secure the best balance between too much and too little.

Thus, the main objective of inventory management is to avoid the

situation of over investment and under-investment in inventories to

maintain sufficient size of inventory for efficient and smooth

production, sales operations and to maintain minimum investment in

inventories to maximize profitability.

The tools and techniques of inventory management provide the

means for determining an optimal average level of inventory for the

firm. The main objective of inventory control is to avoid sales losses,

efficient production, gaining quantity discount and reducing ordering

cost. Efficient production and avoidance of sales losses are the

primary objectives of inventory management in cement manufacturing

firms. Weighted average cost is very popular in cement industry as

mostly, companies are following different methods for valuing

inventory. All the companies adopt techniques like 'ABC Analysis' and

'Inventory Turnover Ratio' as inventory control tools. Comparatively, it

enables the management to put in efforts at a place where results will

192

be attractive. The analysis of inventory management of selected

Cement Companies has been done in the present study as explained.

5.1 PROPORTION OF INVENTORY IN TERMS OF NET SALES

Turnover analysis is the basic and fundamental tool for

controlling investment in Inventory. An excessive investment in

inventory results in less cash available for other cash outflow

purposes. The sale of a concern directly affects the profits and holding

of inventory involves cost. Every increase in inventory is expected to be

accompanied by adequate increase in sales. So that increased cost of

inventory may be recovered from increased profits but companies

build inventory due to planned promotion. So, it is incorrect to

conclude that the larger amount of inventory causes higher sales.

According to stock out or scarcity effects, the sales increase with

inventory even though demand is independent of inventory, which has

been explained in the following table. The high amount of inventory if

accompanied with high amount of sales will lead to effective and

sufficient liquidity for the concern. But if there is excess inventory

blocked with the concern having low amount of sales will involve cost

of carrying the inventory or holding the inventory. The table ahead

describes the proportion of inventory kept by the companies in

relation to net sales. The table depicts that Grasim Industries and

India Cements have high proportion of inventory in relation to net

sales of the company.

193

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The table 5.1 envisages the percentage of inventory of

selected cement companies in terms of net sales. All the

selected cement companies have maintained approximately,

lowest of 5 to 6 percent inventory of net sales. In an industry

like cement, which is already over stocked, it is expected that

growth in sales during a period must be at a faster rate thgm

inventory growth so, that profits are favourably affected. But

this trend has not been found in actual practice in the

industry. Companies failed to generate more sales in

comparison to inventory the situation can be made clear from

the table. The position of J.K. Cements is worse, as per the

analysis. The highest level of inventory is 24.3 percent in the

year 2011-12, the level of stock is high but the sales are only

of Rs. 1317.26 crores when compared from the industry point

of view.

On the other hand, Grasim and Shree Cements are

doing well in terms of net sales and their inventory levels are

high at 15 percent and 12.9 percent, all other companies are

doing well and the proportion of inventory is also appropriate.

Besides, Binani Cements is having highest inventory of 22.6

percent as compared to the sales of Rs. 963.04 crores which is

not too high, ACC is having second highest inventory of 21.3

percent with sales of Rs. 2810.63 crores.

The achievement of maximum possible profit is the goal

of an enterprise. This object can be achieved by accelerating

sales to the extent possible. In order to have uninterrupted

flow of production and sales, inventories are to be made

available, whenever needed at an appropriate level. Thus, the

195

volume of sales and size of inventory holdings are related to

each other. For the purpose of having an indepth insight into

the extent of inventory, the table ahead reveals the magnitude

or size of inventory.

5.2 SIZE OR MAGNITUDE OF INVENTORY OF

SELECTED CEMENT COMPANIES

The magnitude of inventory of selected cement

companies in India indicates Grasim at the very outset

followed by ACC, Ambuja, Ultratech, India Cement, Shree,

Madras, Birla, J.K and Binani. The following table 5.1 depicts

magnitude of inventory

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1 -»^GRASIM INDUSTR

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- • -SHREE CEMENT

Years

Pig 5.2: Size of Inventory of Cement Companies

w\/ ^ ^ A/ * ^ ^ i^

Companies

•2012-13

• 2013-14

•2014-15

•2016-17

•2017-18

2018-19

•2019-20

2020-21

-2021-22

Fig 5.2.1: Projected Inventory of Cement Companies

200

As it is evident from the table-5.2, ACC's inventory is constantly

increasing year by year. In the year 2000-01, it was Rs. 294 crores

and then increased to Rs. 313 crores in the next year. In 2002-03, it

reduced to Rs. 300 crores and further, it increased. ACC has

maintained good level of inventory throughout the study period of

twelve years which shows that good level of working capital is

maintained due to it. Ambuja Cements started with low level of

inventory i.e. Rs. 148 crores in the year 2000-01 which started

increasing to a high of Rs. 940 crores in the year 2008-09. Ambuja

Cement has also shown improvement in maintaining good level of

inventory due to which, inventory and working capital management

are good. Ultratech Cement, since its incorporation in 2003-2004, also

maintained good level of inventory in the year 2011. The inventory

level rose to all time high of Rs. 1957 crores. Grasim industries is

showing fluctuating trend in the past twelve years period. In the year

2000-01, its inventory was Rs. 644 crores which increased to Rs. 82

crores and Rs. 726 crores. In the following years, it constantly

decreased which shows that the company is maintaining low level of

inventory. However, its inventory turned up to increase in the later

years. India Cements had low level of inventory, throughout the study

period from Rs. 188 crores in the year 2000-01 followed by a slight

increase till 2011-12. J.K. Cements recorded low track record of

inventory throughout the study period but it constantly improved.

Binani Cement had Rs. 40 crores inventory in the year 2002-03 that

increased in the next year but at a very low rate then again showed a

fall (Rs. 34 crores in two years) and again increased to Rs. 57 crores

and to Rs. 217 crores in the year 2008-09 followed by a decrease at

last. The inventory of Madras Cements was Rs. 72 crores in the year

2004-05 against its maximum inventory in the year 2010-11 at Rs.413

crores. Birla Corporation had a moderate level of inventory with

201

minimum inventory at Rs.l02 crores and maximum at Rs. 360 crores.

Moreover, Shree Cements had also moderate level of inventory. Earlier

it had low level of inventory which continuously increased.

Table 5.2.1 depicts trend or projected inventory of selected

cement companies. The figures of projected inventory have been drawn

by applying extrapolation on the data of twelve year period from 2000-

01 to 2011-12. The trend or projected inventory is calculated on the

basis of the statistical technique (least square method) i.e Yc=a+bX

where, parameters 'a' and TD' are constants, 'X' and 'Y' are the

variables. In case of ACC equation comes to Yc=551.32+30.074(X), in

case of Ambuja equation is Yc=402.33+34.53(X), Ultratech has the

equation Yc=449.99+65.62(X), Grasim Industry with equation

Yc=697.24+6.89(X), India Cement's equation is Yc=273.55+15.23(X),

J.K Cement with equation Yc=89.15+13.18(X), Binani Cements

equation is Yc=83.80+9.54(X), Madras Cement's equation is

Yc=171.92+16.68(X), in case of Birla equation comes to

Yc=161.02+9.76(X) and Shree Cement has the equation

Yc=177.91+19.80(X).

The projected inventory of ACC for the year 2012-13 is Rs.

942.282 crores, which will gradually increase in the future years and

estimated to reach Rs. 1483.614 crores in the year 2021-22. Ultratech

Cements have the projected inventory of Rs. 1303.05 crores and

estimated to reach Rs.2484.21 crores in the year 2021-22 and out of

all the selected cement companies, Binani Cements depicts the lowest

projected inventory of Rs. 207.82 crores in the year 2012-13 and Rs.

379.54 crores in the year 2021-22. After Binani, J.K, Birla, India,

Madras and Shree have moderate projected inventories. Besides ACC,

Ambuja and Grasim estimated to score well in the future for their

projected inventory.

202

5.3 INDICES OF INVENTORY OF CEMENT COMPANIES

Obviously, Shree Cement and Ambuja Cement are the two

cement companies which are quite ahead in terms of growth and

efficiency in comparison to the other cement companies of the

Country. This is the reason that the requirement of inventory as a

safety measure, has been increased by these two cement companies

more than the others. However, the indices of inventory of cement

companies taken for the analysis under this research, reveal growth

with the exception of a few in few years as stated in table 5.3.

203

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Biria

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Fig 5.3: Indices of Inventory

As it is be observed from table 5.3, the inventory of all the

selected cement companies increased. The year 2000-01 is taken as

the base year and for the companies incorporated later on, the year of

inception is taken as the base year considering 100 index value. In

case of ACC, there has been increase in inventory as there is

unanticipated increment in the total investment in the inventory.

Similarly, Ambuja registered increase. Ultratech on the other hand,

was incorporated in 2003-04 and its inventory moved forward with

positive and increasing trend. Grasim recorded ups and downs in

inventory from decreasing trend that rose in the year 2006-07 and had

a sharp fall in the last years. This might be because of huge

fluctuation in its demand. India cement has also the similar

fluctuation but during the last years, it showed good performance. J.K

Cements indicated increase in inventory. Binani Cements, Madras and

Birla showed huge fluctuation. Shree Cements registered increasing

205

trend with small fluctuation in 2003-04 that is Rs. 169.29 and in all

the years under study, it has shown continuous increase. In case of

J.K. Cements there has been observed a kaleidoscopic change in the

inventory of the company.

Overall the position of ACC and Ambuja is found to be excellent

because they have shown positive and increasing trend and the

company which reduced the investment in total inventory, is found to

be Grasim.

5.4 BASIS OF SIZE OF INVENTORY

The basis of size of inventory of the cement companies is

analyzed as under:

Table- 5.4

Descriptive Statistics on the Basis of Size of Inventory of Selected Cement Companies (2000-01 to 2011-12)

(Rs. in crores)

Companies Mean S.D C.V% Kurtosis Skewness Maximum Minimum

ACC 551.321 209.139 37.934 -1.4972 0.1993 914.98 293.99

Ambuja 479.421 301.713 62.932 -1.493 0.5359 939.75 147.54

Ultratech 449.998 567.663 126.14 4.849 1.9849 1956.52 223.17

Grasim 697.244 301.795 43.283 2.653 1.4733 1378.24 417.24

India 273.555 132.406 48.402 -0.39 1.0221 517.73 153.41

J.K 89.1566 105.57 118.40 0.915 1.1883 321.05 66.56

Binani 83.8066 79.365 94.700 -1.1821 0.7842 217.44 33.6

Madras 171.922 139.954 81.405 -0.739 0.9748 412.54 52.74

Birla 161.023 89.445 55.548 1.8138 1.5967 359.6 101.98

Shree 177.919 157.467 88.505 0.11428 1.1645 503.32 34.72

Total 3135.37 2084.52 66.484 5.0433 10.924 7521.1 1524.9

Source: Annual Reports of Selected Cement Companies till 2011-12

206

The descriptive statistics of inventory of selected cement

companies analyzes that mean value of Grasim is Rs. 697.244 crores

which is highest in the industry. The Grasim Company catches the

focus in highest mean value of inventory. Its investment showed sharp

increase in trend also which may be because of some demand

forecasting or hike in the demand.

Companies with minimum size of inventory mean are Binani,

J.K., Birla and Madras. As far as the industry is concerned, it has

mean total inventory of Rs. 3135.37 crores with standard deviation of

Rs. 2084.522 crores, skewness of value 10.924, skewed to the right

side and kurtosis with leptokurtic distribution i.e. 5.0433. The

maximum toted inventory is Rs.7521.17 crores and minimum total

inventory is Rs. 1524.95 crores. This shows that this industry is

affected by the cyclic and seasonal variation because the difference

between the maximum level and minimum level is very high of

Rs.5996.22 crores.

The second highest mean value is of ACC Cement with value of

Rs. 551.3217 crores with standard deviation of Rs. 209.1392 crores,

skewness and kurtosis have been calculated to 0.19937 and -1.49729

crores respectively. It holds inventory with maximum value of

Rs.914.98 crores and minimum value of Rs. 293.99 crores. Highest

standard deviation is found of Ultratech Cement accounted for Rs.

567.6632 crores with a mean of Rs. 449.9983 crores. The highest

investment in inventory is found Rs. 1956.52 crores and lowest is

Rs.223.17 crores. Ambuja Cement, India, Binani and Madras Cements

registered negative kurtosis having platykurtic distribution against

other companies having positive kurtosis and ACC, Ambuja, Binani

and Madras have low degree of skewness which is less than one but

greater than zero having right side distribution i.e. 0.199337,

0.535902, 0.784236 and 0.974872 crores respectively. Regarding co-

207

variance, the maximum variance is found to be in case of ACC i.e

37.934 percent and maximum variation o£ 126.147 percent of

Ultratech in case of inventory.

Out of all companies, second minimum value of inventory is

Rs.34.72 crores which is too low in case of Shree Cements while

Binani had Rs. 33.6 crores and minimum Rs. 417.24 crores of Grasim

Industries. Maximum value of inventory was calculated to be of

Ultratech (Rs. 1956.52 crores). This is the highest maximum value out

of all companies and lowest maximum is Rs. 217.44 crores of Binani

Cement.

5.5 INVENTORY TURNOVER RATIO OF CEMENT COMPANIES

This ratio is also called as stock velocity ratio. It is cadculated to

ascertain the efficiency of inventory management in terms of capital

investment. It shows the relationship between costs of goods sold and

average inventory. This ratio is helpful in evaluation and review of

inventory policy. It indicates the number of times finished stock is

turned over during a particular accounting period. This ratio indicates

the efficiency in company's inventory Management. The inventory

turnover ratio can be computed by dividing net sales with Inventory at

year end. The equation is generally used to calculate inventory

turnover, here the net sales are valued at market price, the inventory

at the year end is valued at cost. Besides there can be wide

fluctuations in the value of inventory during the years. Hence, an

average of the inventory at year end and beginning is used. Also cost

of goods sold can be used in place of sales to make the ratio more

logical.

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The inventory turnover ratio is a good measure of selling

efficiency and the general rule of analyzing this ratio is 'the higher-the

better'. The inventory turnover ratio is good enough but a need for

further probing would arise if the ratio falls too much or rises too high.

A high inventory ratio indicates efficient inventory management

and efficiency of business operations. Inventory turnover ratio

measures the velocity of conversion of stock into sales. A high

turnover ratio shows that the stocks are sold frequently and a lesser

amount of money is required to finance the inventory. On the other

hand low ratio indicates over-investment in inventory or over stocking

which shows inefficiency of management.

Total inventory turnover ratio shows the number of times a

company's total inventory is turned into sales. Investment in total

inventory represents idle cash. The lesser the inventory, the greater

the cash available for meeting operating needs.

Circulation of Inventory is measured by different turnover ratios.

The behaviour of inventory can be studied from inventory turnover

ratio i.e. inventory with sales is analyzed to measure the weightage of

total inventory with sales of the company. The inventory turnover ratio

of the selected cement companies is analyzed from the table 5.5.

The inventory turnover ratio of cement industry in table 5.5

indicates average of 5.038. The ratio of ACC was 8.24 times in the year

2000-01 which was fairly constant till 2004-05 showing an increase in

the ratio gradually declined in 2005-06. However, in the last four

years, it reached a high of 27.51 times which shows that ACC has

considerably maintained its inventory turnover ratio and at the end, it

210

reached to its high at a very fast pace. This shows that ACC has been

selling its inventory very frequently and converted it into sales.

Ambuja Cement recorded minimum inventory turnover ratio in the

year 2008-09 and maximum in 2006-07 while in rest of the years, it

showed various fluctuations in the first half as the ratio was near to

7.92 times and in the later half, it increased which is a good sign of

improved ratio. Ultratech Cement assessed highest inventory turnover

ratio during the year 2008-09 which is 31.16 crores and lowest during

the year 2006-07 to Rs. 8,75 crores. Very low inventory turnover ratio

implies inefficient management of inventory. It means there was slow

process of sale of inventory during the Year 2006-07 and it was very

high during 2008-09 which indicates very frequent selling of

inventory. Madras Cement registered inventory of Rs.37.03 crores. The

company was necessarily keeping the stock in warehouses.

Grasim Industries had Rs. 6.76 crores and Rs. 6.77 crores

inventory turnover ratio in the years 2000-01 and 2001-02 and then it

showed improvement in the following years by selling its stock and

reaching to 8.73 times having considerably slow growth in the

following years and the ratio was continuously rising. This shows that

Grasim Industry has taken due care in selling off its ideal lying stock

and converted it into cash to maintain proper liquidity. India Cements

had also 6.41 and 6.44 times inventory turnover ratio in the initial

two years but in next two years, it declined to 5.23 times and 5.59

times showing decrease and in the later half, its inventory turnover

ratio drastically increased recording high in 2008-09 to 27.47 times.

J.K. Cement started with 5.45 times in 2004-05 and it showed great

improvement in the later years by making a high of 49.34 in 2008-09.

Very high ratio indicates the situation of shortage of goods or stock

out, having no inventory in relation to demand and that may be due to

211

a conservatism of valuing inventory at lower values or the policy of the

firm to buy frequently in small lots. The inventory turnover ratio of

Binani Cement in all the years under research fluctuated with a

sluggish increase of 9.28 times in 2002-03 and declined in 2007-08

following with high inventory turnover ratio in the last years showing

maximum in the year 2011-12 of 47.65 times. Madras Cement also

started with 7.22 times inventory turnover ratio in the year 2000-01

and increased in all the years except the year 2005-06 which showed

very low ratio of 5.68 times then it reached its high in 2008-09 to

37.03 times. So, Madras Cement has maintained good inventory

turnover ratio throughout the research period. Birla Cement has

maintained moderate level of inventory. The ratio was minimum

during 2005-06, 2006-07 and 2007-08 and was high of 26.19 times in

the year 2009-10.

Shree Cements which is the leading cement company, had

minimum inventory turnover ratio in the Years 2006-07 and 2007-08

which was 6.18 times and the maximum ratio of the company was

63.70 times in the year 2002. This shows that the company has

maintained low ratio during the recent past except in 2-3 years.

During 2003-04 to 2004-05, the ratio was quite stable indicating that

its investment in stock is within proper limits.

Out of all the selected companies, J.K. Cement had highest

inventory turnover ratio i.e. 49.34 times.

212

5.6 ANOVA (Single Factor) F-Test

Hypotheses Testing

1. Null Hypothesis: Inventory Turnover Ratio of Cement Companies

does not differ significantly among the years.

TABLE 5.6 (a)

ANOVA (Year Wise Analysis) Inventory Turnover Ratio

Source of variation Sum of Squares Df

Mean Square

F Sig.

Between Groups 5568.472 11 506.225

9.320 .000 Within Groups

5268.541 97 54.315

9.320 .000

Total 10837.013 108

Significant at 5% level

Above table 5.6 (a) above states that the calculated value of F

(.000) is less than the value (.05) at 5% significance level; This leads to

the acceptance of null hypothesis. Hence, it can be concluded that

inventory turnover ratio of cement companies does not differ

significantly among the years.

213

2. Null hypothesis: Inventory Turnover Ratio does not differ

significantly among the various Cement Companies over the

years.

TABLE 5.6 (b)

ANOVA (Company Wise Analysis) Inventory Turnover Ratio

Source of variation Sum of Squares Df

Mean Square

F Sig.

Between Groups 1076.241 9 119.582

1.213 .296 Within Groups 9760.773 99 98.594

1.213 .296

Total 10837.013 108

Significant at 5% level

Above table 5.6 (b) states that the calculated value of F (.296) is

higher than the value (.05) at 5% significance level; This leads to the

rejection of null hypothesis. Hence, it can be concluded that inventory

turnover ratio differs significantly among the various cement

companies over the years.

5.7 CHI-SQUARE TEST

To test the significance of Inventory on Gross Working Capital of

Cement Companies under study, chi-square test has been applied.

The calculated values of chi-square of selected companies are

214

described in the table below. According to the table values of chi-

square calculated for selected Cement Companies to study the

influence of Inventory on Gross Working Capital at 5 percent level of

significance, it has been analyzed that except Ambuja and JK

Cements, p values of ACC, Ultratech, Grasim and others were less

than 0.05 indicating significant influence.

Table 5.7 Chi-Square test of Selected Cement Companies on the basis of

Sr.No. Company Value Df Asymp.Sig. (2-Sided)

1. ACC Pearson Chi-Square

48. 355a

11 .000

2. Ambuja Pearson Chi-Square

8.128 11 .702

3. Ultratech Pearson Chi-Square

33.848a 8 .000

4. Grasim Pearson Chi-Square

99.589a 11 .000

5. India Pearson Chi-Square

51.243a 11 .000

6. J.K Pearson Chi-Square

10.021a 10 .439

7. Binani Pearson Chi-Square

26.076a 9 .002

8. Madras Pearson Chi-Square

45.893a 11 .000

9. Birla Pearson Chi-Square

24.731a 11 .010

10. Shree Pearson Chi-Square

81.793 11 .000

Inventory to Gross Working Capital

5% level of Significance,

215

Null Hypothesis (Ho)

There is no significant influence of inventories on Gross Working

Capital of the compamies.

Alternate Hypothesis (Hi)

There is significant influence of inventories on Gross Working

Capital of the companies.

The inferential statistics of chi-square i.e there is significant

influence of Inventories on Gross Working Capital of the cement

companies was tested and the results revealed that calculated value of

chi square of ACC is .001, which is less than the chi-square value at 5

percent level of significance. So, the null hypothesis which states that

there is no significant influence of Inventories on Gross Working

Capital of ACC is accepted. This implies that alternate hypothesis is

rejected indicating that there is significant influence of inventories on

Gross Working Capital of ACC.

In case of Ambuja, the chi-square test results reveal that the

calculated value of chi-square i.e .702 at vn is higher than the

significant value .05. So, the null hypothesis has been rejected and

alternate hypothesis has been accepted. During the chi-test results of

Ultratech, the calculated value is .000 at vg is less than significant

value of .05. So, hypothesis is accepted and alternative is rejected. In

case of Grasim India, Madras and Shree Cements all the four

companies are having same calculated value of .000 at vn, the

calculated value is found to be less than the significant value .05, in

case of all these companies null hypothesis has been accepted that

there is no significant influence of Inventories on Gross Working

Capital of the company and alternate hypothesis is rejected. Similarly,

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J.K. Cement has calculated value .439 at Vio which is higher than the

significant value .05 due to which the null hypothesis is rejected and

alternate is accepted. In case of Binani it has been analyzed that there

is influence of inventories on Gross Working Capital, because the

calculated value of chi-square is .02 at vg is less than the significant

value .05. Hence, null hypothesis is accepted and alternate is rejected.

In the case of Biria Cements the calculate value is .010 at vio which is

less than the significant value .05. So, the null hypothesis has been

accepted which states that there is no significant influence of

Inventories on Gross Working Capital of the company and alternate

being rejected, signifying that there is significant influence of

inventories on the Gross Working Capital of the company.

5.8 VARIANCE RATIO TEST IN RELATION TO INVENTORY AND

GROSS WORKING CAPITAL

F- test in the study has been calculated by dividing larger

estimates of variance with smaller estimate of variance. The calculated

values have been depicted in the table below.

Table 5.8

Variance-Ratio Test of Selected Cement Companies in relation to Inventory and Gross Working Capital

Sr.No. COMPANY TEST-VALUE 1. ACC 0.7162 2. AMBUJA 0.53 3. ULTRATECH 579973.29

4. GRASIM 0.5551 5. INDIA 0.2372 6. J.K 76.7314 7. BINANI 0.41213 8. MADRAS 0.5793 9. BIRLA 0.4688 10. SHREE 0.010407

5% level of Significance.

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Testing of Hypotheses

Null Hypothesis (Ho)

There is no significant variance between Inventory and Gross

Working Capital.

Alternate hypothesis (Hi)

There is significant variance between Inventory and Gross

Working Capital.

According to the table 5.8, the value of f-test has been calculated

for the Selected Cement Companies to study the variance between

Inventory and Gross Working Capital at 5 percent level of significance

for Vi=ll i.e. degree of freedom for sample having larger variance and

V2=ll i.e. degrees of freedom for sample having smaller variance. In

case of ACC the calculated value of F is 0.7162 as compared to the

table value of 2.8206, the calculated values is less than the table

value. Hence, null hypothesis has been accepted, and found that there

is no significant variance between Inventory and Gross Working

Capital of ACC, so alternate hypothesis has been rejected. The

calculated value of Ambuja is 0.53 having table value 2.8206 the

calculated value of F is less than the table value. So, null hypothesis

has been accepted that there is no significant variance between

Inventory and Gross Working Capital of Ambuja. Hence, it may be

concluded that the two populations have the same variance. The

calculated value of Ultratech is 579973.29 which is too high as

compared to the tabulated value of 2.8206. So, the null hypothesis is

rejected and alternate hypothesis is accepted and it may be concluded

that two populations do not have the same variance. Grasim

Industries is having calculated value of 0.5551 as compared to the

tabulated value of 2.8206 the calculated value is less than the table

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value. So, the null hypothesis is accepted and alternate hypothesis is

rejected and it has been found that two samples have same variance.

J.K. Cements is having calculated value of 76.7314 which is found to

be greater than the table value of 2.8206. Hence, the null hypothesis

has been rejected and the alternate is accepted and found that the two

samples do not have the same variance. Rest all the companies

Binani, Madras, Birla and Shree having calculated value of 0.41213,

0.5793, 0.4688 and 0.010407 respectively, when compared with the

table value 2.8206, it has been found that all the four companies have

calculated value less that the table value, which indicates that null

hypothesis is accepted and there is no significant variance between

Inventory and Gross Working Capital. So, alternate hypothesis has

been rejected.

It has been found that only two companies Ultratech and J.K.

Cements have high calculated value of F.

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SUMMARY

The effective management of inventory is crucial to the

performance of many organizations. Inventory is the key determinant

of the productivity of the Cement Industry. Inventory Management

plays an important role in the Cement Industry both in terms of

production of new assets and operational maintenance of existing

assets. Therefore, the continuous availability of inventory is a prime

requirement for the uninterrupted working and better capacity

utilization by the companies. All the ten companies covered in the

study, ensure availability of raw material in sufficient quantity and

quality as and when required to minimize investment in inventories to

avoid excessive investment without any adverse effect on production

and sales by using simple inventory planning and control techniques

creating favourable impact on the profitability of the company. But in

terms of comparison of all these companies, Shree Cement and

Ambuja Cement have contributed in the growth potential and

efficiency of the Cement Companies by handling their inventories in

most efficient way. ACC has also maintained good level of inventory

throughout the study period. Whereas, J.K. Cement recorded low

track record in proper maintenance of inventory. Due to this, the

company has faced problems regarding production. In terms of the

mean values, Grasim Industries contributed to the maximum average

of Rs. 697.244 crores and Binani envisages lowest of all i.e. Rs. 83.806

crores. In the context of percentage of co-efficient of variation,

Ultratech registered highest variation and the second highest is J.K.

Cements due to low maintenance of inventory. Also the inventory

turnover ratio of J.K. Cement is very high i.e. 49.34 times.

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