raw material conversion period

7/29/2019 Raw Material Conversion Period

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Raw material conversion period is the time period between receiving the raw material and

sending them for production. It is the period of stocking the raw materials for usage. So higher

the ratio lower will be the profit. In the above chart raw material conversion period lies between

20 to 15 days for the last five years. In 2007-2008 it is 16 days which is lowest and so it is good

for the company. But in 2009-2010 it is 24 days which is not good for the company because

higher the ratio the lower will be the profit. In 2010-2011 the ratio is 23 days which is also very

high and so not good for the company. So company should try to reduce it

2324

1816

19

0

5

10

15

20

25

30

2010-2011 2009-2010 2008-2009 2007-2008 2006-2007

Raw material conversion period

Raw material conversion period


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Finished Good conversion period

Finished goods conversion period is the time of storage of finished goods in the warehouse until

they are sold. The higher the ratio the low will be the profit. If we store the huge stock in

warehouse then we are losing the opportunity cost. In 2007-2008 the ratio is 48 days which

increased by 33 days i.e. 81 days in 2008-2009 which is not good. But in 2009-2010 the ratio is

70 days which indicates that huge stock in laying at the go down and so the company is losing its

profit and so the profit in that year is very low. But in 2010-2011 data is not so it not calculated.

But as we are not aware about other companies in this industry any comment about it is not

appropriate.

0

70

81

48

69

0

10

20

30

40

50

60

70

80

90

2010-2011 2009-2010 2008-2009 2007-2008 2006-2007

Finished Good conversion period

Finished Good conversion

period


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Work-in-process conversion period.

CHART NO: 7.1.3

Work-in-progress conversion period is the time period when the raw materials are received for

production and the time for their dispatch. The higher the ratio the lower will be the profitability.In 2007-2008 the ratio is 8 days which is too low and so it is good for the company. But in 2008-

2009 the ratio is 21days which is too high. But in 2010-2011 data is not so it not calculated.

0

10

21

8

14

0

5

10

15

20

25

2010-2011 2009-2010 2008-2009 2007-2008 2006-2007

WIP conversion period

WIP conversion period


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Effect of the various inventories ratio:

The various inventories ratio are as follows:

1. Total investment in inventory.2. Total inventory turnover ratio.3. Inventory to current assets ratio.4. Raw material turnover ratio.5. Work in process turnover ratio.6. Finished goods turnover ratio.

1. Total investment in inventory

CHART NO: 7.2.1

The total investment in inventory is increasing year by year however in the year 2008-2009 and

2010-2011 the investment in inventory decreased from their previous year. GNFC last year

investment of inventory is 463.53 cr.

463.53

405.03430.76

386 388.47

0

100

200

300

400

500

2010-2011 2009-2010 2008-2009 2007-2008 2006-2007

Total investment in inventory

Inventory( in cr. )


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2. Total inventory turnover ratio:

CHART NO: 7.2.2

Here, 2006-07 Inventory Turnover ratio 6.88, 2007-08 Inventory Turnover ratio is 7.66,

2008-09 Inventory Turnover ratio is 6.34, 2009-10 Inventory Turnover is 5.69 and 2010-

2011 Inventory Turnover ratio is 5.72.

A high inventory turnover ratio is better than a low ratio. A high ratio is good inventory

management. The lowest inventory ratio was on 2009-2010. And highest turnover ratio is

on 2007-2008.

A good inventory ratio of 7.66 was observed in the year 2007-2008.

5.72 5.696.34

7.66

6.88

0

1

2

3

4

5

6

7

8

9

2010-2011 2009-2010 2008-2009 2007-2008 2006-2007

Inventory turnover ratio

Total inventory turnover ratio


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3. Inventory to current assets ratio:

CHART NO: 7.2.3

Here 2010-2011 is 18.08%, 2009-2010 is 18.72%, 2008-2009 is 19.26%, 2007-2008 is 16.92%and 2006-2007 is 18.56% includes in the current assets.

In 2008-2009 highest 19.26% inventories are includes in the current assets. And in 5 year data

the 2007-2008 has lowest inventory are includes in current assets.

18.08%

18.72%

19.26%

16.92%

18.56%

15.50%

16.00%

16.50%

17.00%

17.50%

18.00%

18.50%

19.00%

19.50%

Inventory to current assets ratio

Inventory to current

assets ratio


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4. Raw material turnover ratio:

CHART NO: 7.2.4

The raw material turnover ratio is high, it is very good inventory in the year

Compared with the last 5 year data in the 2007-2008 raw material turnover ratio is very high. In

the 5 year the 2007-2008 is the good times of the company.

25.4428.73

42.51

53.72

42.29

0

10

20

30

40

50

60

2010-2011 2009-2010 2008-2009 2007-2008 2006-2007

Total Raw material turnover ratio

Raw material turnover ratio


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5. Work-In Process turnover ratio:

CHART NO: 7.2.5

Work in process indicates the stock withdrawn from warehouse and are yet to get converted into

finished stock. The higher the ratio the higher will be the management efficiency. In 2009-2010the ratio is approx 214 times which shows good profitability for the company. But it reduced to

166 times in 2010-2011 which shows decrease in profitability, company is taking more time to

produce finished goods which is not good for the company.

166.19

214.05

95.6

147.3129.18

0

50

100

150

200

250

2010-2011 2009-2010 2008-2009 2007-2008 2006-2007

Total W.I.P turnover ratio

Total W.I.P turnover ratio


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6. Finished goods turnover ratio:

CHART NO: 7.2.6

Finished goods turnover ratio indicates how much time finished goods gets turnover. The higher

the ratio the more will be the sales and vice versa. But after it subsequently reduces and lasts to

25.06 times in 2008-2009 which is not a good sign for the company. It shows that company is

holding huge stock at warehouse

62.28

32.77

25.06 25.72 26.8

0

10

20

30

40

50

60

70

2010-2011 2009-2010 2008-2009 2007-2008 2006-2007

Total F.G turnover ratio

Total F.G turnover ratio

raw material conversion period

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