Anjuman-I-Islam’s Allana Institute of Management Studies BadruddinTyabji Marg, OFF. 92, Dr. D.N. Road, Opp. CST, Mumbai 400 001 PROJECT REPORT ON “WORKING CAPITAL MANAGEMENT” In partial fulfillment of the requirement for Master’s Degree in Management Studies (MMS) SUBMITTED BY Shaikh Mujeebur Rehman IInd Year M.M.S. Specialization: Finance Academic Year: 2014-16 PROJECT GUIDE Prof. Vardarajan Sir SUBMITTED TO 1
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Anjuman-I-Islam’sAllana Institute of Management Studies
grinding machines, metallurgical laboratories, tool room and integrated computer
system, have all been set up with sole idea of achieving the highest standards of
quality & performance.
My Project is the study of working capital management.
The study was conducted at the head office of Kirloskar Pneumatic Co. Ltd. Pune.
The project was of 2 months duration. During the project I interviewed the
executives & staff to collect the data, & also made use of company records &
annual reports. The data collected were then compiled, tabulated and analyzed.
Working Capital Management is a very important facet of financial
management due to:
Investments in current assets represent a substantial portion of total
investment.
Investment in current assets & the level of current liabilities have to be
geared quickly to change sales.
3
OBJECTIVES OF THE STUDY
Study of working capital management is very important because if the working capital is not manage properly then many problems may arise related to the production of goods. Working capital mainly involve inventory, debtors,cash and creditors relating to rawmaterial, labour and other expences. By managing working capital in efficient way the company can increased production turnover and profit .
With this primary objective of the study, the following other objective are follows for the study.
1) To identify the financial strengths & weakness of the company.
2) Through the net profit ratio & other profitability ratio, understand the
profitability of the company.
3) Evaluating company s performance relating to financial statement analysis.
4) To know the liquidity position of the company with the help of current ratio.
5) To find out the utility of financial ratio in credit analysis & determinig the
financial capacity of the firm.
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TABLE OF CONTENTS
CHAPTER NO CHAPTER NAME PAGE NO. 1. Working capital management 03
1.1 INTRODUCTION 03
1.2 DEFINITION 04
1.3 RATIONAL STUDY OF WORKING CAPITAL
05
1.4 TYPES OF WORKING CAPITAL
07
1.5 DETERMINANT OF WORKING CAPITAL
08
1.6 Introduction of PARLE-G LTD
10
1.7 History 11
1.8 MISSION 1.9 VISION
13
1.10 STRATEGY 15
1.11Marketing of parle-gco. 171.12parle –g co. to cross in 5000 crore rupees in year 2013
25
1.13Csr and parle product 30. 2. Warjing capital management n
of parle-g 45
2.1warking capital cycle 462.2analysis of working capital management
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2.3operating cycle of manufacturing business
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3. Working capital ratio 513.1inventory management 543.2debtars turnover ratio 653.3warking capital turnover ratio
The new campaign, titled 'Kal ke genius', innovatively extends the 74-year-old biscuit
brand's earlier campaign, 'G mane genius', that was launched in 2003. Conceptualised by Ogilvy
& Mather, Mumbai, the television commercials (TVCs) showcase children who come up with
amazing solutions to problems in a creative manner.
Shot in the beautiful locales of Shimla and Manali, the TVCs show a montage of children
coming out with creative solutions to their problems while having fun, which would astound an
adult. The lyrics of the background song Roko mat, Toko mat, which gives out an '80's feel, is
penned by noted lyricist Gulzaar and sung by Piyush Mishra (of Gangs of Wasseypur fame). The
music direction is by Clinton Cerejo. The song aptly encapsulates the philosophy of the
campaign.
The films are directed by Amit Sharma and Chrome Pictures is the production house. The
TVCs will be shown in Hindi, Bengali, Assamese, Tamil, Telugu, Kannada and
Malayalam.Interestingly, the campaign's first phase in the form of teasers was launched online
through YouTube, Facebook and Twitter. After a week, the second phase appeared on television.
The brand has also created a separate website for the campaign. Digital Law & Kenneth is the
digital agency that will handle the digital arm of the campaign. Apart from TV and digital, the
campaign will also use radio.
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To Cross 5000 Crore Rupees Parle-G Became the First Indian FMCG Brand
Mark IN THE YEAR 2013
Parle-G in February 2013 became the first Indian FMCG brand that crossed 5000 crore
Rupees mark in terms of retail sales in one year. Parle Products were launched in 1939 when the
British ruled India. Factually, Parle Products in 2012 sold 5010 crore rupees worth glucose
biscuits at the retail price, surpassing the domestic sales of Godrej products and Dabur, while at
the same time also selling thrice more products than Maggi.
This means that Parle Products sold over 100 crore packets of the glucose biscuits every month,
or 14600 crore biscuits in 2012. Parle-G that has less than 1 billion dollar sales in a year, but
even then it has good lead over its rivals such as Hindustan Unilever's Wheel and Ghari
Detergent.
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PARLE-G WORLD’S NO .1 SELLING BISCUIT:
NEW DELHI: Parle-G, the glucose biscuit brand from the country’s largest biscuit maker Parle Products, has consolidated its position as the world’s largest selling biscuit brand, says a new report by market researcher Nielsen.
The study, for last year, says Parle-G has topped brands like Kraft’s Oreo, Wal-Mart’s
private labels and Mexico’s Gamesa in voulme sales to lead the Rs 11,295-crore Indian biscuits
category.The Nielsen study adds India is the world’s leading market for biscuits, ahead of the
US, Mexico, China, Argentina, France, Italy, Germany, Turkey and Spain. While India showed a
volume market share of 22%, the second slot was occupied by the US at 13%. The top three
countries -- India, US and Mexico -- contribute over 40% of the total biscuits 10 largest markets .
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Industry analysts say the Rs 5,000-crore Parle’s focus on the volumes segment and
competitive pricing backed by strong distribution, especially in rural markets has led the rise.
Of the overall 40 brands across biscuits, chips and confectionery that Parle Products makes,
Parle-G contributes 50% to the firm’s topline, Parle Products group product manager Mayan
Shahsaid.The brand is exported to SAARC countries, the US, Europe and parts of Africa.
With universal acceptance, affordable packs and wide distribution, the category has been
attracting players ranging from cola and snacks maker PepsiCo, to cooking oils firm Marico , to
milk foods drinks maker GlaxoSmithKline.
Parle G Becoming The Largest Selling Biscuit Brand Marketing
FOR a change, the Mumbai-based makers of the largest selling brand of glucose biscuits,
Parle Products, want to be in the limelight. The reason being that for the first time, the
low-profile company wants to fulfil its consumers dreams through its Parle-G My Dream
Come True contest - its biggest promotion till date.
Setting aside a budget of almost Rs 2.5 crore for this contest alone, more than enforcing
sales, the Parle-G brand is reinforcing its leadership position in the biscuit market while
giving contestants a chance to fulfil their dreams.
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States Pravin Kulkarni, Marketing Manager, Parle Products Pvt. Ltd, "We want to give
children a platform to fulfil their dreams. After all, dreaming is synonymous with the
brand values of Parle-G, which brings about all-round development to achieve their
dreams." The promotion is the largest of its kind and gives contestants the opportunity to
win whatever they dream of in contrast to the traditional promos where prizes are fixed.
This contest has only first prizes and these prizes are defined as per the child's dream.
Launched in 1939, the more than 50-year-old brand of Parle-G is India's first glucose
biscuit to be introduced from the House of Parle. With a dominant volume share in the
glucose biscuit market, Parle-G is pegged as the largest-selling biscuit brand in the world,
making up almost 80 per cent of Parle Products' turnover of Rs 1,300 crore.
The family-run business operating out of the western suburb of Vile Parle in Mumbai has
always adopted the philosophy of being low key with an endeavour to give value for
money. This biscuit and confectionery major has in fact not bothered to raise the price of
its flagship brand for the past six years and has always tried to provide its offerings at
nearly 33 per cent discount to competitive brands.
While the high profile Britannia Industries has been busy stretching its portfolio of brands
with more premium offerings, Parle Products has never felt the need to be wary of
competition. It has been enjoying a `far too' comfortable position in the biscuit market,
especially in the largest segment of glucose, with its Parle-G brand. Today it wants to stay
primarily focussed on its oldest biscuit brands, Parle-G, Monaco and Krackjack, and is
intentionally staying away from the premium end of the Rs 2.400-crore market.
Considering Parle-G has already topped charts worldwide as revealed by the US-based
Bakery Manufacturers' Association, there seems to be no apparent need for concern. But
there is, since Britannia has priced its offerings on par with Parle, especially with respect
to the latter's three main brands (Parle-G, Monaco and Krackjack). Closing the gap in
market share is thus an imminent possibility.
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While Parle-G may be leading in the glucose category with a 65 per cent volume share,
Tiger (Britannia's Glucose brand) is trailing at 23 per cent volume share, as per ORG-
MARG. The difference in share between Monaco and Snax is also substantial but
Krackjack and 50:50 are on par both in terms of pricing as well as shares.
Thus Parle is not really expected to sit still. Apart from becoming more visible and adding
value to the imagery of its flagship brand through its recently launched all-India contest, it
continues to look at all brands within its portfolio either with intentions of adding more
SKUs and variants or even launching new offerings and pruning away some unfeasible
brands. Thus, the focus is on consolidation of its biscuits and confectionery business in
terms of adding more variants and SKUs to its heritage brands rather than looking into
allied areas to get added growth. Besides, Parle's internal research reveals that the biscuit
market has graduated from the core glucose and Marie offerings to more value-added
variants and that this applies to the rural markets as well. Another finding revealed that
packaging played a crucial role in both biscuits and confectionery, with regard to the
acceptance of any brand.
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CSR OF PARLE G CO:
Since 1929, Parle Products, with its wide platter of biscuits and sweets is also actively
engaged in changing and uplifting the social face of India. As part of its Corporate Social
Responsibility Policy, Parle is keenly involved in the overall development of the younger
generation, with a focused endeavor to build the New Face of India and spread happiness
and joy all over.
He never gave in to the sense of indifference that often comes with the commercial
outlook. All through his life, he was deeply conscious of his duties towards society and the
community. He built the Shri Mohanlal Dayal Prasuti Graha and General Hospital in
Pardi, which is maintained through charity trusts set up by him. The Shri Mohanlal Dayal
Sanatorium and Hostel at Matunga in Bombay is another such institution. In his memory
and after his example, his sons have donated significant sums to set up the Chauhan
Institute of Science at Vile Parle.
Parle Centre of Excellence, as an institution, is dedicated to enriching the lives of people
by conducting various cultural programs across all regions to facilitate the all round
development of children.
Every year, Parle organizes Saraswati Vandana in the state of West Bengal during the
festival of Saraswati Puja, inviting schools from all across the state to participate. The
event is one of much fanfare and celebration, keeping alive the culture and traditions. The
involvement in cultural activities has seen the inception of Golu Galata in Tamil Nadu,
held during Navratri. It provides all the members of a household a platform to showcase
their creativity and be judged by eminent personalities. Thousands of families participate
and celebrate the occasion on a grand scale.
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Dedicated to enriching the lives of people across India, the Parle Centre of Excellence has
been keenly involved in the promotion of programmes to facilitate the all-round
development of children. Parle Saraswati Vandana, one of its initiatives, is an inter-school
contest based on the Saraswati Puja celebrations. It gives the children an opportunity to
exhibit their creative skills and makes the celebrations even more special in the process.
Started in the year 2002 in Kolkatta, it has seen a tremendous increase in the number of
schools participating each year, with entries coming from schools of West Bengal.
Every year a grand programme is organized by Parle in Kolkotta to felicitate the winners.
Here eminent personalities from the field of literature, education, art, films, media and
politics grace the occasion. Performances by popular artistes make it a night to remember
for every invitee present there. The awards and adulation makes it unforgettable for the
winners.
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Imagine a world that's clean and fresh as the way we inherited it. Imagine a world full of
trees, birds and animals. The fact that we have to imagine it, speaks volumes about the
state of our planet.
The world is a home not just to human beings but also to a wide variety of animals and
plants. All of them are dependent on each other for survival. When we take these natural
resources for granted or disturb the natural harmony of things, we face consequences like
global warming.
Parle's products have been trusted by mothers and children across age groups as a
nutritious snack that has helped them grow healthy and strong. It is but natural that Parle
Products would like to return the favour to a generation that has helped it grow. Parle
Products feels this is the best gift that we can give our kids. A cleaner, greener planet that
they can treasure for generations to come.
My Green Planet is an initiative that takes definitive steps towards conserving our eco-
system. Parle Products is contributing in its own way by taking up various initiatives like
planting more trees around India, conserving water, power and recycling waste. My Green
Planet works across levels – from school students to environmentalists to media
professionals and through them educate and empower everyone about the cause of
environment conservation.
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Join us and you'll not only become part of one of the largest Indian brands, but a constantly
evolving organisation that offers a culture of flexibility, opportunity, equality and diversity. You
just need to come and have a look at what we have to offer.
We believe that work is more than a place you go every day. It should be a place of
exploration, creativity, professional growth and interpersonal relationships. It's about being
inspired and motivated to achieve extraordinary things. We want our people to take pride in their
work and in building brands others love.
Just to give a preview to what one can look forward to: Group lunches and outstation team-
building exercises, discussion forums and training programs, yoga trainings, health check-up
camps are just a few among the exciting things we do…
There is no better time to be at Parle then NOW…
Economy
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The first PARLE G factory was established in Vile Parle
While originally Vile Parle consisted mostly of Marathi middle-class commuter families], over
time the demography of this suburb has changed more toward upper-middle class Gujarati
business families. Additionally, it has now become a major education center with the
establishment and growth of a huge educational complex financed by the VILE PARLE
KELAVANI. Thus, at all hours of the day you see a constant flow of students into and out of
Vile Parle.
KING FISHAR AIRLINE maintains its head office, the Kingfisher House, in Vile Parle. In
2012VIJAY MALLYA was trying to sell the Vile Parle Kingfisher House.
One of the leading Indian confectionery and biscuit manufacturers ,PARLE PRODUCT was
started in Vile Parle. There is still a factory in Vile Parle East and it is commonly known as Parle
Biscuit Factory. Vile Parle also houses the Garware plastics factory. The Dr. Balabhai Nanavati
Hospital in Vile Parle was inaugurated by Jawaharlal Nehru in November 1950 and opened in
solids Salt Emulsifiers (E 322 or E 471 or E 481) and Dough conditioners (E 223).
Such a mixture of raw material is taken and mixed into STEPHAN MIXTURE, which is high
power mixture machine. Specially made for mixture of dough, from which the mixture is passed
to molder called ROTARY MOULDER. Through that moulder approximately 10,000 come out
in a minute. Moulder had 260 cups fitted in it which gives shape to the biscuits and an
impression embossed on it of parle-g.
From rotary moulder the dough is passed through a 260 feet long OVEN which is
approximately 340* c. In oven there are three stages to be followed
• Removal of moisture.
• Building the structure of biscuits.
• Colourings of biscuits take place.
From oven the hot biscuits are placed on the COOLING CONVYOR, which is 260 feet
long and the biscuits continues to run on it for 5 to 7 minutes so that the biscuits become cool
and all the moisture that biscuits contain gets evaporated. And because of the above reason .
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The conveyor continues to move to COUNTING UNIT where biscuits are counted and seen
that it is going on properly or not.
The conveyor continues till the biscuits reach the STALKING TABLE at which the biscuits
are packed in very orderly manner.
From cooling conveyor sum biscuits are diverted through AUTO FEEDING MACHINE to
another stalking machine where packing is done.
From stalking table the biscuits are moved on conveyor to MULTI PACK WRAPPING
MACHINE were 16 biscuits are packed into a regular parle g wrapper so that the weight of 16
biscuits comes up to 100 grams.
INVENTORYThe inventory of the company that is the raw material is of a week. They store such
inventory in storeroom and then are sent for testing in laboratory and after testing it is sent for
production.
SHIFTSThere is nearly 10,000 employees working in the company and are working in three
shifts.35,000 tones of biscuits are manufactured in a day of one particular product, and there are
such nine product manufactured in the factory.
WASTAGES:
There are two type of wastage in factory. First is the waste materials fallen on ground. Such
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waste material is of 1%, which is marginal and acceptable, which goes into total waste. Second
types of waste are the biscuit collected in tray of the multi-pack wrapping machine, since these
biscuit are broken they are not packed and sold to the customer but collected in other tray and
sold as broken pieces and sold for less price for cattle feeding.
LOOSE BISCUIT:
On the stalking table one to two rows of baked biscuits are kept aside for selling it as loose
biscuits. They are normally assumed to be damaged biscuits but they are not damaged or broken
but company keep such loose packets of biscuits to sell it to the local people for marginal rate of
Rs. 33 / kg.
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CHPTER2
WORKING CAPITAL MANAGEMENT OF PARLE-G
Working capital cycle indicates the length of time between a firm’s paying for
materials entering into stock and receiving the cash from sale of finished goods. In a
manufacturing firm, the duration of time required to complete the sequence of events is called
operating cycle.
In case of a manufacturing company, the operating cycle is the length of time
necessary to complete the following cycle of events: -
1) Conversion of cash into raw materials
2) Conversion of raw materials into work-in-progress
3) Conversion of work-in-progress into finished goods
4) Conversion of finished goods into accounts receivable
5) Conversion of accounts receivable into cash
The above operating cycle is repeated again & again over the period depending upon the
nature of the business & type of product etc. tne duration of the operating cycle for the purpose
of estimating working capital is equal to the sum of duration allowed by the suppliers.
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Working capital cycle can be expressed as:
R+W+F+D-C
Where:
R=Raw Material Storage Period= Avg. Stock of Raw Material Avg. Cost of Production per day
W=Work in Progress Holding Period = Avg. Work in ProgressInventory Avg. Cost of Production per day
F=Finished Goods Storage Period = Avg. Stock of Finished Goods Avg. Cost of Goods Sold per day
D=Debtors Collection Period = Avg. Book Debts Avg. Credit Sales per day
C=Credit Period Avail = Avg. Trade Creditors Avg. Credit Purchases per day
Parle - G and Challenges:
Increasing prices of basic Raw material like , Sugar, Wheat, Milk, Milk powder.
This leading to increase in manufacturing cost of the biscuits.
Parle G very price sensitive product.
Small increase in price (by 50 paise) in past had seen high decline in sales.
Parle - G and Group suggestions
Should keep the price of Parle G same and increase price of other high end variant products like, Milano; Hide n Seek, and Bourbon.
High end products can absorb the increased production cost, This will help to cater to existing market without price change
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Objective of studies
Study of working capital management is very important because if the working capital is not manage properly then many problems may arise related to the production of goods. Working capital mainly involve inventory, debtors,cash and creditors relating to rawmaterial, labour and other expences. By managing working capital in efficient way the company can increased production turnover and profit .
With this primary objective of the study, the following other objective are follows for the study.
6) To identify the financial strengths & weakness of the company.
7) Through the net profit ratio & other profitability ratio, understand the profitability of the
company.
8) Evaluating company s performance relating to financial statement analysis.
9) To know the liquidity position of the company with the help of current ratio.
10) To find out the utility of financial ratio in credit analysis & determinig the financial capacity
of the firm.
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ANALYSIS OF WORKING CAPITAL MANAGEMENT
In this chapter an analysis over the Working Capital of Parle Biscuits Pvt. Ltd.
has been done. But before going further let us have a look on the current position of Working
Capital.
The Working Capital of the last Four Years is as follows –
(Amount in Hundreds “00” Rs/-)
YEARSALES
INVESTMENTS
WORKING
CAPITAL
% OF WORKIN
G CAPITAL TO SALES
% OF WORKING
CAPITAL TO INVETSMENT
S
2011-12
68000 33540.19 6596.16 9.70 19.67
2012-13
70000 27390.76 5294.01 7.56 19.32
2013-14
17000 28800 424.27
2014-15
20000 28900 344.0
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In year 2011-12Working Capital of Parle Biscuits Pvt. Ltd. was 68000 lacs Rs/- while in the same period the sales was noticed 33540.19 lacs Rs/- then % of Working Capital to sale was 9.70 but in the next year 2012-13sales was 70000 lacs Rs/- and Working Capital was 5294.01 lacs Rs/-. So in year 2011-12% of Working Capital to sales was 7.56.
OPERATING CYCLE OF MANUFACTURING BUSINESS
Define the Operating Cycle of a business
The Operating Cycle of a business is the length of time between the cash outflow on purchased material and cash inflow from the sale of goods. The Operating Cycle determines the amount of working capital that a business requires to operate on a day-to-day basis. The shorter the Operating Cycle the lower the amount of working capital required for the business and the greater opportunity for investments in other value-adding activities.
The Operating Cycle for a manufacturing based business can involve many stages, namely:
Purchase - the receipt of raw materials from suppliers on account.
Conversion - the conversion of these raw materials into finished goods
Inventory - the holding and storage of raw materials, Work-In-Progress (WIP) and Finished Goods.
Payment - the payment of the supplier's account for the raw materials received earlier.
Sale - the sale of finished goods to customers on account
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Collection - the collection of money from these customers in payment of their account
It is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things”. Ratio helps to summaries the large quantities of financial data and to make qualitative judgment about the firm’s financial performance. The point to note is that a ratio indicates a quantitative relationship, which can be turn, used to make a qualitative judgment.
RECEVABLE ANALYSIS
The term receivable is defined as “debt owed to the firm by customers arising from sale of goods or services in the ordinary course of business”. When a firm makes an ordinary sale of goods or services and doesn’t receive payment, the firm grants trade credit accounts receivable, which could be collected in the future.
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RATIO ANALYSIS
It is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of two mathematical expressions” and as “the relationship between two or more things”. Ratio helps to summaries the large quantities of financial data and to make qualitative judgment about the firm’s financial performance. The point to note is that a ratio indicates a quantitative relationship, which can be turn, used to make a qualitative judgment.
RECEVABLE ANALYSIS
The term receivable is defined as “debt owed to the firm by customers arising
from sale of goods or services in the ordinary course of business”. When a firm makes an
ordinary sale of goods or services and doesn’t receive payment, the firm grants trade credit
accounts receivable, which could be collected in the future.
OBJECTIVE
The objective of receivables management is “to promote sales and profits until
that point is reached where the return on investment in further funding receivables is less than the
cost of funds raised to finance that additional credit”.
BENEFITS
Investments in receivables involve both benefits and costs. The extension of trade
credit has a major impact on sales, costs and profitability. Other things being equal, a relatively
liberal policy and, therefore, higher investments in receivables, will produce larger sales.
However, costs will be higher with liberal policies than with more stringent measures.
CREDIT POLICY
The credit policy of a firm provides the framework to determine:
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1) Credit standards
2) Credit terms
3) Credit Analysis
Credit Standard
The term credit standards represent the basic criteria for the extension of credit to those
customers to whom goods could be sold on credit. If a firm has more slow-paying customers, its
investment in accounts receivables will increase. The firm will also be exposed to higher risk of
default.
Credit TermsCredit terms specify duration of credit and terms of payment by customers. Investment in
accounts receivables will be high if customers are allowed extended time period for making
payments.
Credit Analysis
Credit analysis and investigation is an aspect of credit policies of a firm. Two basic steps are involved in the credit investigation process:
A. Obtaining credit informationB. Analysis of credit information
It is on the basis of credit analysis that the decisions to grant credit to a customers as well as the quantum of credit would be taken.
INVENTORY MANAGEMENT
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INTRODUCTION
Inventories constitute the principal item in the working capital of the majority of
trading and industrial companies. In inventory we include raw materials, finished goods, work-
in-progress, supplies and other accessories. To maintain the continuity in the operations of
business enterprises, a minimum stock of inventory is required.
Management of inventory is designed to regulate the volume of investment in goods on hand and the types of goods carried in stock to meet the needs of production and sales while at the same time, the investment in them is to be kept at a reasonable level.
CONCEPT
The term “inventory management” is used in two ways- Unit Control and Value
Control. Production and purchase officials use this word in term of unit control whereas in
accounting this word is used in term of value control.
The proper management and control of the capital invested in the inventory
should be the prime responsibility of accounting department because resources invested in
inventory aren’t earning a return for the company. Rather, on the other hand, they are costing the
firm money both in terms of capital costs being incurred and loss of opportunity income that is
being foregone.
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OBJECTIVES
The basic managerial objectives of inventory control are two-
1) The avoidance of over-investment or under-investment in inventories.
2) To provide the right quantity of standard raw material to the production department at the
right time.
TECHNIQUES OF INVENTORY CONTROL
1) The Selective Inventory Control or ABC System of Control
2) Maximum Stock Limit
3) Minimum Stock Limit
4) Re-ordering Level
5) Economic Order Quantity
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ABC System of Inventory Control
The various inventory items are, according to this system, categorized into three classes-
I. A
II. B
III. C
The item included in-group involve the largest investment. Therefore, inventory
control should be the most rigorous and intensive and the most sophisticated inventory
control techniques should be applied to these items. The C group consists of items of
inventory which involve relatively small investments although the numbers of items is fairly
large. These items deserve minimum attention. The B group stands midway. It deserves less
attention than A but more than C. It can be controlled by employing less sophisticated
techniques.
Maximum Stock Limit
This represents the quantity if inventory above which it should not be allowed to be kept. The
following formula may be applied to calculate the maximum stock-
Maximum Stock = Reorder Level – Minimum Consumption during Minimum Lead Time + Lot Size.
This represents the quantity below which stock should not be allowed to fall. The main purpose of this level is to ensure that production isn’t held up due to storage of any material.
Minimum Stock Limit = Re-order Level – Normal storage during Lead Time
Re- Ordering Level
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It is the point at which if stock of the material in store reaches, the storekeeper
should initiate the purchase requisition for fresh supplies of the material. This level is fixed
somewhere between the maximum and minimum levels in such a way that the difference of
quantity of the material between the reordering level and the minimum level will be sufficient to
meet requirements of production upto the time of fresh supply of the material.
The reorder point = Lead time in days * Average daily usage of inventory
Economic Order Quantity
It is the quantity of inventory, which can be reasonably ordered at a time and
purchased economically. It is also known as Standard Order Quantity or Economic Lot Size. By
definition “Economic Order Quantity is that size or order at which the total cost of ordering and
holding are the minimum.
In determining the economic order quantity the problem is one to set a balance
between two opposing costs, namely, namely ordering costs and carrying costs. The ordering
costs are basically the costs of getting an item into the firm’s inventory.
Carrying costs, sometimes also known as holding costs are the costs of possessing
the materials. These costs are combinedly known as “Associated Costs”.
Hence, the management tries to reconcile them and this reconciliation point is
economic order quantity.
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A) LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as and when these
become due. The short-term obligations are met by realizing amounts from current,
floating or circulating assts. The current assets should either be liquid or near about
liquidity. These should be convertible in cash for paying obligations of short-term
nature. The sufficiency or insufficiency of current assets should be assessed by
comparing them with short-term liabilities. If current assets can pay off the current
liabilities then the liquidity position is satisfactory. On the other hand, if the current
liabilities cannot be met out of the current assets then the liquidity position is bad. To
measure the liquidity of a firm, the following ratios can be calculated:
1. CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure of general liquidity and
its most widely used to make the analysis of short-term financial position or liquidity of
a firm. It is defined as the relation between current assets and current liabilities. Thus,
CURRENT RATIO = CURRENT ASSETS
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CURRENT LIABILITES
The two components of this ratio are:
1) CURRENT ASSETS
2) CURRENT LIABILITES
Current assets include cash, marketable securities, bill receivables, sundry debtors,
inventories and work-in-progresses. Current liabilities include outstanding expenses,
bill payable, dividend payable etc.
A relatively high current ratio is an indication that the firm is liquid and has the ability
to pay its current obligations in time. On the hand a low current ratio represents that the
liquidity position of the firm is not good and the firm shall not be able to pay its current
liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets
double the current liabilities is considered to be satisfactory.
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CALCULATION OF CURRENT RATIO
(Rupees in crore)
Year 2011 2012 2013 2014 2015
Current Assets 81.29 83.12 13,6.57 1959 1963
Current
Liabilities
27.42 20.58 33.48 3400 00
Current Ratio 2.96:1 4.03:1 4.08:1 2259.1 1481.3
Interpretation:-
As we know that ideal current ratio for any firm is 2:1. If we see the current ratio of the
company for last three years it has increased from 2011to 2012. The current ratio of
company is more than the ideal ratio. This depicts that company’s liquidity position is
sound. Its current assets are more than its current liabilities.
2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be
defined as the relationship between quick/liquid assets and current or liquid liabilities.
An asset is said to be liquid if it can be converted into cash with a short period without
loss of value. It measures the firms’ capacity to pay off current obligations
immediately.
QUICK RATIO = QUICK ASSETS
CURRENT LIABILITES
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Where Quick Assets are:
1) Marketable Securities
2) Cash in hand and Cash at bank.
3) Debtors.
A high ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand a low quick ratio represents that the firms’
liquidity position is not good.
As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if
quick assets are equal to the current liabilities then the concern may be able to meet its
short-term obligations. However, a firm having high quick ratio may not have a
satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm
having a low liquidity position if it has fast moving inventories.
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CALCULATION OF QUICK RATIO
(Rupees in Crore)
Year 2011 2012 2013 2014 2015
Quick Assets 44.14 47.43 61.55 16.63 16.90
Current
Liabilities
27.42 20.58 33.48 16.63 16.90
Quick Ratio 1.6 : 1 2.3 : 1 1.8 : 1 1.5:1 1.6:1
Interpretation :
A quick ratio is an indication that the firm is liquid and has the ability to meet its
current liabilities in time. The ideal quick ratio is 1:1. Company’s quick ratio is more
than ideal ratio. This shows company has no liquidity problem.
ABSOLUTE LIQUID RATIO
Although receivables, debtors and bills receivable are generally more liquid than
inventories, yet there may be doubts regarding their realization into cash immediately
or in time. So absolute liquid ratio should be calculated together with current ratio and
acid test ratio so as to exclude even receivables from the current assets and find out the
absolute liquid assets. Absolute Liquid Assets includes :
ABSOLUTE LIQUID RATIO = ABSOLUTE LIQUID ASSETS
CURRENT LIABILITES
ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.
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(Rupees in Crore)
Year 2012 2013 2014
Absolute Liquid Assets 4.69 1.79 5.06
Current Liabilities 27.42 20.58 33.48
Absolute Liquid Ratio .17 : 1 .09 : 1 .15 : 1
Interpretation :
These ratio shows that company carries a small amount of cash. But there is
nothing to be worried about the lack of cash because company has reserve, borrowing
power & long term investment. In India, firms have credit limits sanctioned from banks
and can easily draw cash.
B) CURRENT ASSETS MOVEMENT RATIOS
Funds are invested in various assets in business to make sales and earn profits.
The efficiency with which assets are managed directly affects the volume of sales. The
better the management of assets, large is the amount of sales and profits. Current assets
movement ratios measure the efficiency with which a firm manages its resources. These
ratios are called turnover ratios because they indicate the speed with which assets are
converted or turned over into sales. Depending upon the purpose, a number of turnover
ratios can be calculated. These are :
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1. Inventory Turnover Ratio
2. Debtors Turnover Ratio
3. Creditors Turnover Ratio
4. Working Capital Turnover Ratio
The current ratio and quick ratio give misleading results if current assets include high
amount of debtors due to slow credit collections and moreover if the assets include high
amount of slow moving inventories. As both the ratios ignore the movement of current
assets, it is important to calculate the turnover ratio.
INVENTORY CONVERSION PERIOD
INVENTORY CONVERSION PERIOD = 365 (net working days)
INVENTORY TURNOVER RATIO:-
Year 2011 2012 2013
Days 365 365 365
Inventory Turnover Ratio 1.5 2.8 1.8
Inventory Conversion Period 243 days 130 days 202 days
Liquidity And Solvency Ratios for last 5 years
Current Ratio 225.91 148.13 104.82 104.82
Quick Ratio 225.69 148.04 104.74 104.74
Debt Equity Ratio -- 0.02 0.02 0.02
Long Term Debt Equity Ratio -- 0.02 0.02 0.02
Debt Coverage Ratios
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Interpretation :
Inventory conversion period shows that how many days inventories takes to
convert from raw material to finished goods. In the company inventory conversion
period is decreasing. This shows the efficiency of management to convert the inventory
into cash.
DEBTORS TURNOVER RATIO
A concern may sell its goods on cash as well as on credit to increase its sales and
a liberal credit policy may result in tying up substantial funds of a firm in the form of
trade debtors. Trade debtors are expected to be converted into cash within a short
period and are included in current assets. So liquidity position of a concern also
depends upon the quality of trade debtors. Two types of ratio can be calculated to
evaluate the quality of debtors.
a) Debtors Turnover Ratio
b) Average Collection Period
DEBTORS TURNOVER RATIO = TOTAL SALES (CREDIT)
AVERAGE DEBTORS
Debtor’s velocity indicates the number of times the debtors are turned over during
a year. Generally higher the value of debtor’s turnover ratio the more efficient is the
management of debtors/sales or more liquid are the debtors. Whereas a low debtors
turnover ratio indicates poor management of debtors/sales and less liquid debtors. This
ratio should be compared with ratios of other firms doing the same business and a trend
may be found to make a better interpretation of the ratio.
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AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR
Year 2012 2013 2014
Sales 166.0 151.5 169.5
Average Debtors 17.33 18.19 22.50
Debtor Turnover Ratio 9.6 times 8.3 times 7.5 times
Interpretation :
This ratio indicates the speed with which debtors are being converted or turnover
into sales. The higher the values or turnover into sales. The higher the values of debtors
turnover, the more efficient is the management of credit. But in the company the debtor
turnover ratio is decreasing year to year. This shows that company is not utilizing its
debtors efficiency. Now their credit policy become liberal as compare to previous year.
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4. AVERAGE COLLECTION PERIOD :
Average Collection Period = No. of Working Days
Debtors Turnover Ratio
The average collection period ratio represents the average number of days for
which a firm has to wait before its receivables are converted into cash. It measures the
quality of debtors. Generally, shorter the average collection period the better is the
quality of debtors as a short collection period implies quick payment by debtors and
vice-versa.
Average Collection Period = 365 (Net Working Days)
Debtors Turnover Ratio
Year 2012 2013 2014
Days 365 365 365
Debtor Turnover Ratio 9.6 8.3 7.5
Average Collection Period 38 days 44 days 49 days
Interpretation : The average collection period measures the quality of debtors and
it helps in analyzing the efficiency of collection efforts. It also helps to analysis the
credit policy adopted by company. In the firm average collection period increasing year
to year. It shows that the firm has Liberal Credit policy. These changes in policy are
due to competitor’s credit policy.
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WORKING CAPITAL TURNOVER RATIO :-
Working capital turnover ratio indicates the velocity of utilization of net working capital.
This ratio indicates the number of times the working capital is turned over in the course of the
year. This ratio measures the efficiency with which the working capital is used by the firm. A
higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise.
But a very high working capital turnover is not a good situation for any firm.
Working Capital Turnover Ratio = Cost of Sales
Net Working Capital
Working Capital Turnover = Sales
Networking Capital
Year 2012 2013 2014
Sales 166.0 151.5 169.5
Networking Capital 53.87 62.52 103.09
Working Capital Turnover 3.08 2.4 1.64
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Interpretation :
This ratio indicates low much net working capital requires for sales. In
20011, the reciprocal of this ratio (1/1.64 = .609) shows that for sales of Rs. 1 the
company requires 60 paisa as working capital. Thus this ratio is helpful to forecast the
working capital requirement on the basis of sale.
INVENTORIES:-
(Rs. in Crores)
Year 2011-2012 2012-2013 2013-2014
Inventories 37.15 35.69 75.01
Interpretation :
Inventories is a major part of current assets. If any company wants to manage its
working capital efficiency, it has to manage its inventories efficiently. The graph shows
that inventory in 2010-2011 is 45%, in 2011-2012 is 43% and in 2012-2013 is 54% of
their current assets. The company should try to reduce the inventory upto 10% or 20%
of current assets.
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CHAPTER :4
FINANCING OF WORKING CAPITAL
INTRODUCTION
A firm has to decide how it is to be financed. The need for financing arises mainly because the investment in Working Capital/Current Assets that is raw materials, work/stock-in-progress, finished goods and receivables typically fluctuates during the year.
The main sources of Working Capital financing are Trade Credit, Bank Credit, RBI framework/regulation of bank credit/finance/advances, Factoring, Commercial Papers and Internal Sources.
TRADE CREDIT
Trade Credit refers to the credit extended by the supplier of goods and services in the normal course of transaction/business/sale of the firm. According to trade practices, cash is not paid immediately for purchases but after an agreed period of time. Thus, deferral of payment (trade credit) represents a source of finance for credit purchases.
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BANK CREDIT
Bank Credit is the primary institutional source of Working Capital finance in
India. In fact, it represents the most important source for financing of Current Assets.
Working Capital finance is provided by banks in five ways:
1) Cash Credits/Overdrafts
2) Loans
3) Purchase/Discount Bills
4) Letter of Credit
5) Working Capital term loans
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REOMMENDTION
The project is developed keeping in mind the security of Working Capital of the Parle-G. Means that no one can enter in the confidential data of the Parle-G and without permission the senior officer one can’t enter in the main programmer whether he is Manager, Employee or the Guest.
It is very difficult to make the project or the analysis in such a way that can solve all the problems according to the requirements. In this project it is being tried to give more and more facilities but in a short period of training time, as much as possible has been done.
1) It is easy to understand and operate this project.
2) It provides the facility to update the records.
3) It is found that the various components of Gross Working Capital (Total Current Assets) have shown a change in their respective sizes.
4) In relation to the above said statement we can say that the investment in Current Assets by the organization has gone down during the year 2010-11 as compared to the previous year 2009-10. Though, there has been as increase in the Working Capital.
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CONCLUSIONS
PARLE-G is the world’s largest selling brand of Biscuits. Parle-G has a good trick of tapping the
consumers which many years ago Mr. Shailendra Saraf did. Parle-G can be consumed by all age
group and it is a favourite for many of them. Parle-G has held its price line at Rs 4 for more than
25 years.
Launched in the year 1939, it was one of the first brands of Parle Products. It was called Parle
Glucose Biscuits mainly to cue that it was a glucose biscuit.
Par4le-G has so many features but its USP is health motive is a single pack i.e a single pack of
biscuit offers 450 calories. swadh bhare, shakti bhare (full of taste and energy).
Parle-G uses healthy ingredients which if consumed provides 450 calories per pack.
It has a very good Marketing Strategy that it caters even to smallest villages in India. It is now
concentrating in exports more.
Parle has a good Management Style that it can produce more and sell more.
The Materials Department of Parle is very efficient, the wastages are properly reused, inventory
is maintained of one week.
The Promotion Strategy used differs from time to time.
Waste Materials fallen on ground is total waste. Broken Biscuits are used for Cattle Feeding.
There is nearly 10,000 employees working in the company and are working in three shifts.35,000
tones of biscuits are manufactured in a day of one particular product, and there are such nine