Amit Final Inplant Report

8/12/2019 Amit Final Inplant Report

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NAVALOOR DAIRY PRODUCTS, HUBLI

EXECUTIVE SUMMARY

India is the worlds highest milk producer and all set to become the worlds

largest food factory. The milk industry in India is witnessing a stupendousgrowth. The production of liquid milk touched a high of 85 million tones in

200 !02 placing the industry first in the world.

"#$#%&&' (#I') *'&(+,T- company was incorporate on 5 april

5/ situated in ubli. The founder of a dairy is 1r.#nant. ."a3aloor. It is a

pri3ate company in 4#'"#T4# state. "a3aloor (airy *roducts is pioneer

milk factory in 4arnataka. The total area of industry is acres. This plant

handles about 25/000 liters of milk per day.

It has two companies in one is all carry "a3aloor (airy *roucts tag. It is

mainly milk producing company where 3arieties of milk and product like

Toned milk/ (ouble toned milk/ -tandard 1ilk/ ,urd/ 6utter milk/ %assi/ ,old

,offee/ 7hee/ *aneer/ ,hakka/ khoa are producing.

The main motto of the company is increase in its sales. The "a3aloor (airy

*roducts group belie3es that the e cellence is the only bench mark hence it isalways sought are obtained the 3ery best technologies to ensure top class

manufacturing.

It is I-& certified company. This company also got the award of 69-T

-1#%% -,#%9 ,&1*#") I" 2002.

To study how best the working capital is utili:ed in the company and working

capital management of a company. The effecti3eness of credit management of

the company/ to study the short! term liquidity positions of company/ to study

the changes in working capital position of the company. To suggest necessary

methods by which future impro3ement may be made in its management of

working capital.


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The ,ampus is neatly maintained.

The milk manufacturing process is good.

The working capital requirement is increased in the year 200; dueto increase in debtors/ loans/ and decrease in the liabilities.

The sales are increasing year by year.

'eco3ery of milk crates should be done perfectly.

There is intensi3e need of cost analysis and cost control to impro3e

profitability by reducing the cost.

The company has to try to impro3e the cash balances.


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INDUSTRY PROFILE

India is the worlds highest milk producer and all set to become the worldslargest food factory. The milk industry in India is witnessing a stupendous

growth. The production of liquid milk touched a high of 85 million tones in

200 !02 placing the industry first in the world.

-ince / after liberali:ation/ anybody and e3erybody ha3e been free to

enter the dairy industry and to reap benefit from the markets that (omestic

federations created and nurtured with their sweat and blood. 1ultinationals/

backed by their surplus capital/ are seeking a hefty share of Indian milk andmilk products market. #t the same time/ regional pri3ate companies ha3e been

able to penetrate markets on the strength of aggressi3e pricing made possible

by ca3alier treatement of ta ation laws and quality standards.

(airy is a place where handling of milk and milk product is done and

technology refers to the application of scientific knowledge for practical

purpose. (airy technology has been defined as that branch of dairy science/

which deals with the processing of milk and manufacturing of milk producing

on an industrial scale.

In de3eloped countries such as +-# the year 850 is seen as di3iding line

between firm and factories scale production. $arious factors contributed to

this change in countries concentration of population in cities where


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1ilk may be defined as the whole/ fresh/ clean/ lacteal secretion obtained by

the complete milking of one or more healthy milk >1ilk gi3ing? animals. It is

an almost an ideal food. #lthough milk is commonly thought as a be3erage/ it

is "ature most nearly *refect food and contains more actual solids than many

so called solid foods/ especially 3egetables. 1ilk is the only food/ which is

designed by the nature solely as food. It ser3es as the foundation of as

adequate diet. It supplies bodybuilding protein bone forming minerals and

health gi3ing 3itamins and furnishes energy gi3ing lactose and milk fat. #ll

these properties make milk important for pregnant mothers/ growing children/

adolescents/ adults/ in3alids/ con3alescents and proteins alike. #n adequateconsumption of milk can correct dieting deficiencies for most people to ha3e

strong and healthy goodies. It is a delicious and appeti:ing food for all ages as

well as being healthful.

,&"-TIT+9"T- &@ 1I%4 *9',9"T#79

=#T9' 8A.0B

6+TT9' @#T C.0B

,#-9I" 2.8B

#%+1I" 0.5B

%#,T&-9> 1I%4 -+7+'? 5.0B

1I"9'#%- 0.AB

1ilk constituents are di3ided into two groups namely/ water and solids. The

constituents other than water are called the total solids >T-?. The total solids

minus the butterfat are termed as the solids!non!fat >-"@?. #ll the constituents

e cept the butterfat are known as the milk serum. The casein and albumin

make up most of the protein of the milk serum. The casein and albumin make

up most of the protein of the milk. #ctually about 0.055 globulin is also present.


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The malecithin?/ and sterols/ en:ymes sucha s lipase/

galactose/ diastase etc. gases such as carbon dio ide/ o ygen and nitrogen and

nitrogenous substances such as uric acid/ ureas nitrogen and traces of amino

acids. The true constituents are milk fat/ casein and lactose.

1ilk is absolutely essential for the welfare of the human race/ the cow has been rightly called Dthe foster mother of the human raceE and she is found in

most of the ci3ili:ed countries of the world.

In India/ dairying has been practiced as a rural cottage industry since the

remote past/ -emi commercial dairying started with the establishment of

military dairy farms and co!operati3e milk unions throughout the country

towards the eand of the nineteenth century/ howe3er/ market milk technology

may be considered to ha3e commenced in ;5 with the establishment of

#1+% (airy.


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GROWTH & DEVELOPMENT OF THEINDUSTRY

+ntil the C0/ there was 3ery little published information on the method of

preparation and use of these products. The credit for the first publication on

the subnow "ational?/ 6angalore. =ithin the span of

these four decades since his book appeared/ considerable research has been

places in indigenous (airy products.

It is beyond doubt to mention that the organi:ed dairy industry has done a

splendid


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MILK PRODUCTION

50! A 1I%%I&" T&"9-

;; !A0.81I%%I&" T&"9-

A!AC. 1I%%I&"- T&"9-

2020!2C0 1I%%I&" T&"9-

Indian contribution to world milk production rise from 2! 5 and it will

increase up 0! 5 B to 2020.


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COMPANY PROFILE

"#19F "#$#%&&' (#I') *'&(+,T-

#(('9--F *lot "o 2 / opp 6ig 6a:aar 7okul 'oad ubli

5800 0

'9-I-T9'9( &@@I,9 F "a3aloor (airy *roducts/

"ear ,ity 6us stand/

,6T ubli

)9#' &@ 9-T#6%I- 19"T F 5 #pril 5


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T&* 1#"#7919"T 1r.#nant "a3aloor >1anaging (irector?

1r.'a


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This plant handles about 25000 liters of milk per day. This company has

helped almost 000 families to earn to their li3ing besides creating direct

employment to local in the plant.

INTRODUCTION

"a3aloor (airy *roducts was set up by 1r. #nant . . "a3aloor/ 1anaging

director of "(*/ to produce the best quality products which can hold their

own position in the highly competiti3e national market and bring the benefit

milk producers. The plant states the art of Technology/ 9quipments and

1anufacturing process.

LOCATION

The plant is situated 0 km away from ubli on #irport 'oad (ist H(harwad

>4#'"#T#4#?. &n the ubli!6angalore highway ha3ing a pollution free

en3ironment which helps to maintain its hygiene quality and a rich source of

cows and buffaloes milk with a possibility of increasing its quality and

handling / at present 25000 ltrs G day.


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HISTORY

6efore Indian economy opened up in 2/ "a3aloor (airy *roducts group

opened the doors of the first pri3ate sector dairy in the state of 4arnataka

called "a3aloor (airy *roducts/ in 8 at a remote 3illage of (e3ar

-higihalli/ 6aihongal (istrict. This dairy initially engaged in procurement

processing and distribution of raw milk in 7oa -tate and 6elgaum (istrict of

4arnataka. #t the time when "a3aloor (airy *roducts/ commenced its

acti3ities/ the dairy sector was dominated by co!operati3e milk unions ha3ing

substantial support from the state and central go3ernment with agencies

engaged in promoting the said industry. It was not an easy task indeed to

complete with mighty co!operati3e sector and sustain in the industry without

any support. owe3er/ there has been no looking back e3er since.


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"a3aloor groups constant search for pioneering acti3ities made them promote

many companies engaged in 3arious inno3ati3e products as always for first

time in the region. (eccan *lateu of India has a small industrial de3elopment

area in the state of 4arnataka/ which consists of three districts touching

northwards to beautiful 6elgaum and embracing at (a3angere and left is 7oa

7ods own country. This he3eanly part of the world was depri3ed of good

quality milk. The "a3aloor family of ancient (e3ar -higihalli $illage led by

1r. innappa "a3aloor had a 3ision to pro3ide fresh and quality milk to all

citi:ens in north 4arnataka. "a3aloor 7orup H a brain child of the ,hairman

1r. innappa "a3aloor H was brought to reality by the dedicated hard work of

"a3aloor brothers under the leadership of 1r. aipal "a3aloor.

#midst the protected economy/ "a3aloor brothers 3entured into setting up the

@irst *ri3ate -ector (airy in 4arnataka in 5 at ubli and 6elgaum in the

name and style "a3aloor (airy *roducts. "ow "a3aloor (airy *roducts has

build a solid foundation in the market as well as in the hearts of consumers. Ithas made a mark in the pouch milk brand.

The unique feature of all companies promoted by "a3aloor group is adherence

to quality/ right price and con3enience and thereby ensuring customer

satisfaction. In India cow is the symbol of prosperity and %ord 4rishna is

considered to be the guardian of cows and milk. ence the promoters of

"a3aloor 7roup selected D#nandE as the brand of their sachet milk.


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Company Mission

To impro3e quality and quantity of products and ser3ices by promoting

healthy practices with economical operations and with an aim to ser3ice

ultimate consumers.

To their utmost satisfaction at affordable price with an optimi:ation of groups

wealth.

Company Vision

&3er the "a3aloor (airy *roducts has gained considerable with farmers and

consumer hence the prospects of the company are bright in the near future.

The company has a 3ision of di3ersifying in 3arious other businesses. It is

planning to 3enture into chemical and allied industries and its identified

products.

Objectives of the Company

1inimi:e number of consumer complaints with regard to food

safety. J

@ood safety #wareness programme with the raw milk producers

suppliers. Training on good manufacturing practices to all employees.

Training on a:ard #nalysis ,ritical ,ontrol *oints #wareness to

super3isors and operators.

1aintaining G 9nsuring @actors hygiene and *ersonnel ygiene at

all times.


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AC!I"V"M"NT#

69-T -1#%% -,#%9 I"(+-T') #=#'( in the year !2000

from 7o3t. of 4arnataka.

I-& 22000!2005 ,9'TI@I,#T9 @&' @&&( -#@9T)

1#"#7919"T

"(*s promoter 1r.#nant "a3aloor award in 200 from Indian

achie3ers forum for 9 cellence in %eadership/ inno3ation/ and

commitment to 3alues in enterprise.


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COMPANY POLICIES$OOD #A$"T% POLIC%

=e at "a3aloor (airy *roducts are committed to procure/ process and deli3er

safer quality products to consumer at all times by strictly adhering to

following measures.

9nsure food safety quality through effecti3e implementation of

food safety management system.

,onforming to statutory/ regulatory and consumer requirements.

&"'"LL"R% POLIC%

=e at "a3aloor (airy *roducts are committed to ensure that D


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(LA## POLIC%

=e at "a3aloor (airy *roducts are committed to ensure that 7lass breakages/

including window glasses/ equipments/ gauges/ test instruments/ bulbs and

other glass made materials are not affecting any food products safety.

#ll potential sources of glass breakages will continuously be identified and

protected. #s a part of glass policy/ glass breakage in critical areas are taken

up seriously and corrected with utmost care. The product will be analy:ed and

corrected in case of doubt.

)UALIT%

Kuality is ne3er an #ccident it is always the result of high intention/ sincere

efforts/ intelligent direction skill full e ecution.


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&'7#"I-#TI&" -T'+,T+'9 C a!"#a$

B%a"& %'D!"e()%"s

Ge$e"a*Ma$age"

R + D S)a

A&-) A&-!s%"

Ma$age#e$)A&-!s%"

Ma" e)!$gMa$age"

Sa*es Ass!s)a$)Ma$age"

Age$)

F!$a$(!a*A&-!s%"

P"%&/()!%$Ma$age"

S/ e"-!s%"

1%" e"s Ma" e)!$gC%$s/*)a$)


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RESPONSIBILITIES OF AUTHORITY

79"9'#% 1#"#79'

To e ercise responsibilities and authorities of food safety.

&3er all administration of (airy.

To ensure effecti3e and efficient utili:ation of production facilities.

To ensure effecti3e resource management in respect of production

requirement of dairy.

To co!ordinate with *rocurement and input and marketing for

establishing effecti3e supply.

To ensure consistency and impro3ement in product quality.

Te delegate responsibilities authorities as required to supporting

members in order to ensure smooth and effecti3e running of

system.

To enhance efficiency of @ood safety.

*'&(+,TI&" 1#"#7919"T

To e ercise responsibilities of @ood safety.

1onitor/ re3iew and suggests impro3ement methods for enhancing performance.

To identify and e ecute new pro


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-ales #sst 1anager

(ay today supply the milk product to the market or agent

-ending the report of the sales to the top mgt.

1arketing #sst 1anager

1aking ad3ertisement of the product.

%ooking to the marketing change.

%ooking to the needs wants of the customer.

%ooking the opportunity to launching a new product.

9 pand of the market.

,ontrol the ad3ertisement cost.

@I"#",9 G #,,&+"T 1#"#79'

Implementation of financial policies procedures adopted by the

union. To appraise top management regarding financial implications and

finance management requirements in respect of *roposal made for

di3ersification/ capital equipment purchase/ Technology up

gradation.

To ensure smooth functioning of system in matters concerning all

interested parties.

To ensure ,ompliance with all applicable statutory and regulatoryrequirements.

To delegate responsibilities and authorities as required to

supporting members in order to ensure smooth and effecti3e

functioning of the system.

To ad3ice top management with regard to pricing of 1ilk 1ilk

products.


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@ormulation implementation of cost reduction G control

programmes.

To ensure costing and monitoring of all functions of the

organi:ation.

MANAGEMENT RESPONSIBILITY &

COMMITMENT

Top 1anagement of "a3aloor (airy *roducts is committed to the

de3elopment and implementation of the food safety management system and

continually impro3ing by effecti3eness byF

-howing food safety is supported by the business ob


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93aluate the e pected le3el of consumer satisfaction relati3e to

competition in its market place.

,onsider the balance between the needs of interested parties to be

satisfied and contribution from each interested party toachie3ement of organi:ations goals.

93aluate risks against achie3ing the organi:ational ob


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PRODUCTION

*roduction department ensures that the minimum stock of milks is maintainedat processing and dispatch department as decided by 7eneral 1anager H (airy

from time!to!time/ which is dependent on sales and inflow trend.

&n receipt of requirements from marketing/ 7eneral 1anager H (airy shall

plan for the days production and this shall be communicated to *roduction In

charges.

*%#""I"7 @&' *'&(+,TI&"F

. *roduction department ensures that the minimum stock of 1ilk is

maintained at processing and dispatch department as decided by

the 7eneral 1anager H (airy from time Hto H time/ which is

dependent on sales and inflow trend.

2. &n receipt of requirements from 1arketing/ 7eneral 1anager H

(airy shall plan for the days production and this shall be

communicated to *roduction In charges.. *roduction In charge G K# In charge discusses with the 7eneral

1anger H (airy in order to re3iew the raw milk a3ailability and

adequacy. =here required 7eneral 1anager H (airy shall arrange

for raw milk from any of the appro3ed source.

C. 7eneral 1anager H (airy re3iews the status of maintenance of

production facilities for their impact on days required production.

If required/ they shall inform 1arketing about the best possible


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production for the day to enable 1arketing to inform the customers

where dispatch could get affected substantially.

5. 1aintenance Incharge ensures health of production machinery and

equipment to achie3e smooth functioning of production processes.

;. *roduction Incharge updates the days production details on the

board.

A. *roduction H Incharge in consultation with 71 H (airy plans the

manpower resource allotment and details are entered in the -hift

'egister.

MILK PROCESS@irst they will collect the milk. Then it is taken to organoleptic test >taste/

colour/ smell? and chemical test. Then it is taken to milk tank. Then process

starts. ere firstly the milk is taken to grading some milk is taken to prepare

paneer rest of the milk is taken to chilling process.

#fter chilling process it is under taken to pasteuri:ation. %ater fermentation

process will continue. (uring pasteuri:ation the cream will be separated.,ream is con3erted into butter and ghee. #fter fermentation curd/ mango lassi/

buttermilk is produced.

-ome amount of grading milk is con3erted into khoa and pedha by

e3aporation process.

Then e3ery product will go packing department then they are dispatched.


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FLOW DIAGRAM OF MILK


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PRODUCT


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@+",TI&"-

Taking initiati3e.

1aintain the quality of product.

,ontrol the cost of production.

,ontrol wastage of milk.

PRODUCT PRO$IL"

T)*9- &@ 1I%4 #"( 1I%4 *'&(+,T-

1%" e"s


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@%+I( 1I%4- F

The basic difference among the milks like #nand/ 4eny standard/ 4eny Toned

milk/ #mit (ouble Toned 1ilk is @at -"@ contents. #ll these products are

ha3ing the *@# standards.

T)*9 &@ 1I%4 @at >B? -"@ >B?#nand C.5 8.54eny std .5 8.54eny Toned .0 8.5#mit (ouble Toned .5 .0

#nandG4eny -td

It contains C.0B fat and minimum 8.5B -"@. This is pasteuri:ed and semi!

homogeni:ed/ packed in %itre and 500 ml foodgrade polythene pouches.

4eny Toned 1ilk

It contains .0B fat and minimum 8.5B -"@. This is pasteuri:ed and packed

in %itre and 500 ml food grade polythene pouches.

#mit (ouble Toned milk is also marketed where in fat content is toned down

to .5B only while keeping minimum .0B -"@. This is recommended for

calorie conscious people and otherwise also for all age groups for direct

consumption as a source of adequate lactose plus all milk proteins minerals

and 3itamins.

1ilk *roducts are F ,urd/ %assi/ 1asala/ 6utter 1ilk/ 6utter/ 7hee/ 1ango

%assi/ ,ream/ 4hoa and *aneer.

,urds

It is produced and packed in 500 ml and 200 ml. food grade polythene

pouches is made from "a3aloor (airy *roducts with .5B ! 2.0B fat and


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percentage of -"@ ad


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' department is a part of management/ which is concerned with people at

work and their interpersonal relations. It is preliminary concerned with the

efficient utili:ation and conser3ation of these resources.

It is also concerned with the formulation of personal policies with regard to

recruitment/ selection/


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#ppearance ealthy ealthy#ge 8!25 years 8!25 years

eight 5!; feet C. H 5.5 feet=eight 50 kg C0 kgKualification A th pass G fail Ath pass G fail%anguage 1arathi/ kannada

hindi

1arathi/ kannada

hindi

TRAININ( $OR N"' "MPLO%""#

The company pro3ides training for both skilled and unskilled employees.

=#79- (9T9'1I"#TI&"

=ages determination is the responsibility of the top management. The

organi:ation follows the time wages system. i.e./ wages paid on the bais of

time de3oted to the factory rather than the goods purchased.

%#6&+' =9%@#'9

The facilities pro3ided to the employees are ,anteen/ 'est room/ ealth care.

T'#"-@9' *'&1&TI&" #"( (91&TI&"

*romotion is based on performance of the employees not on e perience.

Marketi ! a " Sa#e$

1arket

The production is depends on market demand. #s when they get demands

they produce and dispose in the market. The sales turno3er is appro imately

2 lakhs per year.


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The company is not directly in3ol3ed in marketing to final consumer but the

product is sent through distributor are in3ol3ed in selling the product. The

produced milk products are sent to.

7adag

#nnigeri

ospet

(a3angere

ubli

1undagod

4ushtagi

)ellapur

6hatkal

#nkola

(harwad

Di$%at '

The packing department prepares daily packing and sent to the dispatch in

charge. The dispatch head which is authenticated by the central e cise office

will prepare daily production report. Then the packing department to e cise

godown on an a3erage daily production is nearly 25000 liter. In one truck

nearly 2000 liter can be dispatched.

In3oice systemF

1oderate in3oice is must/ without it the transport 3ehicle is not allowed to

unload. This is also called as transport copy. &riginal copy is sent to the dept


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and e tra copies are sent with the transport 3ehicle/ gate pass is gi3en for the

securities for the clearance of truck or tankers from the premises.

Cons*me+ ,ist+ib*to+ channe-

The companys distribution channel for a consumer market is

P()#i it* +,r -arketi !(epending upon the sales promotion needs or as part of planned strategies/

marketing may plan for the publicity of products through ad3ertisements in

news media/ t3 etc.

Fi a e.A ,( t "e%art-e t

Ma (+a t(rer

A!e t$

Fi a#C, $(-er

Retai#er$


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In this department the financial accounts of the company and transactions are

properly maintained. 1ost of the accounting work is done on the computers is

maintain accuracy of the accounts. The accounting procedure is based on the

usual accounting principles. The day book with cash and bank columns are

maintained. They also maintained the


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They are following fifo method to issue the materials. They will issue the

materials first purchased. =hile purchasing material they will take permission

of gm. They will record each material of purchase and issue in bin card

system.

@unctions of store department

1inimum stock le3el has to be maintained. *arty payment should be clear. 4eeping food items in good situation. =ithout material requisition slip they not issue the materials.

Mai te a e "e%art-e t

1aintenance of equipmentsF

! 1aintenance in charge will identify 5the all the machineG equipments

as per the identification code assigned by stores department.! *repare the list of machines. 9quipments used in 3arious departments

by maintenance in charge.! The history of machine G equipments like description of machine G

equipment/ make etc in machine history card will be maintained.! The maintenance acti3ity of machine G equipments is classified into

two categories pre3enti3e maintenance and breakdown maintenance.

#ec*+ity ,epa+tment

If a company has to grow then security department staffs will keep an eye on

the theft and other safety in the organi:ation.

@unctions of security

! ,hecking of each person while entering the premises.


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! "oting the kilometer reading of a dairy 3ehicle.! If there is any emergency issuing materials from stores.! ,hecking the dispatch report of 3ehicle while gi3ing gate pass.

Na/a#,,r Dair* Pr,"( t$ isLL.

%ife is a search for satisfaction and achie3ing e cellence. It is necessary to

find out what makes any manufacturing unit to be successfully in international

market. (airy is a place where handling of milks and milk product is done and

technology refers to the application of scientific knowledge for practical

purposes. The dairy sector in India has shown remarkable de3elopment in past

decade.


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6efore Indian economy opened in 2/ "a3aloor 7roup opened "a3aloor

(airy *roducts.

"a3aloor (airy *roducts is based on the quality of the product.

! In "a3aloor (airy *roducts it is obser3ed that constant growth and

e cellent inter departmental co!ordination has pro3ided a 3ery good

foundation for its future growth and long term plans.! "a3aloor (airy *roducts is running successfully. This should

encourage other organi:ations to setup their manufacturing facilities in

rural areas there by generating more employment.! The organi:ation has a good employee and employer relationship

which will help the company to achie3e its long term and short termob


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detergents. It has got I-&F 002 certificate. In this company senior manager is

the head of the finance department. +nder him there are fi3e deputy managers

and also there is an account officer/ who is not under the direct control of

senior manager.

@inancial management in3ol3es managerial acti3ities concerned with the

acquisition puff fund for the business purpose. The finance function does with

procurement of money taking consideration of today as well as future need

and finance is required to purchase a machinery and raw materials/ to pay

salaries and wages and also for day to day e penses.

@inancial managementF

&ne cannot think of any business acti3ity in isolation from its financial

implication. @inancial management is an appendage to the finance function.

=ith the creation of comple industry structure/ the function has grown to

3ery great heights.

(efinitionF

@inancial management refers to that part of the management acti3ity/ which is

concerned with planning and controlling of firms financial resources. It deals

with 3arious.

-ources of raising funds for the firm which are suitable and economical for the

need of the business/ appropriate employment of funds thee of and business

has financial implication/ financial management is applicable to e3ery type of

organi:ation/ irrespecti3e of si:e/ kind of nature.

Objectives of financia- mana.ement/


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@inancial management pro3ides a framework for selecting a course of action

and deciding an economically 3iable stratify.

The main ob


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@inancial analysis *lanning and control.

1anagement of firms asset structure. 1anagement of firms financial structure.

@inancial decisionsF

In3estment decisionF

The decisions relates to the determination of the total amount of assets to be

held by the firm/ their composition/ the business risk and the image of the

firms percei3ed by the in3estors.

@inancial decisionsF

#fter taking the in3estment decision/ the firm commits itself to the new

in3estment and hence it must decide upon the best means of financing these

commitments. # proper dept equity mi has to be fi ed so as ma imi:e the

profit ability of the concern. The cost of raising funds for in3esting is 3ery

crucial in making the financial decisions.

W,rki ! a%ita# -a a!e-e t0

IntroductionF

=orking capital management is one of the most important aspects of financial

management. It forms a ma


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#ccording to 1r. -mith Dworking capital management is concerned with the

problem that arise in attempting to current assets/ current assets / current

liabilities and the inter!relationship that e ists between them.

=orking capital refer to that part of the companys capital/ which is required

for in3estment/ made in short term or current assets for e.g. cash/ debtors /

marketable securities and in3entories. @unds then in3ested in these types of

current assets keep re3ol3ing fast and other current constantly connected into

case and again this cash flow out in e change for other current assets keep

re3ol3ing fast and being constantly connected into cash and again this cash

flow out in e change for other current assets. Therefore it is also called as

circulating or short!term capital.

$acto+s affectin. 2o+3in. capita-/

The working capital requirement of a firm is affected by a number of factors.

The 3arious factors/ which affect the working capital requirement of a

concern/ are as follows.

"ature of businessF

The working capital requirements of enterprises are basically related to the

conduct of business. *ublic utilities ha3e certain features which ha3e a bearing

on their working capital needs. They do not maintain big in3entories and ha3e/

therefore/ probably the least requirement of working capital. &n the hand

trading and manufacturing concern required large amount of capital to

maintain a sufficient amount of cash/ in3entories and book debts.


41/92


*roduction cycleF

The term production or manufacturing cycle refers to the time in3ol3ed in the

manufacturing of goods. There is a small time gap before raw materials

become finished goods. Therefore the longer the time span/ the larger will be

the working capital needed and 3ice 3ersa.

6usiness cycleF

The business fluctuations influence the si:e of working capital mainly duringupward phase when boom conditions pre3ail/ the need for working capital is

likely to grow to co3er the lag between increased sales and receipt of cash as

well as in3est in plant and machinery to meet the increased demand.

*roduction policyF

# better alternati3e is a steady production policy independent of shifts in

demand for the finished good. This means a large accumulation of finished

goods during the off H season and their abrupt sales during the peak season.

The progressi3e accumulation of stock naturally required an increasing

amount of working capital which remains tied up for some month.

,redit policyF

The credit policy relating to sales and purchases also affects the working

capital. The credit policy in influences the requirements of working capital intwo ways.


42/92


! ,redit terms granted by the firm to its customer. 6uyers on goods.

,redit terms a3ailable to the firm from its creditors.

! # firm/ which more credit sales and cash/ purchase required high

working capital than a firm ha3ing more credit purchase and cash

sales.

-cale of productionF

# concern carrying on acti3ities on a small scale of needs less working capital.

&n the other hand a concern undertaking acti3ities on a large scale needs large

amount of working capital.

7rowth and e pansion of businessF

The growth and e pansion of business also affect the working capital

requirement. =hen there is growth and e pansion in the business of a working

capital of the firm will also increase.

&perating efficiencyF

The operating efficiency of the management is also important determinants of

the le3el of working capital. # firm en


43/92


! ,on3ersion of recei3able into cash.

-ources of working capitalF

#mong the 3arious sources a3ailable for financing capital needs/ finance

manager has to select the best suitable source depending on working capital

need of company.

%ong H term sourcesF

! 6y issue of shares! 6y issue of debenture! *ouching back of profit! %ong H term loan.

-hort Term -ourcesF

They are classified intoF

I"T9'"#%

=ith drawing the depreciation fund ! 6ank

+sing the resourcement for ta ation ! Trade ,redit

*ostponement of payment accrued e penses ! 6ills of e change

*ublic (eposits ! 7o3ernment assistance

$*n,s +e4*i+e, fo+ the $i+m/

93ery company needs two types of funds they areF


44/92


. %ong terms fundsF ! these are required to create production facilities

through purchase of fi ed assets such as plant and machinery/ land and

building/ furniture etc./ in3estments in these assets are called fi ed

capital.2. -hort term fundsF ! these are required for short H term purpose for the

purchase of raw materials/ payments of wages and other day today

e pensi3e etc./ these funds are known as working capital.

Types of working capitalF

There are two types of working capital. They areF

. 7ross working capital2. "et working capital

?. 7ross working capitalF

'efer to the firms in3estment in current assets. ,urrent assets are the assets/

which can be concerned into and within an accounting year >or operating

cycle? include cash/ short!term securities/ debtors >accounts recei3ables or

book debts? bills recei3able and stock >in3entory?. 7ross working capital

points to the arranging of funds to finance current assets.


45/92


2?. "et working capitalF

'efer to the difference between current assets and current liabilities. ,urrent

which are those claims of outsiders/ which are e pected to nature for payment

within accounting years and include creditors >accounts payable?/ bills

payable and outstanding e penses. "etworking capital can be positi3e or

negati3e. # positi3e net working capital will arise when current assets e ceed

current liabilities and a negati3e working capital will arise when current

liabilities are in e cess of current assets.

The nee, o+ objectives of 2o+3in. capita-/

The need for working capital to run day ! to ! day business acti3ities cannot be

o3eremphasi:ed. =e will hardly find a business firm/ which doesnt require

any amount of working capital. Indeed/ firms differ in their requirements of

the working capital. =e know that a firm should aim at ma imi:ing the wealth

of its share holders. In its endea3or to do so/ a firm should earn sufficient

return from its operations. 9arning a study amount of profit required

successful sale acti3ity. The firm has to in3est enough funds in current assets

for cash instinctually. There is always an operation cycle in3ol3ed in the

con3ersation of sales into cash.


46/92


The 3arious need of working capital is as followsF

. To pay wages and salary.2. It helps to the purchase of raw materials/ components and shares.

. It helps to incur day H to H day e pensi3e and o3erhead costs such as

fuel/ power/ office e penses etc.C. It also to meet the selling cost as packing ad3ertising etc.5. It pro3ides credit facilities to the customer.;. It helps to maintain the in3entories of raw material/ working progress/

stores and spares and finished stock.

P+ob-ems associate, 2ith e0cess 5 ina,e4*ate 2o+3in. capita-/

#?. (angers of e cess working capitalF

. It results in unnecessary accumulation of in3entories. Thus the changes

of in3entory mishandling/ the losses increase.

2. It is an indication of defecti3e credit policy and stock collection period.

. 9 cessi3e working capital makes management complacent/ which

degenerates into managerial efficiency.C. Tendencies of accumulating to make speculati3e profits grow. This

may tend to make di3idend policy liberal and difficult to cope with in

future when the firm is unable to make speculati3e profits.

67 DAN("R# O$ INAD")UAT" 'ORKIN( CAPITAL/


47/92


. It stagnates growth. It becomes more difficult to undertake profitable

pro


48/92


. (imension i is concerned with the formulation o0f policies regard to profit

ability/ risk and liquidity.

2. (imension ii is concerned with the decision about the composition and

le3el of current assets.

. (imension iii is concerned with the decision about composition and le3els

of current liabilities.

*ermanent or fi ed working capitalF

The need for current assets arises because of the operating cycle. The

operating cycle is a continuous process and therefore/ there need for the

current assets is felt constantly. 6ut the magnitude of current assets needed is

not always the same it increases o3er time. owe3er there is always a

minimum le3el of current assets/ which is continuously required by the firm to

carry on its business operations. This minimum le3el of current assets is

referred to as permanent or fi ed working capital.

$ariable or temporary working capitalF

(epending upon the changes in production and sales/ the need for working

capital o3er and abo3e permanent working capital/ will ha3e to be maintained

to support the peak proceeds of sale and in3estment in recei3e may also

increase during such periods. &n the other hand/ in3estment in raw material/

working capital needed to support the changing production and sales acti3itiesis called fluctuating/ or 3ariable or temporary working capital. The firm to

meet liquidity measurement that wills last only temporarily creates temporary

working capital.

#o*+ces of 2o+3in. capita-/


49/92


The need of working capital is increased by raising prices of end products and

relati3e inputs. &n the other hand/ the go3ernment and monetary authorities

play their own role to curd the malice in periods of inflation. The control

measures often take the firm of dear money policy and restrictions credit.

@inancing of additions working capital in such an amusement becomes a real

problem to finance manager of a concerned unit. ,ommercial banks play the

most significant role in pro3iding working capital finance/ particularly in

Indians conte t. In 3iew of mounting inflation/ the rabbi has taken up certain

social measures to check the supply un the economy the balancing need has to

be managed either by long H term borrowing or by issuing equity or earning

sufficient profits and retaining the same of copying with the additional

working capital requirements. The first choice before a finance manager/

where backs do not pro3ide a part of additional working/ is to take the long H

term sources of finance.

%ong term financingF

%oans from financial institution the option are normally rules out/ because

financial institutions do not pro3ide finance for working capital requirements.

@urther this facility is not a3ailable to all companies this option is not

practical.

#ccepting public depositsF

The issue of tapping public deposits is directly related to the image of the

company seeking to in3ite public deposits.


50/92


'ising by internal financingF

'aising funds from operations profit poses problems for many companies/

because prices of their end products are controlled and not permit companies

to earn profit sufficient requirements to finance additional working assist/ still

a largely feasible solution lies in increased profit ability through cost control

and cost reduction measures managing the cash operating cycle/ rationali:ing

in3entory stock and so on.

6asic objective of 2o+3in. capita- mana.ement/

The basic obi.e. current assets and current liabilities? in such a way

that a satisfactory le3el of working capital >i.e. neither e cessi3e nor

inadequate working capital? is maintained. This is necessary because/ if the

working capital is e cessi3e or large/ the liquidity position ad3ersely affected/

as funds would remain idle. ,on3ersely if the working capital is too small/ the

profit ability of the firm may impro3e/ but the liquidity position of the firm

would be ad3ersely affectedly

Pr, e$$ ,r $te%$ i /,#/e" i 1,rki !a%ita# -a a!e-e t0

=orking capital management in3ol3ed tow possesses/ they are fore casting the

amount of working capital.

(etermining the sources of working capital means estimating the amount of

working capital estimating the amount of working capital needed by as

firm. There amount of working capital needed by a firm has to be estimated by

taking into consideration se3eral factors/ the nature of business/ scale of

operation/ production policies/ length of manufacturing process rapidity of

turno3er/ seasonal fluctuation/ and period of credit allowed to debtors/ period

of credit a3ailed of from creditors etc.


51/92


(etermining the sources of working capitalF

(etermining the sources of working capital means determining or deicing the

sources from which the working capital requirement off a firm should be met.

The working capital requirement of a firm should be met from both long !

term and a short term sources of fund. It will be appropriate to finance ore

meet the fi ed or permanent parts of the working capital requirements from

long ! terms sources and the 3ariable or fluctuating Npart of the working

capital requirement from short ! term sources.

The 3arious long H term sources of working capital are shares > equity as wellas preference?/ debentures/ plaguing back of profit/ term loan from industrial

finance corporation and bank / long H term/ depositors from the public etc./

The 3arious short! term sources of working capital are credit/ bank credit/

customer ad3ances and short H term public deposits.

C+ite+ia fo+ j*,.in. the efficiency of 2o+3in. capita- mana.ement/

The efficiency of working capital management 3an is


52/92


1easures to be adopted for a sound working capital managementF

@or a sound management of working g capital/ a concern should adopt the

following measuresF

. 6udget its cash flow.2. ,ontrol debtors.

. ,ontrol its creditor.C. ,ontrol its stock 5. #3oid o3er borrowing.

;. #3oid o3er in3estment fi ed assets.A. (etermine the financing mi .

Ope+atin. cyc-e an, cash cyc-e/

In3estment in working capital is influenced by four key e3ents in t5he

production and sales cycles of the firm.

a. *urchase of raw materials b. *ayment of raw materialsc. -ale of finished goodsd. ,ollection of ,ash for -ales.

The firm beings with the purchase of raw material/ which are paid for after a

delay/ represent the account payable period. The firm con3erts the raw

material into finished goods and then sells the same. The time lag between the

purchase of raw materials and sale of finished goods is the in3entory period.

The period that comes between the date off sales and the date of collection of

recei3able is the accounts payable period >debt periods?. The time that comes

between the purchase of raw materials and there collection of cash for ales is

refers as the operating 3ehicle/ where / the time length between the payment


53/92


of raw martial purchase and the collection of cash for dosed sales us referred

to as the cash cycle.

The operating cycle is the sum of the in3entory period and the account

recei3able period whereas the cash cycles are equal to the operating cycle less

the account payable period. @rom the financial statements of the firm/ we can

estimate the in3entory period/ the account recei3able and the account payable

period.

TOOL# $OR ANAL%#I# O$ 'ORKIN( CAPITAL

The quantum of working capital as well as its financing pattern are sub


54/92


In a trading concern/ there is a series of acti3ities starting from procurement of

goods and ending with the reali:ation of sales re3enue. -imilarly incase of

manufacturing from this ser3ices starts from procurement of raw materials and

ending with the sales reali:ation of finished goods. In both the cases/ howe3er/

there is time group is called operating cycle. Thus/ the operating cycle of firm

consists of the time required for the completion of chronological sequence of

some or all the following.

. *rocurement of raw materials and ser3ices.

2. ,on3ersion of raw materials into work H in H progress.

. ,on3ersion of work H in progress into finished goods.

C. -ale of finished goods >,ash or ,redit?.5. ,on3ersion of recei3able into cash.

&*9'#TI"7 ,),%9 *9'I&(F

The length of time duration of the operating cycle of ma any firm can

be defined as the sum of its in3entory con3ersion period and recei3ables

con3ersion period.

?.I"$9"T&') ,&"$9'I-I&" *9'I&(F

It is the time required for the con3ersion of raw material into finished

goods sales. In a manufacturing firm the I,* is consisting of 'aw material

con3ersion period >',*?O work H in H progress con3ersion period > =,*?

finished goods con3ersion period >@,*?

2?. '9,9I$#6%9 ,&"$9'I-I&" *9'I&(F

It is the time required to con3ert the credit sales into cash reali:ation. It

refers to the period between the occurrences of credit sales and collectionof debtors. The total of I,* and ',* is also known as total operating cycle


55/92


period >T&,*?. The firm might et some credit facilities from the supplier

of raw materials/ wage earners etc. This period for which the payments to

their parties and differed or delayed is known as payable period or differed

period.

The net operating cycle is arri3ed by deducing (* from the T&,*/ Thus/

"&,PT&,*!(*PI,*Q',*!(*

'ORKIN( CAPITAL RATIO#/

#nother analytical tool that can be used for analyses of working capital

is the accounting ratios particularly the working capital ratios. -ome of the

important working capital ratios are.

,+''9"T '#TII&

%IK+I( '#TI&

I"$9"T&') T+'"&$9' '#TI&

=&'4I"7 ,#*IT#% T& T&T#% -#%9- ,#- T& "9T =&'4I"7 ,#*IT#%

(96T&'- T+'"&$9' '#TI&


56/92


R"C"IVA6L"# MANA("M"NT/

@inished goods sold on credit get con3erted > from the point of 3iew of

the selling firm? into recei3ables > book debts? which when reali:ed generate

cash. The a3erage balance the recei3able account would appro imately be

a3erage daily credit sales multiplied by a3erage collection period.

&6 9,TI$9- &@ '9,9I$#6%9- 1#"#7919"TF

The main ob


57/92


. (9T9'1I"I"7 ,'9(IT *&%I,)F

The first decision area of recei3able management is determining credit

policy. In de3eloping an optimum credit policy/ the financial manager

should compare the benefits of credit e tension with the cost of credit. The

ma


58/92


? ,urrent #ssetF It is assumed that in3entories will be con3erted to cash

in the current accounting cycle/ which is normally/ one year.

2? %e3el of liquidityF In3entories are 3iewed as a source of near cash. #t

the same time/ most firms hold some slow mo3ing items that may not

be sold for a long time. In this case/ the liquidity aspects of in3entories

become highly important to the manager of working capital. #t a

minimum/ the analyst must recogni:e that in3entories are least liquid

of current assets. @or firms with highly uncertain operating

en3ironments/ the analyst must discount the liquidity 3alue of

in3entories significantly.

? %iquidity %agsF In3entories are tied to the firms pool of working

capital in a process that in3ol3es three specific lags namelyF

,reation lag -torage lag -ale lag ,irculating lag


59/92


,#- 1#"#7919"TF

,ash is the most important factor in financial management. It is also

the most important of all the current assets/ for the operations of the business.

It is the basic input needed to keep the business running on a continuous basis/

it is also the ultimate output e pected to be reali:ed by selling the ser3ice or

product manufactured by the firm.

,ash is of 3ital importance to the daily operations business firms. Its

effecti3e management is the key determinant of efficient current assets

management requirements of the business. Its shortage stops the business

operation and may degenerate a firm into a state of technical insol3ency.


60/92


"99( @&' #" &6 9,TI$9 &@ ,#- 1#"#7919"TF

%arger cash and bank balances indicate high liquidity position of a

,ompany which will result in lower profitability as idle cash fetched no

return/ while the same when in3ested in the assets of the company will result

in profits. The need for holding cash arises from a 3ariety of reasons such asF

. T'#"-,#TI&" 1&TI$9F # company is always is always

entering into transactions with other entities/ which may cause

immediate cash inflows and outflows. -o firms always keep a

certain amount as cash to deal with routine transactions where

immediate ash payment is required.

2. *'9,#+TI&"#') 1&TI$9F # company has to be prepared to

meet such contingencies like a sudden fire may break out/

accidents/ employees strike etc. to minimi:e its losses. @or this

purpose company generally maintain some amount in the form of

cash.


61/92


. -*9,+%#TI&" 1&TI$9F @irms also maintain cash balance in

order to like ad3antages of opportunities that do not take place in

the course of routine business acti3ities.

C. Lac3 of P+ope+ #ynch+oni1ation bet2een Cash Inf-o2s 5 Cash

O*tf-o2s ./In case of reasonably well managed profitable companies/

that total amount of cash inflows for the year is usually higher than

the total amount of cash outflows. R owe3er/ the company can ha3e

spells of cash deficits and surpluses mainly due to lack of

synchroni:ation between cash inflows and outflows.

89:; OP"RATIONAL D"$INATION O$ CONC"PT#/

*rofit %oss #ccountF It is a report of business acti3ities for a gi3en period and

is prepared to ascertain profit and loss of a company in a particular year. 6alance

-heetF 6alance sheet is a statement of assets and liabilities indicating the

financial position of the company of the certain date.

C*++ent Assets/ ,urrent assets refer to all those assets/ which change their form and

substance/ and which ultimately is con3erted into! cash during the normal operating

cycle of the business/ which is normally one year. ,urrent assets of a company

include sundry debtors/ cash/ bank balance and loans and ad3ances/ outstanding and

accrued e penses/ prepaid e penses and stock etc.

Tota- Assets/ It represents net fi ed assets/ in3estments/ current assets/ loans

and

#d3ances/ outstanding and miscellaneous e penditure. Total assets refer to all

'eali:able assets i.e./ both tangible and intangible assets.


62/92


#ha+eho-,e+s< "4*ity/ It is the profit earned before charging interest/ depreciation

and ta .

(+oss P+ofit/ It is the profit earned before charging interest/ depreciation and ta .

"et P+ofit/ It is the profit earned after charging interest/ depreciation but

including other incomes.

Rese+ves #*+p-*s/ The profits of the corporation that are ploughed back into

the business are referred to as reser3es and surplus.

$inancia- Ratios/ The relationship between accounting figures

e pressed mathematically is known as financial ratios.

O6&"CTIV"# O$ T!" #TUD%

. To understand the concepts of =orking ,apital 1anagement at "(*.

2. To compare the last four years financial performance with special reference to

working capital.

. To calculate the operating cycle of working capital and find out its impact on

working capital.

C. To analy:es the reasons for increaseG decrease in the working capital

requirements of the company.

5. To calculate liquidity ratios and thereby analy:ing the liquidity position of the

company.

;. To study the performance of the company with help of ratios


63/92


A. To understand the credit policy followed by the company.

M"T!ODOLO(%/

(ata ,ollectionF

There are two types of dataF

P+ima+y ,ata/

*rimary data are the dataRs collected for the first time and are not a3ailable in

the secondary source. The necessary rele3ant information has been collected

through discussions with the concerned department people.

#econ,a+y ,ata


64/92


-econdary data are the dataRs that are de3eloped for the same purpose other

than helping to sol3e the problem at hand. The data collection method in this

pro


65/92


*- P #3erage In3entory

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! S ;5

,ost of 7oods -old

)ear 200;!0A 200A!08 2008!0

#3g In3entor>'s?y 52/ C/02C A0/85/0 ; AC/;A/ 50

,ost of 7oods -old >'s? 0/ 8/8A/ 0 C/ 0/08/8A2 A/0A/;5/A

olding *eriod of -tock >(ays? ;.2 A.5 A. 5

olding *eriod of -tock >(ays?


66/92


0;!0A 0A!08 08!0

*- is normal. It is between ; to A.5 days/ it was decreased to ;.2 days in the year

200;!0A which is good as the raw materials are con3erted to finished goods 3erysoon. #nd again it as increased to A.5days in 200A!08/ and in ne t year also same.

This is due to the high in flow of raw materials and sales. #nd e3en the sales ha3e

grown almost double as compared to 200;!0A.


67/92


8 D"6TOR# COLL"CTION P"RIOD =DCP7

(ebtors are created because goods are sold on credit for marketing andcompetiti3e reasons. (ebtors collection period is the time required to collect the

outstanding amount from the customers.

DCP P Debto+s > ;?@

#a-es

)9#' 200;!0A 200A!08 2008!0

(96T&'- >'s? 2A/5 /02C 2 / / 2C 2/C / A

-#%9- >'s? /0C/0;/02 C/ 0/ C/A02 A/ / 0/ ;

(ebtors ,ollection

*eriod >(ays?

.2C .


68/92


(ebtors ,ollection *eriod >(ays?

20

0;

!

0A


69/92

INT"RPR"TATION/

(ebtors ,ollection *eriod is high in the first year. In the second it is decreasing and in 3ery

ne t year it is showing little up. If (,* is decreasing/ which is a good sign of a companyRs

point of 3iew. It means that the company is able to collect its debt in time.The ,ompanyRssales are 00B on credit basis. The purchases are also on 00B credit basis.

; OP"RATIN( C%CL"

The length of the operating cycle of the firm is the sum of holding period of stock and debtors

collection period.

&perating cycle is the time duration required to con3ert sales/ after the con3ersion of

resources into in3entories/ into cash.

&perating cycle is the duration of period consumed in completing manufacturing cycle.

=hen the in3estment into different stages of manufacturing is compared with working days in a

year operating cycle in dayRs term can be deri3ed. It includes days taken for raw materials

holding into production period. (ays taken for materials in process days taken for collection of dues from customers/ and collection of dues days taken for clearance of bills taken for creditors.

The total number of days including creditorRs payment period is regarded as &perating cycle

and when from such operating cycle if the creditorRs payment period is e cluded is known as

cash cycle.


70/92

The operating cycle of a manufacturing company in3ol3es three phasesF

. #cquisition of resources such as raw material/ labor/ power and fuel etc.

2. 1anufacture of the product which includes con3ersion of raw material intofinished goods.

. -ale of the product either for cash or on credit.

OP"RATIN( C%CL" P !OLDIN( O$ #TOCK D"6TOR# COLL"CTION P"RIOD

)9#' 200;!0A 200A!08 2008!0

*- >(#)-? ;.2 (ays A.5 A.

(,* >(#)-? .2C .

&*9'#,TI"7

,),%9 >(ays?

.CA 0.5 0.C


71/92

&*9'#TI"7 ,),%9 >(ays?

U &*9'#,TI"7 ,),%9

>(ays?200;!0A 200A!08

2008!0

Inte+p+etation/ The duration of

operating cycle .CA days in the year

200;!0A/ 0.5/ 0.C days in the

year 200A!08/ it is showing constant

trend/ in the year 2008!0 . . ence/

working capital is not in control.


72/92

B CR"DITOR# PA%M"NT P"RIOD =CPP7 /

,reditors payment period is the length of the time of the firm is able to defer

the payments on 3arious resources purchases.

,** P ,reditors S ;5

,ost of 7oods -old

)9#' 200;!0A 200A!08 2008!0

,'9(IT&'- >'s? 22/20/ 05 22/ 5/22; 2 / C/ 2,&-T &@ 7&&(- -&%(>'s? 0/ 8/8A/ 0 C/ 0/08/8A2 A/0A/;5/A

,** >(ays? 2.C 2. C 2. ;


73/92

,reditors *ayment *eriod >(ays?

20

0;

!

0A

2

0

0

A!

0

8

2

0

0

8!

0I

,redit

ors

*aym

ent

*erio

d

>(ays

?


74/92

INT"RPR"TATION/

In terms of days the company has to pay credit purchases for about 2.5 days taking ;5

days working of the company. This may be interpreted as yearend target purchase and production

schedule which is commonly found in manufacturing sector. This shows that the company pays its

credits within a3g period of 2 to days.

(+oss 'o+3in. Capita-/

'efer to the firmRs in3estment in current assets. ,urrent assets are the assets/ which can be

concerned into and within an accounting year >or operating cycle? include cash/ short!term

securities/ debtors >#ccounts recei3ables or book debts? bills recei3able and stock >In3entory?.

7ross working capital points to the arranging of funds to finance current assets.


75/92

(+oss 'o+3in. Capita- Tota- C*++ent Assets

)ear 200; 200A 2008 200

7ross

=orking

,apital >'s?

2/28/5;/ 20 2/ 0/ 2/ AA /0 /;5/ 25 2/;2/;A/A50

In year of 2008 7=, is high. In 200 7=, falls.

87 Net 'o+3in. Capita-/

'efer to the difference between current assets and current liabilities. ,urrent liabilities are those

claims of outsiders/ which are e pected to mature for payment within accounting years and

include creditors >accounts payable?/ billRs payable and outstanding e penses. "etworking capital

can be positi3e or negati3e. # positi3e net working capital will arise when current assets e ceed

current liabilities and a negati3e working capital will arise when current liabilities are in e cess of

current assets.

Net 'o+3in. Capita- C*++ent Assets C*++ent

Liabi-ities

INT"RPR"TATION


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The "et =orking ,apital required is between crore to .5 crore in the year "=, is .C5 crore

and it is slowly getting increasing in the year 200Aas the In3entries/ sales and the cash in hand

and bank ha3e raised.

The net working capital has been increased in 2008 when compared to the pre3ious year. The

current assets of the company is good in the year 2008 as compared to the pre3ious yearRs and again

it is decreased in the year 200 as the In3entories and cash at bank and cash in hand ha3e decreased

and debtors are increased.

#TAT"M"NT #!O'IN( N"T 'ORKIN( CAPITAL

*#'TI,+%#'- >'s? 200; 200A 2008 200

,urrent #ssetsF


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a? In3entories / 2/ A A2/A5/0A; ;8/ 5/ ; 80/C0/A85

-undry (ebtors 2A/C;/52 2A/A /5 0/5;/ 2 C/ /; 8

,ash 6ank 6alances 2;/A2/ 8C 0/52/CA0 A/; /0A / /2;5

8A/ /;8; / 0/ /0;5 /0A/ C/52C /2A/ /;;8

b? %oans and #d3ances /C /2C/C C /5 / / 2 / C/50/;0 / C/A;/082

T&T#% 2/28/5;/ 20 2/ 0/ 2/ AA /0 /;5/ 25 2/;2/;A/A50

%9--F ,urrent %iabilities

,urrent%iabilities/ *ro3isions 8/; /2C2 /2C/00/00A /28/C0/5 8 /28/2;/0

,reditors / / ;0 20/C0/580 2 /8 /8A2 / /

T&T#% / 8/;2/;02 /CC/C0/58A /52/ 0/CA0 /C8/2;/0 2

"9T =&'4I"7 ,#*IT#% /0 / /5 8 /C5/A /58 /C / C/;55 / C/C /A 8

#TAT"M"NT #!O'IN( PRO$ITA6ILIT%

*#'TI,+%#'-

. I",&19F

200; 200A 2008 200

-ale of milk its *roducts 25/ 0/8 / 0; 2A/A0/ C/0;A 2 /82/;A/AAC /2;/0;/C


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-ale of (iesel %ubricants 0 / A/A /25; C/ 8/80/; C /;2/ C/205

&ther Incomes 8/ 5/C;; 5/ 8/A0; /C;/ C 22/2 /C;CT&T#% >#? 2;/0 /25/ A2 /0C/0;/02 C/ 0/ C/A02 A/ / 0/ ;

2. 9V*9"(IT+'9F

,ost of milk -1*20/0C/C .C82 2 /CA/ C/ ;C 2 / 0. 8/A82 25/ ;/ 8/ AC

,ost of (iesel/ *etrol 0 / 2/A /0AC C/ /C /2 8 /5;/ 2/A C

Transport 9 penses 2/ A/CC/585 2/0 /2A/ 2; 2/20/0A/55 / /20/; 0

*rocessing 9 penses / ;/ 8/5A / / C/85 /CA/80/5 /;C/;5/C88

*acking 9 penses 8/5 /A;; / 0/5 /;;8 /0A/ C/855 /0 /C0. 5

#dministrate 9 penses 8 /C5/ ;C / 8/22C /C0/CC /00/;5/ 8;

lnterest & 6ank charges /C /0 ; C / /5 ; / ;/; ;0/2C/0 8

(epreciation written off C0/20/;0C CA/C /C 5C/C8/C5 ;C/0C/C ;

T&T#% >6? 25/ / /C ; 0/ /; /80A C/2;/ ;/52; A/02/A /

.*rofit for the )ear before

Ta ation #!6

/ / 5; 0/C2/22 / 8/ A; 8/58/A;C

%essF *ro3ision for ta ation,urrent Ta 2/ 2/ 5C 2/ 5/52 2/0C/; 2 ;/5 /00A

(eferred Ta >5/2A/05;? > / 8;? > 82/ C5? > /AC/ C0?

@ringe 6enefit Ta /A;/;2A /88/5 C / 0/;A 2/ 5/55*'&@IT #@T9' T#V#TI&" A/A0/0 5/ 8/ 20 85/8 0 /;C/ ;C

I"T9'*'9T#TI&"F In the year of 200; profit is increasing. 6ut for the ne t year little decrease in

the profit/ in 2008 profitability is fully decreasing. "ow for the year 200 it is showing little

increasing in the profit.

#TAT"M"NT #!O'IN( INCR"A#"ED"CR"A#" IN T!" 'ORKIN(CAPITAL =Rs7

*#'TI,+%#'- 200; 200A 2008 200: Inc+ease in C*++ent

Assetsa? In3entories !!!!!!!!!!!! /;2/ 0 !!!!!!! /C5/;;

-undry (ebtors !!!!!!!!!!!!!!! 2C/ 0 2 F8C/8 0 /A5/28


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,ash 6ank 6alances

b? %oans and #d3ances

!!!!!!!!!!!!!!!!! /80/28; 5.5;/ 8;

A/88/;A8 5/ A/C8

8 Dec+ease In C*++ent

Liabi-ities

,urrent %iabililies/*ro3isions

,reditors

!!!!!!!!!! !!!!!!!!!!!! !!!!!!!!!!! C/0C/C5;

Dec+ease in 'o+3in.

Capita-

!!!!!! !!!!!!!!!!!!!!! !!!!!!!!!!! C/ 2/ A

Total ; /5;/05A 8/22/22 5 /AC/5 A

- Dec+ease in c*++ent

Assets

a? In3entories !!!!!!!!! !!!!!!!!!!!!! !!!!!!!!!!! /A / ;0-undry (ebtors !!!!!!!! !!!!!!!!!!!!! !!!!!! !!!!!!!!,ash 6ank!6alances !!!!!!! !!!!!!! 22/8 / !!!!!!!!!

b? %oans and #d3ances !!!!!!!! !!!!!!!!! !!!!!!!!!!! 5 /AC/5

8 Inc+ease in C*++ent

Liabi-ities,urrent liabilities !!!!!!!! 25/AA/ 85 A/8 /80 !!!!!!!!!

Inc+ease in 'o+3in.Capita-

!!!!!!!!!! 5/A8/0A /; /0;; !!!!!!!!!

Tota- !!!!!!!!! ; /5;/05; C/C2/2;0 ; /5C/CA

The working capital requirements of the company in 200A!08 ha3e been increased. The

reasons for the increase areF

? The increase in current assets is due to

high stock of raw materials and


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finished goods/ ll is temporary in nature

and the same is liquidated within

a period of one month.

2? (ue to Increase in (ebtorRs.

? Increase in loans/ ad3ances and

deposits are due to ad3ances

reco3erable

in cash or in kind or 3alue to be recei3ed

or pending ador simply as a ratio?. The absolute accounting figures reported in the

financial statements do not pro3ide a meaningful understanding of the performance and

financial position of a firm. #n accounting figure con3eys meaning when it is related to some

other rele3ant information. 'atioRs help to summari:e large quantities of financial data and to

make qualitati3e


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C? *rofitability ratios

%iquidity ratio is directly related to the aspect of working capital. %iquidity ratios

measure the ability of the firm to meet its current obligations. %iquidity ratios establish a

relationship between cash and other current assets to current obligations and pro3ide

quick measure of liquidity. -ome of the liquidity ratios areF

. ,urrent 'atio

2. Kuick 'atio

. ,ash 'atio

C. (ebtors Turno3er 'atio

5. ,reditors Turno3er 'atio

;. "et =orking ,apital 'atio

A. ,urrent #ssets Turno3er 'atio

8. =orking ,apital Turno3er 'atio

: C*++ent Ratio/

The current ratio is calculated by di3iding current assets

by current liabilitiesF ,urrent

ratio P ,urrent #ssets

,urrent %iabilities


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The current ratio is a measure of the firmsS short!term

sol3ency. It indicates the a3ailability of current assets in

rupees for e3ery one rupee of current liability.

*articulars>'s? 200; 200A 2008 200

,urrent #ssets 2/28/5;. 20 2/ 0/ 2/ AA /0 /;5/ 25 2/;2/;A/A50

,urrent %iabilities / 8/;2/;02 /CC/C0/58A /52/ 0/CA0 /C8/2;/0 2

,urrent 'atio >B? . 2 2 . 8 .AA

InterpretationF

The current assets are more than current liabilities. The current ratio is getting decrease

compare to 200A/ which is good sign/ ft is due to increase in current liabilities. ,ompany can

rise the current ratio by rise the current assets.

8 Debto+ T*+nove+ Ratio/

The difference

between the sales

and the debtors is

considered as the


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debtorRs turno3er

ratio.

(ebtors Turno3er 'atio P

-ales

(ebtors

*articularsG)ears 200; 200A 2008 200

-ales >'s? 2;/0 /25/ A2 /0C.0;/02 C/ 0/ C/A02 A/ . 0/ ;(ebtorRs >'s? 2A/C;/52 2A/A /5 0/5;. 2 C. /;

(ebtors T*+nove+

'atio >B?

5 . 2.2 08.

(ebtors Turno3er 'atio


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Inte+p+etation/ (ebtors turno3er ratio in the

year 200; was 5 and it is increased to 2 in

the year 2008 but at present it has again

decreased to 0


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; C*++ent Assets T*+nove+ Ratio/

The firm may wish to know its efficiency of utili:ing current assets.

C*++ent assets t*+nove+ #a-es

C*++ent assets

*articularsG)ear 200; 200A 2008 200

-ales >'s? 2;/0 /25/ A2 /0C/0;/02 C/ 0/ C/A02 A/ / 0/ ;

,urrent #ssets

>'s?

2/28/5;. 20 2/ 0/ 2. AA /0 /;5/ 25 2.;2/;A/A50

C. 2,urrent #ssets

Turno3er 'atio

>B?

.C 0.; . A


86/92

Inte+p+etation/

The ,urrent asset Turno3er ratio is increasing as compared to the pre3ious years as it

has grown to C5B up which is a good sign. It shows as the assets are increasing the sales are

also getting increased.

B7 'o+3in. Capita- T*+nove+ Ratios/

# firm may like to relate net current assets >or net working capital gap? to sales.

'o+3in. Capita-T*+nove+ Ratio

#a-es

Net C*++ent Assets

*articulars >'s? 200; 200A 2008 200

-ales 2;/0 /25/ A2 /0C/0;/02 C/ 0/ C.A02 A/ 0/ ;

"et ,urrent #ssets /0 / /5 8 /C5/A /58 /C / C/;55 / C/C .A 8

=orking ,apital

Turn o3er 'atio >B?

2 .A 2 . 22. 2.C

Inte+p+etation/ The ,urrent asset Turno3er ratio is increasing as compared

to the pre3ious years. It is a good sign. It shows as the assets are increasing

the sales are also getting increased.


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FINDINGS0

The findings from statements changes in working capital and ratios are

summari:ed belowF

. The working capital requirement is increased in the year 2008 due to increase

in debtors/ loans/ and decrease in the liabilities.

2. The operating cycle of working capital is fluctuating.

. The sales are increasing year by year.

C. The (ebtors collection period is decreased when compared to 2005 and

increased when compared to 200A.

5. #s the debtors collection period is increasing .

;. ,reditors collection period is also declining.

;. *rofit is increased in 200; 200A. 6ut decrease in the year 2008 its

3 i g i th t


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S(!!e$ti, $0

? The company should take precautionary measures for in3esting and

controlling the funds from recei3ables.

2? The company is following old e perience methods/ company should

follow some new techniques or some statistical tools to estimate and

manage the working capital through regression analysis and time

series.

? The firm has sufficient working capital and has belter liquidity position.

6y efficient utili:ing this short!term capital/ then it should increase the

turno3er.

C? ,ontrol the 3ariable misc e penses.

5? There is intensi3e need of cost analysis and cost control to impro3e

profitability by reducing the cost.

;? The company has to try to impro3e the cash balances.


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C, #($i,

6ased on the account information pro3ided by the company/ it is not enough to


90/92

6I6LIO(RAP!%

'9@9''9( 6&&4-

@inancial 1anagement *rasanna ,handra

@inancial 1anagement I1. *andey

@inancial 1anagement 4han and ain @inancial 1anagement *rof #.(.6hat

,ompany 6rochures ,ompany 1anuals.


91/92


92/92

6a-ance sheet as on ;: st ma+ch 8FFH

SOURCES OF FUNDS5 32.03.04 Rs 32.03.0: Rs

. 2. O6$ F/$&s5

Ca !)a* 77,38,000 77,38,000Rese"-es & S/" */s 2,98,; ,478 2,97,47,028

2,:0,07,478 2,; ,2 ,0289. L%a$ F/$&s

Se(/"e& L%a$s 3,43,;;,434 3,:;,:4,;:7U$se(/"e& L%a$s 9;,20,;22 97,;7, 02

7,0 ,::,77 7,02,73,8:83. De'e""e& Ta< L!a=!*!)> 32,0;,;:4 32,4 ,;93

GRAND TOTAL ;,20,44, :9 ;,09,89,9239. APPLICATION OF FUNDS5

7. F! De=)%"s 30,8;,39 9:,:2,82Cas + Ba$ Ba*a$(es :,;3,0: 30,89,7:0

2,0:,27,897 2,30, ,0;8

Amit Final Inplant Report

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