A PROJECT REPORT ON “STUDY OF WORKING CAPITAL” AT ASHOK SAHAKARI SAKHAR KARKHANA LTD;ASHOKNAGAR BY GAURAV PRAKASH PAWAR MBA (FINANCE) ROLL NO. 9213320013 SUBMITTED TO PUNJAB TECHNICAL UNIVERSITY (PTU) IN PARTIAL FULFILLMENT OF MASTER IN BUSINESS ADMINISTRATION (MBA) ROYAL COLLEGE OF MANAGEMENT (RCM)
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A
PROJECT REPORT
ON
“STUDY OF WORKING CAPITAL”
AT
ASHOK SAHAKARI SAKHAR KARKHANA LTD;ASHOKNAGAR
BY
GAURAV PRAKASH PAWAR
MBA (FINANCE)
ROLL NO. 9213320013
SUBMITTED TO
PUNJAB TECHNICAL UNIVERSITY (PTU)
IN PARTIAL FULFILLMENT OF
MASTER IN BUSINESS ADMINISTRATION (MBA)
ROYAL COLLEGE OF MANAGEMENT (RCM)
PUNE2009-11
TABLE OF C O N T E N T SChapter No. Title Page No.
Declaration from student I Certificate from Company/Organization II
Certificate from Guide III Acknowledgement IV
Chapter Scheme V List of Graphs VI List of Tables
VII List of Annexure VIII List of Abbreviations
IX Executive Summary X
I Introduction 1-10
1.1 Background of the study 11.2 Background of the topic 1-21.3 Company profile 21.4 Need of the study 2-31.5 Scope of the study 3-41.6 Objectives of the study 41.7 Concept of the study 51.8 Factors Influencing Working Capital 71.9 Growth trend 71.10 Organization profile 81.11 Location 9
II Research Methodology 11-12
2.1 Primary data 11 2.2 Secondary data 11 2.3 Population 12 2.4 Limitation of the study 12
III Data Processing and Analysis 13 IV Findings 21 V Conclusion 22 VI Recommendations 23
DECLARATION
I, Mr. Gaurav Prakash Pawar hereby declare that this project report is the record of authentic
work carried out by me during the period from April to June 2011 and has not been submitted to
any other University or Institute for the award of any degree /diploma etc
Gaurav Prakash Pawar
Date: - 30thJuly 2011
I
ACKNOWLEDGEMENT
It is a matter of great satisfaction and pleasure to present this report on summer training in Ashok
Co-Operative Sugar Factory Ltd; Ashoknagar. I take this opportunity to my thank to all those
involved in my training
I express my deepest thanks to my faculty guide, Prof. Manesha Dhaawaray for her untiring
energy in always guideline me, also encouraging me for the project. I thank all staff members.
I thanks to Mr. Bhanudas Murkute (Director) for given me opportunity to work at A.S.S.K.Ltd.
As a Management trainee. I am thankful to Mr. Nivrutti Kulkarni (Finance Manager) for his
encouragement and able guidance at every stage of my training work.
IV
Chapter Scheme
Chapter No. Title Page No.
I Introduction 1-10
II Research Methodology 11-12
III Data Processing and Analysis 13
IV Findings 21
V Conclusions 22
VI Recommendations 23
V
List of Tables
Table No. Title Page No
1 Cycle of working capital 6
2 Gross Profit Margin Ration 13
3 Net Profit Margin ratio 14
4 Return On Equity 15
5 Return On Total Cost(ROTA) 16
6 Liquid Ratio 17
7 Capital Employed Turnover Ratio 18
8 Fixed Asset Turnover Ratio 19
9 Inventory Turnover Ratio 20
VI
List of Graphs
Graph No. Title Page No
1 Difference between permanent and temporary working capital 6
In every business organization its financial transaction are recorded in the systematic term, which
called ‘Financial Statements’ such as profit and Loss Account and Balance Sheet. Financial
statement shows the financial strength and weakness of the firm, hence, the financial statements
are prepared for the decision making. Management becomes able to take correct decision on the
basis of these financial statements is necessary to be analyzed.
The information provided in Financial Statements is of immense use in making decision through
analysis of and interpretation of Financial Statements. Financial analysis is the process of
identifying financial strength and weakness of the profit and loss A/C and other operative data.
2
There are various methods to techniques used in analyzing Financial Statement, Schedule of
changes in Working Capital, Fund Flow Statement and flow analysis, Cost Volume Profit
Analysis and Ratio Analysis. Working Capital management is one of the powerful tools used for
analyzing Financial Statement. Working Capital interpreted Financial Statement in an effective
manner that made enable to understand to management. It is the statement which shows exact
how much amount is require to run business or for production.
1.5 SCOPE OF THE STUDY
A) Managerial Uses Of Working Capital-
1)Helps in Decision Making- Financial statement are prepared primarily for decision-making.
But the information Provided in financial statements is not analysis helps in making decision
from the information provided in these financial statements.
2) Helps In Financial Forecasting And Planning- Working Capital is much help is financial
forecasting and planning. Planning is looking ahead and the ratios calculated for a number of
years work as guide for the future.
3) Helps In Control- Working Capital even helps in making effective control of the business.
Standard ratios can be based upon Proforma Financial statements and variances or deviations, If
any , can be found by comparing the actual with the standard so as to take corrective action at the
right time.
B) Utility Of Employees- The employees are also interested in the financial position of the
concern especially profitability. Their was increase and amount of fringe benefits are related to
the volume of profits earned by the concern. The employees make use of information available in
financial statement. Various profitability ratios relating to gross profit, operating profit, net
profit, etc. enables employees to put forward their view point for the increase of wages and other
benefits.
3
C)Utility Of Government- Government is interested to know the overall strength of the
industry. Various financial statements published by industrial units are used to calculate ratio for
determining short term, long term and overall financial position of the concerns. Government
may basis its future policies on the basis of industrial information available from various units.
D) Tax Audit Requirement- This Finance Act 1984, inserted section 44 AB in the income Tax
Act. Under This Section every assesses engaged in any business and having turnover or gross
receipts exceeding Rs.40 Lacks. Is Required to get the accounts audited by a charted accountant
and submit the tax audit report before the due date for filling the return of income under section
139(1).In case of professional a similar report is required if the gross receipt exceed Rs.10 lacks.
Clause 32 of the Income Tax Act requires that the following accounting ratios should be given:
(1) Gross Profit/ Turnover
(2) Net Profit/ Turnover
(3) Stock in trade/ Turnover
(4) Material consumed/ Finished Goods Produced
1.6 OBJECTIVES OF THE STUDY
In the present era of competition, the companies have huge potentials to grow in the market. Due
to the Globalization, a tremendous change takes place in the financial sector. The research aims
to study the financial strength and weaknesses of the company with special reference to
WORKING CAPITAL MANAGEMENT.
1. To study how the company will manage its current assets to maintain better financial position.
2. To know the reasons of deviations in the working capital position of the company.
3. To study the liquidity management of the company.
4. To study inventory management of the company.
5. To study the receivables management of the company.
6. To study the sales of the company and revenue.
4
1.7 CONCEPT OF THE STUDY
The concept of working capital has been a matter of great controversy, among the financial
wizards and they view it differently. working capital can be classified in to broadly two concepts
of working capital commonly found in the existing literature of finance, such as:
A) Gross working capital concept:-
According to the gross working capital concept, the total current assets are termed as the gross
working capital or circulating capital or operating the capital as rotate continuously as long as the
firm exists. A total current asset includes cash, marketable securities, accounts receivables,
inventory, prepaid expenses, advance payments etc.
This concept also called as quantitative or broader approach. Gross working capital refers to
firm‘s investments in the short-term assets such as cash, short-term securities, accounts
receivables and inventory.
B) Net working capital concept:-
As per this net working capital concept, the excess of current assets over current liabilities
represents net working capital. Net working capital concept represents the amount of the current
assets, which would remain after all the current liabilities were paid. It may be either positive or
negative. It will be positive, if current assets exceed the current liabilities and negative, if the
current liabilities are in excess of current assets.
A net working capital concept indicates or measures the liquidity and also suggests the extent to
which working capital needs may be financed by the payment source of funds
C) Permanent Working Capital
This indicates the amount of minimum Working Capital which is required to be maintained by every business at any point of time, in order to carry on business permanent & uninterrupted basis. It is permanently locked up in current assets.
D) Temporary Working Capital
This indicates that amount of Working Capital required by the business over & above fixed
Working Capital. This need of Working Capital may vary depending upon the fluctuations in
demand as a result of changes in production or sale
5
Amount of Working Capital.
Time
Table.1 Cycle of working capital
Graph 1. Difference between permanent and temporary working capital
6
Permanent Working Capital.
1.8 FACTORS INFLUENCING WORKING CAPITAL
1. General nature of the business companies which sell a service and that too for immediate cash,
require little working capital. But a manufacturing firm which produce a product and sell on
credit basis, working capital required with high.
2. Production cycle if the production process is lengthy working capital needs with high.
3. Speed of operations cycle, if the speed of operational cycle is slow working capital needs high.
4. Credit terms if the company purchases raw-materials on credit basis and sills finished goods
on cash base, working capital requirement will be low.
5. Growth and expansion is firm‘s larger growth prospects demand grater working capital.
6. Dividend policy is firm‘s pursuing liberal dividend policy requires more working capital.
• To analyze the changes in Working capital for the study period of Ashok Sugar Factory Ltd.,
Ashoknagar.
• To analyze the Working capital performance of the firm through ratio analysis.
• To suggest possible solution for better management of Working capital of
Ashok Sugar Factory Ltd., Ashoknagar.
1.9 GROWTH TRENDS-
Before 1932 there were about ten factories producing above 1.6 lacks tons of sugar in 1951-52
sugar production reached a figure of 15.2 lacks tones. In 1951 the government provided
incentives by raising minimum prices of sugarcane and maximum prices of sugar. So these
policies have directly effect on the result in lower production. The government again adopted
the policy of protection and raised minimum sugarcane prices in 1954 as result sugar output rise
to 15 lacks tons in 1954-55 and imports became necessary.During the season 1981-82 the highest
production was recorded. Which were 84.37 lacks tones? The area under sugar cane in
Maharashtra i.e. in 1972-73 was 11, 91,800 tones & 81.6 tones per hector, but in 1981-82 was
2,87,80,000 tones & 96.9 tones per hector per hector. The change in sugarcane production
because the new developed variety gives more crop yield & it depending upon the climatic
condition from year to year.
7
1.10 ORGANIZATION PROFILE
Registered No. G 264 Date 1/12/1954
Sugar Factory License No. 1] No. L8-61-55.L 25-53 Date 15/01/1952
Industrial Growth License No. 1] No. L/25/N209/68 L.C. Date 23/11/1968
Ethanol License No. A.E.M./206 Date 22/01/2002
Sen. Vat No. 27380002261 C Delhi
Vat No. 27380002261 V Mumbai
Service Tax No. 54/S.T./G.T.A./130103?04-05
Excise No. AACCA 3452-B
Tel No. Shrirampur Office- [02422] 223340, 223460Factory Office- [02422] 246491,246492
Ashok Sugar Factory Ltd; Ashoknagar is situated at Ashoknagar Tel.Shrirampur Dist.
Ahmednagar for history perspective of the history of Factory Nipani Wadgaon the village where
this factory is situated on pravara left canal the irrigation of pravara left bank. Has thus played a
major part in this change factory is situated near central railway line on daund manmad rute.
Railway station Nipani Wadgaon. This Factory is previously named as karegaon bhag Co-
operative Sugar Factory Ltd. Is registered undered the Co-operative societies act on 1 dec, 1954
with the registration no. 264 dated 1 Dec, 1954
FUTURE PLAN/GOALS OF THE COMPANY/FACTORY COUNTRY WINE
Submitted the project wine to government and it’s started as early as possible
Winning Project
•To produce directly wine from the cane juice
•Graine base distillery project
•To produce the ethanol from the grains like jwar and maze
•To increase the capacity of the Factory
•Co Generation project will start.
9
Picture -1. Ashok Sugar Factory
Picture-2.Ashok Sugar Factory
10
CHAPTER NO.2 RESEARCH METHODOLOGY
SOURCES OF DATA COLLECTION
2.1 PRIMARY DATA
This data generated specifically for the purpose of working out the project. This data mean the
first hand info., which is collected various sources schedules and formally informal information.
1) Information relating to the project was collected during formal & informal discussions with
the General Manager(Finance)
2) Queries arising in due course of the project brought into the notice of concerned Authority and
necessary explanation and solution are adapted.
2.2 SECONDARY DATA
1) Annual Report-
Majority of information gathered from data exhibited in the annual reports of the company.2004-
05,2005-06,2006-07,2007-08,2008-09.
2) Induction Manual-
Information relating to company history and profile gathered from the induction manual of
ASSK Ltd; Ashoknagar.
3) Reference Book-
Theory relating to the subject matter and various concepts taken from financial reference books. Financial Management (M.Y. Khan, P.K. Jain),Financial Management (S.M.Inamdar),FinancialManagement(P.V.Kulkarni), PTU MBA 4th Semister Working Capital Management Book
4) Loan Agreement-
Information relating to various rules and regulation for bank finance taken up from loan
agreement between A.S.S.K. and consortium banks.
11
2.3 POPULATION
Ashok Sahakari Sakhar Karkhana Working area concluded 40 villages.11,000 Share Holders and
1200 workers in this company.
2.4 LIMITATION OF THE STUDY
1). Generally company does not allow outsider to conduct any study or search work in the
organization. Therefore to get the e project done in company it was very difficult.
2) Due to confidentially some important information, which is important for the project, could
not collected.
3) All the financial data is A.S.S.K. have taken from the various statements of the company’s i.e.
Balance Sheet, Profit and Loss Account thus this project report is based on the information
provided by the concern authorities. The Figures incorporated are not the exact ones as available.
Interpretation Net Profit Margin Ratio was 12.9% in the year 2006-07. Net Profit Margin ratio for the year 2007-08 was -28.78% and for the year 2008-09 0.23%. This net Profit ratio indicates the overall performance & efficiency of company. In the above calculation in year 2004-05 the Net Profit ratio was 0.81% but after that it seems to fail in the financial year 2005-06,2006-07,2007-08 & raise very marginally in tear 2008-09 to 0.12%.As the higher Net Profit ratio indicates the good performance & efficiency of the company.
14
3.Return On Equity
Table:4 Return On Equity
Particular 2006-07 2007-08 2008-09Net Profit 8,36,94,336 -16,81,39,245 19,03,308Equity Shareholder Fund 27,90,25,501 29,55,76,552 31,28,21,350Return On Equity 30% -56.88.% 0.60%
Graph:4 Return On Equity
2006-072007-082008-09
Interpretation
In year 2006-07 Ratio on Equity is 30% And year 2007-08 was -56.88% and 2008-09 in the
Financial year Ratio On Equity is 0.60% ratio increased in 2008-09. Return on Equity means the
ratio in which the return is on only owned funds, equity funds. The higher ratio is the good
indicator where as low ratio is poor indicator.
15
4.Return On Total Cost(ROTA)
Table:5 Return On Total Cost(ROTA)
Particular 2006-07 2007-08 2008-09Net Profit (after tax) 8,36,94,336 -16,81,39,245 19,03,308Total Assets 1,16,67,63,954 1,06,29,72,213 1,20,50,99,557Return on Total Asset 7.17% -15.81% 0.157%
Graph:5 Return On Total Cost(ROTA)
2006-072007-082008-09
Interpretation
The ROTA means the ratio of Net Profit after tax to total asset. The higher the ratio good for the
company. The ROTA Figure gives investors an idea of how effectively the company is
converting the money it has to invest into net income.
FATR indicates how efficiently the fixed assets have been utilized. The ratio for the last 3 year is
1.99,1.57, & 2.08 for manufacturing concerns, this ratio is very important. The reason is that like
current assets , fixed assets are contributing quite substantially in making sales while low ratio
indicates that fixed assets are not being used efficiently.
19
8.Net Working Capital
Table:9 Net Working Capital
Particular 2006-07 2007-08 2008-09Cost Of Goods Sold 52,85,14,605 51,15,35,791 82,83,52,813Avg. Inventory 61,56,75,898 52,21,27,000 50,00,94,000Inventory Turnover Ratio 1.32 0.97 1.64
Graph:9 Inventory Turnover Ratio
2006-072007-082008-09
Interpretation
The Working capital turnover ratio is ratio in which the number of times working capital is turned around in particular period. The high ratio shows the better utilization of the working capital. In the above example the ratio is getting increase & hence Good indication of better utilization of working capital.
20
CHAPTER NO. 4 FINDING
This study has been taken up with main intention of analyzing the profitability and financial
soundness of A.S.S.K. The finding is result of analyzing the data of three years with respect to
the financial position operational efficiency and profitability of the company. The brief
description of the finding of the study is given below-
1. Gross Profit margin Ratio was very good sign. the comparison of last 3 yers this ratio are
changing. that ratio are not constant
2. The company is failed to maintain the margin of covering the administrative, selling and
distribution expenses.
3. This Net Profit indicates the overall performance & efficiency of company. From the above
calculation it seen that the efficiency & performance of the company is getting dampen.
4. If the Company wants to increase the efficiency & improve their performance then the
companies want to maintain its higher Net Profit rate.
5. ROE ratio indicates the higher ratio is the good indicator where as low ratio is poor indicator.
In the above figure the ratio continually failing down hence shows the poor performance.
6. ROTA ratio indicates the higher the ratio good for the company. In the above figure the ratio is getting reduce i.e. return on total asset is getting reduced and hence weakening the position of the company.
7. Capital employed turnover ratio has shown good result from last 3 years, increasing. ROCE
can be increased by one of the following way- increase profit margin, decrease in capital
employed. ROI can be improved by boosting sales, reducing invested capital or reducing
cost.
21
CHAPTER NO. 5 CONCLUSION
Working capital plays a key role in a business enterprise just as the role of heart in human body.
Working capital is acts as grease to run the wheel of fixed assets. Working capital effective
provision can ensure the success of a business while its inefficient management can lead not only
to loss but also to the ultimate downfall of business funds. Working capital relates in other
words,efficiency of business enterprise depends largely & it‘s ability to manage Working capital.
Working capital management is concerned with the problem that arises in attempting to manage
the current assets, the current liabilities and the inter-relationship that exists between them. The
term current assets refers to those assets which in the ordinary course of business can be
converted into cash with in one year without undergoing a diminution in value and without
disrupting the operations of the firm. Current liabilities are those liabilities which are intended, at
their inception, to be paid in the ordinary course of business, with in a year, out of the assets or
earnings of the concern.
1) Company’s solvency position is not good it shows that company has sufficient liquid assets.
2) Company’s turnover increased tremendously but company has concentrated on its cost of
goods sold because it affect on gross profit of the company.
3) High ratio shows that better utilization of the company its indicates Working Capital.
4) ROE is low, Ratio in Financial Year 2007-08,2008-09, it shows that poor performance of the
company.
5) The company’s liquidity position in terms current ratio & quick ratio has not been maintained at a
comfortable position. The current ratio in the period of 3 years is well below the normally
acceptable ratio 2:1.
6) The analysis of financial data reveals that the company has very sound position regarding
liquidity & solvency as shown by the current and quick ratio. The cash to current assets shows
decreasing trend shows the efficiency in operation
22
CHAPTER NO. 6 RECOMMENDATION
This Project is useful to understand the Working Capital of Financial Statement undertaken for
A.S.S.K.LTD. And others companies. This is useful in understanding all theoretical concept,
how they are practically implemented, also I studied the various types of ratios which are used
by the A.S.S.K. for analyzing its financial statements. Besides this I also find out the working
capital company.
1).So this project provided details of Ratio Analysis of financial statements, this project gives me
the practical knowledge of the concept. It gives me the information regarding the working of the
companies. This project is also useful for A.S.S.K. for the effectively implementation of the
working capital.
2).To recommend measures to improve performance and interpret Balance Sheet And Profit &
Loss Account of A.S.S.K. Ashoknagar for the year2008-09,2007-08,2006-07
3).Highlight the utility of financial ratios in determining the financial capability of the Firm.
4) This project is easy to understand and helpful to rectify or useful to make certain changes in
companies working capital
5) This Project analysis is useful to ASSK Ltd. for the decision making.
6) It can be seen from the study of this project that Ashok Sahakari Sakhar Karkhana Ltd; must
try to increase there inventory.
7) The growth in the liquidity ratio is not much than the previous years so management must
look to increase or try to increase their liquidity position
23
EXPENSES Sch. No. 31/03/2007 INCOME Sch. No. 31/03/2007
1.CANE PURCHASED & RELATED EXP.
1.VALUE OF SUGAR PRODUCTION (Exclusive Excise Duty)
5 622523964
A) Sugar cane purchase 333239121
B) Cane development Exps. 7089128.39
2.CANE PURCHASE TAX 9146856 2.VALUE OF BY PRODUCT SALES(Exclusive Excise Duty)
3.CANE HARVESTING &TRANSPORTEXPENSES
1 86725796
4.CANE SUPPLY & RELATED EXPS.
5451160.85
5.SALARY & WAGES 2 60346437 3.OTHER INCOME 25047892.58
6.STORES REPAIRS
A) Machinery Repairs 20561586.83
B) Process & Chemical Exps. 32204.5 4.PROFIT FROM BY PRODUCT UNIT
22110277.06
C) Packing Exps. 15156274.32
D) Other Stores(Chemical) 8196619.06
7.MANUFACTURING &S ELLING EXPX.
3 6707995.53 5.NET LOSS
8) ADMINISTRATIVE EXPS.
4
9) INTREST
A) On Long Term Loans 605969 TRANSFER TO BALANCE SHEET