FCI Report

Live Project

AStudy of Working

Capital Management ofFood Corporation of India

Faculty Guide: Company Guide: Dr.Bhunesh Vyas Mr. R.N.Mittal

Submitted By:

Rajesh [email protected]

08OSB622

[2009]

Omegan School of Business

A REPORT

ON

AStudy of Working

Capital Management ofFood Corporation of India

Submitted By:

Rajesh [email protected]

08OSB622

AT

FCI

Date: JUNE – 2009

Omegan School of Business

2

A REPORT ON

AStudy of Working

Capital Management ofFood Corporation of India

Submitted By:

Rajesh [email protected]

08OSB622A report submitted in partial fulfillment of the requirements of

MBA Program

Submitted to theDR.J.M.OVASDIPrincipalOmegan School of BusinessJAIPUR

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CERTIFICATE

This is to certify that the project work entitled “A Study of

WorkingCapital Management of FCI.”Is a piece of bonafide work done

by Anshuman, student of Omegan School Of Business, under my

guidance and supervision for the partial fulfillment of the course MBA, at

Omegan School of Business Jaipur.

To the best of my knowledge and belief the thesis embodies the work of

the candidate himself and has been duly completed.

Simultaneously, the thesis fulfills the requirements of the rules and

regulations related to the summer internship of the institute and I am

assured that the project is up- to the standard both in respect to the

contents and language for being referred to the examiner.

Dr.Bhun

esh Vyas

(Faculty

Guide)

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DECLARATION

I hereby declare that the project report entitled “A Study of Working

Capital Management of FCI.” Is the produce of my sincere effort. This

Summer Internship Project Report is being submitted by me alone, at

Omegan School of Business Jaipur, for the partial fulfillment of the

course MBA, and the report has not been submitted to any other

Educational institutions or for any other purpose whatsoever.

Rajesh Kumar (Student of OSB, Jaipur)

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ACKNOWLEDGEMENT

Writing this report happens to be one of the greatest achievements in this phase of my life. Express my heartiest thanks to those who provided me tremendous support and making it a useful first hand experience. I am indebted to those who helped me in one way or the other in heavy indeed. I take the opportunity to thank all of them. I am thankful to our Principal Dr. J.M.Ovasdi who gave us the excellent platform of doing something in management field and I would like to acknowledge my deep sense of gratitude to Mr.R.N.Mittal for his under guiding help and guidance at all stages.I am extremely thankful to my faculty guide Dr.Bhunesh Vyas for the sincere and enthusiastic support without which I would not have been able to write this report. I extend my gratitude to our soft skills madam Mrs.Nikita Deshpandey who encourages me for the summer training at FCI her excellent contribution and guidance in making this report more informative and of a respectable standard.I will be failing in my duty if I do not mention here the tremendous cooperation I received from Mr.K.Donney (Placement officer) and Miss. Vijeta Soni, in completion of this voluminous work in particular whose patience, support, encouragement, understanding and love helped to bring this effort to fruition.

RAJESH KUMAR Jaipur MBA (IIIrd SEM)

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Date: - 27 /06 /2009

PREFACE

The underlying aim of the summer training in FCI is a sincere attempt to analyze its Working Management by making use of different financial appraisal techniques. The data for the studies were obtained from the published annual reports of the company.Among all the problems of financial management, the problems of working capital management have probably been recognized as the most crucial one. It is because of the fact that working capital always helps a business concern to gain vitality and life strength. The objective of this study is to critically evaluate working capital management as practiced in FCI.

In this study, a sincere attempt has been made to analyze the working of FCI by making use of different financial appraisal techniques like ratio analysis, trend analysis, common-size analysis etc. The period of study was 3 year from 2005-06 to 2007-08. The data for the studies were obtained form the published annual reports of the company. An effort has been made to appraise the overall financial performance and efficiency of management, but the scope and depth of study remained limited due to the limiting factors of time, and resources. However, it is expected that the study will provide useful information for better and easier understanding of the financial results of the company. This study has been divided into six chapters. The first chapter has been devoted to the introduction and last to the summary of conclusion and suggestion. The second chapter deals with the objectives. Third chapter takes care of introduction to financial analysis. In addition to this fourth chapter deals with significance of working capital, whereas fifth chapter deals with the

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analysis aspects of working capital. The main source of data has been the annual reports of the company.

CONTENTS

1. Company Profile:-

2. Objective of the Project:-

3. Introduction to Financial analysis:-

4. Significance of the Working Capital:-

5. Analysis of Working Capital:-

6. Conclusion and Suggestions:-

References Glossary

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TABLE OF CONTENTS

Acknowledgments

Preface

AbstractChapterisation

1. Introduction

1.1 Overview- FCI................................... 12-24 1.2 Brief History..................................................... 15-18 1.3 Objectives......................................................... 18-20 1.4 Organization Structure .................................... 21-24

2. Objective of the Project

2.1 Research Methodology.................................. 25-28 2.2 Type of Research............................................ 28-29 2.3 Sample of design ........................................... 29-30

3. Introduction to Financial Analysis

3.1 Prelude........................................................ 31-32 3.2 Concept of Financial Statement ................ 32-33 3.3 Types of Financial Statement .................... 33-36

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3.4 Parties Interest............................................ 36-37 3.5 Financial Appraisal.................................... 37-40

4. Significance of the Working Capital

4.1 Introduction of Working Capital................ 41-424.2 Concept of Working Capital....................... 42-454.3 Importance of Working Capital analysis .. 45-47 4.4 Operating and cash conversion cycle......... 47-504.5 Methods and ratios .................................... 50-56

5. Analysis of Working Capital

5.1 Working capital analysis......................... 57-58 5.2 Working capital trend analysis............... 58-60 5.2 Ratio analysis.......................................... 60-68

6. Conclusion and Recommendations

6.1 Profitability…………………………… 69-71 6.2 Working Capital………………………. 71-72 References

Glossary

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11

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Food Corporation of India (Hindi: भा�रती�य खा�ग निगम) was setup on 14th January 1965 under

Food Corporation Act 1964 with authorised capital of almost $600 million to implement the

national policy for price support operations, procurement, storage, preservation, inter-state

movement and distribution operations.

It operates through 5 zonal offices and 26 regional offices. Each year, the Food Corporation

purchases roughly 15-20 per cent of India's wheat output and 12-15 per cent of its rice output. The

losses suffered by FCI are reimbursed by the Union government, to avoid capital erosion, and thus

declared as a subsidy in the annual budget. In 2007, such food subsidies were met by government

bonds worth almost $8 billion.

The Food Corporation of India was setup under the Food Corporation Act 1964, in order

to fulfill following objectives of the Food Policy :

Effective price support operations for safeguarding the interests of the

farmers.

Distribution of foodgrains throughout the country for public distribution

system

Maintaining satisfactory level  of operational  and buffer stocks of foodgrains

to ensure National Food Security

In its 45 years of service to the nation, FCI has played a significant role in India 's success

in transforming the crisis management oriented food security into a stable security

system. FCI's Objectives are:

To provide farmers remunerative prices

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To make food grains available at reasonable prices, particularly to vulnerable

section of the society

To maintain buffer stocks as measure of Food Security

To intervene in market for price stabilization

14

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ORGANIZATIONAL CHART

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Food Corporation of IndiaHeadquarters:New Delhi

Quality Control and Scientific Preservation

The Food Corporation of India has an extensive and scientific  stock preservation system. An on-going programme sees that both prophylactic and curative treatment is done  timely and adequately. Grain in storage is continuously scientifically graded, fumigated and aerated by qualified trained and experienced personnel.

Food Corporation of India's testing laboratories spread across the country for effective monitoring of quality of foodgrains providing quality assurance as per PFA leading improved satisfaction level in producers (farmers) and customers (consumers).

The preservation of foodgrain starts, the minute it arrives in the  godowns. The bags themselves are kept on wooden crates/poly pallets to avoid moisture on contact with the floor. Further till the bags are dispatched/issued, fumigation to prevent infestation etc. of stocks is done on an average every 15 days with MALATHION  and once in three months with DELTAMETHRIN etc. on traces of infestation, curative treatment is done with Al.  PHOSPHIDE.

FCI's testing laboratories

          District Labs 164           Regional Labs 18           Zonal Labs 5

          Central Lab 1

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spread across the country (188) ensure that the stored foodgr

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QUALITY POLICY

FCI, as the country�s nodal organization for implementing the National Food Policy, is committed to provide credible, customer focused services, for efficient and effective food security management in the country.  Our focus shall be:  

Professional excellence in Management of food grain and other commodities Service quality and stake holder orientation Transparency and accountability in transactions Optimum utilization  of resources Continual improvement of systems, processes and resources

.  

QUALITY OBJECTIVES

  Fulfillment of all the targets set as per Govt. of India Food Policy from time to time. 

  Monitoring of Quality in all major transactions, processes leading to improved customer satisfaction level

  Accountability for efficiency, responsiveness, performance and minimization of all losses & Wastes

  Need based up gradation of infrastructure and work environment   Need based enhancement of available knowledge & skills.   Transparency in decision making, effective communication leading to harmonious

employee relations   Establishing, maintaining and improving ISO 9001:2000 based Quality

Management Systems covering all areas of activity.

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DR.BHUNESH VYAS(Faculty Guide)

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OBJECTIVES

CONCEPTUAL :-( Financial Technique: Working Capital Ratios)

To prepare a report after analysis and interpretation of finding

from balance sheet as well as profit and loss account by applying various

mathematical and financial tools and techniques.

FACTUAL :-( Analysis of facts (results) derived from the financial technique

The present earning capacity or profitability of the FCI

Ltd

The short-term liquidity and long-term solvency.

The financial stability of a business.

To analyze different ratios so to judge the availability and

effective usage of working capital.

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RESEARCH METHODOLOGY

Research Methodology is a systematically solve the research problem. It has

many dimensions and research methods constitute a part of the research

methodology.

Thus when we talk about research methodology, we do not only talk of the

research methods but also consider the logic behind the methods. We use in

context of our research study, so that research results are capable of being

evaluated either by researcher himself or by others.

To effectively carry out in research, I would use the following research

process, which consists of series of actions or steps.

Research comprises of the following steps:-

1. Formulating the research Problem.

2. Research design & Sample Design.

3. Analysis of data gathered

4. Data analysis comparison

5. Graphics and interpret

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1 FORMULATING THE RESEARCH PROBLEM

This is the first step under which the problem is stated in general way and then

ambiguities i.e. understanding and rephrasing the problem thoroughly and

rephrasing the same into a meaningful terms from an analysis point of view.

The research problem under the present project was to study data of various

funds. For this research process was to be formulated and the execution of

which would result in the desired data.

2. PREPARING THE RESEARCH DESIGN

The function of research design is to provide for the collection of relevant

evidences with minimal expenditure of efforts, time and money.

Research Design

Type of research

Sample design

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TYPE OF RESEARCH

The type of research under present is an analytical research. In analytical

research; we use tact's or information already available, and analyze these to

make a critical evaluation of the material. Hence the same would be done.

In this project I had collected facts, data, and information.

SAMPLE DESIGN

A sample design is a definite plan determined before any data is actually collected for obtaining a sample. Researcher must select a sample design, which should be reliable and appropriate for his report.

3. OBSERVATIONAL DESIGN (COLLECTION OF

DATA)

Observational design relates to the condition under which the observations are to be made. Observational design in respect to research. There are several ways of collecting the appropriate data, which differ considerably in context of money, time cost and other resources at the disposal of the researcher.

Data can be obtained from two important sources:

Primary data

Secondary Data

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Primary data

Primary data are the data that are collected afresh and for the first time. Thus happens to be in character. Primary data are collected by the following ways:-

a) Observation

b) Interview

c) Schedule

d) Questionnaire

Secondary Data

Secondary data are the data that are already collected and are only analyzed by different sources these sources are as follows:-

Corporate magazine

Manuals of various companies

Books, journals, newspaper

Employment exchange

The secondary data would be collected from financial statement, journal of national repute, books of national and international author as well as the annual report of the company. In addition to this internet access will make the study more effective and meaningful.

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Introduction to financial analysis

FININACIAL ANALYSIS

PRELUDE:-

Financial accounting involves recording transaction and preparing

report and financial statement that can be used by management, owners,

creditor, government agencies and other to understand what is happening in the

business or nonprofit organization. “Accounting” is the process of identifying,

measuring and communicating economic information to permit informed

judgment and decision by users of the information.

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CONCEPT OF FINANCIAL STATEMENTS

Financial statement are major means employed by firm to

present their financial situation to stock holders creditors and the public a

financial statement is a collection of data organized accounting to logical and

consistent accounting procedure. Its purpose is to convey an understanding of

some financial aspects of a business firm. The and product of financial

accounting is financial statement consisting of the balance sheet, profit and

loss accounting and statement changes in financial position.

Financial statements are major means employed by a firm to

present their financial situation to stock holders, creditors and the general

public. Accounting reports on the result of operation and the current status of a

business enterprise by a financial statement. The balance sheet and income and

statement. Since the balance sheet and income statement are of limited interest

the annual report of the company are supplemented by a third statement the

change in financial position and by foot notes which explain and amplify the

reported numerical data.

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TYPES OF FINANCIAL STATEMENTS

(A) The Balance Sheet:-

The balance sheet is called a fundamental accounting

report. It provides information about the financial standing or position of

affirm at given instant. The balance sheet can be visualized, as a snapshot of

the financial status of company is a valid for only one day the reference day.

The position of the firm on a preceding day is bound to be different.

“The balance sheet of a company indicates to

management the financial status of a company as on a given moment. From an

analyst point of view a balance sheet is written representation of the resources

and liabilities of an individual partnership firm an association of a

corporation.”

The contents of balance sheet can be divided into three divisions

*Assets: - Assets are valuable resources owned by a business, which are

acquired at a measurable money cost these are economic resources of a firm

which provide economic benefits to the company.

Liabilities:- Liabilities are claim of creditors against the enterprises arising

out of past activities that are to be satisfied by the disbursement of utilization

of corporate resources. They are economic obligation of the firm.

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*Owner’s equity:- The owner’s equity is the owner’s current investment in the

assets of company.

The entire system of recording business transaction is based on

accounting equation. The accounting equation is an accounting formula

expressing equivalence of the two expressions of assets and liabilities.

ACCOUNTING EQUATION

(B) The Income Statement:- The balance sheet, as discussed above, is considered a very significant statement from the view point of bankers, and other lenders, because it indicates the firm’s financial position and strength, as measured by its recourses and obligations, however, editors and financial analysis have recently started paying more attention to the firm’s capacity as a measure of its financial strength. Its income statement revels the firm’s capacity as a measure of its financial strength. Its income statement revels the earning potential of the firm.

ASSETS = LIABILITIES + OWNER’S EQUITY

OR

OWNERS EQUITY = ASSETS - LIBILITIES

OR

LIBILITIES = ASSETS - OWNER’S EQUITY

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An income statement is a financial statement summarizing the result of a company’s income (profit) making activities for a specific time period. It summarizes revenues and expenses in a manner that discloses whether a company’s activates in a particular fiscal period have resulted in profit or a loss. The income statement is a scoreboard of the firm’s performance during a particular period of time. “The profit and loss account is the condensed and classified record of the gains losses posing change in the owner’s interest in the business for a period of time.”The income statement or the profit and loss account presents the summary of revenues, expenses and net income (or net loss) of a firm for a period of time. Thus, it serves as measure of the firm’s profit ability. It’s systematic array of the data of the revenues, revenues deduction (expenses, revenues, revenue deductions, expenses, losses, taxes etc.) Net income and distribution or assignment of the net income to creditors and property investors of a particular period.

(C)STATEMENT OF CHANGE IN FINANCIAL POSITION

Until 1960, the income statement and the balance sheet constituted the major financial statement. However, management traditionally made use of a wide variety of statement and reports in apprising internal company performance. One popular report for management’s internal use was called the statement of changes in final position. From such a report, management could extract valuable information about where working capital and cash come from and how they were used. If these past events could be projected in future, management would have a useful tool for budgeting. Today, the statement of changes of financial position represents third financial position represents a third financial statement.

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PARTIES INTERESTED

According to the American institute of certified public accountants, financial statement reflects, a combination a recorded facts, accounting convention and personal judgments and the judgments and conventions applied, affect them materially.

Following are interested in financial statement:-

Credit, suppliers and others are having business with the company.

Debenture holders.

Credit institutions and banks.

Potential lenders and investors.

Trade unions and employees.

Important customers wishing to make a long standing with the company.

Economist and analyst.

Members of parliament, the public committee in respect in government

companies.

Taxation authorities.

Other departments dealing with the industry in which the company

engaged cooperative.

The company law board.

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FINANCIAL APPRAISAL

A company’s financial statement are intended to summarize the results of its operation and its ending financial condition. The information in the statement is studied and related to other information by external users for several reasons. Current shareholders, for example, are concerned about there invested income, as well as the company’s overall profitability and stability. Some potential investors are invested in “solid” companies that are companies whose financial statement indicate stable earnings and dividends with little growth in operations. Other prefers companies whose financial statement indicate rend for rapid growth in a company’s short run solvency, its ability to pay current obligation as they become due. Long-term creditors are concerned about the safety of their interest; income and company’s ability to continue earning cash flow to meet its financial commitments and these are only few of the users, and uses of financial statements.

But the numerical data in the financial statement are quit calm. They cannot speak. Analytical data are not ending in themselves, but they are meant to an end. Financial appraisal is an attempt to determine the significance, and meaning of the financial statement data so that forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities both current as well as long term profitability of a sound dividend policy. Financial appraisal involves the assessment of firm’s past, present and anticipated future financial condition. Financial appraisal is a scientific evaluation if the profitability and financial strength of a business concern. In fact financial appraisal and analysis of financial statement have nearly the same meaning. Financial statement analysis is used for the purpose of financial appraisal. Financial appraisal is the process of making a scientific proper, critical and comparative evaluation of the profitability and financial health of given concern through the application of

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financial statement analysis. Financial statement analysis is a preliminary step towards the evaluation of result dawn by the analysis or management accountant. Appraisal or evaluation of such results is made thereafter. Financial appraisal begins where financial analysis ends, and financial analysis starts where the summarization of financial data in the form of profit and loss account and balance sheet ends, in the words of Kenney and mecmillan, “financial statement analysis attempts to unveil the meaning and significance of the items composed in profit and loss account and balance sheet so as to assist the management in the formation of sound operating financial policies. The appraisal or analysis of financial statement spotlights the significant facts and relationship concerning managerial performance, corporate efficiency, financial strength or weakness and credit worthiness, that would have otherwise been buries in the maze of details.”

The technique of financial appraisals frequently applied to the study of accounting data with a view to determining continuity or discontinuity of the operating policies and investment value of business. Everybody interested in the affairs of the company is interested in finding answer to the following searching question:-

A. Does the company earn adequate profit?

B. Does the company process enough funds to meet its obligation as and when they mature?

C. Is investment in the company safe?

Appraisal of financial statement alone can answer such queries. Its true that statement analysis merely reveals what has taken place in the past, but past events given some indication of what may be expected in future unless some drastic changes take place in business it. Will continue to move in the same direction in the past.

Roy .A. Faulke is very correct to say “if a train is moving forward at a known rate of speed, it is reasonable to assume that it will continue to move at

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approximately the same rate unless some obstacle interrupts its progress abruptly or the motive power is increased or decreased.” Similarly it is a reasonable to assume that unless some realistic change take places in the places in the business, it will continue to move in the same general direction as indicated by its comparative trends.

NEED OF FINANCIAL APPRAISAL

The need of financial appraisal varies accounting to type of users. For management is servers as mean s of “self evaluation as it is like a report of its managerial skill and competence a banker can judge the liquidity position a creditor can plan buying and selling of hares of concern on the basis of safety of principal and its capital appearances as wanted by the past record of earning. A debenture holder of a concern can ascertain whether income is generates sufficient margin to pay the interest / answers to different question are provided by financial appraisal. By using this technique an economist can study the extent of “concentration of economic power” and pitfalls in the financial policies pursued, while a planner can ascertain if the patter of investment reveals the company’s position in relation to labor and its welfare, legislation concerning licensing desirable in the socio economic interested may be based on statement analysis.

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SIGNIFICANCE OF WORKIG CAPITAL

Introduction:-

The management of current assets is similar to that of

fixed assets in the sense that in both case that a firm analyses their effects on

its return and risk. The management of fixed and current assets, however,

differs in three important ways: first, in managing fixed assets, time is a very

important factor; consequently, discounting and compounding techniques play

a significant role in capital budgeting and a minor one in the management of

current assets. Second, the large holding of current assets, especially cash,

strenghthens the firm’s liquidity position (and reduces riskiness), but also

reduces the overall profitability. Thus a risk-return trade off is involved in

holding current assets. Third, levels of fixed as well as current assets depend

upon expected sales, but it is only current assets which can be adjusted with

sales fluctuations in the short run. Thus, the firm has a greater degree of

flexibility in managing currents.

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CONCEPTS OF WORKING CAPITAL

Gross working capital:- Gross working capital refers to the firm’s investment in current assets are the assets which can be converted into cash within an accounting year and include cash , short-term securities, debtors,(accounts receivable or book debts) bills receivable and stock (inventory).

Net Working Capital:- It’s refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payments within an accounting year and include creditors (account payable) , bills payable ,and outstanding expenses . Net Working Capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities .a negative net working capital occurs when current liabilities are in excess of current assets.

PERMANENT WORKING CAPITAL:- We know that the need of current assets arises because of the operating cycle. The operating cycle is a continuous process and, there for, the need for current assets is felt constantly. But the magnitude of current assets needed is not always the same; it increases and decreases over time. However there is always a minimum level of current assets which is continuously required by a firm to carry on its business operations. Permanent or fixed, working capital is the minimum level of

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current assets. it is permanent in the same way as the firm’s fixed assets are. Depending upon the changes in production and sales, the need for working capital, over and above permanent working capital, will fluctuate. For example extra inventory of finished goods will have to be minted to support the peak period of sale, and investment in debtors (receivable) may also increase during such periods. On the other hand, investment in raw material, work in process and finished goods will fall if the market is slack.

VARIABLE OR FLUCTUATING WORKING CAPITAL:-

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Amount of working capital (Rs)

Temporary or Fluctuating

Time

Variable or fluctuating working capital the extra working capital needed to support the changing production and sales activities of the firm. Both kinds of working capital –permanent or fluctuating (temporary)-are necessary-to facilitate production and sales through the operating cycle. But the firm to meet liquidity requirements that will last only temporary working capital. In figure illustrates differences between permanent and temporary working capital. It is shown that permanent working capital is stable over time, while temporary working capital is fluctuating – some times increasing and sometimes decreasing. However, the permanent working capital need not be horizontal if the firm’s requirement for permanent capital is increasing (or decreasing) over a period

FOCUSING ON MANAGEMENT OF CURRENT ASSETS

The gross working capital concept focuses attention on two aspects of current assets management:

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Amount of working capital (Rs)

Temporary or Fluctuating

Permanent

Time

1. How to optimize investment in current assets?2. How should current assets be financed?

The consideration of the level of investment in current assets should avoid two danger points- excessive or inadequate investment in current assets. Investment in current assets should be just adequate to the needs of the business firm. Excessive investment in current assets should be avoided because it impairs the firm’s profitability, as idle investment earns nothing. On the other hand, inadequate amount of working capital can threaten solvency of the firms because of its inability to meet its current obligations. It should be released that the working capital needs of the firm may be fluctuating with changing business activity. This may cause excess or shortage of working capital frequently. The management should be prompt to initiate an action and correct imbalances. Another aspect of the gross working capital point to the need of arranging funds to finance current assets. Whenever a need for working capital funds arises due to the increasing level of business activity or for any other reason. Financing arrangement should be made quickly. Similarly, if suddenly, some surplus funds arise they should not be allowed to remain idle, but should be invested in short- term securities. Thus, the financial manager should have knowledge of the sources of working capital funds as well as investment avenues where idle funds may be temporarily invested.

FOCUSING ON LIQUIDITY MANAGEMENT

Net working capital is a qualitative concept. it indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a business. In order to protect their interests, short term creditors always like a company to maintain current assets at a higher level than current liabilities. It is a conventional rule to maintain the level of current assets twice the level of

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current liabilities. However, the quality of current assets should be considered in determining the level of current assets vis – a – vis current liabilities. A weak liquidity position poses a threat to the solvency of the company and makes it unsafe and unsound. A negative working capital means a negative liquidity, and may prove to be harmful for the company’s reputation excessive liquidity is also bad. it may be due to mismanagement of current assets. There for, prompt and timely action should be taken by management to improve and correct the imbalances in the liquidity position of the firm.Networking capital concept also covers the equation of judicious mix of long term and short term funds for financing current assets. For every firm, there is a minimum amount of net working capital which is permanent. Therefore, a portion of the working capital should be financed with the permanent sources of funds such as equity share capital, debentures, long term debt, performance share capital or retained earnings. Management must, therefore, decide the extent to which current assets should be financed with equity capital and/or borrowed capital.In summary, it may be emphasized that both gross and net concepts of working capital are equally important for the efficient management of working capital. There is no precise way to determine the exact amount of gross or net working capital for any firm. The data and problems of each company should be analyzed to determine the amount of working capital. There is no specific rule as to how current assets should be financed. It is not feasible in practice to finance current assets by short – term sources only. Keeping in view the constraints of the individual company, a judicious mix of long and short term finances should be invested in current assets. Since current assets involve cost of funds, they should be put to productive use.

OPERATING AND CASH CONVERSION CYCLE

The need for working capital to run the day-to-day business activities cannot be overemphasized. We will hardily find a business firm which does not require any

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amount of working capital. Indeed, firms differ in their requirement of the working capital.We know that a firm should aim at maximizing the wealth of its shareholders. In its Endeavour to do so, a firm should earn sufficient return from its operations. Earning a steady amount of profit requires successful sells activities. The firm has to invest enough funds in current assets for generating sales. Currents assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into case. There is a difference between current and fixed assets in terms of their liquidity. A firm requires many years to recover the initial investment in fixed assets such as plant and machinery or land and building. On the contrary, investment in current assets such as inventories and debtors [account receivable] is realized during the firm’s operating cycle that is usually less than a year. What is an operating cycle?Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of a manufacturing company involve three phases:

Acquisition of resources such as raw material, labor, power and fuel etc. Manufacture of the product which includes conversion of raw material

into work-in-progress into finished goods. Sales of the products either for cash or on credit. Credit sales create

account receivable for collection.These phases affect cash flows, which most of the time, are neither synchronized because cash outflows usually occur before cash inflows. Cash inflows are not certain because sales and collections which give rise to cash inflows are difficult to forecast accurately. Cash outflows, on the other hand, are relatively certain. The firm is, therefore, required to invest in current assets for a smooth, uninterrupted functioning. It needs to maintain liquidity to purchase raw materials and pay expenses such as wages and salaries, other manufacturing, administrative and selling expenses and taxes are there is hardly a matching between cash inflows and outflow. Cash is also held to meet to any future exigencies. Stocks of raw material and work –in- process are kept to ensure smooth production and to guard against non-availability of raw materials of other components. The firms hold stock of finished goods to meet the demand of customers on continuous basis and sudden demand from some

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customers. Debtors (Accounts Receivable) are created because goods are sold on credit for marketing and competitive reasons.

Purchase Payment Credit Sale Collection RMCP+WIPCP+FGCP

Inventory convention period Receivable conversion price

Gross operation cycle

Payable Net operating cycle

Operating Cycle of a manufacturing firm

Thus, a firm makes adequate investment in inventories, and debtors, for smooth, uninterrupted production and sale. How is the length of operating cycle determined? The length operating cycle of a manufacturing firm is the sum of (i) inventory conversion period (ICP) and (ii) debtors (Receivable) conversion period (DCP). The inventory conversion period is the total time needed for producing and selling the product. Typically, it includes: (a) raw material conversion period (rmcp) ,(b)work-in-process conversion period (WIPCP), and (c) finished goods conversion period (FGCP). The debtors’ conversion period is the time required to collect the outstanding amount from the customers. The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle (GOC).In practice, a firm may acquire resources ( such as raw material) on credit and temporarily postpone payment of certain expenses. Payables, which the firm can defer, are spontaneous sources of capital to finance investment in current assets,. The creditors (Payables) deferral period (CDP) is the length of time the firm is able to defer payments on various resource purchases. The difference between (gross) operating cycle and payables deferral period is net operating cycle (NOC). if depreciation is excluded from expenses in the computation of operating cycle, the net operating cycle also represents the cash conversion cycle(CCC).it is net time interval between cash collections sale of the product and cash payments fore resources acquired by the firm. It also represents the

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time interval over which additional funds, called working capital, should be obtained in order to carry out firm’s operations. The firm has to negotiate working capital from sources such as commercial banks. The negotiated sources of working capital financing are called non-spontaneous sources. If net operating cycle of a firm increases, it means further need for negotiated working capital.Let us illustrate the computation of the length of operating cycle. Consider the statement of cost of sales for a firm given in below-

Statement of Cost of Sales ( Rs in lakh)

ITEM ACTUAL 20X1 PROJECTED 20X2

1 Purchase of raw material X1 X.2 Opening raw material inventory X2 ..3 Closeing raw material inventory X3 ..4 Raw material consumed (1+2-3) X4 X.5 Direct labour X5 X.6 Depriciation X.. X.7 Other mfg. expences X… X.8 Total cost (4+5+6+7) .. X.9 Opening work-in-process inventory X.. X.10 Closing work-in-process inventory … X. 11 Cost of production (8+9-10) .. X.12 Opening finished goods inventory .. X.13 Closing finished goods inventory .. X.14 Cost of goods sold (11+12-13) .. X. 15 Selling administrtive and gen expences .. X.16 cost of sales (14+15) .. X.

The firm's data for sales and debtors and creditors are given below

Sales and Debtors (Rs in lakh)

ITEM ACTUAL 20X1 PROJECTED 20X2

Sales (Credit) X YOpening balance of debtors X. Y.Closing balance of debtors .. ..

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opening balance of creditors .. ..closing balance of creditors X. ..

Gross operating cycle (GOC) The firm’s gross operating cycle (GOC) can be determined as inventory conversion period (ICP) plus debtors conversion period (DCP).Thus, GOC is given as follows:

Gross operating = Inventory+

Debtors

Conversion period Conversion period

GOC = ICP + DCP …….. (1)

Inventory conversion period What determines the inventory conversion period? The inventory conversion (ICP) is the sum of raw material conversion period (RMCP), work-in-process conversion period (WIPCP) and finished goods conversion period (FGCP):

ICP = RMCP +WIPCP +FGCP ……(2)

Raw material conversion period (RMCP):- The raw material conversion period (RMCP) is the average time period taken to convert material in to work-in-process. RMCP depends pm: (a) raw material consumption per day, and (b) raw material inventory. Raw material consumption per day is given by the number of days in the year (say, 360). The raw material conversion period is obtained when raw material inventory is divided by raw material consumption per day. Similar calculations can be made for other inventories, debtors and creditors. The following formula can be used:

Raw material Raw material Inventory

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Conversion = Period [ Rawmaterial

consumption]/360

RMC RMC*360 RMCP = RMI ÷ = ……(3)

360 RMC

Work-in-process conversion period (WIPCP):- Work-in-process conversion period (WIPCP) is the average time taken to complete the semi-finished or work-in-process. It is given by the following formula:

Work-in-process

Work-in-process Inventory Conversion = Period [Cost of production]/360

COP WIPI *360 WIPCP = WIPI ÷ = ……..(4)

360 COP

Finished goods conversion period (FGCP):- Finished goods conversion period (FGCP) is the average time taken to sell the finished goods. FGCP can be calculated as follows:

Finished goods Finished goods Inventory Conversion =

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Period [Cost of goods sold]/360

CGI FGI*360 FGCP = FGI ÷ = ……..(5) 360 CGS

Debtors (receivable) conversion period (DCP) Debtors conversion period (DCP) is the average time taken to convert debtors into cash. DCP represent the average collection period. It is calculated as follows:

Debtors Debtor Debtors*360 Conversion = = …(6) Period (DCP) Creditor sales/360 Creditor sales

Creditors (payables) deferral period (CDP) Creditors (payables) deferral period (CDP) is the average time taken by the firm in paying its suppliers (creditors). CDP is given as follows:

Creditors Creditors Credit*360 Deferral = = …(7) Period Credit purchases/360 Credit purchases

Cash Conversion or Net Operating Cycle Net operating cycle (NOC) is the difference between gross operating cycle and payables deferral period.

Gross Creditors Net operating = Operating = deferral Cycle Cycle period

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NOC = GOC - CDP …… (8)

Net operating cycle is also referred to as cash conversion cycle. Some people argue that depreciation and profit should be excluded in the computation of cash conversion cycle since the firm’s concern is with cash flow associated with conversion at contrary view is that a firm has to ultimately recover total costs should include depreciation, and even the profits. Also, in using the above-mentioned formulae, average figures for the period may be used. For example, Table shows detained calculations of the components of a firm’s operating cycle. Table provides the summary of calculations.During 20X1 the daily raw material consumption was Rs 12.1 lakh and the company held an ending raw material inventory of Rs827 lakh. If we assume that this is the average inventory held by the company, the raw material consumption the projected raw material conversion period is 60 days. This has happened because both consumption (Rs 16.5 lakh per day) and level of inventory (Rs 986 lakh) have increased, but the consumption rate has increased) by 36.4 percent). Thus, the raw material conversion period has declined by 8 days. Raw materials are the result of daily raw material consumption and total raw material consumption and total raw material consumption and total raw material consumption during a period given the company’s production targets. Thus, raw material inventory is controlled through control over purchases and production. We can similarly interpret other calculations in table below

Table:-Operating Cycle Calculation (Hypothetical Example)

( Rs. In lakh)

ItemActual 19X1

Projected 19X2   

1 Raw Materials Conversion Period(a) Raw material consumption 4,349 5,932

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(b) Raw material consumption per day 12.1 16.5(c) raw material inventory 827 986

(d) Raw material inventory holding days 68d 60d

2 Work-in-process Conversion Period(a)cost of production* 5,212 7,051(b)cost of production per day 14.5 19.6(c)work-in-process inventory 325 498(d) Work-in-process inventory holding days 22d 25d

3 Finished Goods Conversion Period(a) Cost of goods sold* 5,003 6,582(b) Cost of goods sold per day 13.9 18.3(c) Finished goods inventory 526 995(d)Finished goods inventory holding days

38d 54d

4 Collection period(a) Credit sales (at cost)** 6,087 8,006(b) sales per day 16.9 22.2(c) debtor 735 1,040

(d) debtors outstanding days 43d 47d

5 Creditors Deferral Period(a) Credit purchases 4,653 6,091(b) purchase per day 12.9 16.9(c) creditors 454 642

  (d) Creditors outstanding day 35d   38d

*Depreciation is including. **All sales are assumed on credit.

Table :-Summery of Operating Cycle Calculations(Number of Days)  

Actual Projected     GROSS OPERATING CYCLE

1 Inventory Conversion Period(i) Raw material 68 60(ii) Work- in- process 22 25(iii) Finished goods 38 128 54 139

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2 Debtors Conversion Period 43 473 Gross operating cycle (1 + 2) 171 1864 Payment Deferral period 35 38  NET OPERAING CYCLE (3-4)   136   148

We note a significant change in the company’s policy for 20X2 with regard to finished goods inventory. It is expected to increase to 54 days holding from 38 days in the previous year. One reason could be a conscious policy decision to avoid stock out situations and carry more finished goods inventory to expand sales. But this policy has a cost; the company, in the absence of a significant increase in payables (creditors) deferral period, will have to negotiate higher working capital funds, In the case of the firm in our example, its net operating cycle is expected to increase from 136 days to 148 days How does a company manage its inventories, debtors and suppliers’ credit? How can it reduce its operating cycle? The operating cycle concept as shown in Figure relates to a manufacturing firm. Non-manufacturing firms such as wholesalers and retailers will not have the manufacturing phase. They will acquire stock of finished goods and convert them into debtors (receivable) and debtors into cash. Further, service and financial enterprises will not have inventory of goods (cash will be their inventory). Their operating cycles will be the shortest. They need to acquire cash, then lend (create debtors) and again convert lending into cash.

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ANALYSIS OF WORKING CAPITAL

Analysis of working capital is an essential part of financial

management. If there is an adequate amount of working capital and it is

utilized in the right manner, it is a great achievement for the business. The

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excess of working capital causes financial stringency and brings the business to

a standstill.

Realizing the impotence of working capital in financial management the

analysis of working capital becomes an essential phenomenon. It facilitates the

adequacy and management of working capital. The management of working

capital provides a careful inquiry into its components so as to control the

working capital and to conserve it properly. It helps in determining the

optimum level of working capital in the firm. The process of measurement and

analysis of working capital is performed on the basis of financial statements of

the business enterprise for past few years.

In the present study the analysis of working capital of FCI ltd. Has been made

by two techniques vis., trend analysis and ratio analysis.

WORKING CAPITAL TREND ANALYSIS

The working capital trend analysis represents a picture of variation in current assets, current liabilities and working capital over a period of time. Such an analysis enables us to study upward and downward trend in current liabilities and its effect on the working capital position. The trend analysis is a tool of financial appraisal where the changes in the factors are compared with the base year assuming the base year as 100.

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In the present study a statement – showing trend of working capital as well as its structure has been made. It is it scientific and important study because each component of working capital has got the relationship of causes and effects. Following table below shows the structure and trend of working capital of FCI ltd.during the period under review.

STRUCTURE AND TREND OF WORKING CAPITAL OF FCI 2005 TO2008

PERTICULAR 2005-2006 2006-2007 2007-2008CURRENT ASSETS      CASH 322389.24 855819.51 836439.2BANK 18632795.88 35936348.16 27218462.16LOAN AND ADVANCES 71220809.88 84836477.65 77115112.92DEBTORS 300805197.7 311027760.6 356580000.4STOCK 377580243.7 427327384.8 465048573.5TOTAL (A) 768561436.4 859983790.7 926798588.2CURRENT LIABILITIES      CURRENT LIABILITIES AND PROVISIONS

526439722 512950750.7 442009648.8

TOTAL (B) 526439722 512950750.7 442009648.8NET WORKING CAPITAL (A-B)

242121714.4 347033040 484788939.4

Inference Current Assets increase to 20.59% in the year of 2007-2008 as

Compare to in the year 2005-2006.

Current Liabilities in the year 2007-2008 got decreased by 16.04%As compared to the year 2005-2006.

In the year 2006-2007 the growth in working capital was 43.33%

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As compare to the year 2005-2006 similarly working capital in the year 2007-2008 has grown to 100.03% as compared to the working capital in the year 2005-2006

The analysis shows the effective and efficient management of working capital by the FCI.

RATIO ANALYSIS OF WORKING CAPITAL

Trend analysis shows the trend of current assets, current liabilities and working capital only. It do not interpret the contribution of each item of working capital in the trend, whereas, it can be done easily by ratio analysis. The ratio analysis of working capital can be used by management as a means of checking upon the efficiency in working capital management of the company. Following ratio haven used to analysis and interpret working capital of FCI ltd.

Current ratio

Quick ratio

Absolute ratio

Stock or inventory ratio

Working capital turnover ratio

CURRENTRATIO

Current ratio is one of the important ratios used in testing liquidity of a concern. this is a good measure of the ability of company to maintain solvency over a short run. This is computed by dividing the total current assets by the total current liabilities and is expressed as:

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The current assets of a firm represent those assets, which can be in the ordinary course of business, converted into cash within one accounting year. The current liabilities are defines as obligation maturing within a short period (usually one accounting year). Excess of current assets over current liabilities is known as working capital and since these two (current assets and current liabilities) are used in current ratio therefore, this ratio is also known as working capital ratio.

With the help of this ratio the analyst can review the extent to which the company can covert such liabilities with current assets. The current ratio gives the analyst a general picture of the adequacy of the working capital of a company and ability of the company to meet its day-to-day payment obligation. “it likewise measures the margin of safety provided for paying current debts in the event of a reduction in the values of current assets.”

The current ratio is very useful as a measure of short terms debt prying ability but it is tricky to interpret this ratio. Experts are of the view that the value of current assets should be at least double the amount if current liabilities.

Walker and Bough have the same view when they ay “a good current ratio may mean a good umbrella for creditors against the rainy days.”But to the management it reflects bad financial planning or presence of idle assets or over capitalization”

IDLE CURRENT RATIO: 2:1

If this ratio is higher than standards than it is assumed Very good short –term liquidity/solvency. Excess stocks, bad debts and idle cash. Under trading

If this ratio is lower than standards than it is assumed

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Unsatisfactory short-term liquidity. Shortage of stocks, less credit sales, shortage of cash. Over trading

CURRENT RATIO OF FCI DURING 2005 TO 2008

YEARCURRENT

ASSETSCURRENT

LIABILITIESCURRENT RATIO

(A) (B) (C) (B)/(C)

2005-2006 768561436.4 526439722 1.46

2006-2007 859983790.7 512950750.7 1.68

2007-2008 926798588.2 442009648.8 2.01

INFERENCE:-

This table reveals that current ratio has increased that is making improvements in its short term solvency. It is because of increase in current assets as compared to current liabilities. Still this is lower than standard current assets ratio that shows a little bit unsatisfactory liquidity position of the company.The Current Ratio for the year 2007-2008 has taken the Value of 2.01:1, which is very satisfactory and as per the standard required (2:1).The current ratio of 2.01:1 indicates, that for every Rs 1 of current liability the company Rs 2 of current assets, which indicates more liquidity and hence more amount of working capital.

QUICK RATIO

The solvency of a company is batter indicated by quick Rato.the fundamental this Ratio is to enable the financial management of a company to ascertain that would happen If current creditors press for immediate payment and either notPossible to push up the sales of closing or it id sold, a heavy loss is likely to be suffered. This problem arises because closing stock is two steps away from the cash and their price more or less uncertain according to market demand.

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The term quick assets include all current assets except inventories and prepaid expenses. It shows the relationship of quick assets and current liabilities. The Ratio is calculated as following:

An indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company.Also known as the "acid-test ratio" or the "quick assets ratio". 

IDLE

QUICK RATIO 1:1

INFERENCE:-

QUICK RATIO OF FCI. DURING 2005 TO 2008

YEARQUICK ASSETS

CURRENT LIABILITIES QUICK RATIO

(A) (B) (C) (B)/(C)2005-2006 390981192.7 526439722 0.742006-2007 432656405.9 512950750.7 0.842007-2008 461750014.7 442009648.8 1.04

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Although it is less idle ratio still it has increasing trend that shows dairy’s improving condition of short term solvency of FCI.Quick ratio for the year 2007-08 is above the ideal standard. It is 1.04:1, which indicates that for every Re1 of current liability the company has Rs 1.04 of current assets, hence the company is in sound position in terms of working capital position.

ABSOLUTE LIQUDITY RATIO

The absolute liquid ratio between absolute liquid assets and current liabilities is calculated by dividing the liquid assets and current liabilities. Expressed in formula, the ratio is:

Cash + Marketable Securities= Absolute Liquidity Ratio

Current Liabilities

The term liquid assets include cash bank balance and marketable securities, if current liabilities are to pay at once, only balance of Cash and marketable securities will be utilized. Therefore, to measure the absolute liquidity of a business, this ratio is calculated.

IDLE RATIO: 0.5: 1

The idea behind the norm id that if all creditors for demand for payment, at least 50% of their claim should be satisfied at once.The table shown on the next page reflects the absolute liquidity ratio FCI Ltd.

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ABSOLUTE LIQUIDITY RATIO OF FCI DURING 2005 TO 2008

YEARABSOLUTE

LIQUID ASSETSCURRENT

LIABILITIESABSOLUTE

RATIO(A) (B) (C) (B)/(C)

2005-2006 18955185.12 526439722 0.042006-2007 36792167.67 512950750.7 0.072007-2008 28054901.36 442009648.8 0.06

INFERENCE

This ratio is very below from idle ratio. It is making insecure creditors claim but it is getting increasing trend. It is needed to maintain this trend.Ratios for all the above mentioned years right from 2005 up to 2008 are close to the standard. For year 2007-08, the ratio is well above the standard, which indicates the healthy picture of the company in terms of availability of working capital (quick assets) in order to meet current liabilities.

INVENTORY TURNOVER RATIO

Every firm has to maintain a certain level of inventory of finished good so as to be able to meet the requirements of the business. But the level of inventory should neither to be high not to be low. It to high inventory means higher carrying cost and higher risk of stocks becoming obsolete whereas to low inventory may mean the loss of business opportunities. it is very essential to keep sufficient stock in business . it is express in number of time . Stock turnover ratio or inventory turn over ratio indicates the no. of times the stock has been turned over during the period and evaluates the efficiency with which a firm a able to manage its inventory. This ratio indicates whether investment in stock is with in proper limit or not.

HIGHER RATIO INDICATES:-

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Stock is sold out fast. Same volume of sales from less stock or more sales from

Same stock Too high ratio shows stock outs or over trading. Less working capital requirement.

LOWER RATIO REVEALS:-

Stock a sold out at a slow speed. Same volume of sale for more stock or less sale from same stock. More working capital requirement. Too low ratio show obsolete stock or under trading.

Formula of stock turn over ratio:-

The ration is calculated by dividing the cost of goods sold by the amount of average stock at cost.

Inventory turnover Ratio =

Inventory turn over ratio measures the velocity of conversion of stock in to sales. Usually a high inventory turnover / stock velocity indicates efficient management of inventory because more frequently the stock are sold, the lesser amount of money is required to finance the inventory. Low inventory turn over ration indicate inefficient management of inventory. in low inventory turn over implies over investment in inventories, the business, poor quality of goods, stock accumulation, accumulation of absolute and slow moving good and low profit as compared to total investment the inventory turn over ratio is also an index profitability where a high ratio signifies more profit ‘a low ratio signifies low profit some time a high inventories.

INVENTORY TURNOVER RATIO OF FCI LIMITED.

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DURING 2005TO 2008

YEAR COST OF GOOD SOLD

AVERAGE INVENTORY

INVENTORY TURNOVER(TIMES)

INVENTORY TURNOVER(DAYS)

(A) (B) (C) (D) = (B)/(C) (E)= 365/D2005-2006 2955076031 377580243.7 7.83 46.642006-2007 3501014350 427327384.8 8.19 44.552007-2008 3995104641 465048573.5 8.59 42.49

INFERENCE:-

As compared to year 2005-2006, in the year 2006-07, the inventory turnover increased to 8.19 times. Similarly, in the year 2007-08 it increased to 8.59 times, which indicates that the times taken in converting raw material into finished product and finally selling it got reduced considerably and hence indicates quick release of working capital

WORKING CAPITAL TURNOVER

A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales.

A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales.

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WORKING CAPITAL RATIO OF FCILTD. DURING 2005 TO 2008

YEARNET

SALESWORKING CAPITAL

CURRENT RATIO

(A) (B) (C) (B)/(C)2005-2006 3207510314 242121714.4 13.242006-2007 3747805031 347033040 10.82007-2008 4266143965 484788939.4 8.8

INFERENCE: In spite of an increase in Net Working Capital, the Working capital turnover ratio of FCI got reduced to 10.8 times in the year 2006- 2007, as compared to the year 2005-07. Similarly, in the year 2007-08, the working capital turnover ratio further reduced to 8.8 times as compared to 13.24 times in the year 2005-06. The reduction in working capital turnover ratio is on account of massive growth in net working capital as compared to a slight growth in the sales of the company.

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CONCLUSION AND RECOMMENDATION

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Financial analysis is analysis of financial statements

of and enterprise. Financial statement reorganized collection of data according

to logical and constituent accounting procedures. How ever financial

statements in their traditional from giving historical data and information are of

little us to these who use them to draw certain conclusion.

Financial appraisal is scientific evaluation of

profitability and financial strength of any business concern. Financial appraisal

techniques include ration analysis common size analysis trend analysis, fund

flow analysis etc. these techniques may be applied in the financial appraisal of

any entity and FCI Ltd.. Is no exception to it.

PROFITABILITY

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The measurement of profitability is a tool of overall measurement of efficiency

an overall study profitability of FCI has been Dade in relation to sales

operating assets capital employed and its net worth.

By analysis the working result i.e. Profit and loss account of FCI. It was found

that the net profit before interest and tax of the FCI is showing increasing

trends. This is very good for FCI. The increase in the profits is nearly 24%

more then previous year the reason is good sales growth between years. For

this following suggestion should be considered.

Proper cost control is required and cost control technique should be

adopted for it.

Operating expenses, admn. Expenses should be specially considered to

be reduced.

Inventory is the biggest items of balance sheet that must have demanded

a large amount of maintaining cost. So efficient inventory management

should be done. Inventory should be reduced extent that would help to

recover blocking money in inventory.

The service staff should be given proper training and better environment

for work.

Proper advertisement and sales promotion is required.

Dairy has to pay large fix interest charged. Hence long term borrowing

should be reduced so that the earning are satisfactorily earmarked with

them.

Working capital

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In the year 2006-2007 the growth in working capital was 43.33%As

compare to the year 2005-2006 similarly working capital in the year

2007-2008 has grown to 100.03% as compared to the working capital in

the year 2005-2006. The management should follow the same trend in

near future too so to have considerable appreciation in working

capital every year.

The Current Ratio for the year 2007-2008 has taken the Value of 2.01:1,

which is very satisfactory and as per the standard required (2:1).The

current ratio of 2.01:1 indicates, that for every Rs 1 of current liability

the company Rs 2 of current assets, which indicates more liquidity and

hence more amount of working capital. The company need to further

enhance the value of ratio.

• Quick ratio for the year 2008-09 is above the ideal standard (1:1). It is

1.04:1, which indicates that for every Re1 of current liability the

company has Rs 1.04 of current assets, hence the company is in sound

position in terms of working capital position. It would be better for the

company if in near future it could further enhance the value of the

ratio

• Absolute quick ratio for the years right from 2005 up to 2008 are close

to the standard. For year 2007-08, the ratio is well above the standard

(0.5:1), which indicates the healthy picture of the company in terms of

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availability of working capital (quick assets) in order to meet current

liabilities. The same position should be sustained in near future too.

• As compared to year 2005-2006, in the year 2006-07, the inventory

turnover increased to 8.19 times. Similarly, in the year 2007-08 it

increased to 8.59 times, which indicates that the times taken in

converting raw material into finished product and finally selling it got

reduced considerably and hence indicates quick release of working

capital. In near future it would be more profitable for the company,

if the value of ratio gets increased to 11- 14%.

• In spite of an increase in Net Working Capital, the Working capital

turnover ratio of FCI got reduced to 10.8 times in the year 2006- 2007, as

compared to the year 2005-07. Similarly, in the year 2007-08, the

working capital turnover ratio further reduced to 8.8 times as compared

to 13.24 times in the year 2005-06. The reduction in working capital

turnover ratio is on account of massive growth in net working capital as

compared to a slight growth in the sales of the company. The value of

ratio could be better in near future , if the growth in sales matches

with the growth in net working capital.

REFRENCES

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I.M.Pandey, (1978), financial management, Ninth addition, UBS

Publication New Delhi.

Van Horn,(2002),Financial Management and Policy,12th edition,

Publisher Dorling Kindersley India ltd.

Horne Wwachonicz, J.R.Bhaduri (2005), Fundamentals and Financial

management, 12th edition, Pearson publisher.

MY Khan, P.K.Jain (1981), Financial Management,5th edition, Publisher

Mc graw hill companies.

Financial statement for the year ended 2007-08 as obtained from FCI

Annual-Report 2006-07 of FCI

Study module on financial management

Financial dailies.

Economic Times

Business Standard

Business Magazines

Business India

Business World

Internet Portals:

www.fciweb.nic.in

www.wikipedia.com

GLOSSARY

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HACCP: HACCP stands for Hazard Analysis and Critical Control Points.

HACCP is an industry-wide effort approved by the scientific community as

well as regulatory and industry practitioners. This effort is designed to focus

specifically on food safety, including food safety in retail establishments.

HACCP, or the Hazard Analysis Critical Control Point system, is a process

control system that identifies where hazards might occur in the food production

process and puts into place stringent actions to take to prevent the hazards from

occurring. By strictly monitoring and controlling each step of the process, there

is less chance for hazards to occur. HACCP is important because it prioritizes

and controls potential hazards in food production. By controlling major food

risks, such as microbiological, chemical and physical contaminants, the

industry can better assure consumers that its products are as safe as good

science and technology allows. By reducing food borne hazards, public health

protection is strengthened.

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