K.B

A STUDY ON

WORKING CAPITAL MANAGEMENT

With reference to

SANGAM DAIRYVADALAMUDI

GUNTUR (DISTRICT)

A PROJECT REPORTSubmitted TO THE J.N.T.U, HYDERABAD IN

PARTIAL FULFILLMENT FORTHE AWARD OF THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATIONSubmitted By

Buddhudev Kondaveeti(Reg. No: 08d41e0010)

Under the Guidance ofDr.N.Raja Reddy

Sri indu college of Engineering and

Technology

(Affiliated to Jawaharlal Nehru and

Technological University)

Sheriguda, Ibrahimpatnam.

2008-2010

Sri Indu College Of Engineering & Technology

Approved by AICTE, New Delhi, Affliated to JNTU, Hyderabad.Sponsored by New Loyola Model Education Society, Vanasthalipuram, Hyd.

Sheriguda (village), Ibrahimpatnam, Ranga Reddy District -501510

CERTIFICATE

This is to certify that Buddhuev Kondaveeti student of final year MBA in the

department of management of studies of Sri indu college of Eng &

Technology has under gone project on “WORKING CAPITAL With

Reference to SANGAM DAIRY, VADLAMUDI, GUNTUR”, under our

guidance.

Place :

Date :

HEAD OF THE DEPARTMENT

PRINCIPAL

GUIDE

Sri Indu College Of Engineering & Technology

Approved by AICTE, New Delhi, Affliated to JNTU, Hyderabad.Sponsored by New Loyola Model Education Society, Vanasthalipuram, Hyd.

Sheriguda (village), Ibrahimpatnam, Ranga Reddy District -501510

CERTIFICATE

This is to certify that Buddhudev Kondaveeti student of final year MBA in

the department of management of studies of Sri indu college of Eng &

Technology has under gone project on “WORKING CAPITAL With

Reference to SANGAM DAIRY, VADLAMUDI, GUNTUR”, under our

guidance.

Place :

Date :

INTERNAL EXAMINER EXTERNAL EXAMINER

Head Of the Department

DECLARATION

I here by declare that this project entitled “A STUDY ON WORKING

CAPITAL IN SANGAM DAIRY, VADLAMUDI, GUNTUR (Dist)” is

written and submitted by me to the Sri indu college of engineering and

Technology, Sheriguda. I also declare that this project work is the result of

my own effort and that it has not been submitted to any other University for

the award of a degree

PLACE: K.Buddhudev DATE : Reg.no.08d41e0010

INTERDUCTION

The Indian Dairy development is quite different from those of the

developed countries. The milk production in India is characterized by long

yielding holding, profuse use of crop residues and natural herbage and

roughage with or without supplementation with costly concentrates as feed

and scare land for pastures and forage production low levels of which the

animals survive. Milk production per animal is usually are generally found.

Where agriculture has been prosperous and cultivated fodder and cereal and

oilseed milling are readily available is comparatively low.

As India enters an era of economic reforms, agriculture, particularly the

livestock sector is positioned to be a major growth area. The fact that dairying

could play a more constructive role in promoting rural welfare and reducing

poverty is increasingly being recognized. For example milk production each

raising one or two cows/buffaloes cow doing is an important input as organic

fertilizer for crop production and is also widely used as fuel in rural areas.

Cattle also serve as an insurance cover for the poor households, being sold

during times of distress.

There was an increasing demand for the milk from the urban areas.

There arose a need for the formers to increase the production of milk. Since

the demand in the urban scenario is rapidly increasing. So do the farmers

generate the supply to further the new dairy plant capacity approved under the

milk and milk products order (MMPO) has exceeded 100 million I/p/d. the

projected rural marketable surplus of milk by about 70 percent by 2009.

GROWTH OF SANGAM DAIRY:

Origin:

Traditionally India is an agriculture country. More than 60% of the

Total population depends upon agriculture. But due to many reasons it has

became a difficult task for farmers to cultivate the land. And also India has a

very vast population has facing great problems in providing every citizen with

adequate food in terms of quality and quantity. Because of this a large number

of farmers and people depend upon milk and these products which are most

import source of nourishment. It has become a livelihood for most of the

farmer in the country. So dairy industry not only provides employment but

also it reduces the over depended on agriculture. Keeping this in view it is

necessary to develop dairy industry very fast for overcoming. The problem of

income, employment and nutrition in the country

not only the union Government but also state Government has undertaken

different programs under the project “ Operation flood” dairy industry in India

is dominated by not only the Government but also the co-operative sector as

well in fact “AMUL” is dominating the dairy industry for nearly 15 years.

GROWTH OF INDUSTRY:

Before the independence i.e. in the first half of the 20th century India has

largely unorganized milk and its products which were generally not easily

marketable commodities and there was no proper transportation facilities for

these products to reach for distances. “Organized” as well understand in the

west started in a small way in military. These was established towards the end

of 19th century to meet 5% demand of the military forces and hospitals some

( dairies) have been encouraged to make pasteurized butte primarily for the

use of British Army. In 1923 a dairy was established in Bangalore. There has

been another major effort in the early 1940’s where milk produced in rural

areas of Kaira district was collected in bulk quantities and transported by

distributing in Bombay (now Mumbai) through the help of Bombay milk

scheme operated by Bombay Municipality. Where India became Independence

in 1947, one of the major milk schemes to be included in the country was

Great Bombay Milk Scheme (GBMS).

Third was constituted by a “Milk” in Bombay supplied by the Kaira

district co-operative milk produces union. Although it existed in this country,

since 1931 it was mostly for collection and selling fresh milk to the local

consumers, it was only in 1948. The operation began systematically and in

large scale by Kaira district co-operative milk producers Union.

Co-operative milk producers union came to be known as “Anand Milk Union

Limited” shortly and famously known as “AMUL” which in a vernacular

language means “Highly Valuable or Priceless”

AMUL ( Also known as GCMMF):

Gujarat co-operative Milk Marketing Federation (GCMMF) is India’s

largest good products marketing organization. It is a state level apex body of

milk co-operative in Gujarat which aims to provide remunerative returns to the

farmers and also serve the interest of consumers by providing quantity

products which are good value for money.

DAIRY DEVELOPMENT UNDER 5 YEARS PLAN:

Dairy development in India after the Independence, Industrialization

and public Awaking recess the establishment of organized collections,

processing and distribution of Milk to the needs of the expanding urban areas.

The planned development of dairying was actually taken up in the first

5 years plan( 1951-56) and the inadequacy of suitable market structure was

noticed as the factor for the milk production. This expressed itself in remote

rural areas. Where as though quick transport and marketing facilities, milk was

marketed in the converted Form of GHEE which did not provided sufficient

income to the farmers to solve the problem. The India dairy co-operation was

established in 1970 as a specialized institution to promote of finance dairy

development in India and promoting the expansion of Milk processing and

marketing facilities.

PRESENT STAGE OF INDUSTRY:

During the past four decades the dairy industry in India was undergone

evolutionary changes in Its structure. Now India is the largest Milk production

unit in the world. The methods of collection, marketing and utilization of milk

for manufacturing products have been considerably improved.

Although from the Hygiene point of view the continue of milk

production in rural areas continue to be unsatisfactory, milk production in the

country has been that doubled since the assent of planning in 1951. Although

it was rising from 17.4 million tones for 30 years between 1940 and 1970.

India shortage to meet the nutritional requirements of the population

and the availability of Milk as indicate here by is less than the proportional

increase in milk production in relative to population growth. Marketing the

schemes were evolved and developed is done of the major cities in the initial

stages. These schemes were planned to assume flow of morally produced milk

to the dairy plants and for the distribution of the same to the consumer,

achieved by the Kaira district Co-operative milk producers union. i.e.Anand.

DAIRY INDUSTRYS IN ANDHRA PRADESH

As mentioned earlier that India’s primary occupation is agriculture, it is

same as in the case of Andhra Pradesh. Presently the total population of A.P is

reported to be around 9.5 crores.

People in rural areas and landless agricultural labors take up dairying as

a source of supplementary income most of the people were supplying the milk

to the dairies main reason for this is that milk cannot be preserved for danger

periods of time .It also requires sophisticated technology to preserve the milk,

there is a table which indicate the projection of milk production, nutritional

requirements and economic demand of milk in India year wise.

SIGNIFICANCE OF THE STUDY:

The need of started financial statement analysis has became grater in

recent year proper working capital management is of special repentance in an

organization of service oriental nature. Working capitals the capital that allows

business to operate an a day –to- day business

Depending on the nature and the time period for which the working

capital is held is the organization it can be classified as permanent working

invariable working capital exclusive working capital is of vital importance to

companies and for which a major work load to the head of finance working

capital on day-to-day basis here forms have importance issue of any business

management of working capital therefore is the management of current

liabilities of the company. Decision on working capital, therefore is the

management of current assets and current liabilities of the company Decision

like economic situation Government industrial and fiscal policies and

availabilities of in visible funds etc…

Industries are of large scale and small scale depending of the

investments input on it. Therefore careful pre-planning is required for the

proper establishment of these industries which require huge funds and in of

their funds A study on it gives an idea about the working progress of the

organization.

Working capital can be required for day-to-day operations of the firm in

short it can be said that working capital is that basic necessity of any

organization.

SCOPE OF THE STUDY:

The scope of the present study extends to analogues the working capital

operations carrying out by the Sangam Dairy.

In the next step an attempt has been made to highlight the present scenario of

the dairy industry in the India market in particular.

The study also covers various components of working capital

management like invertors cash and accounts receivables management of

Sangam Dairy

OBJECTIVES OF THE STUDY:

The main aim if study is to analyze the financial performance of

Sangam Dairy more especially the following are the objectives of the present

study.

To give the growth and working of dairy industry.

To present the theoretical frame work of working capital management

and the application.

To review the growth and working of dairy during the last 6 years i.e,

from 2001 to 2007.

To find the present day problems of dairy industry in India.

To evaluate the working capital management of Sangam Dairy.

Finally to suggest the measure for more effective financial

management of the firm if any.

To give conclusion and meaningful suggestion to strengthen dairy

industry in general and Sang am Dairy in particular.

LIMITATIONS OF THE STUDY:

As the study is related to the financial management it is quiet natural

that getting exact information about the details of financial matters of

the company thus it becomes difficult in getting necessary

information.

The practical aspects of working capital management of sangam Dairy

is prepared with the available data only this study is not intended to

comment on the companies efficiency.

Most of the figures in Ana lugged of working capital were rounded off

where ever necessary to avoid ambiguities.

As this study is done in a very short period information may not

sufficient to give long run implications.

METHODOLOGY:

The data obtained for study as to be divided into the groups.

1. Primary Data

2. Secondary Data

Primary data comprises information obtained by the candidate during

discussion with the head of department and form the meetings the officials and

the staff the meetings with the officials and the staff.

Secondary data comprises of information obtained from annual reports,

balance sheets and other financial statement files and some other important

documents maintained by the organization are also helpful.

In the study one four of the total information obtained is form primary data

and the rest from secondary data.

LIMITATIONS OF THE STUDY:

1. Financial statements are not purely abjectly statements of facts they

present information which is a combination of record facts accounting

convections and personal judgment.

2. Financial accounting does not take into account the price level changes

become some what difficult to form an overall judgment about the

financial strength this and weakness of the firm.

3. When the firm has some favorable rations and some unfavorable rations

its financial strengths and weakness of the firm

4. The study has been focused only on working capital management in

Sangam Dairy.

CHAPTER -2INDUSTRY PROFILE

PROFILE OF SANGAM DAIRY:

Under the operation flood programme Guntur District was selected to

developed dairy under Anand pattern the main of Anand is to provide and also

providing quality products which are good value for money.

As part of this programme “fielder balancing” dairy has been established at

the village vadlamudi for balancing the supply of milk of Kolkata and Chennai

cities after meeting the local demands this constitution a part of the national

milk grid. These feeders balancing dairy was converted as “SANGAM

DAIRY”.

Sangam dairy is a milk producer’s co-operative Union originally for

Guntur District and subsequently extended to prakasam district. The popular

adage “Nothing Succeeds like success” is applicable to the dairy development

in India. If the country unit nessed the “Green revolution”. Indian total milk

production is ranked first in the world followed by the United States. Initially

dairying was largely an unorganized activity by and large land holding farmers

kept cattle mainly for bullock production. Milk was essentially a byproduct.

The surplus after domestic consumption was either converted into

conventional products mainly Ghee and sold to middle men who cater to the

needs of the market.

As India enters an era of economic performs, agriculture, particularly

the livestock sector, is positioned to be major growth area. The fact that

dairying could play a more than 70 million producers each raising one or two

cows/buffaloes, cow dung is an important input as organic fertilizer for crop

production and is also widely used as fuel in rural areas. Cattle also serve as

an insurance cover for the poor households, being sold during times of

distress.

There was an increasing demand for the milk from the urban areas.

There arose a need for the formers to increase the production of milk. Since

the demand in the urban scenario is rapidly increasing. So do the farmers

generate the supply to further the new dairy plant capacity approved under the

milk and milk products order (MMPO) has exceeded 100 million I/p/d. the

projected rural marketable surplus of milk by about 40 percent by 2005.

EVOLUTION:

The origin of dairy farms are under public management dates back to 1886.

when the department of defense establish a few dairy farms in that year to

supply milk and milk products to the British troops, the next step was initiated

during the first World war.

In 1914, the department of defense on the advice of Board of agriculture

advised the Government in 1916 to appoint imperial dairy expert. The next

important step was the Decision to conduct a census of livestock. The Board

of agriculture carried out the livestock census in 1919 as a preparatory action

for planed dairy.

CHAPTER- 3

COMPANY PROFILE

BRIEF HISTORY:

ORGSNIZATION STEP – UP OF SANGAM DAIRY

…… Senior Manager (procurement and inputs

Manager)

…… Senior Manager ( Senior Accounts Officer)

…… Senior Manager ( Dairy engineer)

…… Senior Manager ( Production Manager)

Managing Director …… Other Managers

…… Labour Welfare Officer

…… Manager for Materials

…… Quality Control Manager

…… Marketing Manager

Organization Chart

Board of directors

Chairman

General Manager

Senior Accounting Senior Manager Production Manager

Manager

Dairy Manager

Supervisors

Workers

Skilled Workers Un Skilled workers

WORKING CAPITAL MANAGEMENT:

Working capital can be regarded as the circulatory system of any

business. The success and efficiency of business enterprise depends largely on

its ability to manage its working capital. Even in a well-established business

operation, needs careful attention effective for effective management of

working capital. Working capital is one of the important facets of a firm

overall financial management. Whatever be the size of business, working

capital is one of the important facets of a firm overall Financial management

whatever be the size of a business, working capital is its Life-blood.

Working capital management is concerned with the problems that arise

in attempting to manage the current assets, current liabilities and the inter

relationship that exist between them.

The current assets refer to those assets, which in the ordinary course of

business can be converted into cash within one year without undergoing a

diminution in value. Current liabilities are those liabilities, which are intended

at the inception, to be paid in the ordinary course of business, within a year,

out of current assets.

The basic objective of working capital management is to put current assets to

optimum use for overall profitability of a business enterprise. If the firm can't

maintain a satisfactory level of working capital it is likely to become insolvent

and may even be forced to bankruptcy.

The effective management of working capital requires both medium

term planning and intermediate reactions to changes in forecast and

conditions. The current assets should be managed in such a way that it should

cover its current liabilities in order to ensure a reasonable margin of safety.

Therefore the interaction, between the current assets and current liabilities is

the main theme of the theory of working capital management.

Working capital may be defined in two ways.

[1] Gross working capital.

[2] Net working capital.

The term gross working capital is referred to total current assets. The

net working capital is again defined in two ways

[1] net working capital is the difference between current Assets and current

liabilities

[2] net working capital is that portion of current assets, which is financed with

long-term funds.

NET WORKING CAPITAL AND ITS IMPLICATIONS:

The theoretical justifications for the use of net working capital to

measure liquidity is based on the premise that the greater the margin by which

the current assets covers the short-term obligations, the more is ability to pay

obligations when they become due for payment. The mainTheme of the

theory of working capital management. Due for payment net working capital

is defined as the difference between current assets and current liabilities NWC

is necessary the cash outflows and inflows do not coincide the non-

synchronous nature of cash flows makes NWC necessary. It is very difficult to

predict cash inflows. The more the cash inflows the less NWC will require.

TRADE ORBETWEEN PROFITABILITY AND RISK:

The firm's profitability is measured by profits after expenses. The term

risk is defined as that probability that a firm will become technically so that it

will not be able to meet its obligations when they become due for payment.

Net working capital is used for measuring the risk of becoming

technically insolvent. The greater NWC the more liquid is the firm and

therefore, the less likely it is to become technically insolvent. The inter

relationship between risk, liquidity and NWC is such that if the NWC or

liquidity increases the firms risk decreases.

TRADE OFF:

To get higher profits the firm has to face high risk. Otherwise the more

the profit, the more the risk the firm has to face. The trade-off between these

variables that the regardless of how the firm increases its profitability through

the manipulation of working capital, the consequence is the corresponding

increase in risk as measured by the level of NWC.

EFFECT OF LEVEL OF CURRENT ASSETS AND CURRENT

LIABILITIES ON THE PROFITABILITY -RISK TRADE OFF

The effect of current assets and current liabilities on profitability risk and trade

off Can be shown using the ratio of current assets to total assets and current

liabilities, To total assets a change in the ratio will reflect a change in the

amount of current Assets and current liabilities. It may be either increase or

decrease.

CHANGES IN WORKING CAPITAL:

(1) Changes in level of sales/operating expenses

(2) Changes in policy

(3) Changes in technology

(1) Changes in sales and operating expenses:

The first factor causing a change in working capital requirement is a

change in the sales and operating expenses. The changes in the factor may be a

long run trend of Change. For instance the price of raw material may be

constantly rising necessitating. The holding of large inventory Secondly the

cyclical changes in the Economy leading to ups and downs in business activity

influence the level of working capital, both Permanent and temporary and

thirdly the source of change is seasonality in sales Activity. Seasonality peaks

and troughs can be said to be the main source of variation, in the level of

temporary working capital. The change in sales and operating expenses may

be either in the form of increase or decrease. An increase in volume of sales is

bound to be accompanied by higher-level Cash inventory and receivables. The

decline in sales affects a decline in the need for working capital. Similarly a

change in operating expenses rise or fall has a similar a change in operating

expenses rise or fall has a similar Effect on the levels of working capital.

(2) Policy changes:

One of the major causes of changes in the level of working capital is

because of policy changes initiated by the management. The firm has a wide

choice in the matter of current assets policy. The current assets-policy is the

different between. The current assets and sales volume. The firm, which

follow a conservative policy in this respect having a very high level of current

assets in relation to sales may be deliberately opt for a less conservation policy

and vice-versa. . Therefore the managerial decisions on Policy changes, have

an impact on the of working capital

(3) Technological changes:

Third main cause that affects the level of working capital is

technological changes, which is as a result of technological developments,

which shortens the operating cycle, thus reducing the need for working capital

DETERMINATION OF WORKING CAPITAL:

Nature of business

Working capital requirements of a firm are basically influenced by the

name of its business. Trading and financial firms have a very small investment

in fixed asset, but required a large sum of money to be invested in working

capital. In contrast, public utilities have limited need for working capital and

have to invest abundantly in fixed assets.

Their working capital requirements are normal because they may have

only cash sales And supply services, not products thus, no funds will be tied

up in debtors and stock. Working capital requires most of the manufacturing

concerns to fall in between the two extreme requirements of trading firms and

public utilities. Such concerns have to make adequate investment in current

assets depending upon the total assets structure and other variables.

SALES AND DEMAND CONDITIONS

The working capital needs of the firm are related to its sales. It is

difficult to precisely determine the relationship between volume of sales and

working capital needs. In practice current assets have to be employed before

growth takes place it is therefore Necessary to make advance planning of

working capital for a growing firm on a Continuous basis.

A growing firm may needs to invest funds in fixed assets in order to

sustain its growing Production and sales. This will in turn increase investment

in current assets to support Enlarged scale of operations it should be realized

that a growing firm needs funds continuously. It uses external sources as well

as internal sources to meet increasing needs of funds such a firm faces further

financial problems when retain substantial Proportions of its profits. It would

not be able to pay dividends to share holders. It is therefore imperative that

proper planning to be done by such companies to finance their increasing

needs for working capital.

Sales depend on demand conditions. Most Firms experience seasonal

and cyclical Fluctuations in the demand for their Products and Services. These

business variations affect the working capital Requirement, specially the

temporary requirement of the firm.

Seasonal fluctuations not only affect working capital requirement but also

create production problems for the firm. During periods of peak demand,

increasing production may be expensive for the firm. Similarly, it will be more

expensive during slack periods when the firm has to sustain its working force

and Physical facilities with out adequate production and sales.

TECHNOLOGY AND MANUFACTURING POLICY:

The manufacturing cycle comprises of the purchase and the use of raw

materials and the production of finished goods. Longer the manufacturing

cycle, large will be the firm's working capital requirements. If there are

alternative technologies of man fracturing cycle may be chosen. Once a

manufacturing technology has been selected, It should be ensured that

manufacturing cycle is completed within the specific Period. This needs

proper planning and co-ordination at all levels of activity.

A strategy of constant production may be maintained in order to resolve

the working Capital problems arising due to seasonal changes in the demand

for the firms Product. A steady production policy will cause inventories to

accumulate during the off-season periods and risks of maintaining a constant

production schedule and high the firm may adopt a variable production policy,

varying its production schedules in accordance with changing demand.

Permanent and Temporary working Capital:

Sometimes the current assets are very larger than fixed assets, and then the company’s problem of working capital management arises. The magnitude of the current assets need is not always the some, it increase or decrease over times.

So there must be always a minimum level of current assets which continuously required by the firm to carry on its business operations, that minimum level of current assets are referred to permanent or fixed working capital. It is required to meet the dairy business operations like business and maintaining of inventory etc, the extra working capital needed to support the changing production and sales activities called as fluctuation or temporary or variable working capital.

In longer period the permanent working capital not belonging constant , it keeps on raising with a certain percentage.

Manufacturing Cycle:

If the cycle takes a very long time, the working capital requirement is very high and if the cycle takes a short time working capital requirement is less.

If the company is a growing company the working requirement is high

AVAILABILITY OF CREDIT:

The working capital requirements of the firm are also effected by credit

terms granted by its creditors. A firm will need less working capital if liberal

terms are available to It. Similarly, the availability of credit from banks also

influences the working capital Needs of the firm. A firm, which can get bank

credit easily on favorable conditions, Will Operate with less working capital

than a firm without such a facility.

Price level Changes:

The increase shifts in price level make functions of Financial management

difficult. He must be anticipate the effect of price level changes on working

capital requirements of the Firm.

W.C.High

W.C.Low

OPERATING EFFICIENCY:

The operating efficiency of the firm relates to the optimum utilization of

resources at minimum costs. The firm will be effectively contributing in

keeping the working capital investment at a lower level if it is efficient in

controlling operation costs and utilizing current assets. The use of working

capital is improved and pace of cash conversion cycle is accelerated with

operating efficiency. Better utilization of resources improves profitability and,

thus, helps in releasing the pressure on working capital. Although it may not

be possible for a firm to control prices of materials wages of labor, it can

certainly ensure efficient and effective use of its materials, labor and other

resources.

LEVEL OF CURRENT ASSETS:

An important working capital policy decision is concerned with the

level of investment in Current assets under a flexible policy (also refer to as a

conservative policy), the investments in current assets are high. This means

that the firm maintains a huge balance of cash and marketable securities.

Carries large amounts of inventories, and grant generous terms of credit too

customers, which leads to high level of debtors. Under a Restrictive policy

(also refer to as an aggressive policy), the investment in current Assets is low.

This means that the firm keeps a small balance of cash and marketable

securities, managers with small amounts of inventories, and offer stiff Terms

of credit, which leads to a low level of debtors. Determining the optional level

of current assets involves a tradeoff between costs that Rise with current assets

and that fall with current assets the former are referred to as Carrying costs

and the latter as shortage costs. Carrying cost is mainly in the nature of the

cost of financing a higher level of current assets shortage costs are mainly in

from of disruption in production schedule, loss of sale, and loss of customer

good will.

After establishing the level of current assets, the firm must determine

how these should be financed. What mix of long-term capital and short- term

debt should the firm employ to Support its current assets.

The investment in current assets may be broken into two parts i.e.

permanent current Assets and temporary current assets. Several strategies are

available to a firm for financing its capital requirements. Following are three

strategies namely A, B and C.

Strategy A: long term financing is used to meet fixed assets requirements as

well Peak working capital, requirement when the working capital requirement

is less than its peak level, the surplus is invested in liquid assets.

Strategy B: Long term financing is used to meet fixed asset requirements,

permanent working capital requirement, and a portion of fluctuating working

capital requirement. During seasonal down swings, surplus is invested in

liquid assets.

Strategy C: Long term financing is used to meet fixed asset requirement and

permanent Working capital requirement. Short-term financing is used to meet

working capital requirement.

Ratio of Current Assets to fixed assets:

Current assets Policies:

A policy which indicates the size of current assets to fixed assets is called as

current assets policies.

If the company is maintaining the current assets more than fixed assets it is

known as “Conservative Policy”.

Current Assets

Fixed Assets

If same companies invests small proportion of current assets than Fixed

Assets. The company said to be “Aggressive Companies” it is ready to take

any type of risk and this policy is called as an “ Aggressive Policy”.

Current Assets

Fixed Assets

The company have to figure out the right current assets policy because

liquidity and the profitability. If the company wants to be safe , if keeps the

current assets very high i.e. liquidity. But the companies which keep liquidity

will end up with low profitability.

If the investment is low i.e. current assets are low , liquidity will be low but

the profitability will be very high.

High liquidity low profitability, low liquidity high profitability is consistent assets will be moderately equal to the fixed assets.

sOUT PUT (OR) SALES

If we see the moderate policy in graph it is neither commiserative nor

aggressive.

Consequence if a Company follow Policy.

1. Conservative Policy.

i. Reduction in Risk

ii. Less expected profit.

iii. Reduction in technical insolvency

2. Aggressive Policy:-

i. Increase in Risk

ii. Profitability is extremely high

iii. Technical insolvency is High

3. Moderate Policy is existed between the two current Assets Financing

Policy:-

The policy which uses either short term investment or Long term investment

to raise current assets is called as “ Current Assets Financing Policy” this

policy can be broadly divided in to two categories.

A conservative current assets financing policy relies less on short term

Financing and more on long term resources like equity etc An aggressive

current assets Financing Policy seeks to rely more current assets.( Short term)

and less on long term financing. C.A’s Financing policy diagrammatically.

FUNCTIONS OF WORKING CAPITAL

TIM

If the costs of liquidity is very high the profitability of he company will

be very less and vice versa.

Working capital has two types of costs of liquidity and the other one’s

cost of liquidity higher the liquidity and higher the cost of liquidity and vice-

versa.

If the money is financed to long term is more and the current assets is

less it is called as Illiquidity.

There is an inverse relationship between the costs and Illiquidity.

Therefore Total cost = Cost Liquidity + Cost of Illiquidity.

The most optimal working capitals is where the minimization of costs is

happening the point of intersection of cost of liquidity and Illiquidity is the

Ideal W.C. Policy.

How much it costs to maintained liquidity.

The Cost of liquidity increases as the increase in total current assets. It

is an increase in the function current asset, similarly the cost of Illiquidity

decrease as per increase in current assets. Thus it’s the decreasing function of

current assets.

The total cost function takes the usual “ U” Shape. The higher the level

of the current assets the lower is the possibility and as such lower is the cost of

Illiquidity.

SOURCES OF WORKING CAPITAL:

After determining the level of working capital on the basis of various

determinants the next step is to consider how it will be financed. A large

manufacturing concern may procure funds from various sources to meet its

working capital requirements from time to time. For the convenience of study

the sources of working capital may be classified under two heads.

(a) Sources of long term or regular working capital.

(b) Sources of short term or seasonal working capital.

Sources of long term working capital:

The long-term working capital requirements can be met from the following

sources.

1. Issue of Shares:

It is the safest way of procuring permanent and regular working capital

without any fixed charges.

2. Issue of Debentures:

Regular and long term working capital may be obtained at lower cost of trade

on equity.

3. Retained Profits:

Accumulated large profits are also considered to be a good source of financing

long-term working capital requirements. It is the best and the cheapest source

of finance. It creates no change in future profits.

4. Sale of Fixed Assets:

If there is any idle fixed assets in the firm can be sold out and the proceeds

may be utilized for financing the working capital requirements.

5. Term Loans:

Mid term and long-term loans for a period above 3 years provide import

sources of working capital such term loans can be borrowed from the special

financials institutions such as IDBI, IFCI, LIC etc.

Sources of Short Term Working Capital:

The sources of short-term working capital may be classified in two heads.

1. Internal Sources

2. External Sources

Internal Sources:

Under this category the sources of working capital are tapped from

within the internal sources are depreciation funds, provision for taxation and

accrued expenses.

1. Depreciation Fund:

Depreciation funds created out of profits provided they are invested in or

represented by assets.

2. Provision for Taxation:

There remains a time lag between making the provision for and payment of

taxation. A company may utilize such provision during the intermittent period

temporarily.

3. Accrued Expenses:

The company sometimes postpones the payment of certain expenditure due to

finalization of the accounts. These accrued (due but not paid) expenses also

constitute an important source of working capital.

External Sources:

External sources mean the sources providing finance for company's

working capital other than those of internal sources. These may be enumerated

as given below.

1. Normal Trade Credit:

Creditors provide short-term finance to the company by selling the goods,

inventories and equipment on the basis of deferred payment. It is a very

common source of short-term finance and normally every concern use this

source as a normal trade practice.

2. Credit Papers:

Bills payable or promissory note, which may be discounted from bankers for

meeting short term capital by the drawer.

3. Bank Credit:

The greater part of the working capital is supplied by commercial banks to

their customers through direct advances in the shape of loans, cash credit or

over draft and through discounting the credit, papers, e.g. bills - payable and

promissory notes etc.

Inventory Management:

Inventory Management is a part of a member of working capital management.

Inventories form a high proportion or percentage in the total working capital.

(i.e. total current assets) for that purpose only inventory management is very

impartment concept for any business concern. Even in the cost structure of a

company a heavy costs incurred on the raw material. i.e. on the inventory. The

other costs in cost structure are Labour costs i.e. over head costs.

Nature of these inventory items like raw material, spare parts etc., that there is

a tendency to a accumulate that means managers often by these in large

quantities which is of no use. Industries often suffer from industrial concur

because of inventory and it is said to be Grave yards of industry because of a

accumulation Inventory carrying cost (ICC) are a big problem. They are the

costs that the company has to incur in order to carry the inventory items over a

period of time ICC costs are depreciation insurance, were house expenses

interest etc.,

Total Cost = ICC + Stock Out Costs

Here the total costs out costs summation of ICC and stock out Cost. The

two costs are equal at the point of intersection. At point “Q” is said to be the

(economic Quantity) €Q It stays at that points, it is said to be the Efficient

Inventory Managing Company. The Efficient name for the Q is “Economic

Order Quantity”.

The term inventory refers to the stockpile of the products a firm is

offering for able and the companies that make up the products. In order words

inventory is composed of a sets that will be sold in future in the normal course

of business operations the assets which store as inventory in anticipation of

need are raw material (b) work in process ( semi –finished goods) and (c)

Finished Goods. The raw material inventory contains items that are purchased

by the firm from others and are converted into finished goods through the

manufacturing ( productions) process. They are in important of the Final

product.

Objective of Inventory Management:

In inventory management, the first is faced with the problem of meeting

two conflicting needs.

To maintain large size of inventory for efficient and smooth production

and sales operation.

To maintain minimum investment in buying inventories to maximum

profitability.

The objective of inventory management is to determine and maintain

optimum.

Level of investment in inventory. The optimum level will lie between

the two danger points of exercise and inadequate inventories.

Inventory Control:

It is very difficult for an inventory manager to take care of huge inventory. So

far convenience he takes much care on the inventory which is of high value

that is an vital items the manager keeps his eye on these vital items constantly

because these items are must be costlier the than trivial items (other small or

unimportant items). This type of analysis that a manager uses is called “ABC

Analysis”

Items Value Category

5%

15%

80%

75%

15%

10%

A

B

C

“A” is high categorized items “B” is moderate Valued items and “C” is the

Low valued items.

By seeing the graph, the manager likes to concentrates on “A” items. Some

times even though the trivial items last, there will be no harm for the

company. Some times, the companies 20% of total goods fetches it 80% of

sales.

Cash Management:

In working capital management, cash management is one of the key factors.

Cash is the most liquid current assets and it is the common denominator to

which all current assets can be reduced more over receivables and inventory

get eventually converted into cash.

Cash Management is also known another member of working capital

management. Cash is an important current asset for the operation of the

business. Cash is the basic input which was needed to keep the business

running on a continues basic, it is also the ultimate out put expected to be

released by selling the service or products manufactured cycle.

BusinessOperation

Business Operation

Cash Payments

Cash Collections

DeficitSurplus

BarrowInvest

Cash planning:

Cash inflows and out flows should be planed to project cash surplus or deficit for each period of the planning period.

Managing the Cash Flows:

The cash inflows should be properly accelerated and cash out flows should be declared.

Optimum Cash Level:

The cost of excess cash and danger of deficiency should be matched to determine the Optimum level of cash balances.

Investing Surplus Cash:

The surplus cash balances should be properly invested in short term marketable securities in banks etc.,

The ideal cash management system will depend on the firm’s products, organization, structure, competition, culture and options available.

John Maynard Keynes , a famous and celebrated economist, says that the demand for liquid cash balances arises because of some motives. The suggested three motives for individual to held cash.

Motive of holding Cash:

With reference to cash management, the team cash is used into two

senses., they are narrow sense and broad sense. In narrow sense, it is used to

broadly cover currency and generally accepted equivalents of cash, such as

cheque, drafts and hundies in banks. The board view of cash also included

cash assets such as market marketable securities and time deposit in banks.

There are four primary motives for maintaining cash balances. They are

1. Transaction motive

2. Precautionary motive

3. Speculative motive

4. Compensation motive

Transaction Motive:

To meet payments such as purchases, wages, taxes and dividends arising in

the ordinary course of business.

KEYNES said that money demand is said to be proportional ( k) to income

MDT = k( Y )

Percentage Motive:

In addition to the non – synchronization of anticipated cash inflow and

outflows in the ordinary course of business, a firm may have to pay cash for

purpose, which can not be predicted or anticipated. The unexpected cash needs

may be the results of followings.

Floods, strikes and failure of important customers

Bills may be presented for settlement earlier than expected

Unexpected slow down in collection of accounts receivable

Cancellation of some order for goods as the customer is not satisfied

Sharp increase in cost of raw material.

Speculative Motive:

It refers to the desire of takes advantages of opportunity, which present

themselves at unexpected moments and which are typically outside the normal

course of business. While the precautionary motive is defensive in nature in

that firms must make provision to tide over unexpected contingencies, the

speculative motive represents a positive and; Aggressive approach. Firms aim

to exploit profitable opportunities and keep cash in; Reserve to do so. The

speculative motive helps to make advantage of :

An opportunity to purchase raw material at the reduced price on

payment of immediate cash

A chance to speculative on interest rate movements by buying

securities when interest rates are expected to decline.

Delay purchase of raw material on the anticipated of decline in prices

and

Make purchase at favorable prices.

Compensating Motive:

Yet another motive to hold cash balances is to compensate banks for

proving certain services and loans. Bank provide a variety of service to

business firms, such as clearance of cheque, supply of credit information,

transfer of funds and so on, while for some of these services banks charge a

commission of fee, for other they seek indirect, compensation usually are

required to maintain a minimum balance of cash at the bank. Since the firms

for transaction purpose cannot utilized this balance, the banks can then selves

use the amount to earn a returns, such balances are compensating balances.

Cash management involves managing the monies of the firm in order

maximize cash, availability and interest income on any money ideal funds at

one end. The function starts when a customer write a cheque to pay the firm

on its account receivable, the function ends when the supplier an employee or

the government realizes collected funds from the firm on an account payable

or accrual. All activities between these two points fall within the realm of cash

management.

The firm’s efforts to get customers to pay their bills at certain time fall

within accounts receivable management. On the other hand, the firms,

decision about when to pay its bills that involve accounts payable and accrual

management. The various collection and disbursement methods by which a

same coin. They exercise a joint impact on the overall efficiency of cash

management. The idea is to collect accounts receivable as soon possible, but

pay accounts payable as late as consistent with maintaining the firm’s credit

standing with the suppliers.

The important of sufficient cash to meet the payment schedule can

hardly schedule can hardly be Firm the important of sufficient cash to meet the

payment schedule can hardly be over emphasized.

The advantages of adequate cash are [a] it prevents insolvency or

bankruptcy arising out Inability of a firm to meet its obligations. [b] the

relationship with the bank is not strained, [c] its help in fostering good

relations with trade creditors and suppliers of raw material, as prompt payment

may be help there own cash management.[d] A cash discount can be availed

of if payment is made with in the die. [e] it leads to a strong credit rating

which enables the firm to purchase the goods on favorable terms and too

maintain its line of credit with banks and source of credit; [f] to take

advantage of favorable business opportunities that may be available

periodically; and finally [g] the firm can meet unanticipated expenditure with

a minimum of strain during emergencies, such as strikes, fires a new

marketing campaign by competitors.

Minimizing funds committed to cash balance

The second objective of cash management is to minimize cash balances.

In minimizing the cash balances , two conflicting aspects have to be

reconciled. A high level of cash balances will; ensure prompt payment along

with all the advantages. But it also implies that large funds will remain idle as

cash is non-earning asset and the firm will have to forgo profits a low level of

cash balances on the other hand may mean failure to meet the pay schedule.

The aim of cash management therefore should be have two an optimal

account of cash balances.

business firms, such as clearance of cheque, supply of credit information,

transfer of funds, and so on, while; for some of these services banks charge a

commission or fee, for other they seek Indirect; Compensation. Usually are

required to maintain a minimum balance of cash at the bank. Since the firms

for transaction purpose cannot utilize this balance, the banks can themselves

use the amount to earn a return. Such balances are compensating balances.

Cash management involves managing the monies of the firm in order to

maximize Cash; availability and interest income on any idle funds. At one

end, the function starts when; A customer writes a cheque to pay the firm on

its accounts receivable, the function Ends When the supplier, an employee, or

the government realizes collected funds from when the supplier, an employee,

or the government realizes collected funds from the firm on an account

payable or accrual. All activities between these two points fall within the

realm of cash management.

The firm's efforts to get customers to pay their bills at certain time fall within

accounts receivable management. On the other hand, the Firms; decision about

when to pay its bills that involve accounts payable and accrual management.

The various collection and disbursement methods by which a firm can

improve its cash management efficiency constitute two sides of the same coin.

They exercise a joint impact on the overall efficiency of cash management.

The idea is to collect accounts receivables as soon possible, but pay accounts

payable as late as consistent with maintaining the firm's credit standing with

the suppliers.

Collection process

A number of methods are designed to speed up this collection process

by once or all of; the following: [a] speed the maintain time of payments from

the customer to Firm [b] reduce the time during which payments received by

the firm remain uncollected funds; and [c] speed the movement of funds to

disbursement banks.

Objectives of cash management:

The basic objectives of cash management are twofold:[a] to meet the

cash disbursement needs [payment schedule]; and to minimize funds

committed to cash balances. These are Conflicting and mutually contradictory

and the task of cash management is to Reconcile Them.

Meeting payment schedule

In the normal course of business, the firms have to make payments of

cash on a continuous and regular basis to supplier's employees and so on. At

the same time, there is a constant inflow of cash through collection from

debtors. Cash is, therefore, Aptly described as the "oil to lubricate the ever-

turning wheels of business: without it the Process grinds to a stop". A basic

objective of cash management is to meet the Payment Schedule that is to have

sufficient cash to meet the cash disbursement needs of a Firm

The important of sufficient cash to meet the payment schedule can

hardly be Firm the important of sufficient cash to meet the payment schedule

can hardly be over emphasized.

The advantages of adequate cash are [a] it prevents insolvency or bankruptcy

arising out of Inability of a firm to meet its obligations: [b] the relationship

with the bank is not strained; [c] it helps in fostering good relations with trade

creditors and suppliers of raw materials, as prompt payment may help their

own cash management; [d] A cash discount can be availed of if payment is

made within the due. [e] it leads to a strong credit rating which enables the

firm to purchase the goods on favorable terms and too maintain its line of

credit with banks and sources of credit; [f] to take advantage of favorable

business opportunities that may be available periodically; and finally [g] the

firm can meet unanticipated expenditure with a minimum of strain during

emergencies, such as strikes, fires a new marketing campaign by competitors.

Minimizing funds committed to Cash Balances

The second objective of cash management is to minimize cash balances. In

minimizing the cash balances, two conflicting aspects have to be reconciled. A

high level of cash balances will; ensure prompt payment along with all the

advantages. But It also implies that large funds will remain idle, as cash is

non-earning asset and the firm will have to forgo profits. A low level of cash

balances, on the other hand, may mean failure to meet the pay schedule. The

aim of cash management therefore should be have to have an optimal amount

of cash balances.

RECEIVABLES MANAGEMENT

The receivables represent an important component of current assets of a

firm. The receivable is defined as " debt owed to the firm by customer arising

from sale of goods or services in the ordinary course of business". When a

firm makes an ordinary sale of Goods or services and does not receive

payment, the firm grants trade credit and Creates accounts receivables, which

could be collected in the future. Receivables Management is also called trade

credit to customers, allowing them a reasonable period of time in which to pay

for the goods received.

The main objective of receivables management is too promote sales and

profits until that point is reached where the return on investment in further

funding receivable is less than the cost of funds raised too finances that

additional credit.

The main aim of accounts Receivables management is to maintain a

trade of between profits (benefit) and risk (Cost) that is to say, the decision too

commit funds too receivable (or the decision too 1 be based on a comparison

grant credit) will be based on a comparison of the benefits and costs involved

while benefits and costs involved while determining the optimum level of

receivables. The cost and benefits to be compared are marginal cost and

benefits. The firm should only consider the incremental (additional) Marginal

cost and benefits. The firm should only consider the incremental (additional)

benefits and cost that result from a change in the receivables or trade credit

policy.

PAYABLE MANAGEMENT

Management of accounts payable is as much important a management

of accounts receivable of course, there is a basic difference between the

approaches to be adopted by the Finance Manager in the two cases. Whereas

the underlying objective in case of accounts receivables is to maximize the

acceleration of collection process, the objective in case of accounts payable is

to slow down the payments process as much as possible. But it should be

noted that delay in payments of accounts payable may result in saving of some

interests costs but it can prove very costly to the firm in the form of loss of

credit in the market. The finance Manager has, therefore, to ensure that the

payments to the credits are made at the stipulated time period after obtaining

the best credit term possible.

Control of accounts payable:

Computing the average age of payables can do this. This may be calculated by

any of the following methods.

Months or days in the period / accounts payable turnover.

Accounts payable turnover = Credit purchase in the period / average

Accounts payable.

Average accounts payable / average month / daily credit purchases. Average accounts payable x months / days in the period / credit purchasesduring the period.

RATIO ANALYSIS Liquidity Ratios:

It is extremely essential for a firm to be able to meet its obligations as

they become due. Liquidity ratios measure the ability of the firm to meet its

current obligations. Intact, analysis of liquidity needs the preparation of cash

budgets and cash and fund flow statements; but liquidity ratios, by

establishing a relationship between cash and other current assets to current

obligations, provide a quick measure of liquidity. A firm should ensure that it

does not suffer from lack of liquidity, and also that it does not have excess

liquidity. The failure of a company to meet this obligations due to lack of

sufficient liquidity, will result in a poor credit worthiness, loss of creditors'

confidence, or even in legal tangles resulting in the closure of the company. A

very high degree of liquidity is also bad; idle assets earn nothing. The firm's

funds will be unnecessarily tied up in current assets. Therefore, it is necessary

to strike a proper balance between high liquidity and lack of liquidity.

The most common ratios which indicate the extent of liquidity or lack of it are

(i) Current ratio and (ii) Quick ratio, other ratios include cash ratio, interval

measure and networking capital ratio.

Current Ratio:

The current ratio is calculated by dividing current assets by current liabilities.

Current Assets

Current Ratio = ---------------------

Current Liabilities

Current assets include cash and those assets which can be converted

into cash within a year, such as marketable securities, debtors and inventories.

Prepaid expenses are also included in current assets as they represent the

payments that will not be made by the firm in the future. All obligations

maturing within a year are included in current liabilities. Current liabilities

include creditors, bills payable, accured expenses, short-term bank loan,

income-tax liability and long-term debt maturing in the current year.

Quick Ratio:

Quick ratio establishes a relationship between quick, or liquid, assets and

current liabilities. An asset is liquid if it can be converted into cash

immediately or reasonably soon without a loss of value. Cash is the most

liquid asset. Other assets which are considered to be relatively liquid and

included in quick assets are debtors and bills receivables and marketable

securities (temporary quoted investments). Inventories are considered to be

less liquid. Inventories normally require some time for realising into cash their

value also has a tendency to fluctuate. The quick ratio is found out 6y dividing

quick assets by current liabilities.

Current assets – Inventories

Quick Ratio = ---------------------------------

Current Liabilities

Since cash is the most liquid asset, a financial analyst may examine cash ratio and its equivalent to current liabilities. Trade investment or marketable securities are equivalent of cash, therefore, they may be included in the computation of cash ratio.

Cash in HandCash ratio = ---------------------

Current Liabilities

Activity Ratios:

Funds of creditors and owners are invested in various assets to generate

sales and profits. The better the management of assets. The larger the amount

of sales. Activity ratios are employed to evaluate the efficiency with which the

firm manages and utilises its assets. These ratios are also called turnover ratios

because they indicate the speed with which assets are being converted or

turned over into sales. Activity ratios, thus, involve a relationship between

sales and assets. A proper balance between sales and assets generally reflects

that assets are managed well. Several activity ratios can be calculated to Judge

the effectiveness of asset utilization.

Inventory Turn Over :

Inventory turnover ratio indicates the efficiency of the firm in producing and

selling its products. It is calculated by dividing the total sales by the average

inventory.

Total Sales

Inventory Turnover

Average Inventory

TABLE-1

SCHEDULE OF CHANGES IN WORKING CAPITAL OF SANGAM DAIRY FOR THE YEAR ENDED 2003-2004

(Rs.In lakhs).

PARTICULARS 2002-2003

2003-2004

Effect in working capital

Current assets loans &advances

Increase Decrease

A Current assetsCash in hand 2.19 2.80 0.61 ……Cash at bank 328.90 204.38 -- 124.52Postage 0.01 0.01 ---- --Closing Stock 2229.15 2336.96 107.81 ---Sunday debtors 693.63 604.73 ---- 88.90Advances& deposits 168.69 208.09 39.40 ----Total current assets 3422.57 3356.97 ----- 65.6

B Current liabilitiesDeposits 320.84 329.68 8.84 ----Suspense 39.04 12.75 ---- 26.29Sunday creditors 513.38 542.95 29.57 ----Outstanding expenses

40.28 43.24 2.96 ----

Profits&loss adjustment accounts

5.47 3.89 ---- 1.58

Total current liabilities

919.01 932.51 13.5 ----

A-B

WORKING CAPITAL

2503.56 2424.46 --- 79.1

Net decrease in working capital

----- 79.10 79.10 ----

Total 2503.56 2503.56 281.79 385.99

Source: Annual reports of SANGAM DAIRY

TABLE-1A

SANGAM DAIRY FOR THE YEAR 2003-2004 FUNDS FLOW STATEMENT OF

(Rs.In lakhs)SOURCE Rs. APPLICATION Rs.Net decrease in working capital

79.10 ----------------- -----

Funds from operation 2.20 Purchase of fixed assets 81.30Total 81.30 Total 81.30

It is observed from table-1 the net working capital decreased by Rs.79.10lakhs for the year 2003-2004 i.e. 3.15% when compare to the previous year. Advances and deposits were increased by Rs.39.40 lakhs for the year 2003-2004 i.e. 20.26% to 18.01% Rs.107.81 lakhs increased the closing stock for the year 2003-2004 i.e. 65.13% to 69.62% in the year 2004.Cash at bank balance was decreased by Rs.124.52 lakhs for the year 2003-2004 i.e. 9.60% to 6.08% in the year 2003-2004 The total current liabilities were decreased when to compare to thee previous year So, the next working capital was decreased when to compare to the previous year.

TABLE-2

SCHEDULESOF CHANGES IN WORKING CAITAL OF SANGAM DAIRY FOR THE YEAR ENDED 2004-2005

(Rs.In lakhs)

PARTICULARS 2003-2004 2004-2005 Effects on working capital

Current assetsloans& advances

Increase Decrease

A Current assetsCash in hand 2.80 2.41 ---- 0.39Cash in bank 204.38 962.32 757.94 ----Postage 0.01 0.01 ---- ---Closing stock 2336.96 2129.49 ---- 207.47Sunday debtors 604.73 322.53 --- 282.20Advance&deposits

208.09 243.41 35.32

Total currentAssets

3356.97 3660.17 303.2 ----

B Current liabilitiesDeposits 329.68 336.52 6.84Suspense 12.75 23.31 10.56 ----Sundry creditors 542.95 505.54 ---- 37.41OutstandingExpenses

43.24 36.29 ---- 6.95

Profit & lossAdjustmentAccount

3.89 3.90 0.01 ----

Total current liabilities

932.51 905..56 --- 26.95

A-B WORKINGCAPITAL

2424.46 2754.61 330.15 ----

Net increase inworking Capital

330.15 ---- ---- 330.15

TOTAL 2754.61 2754.61 1444.02 891.52

Source: Annual report of Sangam dairy.

TABLE -2A


(Rs.In lakhs)SOURCE Rs. Application Rs.

---- --- Net increase in working capital

330.15

Funds from operation

349.42 Purchased of fixed assets

19.27

Total 349.42 Total 349.42

It is observed fro table-2 the net working capital was increase by

Rs.330.15 Lakhs for the year 2004-2005 i.e. 13.5% when compare to the

previous year. Advanced deposits were increased were increased by Rs.35.32

lakhs for the year 2004-2005 i.e. 6.19% to 8.81% Closing stock decreased by

Rs.207.47lakhs for the year 2004-2005 i.e. 69.61 %to 58.18% Cash in hand

balance were decreased by Rs.0.39 lakhs for the year 2004-2005 i.e. 0.08%

The cash at bank balance was increase by Rs.757.49 lakhs for the year

2004-2005 Total current liabilities were increased when to compare to the

previous year. Automatically working capital was increased, because of

current liabilities were increased, and other than working capital was

increased.

TABLE-3

SCHEDULE OF CHANGES IN WORKING CAPITAL OF SANGAM DAIRY FOR THE ENDED 2005-2006

(Rs. In l akhs)

PARTICULARS 2004-2005 2005-2006 Effect on working capital


Increase Decrease

A Current assetsCash in hand 3.86 4.84 0.98 -----Cash in bank 908.26 550.16 ------

358.10Postage .05 0.04 ------ 0.01Closing stock 2255.90 2334.88 78.98 -----Sunday debtors 353.00 369.90 16.90 ----Advance& deposits 77.96 77.96 ---- ----Total current assets 3599.48 3337.78 ---- 216.7

B Current liabilitiesDeposits 342.22 344.70 2.48

----Suspense 25.64 24.94 ---- 0.70Sundry creditors 30.93 57.54 26.61 -----

OutstandingExpenses

540.46 399.15 -------- 141.31

Profit& lossadjustment

account

25.41 4.38 ----- 21.03

Total current liabilities 964.66 830.71 --- 133.95

A-B WORKINGCAPITAL

2634.82 2507.07 ----- 127.3

Net decrease inworking capital

----- 127.30 127.30 ----

Total 2634.82 2634.82 253.25 1002.07

Source: Annual reports of Sangam dairy.

TABLE -3A


(Rs.In lakhs)SOURCE Rs. APPLICATION Rs.Net decrease in working capital

120.24 ------ ----

Funds from 4.89 Purchased of 125.13

operation fixed assetsTotal 125.13 Total 125.13

It is observed from table 6 the networking capital was increased by

Rs.120.24 lakhs for the year 2005-2006 i.e. 4.50% when compared to the

previous year. Advances and deposits were decreased by Rs.165.45 lakhs for

the year 2005-2006 i.e. 6.65% to 2.16% The deptors were increased by

Rs.30.47 lakhs for the year 2005-2006 i.e. 8.81% to 9.80%. the closing stock

was increased by Rs.126.41 lakhs for the year 2005-2006 i.e. 58.18% to

62.68% cash at hand balance was increased by Rs.1.45 lakhs for the year

2005-2006 i.e. 0.06% to 0.10% in 2004-2005. Nearly total current liabilities

were dreased when to compared to the previous year.then automatically

working capital was increased when to compared to the previous year.

TABLE-4


(Rs. In l akhs)



Increase Decrease

A Current assets

Cash in hand 3.86 4.84 0.98 -----Cash in bank 908.26 550.16 ------

358.10Postage .05 0.04 ------ 0.01Closing stock 2255.90 2334.88 78.98 -----Sunday debtors 353.00 369.90 16.90 ----Advance& deposits 77.96 77.96 ---- ----Total current assets 3599.03 3337.78 ---- 216.7


----Suspense 25.64 24.94 ---- 0.70Sundry creditors 30.93 57.54 26.61 -----

OutstandingExpenses

540.46 399.15 ------- 141.31


account

25.41 4.38 ------ 21.03


A-B WORKINGCAPITAL

2634.37 2507.07 ----- -----

Net decrease inworking capital

----- 127.30 127.30 ----

Total 2634.82 2634.82 253.25 1002.07Source: Annual reports of Sangam dairy.

TABLE -4A


(Rs.In lakhs)SOURCE Rs. APPLICATION Rs.Net decrease working capital

127.30 ------ ----



130.27


It is observed from table-4 the networking capital of the company was

increased by Rs.127.30 lakhs for the year 2006-2007 i.e. 0.24% when

compared to the previous year. There were no changes in Advances and

deposits were decreased by Rs.165.45 lakhs for the year 2006-2007 i.e. 5.21%

to 6.40% closing stock was increased by Rs.78.98 lakhs for the year 2006-

2007 i.e. 52.42% to 63.36% cash in hand balance was increased by Rs.0.98

lakhs for the year 2006-2007 i.e. 0.04% to 0.8% in 2006-2007. the total

current liabilities were dreased when to compared to the previous year so

working capital increased when to compared to the previous year.

TABLE-5


(Rs. In l akhs)



Increase Decrease

A Current assetsCash in hand 4.84 3.08 1.76Cash in bank 550.16 442.95 ------

107.21

Postage 0.04 0.01 ------ 0.03Closing stock 2334.48 2222.92 78.98 ------Sunday debtors 369.90 210.66 ---- 111.96Advance& deposits 77.96 80.97 3.01 ----Total current assets 3337.78 2960.59 ---- 377.19


----Suspence 24.94 27.10 2.16 ---

Sundry creditors 57.54 12.18 ---- 45.36OutstandingExpenses

399.15 362.52 ------ 36.63


account

4.38 5.10 0.72 ----


A-B WORKINGCAPITAL

2507.07 2204.02 ----- -----


----- 303.05 303.05 ----

Total 2507.07 2507.07 392.89 754.28


TABLE -5A


(Rs.In lakhs)

SOURCE Rs. APPLICATION Rs.Net decrease in working capital

303.05 Funds loss from operation

273.78



29.27


It is observed from table-5 the networking capital of the company was

decreased by Rs. 303.05 lakhs for the year 2007-2008 i.e. 0.34% when

compared to the previous year. There were no changes in Advances and

deposits in this year 2007-2008 3.01debtros were decereased by

Rs.159.24lakhs for the year 2007-2008 i.e. 6.4% to 7.21% cash in hand

balance of was decreased by Rs.1.76lakhs for the year 2007-2008 i.e. 0.21%

this year 2007-2008. the total current liabilities were decreased when to

compared to the previous year so working capital increased when to compared

to the previous year.

TABLE-6


(Rs. In l akhs)



Increase Decrease

A Current assetsCash in hand 3.08 3.86 0.78 ----

Cash in bank 442.95 908.26 465.31 -----Postage 0.01 0.05 0.04 -----Closing stock 2222.92 2255.90 32.98 ------Sunday debtors 210.66 353.00 142.34 -------Advance& deposits 80.97 77.96 ---- 3.01Total current assets 2960.59 3599.48 638.89 ------

B Current liabilitiesDeposits 349.70 342.22 ----- 7.48

Suspence 27.10 25.64 ----- 1.46Sundry creditors 12.18 30.93 18.75 -----

OutstandingExpenses

362.52 540.46 177.94 ------


account

5.10 25.41 20.41 ----

Total current liabilities 756.57 964.66 208.09 -----

A-B WORKINGCAPITAL

2204.02 2634.82 ----- -----


430.8 ----- 430.8

Total 2634.82 2634.82 1705.43 442.75


TABLE -6A


(Rs.In lakhs)SOURCE Rs. APPLICATION Rs.----- ------ Funds loss from

operation430.80



------


Comparative Balance Sheet of sangam dairy for the year 2002- 2003

( Rs. In Crores)

Particulars 2001 2002 Change % Changes

Liabilities 10Crores 10Crore -- --

Authorised Share Capital 68206000 2105200 112540 5.65

Paid up Capital

It is observed from Table-6, the networking capital of the Company was

increased by Rs.17.98 Lakhs for the year 2008-2009. Debtors were decreased

by Rs.16.91 Lakhs for the year 2007-2008. That is 7.11% to 4.86%. Closing

stock was increased by Rs. 203.19 Lakhs for the year 2007-2009. That is

75.08% to 79.34%. Cash in hand balance was increased by Rs.5.53 Lakhs for

the year 2008 and 2009. That it 0.1% to 0.28%. For the year 2008-2009.The

total Current Liabilities were decreased when compare with the previous year,

so working capital increased when compared to the previous year.

TABLE-1

CURRENT RATIO OF THE "SANGAM DAIRY" DURING THE YEAR 2003-2009.

The current ratio is a measure of the firm's short-term solvency. It

indicated the availability of current assets in Rupees for every one rupee of

current liability. A ratio of greater than two means that the firm has more

current assets than current claims against.

Current assetsCurrent ratio =---------------------

Current liabilities

YEAR Current assets Current liabilities

Current ratio

2003-2004 3356.97 932.51 3.59

2004-2005 3660.17 905.56 4.04

2005-2006 3599.03 964.66 3.73

2006-2007 3337.78 830.71 4.01

2007-2008 2960.59 756.57 3.91

2008-2009 3226.57 835.88 3.86

Graphical Representation :

INTERPRETATION:

The above chart shows the current ratio of sangam dairy for the past 6

years. It is observed in the table that the current ratio varies between 3059 and

4.04. The current assets are gradually increased to an extent of Rs 3660. 17

lakhs in the year 2003-2004 and then they are decreased in the following

years. This ratio is above the standard norms of 2:1 during the period of

study. The company stands high working capital. Where as the current

liabilities are also steadily increased yearly to an extent of Rs. 964.66 lakhs in

the year 2004-2005. After that they are suddenly decreased to Rs. 830.71

lakhs. It is further observed from the table, the short term liquidity of the

company is good.

Table – 2

INVENTORY RATIO OF THE "SANGAM DAIRY" DURING THE YEARS 2003-2009

It indicated the efficiency of the firm in producing and selling its product.

InventoryInventory ratio = -------------------

Current Assets

Year Inventory Current assets Ratio

2003-2004 2336.91 3356.97 0.69

2004-2005 2129.49 3660.71 0.58

2005-2006 2255.90 3599.03 0.62

2006-2007 2334.88 3337.78 0.70

2007-2008 2222.92 2960.59 0.75

2008-2009 2426.22 3226.57 0.75

Graphical Representation:

INTERPRETATION:

From the above chart, it is observed that the inventory ratio of sangam

dairy has been increasing in the past 6 years. The inventory ratio varies

between 0.58 & 0.75 times/The inventory has increased yearly to an extent of

Rs. 2336.91 lakhs in the year 2002-2003. And then it suddenly decreased. And

again it increased gradually for the following years. Where the current assets

are increasing and decreasing year by year. The current assets of more of Rs.

3660.17 lakhs in the year 2003-2004. This ratio explains the proportion of

inventory in the current assets.

TABLE – 3

INVENTORY TURN OVER RATIO OF THE “ SANGAM DAIRY” DURING THE YEAR 2003 – 2009.

It is indicates that the efficiency of the firm in producing and selling its product.

Cost of goods soldInventory turnover ratio = -----------------------

Average Stock

Year Cost of goods sold Average Stock Ratio

2003-2004 9079.95 1631.44 5.56

2004-2005 9691.04 1965.61 4.92

2005-2006 9491.93 2283.03 4.15

2006-2007 8347.01 2233.20 3.75

2007-2008 9913.50 2278.06 4.35

2008-2009 10623.86 2324.22 4.57


s

INTERPRETATION:

From the above chart, it is observed that table – 9 that the inventory turnover

ratio of the Sangam Dairy has been fluctuates past seven years that the

inventory turnover ratio varies. The cost of goods sold are gradually increased

to an extend of Rs 10623.86 lakhs in the year 2007-2008. The average

inventory is also steadily increased yearly to an extent of Rs.23245.22 lakhs in

the year 2007-2008. The inventory turnover ratio shows fluctuations during

the period under study.

TABLE - 4

QUICK RATIO OF THE "SANGAM DAIRY" DURING THE YEARS2003-2009.

Quick Ration establishes a relationship between quick or liquid assets and

current liabilities. An asset is liquid if it can be converted into cash

immediately or reasonably soon without a loss of value. Cash is the most

liquid asset. Other assets that are considered to be relatively liquid and

included in quick assets are debtors' and bills receivables and marketable

securities. Inventories are liquid.

Quick AssetsQuick Ratio = -----------------------

Current liabilities

Year Quick Assets Current Liabilities

Quick Ratio

2003-2004 1020.06 932.51 1.09

2004-2005 1530.68 905.56 1.69

2005-2006 1343.13 964.66 1.39

2006-2007 1002.90 830.71 1.20

2007-2008 737.67 756.57 0.97

2008-2009 631.77 835.88 0.75


INTERPRETATION:

The above chart shows the quick ratio of Sangam Dairy for the period

2003-2009. It is observed table 10 that quick ratio varies between 0.75 and

1.69 times. The quick ratio is above the standard norm of 1:1. During the year

2003 to 2007 entire period of study the quick assets are strictly decreased year

by year. Then they suddenly increased in the next year and decreased in the

following years. Whereas the current liabilities are decreased all the years

based on the above analysis it is further observed that the short term solvency

of the company is satisfactory.

TABLE-5

NET WORKING CAPITAL OF THE "SANGAM DAIRY" DURING THE YEARS 2003-2009

The Net Working Capital is the different between Current Assets and Current

Liabilities.

The Net Working Capital is the liquidity left with the company after deducting

the current Liability obligations.

Net Working Capital = Current Assets - Current Liability

Year Current Assets Current Liabilities

Net Working Capital

2003-2004 3356.97 932.51 2424.46

2003-2005 3660.17 905.56 2754.61

2004-2006 3599.03 964.66 2634.37

2005-2007 3337.78 830.71 2507.07

2006-2008 2960.59 756.57 2204.02

2007-2009 3226.57 835.88 2390.69


INTERPRETATION:

In the above chart it is observed table 11. That the networking capital of

Sangam Dairy varies between Rs.2108.68 lakhs and Rs.2754.61 lakhs for the

year 2003-04, the company has high amount of net working capital. The

current assets are showing very high in the year 2003-04 i.e. Rs.3660.17 lakhs,

the current liabilities are gradually decreased year by year. The networking

capital of Sangam Dairy has been showing a mix fed trend during the period

of study. But it is increased to level of Rs.2390.69 in the year2006-08.

TABLE-6

CURRENT ASSETS TURNOVER RATIO OF THE "SANGAM DAIRY" DURING THE YEARS 2003-2009.

The analysis is useful to find out whether the company is investing sufficient amount in Current Assets or not.

SalesCurrent Assets Turnover Ratio = -----------------

Current Assets

Year Sales Current Assets Current Ratio

2003-2004 10955.45 3356.97 3.26

2004-2005 11327.36 3660.17 3.09

2005-2006 11159.77 3599.03 3.10

2006-2007 9754.17 3333.78 2.92

2007-2008 11315.91 2960.59 3.82

2008-2009 13608.00 3226.57 4.21


INTERPRETATION:

The above table shows thai current assels turnover ralio of the sangam

dairy for the past 6 years it is observed in the table that the current assets

turnover ratio varies between 1.76 and 3.26 times. T'he sales arc gradually

increased to the extent of Rs. 11,327 .36 lakhs. In the year 2003-2004. then

they are decreased in the following years. Where as the current assets are also

steadily increased yearly an extent of Rs. 3660. 17 lakhs in the year 2003-

2004, After that they are suddenly decreased to Rs. 3337.78 lakhs. This ralio is

maximums in the years 2004-2005 and it is increased up to this year and in the

year it started declining

TABLE - 7

CASH & BANK BALANCE TO CURRENT ASSETS OF THE "SANGAM DAIRY" DURING THE YEARS 2003-2009.

This analysis is useful to find weather the company is investing sufficient amounts in Current or not.

Cash & Bank balanceCash & Bank balance to Current Assets Ratio = -------------------------- Current Assets

YearCash & Bank balance

Current AssetsCash & Bank balance to Current Assets

2003-2004 207.19 3356.97 0.06

2004-2005 964.74 3660.17 0.26

2005-2006 912.17 3599.03 0.25

2006-2007 555.00 3337.78 0.16

2007-2008 446.03 2960.59 0.15

2008-2009 402.24 3226.57 0.124


INTERPRETATION:

The above chart shows the "Cash & Bank balance to current assets

Ratio" of the Sangam dairy for the study period. It is observed that the cash

and bank balances of the company are high of 964.74 lakhs in the year 2003-

2004. And in the present year they are showing a balance of Rs. 555.05 lakhs.

Where as the current assets are also avowing a maximum of Rs. 3660. 17

lakhs in the year 2003-2004. They are showing a balance of Rs. 3337.78 lakhs

for the present year. The ratio of these two varies between 0.06 in the year

2003-2004 and 0.26 in the year. This ratio has been declined up to the year

2003-2004 and then started increasing and reached to 0.25 times in the years

2005-2006.

TABLE - 8WORKING CAPITAL TURNOVER RATIO "SANGAM DAIRY" DURING THE YEARS 2003-2009

The Ratio indicates weather or not Working Capital has been efficiently utilized in making Sales. In case a Company can achieve a higher volume of Sales with relatively small amount of Working Capital. It is indicator of the operating efficiency of the Company.

SalesWorking Capital Turnover Ratio = ----------------------

Working Capital

Year Sales Working Capital

Ratio

2003-2004 10955.45 2424.46 4.51

2004-2005 11327.36 2754.61 4.11

2005-2006 11159.77 2634.37 4.23

2006-2007 9754.17 2507.07 3.89

2007-2008 11315.91 2204.02 5.13

2008-2009 13608.00 2390.69 5.69


INTERPRETATION:

The above chart shows that the working capital turnover ratio of the

Sangam Dairy for the past six years. It is observed in the table that the

working capital turnover ratio varies between 2.89 and 4.51 in the year 2003-

2004. The sales are gradually increased of an extent of Rs. 11327.36 lakhs. In

the year 2004-2005 and then they are decreased in the following years. Where

as the working capital are increase Rs. 2754.61 lakhs in the year 2003-2004.

After that they are suddenly decreased to Rs.2507.07 lakhs and it is continued

to till 2008-2009.

Comparative Balance sheet of Sangam Dairy for the Year 2002-2003Particulars 2003 2004 Increase DecreaseLiabilitiesAuthorized share Capital 100000000 10000000 ---- ----

Paid up Capital 68206000 68206000 ---- ----Reserve & SurplusReserve & Fund 1992660 2105200 112540 ----Co-operative Education Fund

618363 674633 56270 -----

Divided Fund 201958 201958 ---- ----Utility Fund 35805 35805 ---- ----Deficiency Recumbent Fund 4838295 562315 ---- 4275980-Price Fluctuation Fund( From Profit)

1172720 128039 ---- 1044681

Price Fluctuation Fund( From sale Price)

1172720 128039 ---- 1044681

Building Construction Fund 1760462 1760462 ---- ----Other ReserveReserve for Construction of Building through ordinary fund

130610 130610 ----

Cattle Feed doubtful Reserve 39701 39701 ---- ----Creditors feed doubtful Reserve

41611 67225696 67184085 ----

Subsidies and Charities 44923434 44923434 ---- ----Depreciation Reserve 137042804 146952561 9909757 ----Subside Reserve on Machinery Investment

4829627 4829627 ----- -----

Liabilities and Deposities 191533018 178381477 ---- 13151541Undistributed profits 1125396 547401 ---- 577995LiabilitiesCurrent LiabilitiesDeposits 32083973 32968809 884836 ----Suspense 3904412 1275863 ----- 2628549Payments to be made & allocation

51338671 54295201 2956530 ----

Creditors 4028086 4320931 292845 ----P & L Adjustments a/c 547401 389106 ---- 158295

Fixed assets 556721422 558291711 1570289 ----Land 1246672 1246672 ---- ----Buildings 54845041 56765711 1920670 ----Machinery 121932026 125098024 3165998 ----Motor Vehicles 7945795 7987413 41618 ----Furniture etc., 2549680 2697966 14286 ----Cans 21435319 22968139 1532820 ----Other Assets 3334793 3334001 ---- 792Assets & Under Construction

1152475 2473317 1320842 ----

InvestmentsGDCCB, Tenali 1000 1000 ---- ----

APDDCF, Hyd 25000 25000 ---- ----APSCB Deposits Advances 50 50 ---- ----Deposits 8092583 7177367 ---- 915216Advance Given to other Institutions

7059492 5812290 ---- 1247202

Advance given to employees 1925939 8034900 6108961 ----Advance given to Contractors forConstruction purpose -214208 -214208 ---- ----Debtors 69363641 60473022 ---- 8890619Closing Stock 222915518 233691858 10776340 ----Cash Bank BalancesCash 219625 280635 61010 ----Cash at Bank 32890712 20438283 ----- 12452429Postage 264 264 -- --Total (1+2+3) 556721422 558291711 108067307 45265680

Comparative Balance sheet of Sangam Dairy for the Year 2003-2004

Particulars 2004 2005 Increase DecreaseLiabilitiesAuthorised share Capital 100000000 100000000 ---- ----Paid up Capital 68206000 68206000 ---- ----Reserve & SurplusReserve & Fund 2105200 2159945 547450 ----

Co-operative Education Fund 674633 702008 27375 ----Divided Fund 201958 201958 ---- ----Utility Fund 35805 35805 ---- ----Deficiency Recumbent Fund 5682315 6092851 410536 ----Price Fluctuation Fund ( From Profit)

1285260 134005 54745 ----

Price Fluctuation Fund ( From sale Price)

2518039 2518039 ---- ----

Building Construction Fund 1760462 1760462 ---- ----Other ReserveReserve for Construction of Building through ordinary fund

130610 130610 ---- ----

Cattle Feed doubtful Reserve 39701 39701 ---- ----Creditors feed doubtful Reserve

67225696 67225696 ---- ----

Subsidies and Charities 44923434 44923434 ---- ----Deiriciation Reserve 146952561 155965370 9012809 ----Subside Reserve on Machinery Investment

4829627 4829627 ---- ----

Liabilities and Deposities 178381477 211182611 32801134 ----Undistributed profits 547401 389106 ---- 158295LiabilitiesCurrent LiabilitiesDeposits 32968809 33652069 683260 ----Suspense 1275863 2331623 1055760 ----Payments to be made & allocation

54295201 505554218 3740983 ----

Creditors 4320931 369161 ---- 3951770P & L Adjustments a/c 389106 390129 1023 ----

558291711 558291711 1570289 ----Fixed assetsLand 1246672 1246672 ---- ----Buildings 56765711 57077445 311734 ----Machinery 125098024 128457009 3358985 ----Motor Vehicles 7987413 6356784 ---- 1630629Furniture etc., 2697966 2708146 10180 ----Cans 22968139 24202533 1234394 ----Other Assets 3334001 3193701 ---- 140300Assets & Under Construction 2473317 1255873 ---- 1217144InvestmentsGDCCB, Tenali 1000 1000 ---- ----APDDCF, Hyd 25000 25000 ---- ----APSCB Deposits Advances 50 50 ---- ----Deposits 7177367 9067586 1890219 ----Advance Given to other Institutions

5812290 5116215 ---- 696075

Advance given to employees 8034900 10372003 2337103 ----Advance given to Contractors forConstruction purpose -214208 -214208 ---- ----Debtors 60473022 32253702 ---- 28219320Closing Stock 233691858 212949270 ---- 20742588Cash Bank BalancesCash 280635 241115 ---- 39520Cash at Bank 20438283 96232483 75794245 ----Postage 264 1343 1079 ----Total (1+2+3) 558291711 590543728 134843303 55578497


Particulars 2005 2006 Increase DecreaseLiabilitiesAuthorised share Capital

100000000 100000000 ---- ----

Paid up Capital 68206000 68206000 ---- ----Reserve & SurplusReserve & Fund 2159945.70 2237868.70 77923 ----Co-operative Education Fund

702008.03 712008.03 1000 ----

Divided Fund 201958.78 201958.78 ---- ----Utility Fund 35805.74 35805.74 ---- ----

Deficiency Recumbent Fund

6092851.68 6706242.33 613391 ----

Price Fluctuation Fund ( From Profit)

134005 1417928 77723 ----


2518039 2518039 ---- ----

Building Construction Fund

1760462 1760462 ---- ----

Other ReserveReserve for Construction of Building through ordinary fund

130610.34 130610.34 ---- ----

Cattle Feed doubtful Reserve

39701.40 39701.40 ---- ----

Creditors feed doubtful Reserve

67225696.59 67225696.59 ---- ----

Subsidies and Charities

44923434.92 44923434.92 ---- ----

Deiriciation Reserve 155965370.61 164364799.69 8399429 ----Subside Reserve on Machinery Investment

4829627.69 4492434.92 ---- 337192.77

Liabilities and Deposities

211182611. 209374185 ---- 1808426

Undistributed profits 389106075 ---- 389106075LiabilitiesCurrent LiabilitiesDeposits 33652069.13 34222325.96 570256 ----Suspense 2331623.24 2564474.14 232851 ----Payments to be made & allocation

505554218.98 54046115.07 3490896.09 ----

Creditors 369161.42 3093114.08 6722275 ----P & L Adjustments a/c

390129.9 2541070.85 2150494 ----

590543728.11 612522682.01 21978954 ----Fixed assetsLand 1246672.14 1246672.14 ---- ----Buildings 57077445.83 57077445.83 ---- ----Machinery 128457009.21 132367452.21 3358985 ----Motor Vehicles 6356784.42 6444044.38 87259.96 ----Furniture etc., 2708146.48 2708146.48 ---- ----Cans 24202533.65 24165638.48 ---- 36895.17Other Assets 3193701.53 3193701.53 ---- ----Assets & Under Construction

1255873.3 6655442.80 5399569 ----

InvestmentsGDCCB, Tenali 1000 1000 ---- ----APDDCF, Hyd 25000 25000 ---- ----APSCB Deposits Advances

50 ---- 50

IFCO -- 5,00,000 5,00,000 ----M.M.M.F Hyd -- 2000000 2000000 ----Deposit AdvancesDeposits 9067586.10 7796337.10 ---- 1271249Advance Given to other Institutions

5116215.07 4501682.29 ---- 614533

Advance given to employees

10372003.53 11945370.96 1573367 ----

Advance given to Contractors forConstruction purpose 214208.61 214208.61 ---- ----Debtors 32253702.27 35300454.59 3046752 ----Closing Stock 212949271 225590531.97 12641261 ----Cash Bank BalancesCash 241115.97 386191.68 145076 ----Cash at Bank 96232483.17 9082625.01 ---- 5406218Postage 1343 5463 4120 ----Total (1+2+3) 590543728.1 612522682 73071582.05 398580638


Particulars 2006 2007 Increase DecreaseLiabilitiesAuthorised share Capital

100000000 100000000 ---- ----

Paid up Capital 68206000 68206000 ---- ----

Reserve & SurplusReserve & Fund 2237868.70 2491975 254106.30 ----Co-operative Education Fund

712008 717008 ---- ----

Divided Fund 201958 201958 ---- ----Utility Fund 35805.74 35805.74 ---- ----Deficiency Recumbent Fund

6706242.33 7087403 381160.67 ----


---- ---- ---- ----


2518039 4327640 1809601 ----


1760462.95 1760462.95 ---- ----

Other ReserveBuilding through ordinary fund

130610.34 130610.34 ---- ----


39701.40 39701.40 ---- -----


41611.92 41611.92 ---- ----


44923434.92 44923434.92 ---- ----

Deiriciation Reserve 164364799.69 173823825.00 9459025.4 ----Subside Reserve on Machinery Investment

4492434.92 4492434.92 ---- ----

Liabilities and Reserve

209374185 209374185 ---- ----

Undistributed profits ---- ---- ---- ----LiabilitiesCurrent LiabilitiesDeposits 34222325.96 34469974 247648.04 ----Suspense 2564474 2494045 ---- 70429Payments allocation 54046115 39915499 ---- 14130616Creditors 3093114.08 5754717 2661602.92 ----P & L Adjustments 2541070.85 2331090.85 ---- 209980

612522682.01 596248465.47 ---- 16274216.6Fixed assetsLand 1246672.14 1246672.14 ---- ----Buildings 57077445.83 58304811.23 1227365.4 ----Machinery 132367452.21 147612971.37 15245519.1 ----Motor Vehicles 6444044.38 6089165.23 ---- 354879.15Furniture etc., 2708146.48 2708146.48 ---- ----Cans 24165638.48 24129378.34 ---- 36260.31Other Assets 3193701.53 3271859.21 78157.68 ----Assets & Under Construction

6655442.80 72732.35 ---- 6582710.45


50 50 ---- ----

IFCO 5,00,000 5,00,000 --- ----

M.M.M.F Hyd 2000000 2000000 ---- ----Deposit AdvancesDeposits 7796337.10 7796337.10 ---- ----Advance Given to other Institutions

4501682.29 5403582.34 901900.05 ----

Advance employees 11945370.96 1066361.35 ---- 1281760.61Advance given to Contractors forConstruction purpose

214208.61 438791.65 220583.04 ----

Debtors 35300454.59 36990174.59 1689720 ----Closing Stock 225590531.97 233488441.23 7897909.93 ----Cash Bank BalancesCash 386191.68 484878.26 98686.58 ----Cash at Bank 9082625.01 55016402.03 35809862.98 35809862Postage 5463 4461 ---- 1002Total (1+2+3) 612522682 596248467 77982849.09 74751716.2

Comparative Balance sheet of Sangam Dairy for the Year 2006-2007Particulars 2007 2008 Increase DecreaseLiabilitiesAuthorised share Capital

100000000 100000000 --- ----

Paid up Capital 68226000 68226000 ---- ----Reserve & SurplusReserve & Fund 2491975 2535239.70 4326.47 ----Co-operative Education Fund

717008 72208.03 5000.03 ----

Divided Fund 201958 201958 ---- ----Utility Fund 35805.74 35805.74 ---- ----Deficiency Recumbent Fund

7087403 7333315.25 245912 ----


33187320 3362594.85 43864 ----

Price Fluctuation 4327640 4327640 ---- ----Building Construction Fund

1760462.95 1760462.95 ---- ----

Other Reserve

Reserve for Construction of Building through ordinary fund

130610.34 130610.34 ---- ----


39701.40 39701.40 ---- ----


41611.92 41611.92 ---- ----

Debtors feed doubtful Resrve

6725696.59 6725696.59 ---- ----


44923434.92 44923434.92 ---- ----

Deiriciation Reserve

173823825.00 180033323.11 6209498.1 ----

Subside Reserve on Machinery Investment

4492434.92 4492434.92 ---- ----


209374185 160360089.00 ---- 49014096

Undistributed ---- ---- ---- ----LiabilitiesCurrent LiabilitiesDeposits 34469974 34407898.30 ---- 62075.7Suspense 2494045 2710522.23 216477.23 ----Payments to be made & allocation

39915499 36652177.1 ---- 3263321.7

Creditors 5754717 1218314.05 ---- 4536402.95P & L Adjustments 438639.92 510622.58 71982.66 ----Fixed assets 596248465.47 561349254.53 ---- 34899211.06

Land 1246672.14 1246672.14 ---- ----Buildings 58304811.23 58304811.23 ---- ----Machinery 147612971.37 150557326.01 2944354.70 ----Motor Vehicles 6089165.23 570557326.01 ---- 374690.33Furniture etc., 2708146.48 2713946.48 5800 ----Cans 24129378.34 24129078.65 ---- 299.69Other Assets 3271859.21 3298359.45 26500.24 ----Assets Construction

72732.35 398819.50 326087.15 ----

InvestmentsGDCCB, Tenali 1000 1000 ---- ----APDDCF, Hyd 25000 25000 ---- ----APSCB Deposits 50 50 ---- ----IFCO 5,00,000 5,00,000 ---- ----M.M.M.F Hyd 2000000 2000000 ---- ----Deposit AdvancesDeposits 7796337.10 8097337.10 301000 ----

Advance Institutions

5403582.34 6415691.76 1412109.42 ----

Advance employees

1066361.35 9142485.96 ---- 1521124.39

Advance given to Contractors forConstruction 438791.65 438791.65 ---- ----Debtors 36990174.59 21066544.16 ---- 15923630.43Closing Stock 233488441.23 222292949.05 ---- 11195492.20Cash Bank BalancesCash 484878.26 308949.87 ---- 175928.39Cash at Bank 55016402.03 442953844.97 ---- 10721017.06Postage 4461 1582 ---- 2879Total (1+2+3) 596248465.47 561349254.53 11812912 120491797.7


100000000 100000000 ---- ----


72208.03 712008.03 ---- 639800

Divided Fund 201958.78 201958.78 ---- ----Utility Fund 35805.74 35805.74 ---- ----Deficiency Recumbent Fund

7333315.25 7409908.25 76593 ----


3362594.85 3740562.43 ---- 377967.42


4327640 4327640 ---- ----


1760462.95 1760462.95 ---- ----

Other ReserveReserve for Construction of Building through

130610.34 130610.34 ---- ----

ordinary fundCattle Feed doubtful Reserve

39701.40 39701.40 ---- ----


41611.92 41611.92 ---- ----


6725696.59 6725696.59 ---- ----


44923434.92 44923434.92 ---- ----


180033323.11 186109346.33 6076023.22 ----


4829627.69 4829627.69 ---- ----


160360089.00 160476827.00 116738.00 ----

Undistributed -- -- -- --LiabilitiesCurrent LiabilitiesDeposits 349067898.30 35491619.20 523721.10 ----Suspense 2710522.23 2410999.23 ---- 299523Payments to be made & allocation

36652177.1 41288352.64 4636175.54 ----

Creditors 1218314.05 3633180.37 2414866.32 ----P & L Adjustments 510622.58 764257.28 253634.78 ----

561349254.53 575966512.79 14617258.26 ----Fixed assetsLand 1246672.14 1246672.14 ---- ----Buildings 58304811.23 59715588.39 ---- 1410777Machinery 150557326.01 153346880.01 2789554 ----Motor Vehicles 570557326.01 5752724.90 ---- 564804602Furniture etc., 2713946.48 2782256.48 68310 ----Cans 24129078.65 24626603.65 4975525 ----Other Assets 3298359.45 3298359.45 ---- ----Assets & Under Construction

398819.50 14129.00 384690 ----

InvestmentsGDCCB, Tenali 1000 1000 ---- ----APDDCF, Hyd 25000 25000 ---- ----APSCB Deposits 50 50 ---- -----IFCO 5,00,000 5,00,000 ---- ----M.M.M.F Hyd 2000000 2000000 ---- ----Deposit AdvancesDeposits 8097337.10 8073357.10 23980 ----Advance Institutions

6415691.76 6038506.90 ---- 777185

Advance 9142485.96 10389952.96 1247467 ----

employeesAdvance ContractorsConstruction 438791.39 438791.39 ---- ----Debtors 21066544.16 14875505.63 ---- 6191039Closing Stock 222292949.05 242611520.37 20318561 ----Bank BalancesCash 308949.87 861898.94 552949 ----Cash at Bank 442953844.97 39362919.48 5232465.49 5232465.4Postage 1582 4796 3214 ----Total (1+2+3) 561349254.53 575966512.79 64363387.71 579733358.8


100000000 100000000 ---- ----


712008.03 717008.03 5000 ----

Divided Fund 201958.78 201958.78 ---- ----Utility Fund 35805.74 35805.74 ---- ----Deficiency Recumbent Fund

7409908.25 7524547.25 114639 ----

Price Fluctuation Fund

3740562.43 1760462.95 ---- 1980099.4

Price Fluctuation Fund

4327640 4308754.71 ---- 18885.29


1760462.95 10574993.00 8814530.05 ----

Other ReserveReserve for Construction of Building through ordinary fund

130610.34 130610.34 ---- ----


39701.40 39701.40 ---- ----


41611.92 41611.92 ---- ----


6725696.59 7211923.66 ---- ----


44923434.92 44923434.92 ---- ----


186109346.33 191115185.19

6076023.22 ----


4829627.69 4829627.69 ---- ----


160476827.00 116220083.00

---- 44256744

Undistributed profits

---- ---- ---- ----

LiabilitiesCurrent LiabilitiesDeposits 35491619.20 36864193.44 523721.10 ----Suspense 2410999.23 2485478.23 299523.00 ----Payments to be made & allocation

41288352.64 53003988.27 11715635.63 ----

Creditors 3633180.37 3633180.37 ---- ----P & L Adjustments a/c

764257.28 764257.28 ---- ----

575966512.79 554480118.14

---- 21486394

Fixed assetsLand 1246672.14 1246672.14 ---- ----Buildings 59715588.39 59715588.39 ---- ----Machinery 153346880.01 153346880.0

1---- ----

Motor Vehicles 5752724.90 5833909.90 81184.49Furniture etc., 2782256.48 2848956.43 66699.95 ----Cans 24626603.65 24458266.65 ---- 168337Other Assets 3298359.45 3952253.45 ---- ----Assets & Under Construction

14129.00 14129.00 ---- ----


50 50 ---- ----

IFCO 5,00,000 5,00,000 ---- ----M.M.M.F Hyd 2000000 2000000 ---- ----Deposit

AdvancesDeposits 8073357.10 7958857.10 ---- 23980Advance Given to other Institutions

6038506.90 3112053.92 ---- 2926452.9

Advance given to employees

10389952.96 12237028.00 1847075.04 ----

Advance given to Contractors forConstruction purpose

438791.39 438791.39 ---- ----

Debtors 14875505.63 12954626.06 ---- 6191039Closing Stock 242611520.37 211265939.6

0---- 20318561

Cash Bank BalancesCash 861898.94 412262.78 552949 ----

Cash at Bank 39362919.48 52430814.66 13067895.18 ----

Postage 4796 2246.00 ---- 2550

Total (1+2+3) 5575966512.79 554480118.14

43241301.66 97373042

CHAPTER – 5

FINDING AND SUGGESTIONS

Latest development in SANGAM DAIRY (in Financial transactions)

The Dairy’s milk procurement in the past seven years laying up and town in 2003 – 04 it is stood at 624.66 lakhs of ltrs, it is increased to 761.68 lakhs of liters in 2007-08 but considerably decreased to 456.65 lakhs of liters. In the year 2008-09.

Sales information:

The sales of milk in Guntur and other areas of the district is very encouraging in the past five years in Guntur alone. It sold 1,42,50,000 liters of milk in 2000-2001. It constantly increased to 1,62,92,087 liters of Milk in 2004 – 05.

The dairy has buz socities which were registered under Anand pattern. The sales ( in Rs) of Sangam Dairy for last five years.

Year Sales( Rs in Crores)

2004-2005 119.302005-2006 117.162006-2007 116.052007-2008 102.142008-2009 116.542009-2010 --

By observing the above table, the sales of the Dairy were decreased from 2003-04 in 2008-09; but there is a slight increased in sales in the Year 2004-05.And 2007-2008 but is a slight decrease in the sales; but there is a slight increase in the year 2008-2009.

Finding:

Sangam Dairy is one of the most respected and prestigious Dairy in coastal

Andhra Pradesh and it is the third largest milk products manufacturing in the

country nest to AMUL and DULH SAGAR Dairies.

It sells nearly 1,40,000 liters of milk in the district of coastal Andhra

Pradesh with a brand name called “SANGAM” with a brand name called “

SANGAM”

It has also got ISO (2000-2005 & 2001 – 2000) HACCP certificates from

Bureau of INDIAN STANDARDS for MAINTAINING INTERNATIONAL

STANDARD QUALITY OF MILK.

It is also giving fair rate for farmers for supplying milk and is also taking

good care of them by providing financial assis. Hence when ever needed to

them.

It is also taking good care of the employees by providing good canteen and

quarters facilities on subside by basis.

Coming to the working capital management of the Dairy , its investments

in current assets is very high and it is a good sign in terms of liquidity and it

also helps in generating the sales quickly.

The company (dairy) is following a conservative current assets policy that

means it is maintaining a higher ration of current assets than the fixed assets. It

reduces the risk.

Suggestions:

It is very good and profitable for dairy of it expand marketing activities

throughout the state if possible throughout the India like AMUL.

It’s very dangerous to maintain excising current assets as it impairs the

firms profitability as idle investment earns nothing but as it is a manufacturing

of perishable good, it has to maintain the higher current assets to avoid any

fluctuations or threats in business, the firm must maintain the optimum level

of current assets. The management should be prompt to initiate and action and

correct inbalannces.

The Dairy is also carrying excessive inventories in current assets. Even

though it is necessary to maintain the huge invettories, it always carries a cost

with it like, if the product is not sold that can not be kept for longer period and

sell again costs like carrying costs and ordering cash also increase. So the

management must maintain the optimum level of inventors to maximize the

profits.

The Dairy must invest the surplus cash in short term marketable

securities, so that if there is any deficit in the future , that amount is diverted to

fill the deficit.

BIBILOGRAPHY

1. I.M.PANDEY - FINANCIAL MANAGEMENT

2. JAMES C.NAN HORNE - FINANCIAL MANAGEMENT

3. PRASANNA CHANDRA - FINANCIAL MANAGEMENT

4. KHAN & JAIN -MANAGEMENT ACCOUNTANCY

Magazines: Annual Reports of “Sangam Dairy” Express computer Business time Indian times Economic times The Business line Business World Business India

K.B

Documents

production of milk

growth of sangam dairy

example milk production

unorganized milk

new dairy plant capacity

indian dairy development

crop production

milk products order