Project

NEED FOR THE STUDY

Vijaya diary is big manufacturing unit with varying milk based

products are being produced. The requirement of capital for each department

is very high in an organization like Vijaya Diary. Therefore, I have under

taken my study in this organization to understand the requirement of capital

and its effective allocation of resources in working capital management.

Some important points are taken into consideration.

To study the adequacy of working capital in this organization.

The duration of the work-in-progress state depends on length of the

manufacturing cycle, consistency in capacity utilization in different

stages and efficient co-ordination of various inputs.

The duration of raw material stage depends on the regularity of

supply, transactions time, degree of perishable ability, price

fluctuations and economic of bulk purchases.

Having this detailed study on working capital management, identify

the shortage of working capital and suggest improving the working

capital management in the company.

1

OBJECTIVES OF THE STUDY

Primary objectives:

To study the adequacy of working capital in the organization.

Secondary Objectives:

To study the various elements of the working capital namely

inventory, receivables, cash.

To know the Liquidity position of the firm.

To know how to implement cash management techniques in Vijaya

Dairy Ltd.,

To ascertain various problems faced in working capital management.

To give appropriate suggestions for the better performance of the

company if necessary.

2

IMPORTANCE OF THE STUDY

The Researcher that the study on working capital management in

KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-

OPERATIVE UNION LTD., of paramount important since it assumes

attention from the strategy makers and researches. It is no exaggeration to

say that the working capital management has been regarded as one of the

critical success factors, which determines success of the company.

Importance of working capital management and its contribution to the

growth and development of business firms had aroused a keen interest in me

to select this topic for project study. On going through the statistics

pertaining to working capital of the above said company. It gives me

immense pleasure to carry out systematic and formal study about working

capital management; in a said company.

Since the presently study purports to throw alight on in depth analysis

and interpretation of the data gathered from primary and secondary sources,

the study will serve useful purpose by bringing all the aspects relating to

working capital so that lot of data may be enhanced for further studies in this

area.

It is hearting to note that the working capital has assumed much

importance in all types of organizations. Despite availability of may topics

available for research purpose I preferred this topic because of the fact the

this deserves special preference than other topics. Formal and systematic

analysis which leads to suggestions are bound to contribute to enhancement

of financial performance of the above said company as on inadequacies can

be rectified through this suggestions given by me. It is hoped that my

suggestions may be considered by the company.

3

METHODOLOGY OF THE STUDY

All the data required for completion of the study has been collected from

both primary and secondary sources.

Primary Sources of Data:

The primary sources of data required for the study was collected by

the personal interaction with employees of the Vijaya Dairy, in the area of

Finance, Production and administration department.

The secondary data was collected from the Company’s

Annual Reports

Accounting Reports

Departmental Manuals

Text books and journals relating to financial management

4

LIMITATIONS OF THE STUDY

Any study is having its own advantages and certain disadvantages.

Among such, few of the limitations are expressed below such as;

The reliability of the study depends upon the information furnished by

the officials.

Due to time constraints, it is difficult to go into details of the whole

organization.

The study is purely base in the form of company report of Vijaya

Dairy Ltd., Vijayawada.

The present study is restricted to lonely for a period of 6 years from

2001-02 to 2006-07.

5

INDUSTRY PROFILE

Industry Scenario:

Dairying has been of life in India since the ancient Vedic times.

The modern dairy industry took roots in 1950 with the sale of bottled milk in

Bombay from Array milk colony. The first large scale milk products factory

was started in 1945 at Anand a Co-operative venture, with the assistance of

UNICEF, for the production of milk powder, table butter and ghee. These

products were making from the buffalo milk.

The world’s largest development program over undertaken, the

operation flood undertook and gigantic task of upgrading and modernizing

with production, procurement, processing and marketing with the assistance

provided by the World Bank and other external agencies, designed and

implemented by the National Dairy Development Board (NDDB) and the

Indian Dairy Corporation. The project was launched in July, 1970. Its basic

concept compromises the establishment of co-operative structure on Anand

Pattern.

DAIRY INDUSTRY IN INDIA

India has the world's largest cattle and buffalo population adapted

to tropical elimate and poor nutrition and environment. According to

Livestock census 1982, India's bovine population was 191 million cattle and

69 million buffaloes. The forecast for 2000 AD is 204 million cattle and 78

million buffaloes. Milk production gives employment to 70 million dairy

6

farmers. In term of total production India ranks 2nd to USA with a

production of 71 million tons in 1997-1998. The production of various dairy

products in 2002, 428 (OOO'metric tones).

APDDCF was formed in October 1981 to implement operation flood-

II program through involvement of producers in organizing milk production

procurement, processing and it will low due to rapid population growth. It

was 178 grams/day in 1990. There was only an increase of 50 grams per day

from 1980 to 1990. It is expected that milk availability will reach 213

gram/capita/day by 2000 A.D as against 300 grams, the optimum

recommended by the health scientists. Today India ranks first in milk

production in the world.

Dairy development in India:

India has the world's largest cattle buffalo population adopted to

tropical climate and poor nutrition and environment. According to

Livestock census 1982, India's bovine population was 191 million and 69

million buffaloes. The forecast for 2000A.D is 204 million cattle and 78

million buffaloes.

Dairy development in India received a fillip after independence when

industrialization and awakening warranted the establishment of organized

milk collection, processing, distribution of milk to cater the needs of the

expanded urban population. Planned development of dairying was first

taken up in the First five year plan (1951-56). The main deterrent factor for

milk production was inadequacy of suitable marketing structure in the rural

areas. Milk was being marketed in the form of ghee which did not provide

sufficient income to the farmers to take up the dairying. In most of the states,

7

larges dairies have been established with direct milk between rural areas.

Milk was being marketed in the form of ghee, which did not provide

sufficient income to the farmers to take up the dairying. In most of the states,

large dairies have been established with direct milk between rural producers

and urban milk treatment units. Some of the dairy units also established a

chain of mill collection and chilling centers in the rural areas to afford

necessary facilities for handling milk in large volume and for long distance

transport with out spoilage. These processing centers have had a stimulating

effect on the dairy industry in the country.

India has world's largest cattle population. However, per capital cattle

population is very less compared to developed nations. Dairy farming is

regarded as a subsidiary occupation in India. Now, it has become an

important agro business. First, dairy farm is established by military at

Alahabad, in 1889. British troops got milk supplies from that farm. It also

organized cross breeding with European cattle breeds.

India is a country of village where farmers have small land holdings.

They had been practicing intensive cropping. As a result, production

increases, but not commensurate to the inputs. Thus the input-output ratio

started getting balanced. The need for finds was felt more and more to buy

inputs. Moneylenders borrow money at very high interest rates. They

exploited the farmers who were poor. As a result, a large number of farmers

in Pune and Ahmednagar open hostilities, against moneylenders in 1879.

Subsequently land improvement act, 1883 and agriculture act, 1884 were

passed to advanced loans at reasonable rates of interest to farmers. The

government realized that the cooperative credit society act was essential.

But, enacted act had following shortcomings.

8

1. Only 5 credit societies are registered.

2. Classification of the societies into urban and rural was scientific.

3. It was selected regarding distribution of profit. Thus another act named

"The Co-operative Societies Act 1912" was enacted. The act tool care of

credit unions under the supervision of central bank.

The co-operative unions remained control subject. In the year 1919,

Cooperative Societies became a state subject and fell with in the scope of

Provision legislature. Each province started formulation of their

requirements. After Intendance, the cooperative movement made rapid

studies and government adopted the policy of promoting of cooperative

movement for establishing economic welfare in the country.

The cooperative sector was given an important place in the new economy

and acted as a balance between private sector and pubic sector. It becomes

necessary that co-operative legislation must keep pace with the progress of

movement and there should be uniformity of cooperative Society Act (1956)

was amended 19 times to suit the changing circumstances. Hence the

Government of India appointed a Committee in 1956 to review co-operative

acts in different states and prepared a model bill.

In 1960 pilot milk supply scheme was started in the state

for the dairy development. Its initial capacity was 100 litres a day in the time

of starting. Now its daily collection increated to 11 lakhs litres per day. It is

also working as alien between milk producers of the towns by providing

reasonable price to the producers to maintain stable market.

9

OPERATION FLOOD-1 :

Operation Flood-1 also referred to as white revolution in a

gigantic project profounder by Government of India for developing Diary

Industry in the country. The Operation Flood-2 originally meant to be

completed in 1975 for its completion at total cost of about Rs.116 Crores.

The Operation Flood-2 was wholly financed by setting in India free metric

tones of bottle oil donated out of the surpluses of European Economic

Community.

ANAND PATTERN-1 :-

Under the Operation Flood-1 the program for increasing milk

production was taken up in ice hinterlands of various breading tracks on

Anand Pattern and loudly proclaimed with a trample. The Co-operative were

started originally in 18 of Indian milk shed districts and later on mine more

milk shed areas were added to make a total of 27 in 10 states of the country

viz., Maharashtra, Tamilnadu, Andhra Pradesh, West Bengal, Bihar,

Haryana, Punjab, Uttar Pradesh and Rajasthan.

Those dairy co-operatives are based on the model known as

Anand Pattern of dairy co-operative. Under Anand pattern concept rural co-

operative infrastructure was to be built in the village, the milk producers

were and keep their animals. In each participating village, the milk producers

were to form their own village dairy co-operative. Thus Anand pattern dairy

co-operative union organizes mobile veterinary and artificial insemination

counters.

10

In the sphere of co-operativisation the No. of Anand Pattern

organized societies under operation flood was 63121 on April 1st 1991 as age

INST 60753 a year ago indicate one that years as many as 2368 new dairy

co-operatives were formed.

OPERATION FLOOD – 2:

The Operation Flood-2 which was started in July 1978 is

scheduled to be completed in 1985 at a cost of 483 crores.

A humble attempt has been made in it sufficient appraisal of the

achievements made in some sufficient field during Operation flood-1. These

achievements if as all made particularly the Anand pattern dairy co-operative

unions are to serve now bedrock of operation flood. Their unions are to act

to the starting. Nucleuses for co-operative cluster federation. The main

instrument for this gigantic project Operation flood-2. The average nucleus

cluster federation would six district unions registered and unregistered.

The Indian Dairy co-operative, National possible are not

required to indicate the basis on which the State wise allocations were made

in operation flood-2 up to end of the 11,1979 Gujarat State alone got the

lion’s hsares of 1666. 70,00,000 five state Haryana, Bihar, Rajasthan and

Andhra Pradesh put together the total disbursement in their case was 1732

lakhs only. This trend is going to be maintained in Operation Flood-2.

11

OPERATION FLOOD-3 :

The Indian Dairy Industry is growing rapidly and may become a

string competitor to World Dairy Powder. The milk sector in the second

largest contribution to the agricultural economy in terms of produce

phenomenal growth is a result of national airy development board through

the Operation Flood programs.

Operation Flood-2 now in its closing phase only consolidated

the procurement affords to boost production. The projection for milk output

for 200 AD is nearly 90 tones at on 5% growth rate. It is now 5-8% dairy

factories established under operation flood, which cover 170 milk sheds can

handle 14.3 millions liters milk dairy. They have a milk drying capacity of

about 696 tones per day.

The rapid growth in milk production did way with import of

milk powder except for a (26400 tones) during the brought years.

12

NATIONAL DAIRY DEVELOPMENT BOARD:

At the time of industrialization at cattle feed factory at Knjari in

October’1964 the late Sri LALBAHADUR SASTRY, the Prime Minister of

India paid unscheduled visit producers co-operative societies and stated there

overnight. He was impressed by the social economic changes brought milk

co-operatives in Krishna District and desired to have a National level

organization to milk producers co-operative societies replicate anansin other

part of the Country.

Thus the National Dairy Development Board was sent up under the

empowerment of Ministry of Agriculture and Irrigation, Govt. of India in

September’1965 under the Society Registration Act.1860 and the Bombay

Trust Act.1950. The President of India nominates the Board of Directors

including Chairman, Secretary, National Dairy Development Board in the

chief of the organization.

13

DAIRY INDUSTRY IN ANDHRA PRADESH

The program dairy industry was mooted with commendable

help of the United National International Children’s Emergency Fund, Food

and Agriculture Organization and Freedom from Hunger Company

campaign Organization of the U.K... These Organizations insisted a lot of

the establishment of the dairy units at Hydria and Vijayawada in 1967 and

1969 respectively, which led to pioneer dairy development program in

Andhra Pradesh Later to set cooling and chilling centres have been setup to

feed these two gigantic units.

The Government of Andhra Pradesh started dairy development

corporation to interest of milk producers and ensuring adequate supply of

fresh milk at reasonable price to the urban consumers as A.P.D.D.C., come

into the existence on 2nd April 1974. A.P.D.D.C. , providing employment to

nearly 20 employees and organism easy many as 87 dairy units including

seven milk factories, 13 district dairies, 22 chilling centres, 18 cooling centre

and 15 mini cooling centers.

In addition to that the private units have been contributing

their little mite in the development of dairy industry M/s. Hindustan milk

foods that has started a malted milk product factory in Rajahmundry. Further

to enhance working efficiency and to increase the turnover, the government

has constituted on autonomous diary development Corporation on the

recommendation measure the dairy industry improving towards massive

milk productions and milk collections.

14

A.P. DAIRY DEVELOPMENT CO-OPERATIVE FEDERATION (A.P.D.D.C.F.):

A.P.D.D.C.F. was formed in October, 1981 to implement

Operation Flood-2 program through active involvement of producers in

organization milk production, procurements, processing and marketing on

“three-tier”. Co-operative structure as per the national government of India.

The three-tier system consists of primary dairy co-operatives societies 13

village level, co-operative unions at district level and federation at state

level.

OPERATION FLOOD :

In our state operation flood was divided in three types “Anand Level”.

1. Village level - D.C.S.

2. District level - M.P.C.V.

3. State level - A.P.D.D.C.F.

15

MAJOR DAIRY PRODUCT MANUFACTURERS IN INDIA AND

THEIR BRANDS ARE EXPLAINED

COMPANY BRANDS MAJOR PRODUCTS

NESTLE

Milk-Maid

Ceralac

Lactogen, Milo and

everyday

Sweetened

Condensed Milk

Powder, Malted

Food, Milk powder and

dairy whitener, Ghee

and Ice cream

MILD FOODS LTD Milk Food Ghee and Ice cream

SMITUKLINE

BEECHEM LTD

Malted milk food,

Ghee Butter and

Other baby foods

GUJARATH

COOPERATIVE

MARKET

FEDERATION LTD

Butter, Ghee and Other

Milk products

CARDBURY Bournvita Infant Milk food

Flavored Milk,

BRITANNIA Milk Man Ghee, Milk

Powder, Biscuits

and Ghee

16

OPERATION FLOOD PROGRAMME :

Indian Dairy Development Corporation own the responsibility

of implementations of operation flood programs, which provides money

assistance put 70% towards loans and 30% as subsidy. National Dairy

Development Corporation selected district of the State for implementation of

operation fold. It divided the districts into en milk collecting mandals.

DISTRICT SELECTED UNDER OPERATION:

District Milk sheds / unions

Krishna Krishna

Srikakulam Vizag

Vijayanagaram Vizag

Visakapatnam Vizag

East Godavari Godavari

West Godavari Godavari

Chitoor Chitoor

Kurnool Kurnool

Cuddapah Cuddapah

Nalgonda Nalgonda

Rangareddy Rangareddy

Medak Medak

17

COMPANY PROFILE

ORGANIZATION & HISTORY:

Organized dairying in Krishna commenced in 1965 with

integrated milk project assisted by UNICEF. A milk conversation plant first

of its kind in South India was commenced in April’1969. The organization

of dairy industry took basic changes beginning with husbandry department;

It was integrated with project (1960), Dairy Development (1991), A.P. Dairy

Development Co-operation (1974), A.P. Dairy Development Co-operative

Federation (1981).

Krishna District Milk producers Co-operative Union got

registered in 1983 district have 450 organized dairy co-operative societies

with 67,000 member’s producers. There are 340 producers’ association

centers.

COMPANY’S MISSION:

Farmer’s prosperity through technical innovations and customer

orientation with specific focus on quality and cost.

COMPANY’S VISION :

Dairying in the district to be the major instrument of strengthening

rural economy & making available safe milk and milk product

18

SAILENT FEATURES :

Daily average milk procurement : 1,63,794 lts.

Turnover of business has reached to 200 crores.

Daily milk sales average reached to 1,60,000 lts.

Obtained ISO 9001:20 00, 14000 and H.A.C.C.P. certification.

Earning profits and distributing bonus to its members.

Paying Rs. 68 crores per year to farmer as cost of milk procured

from them.

Strengthened the rural economy by avoiding middlemen and

making available safe milk and milk products to the customer.

Provided self employment to the rural women.

COMPANY PRIDE :

First powder plant established in South India.

Largest democratic functionary in the District serving the farming

community.

Having more than Rs. 1000 crores grass root level production base.

Providing direct and indirect employment to people.

First dairy to introduce five varieties of liquid milk.

First dairy to introduce liquid ice cream in tetra brick pack.

First dairy co-operative to introduce curd in cups in South India.

First dairy to introduce butter milk and lassies in tetra brick pack.

Annual turnover more than Rs. 121 crores with a continuous growth

rate.

First dairy to introduce Basundi in cups and milk cake.

Distribution network with 27 milk distribution routes.

19

MILK DISTRIBUTION CENTERS:

TownNo. of Selling

Booths Sales (in liters)

Daily

Vijayawada 400 70,000

Machilipatnam 25 3,000

Gudivada 15 2,500

Total 440 75,500

SALES CENTERS

Vijayawada: RT.C bus stand, Super Bazar, Railway Station, Milk

Products factory, Vastralatha, Vijaya Dairy Parlor (near Alankar theatre)

Benz circle, Sathyanarayanapuram, Machavaram, Patamata, etc.,

CAPACITIES

Milk - 1, 50,000 liters per day

Ghee - 5 tonnes per day

Butter - 7 tonnes per day

Milk Powder - 4 tonnes per day

Refrigeration Capacity - 1.5 tonnes per day

Steam Generation - 13 tonnes per 1 prt

Milk Packing - 1, 25,000 packets per day

Chilling - 1,50,000 liters per day

Processing - 1, 50,000 liters per day

20

TRANSPORT

There are about 25 vehicles in transport organization, milk products

factory, Vijayawada.

==> Road Tankers

- 4 tanks of 13,000 liters capacity

- 4 tanks of 1,000 liters capacity

==> 3 distribution vehicles for sales

==> 6 inspection vehicles

==> 1 cash van

In addition to these 25 vehicles, some vehicles are taken hire from

private transporters for distribution of milk. The milk feed to chilling centers

and far off places like Visakhapatnam, Nellore, and Chit or is being

transported by the road tankers. It is also transported to all metropolitan

cities of Delhi, Mumbai, Calcutta and Chennai through the insulated tankers.

RESEARCH AND DEVELOPMENT

The Indian Council of Agricultural Research has started a research

scheme during the period 1970-70 to undertake research on milk products.

Under this scheme soft cheese, butter, milk powder curd, dooth peda, ice

cream mix, butter etc. are, manufactured.

21

MILK PROCUREMENT:

Milk is being procured twice a day from about 830 villages in

the district organized through 29 routes and 6 chilling centers besides getting

raw milk directly to the factory from certain villages in a radius of 50 KM

around Vijayawada. Among 480 centers, about 431 are registered societies

and under Anand Pattern.

MILK PRODUCT FACTORY – VIJAYAWADA

DATA SPECIFICATION:

Area occupied by the factory -- 27.3 Acres.

Value of factory building -- 400 lakhs

Money given by UNICEF -- 53 Lakhs

Machinery

Investment on equipment -- 600 lakhs

Buildings:

Opened on -- 11-04-1969

Workers -- 1538

Date of formation of union -- 06-07-1983

Date of transfer of management -- 08-02-1985

Of the union Annual turnover -- 60 crores.

22

INFRASTRUCTURE AND FACILITIES :-

Milk products factory Vijayawada is located on 27.3 acres of

land which houses of dairy plant, Aseptic packing station, Administration

office, effluent treatment plant, Electrical sub. Station and residential

quarters.

Following are the facilities available in Milk Products Factory,

Vijayawada and its field centers.

23

FIELD:

Sl.No. Name of the Centre Unit Capacity

1 MCC pamarru Lts. / Day 50,000

2 MCC Veeranki lock Lts. / Day 18,000

3 MCC Gudlavalleru Lts. / Day 18,000

4 MCC Hanuman junction Lts. / Day 18,000

5 MCC Chillakallu Lts. / Day 12,000

6 MCC Tiruvuru Lts. / Day 12,000

TOTAL 1,28,000

7 No. computerized milk collection and

testing centers

25

8 No. of Bulk coolers operating (planned to

establish ten more)

6

9 DCS having electronic milk testers 450

10 No. of A.I centers 56

11 No. of V.F.A. Centers 240

12 No. of DCS organized 630

13 No. of MPAs 320

14 Exclusive women DCSs 103

15 Farmer members 1,86,689

16 Women members 23,347

17 No. of Milk routes 35

18 No. of DCS having its own buildings. 400

24

A. Milk Products Factory Vijayawada :

Sl.No. Name of the Facility Unit Capacity

1 Milk Processing Lakhs lts/day 2.5

2 Milk drying MTs/ Day 22.0

3 Ghee Manufacturing MTs/Day 18.0

4 Butter manufacturing MTs/Day 22.0

5 UHT Milk packing Lts./day 45,000

6 Milk packing Lts./day 2,00,000

7 Godown space MTs 3,000

8 Butter cold store MTs 500

CATTLE FEED:

Sl.No. Name of the Plant Unit Capacity

1 FMP Buddavaram MTs / Day 30.0

2 FMP Gudlavalleru MTs/day 18.0

25

NEED FOR EXPANSION

With the introduction of the baby food, the milk handling capacity has

been educed to about 80 to 85 thousand liters of milk in view of the sugar

content added in manufacture of the baby food. Therefore it is proposed to

expand the present plant by adding additional buildings in the existing

vacant area adjacent to the transport section. This will enable the factory to

handle 1.5 lakh liters per day.

MANAGEMENT:

1. Management of the company shall consist of Board of Directors,

Chairman and Managing Director.

2. The chairman and Managing Director.

3. Nominee of the Government of Andhra Pradesh if the Government of

Andhra Pradesh is a member.

4. Chairman of the Board of Directors shall preside over general

meeting. In case of this absence the meeting shall be conducted by a

chairman from amongst the members present.

5. The general body shall be called once a financial year with in greater

ending on 31 December. This shall be "Annual General Meeting".

6. A special general body meeting may be called at any time by a

majority vote of Board of Directors and shall be called within on

month at least 1/5 of the members of federation or by the registrar of

cooperative societies

26

PROVISION UNDER ACT:

1. Subject to such resolution as the general body may from time to time pass.

The execution management of the union shall consist of not more than 17

members as detailed below.

a. 2 elected representative of affiliated 30 societies.

b. 3 Government nominees.

c. Registrar of cooperative societies or his nominee.

2. Director of Animal Husbandry or his nominee.

3. Managing Director, A.P dairy development corporationor his nominee.

a. One to be adopted by the board from the experts in milk business.

b. Nominee of financing agency.

c. As soon as the election of the members of the board over, they shall

meet and elect a chairman and vice-chairman who will hold office for one

year. The election of chairman and vice-chairman is to be held, in the

same manner every year immediately after the general body meeting in

which the remaining vacancies of directors filled up.

27

BOARD OF DIRECTORS:

The board consists of the fallowing.

Chairman of the affiliated union enrolled as members.

Registrars of the cooperative societies.

One nominee of the financing agency.

Managing director of the federation.

3 nominees of the State Government representing interest of

dairy development.

Any member nominated to the board may at any time resign

from his office by sending a latter to Government and such resignation

shall come into effect from the date on which it is accepted by the

Government.

The Government shall nominate the chairman of that board from

time to time. The secretary of the Government dealing with dairy

development shall be the vice-chairman of the board, except managing

director and chairman of the federation shall be honorary.

Managing Director: The Managing director shall be appointed by the

Government from time to time upon such terms and conditions as the

Government thinks fit and the Government extends such terms as it may due

necessary and expedite

28

ORGANIZATIONAL STRUCTURE:

Staff position:-

Managing Director 1

Deputy Director 2

Senior Accounts Officer 1

Dairy Managers. 6

Asst. Dairy Engineers. 2

Quality Control Officers. 1

Asst. Dairy Manager 15

Fodded Development Officers 1

Junior Engineers 4

Technical Staff 58

Transport 30

Finance 20

Administration 70

Field Staff 55

Others (Non-technical) 304

TOTAL 570

29

ORGANIZATION CHART

General Body

Board of management

Managing Director

MILK PROCESSING AND PRODUCTION :

Production PM Finance Personal QC Stores MIS APS

30

Dairy Manager (I/c Production) is heading the production

division supported by four dairy managers, 11 Asst. Dairy Managers and

other production staff engaged in milk reception, milk processing, Butter

making, Ghee making, powder making bi-product its manufacturing and

finished goods section. Production operations begin with milk reception at

the dairy dock and continued round the clock.

FINANCE:

Senior Accounts Officer is heading the finance who is assisted

by four Asst. Accountant Superintendent and Finance staff. The union has

started its operations independently from 08-02-1985 onwards after taking

the fixed assets from the State Federation at their book values as on that date.

SHARE CAPITAL :

Authorized share capital Rs. 500 lakhs. The unions paid up

share capital at present are Rs. 106.24 lakhs and Rs. 31.87 lakhs are share

suspense waiting for conversion.

LONG TERM LOANS :

The National Dairy Development Board has provided loans to

the union under O.F.2/3 program for capital projects in the union total Rs.

707.20 lakhs was financed for various projects to the union under 70:30

loans cum grant basis.

WORKING CAPITAL MANAGEMENT

THEORETICAL CONCEPTS

31

Financial Management

Financial management refers to that part of management activity that

is concerned with planning and controlling of firms financial activities it

deals with finding out various sources of finance for raising funds for the

firm it is applicable to every type of organization irrespective of its size kind

of nature.

Meaning of financial management

From the various definition of the term business finance given it can

be concluded that the term business finance mainly involves rising of funds

and their effective utilization keeping in view the overall objectives of the

firm the management makes use of various financial techniques devices etc.,

for administering the financial affairs of the most effective and efficient way.

According to Soloman “financial mangement is concerned with the efficient

use of an important economic resource namely capital funds ”.

However the most acceptable definition of financial management as given

S.C Kuchhal is that “financial management deals with procurement of funds

and their effective utilization in the business.

The objectives provide a framework for optimum financial decisions making

in other words that are concerned with designing a method of operating the

internal investment and financing of a firm.

There are 2 widely discussed approaches in financing literature

32

Which as fallows

Profit Maximization

Wealth maximization

Profit Maximization

According to this approach action those increase profits should be

undertaken and those which decrease profits should be avoided in specific

operational terms as applicable to financial management.

The profit maximization criteria implies that investment financing and

dividend policy decision of a firm should be oriented to maximization of

profits.

Wealth Maximization

This is also known as value maximization or net present worth maximization

in current academic literature value maximization is almost universal

accepted as an appropriate operational decision as it removes the technical

limitation which characteristics the earlier profit.

Function of financial management

Acquiring sufficient funds

33

To Asses the financial needs of an enterprises and then finding

out suitable sources of financial and raising them commensurate with needs

of business.

Proper utilization of funds

Funds should be utilized in the most optimum ay so that the maximum

benefits are derived from them.

Increasing profitability

The planning and control of finance function aims at increasing

profitability of a concern.

Maximization concern value

To the maximize the value of the firm by raising the request finance

by the selecting the appropriate sources of finance.

Scope of the Financial Management

Investment decision

34

The investment decision relates to the selection of assets in which

funds will be invested by the firm the assets that can be acquired fall in to 2

groups

Long-term assets

Sort term assets

Long term assets is popular known in financial literature as “capital

budgeting”. While short-term assets is known as “Working Capital

management”.

Capital Budgeting

It is probably the most important financial decision of firm it relates to the

select in of an assets or investments proposal or a course of action whose

benefits are likely to be available in future over the lifetime of the project.

Working capital

It is related with the management of current assets it is an important

and integral part of financial management as short term survival is a root for

long term success.

Financing decision

35

The second major decision in financial management is the financing

decision the investment decision is broadly concerned with assets

combination or the composition of the assets of the firm.

Dividend policy decision

The third major decision of financial management is the decision

relating to the dividend policy the dividend should be analyzed in relation to

the financial firm. Two alternatives are available in dealing with the profits

of a firm they can either be distributed as dividends or they can be retained

in business.

Some Important Definitions:

36

“Working Capital means current assets”

Mean,Malott,Baker

“The sum of the current assets is the Working Capital of a business”

J.S.Mill

“Any acquisition of funds which increase the current assets increase working

capital also for they are one and the same.”

Bonnevile

“Working Capital refers to a firm investment in short term assets, cash, short

term, securities, Account Receivable and Inventories.”

Weston & Righam

“It has ordinary been defined as the excess of current assets over current

liabilities.”

Gerstenberg

37

Meaning of Working Capital

Capital required for the business is divided into two aspects

Fixed capital

Working Capital

Fixed capital:

It is the amount of money required to maintain the fixed assets of the

concern

Working Capital:

The amount of money required to meet the day-to-day transactions of the

business is termed as Working Capital.

38

Concepts of Working Capital

The concepts of Working Capital are

Gross Working Capital

Net Working Capital

Gross Working Capital:

It refers to the firm’s investment in the current assets. Current

assets are the assets, which can be easily converted into cash within one

accounting year. The gross Working Capital focuses attention on two

aspects of current assets management

1. The way to optimize the investment in current assets.

2. The opportunity to finance the current assets.

Net Working Capital:

It is the excess of current assets over the current liabilities. Current

liabilities are those claims of outsiders, which are expressed to mature for

payment within one accounting year. Net Working Capital can be positive or

negative. A positive Net Working Capital indicates the excess of current

assets over the current liabilities. A negative Net Working Capital is a

qualitative concept and indicates the liquidity position of the firm. It suggests

the extent to which the Working Capital may be financed by permanent

sources of funds.

39

Approaches of Working Capital

Depending on the mix of short and long-term financing, the

approach followed by any company fall under these three categories-

Matching Approach

Conservation Approach

Aggressive Approach

Matching Approach:

It refers to the adoption of a financial plan, which matches the

expected life of the assets with the expected life of the source of funds raised

to finance assets. In this approach the long-term financing is used to finance

the fixed assets and permanent current assets. The short-term financing will

be used if the firm has the need of only fixed current assets.

Conservative Approach:

In this approach the financing of permanent assets and a part of

temporary current assets the idle amount of long-term financing can be

invested in the tradable securities and conserve liquidity.

Aggressive Approach:

In this approach the short-term financing is used more to

finance a part of its permanent current asserts. Sometimes in a more

aggressive way the short-term financing is used for financing the fixed

assets.

40

Sources of Working Capital:

The sources of finance for Working Capital are of two types.

They are permanent and temporary sources of Working Capital. The

Working Capital investments in minimum level of current assets are

permanent Working Capital. The Working Capital required to meet the

seasonal contingencies is called temporary (or) variable Working Capital.

The fixed proportion of Working Capital should be generally financed

from the fixed capital sources while the temporary (or) variable Working

Capital requirements of a concern from the short –term sources of finance.

Permanent Sources of Working Capital:

The permanent Working Capital sources of finance are done for having a uninterrupted finance for a long period. There are five important sources of permanent Working Capital.

They are:

Shares

Debentures

Public Deposits.

Ploughing back of profits.

Loans from financial institution.

Shares:

Generally, a company should raise the maximum amount of Working

Capital by the issue of shares. The preferences carry a preferential right in

respect of the divided at a fixed rate. Equity shares do not have such

obligation. A company should not issue different shares according to the

companies act.

41

Debentures:

Debenture is an instrument issued by the company acknowledging its

debt to the holder. A fixed rate of interests is paid on the debentures secured

or paid in prior to the unsecured debenture holders. The company enjoys tax

benefits.

Public Deposits:

They are the fixed deposits accepted by the business directly from the

public. It has both advantages and dangers. The R.B.I has also down certain

limits on the non-banking concerns.

Ploughing Back of Profits:

It is an internal source of finance and reinvestment of the surplus

earnings of the business. It is the cheapest and cost-free sources of finance.

Excessive resort to ploughing back of profits leads to over capitalization and

speculation.

Loans and Financial Institutions:

Financial Institutions like Commercial Banks, IFCI, LIC provide

short-term, medium-term, long term source of finance suitable to meet the

demand of Working Capital. A fixed rate of interest is charged against such

loans and is paid by way of installments.

42

Temporary Sources of Working Capital:

Indigenous Bankers.

Trade Credits

Installment Credits

Advances

Accounts Receivable Credits.

Accrued Expenses

Deferred Expenses

Commercial Paper

Indigenous Bankers:

These are the private moneylenders who charge high rate of interest

for the loan given by them. These Bankers are more prior to the

establishment of the commercial banks. Now we can fine a few.

Trade Credit:

It is the credit extended by the suppliers of goods in the normal course

of business. The credit worthiness of a firm and the confidence of its

suppliers are the main basis of securing trade credit. There are some

advantages such as convenient method of finance, flexibility as the credit

increases.

Installment Credit:

In this method, the assets are purchased and the possession of goods is

taken immediately but the payments are made in installments over a

predetermined period of time.

43

Advances:

Firms having ling production cycle take advances from their

customers and agents against their orders. This acts as a cheap source of

finance and minimizes their investment in Working Capital.

Accounts Receivable Credit:

It is the services offered to manage the financing of debts arising out

of the credit sales. This service is now available in India only on recourse

basis. It has certain limitations such as the cost of factoring is high

perception of financial weakness about the firm availing these services.

Accrued Expenses:

These are the expenses, which have incurred but not yet pain. It varies

with the change in the level of the activity of the firm. The frequency and

magnitude of accruals is beyond the control of the management.

Deferred Incomes:

These are the funds of incomes received by the firm for which it has

to supply goods in future. These funds increase the liquidity of a firm and

constitute an important source of short-term finance.

Commercial paper:

It is unsecured promissory notes issued by the firm to raise short-term

funds. The maturity period of a commercial paper ranges from 91 to 180

days. The draw back is that can be redeemed only after the maturity date.

The Working Capital management or short-term financial

management is concerned with decisions relating to current assets and

current liabilities. The key difference between long-term financial

44

management and short-term financial management is in terms of timing of

cash. Long term financial decisions (like buying capital equipment or issuing

debentures) involve cash flow an extended period of time (5 to 15 years or

more) short-term financial decisions typically involve cash flows within a

year or within the operation cycle of the firm. The Working Capital

Management is a significant facet of the financial management. It is

important stems from two reasons.

45

Principles of Working Capital Management:

In examining the management of current assets (i.e. Working Capital

management), certain principles have to be borne in the mind. These

principles are the answers that are to be sought to the following questions.

The need of invests funds in the current assets.

Amount of funds to be invested in each type of current assets.

The required proportions of the long-term and short-term funds to

finance current assets.

The appropriate sources of funds needed to finance the current assets.

Constituent of Current Assets and Current Liabilities

46

CURRENT ASSETS CURRENT LIABILITIES

Inventories Sundry Creditors

Raw material and components Trade advances

Work in progress Borrowings

Finished Goods Commercial Banks

Others Others

Trade debtor’s Provisions

Loans and advances

Investments

Cash and Bank Balances

Short life Span and Swift Transformation:

In management of Working Capital, two characteristics of current

assets must be borne in mind.

Short life span

Shift Transformation into other assets form.

47

Current assets have a short life span. Cash balances are held idle for a

week or two, accounts receivable may have a life span of 30 to 60 days, and

inventories may be held for 30 to 100 days. The life span of current assets

depends upon the time required in the activities of procurement, production,

sales and collection and the degree of synchronization among them.

The nature of current assets is that they are swiftly transformed into

other assets form. Cash is used for acquiring raw material. Raw materials are

transformed into finished goods, finished are generally sold on credit are

converted into accounts receivable finally accounts receivable, on

realization, generate cash.

The swift transaction of current assets and the short life span of the

components of Working Capital can be seen in the current assets cycle.

However, this short life span and swift transformation has certain

implications.

Decisions relating to Working Capital management are repetitive and

frequent.

The difference between profits and present value is insignificant.

The close interaction among Working Capital components implies that

efficient management of one component cannot be undertaken without

simultaneous consideration of other components.

48

CURRENT ASSETS CYCLE

OPERATION CYCLE AND CASH CYCLE:

Investment in Working Capital is influenced by four key events in the

production and sales cycle of the company.

Purchase of raw material

Payment of raw materials

Sale of finished goods

Collection of cash for sales.

49

Finished

Work-in- progress

Raw Material

SuppliersCash/Bank

AccountReceivable

These keys events affect the cash flows. The firm begins with the

purchase of raw material, which is pain for after a delay, which is paid for

after delay and which represents the accounts payable period. Customers pay

their bills sometime after the sales the period that elapses between the date of

sales and the date of collection of receivables is the accounts payable period

(debit period)

OPERATION CYCLE

The time that elapses between the purchase of raw material and the

collection of cash for sales is referred as operating cycle. The operating cycle

is the sum of the inventory period and the accounts receivable period.

The behavior of the overall operating cycle and its individual components

of a firm are monitored through time series analysis and cross section

analysis. In time series analysis the duration of the operating cycle and its

individual components is compared over a period of time for the same firm.

In the cross section analysis the duration so the operation cycle and its

individual components is compared with that of firms of a comparable

nature.

50

Operating Cycle

Raw Materials

Cash

Work in Progress

Debtors Finished Goods

Sales

The operating cycle of the firm begins with acquisition of raw

materials and ends with the collection of receivable. It may be divided into

four stages.

Raw material and stores stage.

Work in progress stage.

Finished goods inventory stage.

Debtor’s collection stage.

51

Use of Operating Cycle:

The operating cycle is helpful to the company in two ways:

It helps in forecasting Working Capital requirements.

Control of Working Capital can be done efficiently by the

use of operating cycle.

Determination of the Length of Operating Cycle:

The length of the operating cycle of a manufacturing firm is the sum of:

Inventory conversion period.

Book debts conversion period.

Inventory Conversion Period:

It is the total time needed for producing and selling the product. It

includes the raw material conversion period. Work-in-progress, conversion

period and the finished goods conversion period.

Book Debts Conversion Period:

The book debts conversion period is the time required to collect

outstanding amount from the customers. The total of inventory conversion

period and book debts conversion period is the gross operating cycle. The

difference between the gross operating cycle and the payable deferral period

is net operating cycle.

52

Cash Cycle:

Cash cycle is the length between the payment for raw material purchases and

collection of cash for sales. Cash cycle is equal to the operating cycle less

the accounts payable period. It also represents time interval over which

additional funds, called Working Capital should be obtained in order to carry

out the company operations. If depreciation is excluded from expenses in

computation of operating cycle, the net operating cycle also represents cast

conversion cycle.

53

CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK

DURING THE PERIOD 2001-02

(Rs in lakhs)

Working Capital Management

ParticularsYear WC

2000-01 2001-02 Increase Decrease

A. Current Assets

1. Inventory

2.Cash & Bank balances

3. Receivables

4. Subsidiary receivables

Loans & Advances

1. Advances to employees

2. Advances for purchases

3. Prepaid expenses

Total Current Assets

B. Current Liabilities

1. For milk purchase

2. For expenses

Sundry Creditors

a. Sundry Creditors

b. Security Deposits

Total Current Liabilities

Networking Capital-

Increase/decrease working capital

TOTAL

1,183.66

227.09

744.94

-

12.82

52.72

21.19

1,136.13

78.55

773.62

-

13.00

46.88

19.19

28.68

0.18

197.28

120.33

47.53

148.54

5.84

2.71

129.33

1.36

22.01

2,243.13 2,067.37

299.27

478.68

436.72

109.19.25

428.60

480.04

239.44

120.25

1,323.86 1,268.33

919.27

799.04

120.23

919.27 919.27 554.60 554.60

54



(Rs in lakhs)


ParticularsYear WC


A. Current Assets

1. Inventory


3. Receivables


Loans & Advances



3. Prepaid expenses




2. For expenses

Sundry Creditors

a. Sundry Creditors



Networking Capital-


TOTAL

1,136.13

78.55

773.62

-

13.00

46.88

19.19

1,224.84

439.13

835.75

-

13.21

67.01

10.81

88.71

360.58

62.13

0.21

20.21

121.04

8.38

225.39

45.34

22.01

351.76

2,067.37 2,590.83

428.60

480.04

239.44

120.25

307.56

705.43

284.78

142.26

1,268.33 1,440.03

799.04

351.76

1,150.80

1,150.80 1,150.80 652.88 652.88

55



(Rs in lakhs)


ParticularsYear WC


A. Current Assets

1. Inventory


3. Receivables


Loans & Advances



3. Prepaid expenses




2. For expenses

Sundry Creditors

a. Sundry Creditors



Networking Capital-


TOTAL

1,224.84

439.13

835.75

-

13.21

67.01

10.81

1,125.61

336.75

713.75

-

12.06

107.85

18.13

40.76

7.32

150.14

12.56

205.88

99.23

102.38

122.00

1.15

67.12

24.56

2,590.83 2,314.15

307.56

705.43

284.78

142.26

374.89

555.29

272.22

167.04

1,440.03 1,369.23

1,150.80 944.92

205.88

1,150.80 1,150.80 416.66 416.66

56



(Rs in lakhs)


ParticularsYear WC


A. Current Assets

1. Inventory


3. Receivables


Loans & Advances



3. Prepaid expenses




2. For expenses

Sundry Creditors

a. Sundry Creditors



Networking Capital-


1,125.61

336.75

713.75

-

12.06

107.85

18.13

1,065.57

543.33

701.41

-

16.78

60.68

12.78

206.58

4.72

50.20

4.37

60.04

12.34

47.17

5.35

31.25

55.17

0.00

49.55

2314.15 2,400.55

374.68

555.29

272.22

167.04

405.93

610.46

222.02

216.59

1,369.23 1,455.00

944.92

0.63

945.55

57

TOTAL 945.55 945.55 265.87 265.87


DURING THE PERIOD 2005-06 (Rs in

lakhs)


ParticularsYear WC


A. Current Assets

1. Inventory


3. Receivables


Loans & Advances



3. Prepaid expenses




2. For expenses

Sundry Creditors

a. Sundry Creditors



1,065.57

543.33

701.41

-

16.78

60.68

12.78

1,422.27

578.46

687.09

-

11.01

48.23

10.64

376.70

35.13

14.34

5.77

12.45

2.14

54.69

199.19

91.55

16.95

2,400.55 2,777.70

405.93

610.46

222.02

216.59

460.62

809.65

313.57

233.49

1,455.00 1,817.33

58

Networking Capital-


TOTAL

14.83

945.55

14.82

960.37

960.37 960.37 411.83 411.83



(Rs in lakhs)


ParticularsYear WC


A. Current Assets

1. Inventory


3. Receivables


Loans & Advances



3. Prepaid expenses




2. For expenses

Sundry Creditors

a. Sundry Creditors


1,422.27

578.46

687.09

-

11.01

48.23

10.64

1,297.30

1,165.82

420.01

-

8.82

41.38

14.08

587.36

3.44

21.19

62.19

144.97

267.08

2.19

6.85

18.43

37.52

2,777.70 2,947.41

460.62

809.65

313.57

233.49

439.43

828.08

251.38

271.01

59


Networking Capital-


TOTAL

197.14

1,817.33 1,789.90

960.37

197.14

1,157.51

1,157.51 1,157.51 674.18 477.04

60

4.1 STATEMENT OF CHANGES IN WORKING CAPITAL

(RS. IN LAKHS)

YearCurrent Assets

Current Liabilities

Networking Capital Increase Decrease

2001-2002 2,067.37 1,268.33 799.04 --- 120.23

2002-2003 2,590.83 1,440.03 1,150.80 351.76 ---

2003-2004 2,314.15 1,369.23 944.92 --- 205.88

2004-2005 2,400.55 1,455.00 945.92 0.63 ---

2005-2006 2,777.70 1,817.33 960.37 14.82 ---

2006-2007 2,947.41 1,789.90 1,157.51 197.14 ---

61

FLUCTUATIONS IN WORKING CAPITAL:

FINDINGS:

Net working capital in 2001-02 was Rs. lakhs 799.04 and it increased to Rs. lakhs 1150.85 in 2002-03.

In 2002-03 net working capital is Rs. lakhs 1150.80 and it decreased to Rs. lakhs 944.92 in 2003-04.

In 2004-05 net working capital is Rs. lakhs 945.55 and it increased. And in 2006-07 net working capital is increased to Rs. lakhs 1157.51

The change in net working capital is alternative increase and decrease.

62

4.2 Working Capital Turnover Ratio

Working Capital Turnover Ratio indicated the velocity of the utilization of net working capital.

Working Capital Turnover Ratio= Sales/Working Capital

(RS. IN LAKHS)

Year Sales Working Capital Ratio

2001-02 11,388.74 799.04 14.25

2002-03 11,782.55 1,150.80 10.24

2003-04 11,985.11 944.92 12.68

2004-05 11,204.29 945.55 14.03

2005-06 14,352.23 960.55 14.94

2006-07 16,374.46 1,157.51 14.15

FINDINGS:

The Working Capital Ratio was 14.25 in the year 2001-02 and it is decreased from 10.24 in 2002-03.

The Working Capital Turnover Ratio has again increased to 2003-04

to 2006-07. That is 12.68, 14.03, 14.94 and 14.15 respectively.

The highest Working Capital Turnover Ratio was quoted in 2005-06 that is 14.94.

63

WORKING CAPITAL TURNOVER RATIO:

INTERPRETATION:

Working Capital Turnover Ratio indicates the velocity of the

utilization Of Net Working Capital.

The working capital Turn over Ratio is satisfactory if it arises and it is

dissatisfactory if it decreases.

Coming to the A.P dairy the Working Capital Ratio is decreased in

2007 which is 14.15 when compared to the year 2006 which is 14.94.

This is a bad sign.

Problem: There is no effective increase in sales.

Reason: There is no possible inventory holding.

64

Working Capital Turnover Ratio

0

2

4

6

8

10

12

14

16

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Solution: Maintaining of continuous work in process.

Advantages: It increases sales to meet the demand.

Disadvantages: huge amount required for storage facilities.

Best solution: To increase sales funds has to be utilized properly.

4.3 CURRENT RATIO

Current Ratio may be defined as the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position or liquidity of a firm.

Current Ratio = Current Assets/Current Liabilities

(RS.IN LAKHS)

Year Current Assets Current Liabilities Ratio

2001-02 2,067.37 1,268.33 1.63

2002-03 2,590.83 1,440.03 1.83

2003-04 2,314.15 1,369.23 1.69

2004-05 2,400.55 1,455.00 1.64

2005-06 2,777.70 1,817.33 1.53

2006-07 2,947.41 1,789.30 1.6565

FINDINGS:

The Current ratio in KDMPMACU Ltd., shown on table. The current assets increased year after year from Rs. 206.37 to 294.41 in 2007.

The Current ratio varied between 1.63 to 1.65 times. It increased in 2002-03 to 1.83 times. The current ratio in the year 2004-05 is 1.64 times. The current ratio was decreased in the year 2005-06 is 1.53 times and increased in 2006-07 is 1.65 times.

The company is not maintaining up to the standard norm of 2:1 in all the years.

CURRENT RATIO:

INTERPRETATION:

66

Current Ratio

1.351.41.451.51.551.61.651.71.751.81.851.9

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Current Ratio is mostly widely used to make the analysis of short

term

financial position of a firm.

If the current ratio is maintained in the standard norm of 2:1 it is

considered as satisfactory.

Coming to the A.P dairy the current ratio is increased from 1.53 in

2006 to 1.65 in 2007.

Hence current assets are increased and current liabilities are decreased

compared from last year to current year. so that the ratio is satisfactory

This is a Good sign.

4.4 INVENTORY TURNOVER RATIO

Inventory turnover ratio also known as stock velocity is normally calculated as sales/average inventory or cost of goods sold/average inventory. It would indicate whether inventory has been efficiently used or not. The purpose is to see whether only the required minimum funds have been locked up in inventory. Inventory turnover Ratio indicates the number of times the stock has been turned over during the period and evaluated the efficiency with which a firm is able to manage its inventory.

Inventory turnover ratio = Sales / Inventory.

(RS. IN LAKHS)

Year Sales Inventory Ratio

2001-02 11,388.74 1,136.13 10.02

2002-03 11,782.55 1,224.84 9.46

2003-04 11,985.11 1,125.61 10.64

2004-05 13,204.29 1,060.57 12.45

67

2005-06 14,352.23 1,442.27 9.95

2006-07 16,374.46 1,297.30 12.62

FINDINGS:

The relationship between inventory and sales revenue is

presented in the table. The inventory turnover increased from

10.02 times to 12.62 times and it recorded highest in 2006-07 at

12.62 times. Hence it can be conclude that inventory turnover

ratio is near to the satisfactory level in KDMPMACU Ltd.

INVENTORY TURNOVER RATIO:

INTERPRETATION:

68

Inventory Turnover Ratio

0

2

4

6

8

10

12

14

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

It indicates the number of times the stock has been sold during period.

If the inventory is in standard norm of 2:1 is satisfactory.

Coming to the A.P dairy inventory turn over ratio is increased from

9.95 in 2006 to 12.62 times in 2007.

Hence it can be concluded that Inventory turn over ratio near to the

satisfactory level in the dairy.

This is a good sign.

4.5 RECEIVABLES TURNOVER RATIO

Receivables Turnover Ratio=Total Sales/ Receivables

(RS. IN LAKHS)

FINDINGS:

Year Total sales Receivables Ratio

2001-02 11,388.74 733.62 14.72

2002-03 11,782.55 835.75 14.09

2003-04 11,985.11 713.75 16.79

2004-05 13,204.29 701.41 18.82

2005-06 14,352.23 687.09 20.88

2006-07 16,374.46 442.01 37.04

69

The total sales in the year 2001-02 were Rs. Lakhs 11,388.74 has increased to Rs. Lakhs 16,374.46 in 2006-07. There was year after year growth in total sales. Where the receivables have an alternative increase and decrease and the receivables was highest recorded in 2002-03 Rs. Lakhs 835.75.

The ratio in the year 2001-02 was 14.72 and decreased from 14.09

in 2002-03 and the ratio increased during the period of 2003-04 to 2006-07 that is 16.79, 18.82, 20.88 and 37.04 respectively.

RECEIVABLES TURNOVER RATIO:

INTERPRETATION:

70

Receivables Turnover Ratio

0

5

10

15

20

25

30

35

40

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Debtor’s turn over ratio measures how quickly the accounts recivables

are being collected.

In the case as short collection period and high turn over ratio imply

prompt payment on the part of debtors is satisfactory.

Coming to the A.P dairy the debtors turn over ratio increased from last

year which is 20.88 compared to current year 37.04.in this firm dr’s

turn over ratio is satisfactory.


4.6 QUICK RATIO

Quick ratio, Also known as Acid Test or Liquid Ratio, is a more rigorous test of liquidity than the current ratio. The term “liquidity” refers to the ability of a firm to pay its short-term obligations as and when they become due. The two determinants of current ratio, as a measure of liquidity, are current assets and current liabilities. Current assets include inventories and prepaid expenses which are not easily convertible into cash within a short period. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash within a short period without loss of value.

Quick ratio= Quick Assets / Current Liabilities

(RS. IN LAKHS)

Year Quick Assets Current Liabilities Ratio

2001-02 931.24 1,268.33 0.73

2002-03 1,365.99 1,440.03 0.95

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2003-04 1,188.54 1,369.23 0.86

2004-05 1,334.98 1,455.00 0.91

2005-06 1,335.43 1,817.33 0.73

2006-07 1,358.72 1,789.90 0.76

FINDINGS:

The table discloses the quick ratio of KDMPMACU Ltd. The quick assets increased from Rs. Lakhs 931.24 in 2001-02 to 1358.72 in 2006-07. The current liabilities increased from Rs. Lakhs 1268.33 to 1789.90

The quick ratio increased from 0.73 times in 2001-02 to 0.76 times in 2006-07 it is conduced that the quick ratio is not satisfactory as it is not maintaining the standard norm of 1:1.

QUICK RATIO:

72

Quick Ratio

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

INTERPRETATION:

Quick ratio is a relationship between quick/liquid assets and

current/liquid liabilities.

If the quick ratio is maintained in the standard norm of 1:1 is

considered as satisfactory.

Coming to A.P dairy the quick ratio is increased from last year which

is 0.73 compared to current year 0.76.

Although it is not in the standard norm of 1:1, the ratio is increased

compared to the last year. The current assts are increased and current

liabilities are decreased.


FLUCTUATIONS IN WORKING CAPITAL

INTERPRETATION:

73

0

50

100

150

200

250

300

350

400

2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

In A.P dairy the Net Working Capital increased from last year which

is

14.82 to the current year 197.14.

Hence this firm utilizes its funds efficiently.

This is a Good sign.

FINDINGS

In fact, project report can not be made comprehensive, unless it is

accompanied by findings of the study, since the findings are the bedrock of

any formal study, I threw a light on making keen observation regarding the

way working capital is managed in a said company . in addition, I deem it

necessary, to present the following findings in a bid to make this report

realistic.

The Net Working Capital is good. But the company’s working capital

turn over ratio shows the utilization of Working Capital is not

satisfactory.

Company’s average collection period of debtors is satisfactory in

2006-07 compared to the other years.

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The liquidity position of the company is satisfactory, Even though the

company’s current ratio does not equal to the standard norm.

It is found that, the inventory ratio varied between 10.02times in 2001-

2002 and 12.62 times in 2006-07. As a whole the inventory turnover

ratio is maintained satisfactorily.

The current assets as a percentage of total assets are significantly high

in this organization and constitute nearly 50% of total assets.

The quick ratio is very low at the beginning of the years. But later it is

registered at higher rate in this organization.

SUGGESTIONS

As part of my research plan, it became mandatory for

me to offer following suggestions. As these suggestions are based on

objective analysis of data through systematic approach, they can help the

company in removing the short comings if any.

It is suggested that, the fluctuations existed in the Net working

capital must be controlled by properly maintaining the ratio of

current assets and current liabilities.

It is advised that, the comfortable Quick ratio is 1:1 where as it is

very low in the organization. Therefore, the company needs to raise

its quick assets first to overcome the existing problem in order to

meet the requirements.

75

It is suggested that, properly maintaining the inventory turn over

ratio is also very good symbol for the organization. Therefore, it is

advised to maintain the same and it should try to increasing the

same year by year.

It is observed that the receivables turn over ratio is high in the

company. Therefore, it shoes the turn for the sales position of the

company.

Current ratio is increased from last year compared to current year.

If the sales orders increase the liquidity position of the company

also improve.

BIBLIOGRAPHY

Books:

Financial Management KHAN & JAIN

Financial Management I.M. PANDY

Financial Management PRASANNA CHANDRA (Theory & Practice)

Financial Accounting S.P.JAIN & K.L. NARANG

Booklets and other Publications on the progress of KDMPMACUL.

Journals:

Annual Audit Reports of Vijaya Diary.

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Web Sites:

www.indiandiary.comwww.vijayadairy.com

77

http://www.vijayadairy.com/

http://www.indiandiary.com/

Project

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adequacy of working

shortage of working

formal study

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requirement of capital

studyany study

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