WORKING CAPITAL MANAGEMENT EFFICIENCY OF SUGAR FACTORIES IN ANDHRA PRADESH: A CASE STUDY OF SELECT SUGAR FACTORIES IN CHITTOOR DISTRICT *Dr .D.VENKATESH Assistant Professor, Department of Commerce, Besant Theosophical College, Madanapalle. **Prof. M.VENKATESWARLU Professor, Dept. of Commerce, S V University, Tirupati. ABSTRACT Sugar cane is an important commercial crop in India. More than 45 million sugar-cane farmers and large mass of agricultural laborers involved in sugar-cane cultivation and harvesting are dependent on the performance of sugar industry in India. Management of working capital performs a very vital part in the performance of firms in sugar industry. Working capital is the foundation stone of the business. When a business is started, the owners and investors contribute this capital. The ultimate objective of any firm is to optimize, if not maximize, the wealth of the shareholders. In order to do this, a firm should earn a suitable return from its operations. In order to earn sufficient returns, the firm should be able to generate sufficient sales. This requires adequate investment in current assets because all the sales do not get converted into cash immediately. The researcher has made an attempt to examine this study focus on working capital management efficiency of select sugar factories in Chittoor district. Key Words: Sugar cane, Working Capital, Sufficient Returns and Sugar Factory. Introduction Working capital is the foundation stone of the business. When a business is started, the owners and investors contribute this capital. This capital is then invested in the long term assets such as land, building, plant and machinery. These fixed assets are of no use unless they are put to use. The capital, it makes the fixed assets work, is called the working capital. Fixed assets are like computer hardware, whereas working capital is like computer software. Hardware is dead without the software; similarly, long-term assets of the business are of no use if there is no working capital. Working capital is that minimum amount which is always there in a business, International Journal of Research Volume VIII, Issue VI, JUNE/2019 ISSN NO:2236-6124 Page No:3599
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WORKING CAPITAL MANAGEMENT EFFICIENCY OF SUGAR
FACTORIES IN ANDHRA PRADESH: A CASE STUDY OF SELECT
SUGAR FACTORIES IN CHITTOOR DISTRICT
*Dr .D.VENKATESH
Assistant Professor, Department of Commerce,
Besant Theosophical College, Madanapalle.
**Prof. M.VENKATESWARLU
Professor, Dept. of Commerce, S V University, Tirupati.
ABSTRACT
Sugar cane is an important commercial crop in India. More than 45 million sugar-cane
farmers and large mass of agricultural laborers involved in sugar-cane cultivation and harvesting
are dependent on the performance of sugar industry in India. Management of working capital
performs a very vital part in the performance of firms in sugar industry. Working capital is the
foundation stone of the business. When a business is started, the owners and investors contribute
this capital. The ultimate objective of any firm is to optimize, if not maximize, the wealth of the
shareholders. In order to do this, a firm should earn a suitable return from its operations. In order
to earn sufficient returns, the firm should be able to generate sufficient sales. This requires
adequate investment in current assets because all the sales do not get converted into cash
immediately. The researcher has made an attempt to examine this study focus on working
capital management efficiency of select sugar factories in Chittoor district.
Key Words: Sugar cane, Working Capital, Sufficient Returns and Sugar Factory.
Introduction
Working capital is the foundation stone of the business. When a business is started, the
owners and investors contribute this capital. This capital is then invested in the long term assets
such as land, building, plant and machinery. These fixed assets are of no use unless they are put
to use. The capital, it makes the fixed assets work, is called the working capital. Fixed assets are
like computer hardware, whereas working capital is like computer software. Hardware is dead
without the software; similarly, long-term assets of the business are of no use if there is no
working capital. Working capital is that minimum amount which is always there in a business,
International Journal of Research
Volume VIII, Issue VI, JUNE/2019
ISSN NO:2236-6124
Page No:3599
that is used to meet payments as and when they become due, and is used to avoid technical
insolvency arising out of non-payment of routine bills1.
The ultimate objective of any firm is to optimize, if not maximize, the wealth of the
shareholders. In order to do this, a firm should earn a suitable return from its operations. In order
to earn sufficient returns, the firm should be able to generate sufficient sales. This requires
adequate investment in current assets because all the sales do not get converted into cash
immediately2. The need for working capital arises due to time gap between production and
realization of cash from sales. There is an operating cycle involved in sales and realisation of
cash. There are time gaps in purchase of raw materials and production, production and sales, and
sales and realization of cash.
Objective:
The present study aims to appraise the working capital management efficiency of the
select sugar factories in Chittoor District.
Review of Literature
Dr.R.Gowri (2015), in her article “A Study on Impact of Working Capital Management
on Profitability with Reference to Sugar Companies in Tamil Nadu” analysed that sugar
companies are facing many financial problems. Most of the sugar companies are operationally
viable but are suffering from lack of proper management of working capital. Hence, it is the need
to analyse the impact of working capital management on profitability and improve its firm’s
growth opportunities and return to shareholders. Therefore, the study was made as an attempt to
analyse the impact of WCM on profitability of sugar companies in Tamil Nadu3.
Praveena. S and Mahendran. K. (2013), in their article “Working Capital Management
Efficiency of Sugar Sector in India” found that efficient working capital management was
important for the corporate strategy. Firms try to keep the average level of working capital that
maximizes their value. This study attempted to evaluate the efficiency of working capital
management of sugar sector in India for the period 2007-2012. Instead of employing the
financial ratios, working capital efficiency had been measured in terms of utilization index,
performance index and total efficiency index. Findings of the study indicate that the sugar sector
as a whole was performing well during the study period4.
International Journal of Research
Volume VIII, Issue VI, JUNE/2019
ISSN NO:2236-6124
Page No:3600
Ramachandran and Gopinathan (2012), analysed the relationship between, "Working
Capital Management and Profitability of Sugar Industry in India". There was a significant
positive co-efficient between current ratio and Return on Investment (5.263), Inventory Turnover
Ratio and Return on Investment (1.110) at 5 per cent level. Also there was a significant negative
co-efficient between Quick ratio and Return on Investment (-10.582), Working Capital Turnover
Ratio and Return on Investment (-0.036) at 5 per cent level. Debtors Turnover Ratio recorded
highly significant negative co-efficient (-0.020) at 1 per cent level with Return on Investment.
Creditors Turnover Ratio registered insignificant positive co-efficient 0.014 with profitability.
The overall regression model fit, which was represented by R2, was above 50 per cent (0.51)
which indicated that the sugar industry in India was poised to reap a rich harvest in the season
beginning from October, 2010. The Sugar Corporate firms are over-burdened with surplus
inventories that most of them do not have adequate storage facilities, capacities and cash flow
which have led them to resort to distress sale of sugar which brought down the prices5.
SAMPLE DESIGN
The present study is confined to the study of working capital management efficiency of
select sugar factories in Chittoor district. There are 6 sugar factories in Chittoor district. Out of
these, two factories are in co-operative sector, and four factories are in private sector. Out of
these six sugar factories, three sugar factories are not working i.e., one in private sector and two
in co-operative sector. The researcher has adopted census method and chosen three sugar