working capital management heritage

8/10/2019 Working Capital Management Heritage

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CONTENTS

CHAPTER I

INTRODUCTION

Introduction of topicStatement of problem

CHAPTER II

METHODOLOGY

Objectives of the study

Need for the study

Scope of the study

Limitations of the study

Review of literature

CHAPTER III

COMPANY PROFILE & INDUSTRY PROFILE

CHAPTER IV

THEORITICAL BACKGROUND

CHAPTER - V

DATA ANALYSIS & INTERPRETATION

FINDINGS

SUGGESTIONS & CONCLUSIONS

BIBLIOGRAPHY


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INTRODUCTION


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INTRODUCTION

The concept of working capital is much confusing in the business circles. It is very unfortunate, there

is much disagreement among financiers, accountants, businessmen and economists as to the exact

meaning of the term working capital. According to a few, working capital means current assists. or

some others it is an excess of current assets over current liabilities. !ome authorities prefer to call it

circulating capital in place of working capital.

MEANING OF WORKING CAPITAL:-

The term working capital is commonly used for the capital re"uired for day#to#day working

in business concern. !uch as for purchasing raw material for meeting day#to#day expenditure on

salaries, wages, rent rates advertising etc. but there is much disagreement among various financial

authorities as to the exact meaning of the term working capital

DEFINITION OF WORKING CAPITAL

$orking %apital refers to that part of the firms capital, which is re"uired for financing short#term

or current assets such a cash marketable securities, debtors and inventories. unds thus, invested

in current assets keep revolving fast and are constantly converted into cash and this cash flow out

again in exchange for other current assets. $orking %apital is also known as revolving orcirculating capital or short#term capital.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

$orking capital management includes a number of aspects that make it especially important

for the financial health of the firm. !urveys indicate that the largest portion of the financial manager

time is devoted to the day#to#day operations of the firm, which fall under the heading o working

capital management.

%urrent assets represent the largest proportion i.e. if total assets forms &' then current assets

are generally above ()'. *oreover current assets fluctuate with sales and sales vary over time. Thus

managing current asset is the dynamic process and it re"uires the financial mange to closely monitor

sales to ensure that assets in hand are at the right level for actual sales production levels.


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DETERMINANTS OF WORKING CAPITAL

+ature of Industry

!easonality of perations

-roduction -olicy

*arket %onditions

%onditions of supply

!ie of /usiness

0olume of !ales

Terms of -urchase and !ales

/usiness %ycle

1rowth and 2xpansion of the firm

-rice 3evel %hanges

perating 2fficiency of the firm

-rofit Appropriation

%apital !tructure of the firm

STATEMENT OF THE PROBLEM :

The present study is titled 4problem of working capital management of 526ITA12 4

In order to study the statement it is necessary to define important terms used in

statement of the problem .

The term 4working capital management7 refers to total current assets of

526ITA12. 8uring a particular period of time. current assets are the assets which can be

converted into cash within accounting year.

The term working capital management implies

determination of re"uirements of working capital ,financing the re"uirements and efficien

utiliation of working capital in 526ITA12 .

A study on working capital management is mainly related to

ade"uacy of inventories, recievebles, cash and bank balances and working finance in 526ITA12

during the period of under study.


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METHODOLOGY


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NEED OF THE STUDY

%urrent assets must be managed efficiently in order to maintain the li"uidity of the firm to know

about the financial mixed strategies .

5ence forth so far researchers not touched with said topic to

knowing the information in organiation exactly the working capital wants to know the balances of

current assets 9 current liabilities increases or decreases to know the corrected netprofit of

balance and we can know the difference of the year of balance how much it is profit or loss will be

there in company.

SCOPE OF THE STUDY:

The study is confined to 526ITA12 ltd and analysis of its financial statements .

The study period is :))(#:)&:

The main aim of the study is to assess the proper mgt of current assets 9 current liabilities .

The study concentrates more on the working capital mgt of 526ITA12 .

$orking capital gives only a good basis for "uantitative analysis of financial problem.


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OBJECTIVES OF STUDY :

To study overall position of 526ITA12.

To examine the changes in working capital of 526ITA12.

To study existing system of working capital management in 526ITA12.

To analye financial performance of company with reference to its working capital

components.

To know the financial position of a company.


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REVIEW OF LITERATURE :

The present study is related to working capital management in 526ITA12 , more effective and

interacted for research work in corporate sectors . for the assessment of working capital management .

T.anitha , ;nt university , hyd , researchers evalutated the working capital management

on his study on wcm in 4526ITA12 4. That working capital management is consider to involve the

administration of current assets and current liabilities . in such a way that an option level of working

capital maintained in the business .she also narrated that firm may resist without making profits but it

cannot survive with out li"uidity .

I therefore based on case study , I have selected my topic on different approach .

LIMITATIONS OF THE STUDY:

In present study the analysis is mainly based on secondary data given in annual audited balance

sheets , profit and loss a


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PERIOD OF THE STUDY : the period of the study of these pro;ect of working capital

management on 526ITA12 is two months.

COLLECTION OF DATA:

To achieve a fore said ob;ective the following methodology has been adopted. The informationfor this report has been collected through the -rimary and !econdary sources.

&. -rimary 8ata !ources

:. !econdary 8ata !ources

PRIMARY DATA SOURCES:

It is also called as first handed information the data is collected through the observation in theorganiation and interviews with the accounts and the persons in the financial department. A part fromthese, some information is collected through the seminars which were held by 2%I3.

SECONDARY DATA SOURCES:

These secondary data is existing data which is collected by other sources, i.e. financial ;ournalsannual reports of 2%I3, website of 2%I3 and other publication of 2%I3.


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TOOLS AND TECHNIQUES :

%urrent ratio = %urrent Assets %urrent 3iabilities

>uick ratio = 3i"uid Assets %urrent 3iabilities

%ash ratio = %ash 9 /ank balances %urrent 3iabilities ? &))

$orking capital turnover ratio = sales@turnover$orking capital

debtors turnover ratio = sales @turnoveraccounts recieveble

!tock turnover ratio = !ales @turnover inventory


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COMPANY PROFILE


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COMPANY PROFILECOMPANY PROFILE

About U !O"#$ V%#& o' t(# )o*+,./

The 5eritage 1roup, founded in &BB: by !ri +ara %handra /abu +aidu, is one of the fastest

growing -rivate !ector 2nterprises in India, with four#business divisions vi., 8airy, 6etail, Agri, and

/akery under its flagship %ompany 5eritage oods @India 3imited @5I3. The annual turnover of

5eritage oods crossed 6s.&)B( crores in :)&)#&&.

-resently 5eritages milk products have market presence in Andhra -radesh, Carnataka

Cerala, Tamil +adu, *aharashtra and rissa and its retail stores across /angalore, %hennai and

5yderabad. Integrated agri operations are in %hittoor and *edak 8istricts and these are backbone to

retail operations and the state of art /akery division at Dppal, 5yderabad, Andhra-radesh.

In the year &BBE, 5I3 went to -ublic Issue to raise resources, which was oversubscribed FE

times and its shares are listed under /& %ategory on /!2 @!tock %odeG F&BFF: and +!2 @!tock

%odeG 526IT18

About the founder:

!ri %handra /abu +aidu is one of the greatest 8ynamic, -ragmatic, -rogressive and

0isionary 3eaders of the :&st%entury. $ith an ob;ective of bringing prosperity in to the rural families

through co#operative efforts, he along with his relatives, friends and associates promoted 5eritage

oods in the year &BB: taking opportunity from the Industrial -olicy, &BB& of the 1overnment of India

and he has been successful in his endeavour.

At present, 5eritage has market presence in all the states of !outh India. *ore than

three thousand villages and five lakh farmers are being benefited in these states. n the other side

5eritage is serving more than ( lakh customers needs, employing more than H)) employees and

generating indirectly employment opportunity to more than F))) people. /eginning with a humble

annual turnover of ;ust 6s.E.J crores in &BB#BE, the sales turnover has reached close to 6s.&)B(

crores during the financial year :)&)#:)&&.


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!ri +aidu held various coveted and honorable positions including %hief *inister of Andhra

-radesh, *inister for inance 9 6evenue, *inister for Archives 9 %inematography, *ember of the

A.-. 3egislative Assembly, 8irector of A.-. !mall Industries 8evelopment %orporation, and %hairman

of Carshaka -arishad.

!ri +aidu has won numerous awards including K *ember of the $orld 2conomicorumLs 8ream %abinetK @Time Asia , K!outh Asian of the Mear K @Time Asia , K /usiness -erson of

the Mear K @2conomic Times, and K IT Indian of the *illennium K @ India Today.

!ri +aidu was chosen as one of F) leaders at the forefront of change in the year :)))

by the /usiness $eek magaine for being an unflinching proponent of technology and for his drive to

transform the !tate of Andhra -radesh .

Fo$&,$0 1oo2%3 t,t#*#t:

4$e have grown, and intended to grow, focusing on harnessing our willingness to

experiment and innovate our ability to transform our drive towards excellence in "uality, our people

first attitude and our strategic direction.

M%%o 4 "%%oM%%o

/ringing prosperity into rural families of India through co#operative efforts and providing customers

with hygienic, affordable and convenient supply of Kresh and 5ealthyK food products.

V%%o

To be a progressive billion dollar organiation with a pan India foot print by :)&F.

To achieve this by delighting customers with Kresh and 5ealthyK food products, those are a

benchmark for "uality in the industry.$e are committed to enhanced prosperity and the empowerment of the farming community through

our uni"ue K6elationship armingK *odel.

To be a preferred employer by nurturing entrepreneurship, managing career aspirations and providing

innovative avenues for enhanced employee prosperity.


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H#$%t,3# S1o3,:

$hen you are healthy, we are healthy

$hen you are happy, we are happy

$e live for your K52A3T5 9 5A--I+2!!K

PROMOTERS !HINT :- CEO5 DIRECTORS/

Bo,$0 O' D%$#)to$

!ri 8. !eetharamiah %hairman

8r. A. Appa 6ao 8irector

8r. 0. +agara;a +aidu 8irector

8r. +. 6 !ivaswamy 8irector

!ri +. - 6amakrishna 8irector

!mt +. /huvaneswari 0ice#%hairman 9 *anaging 8irector

!ri 3okesh +ara 2xecutive 8irector

Co$# M,,3#*#t T#,*

8r. *. !amba!iva 6ao -resident

%A A -rabhakara +aidu 0ice -resident

Dmakanta /arik %ompany !ecretary

C 8urga -rasada 6ao %hief perating fficer

! Nagdish Crishnan %hief perating fficer

Anil Cumar !rivastava %hief perating fficer

Qu,1%t. +o1%). o' HFIL:

$e are committed to achieve customer satisfaction through hygienically processed and packed

*ilk and *ilk -roducts. $e strive to continually improve the "uality of our products and services

through upgradation of technologies and systems.

5eritageLs soul has always been imbibed with an unwritten perpetual commitment to itself, to

always produce and provide "uality products with continuous efforts to improve the process and

environment.

Adhering to its moral commitment and its continuous drive to achieve excellence in

"uality of *ilk, *ilk products 9 !ystems, 5eritage has always been laying emphasis on not only

reviewing 9 re#defining "uality standards, but also in implementing them successfully. All activities of

-rocessing, >uality control, -urchase, !tores, *arketing and Training have been documented with

detailed "uality plans in each of the departments.


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Today 5eritage feels that the I! certificate is not only an epitome of achieved targets

but also a scale to identify 9 reckon, what is yet to be achieved on a continuous basis. Though, it is a

beginning, 5eritage has initiated the process of standardiing and adopting similar "uality systems at

most of its other plants.

Co**%t*#t:

M%12 P$o0u)#$:

%hange in life styles of rural families in terms ofG


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6egular high income through co#operative efforts.

$omen participation in income generation .

!aved from price exploitation by un#organied sector .

6emunerative prices for milk .

Increase of milk productivity through input and extension activities

!hift from risky agriculture to dairy farming

5eritage

inancial support for purchase of cattleO insuring cattle

2stablishment of %attle 5ealth %are %enters

!upplying high "uality %attle feed

rganiing K6ythu !adasuK and 0ideo programmes for educating the farmers in dairy farming

Cuto*#$:

Timely !upply of >uality 9 5ealthy -roducts

!upply high "uality milk and milk products at affordable prices

ocused on +utritional oods

*ore than E lakh happy customers

5igh customer satisfaction

:E hours help lines @ P&) complaints a day


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E*+1o.##:

2nhancing the Technical and *anagerial skills of 2mployees through continuous training and

development

/est appraisal systems to motivate employees

Incentive, bonus and reward systems to encourage employees

5eritage forges ahead with a motto Kadd value to everything you doK

S(,$#(o10#$:

R#tu$:

%onsistent 8ividend -ayment since -ublic Issue @Nanuary &BBF

S#$"%)#:

5ighest impotence to investor serviceO no notice from any regulatory authority since :))& in

respect of investor service

0ery transparent disclosures

Su++1%#$:

Do#(1,$:technical collaboration in *ilk drinks, yogurts drinks and fruit flavoured drinks Alfa#

3avalG supplier of high#end machinery and technical support ocusing on Tetra pack association for

products package.


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QUALITIES OF MANAGEMENT PRINCIPLES:

&. %ustomer focus to understand and meet the changing needs and expectations of customers.

:. -eople involvement to promote team work and tap the potential of people.

. 3eadership to set constancy of purpose and promote "uality culture trough out the organiation

E. -rocess approach to assess the efficiency and effectiveness of each process.

F. !ystems approach to understand the se"uence and interaction of process.

(. actual approach to decision making to ensure its accuracy.

H. %ontinual improvement processes for improved business results.

J. 8evelopment of suppliers to get right product and services in right time at right place.

F,)t S(##t !M%1#to#/

A&,$0 4 R#)o3%t%o

6t +$%7# % E#$3. Co#$",t%o

*ain 8airy -lant, 1okul, near Casipentla on Tirupati# %hittoor 5ighway had won the -restigious &st

prie in 2nergy %onservation for the Mear :)&) at the +ational 3evel for itLs outstanding performance

in conserving the +atural 6esources through the most efficient use of 2nergy.

THE GREAT INDIAN ICE CREAM CONTEST 899


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Cot,)t u !H%t :- A00$# O' t(# )o*+,. o$ +1,t 1o),t%o ;H#,0 O''%)#


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P$o0u)t o' t(# )o*+,. !Fo$ M,$2#t%3 P$o=#)t &%t( Lo3o %' %t % +o%b1#/

M%12

&.Toned *ilk

:.ull %ream

*ilk

.8ouble

Toned *ilk

E.1olden %ow

*ilk

F.!tandardised

*ilk (.!lim *ilk

H.D5T Toned*ilk

J.D5T !lim*ilk

B.!mart*ilk

&).*an;unatha*ilk

&&.2humalai*ilk

&:.-admanab*ilk

M%12 P$o0u)t - F$#(

&.Toned *ilk

%urd %up

:.ull %ream

*ilk %urd

%up

.%urd

-ouch E.ruit n %urd %up F./utter *ilk

(.Neera /u

*ilk

H.1arlic

/utter *ilk J.-aneer

B.%ooking

/utter

&).-asturised Table

/utter

&&.%heese

%hiplets &:.%heese !

&.%heese #

%arton 9 Tin

-acks &E.8oodhpeda

&F.*ilk

%ake &(.*alai 3addu &H.!unundalu &J.!oan -ap

M%12 P$o0u)t - Lo3 S(#1' L%'#

&.1hee

-olypack #

%ow 9

/uffalo

:.1hee Alu

oil # %ow 9

/uffalo

.1hee Nar #

%ow

E.1hee Tin #

/uffalo

F.!kimmed

*ilk -owder

(.8airy

$hitener

I)# C$#,*

&.!mall %up :.3arge %up .Culfi E.Twin /ars F.!undae (.+ovelties

H.%elebration

%one J.%hocobars

B./ar

+ovelties &).Nuicy /ar

&&.!undae

*agic &:.5ome -a

&.2co#-acks

&E.-remium

Tubs

&F.Dtsav

-acks &(.-arty -acks

B#"#$,3#

&.-ackaged

8rinking

$ater

:.-remium

Tea

.-opular

Tea

E.lavoured *ilk #

/ottles

F.lavoured

*ilk #

Tetrapack (.!weet 3as

H.ruit 3assiJ.Instant%offee

B.1round%offee

C1#,%3 A%0

&.Dtensil

%leaners

:.Toilet

%leaners

.!olid

reshener

E.1lass


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/read /read /read

H.5eritage

*umbai -av

J.Instant *ix

ood

G##$,1 M#$)(,0%#

&.Toilet

Tissues

:.-aper

Towels

.ace

Tissues E.%andles F.Agarbatti

(.Citchen

TowelsH#,1t( 4 B#,ut.

&.5air ils

:.3i"uid 5and

$ash

.Tooth

/rush

It,t Foo0

&.Appalams :.%ereal /ased .ryums

E.+orth Indian

6eady *ixes F.-apads

(.!outh Ind

6eady *ixe

H.0ermicelli

R#,0. Foo0

&.%hilly

/ased :.5oney

.Indian

!weets E.Nams


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0egetables, isheries, *ilk 9 *ilk -roducts, *eat 9 -oultry, -ackaged


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uses them to produce marketable food products.there are several different ways in which food can be

produced.

O# O'' P$o0u)t%oThis method is used when customers make an order for something to be made to

their own specifications, for example a wedding cake. The making of ne ff -roducts could take

days depending on how intricate the design is and also the ability of the chef making the product.

today...

B,t)( P$o0u)t%oThis method is used when the sie of the market for a product is not clear, and

where there is a range within a product line. A certain number of the same goods will be produced to

make up a batch or run, for example at 1reggs /akery they will bake a certain number of chicken

bakes. This method involves estimating the amount of customers that will want to buy that product.

M, +$o0u)t%oThis method is used when there is a mass market for a large number of identical

products, for example, chocolate bars, ready meals and canned food. The product passes from one

stage of production to another along a production line.

Jut I T%*#This method of production is mainly used in sandwich bars such as !ubway, it is when

all the components of the product are there and the customer chooses what they want in their product

and it is made for them fresh in front of them.

WHOLESALE AND DISTRIBUTION

A vast global transportation network is re"uired by the food industry in order to connect its numerous

parts. These include suppliers, manufacturers, warehousing, retailers and the end consumers. There are

also those companies that, during the food processing process, add vitamins, minerals, and other

necessary re"uirements usually lost during preparation. $holesale marketsfor fresh food products

have tended to decline in importance in 2%8countries as well as in 3atin America and some Asian

countries as a result of the growth ofsupermarkets, which procure directly from farmers or through

preferred suppliers, rather than going through markets.

The constant and uninterrupted flow of product from distribution centers to store locations is a critical

link in food industry operations. 8istribution centers run more efficiently, throughput can be increased,

costs can be lowered, and manpower better utilied if the proper steps are taken when setting up a

material handling system in a warehouse.

The Indian food market is estimated at over D!R &J: billion, and accounts for about two thirds of the

total Indian retail market. urther, according to consultancy firm *cCinsey 9 %o, the retail food

sector in India is likely to grow from around D!R H) billion in :)&: to D!R &F) billion by :):F,
http://en.wikipedia.org/wiki/Wholesale_marketinghttp://en.wikipedia.org/wiki/OECDhttp://en.wikipedia.org/wiki/Supermarketshttp://en.wikipedia.org/wiki/Supermarketshttp://en.wikipedia.org/wiki/Wholesale_marketinghttp://en.wikipedia.org/wiki/OECDhttp://en.wikipedia.org/wiki/Supermarkets


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accounting for a large chunk of the world food industry, which would grow to D!R E)) billion from

D!R &HF billion by :):F.

E>PORTS

2xports of agricultural products from India are expected to more than double to top D!R :).( billion

in the next five years, according to the commerce ministry.

According to estimates by the Agricultural and -rocessed ood -roducts 2xport 8evelopment

Authority @A-28A, the share of IndiaLs farm product exports in the global trade will grow from : per

cent now to over F per cent.

2xports of fresh and processed vegetables, fruits, livestock and cereals rose &) per cent to D!R J.(H

billion in :)&:)&:.

SPICES

8espite a global slowdown, Indian spice exports are growing. India exported EH),F:) tonnes of spices

valued at D!R &&.(J billionSan all#time highSin :)&:)&:.

8uring the :)&&: , EEE,:F) tonnes valued at D!R &&.)& billion were exported. %ompared with :)&

&: , exports had shown an increase of &B per cent in rupee value and six per cent in dollar terms.

FOOD PROCESSING

The Indian packaged processed foods industry is estimated at D!R &).JH billion D!R &.)F billion,

including biscuits, chocolates, ice#cream, confectionery, snacks, cheese and butter. 1rowing at a

healthy &E#&F per cent over the past two#three years, ma;or players in the sector include /ritannia,

+estle, Amul, IT% oods, -arle, Celloggs, 1laxo!mithCline, $rigley and rito#3ay, among others.


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The industry received foreign direct investments @8I totalling D!R &E.J) million in :)&

:)&:against D!R F.H) million in the previous fiscal. The cumulative 8I received by the industry

from April :)))#August :)&& stood at D!R JHJ.: million.

5owever, Indias share in exports of processed food in global trade is only &.F per centO whereas the

sie of the global processed#food market is estimated at D!R .: trillion and nearly J) per cent ofagricultural products in the developed countries get processed and packaged.

In order to further grow the food processing industry, the government has formulated a 0ision#:)&F

action plan under which specific targets have been set. This includes tripling the sie of the food

processing industry from around D!R H) billion to about D!R :&) billion, raising the level of

processing of perishables from ( per cent to :) per cent, increasing value addition from :) per cent to

F per cent, and enhancing Indias share in global food trade from &.F per cent to per cent. This

would re"uire an investment of D!R :).( billion.

According to an 2rnst and Moung @29M presentation, the food processing industry in India will grow

)#E) per cent as against the present &F per cent in the next &)#years.

-rime *inister 8r *anmohan !ingh on ctober (, :)&& laid out a blueprint for rapid growth in the

countrys food processing sector. The -rime *inister said that this can be achieved by simplifying the

tax structure, formulating a +ational ood -rocessing -olicy and improving rural infrastructure.

*oreover, according to Dnion *inister for ood -rocessing Industries, !ubodh Cant !ahai the central

government is envisaging an investment of D!R :&.F) billion in the food processing industry over the

next five years, a ma;or chunk of which it plans to attract from the private sector and financial

institutions.

SNACKS AND CONFECTIONERY

The Indian market holds enormous growth potential for snack food, which is estimated to be worth

D!R billion, with the branded snack market estimated to be around D!R &.E billion, growing at &F#

:) per cent a year. $hile the growth rate of the D!R &.F( billion unorganised sector is H#J per cent.


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HEALTH FOOD

6ecognising the growth potential of the branded health food sector in India, fast moving consumer

goods @*%1 ma;ors are foraying into this sector in a big way. As 5industan 3ever 3td @5D3 is test

marketing its health food brand, Cissan Amae, in three southern states in India, 1odre; 5ershey

oods 9 /everages 3td @15/3, a ;oint venture between 1odre; /everages 9 oods 3td and

5ershey %ompany, is planning to introduce select brands from its international portfolio in the

domestic market.

DAIRY

According to 8airy India :)&& estimates, the current sie of the Indian dairy sector is D!R (:.(H

billion and has been growing at a rate of F per cent a year. The dairy exports in :)&&&) rose to D!R

:&).F million against D!R &&.FH last fiscal, whereas the domestic dairy sector is slated to cross D!R&&) billion in revenues by :)&:.

India continues to be the largest producer of milk in the world. It produced &&) million tonne of milk

in :)&:)&:.

BEVERAGES

According to industry experts, the market for carbonated drinks in India is worth D!R &.F billion while

the ;uice and ;uice#based drinks market accounts for D!R ).:F billion. 1rowing at a rate of :F per cent,

the fruit#drinks category is one of the fastest growing in the beverages market. !ports and energy

drinks, which currently have a low penetration in the Indian market, have sufficient potential to grow.

The market for alcoholic beverages has been growing consistently. LThe uture of $ineL, a report on

the state of the wine industry over F) years, suggests that the market for wine in India was growing at

over :F per cent per year.

MAJOR INVESTMENTS

-rivate investment has been one of the key drivers for growth of the Indian food industry. The LIndia

ood 6eport :)&:L, reveals that the total amount of investments in the food processing sector in the

pipeline for the next three years is about D!R : billion.


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The government has received around E) expressions of interest @2oI for the setting up of &)

*-s with an investment of D!R F&E.H million.

6eliance Industries 3td has invested D!R &.:F billion in a dairy pro;ect.

ocusing on India as a rapidly growing market, D! soft drinks giant -epsico would pump in an

estimated D!R &F:.) million to set up four new food and beverages pro;ects by :)&:.

1eneva#based food service chain 1lobal ranchise Architects @1A aims to open :F) stores

around the world by *arch :)&:, of which &)) will be in India.

GOVERNMENT INITIATIVES

The new trade policy places increased focus on agro#based industries.

ood processing industries have been put in the list of priority sectors for bank lending. The

%entre has also announced a series of new initiatives which include a separate policy at the

state level, thrust on contract farming and making the sector tax#free.

The government plans to open ) mega food parks by the end of the &&th five year plan @:)&

:)&:.

ruit and vegetable processing units have been completely exempted from paying excise duty.

Automatic approval for foreign e"uity up to &)) per cent is permitted for most of the processed

food items.

Items like fruits and vegetables products, condensed milk, ice cream, meat production havebeen completely exempted from %entral 2xcise 8uty.

2xcise duty on ready to eat packaged foods and instant food mixes has been brought down to J

per cent from &( per cent.

2xcise duty on aerated drinks has been reduced to &( per cent from :E per cent.

The *inistry of ood -rocessing Industry would assist in the setting up of more food

processing units so that the industry could create &) million ;obs by :)&F, according to *r

!ubodh Cant !ahai, Dnion *inister for ood -rocessing.

LOOKING AHEAD

According to the India ood and 8rink 6eport > :)&: by research analysis firm 6esearch and

*arkets, by :)&:, Indias processed food output is likely to grow by EE.: per cent to touch D!R B).&

billion, while packaged food sales will increase by (H.F per cent to reach D!R :&.H billion. n a per


29/63

capita basis, per capita packaged food spending is expected to grow by F(.F per cent to D!R &J.)( by

:)&:.

*oreover, according to a I%%I#29M study on the Indian food industry, investment opportunities in

the Indian food industry are set to shoot up by a huge E:.F per cent to D!R &J& billion in :)&F and to

D!R &J billion by :):).


30/63

CONCEPTUAL FRAME

WORK

INTRODUCTION

CONCEPT:-

$6CI+1 %A-ITA3 *2A+I+1 A+8 !I1+I%A+%2

The concept of working capital is much confusing in the business circles. It is

very unfortunate, there is much disagreement among financiers, accountants, businessmen and

economists as to the exact meaning of the term working capital. According to a few, working capital


31/63

means current assists. or some others it is an excess of current assets over current liabilities. !ome

authorities prefer to call it circulating capital in place of working capital.

MEANING OF WORKING CAPITAL:-

The term working capital is commonly used for the capital re"uired for day#to#

day working in business concern. !uch as for purchasing raw material for meeting day#to#day

expenditure on salaries, wages, rent rates advertising etc. but there is much disagreement among

various financial authorities as to the exact meaning of the term working capital.

IMPORTANCE OF WORKING CAPITAL MANAGEMENT:

$orking capital management includes a number of aspects that make it especially important

for the financial health of the firm. !urveys indicate that the largest portion of the financial manager

time is devoted to the day#to#day operations of the firm, which fall under the heading o working

capital management.

%urrent assets represent the largest proportion i.e. if total assets forms &' then current assets

are generally above ()'. *oreover current assets fluctuate with sales and sales vary over time. Thus

managing current asset is the dynamic process and it re"uires the financial mange to closely monitor

sales to ensure that assets in hand are at the right level for actual sales production levels.

$orking capital management is particularly important for small firms. Although these firms

minimie their investment in fixed assets by renting or leasing plant and e"uipment, they cannot avoidinvestment in cash, receivables and inventories. urther, because small firms have relatively limited

access to long#term capital markets they must relay heavily on trade and short#term loans, both of

which affect working capital by increasing current liabilities.

DETERMINANTS OF WORKING CAPITAL

FACTORS INFLUENCING WORKING CAPITAL NEEDS:-

6? N,tu$# o' Bu%#: - The amount of working capital is basically related to the nature and

volume of the business. In concerns, where the cost of raw materials to be used in the

manufacture of a product is very large in proportion to its total cost of manufacture the

re"uirements of working capital will be very large. or instance, a cotton or sugar mill re"uires


32/63

a large amount of working capital. n the contrary, concerns having large investments in fixed

assets re"uire less amount of working capital.

8? S%7# o' Bu%# U%t: - !ie of the business unit is also a determining factor in estimating the

total amount of working capital. The general principle in this regard is that the bigger the sie

the larger will be the amount of working capital re"uired as because the larger business units

are re"uired to maintain big inventories for the flow of the business.

@? S#,o,1 V,$%,t%o:# !trong seasonal movements create certain special problems of working

capital in controlling the internal financial swings. A great many companies have to carry on

seasonal business such as sugar mills, oil mills or woolen mills etc. and therefore they re"uire

large amount of working capital in the season to purchase the raw materials in large "uantities

and utilie them throughout the year.

? T%*# Cou*#0 I M,u',)tu$#:# The average time taken in the process of manufacture is

also an important factor in determining the amount of working capital. The longer the period of

manufacture the large the investor re"uired.

? Tu$o"#$ o' C%$)u1,t%3 C,+%t,1:# Turnover means the ratio of annual gross sales to average

working assets. In simple words, it means the speed with which circulating capital completes

its rounds or the number of times the amount invested in working assets has been converted

into cash by sales of the finished goods and reinvested in working assets during a year.

? L,bo$ It#%"# V C,+%t,1 It#%"# I0ut$%#: - In labor intensive industries, large

working capital is re"uired because or regular payment of heavy wage#bills and more time

taken in completing the manufacturing process. %onversely, the capital intensive industries

re"uire lesser amount of working capital because of the heavy investment in fixed and shorter

period in manufacturing process.

? N##0 to Sto)2+%1# R,& M,t#$%,1 ,0 F%%(#0 Goo0: - In industries where it is necessary to

stockpile the raw materials and finished goods increase the amount of working capital lied up


33/63

in stocks and stores in certain lines of business where the materials are bulky and best

purchasable in large "uantities such as cements stockpiling of raw material is very usual or

where labor stoppage is fre"uent finished goods stock have to be large in stored "uantities.

? T#$* o' Pu$)(,# ,0 S,1#: - Terms of purchase and sales also affect the amount of

working capital. If a company purchases all goods in cash and sells its finished product on

credit also naturally it will re"uire large amount of working capital. n the contrary a concern

having credit facilities and allowing no credit to its customers will re"uire lesser amount of

working capital

? Co"#$%o o' Cu$$#t A#t Ito C,(:# The need of having cash in hand to meet the day

to day re"uirements payment of wages and salaries rent rates has an important bearing in

deciding the ade"uate amount of working capital. The greater the cash re"uirement the higherwill be the need of working capital but if a company has ample stock of li"uid current assets

will re"uire lesser amount of working capital because the company can en cashes such assets

immediately in the open market.

69? G$o&t( ,0 E+,%o o' Bu%#:# 1rowing concerns re"uire more working capital than

those that are static. It is logical to expect larger amount of working capital in a growing

concern to meet its growing needs of funds for its expansion programmers though it varies with

economic condition and corporate practices.

66? Bu%# C.)1# F1u)tu,t%o: -/usiness cycle affects the re"uirement of working capital. At

times when the prices are going up and up and boom conditions prevail the tendency

management is to pile up a big stock of raw materials and to maintain a big stock of finished

goods with an expectation to earn more profits.

68? P$o'%t M,$3% ,0 P$o'%t A++$o+$%,t%o:# !ome firms en;oy a dominant position in the

market due to "uality product or good marketing management or monopoly power in the

market and therefore earn a high profit margin. n the other hand form facing tough

competition earn low margin of profit.


34/63

6@? P$%)# 1#"#1 )(,3#: - The financial manager should also anticipate the effect of price level

changes on working capital re"uirements of the firm. 1enerally, rising price levels will re"uire

a higher amount of working capital because to maintain the same levels of current assets will

re"uire higher investment. 5owever if companies may revise their product prices will not face

a severe working capital problem. The effects of rising price levels will be different for

different firms depending upon their price policies nature of the product etc.

6? D%"%0#0 +o1%).:# There is a well established relationship between dividend and working

capital in companies where conservation dividend policy is followed. The changes in working

capital position bring a about an ad;ustment in dividend policy. $ith a view to maintain and

established dividend policy is the management before declaring a dividend gives dueconsideration to its effects on cash and cash re"uirements.

DEFINITION OF WORKING CAPITAL

$orking %apital refers to that part of the firms capital, which is re"uired for financing short#term

or current assets such a cash marketable securities, debtors and inventories. unds thus, invested

in current assets keep revolving fast and are constantly converted into cash and this cash flow out

again in exchange for other current assets. $orking %apital is also known as revolving or

circulating capital or short#term capital.


35/63

WORKING CAPITAL MANAGEMNENT-AN OVER VIEW

$orking capital of a firm may be different as the amount by which its current assets exceed its current

liabilities. $orking capital management is concerned with the problem that arises attempting to

manage current assets, current liabilities and the interrelationship that exists between them. The

current assets to those assets, which in the ordinary course of the business can be, or will be, turned

into cash with in & year without disrupting the operations of the firm. The ma;or current assets are cash

marketable securities account receivable and inventories. %urrent liabilities are those liabilities, which

are intended at their inception to be payee in the ordinary course of business with in the year, out of

current assets or earning of the concern. The basic current liabilities are account payable, bills payable,

bank overdraft and outstanding expenses.

The goal of working capital management is to manage the firms current assets and current

liabilities in such a way that the satisfactory level of the working capital is maintained. The Interaction

between the current assets and current liabilities is the main theme of the theory of the working capital

management.

The important elements of working capital includes inventory management, cash management

credit and collection policy and short term borrowings where as long term financial analysis is

primarily concerned with strategic planning, working capital management is primarily concerned with

day to day operations making shore, production lines out stop as firms run our of the raw material andthus preventing the slowing down of the process. bviously with out good working capital

management no firm can be efficient and profitable.

CONCEPT OF WORKING CAPITAL

There are two possible interpretations of working capital conceptG

6? B,1,)# (##t )o)#+t

8? O+#$,t%3 ).)1# )o)#+t

B,1,)# (##t )o)#+t : There are two interpretations of working capital under thebalance sheet concept.


36/63

a. E)# o' )u$$#t ,#t o"#$ )u$$#t 1%,b%1%t%#

b? 3$o o$ tot,1 )u$$#t ,#t

U 2xcess of current assets over current liabilities are called the net working capital or net current

assets.

U $orking capital is really what a part of long term finance is locked in and used for supportingcurrent activities.

U The balance sheet definition of working capital is meaningful only as an indication of the

firms current solvency in repaying its creditors.

U $hen firms speak of shortage of working capital they in fact possibly imply scarcity of cash

resources.

U In fund flow analysis an increase in working capital, as conventionally defined, represents

employment or application of funds.

U O+#$,t%3 ).)1# )o)#+t :

U A companys operating cycle typically consists of three primary activitiesG

U -urchasing resources,

U -roducing the product and

U 8istributing @selling the product.

U These activities create funds flows that are both u.)($o%7#0 and u)#$t,%

Dnsynchronied because cash disbursements @for example, payments for resource

purchases usually take place before cash receipts @for example collection of receivables.Thefirm has to maintain cash balanceto pay the bills as they come due.

U In addition, the company must invest in inventoriesto fill customer orders promptly.

U And finally, the company invests in accounts receivableto extend credit to customers.

U perating cycle is e"ual to the length of inventory and receivable conversion periods.


37/63

Types of Working Capital -ermanent working capital

Temporary or variable working capital

P#$*,#t &o$2%3 ),+%t,1

= minimum amount of investment in all current assets which is re"uired at all times to carry outminimum level of business activities.

-ermanent working capital = core current assets

T#*+o$,$. &o$2%3 ),+%t,1:

The amount of temporary working capital fluctuates depending upon the changes in the productionand sales.

Temporary working capital = fluctuating working capital # variable working capital

TYPES OF WORKING CAPITAL

WORKING CAPITAL

BASIS OF

CONCEPT

BASIS OF

TIME

G$o

Wo$2%3

C,+%t,1

N#t

Wo$2%3

C,+%t,1

P#$*,#t

F%#0

WC

T#*+o$,$.

V,$%,b1#

WC

R#3u1,$

WC

R##$"#

WC

S+#)%,1

WC

S#,o,1

WC


38/63

MANAGEMENT OF WORKING CAPITAL ! WCM /

*anagement of working capital is concerned with the problems that arise in attempting to manage

the current assets, the current liabilities and the inter#relationship that exists between them. In

other words, it refers to all aspects of administration of %A and %3.

$orking %apital *anagement -olicies of a firm have a great effect on its profitability, li"uidity

and structural health of the organiation

3D Nature of Working Capital3D Nature of Working CapitalManagementManagement

D%*#%o I

P$o'%t,b%1%t.5R%25 4 L%u%0%t.

D%*#%o I

P$o'%t,b%1%t.5

R%25 4 L%u%0%t.

D%*#%o II

Co*+o%t%o 4

L#"#1

o' CA

D%*#%o II

Co*+o%t%o 4

L#"#1

o' CA

D%*#%o III

Co*+o%t%o 4

L#"#1

o' CL

D%*#%o III

Co*+o%t%o 4

L#"#1

o' CL


39/63

OBJECTIVES OF WOEKING CAPITAL MANAGEMENT :

To study on working capital a large portion of total investment in assets .

To study on working capital re"uires much of financial managers time .

To study on working capital changes in price level .

To study on working capital day#to#day activities .

To study on working capital current assets and current liabilities .

RATIO ANALYSIS

M#,%3 o' R,t%oG# A ratio is simple arithmetical expression of the relationship of one number to

another. It may be defined as the indicated "uotient of two mathematical expressions.

According to Accountants 5andbook by $ixon, Cell and /edford, 4a ratio is an expression of the

"uantitative relationship between two numbers7.

R,t%o A,1.%:-6atio analysis is the process of determining and presenting the relationship of items

and group of items in the statements. According to /atty N. *anagement Accounting 46atio can assist

management in its basic functions of forecasting, planning coordination, control and communication7.

It is helpful to know about the li"uidity, solvency, capital structure and profitability of an organiation.

is helpful tool to aid in applying ;udgement, otherwise complex situations.

R,t%o *,. b# #+$##0 % t(# 'o11o&%3 t($## &,. :


40/63

&. -ure 6atio or !imple 6atio G# It is expressed by the simple division of one number by another. or

example , if the current assets of a business are 6s. :))))) and its current liabilities are 6s. &))))), th

ratio of %urrent assets to current liabilities will be :G&.

:. 6ate or !o *any Times G# In this type , it is calculated how many times a figure is, in comparison

another figure. or example , if a firms credit sales during the year are 6s. :))))) and its debtors at th

end of the year are 6s. E)))) , its 8ebtors Turnover 6atio is :)))))


41/63

>uick ratio is a ratio of assets to "uick liabilities. >uick assets are assets that can be converted

into cash very "uickly without much loss. >uick liabilities one liabilities, which have to he necessarily

paid with in one year.

The acid test ratio is a measure of li"uidity designed to over come offirms ability to convert its

current assets "uickly into cash in order to meet its current liabilities. Thus, it is measure of "uick or

acid li"uidity.

The acid test ratio is the ratio between current assets and current liabilities and is calculated by

dividing the "uick assets by the current liabilities.

>uick Assets = %urrent Assets @Inventory V -repaid 2xpenses)

sLiabilitieCurrent

AssetsQuick=RatioQuick


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3) CASH RATIO !SUPER QUICK RATIO/:

Definition

Totaldollarvalueof cashand marketable securitiesdivided by current liabilities. or a bank

this is the cashheldby the bank as a proportion of depositsin the bank. The cash ratiomeasuresthe

extent to which a corporation or other entity can "uickly li"uidate assets and cover short#term

liabilities, and therefore is of interest to short#term creditors. ,1o ),11#0 li"uidity ratioor cash asset

ratio.

4) WORKING CAPITAL TURNOVER RATIO:

$orking capital of a concern is directly related to sales.

The working capital is taken asG

$orking capital = %urrent assets %urrent 3iabilities

The working capital turnover ratio indicates the velocity of the utiliation of net working

capital.

sLiabilitieCurrent

esbankbalanccash96atio%ash =

100xCapitalWorkingNet

Sales=RatioTurnoverCapitalWorking
http://www.investorwords.com/7129/dollar.htmlhttp://www.investorwords.com/7129/dollar.htmlhttp://www.investorwords.com/5209/value.htmlhttp://www.investorwords.com/747/cash.htmlhttp://www.investorwords.com/5917/marketable_securities.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/401/bank.htmlhttp://www.investorwords.com/401/bank.htmlhttp://www.investorwords.com/2299/held.htmlhttp://www.investorwords.com/2299/held.htmlhttp://www.investorwords.com/2299/held.htmlhttp://www.investorwords.com/1411/deposit.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/1714/entity.htmlhttp://www.investorwords.com/2833/liquidate.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/1178/cover.htmlhttp://www.investorwords.com/4563/short_term.htmlhttp://www.investorwords.com/5911/liabilities.htmlhttp://www.investorwords.com/2531/interest.htmlhttp://www.investorwords.com/2531/interest.htmlhttp://www.investorwords.com/1207/creditor.htmlhttp://www.investorwords.com/2840/liquidity_ratio.htmlhttp://www.investorwords.com/750/cash_asset_ratio.htmlhttp://www.investorwords.com/750/cash_asset_ratio.htmlhttp://www.investorwords.com/7129/dollar.htmlhttp://www.investorwords.com/5209/value.htmlhttp://www.investorwords.com/747/cash.htmlhttp://www.investorwords.com/5917/marketable_securities.htmlhttp://www.investorwords.com/1254/current_liabilities.htmlhttp://www.investorwords.com/401/bank.htmlhttp://www.investorwords.com/2299/held.htmlhttp://www.investorwords.com/1411/deposit.htmlhttp://www.investorwords.com/4041/ratio.htmlhttp://www.businessdictionary.com/definition/measure.htmlhttp://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/1714/entity.htmlhttp://www.investorwords.com/2833/liquidate.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/1178/cover.htmlhttp://www.investorwords.com/4563/short_term.htmlhttp://www.investorwords.com/5911/liabilities.htmlhttp://www.investorwords.com/2531/interest.htmlhttp://www.investorwords.com/1207/creditor.htmlhttp://www.investorwords.com/2840/liquidity_ratio.htmlhttp://www.investorwords.com/750/cash_asset_ratio.htmlhttp://www.investorwords.com/750/cash_asset_ratio.html


43/63

5) DEBTORS TURNOVER RATIO

D#'%%t%o:

8ebtors turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates

the number of times average debtors @receivable are turned over during a year.

Fo$*u1, o' D#bto$ Tu$o"#$ R,t%o:

D#bto$ Tu$o"#$ R,t%o N#t C$#0%t S,1# A"#$,3# T$,0# D#bto$

The two basic components of the ratio are net credit annual sales and average trade debtors. The trade

debtors for the purpose of this ratio include the amount of Trade 8ebtors 9 /ills 6eceivables. The

average receivables are found by adding the opening receivables and closing balance of receivables

and dividing the total by two. It should be noted that provision for bad and doubtful debts should not

be deducted since this may give an impression that some amount of receivables has been collected.

/ut when the information about opening and closing balances of trade debtors and credit sales is not

available, then the debtors turnover ratio can be calculated by dividing the total sales by the balance of

debtors @inclusive of bills receivables given. and formula can be written as follows.

8ebtors Turnover 6atio = Total !ales < 8ebtors


44/63

/ STOCK TURNOVERINVENTORY TURNOVER RATIO:

DEFINITION:

!tock turn over ratio and inventory turn over ratio are the same. This ratio is a relationship between the

cost of goods sold during a particular period of time and the cost of average inventory during a

particular period. It is expressed in number of times. !tock turn over ratio


45/63

DATA ANALYSIS AND

INTERPRETATION


46/63

STATEMENT OF CHANGES IN WORKING CAPITAL FOR 8966-8968

'Ru(ee! in a*!)

P,$t%)u1,$ @6-@- 8966 @6-@-8968 I)$#,# D#)$#,#

Cu$$#t A#t

Inventories!undry 8ebtors%ash and /ank /alance/ills 6eceivables3oan and Advances

Total %urrent Assets @6

Cu$$#t L%,b%1%t%#

!undry %reditors8epositsther 3iabilities and -rovisionsInterest

Total %urrent 3iabilities @8

Wo$2%3 C,+%t,1W @6 # @8 X

I)$#,# % &o$2%3 ),+%t,1 :

:(:B.EF &(F((F.JJ H&).B

EBE)).)( &F(FF.&E

89?8

(:(JH.J:FF(.F:

F:)HH.E( BJF.::

6966?

669?@

669?@

BJJ.EB&EJB&H.HJ BJ:.E& B(&H.FF EF).B:

8@?6

(&H&J.)F EEB).:) JJJ)).H H&)H.(B

8988?

8?

8@?

669?@

&&EB.)E

:HE.):EE:&H.EB

:J(JJ.:

B(B.

:HEF.F

:(FB.J(

F:EJ.)B

&(HEJ.&)

&::)E.::

&BB.(J(H:.:H

F:EJ.)B

F:EJ.)B

Sou$)# :annual reports of 526ITA12 for the year :)&&:


47/63


'Ru(ee! in a*!)

P,$t%)u1,$ @6-@- 8969 @6-@-8966 I)$#,# D#)$#,#

Cu$$#t A#t



Cu$$#t L%,b%1%t%#



Wo$2%3 C,+%t,1 W @6 # @8 X

I)$#,# % &o$2%3 ),+%t,1 :

:JJJF.EJ&BHBEE.E& H)H:.EH:BJE(.)& JH).E&

886?

BBBE.EH&BJ().&)

EFJ:).HJ JH:E.):

6669?6

66?8

66?8

:(:B.EF &(F((F.JJ H&).B EBE)).)( &F(FF.&E

89?8

(:(JH.J:FF(.F:

F:)HH.E( BJF.::

6966?

669?@

8@?@

66?8

&BFFE.)F(BF&.H

E(:F.B

E(:F.B

:(E(.)::HJ.)(E.&)

&&HJ:.J(

::(B:.B&FH).EE(:F(.(J

&&:B.:

EEH&.)H

E(:F.B

Sou$)# :annual reports of 526ITA12 for the year :)&)#&&


48/63


'Ru(ee! in a*!)

P,$t%)u1,$ @6-@- 899 @6-@-8969 I)$#,# D#)$#,#

Cu$$#t A#t



Cu$$#t L%,b%1%t%#



Wo$2%3 C,+%t,1W @6 # @8 X

D#)$#,# % &o$2%3 ),+%t,1 :

::J&.(B :)&(&.(: &(J&.EF

&):E:.)( BH::.E

8@?8

EB)E(.(H&H(B&.EB

E)BH.B( J:JB.E(

66?6

68@?66

8?6

66?8

:JJJF.EJ&BHBEE.E& H)H:.EH:BJE(.)& JH).E&

886?

BBBE.EH&BJ().&)

EFJ:).HJ JH:E.):

6669?6

66?8

66?8

()F.HB

FB&.):&B().BF

:EJ&:.F

:&(J.FB

)(F.(

:HJHJ.&(

F:&H.:&

&)&B.):

B)F:.::H::.J:EE.F(

:HJHJ.&(

:HJHJ.&(

Sou$)# :annual reports of 526ITA12 for the year :))B#&)


49/63


'Ru(ee! in a*!)

P,$t%)u1,$ @6-@- 899 @6-@-899 I)$#,# D#)$#,#

Cu$$#t A#t

Inventories!undry 8ebtors%ash and /ank /alance/ills 6eceivables

3oan and Advances


Cu$$#t L%,b%1%t%#



Wo$2%3 C,+%t,1W @6 # @8 X

D#)$#,# % &o$2%3 ),+%t,1 :

:JHB&.(F &J(&BJ.F) (:):.:H

&:E(H.&J

&:HB.JH

8@?

J(B(F.(F&H&(.(&

:FH.JF (&&:.&J

6@66?9

66988?

6@?8

68@?66

::J&.(B

:)&(&.(: &(J&.EF &):E:.)(

BH::.E

8@?8

EB)E(.(H&H(B&.EB

E)BH.B( J:JB.E(

66?6 6

8@?66

68@?66

&(B(.&:

&:B.HJ

HB&J.BJ

&HBF.E(

&J(F.:E

FBFB.B(

EF:).J::::F.&:

)&H.EE

F:H.JJ&HH().&&:&HH.:J

&J(F.:E

&J(F.:E

Sou$)# :annual reports of 526ITA12 for the year :))J#)B


50/63

STATEMENT OF WORKING CAPITAL FOR 899-8968

'Ru(ee! in a*!)

Y#,$ Cu$$#t

,#t

Cu$$#t

1%,b%1%t%#

Wo$2%3

C,+%t,1

N #t Wo$2%3 C,+%t,1

I)$#,# D#)$#,#

:))J#)B

:))B#&)

:)&)#&&

:)&&:

:EH(B.:F

:H:EF&.HJ

:()((J.B:

:JBFH.&F

&&JHH(.&E

&&FH&).F&

&F)&J&.FJ

:):F:B.(H

&:JJ(.&&

&F(HE&.:H

&&)EJH.E

J(J:H.EJ

&J(F.:E

:HJHJ.&(

E(:F.B

:(FB.J(

InterpretationG

or the periods :))(#)Hand :))H#)J the net working capital is decreased due to high ofcurrent assets and current liabilities .

or the periods :))(#)Hand :))H#)J increase in working capital due to remaining year

figures, because in these : years current assets are high and current liabilities are low.

In the year :))H#)J the current liabilities are very low 9 current assets are high ,so the

working capital is increased.


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COMPARISION OF INCREASE AND DECREASE OF WORKING CAPITAL

Y#,$ N #t Wo$2%3 C,+%t,1

I)$#,# D#)$#,#

:))J#)B

:))B#&)

:)&)#&&

:)&&:

@#&J(F.:E

@#:HJHJ.&(

@VE(:F.B

@V:(FB.J(

InterpretationG

or the periods :))(#)Hand :))H#)J the net working capital is decreased due to lower

investments in ac"uisition of fixed assets and making less payments to the payables

or the periods :)&&: and :)&:)&:increase in working capital leads to ma;or investments

in fixed assets as well as capital expenditure.


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6? C,1)u1,t%o o' Cu$$#t R,t%o:

-rinciple :))J#)B :))B#&) :)&)#&& :)&&:

Cu$$#t R,t%o

= %urrent Assets%urrent 3iabilities

:EH(B.:F&&JHH(.&E

=:.&)E

:H:EF&.HJ&&FH&).F&

=:.FE

:()((J.B:&F)&J&.FJ

=&.HF

:JBFH.&F:):F:B.(H

=&.E:J

InterpretationG

0ariance of current ratio in the year :))H#)J shows that increase in current assets as

well as decrease in current liabilities when compare to :))(#)Hfigures.

or the year :)&&: and :)&:)&:the current ratio has been declined due to increase

in current liabilities and decrease in current assets.

The above ratio clearly indicates that for the period :)&&: and :)&:)&: the currentratio is below : hence it indicates that the firm has not maintaining sufficient currentassets to meet current liabilities.


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X

8? C,1)u1,t%o o' Qu%)2 R,t%o:

-rinciple :))J#)B :))B#&) :)&)#&& :)&&:

Qu%)2 R,t%o

= 3i"uid Assets%urrent 3iabilities

::EJ)H.F(&&JHH(.&E

=&.JB:

:EF((.)&&FH&).F&

=:.&)E

:EE:B.EH&F)&J&.FJ

=&.F()

:EBB(J.((:):F:B.(H

=&.:E

InterpretationG

or the years :))(#)Hand :))H#)J the firm has maintained sufficient current assets

@excluding inventory of stock in order to meet its current liabilities.

8ue to the increase in current liabilities for the year :)&&: and :)&:)&:it leads to

decrease in >uick ratios when compare to :))(#)Hand :))H#)J figures


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@? C,1)u1,t%o o' C,( R,t%o:

-rinciple :))J#)B :))B#&) :)&)#&& :)&&:

C,( R,t%o

= %ash 9 /ank balances %urrent 3iabilities

&(J&.EF&&JHH(.&E

=).)&E

H)H:.EH&&FH&).F&

=).)(&

H&).B&F)&J&.FJ

=).):E

BJ:.E&:):F:B.(H

=).)&B

InterpretationG

The cash ratio of the organiation clearly indicates that the firm has maintaining moderate cash

balances to meet its current liability obligations

In order to maintain sufficient cash balance the firm has to maintain control over its credit sales

@8ebtors and making payments to the suppliers


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? C,1)u1,t%o o' Wo$2%3 C,+%t,1 Tu$ O"#$ R,t%o:

-rinciple :))J#)B :))B#&) :)&)#&& :)&&:

Wo$2%3 C,+%t,1 Tu$O"#$ R,t%o

= !ales @Turn ver$orking %apital

E&H:FF.F(&:JJ(.&&

=.:H

JJJ(J.)(&F(HE&.:H

=:.EJ)

E&BBBB.F&&&)EJH.E

=.J)&

E(&H).::J(J:H.EJ

=F.&H

InterpretationG

The overall position of the working capital turn over ratio is positive

or the year :)&&: and :)&:)&:there is a substantial growth in sales turn over due to this

the firm has huge working capital turn over ratio for the above said periods

or the period :))H#)J the sales turn over of the firm has been decreased when compare to:))(#)Hfigures due to this the working capital turn over ratio is declined.


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F. C,1)u1,t%o o' 0#bto$ Tu$ O"#$ R,t%o:

-rinciple :))J#)B :))B#&) :)&)#&& :)&&:

D#bto$ Tu$ O"#$ R,t%o

= !ales @Turn verAccounts recieveble

E&H:FF.F(:)&(&.(:

= :.)F

JJJ(J.)(&BHBEE.E&

= &.B(E

E&BBBB.F&&(F((F.JJ

= :.FF

E(&H).::&EJB&H.HJ

= .&))

Account recieveble includes sundry debtors and bills recieveble

InterpretationG

The debtors turn over ratio of the firm is ideal for the year :))(#)(

There is substantial decrease in sundry debtors for the year :))H#)J due to this the

debtors turn over ratio is decreased when compare to :))(#)Hand remaining yearsfigures .

or the year :)&&: and :)&:)&:the firm has maintained sufficient debtors turn

over ratio.


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? C,1)u1,t%o o' to)2 o$ %"#to$. Tu$ O"#$ R,t%o:

-rinciple :))J#)B :))B#&) :)&)#&& :)&&:

Sto)2 Tu$ O"#$ R,t%o

= !ales @Turn verinventory

E&H:FF.F(::J&.(B

= &J.:HF

JJJ(J.)(:JJJF.EJ

= &.E(:

E&BBBB.F&:(:B.EF

= &(.))(

E(&H).::BJJ.EB

= &&.H:&

InterpretationG

The stock turn over ratio of the firm is ideal for the year :)&&:

There is substantial decrease in stock for the year :))(#)Hdue to this the stock turn over

ratio is decreased in :)&:)&:when compare to :))(#)Hand remaining years figures .

In the year :))(#)Hthe firm has maintained sufficient stock turn over ratio.


58/63

FIN+INGS AN+

CONCL,SIONS


59/63

FINDINGS:

The profits are in the increasing trend. There is a drastic improvement in profit from the year

:)&&: to :)&:)&:where the profit is almost doubled. This indicates the good financial

soundness of the company.

!undry 8ebtors have been reduced which indicates increase in realisation of amount from

debtors which indicates higher li"uidity of the business.

!undry %reditors showed a fluctuating trend. %oncentrating on the last two years we can see

that though the profit have been increasing, creditors have decreased indicating more cash

purchases than credit purchases.

It is obvious that as the net profit ie., profit before tax is increased the tax paid are also shown

an increasing trend.

The working capital has increased for the first three years. /ut in :)&&: and :)&:)&:

working capital reduced ,though the net profit is increased during the years. This shows that

more of cash transactions have taken place and cash if available in excess is the least

productive asset.

or the year :)&&: and :)&:)&:the firm has maintained sufficient working capital turn

over ratio .


60/63

SUGGESTIONS:

As the working capital has been reduced in :)&&: and :)&:)&: though the profit has

increased, the company is advised to take all necessary steps to find out the reasons for

reduction in the working capital.

5igh availability ensuring minimum cost of generation

To add generating capacity, with in prescribed time and cost

To maintain the financial soundness of 526ITA12

*anaging financial operations in accordance with good commercial utility practices

To develop 698 for achieving improved plant reliability

In order to increase the working capital, discount should be given to debtors and see that

the average collection period reduces.

6eference to A0($, P$,0#( 3,7#tt#, the generating company and distribution license

may actually agree to a maximum rebate of :' on bill amount. these provisions in the act

may utilie by 526ITA12 .


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CONCLUSIONS:

The efficiency of management at financial position of 526ITA12 is good

rom the analysis it is clear that the share capital remained intact during the five years upto

:)&:)&:and the reserves and surplus reached to &BH(.FB 3akhs.

rom the observation it is clear that capital expenditure on fixed assets is increased gradually

over the period of time which might be due to construction and commission of new thermal

and hydel pro;ects.

%ompany inventories observed an increment except in the year :))(#)(.

%ash and bank balances was increased during the years :))H#)J and :)&&: .

*iscellaneous expenses observed decrement over the years and is +il during the year :)&

&: .

%urrent liabilities also increased from :))F#)( to :)&:)&:which shows prompt clearance of

liabilities.

The 526ITA12 uses more of long term loans


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BIBLIOGRAPHY


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BIBLIOGRAPHY

BOOKS :

Aut(o$ #0%t%o +ub1%),t%o

inancial management Im pandey Bth vikas publishers

inancial management khan 9 ;ain Eth tata mc.graw hills

inancial management -rasad chandra :nd tata mc.graw hills

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www.askmgt.com

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