Project ReportON

WORKING CAPITAL MANAGEMENT IN HALDIRAM SNACKS PVT.LTD.

Submitted to

C.C.S. University, Meerut For the partial fulfillment of BACHELOR OF BUSINESS ADMINISTRATION

Submitted For: Mr. Sourabh Mittal(HOD)

Submitted By: Ravinder KumarBBA VI Sem. Roll No. 8553654

SHRI RAM GROUP OF COLLEGE MUZAFFARNAGAR

CANDIDATES DECLARATIONI do hereby declare that the piece of dissertation report entitled Working capital

management has been prepared by me under the avid guidance and supervision ofMr.Sanjay Singhania (commercial Head) as a part fulfillment for the requirement of the degree in Bachelor of Business Administration under C.C.S. University, Meerut during the session 2008-11. To the best of my knowledge & belief, this is my own work and has not been submitted anywhere earlier for any other degree.

Ravinder Kumar

ACKNOWLEDGEMENT2

When I embarked this project, it appeared to me an onerous work. Slowly as I progressed, I did realize that I was not alone after all!! There were friends and well wishers, who with their magnanimous and generous help and support made it a relative easier affair. I wish to express my gratitude to all that concerned persons who have extended their kind help, guidance and suggestions without which it could not have been possible for me to complete this project report. I am deeply indebted to my guide Mr. Sanjay Singhania (commercial Head) for not only his valuable and enlightened guidance but also for the freedom he rendered to me during this project work. I would also like to thanks Mr. Sourabh Mittal (HOD) for helping me to carry my project smoothly. My heart goes out to my parents who bear with all types of troubles I caused them with smile during the entire study period and beyond.

Ravinder Kumar

TABLE OF CONTENTS3

1-

COMPANY INFORMATION Introduction Company Profile History of the Company Product Profile

2-

FINANCIAL HIGHLIGHTS Company balance sheet Profit & loss A\c

Cash flow Share capital Reserves & Surplus

3 - WORKING CAPITAL Working Capital Definition

Working Capital cycle Working Capital Analysis Working Capital management

4 - CONCLUSION AND RECOMMENDATION Conclusion

Recommendation

5-

BIBLIOGRAPHY Bibliography.

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INTRODUCTIO N

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ABOUT THE COMPANYSNACKS FOOD & NAMKEEN INDUSTRY:The snacks food and namkeen industry sector in India has remained in the root of traditionalism in unorganized sector for centuries, because of nature of the business. It was after the development of modern packing methods and invasion of the multinationals that this sector started to grow with introduction of modern technology and hygienic ways of preparation and packing. As far as the India snacks food sector is concerned, we can safely say the house of Haldiram is the only brand, which has little competition in its field and is also giving tough competition to the multinationals in the western fast food sector.

PROMOTERS Mr. Manohal Lal Agarwal (Chairman) Mr. Anand Agarwal (MD)

Mr. Ashish Agarwal (Executive Director"HALDIRAM" a name associated with discerning consumers for sweets and nankeens for the past six decades in India and abroad. It made its modest start in the beginning of way back in 1941 in Bikaner in the State of Rajasthan. The brand name "HALDIRAM BHUJIAWALA" was introduced during pre-partition era-1941 and never looked back and ventured first major step in this direction by opening up a shop in 1983 in Chandni Chowk, the main hub of commercial centre in Delhi. The prime focus was to serve sweets and namkeens amongst direct consumers and the trade.

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BACKGROUND OF PROMOTERS & PROGRESS IN THE TRADE

The first shop opened in Chandani Chowk, Delhi in 1983 serving sweets and namkeen under the name Haldiram Bhujiawala by two brothers Manohar Lal Agarwal and Madhu Sudan Agarwal. The house of Haldiram was using modern technology and packing facilities. Under the leadership and dynamism of Mr. Manohal Lal Agarwal and with his nature of looking ahead of times, the group has decided to go for upgraded technology in the field of production through highly sophisticated plant and machinery. A new company Haldiram Marketing Ltd came into existence. The company went into production in April 1992. The company Haldiram Marketing Private Ltd, is today one of the most sought after fast food centre in Delhi. Mr. Manohal Lal Agarwal also sensed the change in the taste and preferences of the Indian consumers and their inclination towards traditional Indian fast food centre and thus opened Haldiram fast food joint at Mathura road in April 1995. Its success can be judged by the fact that though it is not very centrally located even then it is always flooded with consumers relishing the preparation, many of them even come from far of places. Within a period of three years it has undoubtedly became one of the largest fast food selling centres in Delhi. In 1997, company Haldiram Manufacturing Pvt Ltd was established to manufacture all types of nankeens. The group has opened the outlet under the brand name of Haldiram located on the main ring road, Lajpat Nagar, New Delhi. The outlet opened in March 99 and is performing exceedingly well and has surely surpassed the expectations of the promoters.

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Encouraged by the tremendous response of consumers, "HALDIRAM" decided to go in for up-gradation in technology, packing, production etc. with the installation of plant and machinery of the order of best available state-of-the-art technology and sophistication. Through dint of hard work, complete dedication, uncompromising quality, "HALDIRAM" became a part of each family and no house left without having product of "HALDIRAM"

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STRATEGY

Haldiram Group of companies do not spend too much on advertisement like its competitors like Pepsi and others in the market who spend a lot on advertisement, even then it has been able to garner its share through a network of consignee agents spread all over northern India. These agents then in turn market the products to a chain of distributors and retailers. The company at present has a network of consignee agents and approximately two hundred distributors across northern India, catering to thousand of retail outlets. HALDIRAMS have a strong network of sales personnel who are also supplying their products regularly to government organizations like super bazaar etc. The packing of nankeens is mostly done through imported sophisticated machines. The company has developed all techniques in house and has no technical tie up with any other company. The Haldiram`s namkeen and sweets are packed with hygiene and freshness. A wide range of tangy savories, guaranteed to tickle the palate.

After capturing the indigenous market the group has also spread its wings in the international market. Haldiram has already been approved and acclaimed by millions of people thought the world, this fact was formally recognized when the company bagged the following awards: International Award for Food and Brewages from Trade Leaders Club in Barcelona, Spain in 1994. The Kashalkar Memorial Award presented by All India Food Preservers

Association in 1996 Hind Ratan Award.97 given by NRI Welfare Society of India

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Brand Equity Award, 98 of the PHD Chamber of Commerce & Industries presented by honorable Ex. finance minister Mr. Yashwant Sinha. National Award for Outstanding Contribution 1999 from the Fie Foundation, Maharashtra

Today, Haldirams have 4 showrooms located at Mathura Road, Lajpat Nagar, Chandni Chowk, Gurgaon and Manufacturing unit in Noida. Haldiram does not have any policy of franchisees and that all the showrooms are Owned and Maintained by the Company. The company has 25 C&F agents and more than 700 Distributors in the domestic market (INDIA) and 25 Sole Distributors, more than 35 Buyers in the international market. Company is exporting their products in more than 40 Countries including Nepal, Sri Lanka, Middle East, Far East, U.S.A., U.K., Germany, Australia, Japan, Italy to name a few.

MISSION:Our perpetual consistent quality, best packing strategy, vast market coverage and the number of years of experience have given us a cutting edge vis--vis our competitors. Our natural ilk to improve our performance and quality with each passing year has taken us way ahead of our nearest competitor. The people at Haldiram are very sensitive and customer friendly about the complaints, which infect is a rare occurrence from the customers and dealers.

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FOOD SAFETY POLICY:Haldiram Snacks Pvt. Ltd. Is committed to supply nankeens, milk and non-milk sweets, and ready to eat snacks, which are safe for consumption by all class of customers. These shall be processed at our state of art plant with automatic and latest machinery with least possible chances of direct contact with working staff thereof avoiding chances of contamination and infection. Our workers will be medically examined periodically and only medically fit workers shall be allowed to enter the processing area. Necessary training to maintain the level of food safety and HACCP to international standards shall be provided to the personnel. To maintain the personnel hygiene standards we undertake to provide clean uniform to our workers and adequate disinfecting material for the plant hygiene

1.

Haldirams Profile

Over a period spanning six and a half decades, the Haldiram's Group (Haldiram's) had emerged as a household name for ready-to-eat snack foods in India. It had come a long way since its relatively humble beginning in 1937 as a small time sweet shop in Bikaner, in the Rajasthan state of India. In Haldirams at Bikaner in 1937

FY 2007-08, the turnover of the Haldiram's was Rs. 6 billion. The group had presence not only in India but in several countries all over the world. Till the early 1990s, Haldiram's comprised of three units, one each in Kolkata, Nagpur and NewDelhi . Haldiram's had many 'firsts' to its credit. It was the first company in India to brand 'nankeens'. The group also pioneered new ways of packaging nankeens. Its packaging

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techniques increased the shelf life of nankeens from less than a week to more than six months. It was also one of the first companies in India to open a restaurant in New Delhi offering traditional Indian snack food items such as "panipuri," "chatpapri," and so on, which catered to the needs of hygiene conscious non-resident Indians and other foreign customers.After 1st shop in Bikaner in 1937, the company opened its first unit in Old Delhi (Chandani Chok) in 1982, giving quality snacks and sweets to taste and quality lover populace of great Delhi. Growth story doesnt stop at Delhi. Company started exporting its especially hygienically packed Sweets such as Rasgulla, Gulabjambun, Soan Papdi, Rasbhari and Namkeens such as Navrattan, Aloo Bhujia, Plain Bhujia, Chips, Whoopies, Takatak, Khatta Mitha in Superstores of USA. The list of Superstores includes Tesco, Sommerfield, Spinneys and Carrefour. However, some analysts felt that Haldiram's still had to overcome some hurdles. The company faced tough competition not only from sweets and snack food vendors in the unorganized market but also from domestic and international competitors like SM Foods, Bakeman's Industries Ltd, Frito Lay India Ltd.(Frito Lay), Bikanervala and Britannia Industries Ltd. Moreover, the group had to overcome internal problems as well. In the early 1990s, because of the conflict within the Agarwals family, Haldiram's witnessed an informal split between its three units as they started operating separately offering similar products and sharing the same brand name. In 1999, after a court verdict these units started operating as three different companies with clearly defined territories.

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Companys Business Activities

Namkeens Snacks Sweets Existing Business

Papad Syrups

Ready-to-eats

Frozen Foods Fast FoodsKiosk based outlets

New Business Ready to eats Packed Juices Cookies

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Distribution Channel of the company

Production Unit

Direct Sale

Institutional Sales#

C & F Agents*

Distributors

Wholesalers

Retailers at Institutes

Retailers

Consumer

Note: # Institutional sale includes sales to Indian Railways, MetroStations, Government Canteens, CSDs, Hospitals, Cinema Halls, Chain Stores, Airports, Hotels, Beer bars & Clubs, Amusement Parks, Colleges and Schools

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* Consignees and Forwarding Agents (Superstockists)

2. The Marketing Mix

ProductHaldiram's offered a wide range of products to its customers. The product range included Namkeens, Sweets, Sharbats, and Bakery items, Dairy Products, Papad and Ice-creams. However, nankeens remained the main focus area for the group contributing close to 60% of its total revenues. By specializing in the manufacturing of nankeens, the company seemed to have created a niche market. While the Nagpur unit manufactured 110 different varieties of nankeens, the Kolkata unit manufactured 57 and the Delhi unit 91. The raw materials used to prepare nankeens were of best quality and were sourced from all over India.

Haldiram's sought to customize its products to suit the tastes and preferences of customers from different parts of India. It launched products, which catered to the tastes of people belonging to specific regions. For example, it launched 'Murukkus,' a South Indian snack; Gujarati Mix for Gujarati taste lovers; Kashmiri Mix for Kashmiri people. Similarly, Haldiram's launched

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'Bhelpuri,' keeping in mind customers residing in western India. These measures helped Haldiram's compete effectively in a market that was flooded with a variety of snack items in different shapes, sizes and flavors.

PricingHaldiram's offered its products at

competitive prices in order to penetrate the huge unorganized market of nankeens and sweets. The company's pricing

strategy took into consideration the price conscious nature of consumers in India. Haldiram's launched nankeens in small packets of 30 grams, priced as low as Rs.5. The company also launched nankeens in five different packs with prices varying according to their weights. (Refer Table 3). Table 3: Price Range of 'Namkeens' Offered By Haldiram's PACK WEIGHT 26 - 30 gm 85 gm 180 gm - 250 gm 400 gm - 500 gm 1 kg PRICE (in Rs) 5 10 18-35 40-70 95-200 (Source: ICMR) The prices also varied on the basis of the type of nankeens and the raw materials used to manufacture it. The cost of metalized packing also had an impact on the price, especially

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in the case of snack foods. The company revised the prices of its products upwards only when there was a steep increase in the raw material costs or additional taxes were imposed. Place

Haldirams developed a strong distribution network to ensure the widest possible reach for its products in India as well as overseas. From the manufacturing unit, the company's finished goods were passed on to carrying and forwarding (C&F) agents. C&F agents passed on the products to distributors, who shipped them to retail outlets. While the Delhi unit of Haldiram's had 25 C&F agents and 700 distributors in India, the Nagpur unit had 25 C&F agents and 375 distributors. Haldiram's also had 35 sole distributors in the international market. The Delhi and Nagpur units together catered to 0.6 million retail outlets in India. C&F agents received a commission of around 5%, while distributors earned margins ranging from 8% to 10%. The retail outlets earned margins ranging from 14% to 30%. At the retail outlet level, margins varied according to the weight of packs sold.

Retailers earned more margins ranging from 25% to 30% by selling 30 gm pouches (priced at Rs.5) compared to the packs of higher weights. Apart from the exclusive showrooms owned by Haldiram's, the company offered its products through retail outlets such as supermarkets, sweet shops, provision stores, bakeries and ice cream parlors. The

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products were also available in public places such as railway stations and bus stations that accounted for a sizeable amount of its sales. Haldiram's products enjoyed phenomenal goodwill and stockiest competed with each other to stock its products. Moreover, sweet shops and bakeries stocked Haldiram's products despite the fact that the company's products were competing with their own products. Haldiram's also offered its products through the Internet. The company tied up with indiatimes.com, a website owned by the Times of India group to sell its products over the Internet. Haldiram's products could be ordered through a host of other websites in India and abroad. Giftstoindia.com, giftssmashhits.com, tohfatoindia.com and

channelindia.com enabled people residing abroad to send Haldiram's gift packs to specified locations in India. Region-specific websites enabled people to send gifts to specified regions. These include indiamart.com (Delhi and surrounding areas), mumbaiflowersgifts.com (Mumbai), and chennaiflowersgifts.com (Chennai and other parts of Tamilnadu). These websites competed on issues such as delivery time, which varied between 48 hrs to one week, delivery charges (some websites offered free delivery of products) and value added services (like sending personal messages along with the gift packs).

PromotionHaldiram's product promotion had been low key until competition intensified in the snack foods market. The company tied with Profile Advertising for promoting its products. Consequently, attractive posters, brochures and mailers were designed to enhance the

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visibility of the Haldiram's brand. Different varieties of posters were designed to appeal to the masses. The punch line for Haldiram's products was, Always in good taste. Advertisements depicting the entire range of Haldiram's sweets and nankeens were published in the print media (magazines and newspapers). These advertisements had captions such as millions Of tongues can't go wrong, what are you waiting for, Diwali? and Keeping your taste buds on their toes. 'To increase the visibility of the Haldiram's brand, the company placed its hoardings in high traffic areas such as train stations, Delhi metro stations and bus stations. For those customers who wanted to know more about Haldiram's products, special brochures were designed which described the products and gave information about the ingredients used to make it. Mailers were also sent to loyal customers and important corporate clients as a token of appreciation for their patronage. Packaging was an important aspect of Haldiram's product promotion. Since nankeens were impulse purchase items, attractive packaging in different colors influenced purchases. Haldiram's used the latest technology (food items were packed in nitrogen filled pouches) to increase the shelf life of its products. While the normal shelf life of similar products was under a week, the shelf life of Haldiram's products was about six months. The company projected the shelf life of its products as its unique selling proposition. Posters highlighting the shelf life of its products carried the caption six months on the shelf and six seconds in your mouth. During festival season, Haldiram's products were sold in attractive looking special gift packs.

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The showrooms and retail outlets of Haldiram's gave importance to point of purchase (POP) displays. Haldiram's snacks were displayed on special racks, usually outside retail outlets. The showrooms had sign boards displaying mouth-watering delicacies with captions such as Chinese Delight, Simply South, The King of all Chats. Posters containing a brief account of the history of Haldiram's, along with pictures of its products, were also on display at these showrooms.

PositioningThe above initiatives helped Haldiram's to uniquely position its brand. Haldiram's also gained an edge over its competitors by minimizing promotion costs. Appreciating the company's efforts at building brand, an analyst said, Haldirams once was just another sweet maker but it has moved into trained brands first by improving the product quality and packaging. Through its clever products and brilliant distribution it had moved into the star category of brands. Haldiram's earned recognition both in India and abroad.

3. Analysis of Primary Survey

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Type of Products Liked

100

G ender M ale Fem ale

80

60

t n c r e P40 20 0 Fresh Food Packed food Sem i-processed Food Ready-to-eat Food

W hat type of product do you like?

Out of 100 % (64 numbers) respondents, 65 % of female prefers Fresh Foods which is not a category where Haldirams has its products. Haldirams is in two categories of food articles: packed food and ready-to-eat food. 28 % and 20 % of male respondents like to have packed foods, respectively.

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Most Preferred Brands (Namkeen/Chips/Sweets)

50

40

30

t n c r e P20 10

Haldiram

Bingo

Lays

Uncle Chips

Please rate the brands based on your liking. (Most Like - 5, Least Like - 1)

45 % of 64 respondents preferred lays as their favorite brands in Snacks category; while rest of 55 % respondents were equally divided among Haldiram, Bingo and Uncle Chips. It is clear that respondents preference is affected by effective advertising tools such as TV, Hoardings and Banners; and of course quality of product. Preferred Sweets Brand

Please rate quality of Sweets brand wise on 1-5 scale: (5 - Most Preferred, 1- Least Preferred)

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Sweets Brands

Frequency

Percent

Cumulative Percent 4.7 26.6 78.1 90.6 100.0

Nathu Bikano Haldiram Agarwal Evergreen Total

3 14 33 8 6 64

4.7 21.9 51.5 12.5 9.4 100.0

Out of 64 respondents, almost half of the respondents like Haldirams sweets such as Soan Papdi and Rasgulla. On second number, there in Bikano from the house of Bikanervala. There is concern for Nathu which placed bottom rank in the tally, taking only 3 respondents in its favour out of 64.

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Age Group and Preferred Sweets (Brand wise)

14

Age Group 16-20 years 21-30 years

12

31-40 years Above 41 years

10

8

t n u o C6 4 2 0 Nathu Bikano Haldiram Agarwal Evergreen

Please rate quality of Sweets brand wise on 1-5 scale: (5 - Most Preferred, 1- Least Preferred)

For Haldirams, potential liker for its sweets products comes from age group 21 30 years. On second place, there are two age groups 16 20 years and 31 40 years who love Haldirams sweets for its quality.

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Beverage and Pack Size of Namkeen

100

80

With which beverage do you take Haldiram's namkeen? (You can choose more than one option.) Tea/Coffee Cold Drinks Hard Drinks

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t n c r e P40 20 0 26-35 gm 65-70 gm 200-250 gm 400-500 gm

Which pack size of Namkeen/Chips is preferred by you?

70 % of Hard Drinkers prefer 200 250 gm of pack size of namkeen greatly; while 60 % of Cold Drinkers also prefers 200 250 gm namkeen. Tea taker gave mix response when question asked about which pack size they prefer.

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4. The Road AheadThe competition in the ready-to-eat snack foods market in India was intensifying. Frito Lay India Ltd. (Frito Lay), one of Haldiram's major competitors, was expanding its market share. Instead of directly competing with the market leader Haldiram's, the company launched innovative products in the market and backed them with heavy publicity. Frito Lay's product range consisted of a mixture of traditional Indian and western flavors which appealed to younger and older generations. Its products included Leher Namkeens, Leher Kurkure (snack sticks), Lays (flavored Chips), Cheetos (snack balls), Uncle Chips and Nutyumz (nut snacks). Frito-Lay was the first company to launch small 35 gm packs nankeens priced at Rs. 5 and also the first company in the organized sector to launch Aloo Bhujia. Another competitor, SM Foods, introduced a range of innovative products. The company launched India's first non-wafer chips in 1988. SM offered products under two main brands - Peppy and Piknik. Under Peppy, it had sub brands such as Cheese Balls, Ringos, Hi Protein Crispies, Potato Rackets, Hearts, Veggie Treat, Mixtures and Minerette. Under Piknik, it had Protein Pin, Junior and Corn Puffs.

Findings of the Study Out of 100 % (64 numbers) respondents, 65 % of female prefers Fresh Foods which is not a category where Haldirams has its products. Haldirams is in two categories of food articles: packed food and ready-to-eat food. 28 % and 20 % of male respondents like to have packed foods, respectively.

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For Haldirams, potential liker for its sweets products comes from age group 21 30 years. On second place, there are two age groups 16 20 years and 31 40 years who love Haldirams sweets for its quality.

70 % of Hard Drinkers prefer 200 250 gm of pack size of namkeen greatly; while 60 % of Cold Drinkers also prefers 200 250 gm namkeen. Tea taker gave mix response when question asked about which pack size they prefer.

Out of 64 respondents, almost half of the respondents like Haldirams sweets such as Soan Papdi and Rasgulla. On second number, there in Bikano from the house of Bikanervala. There is concern for Nathu which placed bottom rank in the tally, taking only 3 respondents in its favour out of 64.

45 % of 64 respondents preferred lays as their favorite brands in Snacks category; while rest of 55 % respondents were equally divided among Haldiram, Bingo and Uncle Chips. It is clear that respondents preference is affected by effective advertising tools such as TV, Hoardings and Banners; and of course quality of product.

The rapid expanse in availability (distribution channel)the intensive promotional support in sweets and namkeen categories and overall vibrance in terms of pricing and packaging has undoubtedly aided this sector.

Indians have become fervent consumers of brand snack foods or Namkeens. In the fiscal year 2005-06, the market for branded packaged Namkeens has grown by a whopping 34 %.

Organized sweets market is the new emerging category in FMCG basket with 11.6 % in terms of value growth in fiscal year 2005-06. While the underlying factor driving sales remains commodity branding with manufacturers packaging and

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branding this product which has traditionally been purchased loose, other sociological factors are also at play. Retailers earned more margins ranging from 25% to 30% by selling. Apart from the exclusive showrooms owned by Haldiram's, the company offered its products through retail outlets such as supermarkets, sweet shops, provision stores, bakeries and ice cream parlors. The products were also available in public places such as railway stations and bus stations that accounted for a sizeable amount of its sales. As the Indian market is booming, foreign companies are increasingly looking at tapping this market. Foreign investments will definitely the Indian food and beverage (F&B) market, at the same time quality of products will also increase. As more and more investment takes place in entail sector, the entire supply chain will benefit as the quality of food will improve.

In their own words:We at Haldiram were very keen to come to London to see for ourselves why it is such a special place to Indians who now call it home. And we wanted to service that community

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with a taste of their homeland our range of snacks and sweets. A memory, if you like. So the key was to establish a presence here. We were very impressed with the help that Think London gave us on setting up business in London. Their wealth of expertise, the way they could present a huge array of statistics about populations and our target market it all pointed to London as the best launchpad for us. Especially because of the citys great connectivity, proximity to Heathrow for logistics, availability of skilled workforce and target customers and, crucially, a homely atmosphere for our workers all make London the perfect place for us. Think London made the whole process seamless. They advised us on our business plan, helped us sort premises, gave us time whenever we needed it and told us who to talk to on things like tax and employment. All for free! What we had dreamed of was an easy process. What we got was exactly that.

Pankaj Agarwal, (Managing Director Haldiram)

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Financial Highlight s

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Balance Sheet As at 31st March, 2009(Amount in Rs.)

PARTICULAR SOURCES OF FUND SHAREHHOLDERS FUNDS Share capital REVERSES &SURPLUS LOAN FUNDS Secured loans Unsecured loans DEFERRED TAX LIABILITY APPLICATION OF FUNDS FIXED ASSETS Gross block Less: Deprecation Net Block Capital Work in Progress INVESTMENTS CURRENT ASSETS, LOANS& ADVANCES Inventory Sundry Debtors Cash & Bank Balances Loans and Advances

SCHEDULE

CURRENT YEAR 110,000,000 279,252,397 541,331,653 180,330,038 19,280,389 1,130,194,477

PREVIOUS YEAR 110,000,000 226,372,466 254,345,398 114,711,777 26,770,654 732,200,295 822,760,834 165,005,003 -------------------657,755,831 52,879,823 2,144,704

1 2 3 4

5 948,021,032 239,698,163 ------------------708,322,868 301,663,394 6 7 2,144,704 129,551,762 16,080,722 74,190,357 101,307,353 321,130,194 91,855,553 9,368,200 42,045,083 45,761,638

189,030,474 175,108,089 13,922,385 5,129,822 327,730 40,000 -------------------732,200,295

Less: CURRENT LIABILITIES & PROVISIONS NET CURENT ASEETS MISCELLANEOUS EXPENDITURE (to the extent not written off or adjusted) Deferred Revenue Expenditure Preliminary Expenses Amalgamation Expenses

8

207,772,770 113,357,424 4,499,522 176,564 30,000 ------------------1,130,194,477

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Profit & Loss A/c for the year ended on 31st March, 2009(Amount in Rs.)

PARTICULAR INCOME Sales Less: Excise Duty Other Income Profit on Sale of fixed assets Increase/(Decrease) in Finished stock

SCHEDULE

CURRENT YEAR 1,623,623,720 3,025,640 1,620,598,080

PREVIOUS YEAR 1,167, 413,879 2,950,567 1,164,463,312 3,088,458 12,567,706 (1,067,707) 1,179,051,769 530,786,516 489,483,395 20,347,944 900,244 630,300 10,000 151,166 1,042,309,565 136,742,204 58,090,499 78,651,706 28,317,807 1,209,928 6,807 2,600,240

9

10,286,752 247,357 6,668,301 1,357,800,490

EXPENDITURE Manufacturing Exp. Administrative, Selling, and Other Exp. Interest & Other Financial Charges Loss on Sale of Fixed Assets Deferred Revenue Exp. Written off Amalgamation Exp. W/O Preliminary Exp. W/O Profit before Dep. & Tax Less: Dep. Profit for the year Less: Provision for current tax Less: Provision for FBT Less: Provision for Wealth Tax Add: Provision for Deferred Tax(Reversed) Less: Provision for Deferred Tax Profit for the year after Tax Profit brought forward from previous year Profit carried over to Balance Sheet 10 11 12 837,772,543 599,662,388 36,495,262 276,434 630,300 10,000 151,166 1,474,98,093 162,802,397 75,996,899 86,805,498 39,730,161 1,645,568 40,103 (7,490,266) 52,879,932 119,816,846 172,696,777 51,717,404 68,099,442 119,816,846

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Cash flow statement for the year ended 31st March, 2009(Amount in Rs.)

33

PARTICULAR Cash flow from operating Activities Net profit before tax Adjustment for Dividend received Depreciation Preliminary expenses W/O Deferred Revenue Exp. W/O Amalgamation Exp. W/O Interest paid Loss on sale of Fixed Assets Interest Received Provision for Contingency Provision for doubtful Advance Income tax Paid Profit on sale of asset Operating profit before working capital Change Adjusted for : Inventories Trade Receivable Loan &Advance Trade Payable Cash Generated From operation Cash for investing Activities Purchases of fixed assets Dividend Received Sales of fixed assets Interest Received Exchange Fluctuation Charges Cash used in investment activity Cash from Finance Activities Interest Paid Increase/Decrease in share Application Money Share Capital Increase in Secured Lone Share Premium Increase/Decrease in Unsecured Loan Increase in deferred revenue Cash used in Financing activity Net increase in cash and cash equiv Opening Balance Closing Balance

For the year ended 31.03.2007 8,68,05,498 2,275 7,59,96,899 1,51,166 6,30,300 10,000 3,64,95,262 2,76,434 (19,00,372) 1,68,08,155 ---------------4,41,48,958 (2,47,357) 17,08,74,752 (3,76,96,209) (67,12,521) (1,13,96,757) (3,23,35,575) 8,27,33,690 (37,78,25,875) 2,275 24,49,291 19,00,372 -------------(37,34,73,937) (3,64,95,262) --------------------------29,3762,522 -------------6,56,18,261 -------------32,28,85,521 3,21,45,274 4,20,45,083 7,41,90,357

For the year ended 31.03.2006 7,86,51,706 (3,500) 5,80,90,499 1,51,166 6,30,300 10,000 2,03,47,944 9,00,244 (22,98,931) 1,40,91,688 --------------(2,54,07,468) (1,25,67,706) 13,25,95,941 (71,30,779) 75,44,348 1,13,61,998 2,67,34,857 17,11,06,365 (19,43,08,466) 3,500 1,46,06,955 22,98,931 ------------(17,73,99,080) (2,03,47,944) ------------3,10,16,680 (1,18,61,597) 4,65,25,020 (2,34,88,765) (2,40,161) 2,16,03,233 1,53,10,520 2,67,34,563 4,20,45,083

Schedule 1

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SHARE CAPITAL (Amount in Rs.)PARTICULAR AUTHORISED CAPITAL 15000000Equity shares of Rs. 10/-each 150,000,000 150,000,000 CURRENT YEAR PREVIOUS YEAR

150,000,000

150,000,000

Issued, Subscribed & Paid up Capital 11,000,000 (Pre year 11000,000)Full paid up Equity Share of Rs. 10/- each 110,000,000 (Out of which 374662 Equity share of Rs.10/- each allotted to the shareholder of Competent Indexpo Ltd Persuant to scheme of amalgamation) ------------------110,000,000 --------------------110,000,000 110,000,000

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Schedule 2 RESERVES & SURPLUS(Amount in Rs.)PARTICULAR CURRENT YEAR PREVIOUS YEAR

Capital subsidy Share Premium Opening Balance Addition during the year

5,000,000

5,000,000

101,555,620 . -------------------------101,555,620

55,030,300 46,525,020 ------------------------101,555,620 119,816,846

Profit & Loss Account

172,696,777

279,252,397

226,372,466

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WORKING CAPITAL

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DefinitionWorking capital management is concerned with the management of current assets. It is important part of financial management as short-term survival is a prerequisite long-term success. In the word of Shubin, Working capital is the amount of funds necessary to cover the cost of operating the enterprise, On the other word circulating capital means current assets of a company that are change in ordinary course of business from one from to another, as for example, from case to inventories, inventories to receivables, receivable to cash.

The importance of working capital management: Regulate supply of raw material. Cash discount. Regulate payment of salaries, wages &other day to day commitment. In cries Goodwill. Ability to face crisis. Quick & regular return on investment. Easy loans.

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Concept of Working Capital:There are two concepts of working capital -

1. Gross working capital 2. Net working capital

Gross Working Capital:Gross working capital refers to the firms investment in current assets. Current assets are assets, which can be converted into cash within an accounting year. The main components of current assets are cash, debtors, marketable securities and stock. The gross working capital concept focuses attention on two aspects of current asset management. A. Optimum investment in current assets. B. Financing of current assets. The Ratios of Current Assets and Fixed Assets of Different Industries are as follow:Current Assets % 10-20 20-30 30-40 40-50 50-60 60-70 70-80 80-90 Fixed Assets % 80-90 70-80 60-70 50-60 40-50 30-40 20-30 10-20 Industries Hotels and Restaurants Elec. Generation and Distribution Aluminium Shipping Iron and Steel Basic Industries Tea Plantation Cotton Textiles and Sugar Edible Oil and Tobacco Trading and Construction etc.

The consideration of level of investment in current asset should be to avoid two danger points: excessive and inadequate investment in current assets. Investment in current assets should be just adequate, not more nor less to the needs of business firm. Excessive investment in current assets should be avoided as its Impairs firms profitability. On the other hand inadequate amount of working capital can threaten solvency of the firm.

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Another aspect of gross working capital points to the need of arranging funds to finance current assets. Whenever a need for working capital arises, financing arrangements should be made quickly. Similarly surplus arising shall be invested in short-term securities.

Net Working Capital:Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. Current liabilities include creditors, bills payable and outstanding expense. Net working capital can be positive or negative. Net working capital is a qualitative concept. It indicate the liquidity position of the firm and suggests the Extend to which working capital needs may be financed by permanent source of funds such as shares, debentures, long term debts etc. It covers the question of judicial mix of long and short-term funds for financing current assets. In order to protect their interest, short-term creditors like a company to maintain a positive N.W.C. conventionally the ratio of C.A. and C.L. is 2:1. A negative N.W.C means a negative liquidity, which may prove to be harmful to company, reputation. It poses a threat on the companys solvency and makes it unsafe and unsound.

Trade-Off between profitability and risk:-

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In evaluating the firms working capital position an important consideration is the tradeoff between profitability and risk. In other words the level of N.W.C has a bearing on profitability as well as risk. The term profitability used in this context is measured by profit after expenses. The term risk is defined as the profitability that a firm will become technically insolvent so that it will not be able to meet its obligation when they become due for payment. It is assured that greater the amount of N.W.C, the less risk prone the firm is, or greater the N.W.C the more liquid is the firm and therefore the less likely it is to become technically insolvent. Conversely lower level of N.W.C and liquidity are associated with increasing level of risk. A firm must have adequate W.C. It should neither be excessive nor inadequate. Excessive W.C means the firm has idle funds, which earn no profit for the firm. This situation decreases both risk and profitability of the firm. Inadequate W.C. means the firm does not have sufficient fund for running its operations, which ultimately results in production interruptions, and lowering down the profitability. Lower level of WC increase the risk but have the potentiality of increasing the profitability also.

The above principle based on following assumptions:-

1. 2. 3.

There is direct relationship between profitability and risk Current assets are less profitable than fixed assets. Short-term funds are less expensive than long-term funds.

Effect of level of C.A\c on the profitability risk trade off:

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The effect of level of C.A\c on profitability risk and trade off can be shown using the ratio of C.A\c to T.A\c This ratio indicates the percentages of T.A\c that are in forms of C.A\c An increase in the ratio will lead to decline in profitability because C.A\c is less profitable than FAs. It would also increase risk of technical insolvency because increase in C.A\c assuming no change in C.Lwill increase N.W.C. Conversely a decrease in ratio will result in increase in profitability as well as risk.

Effect of Level of CL on risk profitability trade-off:

The effect of C.L can be demonstrated by using the ratio of C.L to Task this portion of short term financing which is less expensive as compared to long term financing. This will, therefore, be a decline in cost and corresponding rise in profitability. The increased ratio will also increase risk because assuming no change in C.A this would decrease in N.W.C. The consequence of decrease in the ratio is exactly opposite to the result of an increase. That is it will lead to decrease in profitability as well as risk.

Need for Working Capital:The basic objective of financial management is to maximize shareholders wealth. For this it is necessary to generate sufficient profits. The extent to it, which the profit can be, earn, largely depend on the magnitude of sales. However sales do not convert into cash instantly. There is invariable the time gap between the sale of goods and receipt of cash. There is, therefore, a need for working capital in the form of C/A to deal with the problem

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arising. Out of the lack of immediate realization of cash again goods sold. Therefore, sufficient W.C.Is necessary to sustain sales activity. The operating cycle can be said to be at the heart of the need for WC. The continuing flow from cash to suppliers, to inventory, to account receivables and back into cash is known as operating cycle. The operating cycle of a manufacturing Company involves three phases: Acquisition of resources such as raw materials, labor, power and fuel etc.

Manufacturing of product Which includes conversion of raw material into WIP into finished goods?

Sale of the product either on cash or on credit. Credit sales create account receivable for collection. This phase affect cash flows, which most of the time are neither synchronized nor certain. They are not synchronized because cash out flows

Usually occur before cash inflows. Cash inflows are uncertain because sales & collections are difficult to forecast. Cash outflows, on the other hand are relatively certain. The firm is therefore required to invest in CAs for smooth uninterrupted functioning. Firs need to keep cash or invest in liquid securities so that they will be able to meet obligations when they become due. Similarly the firm must have adequate inventory to provide a cushion again out of stock. For being competitive the firms must sell goods on credit, which necessitates holding of accounts receivables.

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The following Figure illustrates the determination of length of Operating cycles:-

PURCHASE

PAYMENT

CREDIT SALE

COLLECTION RECEIVABLE

(RMCP+WIPCP+FGCP)(Inventory Conversion)

Period

Conversion Period

Payables

Net Operating Cycles Gross Operating Cycles

Types of Working Capital:

There are two types of working capital visa: (a) (b) Permanent working capital Temporary working capital.

Permanent Working Capital:-

The O.C .creates the needs for C.A, however the need does not come to an end after the cycle is completed. It continues to exist and therefore the need for C.A is felt continuously. But the magnitude of C.A is not constant but fluctuating.

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However there is always a minimum level of C.As, which is continuously required by the firm to carry on its business operations. The minimum level of C.As is referred to as permanent or fixed W.C. It is permanent in the same way as the firms FAs are. The following are the characteristics of permanent working capital:-

1.

Amount of permanent working capital remains in the business is one form or the other. The suppliers of such W.C. should not accept its return during the lifetime of the firm.

2.

It grows with the size of the firm.

Permanent W.C. is permanently needed for the business and therefore, it should be financed out of long term funds.

Temporary Working Capital:-

The amount of temporary working capital keeps on fluctuating on time to time on the basis of business activities. In other words it represents the additional current assets required at different time during the operating year. For example, extra inventory of finished goods will have to be maintained to support the peak period of sales and investment in receivable may also increase during such period. On the other hand investment in raw material, WIP and finished goods will fall if the market is in depression period.

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The amount over and above permanent working capital is temporarily variable or fluctuating. The position of the required WC is needed to meet fluctuation in demand consequent upon changes in production and sales, as a result of seasonal changes. Suppliers of total WC can expect its return during off-seasons when the firm does not require it. Hence total WC is generally financed from short-term sources of finance such as bank credit etc.

Amm. Of W.C

Temporary Assets

Permanente Assets

Time Tem porary working capital

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Permanente and Temporary Working Capital (WC) of a Stable Firm:It is shown in the above diagram that permanent WC is stable while temporary WC is fluctuating and increasing and decreasing in accordance with seasonal demands. In the case of an expanding firm the permanent WC line may not be horizontal. This is because the demand for permanent CA might be increasing (or decreasing) to support a rising level of activities. In that case line should be raising one as follows: Both kind of WC are necessary to facilitate the sales process through the operating cycle. Temporary WC is created to meet liquidity requirement that are of purely transient nature.

Amount Of WC Temporary WC

Permanente WC

Time Permanente and Temporary W.C. of a Raising Firm

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Components of Working Capital:-

There are two basic components of Working Capital (a) (b) Current assets Current liabilities.

Effective management of working capital calls for effective management of these components. Current assets management includes management of cash, inventories, account receivables etc. And current liabilities management includes creditors management etc.

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Working Capital Cycle

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Working Capital CycleCash flows in a cycle into, around and out of a business. It is the business's life blood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit to customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - Inventory (stocks and work-in-progress) and Receivables (debtors owing you money). The main sources of cash are Payables (your creditors) and Equity and Loans.

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Each component of working capital (namely inventory, receivables and payables) has two dimensions........ TIME ......... and MONEY. When it comes to managing working capital - TIME IS MONEY. If you can get money to move faster around the cycle (e.g. collect monies due from debtors more quickly) or reduce the amount of money tied up (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, you could reduce the cost of bank interest or you'll have additional free money.

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Available to support additional sales growth or investment. Similarly, if you can negotiate improved terms with suppliers e.g. get longer credit or an increased credit limit; you effectively create free finance to help fund future sales.

If you.......

Then......You release cash from the cycle Your receivables soak up cash

Collect receivables (debtors) faster Collect receivables (debtors) slower

Get better credit (in terms You increase your cash resources of duration or amount) from suppliers Shift inventory (stocks) faster Move inventory (stocks) slower You free up cash You consume more cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles etc. If you do pay cash, remember that this is now longer available for working capital. Therefore, if cash is tight, consider other ways of financing capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or increase drawings, these are cash outflows and, like water flowing downs a plug hole, they remove liquidity from the business.

More businesses fail for lack of cash than for want of profit

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Sources of Additional Working CapitalSources of additional working capital include the following:

Existing cash reserves Profits (when you secure it as cash!) Payables (credit from suppliers) New equity or loans from shareholders Bank overdrafts or lines of credit Long-term loans

If you have insufficient working capital and try to increase sales, you can easily overstretch the financial resources of the business. This is called overtrading. Early warning signs include:

Pressure on existing cash Exceptional cash generating activities e.g. offering high discounts for early cash payment

Bank overdraft exceeds authorized limit Seeking greater overdrafts or lines of credit Part-paying suppliers or other creditors Paying bills in cash to secure additional supplies Management pre-occupation with surviving rather than managing

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Frequent short-term emergency requests to the bank (to help pay wages, pending receipt of a cheques).

Comparative Working Capital Statement of Haldiram Pvt.LtdAs per Financial Statement of Company up to 31 March 2011

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Working capital managementEfficient management of working capital is extremely important to any organization. Holding too much working capital is inefficient, holding too little is dangerous to the organizations survival. Working capital is the everyday term for what accountants call net current assets. The working capital figure is the total of current assets minus the total of current liabilities. The main current assets are stock, debtors and cash. The current liabilities are creditors and accrued expenses. The key factor in the word "Current" is that they are expected to turn into cash, or be paid from cash, within twelve months. As a general rule the organization wants as little money tied up in working capital as possible. However, there are always trade-off. The most obvious problem is running out of cash so you cannot pay the wages, or being unable to provide a service because you have run out of a vital resource: for example, a meals service being unable to produce the required number of meals because they did not have enough foodstuffs in stock. Each of the areas of working capital has different problems and these are discussed separately in the following sections:

Stock control

Debtor control

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Cash flow management guidelines

Creditor control

In order to assess whether you have a "safe" amount of working capital there are two important calculations you can make:

The Current RatioThe Current Ratio is the relationship between the total current assets and the total current liabilities. Generally speaking a service organization should have about 1.25 current assets for every 1 of current liabilities. If there are significant trading operations such as shops or mail order selling then the. Ratio should be closer to 2 of current assets for every 1 of current liabilities.

The Quick Ratio or "Acid Test"The Quick Ratio is the relationship between the total of debtors and cash compared with current liabilities. Generally the debtors and cash together should approximately equal the current liabilities.

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Documents in this section:

Accounting policy: cash or accrual? Audit committee: model terms of reference. Becoming an Independent Examiner. Cash flow management. Controls on expenditure. Controls on fixed assets. Controls on income and debtors. Creditor control. Debtor control: bad debt. Debtor control: invoicing and collection. Developing spreadsheets to implement budgetary controls. Financial difficulties: facing insolvency. Financial difficulties: how to recognize and avoid. Financial difficulties: managing a crisis. Financial healths check. Finding and working with financial management advisors. How to find an internal auditor. How to select and tender for audit. Internal audit.

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Making management accounts effective tools. Model Finance Director/Manager Job description. Model internal auditor job description. Model management accountant job description. Petty cash. Prepare for Charity Commission visits. SORP and SOFA. Stock control. Understanding financial statements. Understanding SORP. Using an Independent Examiner to scrutinize accounts. What is an audit? What is an Independent Examination? Working capital management. Working with auditors.

Stock controlStock control is particularly important where: The organization is involved in quasi-commercial trading, such as running shops or mail-order businesses

There are stocks crucial to the operation of the organization - for example, dressings in a care home.

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Not all organizations have significant stocks. If your organization has only about a hundred pounds tied up in stationery, for example, then it is not cost effective to have complicated procedures to manage your stock.

The Problems:If too much stock is held, the organization wastes money through a variety of factors:

Money is tied up in stock when it could be put to better use. There are superfluous warehousing and storage costs. Stock may deteriorate. There is a potentially greater risk of theft.

On the other hand, too little stock can lead to stock- outs which can:

Halt activity Lose income Cause discomfort or distress to clients

However, finding the correct level of stock for any one particular item is complex. This is because there are many influencing factors including the anticipated demand for the items and the cost-efficient use of the organizations resources. The aim is to find the right balance.

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The solution:The first place to start is to look at your income forecast. This will give you an indication of your demand and how much stock you will need to meet it. If you do not currently forecast income in any detail then an analysis of past demand can help. Go back through your figures for the last two or three years to see if you can identify any demand patterns. Your analysis need not cover the whole of your stock needs. A large proportion of your stock value is likely to be tied up in a small proportion of the total items. This is sometimes called the 80:20 rules: it is likely that 80% of the value is contained in 20% of the items. Concentrate your management time on these.

When determining your stock levels you will also need to look at lead times. Lead-time is the time it takes from ordering a product to the point at which it is received. Something which can be obtained within a few hours is much less of a problem than something which has to be imported and can take up to a month to arrive. The major difficulty is deciding how much of the demand you want to keep in stock at any one moment. Should you have sufficient to meet one week's needs? One month? Three months? The factors to consider when deciding how much to hold include:

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Purchasing Costs

It may be possible to reduce the cost of purchases by placing a large order: this will reduce average unit delivery costs and may result in being given quantity discounts. However, it is not worth having to carry five years supplies in order to get a 1% discount.

Essential Supplies

There may be some items of stock that it is absolutely vital not to run out of. A good supply of these must be kept.

Stock Holding Costs

Here you have to consider costs of insuring, warehousing, and any bank interest paid or foregone as a result of holding that amount of stock.

Nature of the Organization

A cake shop or a florist attached to a hospice will require minimum stocks, perhaps sufficient only to cover one day's sales. However, a charity selling goods made by the disabled in developing countries will need much higher levels.

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Management of Inventory

The term inventory refers to the stock of the products a firm is offering for sale and the components that make up the product. That is, inventory is composed of assets that will be sold in future in the normal course of business operations. These assets are i) Raw materials, ii) Work-in-progress and iii) Finished goods. The views concerning the appropriate level of inventory would differ among the different functional areas.

Objectives:Efficient management of inventory should ultimately result in the maximization of owners wealth. The inventory should be turned over as quickly as possible, avoiding stock-outs that might result in closing down the production line or lead to a loss of sales. It implies that while the management should try to pursue the financial objectives of turning inventory as quickly as possible, it should at the same time ensure sufficient inventories to satisfy production and sale demand, that is, these two conflicting requirements have to be reconciled. Alternatively, we can say that the objective of inventory management is to minimize investment is inventory and also to meet a demand for the product by efficiently organizing the production and sales operation. That is to say, an

optimum level of inventory should be determined on the basis of the trade-off between costs and benefits associated with the level of inventory.

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COST OF HOLDING INVENTORY:The objective of inventory management is to minimize costs. The costs associated with the inventory fall into two basic categories: i) ordering costs, and ii) carrying costs. These costs are an important element of the optimal level of inventory decisions and are described as under:

Ordering costs; these are the costs associated with the

acquisition or ordering of inventory. It is the fixed cost of placing and receiving an inventory order. Included in the ordering costs are costs involved in one i)preparing a purchase order or requisition form and ii) receiving, inspecting and recording of the goods received to ensure both quality and quantity. These are generally fixed irrespective of the amount of order. Hence, such costs can be minimized by placing fewer orders for a larger amount. However, acquisition of large quantity would increase the costs associated with the maintenance of the inventory, that is, carrying costs.

Carrying costs: these costs are the variable costs per unit of holding an item in inventory for a specified time period. These costs can be divided into two categories. i) those that arise due to

storing of inventory: the main components of this category of costs are a) the storage costs, insurance, maintenance of the

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building b) insurance of inventories against fire and theft, c) deterioration in inventory because of pilferage, fire, technical obsolescence, d) serving costs such as labor for handling, ii) opportunity costs: this consists of expenses in raising funds. If funds were not blocked up in inventory, they would have earned a return. This is the opportunity cost of funds. The sum of ordering and carrying costs represents the total cost of inventory.

Benefits of holding inventory:The secondary element in the optimum inventory decision deals with the benefits associated with holding inventory. The major benefits of holding inventory is that they enable firms in the short run to produce at a rate greater than purchase of raw materials and vice-versa, or sell at rate greater than production and vice-versa.

Inventory Management Techniques:Many sophisticated mathematical techniques are available to handle inventory management problems.

Classification System: A B C System;

The ABC system is a widely used classification technique to identify various items of inventory for the purposes of inventory control. This technique is based on the assumption that firm should not exercise the same degree of control on all items of inventory. It should rather keep a more rigorous control on items

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that are most costly and or slowest turning, while items that are less expensive should be given a less control. Hence, ABC system is an inventory management technique that divides inventory into three categories of descending importance based on rupee investment in each. The items included in group A involve the largest investment. Therefore, inventory control should be most rigorous and intensive and the most sophisticated inventory control, techniques should be applied to these items. The C group items consist of items of inventory which involve relatively small investments, although the number of items is fairly large. These items deserve minimum attention. The group B stands mid-way. It deserves less attention than a but more than C. It can be controlled by employing less sophisticated techniques. The task of inventory management is to classify all the inventory items into one of these groups/categories.

Order quantity problem: EOQ model;Economic order quantity model is the inventory management technique

for determining items optimum order quantity which is the one that minimizes the total of its ordering and carrying costs. It balances fixed ordering cost against variable ordering costs. It is also known as economic lot size. Mathematically it can be calculated by the following equation: EOQ = 2AO C Where A= Annual usage in units

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B= Ordering Cost C= Carrying Cost

Setting of various stock levels:

Minimum level; It indicates the lowest figure of inventory balance,

which must be maintained in hand at all times so that there is no stoppages of production due to non-availability of inventory. The main considerations for fixation of minimum level of inventory are as follows: 1. Information about maximum consumption period and maximum delivery period in respect of each item to determine its re-order level. 2. Average rate of consumption for each inventory. 3. Average delivery period for each item. The formula for calculation is as under:

Minimum level of inventory = Re-order level (Average rate of consumption x Average time of inventory delivery)

Maximum Level:

It indicates the maximum figure of inventory

quantity held in stock at any time. The important considerations which should govern the fixation of maximum levels of inventory are as follows:

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1. The information about its re-order level since it itself depends upon its maximum rate of consumption and maximum delivery period. 2. Knowledge about minimum consumption and minimum delivery period for each inventory should also be known. 3. The figure of EOQ. 4. Availability of funds, storage space, nature of items and their price per unit are also important for the fixation of maximum level. The formula for calculation is as under: Maximum level of inventory = Re-order level + re-order quantity - (Minimum consumption x Minimum re-order period)

Re-order Level:

This level lies between the maximum and

minimum levels in such a way that before the material ordered is received into the stores, there is sufficient quantity on hand to cover both normal and abnormal consumption situations. In other words, it is the level at which fresh order should be placed for replenishment of the stock. The formula for calculation is as under: Re-order level of inventory = Maximum re-order period x Maximum usage OR Minimum Level + (Average Rate of consumption x Average Time to obtain fresh supplies)

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Danger Level: It is the level at which normal issues of the raw

material inventory are stopped and only emergency issues are made. The formula for calculation is as under:

Danger level of inventory = Average consumption x Lead time for emergency purchases

Continuous stock verification: The checking of physical inventory is an essential feature of every sound system of material control. Such a checking may be periodic or continuous.

Debtor control: invoicing and collectionCommercial organizations normally give credit to their customers in order to encourage sales. In the case of charities it is less likely that you are encouraging additional sales by giving credit and more likely that your clients will want credit and will wish to dictate the terms on which they will pay. Therefore, for voluntary organizations, management is more about dealing with credit than deciding on a control policy. It is better to have cash in your bank account than in your customers'!

If you get the money in quickly you can use it for other purposes, which will advance the organizations objectives.

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Giving credit costs money, even if it is only a small amount of interest foregone. If you have an overdraft, the costs rise sharply.

If a large client demands an unreasonable amount of credit you may have to simply walk away from the contract. You cannot afford to risk running out of cash.

If stage payments are delayed, you may perhaps have to say, for example, that you will be unable to complete the contract; this may help with negotiations.

So what should you be aiming for in terms of the credit you offer? The key objective should be to try and shorten the period each year rather than lengthen it. So, for example, if you agree with your clients 30 days and you collect in this, you are doing very well! A general rule of thumb is agreed time plus 33%. You need to improve your collection procedures as soon as it slips towards this point.

Reducing the cost of debtors:-

Send invoices promptly

The quicker invoices are sent the sooner they are paid. The best time to send them is at the same time as dispatching an order or completing a service. Do not wait until the end of the month as this automatically gives additional credit.

Send statements monthly

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Some organizations pay only on statement, though this is less common now, and it acts as a reminder for all debtors.

Phone the client

When you see an invoice that has gone over your credit terms and your statement produced no response you should try to find out why. The best person to call is not always the person who gave you the order especially in large organizations. The purchase (or bought) ledger clerk probably knows most about the delay. If you have a few important clients it is often worthwhile getting to know the name of this person and speaking directly with them. They sometimes have the ability to speed up payment dramatically.

Send a reminder letter

After about 60 days you should remind the client of the debt by letter asking for payment within 14 days.

Phone again

If the reminder letter was unsuccessful, something may be wrong. Try to find out what and rectify the situation if possible

Send a final reminder

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When all the above fail, send a letter requesting payment within seven days. This should state that you would take further measures, legal action or withdrawal of services, if payment were not received.

Stop supplies of goods or services

We reach a point where it is vital to stop throwing good money after bad.

Send a Solicitor's letter

By this time the relationship between you and your client will have broken down. Place the matter in the hands of your solicitor. Ask them to write to the organization asking for payment before taking any other action.

Take legal action

Legal action needs careful consideration. If there is a dispute over the goods or services, you must have a good case for taking legal action. Otherwise, hopefully, you would have been able to resolve this issue earlier.

Managing bad and aged debts:80% of your debts are probably from 20% of your clients or customers, so concentrate management effort on these. An easy way of monitoring debts is to set up the finance system to produce lists of aged debtors at monthly intervals. Then all debts of, say, over 500 (depending on the size of the organization) or more than three months old can be picked for

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intensive chasing. Alternatively, you could create a list of all debtors, the amounts and how old they are. Part of your procedure to control bad debts should be that only a senior member of staff or the project leader could be allowed to write off bad debts. Similarly, the decision to sue should normally be reviewed for likely costs by the Finance manager to assess whether it is worthwhile, and by a lawyer to assess the chances of success.

Decreasing your debtor level:There are a number of tactics you can employ to encourage early, or at least discourage late payment.

Offer discounts

Offering (say) 2.5% discount for payment within 14 days may result in early payment. However, some organizations may then pay at their normal time but take the discount anyway. It will seldom be worthwhile to sue for the difference. All you have then is a 2.5% reduction in your price which the client or customer may expect to continue! Furthermore, you have no control over whether the client will take up a discount. This makes cash forecasting more difficult. Also, you are at the mercy of interest rates - a discount, which is worthwhile at one level of bank interest, may not be advantageous if interest rates change, but you will have your contracts and stationery printed up in advance, and cannot immediately change them.

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Wait for cheque to clear

If you are selling goods by mail order or catalogue, you could consider not sending them out until cheque has cleared.

Use merchant accounts

It may be worth setting up the necessary merchant accounts so that you can accept online orders with a debit or credit card - debit cards work out cheaper.

Monitoring debtor levels:It is very easy for an organization to allow its debtor figure to creep upwards, and if there has not been any cash shortage crisis these may not have been noticed quickly. It is important to monitor the levels of debtors in relation to income. They should go up or down in line with each other. The key ratio to help you monitor this is the debtor collection period.

How to calculate the debtor collection period1. Determine income ideally, this should be the Income, which involves credit.

If, for example, the charity also has a shop which sells only for cash, then the shop turnover should, if possible, be excluded otherwise the average number of days figures will be lower than the ratio you wish to monitor 2. Multiply by 365

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3. Divide by the debtor figure usually, it is adequate and easier to take the

year-end figure; however, if there are very large variations in the year it is better to take an average figure. Important point - the true average is the average of 12 monthly debtors figures (or perhaps four quarterly figures). If there are seasonal variations which mean that the December 2003 figure is abnormally low (or high) then the December 2004 figure is also likely to be abnormally low or high. 4. The result is the average number of days taken to collect debts, or the debtor collection period.

Handling Receivables (Debtors)Cash flow can be significantly enhanced if the amounts owing to a business are collected faster. Every business needs to know.... who owes them money.... how much is owed.... how long it is owing.... for what it is owed.

Late payments erode profits and can lead to bad debts

Slow payment has a crippling effect on business; in particular on small businesses whom can least afford it. If you don't manage debtors, they will begin to manage your business as you will gradually lose control due to reduced cash flow and, of course, you could experience an increased incidence of bad debt. The following measures will help manage your debtors:

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Have the right mental attitude to the control of credit and make sure that it gets the priority it deserves. 1. Establish clear credit practices as a matter of company policy. 2. Make sure that these practices are clearly understood by staff, suppliers and customers. 3. Be professional when accepting new accounts, and especially larger ones. 4. Check out each customer thoroughly before you offer credit. Use credit agencies, bank references, industry sources etc. 5. Establish credit limits for each customer... and stick to them. 6. Continuously review these limits when you suspect tough times are coming or if operating in a volatile sector. 7. Keep very close to your larger customers. 8. Invoice promptly and clearly. 9. Consider charging penalties on overdue accounts. 10. Consider accepting credit /debit cards as a payment option. 11. Monitor your debtor balances and ageing schedules, and don't let any debts get too large or too old. Recognize that the longer someone owes you, the greater the chance you will never get paid. If the average age of your debtors is getting longer, or is already very long, you may need to look for the following possible defects:

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Weak credit judgment Poor collection procedures Lax enforcement of credit terms Slow issue of invoices or statements Errors in invoices or statements Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally demand immediate attention. Look for the warning signs of a future bad debt. For Example:

Longer credit terms taken with approval, particularly for smaller orders Use of post-dated checks by debtors who normally settle within agreed terms

Evidence of customers switching to additional suppliers for the same goods New customers who are reluctant to give credit references Receiving part payments from debtors.

Profits only come from paid salesThe act of collecting money is one, which most people dislike for many reasons and therefore put on the long finger because they convince themselves there is something more urgent or important that demands their attention now. There is

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nothing more important than getting paid for your product or service. A customer who does not pay is not a customer. Here are a few ideas that may help you in collecting money from debtors:

Develop appropriate procedures for handling late payments. Track and pursue late payers. Get external help if your own efforts fail. Don't feel guilty asking for money.... Its yours and you are entitled to it. Make that call now. And keep asking until you get some satisfaction. In difficult circumstances, take what you can now and agree terms for the remainder. It lessens the problem.

When asking for your money, be hard on the issue - but soft on the person. Don't give the debtor any excuses for not paying.

Make it your objective is to get the money - not to score points or get even.

Cash flow management:Cash flow management is about achieving maximum effectiveness of cash receipts and payments.

Motives of holding cash:A distinguishing features of cash as an asset is that it does not earn any substantial return for the business. Even though firm hold cash for following motives:

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1.

Transaction Motive

This refers to the holding of cash to meet routine cash requirement to finance. The transactions, which a firm carries on in the ordinary course of business. 2. Precautionary motive This implies the needs to hold cash to meet unpredictable obligations. Thus it provides a cushion against unpredictable contingencies such as strike,

sharp increase in raw materials in prices. If a firm can borrow at short notice to pay them unforeseen contingency, it will need to maintain relatively small balances and vice-versa. 3. Speculative Motives It refers to the desire of a firm to take advantage of opportunities which present themselves at unexpected movements and which are typically outside the normal course of business. 4. Compensatory motive Bank provides certain services to their clients free of charge. They, therefore, usually require client to keep minimum cash balance with them, which helps them to earn interest and thus compensate them for the free service so provided.

Objective of Cash Management:There are two basic objectives of Cash Management, (a) To meet the cash disbursement needs as per the payment schedule (b) To minimize the amount locked up as cash balances.

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These are conflicting and mutually contradictory and the task of cash management is to reconcile them. (a) Meeting cash disbursement: This is the first basic objective of cash management. According to this, the firm should have sufficient cash to meet the various requirement of the firm at different time period. Cash has been described as Oil to lubricate the ever turning wheels of business, without it the process grinds to a stop. (b) Minimizing funds locked up as cash balances: This is the second basic objective of cash management. In this process the finance Manager is confronted with two conflicting aspects. A higher cash balance ensures power savings with all its advantages. But this will result in a large balance of cash remaining idle. Low level of cash balance may result in failure of the firm to meet the payment schedule. The Finance Manager should, therefore, try to have an optimum cash balance. The aim is to strike a balance between:

Putting money to work for the charity so it returns a satisfactory yield from deposit accounts or short-term investments

Ensuring cash is available when needed to pay the day-to-day running expenses of the organization, and also the fairly predictable "lump-sum" amounts - replacement of computing equipment, for example.

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Managing your cash balances is the most important part of working capital management. If an organization runs out of cash resources it will have to stop operating immediately. There may not even be the money to pay the salaries at the end of the month, and the banks might have started dishonoring cheque. Furthermore, the trustees or directors could stand charged with wrongful or fraudulent trading, which could entail personal liability or even imprisonment.

Financial difficulties: how to recognize and avoid

Here are a few guidelines to help you manage your cash flow more effectively:

Collect money from debtors as quickly as possible, whilst exercising tact. Centralize payments and streamline procedures for different functional areas such as accounts payable and payroll, by using (for example) BACS payment methods. This is quicker, more secure and cheaper than cheque.

Develop close partnerships with customers and suppliers to negotiate mutually beneficial payment policies.

Consolidate banking relationships by choosing banks that can offer customized cash management services: for example, handling appeal monies. You will get advice from banking experts and save on bank charges.

Develop accurate cash flow forecasting techniques and models that are linked to budgets and strategic plans.

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Conduct regular reviews of the cash situation to ensure that the cash balances are approximately the same as in the budget, and analyze any significant variations from budget.

Ensure appropriate use of current technology: for example, telephone and Internet banking, as these are quicker and cheaper.

Ensure that investing, borrowing, payment and other financial transactions are properly authorized so as to avoid any improper use of the organization's cash.

If the organization has too much liquidity in the long term, it may well be invested in fairly low return areas, such as bank deposit accounts. Long-term surplus cash should be invested in making the organization grow. You might, perhaps, be able to fund additional resources to help you fund-raise. Alternatively, you might be able to develop an additional area of expertise.

Cash Flow Forecasts (also called Cash Budgets)Cash flow forecasts are a powerful management tool to help identify future deficits or surpluses in liquidity. They can help you spot cash problems and opportunities. You should normally forecast your cash flow at least monthly and in a year in advance. You should also make sure the trustees have copies.

Model cash flow forecast:The cash flow statement represents movements in cash held at the bank.

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Creating a cash flow forecastGets your staff to contribute their ideas derived from their own forecasts. For example, in a care home, the person responsible for ordering dressings will know what they expect to order each month and what the costs will be. These can then be combined into the master cash budget. It is important that your staff accept the need for this, as otherwise the budget will bear little resemblance to reality.

Using a cash flow forecastOnce the budget has been completed it is important to check it against the actual figures regularly and find out why any variances are occurring. If this is not done the figures can drift further and further from the plan. Also, there is a risk that the current year's budget will be used as a basis for the following year, resulting in even more inaccuracy. Once you can see the pattern over the year you can start to work on smoothing out any crises in cash flow. For example, Fixed Asset purchases:

Could these be postponed for a few months? Paid for by installments? Leased instead?

Does the cash position mean you simply cannot fund a new contract you were negotiating for? If so, can you negotiate for more advance or staged payments?

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At the very least, you will now have a picture to present to your bank manager. However, although it is vital to keep a close eye on the cash position, if it is a daily battle to survive then the whole operation of the organization may need to be reviewed.

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Creditor controlCreditor control is managing your relationship with organizations or people you owe money to, such as suppliers. It forms part of working capital management. It is, unfortunately the area over which not-for profit organizations have least control. If you are dealing with an industrial giant or a big local authority, they generally dictate the terms of trade. However, there are steps you can take to improve your position:

Try to negotiate as long a period of payment as possible at the beginning of the relationship.

Pay by the due date, but not before - remember this is free credit. When you have established yourself as a reliable payer, try to renegotiate for better terms.

Bring problems to your supplier's attention promptly and courteously. Give them enough time to remedy the situation before you refuse to pay.

Don't try to delay a 2,000 payment on the grounds of a 20 complaint.

Monitoring creditor controlThe ratio to watch here is the average number of days credit you take from your suppliers. Take too little and you may be paying extra costs like bank overdraft interest and charges unnecessarily. Take too much and you risk your suppliers demanding cash on delivery - or worse, cash with order. Try to keep the figure the same each year, or cautiously increase it.

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Calculating average creditor payment period

Find the number of creditors. Be careful to match like with like. For example, you should exclude from the creditor figure any items such as amounts owing to the Inland Revenue for PAYE as this has a specific payment date completely separate from your ordinary operations. 1. Multiply (1) by 365 2. Divide (2) by the total cost of goods and services purchased

The result (3) is the average days credit taken. Managing Payables (Creditors) Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Consider the following:

Who authorizes purchasing in your company - is it tightly managed or spread among a number of (junior) people?

Are purchase quantities geared to demand forecasts? Do you use order quantities, which take account of stock holding and purchasing costs?

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Do you know the cost to the company of carrying stock? Do you have alternative sources of supply? If not, get quotes from major suppliers and shop around for the best discounts, credit terms, and reduce dependence on a single supplier.

How many of your suppliers have a returns policy? Are you in a position to pass on cost increases quickly through price increases to your customers?

If a supplier of goods or services lets you down can you charge back the cost of the delay?

Can you arrange (with confidence!) to have delivery of supplies staggered or on a just-in-time basis?

There is an old adage in business that if you can buy well then you can sell well. Management of your creditors and suppliers is just as important as the management of your debtors. It is important to look after your creditors - slow payment by you may create ill feeling and can signal that your company is inefficient (or in trouble!).

Remember, a good supplier is someone who will work with you to enhance the future viability and profitability of your company

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Key Ratios of Working CapitalThese are some Ratios to Calculate the Capital Utilization. With the help of these Ratios we can easily calculate the Current Economic Situation and thus it is helpful in WORKING CAPITAL MANAGEMENT.

Ratio

Formulae Result

Interpretation

LIQUIDITY RATIOSCurrent Assets are assets that you can readily turn in to cash or will do so within 12 months in the course of business. Current Liabilities are amount you are due to pay within the coming 12 Total Current =321130194/ months. So in the Current Situation, 1.53 Assets/ 207772770 Current Ratio times means that you should be able to Total Current =1.54 lay your hands on Rs.1.54 for every Liabilities Times Rs.1.00 you owe. Less than 1 time e.g. 0.75 means that you could have liquidity problems and be under pressure to generate sufficient cash to meet oncoming demands.

Similar to the Current Ratio but takes account of the fact that it may take time (Total Current to convert inventory into cash. There Assets =191578432/ Company is in the Situation of Pay their Quick Ratio Inventory)/ 207772770 Debts 0.92 times for every 1.00 Rs. It is Total Current =0.92 times the Good Sign of Company. Liabilities

Cash Ratio

(Cash & Bank =306584558/ Balance 207772770

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+Current Investment)/ Current Liabilities

In the Cash Ratio we calculate the cash availability in respect of paying Debts. In this ratio we take only Cash Balance and Bank Balance in calculating the Cash availability in the firm. Here in the Haldiram Current Cash Ratio is 1.56 which very Beneficial for the company. =1.56 times It means that Company has 1.56 times more cash availability to Redeemed their Loans.

LEVERAGES RATIOS Debts-Equity Ratio Debts/ Equity 110000000/ In the Debts-Equity Ratio we calculate 721,661,691 the Owners money in respect of companys debts. In the Debts-Assets Ratios we calculate the Ratios between Debts and Total 1,130,194,47 Assets and Check the Total Assets value 7/1.3125 in respect of Debts.

Debts-Assets Ratio

Total Assets/debt ratio

TURNOVER RATIOS The Company may need to break this down into product groups for effective stock management. Obsolete stock, slow moving lines will extend overall stock turnover days. Faster production, fewer product lines, Just in time ordering will reduce average days.

Inventory or Cost of Goods Stock Sold/ Turnover Average (in days) Inventory

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Receivables Net Sales / Ratio Average (in days) Debtors

1,623,623,72 One or more large or slow debts can drag 0/16,080,722 out the average days. Effective debtor =100.94 management will minimize the days.

Fixed Assets Turnover Ratios shows that the Company can handle their Net Fixed Fixed Assets Net Sales/ =1620598080 Assets by the Net sales. Here this ratio is Turnover Average Net /708322868 2.28 days, which is very good for the Ratio Fixed Assets =2.28 days company. Total Assets Total Sales / Turnover Average Total Ratio Assets Working Capital turnover Ratio This Ratios Shows th