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Transcript of Project
NEED FOR THE STUDY
Vijaya diary is big manufacturing unit with varying milk based
products are being produced. The requirement of capital for each department
is very high in an organization like Vijaya Diary. Therefore, I have under
taken my study in this organization to understand the requirement of capital
and its effective allocation of resources in working capital management.
Some important points are taken into consideration.
To study the adequacy of working capital in this organization.
The duration of the work-in-progress state depends on length of the
manufacturing cycle, consistency in capacity utilization in different
stages and efficient co-ordination of various inputs.
The duration of raw material stage depends on the regularity of
supply, transactions time, degree of perishable ability, price
fluctuations and economic of bulk purchases.
Having this detailed study on working capital management, identify
the shortage of working capital and suggest improving the working
capital management in the company.
1
OBJECTIVES OF THE STUDY
Primary objectives:
To study the adequacy of working capital in the organization.
Secondary Objectives:
To study the various elements of the working capital namely
inventory, receivables, cash.
To know the Liquidity position of the firm.
To know how to implement cash management techniques in Vijaya
Dairy Ltd.,
To ascertain various problems faced in working capital management.
To give appropriate suggestions for the better performance of the
company if necessary.
2
IMPORTANCE OF THE STUDY
The Researcher that the study on working capital management in
KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-
OPERATIVE UNION LTD., of paramount important since it assumes
attention from the strategy makers and researches. It is no exaggeration to
say that the working capital management has been regarded as one of the
critical success factors, which determines success of the company.
Importance of working capital management and its contribution to the
growth and development of business firms had aroused a keen interest in me
to select this topic for project study. On going through the statistics
pertaining to working capital of the above said company. It gives me
immense pleasure to carry out systematic and formal study about working
capital management; in a said company.
Since the presently study purports to throw alight on in depth analysis
and interpretation of the data gathered from primary and secondary sources,
the study will serve useful purpose by bringing all the aspects relating to
working capital so that lot of data may be enhanced for further studies in this
area.
It is hearting to note that the working capital has assumed much
importance in all types of organizations. Despite availability of may topics
available for research purpose I preferred this topic because of the fact the
this deserves special preference than other topics. Formal and systematic
analysis which leads to suggestions are bound to contribute to enhancement
of financial performance of the above said company as on inadequacies can
be rectified through this suggestions given by me. It is hoped that my
suggestions may be considered by the company.
3
METHODOLOGY OF THE STUDY
All the data required for completion of the study has been collected from
both primary and secondary sources.
Primary Sources of Data:
The primary sources of data required for the study was collected by
the personal interaction with employees of the Vijaya Dairy, in the area of
Finance, Production and administration department.
The secondary data was collected from the Company’s
Annual Reports
Accounting Reports
Departmental Manuals
Text books and journals relating to financial management
4
LIMITATIONS OF THE STUDY
Any study is having its own advantages and certain disadvantages.
Among such, few of the limitations are expressed below such as;
The reliability of the study depends upon the information furnished by
the officials.
Due to time constraints, it is difficult to go into details of the whole
organization.
The study is purely base in the form of company report of Vijaya
Dairy Ltd., Vijayawada.
The present study is restricted to lonely for a period of 6 years from
2001-02 to 2006-07.
5
INDUSTRY PROFILE
Industry Scenario:
Dairying has been of life in India since the ancient Vedic times.
The modern dairy industry took roots in 1950 with the sale of bottled milk in
Bombay from Array milk colony. The first large scale milk products factory
was started in 1945 at Anand a Co-operative venture, with the assistance of
UNICEF, for the production of milk powder, table butter and ghee. These
products were making from the buffalo milk.
The world’s largest development program over undertaken, the
operation flood undertook and gigantic task of upgrading and modernizing
with production, procurement, processing and marketing with the assistance
provided by the World Bank and other external agencies, designed and
implemented by the National Dairy Development Board (NDDB) and the
Indian Dairy Corporation. The project was launched in July, 1970. Its basic
concept compromises the establishment of co-operative structure on Anand
Pattern.
DAIRY INDUSTRY IN INDIA
India has the world's largest cattle and buffalo population adapted
to tropical elimate and poor nutrition and environment. According to
Livestock census 1982, India's bovine population was 191 million cattle and
69 million buffaloes. The forecast for 2000 AD is 204 million cattle and 78
million buffaloes. Milk production gives employment to 70 million dairy
6
farmers. In term of total production India ranks 2nd to USA with a
production of 71 million tons in 1997-1998. The production of various dairy
products in 2002, 428 (OOO'metric tones).
APDDCF was formed in October 1981 to implement operation flood-
II program through involvement of producers in organizing milk production
procurement, processing and it will low due to rapid population growth. It
was 178 grams/day in 1990. There was only an increase of 50 grams per day
from 1980 to 1990. It is expected that milk availability will reach 213
gram/capita/day by 2000 A.D as against 300 grams, the optimum
recommended by the health scientists. Today India ranks first in milk
production in the world.
Dairy development in India:
India has the world's largest cattle buffalo population adopted to
tropical climate and poor nutrition and environment. According to
Livestock census 1982, India's bovine population was 191 million and 69
million buffaloes. The forecast for 2000A.D is 204 million cattle and 78
million buffaloes.
Dairy development in India received a fillip after independence when
industrialization and awakening warranted the establishment of organized
milk collection, processing, distribution of milk to cater the needs of the
expanded urban population. Planned development of dairying was first
taken up in the First five year plan (1951-56). The main deterrent factor for
milk production was inadequacy of suitable marketing structure in the rural
areas. Milk was being marketed in the form of ghee which did not provide
sufficient income to the farmers to take up the dairying. In most of the states,
7
larges dairies have been established with direct milk between rural areas.
Milk was being marketed in the form of ghee, which did not provide
sufficient income to the farmers to take up the dairying. In most of the states,
large dairies have been established with direct milk between rural producers
and urban milk treatment units. Some of the dairy units also established a
chain of mill collection and chilling centers in the rural areas to afford
necessary facilities for handling milk in large volume and for long distance
transport with out spoilage. These processing centers have had a stimulating
effect on the dairy industry in the country.
India has world's largest cattle population. However, per capital cattle
population is very less compared to developed nations. Dairy farming is
regarded as a subsidiary occupation in India. Now, it has become an
important agro business. First, dairy farm is established by military at
Alahabad, in 1889. British troops got milk supplies from that farm. It also
organized cross breeding with European cattle breeds.
India is a country of village where farmers have small land holdings.
They had been practicing intensive cropping. As a result, production
increases, but not commensurate to the inputs. Thus the input-output ratio
started getting balanced. The need for finds was felt more and more to buy
inputs. Moneylenders borrow money at very high interest rates. They
exploited the farmers who were poor. As a result, a large number of farmers
in Pune and Ahmednagar open hostilities, against moneylenders in 1879.
Subsequently land improvement act, 1883 and agriculture act, 1884 were
passed to advanced loans at reasonable rates of interest to farmers. The
government realized that the cooperative credit society act was essential.
But, enacted act had following shortcomings.
8
1. Only 5 credit societies are registered.
2. Classification of the societies into urban and rural was scientific.
3. It was selected regarding distribution of profit. Thus another act named
"The Co-operative Societies Act 1912" was enacted. The act tool care of
credit unions under the supervision of central bank.
The co-operative unions remained control subject. In the year 1919,
Cooperative Societies became a state subject and fell with in the scope of
Provision legislature. Each province started formulation of their
requirements. After Intendance, the cooperative movement made rapid
studies and government adopted the policy of promoting of cooperative
movement for establishing economic welfare in the country.
The cooperative sector was given an important place in the new economy
and acted as a balance between private sector and pubic sector. It becomes
necessary that co-operative legislation must keep pace with the progress of
movement and there should be uniformity of cooperative Society Act (1956)
was amended 19 times to suit the changing circumstances. Hence the
Government of India appointed a Committee in 1956 to review co-operative
acts in different states and prepared a model bill.
In 1960 pilot milk supply scheme was started in the state
for the dairy development. Its initial capacity was 100 litres a day in the time
of starting. Now its daily collection increated to 11 lakhs litres per day. It is
also working as alien between milk producers of the towns by providing
reasonable price to the producers to maintain stable market.
9
OPERATION FLOOD-1 :
Operation Flood-1 also referred to as white revolution in a
gigantic project profounder by Government of India for developing Diary
Industry in the country. The Operation Flood-2 originally meant to be
completed in 1975 for its completion at total cost of about Rs.116 Crores.
The Operation Flood-2 was wholly financed by setting in India free metric
tones of bottle oil donated out of the surpluses of European Economic
Community.
ANAND PATTERN-1 :-
Under the Operation Flood-1 the program for increasing milk
production was taken up in ice hinterlands of various breading tracks on
Anand Pattern and loudly proclaimed with a trample. The Co-operative were
started originally in 18 of Indian milk shed districts and later on mine more
milk shed areas were added to make a total of 27 in 10 states of the country
viz., Maharashtra, Tamilnadu, Andhra Pradesh, West Bengal, Bihar,
Haryana, Punjab, Uttar Pradesh and Rajasthan.
Those dairy co-operatives are based on the model known as
Anand Pattern of dairy co-operative. Under Anand pattern concept rural co-
operative infrastructure was to be built in the village, the milk producers
were and keep their animals. In each participating village, the milk producers
were to form their own village dairy co-operative. Thus Anand pattern dairy
co-operative union organizes mobile veterinary and artificial insemination
counters.
10
In the sphere of co-operativisation the No. of Anand Pattern
organized societies under operation flood was 63121 on April 1st 1991 as age
INST 60753 a year ago indicate one that years as many as 2368 new dairy
co-operatives were formed.
OPERATION FLOOD – 2:
The Operation Flood-2 which was started in July 1978 is
scheduled to be completed in 1985 at a cost of 483 crores.
A humble attempt has been made in it sufficient appraisal of the
achievements made in some sufficient field during Operation flood-1. These
achievements if as all made particularly the Anand pattern dairy co-operative
unions are to serve now bedrock of operation flood. Their unions are to act
to the starting. Nucleuses for co-operative cluster federation. The main
instrument for this gigantic project Operation flood-2. The average nucleus
cluster federation would six district unions registered and unregistered.
The Indian Dairy co-operative, National possible are not
required to indicate the basis on which the State wise allocations were made
in operation flood-2 up to end of the 11,1979 Gujarat State alone got the
lion’s hsares of 1666. 70,00,000 five state Haryana, Bihar, Rajasthan and
Andhra Pradesh put together the total disbursement in their case was 1732
lakhs only. This trend is going to be maintained in Operation Flood-2.
11
OPERATION FLOOD-3 :
The Indian Dairy Industry is growing rapidly and may become a
string competitor to World Dairy Powder. The milk sector in the second
largest contribution to the agricultural economy in terms of produce
phenomenal growth is a result of national airy development board through
the Operation Flood programs.
Operation Flood-2 now in its closing phase only consolidated
the procurement affords to boost production. The projection for milk output
for 200 AD is nearly 90 tones at on 5% growth rate. It is now 5-8% dairy
factories established under operation flood, which cover 170 milk sheds can
handle 14.3 millions liters milk dairy. They have a milk drying capacity of
about 696 tones per day.
The rapid growth in milk production did way with import of
milk powder except for a (26400 tones) during the brought years.
12
NATIONAL DAIRY DEVELOPMENT BOARD:
At the time of industrialization at cattle feed factory at Knjari in
October’1964 the late Sri LALBAHADUR SASTRY, the Prime Minister of
India paid unscheduled visit producers co-operative societies and stated there
overnight. He was impressed by the social economic changes brought milk
co-operatives in Krishna District and desired to have a National level
organization to milk producers co-operative societies replicate anansin other
part of the Country.
Thus the National Dairy Development Board was sent up under the
empowerment of Ministry of Agriculture and Irrigation, Govt. of India in
September’1965 under the Society Registration Act.1860 and the Bombay
Trust Act.1950. The President of India nominates the Board of Directors
including Chairman, Secretary, National Dairy Development Board in the
chief of the organization.
13
DAIRY INDUSTRY IN ANDHRA PRADESH
The program dairy industry was mooted with commendable
help of the United National International Children’s Emergency Fund, Food
and Agriculture Organization and Freedom from Hunger Company
campaign Organization of the U.K... These Organizations insisted a lot of
the establishment of the dairy units at Hydria and Vijayawada in 1967 and
1969 respectively, which led to pioneer dairy development program in
Andhra Pradesh Later to set cooling and chilling centres have been setup to
feed these two gigantic units.
The Government of Andhra Pradesh started dairy development
corporation to interest of milk producers and ensuring adequate supply of
fresh milk at reasonable price to the urban consumers as A.P.D.D.C., come
into the existence on 2nd April 1974. A.P.D.D.C. , providing employment to
nearly 20 employees and organism easy many as 87 dairy units including
seven milk factories, 13 district dairies, 22 chilling centres, 18 cooling centre
and 15 mini cooling centers.
In addition to that the private units have been contributing
their little mite in the development of dairy industry M/s. Hindustan milk
foods that has started a malted milk product factory in Rajahmundry. Further
to enhance working efficiency and to increase the turnover, the government
has constituted on autonomous diary development Corporation on the
recommendation measure the dairy industry improving towards massive
milk productions and milk collections.
14
A.P. DAIRY DEVELOPMENT CO-OPERATIVE FEDERATION (A.P.D.D.C.F.):
A.P.D.D.C.F. was formed in October, 1981 to implement
Operation Flood-2 program through active involvement of producers in
organization milk production, procurements, processing and marketing on
“three-tier”. Co-operative structure as per the national government of India.
The three-tier system consists of primary dairy co-operatives societies 13
village level, co-operative unions at district level and federation at state
level.
OPERATION FLOOD :
In our state operation flood was divided in three types “Anand Level”.
1. Village level - D.C.S.
2. District level - M.P.C.V.
3. State level - A.P.D.D.C.F.
15
MAJOR DAIRY PRODUCT MANUFACTURERS IN INDIA AND
THEIR BRANDS ARE EXPLAINED
COMPANY BRANDS MAJOR PRODUCTS
NESTLE
Milk-Maid
Ceralac
Lactogen, Milo and
everyday
Sweetened
Condensed Milk
Powder, Malted
Food, Milk powder and
dairy whitener, Ghee
and Ice cream
MILD FOODS LTD Milk Food Ghee and Ice cream
SMITUKLINE
BEECHEM LTD
Malted milk food,
Ghee Butter and
Other baby foods
GUJARATH
COOPERATIVE
MARKET
FEDERATION LTD
Butter, Ghee and Other
Milk products
CARDBURY Bournvita Infant Milk food
Flavored Milk,
BRITANNIA Milk Man Ghee, Milk
Powder, Biscuits
and Ghee
16
OPERATION FLOOD PROGRAMME :
Indian Dairy Development Corporation own the responsibility
of implementations of operation flood programs, which provides money
assistance put 70% towards loans and 30% as subsidy. National Dairy
Development Corporation selected district of the State for implementation of
operation fold. It divided the districts into en milk collecting mandals.
DISTRICT SELECTED UNDER OPERATION:
District Milk sheds / unions
Krishna Krishna
Srikakulam Vizag
Vijayanagaram Vizag
Visakapatnam Vizag
East Godavari Godavari
West Godavari Godavari
Chitoor Chitoor
Kurnool Kurnool
Cuddapah Cuddapah
Nalgonda Nalgonda
Rangareddy Rangareddy
Medak Medak
17
COMPANY PROFILE
ORGANIZATION & HISTORY:
Organized dairying in Krishna commenced in 1965 with
integrated milk project assisted by UNICEF. A milk conversation plant first
of its kind in South India was commenced in April’1969. The organization
of dairy industry took basic changes beginning with husbandry department;
It was integrated with project (1960), Dairy Development (1991), A.P. Dairy
Development Co-operation (1974), A.P. Dairy Development Co-operative
Federation (1981).
Krishna District Milk producers Co-operative Union got
registered in 1983 district have 450 organized dairy co-operative societies
with 67,000 member’s producers. There are 340 producers’ association
centers.
COMPANY’S MISSION:
Farmer’s prosperity through technical innovations and customer
orientation with specific focus on quality and cost.
COMPANY’S VISION :
Dairying in the district to be the major instrument of strengthening
rural economy & making available safe milk and milk product
18
SAILENT FEATURES :
Daily average milk procurement : 1,63,794 lts.
Turnover of business has reached to 200 crores.
Daily milk sales average reached to 1,60,000 lts.
Obtained ISO 9001:20 00, 14000 and H.A.C.C.P. certification.
Earning profits and distributing bonus to its members.
Paying Rs. 68 crores per year to farmer as cost of milk procured
from them.
Strengthened the rural economy by avoiding middlemen and
making available safe milk and milk products to the customer.
Provided self employment to the rural women.
COMPANY PRIDE :
First powder plant established in South India.
Largest democratic functionary in the District serving the farming
community.
Having more than Rs. 1000 crores grass root level production base.
Providing direct and indirect employment to people.
First dairy to introduce five varieties of liquid milk.
First dairy to introduce liquid ice cream in tetra brick pack.
First dairy co-operative to introduce curd in cups in South India.
First dairy to introduce butter milk and lassies in tetra brick pack.
Annual turnover more than Rs. 121 crores with a continuous growth
rate.
First dairy to introduce Basundi in cups and milk cake.
Distribution network with 27 milk distribution routes.
19
MILK DISTRIBUTION CENTERS:
TownNo. of Selling
Booths Sales (in liters)
Daily
Vijayawada 400 70,000
Machilipatnam 25 3,000
Gudivada 15 2,500
Total 440 75,500
SALES CENTERS
Vijayawada: RT.C bus stand, Super Bazar, Railway Station, Milk
Products factory, Vastralatha, Vijaya Dairy Parlor (near Alankar theatre)
Benz circle, Sathyanarayanapuram, Machavaram, Patamata, etc.,
CAPACITIES
Milk - 1, 50,000 liters per day
Ghee - 5 tonnes per day
Butter - 7 tonnes per day
Milk Powder - 4 tonnes per day
Refrigeration Capacity - 1.5 tonnes per day
Steam Generation - 13 tonnes per 1 prt
Milk Packing - 1, 25,000 packets per day
Chilling - 1,50,000 liters per day
Processing - 1, 50,000 liters per day
20
TRANSPORT
There are about 25 vehicles in transport organization, milk products
factory, Vijayawada.
==> Road Tankers
- 4 tanks of 13,000 liters capacity
- 4 tanks of 1,000 liters capacity
==> 3 distribution vehicles for sales
==> 6 inspection vehicles
==> 1 cash van
In addition to these 25 vehicles, some vehicles are taken hire from
private transporters for distribution of milk. The milk feed to chilling centers
and far off places like Visakhapatnam, Nellore, and Chit or is being
transported by the road tankers. It is also transported to all metropolitan
cities of Delhi, Mumbai, Calcutta and Chennai through the insulated tankers.
RESEARCH AND DEVELOPMENT
The Indian Council of Agricultural Research has started a research
scheme during the period 1970-70 to undertake research on milk products.
Under this scheme soft cheese, butter, milk powder curd, dooth peda, ice
cream mix, butter etc. are, manufactured.
21
MILK PROCUREMENT:
Milk is being procured twice a day from about 830 villages in
the district organized through 29 routes and 6 chilling centers besides getting
raw milk directly to the factory from certain villages in a radius of 50 KM
around Vijayawada. Among 480 centers, about 431 are registered societies
and under Anand Pattern.
MILK PRODUCT FACTORY – VIJAYAWADA
DATA SPECIFICATION:
Area occupied by the factory -- 27.3 Acres.
Value of factory building -- 400 lakhs
Money given by UNICEF -- 53 Lakhs
Machinery
Investment on equipment -- 600 lakhs
Buildings:
Opened on -- 11-04-1969
Workers -- 1538
Date of formation of union -- 06-07-1983
Date of transfer of management -- 08-02-1985
Of the union Annual turnover -- 60 crores.
22
INFRASTRUCTURE AND FACILITIES :-
Milk products factory Vijayawada is located on 27.3 acres of
land which houses of dairy plant, Aseptic packing station, Administration
office, effluent treatment plant, Electrical sub. Station and residential
quarters.
Following are the facilities available in Milk Products Factory,
Vijayawada and its field centers.
23
FIELD:
Sl.No. Name of the Centre Unit Capacity
1 MCC pamarru Lts. / Day 50,000
2 MCC Veeranki lock Lts. / Day 18,000
3 MCC Gudlavalleru Lts. / Day 18,000
4 MCC Hanuman junction Lts. / Day 18,000
5 MCC Chillakallu Lts. / Day 12,000
6 MCC Tiruvuru Lts. / Day 12,000
TOTAL 1,28,000
7 No. computerized milk collection and
testing centers
25
8 No. of Bulk coolers operating (planned to
establish ten more)
6
9 DCS having electronic milk testers 450
10 No. of A.I centers 56
11 No. of V.F.A. Centers 240
12 No. of DCS organized 630
13 No. of MPAs 320
14 Exclusive women DCSs 103
15 Farmer members 1,86,689
16 Women members 23,347
17 No. of Milk routes 35
18 No. of DCS having its own buildings. 400
24
A. Milk Products Factory Vijayawada :
Sl.No. Name of the Facility Unit Capacity
1 Milk Processing Lakhs lts/day 2.5
2 Milk drying MTs/ Day 22.0
3 Ghee Manufacturing MTs/Day 18.0
4 Butter manufacturing MTs/Day 22.0
5 UHT Milk packing Lts./day 45,000
6 Milk packing Lts./day 2,00,000
7 Godown space MTs 3,000
8 Butter cold store MTs 500
CATTLE FEED:
Sl.No. Name of the Plant Unit Capacity
1 FMP Buddavaram MTs / Day 30.0
2 FMP Gudlavalleru MTs/day 18.0
25
NEED FOR EXPANSION
With the introduction of the baby food, the milk handling capacity has
been educed to about 80 to 85 thousand liters of milk in view of the sugar
content added in manufacture of the baby food. Therefore it is proposed to
expand the present plant by adding additional buildings in the existing
vacant area adjacent to the transport section. This will enable the factory to
handle 1.5 lakh liters per day.
MANAGEMENT:
1. Management of the company shall consist of Board of Directors,
Chairman and Managing Director.
2. The chairman and Managing Director.
3. Nominee of the Government of Andhra Pradesh if the Government of
Andhra Pradesh is a member.
4. Chairman of the Board of Directors shall preside over general
meeting. In case of this absence the meeting shall be conducted by a
chairman from amongst the members present.
5. The general body shall be called once a financial year with in greater
ending on 31 December. This shall be "Annual General Meeting".
6. A special general body meeting may be called at any time by a
majority vote of Board of Directors and shall be called within on
month at least 1/5 of the members of federation or by the registrar of
cooperative societies
26
PROVISION UNDER ACT:
1. Subject to such resolution as the general body may from time to time pass.
The execution management of the union shall consist of not more than 17
members as detailed below.
a. 2 elected representative of affiliated 30 societies.
b. 3 Government nominees.
c. Registrar of cooperative societies or his nominee.
2. Director of Animal Husbandry or his nominee.
3. Managing Director, A.P dairy development corporationor his nominee.
a. One to be adopted by the board from the experts in milk business.
b. Nominee of financing agency.
c. As soon as the election of the members of the board over, they shall
meet and elect a chairman and vice-chairman who will hold office for one
year. The election of chairman and vice-chairman is to be held, in the
same manner every year immediately after the general body meeting in
which the remaining vacancies of directors filled up.
27
BOARD OF DIRECTORS:
The board consists of the fallowing.
Chairman of the affiliated union enrolled as members.
Registrars of the cooperative societies.
One nominee of the financing agency.
Managing director of the federation.
3 nominees of the State Government representing interest of
dairy development.
Any member nominated to the board may at any time resign
from his office by sending a latter to Government and such resignation
shall come into effect from the date on which it is accepted by the
Government.
The Government shall nominate the chairman of that board from
time to time. The secretary of the Government dealing with dairy
development shall be the vice-chairman of the board, except managing
director and chairman of the federation shall be honorary.
Managing Director: The Managing director shall be appointed by the
Government from time to time upon such terms and conditions as the
Government thinks fit and the Government extends such terms as it may due
necessary and expedite
28
ORGANIZATIONAL STRUCTURE:
Staff position:-
Managing Director 1
Deputy Director 2
Senior Accounts Officer 1
Dairy Managers. 6
Asst. Dairy Engineers. 2
Quality Control Officers. 1
Asst. Dairy Manager 15
Fodded Development Officers 1
Junior Engineers 4
Technical Staff 58
Transport 30
Finance 20
Administration 70
Field Staff 55
Others (Non-technical) 304
TOTAL 570
29
ORGANIZATION CHART
General Body
Board of management
Managing Director
MILK PROCESSING AND PRODUCTION :
Production PM Finance Personal QC Stores MIS APS
30
Dairy Manager (I/c Production) is heading the production
division supported by four dairy managers, 11 Asst. Dairy Managers and
other production staff engaged in milk reception, milk processing, Butter
making, Ghee making, powder making bi-product its manufacturing and
finished goods section. Production operations begin with milk reception at
the dairy dock and continued round the clock.
FINANCE:
Senior Accounts Officer is heading the finance who is assisted
by four Asst. Accountant Superintendent and Finance staff. The union has
started its operations independently from 08-02-1985 onwards after taking
the fixed assets from the State Federation at their book values as on that date.
SHARE CAPITAL :
Authorized share capital Rs. 500 lakhs. The unions paid up
share capital at present are Rs. 106.24 lakhs and Rs. 31.87 lakhs are share
suspense waiting for conversion.
LONG TERM LOANS :
The National Dairy Development Board has provided loans to
the union under O.F.2/3 program for capital projects in the union total Rs.
707.20 lakhs was financed for various projects to the union under 70:30
loans cum grant basis.
WORKING CAPITAL MANAGEMENT
THEORETICAL CONCEPTS
31
Financial Management
Financial management refers to that part of management activity that
is concerned with planning and controlling of firms financial activities it
deals with finding out various sources of finance for raising funds for the
firm it is applicable to every type of organization irrespective of its size kind
of nature.
Meaning of financial management
From the various definition of the term business finance given it can
be concluded that the term business finance mainly involves rising of funds
and their effective utilization keeping in view the overall objectives of the
firm the management makes use of various financial techniques devices etc.,
for administering the financial affairs of the most effective and efficient way.
According to Soloman “financial mangement is concerned with the efficient
use of an important economic resource namely capital funds ”.
However the most acceptable definition of financial management as given
S.C Kuchhal is that “financial management deals with procurement of funds
and their effective utilization in the business.
The objectives provide a framework for optimum financial decisions making
in other words that are concerned with designing a method of operating the
internal investment and financing of a firm.
There are 2 widely discussed approaches in financing literature
32
Which as fallows
Profit Maximization
Wealth maximization
Profit Maximization
According to this approach action those increase profits should be
undertaken and those which decrease profits should be avoided in specific
operational terms as applicable to financial management.
The profit maximization criteria implies that investment financing and
dividend policy decision of a firm should be oriented to maximization of
profits.
Wealth Maximization
This is also known as value maximization or net present worth maximization
in current academic literature value maximization is almost universal
accepted as an appropriate operational decision as it removes the technical
limitation which characteristics the earlier profit.
Function of financial management
Acquiring sufficient funds
33
To Asses the financial needs of an enterprises and then finding
out suitable sources of financial and raising them commensurate with needs
of business.
Proper utilization of funds
Funds should be utilized in the most optimum ay so that the maximum
benefits are derived from them.
Increasing profitability
The planning and control of finance function aims at increasing
profitability of a concern.
Maximization concern value
To the maximize the value of the firm by raising the request finance
by the selecting the appropriate sources of finance.
Scope of the Financial Management
Investment decision
34
The investment decision relates to the selection of assets in which
funds will be invested by the firm the assets that can be acquired fall in to 2
groups
Long-term assets
Sort term assets
Long term assets is popular known in financial literature as “capital
budgeting”. While short-term assets is known as “Working Capital
management”.
Capital Budgeting
It is probably the most important financial decision of firm it relates to the
select in of an assets or investments proposal or a course of action whose
benefits are likely to be available in future over the lifetime of the project.
Working capital
It is related with the management of current assets it is an important
and integral part of financial management as short term survival is a root for
long term success.
Financing decision
35
The second major decision in financial management is the financing
decision the investment decision is broadly concerned with assets
combination or the composition of the assets of the firm.
Dividend policy decision
The third major decision of financial management is the decision
relating to the dividend policy the dividend should be analyzed in relation to
the financial firm. Two alternatives are available in dealing with the profits
of a firm they can either be distributed as dividends or they can be retained
in business.
Some Important Definitions:
36
“Working Capital means current assets”
Mean,Malott,Baker
“The sum of the current assets is the Working Capital of a business”
J.S.Mill
“Any acquisition of funds which increase the current assets increase working
capital also for they are one and the same.”
Bonnevile
“Working Capital refers to a firm investment in short term assets, cash, short
term, securities, Account Receivable and Inventories.”
Weston & Righam
“It has ordinary been defined as the excess of current assets over current
liabilities.”
Gerstenberg
37
Meaning of Working Capital
Capital required for the business is divided into two aspects
Fixed capital
Working Capital
Fixed capital:
It is the amount of money required to maintain the fixed assets of the
concern
Working Capital:
The amount of money required to meet the day-to-day transactions of the
business is termed as Working Capital.
38
Concepts of Working Capital
The concepts of Working Capital are
Gross Working Capital
Net Working Capital
Gross Working Capital:
It refers to the firm’s investment in the current assets. Current
assets are the assets, which can be easily converted into cash within one
accounting year. The gross Working Capital focuses attention on two
aspects of current assets management
1. The way to optimize the investment in current assets.
2. The opportunity to finance the current assets.
Net Working Capital:
It is the excess of current assets over the current liabilities. Current
liabilities are those claims of outsiders, which are expressed to mature for
payment within one accounting year. Net Working Capital can be positive or
negative. A positive Net Working Capital indicates the excess of current
assets over the current liabilities. A negative Net Working Capital is a
qualitative concept and indicates the liquidity position of the firm. It suggests
the extent to which the Working Capital may be financed by permanent
sources of funds.
39
Approaches of Working Capital
Depending on the mix of short and long-term financing, the
approach followed by any company fall under these three categories-
Matching Approach
Conservation Approach
Aggressive Approach
Matching Approach:
It refers to the adoption of a financial plan, which matches the
expected life of the assets with the expected life of the source of funds raised
to finance assets. In this approach the long-term financing is used to finance
the fixed assets and permanent current assets. The short-term financing will
be used if the firm has the need of only fixed current assets.
Conservative Approach:
In this approach the financing of permanent assets and a part of
temporary current assets the idle amount of long-term financing can be
invested in the tradable securities and conserve liquidity.
Aggressive Approach:
In this approach the short-term financing is used more to
finance a part of its permanent current asserts. Sometimes in a more
aggressive way the short-term financing is used for financing the fixed
assets.
40
Sources of Working Capital:
The sources of finance for Working Capital are of two types.
They are permanent and temporary sources of Working Capital. The
Working Capital investments in minimum level of current assets are
permanent Working Capital. The Working Capital required to meet the
seasonal contingencies is called temporary (or) variable Working Capital.
The fixed proportion of Working Capital should be generally financed
from the fixed capital sources while the temporary (or) variable Working
Capital requirements of a concern from the short –term sources of finance.
Permanent Sources of Working Capital:
The permanent Working Capital sources of finance are done for having a uninterrupted finance for a long period. There are five important sources of permanent Working Capital.
They are:
Shares
Debentures
Public Deposits.
Ploughing back of profits.
Loans from financial institution.
Shares:
Generally, a company should raise the maximum amount of Working
Capital by the issue of shares. The preferences carry a preferential right in
respect of the divided at a fixed rate. Equity shares do not have such
obligation. A company should not issue different shares according to the
companies act.
41
Debentures:
Debenture is an instrument issued by the company acknowledging its
debt to the holder. A fixed rate of interests is paid on the debentures secured
or paid in prior to the unsecured debenture holders. The company enjoys tax
benefits.
Public Deposits:
They are the fixed deposits accepted by the business directly from the
public. It has both advantages and dangers. The R.B.I has also down certain
limits on the non-banking concerns.
Ploughing Back of Profits:
It is an internal source of finance and reinvestment of the surplus
earnings of the business. It is the cheapest and cost-free sources of finance.
Excessive resort to ploughing back of profits leads to over capitalization and
speculation.
Loans and Financial Institutions:
Financial Institutions like Commercial Banks, IFCI, LIC provide
short-term, medium-term, long term source of finance suitable to meet the
demand of Working Capital. A fixed rate of interest is charged against such
loans and is paid by way of installments.
42
Temporary Sources of Working Capital:
Indigenous Bankers.
Trade Credits
Installment Credits
Advances
Accounts Receivable Credits.
Accrued Expenses
Deferred Expenses
Commercial Paper
Indigenous Bankers:
These are the private moneylenders who charge high rate of interest
for the loan given by them. These Bankers are more prior to the
establishment of the commercial banks. Now we can fine a few.
Trade Credit:
It is the credit extended by the suppliers of goods in the normal course
of business. The credit worthiness of a firm and the confidence of its
suppliers are the main basis of securing trade credit. There are some
advantages such as convenient method of finance, flexibility as the credit
increases.
Installment Credit:
In this method, the assets are purchased and the possession of goods is
taken immediately but the payments are made in installments over a
predetermined period of time.
43
Advances:
Firms having ling production cycle take advances from their
customers and agents against their orders. This acts as a cheap source of
finance and minimizes their investment in Working Capital.
Accounts Receivable Credit:
It is the services offered to manage the financing of debts arising out
of the credit sales. This service is now available in India only on recourse
basis. It has certain limitations such as the cost of factoring is high
perception of financial weakness about the firm availing these services.
Accrued Expenses:
These are the expenses, which have incurred but not yet pain. It varies
with the change in the level of the activity of the firm. The frequency and
magnitude of accruals is beyond the control of the management.
Deferred Incomes:
These are the funds of incomes received by the firm for which it has
to supply goods in future. These funds increase the liquidity of a firm and
constitute an important source of short-term finance.
Commercial paper:
It is unsecured promissory notes issued by the firm to raise short-term
funds. The maturity period of a commercial paper ranges from 91 to 180
days. The draw back is that can be redeemed only after the maturity date.
The Working Capital management or short-term financial
management is concerned with decisions relating to current assets and
current liabilities. The key difference between long-term financial
44
management and short-term financial management is in terms of timing of
cash. Long term financial decisions (like buying capital equipment or issuing
debentures) involve cash flow an extended period of time (5 to 15 years or
more) short-term financial decisions typically involve cash flows within a
year or within the operation cycle of the firm. The Working Capital
Management is a significant facet of the financial management. It is
important stems from two reasons.
45
Principles of Working Capital Management:
In examining the management of current assets (i.e. Working Capital
management), certain principles have to be borne in the mind. These
principles are the answers that are to be sought to the following questions.
The need of invests funds in the current assets.
Amount of funds to be invested in each type of current assets.
The required proportions of the long-term and short-term funds to
finance current assets.
The appropriate sources of funds needed to finance the current assets.
Constituent of Current Assets and Current Liabilities
46
CURRENT ASSETS CURRENT LIABILITIES
Inventories Sundry Creditors
Raw material and components Trade advances
Work in progress Borrowings
Finished Goods Commercial Banks
Others Others
Trade debtor’s Provisions
Loans and advances
Investments
Cash and Bank Balances
Short life Span and Swift Transformation:
In management of Working Capital, two characteristics of current
assets must be borne in mind.
Short life span
Shift Transformation into other assets form.
47
Current assets have a short life span. Cash balances are held idle for a
week or two, accounts receivable may have a life span of 30 to 60 days, and
inventories may be held for 30 to 100 days. The life span of current assets
depends upon the time required in the activities of procurement, production,
sales and collection and the degree of synchronization among them.
The nature of current assets is that they are swiftly transformed into
other assets form. Cash is used for acquiring raw material. Raw materials are
transformed into finished goods, finished are generally sold on credit are
converted into accounts receivable finally accounts receivable, on
realization, generate cash.
The swift transaction of current assets and the short life span of the
components of Working Capital can be seen in the current assets cycle.
However, this short life span and swift transformation has certain
implications.
Decisions relating to Working Capital management are repetitive and
frequent.
The difference between profits and present value is insignificant.
The close interaction among Working Capital components implies that
efficient management of one component cannot be undertaken without
simultaneous consideration of other components.
48
CURRENT ASSETS CYCLE
OPERATION CYCLE AND CASH CYCLE:
Investment in Working Capital is influenced by four key events in the
production and sales cycle of the company.
Purchase of raw material
Payment of raw materials
Sale of finished goods
Collection of cash for sales.
49
Finished
Work-in- progress
Raw Material
SuppliersCash/Bank
AccountReceivable
These keys events affect the cash flows. The firm begins with the
purchase of raw material, which is pain for after a delay, which is paid for
after delay and which represents the accounts payable period. Customers pay
their bills sometime after the sales the period that elapses between the date of
sales and the date of collection of receivables is the accounts payable period
(debit period)
OPERATION CYCLE
The time that elapses between the purchase of raw material and the
collection of cash for sales is referred as operating cycle. The operating cycle
is the sum of the inventory period and the accounts receivable period.
The behavior of the overall operating cycle and its individual components
of a firm are monitored through time series analysis and cross section
analysis. In time series analysis the duration of the operating cycle and its
individual components is compared over a period of time for the same firm.
In the cross section analysis the duration so the operation cycle and its
individual components is compared with that of firms of a comparable
nature.
50
Operating Cycle
Raw Materials
Cash
Work in Progress
Debtors Finished Goods
Sales
The operating cycle of the firm begins with acquisition of raw
materials and ends with the collection of receivable. It may be divided into
four stages.
Raw material and stores stage.
Work in progress stage.
Finished goods inventory stage.
Debtor’s collection stage.
51
Use of Operating Cycle:
The operating cycle is helpful to the company in two ways:
It helps in forecasting Working Capital requirements.
Control of Working Capital can be done efficiently by the
use of operating cycle.
Determination of the Length of Operating Cycle:
The length of the operating cycle of a manufacturing firm is the sum of:
Inventory conversion period.
Book debts conversion period.
Inventory Conversion Period:
It is the total time needed for producing and selling the product. It
includes the raw material conversion period. Work-in-progress, conversion
period and the finished goods conversion period.
Book Debts Conversion Period:
The book debts conversion period is the time required to collect
outstanding amount from the customers. The total of inventory conversion
period and book debts conversion period is the gross operating cycle. The
difference between the gross operating cycle and the payable deferral period
is net operating cycle.
52
Cash Cycle:
Cash cycle is the length between the payment for raw material purchases and
collection of cash for sales. Cash cycle is equal to the operating cycle less
the accounts payable period. It also represents time interval over which
additional funds, called Working Capital should be obtained in order to carry
out the company operations. If depreciation is excluded from expenses in
computation of operating cycle, the net operating cycle also represents cast
conversion cycle.
53
CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK
DURING THE PERIOD 2001-02
(Rs in lakhs)
Working Capital Management
ParticularsYear WC
2000-01 2001-02 Increase Decrease
A. Current Assets
1. Inventory
2.Cash & Bank balances
3. Receivables
4. Subsidiary receivables
Loans & Advances
1. Advances to employees
2. Advances for purchases
3. Prepaid expenses
Total Current Assets
B. Current Liabilities
1. For milk purchase
2. For expenses
Sundry Creditors
a. Sundry Creditors
b. Security Deposits
Total Current Liabilities
Networking Capital-
Increase/decrease working capital
TOTAL
1,183.66
227.09
744.94
-
12.82
52.72
21.19
1,136.13
78.55
773.62
-
13.00
46.88
19.19
28.68
0.18
197.28
120.33
47.53
148.54
5.84
2.71
129.33
1.36
22.01
2,243.13 2,067.37
299.27
478.68
436.72
109.19.25
428.60
480.04
239.44
120.25
1,323.86 1,268.33
919.27
799.04
120.23
919.27 919.27 554.60 554.60
54
CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK
DURING THE PERIOD 2002-03
(Rs in lakhs)
Working Capital Management
ParticularsYear WC
2001-02 2002-03 Increase Decrease
A. Current Assets
1. Inventory
2.Cash & Bank balances
3. Receivables
4. Subsidiary receivables
Loans & Advances
1. Advances to employees
2. Advances for purchases
3. Prepaid expenses
Total Current Assets
B. Current Liabilities
1. For milk purchase
2. For expenses
Sundry Creditors
a. Sundry Creditors
b. Security Deposits
Total Current Liabilities
Networking Capital-
Increase/decrease working capital
TOTAL
1,136.13
78.55
773.62
-
13.00
46.88
19.19
1,224.84
439.13
835.75
-
13.21
67.01
10.81
88.71
360.58
62.13
0.21
20.21
121.04
8.38
225.39
45.34
22.01
351.76
2,067.37 2,590.83
428.60
480.04
239.44
120.25
307.56
705.43
284.78
142.26
1,268.33 1,440.03
799.04
351.76
1,150.80
1,150.80 1,150.80 652.88 652.88
55
CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK
DURING THE PERIOD 2003-04
(Rs in lakhs)
Working Capital Management
ParticularsYear WC
2002-03 2003-04 Increase Decrease
A. Current Assets
1. Inventory
2.Cash & Bank balances
3. Receivables
4. Subsidiary receivables
Loans & Advances
1. Advances to employees
2. Advances for purchases
3. Prepaid expenses
Total Current Assets
B. Current Liabilities
1. For milk purchase
2. For expenses
Sundry Creditors
a. Sundry Creditors
b. Security Deposits
Total Current Liabilities
Networking Capital-
Increase/decrease working capital
TOTAL
1,224.84
439.13
835.75
-
13.21
67.01
10.81
1,125.61
336.75
713.75
-
12.06
107.85
18.13
40.76
7.32
150.14
12.56
205.88
99.23
102.38
122.00
1.15
67.12
24.56
2,590.83 2,314.15
307.56
705.43
284.78
142.26
374.89
555.29
272.22
167.04
1,440.03 1,369.23
1,150.80 944.92
205.88
1,150.80 1,150.80 416.66 416.66
56
CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK
DURING THE PERIOD 2004-05
(Rs in lakhs)
Working Capital Management
ParticularsYear WC
2003-04 2004-05 Increase Decrease
A. Current Assets
1. Inventory
2.Cash & Bank balances
3. Receivables
4. Subsidiary receivables
Loans & Advances
1. Advances to employees
2. Advances for purchases
3. Prepaid expenses
Total Current Assets
B. Current Liabilities
1. For milk purchase
2. For expenses
Sundry Creditors
a. Sundry Creditors
b. Security Deposits
Total Current Liabilities
Networking Capital-
Increase/decrease working capital
1,125.61
336.75
713.75
-
12.06
107.85
18.13
1,065.57
543.33
701.41
-
16.78
60.68
12.78
206.58
4.72
50.20
4.37
60.04
12.34
47.17
5.35
31.25
55.17
0.00
49.55
2314.15 2,400.55
374.68
555.29
272.22
167.04
405.93
610.46
222.02
216.59
1,369.23 1,455.00
944.92
0.63
945.55
57
TOTAL 945.55 945.55 265.87 265.87
CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK
DURING THE PERIOD 2005-06 (Rs in
lakhs)
Working Capital Management
ParticularsYear WC
2004-05 2005-06 Increase Decrease
A. Current Assets
1. Inventory
2.Cash & Bank balances
3. Receivables
4. Subsidiary receivables
Loans & Advances
1. Advances to employees
2. Advances for purchases
3. Prepaid expenses
Total Current Assets
B. Current Liabilities
1. For milk purchase
2. For expenses
Sundry Creditors
a. Sundry Creditors
b. Security Deposits
Total Current Liabilities
1,065.57
543.33
701.41
-
16.78
60.68
12.78
1,422.27
578.46
687.09
-
11.01
48.23
10.64
376.70
35.13
14.34
5.77
12.45
2.14
54.69
199.19
91.55
16.95
2,400.55 2,777.70
405.93
610.46
222.02
216.59
460.62
809.65
313.57
233.49
1,455.00 1,817.33
58
Networking Capital-
Increase/decrease working capital
TOTAL
14.83
945.55
14.82
960.37
960.37 960.37 411.83 411.83
CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK
DURING THE PERIOD 2006-07
(Rs in lakhs)
Working Capital Management
ParticularsYear WC
2005-06 2006-07 Increase Decrease
A. Current Assets
1. Inventory
2.Cash & Bank balances
3. Receivables
4. Subsidiary receivables
Loans & Advances
1. Advances to employees
2. Advances for purchases
3. Prepaid expenses
Total Current Assets
B. Current Liabilities
1. For milk purchase
2. For expenses
Sundry Creditors
a. Sundry Creditors
b. Security Deposits
1,422.27
578.46
687.09
-
11.01
48.23
10.64
1,297.30
1,165.82
420.01
-
8.82
41.38
14.08
587.36
3.44
21.19
62.19
144.97
267.08
2.19
6.85
18.43
37.52
2,777.70 2,947.41
460.62
809.65
313.57
233.49
439.43
828.08
251.38
271.01
59
Total Current Liabilities
Networking Capital-
Increase/decrease working capital
TOTAL
197.14
1,817.33 1,789.90
960.37
197.14
1,157.51
1,157.51 1,157.51 674.18 477.04
60
4.1 STATEMENT OF CHANGES IN WORKING CAPITAL
(RS. IN LAKHS)
YearCurrent Assets
Current Liabilities
Networking Capital Increase Decrease
2001-2002 2,067.37 1,268.33 799.04 --- 120.23
2002-2003 2,590.83 1,440.03 1,150.80 351.76 ---
2003-2004 2,314.15 1,369.23 944.92 --- 205.88
2004-2005 2,400.55 1,455.00 945.92 0.63 ---
2005-2006 2,777.70 1,817.33 960.37 14.82 ---
2006-2007 2,947.41 1,789.90 1,157.51 197.14 ---
61
FLUCTUATIONS IN WORKING CAPITAL:
FINDINGS:
Net working capital in 2001-02 was Rs. lakhs 799.04 and it increased to Rs. lakhs 1150.85 in 2002-03.
In 2002-03 net working capital is Rs. lakhs 1150.80 and it decreased to Rs. lakhs 944.92 in 2003-04.
In 2004-05 net working capital is Rs. lakhs 945.55 and it increased. And in 2006-07 net working capital is increased to Rs. lakhs 1157.51
The change in net working capital is alternative increase and decrease.
62
4.2 Working Capital Turnover Ratio
Working Capital Turnover Ratio indicated the velocity of the utilization of net working capital.
Working Capital Turnover Ratio= Sales/Working Capital
(RS. IN LAKHS)
Year Sales Working Capital Ratio
2001-02 11,388.74 799.04 14.25
2002-03 11,782.55 1,150.80 10.24
2003-04 11,985.11 944.92 12.68
2004-05 11,204.29 945.55 14.03
2005-06 14,352.23 960.55 14.94
2006-07 16,374.46 1,157.51 14.15
FINDINGS:
The Working Capital Ratio was 14.25 in the year 2001-02 and it is decreased from 10.24 in 2002-03.
The Working Capital Turnover Ratio has again increased to 2003-04
to 2006-07. That is 12.68, 14.03, 14.94 and 14.15 respectively.
The highest Working Capital Turnover Ratio was quoted in 2005-06 that is 14.94.
63
WORKING CAPITAL TURNOVER RATIO:
INTERPRETATION:
Working Capital Turnover Ratio indicates the velocity of the
utilization Of Net Working Capital.
The working capital Turn over Ratio is satisfactory if it arises and it is
dissatisfactory if it decreases.
Coming to the A.P dairy the Working Capital Ratio is decreased in
2007 which is 14.15 when compared to the year 2006 which is 14.94.
This is a bad sign.
Problem: There is no effective increase in sales.
Reason: There is no possible inventory holding.
64
Working Capital Turnover Ratio
0
2
4
6
8
10
12
14
16
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Solution: Maintaining of continuous work in process.
Advantages: It increases sales to meet the demand.
Disadvantages: huge amount required for storage facilities.
Best solution: To increase sales funds has to be utilized properly.
4.3 CURRENT RATIO
Current Ratio may be defined as the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position or liquidity of a firm.
Current Ratio = Current Assets/Current Liabilities
(RS.IN LAKHS)
Year Current Assets Current Liabilities Ratio
2001-02 2,067.37 1,268.33 1.63
2002-03 2,590.83 1,440.03 1.83
2003-04 2,314.15 1,369.23 1.69
2004-05 2,400.55 1,455.00 1.64
2005-06 2,777.70 1,817.33 1.53
2006-07 2,947.41 1,789.30 1.6565
FINDINGS:
The Current ratio in KDMPMACU Ltd., shown on table. The current assets increased year after year from Rs. 206.37 to 294.41 in 2007.
The Current ratio varied between 1.63 to 1.65 times. It increased in 2002-03 to 1.83 times. The current ratio in the year 2004-05 is 1.64 times. The current ratio was decreased in the year 2005-06 is 1.53 times and increased in 2006-07 is 1.65 times.
The company is not maintaining up to the standard norm of 2:1 in all the years.
CURRENT RATIO:
INTERPRETATION:
66
Current Ratio
1.351.41.451.51.551.61.651.71.751.81.851.9
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Current Ratio is mostly widely used to make the analysis of short
term
financial position of a firm.
If the current ratio is maintained in the standard norm of 2:1 it is
considered as satisfactory.
Coming to the A.P dairy the current ratio is increased from 1.53 in
2006 to 1.65 in 2007.
Hence current assets are increased and current liabilities are decreased
compared from last year to current year. so that the ratio is satisfactory
This is a Good sign.
4.4 INVENTORY TURNOVER RATIO
Inventory turnover ratio also known as stock velocity is normally calculated as sales/average inventory or cost of goods sold/average inventory. It would indicate whether inventory has been efficiently used or not. The purpose is to see whether only the required minimum funds have been locked up in inventory. Inventory turnover Ratio indicates the number of times the stock has been turned over during the period and evaluated the efficiency with which a firm is able to manage its inventory.
Inventory turnover ratio = Sales / Inventory.
(RS. IN LAKHS)
Year Sales Inventory Ratio
2001-02 11,388.74 1,136.13 10.02
2002-03 11,782.55 1,224.84 9.46
2003-04 11,985.11 1,125.61 10.64
2004-05 13,204.29 1,060.57 12.45
67
2005-06 14,352.23 1,442.27 9.95
2006-07 16,374.46 1,297.30 12.62
FINDINGS:
The relationship between inventory and sales revenue is
presented in the table. The inventory turnover increased from
10.02 times to 12.62 times and it recorded highest in 2006-07 at
12.62 times. Hence it can be conclude that inventory turnover
ratio is near to the satisfactory level in KDMPMACU Ltd.
INVENTORY TURNOVER RATIO:
INTERPRETATION:
68
Inventory Turnover Ratio
0
2
4
6
8
10
12
14
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
It indicates the number of times the stock has been sold during period.
If the inventory is in standard norm of 2:1 is satisfactory.
Coming to the A.P dairy inventory turn over ratio is increased from
9.95 in 2006 to 12.62 times in 2007.
Hence it can be concluded that Inventory turn over ratio near to the
satisfactory level in the dairy.
This is a good sign.
4.5 RECEIVABLES TURNOVER RATIO
Receivables Turnover Ratio=Total Sales/ Receivables
(RS. IN LAKHS)
FINDINGS:
Year Total sales Receivables Ratio
2001-02 11,388.74 733.62 14.72
2002-03 11,782.55 835.75 14.09
2003-04 11,985.11 713.75 16.79
2004-05 13,204.29 701.41 18.82
2005-06 14,352.23 687.09 20.88
2006-07 16,374.46 442.01 37.04
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The total sales in the year 2001-02 were Rs. Lakhs 11,388.74 has increased to Rs. Lakhs 16,374.46 in 2006-07. There was year after year growth in total sales. Where the receivables have an alternative increase and decrease and the receivables was highest recorded in 2002-03 Rs. Lakhs 835.75.
The ratio in the year 2001-02 was 14.72 and decreased from 14.09
in 2002-03 and the ratio increased during the period of 2003-04 to 2006-07 that is 16.79, 18.82, 20.88 and 37.04 respectively.
RECEIVABLES TURNOVER RATIO:
INTERPRETATION:
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Receivables Turnover Ratio
0
5
10
15
20
25
30
35
40
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Debtor’s turn over ratio measures how quickly the accounts recivables
are being collected.
In the case as short collection period and high turn over ratio imply
prompt payment on the part of debtors is satisfactory.
Coming to the A.P dairy the debtors turn over ratio increased from last
year which is 20.88 compared to current year 37.04.in this firm dr’s
turn over ratio is satisfactory.
This is a good sign.
4.6 QUICK RATIO
Quick ratio, Also known as Acid Test or Liquid Ratio, is a more rigorous test of liquidity than the current ratio. The term “liquidity” refers to the ability of a firm to pay its short-term obligations as and when they become due. The two determinants of current ratio, as a measure of liquidity, are current assets and current liabilities. Current assets include inventories and prepaid expenses which are not easily convertible into cash within a short period. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash within a short period without loss of value.
Quick ratio= Quick Assets / Current Liabilities
(RS. IN LAKHS)
Year Quick Assets Current Liabilities Ratio
2001-02 931.24 1,268.33 0.73
2002-03 1,365.99 1,440.03 0.95
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2003-04 1,188.54 1,369.23 0.86
2004-05 1,334.98 1,455.00 0.91
2005-06 1,335.43 1,817.33 0.73
2006-07 1,358.72 1,789.90 0.76
FINDINGS:
The table discloses the quick ratio of KDMPMACU Ltd. The quick assets increased from Rs. Lakhs 931.24 in 2001-02 to 1358.72 in 2006-07. The current liabilities increased from Rs. Lakhs 1268.33 to 1789.90
The quick ratio increased from 0.73 times in 2001-02 to 0.76 times in 2006-07 it is conduced that the quick ratio is not satisfactory as it is not maintaining the standard norm of 1:1.
QUICK RATIO:
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Quick Ratio
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
INTERPRETATION:
Quick ratio is a relationship between quick/liquid assets and
current/liquid liabilities.
If the quick ratio is maintained in the standard norm of 1:1 is
considered as satisfactory.
Coming to A.P dairy the quick ratio is increased from last year which
is 0.73 compared to current year 0.76.
Although it is not in the standard norm of 1:1, the ratio is increased
compared to the last year. The current assts are increased and current
liabilities are decreased.
This is a good sign.
FLUCTUATIONS IN WORKING CAPITAL
INTERPRETATION:
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0
50
100
150
200
250
300
350
400
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
In A.P dairy the Net Working Capital increased from last year which
is
14.82 to the current year 197.14.
Hence this firm utilizes its funds efficiently.
This is a Good sign.
FINDINGS
In fact, project report can not be made comprehensive, unless it is
accompanied by findings of the study, since the findings are the bedrock of
any formal study, I threw a light on making keen observation regarding the
way working capital is managed in a said company . in addition, I deem it
necessary, to present the following findings in a bid to make this report
realistic.
The Net Working Capital is good. But the company’s working capital
turn over ratio shows the utilization of Working Capital is not
satisfactory.
Company’s average collection period of debtors is satisfactory in
2006-07 compared to the other years.
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The liquidity position of the company is satisfactory, Even though the
company’s current ratio does not equal to the standard norm.
It is found that, the inventory ratio varied between 10.02times in 2001-
2002 and 12.62 times in 2006-07. As a whole the inventory turnover
ratio is maintained satisfactorily.
The current assets as a percentage of total assets are significantly high
in this organization and constitute nearly 50% of total assets.
The quick ratio is very low at the beginning of the years. But later it is
registered at higher rate in this organization.
SUGGESTIONS
As part of my research plan, it became mandatory for
me to offer following suggestions. As these suggestions are based on
objective analysis of data through systematic approach, they can help the
company in removing the short comings if any.
It is suggested that, the fluctuations existed in the Net working
capital must be controlled by properly maintaining the ratio of
current assets and current liabilities.
It is advised that, the comfortable Quick ratio is 1:1 where as it is
very low in the organization. Therefore, the company needs to raise
its quick assets first to overcome the existing problem in order to
meet the requirements.
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It is suggested that, properly maintaining the inventory turn over
ratio is also very good symbol for the organization. Therefore, it is
advised to maintain the same and it should try to increasing the
same year by year.
It is observed that the receivables turn over ratio is high in the
company. Therefore, it shoes the turn for the sales position of the
company.
Current ratio is increased from last year compared to current year.
If the sales orders increase the liquidity position of the company
also improve.
BIBLIOGRAPHY
Books:
Financial Management KHAN & JAIN
Financial Management I.M. PANDY
Financial Management PRASANNA CHANDRA (Theory & Practice)
Financial Accounting S.P.JAIN & K.L. NARANG
Booklets and other Publications on the progress of KDMPMACUL.
Journals:
Annual Audit Reports of Vijaya Diary.
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Web Sites:
www.indiandiary.comwww.vijayadairy.com
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