Working Jocil 06

MBA PROGRAMME JOCIL

INTRODUCTION

An enterprise whether industrial, trading in other acquires two types of

assets to run its business. They are fixed assets, which are necessary for

carrying the production/business. It is the current assets which are generally

referred to as “Working Capital”.

In managing fixed assets the time factor is very important that’s why

discounting and compounding play a very important role in any capital

budgeting decision. But because the time frame of current assets is only one

accounting period the time value of money is significant in the management of

current assets.

Any short run immediate need of the company whether that is need for cash

or adjustments to fluctuations in sales can be made only through adjusting the

levels of the various components of the current assets. This calls for efficient

management of current assets, which forms part of working capital.

Working capital management involves not only managing the components

of current assets but also the managing the current liabilities. A set-financing

pattern is evolved to meet the requirement of a unit for acquisition of fixed

assets and current assets. Fixed assets are to be financed by owned funds and

long term liabilities raised by a unit while current assets are partly financed by

current liabilities and other short term loans arranged by the unit from the bank.

Net working capital=current assets-current liabilities

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CONCEPTS OF WORKING CAPITAL

There are two concepts of working capital:

Balance sheet concept or traditional concept.

Operating cycle concept.

BALANCE SHEET CONCEPT OR TRADITIONAL CONCEPT

It shows the position of the firm at a certain point of time. It is

calculated on the basis of balance sheet prepared at a specific date. In this

method there are two types of working capital.

Gross working capital

Net working capital

GROSS WORKING CAPITAL

It refers to a firm’s investment in current assets. The sum of the current assets is

the working capital of the business. The sum of the current is quantitative aspect

of working capital which emphasizes more on quantity than on its quality, but it

fails to reveal the true picture of the financial position of the business because

every increase in current liabilities will decrease the gross working capital.

NET WORKING CAPITAL

It is difference between the current assets and current liabilities or the

excess of total current assets over total current liabilities. It can also be defined

as that part of a firm’s current asset which is financed with long term funds. It

may be either negative or positive. When the current assets exceed the current

liabilities, the working capital is positive and vice-versa.

OPERATING CYCLE CONCEPT

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The duration or time required to complete the sequence of events right

from the purchase of raw materials for cash to the realization of sales in cash is

called operating cycle or working capital cycle. The operating cycle consists of

three phases:

In phase 1, cash gets converted into inventory. This would include

purchase of raw materials, conversion of raw materials into work-in-progress,

finished goods and terminate in the transfer of goods to stock at the end of the

manufacturing process. In the case of trading organization, this phase would be

shorter as there would be no manufacturing activity and cash will be converted

into inventory directly. The phase will, of course, be totally absent in case of

service organizations.

In phase 2 of the cycle, the inventory is converted into receivables as

credit sales are made to customers. Firms which do not sell on credit will

obviously not have phase 2 of the operating cycle.

The last phase, phase 3, represents the stage when receivables are collected.

This phase completes the operating cycle. Thus, the firm has moved from cash

to inventory,receivables and to cash again.

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FIXED/PERMANENT WORKING CAPITAL

To carry on business, a certain level of working capital is necessary on a

continuous and uninterrupted basis, for all practical purpose, the requirement

has to be met as with other fixed assets. Permanent working capital represents

the minimum level of raw materials, work-in-progress, finished goods, stores,

accounts receivables and cash which are in circulation to ensure continuity of

production.

Permanent working capital is again divided into two parts: regular working

capital and reserve working capital. The portion of fixed working capital which

is utilized to carry out the cyclical operation of current assets in the form of

conversion of liquid cash into raw materials, raw materials into finished goods,

finished goods into debtors and debtors into liquid cash in a continuous manner

is known as regular working capital. On the other hand, the portion of fixed

working capital, which is preserved for meeting uncertain and emergent

working needs (like sudden price hike, abnormal scarcity in times of war,

natural calamity, etc) is known as reserve working capital.

VARIABLE/TEMPORARY WORKING CAPITAL 4

MBA PROGRAMME JOCIL

Besides fixed working capital, a business may need additional working

capital to meet the growing demands of busy seasons at stated intervals. If the

demand for the products of the business goes up at any time it needs additional

funds to pay for more materials, labour and other expenses and to meet the

requirement of cash balance to be maintained in the changed situation. This

additional working capital needed to feed the operating cycle in busy business

periods is known as variable or temporary working capital. It is called variable

or temporary because the business does not need it always but it is required

according to the need of the situation.

Generally the importance of variable working capital is more acute in business

concern having seasonal market demands. Variable or temporary working

capital may be further sub- divided into (a) seasonal working capital and (b)

special working capital.

The additional working capital required by a concern to carry out its

operating activities in busy seasons of high market demands is known as

seasonal working capital. Businesses which mostly have seasonal demands of

their products like ice- cream, cold drinks, wool and likely products

manufacturing concern may need huge amount of seasonal working capital. In

other business concerns too the market may rise to the peak in some particular

time period. So in all types of business a portion of working capital may be

preserved for meeting seasonal needs. On the other hand, the portion of working

capital that is needed by a concern to meet the extraordinary requirements of

special situations is known as special working capital. This is called special

working capital because it is needed in special situations and not in normal

circumstances.

Diagrammatic representation of the concept of working capital

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IMPORTANCE OF WORKING CAPITAL

the adequate reserve of working capital ensures a steady flow of raw materials to the production process.

The adequate reserve of working capital indicates the good solvency position of the concern and helps it to get loan from the market at favorable terms.

The adequate stock of working capital makes it possible for a concern to purchase the trading goods in cash and cash purchase always carries the benefit of getting cash discount.

A strong working capital base is probably the only remedy to overcome the odd situations like dull market conditions, scarcity of

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raw materials and other components in case of any emergency, sudden market fluctuations, etc.

A business concern can exploit the market opportunities with the help of adequate working capital.

The regular flow of adequate working capital makes possible efficient use of fixed assets, reduces wastage, ensures quick replying of current assets, and establish a well- tuned working environment.

A quick rotation of working capital cycle and an efficient management of working capital reduce cost and increases production and sales. The combined effect of all these favorably add to the profitability of the concern.

The adequate amount of working capital and its quick rotation increases profit. The rate of dividend of the shareholders also increases as a result of such increase in profit.

Sufficient working capital helps in research and development to face the present era of cut throat competition and quick technological advancement.

DETERMINANTS OF WORKING CAPITAL

The total working capital requirement is determined by a wide variety of factors. It should be, however, noted that these factors affect different enterprises differently. They also vary from time to time. In general, the following factors are involved in a proper assessment of the quantum of working capital required:-GENERAL NATURE OF BUSINESS:

The working capital requirements of an enterprise are basically related to the conduct of the business. According to the nature of business they have to maintain a sufficient amount of cash, inventories and book debts. The industrial concerns require fairly large amounts of working capital though it varies from industry to industry depending on their assets structure.PRODUCTION CYCLE:

Another factor which has a bearing on the quantum of working capital is the production cycle. The term “production or manufacturing cycle” refers to the time involved in the manufacture of goods. It covers the time-span between

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the procurement of raw materials and the completion of the manufacturing process leading to the production of finished goods. To sustain such activities the need of working capital is obvious.BUSINESS CYCLE:

The working capital requirements are also determined by the nature of the business cycle. The variations in business conditions may be in two directions: (i) upward phase when boom conditions prevail, and (ii) downward phase when economic activity is marked by a decline. During the upswing of the business activity the need of working capital is more as opposed to the downward phase of the business.

PRODUCTION POLICY: The requirement of working capital also depends on the production policy

of the firm. In manufacturing concerns having mostly seasonal demand for the product the production policy is a significant determinant of working capital.

CHANGES IN PRICE LEVEL:General increase in price level increases working capital need of a firm

because the firm has to pay more for maintaining the previous level on working capitalGROWTH AND EXPANTION:

As a company grows, it is logical to expect that a larger amount of working capital will be required. The critical fact is however, is that the need for increased working capital funds does not follow the growth in business activities but precedes it.AVAILABILITY OF RAW MATERIALS:

In case raw materials are easily available on soft terms the firm does not require maintaining a huge inventory of raw materials. Such a firm does not require blocking up huge amount of working capital for this purpose. On the contrary if raw materials are scarce and its supply is irregular and seasonal in nature the firm needs to store a reasonable quantity of raw materials in hand. The working capital need of such a firm is significantly high.DIVIDEND POLICY:

The payment of dividend consumes cash resources and, thereby, affects working capital to that extent. Conversely, if the firm does not pay dividend but retains the profits, working capital will increase.

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DEPRECIATION POLICY:Depreciation policy also exerts an influence on the quantum of working

capital. Depreciation charges do not involve any cash outflow. The effect of depreciation policy on working capital is, therefore indirect.At DSP depreciation is provided on straight line method at the rates specified in schedule- XIV to the companies act, 1956. However where the historical cost of the depreciable asset undergoes a change, the depreciation on the revised amortized depreciable amount is provided prospectively over the residual useful life of the asset based on the rates specified in schedule- XIV to the companies act, 1956. Depreciation on assets installed/ disposed off during the year is provided with respect to the month of addition/ disposal there of.

STRUCTURE OF WORKING CAPITAL

The structure of working capital includes a study of the components of current assets and current liabilities.

CURRENT ASSETS:The list of current assets comprises inventories (including raw materials,

work-in-progress and finished goods and spares), sundry debtors including receivables, readily realizable securities and tax reserve certificates, short-term investments, accrued incomes, prepaid expenses (not in the nature of deferred charge), cash at bank, and cash in hand.In jocil limited current assets are:

Inventories (stores & spares, raw materials, semi-finished products) Sundry debtors Cash & bank balances Interest receivable/accrued Loans & advances etc

CURRENT LIABILITIES:The list of liabilities includes trade creditors, accounts payable,

outstanding or accrued expenses, bank overdraft, outstanding liabilities, short-term loans and borrowings and certain obligations including different provisions, i.e., provision for taxation, proposed dividend etc. In jocil limited current liabilities are:

Sundry creditors 9

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Advances from customers Security deposit Other liabilities etc.

FACTORS TO BE CONSIDERED WHILE ESTIMATING WORKING CAPITAL REQUIREMENT

Total costs incurred on materials, wages and overheads.

The length of time for which raw materials remain in stores before they

are issued to production.

The length of the production cycle or work-in-progress, i.e., the time

taken for conversion of raw materials into finished goods.

The length of the Sales Cycle during which finished goods are to be kept

waiting for sales.

The average period of credit allowed to customers.

The amount of cash required to pay day-to-day expenses of the business.

The amount of cash required for advance payments if any.

The average period of credit to be allowed by suppliers.

Time-lag in the payment of wages and other overheads.

INVENTORY MANAGEMENT

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Inventories constitute the most significant part of current assets for a majority of companies in India. The term inventory refers to the stockpile of the product.

Inventories can be classified as three categories:

1) Raw material: Inputs that are converted into finished products through manufacturing process.

2) Work-in-progress: Semi finished products that require further work to be done before they are ready for sale.

3) Finished goods: Goods which are completely manufacture products and / or ready for sale.

Need to hold Inventories

There are three general motives for holding inventories.

1) The Transaction Motive: Which emphasis the need to maintain inventories to facilitate smooth production and sales operation.

2) The precaution Motive: Which necessitates holding of inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors?

3) The Speculative Motive: Which influences the decision to increase or reduce inventory level to take advantage of price fluctuation.

OBJECTIVES

The objective of inventory management is to determine and maintain the optimum level of inventory management as both excessive and adequate inventories are not desirable. The optimum level inventory lies between the two danger points, excessive and inadequate inventories. The optimum level of inventory should be determined on the basis of trade off between costs and benefits associated with the levels of inventory.

TECHNIQUES

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Attention is given to the basic concepts relevant to the management and control of inventory. The aspects include:

Determination of the type of control required.

The basic economic order quantity. The re-order point.

Safety stock.

As a matter of fact the inventory management techniques are a part of production management. However a familiarity with them is essential for a financial manager in planning and budgeting inventory.

DETERMINATION OF THE TYPE OF THE CONTROL REQUIRED

ABC System:

The ABC system is a widely used classification technique to identify various items of inventory for purpose of inventory control. This technique is based on the assumption that a firm should not exercise the same degree of control on all items of inventory. It should rather keep a more rigorous control on items that are (1) most costly, and / or (2) slowest turning while items that are less expensive should be given less control effort.

On the basis of cost involved the various inventory items according to the system are categorized into three classes.

A = Largest inventory leading to most sophisticated inventory control techniques.

B = Midway and deserving less attention than ‘A’ but more than ‘C’ leading to employing less sophisticated techniques.

C = Small investment with fairly large number deserving minimum attention.

Order Quantity Problem:

Economic Order Quantity (EOQ) model:

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After various items are classified on the basis of the ABC analysis, the management becomes aware of the type of control that would be appropriate for each of the three categories of the inventory items. The group ‘A’ items warrants the maximum attention and the most rigorous control. A key inventory problem particularly in respect of the group ‘An’ items related to the determination of the size or quantity of inventory.

Buying in large quantities implies a high inventory level, which will assure

(i) Smooth production / sale operation and(ii) Lower ordering or set-up costs. However it increases the ordering

costs and likelihood of interruption in the operation due to stock outs.

Thus a trade-off between benefits derived from the availability of inventory and the cost of carrying that level of inventory as to be derived by placing an optimum level of inventory order that minimizes the cost associated with inventory order that minimizes the cost associated with inventory management.

The optimum level thus derived is known as Economic Order Quantity. EOQ equates the cost of ordering with the cost of storage of raw materials.

Ordering cost:

It is difficult quantity this cost, as there are many factors involved. It includes cost of stationery, salaries of those engaged in preparing the purchase orders etc.

Cost of storage (or) cost of carrying inventory:

This includes the cost of store keeping, interest in capital locked up in stores, the incidence of insurance cost, evaporation etc.

For effective material control and to avoid overstocking and under stocking of raw materials, an important requirement is to decide upon various levels of materials.

These levels are minimum level, minimum level and re-order level. By taking action on the basis of these levels, each item of material will automatically be held within appropriate limits of control.

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These levels are not permanent, but need revision according to the changes in the factors, which determine these levels.

FACTORS INCLUDE

Rate of consumption of materials.

Storage capacity.

Availability of funds for investment in inventories.

Cost of storage.

Risks of loss due to deterioration, theft, fine etc.

Seasonal factors – certain materials are cheaply available during certain seasons.

Fluctuation in market prices.

Insurance costs.

CASH MANAGEMENT

Cash and near cash; what is blood to human body, cash is to company. It is like oil to lubricate the over turning wheels of business; without it the process grinds to a stop. Cash is an asset which earns only when it is in use. It is the basic input needed to keep the business running on a continuous basis.

MOTIVES OF HOLDING CASH

The firms need to hold cash may be attributed to the following three motives.

Transaction motive-

The transaction motive requires cash to conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salary, other operating expenses, taxes dividend etc.

Precautionary motive-

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It is need to hold cash to meet contingencies in the future. It provides a cushion or buffer to withstand some unexpected emergency. The precautionary amount of cash depends upon the predictability of cash flows. If cash flows can be predicted with accuracy, less cash will be maintained for an emergency.

Speculative motive-

The speculating motive for holding of cash is to invest in profit making opportunities as and when they arise. The opportunities to make profit may arise when the security prices changes. The firm will hold cash, when it is expected that interest rate will rise and security price will fall. Securities can be purchased when the interest rate is expected to fall; the firm will benefit by subsequent fall in interest rates and increase in security prices. The firm may also speculate on material prices. If it is expected that the material’s price will fall, the firm can postpone purchase of materials and make purchases in future when price actually falls. Some firm may hold cash for speculative purposes. By and large, business firms do not engage in speculations. Thus the primary motive to hold cash and marketable securities are: the transaction and precautionary motives.

The firm should evolve strategies regarding the following four facets of cash management.

Cash planning- Cash inflows and out flows should be planned to project cash surplus

or deficit for each period of the planning period. Cash budget should be prepared for this purpose. Managing the cash flows- The flow of cash should be properly

managed. The cash inflows should be accelerated while, as far as possible, the cash out flows should be decelerated.

Optimum cash level- the firm should decide about the appropriate level of cash balances. The cost of excess cash and danger of cash deficiency should be matched to determine the optimum level of cash balances.

OBJECTIVES OF THE STUDY

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To analyse the working capital management strategies of “JOCIL LIMITED” .

To study the entire working capital cycle of the firm.

To find out the working capital policies and procedures of the firm.

To analyse the company’s receivables, cash, inventory techniques.

To examine the cash management policies through liquidity ratios.

To analyse the inventory management in the firm through inventory turnover ratios.

To study the liquidity position through cash inflows, outflows of the company.

Significance of the study

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The Study is significant of following groups

The study provide and inside into the various aspects of working

capital management.

Studies of this type one more useful to Academicians and

scholars to make further inside the working capital management.

Studies of these types of make necessary steps to improve

working capital management.

Studies of these types are more useful to policy maker.

Studies of these types are also useful to competitors to more

necessary steps to improve working capital management.

Limitations of the Study:

The study was under taken with some market assumptions but in reality

they are Unfortune.

These decisions are cannot be taken as ultimate tools for the estimation of

company whether good or bad.

This study is also limited to the topic taken “WORKING CAPITAL” .

The study is limited by Cost & Time factors.

The limited period of the study may not by detail full-fledged in all

aspects.

Other statistical tools for further in depth analysis could not be used due

to constraint of time.

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The study is conducted with the availability of Jocil Ltd expansion data &

annual reports.

The opinions or conclusions drawn may not be generalized in macro level.

SCOPE OF THE STUDY:

The study is based on company analysis.

The study is based on five consecutive years from 2006-10.

The trend is in ratio analysis and comparative analysis.

The study is only for three months period of time.

The study is related with various aspects of working capital like current assets, current liabilities.

The information collected from primary data and secondary data.

The calculation may be done in various analysis through some selected ratio.

NEED FOR THE STUDY: 18

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Working capital refers to current assets of the company that are changed in

the ordinary course of business and one firm to another, for instance from cash

to inventories, inventories to receivables, receivables into cash. It refers to the

firms investment in current assets. Current assets are the assets which can be

converted in to cash with in the accounting year and include cash, short-term

securities, debtors, bills receivables and stock. When current assets exceed.

Current liabilities, the working capital is positives. Working capital is needed

for financing current assets

Whenever the requirements of working capital funds arises due to increasing

level of business actively arrangements should be made quickly to rise the

finance. In case of some surplus funds are there in the organization. It should

not be allowed to remain idle should be invested short-term securities.

Therefore, the need of working capital requirement cannot be over emphasized.

The need for working capital to run the day-to-day business activities would be

felt essential. However, firms differ in their requirement of working capital.

METHODOLOGY OF THE STUDY:

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For the preparation of a project the collection of data is very essential. There

are two broad methods, from which date is to be collected. They are primary

data and secondary data.

Primary data:

This is collected through discussions and by interviewing the personnel

concerned within the Company.

Secondary Data:

This information is collected mainly from published information Viz., annual

reports, journals, books, magazines, internet available on the subject.

Annual Reports of the Company

Magazines

Journal

Internet

period of Study:

For the purpose of the project work we have considered five years from 2006-

11.

INDUSTRY PROFILE

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INDUSTRY OF FATTY ACID

Fatty Acids, as the name itself indicates, are in the organic acids derived from fats and oils. Fats and oils are glycosides of Fatty Acids. Fatty acids are manufactured by hydrolysis of fats and oils, which is popularly known as Fat Splitting. Glycerin is obtained as a byproduct on the process of fatty acid manufacture.

Fatty Acids are having diversified application in various fields of

Industries like textile, type, plastic, surfactants, Rubber, cosmetics, Foods and

Pharmaceuticals both as it is and as the derivatives

PRESENT STATUS OF INDUSTRY:

Present manufacture of Fatty Acids is dispersed all over the country with

units in various states. Production of fatty acid in India was insufficient prior to

the period of Second World War. Deduction on a small scale was initially

started in the mid-forties that too with obsolete equipment. The quality of fatty

acid coming out from these units is far from desirable and recovery of Glycerin

was inefficient

It is in 1953, the first high pressure Fat splitting plant in our country went

stream in Bombay It started production as a batch –operating Unit, which was

soon converted to a semi –continuous One. The industry, which started taking

shape in the early fifties, was established process technology.

A BRIEF NOTE ON FATTY ACID INDUSTRY IN A.P.

The fatty Acid industry is dependent on availability of the oils& oil seeds for extraction and further processing, as mutton tallow is banned in India. The Industry found that Rice Bran Oil (R.B.Oil) in one such source, which is cheaper than other oil Thus, most of the fatty Acid / Stearic Acid manufactures have chosen rice bran oil as Their raw material and the rice bran oil extraction units found placement near the raw Material source i.e. Rice Bran even though the customers are well spread all over the Country.

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The consumption pattern of Rice Bran Oil depends on the level

of free Fatty Acid Content available for industrial grade varies from time to

time as the Rice Bran availability is seasonal, having direct relation to the rice

roping and Harvesting schedules. Therefore, fluctuations are observed in the

Rice Bran Oil Prices, which are almost fixed in their pattern. However, at times

due to climate conditions and temperature variations, the status of the Rice Bran

oil changes from edible grade and vice-versa.

In India, as explained already Rice Bran Oil extraction is mostly valuable in the major rice growing states of Andhra Pradesh and Punjab Fatty Acid manufacturing units have also found their duration in these states to be nearer to the raw material source. Tamilnadu state, even though produces major quantities of rice, most of it’s consumed as boiled twice for local consumption. In Andhra Pradesh there are about 70-rice bran oil extraction units and 6 fatty acid manufacturing units. Another new unit is coming up. Among all these, M/s. Jocil limited is the second oldest and its products are well accepted among the customers the installed capacity of these units is more than one lack tones per annum. The Commercial sales of Stearic acid by these Andhra Pradesh based unit’s account approximately for 48 per cent of the all India sales volume.

The Fatty Acid manufacturing units in Andhra Pradesh are m/s.

Food Fats and Fertilizers Ltd., M/s Sree Jocil Ltd., M/s. Sudha Agro Oil And

Chemical Industries Ltd., M/s Sree Rayalaseema Alkalis and Allied Chemicals

LTD, M/s. Swastik Oleo chemicals Ltd., M/s. Golden Agro –Tech industries

Ltd., are yet to start commercial production.

All these are manufacturers of Stearic acid and other fatty acids. Some of

them ate utilizing portion of their capacity for captive consumption (on all India

basis about 52 Per cent of installed capacities is used for captive consumption

and about 34 per cent is idle capacity. About 14 percent is used for commercial

sales of fatty acids). The idle capacity of M/s. TOMCO, KSDL and vegetable

vitamins and fats alone is about 73 per cent. Andhra Pradesh State is growing

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industrially and there is ample scope and potential for entry of new industries.

Thus, the Stearic acid using industries like PVC, chemical, rubber retreating and

related and related industries are still possible to be set up in Andhra Pradesh, is

still to, grow, inspire of the competition among the fatty manufacturers. The idle

capacity thus, is not a permanent feature.

The industries using Stearic acid in Andhra Pradesh are mostly

PVC pipes, rubber retarding, Hawaii Chapels, Cycle Tires, Chemical

Auxiliaries, Stearates, Cement, Pints and cosmetics. The growth rate though is

high in cosmetics industry at 25 per cent. The volumes are low due to lower

production levels of cosmetics indust

INDUSTRY OF STEARIC ACID:

In the Stearic acid different grades are produced with standard

specification for different industrial consumers.

The following are the different grades of Stearic acids consumed by different industries in manufacturing their own Industrial products.

VARIOUS GRADES OF STEARIC ACID:

JOTEX GRADE, JOTEX SPECIAL GRADE

Used in drugs, pharmaceuticals, cosmetics, chemicals and plastics

JOSTRICPECIAL GRADE

Chemicals, calcium carbonate.

JOCIL GRADEMetal polish, Grease, Metallic Polish, PVC Stabilizers and chemicals.

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M

P

R

R

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NAME OF THE MANUFACTURER

QUANTITY MARKET (M.T)

SHARE (%) REGION

Godrej Soaps Ltd 17000 22 NORTH

VVF Limited 9000 12 NORTH

Jocil Limited 10000 13 A.P.

FFF Limited 6000 8 A.P.

Nahar Agro 5000 7 NORTH

Raj Agro 5000 7 NORTH

OCL & Thapar 2000 3 NORTH

Wipro Limited 2000 3 Karnataka

Siris Agro Limited 5000 7 A.P.

Sudha Agro Limited 2000 3 A.P.

Rayalaseema Alkalies Ltd

5000 7 A.P.

Swastik & Oleo Chemicals

7000 9 A.P.

Imports 1000 1

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PRESENT MARKET SHARE OF STEARIC ACID MANUFACTURES

WISE:

SL.NO. Name of the industry Quantity

(M.T.)

Industry

Share (%)

Growth

1. Rubber – Tyre 13000 17 5

2. Rubber-Nontyre 12000 16 3

3. Stearates/Stabilisers 15000 24 6

4. PVC/Polymers 9000 12 7

5. Cement Paints 3000 4 6

6. Chemical Auxiliaries 6000 8 5

7. Calcium Carbonate 3000 4 6

8. Food/Pharma 1000 1 9

9. Metal Polishes 3000 4 5

10. Lubricants/Greases 3000 4 8

11. Cosmetics 3000 4 30

12. Others 2000 3 5

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SOAP INDUSTRY:

The Rs.45 billion Indian soaps and detergents industry has been expiring

low growth and intense competition in urban areas.

The physical market for detergents at about 2.7 million tonnes is

one of the largest markets in the world. It categorized popular economy,

premium and super premium. In India, the per capita consumption of detergents

is only 1.6 kg. Per annum as against over 16 kg. Western Europe. Soaps 1.4 kg.

From 93-94 report. In Taiwan 6.2 kg. Thailand 32 kg. Per annum, Indonesia

2kg, Korea 7.3 kg per annum per capita, Malaysia 3.7kg per annum per capita,

Japan 8.9 kg per annum per capita.

The per capita consumption of toilet soap in India is at present

whole fully low as compared to many developing countries. The Industry has

made rapid progress after lifting of the price control.

The overall growth rate of the industry in the recent years has

been in the neighbourhood of 2% per annum. The total turnover of toilet soap

industry is Rs.4000 crores. The market is estimated at more than 3 lakhs tones

and its growth rate is about 2% per annum.

The overall consumption of toilet soaps in the country has been

increasing at the rate 6.7% and at more than 12% per annum in rural areas. The

industry faces serious problem on account of inadequate availability of linear

alkaline benzene, which has to be imported on a large scale. The gap between

demand and supply of for production of toilet soap is a matter of serious

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The working group has assessed the availability of oils by the year

1999 and 2000 A.D at 6.5 lakhs tones, which will have to be the basis of present

reckoning by, imports. The soap market is divided into sub-popular and popular

premium on the basis of price. But for the purpose of market study, the market

is categorized into popular and premium soaps make up the remaining 13%.

Segmentation of the Total Toilet Soaps:

Market Share of Premium, Popular, Sub Popular.

Segment Market share in (%)Growth rate (per

annum)

Premium 31 6%

Popular 45 2%

Sub-popular 24 8%

The above table reveals the market share of premium, popular and

sub-popular soaps where a major share of 45 % is captured by popular soap

segment which is growing slowly at 2% per annum. While 31 % of total market

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Price range (in Rs.) Soap segment

6-10 Sub-popular

11-15 Popular

16& above Premium

MBA PROGRAMME JOCIL

share is contributed by premium soap segment which is growing at 6% per

annum. But the sub-popular soap segment which is showing the least of all i.e.

24% is growing at a fast rate of 8% per annum.

Hindustan Lever Ltd., (HLL):

Hindustan Lever Ltd. has become a major player in the Indian personal

wash market. In India HLL has gained 60% of share in the total toilet soap

market. HLL gives its products in several brand names. The brand names of

HLL are Liril, Pears, Dove, Lux, Denim, Fair & Lovely, Rexona, Lifebuoy,

Hamam, Breeze, and Ayush. Different brands are popular in different regions.

HLL have brought a few benefits to the consumer as a marketer of toilet

soap has tried to woo. Consumers through up graded offerings and better quality

soaps. As a result of sharp fall in farm disposable incomes, the consumers

persuaded low-income households to down trade, that is, switch from high-to-

low –priced brands. HLL too appears to endorse the phenomenon of down

trading.

The major competitors of HLL are Nirma, Godrej consumer care and

WIPRO, Godrej consumer care has introduced, fairness soap, fair glow which

claims to enhance a fairness, has been a success too, as against this, spawning a

competitive response from HLL in the form of Fair & Lovely soap. HLL

offering to combine two benefits in a single tablet, Breeze 2-in-1 actually offers

a cost-effective replacement to consumers who we hair wash products and soap.

HLL claims Breeze is the largest brand in the discount segment. HLL has

increased Lifebuoy’s market share by introducing, Lifebuoy Active, Lifebuoy

Gold, Lifebuoy Plus. HLL has gained major share in discount segment.

Now-a-days HLL has become a dominant player in the Indian personal

wash market. 28

MBA PROGRAMME JOCIL

WIPRO:

WIPRO has become a major player in the Indian personal wash market.

In India Wipro has gained 50% of share in toilet soap market. Wipro gives its

products in brand names of Santoor, Wipro Baby Soap, and Chandrika.

It covers 1.6 million outlets across the country for its distribution. 50

percent of Wipro consumer care business comes from the toilet soap category.

The biggest brand of Wipro is Santoor was launched in the late 80’s. Wipro

through Santoor is the leading Soap marketer in Andhra - Pradesh with 18

percent market share. Wipro baby soft diapers gained almost 65 percent of the

business from Northern Markets.

Wipro have come out with new mixes and are confident of delivering

value. The company introduced Chandrika as an ayurvedic and herbal product

as against Medimix. The companies’ further interests in naturals/ ayurvedic

segment of the toiletries market.

The company faces several competitions from HLL, Godrej, Nirma, and

Henko. In spite of competition Wipro has generated consumer satisfaction.

Nirma:

Nirma has quickly become a significant player in the domestic toilet soap

market. The company’s aggressive pricing strategy has been the key behind its

performance. Launches Such as Nirma have paid off because consumers have

seen the brand as offering good value for money. The company has managed

healthy top line growth in the market.

29

MBA PROGRAMME JOCIL

Nirma has gained major market share just a couple of years after its entry.

It tries to made brands such as Nirma available at least 10 percent lower than its

nearest competitors. The company offers its brands Nirma Lime, Nirma

premier, Nirma. The company faces competition from HLL, Wipro, and Godrej.

The Nirma was succeeded within a short period due to its aggressive

pricing strategy.

Godrej Consumer Care:

With at least three entirely new launches under its belt, Godrej

consumer care has improved its market share in the personal wash market. The

company’s recent restructuring exercise, offer which the consumer products

business was diverted from the Godrej industries and vested with Godrej

consumer care, has also helped pep up profitability performance.

Fair Glow, the fairness soap from Godrej Consumer Care, which

claims to enhance fairness, has been a success too. As a relatively small player

in the business, the company has managed a robust sale.

Market Share of Different Companies:

30

Hull60%Karnataka Soaps

7%

Godrej6%

Nirma5%

Others12%

Henkel4%

Wipro6%

MBA PROGRAMME JOCIL

Brand associations:

Every soap manufacturer is following brand associations to their product,

which boosts promotion of the soap in the market. Thesewill attract the

customers towards the product and make them to buy. These brand associations

can separate the product from other competitive products.

Brand positioning:

31

MBA PROGRAMME JOCIL

Wind Energy Generators (WEG)

During the year 2 x 1.65 Mw WEG Sets generated 78.96 lakhs units as

against 83.55 lakhs units in the previous year. The low generation is attributed

to the extended rainy season during the year in which period wind velocity was

low for power generation. The increase in rate for wind power supply to

TamiNadu Electricity Board (TNEB) from 2.70 to 2.75 has not come into effect

from 1-4-2007 as was earlier expected. It is now proposed by TNEB to

implement the increased rate from the date of entering into new Energy

Purchase Agreement (EPA) which contains a clause for binding the power

producer for a period of 20 years. Since the matter regarding procurement price

by TNEB is before the Hon’ble Supreme Court on the appeal filed by the

TNERC on the petition filed by Indian Wind Power Association inn which the 32

Brand Positioning

Santoor Younger looking skin

Lux Skin care, glamour

Nirma Value

Lliril Freshness

Hamam Purity

Rexona Skin care, silky soft skin

Dettol Germy check, 100%bath

Margo Skin protection

Fair glow Fairness soap

MBA PROGRAMME JOCIL

company is a member, it is felt better to wait for the time being before entering

into the new EPA.

It is widely expected that the demand for non conventional energy will

increase in future due to widening gap between generation and demand coupled

with fuel shortages. Since the policy of the Government is also favourable for

promotion of non conventional energy like wind energy and since the wind

projects are found to be economically feasible after considering the CDM

revenues, the Company set up one more WEG of 1.500 Mw in March 2007 at

Kasturirangapuram Village, Tirunelveli Distirct, TaminalNadu. The plant was

commissioned on 19-03-2008 and sonce then the

WEG generated 25344 kwh u to 31-03-2008 and the same was exported

to TNEB.

The data related to this project is follows

Wind energy generator (1x1.5MW):

Land - 18, 00,000

Plant & Michinary - 9, 12, 00,817

1500Mw wind turbine

Generators

Total investment -

Sales revenue

(1 x 40, 00,000 x 2.72) - 1, 08, 80,000

Expenditure - 5, 50,000

9, 30, 00,817

33

MBA PROGRAMME JOCIL

Insurance - 2, 00,000

General expenditure - 50,000

Depreciation - 48, 51,360

Taxation - up to 15 years tax holidays

After tax holidays 33.99% tax will charge including with 10% surcharge s&

education ces 3%.At first year the current charge power unit is Rs. 2.72 and we

estimate that the price will increase 5% for every year. The depreciation is

provided according to IT act in WDV method per year.

COMPANY PROFILE

HISTORY OF JOCIL LIMITED:

The company was incorporated on 20th February, 1978 as per the

certificate of incorporation NO.2260 granted by the register of companies. A.P.

Hyderabad under the name of “APOCIL” [Andhra Pradesh Oil and Chemical

Industries Limited]. This was a joint venture with Andhra Pradesh Industrial

Development Corporation (APIDC) and was promoted by Andhra Sugars Ltd,

Tanuku.

But later in MAY, 1982 A.P. Industrial Development Corporation

withdrew it participation and the company’s name was changed to

34

MBA PROGRAMME JOCIL

JAYALAKSHMI COTTON AND OIL INDUSTRIES LIMITED. The

company was registered with director general of technology development New

Delhi.

The company name changed from JAYALAKSHMI COTTONN AND

OIL INDUSTRIES LIMITED to “JAYALAKSHMI OIL AND CHEMICAL

INDUSTRIES LIMITED” (JOCIL) on17th September 1992.

LOCATION OF THE COMPANY:

JOCIL Ltd is located at Dokiparru in Medikonduru Mandal of Guntur

District in the state of Andhra Pradesh. The area was declared as backward one

by the Government of Andhra Pradesh. It is well connected by both rail and

road transportation. It is only 45 km from Vijayawada, which is industrially

located.

Profile of Jocil Limited:

Type of the Company - Small Scale Unit

Nature of the Unit - Manufacturing

ORGANISATIONAL STRUCTURE OWNERSHIP AND MANAGEMENT

BOARD OF DIRECTORS:

Dr. Mullapudi Harischandra Prasad Chairman

J. Murali Mohan Managing Director

P. Narendranath Chowdary Director

35

MBA PROGRAMME JOCIL

Mullapudi Thimmaraja Director

Y.Narayanarao Chowdary Director

V.S. Raju Director

K. Srinivasa Rao Director

K. Gopala Krishna Director

Subbarao V. Tipirneni Director

SENIOR EXECUTIVES:

P.Kesavulu Reddy President & Secretary

BANKERS:

Andhra Bank Guntur

State Bank of India Guntur

AUDITORS:

Brahmayya & Co., Guntur

COST AUDITORS:

Narasimha Murthy & Co., Hyderabad.

REGISTERED OFFICE & FACTORY:

JOCIL LIMITED,

Dokiparru, GUNTUR – 522 438.

Board of Directors:

36

MBA PROGRAMME JOCIL

The Board of Directors of the company consists of 9 directors comprising of promoter directors, additional directors and outside directors. Normally, the chairman would be elected from the promoter directors. The board of directors will meet once in three months to review the working results, operations, financial and administrative matters and any other policy matters of the company. The Managing Directors about the progress of the company.

Managing Director:

Managing Director is the chief executive of the organization and looks

after the day to day operations of the company. He is the top person in the

hierarchical system of organization. He does business operations with the

assistance of all the departmental heads. He is the pivotal of the organization.

President & Secretary:

He is in charge of administrative and finance departments. He looks after

all the matters relating to general administration, secretarial, central excise,

purchases, accounts, and stores, personal and all other matters relevant for

smooth operation of the company. He coordinates matters with all the

departmental heads and takes policy decisions in the absence of the Managing

Director.

General Manager-Production:

He is the head of the production department. He looks after the fatty

acid plant & glycerin plant. He controls the over all production activities. A

team of engineers, supervisors and helpers assists him.

General Manager - Development:

He is in charge of quality control, laboratory and also research and

developmental activities. He is responsible for maintaining the standards of raw

material in processing of finished products.

37

MBA PROGRAMME JOCIL

General Manager-Engineering:

He is the custodian of the entire plants and machinery. He looks

after the smooth running of various plants and maintenance of work. He also

takes the help of assistant engineers, supervisors, fitters and helpers etc.

Senior Manager-Power Plant and Instrumentation:

He is in charge of power house and responsible for all electrical

installation in the company. With the help of engineers, supervisors and

electricians he looks after the matters like power supply, operation of diesel

generation sets etc.

Senior Manager-Soap:

Production Manager looks after the production of toilet soap and is

assisted by various supervisory & other members.

Asst. General Manager (Marketing):

Marketing Manager is in charge of the marketing department. He

coordinates matters with all the departmental heads in regard to production and

sale of finished products of the company. He shoulders the responsibility in

clearing of the stock of finished products. ll possible steps will be taken by him

to satisfy the customers as regards to quality, price and prompt supply of the

product. He is assisted by the sales officer, sales supervisor and other office

staff.

Finance Manager:

38

MBA PROGRAMME JOCIL

Finance Manager looks after all the works relating to audit banks, commercial tax matters and takes care of the accounting systems in the company. He will attend to the works of income tax returns filling and clearance of income tax assessment orders given by the department. He will further attend to the works of submission of working capital limits.

Organization Structure of Jocil Ltd.

President & Secretary

Board of Director Directors

Managing Director

Marketing AGM

President

& secretary

GM Engg. Manager (Production)

GM (Development

)

Sr. Manager (Electrical)

Finance Manager

Asst. Executive

Sr. Accounts Officer

Asst. Accounts

Stores Executive

Senior Manager

Clerk

Purchase Executive

Senior

Asst.

Costing

Office Asst.

Labour

Officer

Asst. Time Keepers

Security

Officer

Security Guards

ClerksOfficer

39

MBA PROGRAMME JOCIL

Marketing Manager

STAFF AND WORKERS PARTICULARS

Superintenden Marketing Marketing Executive

Supervisor

Asst. Clerk Asst. ClerkSales

Asst. Sales Supervisor

40

MBA PROGRAMME JOCIL

41

S.No. Particulars No. of Employees

1 Administration 23

2 Accounts 13

3 Marketing 5

4 EDP 5

5 Time office 5

6 Stores 11

7 Security 5

8 Transport 7

9 Production 13

10 Labour 21

11 ETP 5

12 Maintenance 5

13 Soap plant 61

14 Electrical 33

15 Power plant 89

16 Civil 5

17 Fatty acid plant 50

18 Hydrogenation plant 38

19 Flaker 5

20 Cell room 3

21 Oxygen plant 5

22 DM plant 5

23 FBC Boiler 8

24 Workshop 46

Total 466

MBA PROGRAMME JOCIL

Number of Workers employed in the Firm:

At present more than 550 employees are working in the company.

Recruitment in JOCIL is mainly though internal sources. Promotion is mainly

based on seniority. It has good industrial relations with its workers. The

company provides retirement benefits in the form of provident fund,

superannuating and gratuity. Contributions to the provident fund are made at

prescribed rates to the Provident Fund Commissioner and absorbed in the profit

and loss account liability in respect of Superannuating benefits extended to

certain employees is Contributed by the Company of life Insurance Corporation

of India against a master policy at 13% of the basic salary of such employees.

The company has taken a group gratuity insurance policy with Life Insurance

Corporation of India to secure gratuity liability.

Job Contract:

The idle capacity in the company plant is utilized for the manufacturing

of the company brand toilet soaps. At present Liril cool of HLL is being

manufactured by JOCIL and job contract or principle-to-principle basis. This

type of job contract is helping JOCIL to utilize the plant capacity fully.

OBJECTIVES OF JOCIL LIMITED

The main objective of the company is to manufacture Fatty acids and Toilet

soaps.

The company received letter of indent from department of industrial

development. Ministry of Industries and Government of India, Delhi.

Enhancing the annual licensed capacity of fatty acids, glycerin and toilet soap.

The company has implemented this letter by increasing installation capacity of

fatty acids plant from 6,205 M.T. per annum to 15,510 M.T. with effect from

42

MBA PROGRAMME JOCIL

February 1991 this enhanced capacity came into operation. Later the company

enhanced the capacity to 37,500 M.T. in March 1995.

Functions of Jocil Limited:

`To produce, manufacture, refine, process import, sell and generally to

deal in all kinds of fatty acids and soaps and in connection there with the

construction of factories and workshop.

To fabricate manufacture and deal in all kinds of fatty acids plants.

To manufacture various brands of soaps under contract basis for HLL.

The company organizes annual general body meeting where it submits all

the four quarterly reports regarding the actual performance with standard

performance and predicts the courses of variances.

Performance and Achievements of Jocil Limited:

Jocil is a leading manufacturer of all kinds of Fatty Acids. This also

manufactures soaps.

Jocil supplies different grades of Stearic Acid and other fatty acids to

other manufacturing companies of pharmaceuticals, chemicals, plastic

etc.

Jocil supplies Fatty Acids to meet their specific requirement of Stearic

Acid, Oleic Acid etc.

Jocil manufactures soaps on contract basis to HLL

Jocil supplies soap noodles of Margo brand to M/s Calcutta Chemicals

Company.

Jocil’s production of quality goods is due to the following factors:

a. Usage of good quality raw materials like rice bran oils, coconut oils,

cotton seed oils etc.

43

MBA PROGRAMME JOCIL

b. The processing and purification of fatty acids is done by using latest

technology.

c. The technology and requirement of Jocil has been imported from C.M.B.,

Italy.

d. Maintenance of quality control by experienced and committed operating

personnel.

e. Toilet Soaps and Glycerin are manufactured as per BISC (formerly

known as ISI) standards.

f. It uses high quality chemicals for the purification and process Is the

g. fatty acids.

INDUSTRIAL LICENCING:

As the value of fixed assets envisaged in the project is less than Rs. 3.3

crores the Industrial license is not required for setting of this project. The

company has been registered with Directorate General of Technical

Development (DFTD), Government of India, New Delhi bearing No.

DGTD/HQ/D-S-S/R-4733/C-26(N)/SE/79 with their letter dated 21-5-1979 and

31-3-1990 for the manufacture of

1 Processed Fatty Acids / Industrial Fatty Acids 9,000

2 Glycerin 900

3 Toilet Soaps 5,000

SHAREHOLDERS PATTERN:

31-03-1997

Promoters 55.02%

(The Andhra Sugars Limited, Holding Company)

44

MBA PROGRAMME JOCIL

Public &Bodies Corporate

30.63%

Institutions (ICICI & ISEC) 14.35%

Face Value of share Rs. 10/- each

INITIAL INVESTMENT:

The Company has set up Rs.3.3 crores Fatty Acid and Soap Project

on turn key basis through M/s. Ballestra (India) Limited, Bombay, with

technology and equipment of C.M.B., Italy.

OUT LOOK

Fatty Acid and Soap

The production of fatty acids, soap noodles and glycerin has come

down during the year due to lack of demand from customers to whom we have

been manufacturing products on job work. As a result the capacity utilization of

fatty acid plant and glycerin plant was low. However, the demand for

manufacture of soap oodles and toilet soap on job work has improved from

January 2008 and therefore overall capacity utilization of soap plant during the

year is better than last year. Barring unforeseen business conditions the present

position in fatty acid and soap industry is expected to continue for some more

time.

The area based exemptions from payment of excise duty has been

affecting the industries in non-exempt areas very severely. However, the

decision of the Government

To reduce the general rate of excise duty from 16% to 14%; 45

MBA PROGRAMME JOCIL

To limit excise duty exemption in exempted areas to units undertaking

manufacturing activity only thereby excluding units taking up peripheral

activities;

To restrict excise duty exemption in the exempted areas only to the extent

of value addition undertaken in the manufacture of goods, subject to the

rates fixed or actual duty paid which ever is lower;

Helped control misuse of the facility and reduce wide disparities in excise

duty liability to some extent but the difference will still be a considerable

amount to overcome.

Further, the inverted customs duty structure on soap noodles

continues and the industry is at a great disadvantage for competing with

imports. Palm Fatty Acid Distillate, the Major raw material for soap noodles is

attracting 15% customs duty while toilet soap noodles; the finished product is

attracting only 10% customs duty.

Biomass Power Plant

The availability of field residues like cotton stalks, chilli stalks etc.,

has been coming down drastically due to installation of more plants close by

requiring the same fuels. The Company has established biomass collection

centers near the fields to improve procurement. However, due to shortage of

labour the quantity procured is not to expectations. The power purchase price

of AP Transco is not in pace with the rising fuel cost and AP Transco’s

restriction to purchase 2.4 Mw is resulting in low capacity utilization and high

cost of generation.

46

MBA PROGRAMME JOCIL

The suit filed by the Company for purchase of entire surplus power after

meeting captive consumption and for payment of retained amounts for supply

over 2.4 Mw is pending before the Appellate Tribunal for Electricity, New

Delhi.

The suit filed by the Biomass Energy Developer’s Association (BEDA)

on behalf of its members for increase in power purchase rate by AP Transco

was allowed by the Appellate Tribunal for Electricity, New Delhi. But AP

Transco and APERC have both gone on appeal to the Supreme Court and hence

the issue remains pending for final decision.

Wind Energy Generators (WEG)

During the year 2 x 1.65 Mw WEG Sets generated 78.96 lakhs units as

against 83.55 lakhs units in the previous year. The low generation is attributed

to the extended rainy season during the year in which period wind velocity was

low for power generation. The increase in rate for wind power supply to

TamiNadu Electricity Board (TNEB) from 2.70 to 2.75 has not come into effect

from 1-4-2007 as was earlier expected. It is now proposed by TNEB to

implement the increased rate from the date of entering into new Energy

Purchase Agreement (EPA) which contains a clause for binding the power

producer for a period of 20 years. Since the matter regarding procurement price

by TNEB is before the Hon’ble Supreme Court on the appeal filed by the

TNERC on the petition filed by Indian Wind Power Association inn which the

company is a member, it is felt better to wait for the time being before entering

into the new EPA.

It is widely expected that the demand for non conventional energy will

increase in future due to widening gap between generation and demand coupled

with fuel shortages. Since the policy of the Government is also favorable for

47

MBA PROGRAMME JOCIL

promotion of non conventional energy like wind energy and since the wind

projects are found to be economically feasible after considering the CDM

revenues, the Company set up one more WEG of 1.500 Mw in March 2008 at

Kasturirangapuram Village, Tirunelveli Distirct, TaminalNadu. The plant was

commissioned on 19-03-2008 and since then the WEG generated 25344 kwh u

to 31-03-2008 and the same was exported to TNEB.

New Business Opportunities

The Company is exploring new business opportunities to

expand/diversify the activities in the areas of business having growth potential

by effective utilization of internal generations and for this purpose various

alternatives are being explored.

CONVERSATION OF ENENRGY & ENVIRONMENTAL SAFETY:

During the year the following actions were taken for conservation of energy and

environmental safety.

Power consumption in distillation plants has been reduced by replacing

the over design pumps.

Power consumption for Air Compressors has been reduced by installing

receivers and pipe line modifications of pipe lines.

Fire additives are being used in 30 TPH AFBC Boiler for improving

efficiency.

Sodium Vapour Lamps have been replaced in power plant, boilers and

thermic fluid heaters with Compact Fluorescent Lamps.

Conventional air conditioners are being supplemented with chilled water

air handling unit in fractionation plant control room to reduce power

consumption.

48

MBA PROGRAMME JOCIL

Power quality analyzers are being utilized to contain energy losses and for

preventive maintenance.

JOCIL LIMITED ACCOUNTING POLICIES:

General

The Accounts are prepared on historical cost convention and in

accordance with generally accepted Accounting policies.

Fixed Assets

Fixed Assets are stated at historical cost less accumulated depreciation.

Cost of acquisition of fixed assets is inclusive of directly attributable cost of

bringing the assets to their working condition for the intended use and interest

on borrowings till the date of commissioning of the assets. CENVAT/VAT

credit availed, if any, on fixed assets is not included in the cost of such fixed

assets capitalized.

Depreciation

Depreciation is written off in accordance with the provisions of

Schedule XIV of the Companies Act, 1956 as follows:

Under Straight line method in respect of plant and Machinery of Wind

Mill division.

Under Written down value method on the remaining assets of the

company.

Intangible assets

Intangible assets are stated at cost of acquisition less accumulated

amortization. The intangible assets, being Computer Software is amortized over

a period of 5 years on Straight Line Method.

49

MBA PROGRAMME JOCIL

Investments

Long term investments are stated at cost and income thereon are

accounted for on accrual. Provision towards decline in the value of long term

investments in made only when such decline is other than temporary.

Inventories

Finished goods are valued at lower of cost or net realizable value.

Cost of Work-in-progress and Finished goods includes appropriate

portion of overheads etc., and excise duty wherever applicable.

Raw materials, Stores and spares are valued at cost using weighted

average method.

Work-in-Progress, raw materials, stores, spares, material in transit, are

valued at cost except where the net realizable value of the finished goods

they are used in isles than the cost of finished goods and in such an event,

if the replacement cost of such materials etc., is less than their book

values, they are valued at replacement cost.

By-products and scrap are valued at net realizable value.

Dedicated machinery spares which can be used only in connection with

an item of fixed assets and whose use is expected to be irregular are

amortized over the estimated useful life of the principal assets.

Sales

Sales are inclusive of Excise Duty, packing Charges and net of rebates

and Sales Tax. Sales tax collected from customers and remitted to the 50

MBA PROGRAMME JOCIL

authorities is not reflected in the Profit and Loss account and on completion of

the sales tax assessments, the net liability, if any, payable by the company, is

charged to the Profit and Loss account.

Power consumed in other units is accounted at the rate fixed for

payment for sale to A.P.Transco.

Taxes on Income

Current tax is determined as per the provisions of Income Tax, 1961 in

respect of taxable income for the year.

Deferred tax liability is recognized, subject to the consideration of

prudence on timing differences, being the difference between taxable incomes

and accounting income that originate in one period and are capable of reversal

in one or more subsequent periods.

Deferred tax assets account of brought forward losses and unabsorbed

depreciation as per Income Tax laws are recognized only when there is virtual

certainty supported by convincing evidence that such assets will be realized.

Deferred tax assets arising on other temporary differences are recognized only if

there is a reasonable certainty of realization

Segment reporting

The accounting policies adopted for segment reporting are in line with

the accounting policies of the Company with the additional policies for segment

reporting. Inter segment revenue has been accounted for based on the market

related prices.

Revenue and expenses have been identified to segments on the basis of their

relationship to the operating activities of the segment. Revenue and expenses

51

MBA PROGRAMME JOCIL

which relate to the enterprise as a whole and are not allocable to segments on a

reasonable basis have been included under “Unallocated expenses”.

Retirement benefits

The Company provides retirement benefits in the form of Provident

fund, Superannuation and Gratuity etc.

Contribution to Provident Fund, a defined Contribution schemed, is

made at the prescribed rates to the Provident Fund Commissioner and is charged

to the Profit and Loss account. There is no other obligation other than the

contribution payable.

Gratuity, a defined Benefit scheme is covered by a Group Gratuity cum

Life Assurance policy with LIC. Annual contribution to the fund as determined

by LIC is expensed in the year of contribution. The short fall between the

accumulated funds available with LIC and liability as determined on the basis of

actuarial valuation is provided for as at the year end. The actuarial valuation is

done as per the Projected Unit Credit method. Actuarial gains / losses are

immediately taken to Profit and Loss account.

Contribution to Superannuation Fund, a defined contribution scheme, is

made to the LIC as per arrangement with them.

Research and Development Expenditure

Revenue expenditure is charged to Profit & Loss Account and

Capital Expenditure is added to the cost of Fixed Assets in the year in which it

is incurred.

Foreign exchange transportations

Transactions in foreign currency are initially accounted at the

exchange rate prevailing on the date of transaction, and adjusted appropriately,

52

MBA PROGRAMME JOCIL

with difference in the rate of exchange arising on actual receipt/payment during

the year.

At each Balance Sheet date

Foreign currency monetary items are reported using the rate of exchange

on that date.

Foreign currency non-monetary items are reported using the exchange

rate at which they were initially recognized.

Impairment of assets

internally, indications of the impairment if any, to the carrying amount of its fixed and other assets. If any indication does exist, the recoverable amount is estimated at the higher of the realizable value and value in use, as considered appropriate. If the recoverable amount is less than the carrying amount, an impairment loss is recognized.

Reversal of impairment losses recognized in prior years is recorded

when there and indication that the impairment losses recognized for the asset no

longer exists or has decreased. However, the increase in carrying amount of an

asset due to reversal of an impairment loss is recognized to the extent it does not

exceed the carrying amount that would have been determined (net of

depreciation) had impairment loss been recognized for the asset in prior years.

Contingent Liabilities

Contingent Liabilities are not recognized in the accounts, but are

disclosed after careful evaluation of the concerned facts and legal issues

involved.

Dividends

Provision is made in the Accounts for the Dividends payable by the

Company recommended by the Board of Directors, pending approval of the

53

MBA PROGRAMME JOCIL

Shareholders at Annual General Meeting. Tax on distributable Profits is

provided for in the year which such distributable Profits relate.

Products of JOCIL Ltd:

Stearic Acid of 11 acids

Distilled Hydro-generated rice bran fatty acid

Distilled Rice Bran Fatty Acid

Oleic Acid

Soap Noodles

Finished soap

Industrial Oxygen

Power (KWH)

Jotex

Jostric Special-Fostric

Jocil-9

Jocil-11

Jomel, rubber grade

Rubber grade (economy)

Jocil has set up a modern plant for the manufacturing of fatty acids,

toilet soaps and refined glycerin. The major equipments were imported with

latest technology. The products manufactures are of international standards to

suit different industrial users.

The by-products in the production of fatty acids are

Glycerin of two-types

Chemically pure grade

Industrial white grade

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MBA PROGRAMME JOCIL

TDP (Tones Per Day):

Fatty acid - 200 metric tones

Glycerin - 4.5 metric tones

Soap products - 150 metric tones

Industrial oxygen - 2100 Cubic meters

Fatty Acids, refined Glycerin and other Fatty Acids Pitches fall

under the category of industrial goods whereas soaps come under the category

of consumers goods.

Fatty acids are manufactured from vegetable oils and fats. There

are different types of fatty acids for different industrial applications. The

following are the different kinds of fatty acids which can be manufacture in

JOCIL.

Crude Fatty Acids of Vegetable Acids & Fats.

Distilled Fatty Acids of Vegetable Acids & Fats.

Hydrogenated Fatty Acids of Vegetable Acids & fats.

Out of the above type of Fatty Acids. JOCIL is manufacturing the

following fatty acid which is a major portion of their sales.

Stearic Acid

Oleic Acid

Distilled & Hydrogenated Fatty acids.

FATTY ACID:

Process Description

1. Pre Treatment:

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MBA PROGRAMME JOCIL

The raw oils/fats are given pre treatment with sulphuric acid in the

presence of water to remove impurities like gums, resins and suspended

particles. These oils are washed free of mineral acidity and then taken for

further process.

2. Fat-Splitting:

Pre treated oils/ fats are sent to high pressure and high temperature

autoclaves for fat splitting. This is a hydrolysis process. Oils/fats are split in

presence of water under high temperature and pressure. The triglycerides arte

spilt into crude fatty acids and glycerin in the form of sweet water. The crude

fatty acids are then separated from sweet water in splitting tanks. The crude

fatty acids are then sent to distillation plant.

3.Fatty acid distillation

Crude fatty acids are distilled under high vacum at a high temperature under controlled conditions. The distilled fatty acids are condensed leaving behind residue which mainly consist of un desired impurities like un split fat, colour, and odour, un soap matter, metal impurities etc. the distilled fatty acids are then sent to hydrogenation plant for the manufacture of stearic acid.

4.Hydrogenation:

Distilled fatty acids are taken in hydrogenation autoclave which is

operated under high pressure and high temperature. Activated nickel catalyst is

used for hydrogenation reaction high pressure hydrogen gas is continuously

bubbled inn the autoclave to reduce the iodine value of distilled fatty acids to

the desired level. Stearic acids with different iodine

Values are manufactured to suit the different industrial application. As soon as

the reaction is over the material is filtered to remove nickel catalyst and then

sent to flaking section.

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MBA PROGRAMME JOCIL

5.Flaking:

Stearic acid produced in the hydrogenation plant is converted into

flakes in a rotating drum flake which is cooled with chilled water. The flakes

collected through a screw conveyor are packed in gunny bags with inner

polymers.

Distilled Fatty Acids:

The Fatty Acids of different oils are tailor made products to suit different

industrial user’s specifications.

At present JOCIL is manufacturing distilled hydrogenated rice bran

fatty acids, distilled cotton seed oils fatty acids, distilled coconut fatty acids.

They plan to manufacture some more varieties of fatty acids in future.

Distilled Hydrogenated Rice Bran Fatty Acids and distilled palm oil

fatty acids are acids are also being manufactured for consumption in soap plant

for the manufacture of Toilet Soaps.

Fatty Acid Pitches:

Fatty Acid pitches are obtained during distillation of crude fatty acids.

These products are supplied to laundry soaps, grease, foundry chemicals uses.

Jotex: Jotex is used in pharmaceuticals, chemicals auxiliary’s plastics,

like PVC compounds, cosmetics, metallic stearates etc.

Jostric: Jostric is used in metallic stearates metal polishes, lubricants etc.

Jocil-9: Jocil-9 is mostly use in rubber cements, paints and metal

polishes etc.

Jocil-11: It is used in PVC stabilizers, chemicals.

Rubber Grade (Economy): Rubber grade is used in rubber industry &

trade rubber. 57

MBA PROGRAMME JOCIL

Jomel: Jomel is used in rubber, cement, paints.

Jostric special: It is used in chemical industry.

Refined Glycerin:

There varieties of refined glycerin are produced namely.

Chemically pure grade (C.P)

Industrial White (I.W)

Pale Straw (P.S)

Glycerin is used in pharmaceuticals, cosmetics, explosives, paints stroke

ink, chemicals, tooth paste etc.

Oleic Acid:

Only one variety of Oleic Acid namely “Commercial Grade’ is

manufacture by JOCIL. It is used in fertilizers, cutting oils, liquid soaps and

other chemicals manufactures.

Stearic Acid:

In the stearic acid, different grades are produced with standard

specifications for different industrial consumers.

The following are the different grades of Stearic acids consumed by

different industries in manufacturing their own industrial products.

VARIOUS GRADES OF STEARIC ACIDS

JOTEX GRADE-JOTEX

SPECIAL GRADE

Used in drugs, pharmaceuticals,

cosmetics, chemicals & plastics

JOSTRIC SPECIAL GRADE Chemicals, Calcium carbonate

JOSTRIC GRADE Metal polish, Grease, Metallic polish

PVC Stabilizers and Chemicals 58

MBA PROGRAMME JOCIL

JOSTRIC 9Metal polish, Grease, Metallic polish

PVC Stabilizers and Chemicals

JOSTRIC 11 PVC

JOMEL Rubber, Cement and Paints

RUBBER GRADE Rubber, Metallic polish

Soap Manufacturing:

Different types of distilled fatty acids and hydrogenated fatty acids

are mixed to obtain a desired quality of toilet soaps. Generally features of toilet

soaps should be good lather, good perfume, stability use.

Process of Soap Manufacturing:

Fatty Acids

Soapanification

Neat Soap

Spray drying (to reduce moisture to desired level)

Soap noodles

Amalgamation (addition of colour, perfume)

Mixing (homogenization)

Extrusion (taking of sop bars)

Soap bars 59

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Cutting

Stamping

Packing

Finished soap

ANALYSIS OF WORKING CAPITAL IN JOCIL LTD

Working Capital plays the most important role in managing any business. It

refers to the part of firm’s capital. Capital is required for financing short term

or current assets such as Cash, Marketable Securities, debts and Inventories.

Working Capital is life blood of a business. The management of working

capital in a business is carried on in these areas.

CASH MANAGEMENT IN JOCIL LIMITED:

Cash management means usage of cash in several ways. Usage of cash

includes expenses and commission and the amount spent by the company for

running into profits. Cash management in Jocil is done by preparing a cash

budget availing the information from the pay order books, which will in turn

help to eliminate over keeping of cash. To reduce the delay of clearing the

cheques, Jocil Provides the facility of electronic fund transfer. The cash

management in Jocil helps to estimate the cash requirements and other day-to-

day payments.

INVENTORY MANAGEMENT IN JOCIL LIMITED:

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MBA PROGRAMME JOCIL

Inventory management is done in intermittent system. The goods are

manufactured specially to fulfill orders made by the customers. Here the

production facilities are flexible enough to handle a wide variety of products

and varied sized.

It manufactures products like Toilet Soap, Mixed Fatty Acids; other soaps

Product etc., on intermittent basis. It also manufactures Stearic Acid which

occupies 60% of overall production on order basis only.

The customers supply raw materials for production of products on job

work contract. In such cases there is no need for the company to finance for

raw materials. The inventory management in Jocil Limited is done effectively.

RECEIVABLES MANAGEMENT IN JOCIL LIMITED:

The collection procedure for the receivables has been classified in two ways.

1. Bills Discounting Procedure

2. Bills Collection Procedure

Bills Discounting Procedure:

After dispatch of goods, a bill is drawn in the name of the debtor. After

acceptance by the debtor, the bill is discounted instantly with the bank and the

debtor is requested to send the amount on due date and it will be credited to

OCC account held by the company with Andhra Bank, Gunter after adjusting

the charges. If the bill is cleared beyond the due date the debtors are charged

16% interest per annum for the delayed period.

Bills Collection Procedure:

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In this procedure the documents are sent to the banker of the party who is

required to present the documents to the party on payment. If the party fails to

retire the documents within a grace period of seven days, he is subjected to an

interest rate of 16% p.a. after collection of the amount, reports.

In the words of Anthony, “financial statements, essentially, are interim

reports, presented annually and reflect a division of the life of an enterprise in to

more or less arbitrary accounting period – more frequently a year”.

Statement of Changes in Working Capital during the period

2006-2007

Particulars 2006 2007 Increase in Working Capital

Decrease in Working Capital

Current Assets

Cash on hand 6,03,109 12,06,318 6,03,209

Cash at bank 67,97,011 4,25,73,957 3,57,76,946

Sundry debtors 11,37,30,833 13,61,88,751 2,24,57,918

Closing stock 18,88,86,937 13,14,05,030 5,74,81,907

Other current assets 32,10,95,175 30,95,89,967 1,15,05,208

Total (A) 63,11,13,065 62,09,64,023 5,88,38,073 6,89,87,115

Current Liabilities

Current Liabilities 3,63,87,091 5,29,90,750 1,66,03,659

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MBA PROGRAMME JOCIL

Provisions 17,44,11,546 11,77,05,280 5,67,06,266

Working Capital from banks

2,37,36,244 20,72,957 2,16,63,287

Total (B) 23,45,34,881 17,27,68,987 7,83,69,553 1,66,03,659

Net Working Capital (A-B)

39,65,78,184 44,81,95,036 13,72,07,626 8,55,90,774

Increase in Working Capital

5,16,16,852

Total 13,72,07,626 13,72,07,626

Interpretation:

During the period 2006 to 2007, there was an increase in the Working Capital of the Company.


2007-2008



Current Assets

Cash on hand 12,06,318 11,29,951 76,367

Cash at bank 4,25,73,957 2,44,64,397 1,81,09,560

Sundry debtors 13,61,88,751 15,10,96,317 1,49,07,566

Closing stock 13,14,05,030 10,52,91,435 2,61,13,595

Other Current assets 30,95,89,967 22,31,33,878 8,64,56,089

Total (A) 62,09,64,023 50,51,15,978 1,49,07,566 13,07,55,611

Current Liabilities 5,29,90,750

Current liabilities 11,77,05,280 5,15,67,655 14,23,095

Provisions 20,72,957 11,72,94,657 4,10,623

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17,27,68,987 1,92,92,894 1,72,19,937

Total (B) 44,81,95,036 18,81,55,206 18,33,718 1,72,19,937


31,69,60,772 1,67,41,284 14,79,75,548


13,12,34,264

Total 14,79,75,548 14,79,75,548

Interpretation:

During the period 2007to 2008, there was an increase in the working capital of the Company.


2008-2009



Current Assets

Inventories 10,52,91,435 13,39,45,023 2,86,53,588

Sundry Debtors 15,10,96,317 15,22,91,708 11,95,391

Cash + Bank balances 2,55,94,348 12,10,34,896 9,54,40,548

Others current Assets 57,986 13,89,848 13,31,862

Loans + Advances 22,30,75,892 23,61,87,286 1,31,11,394

Total (A) 50,51,15,978 64,48,48,761 13,97,32,783

Current Liabilities


Provisions 11,72,94,657 11,29,88,519 43,06,138

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1,92,92,894 1,52,87,300 40,05,594

Total (B) 18,81,55,206 21,81,16,898 83,11,732 3,82,73,424

Networking Capital (A-B)

31,69,60,772 42,67,31,863 10,97,71,090

Increase Working Capital

14,80,44,515

Total 14,80,44,515 14,80,44,514

Interpretation:

There was some change in current assets which leads to all the increase

stages where it shows the higher utilization of working capital.

Increase of current liabilities the utilization has come down. However, during

the year 2008 & 2009there was decreasing in utilization of working capital.

Particulars 2009 2010 Increase in working Capital


Current assets

Inventories 133,945,023 138,918,033 4,973,010

Sundry Debtors 152,291,708 206,245,483 53,953,775

Cash and bank balance 121,034,896 64,796,749 56,238,147

Other current assets 1,389,848 1,536,064 146,216

Loans and advances 236,187,286 213,370,249 22,817,037

Total (A) 644,848,761 624,866,578 59,073,001 79,055,184

Current Liabilities

Current Liabilities 89,841,079 64,484,799 25,356,280

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Provisions 112,988,519 125,994,772 13,006,253


15,287,300 7,964,793 7,322,507.00

Total (B) 218,116,898 198,444,364 13006253 32,678,787


426,731,863 426,422,214 46066748 46,376,397

Decrease Working Capital 309649

Total 46376397 46,376,397


2009-2010

Interpretation:

During the period 2009to 2010, there was a decrease in the Working Capital of the Company.

Statement of Working Capital during the period

2010-2011



Current assets

Inventories 13,89,18,033 16,89,68,061 3,00,50,028

Sundry debtors 20,62,45,483 22,87,71,563 2,25,26,080

Cash and bank balance 6,47,96,749 23,91,49,881 17,43,53,132

Other Current assets 15,36,064 18,78,444 3,42,380

Loans and advances 21,33,70,249 21,54,32,118 20,61,869

Total (A) 62,48,66,578 85,42,00,067 229,333,489

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Current Liabilities


Provisions 12,59,94,772 18,38,19,408 5,78,24,636


79,64,793 2,82,41,585 2,02,76,792

Total (B) 19,84,44,364 32,99,97,588 11,12,76,432 2,02,76,792


42,64,22,214 52,42,02,479 11,80,57,057 2,02,76,792

Increase in Working Capital

9,77,80,265

Total 11,80,57,057 11,80,57,057

Interpretation:

During the period 2010to 2011, there was an increase in the Working Capital of the Company.

Statement of Changes in Working Capital of Jocil Limited (Rs. in lakhs)

Year Current Assets

(Rs.)

Current Liabilities

(Rs.)

Working Capital Changes in Working Capital

31-3-2007 62,09,64,023 17,27,68,987 44,81,95,036 5,16,16,852

31-3-2008 50,51,15,978 18,81,55,206 31,69,60,772 13,12,34,264

31-3-2009 64,48,48,761 21,81,16,898 42,67,31,863 10,97,71,091

31-3-2010 62,48,66,578 19,84,44,364 42,64,22,214 3,09,649

31-3-2011 85,42,00,067 32,99,97,588 52,42,02,479 9,77,80,265

Average 64,99,99,081 22,14,96,609 42,85,02,473 7,81,42,424

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Interpretation:

There were some changes in the Working Capital statement. During the

year 2007, it shows low utilization of Working Capital and during the years

2008 and 2009, the utilization has increased. However, during the year

2010utilization has very come down. 2011 was again an increase in utilization

of Working Capital low.

RATION OF WORKING CAPITAL IN JOCIL LTD:

LIQUIDTY RATIO

Current Ration:

The Current Ratio is a measure of firm’s short/term solvency. It indicates the availability of current assets in rupees for every one rupee of current liability.

Current Ration = Current Assets

Current Liabilities

Current Ratio in Jocil ltd

(Rs. in lakhs)

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Year Current Assets Current Liabilities Ratio

2006-2007 62,09,64,023 17,27,68,987 3.59

2007-2008 50,51,15,978 18,81,55,206 2.68

2009-2009 64,48,48,761 21,81,16,898 2.95

2009-2010 62,48,66,578 19,04,79,571 3.28

2010-2011 85,42,00,067 30,17,56,003 2.83

Interpretation:

A Current Ratio of 2:1 or more is considered satisfactory. This rule is

based on the logic that in a worse situation, even if the value of current assets

Ratio

0

0.5

1

1.5

2

2.5

3

3.5

4

2005-2006

2006-2007

2007-2008

2008-2009

2009-2010

Ratio

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becomes half, the firm will be able to meet its obligations. The Current Ratio

represents a margin of safety for creditors. It measures only total rupees worth

of current assets and current liabilities and does not measure the quality of

assets and current liabilities and does not measure the quality of assets.

However, it is measure of the firm’s liquidity. From the above table, it is

evident that Current Ratio of Jocil is more than 2.50, which indicates its

creditors are having a very high margin safety.

Quick Ratio:

Quick Ratio establishes a relationship between quick or liquid assets and

current liabilities. An asset is liquid if it can be converted into cash

immediately or reasonably soon without a loss of value. Cash is the most liquid

asset.

Quick Ratio = Quick Assets

Current Liabilities

Quick Ratio in Jocil Ltd

(Rs in lakhs)

Year Quick Assets Current Liabilities Ratio

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2006-07 49,30,56,255 17,27,68,987 2.85

2007-08 39,98,24,545 18,81,55,206 2.12

2008-09 38,87,30,521 20,28,29,598 1.92

2009-10 38,16,38,171 19,04,79,571 2.00

2010-11 53,03,61,167 30,17,56,003 1.76

Interpretation:

Generally a Quick Ratio of 1:1 is considered to represent a satisfactory

current financial condition. From the above table, it is evident that Jocil Quick

Ratio is more than 2.00 in all yeas except in the years 2008-09, and 2010-11

Ratio

0

0.5

1

1.5

2

2.5

3

2005-06 2006-07 2007-08 2008-09 2009-10

Ratio

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which indicates it can very well meet its current obligations without any funds

crunch.

Stock Turnover Ratio:

This ratio indicates the efficiency of the firm in producing and selling its

product. The average of opening and closing balances of inventory. In a

manufacturing company, inventory of finished goods is used to calculate this

ratio.

Stock Turnover Ratio = Cost of Goods Sold

Average Inventory

Stock Turnover Ratio in Jocil Ltd (Rs in lakhs)

Year Cost of Goods sold (Rs.)

Opening Inventory (Rs.)

Closing Inventory (Rs.)

Average Inventory

Ratio

2006-07 57,65,55,039 4,99,06,963 3,34,64,972 4,16,85,968 13.83

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2007-08 61,02,59,100 3,34,64,972 5,88,07,804 4,61,36,388 13.22

2008-09 73,98,04,529 5,88,07,804 7,79,59,405 6,83,83,604 10.82

2009-10 104,09,24,257 7,79,59,405 8,77,98,748 8,28,79,076 12.56

2010-11 172,64,33,594 8,77,98,748 10,75,76,033 9,76,87,390 17.67

Interpretation:

If the Turnover Ratio is high, it means that the Company can rotate its

turnover for more number of times. During the year 2010-11, this stood

at17.67.

Ratio

0

2

4

6

8

10

12

14

16

18

20

2005-06 2006-07 2007-08 2008-09 2009-10

Ratio

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Stock Conversion Period:

Stock Conversion Period shows the average time for clearing the stock

through sales. The formula is to divide the No. of days in a year with the Stock

Turnover Ratio.

Stock Conversion Period = 365 Days

Stock Turnover Ratio

Stock Conversion Period in Jocil Ltd

(RS IN Lakhs)

74

Year Days Stock Turnover Ratio Stock Conversion Period

2006-07 365 13.83 26

2007-08 365 13.22 28

2008-09 365 10.82 34

2009-10 365 12.56 29

2010-11 365 17.67 21

MBA PROGRAMME JOCIL

Interpretation:

If the Stock Conversion Period is low, it means that the Company can rotate

its stocks so fact and more number of times in a year. Further, during last two

years 2009-10, 2010-11 the Conversion Period has 1st decrease and next

increase due to holding higher inventory of finished goods.

Average Collection Period:

Average Collection Period tells us how and in what time the debtors are

collected. The Debtors Turnover Ratio tells about how many times the debtors

are to that of sales. These two are reciprocities at each other.

Average Collection Period = 365 Days

Stock Conversion Period

0

5

10

15

20

25

30

35

40

2005-06

2006-07

2007-08

2008-09

2009-10

Stock ConversionPeriod

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Debtors Turnover Ratio

Average Collection Period in Jocil Ltd (Rs. in Lakhs)

Year Days Debtors Turnover Ratio

Average Collection Period (Days)

2006-07 365 6.82 54

2007-08 365 5.71 64

2008-09 365 6.23 59

2009-10 365 7.12 51

2010-11 365 9.84 37

Average Collection Period (Days)

0

10

20

30

40

50

60

70

2005-06

2006-07

2007-08

2008-09

2009-10

Average CollectionPeriod (Days)

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MBA PROGRAMME JOCIL

Interpretation:

Generally, the higher the value of debtor’s turnover, the more efficient is the

management of credit. From the above table, it is evident that the Average

Collection Period of debtors was increase during the year 2007-08. The

Average Collection Period was low in the year 2008-09 due to maintenance of

debtors at a lower level compared to hike in turnover. However it was decrease

to 37 days during the 2010-11.

Working Capital turnover Ratio:

A firm may also likes to relate net current assets to sales. Net current

assets are thing but the difference between current assets and current liabilities.

The result of this ratio indicates how many times the working capital has rotated

for generating the sales.

Working Capital Turnover Ratio = Sales

Net Current Assets

Working Capital Turnover Ratio in Jocil Ltd

(Rs. in Lakhs)

Year Sales (Rs.) Current Asset (Rs.)

Current Liabilities (Rs.)

Net Current Assets (Rs.)

Ratio

2006-07 77,22,61,376

62,44,61,285 17,65,68,731 44,78,92,554 1.72

2007-08 73,02,58,572

50,51,15,978 16,88,62,312 33,62,53,666 2.17

2008-09 84,55,85,49 64,48,48,761 20,28,29,598 44,20,19,163 1.91

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Ratio

0

0.5

1

1.5

2

2.5

3

3.5

4

2006-07 2007-08 2008-09 2009-10 2010-11

Ratio

MBA PROGRAMME JOCIL

4

2009-10 112,91,96,244

62,48,66,578 19,04,79,571 43,43,87,007 2.60

2010-11 193,41,67,617

85,42,00,067 30,17,56,003 55,24,44,064 3.50

Interpretation:

If Working Capital Turnover Ratio is high, it is better to the organization. In

the years 2010-11, 2009-10, 2007-08,the ratio was more than 2.00 times

working capital has rotated to that of sales. It shows an improvement in these

years. However, the ratio was below 2.00 times in the years 2006-07, 2008-09

as the level of current assets have gone up substantially due to which the ratio

has fallen down.

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FINDINGS & SUGGESTIONS

FINDINGS OF THE STUDY:

Schedule of changes in working capital showed increases in working

capital from 2006 to 2011.

Quick ratio is also increasing from 31-3-2006 and it is decreased as on

31-3-2008 to 31-3-11.

Current ratio of the company decrease into the 2006 to 2011.

The Debt Ratio and Debt Equity Ratio are less than 0.18 as against

normally permitted level of up to 2 in the manufacturing companies. It

indicates that the Company has repaid the term loans and is almost Debt

free.

Company is always maintaining high liquidity to meet daily operations.

And also maintaining good cash management. The excess in banks

always converted into fixed deposits.

The net profit ratio is increase 3.59 in 2008; again it is decrease to 1.83in

2010

Cash ratio showed decreasing balance between the periods 2011 working

capital of the company showed an increase balance.

SUGGESTIONS:

Working Capital turnover ratio should be high. To increase this ratio,

Jocil has to reduce its net working capital. Net working capital can be

reduced when inventory level is to minimum.

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At present the raw material holding period is 27 days. This can be

reduced to a maximum of 7 days, as the raw materials are available at

nearby places. When an order is placed they can have required

material within 2 to 3 days.

Inventory turnover ratio indicates the efficiency of the firm in

producing and selling its products.

As Jocil, this ratio is gradually increasing. In 2006, it is 12.97 whereas

in 2010, it was 17.69.

In order to increase this ratio, sales should be increased. To increase

the sales company has to concentrate in capturing the foreign markets.

This is easily possible as they are linked with multi-nationals and

reputed business houses.

Through them they can enter into the foreign market by sending some

samples of their products. Once they are able to attract foreign

customers they can utilize their licensed capacity which is 69500TPA.

At present it is utilizing only 37227 TPA.

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GLOSSARY

Gross Working Capital :

It is also known as current capital.

Net Working Capital :

It refers to the difference between current assets and current liabilities.

Permanent Working Capital :

The minimum level of current assets is referred to as permanent or fixed or long-term

working capital.

Temporary Working Capital :

The extra working capital, needed to support the changing production and sale activities

is called the temporary working capital or short-term working capital.

Operating Cycle :

Operating cycle is the time duration required to sales after the conversion of resources

into inventories into cash.

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Working Jocil 06

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