Lakshmi Narain College of Technology AND Science, Bhopal

A SUMMER TRAINING REPORT ON

WORKING CAPITAL MANAGEMENT IN FOOD CORPORATION OF INDIASubmitted for the partial Fulfillment of the requirement for the award of degree in

MASTER OF BUSINESS ADMINISTRATIONFrom

Barkatullah University, Bhopal (M. P.) (2009-2011) Guided by: Submitted by:

Prof. SAURAV KADAM

JAI SINGH

Lakshmi Narain College of Technology Science, Bhopal(Affiliated to Barkatullah University, Bhopal & Recognized by AICTE New Delhi)

STUDY ON WORKING CAPITAL MANAGEMENT OF (BHOPAL) FOOD CORPORATION OF INDIA

A PROJECT REPORT TOWARDS PARTIAL FULFILMENT FOR THE DEGREE MBA IN FINANCE

Guided by: Prof. SAURAV KADAM

Submitted by: JAI SINGH

Page 2

M.B.A (FIN) BARKATULLA UNIVERSITY, BHOPAL (M.P) 200920011

PREFACE

The underlying aim of the summer training in FCI is a sincere attempt to analyze its Working Management by making use of different financial appraisal techniques. The data for the studies were obtained from the published annual reports of the company. Among all the problems of financial management, the problems of working capital management have probably been recognized as the most crucial one. It is because of the fact that working capital always helps a business concern to gain vitality and life strength. The objective of this study is to critically evaluate working capital management as practiced in FCI. In this study, a sincere attempt has been made to analyze the working of FCI by making use of different financial appraisal techniques like ratio analysis, trend analysis, common-size analysis etc. The period of study was 3 year from 2005- 06 to 2007-08. The data for the studies were obtained form the published annual reports of the company. An effort has been made to appraise the overall financial performance and efficiency of management, but the scope and depth of study remained limited due to the limiting factors of time, and resources. However, it is expected that the study will provide useful information for better and easier understanding of the financial results of the company. This study has been divided into six chapters. The first chapter has been devoted to the introduction and last to the summary of conclusion and suggestion. The second chapter deals with the objectives. Third chapter takes care of introduction to financial analysis. In addition to this fourth chapter deals with significance of working capital, whereas fifth chapter deals with the analysis aspects of working capital. The main source of data has been the annual reports of the company.

Page 3

DECLARATION

.

I am Jai Singh a student of M.B.A.III semester of LAKSHMI NARAIN

COLLEGE OF TECHNOLOGY AND SCIENCE BHOPAL (2010-2011), here by declared that the following Project report on WORKING CAPITAL MANAGEMENT in FOOD CORPORATION OF INDIA (RCI) at BHOPAL is an authentic work done by me.

The project was undertaken as the part of course curriculum of MBA Program, Barkatullah University Bhopal.

Date:-

Page 4

CERTIFICATE

This is to certify that JAI SINGH has completed his project work on the subject entitled WORKING CAPITAL MANAGEMENT IN FOOD CORPORATION OF INDIA which is based on the research study undertaken by him. The project report is completed by the candidate under my supervision. It is an original, unaided research study completed under my supervision to meet the partial requirement of the MBA (FT) degree of Barkatullah University, Bhopal.

DATE:-

Page 5

LAKSHMI NARAIN COLLEGE OF TECHNOGY & SCIENCE BHOPAL

CERTIFICATE

This is to certify that JAI SINGH has completed his project work on the subject entitled WORKING CAPITAL MANAGEMENT IN FOOD CORPORATION OF INDIA which is based on the research study undertaken by him. The project report is completed by the candidate under my supervision. It is an original, unaided research study completed under my supervision to meet the partial requirement of the MBA (FT) degree of Barkatullah University, Bhopal.

DATE:PRINCIPAL (LNCT&S BHOPAL)

Page 6

LAKSHMI NARAIN COLLEGE OF TECHNOGY & SCIENCE BHOPAL

CERTIFICATE

This is to certify that JAI SINGH has completed his project work on the subject entitled WORKING CAPITAL MANAGEMENT IN FOOD CORPORATION OF INDIA which is based on the research study undertaken by him. The project report is completed by the candidate under my supervision. It is an original, unaided research study completed under my supervision to meet the partial requirement of the MBA (FT) degree of Barkatullah University, Bhopal.

DATE:Prof. SOURAVKADAM LNCT BHOPAL

Page 7

AcknowledgementsI got this opportunity to place on record my grateful thanks and sincere gratitude to Mr. D.K.Shukla and All staff member of FCI Bhopal, who gave me valuableadvice and inputs for our study. I am highly obliged Head,

Human Resource

Department for permitting me for Project training otherwise my study could not have been completed if I had not been able to get the reference materials from the company and proper support from them. I am immensely grateful to Mr. SOURAV KADAM whose continued and invaluable guidance can never be forgotten by me but for whom, this study could not have present shape.

Page 8

CONTENTS1. 2. 3. 4.

Company profile:Objective of the project:Introduction to Financial analysis:Significance of the working capital:-

5. Analysis of working capital:6.

Conclusion and suggestion:References Glossary

Page 9

TABLE OF CONTENTS

Acknowledgments Preface AbstractChapterisation1. Introduction 1.1 1.2 1.3 1.4 Overview FCI Brief history. Objectives.. Organization structure

2. Objective of the project 2.1 2.2 2.3 Research Methodology Type of Research. Sample of Research..

3. Introduction to financial analysis 3.1 3.2 3.3 3.4 3.5 Prelude.. Concept of financial Statement. Types of Financial Statement.. Parties Interest Financial Appraisal.

Page 10

4. Significance of the working Capital 4.1 4.2 4.3 4.4 4.5 Introduction of working capital. Concept of working Capital. Importance of working capital analysis.. Operating and cash conversion cycle Methods and ratios

5. Analysis of Working capital 5.1 5.2 5.3 Working capital analysis. Working capital trend analysis.. Ratio Analysis.

6. Conclusions and Recommendations 6.1 6.2 Profitability.. Working capital..

References

Glossary

Page 11

CHAPTER: - 1INTRODUCTION TO THE FCI

Page 12

The Food Corporation of India was setup under the Food Corporation Act 1964, in order to fulfill following objectives of the Food Policy:

Effective price support operations for safeguarding the interests of the farmers. Distribution of food grains throughout the country for public distribution system Maintaining satisfactory level of operational and buffer stocks of food grains to ensure National Food Security

In its 45 years of service to the nation, FCI has played a significant role in India's success in transforming the crisis management oriented food security into a stable security system. FCI's Objectives are:

To provide farmers remunerative prices To make food grains available at reasonable prices, particularly to vulnerable section of the society To maintain buffer stocks as measure of Food Security To intervene in market for price stabilization

Page 13

Board of DirectorsResidence Phone Residence Address

Sl.No Name

Office Phone

1

Shri Siraj Hussain, Chairman & Managing Director, Food 23414074 Corporation of India, Hqrs., 23411839 New Delhi. (w.e.f. 01.04.2010 till further order) Shri Desh Deepak Verma Addl. Secretary & Financial Adviser, M/o CAF&PD, Krishi Bhavan, 23384418 New Delhi. (w.e.f. 26.04.2010 till further order) Shri Rakesh Garg, Joint secretary, M/o CAF&PD, 23381177 Krishi Bhavan, New Delhi. 23388302(FAX) (w.e.f. 15.04.2010 till further order) Shri Mukesh Khullar, Joint Secretary, Ministry of 2742836 FAXAgriculture, Krishi Bhavan, 0172-742836 New Delhi. (w.e.f. 23.11.2006 till further order) Shri B.B. Pattanaik, Managing Director, Central Warehousing Corporation, Hauz Khas, New 26852826 Delhi. (w.e.f. 15.07.2008 for 5 26515160 years or till date of 26967844(FAX) superannuation which is earlier) Shri D.S. Grewal, Secretary (Food), Govt. of Punjab, Mini Secretariat, Room No. 410, 4th 2742836 FAXFloor, Sector-9, Chandigarh. 0172- 742836 (w.e.f. 18.10.2010 for two years)

9818518384 A-70, Sector-61, 0120-2586161 Noida (U.P.)

2

09414100002

C-II/19, Tilak Lane, Delhi.

3

9999671271 23389458

C-II/36, Tilak Lane, New Delhi

4

24106327 9968265387

C-II/40, Satya Marg, Chankya Puri, New Delhi110017

5

9872872447

House No. 3009, Sector-39D, Chandigarh

6

26493932 9818372724

A-311, Chandgi Ram Block, Asian Village New Delhi110049

Page 14

Organizational Structure

Page 15

FOOD CORPORATION OF INDIA ZONAL OFFICE: WEST (M.P)Quality control Scientific ManagementThe Food Corporation of India has an extensive and scientific stock preservation system. An on-going programme sees that both prophylactic and curative treatment is done timely and adequately. Grain in storage is continuously scientifically graded, fumigated and aerated by qualified trained and experienced personnel.

Food Corporation of India's testing laboratories spread across the country for effective monitoring of quality of food grains providing quality assurance as per PFA leading improved satisfaction level in producers (farmers) and customers (consumer).

The preservation of food grain starts, the minute it arrives in the godowns. The bags themselves are kept on wooden crates/poly pallets to avoid moisture on contact with the floor. Further till the bag are dispatched/issued, fumigation to prevent infestation etc. of stocks is done on an average every 15 days with MALATHION and once in three months with DELTAMETHRIN etc. on traces of infestation, curative treatment is done with all.

Page 16

QUALITY POLICYFCI, as the country's nodal organization for implementing the National Food Policy, is committed to provide credible, customer focused services, for efficient and effective food security management in the country. Our focus shall be:

Professional excellence in Management of food grain and other commodities Service quality and stake holder orientation Transparency and accountability in transactions Optimum utilization of resources Continual improvement of systems, processes and resources

QUALITY OBJECTIVES

Fulfillment of all the targets set as per Govt. of India Food Policy from time to time.

Monitoring of Quality in all major transactions, processes leading to improved customer satisfaction level Accountability for efficiency, responsiveness, performance and minimization of all losses & Wastes Need based up gradation of infrastructure and work environment Need based enhancement of available knowledge & skills. Transparency in decision making, effective communication leading to harmonious employee relations Establishing, maintaining and improving ISO 9001:2000 based Quality Management Systems covering all areas of activity.

Page 17

CHAPTER: 2 OBJECTIVES OF THE PROJECT

Page 18

OBJECTIVES

CONCEPTUAL: - (financial techniques: working capital ratios) To prepare a financial report after analysis and interpretation of finding from balance sheet and profit and loss account by applying various mathematical and financial tools and techniques.

FACTUAL :- ( analysis of facts (results) derived from the financial technique) Present earning capacity and profitability of FCI Ltd Short term liquidity and long term financing Financial stability of business Analyze of different ratio so to judge the availability and effective use of working capital.

Page 19

RESEARCH METHODOLOGY Research methodology is a systematically solve the research problem. It has many dimension and research method constitute a part of the research methodology. Thus when we talk about the research methodology, we do not talk only research methods but also consider the logic behind the method. we use in our context of our research study, so that research results are capable of being evaluated either by the researcher himself or by the others. To effectively carry out in research I would use the following research process,which consist of series of action or steps.

RESEARCH COMPRISES FOLLOWING STEPS:1. Formulating the research problem. 2. Research design and sample design. 3. Analysis of data gathered. 4. Data analysis and caparison . 5. Graphics and interpret.

Page 20

1. FORMULATING THE RESEARCH PROBLEMThis is the first step under which the problem stated in general way and the ambiguities i.e. understanding and rephrasing the problem thoroughly and rephrasing the same into meaningful terms from an analysis point of view. The research problem under the present project was to study data of various funds for this research process was to be formulated and execution of which would result in desired data.

2. PREPARING THE RESEARCH DESIGNThe function of research design is to provide for the collection of relevant evidences with minimum expenditure of efforts, time and money.

RESEARCH DESIGN Type of research Sample design

TYPE OF RESEARCH The type of research under present is an analytical research. In analytical research; we use tacts or information already available these to make a critical evaluation of the material. Hence the same would be done In this project I had collected fact data and information.

Page 21

SAMPLE DESIGNA sample design is a definite plan determined before any data is actually collected for obtaining a sample. Researcher must select a sample design, which should be reliable and appropriate for his report.

3. OBSERVATIONAL DESIGN (COLLECTION OF DATA)Observational design relates to the condition under which the observations are to be made. observational design in respect to research. There are several ways of collecting data, which differ considerably in context of money, time, cost and other resources at the disposal of the researcher. Data can be obtained two important sources: Primary data Secondary data

PRIMARY DATA Primary data are the data that are collected afresh and for the first time.thus happens to be in character. Primary data are collected by the following ways:a) Observation b) Interview c) Schedule d) Questionnaire

Page 22

Secondary dataSecondary data are the data that are already collected and only analyzed by different sources these sources are as follows: Corporate magazine Manuals of various companies Books, journals, news papers Employment exchange

The secondary data would be collected from financial statement, journal of national repute, books of national and international author as well as the annual report of the company. In addition to this internet access will make the study more effective and meaningful.

Page 23

CHAPTER: - 3 INTRODUCTION TO FINANCIAL ANAYSIS

Page 24

FINANCIAL ANALYSIS

PRELUDE:Financial accounting involves recording transaction and preparing Report and financial statement that can be used by management owner, creditor, government agencies and other to understand what is happening in the business or nonprofit organization. Accounting is the process of identifying, measuring and communicating economic information to permit informed judgment and decisions by users of the information.

Page 25

CONCEPTS OF FINANCIAL STATEMENTSFinancial statement are major means employed by firm to present their financial situation to stock holders creditors and the public a financial statement is a collection of data organized accounting to logical and consistent accounting procedure. Its purpose is to convey an understanding of some financial aspects of a business firm. The and product of financial accounting is financial statement consisting of the balance sheet, profit and loss accounting and statement changes in financial position. Financial statements are major means employed by a firm to present their financial situation to stock holders, creditors and the general public. Accounting reports on the result of operation and the current status of a business enterprise by a financial statement. The balance sheet and income and statement. Since the balance sheet and income statement are of limited interest the annual report of the company are supplemented by a third statement the change in financial position and by foot notes which explain and amplify the reported numerical data.

Page 26

TYPES OF FINANCIAL STATEMENTS A) The Balance Sheet:The balance sheet is called a fundamental accounting report. It provides information about the financial standing or position of affirm at given instant. The balance sheet can be visualized, as a snapshot of the financial status of company is a valid for only one day the reference day. The position of the firm on a preceding day is bound to be different. The balance sheet of a company indicates to management the financial status of a company as on a given moment. From an analyst point of view a balance sheet is written representation of the resources and liabilities of an individual partnership firm an association of a corporation.

The contents of balance sheet can be divided into three divisionsAssets:Assets are valuable resources owned by a business, which are acquired at a measurable money cost these are economic resources of a firm which provide economic benefits to the company. Liabilities:Liabilities are claim of creditors against the enterprises arising out of past activities that are to be satisfied by the disbursement of utilization of corporate resources. They are economic obligation of the firm. Owners Equity:The owners equity is the owners current investment in the assets of company. The entire system of recording business transaction is based on accounting equation. The accounting equation is an accounting formula expressing equivalence of the two expressions of assets and liabilities.

Page 27

ACCOUNTING EQUATIONASSETS = LIABILITIES+OWNERSEQUITY OR OWNERS EQUITY = LIABILITIES = ASSETS-LIABILITIES OR ASSET-OWNERS EQUITY

(B) The Income Statement:The balance sheet, as discussed above, is considered a very significant statement from the view point of bankers, and other lenders, because it indicates the firms financial position and strength, as measured by its recourses and obligations, however, editors and financial analysis have recently started paying more attention to the firms capacity as a measure of its financial strength. Its income statement reveals the firms capacity as a measure of its financial strength. Its income statement reveals the earning potential of the firm. An income statement is a financial statement summarizing the result of a companys income (profit) making activities for a specific time period. It summarizes revenues and expenses in a manner that discloses whether a companys activates in a particular fiscal period have

Page 28

resulted in profit or a loss. The income statement is a scoreboard of the firms performance during a particular period of time. The profit and loss account is the condensed and classified record of the gains losses posing change in the owners interest in the business for a period of time. The income statement or the profit and loss account presents the summary of revenues, expenses and net income (or net loss) of a firm for a period of time. Thus, it serves as measure of the firms profit ability. Its systematic array of the data of the revenues, revenues deduction (expenses, revenues, revenue deductions, expenses, losses, taxes etc.) Net income and distribution or assignment of the net income to creditors and property investors of a particular period.

(C)STATEMENT OF CHANGE IN FINANCIAL POSITION Until 1960, the income statement and the balance sheet constituted the major financial statement. However, management traditionally made use of a wide variety of statement and reports in apprising internal company performance. One popular report for managements internal use was called the statement of changes in final position. From such a report, management could extract valuable information about where working capital and cash come from and how they were used. If these past events could be projected in future, management would have a useful tool for budgeting. Today, the statement of changes of financial position represents third financial position represents a third financial statement.

PARTIES INTERESTEDAccording to the American institute of certified public accountants, financial statement reflects, a combination a recorded facts, accounting convention and personal judgments and the judgments and conventions applied, affect them materially. Following are interested in financial statement:-

Credit, suppliers and others are having business with the company. Debenture holders. Credit institutions and banks. Potential lenders and investors.

Page 29

Trade unions and employees. Important customers wishing to make a long standing with the company. Economist and analyst. Members of parliament, the public committee in respect in government companies. Taxation authorities. Other departments dealing with the industry in which the company engaged cooperative. The company law board

FINANCIAL APPRAISALA companys financial statement are intended to summarize the results of its operation and its ending financial condition. The information in the statement is studied and related to other information by external users for several reasons. Current shareholders, for example, are concerned about their invested income, as well as the companys overall profitability and stability. Some potential investors are invested in solid companies that are companies whose financial statement indicate stable earnings and dividends with little growth in operations. Other prefers companies whose financial statement indicate rend for rapid growth in a companys short run solvency, its ability to pay current obligation as they become due. Long-term creditors are concerned about the safety of their interest; income and companys ability to continue earning cash flow to meet its financial commitments and these are only few of the users, and uses of financial statements. But the numerical data in the financial statement are quit calm. They cannot speak. Analytical data are not ending in themselves, but they are meant to an end. Financial appraisal is an attempt to determine the significance, and meaning of the financial statement data so that forecast may be made of the prospects for future earnings, ability to pay interest, debt maturities both current as well as long term profitability of a sound dividend policy. Financial appraisal involves the assessment of firms past, present and anticipated future financial condition. Financial appraisal is a scientific evaluation if the profitability and financial strength of a business concern. In fact financial appraisal and analysis of financial statement have nearly the same meaning. Financial statement analysis is used for the purpose of financial appraisal. Financial appraisal is the process of making a scientific proper, critical and comparative evaluation of the profitability and financial health of given concern through the application of financial statement analysis. Financial statement analysis is a preliminary step towards the evaluation of result dawn by the analysis or management accountant. AppraisalPage 30

or evaluation of such results is made thereafter. Financial appraisal begins where financial analysis ends, and financial analysis starts where the summarization of financial data in the form of profit and loss account and balance sheet ends, in the words of Kenney and MacMillan, financial statement analysis attempts to unveil the meaning and significance of the items composed in profit and loss account and balance sheet so as to assist the management in the formation of sound operating financial policies. The appraisal or analysis of financial statement spotlights the significant facts and relationship concerning managerial performance, corporate efficiency, financial strength or weakness and credit worthiness, that would have otherwise been buries in the maze of details.

The technique of financial appraisals frequently applied to the study of accounting data with a view to determining continuity or discontinuity of the operating policies and investment value of business. Everybody interested in the affairs of the company is interested in finding answer to the following searching question:-

A. Does the company earn adequate profit? B. Does the company process enough funds to meet its obligation as and when they mature? C. Is investment in the company safe?

Appraisal of financial statement alone can answer such queries. Its true that statement analysis merely reveals what has taken place in the past, but past events given some indication of what may be expected in future unless some drastic changes take place in business it. Will continue to move in the same direction in the past. Roy .A. Faulke is very correct to say if a train is moving forward at a known rate of speed, it is reasonable to assume that it will continue to move at approximately the same rate unless some obstacle interrupts its progress abruptly or the motive power is increased or decreased. Similarly it is a reasonable to assume that unless some realistic change take places in the places in the business, it will continue to move in the same general direction as indicated by its comparative trends.

NEED OF FINANCIAL APPRAISAL

Page 31

The need of financial appraisal varies accounting to type of users. For management it servers as means of self evaluation as it is like a report of its managerial skill and competence a banker can judge the liquidity position a creditor can plan buying and selling of hares of concern on the basis of safety of principal and its capital appearances as wanted by the past record of earning. A debenture holder of a concern can ascertain whether income is generates sufficient margin to pay the interest / answers to different question are provided by financial appraisal. By using this technique an economist can study the extent of concentration of economic power and pitfalls in the financial policies pursued, while a planner can ascertain if the patter of investment reveals the companys position in relation to labor and its welfare, legislation concerning licensing desirable in the socio economic interested may be based on statement analysis.

CHAPTER: 4 SIGNIFICANCE AND ANALYSIS OF WORKING CAPITAL

Page 32

SIGNIFICANCE OF WORKING CAPITALIntroduction:The management of current assets is similar to that of fixed assets in the sense that in both case that a firm analyses their effects on its return and risk. The management of fixed and current assets, however, differs in three important ways: first, in managing fixed assets, time is a very important factor; consequently, discounting and compounding techniques play a significant role in capital budgeting and a minor one in the management of current assets. Second, the large holding of current assets, especially cash, strengthens the firms liquidity position (and reduces riskiness), but also reduces the overall profitability. Thus a risk-return trade off is involved in holding current assets. Third, levels of fixed as well as current assets depend upon expected sales, but it is only current assets which can be adjusted with sales fluctuations in the short run. Thus, the firm has a greater degree of flexibility in managing currents.

CONCEPTS OF WORKING CAPITAL Gross working capital:Gross working capital refers to the firms investment in current assets are the assets which can be converted into cash within an accounting year and include cash , short-term securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory). Net Working Capital:Its refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payments within an accounting year and include creditors (account payable) , bills payable ,and outstanding expenses . Net Working Capital can be positive or negative. A positive net working capital will arise when current assets exceed current liabilities .a negative net working capital occurs when current liabilities are in excess of current assets.

Page 33

PERMANENT WORKING CAPITAL:We know that the need of current assets arises because of the operating cycle. The operating cycle is a continuous process and, there for, the need for current assets is felt constantly. But the magnitude of current assets needed is not always the same; it increases and decreases over time. However there is always a minimum level of current assets which is continuously required by a firm to carry on its business operations. Permanent or fixed, working capital is the minimum level of current assets. It is permanent in the same way as the firms fixed assets are depending upon the changes in production and sales, the need for working capital, over and above permanent working capital, will fluctuate. For example extra inventory of finished goods will have to be minted to support the peak period of sale, and investment in debtors (receivable) may also increase during such periods. On the other hand, investment in raw material, work in process and finished goods will fall if the market is slack

Temporary or fluctuating

Amount of working

Permanent

capital(Rs)

Time

VARIABLE OR FLUCTUATING WORKING CAPITAL:Variable or fluctuating working capital the extra working capital needed to support the changing production and sales activities of the firm. Both kinds of working capital permanent or fluctuating (temporary)-are necessary-to facilitate production and sales through the operating cycle. But the firm to meet liquidity requirements that will last only temporary working capital. In figure illustrates differences between permanent and temporary working capital. It is shown that permanent working capital is stable over time, while temporary working capital is fluctuating sometimes increasing and sometimes decreasing. However, the permanent working capital need not be horizontal if the firms requirement for permanent capital is increasing (or decreasing) over a period

Page 34

FOCUSING ON MANAGEMENT OF CURRENT ASSETS The gross working capital concept focuses attention on two aspects of current assets management: 1. How to optimize investment in current assets 2. How should current assets be financed? The consideration of the level of investment in current assets should avoid two danger points- excessive or inadequate investment in current assets. Investment in current assets should be just adequate to the needs of the business firm. Excessive investment in current assets should be avoided because it impairs the firms profitability, as idle investment earns nothing. On the other hand, inadequate amount of working capital can threaten solvency of the firms because of its inability to meet its current obligations. It should be released that the working capital needs of the firm may be fluctuating with changing business activity. This may cause excess or shortage of working capital frequently. The management should be prompt to initiate an action and correct imbalances. Another aspect of the gross working capital point to the need of arranging funds to finance current assets. Whenever a need for working capital funds arises due to the increasing level of business activity or for any other reason. Financing arrangement should be made quickly. Similarly, if suddenly, some surplus funds arise they should not be allowed to remain idle, but should be invested in short- term securities. Thus, the financial manager should have knowledge of the sources of working capital funds as well as investment avenues where idle funds may be temporarily invested. FOCUSING ON LIQUIDITY MANAGEMENT Net working capital is a qualitative concept. it indicates the liquidity position of the firm and suggests the extent to which working capital needs may be financed by permanent sources of funds. Current assets should be sufficiently in excess of current liabilities to constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a business. In order to protect their interests, short term creditors always like a company to maintain current assets at a higher level than current liabilities. It is a conventional rule to maintain the level of current assets twice the level of current liabilities. However, the quality of current assets should be considered in determining the level of current assets vis a vis current liabilities. A weak liquidity position poses a threat to the solvency of the company and makes it unsafe and unsound. A negative working capital means a negative liquidity, and may prove to be harmful for the companys reputation excessive liquidity is also bad. it may be due to mismanagement of current assets. There for, prompt and timely action should be taken by management to improve and correct the imbalances in the liquidity position of the firm. Networking capital concept also covers the equation of judicious mix of long term and short term funds for financing current assets. For every firm, there is a minimum amount of net working capital which is permanent. Therefore, a portion of the working capital should be financed with the permanent sources of funds such as equity share capital, debentures, long term debt, performance share capital or retained earnings. Management must, therefore,

Page 35

decide the extent to which current assets should be financed with equity capital and/or borrowed capital. In summary, it may be emphasized that both gross and net concepts of working capital are equally important for the efficient management of working capital. There is no precise way to determine the exact amount of gross or net working capital for any firm. The data and problems of each company should be analyzed to determine the amount of working capital. There is no specific rule as to how current assets should be financed. It is not feasible in practice to finance current assets by short term sources only. Keeping in view the constraints of the individual company, a judicious mix of long and short term finances should be invested in current assets. Since current assets involve cost of funds, they should be put to productive use.

OPERATING AND CASH CONVERSION CYCLE The need for working capital to run the day-to-day business activities cannot be overemphasized. We will hardily find a business firm which does not require any amount of working capital. Indeed, firms differ in their requirement of the working capital. We know that a firm should aim at maximizing the wealth of its shareholders. In its Endeavour to do so, a firm should earn sufficient return from its operations. Earning a steady amount of profit requires successful sells activities. The firm has to invest enough funds in current assets for generating sales. Currents assets are needed because sales do not convert into cash instantaneously. There is always an operating cycle involved in the conversion of sales into case. There is a difference between current and fixed assets in terms of their liquidity. A firm requires many years to recover the initial investment in fixed assets such as plant and machinery or land and building. On the contrary, investment in current assets such as inventories and debtors [account receivable] is realized during the firms operating cycle that is usually less than a year. What is an operating cycle? Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of a manufacturing company involve three phases: Acquisition of resources such as raw material, labor, power and fuel etc. Manufacture of the product which includes conversion of raw Material into work-inprogress into finished goods. Sales of the products either for cash or on credit. Credit sales Create account receivable for collection. These phases affect cash flows, which most of the time, are neither synchronized because cash outflows usually occur before cash inflows. Cash inflows are not certain because sales and collections which give rise to cash inflows are difficult to forecastPage 36

accurately. Cash outflows, on the other hand, are relatively certain. The firm is, therefore, required to invest in current assets for a smooth, uninterrupted functioning. It needs to maintain liquidity to purchase raw materials and pay expenses such as wages and salaries, other manufacturing, administrative and selling expenses and taxes are there is hardly a matching between cash inflows and outflow. Cash is also held to meet to any future exigencies. Stocks of raw material and work in- process are kept to ensure smooth production and to guard against non-availability of raw materials of other components. The firms hold stock of finished goods to meet the demand of customers on continuous basis and sudden demand from some customers. Debtors (Accounts Receivable) are created because goods are sold on credit for marketing and competitive reasons.

Purchase RMCP+WICP+FGCP Inventory convention period

payment

credit sale

collection

receivable conversion price

gross operation cycle payable net operating cycle

Thus, a firm makes adequate investment in inventories, and debtors, for Smooth, uninterrupted production and sale. How is the length of operating cycle determined? The length operating cycle of a manufacturing firm is the sum of (i) inventory conversion period (ICP) and (ii) debtors (Receivable) conversion period (DCP). The inventory conversion period is the total time needed for producing and selling the product. Typically, it includes: (a) raw material conversion period (rmcp), (b) work-in-process conversion period (WIPCP), and (c) finished goods conversion period (FGCP). The debtors conversion period is the time required to collect the outstanding amount from the customers. The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle (GOC). In practice, a firm may acquire resources ( such as raw material) on credit and temporarily postpone payment of certain expenses. Payables, which the firm can defer, are spontaneous sources of capital to finance investment in current assets,. The creditors (Payables) deferral period (CDP) is the length of time the firm is able to defer payments on various resource purchases. The difference between (gross) operating cycle and payables deferral period is net operating cycle (NOC). if depreciation is excluded from expenses in the computation of operating cycle, the net operating cycle also represents the cash conversion cycle(CCC).it is net time interval between cash collections sale of the product and cash payments fore resources acquired by the firm. It also represents the time interval over which additional funds, called working capital, should be obtained in order to carry out firmsPage 37

operations. The firm has to negotiate working capital from sources such as commercial banks. The negotiated sources of working capital financing are called non-spontaneous sources. If net operating cycle of a firm increases, it means further need for negotiated working capital. Let us illustrate the computation of the length of operating cycle. Consider the statement of cost of sales for a firm given in below-

Statement of cost and sales

Item

Actual 20X1

PROJECTED 20X2

1 purchase of raw material 2 opening of raw material inventory 3 closing raw material inventory 4 raw material consumed (1+2+3) 5 direct labour 6 depreciation 7 Other mfg exp 8 total cost (4+5+6) 9 opening work in process inventory 10 closing work in process inventory 11 cost of production 12 Opening finished goods inventory 13 closing finished goods inventory 14 cost of goods sold (11+12+13)Page 38

X1 X2 X3 X4 X5 X.. X.. . .. . . .. .

X X X X X. X X X X X X X

15 selling administrative and gen expenses 16 cost of sales

.. ..

X X

The firm data and sales are given below Sales and debtors Item Actual20X1 Projected 20X2

Sales (credit) Operating balance of debtors Closing balance of debtors Opening balance of creditors Closing balance of creditors

X X ... ... X

Y Y .. ...

Gross operating cycle (GOC) The firms gross operating cycle (GOC) can be determined inventory conversion period (ICP) Plus debtors conversion period. Thus, GOC given as follows: Inventory GROSS Operating = Conversion period Inventory conversion Period What determines the inventory conversion period? The inventory conversion (ICP) is the sum of raw material conversion period (RMCP), Work-in-process conversion period (WIPCP) and finished goods conversion period (FGCP):Page 39

Debtors + Conversion period

ICP = RMCP + WIPCP+ FGCP Raw material conversion period (RMCP):The raw material conversion period (RMCP) is the average time period taken to convert material in to a work-in-process. RMCP depends (a) raw material consumption per day.(b) raw material consumption per day is given by the number of years (say,360). The raw material consumption period is obtained when raw material inventory is divided by raw material consumption per day. Similar Calculations can be made for other inventories, debtors and creditors. The Following formula can be used: Raw material Conversion Period Raw material Inventory [Raw material Consumption]/360

=

RMC RMCP = RMI + 360

RMC*360

RMC

Work-in-process conversion period (WIPCP):Work-in-process conversion period (WIPCP) is the average time taken to complete the semi-finished or work-in-process. It is given by the following formula:

Work-in-process Conversion Period

=

work in process inventory [cost of production]/360

Finished goods conversion period (FGCP) is the average time taken to sell the finished goods. FGCP can be calculated as follows: Finished goods Conversion Period = Finished goods inventory [Cost of goods sold]/360Page 40

CGI FGCP = FGI 360 =

FGI*360 CGS

Debtors (receivable) conversion period (DCP) Debtors conversion period (DCP) is the average time taken to convert debtors into cash. DCP represent the average collection period. It is calculated as follows:

Debtors Conversion Period (DCP)

Debtor = Creditor sales/360

Debtors*360 Creditor sales

Creditors (payables) deferral period (CDP) Creditors (payables) deferral period (CDP) is the average time taken by the firm in paying its suppliers (creditors). CDP is given as follows: Creditors Deferral Period Creditors = Credit purchases/360 Cash Conversion or Net Operating Cycle Net operating cycle (NOC) is the difference between gross operating cycle and payables deferral period. = Credit purchases Credit*360 (7)

Gross Net operating = Operating Cycle Cycle

=

Creditors deferral period (8)

NOC = GOC - CDP

Page 41

Net operating cycle is also referred to as cash conversion cycle. Some people argue that depreciation and profit should be excluded in the computation of cash conversion cycle since the firms concern is with cash flow associated with conversion at contrary view is that a firm has to ultimately recover total costs should include depreciation, and even the profits. Also, in using the above-mentioned formulae, average figures for the period may be used. For example, Table shows detained calculations of the components of a firms operating cycle. Table provides the summary of calculations. During 20X1 the daily raw material consumption was Rs 12.1 lakh and the company held an ending raw material inventory of Rs827 lakh. If we assume that this is the average inventory held by the company, the raw material consumption the projected raw material conversion period is 60 days. This has happened because both consumption (Rs 16.5 lakh per day) and level of inventory (Rs 986 lakh) have increased, but the consumption rate has increased) by 36.4 percent). Thus, the raw material conversion period has declined by 8 days. Raw materials are the result of daily raw material consumption and total raw material consumption and total raw material consumption and total raw material consumption during a period given the companys production targets. Thus, raw material inventory is controlled through control over purchases and production. We can similarly interpret other calculations in table below:Table:-Operating Cycle Calculation (Hypothetical Example) (Rs. In lakh) Item 1 Raw Materials Conversion Period (a) Raw material consumption (b) Raw material consumption per day (c) raw material inventory (d) Raw material inventory holding days 2 Work-in-process Conversion Period (a)cost of production* (b)cost of production per day (c)work-in-process inventory (d) Work-in-process inventory holding days 3 Finished Goods Conversion Period (a) Cost of goods sold* (b) Cost of goods sold per day (c) Finished goods inventory (d)Finished goods inventory holding days 4 Collection period Actual19X1 4,349 12.1 827 68 d 5,212 14.5 325 22d 5,003 13.9 526 38 d Projected19X2 5,932 16.5 986 60d 7,051 19.6 498 25d 6,582 18.3 995 54d

Page 42

(a) Credit sales (at cost)** (b) sales per day (c) debtor (d) debtors outstanding days 5 Creditors Deferral Period (a) Credit purchases (b) purchase per day (c) creditors (d) Creditors outstanding day *Depreciation is including. **All sales are assumed on credit.

6,087 16.9 735 43 d 4,653 12.9 454 35 d

8,006 22.2 1,040 47d 6,091 16.9 642 38d

Table: - Summary of Operating Cycle Calculations (Number of Days)Actual GROSS OPERATING CYCLE 1 Inventory Conversion Period (i) Raw material (ii) Work- in- process (iii) Finished goods 2Debtors Conversion Period 3Gross operating cycle (1 + 2) 4Payment Deferral period NET OPERAING CYCLE (3-4) 68 22 38 128 43 171 35 136 Projected 60 25 54 139 47 186 38 148

We note a significant change in the companys policy for 20X2 with regard to finished goods inventory. It is expected to increase to 54 days holding from 38 days in the previous year. One reason could be a conscious policy decision to avoid stock out situations and carry more finished goods inventory to expand sales. But this policy has a cost; the company, in the absence of a significant increase in payables (creditors) deferral period, will have to negotiate higher working capital funds, In the case of the firm in our example, its net operating cycle is expected to increase from 136 days to 148 days How does a company manage its inventories, debtors and suppliers credit? How can it reduce its operating cycle? The operating cycle concept as shown in Figure relates to a manufacturing firm. Nonmanufacturing firms such as wholesalers and retailers will not have the manufacturing phase. They will acquire stock of finished goods and convert them into debtors (receivable) and debtors into cash. Further, service and financial enterprises will not have inventory of goods

Page 43

(cash will be their inventory). Their operating cycles will be the shortest. They need to acquire cash, then lend (create debtors) and again convert lending into cash. Analysis of working capital is an essential part of financial management. If there is an adequate amount of working capital and it is utilized in the right manner, it is a great achievement for the business. The excess of working capital causes financial stringency and brings the business to a standstill. Realizing the impotence of working capital in financial management the analysis of working capital becomes an essential phenomenon. It facilitates the adequacy and management of working capital. The management of working capital provides a careful inquiry into its components so as to control the working capital and to conserve it properly. It helps in determining the optimum level of working capital in the firm. The process of measurement and analysis of working capital is performed on the basis of financial statements of the business enterprise for past few years. In the present study the analysis of working capital of FCI ltd. Has been made by two techniques vis., trend analysis and ratio analysis. WORKING CAPITAL TREND ANALYSIS The working capital trend analysis represents a picture of variation in current assets, current liabilities and working capital over a period of time. Such an analysis enables us to study upward and downward trend in current liabilities and its effect on the working capital position. The trend analysis is a tool of financial appraisal where the changes in the factors are compared with the base year assuming the base year as 100. In the present study a statement showing trend of working capital as well as its structure has been made. It is it scientific and important study because each component of working capital has got the relationship of causes and effects. Following table below shows the structure and trend of working capital of FCI Ltd. during the period under review. STRUCTURE AND TREND OF WORKING CAPITAL OF FCI 2005 TO2008 PERTICULAR CURRENT ASSETS CASH BANK LOAN AND ADVANCES DEBTORS 2005-2006 322389.24 18632795.88 71220809.88 300805197.7Page 44

2006-2007 855819.51 35936348.16 84836477.65 311027760.6

2007-2008 836439.2 27218462.16 77115112.92 356580000.4

STOCK TOTAL (A) CURRENT LIABILITIES CURRENT LIABILITIES AND PROVISIONS TOTAL (B) NET WORKING CAPITAL (A-B)

377580243.7 768561436.4 526439722 526439722 242121714.4

427327384.8 859983790.7 512950750.7 512950750.7 347033040

465048573.5 926798588.2 442009648.8 442009648.8 484788939.4

STRUCTURE AND TREND OF WORKING CAPITAL OF FCI RATIO ANALYSIS OF WORKING CAPITAL Trend analysis shows the trend of current assets, current liabilities and working capital only. It do not interpret the contribution of each item of working capital in the trend, whereas, it can be done easily by ratio analysis. The ratio analysis of working capital can be used by management as a means of checking upon the efficiency in working capital management of the company. Following ratio haven used to analysis and interpret working capital of FCI ltd. Current ratio Quick ratio Absolute ratio

Stock or inventory ratio Working capital turnover ratio

CURRENTRATIO Current ratio is one of the important ratios used in testing liquidity of a concern. This is a good measure of the ability of company to maintain solvency over a short run. This is computed by dividing the total current assets by the total current liabilities and is expressed as: The current assets of a firm represent those assets, which can be in the ordinary course of business, converted into cash within one accounting year. The current liabilities are defines as obligation maturing within a short period (usually one accounting year). Excess of current assets over current liabilities is known as working capital and since these two (current assets and current liabilities) are used in current ratio therefore, this ratio is also known as working capital ratio.

Page 45

With the help of this ratio the analyst can review the extent to which the company can covert such liabilities with current assets. The current ratio gives the analyst a general picture of the adequacy of the working capital of a company and ability of the company to meet its day-to-day payment obligation. it likewise measures the margin of safety provided for paying current debts in the event of a reduction in the values of current assets. The current ratio is very useful as a measure of short terms debt prying ability but it is tricky to interpret this ratio. Experts are of the view that the value of current assets should be at least double the amount if current liabilities. Walker and Bough have the same view when they ay a good current ratio may mean a good umbrella for creditors against the rainy days.But to the management it reflects bad financial planning or presence of idle assets or over capitalization.

QUICK RATIO

The solvency of a company is batter indicated by quick Ratio. The fundamental of this Ratio is to enable the financial management of a company to ascertain that would happen. If current creditors press for immediate payment and either not Possible to push up the sales of closing or it is sold, a heavy loss is likely to be suffered. This problem arises because closing stock is two steps away from the cash and their price more or less uncertain according to market demand. The term quick assets include all current assets except inventories and prepaid expenses. It shows the relationship of quick assets and current liabilities. The Ratio is calculated as following: Current Assets Inventories Quick Ratio = Current Liabilities It is an indicator of a company's short-term liquidity. The quick ratio measures a company's ability to meet its short-term obligations with its most liquid assets. The higher the quick ratio, the better the position of the company. It is also known as the "acid-test ratio" or the "quick assets ratio". QUICK RATIO OF FCI. DURING 2005 TO 2008 YEAR (A) 2005-2006 QUICK ASSETS (B) 390981192.7Page 46

CURRENT LIABILITIES (C) 526439722

QUICK RATIO (B)/(C) 0.74

2006-2007 2007-2008 INFERENCE:-

432656405.9 461750014.7

512950750.7 442009648.8

0.84 1.04

Although it is less idle ratio still it has increasing trend that shows dairys improving condition of short term solvency of FCI. Quick ratio for the year 2007-08 is above the ideal standard. It is 1.04:1, which indicates that for every Re1 of current liability the company has Rs 1.04 of current assets, hence the company is in sound position in terms of working capital position. ABSOLUTE LIQUDITY RATIO The absolute liquid ratio between absolute liquid assets and current liabilities is calculated by dividing the liquid assets and current liabilities. Expressed in formula, the ratio is: Cash + Marketable Securities= Absolute Liquidity Ratio Current Liabilities The term liquid assets include cash bank balance and marketable securities, if current liabilities are to pay at once, only balance of Cash and marketable securities will be utilized. Therefore, to measure the absolute liquidity of a business, this ratio is calculated.

The idea behind the norm id that if all creditors for demand for payment, at least 50% of their claim should be satisfied at once. The table shown on the next page reflects the absolute liquidity ratio FCI Ltd.

ABSOLUTE LIQUIDITY RATIO OF FCI DURING 2005 TO 2008 YEAR YEAR (A) 2005-2006 2006-2007 2007-2008 ABSOLUTE CURRENT ABSOLUTE LIQUID ASSETS LIABILITIES RATIO (B) (C) (B)/(C) 18955185.12 526439722 0.04 36792167.67 512950750.7 0.07 28054901.36 442009648.8 0.06

INFERENCE

Page 47

This ratio is very below from idle ratio. It is making insecure creditors claim but it is getting increasing trend. It is needed to maintain this trend. Ratios for all the above mentioned years right from 2005 up to 2008 are close to the standard. For year 2007-08, the ratio is well above the standard, which indicates the healthy picture of the company in terms of availability of working capital (quick assets) in order to meet current liabilities. WORKING CAPITAL TURNOVER A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales . SALES WORKING CAPITAL TURNOVER = WORKING CAPITAL A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales WORKING CAPITAL RATIO OF FCI LTD. DURING 2005 TO 2008 YEAR (A) 2005-2006 2006-2007 2007-2008 NETSALES (B) 3207510314 3747805031 4266143965 WORKING CAPITAL (C) 242121714.4 347033040 484788939.4 CURRENT RATIO (B)/(C) 13.24 10.8 8.8

INFERENCE: In spite of an increase in Net Working Capital, the Working capital turnover ratio of FCI got reduced to 10.8 times in the year 2006- 2007, as compared to the year 2005-07. Similarly, in the year 2007-08, the working capital turnover ratio further reduced to 8.8 times as compared to 13.24 times in the year 2005-06. The reduction in working capital turnover ratio is on account of massive growth in net working capital as compared to a slight growth in the sales of the company.

Page 48

CONCLUSION AND SUGGESTIONFinancial analysis is analysis of financial statements of and enterprise. Financial statement reorganized collection of data according to logical and constituent accounting procedures. However financial statements in their traditional from giving historical data and information are of little us to these who use them to draw certain conclusion. Financial appraisal is scientific evaluation of profitability and financial strength of any business concern. Financial appraisal techniques include ration analysis common size analysis trend analysis, fund flow analysis etc. these techniques may be applied in the financial appraisal of any entity and FCI Ltd. is no exception to it.

Page 49

PROFITABILITYThe measurement of profitability is a tool of overall measurement of efficiency an overall study profitability of FCI has been Dade in relation to sales operating assets capital employed and its net worth. By analysis the working result i.e. Profit and loss account of FCI. It was found that the net profit before interest and tax of the FCI is showing increasing trends. This is very good for FCI. The increase in the profits is nearly 24% more than previous year the reason is good sales growth between years. For this following suggestion should be considered. Proper cost control is required and cost control technique should be adopted for it. Operating expenses administration:- Expenses should be specially considered to be reduced. Inventory is the biggest items of balance sheet that must have demanded a large amount of maintaining cost. So, efficient inventory management should be done. Inventory should be reduced extent that would help to recover blocking money in inventory. The service staff should be given proper training and better environment for work. Dairy has to pay large fix interest charged. Hence long term borrowing should be reduced so that the earnings are satisfactorily earmarked with them.

Page 50

WORKING CAPITAL In the year 2006-2007 the growth in working capital was 43.33%As compare to the year 2005-2006 similarly working capital in the year 2007-2008 has grown to 100.03% as compared to the working capital in the year 2005-2006. The management should follow the same trend in near future too so to have considerable appreciation in working capital every year. The Current Ratio for the year 2007-2008 has taken the Value of 2.01:1, which is very satisfactory and as per the standard required (2:1).The current ratio of 2.01:1 indicates, that for every Rs 1 of current liability the company Rs 2 of current assets, which indicates more liquidity and hence more amount of working capital. The company needs to further enhance the value of ratio. Quick ratio for the year 2008-09 is above the ideal standard (1:1). It is 1.04:1, which indicates that for every Re1 of current liability the company has Rs 1.04 of current assets, hence the company is in sound position in terms of working capital position. It would be better for the company if in near future it could further enhance the value of the ratio. Absolute quick ratio for the years right from 2005 up to 2008 are close to the standard. For year 2007-08, the ratio is well above the standard (0.5:1), which indicates the healthy picture of the company in terms of availability of working capital (quick assets) in order to meet current liabilities. The same position should be sustained in near future too. As compared to year 2005-2006, in the year 2006-07, the inventory turnover increased to 8.19 times. Similarly, in the year 2007-08 it increased to 8.59 times, which indicates that the times taken in converting raw material into finished product and finally selling it got reduced considerably and hence indicates quick release of working capital. In near future it would be more profitable for the company, if the value of ratio gets increased to 11- 14%. In spite of an increase in Net Working Capital, the Working capital turnover ratio of FCI got reduced to 10.8 times in the year 2006- 2007, as compared to the year 2005-07. Similarly, in the year 2007-08, the working capital turnoverPage 51

ratio further reduced to 8.8 times as compared to 13.24 times in the year 200506. The reduction in working capital turnover ratio is on account of massive growth in net working capital as compared to a slight growth in the sales of the company. The value of ratio could be better in near future, if the growth in sales matches with the growth in net working capital.

BIBLIOGRAPHY

I.M.Pandey, (1978), financial management, Ninth addition, UBS Publication New Delhi. Van Horn, (2002), Financial Management and Policy, 12th edition, Publisher Dorling Kindersley India ltd. Horne Wwachonicz, J.R.Bhaduri (2005), Fundamentals and Financial management, 12th edition, Pearson publisher. MY Khan, P.K.Jain (1981), Financial Management, 5th edition, Publisher McGraw Hill companies. Financial statement for the year ended 2007-08 as obtained from FCI Annual-Report 2006-07 of FCI Study module on financial management Financial dailies Economic Times Business Standard Business Magazines Business India Business World Internet Portals www.fciweb.nic.in www.wikipedia.com

Page 52

GLOSSARYHACCP: HACCP stands for Hazard Analysis and Critical Control Points.

HACCP is an industry-wide effort approved by the scientific community as well as regulatory and industry practitioners. This effort is designed to focus specifically on food safety, including food safety in retail establishments. HACCP, or the Hazard Analysis Critical Control Point system, is a process control system that identifies where hazards might occur in the food production process and puts into place stringent actions to take to prevent the hazards from occurring. By strictly monitoring and controlling each step of the process, there is less chance for hazards to occur. HACCP is important because it prioritizes and controls potential hazards in food production. By controlling major food risks, such as microbiological, chemical and physical contaminants, the industry can better assure consumers that its products are as safe as good science and technology allows. By reducing food borne hazards, public health protection is strengthened.

Page 53