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Transcript of PROJECT ARJUN d.n.r
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(WITH SPECIAL REFERENCE TO THESRINIVASAHATCHERIES PVT.LIMITED, VIJAYAWADA )
A Project report submitted to the
ANDHRA UNIVERSITY, VISAKHAPATNAM.
In partial fulfillment for the award of thedegree of
MASTER OF BUSINESS ADMINISTRATION
By
Y.ARJUN REDDY
Under the guidance of
Smt.K.NEELIMAM.B.A
D.N.R COLLEGEP.G. DEPARTMENT OF MANAGEMENT STUDIES
(Accredited at the A Level by NAAC)(Approved by AICTE,NEWDELHI and affiliated to
ANDHRA UNIVERSITY,VISAKHAPATNAM)BHIMAVARAM-534202
(2010-2012)
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DECLARATION
I hereby declare that the project titled
A STUDY ON WORKING CAPITALMANAGEMENT WITH REFERENCE TO THE
SRINIVASA HATCHERIES PVT.LTD,
VIJAYAWADA has been prepared by meduring the year 2010-2012, in partial fulfillment
of the requirement for the award ofPOSTGRADUATION DIPLOMA IN BISINESS
MANAGEMENTwhich is affiliated toANDHRAUNIVERSITY, VISAKHAPATNAM.
Y.ARJUN REDDY
(REGD.NO.110274802002)
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ACKNOWLEDGEMENT
I would like to convey my respectful thanks to
Dr.P.KOTESWARA RAJU, director, K.NEELIMA, facultyP.G. of Business Administration, D.N.R COLLEGE,
BHIMAVARAM, for their mortal support during the research
work.
I am thankful to MR.K.SOMI REDDY (MANAGINGDIRECTOR) and MR.MURALI KRISHNA (FINANCEMANAGER) who granted me the project and guided me with theirexpertise knowledge through out my project work.
I would also express my sincere gratitude to
MR.B.SATYANARAYANA RAO, MY PARENTS, WELL
WISHERS and FRIENDS for their support to complete thisproject.
I deem it a great privilege to express profound respect, deep sense
to Gratitude to my lecturer and my project guide K.NEELIMA,
Lecturer in M.B.A. DANTULURI NARAYANA RAJU
COLLEGE, BHIMAVARAM, of his constant encouragement and
valuable guidance.
Y.ARJUN REDDY(Regd. no.110274802002)
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CONTENTS
CHAPTER PARTICULARS
CHAPTER-I INTRODUCTION
NEED FOR THE STUDY
OBJECTIVES OF STUDY
METHODOLOGY
LIMITATIONS OF STUDY
CHAPTER-II INDUSTRY PRIOFILE
INTRODUCTION TO INDUSTRY
PRODUCT DETAILS
PROBLEMS OF THE INDUSTRY
CHAPTR-III COMPANY PROFILE
GENERAL PROFILE
FUNCTIONAL PROFILE
CHAPTER-IV CONCEPTUAL FRAME WORK
THEORY OF WORKING CAPITAL
CHAPTER-V FINDINGS AND SUGGESTIONS
FINDINGS
SUGGESTIONS
BIBLOGRAPHY
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INTRODUCTION
Financial management:
Financial management is the life of every business enterprise. A business
under taking at a given point time can be viewed as a pool of funds raised from various
sources like inventory and the source of internal financing. The funds raised from these
sources are utilized for.
Acquiring fixed Assets needs for the production of goods and services.
Inventories that facilitate production and sales accountants receivablesowned by customers.
Cash and marketable securities used for liquidity purpose and businesstransactions.
The modern thinking in financial management accords a far greater
importance to management in decision-making and formulation of policy. Financial
management occupies key position in top management and plays a dynamic role in
solving complex management problems. They are now responsible for shaping the
fortunes of the enterprise and are involved in allocation of capital.
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DEFINITIONS:
Financial Management is an area of financial division making,
harmonizing individual motives and enterprise goals.
-Weston and Brigham
Financial Management is the application of the planning and control
functions to the finance function.
-Howard and Upon
Financial Management is the operational activity of a business that is
responsible for obtaining and effectively utilizing the funds necessary for efficient
operations.
-Joseph and Messie
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FINANCIAL ANALYSIS:
The success of a company of a great extent depends on its financial performance.
Financial performance involves assessing the financial position and the companys ability
to meet the debts utilizing of assets and profitability financial performance is evaluate
through financial analysis.
Financial analysis is the process of identifying the financial strengths and
weakness of the firm by properly establishing relationship between the items of balance
sheet and profit and loss account. The information contains in financial statements
balance sheet and profit and loss a/c is used to give the judgment about the operatingperformance and financial position of the firm. Management should interest in knowing
the financial strength of the firm to make their best use and to the able to spot out the
financial business weakness of the firm to take suitable corrective action.
Apart from the management, there are outside parties,
outsiders, creditors, investors, etc.., restore confidence in those firms that so steady
growth in earnings. As such they concentrate on the analysis of the firms present and
future profitability. Financially, management of the firms would be interested in every
aspects of the financial analysis. Thus financial analysis is the starting point for making
plans before using any sophisticated forecasting budgeting procedure
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Steps To Be Taken For Financial Statement Analysis:
Identifying the users purpose
Identification of the data sources. (Which part of the annual report or other
information is required to be analyzed to suit the purpose?)
Selecting the technique to be used for such analysis.
Thus financial statement analysis is purposive and not necessarily
comprehensive to cover all possible uses. Since it is purposive, analysis may be restricted
to any particular portion of the available financial statement, taking care to ensure
objectivity and unbiased ness.
Financial statement analysis covers study of relationships with a set of
financial statements at a point of time and with trends in these relations over time. This
means that it may be a study of some comparable firms at a particular time, say a
financial year 2003-2004, or it may be a study of particular firm over a period of time
says 1994-2004 or it may cover both.
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OBJECTIVES OF THE STUDY:
The case study ofWORKING CAPITAL MANAGEMENT under taken
with the following objectives.
To analyze the current assets and current liabilities with a view to
point out the liability of the company.
To discuss the pattern of working capital in relation to total net
asset and gross fixed asset with a view to highlight whether the
company has been operating with high/low amount of working
capital.
To examine the pattern of financing the working capital
requirements in order to bring out the relative importance of short
term/long term sources of funds.
To present the turnover of working capital and its components with
a view to analyze the efficiency with which the working capital and
its components were used.
To analyze the funds flow to find out the ways and means of
corporation.
To know the profitability of the funds.
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To find out the financial stability of the firm
To manage the extent to which the company has been financed through borrowing
PERIOD OF THE STUDY:
The study is made for a period of five years i.e., from 2005-
06 to 2009-10.
SCOPE OF THE STUDY:
Scope is limited to the extent of analyzing the working capital
of the company by calculating various components of working capital
through the help of the ratios, trend analysis and funds flow.
SOURCES OF INFORMATION:
The sources of information are divided into two(a) Primary and (b) Secondary. Most of the data is collected throughsecondary source i.e., printed matter. This data is from the annualreports and original records of ECIL.
And the data collected by way of primary source
is through the personal interview with the finance manager.
METHODOLOGY:
Working capital analysis is done through the various
components by using ratio analysis, trend analysis and funds flows.
The techniques used as per the theoretical practice addressing the
liquidity position and turnover ratios and their overall trends.
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Those are crucial for any informed judgment
regarding the financial state of affairs a company. This analysis has
been done with the help of the following TOPICS.
1. Study of various components and its analysis.
2. Ratio analysis and trend analysis.
3. Conclusions and suggestions.
LIMITATIONS OF THE STUDY
The study has been conducted is a systematic and comprehensive wayso as to make the project work an enviable one. However the topic under my
study may not be free form limitations due to the factors listed below.
Non-availability of complete information. Limitation in information aboutcash sales and credit sales out of total sales is not available.
In the list of the above, it is not possible for the analyst to calculate the exactworking capital ratios.
The study covers a period of five years form 2006-2010.The information ismostly depends upon the secondary data. As it is not possible to cover all the
supervisors, so the student trainee selected the supervisors of working capital
analysis.
Time constraint is another limitation for the study because the project traineehas to study the whole work with in a 2 months.A study of risk coverage
could not make as no records are available in organization to the student
trainee.
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INDUSTRIAL PROFILE
Srinivasa Hatcheries was incorporated as a private limited company on May 8,
1978, converted into a public limited company on October 26, 1994, and came
out with a public issue on February 10, 1995.
The layer and broiler breeding activities are located in the Krishna and
Vizianagaram districts of Andhra Pradesh with a total installed capacity of
70,162,200 chicks. The company procures genetic packages under a franchise
from the Venkateshwara Hatcheries group and caters mainly to the needs of
poultry farms located in the eight coastal districts of Andhra Pradesh.
In financial year 2007, the company joined as a 10% partner in SHL Ventures, a
partnership firm engaged in real estate, construction and property development.
It has committed to contribute an amount of Rs 5 crore towards the capital of the
firm.
The registered office of the company is situated at Plot No 1028, Srinivasa
House, Road No. 45, Jubilee Hills, Hyderabad-500033, Andhra Pradesh.
Business area of the company:
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The company is engaged in the breeding of layers and broilers, rearing of
commercial broilers, and trading in poultry and poultry related products.
Associate companies:
Srinivasa Foods and Feeds private limited
Varuna Hatcheries private limited
Corporate Leasing private limited
Srinivasa Agri Tech private limited
Sri Srinivasa Aqua Feeds private limited
Kansas Feeds private limited
Jagapati Finance private limited
Sri Chitturi Agencies private limited
Sri krishnadevaraya Hatcheries private limited
Jagapati Investments private limited
Harsha Hospitalities private limited
Rhapsody Foods and Beverages private limited
TECHNICAL SERVICES
SHL has 9 Senior Veterinarians, located one in each district, to provide
services to the farmers like giving computerized project reports, helping
farmers in locating and designing poultry sheds, computerized feed
formulations, disease diagnosis, feed analysis, advise on prevention and
treatment of diseases, liaison between egg traders and poultry farmers etc.
SHL takes help from PDRC for advanced diagnostic facilities like viral
isolation and differential diagnosis, etc.
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SHL has one central laboratory at Vijayawada headed by a very senior
veterinarian and assisted by a microbiologist and chemist. It has 4 satellite
labs for disease diagnosis in different districts.
SHL also has one central feed analytical laboratory and 4 separate
satellite feed laboratories in its area of operations.
SHL is equipped with advanced facilities like ELISA equipment for
microbiological work and NIR equipment for quick feed analysis.
SHL is proud to be closely associated with farmer welfare organizations
like NECC and BEPA.
The company area is divided into 4 NECC zones for egg rate declaration.
There are about 43 big egg traders in these 4 zones.
The Executive Chairman Sri C. Jagapati Rao and Joint Managing Director
Dr. K. Somi Reddy spends a couple of hours every day in coordinating egg
marketing and price declaration work among NECC officials, farmers and
traders in all the company Zones.
Approximately 30% of the eggs produced in SHL area are consumed
locally and balance 70% eggs are sent to other markets within India like Bihar,
Bengal and North Eastern States.
Average egg price realized by the farmers for the year 2010 is Rs. 2.287.
TRAINING:
One of the policies of the company is to offer consultancy services and training
support to all poultry related agencies such as poultry farmers, breeders and
marketers. As part of the company CSR policy this training is usually provided
free to all the company customer farmers.
From the inception, Srinivasa Hatcheries has been actively involved into this
concept and has created a strong and well trained community of poultry farmers
which keeps growing each day. The trust that the company has gained from the
farmers through this concept is unique and gratifying and has substantially
enhanced the company profile.
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The potential of poultry breeding is truly immense and it is the earnest intent of
the company is ensure that agriculturists comprehend the scope of this business
and actively venture into it and profit adequately as the market for chicken and
poultry products grows bigger each year. The company believes that it is
essential that even illiterate poultry farmers are kept updated with the latest
trends in the business and understand constantly changing threats and prepare
themselves accordingly.
Following are some of the activities that the group undertakes as
part of the Farmer Training Program :
Identifying potential individuals and agencies desirous of establishing
farms.
Evaluating space, infrastructure and financial requirements of the farmers.
Preparing area specific project reports for establishing poultry farms.
Educating all poultry agencies about the need to be abreast of current
trends in the industry and work accordingly for their own success.
BV300 - THE FIRST CHOICE OF LAYER FARMERS:
BV300 is the result of 30 years of R&D efforts of the scientists of Venkateshwara
Hatcheries Group. Over eighty percent of table eggs produced in India are laid by
BV300. This breed has been dominating the Indian layer market since its
introduction over four decades ago in the Indian market by the Father of Indian
Poultry Industry, Late Padmashree, Dr.B.V.Rao.
The ability of its performance viz., early maturity, high & sustained peak over
exceptionally long periods, excellent livability, disease resistance, ideal eggshell
strength and egg weight, with an extra advantage of less feed consumption per
egg has endeared BV300 as the poultry farmers first choice. Todays BV300 is a
product of continuous research and development. It enjoys over 85% market
share in India, and over 95% market share in Coastal Andhra Pradesh, due to its
consistent performance.
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COBB 400 BROILER :
The consumption of poultry meat has been steadily on the rise across homes
and hospitality. Factors governing the consistent growth in poultry meat
consumption include easy availability of the product as well as social acceptance
as a protein rich item in culinary tradition.
Vencobb chicken is the most sought in India after considering its high quality and
superior characteristics. The breed is the first choice of independent poultry
farmers, and has achieved a market share over 80% among independent broiler
farmers.
Price affordability of poultry meat by a large section of people and absence of
religious taboos (unlike in the case of beef and pork) contributed to the rise in
chicken consumption. Not surprisingly, today poultry meat is preferred to other
meat forms considering the advantages of its price, nutritional values high
protein and low fat and adaptability of the meat to fit into various culinary
preferences in all segments of social, cultural and economic activities.
Though there is a good demand for processed chicken meat, freshly dressed
chicken rules the current poultry meat markets in India. The soaring popularity of
poultry meat across the homes both in urban and rural areas resulted in the
poultry industry treading a sustained and promising growth path.
Vencobb broilers fulfil the needs of poultry farmers through its superior genetics
and other attributes like fast growth, low feed consumption, disease resistance,
high survival rate and excellent adaptability
INFRASTRUCTURE:
Srinivasa Hatcheries has some of the finest poultry infrastructure in place,
located in strategic areas. Sheds are designed to ensure the highest productivity
and health of breeder birds. The company core operations are based in and
around Hyderabad, Visakhapatnam and Vijayawada in Andhra Pradesh.
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The company infrastructure facilities include separate brooding, growing and
laying sheds, cold storage rooms for hatching eggs, separate farms and
hatcheries for layer and broiler breeders, feed and disease testing laboratories
with modern analytical and diagnostic facilities like NIR, Elisa equipment etc.
Throughout the production cycle, from arrival of parent chicks to dispatch of
commercial chicks to customers, and from arrival of raw material in the feed plant
to dispatch of finished feed, every step is controlled under strict supervision and
biosecurity measures are followed.
Parent Bird Housing:
All the company parent birds are segregated and categorized age wise and
breed wise, and housed separately in well structured independent sheds. All
birds are housed in cages for better productivity and disease control. Cages
ensure savings in housing, labor and power costs. All the sheds are equipped
with feeding and watering facilities ensuring minimum wastage, and, fans and
foggers to reduce the shed temperature in summer. All birds are monitored by
experienced veterinarians. All the company hatchery units follow internationalstandards of hazard control and sanitation.
Most of the sheds are Environment Controlled and are equipped with advanced
climate control systems which help in superior feed conversion ratio, better
quality bird meat, increased productivity and health of the chicken, and reduced
mortality.
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Company profile
Srinivasa Hatcheries Limited (SHL) was incorporated in 1978 with the main
objective of carrying on the business of poultry breeding and production oflayer chicks to carrying mainly to the needs of the poultry farms located in
eight coastal districts of Andhra Pradesh.
The company had a modest beginning of 6,000 layer parents in 1979 and has
grown to a stage of 3, 00,000 layer parents and 2, 00,000 broiler parents at
present.
Srinivasa hatcheries limited is the flagship company of srinivasa hatcheries
group which has in its fold, companies engaged in poultry breeding
manufacturing, real estate, hospitality services etc.
The company is mainly engaged in poultry breeding activity i.e. production
and sale of day old commercial layer and broiler chicks. The farms and
hatcheries are strategically located at several locations in coastal districts of
Andhra Pradesh.
The company is a franchisee of venkateswara hatcheries group ,market
leaders in the poultry industry , for the eight coastal districts of Andhra
Pradesh , i.e Krishna,Guntur,praksam,eastgodavari,westgodavari,visakhapatnam,vizianagaram,and
srikakulam.
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PROMOTERS AND MANAGEMENT
The company was promoted by Sri C. Jagapati Rao and Dr.K.Somireddy.
Sri C.Jagapati Rao, Executive Chairman has about 30 years experiencein poultry industry. His pioneering dynamism and stewardship have resulted
in steady increase in the groups turn over and profitability. He is also a
member of the International Egg Commission based in U.K.
SriC.Suresh Rayudu, Vice-chairman and managing director of thecompany is a graduate in computer engineering and also he has done MBA
from Emory University, Atlanta, USA.
Dr.Somi Reddy is a gold medalist in poultry science from Andhra
Pradesh Agricultural University. He is the Joint Managing Director of thecompany and is a actively involved in the day-to-day operations of the
company.
A professional director such as Dr.T.Krishna Reddy.who is director ofthe company. Sri.K.Ashok Reddy, whole time Director.Sri srikanth,director, is a practicing chartered accountant.
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CAPACITIES AND MARKET SHARE
The company has a capacity of 3, 00,000 layer parents and 2, 00,000 broiler
parents at present.
The companys market share of layer chicks at present is 99.50% in its area
of operations and 42% in broiler chicks.
The success of the group can be gauged from the fact that every 7th egg
consumed in India comes from the chicks produced by the SH Group and
this represents 3 eggs per capita per annum for the company bears eloquent
testimony to the foresight and missionary zeal of the promoters.
FUTURE PLANS
During the next three years, the company proposes to consolidate its position
with improved productivity and also increase its market share both in the
layer chick segment and broiler chick segment.
The company also proposes to offer integrated services to the farmers to
enable them to achieve production in an ever expanding market.
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CONCEPTUAL FRAME WORK
WORKING CAPITAL MANAGEMENT
THEORY:
Capital required for a business can be classifies under two main
categories:
Fixed Capital
Working Capital
Every business needs funds for two purposes for its
establishments and to carry out day to day operations. Long term
funds are required to create production facilities through
purchase of fixed assets such as plant and machinery, land and
building, furniture etc. Investments in these assets are
representing that part of firms capital which is blocked on a
permanent or fixed basis and is called fixed capital. Funds are
also needed for short term purposes for the purchasing of raw
materials, payments of wages and other day to day expenses etc.
These funds are known as working capital. In simple words,
Working capital refers to that part of the firms capital which is
required for financing short term or current assets such as cash,
marketable securities, debtors and inventories.
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CONCEPTS OF WORKING CAPITAL:
There are two concepts of working capital:
Balance Sheet concepts
Operating Cycle or circular flow concept
BALANCE SHEET CONCEPT:
There are two interpretation of working capital under the balance
sheet concept:
Gross Working Capital
Net Working Capital
The term working capital refers to the Gross working capital and
represents the amount of funds invested in current assets . Thus,
the gross working capital is the capital invested in total current
assets of the enterprises. Current assets are those assets which
are converted into cash within short periods of normally one
accounting year. Example of current assets is:
Constituents of Current Assets:
Cash in hand and Bank balance
Bills Receivable
Sundry Debtors
Short term Loans and Advances
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Inventories of Stock as:
Raw Materials
Work in Process
Stores and Spaces
Finished Goods
Temporary Investments of Surplus Funds
Prepaid Expenses
Accrued Incomes
The term working capital refers to the net working capital. Net
working capital is the excess of current assets over current
liabilities or say:
Net Working Capital = Current Assets CurrentLiabilities.
NET WORKING CAPITAL MAY BE NEGATIVE ORPOSITIVE:
When the current assets exceed the current liabilities, the
working capital is positive and the negative working capital
results when the current liabilities are more than the current
assets. Current liabilities are those liabilities which are intendedto be paid in the ordinary course of business within a short period
of normally one accounting year of the current assets or the
income of the business. Examples of current liabilities are:
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CONSTITUENTS OF CURRENT LIBILITIES:
Bills Payable
Sundry Creditors or Account Payable
Accrued or Outstanding Expenses
Short term Loans, Advances and Deposits
Dividends Payable
Bank Overdraft
Provision for Taxation, If does not amount to appropriation
of profitsThe gross working capital concept is financial or going concern
concept whereas net working capital is an accounting concept of
working capital.
OPERATING CYCLE OR CIRCULATING CASH FORMAT:
Working Capital refers to that part of firms capital which is
required for financing short term or current assets such as cash,
marketable securities, debtors and inventories. Funds thus
invested in current assets keep revolving fast and being
constantly converted into cash and these cash flows out again in
exchange for other current assets. Hence it is also known as
revolving or circulating capital. The circular flow concept ofworking capital is based upon this operating or working capital
cycle of a firm. The cycle starts with the purchase of raw material
and other resources. And ends with the realization of cash from
the sales of finished goods. It involves purchase of raw material
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and stores, its conversion into stocks of finished goods through
work in progress with progressive increment of labor and service
cost, conversion of finished stocks into sales, debtors and
receivables and ultimately realization of cash and this cyclecontinuous again from cash to purchase of raw materials and so
on. The speed/ time of duration required to complete one cycle
determines the requirements of working capital longer the period
of cycle, larger is the requirement of working capital.
The gross operating cycle of a firm is equal to the length of the
inventories and receivables conversion periods. Thus,
WORKING CAPITAL CYCLE
CAS
H
Raw
Materia
lll
WIPFinished Goods
Debtors
Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP
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Where,RMCP = Raw Material Conversion Period
WIPCP = Work in- Process Conversion Period
FGCP = Finished Goods Conversion Period
RCP = Receivables Conversion Period
However, a firm may acquire some resources on credit and thus
defer payments for certain period. In that case, net operating
cycle period can be calculated as below:
Further, following formula can be used to determine the
conversion periods.;
Raw Material Conversion Period =
Average Stock of Raw Material.Raw Material Consumption per
day
Work in process Conversion Period =
Average Stock of Work-in-ProgressTotal Cost of Production per day
Finished Goods Conversion Period =
Average Stock of Finished Goods
Total Cost of Goods sold per day
Receivables Conversion Period =
Net Operating Cycle Period = Gross Operating Cycle Period Payable Deferral
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Average Accounts Receivables Net Credit Sales per day
Payable Deferral Period =
Average PayableNet Credit Purchase per day
CLASSIFICATION OR KIND OF WORKING CAPITAL:
Working capital may be classified in two ways:
On the basis of concept
On the basis of time
Om the basis of concept, working capital is classified as gross working
capital and net working capital. The classification is important from
the point of view of the financial manager.
On the basis of time, working capital may be classified as:
Permanent or Fixed working capital
Temporary or Variable working capital.
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1. PERMANENT OR FIXED WORKING CAPITAL:
Permanent or fixed working capital is the minimum amount which
is required to ensure effective utilization of fixed facilities and for
maintaining the circulation of current assets. There is always a
minimum level of current assets which is continuously required
by the enterprises to carry out its normal business operations.
2. TEMPRORAY OR VARIABLE WORKING CAPITAL:
Temporary or variable working capital is the amount of working
capital which is required to meet the seasonal demands and
some special exigencies. Variables working capital can be further
classified as second working capital and special working capital.
The capital required to meet the seasonal needs of the
enterprises is called the seasonal working capital.
Temporary working capital differs from permanent working
capital in the sense that is required for short periods and cannot
be permanently employed gainfully in the business
IMPORATNCE OR ADVANTAGE OF ADEQUATEWORKING CAPITAL:
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Working capital is the life blood and nerve centre of a business .
just a circulation of a blood is essential in the human body for
maintaining life, working capital is very essential to maintain the
smooth running of a business. No business can run successfullywithout an adequate amount of working capital. The main
advantages of maintaining adequate amount of working capital
are as follows:
Solvency of the Business
Goodwill
Easy Loans
Cash discounts
Regular supply of Raw Materials
Regular payments of salaries, wages & other day to day
commitments.
Exploitation of favorable market conditions
Ability of crisis
Quick and regular return on investments
High morals
THE NEED OR OBJECTS OF WORKING CAPITAL:
The need for working capital cannot be emphasized. Every
business needs some amount of working capital. The need ofworking capital arises due to the time gap between production
and realization of cash from sales. There is an operating cycle
involved in the sales and realization of cash. There are time gaps
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in purchase of raw materials and production, production and
sales,
And sales, and realization of cash, thus , working capital is
needed for the following purposes: For the purchase of raw materials , components and spaces
To pay wages and salaries
To incur day to day expenses and overhead costs such as
fuel, power and office expenses etc.
To meet the selling costs as packing, advertising etc.
To provide credit facilities to the customers.
To maintain the inventories of raw materials, work in-
progress, stores and spares and finished stock.
FACTORS DETERMING THE WORKING CAPITALREQUIRMENT:
The working capital requirements of a concern depend
upon a large number of factors such as nature and size of the
business, the characteristics of their operations, the length of
production cycle , the rate of stock turnover and the state of
economic situation. However the following are the important
factors generally influencing the working capital requirements.
NATURE OR CHARACTERSTICS OF A BUSINESS:
The nature and the working capital requirement of
enterprises are interlinked. While a manufacturing industry
has a long cycle of operation of the working capital, the
same would be short in an enterprises involve in providing
services. The amount required also varies as per the nature,
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an enterprises involved in production would required more
working capital then a service sector enterprise.
MANAFACTURE PRODUCTION POLICY:
Each enterprises in the manufacturing sector has its own
production policy, some follow the policy of uniform
production even if the demand varies from time to time and
other may follow the principles of demand based production
in which production is based on the demand during the
particular phase of time. Accordingly the working capital
requirements vary for both of them. OPERATIONS:
The requirement of working capital fluctuates for seasonal
business. The working capital needs of such business may
increase considerably during the busy season and decrease
during the
MARKET CONDITION:
If there is a high competition in the chosen project category
then one shall need to offer sops like credit, immediate
delivery of goods etc for which the working capital
requirement will be high. Otherwise if there is no
competition or less competition in the market then the
working capital requirements will be low.
AVABILITY OF RAW MATERIAL:
If raw material is readily available then one need not
maintain a large stock of the same thereby reducing the
working capital investment in the raw material stock . On
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other hand if raw material is not readily available then a
large inventory stocks need to be maintained, there by
calling for substantial investment in the same.
GROWTH AND EXAPNSION:Growth and Expansions in the volume of business result in
enhancement of the working capital requirements. As
business growth and expands it needs a larger amount of
the working capital. Normally the needs for increased
working capital funds processed growth in business
activities.
PRICE LEVEL CHANGES :
Generally raising price level requires a higher investment in
the working capital. With increasing prices, the same levels
of current assets needs enhanced investments.
MANAFACTURING CYCLE:
The manufacturing cycle starts with the purchase of raw
material and is completed with the production of finished
goods. If the manufacturing cycle involves a longer period
the need for working capital would be more. At time
business needs to estimate the requirement of working
capital in advance for proper control and management. The
factors discussed above influence the quantum of workingcapital in the business. The assessment of the working
capital requirement is made keeping this factor in view.
Each constituents of the working capital retains it form for a
certain period and that holding period is determined by the
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factors discussed above. So for correct assessment of the
working capital requirement the duration at various stages
of the working capital cycle is estimated. Thereafter proper
value is assigned to the respective current assets,depending on its level of completion. The basis for assigning
value to each component is given below:
COMPONENTS OF WORKINGCAPITAL
BASIS OF VALUATION
Stock of Raw Material
Stock Of Work-in-progress
Stock of Finished Goods
Debtors
Cash
Purchase of Raw Material
At cost of Market value which
is lower Cost of Production
Cost of Sales or Sales value
Working Expenses
Each constituent of the working capital is valued on the basis of
valuation
Enumerated above for the holding period estimated. The total ofall such valuation becomes the total estimated working capital
requirement.
The assessment of the working capital should be accurate even in
the case
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of small and micro enterprises where business operation is not
very large. We know that working capital has a very close
relationship with day-to-day operations of a business. Negligence
in proper assessment of the working capital, therefore, can affectthe day-to-day operations severely. It may lead to cash crisis and
ultimately to liquidation. An inaccurate assessment of the
working capital may cause either under-assessment or over-
assessment of the working capital and both of them are
dangerous.
PRINCIPLES OF WORKING CAPITAL MANAGEMENTPOLICY:
The following are the general principles of a sound working
capital management policy:
1. PRINCIPLE OF RISK VARAITAION (CURRENT ASSETSPOLICY):
PRINCIPLES OF WORKING CAPITAL
MANAGEMENT POLICY
PRINCIPLES
OF
MATURITY
OF
PAYMENTS
PRINCIPLE
S OF
EQUITY
PRINCIPLES
OF COST OF
CAPITAL
PRINCIPLES
OF RISK
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Risk here refers to the inability of a firm to meet its obligations as
and when they become due for payment. Larger investment in
current Assets with less dependence on short term borrowings,
increase liquidity, reduces risk and thereby decreases the
opportunity for gain or loss. On the other hand less investments
in current assets with greater dependence on short term
borrowings, reduces liquidity and increase profitability. In other
words there is a definite inverse relationship between the degree
of risk and profitability. In other words, there is a definite inverse
relationship between the risk and profitability. A conservativemanagement prefers to minimize risk by maintaining a higher
level of current assets or working capital while a liberal
management assumes greater risk by reducing working capital.
However, the goal of management should be to establish a
suitable tradeoff between profitability and risk.
2. PRINCIPLES OF COST OF CAPITAL:
The various source of raising working capital finance have
different cost of capital and the degree of risk involved.
Generally, higher and risk however the risk lower is the
cost and lower the risk higher is the cost. A sound working
capital management should always try to achieve a proper
balance between these two.
3.PRINCIPLE OF EQUITY POSITION:
The principle is concerned with planning the total investments in
current assets. According to this principle, the amount of working
capital invested in each component should be adequately
justified by a firms equity position. Every rupee invested in
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current assets should contribute to the net worth of the firm. The
level of current assets may be measured with the help of two
ratios:
1. Current assets as a percentage of total assets and2. Current assets as a percentage of total sales
While deciding about the composition of current assets, the
financial manager may consider the relevant industrial averages.
1. PRINCIPLES OF MATURITY OF PAYMENT:
The principle is concerned with planning the source of
finance for working capital. According to the principles, a
firm should make every effort to relate maturities of
payment to its flow of internally generated funds. Maturity
pattern of various current obligations is an important factor
in risk assumptions and risk assessments. Generally shorter
the maturity schedule of current liabilities in relation to
expected cash inflows, the greater the inability to meet its
obligations in time.
CONSEQUENCES OF UNDER ASSESMENT OF WORKINGCAPITAL:
Growth may be stunted. It may become difficult for the
enterprises to undertake profitable projects due to nonavailability of working capital.
Implementations of operating plans may brome difficult and
consequently the profit goals may not be achieved.
Cash crisis may emerge due to paucity of working funds.
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Optimum capacity utilization of fixed assets may not be
achieved due to non availability of the working capital.
The business may fail to honor its commitment in time thereby
adversely affecting its creditability. This situation may lead tobusiness closure.
The business may be compelled to by raw materials on credit and
sell finished goods on cash. In the process it may end up with
increasing cost of purchase and reducing selling price by offering
discounts both the situation would affect profitable adversely.
Now availability of stocks due to non availability of funds may
result in production stoppage. While underassessment of
working capital has disastrous implications on business over
assessments of working capital also has its own dangerous.
CONSEQUENCES OF OUR OWN ASSESMNET OF WORKINGCAPITAL:
Excess of working capital may result in un necessary
accumulation of inventories.
It may lead to offer too liberal credit terms to buyers and
very poor recovery system & cash management.
It may make management complacent leading to its
inefficiency.
Over investment in working capital makes capital lessproductive and may reduce return on investment.
Working Capital is very essential for success of business &
therefore needs efficient management and control. Each of the
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components of working capital needs proper management to
optimize profit.
INVENTORY MANAGEMNT:
Inventory includes all type of stocks. For effective working capitalmanagement, inventory needs to be managed effectively. The
level of inventory should be such that the total cost of ordering
and holding inventory is the least. Simultaneously stock out costs
should be minimized. Business therefore should fix the minimum
safety stock level reorder level of ordering quantity so that the
inventory costs is reduced and outs management become
efficient.
RECEIVABLE MANAGEMENT:
Given a choice, every business would prefer selling its produce
on cash basis. However, due to factors like trade policies,
prevailing market conditions etc. Business are compelled to sells
their goods on credit. In certain circumstances a business may
deliberately extend credit as a strategy of increasing sales.
Extending credit means creating current assets in the form of
debtors or account receivables. Investment in the type of current
assets needs proper and effective management as, it gives rise
to costs such as :
Cost of carrying receivables
Cost of bad debts losses
Thus the objective of any management policy pertaining toaccounts receivables would be to ensure the benefits arising
due to the receivables are more than the costs incurred for the
receivables and the gap between benefit and costs increased
resulting in increase profits. An effective control of receivables
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Help a great deal in properly managing it. Each business should
therefore try to find out coverage credit extends to its clients
using the below given formula:
Average Credit = Total amount ofreceivable
(Extend in days) Average credit sale perday
Each business should project expected sales and expected
investments in receivable based on various factor, which
influence the working capital requirement. From this it would
be possible to find out the average credit days using the above
given formula. A business should continuously try to monitor
the credit days and see that the average. Credit offer to clients
is not crossing the budgeted period otherwise the requirement
of investment in the working capital would increase and as a
result, activities may get squeezed. This may lead to cash
crisis.
Cash Budget: Management Tool
Cash Budget is the most important tool in cash
management. It is the statement showing the estimated cashinflows and cash outflows over the planning horizon.
The various purposes of cash budgets are : (i) to co-
ordinate the timings of cash needs. (ii) it pinpoints the period
when there is likely to be excess cash, (iii) it assists management
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in taking cash discounts on its account payables, (iv) it helps to
arrange needed funds on the most favorable terms and prevents
accumulation of excess funds.
Preparation of Cash Budget :
The principle aim of the cash budget, as a tool is to predict
cash flows over a given period of time, and to ascertain whether
at any point of time there is likely to be excess or shortage of
cash.
The first element of cash budget is the selection of the period
of time to be covered by the budget. It is referred to as the
planning horizon over which the cash flows are to be projected.
There is no fixed rule. It varies form firm to firm. The period
selected should be neither too long nor too short. If it is too long.
It is likely that the estimates will be inaccurate. If, on the other
hand, the time span is too small many important events which lie
just beyond the period cannot be accounted for and the work
associated with the preparation of the budget becomes excessive
if the flows are expected sales and dependable, such a firm may
prepare a cash budget covering of firms whose flows are
uncertain, a quarterly budget, divided into monthly intervals, may
be appropriate. If the flows are subjected to extreme fluctuations,
even a daily budget may be called for. The idea behind
subdividing the budget period into smaller intervals is to highlightthe movement of cash from one sub period to another.
The second element of the cash budget is the selection of the
factors that have a bearing or cash flow. Items included in cash
budget are only cash items, non-cash items like depreciation and
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amortization are excluded. The cash budgets are broadly divided
into two broad categories: (a) operating and (b) financial. The
former includes cash generated by the operations of the firms
and are known as operating cash flows, the later consists offinancial cash flows.
Operating Cash Flow
Operating Cash Flow Items
Inflows/Cash Receipts Outflows/ Disbursements
1. Cash Sales
2. Collection of Accounts
Receivables
3. Disposals of Fixed
Assets
1.Accounts payable /
Payable payments
2. Purchase of raw materials
3.Wages and salaries
4.Facotory Expenses
5.Administrative and selling
expenses
6. Maintenance Expenses
7. Purchase of Fixed Assets
Among the operating factors affecting cash flows, are the
collection of accounts (inflows) and accounts payable
(outflows).the terms of credit and the speed with which the
customer pay would determine the lag between the creation of
accounts receivable and their collection. Also, discounts and
allowances for early payments, returns from customers and bad
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debts affect cash inflows. Similarly in case of accounts payable
relating to credit purchase, cash outflows are affected by the
purchase terms.
Financial cash flows:
Financial cash flows
Cash Inflows/Receipts Cash outflows/Payments
1.Loans/borrowings
2.Sales of securities
3.Interest receives
4.Dividend received
5.Rent received
6.Refund of tax
7.Issue of new shares and
securities
1.income-tax/tax payment
2.Redemption of loan
3.Repurchase of shares
4. Interest paid
5. Dividend paid
Preparation of cash budget:
After the time span of the cash budget decided and the
pertinent operating and financial factors have been identified, the
final step is the construction of the cash budget, thus the total
cash inflows, cash outflows and the net receipt or payment is
worked out.
Cash management: Basic strategies
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The cash budget, as a management tool, would throw light on
the net cash position of the firm. After knowing the cash position,
the management should workout the basic strategies to be
employed to manage its cash.The broad cash management strategies are essentially related to
the cash turnover process. That is the cash cycle together with
the cash turnover. The cash cycle refers to the process by which
has cash is used to purchase materials from which are produced
goods, which are then sold to customers, who later pay the bills.
The firm receives cash from customers and the cycle repeats
itself. The cash turnover means the number of times the cash is
used during each year. The cash cycle involves several steps
along the way as fund flows from the firms accounts.
Receivables management:
A)Objectives
The term receivables are defined as debt owed to
the firm by the customers arising from sale of goods or servicesin the ordinary course of business. When a firm makes an
ordinary sale of goods services and does not receive payment,
the firm grants trade credit and creates accounts receivables
which could be collected in the future. Receivables management
is also called trade credit management. Thus accounts receivable
represent an extension of credit to customers, allowing them a
reasonable period of time in which to pay for the goods received.
The sale of goods on credit is an essential part the modern
competitive economic systems. In fact, the credit sale and,
therefore, the receivables, are treated as a marketing tool to aid
the sale of goods. As a marketing tool, they are intended to
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promote sales and obligations through a financial instrument.
Management should weigh the benefits as well as cost to
determine the goal of receivables management. The objective of
receivable management is to sales and profiles untilthat point is reached where the return on investment in further
funding receivables is less than the cost of funds raised to
finance that additional credit.
The specific costs and benefits which are relevant to the
determination of the objectives of receivables management
are examined below.
a) Costs: the major categories of costs associated with the
extension of credit and accounts receivable are
i. Collection cost:
collection costs are administrative costs incurred in
collecting the receivables from the customers to whom
credit sales have been made.
ii. Capital cost:
the increased level of accounts receivable is an
investment in assets. They have to be financed thereby
involves a cost. It includes the additional funds requires
to meet its own obligation while waiting for payment
from its customer and also the cost on the use of
additional capital to support credits sales, which
alternatively could be profitably employed elsewhere.
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iii. Delinquency cost:
this cost arises out of the failure of the customers to
meet obligations where payments on credit sales become
due after the expiry of the credit period. Such costs are
called delinquency costs.
iv. Default costs:
finally, the firm may not be able to recover the over dues
because of the inability of the customers. Such debts are
treated as bad debts and have to be written off as they
cannot be realized.
Inventory management:
A) Objectives :
The basic responsibility of the financial manager is to
make sure the firms cash flows are managed efficiently. Efficient
management of inventory should ultimately result in the
maximization of the owners wealth. As we know that in order to
minimize cash requirements, inventory should be turned over as
quickly as possible, avoiding stock-outs that might result in
closing down the production line or lead to a loss of sales. Is
implies that while the management should try to pursue the
financial objective of turning inventory as quickly as possible, it
should at the same time ensure sufficient inventories to satisfy
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production and sales demands. The objective of inventory
management consists of two counter balancing parts.
(i) To minimize investment in inventory, and
(ii) Meet a demand for the product by efficiently
organizing the production and sales operations. These
two conflicting objectives of inventory management
can also be expressed in terms of cost and benefit
associated with inventory. That the firm should
minimize investment in inventory implies that
maintaining inventory involves costs, such that the
smaller the inventory, the lower is the cost to the firm.
But inventories also provide benefits to the extent that
they facilitate the smooth functioning of the firm: the
larger the inventory, the better it is from the
viewpoint. Obviously, the financial managers should
aim at a level of inventory which will reconcile these
conflicting elements. That is to say, an optimum levelof inventory should be determined on the basis of the
trade-off between costs and befits associated with the
levels of inventory.
(B)Techniques:
There are many sophisticated mathematical techniques
available to handle inventory management problems. We willdiscuss some of the simple production oriented methods of
inventory control to indicate a broad framework for managing
inventions efficiently in conformity with the goal of wealth
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maximization. The major problem- areas that comprise the heart
of inventory control are
(i)Classification problem: A B C system
The A B C system is a widely used classification
techniques to classify different types of inventories and to
determine the type and degree of control required for each. 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 (a)
the most costly, and/or b) the slowest turning, while items that
are less expensive should be given less control effort.
On the basis of the cost involved, the various inventory items are
classified into three classes A, Band C. The items included in
group A involve largest investment. Inventory control for such
items must be most rigorous and intensive and most
sophisticated inventory control techniques should be applied to
these items. The C group item consists of items of inventory
which involve relatively small investments although the number
of items is fairly large. These items deserve minimum attention.
The B group stands midway. It deserves less attention than A but
more than C. it can be controlled by less sophisticated technique.
(ii) Order quantity problem: economic quantity (EAQ)model:
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After determining the type of controls for each categories of
items (A B and C), question arises regarding the appropriate
quantity to be purchased in each lot to replenish the stock.
Busying a large quantity implies a higher average inventory.Level which will assure (a) smooth production/sales operations,
and (b) lower ordering or setup costs? But it will involve higher
carrying costs. On the other hand, if the order quantity is small
then the carrying cost is reduced but it will increase the ordering
costs. On the basis of trade-off between. The both the optimum
level of order to be places should be determined. The optimum
level of inventory is called as economic order quantity (EOQ). The
economic order quantity can be defined as that level of inventory
order that minimizes that total cost associated with inventory
management.
Assumptions: EOQ model is based on following
assumptions:
- The firm knows with certainty the annual consumption
of a particular item of inventory.
- The rate at which the firm uses inventory is steady
over time.
- The order placed to replenish inventory stocks are
received at exactly that point in time when inventories
reach zero.
- There are two distinguishable costs associated
inventories: cost of ordering and cost of carrying
- Cost of order is constant regardless of the size of the
order.
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- The cost of carrying is fixed percentage of the average
value of inventory.
EOQ formula:
EOQ = I 2FU
PC
WhereU=Annual salesF=Fixed cost per orderP=Purchase price per unitC=Carrying cost
NET WORKING CAPITAL FOR THE YEAR -2006
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Current assets Amount (in Rs.)
Inventories 81,304,949
Sun debtors 5,412,868
Cash & bank balances 52,890,308
Other current assets 12,899,241
Loans & advances 125,941,612
Total current assets 278,448,978
Current liabilities Amount (in RS.)
Current liabilities 80,766,830
Provisions 46,683,501
Total current liabilities 127,450,331
Net working capital =(CA-CL) 150,998,647
NET WORKING CAPITAL FOR THE YEAR -2007
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Current assets Amount (in Rs.)
inventories 109,607,481
Sun debtors 3,583,565
Cash & bank balances 27,554,332
Other current assets 7,840,780
Loans & advances 127,165,533
Total current assets 275,751,691
Current liabilities Amount (in RS.)
Current liabilities 105,861,282
provisions 13,021,801
Total current liabilities 118,883,083
Net working capital =(CA-CL) 156,868,608
NET WORKING CAPITAL FOR THE YEAR -2008
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Current assets Amount (in Rs.)
inventories 127,137,185
Sun debtors 6,006,361
Cash & bank balances 17,416,648
Other current assets 9,646,886
Loans & advances 97,522,490
Total current assets 257,730,260
Current liabilities Amount (in RS.)
Current liabilities 101,042,818
Provisions 46,858,965
Total current liabilities 417,901,783
Net working capital =(CA-CL) 109,828,477
NET WORKING CAPITAL FOR THE YEAR -2009
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Current assets Amount (in Rs.)
Inventories 126,721,943
Sun debtors 4,383,347
Cash & bank balances 19,657,285
Other current assets 8,756,703
Loans & advances 104,488,910
Total current assets 264,008,188
Current liabilities Amount (in RS.)
Current liabilities 117,933,092
Provisions 34,414,399
Total current liabilities 152,347,491
Net working capital =(CA-CL) 111,660,697
NET WORKING CAPITAL FOR THE YEAR -2010
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Current assets Amount (in Rs.)
Inventories 169,365,999
Sun debtors 2,861,203
Cash & bank balances 37,265,679
Other current assets 9,236,051
Loans & advances 59,421,138
Total current assets 278,150,070
Current liabilities Amount (in RS.)
Current liabilities 208,861,340
Provisions 46,021,195
Total current liabilities 254,882,535
Net working capital =(CA-CL) 23,267,535
NET WORKING CAPITAL DURING 2005-2006
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Current assets 2005 2006 Increase
(Rs)
Decrease
(Rs)
Inventories 100,915,719 81,304,949 19,610,770
Sun debtors 2,952,780 5,412,868 2,460,088
Cash & bank
balance
58,890,308 52,890,308 5,390,763
Other current assets 9,941,322 12,899,241 2,957,919
Loans & advance 81,049,655 125,941,612 44,891,957
TOTAL (A) 253,140,547 278,448,978
Current liabilities
Current liabilities 91,323,047 80,768,830 10,556,217
Provisions 42,017,818 46,683,501 4,665,683
TOTAL (B) 133,340,865 127,450,331
WORKING
CAPITAL (A-B)
119,799,682 150,998,647
increase 31,198,965
total 150,998,647 150,998,647
NET WORKING CAPITAL DURING 2006-2007
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Current assets 2006 2007 Increase
(Rs)
Decrease
(Rs)
Inventories 81,304,949 109,607,481 28,302,532
Sun debtors 5,412,868 3,583,565 1,829,303
Cash & bank
balance
52,890,308 27,554,332 25,335,976
Other current assets 12,899,241 17,840,780 5,058,461
Loans & advance 125,941,612 127,165,533 1,223,921
TOTAL (A) 278,448,978 275,751,691
Current liabilities
Current liabilities 80,768,830 105,861,282 25,094,452
Provisions 46,683,501 13,021,801 33,661,700
TOTAL (B) 127,450,331 118,883,083
WORKING
CAPITAL (A-B)
150,998,647 156,868,608
increase 5,869,961
Total 156,868,608 156,868,608
NET WORKING CAPITAL DURING 2007-2008
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Current assets 2007 2008 Increase
(Rs)
Decrease
(Rs)
Inventories 109,607,481 127,137,875 17,530,394
Sun debtors 3,583,565 6,006,361 2,422,796
Cash & bank
balance
27,554,332 17,416,648 10,137,684
Other current assets 7,840,780 9,646,886 1,806,106
Loans & advance 127,165,533 97,522,490 29,643,043
TOTAL (A) 275,751,691 257,730,260
Current liabilities
Current liabilities 105,861,282 101,042,818 4,818,464
Provisions 13,021,801 46,858,965 33,837,164
TOTAL (B) 118,883,608 147,901,783
WORKING
CAPITAL (A-B)
156,868,608 109,828,479
decrease 47,040,131
Total 156,868,608 156,868,608
NET WORKING CAPITAL DURING 2008-2009
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Current assets 2008 2009 Increase
(Rs)
Decrease
(Rs)
Inventories 127,137,875 126,721,943 4,15,932
Sun debtors 6,006,361 4,383,347 1,623,014
Cash & bank
balance
17,416,648 19,657,285 2,240,637
Other current assets 9,646,886 8,756,703 8,90,183
Loans & advance 94,278,678 104,488,910 10,210,232
TOTAL (A) 254,486,448 264,008,188
Current liabilities
Current liabilities 101,042,818 117,933,092 16,890,274
Provisions 46,858,965 34,414,399 12,444,566
TOTAL (B) 147,901,783 152,347,491
WORKING
CAPITAL (A-B)
106,584,665 111,660,697
increase 5,076,032
Total 111,660,697 111,660,697
NET WORKING CAPITAL DURING 2009-2010
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Current assets 2009 2010 Increase
(Rs)
Decrease
(Rs)
Inventories 126,721,943 169,365,999 42,644,056
Sun debtors 4,383,347 2,861,203 1,522,144
Cash & bank
balance
19,657,285 37,265,679 17,608,394
Other current assets 8,756,703 9,236,051 4,79,348
Loans & advance 94,469,534 59,421,138 35,048,396
TOTAL (A) 253,988,812 278,150,070
Current liabilities
Current liabilities 117,933,092 208,861,340 90,928,248
Provisions 24,395,023 46,021,195 21,626,172
TOTAL (B) 142,328,115 254,882,535
WORKING
CAPITAL (A-B)
111,660,697 23,267,535
decrease 88,393,162
Total 111,660,697 111,660,697
COMMON SIZE DURING 2005-2006
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Particulars 31st march 2006
Current assets 150,998,647
Fixed assets 277,415,998
Capital work in progress
(gross block-depreciation)
12,100,635
Total investments 121.676,324
Total assets 562,191,604
Fixed assets: Tangible:
Free hold land
Buildings
Plant and machinery
Furniture & office equipment
Vehicles
Non-tangible:
Soft ware license
Feed & implementation cost.
COMMON SIZE DURING 2006-2007
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Particulars 31st march 2007
Current assets 156,868,608
Fixed assets 296,370,121
Capital work in progress
(gross block-depreciation)
3,570,863
Total investments 112,220,878
Total assets 569,030,470
Fixed assets: Tangible:
Free hold land
Buildings
Plant and machinery
Furniture & office equipment
Vehicles
Non-tangible:
Soft ware license Feed & implementation cost.
COMMON SIZE DURING 2007-2008
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Particulars 31st march 2008
Current assets 109,828,427
Fixed assets 338,290,130
Capital work in progress
(gross block-depreciation)
21,590,139
Total investments 137,236,385
Total assets 606,945,131
Fixed assets: Tangible:
Free hold land
Buildings
Plant and machinery
Furniture & office equipment
Vehicles
Non-tangible:
Soft ware license Feed & implementation cost.
COMMON SIZE DURING 2008-2009
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Particulars 31st march 2009
Current assets 111,660,697
Fixed assets 351,778,176
Capital work in progress
(gross block-depreciation)
23,302,070
Total investments 115,418,366
Total assets 602,159,309
Fixed assets: Tangible:
Free hold land
Buildings
Plant and machinery
Furniture & office equipment
Vehicles
Non-tangible: Soft ware license
Feed & implementation cost.
COMMON SIZE DURING 2009-2010
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Particulars 31st march 2010
Current assets 23,267,535
Fixed assets 408,395,531
Capital work in progress
(gross block-depreciation)
30,463,124
Total investments 230,992,086
Total assets 693,118,276
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Fixed assets: Tangible:
Free hold land Buildings
Plant and machinery
Furniture & office equipment
Vehicles
Non-tangible:
Soft ware license
Feed & implementation cost
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CLOSING STOCK FOR THE YEAR 2005-06
OPENING STOCK FOR THE YEAR 2005-06
PARTICULARS OF
CLOSING STOCK
No.s quantity rupees
A) manufacturing items
a)work in progress
Hatching eggs No.s 3,133,522 9,782,670
Commercial broiler No.s 50,262 866,608
b) by products
Commercial eggs No.s 290,029 170,206
B) trading goods
culls No.s 2,437 58,303
Commercial eggs No.s 10,000 2,800
vaccines Doses 2,696,900 599,679
Total(rupees) 11,480,266
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CLOSING STOCK FOR THE YEAR 2006-07
PARTICULARS OF
OPENING STOCK
No.s quantity rupees
A) manufacturing items
a)work in progress
Hatching eggs No.s 6,629,157 24,657,712
Commercial broiler No.s 62,803 1,612,408
b) by products
Commercial eggs No.s 24,896 8,530
B) trading goods
culls No.s 636 32,120
Commercial eggs No.s 325 315
vaccines Doses 0 0
Total(rupees) 26,311,085
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CLOSING STOCK FOR THE YEAR 2007-08
PARTICULARS OF
CLOSING STOCK
No.s quantity rupees
A) manufacturing items
a)work in progress
Hatching eggs No.s 6,462,281 30,868,546
Commercial broiler No.s 77,045 2,271,661
b) by products
Commercial eggs No.s 18,920 8,112
B) trading goods
culls No.s 466 30,811
Commercial eggs No.s 762 1,243
vaccines Doses 2,773,500 618,338
Total(rupees) 33,778,711
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CLOSING STOCK FOR THE YEAR 2008-09
PARTICULARS OF
CLOSING STOCK
No.s quantity rupees
A) manufacturing items
a)work in progress
Hatching eggs No.s 4,404,079 22,498,788
Commercial broiler No.s 68,483 2,790,860
b) by products
Commercial eggs No.s 35,774 13,100
B) trading goods
culls No.s 1,235 104,487
Commercial eggs No.s 35,774 13,100
vaccines Doses 1,273,500 392,136
Total(rupees) 25,799,371
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CLOSING STOCK FOR THE YEAR 2009-10
PARTICULARS OF
CLOSING STOCK
No.s quantity rupees
A) manufacturing items
a)work in progress
Hatching eggs No.s 3,857,469 23,845,053
Commercial broiler No.s 0 0
b) by products
Commercial eggs No.s 24,797 10,160
B) trading goods
culls No.s 139 13,772
Commercial eggs No.s 24,797 10,160
vaccines Doses 1,479,500 228,646
Total(rupees) 24,097,631
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RATIO ANALYSIS
PARTICULARS OF
CLOSING STOCK
No.s quantity Rupees
A) manufacturing items
a)work in progress
Hatching eggs No.s 6,236,488 41,269,022
Commercial broiler No.s 0 0
b) by products
Commercial eggs No.s 20,820 4,498
B) trading goods
culls No.s 395 44,747
Commercial eggs No.s 20,820 4,498
vaccines Doses 36,000 10,858
Total(rupees) 41,329,125
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CURRENT RATIO
YEAR CURRENT ASSETS CURRENT
LIABILITIES
RATIO
2005-06 278,448,978 127,450,331 2.18
2006-07 275,751,691 118,883,083 2.32
2007-08 257,730,260 147,901783 1.74
2008-09 264,008,188 152,347,491 1.73
2009-10 278,150,070 254,882,535 1.09
RATIO= CURRENT ASSETSCURRENT LIABILITIES
GRAPH:
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CURRENT ASSETS TO FIXED ASSETES RATIO
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YEAR CURRENT ASSETS FIXED ASSETS RATIO
2005-06 278,448,978 277,415,998 1.00
2006-07 275,751,691 296,415,998 0.93
2007-08 257,730,260 338,290,130 0.76
2008-09 264,008,188 351,778,176 0.75
2009-10 278,150,070 408,395,531 0.68
RATIO= CURRENT ASSETS
FIXED ASSETS
GRAPH:
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QUICK RATIO
YEAR QUICK ASSETS CURRENT
LIABILITIES
RATIO
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2005-06 266,968,712 127,450,331 2.09
2006-07 241,952,980 118,883,083 2.04
2007-08 231,930,889 147,901,783 1.57
2008-09 239,910,557 152,347,491 1.57
2009-10 236,820,945 254,882,535 0.93
QUICK RATIO = CURRENT ASSETS- CLOSING STOCK
GRAPH:
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CASH MANAGEMENT
YEAR CASH CURRENT ASSETS PERCENTAGE
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2005-06 52,890,308 278,448,978 18.9
2006-07 27,554,332 275,751,691 9.9
2007-08 17,416,648 257,730,260 6.76
2008-09 19,657,285 264,008,188 7.45
2009-10 37,265,679 278,150,070 13.4
PERCENTAGE = CASH *100CURRENT ASSETS
GRAPH:
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PERCENTAGE OF CASH TO CURRENTLIABILITIES
YEAR CASH CURRENT
LIABILITIES
PERCEN
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2005-06 52,890,308 127,450,331 41
2006-07 27,554,332 118,883,083 23
2007-08 17,416,648 147,901,783 12
2008-09 19,657,285 152,347,491 13
2009-10 37,265,679 254,882,535 15
PERCENTAGE = CASH *100CURRENT LIABILITIES
GRAPH:
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THE COMPANYS FINANCIAL PERFORMANCE INTHE LAST FIVE YEARS
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(Rs. In lakhs)
particulars 2005-06 2006-07 2007-08 2008-09 2009-10
Paid up share(face value of Rs10/ pershare)
485.35 485.35 485.35 485.35 485.35
Reserves and surplus 4815.28 4891.93 5259.58. 5255.79 6212.22
Net worth 5300.65 5377.27 5744.93 5741.14 6697.57
Operating income 6945.45 6405.24 8427.00 8383.38 12336.74
Other income 450.64 428.06 429.31 146.91 160.60
Total income 7396.07 6833.31 8856.31 8530.29 12497.34
Depreciation 170.53 245.31 234.80 254.21 331.29
Interest 61.03 0 3.12 0 1.12
P.B.T 736.78 186.07 704.22 153.77 1877.69
Provision for tax 213.30 106.60 186.52 61.96 640.56
P.A.T 523.48 175.41 517.70 91.81 1237.13
Dividend (%) 25 25 25 20 25
Book value (in Rs ) 109.34 110.92 118.50 120.77 143.99
EPS(in Rs) 10.80 3.62 10.68 1.89 25.52
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CONCLUSIONS
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FINDINGS
Working capital is the sum of the money invested in short
term assets and used in the daily operations of a firm.Current assets are mainly composed of inventory, debtorsand cash.
The concepts of working capital are gross and net. Thegross working capital refers to the total amount ofworking capital; whereas net working capital is thedifference between current assets and current liabilities.
During the period under study, the unit was operating
with relatively large proportions of current assetsinvestments to total assets and this trend was ondecreasing path.
The unit has financed 100 percent of its current assetsrequirements through advances from cash.
The share of bank borrowings in financing the inventoryin spite of retaining nominal profits.
The study of working capital composition has revealed
that inventory formed a major portion of current assets,while cash and bank balances accounted for minorportion.
The reasons for high proportion of inventory are thenature of long term project and accumulation of inventoryresulting in lower rates of inventory turnover.
The working turnover ratio tells us the efficiency of itsusage. The efficiency of working capital usage has
marginally improved in the SHL during the period understudy.
The current liabilities are increasing from 2007 to 2010.
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SUGGESTIONS
1. Working capital turnover into ratio decreasing during
the time period 2005-2006 to 2009-2010 so the company
has to increasing the current assets.
2. Management information system relating to financial
may be further refined by correlating variances to the
assets on product which is turn help in decision making.
3. Month to month production working capital levels
should be shown.
4.It is suggested that ratio analysis should be attempted
based on the average of inventory & other components of
working capital rather than the year ending balance sheet
figures.
5. Control on current assets so that further working
capital may be increasing.