Financial analysis and ratio study of Vadilal Industries

SUMMER INTERNSHIP REPORT
Titled
FINANCIAL ANALYSIS OF VADILAL INDUSTRIES LTD
Submitted after 2 months practical training as part of curriculum of PGDM To
Som-Lalit Institute of Management Studies
Prepared by: - GAURAV PRAJAPATI (Roll No:-40)
SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.
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DECLARATION
This project report entitled the functional study of WORKING CAPITAL MANAGEMENT and Ratio-Analysis at VADILAL INDUSTRIES LIMITED, Prepared to submit SOM-LALIT INSTITUTE OF MANAGEMENT STUDIES, AHMEDABAD AS THE PART OF PGDM study, has been completed by me under the guidance of Mr. Milin J. Jani, Finance Head and the entire staff member at Vadilal Industries Limited, Ahmedabad.
This project report is entitled an outcome of my an own efforts and it is not submitted either in part or in whole to or copied from any project submitted to any other university or institute for and other degree.
DATE: PLACE:
GAURAV PRAJAPATI (PGDM)
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ACKNOWLEDGEMENT
Knowledge in itself is a continuous process. At this moment of my substantial enhancement I rarely find enough words to express my gratitude towards those who were constantly involved with me during my project and making it a success. Men become good through practice than by nature.
I am grateful to Prof. Arpita Amarnani, faculty of SOM-LALIT INSTITUTE OF MANAGEMENT STUDIES who created this opportunity to work on the project, i m also thankful to Prof. Roopa Rao and all the faculty member of SOM -LALIT INSTITUTE OF MANAGEMENT STUDIES.
I am highly obliged to Mr. Milin J. Jani, Finance Head at Vadilal Industries limited, for allocating such an interesting and challenging project.
I am grateful to Mr. Ankur Patel (Dy. Finance Manager) at Vadilal Industries Limited, who had guided me throughout the project with their vast knowledge of existing system, inspite of being very busy; he was ready to help me whenever required.
The whole staff of finance department and all staff members of Vadilal Industries Ltd. were highly co-operative and i am thankful for all the support they extended to me. I would also like to thank my parents and all my friends who have helped me, though indirectly, throughout the project duration and always have been a source of encouragement.
DATE: PLACE:
GAURAV PRAJAPATI (PGDM)
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PREFACE
Yesterday is a cancelled check; tomorrow is a promissory note; today is a ready cash, this quote from Hubert Tinley expressed Working Capital Management. Working capital is the excess of Current Assets over Current Liabilities. Decisions relating to working capital and short term financing are referred to as Working Capital Management. These involve managing the relationship between a firms Assets and its short term Liabilities. The goal of Working Capital Management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short term debt and upcoming operational expenses.
Working capital management is described as involving the administration of Current Assets namely, cash and marketable securities, Receivables and Inventories and administration of Current Liabilities, which includes Account Payables, Bank Loan and other short term sources of finance. Current Assets flow through the firm. Inventory is acquired and subsequently sold for cash or on credit. Accounts Receivables are collected and the cash is used to acquire other income producing assets or to retire debt. The cycle is then repeated as the firm acquires new inventory for sale.
Every entrepreneur would like to imagine himself in a situation where his production process takes very little time to convert the input to the finished product which gets sold immediately in cash the moments it rolls out of the process and the input market is so perfect that any amount of raw material is available at any time at a fixed price. But the entrepreneurs dream is hardly realized. He finds, instead, that his production progress takes quite long time; the finished goods are not sold so quickly which means a quantity of stock remains in the stores. Moreover, the sales are not always in cash- some amount of credit has to be given and the input market is so uncertain that he has to keep a certain amount of safety stock all the time. Each and every current asset of a firm is therefore nothing, but congealed fund for working expenses. And because business is a continuous process, every cycle of operation generates these Current Assets, which need to be funded for immediate financing of working expenses. All organizations have to carry working capital in one form or another. The efficient management of working capital is important from the view of both liquidity and profitability.
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TABLE OF CONTENT
PARTICULAR
Executive Summary Objective of Study Brief Introduction on Ice-cream Market of India Brief Introduction on Vadilal Group of Companies Research Methodology Ratio- Analysis Working Capital Working Capital Management Working Capital Cycle Liquidity Analysis Working Capital Facilities Fund Based Facilities Non-Fund Based Facilities Working Capital Financing Trade Credit Working Capital Financing by Commercial Bank Public Deposit Inter corporate Deposit Form of Bank Finance Guidelines For Bank Finance Conclusion Recommendation Limitation of Study Bibliography Annexure
Pg. No.
06 07 09 13 32 36 54 64 66 71 76 77 82 85 85 86 87 88 89 91 96 98 99 100 101
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EXECUTIVE SUMMURY
Financial Management decisions are divided into the management of Assets (investments) and Liabilities (sources of financing), in the long-term and the short-term. It is common knowledge that a firm's value cannot be maximized in the long run unless it survives the short run. Firms fail most often because they are unable to meet their working capital needs; consequently, sound working capital management is a requisite for firms survival.
About 60 percent of a financial manager's time is devoted to working capital management, and many of the potential employees in finance-related fields will find out that their first assignment on the job will involve working capital. For these reasons, the project of working capital policy and management given to me at Vadilal Industries Ltd. will help me get the required practical experience on various management practices involved in managing working capital of an organization.
Working capital policy refers to decisions relating to the level of Current Assets and the way they are financed, while Working Capital Management refers to all those decisions and activities a firm undertakes in order to manage efficiently the elements of Current Assets. While Long-Term Financial Analysis primarily concerns strategic planning, working capital management deals with day-to-day operations. By making sure that production lines do not stop due to lack of raw materials, that inventories do not build up because production continues unchanged when sales dip, that customers pay on time and that enough cash is on hand to make payments when they are due. Obviously without good working capital management, no firm can be efficient and profitable.
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OBJECTIVES OF THE STUDY

The project on analysis of Working Capital Management and short term financing would be of immense use for a student to manage for the overall understanding of finance department in any organization. Short term financing forms a vital part of corporate financing decisions. For any company, working capital and short term financing has an impact on the profitability and thus the shareholders earnings. The present study is envisaged with the following objectives: Understanding the working capital policy followed at Vadilal industries Ltd. Understanding cash and Liquidity management, Accounts Payable, Accounts Receivables policy followed at Vadilal Industries Ltd. Understanding various components of Working Capital and change in them over time. To determine the type of relationship between various constituents of Current Assets and Working Capital. To assess Liquidity position of Vadilal over the given time period. To understand various avenues used by Vadilal Industries Ltd to finance its Working Capital needs.
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1
BRIEF INTRODUCTION ON ICECREAM MARKET OF INDIA
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ICE-CREAM MARKET IN INDIA

India is considered to be the largest milk producer across the globe and accounts for one-fifth of the total global milk production. The ice cream market in India can be divided into: the branded market and the grey market. The branded market at present is 100 million Litters per annum valued at more than Rs. 800 crores. The grey market consists of small local players and cottage industry players. In 2010-11, in the branded ice cream market, Amul held the number one spot, with a market share of 40%, followed by Vadilal at 20%, Kwallity walls at 20%.The ice cream market in India about Rs 3,000 crore and about 60-70% is gone into the organized sector.
The per capita consumption of ice cream in India is approximately 300 ml, as against the world average of 2.3 Litters per annum. The per capita consumption of ice creams in India is just 300 ml per annum, compared to 22 Litters in the US, 18 Litters in Australia, and 14 Litters in Sweden. India is a way too far behind even in terms of the world average per capita ice cream consumption of 2.3 Litters per annum. The Indian ice cream sector is a competitive market with strong competition from the unorganized sector. "The ice-cream market is growing at an average of 1215% a year and has now turned into a game of volumes. Current scenario of market expecting to grow even better during coming summer.
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Market Share of Major Ice-Cream Industries in India:
The above graph reveals that the Amul is the national number one player having 40% of the total market share. Vadilal is having a 20% market share and giving tough competition to the major brands like Kwality Walls, cream bell and regional players.
Market Share of Major Ice-cream Industries in Gujarat:
The graph shown above depicts that in Gujarat Vadilal stands at the first place with 40% of the market share followed by Amul and Havmor with market share of 35% and 15% respectively. The market share of Vadilal reveals the strong position in the mind and hearts of people.
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Market Share of Ice-Cream Industries in Ahmedabad
If we see the scenario in Ahmedabad Ice Cream market then we find that Vadilal is at the first position having the market share of 35%. However the number one national player Amul is having negligible market share.
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BRIEF INTRODUCTION ON VADIAL GROUP OF COMPANIES
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VADILAL INDUSTRIES LIMITED
Type Industries Founded Headquarters
Public Limited Company Conglomerate 1907 Ahmedabad, India Shri. Ramchandra Gandhi - Chairman
Key people
Shri. Rajesh Gandhi - Managing Director Shri. Devanshu Gandhi - Managing Director Ice cream, Processed Food, Foreign Exchange, Chemicals, Real Estate 450 Crore (US$89.78 million) 1000 Vadilal Group
Products
Revenue Employees Parent Website
www.vadilalgroup.com
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ORGANIZATION STRUCTURE OF VADILAL
Vadilal Group is mainly divided into three parts:
VADILAL GROUP
VADILAL INDUSTRIES LIMITED
VADILAL ENTERPRISES LIMITED
VADILAL CHEMICALS LIMITED
VISION & MISSION

TO BECOME AN INDIAN MNC IN FROZEN FOODS.
TO PROVIDE PRODUCTS AND SERVICES AT AN AFFORDABLE PRICE WITHOUT COMPROMISING THE QUALITY.
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ABOUT THE COMPANY
Vadilal was established in 1907, a name synonymous to Ice- Cream. A company, which is around 85 years old, was started by the founder member Late Shri Vadilal Gandhi.
A certain unassuming gentleman started a soda fountain outlet in Ahmedabad. He, later on, passed on the business to his son Shri. Ranchodlal Gandhi, who ran a one-man show, and, with a hand-cranked machine, started a small retail outlet in 1926. which was started in 1907 by Shri Vadilal Gandhi has now turned out to be third-largest ice-cream brand in India, which boasts of 40 C&F agent, 560 distributors, and more than 50,000 retailers. With its 70-plus flavours, Vadilal has one of the largest ranges of ice-creams in the country. Brand Vadilal firmly established itself in the early 1960s. With the entry of Vadilal's grandsons, the Gandhi family decided to ramp up operations and incorporated the company in 1961. Before introducing automatic machines around in 1960, Gandhi family used to manufacture ice cream in wooden drums called Kothis. A name that dominates western Indian market, Vadilal, during seventies and eighties, had to contend with competition from local brands. Kwality ice-cream was the only sizeable player in the still promising ice-cream market. But it faced first real challenge when dairy giant Amul forayed into ice-cream business in 1996. Backed by its strong butter brand, cooperative major made quick inroads into the 1,500lakh litre ice-cream market in which it now enjoys 40% share. Amul marketed its ice-creams almost 30-40% cheaper than the existing brands, and that pushed into market leader Vadilal to the second slot. But Amul's foray also indirectly helped Vadilal, as it helped in expansion of market in India. As against the per capita consumption of 23 litres in the US, 18 litres in Australia, 14 litres in Sweden, icecream consumption in India stood at a pathetic 100 ml in the mid-nineties. Vadilal has been using the growing ice-cream consumption culture to its advantage.
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"Brand Vadilal has survived many challenges and it will live through generations," said by Vadilal groups managing director, Shri. Rajesh Gandhi, in the fourth generation of Vadilal. Today, turnover of Vadilal Group, which has presence in Ice-Cream, Frozen Food, Chemicals, Forex and Real Estate, stands at about Rs 450 crore. With an investment outlay of Rs 50 crore, the group has expanded the capacity by 60% to three Lacs Litres per day. While two candy lines having production capacity of 25,000 pieces per hour. Vadilal has manufacturing facilities of Ice Cream at Pundhra near Ahmedabad and Bareilly in Uttar Pradesh. Vadilal group has started airing its commercials on national television. It is spending about Rs 78 crore a year on promotions and planning to increase the budget in coming days. The group is focusing on the food business. Vadilal launched processed food business under the brand name 'QUICK TREAT' some five years back that accounts for Rs 50 crore in our total turnover and growing at almost 80% a year. While ice-cream remains the core activity, Company also exports ready-to-serve curries, range of Indian breads, frozen samosa etc to 45 countries". Vadilal serves popular snacks items like parathas, samosas and kachoris under the 'Quick Treat' segment. "Recently, company has added two Chinese cuisines including spring rolls and Chinese samosas under 'Quick Treat'. Going forwards some more international and domestic cuisines would be added to their RTE portfolio. The manufacturing facility for frozen foods is located at Dharampur near Valsad in south Gujarat with a capacity of 32500 Metric tonnes per annum. The group recently launched ice-cream parlours under the banner of HAPPINEZZ. "They believe that ice-cream is a happy thing, so they named their chain of ice-cream boutiques Happinezz, which offers rich exotic flavours." Besides expanding manufacturing and distribution capacitates, company is also strengthening its milk procurement network from farm-to-factory to cater ice cream made from the fresh milk."
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ICE CREAM DIVISION:

Vadilal the name perform tricks up the image of ice cream laden bowls and a plethora of new flavours. Starting from one man show with a hand cranked machine in 1926 as a small retail outlet, the ice cream division now has a production capacity of one lac litres per day at three sophisticated plants, located at Ahmedabad, Pundhra and Bareilly. These ISO 9002 certified plants for Pundhra and Bareilly are established in such a way that they are in consonance with the market expansion strategies of the division.
Vadilal offers the widest range of ice creams and frozen desserts (More than 200 Stock Keeping units) in the country in packs including cups, party packs, family bricks, dollies, cones and candies. Something for all taste, preference and budgets. To meet with the consumer demand on regular basis, Vadilal introduces new flavours for different segments of customers throughout the year. People eagerly await Vadilals new introductions. Creativity is at forefront in all the activities of Vadilal.
PROCESS FOOD DIVISION:
Vadilal entered the Horticulture Processing Industries in May 1991.The best way to ensure total quality is to exercise total control right from the raw material stage onwards. Thats exactly what Vadilal does. Selected fruits and vegetables are grown under the companys guidance in South Gujarat the important Fruit Bowl of India. It is in close proximity to the Alphanso Mango region. This is where the manufacturing plant is situated. These plants at Dharampur and Chittoor are modern units with a well-equipped laboratory for product development and microbiological testing.
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Keeping in view the tremendous export potential for the processed foods Vadilal has set up manufacturing unit having an installed capacity of 3 2,500 MT per annum. Vadilal is a registered Indian supplier to international mega brands. The products are exported to Europe, USA, Middle & Far East and South East Asia. Vadilal is the leading producers and exporters of Mango Pulp and Green Vegetables in the country.
Vadilal has installed an automated line from Mather & Platt for washing, desponding, inspecting, blanching and cooling fruits and vegetables. Their slicing and dicing is done on imported machines. In order it preserves freshness and enhances shelf life the food is processed using Individually Quick Frozen (IQF) technique. This technology has been imported from Eurotek Engineering L imited, UK and it involves fluidized belt type continuous freezing. It can process two tons of material per hour, and it provides the flexibility of freezing at varying depths for different durations.
It has all been worth the effort, considering that M/s. Underwriters Laboratories Inc. USA has awarded the ISO 9002 certification for quality system. Vadilal wa s a ls o awarded the certificate of merit for excellent export performance by APEDA (Agricultural and Processed Foods Export Development Authority). Among IQF vegetables the range includes, green Peas, Sweet Corn, Okra, Mixed Vegetables etc all. The IQF Fruits range has exotic varieties of the famous Indian Mangoes- Alphanso, Kesar, Totapuri in pulps, slices, cubes in addition to strawberries, Samosa and other ready to eat foods and condiments also from apart from Vadilals formidable range.
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FOREX ADVISORY SERVICES & FFMC DIVISION:

Vadilal ventured into this segment in April 1996, offering non-banking financial services. The main activities are:
Forex advisory & Forex Exposure Management to Importers and Exporters. Bullion i n f o r m a t i v e S e r v i c e o n G o l d S i l v e r --- A c o m p l e t e s useful guidance to bullion traders, importers and jewellers. LME-Metal informative service bin base and Scrape metals. A complete useful guidance and information to metal traders, importers, and Metal scrap indenting agents.
RBI a u t h o r i z e d f u l l y fledged m o n e y ch a n ge r FFMC r e l a t e d transactions: Sale/Purchase of foreign Currency and Travellers Cheque.
VADILAL ENTERPRISE LTD:

An excellent product would be of little use if it didn't have somebody to maintain that excellence and give it to the world. That is how Vadilal Enterprises Ltd - the marketing arm of Vadilal Industries came into existence. Today Vadilal have a dynamic sales force of over 200 sales & marketing professionals, through which they have improved their promotion strategy and increasing their sales. The company has effected changes in its organizational structure and training inputs from time to time, in order to infuse a competitive spirit amongst peers and build a consolidated force of live-wire professionals. Target achievement is monitored through an elaborate Management Information System, across the rank and file. Vadilal has stood the challenge of time and held its own in the country, even in the presence of global giants.
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VADILAL CHEMICALS LTD.:

This division started in 1970, deals mainly in industrial gases and chemicals. The main products are gases such as Argon Nitrogen, hydrogen and Oxygen, Speciality gases, Industrial gas mixtures, Calibration Gases, Anhydrous and Liquor Ammonia. Vadilal is one of the biggest bottlers of Anhydrous
Ammonia. Vadilal Chemicals Ltd. has over 2000 industrial customers. To serve them, there is a marketing network of twelve branches and eight dealers, a fleet of 50 cryogenic/liquid transport tankers & commercial vehicles and
25,000-gas cylinders- one of the largest networks for industrial gases in western India.
PRODUCTS
It is a process by which the produced from raw material to finished product. Without production department, there is no need to finance, marketing and personnel department. If the companys product is good and its quality is better, then people buy its product and that leads to increase in the sales of the company. Now a day, we can see a tough competition in the market. Everyday new technology is to be introduced. So it is beneficial to every company for concentrating on their product quality because if quality is good and by using the product customer are satisfied, than they will definitely buy. In VADILAL INDUSTRIES LTD., they have completely concentrated on quality of the product. For that company has its own R&D department to increase the product quality. Following are the products of ice-cream of Vadilal group.
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ICE CREAM PRODUCTS

NOVELTIES OF PRODUCTS BIG CUPS Vanilla Ripe Strawberry 2 in 1 Chocolate Chips Tuti Fruity Real Mango Rainbow Fruit Bonanza Kaju Draksh Butter Scootch Kewra Jafrani Badam Pista Fun 2000 Rajbhog (Ice Mithai)
SMALL CUPS Vanilla Ripe Strawberry
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FAMILY PACK PLAIN FAVOURTIES Vanilla Ripe Strawberry 2-in-1
CHOCOLATE ECSTASIES Chocolate Chips
FRUIT FANTASIES Real Mango Fresh Strawberry
NUTTY DELIGHTS Kaju Draksh Butter Scotch Real Kesar Pista Jafrani Badam Pista
ICE MITHAI Rajbhog
FROZEN DESSERTS Snowy Yummy Kesar Pista Yummy Mango Munch

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KING KONES Chocolate Drip Pineapple Delight Yummy Butter Scotch Chashmeshahi Prime Kesar Pista Almond Kulfi Cone
KULFIES
KULFI CORNER Kesar Pista Kulfis Chowpati Kulfi Kewra Kulfi Pista Kesar Roll Cut Kewra Roll Cut
DANDY CANDIES Mango Juicy Juicee Orange Kaju Candy Litchee Dolly Orange Dolly Raspberry Dolly Mango Dolly
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Nutty Chocobar Chocolate Chocobar Soft Spot (Chocolate)
FROZEN DESSERT Bargain Best Chocobar Mango Tango Dolly Fun Bhari Raspberry
VADILAL SPECIALS Heart Throb Mini Sandwich Sajan Sajani (Roll Cut) Quick Sundae Easy Sundae August - 15 Cassatta Slice/ (Cut) Sajan Sajani (Roll) Vanilla Magic Strawberry Magic Mango Mag
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ACHIEVEMENTS OF VADILAL:
On 10th November, 2001 Vadilal broke its own record by making "The Largest Ice Cream Sundae". This ice cream sundae was made using 4950 litres of ice cream, 125 kg of dry fruits, and 255 kg of Fresh fruits. The length of the sundae was 20 feet and height was 9 feet, 180 man took 60 minutes to create this record breaking (registered in Limca Books of records) ice cream sundae. More than 50,000 people enjoyed.
Snow- Storm Ice-Cream Festival (25th December, 2001 to 31st December, 2001) A week long ice cream festival was held simultaneously in 11 Vadilal Happinezz Parlours of Gujarat. 71 flavours of Ice Cream, 51 Ice Cream Sundaes, Sorbets, and Ice Mithai ice creams like Rasgulla, Gulabjamun & other artisan Ice Creams were available at one stop. Over hundred thousand people have attained this festival.
The Bareilly plant has been awarded the coveted ISO 9001 Accreditation and HACCP certification.
Vadilal Ice Cream has achieved 20% market share among Indian Ice Cream Industry and 40% market share in Gujarat.
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They have been awarded the ISO 9002 Certification for quality systems, by M/s Underwriters Laboratories Inc., USA.
Vadilal was also awarded the Certificate of Merit for Excellent Export Performance by APEDA (Agricultural and Processed Foods Export
Development Authority)
One of the largest marketing networks for industrial gases in Western India.
In 2011, Vadilal Company has been evaluated by verities certification (UKAS kcc.no.008) and also meets the requirement of Global Standard Food for Safety.
It has largest cold chain network in India o 40 Clearing & Forwarding agents across the country. o 560 distributors in different cities in India. o Ice Cream sold through more than 50000 retail outlets in India.
Export House status by Govt. of India since 1994.
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MARKETING CHANNEL
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NEW TACTIC OF MARKETING CHANNEL:
Due to fewer profit margins in old strategy of distribution, company started to follow new strategy for distribution which has higher margin of profit and the product will go directly and according to demand of the customer through the HAPPINEZZ parlour.
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SWOT ANALYSIS OF VADILAL INDUSTRIES LIMITED

STRENGTH: Vadilal has started frozen food since 1991, which is growing year by year and Vadilal Group is the only Company which export the frozen food to the other Indian company with the affordable rate like reliance and many more. Vadilal has a maximum range of ice-cream products in India, (more than 200 SKUs). Vadilal Group has mainly target on rural areas people with the affordable price, and its generated major revenue from the rural area. One of the oldest manufacturer of ice-cream in India and hence a well established brand name, because of that reason maximum customers are attracted towards its product. They have a cold chain network with three manufacturing units in India, 40 clearing and forwarding agents, 560 distributors and more than 50000 retailers. They have their own refrigerated vans for smoother and faster deliveries. Quality is given at most as depicted in their philosophy to provide quality products and services at an affordable rate, as we know that Gujarat people are more quality conscious rather price sensitive. There is large no. of flavour giving a customer range of choice, around more than 70 flavours has introduced by the Vadilal Group, Vadilal Ice-creams come in a wide variety of flavours, with additives such as chocolate flakes or chips, nuts, Ice-tropper, fruit, and even small candies/sweets. Some of the most trendy ice cream flavours of Vadilal in markets are vanilla, chocolate, strawberry, and butter scotch. Many people like ice cream sundaes of our Happinezz Parlour, which regularly have ice cream, hot fudge, nuts, whipped cream, cherries and other toppings of their choice. Market leader in Gujarat, they also gaining markets in Rajasthan as well as Uttar Pradesh, Uttarakhand, and Zarkhand.
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WEAKNESS:
Financial constraints due to high overheads and cost of production. The major factor affecting to the cost is electricity. Vadilal Group is not aggressive in promotion and advertisement followed by lack of innovation and initiatives to introduce a new concept in area. Lack of innovation in recently launched ice-cream against Amul and Havmor. Company still perform as a follower of Amul.
OPPORTUNITIES: The company is also engaged in agro based food processing sector which is one of the major thrust areas of the new central govt. There is a huge overseas market for a food processing company. Huge available market of ice-cream, changing and growing consumption pattern. They are having manufacturing units at three different locations and vans for catering the needs of increasing demand in the market. Vadilal is Pioneers of processed food industries since 1991, therefore they gathered loyalty to other companies, so there is direct impact on their Selling and as a result they gained high reputation. With his loyal dealer network it can easily shift to the new market. Because of its emphasis on quality, it is held high in mind of the customer. A favourite with the customers because of its large variety of flavours and SKUs. Because of its leadership in novelties and impulses items it is a hot favourite among young generation, by introducing some trendy product like Ice-tropper in summer with the attractive packages increasing its hold substantially.
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THREATS:
High Taxes, Multi National companies entering in to the market and also the increasing number of local manufacturers, as well as the international companies like Amul, dairydan, and HUL.
Lack of niche. With increase in competition it would be very difficult to survey without a niche market. HAVMOR and Amul with competitive flavours and prices becoming major threat for the company.
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3
RESEARCH METHODOLOGY
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Period of Research
Entire research work is done for following period: 16-04-2012 to 16-6-2012
Research Design
Study the source of working capital in VADILAL INDUSTRIES LTD. Prepared operating statement of the company to understand finance of the company. Find out Ratios related to working capital management of VADILAL INDUSTRIES LIMITED on year to year basis starting from 2008-09 to 2010-11 and interpret them. To study practically various transaction processes of the company and its method of working. Study various formal documents of the company relating to the sample projects including Term Loan, Cash Credit, Annual Report, Bills Discounting, Letter of Credit, Stock Statement. Quarterly Information Statements etc. To study a live project of Proposed Term-Loan.
Data used
Information about companys assets, liabilities, revenue, expenditure, bankers etc. Information about companys Bank Guarantee, Letter of Credit & other financial information.
Data Source
Annual Reports of companies Balance Sheet Profit & Loss Accounts

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Analyses & Interpretation

The data collected and analyzed subjectively as well as graphically where it is possible. The analysis is based upon available information & interpreted accordingly.
Scope of The Study

The study of Financial Analysis is based on tools like trend Analysis, Ratio Analysis, Working capital Management, Working capital cycle etc. Further the study is based on last 3 years Annual Reports of VADILAL INDUSTRIES LIMITED.
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4
RATIO ANALYSIS
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RATIO ANALYSIS
Introduction:
Ratio Analysis is the basic tool of Financial Analysis and Financial Analysis itself is an important part of any business planning process. Ratios are the basic tool of the strategic analysis plays a vital role in a business planning process and no SWOT analysis would be complete without an analysis of companys financial position. In this way Ratio Analysis is very important part of whole business strategic planning. Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. The Ratios are categorized as Profitability Ratio, Leverage Ratio, Turnover Ratio, and Liquidity Ratio. Ratios can be used to compare a firm's financial performance with industry averages. In addition, Ratios can be used in a form of trend analysis to identify areas where performance has improved or deteriorated over time.
Definition:
Ratio is an expression of mathematical relationship between two variables or figures; it is the effectively used as a tool of management or analysis of financial statements along with cash and fund flow statements. Even in the trend analysis Ratio are used as an effective tool.
Objective Of Ratio Analysis:

To understand the financial statements Figures in a better way To enquire in to the reason for change To make comparison to facilitate decision making To compare past and present performance of the company To analyse the operational activity, profitability, performance efficiency, liquidity, and other related Ratio.
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Classification of Ratio:
Liquidity Ratio: Liquidity Ratio refer to the Ratio which measure the
companys ability to meet current or short term, usually one year, its obligations. Liquidity means cash or equivalent available for the payment to creditors for trade and expenses. Liquidity Ratio is generally based on the relationship between Current Liability and Current Assets.
Leverage Ratio: Leverage Ratio can also be known as solvency Ratio. This
Ratio means the companys ability to meet both short-term and long-term obligation, when they fall due leverage depend upon the profitability of the business. Financial leverage refers to use of debt. Finance this Ratio help in assessing the risk arising from the use of debt-capita. Solvency refers to the soundness of the company.
Turnover Ratio: Turnover Ratio also known as an Activity Ratio. Turnover

Ratio measure how effectively assets utilized in the firm. This means the quickness with which the company is to able to covert Current Assets in to cash. Turnover means the frequency or the no. of times the item has turnover during the year.
Profitability Ratio: Profitability in the terms of sales or/and investment to

assess the capacity of the management to earn the profit and to ensure returns to owner. This Ratio is reflecting the final result of the business operation. There are two type of profitability Ratio and rate of return Ratio.
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Liquidity Ratio: Liquidity Ratio Includes:

1. Current Ratio: Current Ratio is the Ratio of Current Assets to Current Liability. It is also known as working Capital Ratio, this Ratio is not expressed in percentage Ratio. Generally (2:1) considered to be favourable Ratio that means Current Assets twice Current Liability.
Purpose: The purpose of this Ratio is to test Liquidity of the company.
Current Assets Current Ratio: Current Liability
Particular Current Assets Current Liability Current Ratio:
2008-09 7897 3005 2.63
2009-10 10425 5173 2.02
2010-11 10961 3917 2.80
Interpretations: In 2008-09, Current Ratio of the company was 2.63. Same way in 2009-10 and 2010-11 comapanys current Ratio is healthy. In this case it implies that the company can easily pay its Current Liabilities, Because of the Company having adequate liquidity in term of Current Assets.
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2. Quick Ratio: It is calculated to establish a relationship between Liquid/Quick Assets and Current Liabilities. Quick Assets are nothing but cash, cash equivalents, and readily realizable marketable securities excluding stock and prepaid expenses from Current Assets. This Ratio is considered as an ideal test for liquidity. The standard Ratio is 1:1.
Purpose: The purpose of this Ratio is to test liquidity of an enterprise considering cash and cash equivalents as numerators.
Quick Ratio:
Quick Assets Quick Liability
Particular Quick Assets Quick Liability Quick Ratio
2008-09 4197 3005 1.40
2009-10 4851 5173 0.94
2010-11 5372 3917 1.37
Interpretations: Quick Ratio is very much Greater than the standard Ratio of 1:1. This indicates the company is in position to honour its current obligation.
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Profitability Ratio: This Profitability Ratio includes following Ratios:
1. Gross Profit Ratio: This Ratio is measure the efficiency of production/purchase

as well as pricing. The higher the Gross Profit, the better is the efficiency of the management in relation to production/purchase as well as pricing.
Purpose: This Ratio is used to test Profitability of an organisation relating to trading activity. Gross Profit Net Sales 2008-09 3403 15416 22% 2009-10 4469 18970 24% 2010-11 4934 23642 21%
Gross Profit Ratio:
Particulars Gross Profit Ratio Gross Profit Net sales Gross Profit Ratio
Interpretation: Gross Profit of the company in 2008-09,2009-10 and 2010-11 is 22%,24% and 21% respectively.higher GP Ratio implies better runing capacity of the company.but 22% GP Ratio implies average trading efficiency.
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2. Net Profit Ratio: This Ratio is indicating difference between net sales and total
expenses during the period. The higher the Net Profit, the better is the efficiency of the management. The management should in better position to distribute higher returns to the owners on the capital invested by them.
Purpose: To test Profitability of organisation.
Net Profit Ratio:
Net Profit Net Sales
Particular Net Profit Net Sale Net Profit Ratio
2008-09 108 15416 0.70%
2009-10 575 18970 3.03%
2010-11 507 23672 2.14%
Interpretation: As above graph shows, even though sales increase in 2010-11, the Net profit Ratio is not increase at good level, but in 2010-11,sales increases but Net profit Ratio decreases and also there is increase in expenditure compare to previous year which shows decline trend in Net profit.
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3. Expenses Ratio: This Ratio is indicating the relationship between Operating

Expenses and Net Sales, Expenses Ratio are computed. For example, proportion of selling expenses or administrative expenses or finance expenses in relation to net sale.
Purpose: The purpose of this Ratio is to know how much expenses are increases with accordance to increase in sales.
Expense Ratio:
Total expenses Net sales
Particular Total Expense Net Sale Expense Ratio
2008-09 4995 15416 32%
2009-10 4288 18970 23%
2010-11 4995 23642 21%
Interpretation: This Ratio is combination of all expenditure which include in operating statement as well as in P & L account, the Ratio is continuously reducing in last three years that means from 2008 to 2011 which shows higher efficiency of the company.
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4. Return on Capital Employed: It calculated to establish a relationship between

earnings before interest and taxes (EBIT) and capital employed. Capital Employed means, Share Capital+ Reserve and Surpluses- Fictitious Assets+ Long-Term Loan. It means the effectiveness of the company in using all its assets to increase the earnings of the company.
Purpose: This Ratio is calculated to find out how efficiently the long term funds supplied and used in the company.
ROCE:
EBIT Total Capital Employee Particular 2008-09 865 6022 14% 2009-10 1433 7968 18% 2010-11 1616 10977 15%
EBIT Total Capital Employee ROCE:
Interpretation: Higher the Ratio, the management is more efficient. The Capital Employed Ratio in 2008-09 is low but higher in 2009-10, which show the management is quite effective again in 2010-11 its decreases in lower level.
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5. Return on Share Holders Fund: This Ratio is measure a relationship between net
profit after tax and share holders fund which include Share Capital + Reserves and Surplus.
Purpose: This Ratio is to find out how efficiently the funds supplied by Equity Shareholders have been used.
ROSF:
PAT Shareholder's fund
Particular PAT Shareholder's Fund ROCE:
2008-09 108 3530 3%
2009-10 575 3958 15%
2010-11 507 4320 12%
Interpretation: This Ratio shows how efficiently the fund supply by the equity
Shareholder has been used and the company is able to get and give sufficient returns to the Shareholders. As we can see in the graph that the Ratio of 200809 is low as compare to both years which shows that the company is able to pay sufficient returns to the Shareholders.
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6. Operating Margin: It is calculated purely to establish relationship between

Operating Profit and Net Sales when non-operating incomes and expenses are not considered into P & L account.
Purpose: It determines the operational efficiency with production; purchasing and

selling operations are carried on.
Operating Margin:
COGS + Operating Exp. Sales
Particular COGS Operating Exp. COGS + Operating Exp. Sales Operating Margin:
2008-09 11443 2538 13981 15416 91%
2009-10 14501 3035 17536 18970 92%
2010-11 18709 3318 22027 23642 93%
Interpretation: In year 2008-09 Ratio is 91% which is increased up to 93% in year 2010-11 which shows increasing trend of operating margin compare to last 2 years that means there is healthy operating margin trend.
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Leverage Ratio: Leverage Ratio includes following Ratio: 1. Debt-Equity: This Ratio establishes relationship between long-term debts and shareholders fund. Debt-Equity Ratio should be less than 1 to show that owners fund is greater than lenders fund.
Purpose: This Ratio shows at which extent the company has been financed by debt, and used to measure the solvency of the company.
Debt-Equity Ratio:
Total Long-term Debt Shareholder's Fund
Particular Total Long-term Debt Shareholder's Fund Debt-Equity Ratio
2008-09 2492 3530 0.71
2009-10 4010 3958 1.01
2010-2011 6657 4320 1.54
Interpretations: This Ratio shows the relationship between Long Term Debt and shareholders fund. The main objective of computing this Ratio is to measure the relative proportion of the Debt and Equity financing Assets of the firm. In this company it shows company is having more Debt which creates high risk for it. The company should try to reduce its Loan Funds. Here the Ratio is increase year by year due to increase in Debt, due to wide capital expansion in last three years.
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2. Interest Coverage Ratio: This Ratio is useful to know the company has sufficient profit for liability of interest.
Purpose: This Ratio shows that how many times the interest payable is covered by the amount of the profit. EBIT Interest
Interest Coverage Ratio:
Particular EBIT Interest Interest Coverage Ratio
2008-09 865 749 1.15
2009-10 1433 631 2.27
2010-2011 1616 961 1.68
Interpretation: This Ratio is useful to know about firms sufficient profit through which shows the firm is enough capable to pay its Liabilities (Interest). It represents that how many times Interest payable is covered by the amount of profit.
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Turnover Ratio: This Ratio includes following Ratios:
1. Stock Turnover Ratio: It measure how frequently inventory sold or how many times the stock of the business has turnover. This is the Ratio of COGS to Average Inventory in a stock during the year. Increase in the frequency of stock turn over indicates increased profit and low level of inventory in the stock and high Cash Inflow.
Purpose: The main purpose of computing this Ratio is to determine the efficiency with which inventory is utilized.
Stock Turnover Ratio:
Cost of Goods Sold Average Stock
Particular Cost of Goods Sold Average Stock Stock Turnover Ratio
2008-09 11443 2707 4
2009-10 14501 4149 3
2010-11 18709 5046 4
Interpretations: This Ratio shows relationship between Cost of Goods Sold and Average Inventory and to know how frequently inventory is utilised. Higher this Ratio shows higher efficiency of the company. There is stable capacity of stock movement compared among last three years.
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2. Debtors Ratio: The Ratio shows the no. of days taken to collect the Credit Sales. It shows the efficiency or collection policy of the company. Purpose: The purpose of use this Ratio is to measure the frequency of the collection of the Account Recievable (Debtors+ Bills Recievable).
Debtors Ratio:
Debtors + Bills Receivable Credit Sales
*365
Particular Debtors + Bills Receivable Credit Sales Debtors Ratio (Days)
2008-09 2959 15416 70
2009-10 3321 18970 64
2010-11 3495 23642 54
Interpretations: This Ratio describes the effectiveness in the collection period of dues credit sale. This shows the efficiency of the collection policy of the company, as we can see in the graph that the collection period of the company is better than last two years and it is considerably improve day by day.
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3. Debtors Turnover Ratio: Debtors Turnover Ratio gives no. of times within which the amount due for credit sale is collected.
Purpose: This Ratio is able to indicate the ability of the company to meet the short term current obligation and measure strength of current operation as well.
Debtors Turnover Ratio:
No. of days in year Debtors Ratio
Particular No. of days in year Debtors Ratio Debtors Turnover Ratio
2008-09 365 70 5
2009-10 365 64 6
2010-11 365 54 7
Interpretation: The Debtors Turnover Ratio shows the number of times the amount due for Credit Sales is collected within a year. Higher this Ratio shows higher efficiency of the company. Here the Debtors Turnover Ratio is continuously increasing, which shows efficient management of the company.
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4. Creditors Ratio: Company will be interested in finding out how much time the firm is likely to take in repaying the trade creditors. This ratio helps in finding out the exact time a firm is likely to take in repaying to its trade creditors.
Purpose: This Ratio measures the length of time it takes a company to pay its creditors. Creditors + Bills Payable Credit purchase
Creditors Ratio:
*365
Particular Creditors + Bills payable Credit Purchase Creditors Ratio
2008-09 1219 9480 50
2009-10 2120 12443 62
2010-11 1540 13684 41
Interpretation: The number of the days in which the company makes payment to its Creditors for Credit Purchase. Here the Ratio of 2010-11 is 41 days which is lower compare to last year 2009-10 which shows company is better managing its creditors. The company is making faster payment to its suppliers.
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5. Creditors Turnover Ratio: This Ratio measures how many times the Accounts Payables are paid in a year. Higher Creditors Turnover Ratio is an indication of strict credit policy and lower Ratio is an indication of liberal credit policy by the company.
Purpose: This Ratio helps the manager to understand that how many times company makes a payment to their supplier.
Creditors Turnover Ratio:
No. of days in year Creditors Ratio
Particular No. of days in year Creditors Ratio Creditors Turnover Ratio
2008-09 365 47 8
2009-10 365 62 6
2010-11 365 41 9
Interpretations: The Creditors Turnover Ratio shows that the numbers of times
with in which we make payment to our creditors for Credit Purchase is obtained from Creditors Velocity. The Ratio is quite same during 3 years that means there is no much fluctuation in Ratio, its increase from 8 to 9 times from 2008-09 to 2010-11 which shows the company pays amount for credit purchase 9 times in a year.
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5
WORKING CAPITAL
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WORKING CAPITAL
Introduction:
The life blood of business, as is evident, signified funds required for day-to-day operations of the f irm. The management of working capital assumes great importance because shortage of working capital funds is perhaps the biggest possible cause of failure of many business units. Management is a talent of anticipating and preparing for risks, uncertainities and overcoming obstacles. In morden financing management , efficient allocation of funds has a great scope, in finance and profit planning, for most effective utilization of company resources. we would like to present a broad overview of what working capital is and why it is important. working capital is the money which used in a business has available to sustain its operations. It's the capital available to purchase inventory, pay employees, keep the lights on, and finance other short term expenditures. This makes managing working capital a critical business skill. If there is no working capital, there is no business. Working capital in simple term means amount of funds that company requires for financing its day-to-day operations. Finance manager should develop sound techniques of managing Current Assets. Not only does working capital management involve ensuring the business does not fail due to a short term cash problem, but it also helps to ensure a business does not carry too much cash. Every business needs investment to procure fixed assets, which remain in use for a longer period. Money invested in these assets is called Long term Funds or Fixed Capital. Business also needs funds for short-term purposes to finance current operations. Investment in short term assets like cash, inventories, debtors etc., is called Short- term Funds or Working Capital. The Working capital can be categorized, as funds needed for carrying out day-to-day operations of the business smoothly.
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Every running business needs working capital. Even a fully equipped with all type of assets required is bound to collapse without:
o Adequate supply of raw materials for processing o Cash to pay wages, various types of bills, salaries etc. o Creating a stock of finished goods to feed the market demand regularly. o The ability to grant credit to customers. All these require working capital. Working capital is thus like The Lifeblood of a Business. The business will not be able to carry on day-to-day activities without the availability of adequate working capital.
WHAT IS WORKING CAPITAL?

Working capital refers to the investment by the company in Short Terms Assets such as cash, marketable securities. Net Current Assets or Net Working capital refers to the Current Assets less Current Liabilities.
Symbolically, it means, Net Current Assets = Current Assets-Current Liabilities.
DEFINITIONS OF WORKING CAPITAL:

The following are the most important definitions of Working capital:
1. Working capital is the difference between the inflow and outflow of Funds. In other words it is the net cash inflow. 2. Working capital represents the total of all Current Assets. In other words it is the Gross working capital, it is also known as Circulating capital or Current capital for Current Assets are rotating in their nature. 3. Working capital is defined as the excess of Current Assets over Current Liabilities and provisions. In other words it is the Net Current Assets or Net Working Capital.
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FEATURES:
Working capital is regarded as the excess of Current Assets over Current Liabilities. Working capital indicates circular flow of funds in the day-to-day activities of business. Thats why it is also called circulating capital. Working capital represents the minimum amount of investment in raw materials, work-in progress, finished goods, stores and spares, accounts receivables and cash balance.
SIGNIFICANCE OF WORKING CAPITAL:

Working capital may be regarded as the lifeblood of the business. Without Insufficient working capital, any business organization cannot run smoothly or successfully.
In the business the Working capital is comparable to the blood of the Human body. Therefore the study of working capital is of major importance to the internal and external analysis because of its close relationship with the current day to day operations of a business. The inadequacy or mismanagement of working capital is the leading cause of business failures.
To meet the current requirements of a business enterprise such as the purchases of services, raw materials etc. working capital is essential. It is also pointed out that working capital is nothing but one segment of the capital structure of a business.
In short, the cash and credit in the business, is comparable to the blood in the human body like finance s life and strength i.e. profit of solvency to the business enterprise. Financial management is called upon to maintain always the right cash balance so that flow of fund is maintained at a desirable speed not allowing slow down. Thus enterprise can have a balance between liquidity and profitability. Therefore the management of working capital is essential in each and every activity.
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TYPES OF WORKING CAPITAL
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These are the two concept of Working Capital:

Gross working capital: Net working capital:
1. Gross Working Capital: The Gross Working Capital refers to firms investment in Current Assets. Current Assets are the assets which can be converted into the cash with in accounting year and with in cash, short-term securities, debtors, bills receivable and stock. Therefore, gross working capital is the Current Assets of the company.
It can be represented by following equation:
Gross working capital= Total of the Current Assets
2. Net Working Capital: Net working capital is difference between Current Assets and Current Liability. Current Liabilities are those claims which are expected to mature of the payment with in accounting year and include creditors, bills payable and outstanding expenses.net capital can be negative or positive.
A positive working capital occurs when Current Assets are excess of Current Liabilities.
A negative working capital occurs when Current Liabilities are excess of Current Assets.
It can be represented by following equation:

Net working capital= Current Assets Current Liabilities
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ON THE BASIS OF TIME, WORKING CAPITAL MAY BE CLASSIFIED AS: Permanent or fixed working capital Temporary or variable working capital
1. PERMANENT OR FIXED WORKING CAPITAL: Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of Current Assets. Every firm has to maintain a minimum level of raw material, work-in-process, finished goods and cash balance. This minimum level of Current Assets is called permanent or fixed working capital as this part of working is permanently blocked in Current Assets. As the business grow the requirements of working capital also increases due to increase in Current Assets. 2. TEMPORARY OR VARIABLE WORKING CAPITAL: Temporary or variable working capital is the amount of working capital which is requires meeting the seasonal demands and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. In the Vadilal industries, they purchase raw materials for ice-cream in winter seasonal. The capital required to meet the seasonal need of the company is called seasonal working capital. Temporary working capital is the additional assets required to meet the variations in sales above the permanent level. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc.
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Figure: Capital Requirements of a firm over time
IMPORTANCE OF MAINTAINING ADEQUATE WORKING CAPITAL

Adequate working capital helps in maintaining solvency of the business by providing uninterrupted production. Prompt payment and maintenance of goodwill with the customers of the firm is ensured by maintaining sufficient amount of working capital. High solvency and high credit rating will help the firm in availing loans from banks and other financial institutions on easy and favourable terms. Maintaining adequate working capital will help the firm in getting cash discounts from its suppliers which will eventually reduce cost. Regular supply of raw material and continuous production of its products will be ensured if a firm maintains sufficient working capital.
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Maintenance of adequate working capital will help a firm in making regular payment of salaries, wages and other day-to-day commitments that will eventually result in satisfaction of its employees, an increase in their efficiency & enhanced production as well as profits of the firm. If a firm is having adequate working capital, then it can exploit favourable market conditions such as purchasing raw materials in bulk when their prices are lower & holding its inventories when the prices are higher. Sufficient working capital will enable a firm to pay quick & regular dividends to its Investors, gain confidence of the investors and raise more funds in the future.
DISADVANTAGES OF HAVING AN EXCESSIVE WORKING CAPITAL

Excessive working capital means ideal funds which wont result in any profit for the firm and business cannot earn the required rate of return on its investments. Redundant working capital leads to unnecessary purchasing and accumulation of inventories. Excessive working capital implies excessive debtors and defective credit policy which causes higher incidence of bad debts. It may reduce the overall efficiency of the business. If a firm is having excessive working capital then the relations with banks and other financial institution may not be maintained. Due to lower rate of return n investments, the values of shares may also fall. The redundant working capital gives rise to speculative transactions.
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Taking into consideration the advantages to a firm in maintaining adequate working capital and the disadvantages for a firm in having an excessive working capital, we can say that it is imperative for a firm to maintain right levels of working capital. This requires efficient management of the Current Assets and the Current Liabilities of a firm i.e. employing efficient working capital management policies which will have a considerable impact on the profitability, liquidity and structural health of the firm. Various aspects of working capital management have been described in detail in the subsequent pages.
Structure of Working Capital

The different elements or components of Current Assets and Current Liabilities constitute the structure of working capital which can be illustrated in the shape of a table as follows:
Current Liabilities Bank Overdraft Creditors
Current Assets Cash and Bank Balance Inventories: Raw-Materials Work-in-progress Finished Goods
Outstanding Expenses Bills Payable Short-term Loans Proposed Dividends Provision for Taxation, etc.
Stores & Spare Accounts Receivables Bills Receivables Accrued Income Prepaid Expenses, Short-term Investments
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6
WORKING CAPITAL MANAGEMENT
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WORKING CAPITAL MANAGEMENT
Working Capital Management is significant in Financial Management. It plays a vital role in keeping the wheel of the business running. Every business requires capital, without it cant be promoted. Investment decisions are concerned with investment in Current Assets and Fixed Assets. Working Capital plays a key role in a business enterprise just as the role of heart in human body. It acts as grease to run the wheels of Fixed Assets. Its effective provision can ensure the success of business while. Its inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be considered as a promising concern. Efficiency of a business enterprise depends largely on its ability to its working capital. Working capital management is one of the important facts of affirms overall financial management.
Working Capital Management refers to management of Current Assets and Current Liabilities. The major thrust of course is on the management of Current Assets .This is understandable because Current Liabilities arise in the context of Current Assets. Working Capital Management is a significant fact of financial management.
Working capital is that part of companys capital which is used for purchasing raw material and involve in sundry debtors. We all know that Current Assets are very important for proper working of Fixed Assets. Suppose, If you have invested your money to purchase machines of company and if you have not any more money to buy raw material, then your machinery will no use for any production without raw material. From this example, you can understand that working capital is very useful for operating any business organization. We can also take one more liquid item of Current Assets that is cash. If you have not cash in hand, then you cannot pay for different expenses of company, and at that time, your many business works may delay for not paying certain expenses. If we define working capital in very simple form, then we can say that working capital is the excess of Current Assets over Current Liabilities.
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WHAT IS WORKING CAPITAL MANAGEMENT?

A Managerial Accounting Strategy focusing on maintaining efficient levels of both components of working capital, Current Assets and Current Liabilities, in respect to each other. Working Capital Management ensures a company has sufficient cash flow in order to meet its short-term debt obligation and operating expenses.
Components of working capital and their basis of valuation
Components of W.C Stock of R.M Stock of W.I.P Stock of Finished Goods Debtors Cash
Basis of Valuation Purchase Cost of R.M At cost or market value Cost of Production Cost of Sale Working Expenses
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WORKING CAPITAL CYCLE

Introduction:
Working Capital Cycle is helpful in various senses for the company. Working Capital Cycle is one of the several measures for effectiveness of the management. It is also known as a cash conversation cycle. Depending upon the type of time period this cycle is referred to as a short period WC Cycle. It is able to suggest that this has good cash flow. It measures how fast a company can convert cash on hand into even more cash on hand. The WCC does this by following the cash as it is first converted into Inventory and Accounts Payable (AP), through sales and Accounts Receivable (AR), and then back into cash. Generally, the lower this number is the better for the company. It can be especially useful for comparing close competitors because the company with the lowest WCC is often the one with better management. As far as manufacturing company like Vadilal is concern, there working capital cycle starts with the purchase of raw materials and ends with realization of cash from the sale of finished goods. The cycle involves the purchase of Raw Materials and ends with the realization of cash from the sale of finished products. The cycle involves purchase of raw materials and stores, its conversion in to stock of finished goods through work in progress with progressive increment of labor and service cost, conversion of finished stick in to sales and receivables and ultimately realization of cash and this cycle continuous again from cash to purchase of Raw Materials and so on.
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What is WCC?
The WCC is a combination of several activity Ratios involving Accounts Receivable, Accounts Payable and Inventory Turnover. AR and inventory are Short-term Assets, while AP is a liability; all of these Ratios are found with the help of the balance sheet. In essence, the Ratios indicate how efficiently management is using Short-term Assets and Liabilities to generate cash. This allows an investor to gauge the overall health of the company. How do these Ratios relate to business? If the company sells what people want to buy, cash cycles through the business quickly. If management cannot figure out what sells, the WCC goes slow down. For instance, if too much inventory builds up, cash is tied up in goods that cannot be sold - this is not good news for the company. If AR is handled poorly, it means that the company is having difficulty in collecting payment from customers. The longer a company has to wait to be paid, the longer that money is unavailable for investment elsewhere. On the other hand, the company benefits by slowing down payment of AP to its suppliers, because that allows the company to make use of the money for longer.
OPERATING CYCLE:
The duration of time required to complete the following sequence of events, in case of manufacturing firm, is called the operating cycle:
1. Conversation of cash into Raw Materials 2. Conversation of Raw Material in to work-in-progress 3. Conversation of work in process in to finished goods 4. Conversation of Finished Goods into Debtors and Bills Receivables through sales. 5. Conversation of Debtors and Bills Receivable in to cash.
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Duration of the Operating Cycle:

The duration of the operating cycle is equal to the sum of the duration of each of these stages less the credit period allowed by the suppliers of the company. In symbols,
Operating cycle:
Inv. Period + A/c. Receivable- A/c. Payable
CASH CYCLE
PARTICULAR Operating Cycle: Accounts Payable Period Cash Cycle (In Month) 2009 188 39 149 2010 204 53 151 2011 163 30 133 Average Days 185 41 144 Months 6 1 5
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INVENTORY PERIOD
PARTICULAR INVENTORY PERIOD: Inventory COGS INVENTORY PERIOD
2009
2010
2011
Average Days
Months
3700 11443 118
5573 14501 140
5589 18709 109
4954 14884 122 4
A manufacturing company converts the raw material in to Finished Goods and then sells the same. The time lag between the purchase of Raw Material and the sales of Finished Goods is the Inventory Period. Based on the data of the past 3 years, Vadilal industries Ltd. takes an average of 122 days between the purchase of raw materials and the sale of finished goods that means Average Credit Period for inventory is 4 months.
ACCOUNT RECEIVABLES PERIOD

PARTICULAR ACCOUNT RECIEVABLE PERIOD: DEBTOR ANNUAL CREDIT SALES ACCOUNT RECIEVABLE PERIOD 2959 15416 70 3321 18970 64 3495 23642 54 3258 19343 63 2 2009 2010 2011 Average Days Months
After a company sells the finished goods to its customer, customers will pay their bills after availing credit period. Time duration between the date of sales and the date of collection of receivables is the Accounts Receivable Period. For Vadilal industries Ltd., it takes on an average 63 days after the date of sales to receive the payments from its customer.
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ACCOUNT PAYABLES PERIOD

PARTICULAR ACCOUNT PAYABLE PERIOD: CREDITORS ANNUAL PURCHASE ACCOUNT PAYABLE PERIOD 1219 11443 39 2120 14501 53 1540 18709 30 1626 14884 41 1 2009 2010 2011 Average Days Months
The company begins with the purchase of Raw Material which is paid for after a specified time period, which represents the Accounts Payable Period. Vadilal Industries ltd. takes an average of 41 days from the date of purchase of raw materials to pay the raw material supplier that means there is 1 month period. Year 2010 has longest accounts payable period of 53 days but again its decrease in 2011.
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LIQUIDITY ANALYSIS
Maintenance of liquidity is one of the prime concerns of working capital management. Through Liquidity Analysis, we can come to know which year the company had maximum liquidity.
METHODOLOGY
For the purpose of Liquidity Analysis, first of all the components of Gross Working Capital are taken as % of total block. Through this we get the % composition of each constituent for a particular year. Furthermore, rankings are given to each constituent across all the years. Ranks are given to each component depending on its relative liquidity. As inventories are less liquid compared to cash balances the year having least % inventory is given rank 1 and the year having highest % inventory is given the lowest rank. Similarly, cash balances, which are one of the most liquid Current Assets, the year where its % is highest is given rank 1 and the year where its % is the lowest is given the lowest rank. After giving ranks to each constituent, individual rankings of each constituent for each year are added up and the year with the least total is given the highest rank and the year with the highest total is given the lowest rank. Year with the highest rank is considered to be the most liquid year and the year with the lowest rank is considered to be the least liquid year. Thus, by this way, we can compare the Annual liquidities and perform liquidity analysis. Following example shows the companys Liquidity position over the past three years.
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LIQUIDITY ANALYSIS GROSS WORKING CAPITAL YEAR CURRENT ASSETS a) Inventories b) Sundry Debtors c) Cash and Bank bal. d) Interest Receivable e) Loans and Advances 2008-09 7897 3700 2959 162 63 1012 % 100 47 37 2 1 13 2009-10 10425 5573 3321 247 161 1123 % 100 53 32 2 2 11 2010-11 10961 5589 3495 138 196 1450 % 100 51 32 1 2 13
RANKING YEAR a)Inventories b)Sundry Debtors c)Cash and Bank bal. d)Interest Receivable e)Loans and Advances Total Ranks 2008-09 1 3 1 1 1 7 1 2009-10 3 1 1 2 3 10 3 2010-11 2 1 3 2 1 9 2
INFERENCE
In case of Vadilal Industries Ltd., on the basis of the Liquidity Analysis, we can see that the year 2010-11 ranks the best and the year 2008-09 ranks the worst as far as liquidity is concerned. It implies that during this year the mix of Current Assets was the most liquid. We will look at each component separately and see how each affects the liquidity of a company.
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INVENTORIES Inventory forms a major portion of the companys Current Assets. Inventory occupies 47% to 53% of the companys total Current Assets over the past three years. One must also consider the fact that a firm has to maintain sufficient inventory so as to prevent any shortages due to unexpected rise in the demand. However, company can try to reduce its inventory in order to save the inventory holding cost and enhance liquidity.
SUNDRY DEBTORS Along with Inventories, Debtors also form a major portion of the companys Current Assets. Debtors occupy 32 to 37% of the companys total Current Assets over the past three years. Thus, it can be inferred that major part of the companys sales are on credit. High composition of Sundry Debtors in the company can not only reduce the liquidity of the company, but also makes the company more open to defaults.
CASH & BANK BALANCES Cash & Bank balances are one of the most liquid Current Assets. Cash & bank balances occupy 1% to 3% of the companys Current Assets over the past three years. We can observe that the company has a very low balance of cash throughout the past three years. It can look to better its overall liquidity by maintaining higher cash and bank balances.
LOANS & ADVANCES After Cash & Bank Balances, Loans & Advances can be termed as highly liquid in nature. Portion of Loans & Advances are in the range of 11% to 13% over the past three years. As compared to Inventories & Debtors, Loans & Advances occupy relatively less portion of companys total Current Assets.
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OTHER CURRENT ASSETS (INTEREST RECEIVABLES) Over the past three years, Interest Receivables have occupied about 1% to 2% of the companys Current Assets. In the year 2009-10 & 2010-11, interest receivables have occupied about 2.0% of the companys Current Assets which is the highest since the past 3 years.
LIMITATIONS OF LIQUIDITY ANALYSIS As it considers only the % figures, no in-depth analysis can be provided. Secondly, the Liquidity Analysis does not help us in identifying the reasons resulting in variation of the figures.
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7
WORKING CAPITAL FACILITIES
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WORKING CAPITAL FACILITIES:

There are two types of working capital facilities:
1. Fund based working capital:

Fund based working capital facilities include: 1. Term Loan
2. Cash Credit
3. EPC
4. PCFC
2. Non fund based working capital:

Non fund based working capital includes: 1. Letter of Credit:
2. Bank Guarantee: I. Advance: II. Corporate: III. Performance base:
3. Bill Discount (Purchase Bill Discount):
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A) Fund based working capital:

Fund based working capital facilities include:
1. Term Loan:
All banks have Term-Loan program that can offer to all type of businesses for the purpose of acquisition of fixed assets. viz., Land, Building, Plant and Machinery for setting up of new industrial units or expansion/modernisation of existing units, financing for the purchase of second hand machinery (both indigenous as well as imported) can also be considered subject to certain conditions. Organization will use the funds from the term loan to purchase Fixed Assets such as equipment used in its production process. Bank will provide fund in term of loan to the company, then bank will finance the loan in the proportion of ratings of the company. It is different from case to case of companys credit ratings, generally 1:3 Ratio is applicable. That means Companys Promoter takes out Re. 1.00 then bank will give Rs. 3.00. For example, the total cost of project is of Rs.15.00 crores, than Bank will finance of Rs. 10.00 crores and companys contribution would be Rs. 5.00 crores. Vadilal Industries Limited having total Term Loan of Rs. 91.00 Cr, In which they have borrowed loan from various banks i.e. BOB, SBI, SBT, IDBI and EXIM proportionately as per their consortium sharing pattern.
2. Cash credit:
Cash Credit is also known as Working Capital. Cash Credit is a facility to withdraw the amount from the business account even though the account may not have enough credit balance. The limit of the amount that can be withdrawn is sanctioned by the bank based on the business cycle of the company, working
capital requirement and the drawing power of the company. This drawing power is determined, based on the stock and book debts statements submitted by the company at monthly intervals against the security by hypothecating of stock of commodities and book debts. The Cash Credit facility is quite useful to those businesses where cash payment like wages, transportation, cash purchases are to be made and the receivables are not realized in time.
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Drawing Power:
Drawing Power is a capacity of a company to avail a finance facility against the Debtor and stock. There are two methods for determining finance available to a company. As per policy, bank cannot give 100 % of Finance to a company. As far as Vadilal is concern, they are mainly using the second method for finding out the drawing power. A company needs to put some money as a Margin Money for Working Capital. On basis of that there are two methods use which are as follows: Method-1 Rs. In Lacs Particular Stock Less: Margin (25%) Net stock (A) 120 36 84 159 60 99 Rs. 100 25 75 Total Amt.
Debtors Less: Margin (30%) Net Debtors (B) (A+B) Less: Creditors NET DRAWING POWER
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Method-2 Rs. In Lacs Particular Stock Less: Creditors Net stock Less: Margin (25%) DRAWING POWER ON STOCK (A) Debtors Less: Margin (30%) DRAWING POWER ON DEBTORS (B) TOTAL D.P (A+B) 120 36 84 114 Rs. 100 60 Total Amt.
40 10 30
Purpose: to meet the working capital needs of their ice-cream and food processed business.
Security: Company is required to maintain sufficient security for this facility with the bank. They are as follow. A) D.P not executed by company. B)Hypothecation of raw material, finished goods, stores and spares ,packing material lying/stored at their factory at Dudheshwar ,Bareilly, Pundhra, proposed plant at Calcutta and other warehousing of their associate concerns at companys C&F site and other place. C) Letter of continuing security D) Letter of undertaking E) Irrevocable power of Attorney for book debts. Provision: cash credit limit is allowed against stock at various plants as per requirement. Company is required to provide insurance for all the stock. General terms; Company is required to submit monthly statement of stock and book debts hypothecated to the bank as of each month by the 10th of the following month, if any delay will attract penalty
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3. EPC/PCFC:
Company has taken both the kinds of financing facilities from the bank i.e., pre and post shipment. Under pre-shipment, company takes two types of credit facilities i.e., EPC (export packing credit) and PCFC (packing credit in foreign currency). Under pre-shipment they have taken FBD/FBP (foreign bill discounting/purchase) for meeting their working capital requirement. Now their financing mechanism goes like this; Company takes credit on the export orders on hand through EPC/PCFC window for producing goods. These goods are then transported through ship to their destination. In this whole transition it is the banks of both the parties (Vadilal and their customer) that take care of the financial aspect of the transaction. On our request, our bank puts money in our C.C account for utilization. Such a credit is permissible for a period of 180 days. Within this 180 days company is required to submit the export documents in the bank for realizing payment the foreign customer by its bank and then duly deposited in our banks account in India. After goods are sent for shipment, documents are submitted to the domestic bank within 180 days (failing to this bank charges penal interest from the company) these documents include invoice and inland letter. These documents are than submitted to the foreign bank by the domestic bank seeking conformation of the payment by the customer within the stipulated period. Then these documents are given to the customer against which he can take delivery of the goods from the shipping company. On the due date, customer make payment to their bank and that bank submits the amount to our bank and hence the account is liquidated. In case of Vadilal the company procure Raw Material for processed food like mango, green Peas, Sweet Corn, Okra, Mixed Vegetables etc during its season and process it in Frozen Foods and exports the same as per requirements of the customer for whole year and enjoys the benefit of low rate of interest by availing EPC/PCFC.
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Company has also taken post-shipment financing from the consortium in the form of FBD/FBP. Whenever company is in the need of extra finance they take it from the bank by discounting their export invoice from the bank
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B) Non fund based working capital:

Non fund based working capital includes: 1. LETTER OF CREDIT:
There always remain the risks of default on the part of buyer. Therefore, suppliers and particularly foreign suppliers insist on getting a guarantee from the buyers bank for the payment in the event of default on the part of the buyer. This facility is extended by the bank to its customer in the form of an instrument called Letter of Credit. This arrangement passes the risk of suppliers to the bank. This facility is extended by banks to only financially sound customer. However, unlike cash credit or overdraft facility Letter of Credit is an indirect form of financing; the bank will make payment on behalf of the buyer only if he fails to meet his obligation.
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L/C Transaction Structure

1. Vadilal Industry Ltd. enters into a purchase agreement with its supplier, For IceCream and Frozen Food business. 2. Vadilal Industry Ltd completes an Application for an irrevocable Letter of Credit with information pertaining to VIL transaction and then submits it to Issuing bank (SBI Bank) for processing. 3. The Letter of Credit is usually issued within 24 hours of the time the Issuing Bank (SBI Bank) sends the Letter of Credit to the Advising Bank (IDBI Bank). 4. The Advising bank (IDBI Bank) establishes the authenticity of the Letter of Credit and informs the Beneficiary (i.e., supplier) that it has been received. 5. Supplier, ships goods to VIL against the letter of credit. 6. The Supplier / Beneficiary presents the Documents to the Advising Bank for payment under the Letter of Credit. 7. The IDBI bank sends the Documents to the SBI bank which checks to make sure they conform to the terms of the letter of credit. 8. VIL pays Issuing bank for the amount drawn under the Letter of Credit or has previously made arrangements for extended credit terms. 9. The Issuing Bank releases the Documents to VIL and the SBI Bank wires the funds to your Supplier through its IDBI Bank.
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2. BANK GUARANTEE:
A bank Guarantee is a written contract given by a bank on the behalf of a Company. By issuing this guarantee, a bank takes responsibility for payment of a sum of money in case, if it is not paid by the Company on whose behalf the guarantee has been issued. In return, a bank gets some commission for issuing the guarantee. Any company can apply for a Bank Guarantee, if his or her company has obligations towards a bank for which funds need to be blocked in order to guarantee that his or her company fulfil its obligations (for example carrying out certain works, payment of a debt, etc.) In case of any changes or cancellation during the transaction process, a Bank Guarantee remains valid until the customer dully releases the bank from its Liability. In the situations, where a Company fails to pay the money, the bank must pay the amount within three working days. This payment can also be refused by the bank, if the claim is found to be unlawful.
Bank is providing three kinds of guaranties: Advance Payment Guarantee

allows buyer to gives advance payment to the seller party in order to carry out the particular projects according to the terms and conditions of the contract. Here the bank will give guarantee on behalf of another party for the payment of the remaining fund to the main party. Corporate Guarantee is given by a Company to a Customer acknowledging obligation to the Terms of Contract. Corporate Guarantee is provided by the Company to another company for the same purpose but it is not foolproof. It is however a legally valid document and the Customer can sue the Company in Court if it does not pay up. The seller issues a Performance Bank Guarantee to passionate ensure or give concrete commitment to the buyer through its bank. This method ensures the buyer the timely execution of an agreement to have the goods exported to the buyer Company. In case the seller defaults on execution of the terms agreed, upon the Performance Bank Guarantee ensures the buyer for payment of the guarantee amount by the issuing bank.
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WORKING CAPITAL FINANCING
TRADE CREDIT
Trade Credit appears to be a cost free source of finance as it does not involve any explicit interest charges. However, in practice it is not free. It involves an implicit cost which may be transferred to buyer by the supplier in the form increased prices or the forgone Cash Discount extended by the supplier to the buyer for the early payment of the dues. At times for meeting their finance requirements, companies stretch their account payables. However, this again proves to be very costly both implicitly and explicitly. Explicitly in the sense that company might have to pay penal interest for this delayed period and implicitly in the sense that this adversely affects the companys creditworthiness.
WORKING CAPITAL ADVANCES BY COMMERCIAL BANK
WHAT IS CONSORTIUM?
Consortium is a Latin word, meaning partnership, association or society and derives from censors partner, itself from con-together and sores fate, meaning owner of means or comrade. A consortium is an association of two or more individuals, companies, organizations, or governments (or any combination of these entities) with the objective of participating in a common activity or pooling their resources for achieving a common goal.
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WHY A BANK CONSORTIUM?
Bank Consortium means, an association of more than one bank which join together to fulfil the financial requirements of a company. In the same way in Vadilal having five banks called Bank of Baroda, State Bank of India, State Bank of Travancore, IDBI, and Export Import Bank of India (EXIM). In which BOB is lead bank of Vadilal and others are followed banks. They share a proportionately in a pre decided manner, these are as follow 29%, 21%, 17%, 14%, 18% respectively, Such an arrangement diversifies the risk from any one bank, in other words risk of default on the part of company gets divided among the consortium members and hence a bank can finance more amount of money depending on the degree of risk it can take.
Consortium banking had faded away with the demise of financial institutions. However, with the kind of revolution that has occurred in the financial system of India, this concept is regarding its popularity. According to banking sources, banks are appointing a single security trustee who will draft the terms and conditions for the entire group of banks involved in lending.
Consortium lending had become past due to problem in settling non-performing assets through the Corporate Debt Restricting (CDR) method. Disagreement among bankers used to cause the entire process to fall through. In extreme cases in the past, even major lenders had gone ahead with the debt restricting process without the full consent of lenders. Therefore, each bank had decided to have its own terms and condition for lending to a corporate account. However, consortium banking has made a comeback after the legal procedure for settling bad accounts has been simplified and streamlines by the Reserve Bank of India and through the enactment of the securitization act.
Company also has an excess to the private sources for funds in the form of bill discounting. However this source is used only to fill the transitional gaps on monthly bases. This is not any major sources of finance.
Now coming to the VADILAL Industries Limited, bank has been the most feasible sources for financing their requirement of working capital. Bank generally do not finance with adequate security. Company has very well fulfilled this requirement by means of hypothecation of stock, book debt and mortgage of fixed assets.
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Apart from this, company also uses Trade Credits from its suppliers in the form of sundry which are also known as Account Payable.
As far as cost of the funds is concerned, Vadilal is well as per the running market rate and nothing extra is to be paid. However, their cost vitiates due to change in bank interest rates i.e. Base Rate Previously it was a BPLR (Benchmark Prime Lending Rate) which is changes as per guidelines of RBI and Banks Policy.
Thus from all this we can say that company has quite successfully met its finance requirement for their working capital given the external and internal limitations.
PUBLIC DEPOSIT
Public Deposits are an important source of financing the medium-term and long-term requirements of a company. The term 'Public Deposit' implies any money received by a company through the deposits collected from the public. The public includes the general public, employees and shareholders of the company but excludes the money received in the form of shares and debentures. The public deposits are generally solicited by company in order to finance the working capital requirements of the Company. Besides the issue of Shares- Equity, Preference and Debentures, a company can accept deposits from the public to finance its medium and short-term requirements of funds. This source has become very popular recently because, a company offers interest at a rate higher than offered by banks. As far as Vadilal is concerned, it also accepts public deposit to meet the short-term financial/ working capital requirement. Under this method, Vadilal is able to obtain funds directly from public without financial intermediaries. They offer interest to the investors over public deposits.
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INTER CORPORATE DEPOSIT

An Inter-Corporate Deposit (ICD) is an unsecured loan extended by one corporate to another. Existing mainly as a refuge for low rated corporate, this market allows funds surplus corporate to lend to other corporate. Also the better-rated corporate can borrow from the banking system and lend in this market. In the same way Vadilal borrow the funds from the bank, and then after they lend these funds to other corporate, and receive higher interest rate. As the cost of funds for a corporate in much higher than a bank, the rates in this market are higher than those in the other markets. ICDs are unsecured, and hence the risk inherent is high. The ICD market is not well organised with very little information available publically about transaction detail. Such Inter Corporate Deposits are as follow: Call Deposits: In theory, a lender can withdraw a call deposit on giving a days notice. In practice, however, the lender has to wait for at least three days. The interest rate on such deposits is varying from company to company.
Three-month Deposits: This type of deposit is more common and more popular in practice as far as Vadilal Industries is concerned. Such deposits are taken by the borrowers to make up for the short term cash inadequacy which can occur due to many reasons.
Six-month Deposits: Normally, lending companies do not extend deposits beyond this time frame. Such deposits are usually made with first-class borrowers & carry a higher interest rate.
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BANK FINANCE FOR WORKING CAPITAL

Banks are the main institutional sources of the Working Capital Finance in India. After Trade Credit, Bank Credit is the most important source of financing working capital requirements. The amount approved by the bank for the firms working capital is called Credit Limit. Credit Limit is the maximum funds which a firm can obtain from the banking system. In case of companies with seasonal businesses banks may fix separate limits for peak and non peak season indicating the time period during the year when these two limits will be applicable. In practice, banks do not lend 100% of the limit sanctioned. They deduct margin money from it.
FORMS OF BANK FINANCE

An organization can withdraw funds from the bank in various forms within the maximum permissible limit. They are as follow: Overdraft: Under Overdraft facility the Company is allowed to withdraw funds in excess of the balance in his Current Account up to a certain specified limit during a stipulated period. Overdrawn amount is repayable on demand. It is a very flexible arrangement from the Companys point of view since he can withdraw and repay funds whenever he desires within the overall stipulation. Interest is charged on the daily balances on the amount actually withdrawn subject to some minimum charges.
Discount of Bills: When sale and purchase transaction takes place, the seller issues an invoice (Bill) to the purchaser. If this sale is a credit sale, then seller will get the money from the purchaser only after expiry of credit period. The bank discounts the borrowers bills. The amount provided under this agreement is covered within the overall cash credit or overdraft limit. When a Bill is discounted, the borrower is paid the discounted amount of the bill. However bank collects the full amount on the maturity. Difference between the amounts is the banks charge for this service.
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A bill arises out of trade transaction. The seller of goods draws the bill on the purchaser. The bill may be either clean or documentary and may be payable on demand or after an insurance period which does not exceed 90 days. On acceptance of the bill by the purchaser, the seller offers it to the bank for discount/purchase. When the bank discounts/purchases the bill it releases the funds to the seller. The bank presents the bill to the purchaser on the due date and gets its payment. However, this source is used only to fill the transitional gaps on monthly basis. This is not any major source of finance. Working Capital Loan: A borrower may sometimes require extra amount of funds due to occurrence of some unforeseen contingencies. This is given to them in the form Working Capital Loan. Sometimes a borrower may require additional credit in excess of sanctioned credit limit to meet unforeseen contingencies. Banks provide such credit through a Working Capital Demand Loan (WCDL) account or a separate nonoperable cash credit account. This arrangement is presently applicable to borrowers having working capital requirement of Rs.10 crores or above. The minimum period of WCDL keeps on changing. WCDL is granted for a fixed term on maturity of which it has to be liquidated, renewed or rolled over. On such additional credit, the borrower has to pay a higher rate of interest more than the normal Rate of Interest. However borrower is required to pay a higher rate of interest as compared to the normal rate. Here I would like to mention the working capital requirement of the Vadilal Industries Limited. are as follow: first of all I m mentioning the fund based facility of W.C, Vadilal having total fund based loan of Rs. 52.67 Cr from their consortium bank. Now coming to the non-fund based facility of W.C loan, Vadilal having total of Rs. 12 Cr from the same.
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GUIDELINES FOR BANK FINANCE

Bank Credit is a scarce source of finance. Banks are the safest place for an individual as well as business man to keep their money. However, returns on Bank Deposits are very less as compared to the other investment options. Therefore banks get limited amount of deposits which they can offer under various credit facilities. Moreover there are many other contenders for bank credit. These mainly include agriculture, small scale industries, farmers, small man and many others. Public limited companies also approach commercial banks for their working capital requirement. Hence, monetary authorities have been very particular regarding the efficient and legitimate use of bank finance by the companies. In this regard, Reserve Bank of India has taken many steps from time to time for bringing the necessary changes in the banking system with the changing needs. An important chapter of this reform journey is Tandon committee and the Chore committee. These committees laid down norms which formed the basis for extending bank finance to the companies for fulfilling their credit needs for working capital. They introduced the concept of MPBF i.e. Maximum Permissible Bank Finance. MPBF formed a substantial part of the working capital gap (Current Assets Current Liabilities). Finance only a part of the working capital requirement and not the 100%. Logic behind such recommendation was that, since certain amount remains invested in the business on permanent basis which is also termed as permanent working capital, such amount should be financed from the long term sources of funds of the firm. These committees also recommended on the style of credit and the information system (flow). In addition to this chore committee recommended banks to consider peak and non peak limits separately in case of the businesses which are having seasonal element in them. These efforts have been very successful in reforming the credit system of the banks. It has resulted in more optimize usage of bank finance. However still we have to do a long way on this path since lot of in efficiencies still exist some of which have developed with the passage of time and changing requirement.
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TANDON COMMITTEE RECOMMENDATIONS

NORMS FOR CURRENT ASSETS: Tandon Committee defined the norms of raw materials, stock-in-progress, finished goods, and receivables for fifteen major industries. Subsequently, more industries were covered. MAXIMUM PERMISSIBLE BANK FINANCE: The Tandon Committee had suggested three methods for determining the maximum permissible bank Finance (MPBF). These methods are described below:
Method 1: MPBF = 0.75 (CA - CL) Method 2: MPBF = 0.75 (CA) - CL Method 3: MPBF = 0.75 (CA - CCA) CL
Where,
CA = Current Assets as per the norms laid down CL = Non-bank Current Liabilities like trade credit and provisions CCA = Core Current Assets which represent the permanent component of working capital. To consider the calculation of the MPBF under the three methods, let us consider the data for the Vadilal Industries Limited:
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CURRENT ASSETS AND CURRENT LIBILITIES OF VADILAL INDUSTRIES LIMITED
PARTICULAR Current Assets
2008-09
2009-10
2010-11
Inventories Sundry Debtors Cash and Bank Balance Other Current Assets
3699.98 2958.96 162.27 63.05
5573.21 3209.37 246.56 272.87
5588.85 3494.54 138.06 289.06
SUB TOTAL
(A)
6884.26
9302.01
9510.51
LESS: Current Liabilities
Sundry Creditors Other Liabilities Bills Payable/ Acceptances Advances from Customers Due to Managing Directors Unclaimed Dividend Unpaid Matured Deposit Interest on Deposit
1218.55 494.52 896.75 17.71 1.9 6.75 19.16 3.05
2119.53 741.64 1640.99 27.76 25.33 8.92 26.39 4.14
1540.38 842.38 1106.93 28.74 8.6 11.75 33.52 11.3
SUB TOTAL
(B)
2658.39
4594.7
3583.6
NET CURRENT ASSETS (A-B)
4225.87
4707.31
5926.91
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CORE CURRENT ASSETS

CORE CURRENT ASSETS Stores & Spares Raw Materials Packing Materials 2008-09 150.26 682.16 507.21 2009-10 172.34 1060.48 760.18 2010-11 241.86 1598.06 806
Total
1339.63
1993
2645.92
CALCULATION FOR MPBF

Particular METHOD-1: 0.75 (CA-CL) Net Current Assets 4225.9 4707.3 5926.9 2008-09 2009-10 2010-11
Method-1 0.75(CA) CL Current Assets Current Liabilities
3169.4
3530.5
4445.2
METHOD-2:
5163.2 2658.4
6976.5 4594.7
7132.9 3583.6
Method-2
2504.8
2381.8
3549.3
METHOD-3:
0.75(CA - CCA) CL Current Assets Core Current Assets Current Liabilities CA CCA Method-3 6884.3 1339.6 2658.4 5879.5 3221.1 9302 1993 4594.7 7807.3 3212.6 9510.5 2645.9 3583.6 7526.1 3942.5
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CURRENT RATIO: MPBF + CURRENT LIBILITIES METHOD- 1 METHOD- 2 METHOD- 3
2008-09 2009-10 2010-11
5827.8 5163.2 5879.5
8125.2 6976.5 7807.3
8028.8 7132.9 7526.1
M-1 CURRENT RATIO: M-2 M-3
1.18 1.33 1.17
1.14 1.33 1.19
1.18 1.33 1.26
Out of the three methods for determining the Maximum Permissible Bank Finance (MPBF), the second method has been adopted since the minimum Current Ratio in this type of method works out to be 1.30. For example, the Current Liabilities of Vadilal Industries Ltd. for the year 2009 is 2658.43 Lacs and the Current Assets for the year 2009 are 6884.26 Lacs. According to the second method, MPBF comes out to be 2504.8 Lacs. This means that now, the total Current Liabilities including MPBF will be: Rs. 2504.8 Lacs (MPBF) + Rs. 2658.39 Lacs (Current Liabilities) = Rs. 5163.2 Lacs as a result, the current Ratio comes out to be = 6884.26/5163.2 = 1.33.
CURRENT RATIO NORMS:

Tandon Committee recommended that a company seeking Working Capital Financing should maintain a minimum Current Ratio of 1.33. However, in the present times, a Current Ratio of 1.33 is regarded only as a benchmark and banks do accept a lower Current Ratio depending upon the circumstances. While deciding MPBF, banks do look into many factors such as duration & nature of the operating cycle, projected build-up of Current Assets & Liabilities, projected Turnover, Profitability & Liquidity.
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CONCLUSION
After performing Ratio and liquidity analysis on the financial data of the company and analyzing various avenues from where the company has financed its working capital requirement, one can say that the company is adequately managing its working capital needs. Ratio Analysis performed on the companys financial data provides a broader overview of the companys liquidity position. From the Ratio Analysis, we can observe that the companys Liquidity Ratios have been increasing over the past few years. However, this increase can be attributed to the steady increase in the inventory level which is the least Liquid Current Asset. Ratio Analysis also indicates that the company can put in more efforts to efficiently handle its slow moving inventory. Turnover Ratios also suggest that the Average Collection Period has decreased over the years, which is a good sign for the company as far as its credit management policy is concerned. Stiff competition in the ice-cream business, uncertainty and volatility in the market & an increase in the material & finance cost can be attributed to this decrease in the Profit Margin. As far as Working Capital Financing is concerned, history of Vadilal Industries Ltd. suggests that financing through banks has been one of the most feasible sources for financing its working capital requirements. Cash-Credit/Overdrafts, Working Capital Loans, Discount of Bills, Letter of Credit are different modes of financing availed through commercial banks. Trade Credit from the suppliers is another mode of financing preferred by the company for financing its working capital needs. Liquidity Analysis suggests that a major portion of the companys Current Assets are inventories. Cash & Bank Balances occupy very small portion of the companys total Current Assets which may be a cause for concern.
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In these two months of my summer training I have learned a lot not just on any particular aspect, rather it has been a fruitful learning experience for me in all the spheres of corporate life. Apart from just reinforcing the academic learning, it has taught me how to work in an environment which is full of uncertainties. Hope that i can make full use of what I have learned in Vadilal in my professional career.
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RECOMMENDATIONS
Vadilal being a growing enterprise is on the expansion mode. This is favoured by the growing market for its product and hence companys funds requirements are always on an upswing. Competition in the ice-cream market from reputed companies like Amul, Havmor and Kwality Walls is growing along with an increase in the market share of the ice-cream makers belonging to the unorganized sector and thus, there is constant pressure on the profit margin of the company. Hence to remain profitable, company must try to reduce its operating cost to the maximum possible extent. This reduction in operating cost will be ensured by adopting a more efficient working capital management policy. This will require better co-ordination between different departments concerned. With major expansion work being carried out in both Pundhra & Bareilly plant of Vadilal Industries Ltd. so as to cater to the growing needs of the consumers, inventory level is bound to move up. Hence, the company will have to relook its inventory management practices so as to make it more efficient. Since the company is on an expansion spree and undergoing various brand-building endeavours, costs are expected to increase. But hopefully these costs will lead to more sales in the future and the company will be able to create a stronger hold on the market and sustain the growth momentum in the future.
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LIMITATIONS OF THE STUDY

Financial statements contain summarized information as a result of which there are chances that some important relevant information may be left out. Because of the limitations of the financial statements, Ratios calculated on the basis of these statements may not always be the true reflection of the overall years results. Ratios need to be interpreted carefully since there are no fixed standards for ideal Ratios. For example, it is difficult to establish the ideal Ratios against which one can compare the Ratios of Vadilal Industries. This is because the ice-cream industry in Gujarat is still unorganized and as a result it is difficult to establish the industry average of the Financial Ratios. Thus, it can be possible that due to personal bias or due to other reasons, different people may interpret the same Ratio differently. Sometimes it is difficult to compare same Ratios between two firms operating in the same industry because those firms differ in their businesses, their size, their accounting procedures, etc. For example, although Vadilal and Amul operate in the same ice-cream industry, it is difficult to compare their Ratios since both these companies have different & diversified business profiles. The project had to be done using previous years data since the Annual Report for the year ending 31st March, 2012 has not been released yet and also the financial findings based on the unaudited information of the present year could be misleading.
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BIBLIOGRAPHY
Various sources of information used in this project are as follows:
Chandra, P. Financial Management, New Delhi: Tata McGraw-Hill Publishing Company Limited. Financial Statements of Vadilal Industries Ltd. (n.d.). Retrieved from http://www.vadilalgroup.com/ Opportunities. (2010). Retrieved from http://dare.co.in/opportunities/other-
business-opportunities/ice-cream-industry-in-india.htm (n.d.). Retrieved from http://www.istockanalyst.com/article/viewarticle/articleid/2832512 DOI: www.investopedia.com Finance Department
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OPERATING STATEMENT OF "VADILAL INDUSTRIES LIMITED."

Rs. In Lacs
PARTICULARS GROSS SALES (i) Domestic Sales (ii) Export Sales (iii) Others TOTAL Less: Excise duty NET SALES Other Business Income Derivative Losses Total Income % age rise(+) or fall (-) in net Sales as compared to previous year COST OF SALES i) Raw materials/Goods Purchased (a) Imported (b) Indigenous ii) Packing Materials (a) Imported (b) Indigenous iii) Other Spares (a) Imported (b) Indigenous iv) Power & Fuel v) Direct Labour vi) Other mfg. expenses vii) Depreciation viii) SUB-TOTAL (i to vii) xii) ADD: Op.stk of Work in process xiii) SUB TOTAL xiv) DED : Cl.stk of work in process xv) SUB TOTAL / COST OF PRODUCTION xvi) ADD: Op.stk of finished goods 9382 11756 13554 2008-09 15363 2009-10 18891 2010-11 23583
55 15418 2 15416 0 -570 14846
80 18971 1 18970 0 0 18970
91 23674 32 23642 0 0 23642
97
687
130
34
47
60 0 0 1785 39 1677 817 18063 0 18063 0 18063 3579
1186 28 1065 484 12276 0 12276 0 12276 1527
1379 33 1253 565 15720 0 15720 0 15720 2360
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xvii) SUB TOTAL xviii) DED: Cl.stk of Finished goods xv) SUB TOTAL / TOTAL COST OF SALES Gross Profit Selling & distribution expenses General & Administrative expenses SUB TOTAL (5 + 6) Op. Profit before Int. (3-7) Interest (Gross) Interest received Interest Net Op. Profit after interest (8-9) i) ADD Other Non-Operating income (a) Profit on sale of F.A. & Invts. (b) Others Sub-Total (Income) ii) DED. Other Non-Operating exp. (a) Previous Yr's adjustment/others (b) Preliminary exp. W/O Sub-Total (Expenses) iii) NET of Other non-op.Income/Exp. PROFIT BEFORE TAX/LOSS (10+11(iii)) Tax Provision NET PROFIT / LOSS (12-13)
13803 2360 11443 3403 2538
18080 3579 14501 4469 3035
21642 2933 18709 4934 3318
13981 865
17536 1433
22027 1616
749 116 86 17
631 802 77
961 654 94
219 111 108
879 304 575
748 241 507
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PARTICULARS 1.Sources of funds: (A) Share holders funds (i)Share capital (ii)Reserves & surpluses TOTAL (B) Add: Differed govt. grant (C) Loan funds: (i)Secured Loan: a)Term Loan b)Working capital loan Total of Secured loan Unsecured loan Total (D) Differed tax liability Total 2. Application of funds: 1)Fixed Assets a)Gross block Less: Depreciation Net block b)work in progress
BALANCE SHEET OF VADILAL INDUSTRIES LIMITED. in Lacs SCHEDULE 2008-09
in Lacs 2009-10
in Lacs 2010-11
1 2
719 2811 3530 35
719 3239 3958 32
719 3602 4320 29
3 2492 2933 5425 4 1204 6629 5 578 10771 4010 3202 7212 2009 9221 549 13760 6657 4286 10943 3341 14284 783 19415
6 9380 4031 5349 159 5508 7 330 9796 4559 5237 3050 8287 159 14880 5332 9549 2614 12163 158
2)Investments: 3)Current Assets, loan & provisions: a)Inventories b)Sundry debtors c)Cash and bank bal. d)Other Current Assets e)Loans and advances Subtotal (A) -{ less: Current liability and prov. a)Current liability b)Provision Subtotal (B)-{ Net Current Assets(A-B) 4)Misc. expenditure Total:
8 9 10 11 12
3700 2959 162 63 1012 7897
5573 3321 247 161 1123 10425
5589 3495 138 289 1450 10961
13 14
2746 259 3005 4891
4681 492 5173 5252 63 13760
3662 254 3917 7044 50 19415
15
42 10771
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Financial analysis and ratio study of Vadilal Industries

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SUMMER INTERNSHIP REPORT

FINANCIAL ANALYSIS OF VADILAL INDUSTRIES LTD

Submitted after 2 months practical training as part of curriculum of PGDM To

Som-Lalit Institute of Management Studies

Prepared by: - GAURAV PRAJAPATI (Roll No:-40)

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

GAURAV PRAJAPATI (PGDM)

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

GAURAV PRAJAPATI (PGDM)

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

OBJECTIVES OF THE STUDY

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

ICE-CREAM MARKET IN INDIA

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

Market Share of Major Ice-Cream Industries in India:

Market Share of Major Ice-cream Industries in Gujarat:

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

Market Share of Ice-Cream Industries in Ahmedabad

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

BRIEF INTRODUCTION ON VADIAL GROUP OF COMPANIES

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

VADILAL INDUSTRIES LIMITED

Type Industries Founded Headquarters

Revenue Employees Parent Website

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

ORGANIZATION STRUCTURE OF VADILAL

Vadilal Group is mainly divided into three parts:

VADILAL INDUSTRIES LIMITED

VADILAL ENTERPRISES LIMITED

VADILAL CHEMICALS LIMITED

VISION & MISSION

ABOUT THE COMPANY

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

ICE CREAM DIVISION:

PROCESS FOOD DIVISION:

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

FOREX ADVISORY SERVICES & FFMC DIVISION:

VADILAL ENTERPRISE LTD:

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

VADILAL CHEMICALS LTD.:

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

ICE CREAM PRODUCTS

SMALL CUPS Vanilla Ripe Strawberry

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

FAMILY PACK PLAIN FAVOURTIES Vanilla Ripe Strawberry 2-in-1

CHOCOLATE ECSTASIES Chocolate Chips

FRUIT FANTASIES Real Mango Fresh Strawberry

ICE MITHAI Rajbhog

FROZEN DESSERTS Snowy Yummy Kesar Pista Yummy Mango Munch

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

Nutty Chocobar Chocolate Chocobar Soft Spot (Chocolate)

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

Export House status by Govt. of India since 1994.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.