A STUDY ON

WORKING CAPITAL MANAGEMENT With Reference to KOTAK SECURITIES LIMITED VIJAYAWADA. A Project Report Submitted to KRISHNA UNIVERSITY

In partial fulfillment of the requirement for the award of the Degree of MASTER OF BUSINESS ADMINISTRATION Submitted by I.JAYANTHI Y12MBA155021 Under the Guidance of Dr. SRINIVAS, M.B.A., Ph.d.

DEPARTMENT OF COMMERCE & BUSINESS ADMINISTRATION P.B. SIDDARTHA COLLEGE OF ARTS&SCIENCE (AFFLILIATED BY KRISHNA UNIVERSITY) VIJAYAWADA 2012-2014

DEPARTMENT OF BUSINESS ADMINISTRATION POST GRADUATE CENTRE

P.B.SIDDHARTHA COLLEGE OF ARTS &SCIENCE

(Accredited by NAAC at A Level & Awarded College with Potential for Excellence by UGC)

Affiliated to Krishna University

CERTIFICATE
This is to certify that the project entitled A STUDY ON WORKING CAPITAL MANGEMENT with reference to KOTAK SECURITIES LIMITED, VIJAYAWADA is a bonafide work done by Jayanthi.Ibba, Regd,No: Y12MBA155021 student of final year M.B.A program during 2012-14 submitted to the Department of commerce and business administration, P.B.Siddhartha college of arts and science, P.G centre in partial fulfillment of the requirements for the award of the Degree of Master of Business Administration.

MD.S.RAHAMAN Project Guide

Dr.RAJESH C.JAMPAL Head of the Department

DECLARATION

I hereby declare that my project report entitled A STUDY ON WORKING CAPITAL MANGEMENT with reference to KOTAK SECURITIES LIMITED, VIJAYAWADA has been carried out by me in partial fulfilment of the requirements for the award of the degree of MASTER OF BUSINESS ADMINISTRATION, Krishna University, Machilipatnam. I also declare that this project is a result of my own effort and that it has not been submitted to any other University or institution earlier for the award of any degree or diploma.

I.JAYANTHI Y12MBA155021

ACKNOWLEDGEMENT
I take great pleasure to express my gratitude to all those who initiated and helped me complete this project successfully. I am grateful to Prof.K.KRISHNAMURTHY, DIRECTOR, P.B.SIDDHARTHA COLLEGE OF ARTS & SCIENCE for his kind permission to do this project. I express my sincere gratitude to SRI Dr.RAJESH.C.JAMPALA DIRECTOR OF M.B.A PROGRAMME, P.B.SIDDHARTHA COLLEGE OF ARTS AND

SCIENCE VIJAYAWADA, for his kind co-operation and guidance in completing of this project. I convey my heart full thanks to the Guide & Lecturer Mr.Md.S.RAHAMAN, P.B.SIDDHARTHA COLLEGE OF ARTS AND SCIENCE, for his kind encouragement, guidance at very stage on the successful completion of this project. I would like to express my profound gratitude to Mir. Shujath Hussain (Manager) Kotak Securities Limited, Vijayawada, for permitting me to do my project and for sparing his precious time for me and constantly guiding me through out my project, without which I would not be able to complete my project. Last but not least, I would like to thank all the employees of Kotak Securities ltd and every other person who has been involved in helping me complete my project.

I.JAYANTHI

A STUDY ON WORKING CAPITAL MANAGEMENT OF

VIJAYA DAIRY

A project report submitted to Krishna University, Machilipatnam in partial fulfillment of requirement for the award of degree of MASTER OF BUSINESS ADMINISTRATION.

SUBMITTED BY Name : I.Jayanthi Reg. no: y12MBA155021

Under the esteemed guidance of Mr Srinivas, MBA,ph.d.

PG Center, Department of Business Administration , P.B Siddhartha College of Arts & Science, Moghalrajpuram, Vijayawada.

CERTIFICATE

This is to certify that the project entitled A study on WORKING CAPITAL MANAGEMENT of Vijaya Dairy, is a bonafide work done by I.JAYANTHI, MBA final year under my guidance and submitted to the Department of Business Administration , P.B Siddhartha College, PG Centre Moghalrajpuram, Vijayawada in her partial fulfillment of requirements for award of Degree of Master of Business Administration for the period 2012-2014.

Signature of Project Guide

Signature of Head Of the Department

DECLARATION

I hereby declare that this project work entitled A study on WORKING CAPITAL MANAGEMENT ,has been prepared by me in partial fulfillment of the requirements for the award of degree of Master of business Administration.

I also declare that this project has been prepared and submitted by me, under the guidance of Mr SRIVAS, Lecturer, Department Of Business Administration,P.B Siddhartha Pg Center, Moghalrajpuram, Vijayawada and has not been submitted to any other university or institute for the award of degree / diploma.

I.JAYANTHI. Reg no: Y12MBA155021

Acknowledgement

I would like to begin my report by extending a sincere word of thanks to Department of Business Administration ,P.B Siddhartha College PG Centre, Vijayawada, for giving me an opportunity to pursue my summer internship programme with VIJAYA DAIRY, VIJAYAWADA. It had been a very knowledgeable experience for me working on this project. This project helped me in enhancing my level of self- confidence. I would like to thank my project guide SRINIVAS, MBA,Ph.d, for providing the facilitates and guiding us throughout the project.

I would like to show my sincere gratitude to my HOD DR. RAJESH C. JAMPALA , and my faculty guide S and all other SRINIVAS faculty for providing inputs and giving me valuable suggestions and guidance without which my project would have been incomplete. Their contributions extend beyond the project in that they instilled me in a disciplined, systematic and a logical approach.

I also extend my heartful thanks to the staff of VIJAYA DAIRY for providing necessary information while carrying out this project. It had been an excellent experience working with them.

Name of the student I.JAYANTHI.

PERIOD OF THE STUDY

The project period consists of 45days i.e., as per the rules of KRISHNA UNIVERSITY i.e to . In this period I have collected information about Working

Capital from the details given by the officers of the financial department.

CONTENTS CHAPTER -1 INTRODUCTION NEED, OBJECTIVES & SCOPE METHODOLOGY OF STUDY LIMITATIONS OF THE STUDY PLAN OF THE STUDY

Pg no.s

CHAPTER 2 INDUSTRY PROFILE COMPANY PROFILE CHAPTER -3 THEORETICAL FRAMEWORK CHAPTER -4 DATA ANALYSIS & INTERPRETATION CHAPTER -5 FINDINGS & SUGGESTIONS BIBLIOGRAPHY

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INTRODUCTION
Finance may be defined as the art and science of managing money. Financial management is concerned with the duties of the financial managers in the business firm. Financial managers actively manage the financial affairs of any type of business, namely, financial and non-financial, private and public, large and small, profit seeking and not for profit. They perform such varied tasks as budgeting, financial forecasting, cash management, credit administration, investment analysis, funds management and so on.

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NEED FOR THE STUDY

Working capital refers to current assets of the company that are changed in the ordinary course of business and one form to another, for instance from cash to inventories, inventories to receivable, then receivable into cash. Working Capital refers to firms investment in current assets. Current assets are the assets which are converted into cash within the accounting year the current assets includes cash, short-term securities, debtors, bills receivable and stock.

The need for Working Capital to run day-to-day activities cannot be over emphasized we will hardly find business firms which does not require any amount of Working Capital. We know that a firm should aim at maximizing the wealth of its shareholders. In its endeavor to so, a firm should earn sufficient returns from its operations, earning a steady amount of profit requires successful sales activity. The firms have to invest enough funds in current assets for generating sales. Current assets are needed because sales do not convert into cash instantaneously. This is always an operating cycle involved in the conversion of sales into cash.

The firm should maintain a sound Working Capital position. It should have adequate working capital to run its business operations. Both excessive as well as in adequate working capital mean ideal funds, which earn no profit for the firm. Excessive Working Capital means ideal funds, which earn no profit for the firm. Paucity of Working Capital not only impairs the firm profitability but also results in production interruption and inefficiencies. So the firm should maintain the balanced working capital.

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OBJECTIVES OF THE STUDY

To determine policy regarding profitability, liquidity and risk by considering Companys objectives.

To study the sources and changes in working capital and its effects over the years on the company.

To determine the quantum and structure of current assets. Determining the relationship between the current assets and current liabilities and hence liquidity is determined.

Optimization of the amount of sales and investment in receivables. Analysis of Financial Statement.

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SCOPE OF THE STUDY

The management of working capital helps us to maintain the working capital at a satisfactory level by managing the current assets and current liabilities.

It also helps to maintain proper balance between profitability, risk and liquidity of the business significantly.

By managing the working capital, current liabilities are paid in time. If the firm makes payment to it creditors for raw material in time, it can have the availability of raw material regularly, which doesnt cause any obstacles in production process. Adequate working capital increases paying capacity of the business but the excess working capital causes more inventory. That increases the possibility of delay in realization of debts.

On the other hand, absence of adequate working capital leads to decrease in return on investment. The goodwill of the firm is also adversely affected due to the inability to pay current liabilities in time.

Hence, the management of working capital helps to manage all the factors affecting the working capital in the most profitable manner.

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METHODOLOGY OF THE STUDY

Methodology is systematic procedure of collecting information in order to analyze and verify a phenomenon. The collection of information is done through two principle sources, viz, Primary and Secondary data. PRIMARY DATA: It is information collected directly without any references. In this study it is to gather through interviews with concerned officers and staffs either individually. Some of the information was verified and supplemented through reference books.

The data collection includes conducting the reports of group seminars and with the concerned managers and officers of the finance department of Krishna District Milk Producers Mutually Aided Cooperative Union Ltd.

SECONDARY DATA:

Keeping in view the objectives, data has been collected from both primary resources as well as secondary resources.

The secondary data is collected from records and company manuals.

Collection of required data from annual reports, magazines of Krishna District Milk Producers Mutually Aided Cooperative Union Ltd.

Reference from text book of financial management and production and operation Management.

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LIMITATIONS OF THE STUDY

The study is based on working capital Management. It is only a quantitative analysis and does not reflect the qualitative aspects of the company.

The main limitation is the time factor that is only 6 weeks .

The Krishna District Milk Producers Mutually Aided Cooperative Union Ltd; Registered office provides capital management every year according to the requirement are largely influenced by availability of crop, durations in the payment to the supplies of sugarcane and wages to the employees recruited during the production seasons.

Since milk is perishable good and it has to be converted into finished goods within 24 hours, so there will be no operating cycle of this industry.

Much information could not be collected as their policy constraints stood in the way of access to get the direct information.

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DAIRY INDUSTRY IN INDIA

India has the worlds largest cattle & Buffalo populations adopted to tropical elimate & poor nutrition & environment. Acc to Livestock census 1982, Indias bovine population was 191 million cattle & 69 million buffaloes. Milk production gives employment to 70 million dairy farmers. In terms of total production India ranks 2nd to USA with a production of 71 million tons in 1997-1998. The production of various products in 2002, 428 (000 metric tons) APDDCF was formed in Oct 1981 to implement operation flood-II program through involvement of producers in organizing milk production procurement processing & it will low due to rapid population growth. It was 178 gram/day in 1990. There was only an increase of 50 grams per day from 1980-90. It is expected that milk availability will reach 213 gram/capita/day by 200 A.D as against 300 scientists. Today India ranks first in Milk production in the world.

DAIRY DEVELOPMENT IN INDIA:

India has the worlds largest cattle buffalo population adapted to tropical climate & poor nutrition & environment. ACC to livestock census 1982, Indias bovine population was 191 million & 69 million buffaloes . The forecast for 2000 A.D is 204 million cattle & 78 buffaloes. Dairy development in India received a fillip after independence when industrialization & awakening warranted the establishment of organized milk collection , processing distribution of milk to cats the needs of the expanded urban population. Planned development of during was 1st taken up in the 1st 5 year plan (1951-56). The main deterrent factors far milk production was in adequate of suitable marketing structure in the rural areas . Milk was being marketed in the form of ghee which did not provide sufficient income to the farmers to take up the daring. In most of the states largest dairy areas produces & Urban milk treatment units. Some of the dairy units also established a chain of trill collection & chilling centres in the rural areas to abbord necessary facilities for handling milk in large volume & for long distance transport without spoilage. These processing centers have had a stimulating effect on the dairy industry in the country.

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India has worlds largest cattle population however, per capital cattle population in very less compared to developed nations. Dairy farming is regarding nations. Dairy farming is regarding as a subsidiary Now it has become an important agro business. First dairy farm is established by military at Alahabad in 1989, British troops got milk supplies from that farm. It also organized cross breeding with European cattle breeds. India is a country of village where farmers have small land holdings. Money lenders borrow money at very high interest rates. The exploited the farmers who were poor. As a result as large no of farmers in Pune & Ahmednagar open hostilities against moneylenders in 1879. Subsequently land improvement act 1883, & agriculture act 1884 were passed to advanced loans at reasonable rates of interest to farmers. The Fovernment realized that the cooperative credit society act was essential. But enacted had following short comings. 1) Only credit societies are registered 2) Classification of the societies into urban & rural was scientific. 3) It was selected regarding distribution of profit thus another act named the cooperative societies Act1912 was enacted. The act tool care of credit under the supervision of central bank.

The cooperative unions remained control subjects. In the year 1919 cooperative societies become a state subject & fell with in the scope of provision legislative. Each provinces stated formulations of their requirements. After intendance the cooperative movement made rapid studies & govt adopted the policy of promoting of cooperative movement far establishing economic welfare in the country. The cooperative sectors was given an implement place in the new economy and acted as a balance between private sector & public sector. It becomes pace with the progress of movement & there should be uniformity of cooperative society Act 1956 was amended 19 times to suit the chancing circumstances. Hence the govt of India appointed a committee in 1956 to review cooperative acts in different states & prepared a model bill.

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AP DAIRY DEVELOPMENT COOPERATIVE FEDERATION (APDDCF) APDDCF was formed in act 1981 to implement operation flood-II program through active involvement of produces in organizing milk production, procurement processing & marketing on three tier cooperative structure as per the national policy of India.

The three tire system consists of primary dairy is operative societies at village level cooperative union at district level & federation at the state level. Planning investment in operation flood-II Plan 34.43 Crs Plan 247.53 Crs Plan 187.00 Crs Plan 349.17 Crs Plan 1166.00 Crs Plan 600.00 Crs Plan 1700.00Crs

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MAJOR DAIRY PRODUCTS MANUFACTURES IN INDIA & THEIR BRANDS Company Nestle Brands Milk-maid ceralac Milo, Lactogen, & Everyday. Major products Sweentended condensed milk power,Malted food, Milk powder, & dairy whitener, Ghee & Ice cream. Ghee & Ice cream Mild foods Ltd Milk food Malted milk food Ghee Butter & Other Bady milk Smitukline Beechem ltd Horlicks, Maltova,Viva foods Butter Ghee & other milk products. Gujarath cooperative market Cardbury Bournvita Flavoured milk Ghee, Milk Britannia Milk man powder Biscuits & Ghee. Infast milk food, malted milk food. Hj.Heinz Ltd Farex,Vitamilk Glactose Amul Infant milk food malted milk food

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ORGANIZATION OF A DAIRY FARM: There are many activities involved in successful running of a dairy farm . many one of these activities is as important as any other for profitable dairy farming coordination of all these activities in a dairy farm is known as organization of the dairy farm.

MANAGEMENT OF ANIMALS: These successes of dairy depend upon the good health and well being of the cow and buffaloes maintained in the dairy and their production. The various aspects to be considered are:Housing.Feeding,Breeding and Disease control.

MANAGEMENT OF LABOUR: Labour is becoming costly and scarce and hence organization is becoming more difficult. The farm should be so planned that it shall be possible to completely manage with family labour. Hired labour should be minimum and used only for such operations as sowing, harvesting etc., permanent labour if employed should be minimum but provided with all facilities like housing and should well paid and looked after so that they will work wholeheartedly. Management of Equipment Small dairies may have less equipment and machinery like chilling plant pasteurizing plant, tractor trailer harvester, and such other agricultural equipments. These have to be kept in good working condition so that all dairy and agricultural operation will go on normally so that all dairy & agricultural operations will go on normally and milk may be transported in good condition for marketing.

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MANAGEMENT OF MILK AND MILK PRODUCTS: The profitability of a dairy depends upon the farm in which the milk is disposed of. Fluid milk money than milk products. Selling in cities fetches more money than in smaller towns. Milk transported to longer distances may cost more on transport. There is a chance of spoilage if more time is allowed between milking and sale unless milk is pasteurized and preserved properly.

RECORD KEEPING: Record keeping is important in a dairy which will enable us to know that actual position of the dairy in all aspects to enable us to plan properly record may pertain to all aspects of dairying viz, feeding breeding and management. It will enable the farmer to breed the cows inn time to give balanced rations according to mild yield to know the actual production of milk of individual cows , to know profit and loss in the farm etc.,

OPPORTUNITIES IN DAIRY FARMING: Dairy is one of the important side businesses of ninety percent of the agriculturists of our villages. A cattle rearing are an age old practice & almost all the land holding people keep one agriculture operations. Dairy enterprise is an efficient and labour intensive business, so that the shale family of the farmer is pressed into service & they are able to produce some productive response from the limited holding, utilizing agricultural by productive & wastes that will go to waste otherwise. Both males & females & old and young can be usefully Employed for different types of work in a dairy farm. The products of dairy industry like skim milk, when etc., can be fed to ther livestock. The skim milk is of high value and can be used for poultry and swin with more profits. Farmers who sell milk fat in the form of butten & ghee produce skimmilk . This can be effectively used in feding pigs and poultry since skim milk is an excellent source of protein, minerals and vitamins. The dairy industry can also provide various job opportunities to the millions of the rural and urban population apart from providing the various opportunities. 22

LEGAL STANDARDS: In India the various standards for dairy industry are formulated by four agencies. The Indian standards institution (ISI) Central committee for food standards (CCFS) Directorate of marketing & inspection (AGMARK) Defenses services

These four agencies have there different spears of activities, although all try to work in closest collaboration. The standards by ISI are to be adopted on voluntary basis. The CCFS is statutary body which not only lays down standards for food products including dairy products but also enforces the same . In consultation of CCFS the Govt of India., Ministry of Health frames prevention of food adulteration rule under the prevention of food adulteration Act. The current set of rules are known as prevention of food adulteration rules 1976 under AGMARK scheme provision exists for grading ghee only amongst the dairy products. Standardized milk is milk whos fat & SNF have been adjusted to a certain predetermined level under PFA rules (1976).The standardized milk for liquid consumption should contains a minimum of 4.5 & 8.5 SNF through the country. The standardization can be done by partly skimming the fat in the milk with cream separator or by admixture with fresh reconstituted skim mill in proper proportions.

DAIRYING IN ANDHRA PRADESH

The program of dairy was initially started with the commendable help of the United Nations international childrens emergency fund (UNICEF), food & agriculture Org (FAO), Freedom from Hunger campaign org of UK. These organization assisted a lot of establishment of dairy units at Hyderabad & Vijayawada a in 1967 & 1969, respectively which led to pioneer dairy development program in Andhra Pradesh lates a set of cooling & chilling centers have been step to feed these gigantic units The milk producers have been facing either a lot of problems in the process of production & marketing of milk improper transport facility poor technology ad absence of 23

price part facility, poor technology and absence of price particularly during flush period etc. It was at this context the Govt of AP has viewed to constitute a dairy development corporation. More than 3.5 Lakhs milk producers get 20cr Rs per Annual for supplying of milk of which 69% of total benefits belongs to small & marginal farmers, agricultural lab our & other weaker section of the rural community. With all these efforts by APPDC & NEED today Andhra Pradesh has an excellent potential for production with progressive farmers who are more receptacle to the new technology & scientific parties. The estimated milk production is 40 Lakhs liters per day. To day a strong wave of white revolution is sweeping creating a new hope of eliminating socio economic in balances. A.P is posed to be the dairy land of India playing an important role on the National Milk grid.With the implementation of operation flood II program in AP the tamps of dairy development has gained a momentum proved a thrust to cradicate poverty & unemployment in rural areas brought graters awakening & confidence among the producers to manager their own affairs through dairy cooperative of AP. The dairy federation is marching a head with dairy cooperatives to herald a new era of prosperity.

]FINANCIAL ASSISTANCE: The national cooperative development corporation *NCDC) has been providing finical Assistance to dairy cooperatives for organization medium & small sized dairy processing plants & milk chilling centers . The corporation has sanctioned a total loan assistance of Rs.6.33 Lakh for establishment of 29 cooperative dairy units comprising 17 chilling centers & 12 cooling centers.

DAIRY INDUSTRY IN KRISHNA DISTRICT

Dairy occupies 2nd place in earning livelihood next to agriculture in Krishna district, as the cattle wealth in this district is more. The dairy development union after changing different Mgt systems is now stepping into cooperative sector to help the small & backward farmers by making them members of the union.

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Krishna district with its carge area claims notable place in agricultural activities. It is a long time aptitude for the agricultural farmers to possess dairy cattle along with cattle far agriculture. This aspect has drawn the attention of the officials of UNICEF, FAO and govt of India. After analyzing the dairy prospects, they expressed the view that there could be bright future for dairy scheme in Krishna district. Accordingly a survey was undertaken to explore that market for surplus milk in 1960-61. This marks the first step in development the dairy industry in the state. DAIRY PLANTS OPERATING IN INDIA Dairy plants Number Capacity 000 L/day Cooperative Private Others Tatal 2123 403 63 678 28394 32415 12170 72979

(Sources: company reports)

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OVERVIEW ABOUT THE ORGANISATION

Krishna District is on river an track of Krishna abutting Bay of Bengal. It has a total area of 8727 sq kms. The major activity is agriculture. It has 17.39 lakh acres of land under crop cultivation of which 66% is irrigated. The human population is 39.54 lakhs. It has 972 inhabited villages. The literacy in the district is 41.71%. The district is known for its quality cattle. In milk cattle population it ranks second in the state. Buffalo is predominant milk animal. Organized dairy in Krishna commenced in 1965 with integrated milk project assisted by the UNICEF. A milk conservation plant is 1.25LLPD (lakh liters per day ) was commenced in April, 1969 at Vijayawada. The dairy industry in the district had its beginning under state government as part of animal husbandry activity. Integration of dairy industry into the department of animal husbandry took place periodically in the name of different projects: Integrated MILK project (1960) Dairy development department (1971) Andhra Pradesh Dairy Development Corporation (1974) A.P Dairy Development Co-operative Dederation (1981)

Realizing the milk production potentialities of the inversion track, the Government of Andhra Pradesh and Government of India with UNICEF assistance has established Integrated Milk project Hyderabad-Vijayawada, linking the production and consumption centers. Thus Krishna district has the distinction of starting organized dairy activities by commissioning a milk chilling at PAMARU in February, 1965 the first of the type in

Andhra Pradesh. Organization of co-operative structure on ANAND PATTERN was initiated in 1981. Krishna district milk producers co-operative union limited got registered in 1983. It took complete management of Dairy activities of the Krishna District from February 1985.

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At present, the district has 534 organized dairy co-operative societies with over 92600 member producers. There are 300 milk producers association centers too functioning besides co-operative societies. The union collects milk from about 2,13,896 milk producers covering 815 villages organized through 35 milk routes. District union has 6 milk chilling centers one each operating at pamarru, Hanuman Junction, Veerankilock, Gudlavallaru,Chilikalu and Tiruvuru with a total processing capacity of 1.70 lakh liters per day . It has milk products factory with the facilities to manufacture different milk products. The milk products factory at Vijayawada handles surplus milk from all coastal districts. About 1.73 lakh kgs/day with peak touching 3.18 lakh kgs/day. The factory conserves fat in the shape of white butter usually to the extent of 1000 M.Ts per year. Union markets about 1,89,000 liters/day market milk to 1 lakh families in the district. It manufactures products like Ghee, Butter milk,Kulfi and Doodhpeda, Ghee products, skim milk powder, UHT Milk (TetraBrik), merry milk (TetraBrik). These products are manufactured in this dairy with the brand name of VIJAYA throughout are popular for its quality

the nation. UHT milk has market at Bombay, Goa, Pune, Calcutta and

Hyderabad. New UHT products such as sterilized cream, slim milk (diet milk ) launched recently had good consumer response. Traders, from countries like Singapore and Brunei paling orders with the dairy for milk powder. Union manufactures and market about 35 tons/day of cattle feed besides 400MTS mineral mixture per annum. Dairy co-operatives in villages have gradually developed trading surplus and this aspect coupled with government schemes resulting in establishing their own buildings in 345 villages valued at Rs/- 2.2 crores. An Aspetic packing station was set up in the milk products factory to pack 50,000 liters of long the milk (UHT MILK) per day. Union has also 2 cattle feed mixing plants with a total capacity of 50M.T /day. Plant to increase procurement to two lakh liters a day. Vijaya dairy is the only unit exporting products to countries like Malaysia.

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Krishna milk union is a district milk producer co-operative came into exiting in July 1983, registered KRISHNA DISTRICT MILK PRODUCERS CO-OPERATIVE UNION LIMITED. It took over the management going dairy activities Krishna district of Andhra Pradesh during February 1985. Krishna milk union currently 815 functional dairy cooperations in villages and introduced from various chilling centers and district routes.

RANKING OF THE DISTRICT IN ANDHRA PRADESH 1) Milk production . 2nd 2) Processing 3rd 3) Marketing .. 2nd Krishna district has milk procurement ranging from 45,000 kgs to 1,80,000kgs.Per day from 1969 to 2013. The district being buffalos concentrated has wide procurement fluctuations. It was considered imminent to reduce the seasonal imbalance in milk production. New programmers were drawn up. Induction of X bred cows has been taken up since 1990 to increase milk production potentially. District has very close animal health coverage by the animal husbandry department. The district co-operatives milk union provides the following inputs to farmers for increased milk production. Veterinary first aid facilities Animal vaccines & medicines at subsidized prices A.I.Facilities. Breading bulls Fodder seeds at subsidized rates Premixed cattle feed Cattle insurance at 2/3 subsidy. Extension services. 28

PROCESSING: Milk processing of milks it done by pasturing and chilling the milk at certain temperatures. The fat % and chilling the milk at certain temperatures, the fat% and SNF % is standardized accordingly for various types of milk is sent to by products section to produce various products.

PRODUCTION: In the production section the milk and milk products are produced the excess milk is converted into skim milk powder (SMP), Butter to meet the demand to learn seasons.

SALES: Indents received from various boots and parlors. Depending on the indents the consolidated reports are raised. These reports are sent to various sections. Reconciliation statements are prepaid according to the indents and the details of stock delivery are maintained for various parlors, boots and institution. Andhra Pradesh has prominent place in the dairy of India. Dairy and milk supply has been given importance in the five year plans of the state. Not only with a view has help had the farmer to improve their income had it enabled.

HISTORY AND ESTABLISHMENT:

Andhra Pradesh has prominent place in dairying India. The cattle wealth of Andhra Pradesh is established at Rs. 220 crores and 70% of total of milk products factory, Vijayawada was commissioned an 11.4.1994.Milk products factory VIJAYAWADA is having the site of 27.3 acres. At present the cost of UNICEF equipment and erection is about 19.4 crores (1983-1984).

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The Krishna district milk products factorys date of registration is in 6.7.1983. Authorized share capital Rs.5, 00,000, paid up share capital Rs.3,02,000 members of societies registered 193, number of societies affiliated 165, amount of fixed deposits Rs.6,61,500 yearly and earning are 56 Cores.

In 1979-1980 machinery was established in processing sections chiller capacity 80,000 liters capacity tanks. Now the above capacity is improved chiller capacity.

Milk products factory, VIJAYAWADA was commissioned on 11.04.1969. This factory has the installing capacity of 1.25 Lakhs liters per day in the first stage with provision for expansion of 3.50lakh liters per day in the second stage . Milk products factory, VIAJAYAWADA has the distinction of handling milk to its capacity in the second year operation. A part from handling milk to its capacity in the second year operation. A part from handling milk Krishna district, it also handled surplus milk received from district of VISAKAPATNAM,EAST AND WEST GODVARI, PRAKASAM AND NELLORE. The factory had pack holding during 1982-1983, with a view of handling the increased surplus milk got from NELLORE, PRAKASAM and EAST and WEST GODAVARI DISTRICTS, a second spray drying plant with a latest design to produce about 124MT of milk powder has been established and commissioned during 1982.

The factory has a provision to make 8MT of the demand from public will be converted into products. VIJAYAWADA in the state during 1977 test was successfully conducted on manufacture of infant milk food, based on the formulae provided by central food technological research institute, MYSORE. Subsequently milk food with the brand name of VIAJAYA SPRARY was introduced in consumer pack of 1Kg and 1/2kg throughout the country. This milk products factory, VIAJAYAWADA had the distinction of being first public sector organization in the consumer packs. In addition to the above milk powder is also being manufacture in the factory.

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GROWTH OF THE FACTORY: As an integral part of the above project the milk product factory, VIAJAYAWADA WAS COMMISSIONED ON 11.04.1969. This factory has got an initial handling capacity of 11,25,000 liters in the stage with provision to handle 2,50,000 liters of liquid milk in the second stage. It has crossed the mark of 1,00,000 liters in the very first year of its operation getting admiration from the UNICEF officials.

INTEGRATED MILK PROJECTS: A scheme viz., the integrated milk project, Hyderabad and Vijayawada at a cost of Rs.4.35 crores has been setup to make full utilization of the surplus milk of the area. Milk products plant at a capacity of 1,25,000 liters per day in the first phase and 2,50,000 liters per day in the second phase at VIJAYAWADA RESPECTIVELY.

Milk product factory, VIJAYAWADA AREA OF SITE 27.3 ACRES, THE VALUE OF FACTORY BUILDING Rs.120 lakhs money given by UNICEF for machinery Rs. 57lakhs cost of investment on number of worker 265. At present Rs.56 crores and anuual turnover Rs. 60crores . In the year 1983-1984 the annual turnover is about 19.4 crores and total staff is 2,064.

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CHILLING CENTERS: The VIAJAYAWADA milk products factory has set up six chilling centers, which are given under center, have been producing chilled milk for the composition of the various segments of the consumers.. Following are centers in Krishna district under the control of VIAJAYAWADA milk products factory:

Pamarru Hanuman Junction Veeranki lock Gudlavalleru Chillakallu Tiruvuru

MILK DISTRIBUTION CENTERS: Town sales (in Liters) Vijayawada Godavari Chillakallu Thiruvuru Pamarru No.of selling boots 1321 90 86 110 320 Daily 1,89,921 4,383 6,894 5,535 27,610

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SALES CENTERS: VIJAYAWADA: RTC Bus stand super bazaar, Railway station milk products factory, vastralatha, Vijaya dairy parlour (near Alankar theatre) Benz circle, Sathyanarayanapuram, machavaram, patamata etc.

Milk Ghee Butter Milk powder Refrigeration capacity Stream generation Milk packing Chilling Processing

1,70,000 liters per day 5 tones per day 7 tones per day 5 tones per day 1.5 tone capacity 15 tones per 1 prt 1,25,000 packets per day 1,50,000 liters per day 1,50,000 liters per day

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TRANSPORTATION: There are about 25 vehicles in transport organization, milk products factory, Vijayawada. Road tankers 4 tones of 15,000 liters capacity 4 tanks of 10,000 liters capacity 3 distribution vehicles for sales 6 inspection vehicles In addition to these 25 vehicles are taken hire from private transporters for distribution of milk. The milk feed to chilling centers and far off places like Vishakapatnam Nellore and chittoor is being transported by the road tankers. It is also transported to all metropolitan cities of Delhi Mumbai, Calcutta and Chennai through the insulated tankers.

RESEARCH AND DEVELOPMENT: The India council of agricultural research has started a research scheme during the period 1970-71 to under take research on milk products. Under this scheme soft cheese, butter milk powder curd, Doodh peda, ice cram mix, butter etc. are, manufactured.

NEED FOR EXPANSION: With the introduction of the baby food, the milk handling capacity has been reduced to about 80-85 thousand liters of milk in view of the sugar content added in manufacture of the baby good. Therefore it is proposed to expand the present plant by adding additional buildings in the existing vacant area adjacent to the transport section. This will enable the factory to handle 1.5 lakh liters per day.

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MILK PROCURMENT IN MPF-VIJAYAWADA: Milk produced twice a day from 600 villages in among these 600 centres about 195 registered societies under ANAND PATTERN. A good milk procurement infrastructure has been developed for the last several years in the district. It is envisaged to open certain centers to boost up milk production with ore and more active participation of milk producers under operation flood II program and substantial improvement in milk production is envisaged in near future.

MILK SUPPLY: Milk products factory Vijayawada supplies milk in Vijayawada and to near towns in liter and 1 liter sachets. Bulk supplies to hospitals, hostals and other institutions besides regular market milk supplies. Milk products factory, Vijayawada dispatches milk supplies Milk products factory, Vijayawada dispatches milk to madras, Hyderbad and Calcutta.

ORGANISATION CHART:

General Body

Board of Mgt

Managing Directors

Procurement & Input controller Marketing Manager Production Manager Plant Maintenance Director (Finance)

Personnel officer Quality Stores MIS APS

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MANAGEMENT OF ORGANISATION : Management of the company shall consist of board of directors chairman and managing director. The chairman of the affiliated union enrolled as number. Nominee of the government of Andhra Pradesh if the government of Andhra Pradesh is a member. Chairman of the board of directions shall over general meeting. In case of this absence the meeting shall be conducted by a chairman form amongst the members present. The general body shall be called once a financial year with in grater ending on 31st December. This shall be Annual general meeting. A special general body meeting may be called at any time by a majority vote of board of directors and shall be called with one month at least 1/5 of the members of derivation or by the registrar of cooperative societies.

THE GENEARAL POWER DUTIES AND RESPONSIBILITES OF THE MANAGING DIRECTORS ARE AS FOLLOWS:

He shall general control loan the administrations and business of the federation. He shall power for and on be half of the federation to enclose sign negotiates checks other negotiates on be half of the federation. He shall also sign all deposits, receipts and operate as accounts of the federation with any bank. He shall allow credit to buyer with in limits fixed by the board from time to time. He shall make necessary arrangements for transport and storage of dairy and allied produce. He shall arrange to support training to the staff members of the federation union and societies. He shall appoint consultant or exports and fix their remuneration.

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BOARD OF DIRECTORS: Chairman of the affiliated union enrolled as members Registrars of the cooperative societies One nominee of the financing agency. Managing director of the federation. 3 nominees of the state Government representing interest dairy development. Any member nominated to the board may at any time resign from his office by sending a letter to Government and such registration shall come into effect from the date on which it is accepted by the Government. The Government shall nominate the chairman of that board time to time. The secretary of the Government dealing with dairy development shall be the vice-chairman of the board. All the members of board expect managing director and chairman of the federation shall be honorary.

OBJECTIVES OF THE ORGANISATION: Evolving long term policies to encourage and develop milk production and productivity in the district. Achieve co-ordination among various programmers in the district to optimize resource utilization. Provide remunerative and assured market for the milk produced by the farmers round the year. Improve efficiency in milk collection, transport processing and marketing with the emphasis on reducing the cost of operations at very stage from emphasis on reducing the cost of operations at very stage from rural farmer to urban consumer. Increase in availability of milk and development the market of milk products. Develop the manpower of the organization to reach excellence in their working life and create a pro-active organizational culture for achieving competitive edge. Consolidate and expansion of co-operative structure with special attention to small farmers and weaker section of milk producing community. Traders are from countries like Singapore and Brunei placing order with the dairy from milk powder. 37

ORGANIZATIONAL STRUCTURE: Organization structure is the basic frame of which the managers decision making behavior takes important place. It basically deals with relationships. It is the pattern in which various components are interrelated or interconnected. This prescribes the relationships among various positions since the positions are held by various people with the organization. Organizational structure is the totally of both formal and informal relationships. The organization structure involves the following steps:

Identification of activates Group activities Delegating of authority.

In the KDMPMACUL organizational structure, chairman is the head of board of directors. General Manager has various lands created under him like plant manage,

production manager, accounts officer, personal officer, sales manager, medical officer, quality control officer etc., Every manager delegates authority to subordinates. It is visible that here is poor understanding and coordination among all departments of the organization. This harmonious relationship between the department leads to facilitate efficient management and effective communication.

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DETAILS AT A GLANCE: THE KDM PRIDUCERS CO-OPERATIVE UNION LIMITED 1. number of villages covered 2. number of cooperative societies 3. number of milk routers 4.number of chilling centers 5.number of feed mixing plants 6.milk products factory area 7.value of factory buildings 9. value of other buildings and investment 10. date of commissioning of milk product factory 11. Total staff 12. date of formation of union 13. date of transfer of management of union 815 549 35 6 2 27.3 acres Rs.120 lakhs Rs.270 lakhs 11.04.1969 250 6.7.1983 8.2.1985

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PACKING: Milk is collected from collection point and is pasteurized and converted into milk powder. As per the demand of the requirement the powder is mixed with water and converted back to milk , churned and the quality controllers check quality, and then approve the milk for packing quality controllers check the quality , and then approve the milk for packing.

MILK AND MILK PRODCUTS: Today KDMPMACU offers the widest spectrum of milk products in India, under the brand name VIJAYA. These include Ghee, Butter processed cheddar cheese and cheese spread, UHT milk ( std milk toned milk low fat, Flavored Milk (Merri Milk), Slim Milk in Tetra packs, Sterilized cream , skim Milk powder , dairy Whitener, Cooking Butter and ice cream. Several among these carry the AGMARK, An attestation of quality by government of India and the ISI mark of Bureau of India standards.

The brand VIJAYA connotes quality ad quality, which makes it a trusted Name in millions of households across the country. In addition, KDMPMACU also manufactures products such as sterilized Flavored milk Pannier (indigenous unripended cheese) Doodh Peda (desiccated milk sweet) and Buttermilk which is marketed through a network of Vijaya Dairy parlours and a chain of retailers spread across Andhra Pradesh. The Dairy is equipped with the ISO 9001:2000 certification and recently ISO 14001:2004 certification.

DIFFERENT PRODUCTS OF VIJAYA DAIRY: GHEE: Complete Milk Fat (99.7%) Granular and White in color 40

 Agmark Special Grade product (Govt.of India Certification) Used as a cooking medium. Shelf life of 6 months at ambient temperature Hygienically manufactured and packed. Pleasant flavor. Rice source of energy.

GHEE PACKET Complete Milk Fat (99.7%) Granular and White in Colour. Agmark Special Grade product (Govt of India Certification.) Used as a cooking medium Shelf life of 6 months at ambient temperature Hygienically manufactured and packed Pleasant flavour Rice source of energy.

COOKING BUTTER: Has 76% Milk Fat, White in colour. Can be made into Ghee a per your choice. Needs refrigeration. Pleasant taste. Used also as a cooking medium.

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U.H.T MILK: Treated at Ultra High Temperature and aseptically packed. Sterile, Bacteria free and can be consumed directly. Needs no refrigeration. Contains 4.5% fat and 8.5% SNF. Stays fresh for 120 days. Gives excellent and firm curds. Hygienically packed. Natural taste with high nutritive value. Packaging material absolutely impermeable and non-returnable Available as a grocery item. Homogenized.

SLIM MILK Milk free from fat Sterilized with U.H.T process and packed aseptically. Needs no refrigeration. Has 8.7% Milk SNF. Shelf life of 4 months at ambient temperature Low calorie diet milk. Becteria free and can be consumed directly Gives firm fat free curds.

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SKIM MILK POWDER: Manufactured by drying skim milk spray drying technology after Preconcentration. Rich in Protein and Carbohydrates. Constitute 3% Moisture, 35% protein, 52% Milk sugar and 1% Fat. Shield life of 12 months at ambient temperature. Product is hydroscopic and should be stored in air-tight containers. Solubility of 99.5% BIS marked.

MERRI MILK Sweetened flavored milk with 1.5% Fat and 9.0% SNF. Available in Strawberry, Rasberry, Vanilla, Pineapple and Badam flavors. Sterile, Bacteria free Needs no refrigeration. Safe-life of 3 months. Excellent health drink.

STERLIZED CRAM Has 30% Milk Fat with added stabilized and emulsifiers. U.H.T processed and aseptically packed. Need no refrigeration. Shelf-life of 3 months. Can be used coffee whitening whipping to be used desserts etc.

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 Nutritive and Fresh Sterile, Bacteria free and no chemical changes. Hoogenized.

DOODH PEDA Made fro fresh milk Desiccated sweetened milk product Contains 20% Milk Fat. Smooth, granular texture. Shelf life of one week at ambient temperature.

CURD: Made from standardized and pasteurized milk using bacterial culture. Shelf life of 1 week under refrigeration. Packed in food grade polypropylene cups. Pleasant flavour.

PANNER Coagulated milk product made from pasteurized milk. Rich in protein. Shelf life of 1 week. Needs no refrigeration. Used as an additive in various vegetarian and non-vegetarian dishes. 44

SWOT ANALYSIS OF ORGANISATION STRENGTHS: Milk production potential in Krishna district is substantial Adequate infrastructural facilities available Availability of well experienced professionals. Excellent brand value for VIJAYA Ability to meet any consumer demand for milk and milk products. Ability to offer best quality long life products. Established bondages with farmers. Access to development funds and grants. Vijaya Dairy is the only unit exporting milk products to countries like Malaysia.

WEAKNESS: High fixed cost occupying 15% of business turn over. Milk and milk products are high priced loosing competitive edge. Process/product manufacturing facilities and outdated. Lack of modern facilities. Work culture and compatible with growing demand for customer service. Employee skills at various levels require up gradation High ratio of class 4th staff. Business systems and modern management culture is yet to be adopted. Managers lack business experience.

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OPPORTUNITIES: Responsive milk producer base Good public image Emerging trends of increased spending on foods Rapid utilization. Growing food service sector. Responsive state government Pattern of increased spending on foods Increased purchasing capacity of middle class. Export opportunities for long life aseptic milk. Voluntary retirement scheme to prune man power strength. THREATS: Intense competition in liquid milk market Entry of organized private sectors in dairy business. Increasing competition for the marketable surplus milk in rural areas. Employees Resistance to change.

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WORKING CAPITAL MANAGEMENT THEORETICAL CONCEPTS

SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT: A study of working capital is of major importance to internal and external analysis because of its close relationship with the current day-to- day operations of a business. As pointed out by Ralph Kennedy and Steward Mc Muller, the inadequacy or mismanagement is the leading cause of business with are used in or related to current operations, and represented at any onetime by the operating cycle of such items as against receivables, inventories of raw materials, stores, work in progress and finished goods merchandise, notes or bills receivables and cash. The assets of this type are relatively temporary in nature. In accounting working capital is the difference between inflow and outflow of funds other works, it is the net cash inflow it is define as the access of current assets over current liabilities and provisions. Investment in current assets level of current liabilities ha to be released quickly to changes in sales, to be sure, fixed assets investments, and long term financing are also responsive to variation in sales. However, this relationship is not as close and direct as if it is in the case of working capital components. The importance of working capital management is reflected from the fact that financial manager spend a great deal of tune in managing short term financing, negotiating favorable credit terms, controlling the movement of cash administration, accounts receivable and monitoring the investment in inventories consume a great deal of time of financial manager. INVESTMENT DECISION: The investment decision relates to the selection of assets in which funds will be invested by a firm. The assets which can be acquired fall in to two broad groups; (1) Long term assets which yield a return over a period of time in future, (2) Short-term or current assets, defined as those assets which in the normal course of business are convertible in to cash without diminution in value, usually within a year.

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CAPITAL BUDGET: Capital budget is probably the most crucial financial decision of a firm. It relates to the selection of an asset or investment proposal or course of action whose benefits are likely to be available in future over the life time of project. The long term assets can be either new or old/existing ones. The first aspect of the capital budgeting decisions relates to the choice of the new asset out of the alternatives available or the reallocation of capital budgeting decision relating to the choice of the new assets out of the alternatives available or the reallocation of capital when an existing asset fail to justify the funds committed. WORKING CAPITAL MANAGEMENT Working capital management is concerned with the management of current assets. It is an important and integral part of the financial management as short-term survival is a prerequisite for long term success. One aspect of working capital management is the trade off between profitability and risk (liquidity). There is a conflict between profitability and liquidity. If a firm does not have adequate working capital, that is, it does not invest sufficient funds in current assets, it may become illiquid and consequently may not have the ability to meet its current obligations and thus, invite the risk of bankruptcy. FINANCIAL DECISION: The second major decision involved in the financial management is the financing decision. The investment decision is broadly concerned with the asset mix or the composition of the assets of a firm. The concern of the financing decision is with the financing-mix or capital structure or leverage. The term capital structure refers to the proportion of debt and equity capital. DIVIDEND POLICY DECISION: The third major decision area of financial management is the decision relating to the dividend policy. The dividend decision should be analyzed in relation to the financing decision of a firm. Two alternatives are available in dealing with the profits of a firm. (1) They can be distributed to the shareholders form of dividends or (2) they can be retained in the business itself. The decision as to which curse should be followed depends largely on a 48

significant element in the dividend decision, the dividend payout ratio, that is what proportion of net profits should be paid out to the shareholders.

TYPES OF WORKING CAPITAL

Working capital management or that term financial management is conversion with decisions relating to current assets and current liabilities. The key of difference between long-term financial management and short-term management is in terms of the timing of cash. Working capital management is a significant of financial management its important stems from 2 reasons, are: Investment in current assets represents a substantial portion of total investment. Investment in current assets the level of current liabilities has to be quickly to charge in sales. Fixed assets investment and long- terms financing are also responsive to variation in sales. GROSS WORKING CAPITAL: Sun of current assets in the firm is commonly known as G.W.C. include cash, bank, trade debtors, bills receivables etc. it is simply called as Working Capital refers to the firms investment in current assets. Current assets are the assets, which can be converted in to cash which in an accounting year and include cash short-term securities, bills receivables, and stock. NET WORKING CAPITAL: It refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders. Which are expected to nature for payment with in an accounting year and include creditors bills payable and outstanding expenses N.W.C. can be position. Positive Net W.C= Current assets more than current liabilities Negative Net W.C= current assets less than current liabilities.

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PERMANENT WORKING CAPITAL: Permanent working capital is the minimum amount of current assets, which is needed to conduct a business even during the dull season of the year. It is the amount of funds required to produce the goods and services, which are necessary to satisfy demand at a particular point.

TEMPORARY (OR) VARIABLE WORKING CAPITAL It represents the additional assets, which are required at different time during the operating year additional inventory etc.

APPROACHES OF WORKING CAPITAL

Depending on the mix of short and long-term financing, the approach followed by any company fall under these three categories. MATCHING APPROACH: It refers to the adoption of a financial plan, which matches the expected life of the assets with the expected life of the source of funds to finance assets. In this approach the long-term financing is used to finance the fixed assets and permanent current assets. The short-term financing will be used if the firm has the need of only fixed current assets. CONSERVATIVE APPROACH: In this approach the financing of permanent assets and a part of temporary current assets the idle amount of long-term financing can be invested in the tradable securities and conserve liquidity.

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AGGRESSIVE APPROACH: In this approach the short-term financing is used more to finance a part of its permanent current assets. Sometimes in a more aggressive way the short-term financing is used for financing the fixed assets.

SOURCES OF WORKING CAPITAL

The sources of finance for Working Capital are of two types. They are permanent and temporary sources of Working Capital. The Working Capital investments in minimum level of current assets are permanent Working Capital .The Working Capital required to meet the seasonal contingencies is called temporary (or) variable Working Capital. The fixed proportion of working capital should be generally financed from the fixed capital sources while the temporary (or) variable Working Capital requirements of a concern from the short-term sources of finance.

PERMANENT SOURCES OF WORKING CAPITAL The permanent Working Capital sources of finance are done for having a uninterrupted finance for a long period. There are five important sources of permanent Working Capital they are: SHARES: Generally, a company should raise the maximum amount of Working Capital by the issue of shares. The preferences carry a preferential right in respect of the divided at a fixed rate. Equity shares do not have such obligation. A company should not issue different shares according to the companies act. DEBENTURES: Debentures are an instrument issued by the company acknowledging its debt to the holder. A fixed rate of interests is paid on the debentures secured of paid in prior to the unsecured debenture holders. The company enjoys tax benefits. 51

PUBLIC DEPOSITS: They are the fixed deposits accepted by the business from the public it has both advantages and dangers. The R.B.I has also down certain limits on the nonbanking concerns. PLOUGHING BANK OF PROFITS: It is an internal source of finance and reinvestment of the surplus earnings of the business. It is the cheapest and cost-free sources of finance. Excessive resort to ploughing back of profits leads to over capitalization and speculation. LOANS AND FINANCIAL INSTITUTIONS: Financial Institutions like Commercial Banks, IFCI, and LIC provide short-term, medium-term, long term source of finance suitable to meet the demand of Working Capital. A fixed rate of interest is charged against such loans and is paid by way of instalments.

TEMPORARY SOURCES OF WORKING CAPITAL INDIGENOUS BANKERS: These are the private money lenders who charge high rate of interest for the loan given by them. These Bankers are more prior to the establishment of the commercial banks. Now we can fine a few. It is the credit extended by the suppliers of goods in the normal course of business. The credit worthiness of a firm and the confidence of its suppliers are the basis of securing trade credit. There are some advantages such as convenient method of finance, flexibility as the credit increases. INSTALLMENT CREDIT: In this method, the assets are purchased and the possession of goods is taken immediately but the payments are made in instalments over a predetermined period of time. ADVANCES: Firms having ling production cycle take advances from their customers and agents against their orders. This acts as a cheap source of finance and minimizes their investment in Working capital. 52

ACCOUNTS RECEIVABLE CREDIT: It is the services offered to manage the financing of debts arising out of the credit sales. This service is now available in India only on recourse basis. It has certain limitations such as the cost of factoring is high perception of financial weakness about the firm availing these services. ACCRUED EXPENSES: These are the expenses, which have incurred but not yet pain. In varies with the change in the level of the activity of the firm. The frequency and magnitude of accruals is beyond the control of the management. DEFERRED INCOME: These are the funds of incomes received by the firm for which it has to supply goods in future. These funds increase the liquidity of a firm and constitute an important source of short-term finance. COMMERCIAL PAPER: It is unsecured promissory notes issued by the firm to raise shortterm funds. The maturity period of a commercial paper ranges from 91 to 180 days. The drawback is that can be redeemed only after the maturity date. The Working Capital management or short-term financial management is concerned with decisions relating to current assets and current liabilities. The key difference between long-term financial management and short-term financial management is in terms of timing of cash. Long term financial decisions (like buying capital equipment or issuing debentures) involve cash flow an extended period of time (5 to 15 years or more)short-term financial decisions typically involve cash flows within a year or within the financial management. It is important stems from two reasons. Investment in current assets and the level of current liabilities have to gear quickly to change in sales. The importance of Working Capital Management is reflected in the fact that financial managers spend a great deal of time in managing current assets and current liabilities. Arranging short-term financing, negotiating favorable credit terms, controlling movement of cash, administrating accounts receivable, and monitoring the investment in inventories

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consume a great deal of time financial managers. The management of Working Capital depends up on certain basic principles.

PRINCIPLES OF WORKING CAPITAL MANAGEMENT In examining the management of current assets (i.e. Working Capital management), certain principles have to be borne in the mind. These principles are the answers that are to be sought to the following questions. The need of invests funds in the current assets Amount of funds to be invested in each type of current assets. The required proportions of the long-term and short-term funds to finance current assets. The appropriate sources of funds needed to finance the current assets.

CONSTITUENTS OF CURRENT ASSETS AND CURRENT LIABILITIES. CURRENT ASSETS Inventories Raw material and components Work in progress Finished goods Others Trade debtors Loans and advances Investments Cash and bank balance CURRENT LIABILITIES Sundry creditors Trade advances Borrowings Commercial banks Others Provisions ------------------------------------

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SHORT LIFE SPAN AND SWIFT TRANSFORMATION: In management of working capital, two characteristics of current assets must be borne in mind. Short life span. Shift Transformation into other assets form. Current assets have a short life span. Cash balances are held idle for a week or two, accounts receivable may have a life span of 30 to 60 days, and inventories may be held for 30 to 100 days. The life span of current assets depends upon the time required in the activities of procurement, production, sales and collection and the degree of synchronization among them. The nature of current assets is that they are swiftly transformed into other assets form. Cash is used for acquiring raw material. Raw materials are transformed into finished goods, finished are generally sold on credit are converted into accounts receivable finally accounts receivable, on realization, generate cash. The swift transformation of current assets and the short life span of the components of Working Capital can be seen in the current assets cycle. However, this short life span and swift transformation has certain implications. Decisions relating to Working capital management are repetitive and frequent. The difference between profits and present values is insignificant. The close interaction among Working capital components implies that efficient management of one component cannot be undertaken without simultaneous consideration of other components.

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OPERATION CYCLE: Investment in working capital is influenced by four key events in the production and sales cycle of the company. Purchase of raw material Payment of raw materials Sale of finished goods Collection of cash for sales.

These key events affected the cash flows. The form begins with the purchase of raw material, which is pain for after a delay, which is paid after delay and which represents the accounts payable period. Customers pay their bills sometime after the sales the period that elapses between the date of sales and the date of collection of receivables is the accounts payable period (debit period). The time that elapses between the purchase of raw material and the collection of cash for sales is referred as operating cycle. The operating cycle is the sum of the inventory period and the account receivable period. The behaviour of the overall operating cycle and its individual components of a firm are monitored through time series analysis and cross section analysis. In time series analysis the duration of the operating cycle and its individual components is compare over a period of time for the same firm. In the cross section analysis, the duration so the operation cycle and its individual components is compared with that of firms of a comparable nature. The operation cycle of the firm begins with acquisition of raw material and ends with the collection of receivable. Its may be divided into four stages. Raw material and stores stage Work in progress stage Finished goods inventory stage Debtors collection stage] 56

USES OF OPERATION CYCLE The operation cycle is helpful to the company in two ways: It helps in forecasting the Working Capital requirements Control of Working Capital can be done efficiently by the use of operating cycle DETERMINATION OF THE LENGTH OF OPERATING CYCLE The length of operating cycle of a manufacturing firm is the sum of : Inventory conversion period. Book debts conversion period. INVENTORY CONVERSATION PERIOD It is the total time needed for producing and selling the product. It includes the raw material conversation period, work-in-progress conversation period and the finished goods conversation period. BOOKS DEBTS CONVERSION PERIOD: The book debts conversion period is the time required the collect outstanding amount from the customers. The total of inventory conversion period and books debts conversation period is the gross operation cycle. The differences between the gross operation cycle and the payable deferral period are net operation cycle.

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CASH CYCLE: Cash cycle is the length between the payment for raw material purchases and collection of cash for sales.Cash cycle is equal to the operating cycle less the amounts payable period. It also represents time interval over which additional funds, called Working Capital should be obtained in order to carry out the company operations. Its depreciation excluded from expenses computation of operating cycle, the net operating cycle also represents cast conversion cycle. OPERATING CYCLE OF THE K.C.P. LTD: The operating cycle of the company has four stages. Raw material stages. Working in progress stage. Finished goods stage. Debtors stage Creditors stage

RAW MATERIAL STAGE: The raw material stage of the company is calculated as follows. Average Stock of Raw material Raw material stage = Consumption per day

Opening stock + Purchases - closing stock Consumption per day = 365

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WORKING IN PROGRESS STAGE: The work in progress stage of the company is calculated as follows. Average stock of Work in progress Work in progress stage = Cost of production per day Cost of production per day = Manufacturing expenses + consumption of raw material + Opening balance of work in progress Closing balance of work in progress / 365

FINISHED GOODS STAGE: The finished goods stage of the company is calculated as follows:

Average stock of finished goods Finished goods stage = Cost of goods sold

Cost of sales per day = selling and distribution expenses + excise duty + cost of production + opening stock of finished goods closing stock of finished goods / 365

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DEBTORS STAGE: The debtors stage of the company is calculated as follows: Average debtors Debtors stage = Sales per day

Sales per day = Net sales / 365

CREDITORS STAGE: The creditors stage of the company is calculated as follows; Average Creditors Creditors stage = Purchases per day

Purchases per day = Net purchases / 365.

CASH MANAGEMENT Cash, the most liquid asset, is of vital importance to the daily Operations of the company. Cash management is concerned with the managing of 1. Cash flows into and out of the firm. 2. Cash flows, within the firm. 3. Cash balance held by the firm at a point of time by financing deficit of inventing surplus cash. 60

COLLECTION

INFORMATION AND CONTROL

BORROWOR INVEST

PAYMENTS

CASH MANAGEMENT CYCLE Sales generate cash, with has to be disturbed out. The surplus cash has to be invested while deficit has to be borrowed. Cash management seems to accomplish this cycle at a minimum cost. At the time, it also seeks to achieve liquidity and control. The management of cash is important because it is difficult to predict cash flows accurately, particularly the inflows and that there is no perfect coincidence between the inflows and outflows of the cash. In order to resolve the uncertainness about the cash flows, the firm should develop appropriate for cash management. The firm should evolve strategies regarding the following four facts of cash management. Cash planning: cash inflows and outflows should be planned to project cash surplus or deficit for each period of the planned period. Managing the cash flows: the flows of the cash should be properly managed. Optimum cash level: the firm should decide about the appropriate level of cash balance. Investing surplus cash: The surplus cash balance should be properly invested to earn profits.

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MOTIVES FOR HOLDING CASH

There are three possible motives for holding cash: TRANSITIVE MOTIVE: Firm needs cash to meet their transaction needs. The collection of cash is not perfectly synchronized with the disbursement of cash. Hence, some cash balance is required as buffer. PRECAUTIONARY MOTIVE: There may be some uncertainty about the magnitude and timing of cash inflows from sales of goods and services, sales of assets, and issuance of securities. To project it against such uncertainties, a firm may require some cash balance. SPECULATION MOTIVE: Firms would like to tap profit-making opportunities arising from fluctuations if commodity prices, security prices, interest rates, and foreign exchange rates. A cash rich firm is better prepared to exploit such bargains. Hence, the financial manager should establish reliable and reporting system improve cash collections and disbursements and achieve optimal conservations and utilization of funds.

CASH BUDGETING: Cash budgeting of short-term cash forecasting is the principle tool of cash management. Cash budgets, routinely prepared by business firms are helpful in: Estimating cash requirements. Planning short-term financing. Scheduling payments in connection with capital expenditure projects. Planning purchases of materials. Developing credit policies.

The principle method of short-term cash forecasting is the receipts and payments method. Sometimes the adjusted net income method is used through this method is employed mainly for long-term cash forecasting. 62

LONG TERM CASH FORECASTING: Long-term cash forecasting are generally prepared for a period ranging from two to five years and serve to provide a broad brush picture of a financing needs and availability of invest bile surplus in the future. The receipt and disbursements method is used for preparing the long-term cash forecast. MOUNTING COLLECTIONS AND RECEIVABLES: The efficiency of cash management can be enhanced by properly monitoring the collection and disbursements. The following are useful: PROMPT BILLING: By preparing and sending the bills promptly, a firm can ensure remittance. It should be realized that it is in the area of billing that the companys control is high and there is a sizeable opportunity and others in accelerating invoice date, mailing bills promptly, and identifying payment locations. CONTROL OF PAYABLE: When a firm issues a cheque it reduces the balance in its books. The balance in the banks books is not reduced till the bank makes the payment. The amount of cheques issued by the company but not paid for by the referred to as the payment float. The amount of cheques deposited by the firm in the bank but not cleared is referred to as the collection float. The difference between payment float and collection float is referred to as net float. OPTIMAL CASH BALANCE: If a firm maintains a small cash balance it has to sell its marketable securities (and perhaps buy them later) more frequently than if it holds a large cash balance. However, the opportunities costs of maintaining cash rise as the cash balance increases. The optimal cash

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balance is one were the total costs of holding cash (which consists of trading costs and opportunity costs) are at minimum for a particular size of cash balances. CREDIT MANAGEMENT: Business firms would like to sell on cash. The pressure of competition and the force of customers persuade them to sell on credit. Firms grant to credit to increase or facilitate their sales. The credit period extended by the business usually ranges from 15 days to 60 days. When goods are sold on credit, finished goods get converted into accounts receivable in view of seller. In the view of buyers, the obligation arising from credit purchases is represented as accounts payable (trade creditors) WORKING CAPITAL ANALYSIS As we know working capital is the life blood and the centre of a business. Adequate amount of working capital is very much essential for the smooth running of the business. And the most important part is the efficient management of working capital in right time. The liquidity position of the firm is totally effected by the management of working capital. So, a study of changes in the uses and sources of working capital is necessary to evaluate the efficiency with which the working capital is employed in a business. This involves the need of working capital analysis. The analysis of working capital can be conducted through a number of devices, such as: I. RATIO ANALYSIS A ratio is a simple arithmetical expression one number to another. The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. The following ratios can be calculated for these purposes: Current ratio. Quick ratio Absolute liquid ratio

64

 Inventory turnover. Receivables turnover. Payable turnover ratio. Working capital turnover ratio. Working capital leverage Ratio of current liabilities to tangible net worth.

II.

FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from which additional funds were derived and the use to which these sources were put. The fund flow analysis consists of: Preparing schedule of changes of working capital Statement of sources and application of funds. It is an effective management tool to study the changes in financial position (working capital) business enterprise between beginning and ending of the financial dates.

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STATEMENT SHOWING CHANGES OF WORKING CAPITAL DURING THE PERIOD 2008-2009. Particulars Current Assets: Closing stock Cash and Bank balance Debtors Loans and advances Total CAs(A) Current Liabilities: Creditors Outstanding Expenses Total CLs(B) Net Working Capital(A-B) Decrease in Working Capital Total Net Working Capital 344,900,910 326,529,825 88,327,205 81,311,329 136,715,776 107,205,802 48,388,571 25,894,473 2008 153,624,795 142,711,571 39,900,771 8,663,773 2009 135,355,308 131,177,497 55,710,699 4,286,320 Increase 15,809,928 Decrease 18,269,487 11,534,074 4,377,453

169,638,535 175,262,475

243,921,579 82,608,246

92,654,130

92,654,229 175,262,475 175,262,475 108,464,058 108,464,058

INTERPRETATION: In the above table shown that the changes on working capital. Total current assets and current liabilities in 2008-2009 are Rs.34,49,00,910 , Rs.19,49,10,093 & 24,39,21,579 respectively. In this comparison of total current assets and liabilities the working capital is decreased by Rs.92,654,229. Rs.16,96,38,535 , Rs.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL DURING THE PERIOD 2009-2010 Particulars Current Assets: Closing Stock Cash and Bank balance Debtors Loans and provisions Total CAs Current Liabilities: Creditors Loans and advances Provision for tax Total Cls Net Working Capital(A-B) Increase in Working Capital 243,921,579 302,950,656 Total Net Working Capital 82,608,246 108,470,750 29,679,556 25,862,504 108,470,750 108,470,750 91,979,638 91,979,638 2009 2010 Increase 42,908,760 49,070,878 Decrease 6,544,226 5,43,831

135,355,308 178,264,068 131,177,497 180,248,375 55,710,699 4,286,320 49,166,473 3,742,489

326,529,825 411,421,407 136,715,776 162,719,328 107,205,802 135,990,155 4,241,173 26,003,552 28,784,353 42,41,173

INTERPRETATION: In the above table shown that the changes on working capital. Total Current Assets and Current Liabilities in 2009-2010 are Rs.32,65,29,825 and Rs.41,14,21,407 are

Rs.24,39,21,579& Rs.10,84,70,750 respectively. In this comparison of total current assets and liabilities the working capital is increased by Rs.2,58,62,504 compare to the last year.

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STATEMENT SHOWING THE CHANGES IN WORKING CAPITAL DURING THE PERIOD 2010-2011

Particulars Current Assets: Closing Stock Cash and Bank balance Debtors Loans and Provisions Total CAs(A) Current Liabilities: Creditors Outstanding expenses Provision for IT Total CLs(B) NetWorkingCapital(A-B) Decrease In Working Capital Total Net Working Capital

2010 178,264,068 180,248,375 49,166,473 3,742,489

2011 177,158,586 236,600,442 52,527,833 24,604,872

Increase 56,352,067 3,361,360 20,862,383

Decrease 11,05,482 -

411,421,407

490,891,735

11,82,032 48,305,266 11,41,173

162,719,328 135,990,155 4,241,173 302,950,656 108,470,750

161,537,296 87,684,889 31,00,000 252,322,185 238,569,550 84,613,795 130,098,799

108,470,750 INTERPRETATION:

108,470,750

131,204,281

1,105,482

In the above table shown that the changes on working capital. Total Current Assets and Current Liabilities in 2010-2011 are Rs.41,14,21,407are Rs.49,08,91,735 and

Rs.29,87,09,483 are Rs.30,29,50,656 respectively. In this comparison of total current assets and liabilities the working capital decreased by Rs.84,613,795 compare to the last year.

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STATEMENT SHOWING CHANGES IN WORKING CAPITAL DURING THE PERIOD 2011 -2012. Particulars Current Assets: Closing stock Cash and bank balance Debtors Loans and provisions Total CAs(A) Current Liabilities: Creditors Outstanding expenses Provision for IT Total CLs(B) Net Working capital(AB) Increase In working Capital Total Net Working Capital 2011 177,158,586 236,600,442 52,527,833 24,604,872 490,891,735 2012 231,531,161 246,578,971 60,548,324 25,864,904 564,523,360 Increase 54,372,575 99,78,529 80,20,491 12,60,032 Decrease -

161,537,296 87,684,889 31,00,000

175224424 102566715 50,05,300

13,687,128 14,881,826 19,05,300

252,322,185 238,569,550 43,157,372 281,726,922

282,796,438 281,726,922 43,157,373 73,631,627 30,474,254

281,726,922

INTERPRETATION: In the above table shown that the changes on working capital. Total Current Assets and Current Liabilities in 2011-2012 are Rs.49,08,91,735 are Rs.56,45,23,360 and

Rs.25,23,22,185 are Rs.28,27,96,438 respectively. In this comparison of total current assets and liabilities the working capital increased by Rs.4,31,57,372 compare to the last year.

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GROWTH OF GROSS WORKING CAPITAL

Gross Working Capital represents the amount invested in the Current assets. It also known as the total current assets is called gross working capital. Generally every company invests some money in the current assets in order to meet the companys regular obligations. The investment can be recollected and make the payments whenever the necessary arises.

GWC

Total Current Assets

Years 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Closing Stock 15,36,24,795 13,53,55,308 17,82,64,068 17,71,58,586 23,15,31,161

Cash&Bank balance 14,27,11,571 13,11,77,497 18,02,48,375 23,66,00,443 24,65,78,971

Debtors 3,99,00,770 5,57,10,699 4,91,66,473 5,25,27,833 6,05,48,323

Loans & advances 86,63,773 42,86,320 37,42,489 2,46,04,873 2,58,64,904

GWC 34,49,00,910 19,49,10,093 41,14,21,407 49,08,91,735 56,45,23,360

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60 50

56.45 49.08 41.14

40 30 20 10 0

34.49
Series1

19.49

2007-08

2008-09

2009-10

2010-11

2011-12

INTERPRETATION: The Gross Working Capital is increasing every year exept in the year 2008-2009. By observing the above table it is to found that the highest GWC isRs.56,45,23,360. And the lowest is Rs.19,49,10,093.

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GROWTH OF NET WORKING CAPITAL: Net Working Capital represents the excess of current assets over current liabilities. Several items of all current liabilities are the components of networking capital are calculated by subtracting the current liabilities from the current asset. Net working capital= current assets-current liabilities

Year 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Net Working Capital 17,52,62,475 8,26,08,246 10,84,70,750 23,85,69,550 28,17,26,921

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60 50 40 30 20 10 0 2007-08 2008-09 2009-10 2010-11 2011-12

Series1

INTERPRETATION: The Net Working Capital is fluctuating. By observing the above table it is found that there is a higher Net Working Capital 2008-2009. in the year 2011 -2012 and lower is recorded in the year

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3.

WORKING CAPITAL BUDGET

A budget is a financial and / or quantitative expression of business plans and polices to be pursued in the future period time. Working capital budget as a part of the total budge ting process of a business is prepared estimating future long term and short term working capital needs and sources to finance them, and then comparing the budgeted figures with actual performance for calculating the variances, if any, so that corrective actions may be taken in future. He objective working capital budget is to ensure availability of funds as and needed, and to ensure effective utilization of these resources. The successful implementation of working capital budget involves the preparing of separate budget for each element of working capital, such as, cash, inventories and receivables etc.

ANALYSIS OF SHORT TERM FINANCIAL POSITION OR TEST OF LIQUIDITY The short term creditors of a company such as suppliers of goods of credit and commercial banks short-term loans are primarily interested to know the ability of a firm to meet its obligations in time. The short term obligations of a firm can be met in time only when it is having sufficient liquid assets. So to with the confidence of investors, creditors, the smooth functioning of the firm and the efficient use of fixed assets the liquid position of the firm must be strong. But a very high degree of liquidity of the firm being tied up in current assets. Therefore, it is important proper balance in regard to the liquidity of the firm. Two types of ratios can be calculated for measuring short-term financial position or short-term solvency position of the firm. 1. 2. Liquidity ratios. Current assets movements ratios.

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A) LIQUIDITY RATIOS Liquidity refers to the ability of a firm to meet its current obligations as and when these become due. The short-term obligations are met by realizing amounts from current, floating or circulating assts. The current assets should either be liquid or near about liquidity. These should be convertible in cash for paying obligations of short-term nature. The sufficiency or insufficiency of current assets should be assessed by comparing them with short-term liabilities. If current assets can pay off the current liabilities then the liquidity position is satisfactory. On the other hand, if the current liabilities cannot be met out of the current assets then the liquidity position is bad. To measure the liquidity of a firm, the following ratios can be calculated: 1. 2. 3. CURRENT RATIO QUICK RATIO ABSOLUTE LIQUID RATIO

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1. CURRENT RATIO Current Ratio, also known as working capital ratio is a measure of general liquidity and its most widely used to make the analysis of short-term financial position or liquidity of a firm. It is defined as the relation between current assets and current liabilities. Thus, CURRENT RATIO = CURRENT ASSETS CURRENT LIABILITES Current assets include cash, marketable securities, bill receivables, sundry debtors, inventories and work-in-progresses. Current liabilities include outstanding expenses, bill payable, dividend payable etc. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time. On the hand a low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its current liabilities in time. A ratio equal or near to the rule of thumb of 2:1 i.e. current assets double the current liabilities is considered to be satisfactory.

YEAR

Current Assets

Current Liabilities

Ratio (%)

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

34,49,00,910 19,49,10,093 41,14,21,407 49,08,91,735 56,45,23,360

169,638,534 243,921,579 302,950,656 252,322,185 282,796,438

2.03 1.33 1.35 1.94 1.99

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2.5

1.5 Series1 1

0.5

0 2007-08 2008-09 2009-10 2010-11 2011-12

INTERPRETATION: According to conventional rule a current ratio of 2:1 is considered satisfactory. The current ratio of the organization is almost same in the years 2008-09and 2009-2010 also in 2010-2011 and2011-2012. In between these years it is increasing. It is 2.03 in the year 2008-09 and it is decreased to 1.99 by 2011-12. L owest is recorded in the year 2008-09

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2. QUICK RATIO Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash with a short period without loss of value. It measures the firms capacity to pay off current obligations immediately.

CALCULATION OF QUICK RATIO QUICK ASSETS QUICK RATIO = ___________________ QUICK LIABILITES Where Quick Assets And Quick Liabilities are: QUICK ASSETS= CURRENT ASSETS STOCK QUICK LIABILITIES= CURRENTLIABILITIES-BANK O.D

A high ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time and on the other hand a low quick ratio represents that the firms liquidity position is not good. As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if quick assets are equal to the current liabilities then the concern may be able to meet its shortterm obligations. However, a firm having high quick ratio may not have a satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm having a low liquidity position if it has fast moving inventories.

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YEAR

Liquidity Assets

Current Liabilities

Rati(%)

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

191,276,215 191,174,517 233,157,338 313,733,148 332,992,199

169,638,534 243,921,579 302,950,656 252,322,185 282,796,438

1.12 0.78 0.76 1.24 1.17

1.4 1.2 1 0.8 0.6 0.4 0.2 0 2007-08 2008-09 2009-10 2010-11 2011-12 Series1

INTERPRETATION: Quick ratio of liquidity is 1:1 .is considered as satisfactory. In the first year the ratio is 1.12. later it was decreased to 0.78 and then onwards it was increasing. It is found that in the year 2010-2011 the ratio is high. It is recorded as 1.24 The lowest ratio was recorded in the year 2009-2010 79

3. ABSOLUTE LIQUID RATIO Although receivables, debtors and bills receivable are generally more liquid than inventories, yet there may be doubts regarding their realization into cash immediately or in time. So absolute liquid ratio should be calculated together with current ratio and acid test ratio so as to exclude even receivables from the current assets and find out the absolute liquid assets. Absolute Liquid Assets includes : ABSOLUTE LIQUID ASSETS ABSOLUTE LIQUID RATIO = ______________________________ CURRENT LIABILITES ABSOLUTE LIQUID ASSETS = CASH & BANK BALANCES.

YEAR

ABSOLUTE LIQUID ASSETS

CURRENT LIABILITIES

Ratio (%)

2007-2008

14,27,11,571 13,11,77,497 18,02,48,375 23,66,00,443 24,65,78,971

169638534 243921579 302950656 252322185 282796438

0.84 0.53 0.59 0.93 0.87

2008-2009 2009-2010 2010-2011 2011-2012

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1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2007-08 2008-09 2009-10 2010-11 2011-12 Series1

INTERPRETATION:

In the first year the ratio is 0.84. later it was decreased to 0.53 and then onwards it was increasing.

It is found that in the year 2010-2011 the ratio is high. It is recorded as 0.93 The lowest ratio was recorded in the year 2008-2009

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B) CURRENT ASSETS MOVEMENT RATIOS Funds are invested in various assets in business to make sales and earn profits. The efficiency with which assets are managed directly affects the volume of sales. The better the management of assets, large is the amount of sales and profits. Current assets movement ratios measure the efficiency with which a firm manages its resources. These ratios are called turnover ratios because they indicate the speed with which assets are converted or turned over into sales. Depending upon the purpose, a number of turnover ratios can be calculated. These are : 1. Inventory Turnover Ratio 2. Debtors Turnover Ratio 3. Creditors Turnover Ratio 4. Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current assets include high amount of debtors due to slow credit collections and moreover if the assets include high amount of slow moving inventories. As both the ratios ignore the movement of current assets, it is important to calculate the turnover ratio.

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1.

INVENTORY TURNOVER OR STOCK TURNOVER RATIO :

Every firm has to maintain a certain amount of inventory of finished goods so as to meet the requirements of the business. But the level of inventory should neither be too high nor too low. Because it is harmful to hold more inventory as some amount of capital is blocked in it and some cost is involved in it. It will therefore be advisable to dispose the inventory as soon as possible. COST OF GOOD SOLD INVENTORYTURNOVERRATIO= AVERAGE INVENTORY Inventory turnover ratio measures the speed with which the stock is converted into sales. Usually a high inventory ratio indicates an efficient management of inventory because more frequently the stocks are sold ; the lesser amount of money is required to finance the inventory. Where as low inventory turnover ratio indicates the inefficient management of inventory. A low inventory turnover implies over investment in inventories, dull business, poor quality of goods, stock accumulations and slow moving goods and low profits as compared to total investment.

Cost of goods sold=sales-gross profit

AVERAGE STOCK = OPENING STOCK + CLOSING STOCK 2

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YEAR

COST OF GOODS SOLD 1,301,735,372 1,964,402,766 1,934,364,557 2,374,393,604 3,075,567,006

AVERAGE STOCK 112,736,262 121,621,832 132,922,625 150,930,354 168,786,677

RATIO

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

11.54 16.15 14.55 15.73 18.22

20 18 16 14 12 10 8 6 4 2 0 2007-08 2008-09 2009-10 2010-11 11.54 16.15 14.55 15.73

18.22

Series1

2011-12

INTERPRETATION: In the first year the ratio is 11.54. later it was increased to 16.15 and then onwards it was increasing. It is found that in the year 2011-2012the ratio is high. It is recorded as 18.22 The lowest ratio was recorded in the year 2007-08

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2. DEBTORS TURNOVER RATIO : A concern may sell its goods on cash as well as on credit to increase its sales and a liberal credit policy may result in tying up substantial funds of a firm in the form of trade debtors. Trade debtors are expected to be converted into cash within a short period and are included in current assets. So liquidity position of a concern also depends upon the quality of trade debtors. Two types of ratio can be calculated to evaluate the quality of debtors. a) b) Debtors Turnover Ratio Average Collection Period

TOTAL SALES (CREDIT) DEBTORSTURNOVERRATIO=____________________________ AVERAGE DEBTORS

Debtors velocity indicates the number of times the debtors are turned over during a year. Generally higher the value of debtors turnover ratio the more efficient is the management of debtors/sales or more liquid are the debtors. Whereas a low debtors turnover ratio indicates poor management of debtors/sales and less liquid debtors. This ratio should be compared with ratios of other firms doing the same business and a trend may be found to make a better interpretation of the ratio.

AVERAGE DEBTORS= OPENING DEBTOR+CLOSING DEBTOR 2

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YEAR

Total Sales

Average Debtors

Ratio(%)

2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

1628286698 1998082112 2311019090 2789050101 3527036414 42050900 47805735 52438586 50847153 56538078

38.72 41.79 44.07 54.85 62.38

70 60 50 40 30 20 10 0 2007-08 2008-09 2009-10 2010-11 38.72 41.79 44.07 54.85

62.38

Series1

2011-12

INTERPRETATION: In the first year the ratio is 38.72 later it was increased to 41.79 and then onwards it was increasing. It is found that in the year 2011-2012the ratio is high. It is recorded as 62.38 The lowest ratio was recorded in the year 2007-08 86

3. WORKING CAPITAL TURNOVER RATIO : Working capital turnover ratio indicates the velocity of utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of the year. This ratio measures the efficiency with which the working capital is used by the firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover is not a good situation for any firm. Net Sales Working Capital Turnover Ratio = ____________________ Net Working Capital

YEAR 2007-2008 2008-2009 2009-2010 2010-2011 2011-2012

Total Sales 16,28,286,698 19,98,082,112 23,11,019,090 27,89,050,101 35,27,036,414

Net Working Capital 1,75,262,475 82,608,246 1,08,470,750 2,38,569,550 2,81,726,921

Ratio (%) 9.29 24.18 21.30 11.69 12.51

87

30 25 20 15 10 5 0 2007-08 2008-09 2009-10 2010-11 2011-12 9.29 12.51 24.18 21.3

11.69

Series1

INTERPRETATION:

In the first year the ratio is 9.29. later it was increased to 24.18 and then onwards it was decreased to 11.69 in 2010-2011 and again it was slowly increasing. It is found that in the year 2008-09 the ratio is high. It is recorded as 24.18 The lowest ratio was recorded in the year 2007-08

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FINDINGS
It is found that the current ratio was fluctuating very much during the overall period. It is found that the cash and bank balance of the company was increasing every year. The highest bank balance of the company was in the year 2011-2012. It is found that the liquid ratio of the company almost reached the ideal ratio 1:1 in the year 2008-09 liquit assets position was very poor in every year. The company didnt have the ability to pay of its short term obligations. It is found that the companys loans and advances were fluctuating very much during the overall period. It is found that the companys gross working capital was continually increasing except in the year 2008-09. It is found that quick ratio in the year 2010-2011 the ratio is high. It is recorded as 1.24 The lowest quick ratio was recorded in the year 2009-2010 It is found that liquid ratio in the year 2010-2011 the ratio is high. It is recorded as 0.93 .The lowest ratio was recorded in the year 2008-2009 It is found that inventory turnover ratio in the year 2011-2012the ratio is high. It is recorded as 18.22 The lowest inventory turnover ratio was recorded in the year 2007-08 It is found that debtors turnover ratio in the year 2011-2012the ratio is high. It is recorded as 62.38 .`The lowest ratio was recorded in the year 2007-08 It is found thatworking capital in the year 2008-09 the ratio is high. It is recorded as 24.18 .The lowest ratio was recorded in the year 2007-08 It is found that the net profit ratio has been fluctuated very much during the overall period.

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SUGGESTIONS
It can be suggested that the company must maintain proper cash and bank balance. It can be suggested that the company need to concentrate on the loans and advances. It can be suggested that the company must concentrate on the gross working capital while investing more in the current assets. It can be suggested that the company need to maintain the efficiency of administration, selling and distributing departments and also maintain net profit in future years to get more profits. It can be suggested that the company must concentrate on increasing the current assets the company should invest more on current assets. It can be suggested that the company must concentrate on increasing the liquid assets to maintain proper current financial position and proper solvency. It is better to improve inventory turnover ratio. It is suggested that working capital turn over ratio can be maintained at same level. The debtors trend value is to be improved.

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BIBILIOGRAPHY
REFERENCE BOOKS:

KHAN & JAIN. P.K THEORY AND PROBLEMS OF FINANCIAL MANAGEMENT

.TATA.MC.GRAHIL, NEW DELHI 2004.

KULKARNI P.V, FINANCIAL MANAGEMENT , HIMALAYA PUBLISHING

HOUSE, MUMBAI 1999.

PANDEY. I.M, FINANCIAL MANAGEMENT, VIKAS PUBLISHING HOUSE

PVT.LTD, NEW DELHI, 2005.

PRASANNA CHANDRA, FINANCIAL MANAGEMEN, TATA MC. GRAWHILL,

NEW DELHI, 2002.

SHARMA

R.K,

MANAGEMENT

ACCOUNTANCY

PRINCIPLESW

AND

PRACTISE, KALYANI PUBLISHERS, NEW DELHI, 1999.

ANNUAL REPORTS OF VIJAYA DAIRY.

WEBSITES: www.liners India Limited .com www.google.com

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