My Project

LIST OF TABLES
TABLE TITLE PAGE

NO NO
4.1 Net working capital of Travancore sugars and

chemicals from 2006-2007 to 2010-2011
4.2 Current ratio of Travancore sugars and chemicals
4.3 Quick ratio of Travancore sugars and chemicals
4.4 Absolute liquidity ratio of Travancore sugars and

chemicals
4.5 Working capital turnover ratio of Travancore

sugars and chemicals
4.6 Debtors turnover ratio of Travancore sugars and

chemicals
4.7 Debtors collection period of Travancore sugars

and chemicals
4.8 Inventory turnover ratio of Travancore sugars and

chemicals
4.9 Inventory conversion period of Travancore sugars

and chemicals
4.10 Current asset turnover ratio of Travancore sugars

and chemicals
4.11 Creditors turnover ratio of Travancore sugars and

chemicals
4.12 Cash to total current asset of Travancore sugars

and chemicals
4.13 Gross profit ratio of Travancore sugars and

chemicals
4.14 Net profit ratio of Travancore sugars and

chemicals
4.15 Statement of change in working capital for the

year 2006-2007
year 2007-2008

year 2008-2009

year 2009-2010

year 2010-2011
4.20 Sales Trend of Travancore sugars and chemicals
4.21 Profit Trend of Travancore sugars and chemicals
4.22 Working Capital Trend of Travancore sugars and

chemicals
4.23 Balance sheet of the year 2006-2007 to 2010-2011
4.24 Profit and loss account of year 2006–2007 to

2010-2011
LIST OF FIGURES
FIGURE TITLE PAGE

NO NO
1 Organizational Chart Of Travancore Sugars And

Chemicals
2 Structure Of Finance Department Of Travancore

Sugars And Chemicals
3 Graph Showing Net Working Capital
4 Graph Showing Current Ratio
5 Graph Showing Quick Ratio
6 Graph Showing Absolute Liquidity Ratio
7 Graph Showing Working Capital Turnover Ratio
8 Graph Showing Debtors Turnover Ratio
9 Graph Showing Debts Collection Period
10 Graph Showing Inventory Turnover Ratio
11 Graph Showing Inventory Conversion Period
12 Graph Showing Current Asset Turnover Ratio
13 Graph Showing Creditors Turnover Ratio
14 Graph Showing Cash To Total Current Asset
15 Graph Showing Gross Profit Ratio
16 Graph Showing Net Profit Ratio
17 Graph Showing Sales Trend
18 Graph Showing Profit Trend
19 Graph Showing Working Capital Trend

ABBREVIATIONS
1. IMFL: INDIAN MADE FINE LIQUOR .

2. KSBC :KERALA STATE BEVERAGE CORPORATION LTD.
3. NWC :NET WORKING CAPITAL
4. WC : WORKING CAPITAL
5. RMCP : RAW MATERIAL CONVERSION PERIOD
6. WIPCP : WORK IN PROGRESS CONVERSION PERIOD
7. FGCP : FINISHED GOODS CONVERSION PERIOD
8. ICP : INVENTORY CONVERSION PERIOD
9. RCP : RECEIVABLES CONVERSION PERIOD
10. PAYABLES (PDP) : PAYABLES DEFERRAL PERIOD
11. NOC : NET OPERATING CYCLE
12. GOC : GROSS OPERATING CYCLE
13. K.R.S : KERALA ROADWAYS TRANSPORT LTD
14. TSC :TRAVANCORE SUGARS AND CHEMICALS
CHAPTER 1
INTRODUCTION TO THE STUDY

CHAPTER 1
INTRODUCTION
1.1 INTRODUCTION
A business undertaking requires funds for two purposes: -
 To create productive capacities through purchase of fixed assets, etc.

 To finance current assets required for day to day running of the business.
Working capital refers to the funds invested in current assets i.e., investment in stock,
sundry debtors, cash and current assets. Current assets are essential to use fixed assets
profitably. For example a machine cannot be used without providing necessary raw
materials. It is obvious that a certain amount of funds is always tied up in raw
material inventories working progress, finished goods, consumable stores, sundry
debtors and day-to-day cash requirements. However, the business also enjoys credit
facilities from his suppliers who may give the raw materials on credit. Similarly a
businessman may not pay immediately for various expenses. But labours are paid
periodically. Therefore certain amount of funds is automatically available to finance
the current assets requirements. However, the requirements for current assets are
usually greater than the amount of funds available through current liabilities. In other
words, the current assets are to be kept at higher level than the current liabilities. This
difference is known as working capital.
Working Capital Management is significant in financial management due to the fact
that it plays a vital role in keeping the wheel of the business running. Every business
requires capital, without which it cannot be promoted. It holds exceptional
importance in the case of a manufacturing company. It also covers various concepts
like inventory management, cash management, credit policy etc. Working capital is
the heart of the business. If it is weak, business cannot prosper and survive. It is
therefore said the fate of large scale investment in fixed assets is often determined by
a relatively small amount of current assets. As the working capital is important to the
company is important to keep adequate working capital with the company. Cash is
the lifeline of company. If this lifeline deteriorates so the company’s ability to fund
operation, reinvest do meet capital requirements and payment. Understanding
company’s cash flow prospects is to look at its working capital management. This
study is undertaken to find out efficiency of working capital management of
Travancore Sugars And Chemicals Ltd., Valanjavattom.
1.2 OBJECTIVES OF THE STUDY
 To identify the financial strength and weakness of Travancore Sugars And Chemicals
Ltd.
 To study the performance of beverage industry in general and Travancore Sugars And
Chemicals Ltd. in particular
 To study the liquidity and solvency position of Travancore Sugars And Chemicals Ltd.
 To study the cash management practices of Travancore Sugars And Chemicals Ltd.
 To study the receivable management practices of Travancore Sugars And Chemicals
Ltd.
 To examine the inventory management of Travancore Sugars And Chemicals Ltd.
1.3 SCOPE OF THE STUDY
The study of working capital is of major importance to the internal and external
analysis because of its close relationship with the current day to day operations of a business.
To meet the current requirements of a business enterprise such as the purchases of services,
raw materials etc. working capital is essential. It is also pointed out that working capital is
nothing but one segment of the capital structure of a business.
In this study, the working capital management of the company is analyzed and
conclusions and suggestions are drawn from it in order for the betterment of the company.
1.4 RESEARCH METHODOLOGY
Research methodology is a way to systematically solve the research problem. It

may be understood as a science of studying how research is done scientifically. In it we study
the various steps that are generally adopted by a researcher in studying his research problem
along with the logic behind them. It is necessary for the researcher to know not only the
research methods/techniques but also the methodology. Researchers not only need to know
how to develop certain indices or tests, how to calculate the mean, the mode, the median or
the standard deviation or chi-square, how to apply particular research techniques, but they
also need to know which of these methods or techniques, are relevant and which are not, and
what would they mean and indicate and why. Researchers also need to understand the
assumptions underlying various techniques and they need to know the criteria by which they
can decide that certain techniques and procedures will be applicable to certain problems and
others will not. All this means that it is necessary for the researcher to design his
methodology for his problem as the same may differ from problem to problem.
1.4.1 METHODS FOR DATA COLLECTION
The collection is the process of enumeration together with the proper

recording of results. The success of an enquiry is based up on the proper collection of data.
The data may be classified as primary and secondary.
 PRIMARY DATA
Primary data are those data, which are collected at the first time, and they
are original in character. This study covers the enquiry regarding the inventory data.
Under this research the data collected personally.
 SECONDARY DATA
Secondary data are those data that are already collected by someone for
some purposes and are available for the present study. Various sources of secondary data
including Annual reports, Official website of Travancore Sugars And Chemicals Ltd.,
research abstracts published in various books and research articles published in business
journals.
1.4.2 PERIOD OF THE STUDY
The study covers a period of five years performance of Travancore

Sugars And Chemicals Ltd. The years taken for the study are from 2006-11.
1.4.3 AREA OF THE STUDY
The area selected for the study is Travancore Sugars And Chemicals Ltd.
Valanjavattom.
1.4.4 TOOLS FOR DATA ANALYSIS
The data collected where grouped and analyzed by using appropriate

accounting ratios. The trend analysis where also used for this study. Statement of change in
working capital is also prepared with a way to ascertain the effect of changes of various
components in the working capital of company.
1.5 LIMITATIONS OF THE STUDY
 Some of the data was not given by the company due to the maintenance of
financial secrecy. So the study cannot be covered to all the areas of working
capital.
 The qualitative aspects where also used only in a limited contexts.
 The limitation in the compilation of secondary data might have affected the
findings of the study.
1.6 CHAPTERISATION
This study report contains five chapters.
Chapter 1- This chapter contains the Introduction, Objectives of the study, Scope of the
study, Research Methodology, Period of the study, Tools for data analysis, and
Limitations of the study.
Chapter 2- deals with profiles of the study.
Chapter 3- gives a theoretical framework for undertaking the study and deals with
growth and development of beverage industry and the performance of Travancore
Sugars And Chemicals Ltd.
Chapter 4- explains the results of analysis of working capital management of

Travancore Sugars And Chemicals Ltd.
Chapter 5- consists of findings, suggestions and conclusion.

CHAPTER 2
PROFILES
2.1 INDUSTRY PROFILE
India has a population of more than 1.150 Billions

w h i c h i s j u s t b e h i n d C h i n a . According to the national sample survey; by 2030
India population will be around 1.450 Billion and w i l l s u r p a s s C h i n a t o b e c o m e t h e
W o r l d l a r g e s t i n t e r m s o f p o p u l a t i o n . B e v e r a g e Industry which is directly
related to the population is expected to maintain a robust growth rate. The price
stability throughout the year has contributed to the increase in domestic liquor sales. The
Indian beverage market offers hot options. In India, various positive factors drive the
beverage markets. One is the rising number of people in the middle class with extra
money to spend on new beverages like wine new brands of imported whiskey, or the fancy
energy drinks, some of which are really good to enable people to work longer, to
listen longer during conferences, and even t o p a r t y l o n g e r a n d h a v e f u n .
MAJOR MARKET UNDER INDIAN BEVERAGE INDUSTRY
1. Indian Non-Alcoholic Beverage Market

2. Indian Soft Drink Market
3. Indian Tea Market
4. Indian Alcoholic Beverage Market
5. Indian Beer Market
6. Indian Wine Market
Liquor production is one of the profitable businesses in today’s world. In
India several private, public and government companies are producing liquor and making
huge profits. But this liquor consumption is injurious to human body. It will spoil the life of
young generations of a country. The government cannot stop the production and distribution
of liquor because it accelerates the revenue in the form tax. The turnover tax of liquor
(IMFL) sales is 96%.
KSBC (Kerala State Beverages Corporation) has the monopoly right to
distribute the liquor throughout the state and any other selling activities within the state are
illegal and are subject to serve punishment including imprisonment.
The Kerala State Beverages (M&M) Corporation handles potable liquor
made out of Extra Neutral Alcohol. Potable liquor is a consumable item containing potable
Alcohol and other chemicals. The role the KSBC is channelizing all kinds of
liquor/beer/wine from manufactures throughout the country for the consumers in Kerala. As
such KSBC is not restricting purchase of liquor from any manufacturer who is prepared to
enter into a valid contract. KSBC performs the role of procuring liquor and take adequate
steps to ensure the quality standards of liquor and place them to the consumer through the
various channels of distribution enabling the consumer to take his preference. The liquor
brought through KSBC contains the holographic stickers pasted on the bottle caps. The
activity of KSBC confines to contracts for procurement and distribution. Consumer has to
know hid health condition while deciding to drink. Alcohol is not a freely marketable item
like any other consumable but can be sold only through license. In this point of view there
is a message that consumer has to check his health while consuming liquor.
The judicial commission of inquiry appointed by the Government to streamline the liquor
trade in the state recommended-
 To provide genuine liquor at reasonable price, through Government agencies
 Exploitation through increased taxation and exploitation by middleman should be
stopped and consumer protection must be the guiding policy.
For achieving the above, nationalization of entire liquor trade was suggested.
In line with the suggestion the Government decided to set up a Public Sector
Corporation to procure spirit and arrange blending, bottling, sealing and distribution of arrack
and also for dealing with the sale of IMFL. An amendment was made in the Abkari Act in
1984 to give effect to the same.
KSBC was formed on 23.2.1984 to take over the wholesale distribution of liquor in a phased
manner and to eventually set up distilleries and blending units to produce spirit, arrack and
IMFL. Since then the distribution of liquor has been brought under the control of the
Corporation. By a decision in 2001 the majority of the retail outlets also have been entrusted
to the Corporation. As at present the whole activity of IMFL from procurement to
distribution and sale to the consumer is controlled by the Corporation except for loose
vending of liquor by Bars/Clubs and a small portion of the retails by Consumer Federation.
Objectives
1. To provide genuine quality liquor to consumers at reasonable prices

2. To make available supplies of liquor commensurate to demand
3. To evolve a proper system to prevent misuse, distribution of spurious liquor through
unauthorized sources and evasion of duties and taxes by middlemen
4. Consumer protection and satisfaction
Corporate Objectives of the Company
 To build lasting relationships with customers based on trust and mutual benefit
 To uphold highest ethical standards in conduct of our business
 To create and nurture a culture that supports flexibility, learning and is proactive to
change
 To chart a challenging career for employees with opportunities for advancement and
rewards
 To value the opportunity and responsibility to make a meaningful difference in
people’s lives
 To maintain the Quality of the product
2.2 COMPANY PROFILE
A PROFILE OF TRAVANCORE SUGARS AND CHEMICALS LTD.
COMPANY NAME: Travancore Sugars & Chemicals Ltd.
OWNER: Government of Kerala
LOCATION: Valanjavattom
FULL ADDRESS: Travancore Sugars & Chemicals Ltd.
Valanjavattom, Thiruvalla -689 104

Tel: 0471-2332632
E-mail: travancoresugars@yahoo.co.in
The Travancore Sugars and Chemicals Ltd (TSC Ltd) was incorporated in June 1937 with an
authorized share capital of Rs.60, 00,000 with an objective to acquire carryon and transact the
traders and business of planets, general merchants and importers, manufactures of dealers in
sugar, wine and spirits. Now the Company is concentrating on Indian made fine liquor
(IMFL) production. There is no marketing department in the company because the sales of
IMFL products are only done through the Kerala State Beverage Corporation (KSBC) Ltd.
This government company registered under the joint stock Companies Act 1956 and its share
capital as at 2008 is Rs.1, 31, 56,890
Manpower of the Company is 218 employees at present and turnover approximately for the
year ended 2007-2008 is 83 lakhs. The operations of the company are highly sophisticated
over the years and the company has developed very high reputation for the quality of its
products. The products are resilient, inexpensive and hygienic. The Company follows strict
quality control measures.
LOCATION
Selection of proper location for a new plant is essential for the smooth functioning
of the company. Travancore sugars and chemicals Ltd is situated at the place called
Valanjavattom near Thiruvalla.
Major reason for the selection of this location is availability of transportation facilities,
banking facilities and well skilled labour forces etc.
LOGISTICS:
Internal Movement
Trolley and vehicles are used to move semi-finished goods from one process station to
another process station.
External Environment
In the case of road Transport TSC has made contract with various transport companies like
K.R.S (Kerala Roadways Transport Ltd ) and A.C cargo management. Other mode of
transportation is rail.
Mission of the Company
“To provide full employment to its employees & to keep financial stability of the concern”
Vision of the Company
“To increase its production as double and to attract more customers”
BOARD OF DIRECTORS
CHAIRMAN: Mr. C.K. VISWANATHAN IAS.
DIRECTORS: Mr. T.K. MANOJ KUMAR
Mr. N.SHANKAR REDDY IPS
Mr. MANAPANDIYAN IAS
MANAGING DIRECTOR: Mr. N VIJYAANAND
SENIOR MANAGER (FINANCE) & SECRETORY IN CHARGE:
Mr. ALEX P. ABRAHAM, FCA.
AUDITORS: M/S SRIDHAR & Co.
Chartered Accounts,
Thiruvananthapuram.
BANKERS: State Bank of Travancore
State Bank of India
Indian Overseas Bank
Government Treasury
Pathanamthitta District
Co-operative Bank
LEGAL ADVISERS: M/S MENON AND PAI
Ernakulum
2.3 PRODUCT PROFILE
Travancore Sugars Chemicals Ltd produces variety of products which are given below.
INDIAN MADE FINE LIQUOR (IMFL)
During the financial year 2008-2009 the company sold 2774528 bulk litres of IMFL valued
Rs.87031902 but during the financial year 2007-2008 the company sold 2782000 bulk litres
of IMFL valued Rs.858814668. So we can find out that there is a minute change in sales of
IMFL. But even if there is change in sales the value rate is increased now the company
produces so many brands of liquor which are given below.
(a) MAJOR PREMIUM BRAND
This brand is specially produced for high class segment. Normally this brand is costlier than
other products. It is one of the brands which has a great move in the market. This product is
an advancement of its earliest product named Commander VSOP Brandy.
(b) FESTIVAL XXX RUM
Festival xxx rum is a leading brand in middle class segment. During the year 2007-2008 as
per sales report this brand makes good sales.
(c) JAWAN XXX RUM
During the year 2007-2008 as per the sales report this is the most profit making brand of the
company. These brand targets mainly on middle class segment. Price of this product is
around 180rs for 750 ml bottle. The main ingredients are caromic colour, essence and extra
96% neutral alcohol and food flavor.
(d) CHEERS XXX RUM
This is a special brand for low class segment, these brands also keep god sales report, but low
compared to others.
DENATURED AND METYLATED SPIRIT
During the year 2007-2008 the company sold 17944 bulk liters of methylated spirit valuated
792775 Rs. and 3259 liters of Denatured spirit costing Rs.143746. The earnings from these
were much high compared to its earning in previous years. In the year 2006-2007 total
earnings from both was around 6.5 lakh only.
RECTIFIED SPIRIT
During the year 2008-2009 the company sold 149462 liters of rectified spirit valued at
Rs.5380643. When compared to the previous year there is much more decrease in the sales
of rectified spirit. It contains 94% alcohol.
2.4 ORGANISATION STRUCTURE
General Manager
Production Administration Quality Control Finance
Supervisors Senior Manager Quality Manager Chief Accountant
Workers Assistant Technical Assistant Clerical Staff

Manager
Accounts Officer
Fig: 1
FUNCTIONAL DEPARTMENTS OF TSC
In TSC the work activities that are similar and logically connected are grouped to form
departments. At present there are seven departments in the organization. They are as
follows.
1. Production Department
2. Quality Control Department
3. Production Planning Department
4. Material Department
5. Finance Department
6. Human Resource Management
7. Personnel and Administrative Department
FINANCE AND ACCOUNTS DEPARTMENT:
This department is headed by an eminent Finance Manager, who can make the finance details
of the organization up to date. Every year an audit will be conducted for checking the
financial position of the organization and to check the correctness of the accounts.
FINANCIAL MANAGEMENT IN TSC LTD.
Senior finance Manager manages the finance department and he reports to the M.D directly,
about the functions of the department.
BASIC FUNCTIONS OF ACCOUNTS DEPARTMENT
1. Planning and allocating works to accounts staff.

2. Salary and wage administration.
3. Incentives and overtime payment etc.
4. Retirement, gratuity and other personal matters.
5. Verifying cash books.
6. Verifying debtor’s statement.
7. Verifying stock statement.
8. Attending legal and departmental proceedings.
9. Verifying bank reconciliation statement.
10. Scrutinizing of purchase bill, expense bill etc.
11. Submitting periodicals to PF, ESI sales Tax.
12. Legal Security.
13. Monthly closing accounts.
14. Debit and credit note preparation.
15. Renewal of various licenses.
2.5 FINANCE DEPARTMENT STRUCTURE
FINANCE MANAGER
STAFF SUPERVISOR ACCOUNTS CASH SUPERVISOR

SUPERVISOR
STAFF STAFF CASHIER
Fig: 2
CHAPTER 3
THEORETICAL FRAMEWORK
3.1 INTRODUCTION
Financial management decisions are divided into the management of assets (investments) and
liabilities (sources of financing), in the long-term and the short-term. It is common
knowledge that a firm’s value cannot be maximized in the long run unless it survives the
short run. Firms fail most often because they are unable to meet their working capital needs;
consequently, sound working capital management is a requisite for firm survival.
About 60 percent of a financial manager’s time is devoted to working capital management,

and many of the potential employees in finance-related fields will find out that their first
assignment on the job will involve working capital. For these reasons, working capital policy
and management is an essential topic of study. In many text books working capital refers to
current assets, and net working capital is defined as current assets minus current liabilities.
Working capital policy refers to decisions relating to the level of current assets and the way
they are financed, while working capital management refers to all those decisions and
activities a firm undertakes in order to manage efficiently the elements of current assets.
The term working capital originated with the old Yankee peddler, who would load up his
wagon with goods and then go off on his route to peddle his wares. The merchandise was
called working capital because it was what he actually sold, or “turned over”, to produce his
profits. The wagon and horse were his fixed assets. He generally owned the horse and wagon,
so they were financed with “equity” capital, but he borrowed the funds to buy the
merchandise. These borrowings were called working capital loans, and they had to be repaid
after each trip to demonstrate to the bank that the credit was sound. If the peddler was able to
repay the loan, then the bank would issue another loan, and these were sound banking
practices. The days of the Yankee peddler have long since pasted, but the importance of
working capital remains. Current asset management and short-term financing are still the two
basic elements of working capital and a daily headache for the financial managers.
3.2 MEANING OF WORKING CAPITAL
A firm may exist without making profits but cannot survive without liquidity. The function
of working capital management organization is similar that of heart in a human body. Also
it is an important function of financial management. The financial manager must
determine the satisfactory level of working capital funds and also the optimum mix of
current assets and current liabilities. He must ensure that the appropriate sources of funds
are used to finance working capital and should also see that short term obligation of the
business are met well in time.
Working Capital consists of that portion of the assets of a business, which are used, in
current operations. It includes receivables, inventories or raw materials, stores, work-in-
progress and finished goods, merchandise, bill receivable and cash. These types of assets
are normally temporary in nature. In accounting concept of working capital it is the
difference between inflow and outflow of funds i.e. sources and uses of funds, (i.e. net
cash inflow). In other words, working capital is the excess of current assets over current
liabilities. Working capital management is concerned with problem that arises in
attempting to manage the current liabilities and the interrelationship exists between them.
Management of short-term asset and short term financing is referring to working capital
management and current asset management. The goal of working capital management is to
manage a current asset in such a manner so that the satisfactory level should be
maintained.
Working capital as represented by excess of current assets over current liabilities and
identifying the relatively liquid portion of the total enterprise capital which constitutes a
margin for meeting obligation within the ordinary operating cycle of the business.
"The sum of the current asset is the working capital." J.S Mill defines the gross concept.
"Whenever working capital is mentioned it brings to mind current assets and current
liabilities with general understanding that working capital is the difference between the
two."
CONCEPTS OF WORKING CAPITAL
There are two concepts of working capital, Gross concept (GWC) and Net Concept (NWC).
Gross working capital refers to a firm's investment in current assets. Current assets are the
assets, which can be converted into cash within an accounting year and includes cash,
short-term securities, debtor, bills receivables and inventories. In other way, it defines as
"total of current assets i.e. circulating capital." This concept is also known as quantitative
concept.
The net concept i.e. net working capital concept refers to the difference between current
assets and current liabilities. Current liabilities are those claims of outsiders, which are
expected to mature for payment within an accounting year and include creditors, bills
payable, bank overdraft and outstanding expenses. This concept gives idea regarding
sources of financing capital i.e. amount of current assets which would remain surplus if all
current liabilities are paid. It can be positive or negative (positive is net working capital
and negative is deficit working capital)
3.3 TYPES OF WORKING CAPITAL
 Classification on the basis of concept:

 Gross working capital: This concept is also known as quantitative concept It
takes current assets i.e. cash, accounts receivables, merchandize, debtors etc. into
account When die organization considers long-term funds, this concept is
significant.
 Net working capital: This concept is also known as qualitative concept.
According to this concept, working capital is the excess of current assets over
current liabilities. This concept shows how much amount is left for operating
activities. For determining the financial position (i.e. liquidity) this concept is
significant
 Deficit Working Capital: Excess of current liabilities over current assets is deficit
working capital. Such a situation is not absolutely theoretical and occurs when a
firm is nearly a crisis of some magnitude.
 Classification on the basis of financial statement:
This classification has been done on the basis of financial statement because the
information regarding the working capital is collected from the profit and loss account or
balance sheet.
(I) Balance sheet:
When the information regarding the working capital is collected from the balance sheet (i.e.
the items appearing in balance sheet), then this type of working capital is known as balance
sheet working capital.
The basis can now again classified as;
• Gross Working Capital

• Net Working Capital
• Deficit Working Capital
(II) Profit & Loss Account:
Cash working capital: Cash working capital arises when the items regarding the working
capital is collected from the profit and loss account i.e. the items appearing in P&L A/c. It
shows the real flow of money and values at a particular time and is considered to be then
more realistic approach and having great significance to working capital management in
recent years as it shows the adequacy of cash flow in business. It is based on operating
cycle concept.
The duration of time required to complete the different events like conversion of cash into
raw materials, raw material into work-in-progress, work-in-progress into finished goods,
finished goods to debtors and bill receivable through sales and conversion of bill receivable
to cash etc. in case of manufacturing firm.
 Classification on the basis of variability:

 Permanent working capital:
The working capital which is permanent in nature is permanent working capital. They
cannot be varied due to variation in sales. It is the minimum level of current assets kept by
the organization required always for business operation even if there is fluctuation in sales.
Normally it consists of low level of inventory cash, bill receivable, and material in process,
finished goods. These can be obtained any day of the year because it is permanent in
nature. Amount of such investment is called as Permanent Working Capital. Permanent
Working Capital is also known as fixed or regulating Working Capital. This amount varies
year-to-year depending upon the growth and stage of business cycle in which it operates.
 Variable working capital:

It is required during the most active seasons of the year. It is most suited to the business,
which is seasonal and cyclical in nature. It represents as additional asset required for
normal functioning of business in favorable seasons. It changes according to variation in
sales.
 Temporary Working Capital:
Total Current Assets - Permanent Current Assets. It changes according to change in

operational activity. This is also known as Temporary, Seasonal or Special Working
Capital. The Permanent is constant and temporary is fluctuating according to seasonal
demand.
3.4 FACTORS AFFECTING WORKING CAPITAL REQUIREMENTS
A firm should plan its operations in such a way that it should have neither the lack of
working capital nor it should have excess of working capital. There is no set of rules or
formula to determine the working capital requirement but there are so many factors that
affect in determining the requirement of working capital. The factors mainly affect the size
and nature of industry and firm. These factors are also changing from time to time. In
general, following factors are affecting the requirement of working capital.
1. Nature of Industry: The main factor which affects the requirement is the nature of the
industry i.e. if the industry is of small type there may be less need of cash, investment.
On the other hand, if the industry is of large type, the block cash etc. are kept on large
basis. Even the goods and raw materials are purchased and supplied on credit basis.
Investing huge amount in fixed assets, have the lowest needs for current assets, partly
because of the cash nature of their business and partly because of selling services
instead of products. Thus, no funds will be tied up in accounts receivables and
inventories. On the other hand, trading and financial firms have a very low investment
in fixed assets but huge amount to be invested in working capital.
2. Demand of creditors: Creditors are the liability of any organization. They have
interested in the assets of a company and security of loans. They want their advances
should be sufficiently covered. This can only be possible when the assets are greater
than its liabilities so that they may easily get money as and when needed and at the
time of maturity.
3. Cash Requirements: Cash is a part of current assets. The company should maintain
the minimum cash level. It helps in the smoother functioning of business operation. It
should be adequate and properly utilized. It is both the means and end of enterprise.
Just as blood, gives life to the human body, in the same way cash gives profit and
solvency to the working capital structure of an enterprise.
4. General nature of business: The general nature of business is also as important
determinant of working capital. Working capital requirements are depend upon general
nature and its activity to work. In public utility services, the working capital
requirement is relatively slow as the inventories and goods rapidly change into cash.
The large concerns that are engaged in production maintenance, a big part of
investment consists of working capital. They have to maintain cash, inventory at very
large level. Manufacturing organization, however face problems of slow turnover of
inventories and receivable and invest large amount in working capital. The industrial
concern should have a fairly large amount of working capital though it varies from
industry to industry depending on their assets structure.
5. Time: This is also an important factor that affects the requirement of working capital.
If the time required in manufacturing goods is more (large), the investment in working
capital is also greater and if the time is less than the amount invested in working
capital is also less. Moreover, the amount of working capital depends upon inventory
turnover and the unit cost of goods that are sold. The greater the cost the larger is
amount of working capital.
6. Volume of sales: This is the most important factor affecting the requirement of
working capital. A firm maintains current assets because they are needed to support the
operational activation, which result in sales. The volume of sale and the size of the
working capital are directly related to each other. As the volume of sale increases the
working capital investment increases and vices versa.
7. Terms of purchase and sale: If the credit terms of purchases are more favorable and
those of sales less liberal, less cash is invested in inventory. With more favorable credit
terms, working capital requirements can be reduced as the firms do get more time for
payment to creditors or suppliers. The credit granting policy of a firm affects the
working capital requirement by influencing the size of account receivables.
8. Inventory Turnover: If it is high, the working capital requirement will be low. If it is
low, working capital requirement reduces. Managing working capital is synonymous
with controlling inventories. Good inventory management is helpful for the structure
of working capital.
9. Receivable Turnover: It is necessary to have an effective control over receivables.
Prompt collection of receivables and good facilities for setting payables result into low
working capital requirements obtain maximum sales; keep bad debt losses to
minimum. Minimize the cost of investment etc. are the objectives of receivables
management.
10. Business cycle: More working capital is required in the prosperity of business
expansion and less working capital required at the time of depression. In the period of
prosperity, additional funds are required to invest in plant and machinery to meet the
increased demand. The depression phase lead to fall in the level of inventories and
book debts and so less working capital is required. Business fluctuation influences the
size of working capital mainly through the effect of inventories.
11. Variation in Sales: A seasonal business requires the maximum amount of working
capital for a relatively short period of time.
12. Production Cycle: The time to convert raw material into finished goods is referred to
as the production cycle or operating cycle. The longer the duration, more working
capital is required and lesser the duration less working capital is required. So it is an
important factor, which affects the working capital requirement more working capital
is required to finance the production cycle.
13. Liquidity and Profitability: If firm is interested in maintaining the liquidity and
wants to improve the liquidity, more working capital is required. If a firm desires to
take a greater risk for bigger gains and losses, it reduces the size of its working capital
in relation to its sales. A firm therefore should choose between liquidity and
profitability and decides about its working capital requirement accordingly.
14. Profit planning and control: Adequate profit assists in generation of cash. It makes
it possible for management to plough back a part of earning into the business and
substantially build up internal financial resources.
15. Activities of the firms: A firm' policy regarding the sale also depends upon the
requirement of working capital. If a firm's sells its goods to customer on credit basis,
it requires more working capital as compared to cash sales.
16. Production Policy: There are two options open to the enterprise, either they confine
their production only to periods when goods are purchased or they follow a steady
production policy throughout the year. In former case, there will be serious production
problems. During the slack season, the firm will have to maintain the working force
and physical facilities without adequate production or sale. The programmed
accumulation of stock will naturally require an increasing amount of working capital,
which will remain tied up for some months.
17. Turnover of circulating capital: Conversion of cash to inventory, inventory to
finished goods, finished good to book debts of account receivables, book debt to cash
account play an important role in judging the working capital requirement.
18. Inherent hazards and contingencies: An enterprise operating an industry subject to
wide fluctuation in demand and prices for its products, periodic operating losses or
rapidly changing technology, requires additional working capital.
19. Repayment ability: Enterprise repayment ability determines the level of its working
capital.
20. Availability of credit: An enterprise which can get credit from bank and suppliers
easily on favorable conditions will operate with less working capital than an
enterprise with such a facility.
21. Operational and Financial efficiency: Working capital turnover can only be
improved with a better operational and financial efficiency of a firm.
22. Dividend Policy: A shortage of working capital often acts as powerful reason for
reducing or shipping a cash dividend.
23. Value of current assets: A decrease in the real value of current assets compared to
their book value reduces the size of the working capital. If real value of current assets
increases, there will be an increase in working capital.
24. Price level changes: The rise price level will require an enterprise to maintain a higher
amount of working capital. The companies, which can immediately reverse their
product prices with rising price level, will not face a severe working capital problem.
25. Gestation Period: Certain industries have a long gestation period with a result that a
considerable number of years must elapse before production; operation can be carried
on profitably. During this period income is insufficient and working capital is greater.
3.5 FINANCING OF WORKING CAPITAL
The working capital requirements of a concern can be classified as:
a) Permanent or fixed working capital requirements.

b) Temporary or variable working capital requirements.
In any concern, a part of the working capital investments are as permanent investments in
fixed assets. This is so because there is always a minimum level of current assets which are
continuously required by the enterprise to carry out its day to day business operations and
this minimum cannot be expected to reduce at any time. This minimum level of current
assets gives rise to permanent working capital.
Similarly, some amount of working capital may be required to meet the seasonal demands
and some special exigencies such as rise in prices, strikes etc. This proportion of working
capital gives rise to temporary or variable working capital which cannot be permanently
employed gainfully in business.
FINANCING OF PERMANENT WORKING CAPITAL
Permanent working capital should be financed in such a manner that the enterprise may
have its uninterrupted use for a sufficiently long period. There are five important sources of
permanent working capital. They are;
1) Shares: Issue of shares is the most important source for raising the permanent capital. A
company can issue various types of shares as equity shares, preference shares and
deferred shares.
2) Debentures: A debenture is an instrument issued by the company acknowledging its
debt to its holder. It is also an important method of raising long term capital. The
debenture holders are the creditors of the company. A fixed rate of interest is paid on
debentures. The interest on debentures is a charge against profit and loss account. The
firm issuing debentures also enjoys a number of benefits such as trading on equity,
retention of control, tax benefits, etc.
3) Public Deposits: Public deposits are the fixed deposits accepted by a business enterprise
directly from the public. This source of raising short term and medium term finance was
very popular in the absence of banking facilities. Public deposits as a source of finance
have a large number of advantages such as simple and convenient source of finance,
taxation benefits, trading on equity, etc.
4) Ploughing back of profits: It means the reinvestments by concern of its surplus

earnings in its business. It is an internal source of finance and is not suitable for
established firm for its expansion, modernization and replacement etc. this method of
finance has a number of advantages as it is the cheapest rather cost free source of
finance; there is no need to keep securities; there is no dilution of control; it ensures
stable dividend policy and gains confidence of public.
5) Loans from financial institutions: Financial institutions such as Commercial Banks,

Life Insurance Corporation, Industrial Finance Corporation of India etc. also provide
short term, medium term and long term loans. This source of finance is more suitable to
meet the medium term demands of working capital.
FINANCING OF TEMPORARY WORKING CAPITAL
The main sources of short term working capital are as follows:
1) Indigenous bankers: Private money-lenders and other country bankers used to be the
only source of finance prior to the establishment of commercial banks. They used to
charge very high rates of interest and exploited the customers to the largest extent
possible. Now-a-days with the development of commercial banks they have lost their
monopoly. But even today some business houses have to depend upon indigenous
bankers for obtaining loans to meet their working capital requirements.
2) Trade credit: Trade credit refers to the credit extended by the suppliers of goods in the
normal course of business. As present day commerce is built upon credit, the trade
credit arrangement of a firm with its suppliers is an important source of short term
finance. The credit-worthiness of a firm and the confidence of its suppliers are the main
basis of securing trade credit. It is mostly granted on an open account basis whereby
supplier sends goods to the buyer for the payment to be received in future as per terms
of the sales invoice. It may also take the form of bills payable whereby the buyer signs a
bill of exchange payable on a specified future date.
3) Installment credit: This is another method by which the assets are purchased and the
possession of goods is taken immediately but the payment is made in installments over
a pre-determined period of time. Generally, interest is charged on the unpaid price or it
may be adjusted in the price. But in any case, it provides funds for some time and is
used as a source of short term working capital by many business houses which have
difficult fund position.
4) Advances: Some business houses get advances from their customers and agents against
orders and this source is a short term source of finance for them. It is a cheap source of
finance and in order to minimize their investment in working capital, some firms having
long production cycle, especially the firms manufacturing industrial products prefer to
take advances from their customers.
5) Factoring: Another method of raising short term finance is through accounts receivable
credit offered by commercial banks and factors. A commercial bank may provide
finance by discounting the bills or invoices of its customers. Thus, a firm gets
immediate payment for sales made on credit. A factor is a financial institution which
offers services relating to management and financing of debts arising out of credit sales.
Factors render services varying from bill discounting facilities offered by commercial
banks to a total takeover of administration of credit sales including maintenance of sales
ledger, collection of accounts receivables, credit control and protection from bad debts,
provision of finance and rendering advisory services to their clients.
6) Accrued expenses: Accrued expenses are the expenses which have been incurred but
not yet due and hence not yet paid also. These simply represent a liability that a firm
has to pay for the services already received by it. The most important items of accruals
are wages and salaries, interest, and taxes. The amount of accruals varies with the
change in the level of activity of a firm. When the activity level expands, accruals also
increase and hence they provide spontaneous source finance. Further as no interest is
payable on accrued expenses, they represent a free source of finance.
7) Deferred incomes: They are incomes received in advance before supplying goods or
services. They represent funds received by a firm for which it has to supply goods or
services in future. These funds increase the liquidity of a firm and constitute an
important source of short term finance. However, firms having great demand for its
products and services, and those having good reputation in the market can demand
deferred incomes.
8) Commercial paper: It represents unsecured promissory notes issued by firms to raise

short term funds. It is an important money market instrument. Only a company which is
listed on the stock exchange has a net worth of at least Rs. 10 crores and a maximum
permissible bank finance of Rs. 25 crores can issue commercial paper not exceeding 30
per cent of its working capital. The maturity period of commercial paper, in India,
mostly ranges from 91 to 180 days. Commercial paper is a cheaper source of raising
short term finance as compared to the bank credit and proves to be effective even during
period of tight bank credit.
9) Working capital finance by commercial banks: Commercial banks are the most
important source of short term capital. The major portion of working capital loans are
provided by commercial banks. They provide a wide variety of loans tailored to meet
the specific requirements of a concern. The different forms in which the banks normally
provide loans and advances are loans, cash credits, overdrafts, purchasing and
discounting of bills.
3.6 TECHNIQUES FOR ANALYSING WORKING CAPITAL
There are four important techniques for analyzing the working capital position of an
enterprise.
 Ratio Analysis
 Fund Flow Analysis
 Cash Flow Analysis
 Trend Analysis
 Ratio Analysis: It is commonly used technique for analyzing working capital
management. Management can use ratio analysis of working capital as a means of
checking upon the efficiency with which working capital is being used in a concern.
It can be used with profit to measure the pulse of the working capital. It can help us
to diagnose the working capital position of the enterprise.This technique is most
commonly used because it practically deals with each and every aspect of working
capital analysis. In this technique for each aspect of analysis, certain ratios are
computed and then results are drawn based on trends shown by then against those
fixed as guideposts. Various ratios are used in analyzing the various aspects of the
working capital position of an enterprise. Ratio analysis is not only a technique to
find out or point out the relationship between two figures but also points out the
devices to measure the fundamental strengths or weakness of a concern.
Following are some of the important ratios used to analyze the liquidity, efficiency and
profitability position of the firm.
LIQUIDITY RATIOS
Liquidity is the ability of the firm to meet its current liability as they fall due. Since liquidity
is basic to continuous operations of the firm it is necessary to determining the degree of
liquidity of the firm. It is also known as working capital ratio. The most important liquidity
ratios are;
 CURRENT RATIO
Current Ratio is the most commonly used ratio to measure liquidity of a concern. It
represents the ratio of current assets to current liabilities. In a sound business a Current
Ratio of 2:1 is considered as an ideal one.
 QUICK RATIO
This ratio is also known as “Acid Test Ratio”. It is the relation between quick assets to
current liabilities. It is determined by dividing “quick assets” by current liabilities. An
Acid Test Ratio of 1:1 is considered satisfactory as a firm can easily meet all its current
liabilities.
 ABSOLUTE LIQUIDITY RATIO
This ratio is obtained by dividing cash (of course cash in hand and cash at bank) and
marketable securities by current liabilities. It is also known as Cash Position Ratio. A ratio
of 0.5:1 is recommended to ensure liquidity. This test is more vigorous measure of a firm’s
liquidity position.
TURNOVER RATIO OR EFFICENCY RATIO
The ratios computed under this group indicate the efficiency of the organization to use
various kinds of assets by converting them in the form of sale. These ratios are also called
activity ratios or asset management ratios. The asset basically categorized as fixed assets and
current assets and the current assets further classified according to individual components of
current assets viz. investment and receivables or debtors or as net current asset. The important
efficiency ratios are the following.
 WORKING CAPITAL TURNOVER RATIO
This ratio reflects the turnover of the firm’s net working capital in the course of the year. It
is a good measure of over- trading and under- trading. It helps in simple assessment of
liquidity, profitability, solvency and efficiency of the firm.
 DEBTORS TURNOVER RATIO
The purpose of this ratio is to know the credit collection power and policy of the firm. For
this a relationship is established between accounts receivables and net credit sales of the
period. A shorter collection period implies prompt payment by debtors.
 AVERAGE DEBT COLLECTION PERIOD:

The average collection period measures the quality of debtors since it indicate the speed
of their collection. The shorter the average collection period, the better the quality of the
debtors since a short collection period implies the prompt payment by debtors. The
average collection period should be compared against the firm’s credit terms and policy
judges its credit and collection efficiency.
 INVENTORY TURNOVER RATIO
This ratio indicates whether investment is efficiently used or not. It, therefore, explains
whether investment in inventories is within proper limits or not. It also measures the
effectives of the firm’s sales efforts.
 INVENTORY CONVERSION PERIOD
This indicates how quickly a company is turning over its inventory. When deciding the
appropriate level of inventory, a company should strike a balance between the cost of tying
up capital and the demands from the customer. Generally, a high inventory turnover (short
inventory holding period) is Preferred. An unreasonably long inventory holding period may
indicate an economic recession, obsolete inventory, poor sales and marketing, a change of
customer taste or bad inventory management.
 CURRENT ASSET TURNOVER RATIO
Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current
assets .current assets includes the assets like inventories, sundry debtors, bills receivable, cash
in hand or bank, marketable securities, prepaid expenses and short term loans and advances.
This ratio includes the efficiency with which current assets turn into sales. A higher ratio
implies a more efficient use of funds thus high turnover ratio indicate to reduced the lock up
of funds in current assets. An analysis of this ratio over a period of time reflects working
capital management of a firm.
 CREDITORS TURNOVER RATIO
It indicates the number of times the accounts payable rotate in a year. It signifies the credit
period enjoyed by the firm in paying its creditors. This ratio shows the relationship between
net credit purchases for the whole year and average creditors. The ratio signifies that the
creditors are being paid promptly, thus enhancing the credit worthiness of the company.
PROFITABILITY RATIOS
 GROSS PROFIT RATIO

This ratio expresses the relationship between gross profit and sales. This ratio helps
in ascertaining whether the average percentage of mark up on the goods in
maintained or not. It also indicates the degree to which selling price per unit may
decline without resulting in losses from operations to the firm.
 NET PROFIT RATIO
This ratio is also called as the net profit to sales or net profit margin ratio. It is
determined by dividing the net income after tax to the net sales for the period and
the measures the profit per rupee of sales.
 Fund Flow Analysis: Fund flow analysis shows how funds have been procured for
a business and how they have been employed. This technique helps to analyze
changes in working capital components between two dates. The comparison of
current assets and current liabilities as shown in the balance sheet at beginning and
at the end of a specific period, shows changes in such types of current assets as well
as the sources from which working capital has been obtained. It shows how funds
have been procured for a business and how they have been employed. It is a useful
tool for internal management in its control of working capital.
"The statement of sources and applications of funds gives a clear answer to the questions
of what has become of the net profit in such situations. And also what has become of the
funds obtained from all other sources”. However, with the help of this technique we
cannot know whether the working capital is being used most efficiently. It does not throw
light on the significance of movements in the working capital structure.
One objective of efficient working capital management is to minimize the amount of cash
in hand. Minimizing the funds required means knowing when funds will be available and
when funds will be needed. The funds flow can be managed so that the inflows and
outflows nearly match. It is not sufficient that the final accounts shows a profit and the
balance sheet points a rosy picture of financial health of an enterprises. All mis will look
meaningless unless the funds inflows and outflows are so regulated that at all times there is
enough cash available to meet obligation as and when they mature.
 Cash Flow Analysis: It is an important component of working capital because it is

a form of liquid capital. It is very necessary for day-to-day operation. It is the
important current asset, which affects business activities. Cash flow analysis is an
important tool for cash flow planning. Cash is the focal point of working capital
flows.
A statement showing the variation in cash has to be prepared and is known as cash flow
statement. It highlights the causes, which changes the cash position between two balance
sheet dates. It depicts a penetrating review of cash movement and an operating cycle. It
shows the flow of cash for a period. Hence, an analysis dealing with inflow and outflow of
cash referred to as cash flow analysis. It shows the movement of cash in and out of the
business by listing the source of cash receipts and the uses of cash. Sound working capital
management requires maintenance of an adequate amount of cash. Controlling the
investment in working capital begins with cash management.
 Trend Analysis: Working capital trend analysis in an important technique of

working capital management. Trend percentage constitutes an important tool of
interpretative analysis of financial position of a company.
It indicates die changes, which have been taking, place from time to time in individual items
of current assets, current liabilities and net working based on some standard year and its
effect on working capital position. It enables us to evaluate the upward and downward trend
of current asset and current liabilities. These are usually measured from review of
comparative balance sheets of a concern at the end of two accounting years and results are
drawn based on trend shown by them. Trend analysis involves the calculation of percentage
relationship that each statement item bears to the same items in the base year. Trend
percentage discloses change in the financial and operating data between specific periods and
makes it possible for the analyst to form an opinion as to whether favorable or unfavorable
tendencies are reflected by data.
The goal of working capital management is to manage the firm's current assets and current
liabilities is such a way that a satisfactory level of working capital is maintained. This is so
because if the firm cannot maintain a satisfactory level of working capital, it is likely to
become insolvent and may even be forced into bankruptcy. The current assets should be
large enough to cover its current liabilities in order to ensure a reasonable margin of safety.
Each of current assets must be managed efficiently in order to maintain the liquidity of the
firm while not keeping too high level of any one of them.
3.7 INADEQUATE WORKING CAPITAL
Every business concern must have adequate working capital to run its business operations. It
should have neither redundant or excess working capital nor inadequate nor shortage of
working capital. Both excess and short working capital positions are bad for any business.
Out of the two, inadequacy of working capital is more dangerous from the point of view of
the firm.
DISADVANTAGES OF INADEQUATE WORKING CAPITAL
1. A concern with inadequate working capital cannot pay its short-term liabilities in
time. Thus, it will lose its reputation and shall not be able to get good credit facilities.
2. It cannot buy its requirements in bulk and avail discounts etc.
3. It becomes difficult for the firms to exploit favorable market conditions and undertake
profitable projects due to lack of working capital.
4. The firm cannot pay its day-to-day expenses of its operations and creates inefficiency,
increases costs and reduces the profits of the business.
5. It becomes impossible to utilize efficiently the fixed assets due to non availability of
liquid funds.
6. The rate of return on investments also falls with the shortage of working capital.
3.8 COMPONENTS OF WORKING CAPITAL
The three major component of working capital management include:

 Inventory management
 Receivables management
 Cash management
A detailed discussion of these components is given below:
 INVENTORY MANAGEMENT:
Inventory is defined as the sum of the value of raw material and supplies,
including spares, semi-processed material or work in progress and finished goods. The nature
of inventory is largely depending upon the type of operation carried on. It is possible to
reduce the inventory to a certain level without affecting production and sales, by using simple
inventory planning and controlling technique. The reduction in “excessive” inventories
carries a favorable impact on the company’s profitability.
Maintaining inventories involves tying up of the company’s funds and incurrence
of storage and handling cost. There are three components: Raw material, Work in progress;
and finished goods involved in inventory management.
 RECEIVABLES MANAGEMENT:
Receivables or debtors are the one of the most important parts of the current
assets which is created if the company sells the finished goods to the customer but not receive
the cash for the same immediately. Trade credit arises when firm sells its products and
services on credit and does not receive cash immediately. It is essential marketing tool, acting
as bridge for the movement of goods through production and distribution stages to customers.
The receivables include three characteristics:
1) It involve element of risk which should be carefully analysis.
2) It is based on economic value.
3) It implies futurity. The cash payment for goods or serves received by the buyer will be
made by him in a future period.
 CASH MANAGEMENT:
Cash is common purchasing power or medium of exchange. As such, it forms the most
important component of working capital. The term cash with reference to cash management
is used in two senses, in narrow sense it is used broadly to cover cash and generally accepted
equivalent of cash such as cheques, draft and demand deposits in banks. The broader view
of cash includes near cash items, such as marketable securities or bank time deposits. The
basic characteristic of near-cash assets is that they can readily be converted into cash. They
also provide short term investment outlet for excess and are also useful for meeting planned
outflow of funds.
Cash management is concerned with the managing of:
(i)Cash flows into and out of the firm
(ii)Cash flows within the firm and
(iii)Cash balances held by the firm at a point of the time by financing deficit or investing
surplus cash.
OBJECTIVES OF CASH MANAGEMENT
There are two basic objectives of cash management:
 To meet the cash disbursement needs as per the payment schedule;

 To minimize the amount locked up as cash balances.
CHAPTER 4
DATA ANALYSIS
AND
INTERPRETATION
WORKING CAPITAL MANAGEMENT OF TRAVANCORE SUGARS &
CHEMICALS LTD: AN ANALYSIS
The present chapter is an attempt to evaluate the working capital management of TSC. For
the purpose of analysis data were collected from financial statements of TSC for the period
from 2006 – 07 to 2010 – 11. Appropriate accounting ratios, schedule of working capital and
trend analysis were used.
4.1 NET WORKING CAPITAL
NET WORKING CAPITAL= CURRENT ASSETS-CURRENT LIABILITIES
TABLE 4.1
THE NET WORKING CAPITAL OF TSC FROM 2006-07 TO 2010-11
Year Current Assets Current Liabilities Net Working Capital

Rs Rs Rs
2006-2007 27177491 37214682 -10037191
2007-2008 27582954 32340122 -4757168
2008-2009 36375348 40678782 -4303434
2009-2010 51429227 49141300 2287927
2010-2011 57625629 38829887 18795742
Source: Annual Report of Travancore Sugars & Chemicals Ltd -2006 to 2011
70000000
60000000
50000000
40000000
30000000 Current Assets Rs

Current Liabilities Rs
20000000
Net Working Capital Rs
10000000
-10000000
-20000000
Fig: 3
INTERPRETATION: From the table and chart it is clear that the working capital
position of TSC in the first three accounting period is negative. That means current
liabilities are more than current assets. Then from 2009-10 onwards it shows an increase in
the working capital. Then also in 2010-11, it shows an increasing trend in net working
capital. It means current assets are more than current liabilities.
4.2 CURRENT RATIO
CURRENT RATIO= CURRENT ASSET/CURRENT LIABILITIES
TABLE 4.2
THE CURRENT RATIO OF TSC FROM 2006-2011
Year Current Assets(Rs) Current Liabilities(Rs) Ratio
2006-07 27177491 37214682 0.73
2007-08 27582954 32340122 0.85
2008-09 36375348 40678782 0.89
2009-10 51429227 49141300 1.04
2010-11 57625629 38829887 1.48
70000000
60000000
50000000
40000000
Current Assets(Rs)
30000000 Current Liabilities(Rs)
Ratio
20000000
10000000
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 4
INTERPRETATION: The above figures show the relationship of current assets and
current liabilities. In a sound business a Current Ratio of 2:1 is considered as an ideal one.
The current ratio of the company from period 2006-2011 does not satisfy the standard
norm 2:1.The average ratio of the five years is 0.998. The table clearly depicts that the
financial position of the firm is not good.
4.3 QUICK RATIO
QUICK RATIO= QUICK ASSET/QUICK LIABILITIES
TABLE 4.3
THE QUICK RATIO OF TSC FROM 2006-2011
Year Quick assets(Rs) Quick Liabilities(Rs) Ratio
2006-07 16956980 37214682 0.45
2007-08 18811082 32340122 0.58
2008-09 21266747 40678782 0.52
2009-10 45843417 49141300 0.93
2010-11 41890152 38829887 1.07
50000000
45000000
40000000
35000000
30000000
25000000 Quick assets(Rs)
20000000 Quick Liabilities(Rs)
15000000 Ratio
10000000
5000000
0
Fig: 5
INTERPRETATION: The above table shows the relationship between quick assets and
current liabilities. The standard norm for quick ratio is 1:1. An examination of the above table
shows that the quick ratio of the company for the period 2010-11 is only satisfactory and the
other period’s does not satisfies the standard norm 1:1. The average ratio of the five years is
0.71. The table clearly depicts that the financial position of the firm is not good.
4.4 ABSOLUTE LIQUIDITY RATIO
ABSOLUTE LIQUIDITY RATIO= CASH+ MARKETABLE

SECURITIES /CURRENT LIABILITIES
TABLE 4.4
THE ABSOLUTE LIQUIDITY RATIO OF TSC FROM 2006-2011
Year Cash(Rs) Current Liabilities(Rs) Ratio
2006- 07 702397 37214682 0.02
2007- 08 2316370 32340122 0.07
2008- 09 2084616 40678782 0.05
2009- 10 2451397 49141300 0.05
2010- 11 1920297 38829887 0.05
Source: Annual Report of Travancore Sugars & Chemicals Ltd-2006 to 2011
0.08
0.0716
0.07
0.06
0.0512 0.0498 0.0494
0.05
0.04
Absolute Liquidity Ratio
0.03
0.0188
0.02
0.01
0
2006-07 2007-08 2008-09 2009-2010 2010-11
Fig: 6
INTERPRETATION: The above table shows the relationship between absolute liquid
assets, i.e., cash and marketable securities to current liabilities. The standard norm for this
ratio is 0.5:1. The table shows that Absolute Liquid ratio for the company is below the
standard rate, which shows the company is not in good liquid positions. In the last three
years the cash position remains same. Since cash is the most liquid asset the lack of it may
affect the smooth functioning of the company. But this problem can be solved if the
company has good borrowing power.
 TURNOVER RATIO OR EFFICENCY RATIO
4.5 WORKING CAPITAL TURNOVER RATIO
Working Capital Turnover Ratio = Net Sales ÷ Net Working Capital
TABLE 4.5
THE WORKING CAPITAL TURNOVER RATIO OF TSC FROM 2006-2011
Year Net Sales(Rs) Net working capital(Rs) Ratio (%)
2006-07 71750947 -10037191 -7.15
2007-08 94336291 -4757168 -19.83
2008-09 93542134 -4303434 -21.74
2009-10 149645965 2287927 65.41
2010-11 228723621 18795742 12.17
Source: Annual Reports of Travancore Sugars & Chemicals Ltd-2006 to 2011
70
60
50
40
30
20
Working capital turnover ratio
10
0
2006-07 2007-08 2008-09 2009-10 2010-11
-10
-20
-30
Fig: 7
INTERPRETATION: As indicated in the above diagram, the highest working capital
turnover ratio, 65.41:1 is in the year 2009-10. A high ratio indicates the efficiency in
utilization of working capital and a low ratio indicates the non-efficiency in utilization of
working capital. But in the first three years the ratio is negative which means the firm’s
working capital is not good.
4.6 DEBTORS TURNOVER RATIO
Debtors Turnover Ratio = Net Sales ÷ Average Debtors
TABLE 4.6
THE DEBTORS TURNOVER RATIO OF TSC FROM 2006-2011
Year Net Sales(Rs) Average Debtors(Rs) Ratio
2006-07 71750947 5201425.5 13.79
2007-08 94336291 10133106.5 9.31
2008-09 93542134 10779198.5 8.68
2009-10 149645965 23621908.5 6.33
2010-11 228723621 33368798.5 6.85
16
13.79
14
12
10 9.31
8.68
8
6.85 Debtors turnover ratio
6.33
6
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 8
INTERPRETATION: Debtors Turnover ratio indicates the no of times debtors turnover
each year. Higher the value of debtors turnover, the more efficient is the management of
credit because the collection period of the debtors will low. highest debtors turnover ratio is
recorded in 2006-07 with 13.57. . Then it decreases from 2006-07 to 2009-10. Then in 2010-
11, there is a little increase in the ratio. The increased Debtors Turnover Ratio shows the
better management in debtors collection.
4.7 AVERAGE DEBT COLLECTION PERIOD:
Debtors Collection Period (Days) = 365 ÷ Debtors Turnover Ratio
TABLE 4.7
THE DEBTORS COLLECTION PERIOD OF TSC FROM 2006-2011
Year Days Debtors Turnover Ratio Debtors Collection

Period(Days)
2006-07 365 13.79 26
2007-08 365 9.31 39
2008-09 365 8.68 42
2009-10 365 6.33 58
2010-11 365 6.85 53
400
350
300
250 Days
200
Debtors Turnover
150 Ratio
100
Debtors Collection
50 Period(Days)
0
Fig: 9
INTERPRETATION: The average collection period increased from 2006-07 to 2009-10

and then it decreases on 2010-11. The increasing average collection period shows the
inefficiency of the management in collecting the debtors money while the decreasing average
collection period shows the efficient management and better credit policy. The reason behind
average collection period is high due to debtors turnover ratio is low.
4.8 INVENTORY TURNOVER RATIO
Inventory Turnover Ratio = Cost of goods sold ÷

Average stock
Cost of goods sold= Sales- Gross profit
Average stock= Opening stock + closing stock ÷ 2
TABLE 4.8
THE INVENTORY TURNOVER RATIO OF TSC FROM 2006-2011
Year Cost of goods sold(Rs) Average stock(Rs) Ratio
2006- 07 51202624 9114003 5.61
2007- 08 68451869 9168575 7.46
2008- 09 62760838 11520188 5.45
2009- 10 89705337 10006870 8.96
2010- 11 138098109 10319331 13.38
16
14 13.38
12
10 8.96
8 7.46
Inventory turnover ratio
5.61 5.45
6
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 10
INTERPRETATION: The inventory turnover shows how rapidly the inventory is turning
into receivables through sales. A high inventory turnover ratio is good because the no of days
converting the inventories into the sales will become less. As in 2010-11 the inventory
turnover ratio is 13.38 times so the inventory holding days is only 27 days while from 2006-
07 to 2009-10 the inventory turnover ratio decreasing means the no of days in inventory
converting is increasing. This may lead to create unnecessary tie-up of funds, reduced profit,
and increased costs. The data provided in the table 4.8 is given in the fig.11.
4.9 INVENTORY CONVERSION PERIOD
Inventory conversion period = Number of days in a year ÷ Inventory

turnover ratio
TABLE 4.9
THE INVENTORY CONVERSION PERIOD OF TSC FROM 2006-2011
Year Number of days in a Inventory Turnover Conversion Period

year Ratio
(Days)
2006- 07 365 5.61 65
2007- 08 365 7.46 49
2008- 09 365 5.45 67
2009- 10 365 8.96 41
2010- 11 365 13.38 27
80
70
67
65
60
50 49
40 41
Conversion period
30
27
20
10
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 11
INTERPRETATION: In 2006-07 and 2008-09 the no of inventory holding days is 65& 67.
Days of inventory holding means the no of days taken to change raw material into work in
progress and work in progress to finished goods. The inventory holding days are increasing
from 2008-09because Raw Material holding Period as well as the Work in progress holding
period is increasing. In 2010 and 2011the no of days of inventory holding periods are low.
The reason for decline is the planned inventory buildup. The average inventory holding
period is 49 days.
4.10 CURRENT ASSET TURNOVER RATIO
Current Asset Turnover Ratio = Net Sales ÷ Current Assets
TABLE 4.10
THE CURRENT ASSET TURNOVER RATIO OF TSC FROM 2006-2011
Year Net Sales(Rs) Current Assets(Rs) Ratio
2006-07 71750947 27177491 2.64
2007-08 94336291 27582954 3.42
2008-09 93542134 36375348 2.57
2009-10 149645965 51429227 2.91
2010-11 228723621 57625629 3.97
4.5
3.97
4
3.42
3.5
2.91
3
2.64 2.57
2.5
2
Current asset turnover ratio
1.5
0.5
0
2006-07 2007-08 2008-09 2009-2010 2010-11
Fig: 12
INTERPRETATION: This ratio is very significant as it shows how fast the current assets
turns into sales. The table shows a high ratio in 2010-11 which is 3.97 and in 2007-08 it also
shows an increase of 3.42. Then on 2006-07, 2008-09 and 2009-10 the ratios were 2.64, 2.57
and 2.91 respectively. The average ratio is 3.10.
4.11 CREDITORS TURNOVER RATIO
Creditors turnover ratio = Net credit purchase ÷ Average

creditors
TABLE 4.11
THE CREDITORS TURNOVER RATIO OF TSC FROM 2006-2011
Year Net Purchases(Rs) Average Creditors (Rs) Ratio
2006-07 65390345 41964800 1.56
2007-08 67010696 32952255 2.03
2008-09 69530458 29850423 2.33
2009-10 79879096 30433955 2.62
2010-11 148523700 31444508 4.72
5 4.72
4.5
4
3.5
3
2.62
2.5 2.33
2.03 Creditors turnover ratio
2
1.56
1.5
1
0.5
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 13
INTERPRETATION: In case of TSC, There is continuous increase in purchases and

continuous decrease in creditors, so payment period is decreasing year by year. In 2006-07,
the credit payment period is 8 months and later on 2010, the credit payment period became 3
months. The average ratio is 13.26. The data provided in the table 4.11 is given in the fig.14
4.12 CASH TO TOTAL CURRENT ASSET
Cash ÷ Total current asset
TABLE 4.12
THE CASH TO TOTAL CURRENT ASSET OF TSC FROM 2006-2011
Year Cash (Rs) Current Assets(Rs) Ratio
2006-07 702397 27177491 0.026
2007-08 2316370 27582954 0.084
2008-09 2084616 36375348 0.057
2009-10 2451397 51429227 0.048
2010-11 1920297 57625629 0.033
60000000
50000000
40000000
30000000 Cash (Rs)

Current Assets(Rs)
20000000
Ratio
10000000
Fig: 14
INTERPRETATION: This ratio implies the portion of cash includes within the current
asset. Cash is a part of the current asset and we have to analyze its contribution within the
current asset. Here we can see that the cash to current asset is high in 2007-08 and less in
2006-07. From 2007-08, it clearly shows a decrease in cash position of the firm.
 PROFITABILITY RATIOS
4.13 GROSS PROFIT RATIO
Gross Profit Ratio = Gross Profit ÷ Sales × 100
TABLE 4.13
THE GROSS PROFIT RATIO OF TSC FROM 2006-2011
Year Gross Profit (Rs) Net Sales (Rs) Ratio(%)
2006-07 18692855 71750947 26.05
2007-08 25884422 94336291 27.44
2008-09 30781296 93542134 32.91
2009-10 59940628 149645965 40.05
2010-11 90625512 228723621 39.62
45
40.05 39.62
40
35 32.91
30 27.44
26.05
25
Gross profit ratio
20
15
10
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 15
INTERPRETATION: From 2006-07 to 2009-10, it shows an increase trend of gross profit
ratio. But in 2010-11, the gross profit decreases to 39.62 from 40.05 of previous year. The
increase in gross profit ratio of first 4 years may be due to a decrease in the selling price
without a corresponding increase in the cost of goods sold.
4.14 NET PROFIT RATIO
Net Profit Ratio = Net Profit ÷ Sales × 100
TABLE 4.14
THE NET PROFIT RATIO OF TSC FROM 2006-2011
Year Net Profit Net Sales Ratio (%)
2006-07 7071701 71750947 9.86
2007-08 5460182 94336291 5.79
2008-09 2328644 93542134 2.49
2009-10 7567098 149645965 5.06
2010-11 18084938 228723621 7.91
12
9.86
10
7.91
8
5.79
6
5.06
Net profit ratio
4
2.49
2
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 16
INTERPRETATION: The table shows a high net profit ratio in 2006-07 which is 9.86. It
shows that the firm has a good operational efficiency and a good profitability position. But
later on the next years the ratio decreases to 5.79 and 2.49 which show the company has not a
good profitable position. Then on the next year the ratio increases to 5.06 to 7.91.
 SCHEDULE OF CHANGES IN WORKING CAPITAL
In order to ascertain the increase or decrease in working capital between two dates of the
Balance Sheet, a statement is prepared containing current assets and current liabilities.
This statement is called ‘statement of changes in working capital’. This helps to analyze
working capital components between two dates and also compare current assets and
current liabilities.
TABLE 4.15
THE STATEMENT OF CHANGES IN WORKING CAPITAL OF TSC-2006-07
Particulars 2006 2007 Effect on working capital

(Rs) (Rs) Increase(Rs) Decrease(Rs)
A. Current Asset:
Inventory 1,59,00,315 1,02,20,511 - 56,79,804
Sundry Debtors 49,103 1,03,53,748 1,03,04,645 -
Cash & bank balance 1,11,23,419 7,02,397 - 1,04,21,022
Loans & Advances 49,49,026 59,00,835 9,51,809 -
Total Current Assets 3,20,21,863 2,71,77,491
B. Current
Liabilities:
Deposits and Advances 1,25,06,209 51,74,134 73,32,075 -
Sundry Creditors for 24,27,960 17,23,476 7,04,484 -
Expenses
Sundry Creditors for 3,25,71,382 2,95,26,439 30,44,943 -
Purchase
Provisions 9,20,705 7,90,633 1,30,072 -
Total Current 4,84,26,256 3,72,14,682
Liability
Net Current Asset(A- -1,64,04,393 -1,00,37,191

B)
Net increase in 63,67,202 63,67,202
working capital
INTERPRETATION: The schedule clearly depicts that there is an increase in net working
capital. Here, it is understood that during the years 2006 and 2007 the net working capital of
the company was negative that means, the current liabilities are greater than the current
assets. A negative working capital is not good for the company. During these years the
company might have used loan funds for meeting its working capital requirements. Even
though the working capital remains negative in 2007 we can see an increase in it when
compared to the year 2006. So there is improvement in the working capital position of the
firm.
TABLE 4.16
THE SATEMENT OF CHANGES IN WORKING CAPITAL OF TSC-2007-08

A. Current Asset:
Inventory 1,02,20,511 87,71,872 - 14,48,639
Sundry Debtors 1,03,53,748 99,12,465 - 4,41,283
Cash & bank balance 7,02,397 23,16,370 16,13,973 -
Loans & Advances 59,00,835 65,82,247 6,81,412 -
B. Current
Liabilities:
Deposits and Advances 51,74,134 56,04,687 - 4,30,553
Expenses
Purchase
Provisions 7,90,633 28,59,662 - 20,69,029
Total Current Liability 3,72,14,682 3,23,40,122
Net Current Asset(A-B) -1,00,37,191 -47,57,168

Net increase in working 52,80,023 52,80,023
capital
INTERPRETATION: The schedule shows an increase in the net working capital. From the
schedule of working capital, it is understood that during the years 2007 and 2008 the net
working capital of the company was negative that means, the current liabilities are greater
than the current assets. The net current assets of 2007 and 2008 are Rs -10037191 and Rs -
4757168. Here the current liability is more than that of current asset which shows a decrease
in working capital. But when compared to 2007, the net current asset of 2008 is Rs -4757168.
TABLE 4.17

A.Current Asset:
Inventory 87,71,872 1,51,08,601 63,36,729 -
Sundry Debtors 99,12,465 1,16,45,932 17,33,467 -
Cash & bank balance 23,16,370 20,84,616 - 2,31,754
Loans & Advances 65,82,247 75,36,199 9,53,952 -
B.Current Liabilities:
Deposits and Advances 56,04,687 44,04,573 12,00,114 -
Sundry Creditors for 15,41,975 39,27,784 - 23,85,809
Expenses
Purchase
Provisions 28,59,662 1,04,58,397 - 75,98,735
Net Current Asset(A-B) -47,57,168 -43,03,434

capital
INTERPRETATION: The schedule shows an increase in the net working capital. From the
schedule of working capital, it is understood that during the years 2008 and 2009 the net
working capital of the company was negative that means, the current liabilities are greater
than the current assets. The net current assets of 2008 and 2009 are Rs.-4757168 and Rs.-
4303434. Here the current liability is more than that of current asset which shows a decrease
in working capital. But when compared to 2008, the net current asset of 2009 is Rs. -
4303434.
TABLE 4.18

A.Current Asset:
Inventory 1,51,08,601 55,85,810 -
Sundry Debtors 1,16,45,932 3,55,97,885 2,39,51,953 -
Cash & bank balance 20,84,616 24,51,397 3,66,781 -
Loans & Advances 75,36,199 77,94,135 2,57,936 -
Deposits and Advances 44,04,573 37,93,759 6,10,814 -
Sundry Creditors for 39,27,784 45,32,794 - 6,05,010
Expenses
Sundry Creditors for 2,18,88,028 2,23,20,971 - 4,32,943
Purchase
Provisions 1,04,58,397 1,84,93,776 - 80,35,379
Net Current Asset(A-B) -43,03,434 22,87,927

capital
INTERPRETATION: The schedule shows an increase in the net working capital. The net
current assets of 2009 and 2010 are Rs. -4303434 and Rs.2287927. In 2009, the current
liability is more than that of the current assets. But in 2010, the current assets are more than
that of the current liabilities which shows an increase of Rs. 2287927.
TABLE 4.19

A. Current Asset:
Inventory 55,85,810 1,57,35,477 1,01,49,667 -
Sundry Debtors 3,55,97,885 3,11,39,712 - 44,58,173
Cash & bank balance 24,51,397 19,20,297 - 5,31,100
Loans & Advances 77,94,135 88,30,143 10,36,008 -
Deposits and Advances 37,93,759 47,96,531 - 10,02,772
Expenses
Sundry Creditors for 2,23,20,971 2,40,57,028 - 17,36,057
Purchase
Provisions 1,84,93,776 65,88,395 1,19,05,381 -
Net Current Asset(A-B) 22,87,927 1,87,95,742

Net increase in working 1,65,07,815 1,65,07,815
capital
INTERPRETATION: The schedule shows an increase in the net working capital. The net
current assets of 2010 and 2011 are Rs. 2287927 and Rs. 18795742. Both the years shows an
increase of current assets over current liabilities. But when compared to 2010, 2011 shows an
increase of Rs.16507815 in net current assets. It shows that the company has the ability to
meet its working capital requirements.
 TREND ANALYSIS
Trend = (current year figure / base year figure) * 100
4.20 SALES TREND
TABLE 4.20
THE SALES TREND OF TSC FROM 2006-2011
year Sales(Rs) Trend (%)
2006-07 71750947 100
2007-08 94336291 131.48
2008-09 93542134 130.37
2009-10 149645965 208.56
2010-11 228723621 318.77
Source: Annual Report of Travancore Sugars & Chemicals Ltd.2006
* Base year 2006-07
350
318.77
300
250
200 208.56
Sales trend
150
131.48 130.37
100 100
50
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 17
INTERPRETATION: The table clearly shows an upward trend of sales. From 2006-07 to
2010-11 the sales of the firm is increasing. In 2010-11, we can see that there is a highest
increase in sales. In 2008-09 there is a lowest trend ratio.2006-07 is taken as base year.
4.21 PROFIT TREND
TABLE 4.21
THE PROFIT TREND OF TSC FROM 2006-2011
Year Profit(Rs) Trend (%)
2006-07 7071701 100
2007-08 5460182 77.21
2008-09 2328644 32.92
2009-10 7567098 107.00
2010-11 18084938 255.73
* Base year 2006-07
300
250 255.73
200
150
Profit trend
100 100 107
77.21
50
32.92
0
2006-07 2007-08 2008-09 2009-10 2010-11
Fig: 18
INTERPRETATION: The profit trend shows a fluctuating one. It includes both upward and
downward trend. It has an increase trend in 2010-11 and lowest trend in 2008-09. From
2008-09, it shows an increase trend of profit. The profit trend of the table 4.21 is shown in the
fig 19
4.22 WORKING CAPITAL TREND
TABLE 4.22
THE WORKING CAPITAL TREND OF TSC FROM 2006-2011
Year Working Capital (Rs) Trend (%)
2006-07 -10037191 100
2007-08 -4757168 47.40
2008-09 -4303434 42.87
2009-10 2287927 -22.80
2010-11 18795742 -187.26
* Base year 2006-07
150
100
50
0
20006-07 2007-08 2008-09 2009-10 2010-11
-50 Working capital trend
-100
-150
-200
-250
Fig: 19
INTERPRETATION: The working capital trend shows a fluctuating one. It has a

downward trend which includes negative also. The highest trend is in 2007-08 and it has a
negative trend in two years which are 2009-10 & 2010-11 respectively. The working capital
trend is shown in the fig 20
CHAPTER 5
FINDINGS, SUGGESTIONS,
AND
CONCLUSIONS
The present chapter is indented to list out the major findings of the study, the
conclusions arrived at and to give suitable suggestions for improving the financial
performance of Travancore sugars and chemicals ltd.
FINDINGS
The major findings are listed below

1. It is found that the firm is not maintaining the standard norm of current ratio in
standard level (2:1) any of the five years covered under the study. Hence the liquidity
position of the firm is not sound.
2. The quick ratio and the absolute ratio also supported the finding that the liquidity
position of firm is not good.
3. The working capital turnover ratio position shows a tremendous progress from
negative increase to positive increase.
4. The current assets turnover ratio shows the stability over these years except 2007-08
and 2010-11 where the ratios are 3.42 and 3.97respectivly.
5. The collection period has increased from 26 to 58 days during the five years covered
under the study. It shows that the receivable management is not efficient.
6. The period of converting raw materials to finished goods has decreased from 65 to 27
days. It indicates the efficiency of inventory management system.
The schedule of changes in the working capital reveals that the working capital
position is improving year after year.
7. Gross profit ratio of the firm shows slight increase every year, the gross profit ratio
keeps fluctuating.
8. Net profit ratio shows a decline up to 2008-09 and it increases there after due to the
efforts taken by the company for reducing the administration expenses.
9. The authorized share capital of TSC ltd. is Rs.6 lakhs.
10. KSBC has the monopoly right to distribute liquor throughout the state.
SUGGESTIONS
The following suggestions are made,
 Policy decisions may be taken by the management to maintain the working capital at the
optimum level.
 Policy initiative may take by management to improve liquidity position of company for
investing maximum amount in current asset.
 The debt collection policy of company may be reframed by taking in to consideration by
credit period enjoyed by company.
CONCLUSIONS
The study focus on the practice of the management of working capital of TSC attempted to
analyses the key aspects which govern the finance management practice of company. The
study examines such areas as the liquidity position of firm and different components and
different constraints of working capital management such as cash management, receivable
management and inventory management. The study came to the conclusion that the practice
of cash management and receivable management is not up to the mark and inventory
management shows an improvement during the period covered under the study. It is
concluded that overall working capital management of company is average.
BIBLIOGRAPHY
Books
 Jain S.P, Narang.K.L;”Cost Accounting”, Twelfth revised edition, Kalyani publishers,

New Delhi; 1990
 Dr. Maheswari S.N, Financial Management Principles and Practice, Sultan Chand &
sons publishers New Deihi 2008
 Gupta Shashi. K and Sharma R K, Financial Management Theory and Practice, Kalyani
Publishers, Ludhiana 2009
 Pandey I.M; “financial management”; Vikas publishing house ptv.ltd. 2010.
 Vittal P.R, Business Mathematics and Statistics, Margham Publications, Chennai
Reports
 Annual report of Travancore Sugars and Chemicals Ltd -2006-2007.
Websites
 www.scribd.com/doc/36964993/Indian-Beverage-Industry-Report
 travancoresugars.blogspot.com.
 travancoresugars@yahoo.co.in
APPENDICES
THE TRAVANCORE SUGARS AND CHEMICALS LTD, THIRUVALLA
BALANCE SHEET 2006-07 TO 2010-11
Table.5.1
Particulars 2007 2008 2009 2010 2011
SOURCES OF FUNDS:
A.SHAREHOLDERS
FUNDS
Share Capital 1,31,56,890 1,31,56,890 1,31,56,890 1,31,56,890 1,31,56,890
Reserves & Surplus 1,48,77,661 1,48,81,214 1,48,85,079 1,48,89,028 1,48,89,028
B.LOAN FUNDS
Unsecured Loans 34,54,963 34,07,006 24,07,006 14,50,000 10,00,000
Total 3,14,89,514 3,14,45,110 3,04,48,975 2,94,95,918 2,90,45,918
APPLICATION OF
FUNDS:
A. FIXED ASSETS
Gross Block 1,17,03,574 1,22,42,354 1,33,87,258 1,42,79,496 1,55,52,642
Less: Depreciation 95,24,967 99,27,992 1,01,94,121 1,07,78,942 1,11,96,474
Net Block 21,78,607 23,14,362 31,93,137 35,00,554 43,56,168
B. INVESTMENTS
Deferred Tax Asset 0.00 0.00 0.00 11,66,856 9,66,493
C. CURRENT
ASSETS,LOANS&ADVANCES
Inventory 1,02,20,511 87,71,872 1,51,08,601 55,85,810 1,57,35,477
Sundry Debtors 1,03,53,748 99,12,465 1,16,45,932 3,55,97,885 3,11,39,712
Cash & Bank Balance 7,02,397 23,16,370 20,84,616 24,51,397 19,20,297
Loans & Advances 59,00,835 65,82,247 75,36,199 77,94,135 88,30,143
Less: Current Liabilities & 3,72,14,682 3,23,40,122 4,06,78,782 4,91,41,300 3,88,29,887

Provisions
Net Current Assets - -47,57,168 -43,03,434 22,87,927 1,87,95,742

1,00,37,191
D. PROFIT& LOSS 3,93,48,097 3,38,87,915 3,15,59,271 2,25,40,580 49,27,514

ACCOUNT
Total 3,14,89,514 3,14,45,110 3,04,48,975 2,94,95,918 2,90,45,918

THE TRAVANCORE SUGARS AND CHEMICALS LTD, THIRUVALLA
PROFIT &LOSS ACCOUNT 2006-07 TO 2010-11
Table.5.2
Particulars 2007 2008 2009 2010 2011
A.INCOME
Gross Sales 7,17,50,947 9,43,36,291 9,36,69,746 14,97,36,359 22,89,34,965
Less: Central Excise 0.00 0.00 1,27,612 90,394 2,11,344
Duty
Net Sales 7,17,50,947 9,43,36,291 9,35,42,134 14,96,45,965 22,87,23,621
Other Income 25,47,806 34,84,580 50,58,605 42,09,893 46,22,038
Stock Differential -33,300 3,93,026 2,62,875 2,88,487 62,330
(+/-)
Work in Progress 0.00 6,25,221 0.00 0.00 0.00
Total 7,42,65,453 9,88,39,118 9,88,63,614 15,41,44,345 23,34,07,989
B.EXPENDITURE
Raw material 3,18,70,088 4,28,52,066 4,22,21,304 6,91,63,439 10,58,72,918
consumed
Stores & Packing 0.00 0.00 0.00 0.00 3,25,63,447
Materials
Consumed
Manufacturing, 4,05,65,527 5,12,27,433 5,30,29,934 6,88,78,277 6,62,47,968
Administrative
& Selling Expenses
Depreciation 3,31,187 4,03,025 4,68,568 5,84,821 6,34,726
Loss on revaluation 5,452 0.00 0.00 0.00 0.00
of loose tools &
stores
Provision for 9,60,421 8,11,384 8,05,368 28,79,707 22,18,412
Gratuity &
Leave Encashment
Total 7,37,32,675 9,52,93,908 9,65,25,174 14,15,06,244 20,75,37,471
Profit before Prior 5,32,778 35,45,210 23,38,440 1,26,38,101 2,58,70,518

Period
Adjustment &
Taxation
Prior period 66,04,242 19,52,244 15,202 0.00
adjustment
Provision for 65,319 33,242 24,998 0.00
taxation
Fringe Benefit Tax 0.00 4,030 0.00 0.00
2006-07
Income Tax 0.00 0.00 0.00 47,86,266 80,57,089
Deferred tax (Asset) 0.00 0.00 0.00 11,66,856 2,00,363
Net Profit carried 70,71,701 54,60,182 23,28,644 90,18,691 1,76,13,066

to Balance Sheet

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LIST OF TABLES

TABLE TITLE PAGE

4.1 Net working capital of Travancore sugars and

4.2 Current ratio of Travancore sugars and chemicals

4.3 Quick ratio of Travancore sugars and chemicals

4.4 Absolute liquidity ratio of Travancore sugars and

4.5 Working capital turnover ratio of Travancore

4.6 Debtors turnover ratio of Travancore sugars and

4.7 Debtors collection period of Travancore sugars

4.8 Inventory turnover ratio of Travancore sugars and

4.9 Inventory conversion period of Travancore sugars

4.10 Current asset turnover ratio of Travancore sugars

4.11 Creditors turnover ratio of Travancore sugars and

4.12 Cash to total current asset of Travancore sugars

4.13 Gross profit ratio of Travancore sugars and

4.14 Net profit ratio of Travancore sugars and

4.15 Statement of change in working capital for the

4.17 Statement of change in working capital for the

4.18 Statement of change in working capital for the

4.19 Statement of change in working capital for the

4.20 Sales Trend of Travancore sugars and chemicals

4.21 Profit Trend of Travancore sugars and chemicals

4.22 Working Capital Trend of Travancore sugars and

4.23 Balance sheet of the year 2006-2007 to 2010-2011

4.24 Profit and loss account of year 2006–2007 to

FIGURE TITLE PAGE

1 Organizational Chart Of Travancore Sugars And

2 Structure Of Finance Department Of Travancore

3 Graph Showing Net Working Capital

4 Graph Showing Current Ratio

5 Graph Showing Quick Ratio

6 Graph Showing Absolute Liquidity Ratio

7 Graph Showing Working Capital Turnover Ratio

8 Graph Showing Debtors Turnover Ratio

9 Graph Showing Debts Collection Period

10 Graph Showing Inventory Turnover Ratio

11 Graph Showing Inventory Conversion Period

12 Graph Showing Current Asset Turnover Ratio

13 Graph Showing Creditors Turnover Ratio

14 Graph Showing Cash To Total Current Asset

15 Graph Showing Gross Profit Ratio

16 Graph Showing Net Profit Ratio

17 Graph Showing Sales Trend

18 Graph Showing Profit Trend

19 Graph Showing Working Capital Trend

1. IMFL: INDIAN MADE FINE LIQUOR .

INTRODUCTION TO THE STUDY

A business undertaking requires funds for two purposes: -

 To create productive capacities through purchase of fixed assets, etc.

1.3 SCOPE OF THE STUDY

1.4 RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the research problem. It

The collection is the process of enumeration together with the proper

1.4.2 PERIOD OF THE STUDY

The study covers a period of five years performance of Travancore

1.4.3 AREA OF THE STUDY

The data collected where grouped and analyzed by using appropriate

1.5 LIMITATIONS OF THE STUDY

This study report contains five chapters.

Chapter 2- deals with profiles of the study.

Chapter 4- explains the results of analysis of working capital management of

Chapter 5- consists of findings, suggestions and conclusion.

India has a population of more than 1.150 Billions

MAJOR MARKET UNDER INDIAN BEVERAGE INDUSTRY