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A project report submitted to Jawaharlal Nehru university Kakinada in Partial fulfillment of the award of award of the degree of

MASTER OF BUSINESS ADMINISTRATION BY GANGA RAMA VASU CHINTA (Regd. No. 09MR1E0012) Under the esteemed guidance of Mr.M.v. srinivas rao (MBA)



I am greatly indebted to many people for mailing the present study possible and I shall be failing in my duty if I don’t acknowledge the help and guidance extended to me by each of them. I am the student to Mr .M.V.SRINIVASRAO, head of management department, SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENG IN-EERING & MANAGEMENT STUDIES , gollakoderu for his kind co- operation extended to pursue the project work in sudha agro oil & chemical limited ,samalkot I take this opportunity to express my deep sense of gratitude to Mr. Rajendra lecturer of krishnam raju college of post graduate studies, gollakoderu, for his valuable guidance in sharing his knowledge and

expertise was a pillar of support in bringing this project in such an elegant form. I am especially thankful to S. MEERA executive in FINANCE DEPARTMENT for accepting to be for my representing for doing project in SUDHA AGRO OIL &CHEMECAL INDUSTRIES LTD

And I want to convey my humble regards to all of my family members and friends who have contributed their co-operation and helped me in completing this report


I here declare that the project report entitled “WORKING CAPITAL

MANAGEMENT” have been completed successfully and this project
report submitted towards the award of the partial fulfillment of the requirement

the degree of


RATION” in specialization finance . This report has not been sub

b. . CHINTA in partial fulfillment of the award of m.-mitted to any other university or institution for award of degree Station: Date: Ganga rama vasu .chinta {Regd no:09MR1E0012} CERTIFICATE This is certify that the project titled “A STUDY ON WORKING CAPITAL MANAGEMENT “IN SUDHA AGRO AND CHEMICAL INDUSTRIES LIMITEDT .SAMALKOT . being submitted by GANGA RAMA VASU .G OF MANAGEMENT STUDIES .a. degree to the P.

SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENGINEERING &TECHNOLOGY . PREFACE The present study is conducted with objectives of identified the WORKING CAPITAL MANAGEMENT from the five years balance sheets provided by the SUDHA AGRO OIL AND CHEMICAL INDUSTRIES LIMITED.G department of management studies S v k r college gollakoderu . GOLLAKODERU . • The first chapter deals with the introduction . Is a record of bonafied work Carried out by him under my guidance and supervision Project guide P. where the information is briefed about the oil & chemical industry .

• The forth chapter deals with the literature review of the study. suggestions. CONTENTS CHAPTER-1 CAPITAL INTRODUCTION TO WORKING MANAGEMENT  Nature of working capital management .• The second chapter discuss the need of the study. the methodology used and limitation thereof. • The sixth chapter findings. conclusions and Bibliography regarding the study with the help of last five years balance sheets. • The fifth chapter deals with analysis and interpretation. • The third chapter deals with the organization profile in detailed.



current assets are for short period while fixed assets are for more than one year 2. thus the firm has greater degree of flexibility in managing current assets.without it can’t be promoted.working capital management is one of the important facts of affirms overall financial management For increasing shareholder’s wealth a firm has to analyze the effect of fixed assets and current assets on its return and risk. Now first let us discuss the paradigms of working capital management. The large holding of current assets . risk return trade off is involved holding current assets 3. Only current assets can be adjusted with sales fluctuating in the short run. Investment decisions is concerned with investment in current assets and fixed assets . Efficiency of a business enterprise depends largely on its ability to its working capital . The management of current assets help affirm in building a good market reputation regarding its business and economic conditions.working capital management of current assets . .working capital plays a key role in a business enterprise just as the role of heart in human body . Every business requires capital .and to maintain an optimal level of liquidity and profitability . strengthens liquidity position but also reduce overall profitability .especially cash.its effective provision can ensure the success of business while its inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be considered as a promising concern .INTRODUCTION Working capital management is significant in financial management. the management of current assets on the basis of the following points: 1. It plays a vital role in keeping the wheel of the business running. it acts as grease to run the wheels of fixed assets .

short term securities . There are two of working capital of working capital they are gross and net working capital.bills receivables and stock (inventory).Net working capital: net working capital refers to the difference between current assets and liabilities are those claims of outsiders. 1. Net working copulate can be positive or negative. which can be converted into cash within an accounting year or operating cycle. which are expected to mature for payment within an accounting year.Gross working capital: Gross working capital refers to the firm’s investment in current assets . .current assets are the assets. A positive working capital will arise when current assets exceed current liabilities and vice versa. 2.CONCEPT OF WORKING CAPITAL: The concept of working capital includes current assets and current liabilities both. It includes cash.debtors (account receivables or book debts). It includes creditor’s or accounts payables bills payable and outstanding expenses.

The current assets should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety.NATURE OF WORKING CAPITAL Working capital management is concerned with the problems that arise in attempting to manage the current assets .the current liabilities and the inter relationship that exists between them.therefore the main theme of the of management of working capital. The term current refers to those assets which in the ordinary course of business can be . The goal of working management is to manage the firms assets and liabilities in such a way that a satisfactory level of working capital is maintain.it is likely to become insolvent and may even be forced into bankruptcy. accounts receivables and inventory.or will be converted into cash within one year without undergoing a diminution in value and without disrupting the operation of the firm. . current liabilities are those liabilities.bank overdrafts and outstanding expense. Interaction between current liabilities is . marketable securities. within a year out of the current or the earning of the concern . This is because if the firms cannot maintain a satisfactory level of working capital . the major current assets are cash.to be paid in the ordinary course of business.The basic current liabilities are accounts payable . which are intended at their inception . Each of the short term source of financing must be continuously managed to ensure that they are obtained and used in the way.bills payable .

primary data include the information collected from the officials and existing company through discussions SECONDARY DATA : DEFINITION The secondary data .on the other hand are those which have already been collected by some one else and which have already been passed though the stastical process. PRIMARY DATA: DEFINATION The primary data are those which are collected a fresh and for the first time. and thus happened to be original in character . .METHODOLOGY For the purpose of the study necessary information has been collected through primary and secondary sources.journals and magazine has also been collected. The secondary data include the information from the company annual reports which include financial statement like balance sheet and income statements and such other information from text books of financial management .

 To provide reliable financial information those add .The main objective of the present study is to know the financial condition of the company.  To disclose to the extent possible other information related to the financial statements users.  To asses the long term financial viability of company .  To know the overall operational efficiently and performance of the sudha agro oil and chemical industries limited.OBJECTIVES OF THE STUDY Working capital is the most widely used and powerful technique of financial analysis .to know whether the management is constantly concerned about the over all profitability of the company (or) not.  To provide reliable financial information about economic resources and obligation of a business enterprise. .  To interpret the financial position of company of is appropriate (or) not.it’s in estimating the potential of the enterprise.

It focuses on company’s relative performance in sales growth margins and assets management . . which are effectively helpful to describe the company should monitor key indication of operating performance and where possible must compare.they find solution for many problems in the aspect of financial analysis . The different items appeared in the financial statements.It is a simple tool where by a company can make its internal audit to evaluate internal strengths and weakness of the part of the strategic planning.financial establishes inter relationship that exists among.to formulate company policy and to prepare future plan of action. itself with the competitors in the industry.NEED OF THE STUDY During the post –liberalization are the worlds assail as economic india’s scenario has shown a great progress and is growing with increased phase this has necessitated the complex and efficient ways of management . A systematic financial analysis of accounting figure helps to analysis the probable caused relationship among different items after analyzing scrutinizing the past result which helps the management to prepare budgets .thinking practically the main concern is of the influence of external environment on business providing a modern dimension to business to management .

subject to the following limitations 1)The study is mainly carried out based on the secondary data provided in the financial statements . As the study was for short span of 8 weeks and due to lack of time other areas could not be well focused. . 2)this study is based on the historical data and information provided in the annual reports therefore it may not be a future indicator .LIMITATIONS OF THE STUDY The study conducted and done is analytical . 3)There may be some fractional differences in the calculated ratios.


varnishes and lubricants . paints . . 2. mustered .there are many reasons for ever growth demand for oils. The main reason is due to various factors such as increase in population. rapeseed. sun flower . sunflower. Niger.INDUSTRY PROFILE Oils have come to play vital role in the economy of our country .soybean and linseed & caster seed.These oils not only for human diet but also provide essential raw materials for industries products like soaps. It is the burning problem from the 20 years .there is going to be further increase in the demand for oils human consumption and industries purpose now a days india has been facing the problem of shortage and raises in the price of oils. perennial oil seed plant like coconut and palm. The presently available sources of oil in india can be divided as follows.sesame.Annual oil seed like groundnut . rapid industrialization of the country and improved standard of living with the recent liberalization of licensing and trade control policies of the government . the situation is due to the production of major oil seeds ground nut. soybean caster and linseed are non –edible types. 1. sesame.

3. 4.oils obtained through technological process such as extraction from rice bran. neem. We are at present tapping about 25% to 30% of the available potential for production in all the above sources . cotton seeds.B? AVERAGE YIELDS OF OIL PER UNIT AREA TABLE Oil seeds Palm Coconut Niger Castor Sesam Mustard Linseed Ground nut 3200-3500 1900-2000 175-200 200-225 300-325 350-375 400-450 600-625 Average oil . maharaj etc. depending in their oil content and yields of oil seeds per unit area. karanja. like sal. kusum.minor oil seeds.All these various oil seeds have different yields of oil per unit area. The following table gives the average yields of oils per unit area for various oil seeds.

C.yield projector is very low.D.C and N. ROLE OF CO-OPERATIVE SECTOR:Co. and hence there are wide fluctuation in production owing to monsoons –progress in the evaluation and introduction of high yielding hybrid varieties are poor when compared to rice and cotton etc. IMPORTANCE THE RODUCT Non trading oil an lay an important part an important part in the achievement of oil self-sufficient in our country cotton seed has already established it self as an important oil source . the minor oil seeds of free origin are slowly gaining importance mainly because of their low cost.In India most of the production comes from rainfall areas.B having oil seed producer as their members have been supporting co-operative endeavour in integrated development. storage and marketing.there action involvement would entire then to give further inputs for production of oils.D.D.rice bran is fast catching up with cotton seed. owing to these factors . In these circumstances oil seeds production has to be stepped up and self efficiency should be achieved as early as possible hence our goal is to achieve self sufficiency in the production of the oils with in the shortest possible span of time. If the policy makers can encourage at even force to the industries to exploit .operator is assisted by N. rice bran is fast catching up seed rice bran has great potential in the future. the approach adopted b then is comprehensive enough to associated oil seed growers co-operated at the gross root level with oil seed producers as the participants and beneficiaries it is important that the formers who are actually engaged in production of oil seeds are associated with any strategies adopted for segment action oil seeds through co –operatives .

.the vast qualities of minor seeds the edible in wild as non –edible industries)oil demand can e satisfactory. In fact the rice bran oil can argument substantial quality of oil in the country like many Asain countries including Japan Herman’s thus land where rice bran oil came to stay as a cooking medium and also for industrial purpose. grossed nut cake rice bran are presently the important sources ABOUT THE PRODUCT RICE BRAN OIL:The spectra of scarcity if oils has been hunting our national economy in deferent every since the beginning of seventies lastly since 1977 huge be ports of oils have become a necessity to arrest the raise in price and met the demand and supply gap by spending huge foreign exchange to crude oil. The crisis has become the more serious on account of standard in the production of traditional oil seeds mainly ground nut and mustard on one hand and ineffective utilization of the vast of resources of oil which can available by taping rice bran and minor oil seed of origin and not adopting a concrete national policy has made the crisis serious. OIL FROM BY PRODUCTS OF OTHER INDUSTRIES:There are several by –products of various agro –based industries which and can be utilized to obtain oil either industries or edible purpose cotton seed.

000 .000 9000 110 30 1740 1685 5.41.15.State wise processing capacity of rice bran oil in india 21STATE Andhra Pradesh Assam Delhi Gujarat Haryana Karnataka Kerala Madhya Pradesh Maharastra DAILY PRODUCTION(MT) ANNUAL PRODUCTION(MT) 7425 22.500 8.000 5.000 1.000 2050 470 2690 1715 6.

the overall installed capacity of the industry in india 22.99.000 2.04. sal seed –decorticated oil cakes etc.000 879.000 MTS per year and the total no of solvent interaction plant in india 42%.in solvent extracting the oil contents in various agricultural products .in view of the agricultural depend this industry occupies a significant place in india economy . is extracted without changing the other properties of the input material . Solvent extraction industry in india:Solvent extraction is pre –dominantly on agricultural on agricultural based industry .74.000 A conference organized by the solvent extract association of india on 1977 on rice bran oil of the significant trails taken up by or industrial organization on the fields of oil since a slightest hike in import price crude oils brings a marked change in Indian in markets especially of oils.16.soya bean . The following is the state wise advent extraction plant and their processing capacity .66.000 7.10.000 3.that is rice bran .000 45.600 2.Orissa Punjab Rajasthan Tamilnadu Uttar Pradesh West Bengal Pondicherry 140 2580 2680 1330 2932 720 150 42.


290 750 27.000 21.000 2.87.500 66.125 2.000 3.803 330 3.000 12.475 11.83.000 13.610 31.000 7.OF SOLVENT DAILY ANNUAL PROCESSING PROCESSING CAPACITY(MTS) CAPACITY(MTS) 57 10.060 200 88.500 7.000 .93.500 99.10.645 2.41.000 82.000 1 1 55 20 6 67 60 5 22 27 21 26 12 150 45 11.42.000 1.000 2.660 10.500 35.500 34.37.700 45.23STATE WISE SOLVENT EXTRACTION PLANTS IN INDIA:STATE Andhra Pradesh Assam Delhi Gujarat Haryana Karnataka Madhya Pradesh Maharastra Orissa Punjab Rajasthan Tamilnadu Uttar Pradesh West Bengal Pondicherry TOTAL 1 421 NO.00.

located at Mumbai .which is a source commodity in India .the importance of the solvent extraction industry is very significant and it plays a very import role in Indian economy .rice bran is problem in refining the bran oil like maxell eimming dewoding neutralization bleaching and deodorization and physical refining etc. In view of the growing demand for oils and for cattle feed. Previously the oils obtained by solvent extraction are used in the manufacture of soaps .thus this industry has major role to pay in India’s oil trade. problem formed by rice mills .solvent extraction industries types of stabilizer to install to control T.In view of the growing demand for oils and for cattle feed .the present growth rate of industry is around 5%. The inflation rate of general goods is above 20%.there is still a danger in as government has no other growth expert to resort to fix the inflationary to be standard price in order to fill reservoir of resources to meet the budget. Many learned and eminent industries .T. the importance of the solvent extraction industry is very significant and it plays a very import role in Indian company .the present growth rate of industry is around 5%. The activities of the industry are monitored by the solvent extractors moderation of India.processing to producer quality with low concern by installing stabilizers of three or four varieties and to extract oil with 10%to15%suitable for industries purpose by refining scope of exploitation of complete bran available in Indian for production of bran oil .A .technologist and manufactures about manufactures about modernization of rice bran .detergents but with the recount development in technology and solvent extraction plants are able to produce edible grade oils . .it is surprised that in case of oils the inflation is above 30%. which the fit for refining in order produce refined cooling grade oils .

55lakhs as equity capital out of 750lakhs were sudscribed by apde subsequently 5000 shares in the yaer 1987 and 2500 shares in the year 1992 were brought back by promoters.61 lakhs by subscribing 26.390 shares at per by the existing promoters . In the year 1996-97 the equity capital was further increased to 225 lakhs by subscribing 47.100 paid up at the ratio of 5:4 out of reserves of Rs 104-58 lakhs available with the company . the equity capital was increased to Rs 177.840 shares of rs.775 shares at per and 54.COMPANY PROFILE HISTORY OF THE COMPANY:SUDHA AGRO OIL AND CHEMICAL LIMITED .361lakhs as on 31st march . .Rajarao.445 shares at premium of Rs 50 per share of Rs 500 paid up. Sri E .prompted an existing profit making company. The company paid 10% dividend on equity in the first year itself and is continuously paying dividend for the eight years.1997. In the year 1993-94 the company issued a bonus shares of 42. The company was incorporated on 7th December 1981 as a private limited company and became limited company on 13th august 1988. thus the equity capital of the company stood at Rs 11. Initially the promoters brought Rs53. who has vast experience in the same line .

PROMOTORS OF THE COMPANY:The chief promoters of the company is sri E. Rajarao, B.A . who was earlier associated with the promotion of Gowthami solvent oil ltd .as an executive director ,he has aged above 60 years of experience in the oil and fats business.





5. Sri G.M.K. MOHAN 6. Sri M. VENKANNA

.................................................................................................. AUDITORS:M\s. BRAHMAYYA& CO. Charted accounts 3-16c-40\1,8th road Gazette officers colony Shanti nagar,


BANKERS :STATE BANK OF INDIA Commercial branch KAKINADA FACTORY & REGD. OFFICE :19-1-422, G . Ragampeta, Post box no .9, Samalkot - 533440 East Godavari district Andhra Pradesh MANAGEMENT The following financial executives who have good amount of experience in the oils and chemicals field further assist the managing director and executive director

NAME Sri A. Narendra Sri T. Narasimha rao Sri S. Meera

AGE 40 45 52

QUALIFICATION SERVICE Engineering Graduate Oil Technologist Commerce graduate 10 years 23 years 26 years

FUNCTION Raw material and oil sales Production activity Accounts of the company


The company initially started with 150 TPD rice bran solvent extraction plant in 1982 and subsequently expended its acids ,glycerin and oxygen . The particulars of the various plants installed in the company’s existing premises given below. NAME OF THE PLANT INSTALL ED TPD CAPACITY TPA 45,000 15,000 12,000 12,000 600 6,000 5,00,000 1,800 DATE OF COMMENCEMENT OF PRODUCTION May 1983 May 1986 Feb 1994 Sep 1994 April 1996 June 1996 Feb 1997 Dec 2000

Solvent extraction 150 plant Hydrogenation 50 plant Chemical refinery 40 Fatty acids plant Glycerin Physical refinery Oxygen booting Power plant 40 2 20 1667 4

The company had started the solvent the extraction plant on its own fill in 1989-90 and it ran this on job work basis with minimum quality guarantee to ITC limited and Essar Gujarath limited from September 1990

60 lakhs from APIDC for purchase of a boiler . This loan was also repaid in the scheduled time . The company has entered a processing agreement for its hydrogenation plan with Colgate Pamolive (1)ltd. APIDC party financed this project by sanctioning the term loan of 39..400 Mt. The company is banking with state bank of india. Plant to harden commercial rice bran oil for soap at a cost of 66 lakhs. Peddapuram branch since inception and it presently enjoying working capital fund based limit of Rs 50 lakhs. per year and the agreement is renewable every year.these two term also repaid in time. the process a minimum quality of 2.350 lakhs from IDBI and increased capacity from 30 TPD to 50 TPD. In 1993 it took loan of Rs 410 lakhs to part finance its 30 TPD chemical refinery and 20 TPD fatty acid plant in 1994. In 1993 company added seed prepatory system at a cost of Rs 16.in 1992 they took a term loan of Rs 19. The company is maintaining good financial relation with different finance . EXPANSION SCHEME EXECUTED:Company commanded its 150 TPD solvent extraction plan in may 1986 at a cost of 134 lakh and the project was partly financed by APSFC and APIDC by sanctioning a term loan of 30 lakhs repaid in scheduled time . now this plants running on its own.In may 1986 it commenced a 30 PTW hydrogenation. Colgate Palmolive (1) ltd also supplied electrolysis equipment on hire purchase basis for the period of three years commencing from year 1995 november. In the year 1995 the company went for further expansion and diversification it took rs.due to shifting of job work processing the operating capacity of the plant of the plant came down from 84%to 66% .80 lakhs from APTS for purchasing a generator .20 lakhs as its own funds. in 1986 the company took a term loan of Rs 5.64 lakhs. In 1993 the company took an expansion and diversion programme in a phase manner by obtaining the financial assistance from IDBI.

Dealing with financial institution and banks as on 31st august. PERFORMANCE:- The company is regular in both earning the profit and declaring the dividend to its share holder. RAW MATERIALS:- . 1997 is given in the following table.institutions. The company could not show a net profit in 1998-99 as it changed the method of depreciation from straight line method to written down value method. Which are extending loan facility. The repayment of loans is made in time. The turn over started increasing from 1996-97 on words due to diversification of the activities in a phased manner. Due to availability of surplus in profit and loss account the company declared dividend of 15% on its equity on proportionate basis. The turnover in 1992-93 and 1995-96 were low due to reason that unit under took job works for ITC limited and Essar Gujarat limited.

The company is located in the center of east Godavari district surrounded by huge number of rice mills.The main raw material of this unit is rice bran oil. Since the company is 15 years old it established a strong net work for procurement of rice bran. The unit requires a quality of 150 Mt . srikakulam and southern Orissa. Are available in the required capacities to run the plan at envisaged capacities . phosphoric acid bleaching earth etc . The company has 30 bran agents in Godavari district. sulphuric acid. THE RAW MATERIALS:- PRODUCTION PROFILE . The chemical such as nickel catalyst caustic soda.of rice oil per day and 100 Mt of rice bran oil per day. The required rice bran is produced through urgently brokers who collect rice bran from mills at the price indicated by the company depending on the marketing fluctuation. Out of the 100Mt of rice bran oil around 15tones per day available from the solvent extraction plant of the company.

Boiled rice bran.F. 2. the advantage of low F. 4% to 5%) is that it can be used for manufactures of refined rice bran oil.F oil (I. In the case of boiled bran the F.The raw material for solvent extraction for is rice bran . The oil content is raw rice bran is 16% and increase as boiled rice bran is 19% the purchase price of rice bran fixed on the basis of oil content According if oil content is less than 16% the price will be reduced proportionately and if oil content is more than 16% a premium will be paid proportionately similarly in the case of boiled rice bran rebate of premium is considered on the basis of 19% oil content .A content in it will be around 4% to 7% if it is processed with in 3 days from the day of production by the rice mills. The bran is usually produced through agents appointed by company or directly from the rice mills . 1. Raw rice bran. the bran after is tested in the laboratory for its content and FFA (free fatty acids) .F. By F. based on this laboratory results the payment will be mode. there are two verities of rice bran.A content in rice bran increased to maximum 60% if they are stored beyond 10 days .e. .

The refines glycerine of 90% purity is the stored in drums for sale. REFINERY PLANT FLOW CHART .The sweet water obtain at the splitting tower contain glycerine heating process in the glycerine refine unit refines the crude glycerine.

The hydrogenated oil then bleached to remove color and other impurities the oil is then cooled to temperature 80°c.DESCRIPTION The commercial grade rice bran oils taken an autoclave. Hydrogen and nickel catalysis are then put into autoclave and then stirred. The cooled oil is then filter and the final oil is stored for sale. In the process oil absorbs the hydrogen gas. .

The soap stock ( fatty acids obtain from the neutralization process is treated with sulfuric acid and then washed ). The oil thus obtain is called as acid and is stored for sale or for further use in the fatty acid plant. SOLCANT EXTRACTION PLANT FLOW CHART FATTY PLANT FLOW CHART .

In the process oil absorbs the hydrogen gas. the cooled oil is then filtered and the final oil is stored for sale. HYDROGENATION PLANT FLOW CHART . The hydrogenated then bleached to remove color and other impurities.The commercial grade rice bran oil is taken into an auto calve. Hydrogen and nickel catalysis are then put into autoclave and then stirred. The oil is then cooled to temperature of 80° C.

The oil is then cooled to temperature of 80°C. DESCRIPTION:- . The hydrogenated then bleached to remove color and other impurities. In the process oil absorbs the hydrogen gas. the cooled oil is then filtered and the final oil is stored for sale.The commercial grade rice bran oil is taken into an auto calve. Hydrogen and nickel catalysis are then put into autoclave and then stirred.

These pellets are fed into the extraction conveyor through conveyors.The rice bran received from various rice millers is first fed into a Pelletier machine to convent the bran. Which still contains traces of hexane. The hexane in oil is then separated by condensation process. is run through direct to aster to recover the hexane . . Which is in powder from into pellets. The de-oiled bran . The hexane while passing through the bran pellets. The oil thus obtain is stored in storage tanks for sale or for further use in other plants. This mixture of oil and hexane is called miscella. These pellets which are run through a pellet cooler to reduce the heat in the pellets. The extraction bed hexane is poured on to the bran pellets. The de-oiled bran (DOB) which is free from hexane is bagged for sale. absorbs the oil content in the bran. The hexane recovered by condensation process is recalculated for use in the extraction bed.


They define working capital in the following ways. necessary for working of enterprise however these is no agreement among the financial experts regarding the meaning of working capital. So originally speaking working capital refers to the flow funds .WORKING CAPITAL MANAGEMANT THEORY MEANING AND DEFINATION: A part from investment in fixed assets . ACCORDING TO MEAD MALLOT: “Working capital means current assets”. ACCORDING TO WESTON AND BRIGHAM: . every enterprise has to arrange for adequate funds for meeting day (operations) expenses to kept it a concern.

The liquidity of a business firm is measured by its ability to satisfy short term obligations . short term securities. The most common definition of net working capital is the different between current assets and current liabilities 2.“working capital refers to a firm investment in short term assets. 1. The term gross working capital also referred to as a working capital. means the total current assets. accounts receivable and inventories”. The term net working capital can be defined in 2 ways. The task of the financial manager in managing working capital efficiency is to ensure sufficient liquidity in the operation of the enterprise. CONCEPT OF WORKING CAPITAL:There are 2 concepts of working capital : gross and net. Alternate definition of net working capital is that portion of current assets which is financed with long term funds. cash.

The current ratio In brief . Practically this happens simply owing to the “operating cycle”(or) “ cash cycle”. they are useful in inter firm comparison of liquidity . (c) Conversion of receivables into cash. . NEED FOR WORKING CAPITAL:In order earn sufficient profits. We know that sales are not analysis converted into cash immediately. there is a time lack between the sale of a product and the realization of cash so. The acid test ratio 2. The three basics measure of a firm’s overall liquidity are 1.as they become due. involves the following steps. but it is quite useful for internal control. (a) Conversion of cash into inventory. The net working capital helps in comparing the same firm over time. a firm has to depend on its sales activities apart from others. (b) Conversion of inventory into receivables. net working capital as a measure of liquidity. is not very useful for comparing the performance of different firms. i. The net working capital 3.e. an adequate amount of working capital is required by a firm in the form of different current assets for its activities to continue un interrupted and to tackle the problem that may arise because of the time lay.

In case. the inventory cannot be sold or the receivable cannot be collected. The very basics of fixed assets decision process (i. The results is that financial managers spend a large chunk of their time managing the current assets because level of these assets changes . So. Mis management of current assets can be costly. Excess investment may also expose the firm to undue risk eg. The fixed assets involve long period perspective and therefore.NATURE OF WORKING CAPITAL:The term working capital refers to current assets which may be defined as (1) Those which are convertible in to cash or equivalents with in a period of one year and (2) Those which are required to meet day operations. the management of working capital and of fixed assets. appearently seen to involve same type of consideration but it is not so.e the capital budgeting ) and the working capital decision process are different. Since the amount of money invested in current assets can change rapidly. the concept of time value of money is applied where as in working capital the time horizon is limited. Too large an investment in current means tying up funds that can be productively used else where (or it means added interest cost if the firm has borrowed funds to finance the investment in current assets). too little investment also can be expensive for ex:insufficient inventory may mean that sales are lost as the goods which a customer wants are not available. This fixed assets as well as current assets. Therefore continuously monitor the assets to ensure that the desire levels are being maintained. to one year only and the time value of money concept is not considered. in general. On the other hand. The financial manager must. The management of capital involves different concepts and methodology than the techniques used in fixed assets management. Managing current assets may require more attention than managing fixed assets. The fixed assets the long term profitability of the while the current assets affect the short term liquidity position. both required investment of funds. So does the financing required. The reason for this different is obvious.

a financial manager is faced with a decisions involving some consideration as follows: 1. What should be the level of individual current assets? 3. in the working capital management.quickly and a lack of attention paid to them may result in appreciably lower profits for firm. . to a great extent up on the operating cycle of the firm. What should be the relative proportion of different sources to financial the working capital requirements? Thus the working capital management may be defined as the management of firm’s sources and uses of working capital in order to maximize the wealth of the share holders. The proper working capital management requires both the medium term planning (say up to 3 years) and the immediate to changes arising due to fluctuation in operating levels of the firm. THE OPERTING CYCLE AND THE WORKING CAPITAL NEEDS:The working capital requirement of a firm depends. The length and nature of the operating cycle may differ from one firm to another depending up or the size and nature of the firm. So. The operating cycle may defined as the duration from the procurement of goods or raw materials and ending with sales realization. what should be the total investment in working capital of the firm? 2.

this time gap is called operating cycle. 5. (cash or credit). Similarly in case manufacturing concern . 3. Thus the operating cycle of a firm consists of time required for the completion of chronological sequence of some or all of the following. In both the cases however there is a time gap between the happening of the first event and the happening of last event . OPERATING CYCLE PERIOD:The length or time duration of the operating cycle of any firm can be defined as the sum of it’s inventory conversion period and the receivable conversion period. 1. Procurement of raw material and services 2. So in order to have a proper and smooth running of the business activities. Conversion of receivable into cash. the firm must make investment in all these current assets. It must also have minimum of raw material to have smooth and uninterrupted production process. This serious start form procurement of raw material and ending with the sales realization of finished foods. 4. . This requirement of funds depend up on the operating cycle period of the fiem and also denoted as the working capital needs of the firm. Conversion of raw material in the work in progress. The finished goods must be kept in store to take care of the orders and minimum cash balance must be maintained.In a treading concern there is a serious of activities starting from procurement of goods ending with realization of sales revenue. The firm is after required to extend credit facilities to customers. Sales of finished goods. Conversion of work in progress in to finished goods.

.DP. work in progress conversion period (WPCP). The RMCP refers to the period for which the raw material is generally kept in store before is issued to the production department. and the finished goods conversion period (FGCP). OPERATING CYCLE The duration of time required for completing the following sequencies of events in case of manufacturing firm s called the operating cycle. Conversion of cash into raw material. In a manufacturing concern the ICP is consisting of raw materials conversion period(RMCP). The total of ICP and RCP is also known as total operating cycle period (TOCP). (3) RECEIVABLES CONVERSION PERIOD: (RCP) It is the time required to convert the credit sales in to cash realization. this period for which the payment it these parties are deferred or delayed is known as deferral period.(1)INVENTORY CONVERSION PERIOD:It is the time required for the conversion of raw material in to finished goods sales. The net operating cycle of a firm is arrived at by deducting the deferral period from total operating cycle period. The FGCP refers to the period for which finished units remain in stores before being sold to the customers. Thus NOC = TOCP-D = ICP+RCP. The firm might be getting some credit facilities from the supplier of raw material wag earners etc. It refers to the period between the occurrence of credit sales and collection of debtors. 1. The WPCP refers to the period for which the raw material remain in the production process before it is taken out as a finished unit.

Convertion of raw material into work in progress. Conversion of work inprogress into finished goods. CASH ACCOUNTS RECIEVABLE RAW MATERIAL FINISHED GOODS WORK IN PROGRESS The duration of the operating cycle for the purpose of estimating working capital requirement is equalant to the sum of duration of each of these tables less the credit period allowed by the suppliers of the firm. Conversion of finished goods into debtors & bills receivable through sale. Conversion of debtors & bills receivable into cash. 5. NET WORKING CAPITAL: .2. 3. 4. TYPES OF WORKING CAPITAL 1.

It is the amount of funds required to produce goods and services which are necessary to satisfy demand at a particular point. extra cash etc. It shows the real flow of money or value at a particular . 4. 2. 6. The amount varies from year to year depending up on the growth of the company and stage of business cycle in which it operates. and net working capital which is represented by the excess of current assets over current liabilities are examples of balance sheet working capital. The concept of net working capital enables a firm to determine how much amount is left for operational requirements. 5. PERMANENT WORKING CAPITAL: Permanent working capital is the minimum amount of current assets which is needed to conduct a business even during the dullest season of the year. TEMPORARY OR VARIABLE WORKING CAPITAL: It is represents the additional assets which are required at different times during the operating year additional inventory. BALANCE SHEET WORKING CAPITAl: The balance sheet working capital is one which calculated from the items appearing in the balance sheet. GROSS WORKING CAPITAL: Gross working capital is the amount of funds invested in the various components of current assets.The net working capital is the different between current assets and current liabilities. Gross working capital which is represented by the excess of current assets.. seasonal working capital is the additional amount of current assets particularly cash. 3. CASH WORKING CAPITAl: Cash working capital is one which is calculated from the appearing in the profit and loss account. receivables and inventory which is required during the more active business seasons of the year.

Marketing conditions . All these factors have different importance. 7. The reason is the working capital indicates the adequacy of the cash flow. Therefore analysis of the relevant factor should be made in order to determine the total investment in working capital requirements of the firm. a large number of factors influence the working capital needs of the firm. and occurs when a firm is nearing a crisis of some magnitude. 1. Such a situation is not absolutely theoretical. Production policy 4. It is the basis of the operating cycle concept which has assumed a great importance in financial management in recent years. NEGATIVE WORKING capital: Numbers working capital emerges when current liabilities exceed current assets. Nature and size of business 2.time and is considered to be the most realistic approach in working capital management. Seasonality of operation 3. Which is an essential prerequisite of a business. 49 DETERMINANTS OF WORKING CAPITAL:Numbers of rules are formulated to determine the working capital requirement of the firm. also the importance of the factor change for a firm over time.

For a sugar industry the raw material i. On the other hand manufacturing concern like machine tools units which has long operating cycle and which sells largely on credit had varied substantial working capital management.e. SEASONALITY OF OPERATION:Firms which have market seasonally in their operation usually have highly function working capital requirement. Credit policy 7. Current assets in relation to sales NATURE OF BUSINESS:The working capital requirement of a firm is closing related to the nature of its business.. has modest working capital requirement. PRODUCTION POLICY . which has short operating cycle and sells on cash basis. Business cycle fluctuation 6. A service firm like an electricity. So sugar industry mainly depends upon seasonality of operations. sugar cane is available in particular season only. Working capital policy 9.5. Conditions of supply 8. A service firm like an electricity undertaking of a transport corporation.

. even large inventories many be maintain to serve an order as and when received. MARKETING CONDITIONS: In view of competitive conditions prevailing in the firm may have to offer liberal credit terms. Thus the working capital tends to be high as a result of investors in inventions & receivable.A firm marked by pronounced seasonal fluctuations in its sales many pursue a production policy which many reduce the shape variation is working capital requirement. to customs resulting in higher debtors.

recession. In case of recession period. if the supply is unpredicted and service then the firm has to ensure continuity of production.. also effect working capital requirement. At firm has interact with 2 types of credit policies at a time one. What should be the ratio of current assets to sales.BUSINESS CYCLE FLUCTUATIONS:Different phases of business cycle i.e boom. . CREDIT POLICY:The credit policy means the totality of terms and conditions on which goods are sold and purchased. In case of born conditions inflationary pressure appear and business activities expand. there is usually dullness in business activities and there will be opposite effect on the level of working capital. In both the cases. inventories etc. increase resulting more and more funds blocked in these current assets. however . and two the credit policy relating to credit which it octends to its customer. the credit policy of the supplier of raw material. WORKING CAPITAL POLICY:Two important issue in formulation the working capital policy are: 1. but has to sell on credit basis. How ever. recovery etc. CONDITIONS OF SUPPLY:If the supply is prompt and adequate the firm can manage with small inventory. goods etc.the firm while deciding its credit policy has to take care of credit policy of the market for example affirm might be purchasing goods and services on credit but selling foods only for cash the working capital requirement of this firm will be lower than that of a firm which is purchasing cash. As a result the overall need for cash .

CHOOSING THE WORKING CAPITAL POLICY:The overall working capital policy adopted by the firm may broadly:- . The surplus current assets under the policy enable firm to copy rather easily with variations in sales. 3. The safety assets policy of the firm . If the adopts a moderate current assets policy it would carry a moderate level of current assets in relation to assets. CURRENT ASSETS IN RELATION TO SALES: It usually does the investment in current assets cannot be specified unequally.2. 2. A conservative current assets policy trends to reduce risk. A conservative current assets financing policy refills less on short-term bank financing and more long on term sources like debentures. In sales of uncertainty the outlook on current assets would consist of base component meant to meet normal requirement and safety component mean to copy with unusual demands and requirements. What should be the ratio of short term financing to long-term financing. 1. An aggressive current assets financing policy. 54&55 An aggressive current assets policy seeking to minimize the investment in current assets exposes the firm to greater risk. The board policy alternatives in the respect are: 1. A conservative current assets financing policy. RATIO OF SHORT TERM FINANCING TO LONG TERM FINANCING:What would be the relative proportions of short-term bank financing on one hand and long-term sources of finance and the other hand. If the firm pursues a very conservation current assets policy is should carry a high level of current assets in relation to sales. If the term follows highly aggressive current assets policy. An aggressive current financing policy relies heavily on short-term bank finance and seek to reduce dependants on long – term financing. 2. It would carry a low level of current assets in relation of sales.

Moderate 3. Conservative 2.1. FINANCING OF WORKING CAPITAL:Normally. Taking note of the internal generation of funds for 56 &57 the period in question be decisions on the . Aggressive CONSERVATIVE: A conservative overall working capital policy means that the firm chooses conservative current assets policy along with conservative current assets financing policy. MODERATE: A moderate overall working capital policy reflects a combination of a conservative current assets policy and aggressive current assets financing policy or a combination of an aggressive current assets policy and conservative current assets financing policy. AGGRESSIVE: An aggressive overall working capital consists of an aggressive current assets policy and aggressive current assets financing policy. financing arrangements are planned for a combination of needs including capital expenditure and working capital investment the assessment of sources of funds from a package and rarely will be possible to concept upto a particular shows to a specific application or use at the same time financing manager does make an assessment of the investment needs as well as current assets and decider an a proper mix of long and short term funds.

Where the commitments are certain but cash flows are not clearly predictable. Rights debentures for working capital. 6. Inter corporate deposits 5. Short term loans from financial institutions . Working capital advances by commercial bank. Of all the above the most significant sources of working capital finance are trade credit and bank borrowings. Typically the current assets of a firm are supported by the combination of long term and short term sources of financing long term sources of finance are equity. preference term loans and debentures which primarily are fixed assets and secondarily provide working capital margin. a past of the funds required may be obtained from sources with longer maturity schedules of the debts. it would wise to cut down drastically the number and extent of short term debts to manageable levels and prefer longer maturity schedules for debts. after trade credit bank borrowing are the next important sources of financing working capital requirements of firms in India. Trade credit 2. Emerging sources commercial paper and factoring.extent to which the firm would resort to issue of share or long short-term borrowing to mobile the required sources. Thus usually permanent and long-term finance is used to finance the permanent requirements or fixed assets and the net permanent current assets and a apart of the reasonable short term needs. The important sources of finance which more or less exclusively support current assets are: 1. . 7. Short term debts can take care of the seasonal needs of the organization even here to take care of vagaries in cash flow. 3. Public corporate deposits 4.

3. They will finance only a reasonable part for the remaining borrower should depend upon his own funds. be ensured to eliminate slow moving and flabby inventories. he should draw operating plans for the ensuring year and supply them bankers. generated internally and externally. .Tanton committee has suggested guidelines for the ratio allocation and optimum use of the bank credit for the working capital requirement. therefore. The bankers should finance only the genuine production needs of the borrower. The borrowers should indicate the likely demand for credit. Efficient management of resources should. TANDON COMMITTEE RECOMMENTIONS:1. The borrower should maintain the reasonable levels of the investor and receivable. This procedure will facilitate credit planning at the bankers credit needs in a realistic manner and the periodic follow up during the ensuring year 2. For this purpose. The working capital needs of the borrower cannot be entirely financed by the bankers. He should hold just enough to carry on his targets production.

2. The banks while assessing the credit requirements from borrowers should fix separate limits where as feasible. Changes in the level of sales and\ or operating expenses. 2. Only the total of current assets and current liabilities increase and decrease. Borrowers should submit quarterly projection of cash credit banks. CHANGES IN WORKING CAPITAL:The working capital of a concern is subject to changes due to several reasons. Changes in the technology. But net working capital we mean the excess of current assets over current liabilities. 2. As we know that the gross working capital is equal to current assets. Which decrease the current assets and current liabilities both increase in the same direction by a transaction it does not bring any change in the net working capital of the concern. As far as possible the borrowers should be discouraged for approaching the bank frequently limitation in excess of sanction limits. 1. 3. 4. . Policy changes.CHORE COMMITTEE RECOMMENDATIONS:1. The net working capital is therefore. Suitable provision should be made for charging of pena rate of interest in even of any defaults in the timely repayment of working capital loan. affected by the following transactions. Which increase the current but not the current liabilities. REASONS FOR CHANGES IN WORKING CAPITAL:1. 3.

A form of statement is shown below. The net increase or decrease is then carried forward to the funds flow statement. . a decrease in the amount of any current assets or an increase in amount of current liabilities in the current year in comparison to that in the previous year and total decrease in the end is compared and the different of total increase and total decrease shows net increase or decrease in the working capital. But now a statement is prepared to deficit the changes in working capital. Net increase in working capital is an application of funds and net decrease in working capital in the source of funds. Similarly.STATEMENT OF CHANGES IN WORKING CAPITAL:Until now any increase decrease in any individual item of current assets and current liabilities was shown in the funds flow statement. If there is an increase in the amount of any current liabilities in the current year in comparison to that in that in the previous year. The statement of working capital is prepared with the help of current assets and current liabilities of the two periods the figures of 2 periods are compared. it will result to an increase in the working capital.


51 36.30 100.19 3.02 7.STATEMENTS OF SUDHA AGRO OIL & CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 20052005-06 PERCENTAGE 06 PARTICULARS CURRENT ASSETS. LOANS AND ADVANCES Inventory Sundry Debtors Cash & Bank Balance Other current assets Loans and advances Gross working capital (A) 623.38 10.58 5837 150.77 1466.39 52829 105.40 42.00 .

14 46.90 54.54 4.90 472.63 1532.00 STATEMENTS OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2006-07 PARTICULARS CURRENT ASSETS.21 61.00 .12 3.03 994.77 71.44 10.94 100.14 35.67 100.06 12. LOANS AND ADVANCES 2006-07 PERCENTAGE Inventory Sundry Debtors Cash & Bank Balance Other current assets Loans and advances Gross working capital 706.83 154.CURRENT LIABILITIES &PROVISION Current liabilities Provision Total current liabilities and provisions(B) Net working capital(AB) 411.99 543.10 87.

LOANS AND ADVANCE 2007-08 PERCENTAGE Inventory Sundry Debtors Cash & Bank Balance Other current assets Loans and advances 991.68 31.(A) CURRENT LIABILITIES &PROVISION Current liabilities Provision Total current liabilities and provisions(B) Net working capital(AB) 423.32 49.43 88.08 1020.27 .62 217.32 100.68 17.61 10.89 4.05 630.53 3.39 90.00 STATEMENTS OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2007-08 PARTICULARS CURRENT ASSETS.06 82.65 512.43 65.

65 63.05 4.41 521.62 59.37 2.47 100.44 77.52 22.37 1305.Gross working capital (A) CURRENT LIABILITIES &PROVISION Current liabilities Provision Total current liabilities and provisions(B) Net working capital(AB) 1994.00 STATEMENTS OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2008-09 PARTICULARS CURRENT ASSETS.43 154.94 689. LOANS AND ADVANCES 2008-09 PERCENTAGE Inventory Sundry Debtors Cash & Bank Balance Other current assets Loans and advances 1411.00 534.58 104.06 21.81 100.66 .83 12.80 105.

Gross working capital (A) CURRENT LIABILITIES &PROVISION Current liabilities Provision Total current liabilities and provisions(B) Net working capital(AB) 2389.18 8.93 93.40 24.56 482.68 .65 100.23 1511.34 24. LOANS AND ADVANCES 2009-10 PERCENTAGE Inventory Sundry Debtors Cash & Bank Balance Other current assets Loans and advances 1164.60 4.00 661.50 878.37 162.31 91.00 STATEMENTS OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2009-10 PARTICULARS CURRENT ASSETS.14 4.59 100.36 75.73 216.23 58.

43 83.39 528.25 709.73 STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2005-06 PARTICULERS 2005 CURRENT ASSETS inventories Sundry Debtors Cash & Bank Balance Other current assets Loans and advances 658.36 147.37 150.29 105.85 181.06 42.77 ---32.00 567.08 -75.06 -34.Gross working capital (A) CURRENT LIABILITIES &PROVISION Current liabilities 1994.37 623.30 226.95 26.59 BALANCE 2006 CHANGES IN WORKING CAPITAL INCREASE DECREASE .4 100.87 58.

00 Provision TOTAL (B) Working capital (A-B) Increasing in working capital TOTAL 1241.00 246.TOTAL (A) CURRENT LIABILITIES 1768.25 Current liabilities 12.40 -- -- -1241.09 472.21 61.00 527.25 411.09 -- 994.60 382.25 1466.31 104.00 246.70 -382.70 STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2006-07 PARTICULERS 2006 CURRENT ASSETS BALANCE 2007 CHANGES IN WORKING CAPITAL INCREASE DECREASE .71 515.60 1241.04 --- -49.

37 150.08 ---- 12.06 -BALANCE 2008 CHANGES IN WORKING CAPITAL INCREASE DECREASE .53 49.87 58.16 STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2007-08 PARTICULERS 2007 CURRENT ASSETS inventories 706.77 1466.60 15.55 -- 1020.05 -102.77 71.14 83.65 148.71 706.31 423.99 543.21 27.09 Provision TOTAL (B) Working capital (A-B) Increasing in working capital TOTAL 994.14 411.83 154.05 284.29 105.inventories Sundry Debtors Cash & Bank Balance Other current assets Loans and advances TOTAL (A) CURRENT LIABILITIES 623.59 79.05 -- -- 25.65 1020.63 1532.23 88.03 --- ---3.05 -148.21 Current liabilities 61.16 25.65 512.90 54.39 528.99 901.40 472.

77 71.99 STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2008-09 PARTICULERS 2008 CURRENT ASSETS inventories 991.66 -- ---6.39 90.65 provision TOTAL (B) Working capital (A-B) Increasing in working capital TOTAL 1020.79 62.41 420.90 54.48 35.25 -1264.14 630.63 1532.19 1264.05 512.36 -BALANCE 2009 CHANGES IN WORKING CAPITAL INCREASE DECREASE .19 468.31 423.57 ---- 152.29 -- 1264.25.99 244.62 217.82 86.83 154.62 154.32 1994.08 575.Sundry Debtors Cash & Bank Balance Other current assets Loans and advances TOTAL (A) CURRENT LIABILITIES 543.94 730.05 1411.25 -- -- 244.43 65.19 66.43 Current liabilities 88.00 -468.

82 --1.62 Current liabilities 154.11 1511.7 575.11 61.59 -70.56 -- 1511.23 ---- 86.Sundry Debtors Cash & Bank Balance Other current assets Loans and advances TOTAL (A) CURRENT LIABILITIES 630.41 1164.43 65.30 247.11 104.11 505.65 65.82 521.72 14.73 216.80 288.62 217.50 878.57 661.36 -- -- 247.94 Provision TOTAL (B) Working capital (A-B) Increasing in working capital TOTAL 1264.22 -- 108.30 STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2009-10 PARTICULERS 2009 CURRENT ASSETS inventories 1411.85 BALANCE 2010 CHANGES IN WORKING CAPITAL INCREASE DECREASE .36 -505.36 -1511.32 2389.39 90.25 730.54 -246.32 1994.

94 93.24 567.32 91.30 677.51 Provision TOTAL (B) Working capital (A-B) Increasing in working capital TOTAL 1511.44 ---29.70 -- -- -1511.Sundry Debtors Cash & Bank Balance Other current assets Loans and advances TOTAL (A) CURRENT LIABILITIES 521.37 and in the year 200809it was decreased.61 482.21 -- ---- 1316.71 -- 661.11 and in the year 2006-07it was 2.65 63.23 1994.37 194. where as in the year of 2007-08 . At last the companies overall liquidity position is not in good .73 Current liabilities 216.38 162.67 1511.78 INTERPRETATION Sudha agro chemical industries pvt ltd has a current ratio in the year 2005-06 it was 3.42 125.37 878.80 288.67 424.61 39.74 94.62 2389.44 110.80 12.29 106.61 .99 after 2007-08 it was decreasing trend but in the year 2009-10 the ratio is 2.94 which is above the standard ratio .37 194.12 104.78 -424. The company in the years of 2005-06 and 2006-07 as 1.it was in decreased to 1.

owners and management. and more interested in the long-term solvency and profitability of the firm. the parties interested in financial analysis are short and short and long-term creditors. on the other hand. “Short-term creditors” main interest is in liquidity position or the short-term solvency of the firm. Long-term creditors.Then it is gradually increased to 98days in 2009-10which means liquidity of inventory is not better. After that it went on decreasing to lowest of 1. RATIO ANALYSIS Several ratios calculated from the accounting date. The above statement showing about the details of stock at the opening of the year and at the closing .In the year 2006-07 it is 7. In the year 2000-10 the firm shows an increasing trend . As stated earlier.it shows an increasing trendup to next year . which is highest recorded .5 . From the year 2005-06. In the year 2007-08 is same .29.64 in 2009-10. owners .The absolute liquidity ratio of the company was not upto the mark during all the years. For the company efficiency is decreasing .in the year of 2008-09 there is decrease in the stock at the end of the year . During the year 2007-08 it was declined that means it has never reached the standard of 0. Thesituation is due to very small balance of cash maintain by the firm for itsworking capital requirements. It shows that there is no proper control over 72the inventory by the management The company showed a holding period return of nearly 37 days in the year 2005-06 which is very better compare to other years . can be grouped into various classes according to financial activity or function to be evaluated. Similarly.

which are easily convertible into cash in order to meet the liabilities as and when arising. we may classify them into the following four important categories. bank balance and those assets. Management is interested on in evaluating every aspect of the firm’s performance. They have to protect the interests of all parties and see that the firm grows profitably. Current ratio:- . the ratios study the firm’s short-term solvency and its ability to pay off the liabilities. TYPES OF RATIO: Liquidity ratios  Leverage ratios  Activity ratios  Profitability ratios Liquidity ratio:The liquidity refers to the maintenance of cash. So. In view of the requirements of the various users of ratio.concentrate on the firm’s profitability and financial conditions.

Absolute liquid ratio:It is ratio of absolute liquid ratio assets to quick liabilities. Income received in advanced. it is taken as ratio of liquid assets of current liabilities. Current assets are assets which can be converted into cash within one year and include cash in hand and at bank. stock of raw materials. 2) quick Ratio:Quick assets Quick ratio = -------------------------------------------------Quick liabilities A quick ratio of 1 is considered as ideal. sundry creditors. a current ratio of is adequate. and outstanding expenses. for calculation purposes. Absolute liquid ratio . A quick ratio of less than 1 is indicated of inadequate liquidity of the business. prepaid expenses. proposed dividend. bills receivable. finished goods and work in progress. provision for taxation.Current ratio is the ratio of current and current liabilities. outstanding and occurred incomes. which are to be repaid with in a period of 1 year and include bills payable. Trade investment or marketable securities are equivalent of cash therefore. and short term or temporary investments. they may be included in the computation of absolute liquid ratio. A very high ratio is also not available as funds can be profitability employed. bank over drafts. Current liabilities are liabilities. However. net sundry debtors. unclaimed dividends and short term loans and advances repayable within 1 year Current assets Current Ratio= ----------------------------------------------Current liabilities A current ratio 2:1 is considered as ideal: if a business has an undertaking with its bankers to meet its working capital requirements short notices.

are more concerned with firms long –term financial strength. There are two aspects of the long-term solvency of a firm 1) Ability to repay the principal when due.term solvency of a firm can be examined by using leverage ratio.Absolute quick ratio = ------------------------------------------------Current liabilities a) Leverage ratios: leverage ratio indicate the relative interest of owners and creditors in a business. The long-term creditors like debenture holders. . It shows the proportions of debt and equity in financing the firm’s assets the long.. financial institutions etc. and 2) Regular payment of the interest they leverage ratio are calculated to measure the financial rest and firms abilities of using debt.

usually. Capital employed will include total debt and net worth. A highly debt burdened firm difficulty in raising funds from creditors and owners in future. A low ratio implies a smaller claim of creditors. refers to long-term liabilities. The firm may be interested in knowing the proportion of the interest bearing debt in the capital structure by calculating total debt ratio. Total Debt Debt-Equity = ------------------------------------- . The equity indicates the margin of satisfy to the creditors so. Creditors treat the owner’s equities as a margin of safety. The relationship describing the lenders contribution for each refers of the owner’s contribution is called debt equity ratio. Total Debt Total Ratio = ---------------------------------------------Capital Employed 3) DEBT -EQUITY RATIO:It reflects the relative claims of creditors and shareholders against the assets of the business. large claim against the assets of the firm. Debt. there is no doubt the Beth high and low debt equity ratios are not desirable. Equity include preference share capital and reserves. which strikes a proper balance between debt and equity. A high ratio shows a large share of financing by the creditors relative to the owner’s and therefore. What is needed is a ratio.I) TOTAL DEBT RATIO:Total debt will include short and long-term borrowing from financial institution debentures bonds.

A high proprietor’s ratio is indicative of strong financial position of the business. Total assets= fixed assets + current assets (excluding fictitious assets) Reserve earmarked specifically for a particular purpose should not be included in calculation of net worth. and surplus.Net worth Some financial experts opine that debt should indicate current liabilities also. it is treated as a part of shareholders funds. In case of preference share capital. 77 4. Net worth Property ratio= ---------------------------------------Total assets Net worth= equity share capital + preference share capital + reserves – fictitious assets. 1. they are taken as a part of long-term debt shareholder funds are also known as proprietor funds and it indicates items equity share capital. FIXED ASSETS RATIO:Fixed assets Fixed Assets = -----------------------------------------Capital employed . reserve. the better it is. PROPRIETORY RATIO:It expresses the relation between net worth and total assets. this is not a popular practice. However. The higher the ratio. but if the preference shares are redeemable. A debt equity ratio of 3:1 is considered ideal.

A high ratio is desirable but too high ratio indicates that the firm is very conservative in using debt and that is not using credit to the debt advantage of shareholder. measures the efficiency of a firm in managing and utilizing its assets. iii) ACTIVITY RATIOS:Activity assets turnover ratio.utilization of available resources and presence idle capacity. The firm should make efforts to improve the operating efficiency or to retire debt to have a comfortable coverage ratio. Debt Interest coverage ratio = --------------------Interest This interest coverage ratio shows the number of times the interest charges are covered by funds that are or demurely available for their payment.Capital employed – equity share capital + preference share capital + reserves + long term liabilities – fictitious assets.67 is considered idea INTEREST COVERAGE RATIO: This interest coverage ratio is computed by dividing earnings before interests and taxed by interest charges. A lower ratio indicates excessive use of debt or inefficiency operations. A financially well. Therefore. The total assets turnover ratio is computed by dividing sales by total assets.managed company will have its fixed assets financed by long term funds. the fixed assets ratio should never be more than 1) A ratio of 0. Sales 78 Total assets turnover ratio = ------------------------------------- . The higher the turnover ratio. the more efficiency the management and utilization of the assets while low turnover ratio is indicate of under. This ratio indicates the mode of financing the fixed assets.

Net credit sales Debtors turnover ratio = ------------------------------------Average debtors Net credit sales inspire credit sales after adjusting for sales returns. closing balance of debtors should be taken in the denominator.Total assets 2) WORKING CAPITAL TURNOVER RATIOS:- Cost of goods sold Working capital turnover ratio = ------------------------------------Working capital Where if cost of goods sold is known. A high working capital turnover ratio indicates efficiency utilization of the firm’s funds. it should not result in over trading. In case. . without adjusting provisions for bad debts. Net sales can be taken in the numerator. A debtors turnover collection period of 30-36 days is considered ideal. A high debtors turn over ratio or a low debt collection period is indicative of a sound credit management policy. “sales” can be taken in the numerator. 3) DEBTORS TURNOVER RATIO :Debtor’s turnover ratio expresses the relationship between debtors and sales. Debtors should be taken at gross value. It is calculated. In case information no credit sale is not available. However. Debtors include bills receivable. Working capital = current assets – current liabilities. average debtors be found.

In case information on credit purchase is not available purchase may be taken in the numerator.1. . No. In case avenue creditors can’t be found. of days year Debt collection period = ----------------------------------------Debt collection period An excessively long collection period implies a very liberal and inefficient credit and collection performance. CREDITORS TURNOVER RATIO:Creditor’s turnover ratio expresses the relationship between creditor’s and purchases. 2. Net credit purchase Creditors turnover ratio = --------------------------------------------Average creditors Net credit purchase imply credit purchase after adjusting for purchases returns. The average no. may indicate the firm’s inability in meeting its obligation in time. DEBT COLLECTION PERIOD:- The debt collection period measures the quality of debtors since it indicates the speed of the collection. or a high debt payment period. The creditor’s turnover ratio is 12 or more. This certain delays the collection delays the collection of each and impairs the firm’s liquidity. closing balance of creditors should be taken in the denominator. The shortest the average collection period implies the prompt payment by debtors. very less creditors turnover ratio. of days for which debtors remain outstanding is called debt collection period or average collection period. Creditors include bills payable. However.

4. A high fixed assets turnover ratio indicates better utilization of the firm’s fixed assets. A ratio around 5 is considered ideal.PAYMENT PERIOD RATIO:Creditors turnover rate can also be expressed in terms of number of days by the business to pay off its debts. INVENTORY TURNOVER RATIO:Stock turnover ratio indicates the number of times the stock has turned over into sale sin the year. after depreciation. Cost of goods sold Inventory turnover ratio = ------------------------------------------Average inventory . FIXED ASSETS TURNOVER RATIO:It is defined as Net sales Fixed assets turnover ratio = --------------------------------Fixed assets Fixed assets imply net fixed assets i.3 .e. It is termed as debt payment period which is calculated as:Number of days in a year Payment period ratio = -------------------------------------------Creditors turnover ratio 3. It is calculated.

They are calculated either in relation to sales or in relation to investment. Bankers. if average stock can’t be calculated. The net profit ratio is reassured by dividing net profit ratio indicates management efficiency in manufacturing administration and selling the products. This ratio is the overall firms ability to turn each rupee of sale into net profit. closing stock should be taken in the denominator. Similarly. Profit after tax . Profitability ratio’s measure the profitability of a concern generally. per profitable is the business. information regarding cost goods sold is not known. The higher the ratio. However. A high stock turnover ratio indicates that the stocks are fast moving and get converted into sales quickly. financial institutions and other creditors look at the profitability’s. If the profit margin is inadequate.Cost of goods sold = sales gross profit Average stock = (opening stock and closing stock 1\2) In case. Iv) PROFITABILITY RATIO:It measure the overall performance and effective of the firm. the firm fails to achieve satisfactory return on share holder’s funds. it may also be on account of holding low amount of stocks and replenishing stocks in larger number of installments. Poor operational performance may indicate poor sales and hence poor profits. ratio as an indicator whether or not the firm earns substantially more than it pays interest for the use of borrowed funds and weather the ultimate repayment of their debt appear reasonably certain owner are interest to know the profitability as it indicates the return which they can get on this instruments. 1) NET PROFIT RATIO It indicates the result of the overall operation of the firm. A stock turnover ratio of ‘8’ is considered ideal. A lower profitability may arise due to the lack of control over the expenses. Sales may be taken in the numerator.

This ratio also indicates the firm capacity to withstand adverse economic conditions. Such a firm will be able to accelerate its profits at a faster rate than a firm with a low net profit margin. the better it is for the share holders.Net profit ratio = ---------------------------------Net sales A firm with high net profit margin can make better use of favorable conditions. Such as rising selling prices. falling cost of products or increasing demand for the product. 2) RETURN ON ASSETS RATIO :Profit after tax Return on assets ratio = -----------------------------------------Total assets .RETURN ON NET WORTH RATIO :It indicates the return. which the shareholders are earning on their resources invested in the business. However. The higher the ratio. A trend analysis of the ratio over the past few years much is done to find out the growth or deterioration in the profitability of the business. inter firm comparisons should be made to ascertain if the returns from the company are adequate. Profit after tax Return on net worth ratio = -----------------------------------------Net worth Net worth = share holders funds = equity share capital + preference share capital + Reserves – factious assets. 3.

3) EARNINGS PER SHARE RATIO:Earnings per share are the net profit after tax and preferences dividend. the better it is. which is earned on the capital representative of one equity share. It calculated as :Profit after tax available to equity holders Earnings per share ratio = ----------------------------------------------------------------Number of ordinary share .Total assets do not include fictitious assets. The higher the ratio.

.  Ratio analysis is very useful for ranking management decisions and also highlights the performance in the area of profitability financial stability and operational efficiency.  Useful for intra & inter firm comparison.  Smile to understand rather than the reading but the figures of financial statement.  It is just in tabular form over a period of years indicated the trend of business.  Key tool in the hand of modern financial management.ADVANTAGE OF RATIOS  Useful of evaluation performance in terms of profitability and financial stability.  Useful forecasting and budgeting.  Enable outside parties to assess the strength and weakness of the firm.

The price level changes make the interpretation of ratios invalid.  Difference in accounting policies and accounting period make the accounting data of firms non comparable as also the accounting ratios. the differences in the definitions of items in the balance sheet and the profit & loss statement make the interpretation of ratios difficult.   It is very difficult to generalize weather a particular ratio is good or bad. As this may results from in efficient working capital management.LIMITATIONS OF FINANCIAL RATIOS The ratio analysis is widely used of technique to evaluate the financial position and performance of business. The analyst should be aware of these problems the following are some of the limitations of ratio analysis. But a high current ratio may not be good.  The ratios calculated at a point of time or less informative and defective as they suffer from short term changes. The comparison is rendered difficult because of differences in situations of two companies or of one company over years. . For ex: a low current ratio may be said bad from the point of view of low liquidity.   It is difficult to decide on the proper basis of comparison. But there are certain problems in using ratios.

94 .LIQUIDITY RATIO A)Current ratio Current ratio= Current assets Current liabilities Year 2005-06 2006-07 2007-08 2008-09 2009-10 Current assets 1468 1533 1995 2390 1994.4 Current liabilities Ratio 472.72 2.73 3.23 677.57 878.31 512.08 730.11 2.99 2.73 2.


As conventional rules a current ratio of 2:1 is satisfactory.8 730.99 after 2007-08 it was in decreasing trend but during in the ratio is 2.Interpretation The current ratio is calculated by dividing current assets with current liabilities .37 .95 Current liabilities Ratio 472. Sudha agro chemical industries pvt ltd has a current ratio in the year 200506 was recorded 3.61 826.57 1.01 1003.it is a measure of firms short-term solvency.94 which is above the standard ratio B) quick Ratio: Quick Ratio = quick Assets Current liabilities year 2005-06 2006-07 2007-08 Quick assets 844.61 1.79 1.11 and in and in the year 2006-07 it was 2.31 512.

73 1.23 677.the accepted standard is 1:1 .59 829.2008-09 2009-10 978.11 1.22 INTERPRETATION This ratio establishes relation between the quick assets &current liabilities.84 878. As assets is liquid if it can be converted into cash immediately or reasonably soon without loss of value .

61 .58 154.31 512.58 162.22 0.12 0.8 730.23 677.where as in the years of 2007-06 .37 and in the year of 2008-09.it was in decreased to 1.24 .The quick ratio of sudha agro chemical ltd was favorable in the years of 2005-06 and 2006-07 as 1.73 Ratio 0.79 and 1.30 0.39 105.57 878.30 0.31 current liability 472.At last the company’s overall liquidity position is not in good C) Absolute liquid ratio Absolute liquid ratio = cash Current liabilities year 2005-06 2006-07 2007-08 2008-09 2009-10 cash 105.90 217.it was decreased .

The accepted standard ratio The absolute liquidity ratio of sudha agro chemical ltd was not up to the mark during all the years 2005-06. In the year 2009-10 the firm shows an increasing trend. . In the year of 2007-08 is same. it shows an increasing trend up to next year.5.The situation is due to very small balance of cash maintain by the firm for its working capital requirements. During the year of 2008-09 it was declined that means it has never reached the standard of 0.INTREPRETATION: The ratio establish the relation between cash and current liabilities. Cash is the most or absolute liquid asset for any firm.

88 1.36 7. INVENTORY TURN OVER RATIO a) Inventory turnover ratio: Inventory turn over ratio= cost of goods sold Average stock year 2005-06 2006-07 2007-08 2008-09 2009-10 Cost of goods sold 2939 3955.72 Ratio 5.11 7.18 5207.7 7034.89 1812.64 .39 6.89 Average stock 547.2.21 1101.74 556 704 1023.


the efficiency is decreasing .39 .64 in 2009-10.36 7.The ratio indicates the efficiency of the firm in selling its product it is calculated by dividing the cost of goods sold with average inventory.11 7.09 51.it is 7.in the year of 2006-08.39 Holding period return 68.33 49.39 .which is highest recorded. For sudha agro chemicals limited . It shows that is no proper control over the inventory by the management HOLDING PERIOD RETURN: Holding period = 365 ITR Year 2005-06 2006-07 2007-08 Number of days in Number of days in year 365 365 365 Inventory turnover ratio 5. After that it went on decreasing to lowest of 1.

88 1.2008-09 2009-10 365 365 6.56 INTERPRETATION: .31 53.05 222.

61 . Sudha agro chemicals limited showed a holding period return of nearly Sudha agro chemicals limited showed a holding period return of nearly 37 days in the year of 2005-06 . which is very better compare to other years then it is gradually increased to 98days in 2009-10 which means the liquidity of inventory is not better.The ratio indicates the speed with which the stock or inventory gets converted in to cash i. C) Statement showing changes in stock at the end of the year year 2005-06 Opening stock 623. sales the lower the period . the better liquidity of the inventory.39 Closing stock 707 Increase/decrease 83..e.

35 246.06 420.70 284.05 1411.56 991.85 152.05 141141 1164.41 1164.13 .2006-07 2007-08 2008-09 2009-10 707 991.56 1316.

3.RECEIVABLE MANAGEMENT .in the year of 2005-06 there is decrease in the end of the of the year. a) Debtors turnover ratio: .INTREPRETATION: The above statement showing about the details of stock at the opening of the year at the closing .

55 6497.52 26.14 315.31 260.83 3680.78 33.88 8746.69 Average debtors 271.94 .32 6553.90 241.17 20.DTR= sales Average debtor Year 2005-06 2006-07 2007-08 2008-09 2009-10 sales 5214.18 ratio 13.93 19.91 264.

INTREPRATATION: Book debts are expected to be converted in to cash over a short period and therefore are included in current assets . . The ratio indicated the number of items on an average that the turn over takes place each year .the liquidity position of the firm depends on the quality of a great extent.generally the ratio the more efficient is the management of credit .

52 in the year 2008-09 it was decreased to 13.maintain a good ratio of 33.93 in the year of 2005-06 .56 10.88 13.91 19.Sudha agro limited .54 .25 19.17 20. of days 365 365 365 365 365 Dtr 13.which not good compared to all the previous years.94 period 26. b)Average collection period: ACP = 365 Debtor turnover ratio Year 2005-06 2006-07 2007-08 2008-09 2009-10 No.04 17.52 26.78 33.


The ratio indicates the period in which debt can be recovered. From the above table in the year 2005-06are 26.25 which is good, where it was decreased in the year 2008-09 ,which is not good.





• With reference to the working capital study of SUDHA AGRO OIL AND CHEMICALS quantity of working capital is contributed by short source of finance • In this gross working capital of the firm, a major part is occupied by inventory and sundry debtors. • The current ratio is maintained by the company is 2:1; the company exceed minimum current ratio at all the years statement.

• Inventory turn ratio is well in satisfied position it is high at 2007-08. • In the debtor turn over ratio is also at well satisfied position it is highly obtain at the year of 2008-09. • The absolute liquid ratio is not satisfied position fluctuations are take place it is high and some at the years 2007 to 2008.• The quick asset ratio minimally maintained by the company are 1:1 . The current position is less than that of previous year that is 26. • Average collection period high is at the 2006 and is poor at 2009. • In order to achieve to the goals of the organization as whole and achievement of performance appraisal technique is very useful .64. the company was satisfy this position up to 2010. It is very poor at the current year of the study that is 1. • The company has been maintaining sufficient amount of working capital in all the years SUGGESTIONS 1) suggested the company should follow the present working capital. .94.

4) Company is maintaining high quick assets to overcome current liabilities for better results. 8) The company should make arrangement of receivables and cash. 3) The current ratio is maintained at a satisfied level. having pay high EPS & DPS.2) The company spends reasonable amount on inventory so that it should be followed. 7) The company b should try to reduce external liabilities. 5) For better results company has to maintain cash inflows to overcome current liabilities of the firm. . 6) To gain good profits company has to improve the sales through inventory management. So that company peruses this much of current assets to meet the objective of the firm.

internal.growth expansion and modernization of the business .CONCLUSION Working capital management analysis is an in depth analysis .. Hence . working capital management which integrated . intermediate. The SUDHAAGRO OIL AND CHEMICALS is company. which give preference to the common mans privilege.overages the entire financial management the with refers to integrated.it is on integrated approach and constant measure may be adopted for better managerial performance. and organization based financial and analytical measurement the study always a strategic measurement with reference in performance . working capital analysis itd criteria is distinctive work while and commendable technique in postulating the financial behavior of business enterprise. Thus.

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