WORKING CAPITAL MANAGEMENT OF AMUL

PROJECT SYNOPSIS
SUBMITTED BY: RUCHI PATEL ROLL NO. : TYPE YOUR ROLL NO HERE

Submitted In Partial fulfillment of the Requirement for the Award of the Degree of Master of Business Administration

SMU Sikkim Manipal University Directorate of Distance Education Year : 2013

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INTRODUCTION In a perfect world, there would be no necessity for current assets and liabilities because there would be no uncertainty, no transaction costs, information search costs, scheduling costs, or production and technology constraints. The unit cost of production would not vary with the quantity produced. Borrowing and lending rates shall be same. Capital, labour, and product market shall be perfectly competitive and would reflect all available information, thus in such an environment, there would be no advantage for investing in short term assets. However the world we live is not perfect. It is characterized by considerable amount of uncertainty regarding the demand, market price, quality and availability of own products and those of suppliers. There are transaction costs for purchasing or selling goods or securities. Information is costly to obtain and is not equally distributed. There are spreads between the borrowings and lending rates for investments and finanancing of equal risks. Similarly each organization is faced with its own limits on the production capacity and technology it can employ there are fixed as well as variable costs associated with production goods. In other words, the markets in which real firm operated are not perfectly competitive. These real world circumstances introduce problem which require the necessity of maintaining working capital. For example, an organization may be faced with an uncertainty regarding availability of sufficient quantity of crucial imputes in future at reasonable price. This may necessitate the holding of inventory., current assts. Similarly an organization my be faced with an uncertainty regarding the level of its future cash flows and insufficient amount of cash may incur substantial costs. This may necessitate the holding of reserve of short term marketable securities, again a short term capital asset. In corporate financial management, the term Working capital management (net) represents the excess of current assets over current liabilities.
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WORKING CAPITAL In simple words working capital is the excess of current Assets over current liabilities. Working capital has ordinarily been defined as the excess of current assets over current liabilities. Working capital is the heart of the business. If it is weak business cannot survives. 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 company therefore to keep adequate working capital with the company. Cash is the lifeline of company. If this lifeline deteriorates so does the companies ability to fund operation, reinvest do meet capital requirements and payment. Understanding Companys cash flow health is essential to making investment decision. A good way to judge a companys cash flow prospects is to look at its working capital management. The company must have adequate working capital as much as needed by the company. It should neither be excessive or nor inadequate. Excessive working capital cuisses for idle funds laying with the firm without earning any profit, where as inadequate working capital shows the company doesnt have sufficient funds for financing its daily needs working capital management involves study of the relationship between firms current assets and current liabilities. The goal of working capital management is to ensure that a firm is able to continue its operation. And that it has sufficient ability to satisfy both maturing short term debt and upcoming operational expenses. So it is better to company manager for its working capital, should less the company needs to borrow. Even companies with cash surpluses need to manage working capital to ensure the those surpluses are invested in ways that will generate suitable returns for investors. The primary objective of working capital management is to ensure that sufficient cash is available to : Meet day to day cash flow needs. Pay wages and salaries when they fall due

 Pay creditors to ensure continued supplies of goods and services. Pay government taxation and provider of capital dividends and Ensure the long term survival of the business entity. NEED FOR WORKING CAPITAL The prime objective of the company is to obtain maximum profit through the business. The amount of profit largely depends upon the magnitude of sales. However the sale does not convert into cash instantly. There is always a time gap between sale of goods and receipt of cash. The time gap between the sales and their actual realization in cash is technically termed as operating cycle. Additional capital required to have uninterrupted business operations, and the amount will be locked up in the current assets. Regular availability of adequate working capital is inevitable for sustained business operations. If the proper fund is not provided for the purpose, the business operations will be effected. And hence this part of finance to be managed well.

COMPANY PROFILE The Birth of Amul It all began when milk became a symbol of protest Founded in 1946 to stop the exploitation by middlemen Inspired by the freedom movement The seeds of this unusual saga were sown more than 65 years back in Anand, a small town in the state of Gujarat in western India. The exploitative trade practices followed by the local trade cartel triggered off the cooperative movement. Angered by unfair and manipulative practices followed by the trade, the farmers of the district approached the great Indian patriot Sardar Vallabhbhai Patel for a solution. He advised them to get rid of middlemen and form their own co-operative, which would have procurement, processing and marketing under their control. In 1946, the farmers of this area went on a milk strike refusing to be cowed down by the cartel. Under the inspiration of Sardar Patel, and the guidance of leaders like Morarji Desai and Tribhuvandas Patel, they formed their own cooperative in 1946. This co-operative, the Kaira District Co-operative Milk Producers Union Ltd. began with just two village dairy co-operative societies and 247 litres of milk and is today better known as Amul Dairy. Amul grew from strength to strength thanks to the inspired leadership of Tribhuvandas Patel, the founder Chairman and the committed professionalism of Dr Verghese Kurien,who was entrusted the task of running the dairy from 1950. The then Prime Minister of India, Lal Bahadur Shastri decided that the same approach should become the basis of a National Dairy Development policy. He understood that the

success of Amul could be attributed to four important factors. The farmers owned the dairy, their elected representatives managed the village societies and the district union, they employed professionals to operate the dairy and manage its business. Most importantly, the co-operatives were sensitive to the needs of farmers and responsive to their demands. At his instance in 1965 the National Dairy Development Board was set up with the basic objective of replicating the Amul model. Dr. Kurien was chosen to head the institution as its Chairman and asked to replicate this model throughout the country.

OBJECTIVES OF THE STUDY To analyze the working capital of Amul. To analyze the change in Current Assets of the company. To analyze the change in Current Liabilities of the company. To evaluate working capital turnover ratio. To analyze the change in current ratio of the company.

RESEARCH METHODOLOGY
Analysis of past data a helps to understand the effectiveness of Working Capital Management. For the proper analysis of data simple statistical techniques such as percentage will be used. It helped in making more accurate generalization from the data available. I will analyze 5 year data from Balance sheet and Profit & Loss Account. TOOLS OF ANALYSIS In the present analysis of Working Capital Management secondary data will be used. I will use the following types of published data : Company Annual Report Balance Sheet Profit & Loss A/c LIMITATIONS OF THE STUDY Time will be limited. Different accounting procedures may make results misleading.

BIBLIOGRAPHY Books : Kothari C.R;Research methodology-methods & techniques, second edition, vishwa prakashan Delhi(1990). Gupta Sunita, Management of Working Capital,First Edition,New Century Publications,New Delhi(2003). Chandra Prasana, Financial Management,TMH, 4th Edition, 1997, New Delhi Gupta S.P., Management Accounting, Sahitya Bhawan Pub.,2002. Khan & Jain, Financial Mnaagement, MH 3rd Edition, 1999. Sharma R.K & Gupta Shashi K;Management accounting-principles and practice., eight edition, kalyani publishers New Delhi. Maheshwari S.N ;Management accounting and financial control, thirteen edition, sultan chand & sons, New Delhi(2002). Sharma R.K. & Gupta S.K., Financial Management, Kalyani Publishers, New Delhi 2003. Pandey I.M., Financial Management,Seventh Edition,Vikas Publishing House, New Delhi. Websites: www.amul.com www.myiris.com www.ibef.org www.moneycontrol.com
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