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WORKING CAPITAL MANAGEMENT

SHIVASHAKTHI DAIRY Pvt.Ltd.

CHAPTER-1
INTRODUCTION
Working capital may be regarded as the lifeblood of a business. Its effective
provisions can do much to ensure the success of business, which its inefficient
management can lead not only to loss of projects but also the ultimate downfall of
what otherwise, might be considered as promising concern. Thus, its management is
considered as one of the most important aspects of firm's Financial Management.
The term working capital stands for that part of the capital which is required
for the financial working of the company in simple words, we can say that working
capital is the investment needed for carrying out day to day operations of the business
smoothly.
Working capital refers to a firm's investment in short term assets, viz. Cash
short-term securities, Accounts receivable (debtors) and inventories of raw materials,
work in progress and finished goods.
It can be regarded as that portion of the firm's total capital, which is, employed
in short-term operations. Funds thus invested in current assets keep revolving false
and are being constantly concerted in to cash and this cash flow out again in exchange
for other current assets. Hence, it is also known as revolving or circulating capital.
According to genestenberg, "circulating capital means current assets of a
company that are changed in the ordinary course of business from one form to
another, as for example from cash to inventories, inventories to receivables,
receivables into cash".
Working capital is often referred to as lifeblood of an organization of its
the money required for carrying on day today activities of an organization. The
management of current assets is similar to that of fixed assets in the sense that in both
cases a firm analysis their effects on return and risk.
The management of fixed and current assets, however, differs in there
Important ways.

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1. First, in managing fixed assets, time is very important factor; consequently,


discounting and compounding techniques play a significant role in capital
budgeting and a minor one in the management of current assets.
2. Second, the large holding of current assets, especially cash, strengthens the
firms liquidity position (and reduce riskiness), but also reduces the overall
profitability. Thus, a risk-return trade off is involved in holding current assets.
3. Third, levels of fixed as well as current assets depend upon expected sales
fluctuations in the short run. Thus the firm has a greater degree of flexibility
in managing current assets.
Working capital is probable the often used financial management concepts
verbally and misused practically. Independent of the nature of an organization, its
constitution and activity requires working capital. Many organizations have failed or
become sick mainly due to the mismanagement of this working capital

FINANCE
Finance is one the basic foundations of all kinds of economic activities. It is
the master key, which provides access to all the sources for being employed in
manufacturing. Hence it is rightly said that finance is lifeblood of any enterprise,
besides being the scarcest elements, it is also the most indispensable requirement.
Without finance neither any business can be started nor successfully run. Provision of
sufficient funds at the required time is the key to success of concern. As matter of fact
finance may be said to be the circulatory system of economic body, making possible
the needed co-operation among many units of the activity.

FINANCIAL MANAGEMENT
Financial management emerged as a distinct field of study at the turn of this
Century. Many eminent persons defined it in the following ways.

DEFINITIONS
According to GUTHMANN AND DOUGHAL Business finance can
broadly be defined as the activity concerned with planning, rising, controlling and
administering of funds used in the business.

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According to BONNEVILE AND DEWEY Financing consists in the rising,


providing and managing of all the money, capital or funds of any kind to be used in
connection with the business.
According to Prof. EZRA SOLOMAN Financial management is concerned
with the efficient use of any important economic resource, namely capital funds.

1.1 INDUSTRY PROFILE


India with 185 million cows and 154 million buffaloes. Have the largest
population cattle in the world. Total cattle population in the country as on October
2010 stood at 339 million. More then 50% of buffaloes and 20% of cattle in the world
are found in India and most of these are milk cows and milk buffaloes.
Indian dairy sector contributes a large share in agriculture gross domestic products.
Presently there are around 70,000 village dairy cooperatives across the country. The
cooperative societies are federated into 170 district milk producers unions, which in
turn have 22 state cooperative dairy federations. Milk production gives employment
to more leading producer of milk in the world followed by USA. The milk production
in 1999-00 estimated at 78 million metric tons as compared expected to increase to 81
million metric tons by 2000-01. Of this total produce of 78 million cows milk
constitute 6 million metric tones while rest is from other.
While world milk production declined by 2% up last three years, according to FAC
estimates. Indian production has increased by 4%. The milk production in India
accounts for more than 13% of the total world output and 57% of total Asias
production. The top view milk producing nations in the world are idea, USA, Russia,
Germany and France.
Although milk production has grown at a fast pace during the last three decades milk
yield per animal is very low. The main reasons for the low yield are:
1. Lack of use of scientific practices in milking.
2. Inadequate availability of fodder in all seasons.
3. Non-availability of veterinary health services

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INDIA: world largest milk producer


India has become the worlds no.1 milk producing country. United States
where the milk production is anticipated to grow only marginally at 71 million tones,
occupied the slot till 1997. In the year 1997, Indias milk production was on par with
the U.S at 71 million tones.
Indias annual milk production has more than trebled in the last 30 years,
rising from 21 million tones in 1968 to an anticipated 80 million tones in 2001. This
braid growth and modernization is largely credited to contribution of dairy
cooperatives, under the operation flood (of) project, assisted by many multi-lateral
agencies, including the European union the world bank in the Indian context of
poverty and malnutritions, milk has a special role to play for its man notional
advantages as well as providing supplementary income to some 79 melon farmers in
over 500,000 remote villages.

MARKET SIZE AND GROWTH


Market size for milk (sold in loss/packaged from) is estimated to be 36 million
metric tones valued at Rs.470 billion; the market is currently growing at round 4% per
annum in volume terms. The milk surplus states in India are Uttar Pradesh, Punjab,
Haryana, Rajasthan, Gujarat, and Maharashtra, Andhra Pradesh, Karnataka and Tamil
nadu. The manufacturing of milk products is concentrated in these milk surplus states.
The top 6 states viz.
Uttar Pradesh, Punjab, Madhya Pradesh, Rajasthan, Tamil nadu and Gujarat
together account for 58% of national production.
Milk production grew by a mere 1% per annum, between 1947 and 1970.
Since the early 70's under operation flood, production growth increased significantly
averaging over 5% per annum.
About 75% of milk is consumed at the household level, which is not a part of
commercial dairy industry. Loose milk has a larger market in India as it is perceived
to be fresh by most consumers. It poses a higher risk of adulteration and
contamination.

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The production of milk products, that is milk products including infant milk
food, malted food, condensed milk and cheese stood at 3.07 lacks metric tones in
1999. Production of milk powder including infant milk food has risen to 2.25lkh
metric tone in 1999, where as that puff-malted food is at 65,000 metric tones cheese
and condensed milk production stands at 5000 and 11000 metric tone respectively in
the same year.

MAJOR PLAYERS
The packaged milk segment is dominated by the dairy cooperatives. Gujarat
cooperative milk Marketing Federation (GCMMF) is the largest player. All other
local dairy cooperatives have their local brands (for e.g. Gokul, Warana in
Maharashtra, sarasin Rajasthan, verka in Punjab, Vijaya in Andhra Pradesh, Aavin in
Tamil Nadu, etc.)
Other private players include J.K.Dairy, Heritage Foods, Indian Dairy, and
Dairy Specialties etc. Amrut industries, once a leading player in the sector has turned
bankrupt and in facing liquidation.

EXPORT POTENTIAL
India has the potential to become one of the leading players in milk product exports.

LOCATION ADVANTAGE
India is located amidst major milk deficit countries in Asia and Africa. Major
importers of milk and milk products are Bangladesh, China, Hong Kong, Singapore,
Thailand, Malaysia, Philippines, Japan UAD, Oman and other gulf countries, all
located close to India.

CONCERNS IN COMPETITIVENESS ARE


QUALITY
Significant investment has to be made in milk procurement equipment,
chilling and refrigeration facilities. Also, training has to be imparted to improve the
quality to bring it up to international standards.

PRODUCTIVITY

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To have an exportable surplus in the long term and also to maintain cost
competitiveness, it is imperative to improve productivity of Indian cattle.

FOREIGN COLLABORATION IN INDIA


The liberalization of the Indian economy in 1991 has attracted multinational
dairy enterprises in hundreds. Specialty dairy products like cheese; casein, lactose
and multinational corporations are now manufacturing whey proteins in India. The
advent of foreign brands produced in India is changing the profile in the national dairy
industry.

PACKAGING TECHNOLOGY
The local milkman initially sold milk door to door.

When the diary

cooperatives initially started marketing branded milk, it was sold in glass bottles
sealed with foil. Over the years several developments in packaging media have taken
place. In the early 80s plastic pouches replaced the bottles. Plastic pouches made
transportation and storage very convenient, besides reducing costs. Mild packed in
plastic pouches/bottles have a shelf life of just 1-2 days, that too only if refrigerated.

FUTURE PROSPECTS
Indias dairy sector is expected to triple its production in the next 10 years in
view of expanding potential for export to Europe and the West. Moreover with WTO
regulations expected to come into force in coming years all the developed countries
which are among big exporters today would are the withdraw the support and subsidy
to their domestic milk products sector.

1.2 COMPANY PROFILE


SHIVASHAKTHI DAIRY PVT.LTD. Was started in the year 1990 by
Dr.P.RAMCHANDRA REDDY M.L.A. The managing director of the Shivashakthi
Dairy pvt.ltd was P.MIDHUN REDDY M.B.A. SHIVA SHAKTHI DAIRY PVT.
LTD. Was situated in Sadum Mendel, Chittoor (D.t), Andhra Pradesh. An area
where basic raw material milk is available in plenty. The main function of the

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company is to procure the milk (raw) in and around Sadum taluk and process the milk
at factory, pack the processed milk and supply in to the Chennai and Bangalore cities.
The product range of the company is

1. Milk (toned, full cream milk)


Toned Milk which is having 3% fat and have 8.55 of SNF (solid not fat) which is
available at 18 Rs. Per.ltr.
Full cream milk which is having 6.5% fat and have 9% of SNF (solid not fat)
which is available at 22 Rs. Per.ltr.
2. Cream
3. Ghee
SHIVASHAKTHI DAIRY PVT. LTD. enjoys excellent reputation as a fair and

reliable of raw milk from dairy farmers.

QUALLITY CONTROL
The most significant aspect of S.S dairy is its quality products reflecting its
sound quality functions. It has well equipped laboratory with the sound work culture.
Recognizing quality as they key to prosperity the dairy has laid specific emphasis on
quality control operates with major functions like assessing commercial quality,
minimizing spoilages ensuring quality conformity milk and milk products, exercising
process controls, assessing sanitation, status of equipment, inspection of additives
formulation of standards and inspections of packaging materials, developing test
methods, stability and accelerated tests for quality guarantee of the products and
review of market complaints for improving the production practices.

Procurement

Production

ShivaShakthi
Dairy

promotion

Pvt.Ltd.

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SHIVASHAKTHI DAIRY PVT LTD FOUR PS OF PROFITABLE DAIRY:

Procurement
Production
Processing
Promotion

Procurement
Procurement covers collection of milk from rural producers or contractors,
including setting up of chilling centers. Provisions of laboratory equipment and
supplies milk vending machines, cattle welfare including feeding and fodder and
transportation.

Production
Promotion includes activities of producing various types of liquid milk. The
conventional whole toned and standardized as well as innovative like extra, nutrition
for school children, pregnant mothers, the aged and infirm, low fat for the calorie
conscious.

Processing
Processing products includes that the collected milk is stored and after storing
the milk is converted in to toned milk and full cream milk, ghee and cream is made
from the milk in the dairy.

Promotion
Promotion covers activities like brand promotion setting by dairy parlors,
buying milk in bulk and repacking to self, distribution, which will result in building
and image either nationally and regionally.
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1.3 PRODUCT PROFILE


The milk sold in the market as buffaloes milk is often mixed with cows milk,
buffaloes milk has portion of total solid and fats and then cows milk and admits of
large dilution with water. So highly rich in fat contents.

TYPES OF MILK
According to quality (fat) we can divide in to thee types of milk they are.
1. Toned milk ,which is having 3%fat and have 8.5% of SNF(solid not fat) which
is available at Rs;18 per.ltr.
2. Full cream milk which is having 6.5% fat and have 9% of SNF which is
available at Rs;22 per. lit.
3. Skim milk which is having 05 fat and have 6% of SNF which is available at
Rs;12 per.ltr.
THE SHIVASHAKTHI DAIRY LTD HAS THREE PRODUCTS
1. Milk (toned full cream, skim)
2. Cream
3. Ghee
Competitors for shiva shakthi dairy pvt.ltd.
1. Nandini
2. Heritage
3. Dodla
4. Sangam
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5. Tirumala.

CHAPTER-2
LITERATURE REVIEW
2.1 MEANING OF THE WORKING CAPITAL
Working capital management or administration of all aspects of working
capital, which manage the firms current assets and current liabilities in such a way
that a satisfactory level of working capital is maintained.
According to smith working capital management is concerned with the
problem that arise in attempting to manage the current assets, current liabilities, and
the interrelationship that exists between them

SCOPE OF THE STUDY


Highlighting the necessity of current assets and current liabilities.
Explain the principles of current assets, investment and financing.
Focus on the proper mix of short term financing for current assets.
Emphasis the need and goal of establishing a sound credit policy.
Suggest the need of monitoring the receivables.
Highlight the need for holding cash.
Discuss the techniques of preparing cash budget.
Focus on the management of cash collection and disbursement.

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OBJECTIVES OF THE STUDY


To evaluate the performance of Shiva Shakthi Dairy Pvt.ltd by analyzing the
profitability and liquidity position of the company.
To study changes in working capital position at the organization from 20072011
To examine the turnover of the company.
To identify and analyze relationship between working capital, sales, fixed asset
to sales etc.
To suggest measures if any for improving financial performance of company.

LIMITATIONS OF THE STUDY


It is based on the data supplied by the company personnel.
It is based on consultation, decisions of all concerned officials.
Time is the major limitation for the study i.e., study conducted based on the 4
years financial reports. We cant determine the over all financial position of
the company.
Due to limitation of time, it was unable to go far a depth study in to the
subject.

TYPES OF WORKING CAPITAL


There are two types of working capital.
KINDS OF WORKING CAPITAL

ON THE BASIS OF CONCEPT

GROSS WORKING NET WORKING


CAPITAL
CAPITAL
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ON THE BASIS OF TIME

PERMANENT OR
TEMPORARY OR
FIXED WORKING
VARIABLE
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CAPITAL

REGULAR
WORKING
CAPITAL

WORKING CAPITAL

RESERVE
WORKING
CAPITAL

SEASONAL
WORKING
CAPITAL

SPECIAL
WORKING
CAPITAL

1). ON THE BASIS OF CONCEPT


A). Gross working capital.
B). Net working capital.

A. Gross working capital


Refers to the firms investment in current assets are the assets, which can be
concerned into and with in an accounting year (or ) operating cycle and include cash,
Short-term securities, debtors (accounts receivables or book debts) bills receivable
and stock (inventory) Gross working capitals points to the arranging of funds to
finance current assets.

B. Net working capital


Refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders, which are expected to nature for payment
within accounting years and include creditors (accounts payable). Bills payable and
outstanding expenses. Net working capital can be positive. A Positive net working
capital will arise when current assets, exceed current liabilities and a Negative
working capital will arise when current liabilities are in excess of current assets.

2). ON THE BAIS OF TIME


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A. permanent/fixed/fluctuating working capital.


B. Temporary working capital.

A. Permanent working capital


The need for current assets arises because of the operating cycle. The operating
cycle is a continuous process and therefore, the need for the current assets is felt
constantly. But the magnitude of current assets needed is not always a minimum level
of current assets, which is continuously required by the firm to carry on its business
operations. This minimum level of current assets is referred to as permanent or fixed
working capital.

Example: - every firm has to maintain a minimum level of raw materials, wok-inprogress, finished goods and cash balance. This minimum level of current assets is
called permanently blocked in current assets. As the business grows, the requirements
of permanent working capital also increase due to the increase in current assets.

Temporary
Or
Fluctuating
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Permanent

Time

B.Temporary working capital


Depending upon the changes in production and sales, the need for working
capital over and above permanent working capital, will have in be maintained to
support the peak proceeds of sale and investment in receive may also increase during
such periods. On the other hand, investment in raw material, working in progress and
finished goods will fall if the market is slack.
The extra working capital needed to support the changing production and sales
activities is called fluctuating, or variable or temporary working capital. The firm to
meet liquidity measurement that will last only temporarily creates temporary working
capital.

Temporary
Or
Fluctuating

Time

2.2NEEDS AND IMPORTANCE OF WORKING CAPITAL


The need for working capital to run day-to-day business activities cannot be
over emphasized, we will hardly find business firm, which doesnt require any
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amount if working capital indeed, and firms differ in their requirements of the
working capital. We know that a firm should aim at maximizing the wealth of its
share holders. In its endeavor to do so. A firm should earn sufficient return from its
operations. Earning a study amount of profit required successfully sale activity. The
firm bas to invest enough funds in current assets for cash instantaneously. There is
always an operation cycle involved in the conversion of sales in to cash.

VARIOUS NEEDS OF WORKING CAPITAL IS AS FOLLOWS


1. To pay wages and salary.
2. It helps to the purchase of raw materials, components and spares.
3. It helps to incur day-to-day expenses and overhead costs such as fuel, Power
and office expenses etc.
4. It also to meet the selling cost as packing, advertising etc.
5. It helps to maintain the inventories of raw material, working progress, Stores
and spares and finished stock.

DETERMINANTES OF WORKING CAPITAL OR FACTORS


AFECTING
The working capital requirement of a firm affected by a number of factors.
The various factors, which affect the working capital requirement of a concern, are as
Follows.
FACTORS OF WORKING CAPITAL

Internal factors

Nature of business

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external factor

Business fluctuation

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Product cycle

Technological

Business cycle

Developments

Credit policy

Transport and

Scale of production

Communication

Development
Growth and Expansion of business

Import Policy

Operating efficiency

Taxation policy

INTERNAL FACTORS
1. NATURE OF BUSINESS
The working capital requirements of enterprises are basically related to the
conduct of business. Public utilities have certain features which have a bearing on
their working capital needs. They do not maintain big inventories arid have, therefore,
probably the least requirement of working capital to maintain a sufficient amount of
cash inventories and book debts.

2. PRODUCTION CYCLE
The term production or manufacturing cycle refers to the span between the
procurement of raw materials and completion of the manufacturing process leading to
the production of finished goods. In other words, there is a sometime gap before will
be the working capital needed and vice versa.

3. BUSINESS CYCLE
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The business fluctuations influence the size of working capital mainly during
updated phase when boom conditions prevail, the need for working capital is likely to
cover the lag between increases sales and receipt of cash as well as invest in plant and
machinery to meet the increased demand. The down swing an opposite effect on the
level of working capital requirement.

4. CREDIT POLICY
The credit policy relating to sales and purchases also affects the working
capital. The credit policy in influences the requirements of working capital in two
ways: Though credit terms granted by the firm to its customers/buyers of goods credit
terms available to the firm from its creditors. A firm, which more credit sales and cash
purchase required high working capital then a firm having more credit purchase and
cash sales.

5. SCALE OF PRODUCTIION
A concern carrying on activities on a small scale of needs less working capital.
On the other hand a concern undertaking activities on large scale needs large amount
of working capital.

6. GROWTH AND EXPANSION OF BUSINESS


The growth and expansion of business also affect the working capital
requirement. When there is growth and expansion in the business of a firm the
working capital needs of the firm will also increase.

7. OPERATING EFFICIENCY
The operating efficient of the management is also important determinant of the
level of working capital. A firm enjoying operating efficiency can eliminate wastage
and use its resources efficiently and there by reduce its working capital needs
considerably.
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EXTERNAL FACTORS
1. BUSINESS FLUCTUATION
Business enterprises usually experiences fluctuations in demand for their
products and services because of changes in economic conditions. In view of this,
working capital requirements of these enterprises are affected. Thus, in the event of
economic prosperity, general demand of the goods and service tend to shoot up. To
cope with increased demand and consequently increased production, the firm will
require additional working capital.

2. TECHNOLOGICAL DEVELOPMENTS
Technological developments in the area of production can have sharp effects
on the need for working capital. If a firm switches over to new manufacturing process
and installs new requirements with it is able to cut period involved in converting raw
materials into finished goods, permanent working capital requirements of the firm will
decrease.

3. TRANSPORT AND COMMUNICATION DEVELOPMENTS


Where the means of transports and communication in a country are not well
developed, industries may need additional funds to maintain big inventory of raw
materials and other accessories which would otherwise not be needed where the
transport and communications systems are highly developed.

4. IMPORT POLICY
Import policy of the government may also have its bearing on the levels of
working capital of the enterprises since they have to arrange funds for importing
goods at specified times.

5. TAXATION POLICY
Working capital needs of business enterprises are affected sharply by taxation
policy of the government. In the event of regressive taxation policy of the

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government, as it exists today in India, imposing heavy tax burdens on business


enterprises leaves very little profits for distribution and retention purposes.

SOURCES OF WORKING CAPITAL


Among the various sources available for financing working capital needs finance
manager has to select the best suitable source depending on working capital need of
company.

SOURCES OF WORKING CAPITAL

Long term sources

Internal sources

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short term sources

External sources

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With drawing the

Bank

Depreciation fund

Trade redit

Using the renouncement

Bills of

For taxation

exchange

Postponement of payment
Accrued expenses

Govt.
assistance

Public deposits

The need of working capital is increased by raising prices of end products and
relative inputs. On the other hand the government and monetary authorities play their
own role to caurd the malice in periods of inflation. The control measures often take
the firm of dear money policy and restriction credit. Financing of additional working
capital in such an amusement becomes a real problem to finance manager of a
concerned unit. Commercial banks play the most significant role in providing working
capital finance, particularly in Indians context. In view of mounting inflation, the
R.B.I has taken up certain social measures to check the money supply in the economy.
The balancing need bas to be managed either by long-term borrowings of by issuing
equity or by earning sufficient profits and retaining the same of coping with the
additional working capital requirements. The first choice before a finance manager,
where banks do not provide a part of additional working capital, is to take the longterm sources of finance.

LONG TERM FINANCING


Loans from financial institution the option is normally rules out, because
financial institution don not provide finance for working capital requirements. Further
this facility is not available to all companies this option is not practical.

FLOATING OF DEBENTURES:
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The profitability of a successful floating of dentures seems to be rather


merging. In Indian capital market, floating of debentures has still to gain popularly
debentures issues of companies in private sector not associated with certain reputed
groups generally failed to attract investors to invest their funds in companies. In this
context the mode of raising funds by issuing convertible debentures/bonds is also
gaining.

ACCEPTING PUBLIC DEPOSITS


The issue of tapping deposits is directly to the image of the company seeking
to invite public deposits.

ISSUE OF SHARES
With a view of financing additional capital needs, issue of additional equity
share could be considered. Many Indian company have still to go ahead to command
respect of investoin the context low profit margin as well as lack of knowledge about
company make the success of a capital issue very dim.

RAISING FUNDS BY INTERNAL FINANCING


Raising funds from operational profit poses problems for many companies,
because price of their end products are controlled and do not permit companies to
earn profit sufficient requirements to finance additional working assets, still a largely
feasible solution lies in increase profitability through cost control and cost reduction
measures managing the cash operating cycle, rationalizing inventory stock and so on

PROBLEMS ASSOCIATED WITH EXCESS & IN ADEQUATE


WORKING CAPITAL
DANGERS OF EXCESS WORKING CAPITA
1. It results in unnecessary accumulation of inventories. Thus the changes of
inventory mishandling, the losses increase.
2. It is an indication of defective credit policy and stock collection period.

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3. Excessive working capital makes management compliment, which degenerates


into managerial efficiency.
4. Tendencies of accumulating to make speculative profits grow. This may
tend to make dividend policy liberal and difficult to cope with in future when
the firm is unable to make speculation profits.

DANGERS IN INDADEQUATE WORING CAPITA


1. It strategies growth. It becomes difficult to undertake profitable project due to
non-availability of the working capital funds.
2. It becomes difficult to implement operating plans and achieve the firms profit
target.
3. Operating inefficiencies creep in when it becomes difficult even to meet dayto-day commitments.
4. Fixed assets are not efficiently utilized for the working capital funds. Thus, the
rate of return on, investment slumps.
5. Paucity of working capital funds renders the firm unable to avail of attractive
credit opportunities etc.
6. The firm losses it reputation when it is not in a position to turnover short-term
obligation.

2.3 METHODS OF WORKINGCAPITEL


Three widely used methods for determining working capital requirements of a firm
are:
Percentage of sales method
Regression analysis method
Operating cycle method

1. PERCENTAGE OF SALES METHOD


In this method, level of working capital requirements is decided on the basis of
past experience. The past relationship between sales and working capital is taken as a
base for determining the size of working capital requirements for future. It is,

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however, presumed that that the relationship between sales and working capital that
has existed in the past has been stable.
Percentage of sales method is a simple and easily understood method and
practically used for ascertaining short-term changes in working capital in future.
However this method lacks reliability inasmuch as its basic assumption of linear
relationship between sales and working capital does not hold true in all the cases. As
such, this method cannot be recommended for universal application.

2. REGRESSION ANALYSIS METHOD


This is a statistical method of determining working capital requirements by
establishing the average relationship between sales and working capital and its
various components in the past years. In this regard the method of least squares is
employed and the relationship between sales and working capital is expressed by the
equation.
Y=Na+bx
XY=ax+bx2
Y=a+bx
The values of a and b is obtained by the solution of simultaneous linear equations
given as under:
Where a = fixed component
B = variable component
X = sales
Y = inventory
N = number of observation

3. OPERATING CYCLE AND CASH CYCLE


Investment in working capital is influenced by four key events in the
production and sales cycle of the firm:
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Purchase of raw materials

Payment of raw materials

Sale of finished goods

Collection of cash for sales

The firm begins with the purchase of raw material, which are paid for after a
delay, which represents the account payable period. The firm converts the raw
materials into finished goods and then sells the same. The time lag between the
purchase of raw materials and sale of finished goods is the Inventory period.
The period that comes between the date of sales and the date of collection of
receivable

is the accounts payable period (debt period). The time that comes

between the purchase of raw materials and the collection of cash for sales is referred
to as the operating cycle, whereas, the time length between the payment of raw
material purchases and the collection of cash for sales is referred to as the cash cycle.
The operating cycle is the sum of the inventory period and the account
receivable period where as the cash cycle is equal to the operating cycle less the
account payable period.
From the financial statements of the firm, we can estimate the inventory
period, the account receivable and the account payable period.
According to this approach, size of working capital requirements of a firm is
determined by multiplying the duration of the operating cycle by cost of operations.
The duration of the operating cycle may be found with the help of the following
formula:

O=R+W+F+A-P
Where, O = Duration of operating cycle
R = Duration of raw materials
W = Duration of work-in-progress
F = Duration of finished goods
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A = Duration of accounts receivable


P = Duration of accounts payable

Duration of raw materials


It reflects the number of days for which raw materials remain in inventory
before they are issued for production. The following formula can be used to determine
duration of raw materials.
Average stock of raw material
Raw material storage period(R) =
Average daily consumption of raw material

Duration of the work-in-progress


In denotes the number of days required in the work-in-process stage. It may be
ascertained with the help of the following formula:
Average stock of work- in- progress
Work-in-progress period (or) conversion period (W) =
Average daily cost of production

Duration of finished goods


It refers to the number of days for which finished goods remain in inventory
before they are sold. This can be computed by the following formula:
Average stock of finished goods
Finished goods storage period (F) =
Average daily cost of sales

Duration of the accounts receivable

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It represents the number of days required to collect the accounts receivable.


This may be calculated as under:
Average accounts receivables
Average collection period (A) =
Average daily credit sales

Duration of accounts payable


It refers to the number of days for which the suppliers of raw materials offer
credit. This may be measured with the help of the following formula:
Average trade creditors
Average payment period (P) =
Average daily credit purchases

OPERATING CYCLES

TRADER
CASH

DEBTORS
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FINISHING GOODS
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FINANCIAL
INSTITUTIONS
CASH

DEBTORS
MANUFACTURER
CASH

DEBTORS

FINISHED GOODS

RAWMATERIALS

WORK IN PROGRESS

2.4 OTHERS
TANDON COMMITTEE REPORT
Reserve Bank of India set up a committee under the chairmanship of shri P.L.
Tendon in July 1974. The terms of reference of the committee were:

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To suggest guidelines for commercial banks to follow up and supervise credit


from the point of view of ensuring proper end use of funds and keeping a
watch on the safety of advances.
To suggest the type of operational data and other information that may be
obtained by banks periodically from the borrowers and by the reserve bank of
India from the leading banks.
To make suggestions for prescribing inventory norms for the different
industries, both in the private and public sectors and indicate the broad criteria
for deviating from these norms.
To make recommendations regarding resources for financing the minimum
working capital requirements.
To suggest criteria regarding satisfactory capital structure and sound financial
basis in relation to borrowings.
To make recommendations as to whether the existing pattern of financing
working capital requirements by cash credit/overdraft system etc., requires to
be modified, if so, to suggest suitable modifications.

RECEIVABLES MANAGEMENT
Finished goods sold on credit get converted (from the point of view of the
selling firm) into receivables (book debts) which realized generate cash. The average
balance in the receivable account would approximately be average daily credit sales
multiplied by average collection period.

OBJECTIVES OF RECEIVABLE MANAGEMENT


The main objectives of receivable management are:

To obtain the optimum value of sales.

To control the cost of credit and keep it at minimum.

To reduce the average collection period.

ASPECTS OF RECEIVABLE MANAGEMENT

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Determining the credit policy.


Determining the credit terms.
Evaluating the credit applications.
Determining collection policies of receivables.

DETERMINING CREDIT POLICY


The first decision area of receivable management is determining credit policy. In
developing an optimum credit policy, the financial manager should compare the
benefits of credit extension with the cost of credit. The major considerations in costs
are liquidity and opportunity cost. The credit policy of a firm provides the frame work
to determine.
Whether or not extent to a customer.
How much credit to extend.

INVENTORY MANAGEMENT
Inventory management involves the control of assets being produced for the
purpose of sale in the normal course of companys operations. Inventories include raw
material inventory, work-in-progress inventory and finished goods inventory. The goal
of effective inventory management is to minimize the total costs direct and indirect
those are associated with holding inventories. However the importance of inventory
depends on the extent or investment inventory.

ROLE IN WORKING CAPITAL


Inventories are components of the firms working capital, as such, represent
current assets. Some characteristics are important in the broad context of working
capital management including.
Current assets
Level of liquidity
Liquidity lags

1) CURRENT ASSETS
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It is assumed that inventories will be converted to cash in the current


accounting cycle, which is normally, one year.

2) LEVEL OF LIQUIDITY
Inventories are viewed as a source of near cash. At the same time most firms
hold some slow-moving items that may not be sold for a long time. In this case, the
liquidity aspects of inventories become highly important to the manager of working
capital. At a minimum, the analyst must recognize that inventories are least liquid of
current assets. For firms with highly uncertain operating environments, the analyst
must discount the liquidity value of inventories significantly.

3) LIQUIDITY LAGS
Inventories are tied to the firms pool of working capital in a process that
involves three specific lags namely.
Creation lags.
Storage lags.
Sale lags.
Circulating activity.

CASH MANAGEMENT
Cash is the most important factor in financial management. It is also the most
important of all the current assets, for the operations of the business.

Need for and objective of cash management


Larger cash and bank balances indicating high liquidity position of a company
which will result in lower profitability as idle cash fetches
No return, while the same when invested in the assets of the company will
result in profits. The need for holding cash arises from a variety of reason such as:
Transaction motive
Precautionary motive
Speculation motive
Lack of proper synchronization between cash inflows & cash outflows

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1) TRANSACTION MOTIVE
A company is always entering in to transactions with other entities, which may
cause immediate cash inflows and out flows. So, firms always keep a certain amount
as cash to deal with routine transactions where immediate cash payment is required.

2) PRECAUTIONARY MOTIVE
A company has to be prepared to meet such contingencies like a sudden fire
may break out, accidents, employees strike etc, to minimize its losses. For this
purpose companies generally maintain some amount in the form of cash.

3) SPECULATION MOTIVE
Firms also maintain cash balance in order to take advantage of opportunities
that do not take place in the course of routine business activities.

4) LACK OF PROPER SYNOCHRONIZATION BETWEEN CASH


INFLOWS & CASH OUTFLOWS
Incase of reasonably well managed profitable companies, that total amount of cash in
flows for the year is usually higher than the total amount of cash out flows. However,
the company can have spells of cash deficits and surpluses mainly due to lack of
synchronization between cash inflows and out flows.

CRITERIA FOR JUDGING THE EFFICIENCY OF WORKING


CAPITAL MANAGEMENT
The efficiency of working capital management can be judged through accounting
ratios. The important accounting ratios that could be used for judging the efficiency
of working capital management are.
Current Ratio
Quick Ratio/acid test ratio/liquid ratio
Cash to current assets
Inventory turnover ration
Working capital turnover ratio

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MEASURES TO BE ADOPTED FOR A SOUND WORKING


CAPITAL MANAGEMENT
For a sound management of working capital, a concern should adopt the following
measure:
Budget its cash flow
Control its debtors
Control its creditors
Control its stock
Avoid over borrowing
Avoid over investment fixed assets
Determine the financing mix

ACCESSING WORKING CAPITAL REQUIREMENT


Working capital management is the life blood and controlling never center of a
business. No business can successfully run without an adequate amount of Working
capital at once, an estimate Working capital requirements should be made in advance
so that arrangements can be made to procure adequate Working capital.

But

estimation of Working capital requirement is not an easy and large factor have to be
taken into consideration while an estimate of Working capital requirements.
1. Total cost incurred on material, wage and overheads.
2. The length of time for which raw material is to remain is store before they are
issued for production.
3. The length of production cycle or work-in-progress is, the time taken for
conversion for production.
4. The length of sale of cycle during which finished goods are to kept waiting for
sale.
5. The average period of credit allowed to customers.
6. The amount of cash required to pay day-to-day expenses for the business.
7. The average amount of each cash required making advance payment if any.
8. The average credit period expected to allow by suppliers.
9. The lag in the payment of wages and other expenses.
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From the total amount blocked in current assets estimated on the basis of the
first even items given above the total of current liabilities that is the last two items is
deducted to find out the requirement of working capital. In order to provide for
contingencies, some extra amount generally calculated as a fixed percentage of
working capital can be aided as a margin of study.

TOOLS FOR ANALYSIS OF WORKING CAPITAL


The quantum of working capital as well as its financing pattern is subject to
constant monitoring and reviews by the financial manager. There are different
analytical tools which can help a financial manager in monitoring in viewing and
controlling the working capital. The popularly used tools are:
1. Schedule of changes in working capital

2. Working capital ratios.

1. SCHEDULE OF CHANGES IN WORKING CAPITAL


Generally working capital refers to the excess of current assets over current
liabilities. Management of working capital therefore is concerned with the problems
that arise in attempting to manager the current assets, the current liabilities and the
inter relationship that exists between them. It refers to all aspects of administration of
both current assets and current liabilities.
The basic goal of working capital management is to manage the current assets
and current liabilities of a firm in such a way that a Satisfactory level of working
capital is maintained. The policies of working capital of management of a firm have
an impact on its profitability, liquidity and structural health of the organization.

2. WORKING CAPITAL RATIOS


Another analytical tool that can be used for analyses of working capital the
accounting ratios particularly the working capital ratios. Some of the important
working capital ratios are:
Current Ratio
Quick Ratio
Cash to current assets
Sales to cash
Average collection period
Inventory turnover ratio
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Working capital to sales rat

CHAPTER-3
RESEARCH METHODOLOGY
3.1NEED FOR THE STUDY
Any organization must have to maintain adequate working capital to meet its
day to day operation. In order to maintain flows of revenues from operation, every
firm need certain amount of current assets. For examples; cash is required to meet
obligations for services received etc. By a firm on identical plan in inventories are
required etc. by a firm on identical plan in inventories are required to provide the line
between production and sales. The study is required to understand the working capital
position in S.S.Dairy Pvt. Ltd.

3.2OBJECTIVES OF THE STUDY


To identify and analyze relationship between working capital, sales, fixed asset to
sales etc.
To suggest measures if any for improving financial performance of company To
examine the turnover of the company
To study changes in working capital position at the organization .
To evaluate the performance of Shiva Shakthi Dairy Pvt.ltd by analyzing the
profitability and liquidity position of the company.

3.3 SCOPE OF THE STUDY


Financial management is that the managerial activity is concerned with the
planning and controlling of the firms financial resources. Though it was a branch of
economics till 1890 as a separate activity or discipline, it is of recent origin. Still it
has no unique body of knowledge of its own and heavily on economics for its
theoretical concepts even today.
The subject of financial is of immense interest to both academician and
practicing managers. It is of great interest of academicians because the subject is still

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developing and there are still certain areas where controlling exists for which no
unanimous solutions have been reaches as yet.

The present study aims at the following


Highlighting the necessity of current assets and current liabilities.
Explain the principles of current assets, investment and financing.
Focus on the proper mix of short term financing for current assets.
Emphasis the need and goal of establishing a sound credit policy.
Suggest the need of monitoring the receivables.
Highlight the need for holding cash.
Discuss the techniques of preparing cash budget.
Focus on the management of cash collection and disbursement.

3.4 METHODOLOGY OF STUDY


3.4.1RESEARCH DESIGN
STATEMENT OF THE PROBLEM
Management of working capital is an important function of finance of finance
department of a corporate organization .While managing current assets two important
factors that are considered is liquidity and profitability. That excess working capital
results in is undertaken to know to what extend the S.V co operative sugars successful
in trade off liquidity and profitability.

3.4.2DATA SOURCES
The study required both primary and secondary data;

Secondary data
Secondary data was obtained from the past records file and reports of the
organization also from other financial statements. These are sources containing data
which have been collected and compiled for another purpose. The secondary sources
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consists of readily available compendia and already complied statistical statements


and reports whose data may be used by researches for their studies, e.g., census
reports, annual reports and financial statements of companies, statistical statement,
reports of government departments, annual reports on currency and finance published
by the reserve bank of India, statistical statement relating to co-Operatives and
regional rural banks, published by the NABARD.

3.5LIMITATIONS OF THE STUDY


It is based on the data supplied by the company personnel.
It is based on consultation, decisions of all concerned officials.
Time is the major limitation for the study i.e., study conducted based on the 4
years financial reports. We cant determine the overall financial position of the
company.
.

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CHAPTER-4
DATA ANALYSIS AND INTERPRETAION
TABLE4.1
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2008-09
( In Rs )
PARTICULARS

2008

2009

Cash and bank balance

5512130

Sundry debtors

Effect of working capital


Increase

Decrease

5801648

289518

******

4801648

4512121

******

289527

Short term loans & advances to employee

1091340

1091318

******

00022

TOTAL CURRENT ASSETS

11405118

11405087

289518

289549

Loans & borrowings

4357212

4575212

******

218000

Employees stat liabilities

4522122

4322122

200000

******

Other non stat liabilities

1894615

1894615

******

******

TOTSSAL CURRENT LIABILITIES (B)

10773949

10791949

200000

218000

631169

613138

489518

507549

CAPITAL

******

18031

18031

******

TOTAL

631169

631169

507549

507549

CURRENT ASSETS:

(A)

CURRENT LIABILITIES:

NET WORKING CAPITAL

(A-B)

NET DECREASE IN WORKING

INTERPRETATION
From the above table no 4.1 it is clearly show that the net working capital
requirement of the company during the year 2009 has Decreased than in the year

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2008, and the net working capital of the company was recorded Rs.631169 and it was
been Decreased to Rs.613138 in the year 2009.

TABLE4.2
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2009-10
( In Rs )
PARTICULARS

2009

2010

Effect of working capital


Increase

Decrease

CURRENT ASSETS:
Cash and bank balance

5801648

8545512

2740564

******

Sundry debtors

4512121

4432211

******

79910

employees
TOTALCURRENTASSETS (A)
CURRENT LIABILITIES:

1091318
11405087

948009
13922433

******
2740564

143309
223219

Loans & borrowings

4575212

5421984

******

846772

Employees stat liabilities

4322122

3654655

667467

******

Other non stat liabilities


TOTAL CURRENT LIABILITIES

1894615
10791949

2929042
12005681

*******
667467

1034427
1881199

(B)
NET WORKING CAPITAL (A-B)
NET INCREASE IN WORKING

613138

1916752

3408031

2104418

CAPITAL
TOTAL

1303614
1916752

*******
1916752

******
3408031

1303614
3408031

Short term loans & advances to

INTERPRETATION
From the above table no 4.2 it is clearly show that the net working capital
requirement of the company during the year 2010 has increased than in the year 2009,
and the net working capital of the company was recorded Rs.613138 and it was been
increased to Rs.1916752 in the year 2010.

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TABLE4.3
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2010-11
( In Rs )
PARTICULARS

2010

2011

Cash and bank balance

8542212

Sundry debtors

Effect of working capital


Increase

Decrease

9001221

459009

******

4432211

7246521

2814310

******

948009
13922432

1926193
18173935

978184
4251503

******
0000000

Loans & borrowings

5421984

5243554

178430

******

Employees stat liabilities

3654655

4724215

*******

1069560

Other non stat liabilities

2929042

4197963

*******

1268924

TOTALCURRENT LIABILITIES

12005681

14165732

178430

2338484

1916752

4008203

4429933

2338484

2091452
4008203

******
4008203

*******
4429933

2091449
4429933

CURRENT ASSETS:

Short term loans & advances to


employees
TOTALCURRENTASSETS (A)
CURRENT LIABILITIES:

(B)
NET WORKING CAPITAL (A-B)
NET INCREASE IN WORKING
CAPITAL
TOTAL

INTERPRETATION
From the above table no 4.3 it is clearly show that the net working capital
requirement of the company during the year 2011 has increased than in the year 2010,
and the net working capital of the company was recorded Rs.1916752 and it was been
increased to Rs.4008203 in the year 2011.

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TABLE4.4
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2011-12
( In Rs )
PARTICULARS

2011

2012

Cash and bank balance

9001221

Sundry debtors

Effect of working capital


Increase

Decrease

9189751

188530

******

7246521

7554321

307800

******

1926193
18173935

3896353
20640425

1970160
2466490

******
000000

Loans & borrowings

5243554

3100242

2143312

******

Employees stat liabilities

4724215

2383017

2341198

******

Other non stat liabilities


TOTAL CURRENT LIABILITIES (B)

4197963
14165732

1665792
7149051

2532171
7016681

******
000000

NET WORKINGCAPITAL

4008203

13491374

9483171

******

CAPITAL

9483171

******

******

9483171

TOTAL

13491374

13491374

9483171

9483171

CURRENT ASSETS:

Short term loans & advances to


employees
TOTALCURRENTASSETS (A)
CURRENT LIABILITIES:

(A-B)

NET INCREASE IN WORKING

INTERPRETATION
From the above table no 4.4 it is clearly show that The net working capital
requirement of the company during the year 2012 has increased than in the year 2011,
and the net working capital of the company was recorded Rs.4008203 and it was been
increased to Rs.13491374 in the year 2012.

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TABLE4.5
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2012-13
( In Rs )
PARTICULARS

Effect of working capital

2012

2013

Cash and bank balance

9189751

589295

******

8600456

Sundry debtors

7554321

523686

******

7030635

employees

3896353

345990

******

3550363

TOTALCURRENT ASSETS (A)

20640425

1458971

000000

19181454

Loans & borrowings

3100242

124980

2975262

******

Employees stat liabilities

2383017

98745

2284272

******

Other non stat liabilities


TOTALCURRENT LIABILITIES (B)

1665792
7149051

58429
282154

1607363
6866897

******
000000

NET WORKINGCAPITAL(A-B)

13491374

1176817

6866897

19181454

******

12314557

12314557

******

13491374

13491374

19181454

19181454

Increase

Decrease

CURRENT ASSETS:

Short term loans & advances to

CURRENT LIABILITIES:

NET DECREASE IN WORKING


CAPITAL

TOTAL

INTERPRETATION
From the above table no 4.5 it is clearly show that the net working capital requirement
of the company during the year 2013 has Decreased than in the year 2012, and the net
working capital of the company was recorded Rs.13491374 and it was been
Decreased to Rs.1176817 in the year 2013.

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1. CURRENT RATIO
This ratio is a barometer of general measures of liquidity and state of trading
current ratio shows the firms commitment to meet its shot-term liabilities. It
expresses the relationship between current assets and current liabilities.
Current Assets
Current ratio = _______________________
Current liabilities
TABLE 4.6
Year

Current assets

Current liabilities

Ratio

2008-09

11405087

10791949

1.05

2009-10

13922432

12005681

1.15

2010-11

18173935

14165732

1.28

2011-12

20640425

7149051

2.88

2012-13

1458971

282154

5.17

GRAPH 4.6

INTERPRETATION
From the above graph no 4.6it is clearly show that the Current ratio measures
the firms short-term solvency. The standard norm for current ratio is (2:1). It is
evident that in the year 2009-10and2010-11 Current Ratio is satisfactory.

In

remaining years current ratio is less then 2 is not satisfactory. There fore it can be
calculated that the liquidity performance of the company is poor
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QUICK RATIO
This ratio is also called as acid test ratio. Quick ratio is the real index of the
liquidity or the short-term solvency of a concern. Quick ratio generally expressed as a
pure, i.e.., as a promotion between quick assets and quick liabilities.
Super Quick assets
Quick ratio = _____________________
Current liabilities
TABLE 4.7
Year

Super Quick assets

Current liabilities

Ratio

2008-09
2009-10
2010-11
2011-12
2012-13

5801648
8542212
9001221
9189751
589295

10791949
12005681
14165732
7149051
282154

0.53
0.71
0.63
1.28
2.08

GRAPH 4.7

INTERPRETATION
From the above graph no 4.7it is clearly show that is the more penetrating test
of liquidity than the current ratio. Generally a quick ratio is 1:1 it considered to
represent a satisfactory current financial condition.

The quick ratio has never

exceeded the standard ratio. Empirically the quick ratio in the year 2009-10 to 201011 satisfactory. In remaining years quick ratio is less then 1 is not satisfactory. There
fore it can be calculated that the liquidity performance of the company is poor.

CASH TO CURRENT ASSETS RATIO:


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SHIVASHAKTHI DAIRY Pvt.Ltd.

Cash is important and sensitive current assets. It is viewed as the most liquid assets.
When the proportion of cash in current assents is more then it is said that the company
had more liquid. High proportion of cash in current assets also indicates the good
stock in receivables. This ratio indicates the cash proportion in current assets.
Cash and bank balance
Cash ratio = _______________________
Current liabilities
TABLE 4.8
Year
2008-09
2009-10
2010-11
2011-12
2012-13

Cash and bank balance


5801648
8545512
9001221
9189751
589295

Current liabilities
10791949
12005681
14165732
7149051
1176817

Ratio
0.53
0.71
0.63
1.28
0.50

GRAPH 4.8

INTERPRETATION
From the above graph no 4.8 it is clearly show that the desirable norm for cash
ratio is 1:2. The cash ratio is very low in 2009-10 year. There after it is increased
slightly on the years 2006-07 to 2007-08 respectively and declined in 2008-09 and
2010-11. Anyway finally the company failed in keeping sufficient cash and bank
balance and marketable securities.

NET WORKING CAPITAL RATIO:


The difference between current assets and current liabilities excluding short
term bank borrowing is called net working capital it is sometimes used as a measure
B.T P.G College, MADANAPALLE

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WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

of a firms liquidity. It is considered that between two firms the one have a largest
networking capital bas the greater than liability to meet its current obligations.
Net working capital
Net working capital =
Net assets
TABLE 4.9
Year

Net Working capital

Net assets

Ratio

2008-09

613138

94930352

3.45

2009-10

1916752

8837584

0.21

2010-11

4008203

8845519

0.45

2011-12

13491374

19921649

0.67

2012-13

1176817

21275690

0.05

GRAPH 4.9

INTERPRETATION
From the above graph no 4.9it is clearly show that the inferred from the above table
that the net working capital is decreasing every year which shows the ideal funds are
used for most productive purpose and company continues doing it.

WORKING CAPITAL TURNOVER RATIO:

B.T P.G College, MADANAPALLE

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WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

This ratio is also known as Sales to Working Capital. It shows the number of
times working capital is turned-over in a stated period. The higher is the ratio, the
lower is the investment in working capital and the greater are the profits. It is
calculated as follows.
WorkingCapitalTurnover Ratio

Sales
Net WorkingCapital

TABLE 4.10
YEAR
2008-09
2009-10
2010-11
2011-12
2012-13
GRAPH 4.10

SALES
6579980
13776540
8012850
7731472
7496210

NET WORKING CAPITAL


613138
1916752
4008203
13491374
1176817

RATIO
10.73
7.18
1.99
0.57
6.36

INTERPRETATION
From the above graph no 4.10 it is clearly show that the ratio measures the
relationship between sales and net working capital. In the years2007-08, 2009-10 and
2010-11 recorded as the highest working capital turnover ratio respectively. In the
year 2009-10 and 2010-11 recorded as the lowest working capital turnover ratio. The
higher indicates more favorable it is for the company. In S.S.Dairy is highly
fluctuating in the ratios.

INVENTORY TURNOVER RATIO:

B.T P.G College, MADANAPALLE

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WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Inventory turnover ratio indicates the efficiency of the firm in producing and
selling its product. It is calculated by dividing the cost of goods sold by the average
inventory or sales by inventories.
Net Sales
Inventory turnover ratio = ________________________
Average Inventory
TABLE4.11
Year

Net Sales

Average inventory

Ratios

2008-09

6579980

19554635

0.33

2009-10

13776540

2781570

4.92

2010-11

8012850

2141365

3.74

2011-12

7731472

1038709

7.44

2012-13

7496210

855241

8.76

GRAPH 4.11

INTERPRETATION
From the above graph no 4.11it is clearly show that the inventory turnover
ratio indicates the efficiency of the firm in producing and selling its products. A low
inventory turnover implies excessive inventory levels than required for production.
From The company inventory turnover ratio is in decreasing 2008-09 and 2012-13 is
increased.
B.T P.G College, MADANAPALLE

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WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

CHAPTER-5
FINDINGS, SUGGESTIONS & CONCLUSION
FINDINGS
The Company is suffering from lack of adequate working capital.
The Company is using Current Assets and Fixed Assets well.
The Company has maintained relationship between Working Capital and Sales.
The desirable norm for cash ratio is 1:2. The cash ratio is very low in 2009-10

year.
The inventory turnover was at fluctuating condition
The net working capital is decreasing every year which shows the ideal funds
are used for most productive purpose and company continues doing it.

B.T P.G College, MADANAPALLE

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WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

SUGGESTIONS
Working Capital is decreasing Year by Year so adequate Working capital has
to be maintained.
The Turnover Ratio was fluctuating so the Company must detect the cause for
that and solve it.
The concern must try to generate profits by maintain or combination of
variations of sales prices and costs..
The working capital turnover ratio gradually decreased year by year. So the
company investment in working capital is more.
Company should make efforts to utilize its fixed assets in an optimum manner.

B.T P.G College, MADANAPALLE

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WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

CONCLUSION
Finally I conclude saying that the liquidity position is satisfactory,
performance of the company is satisfactory but still needs to cut down or reduce the
expenses to earn more net profits and see that turnover ratios are increased so that it
can enjoy reduce in non operating cost, due to large scale production and results in
increase in profits. Working capital is in fluctuating trend so the company must
maintain adequate working capital.
It must try to maintain its liquidity properly.
The firm must strive to improve its sales.
By following the above steps, he firm will become a more profitable and
reliable business.

B.T P.G College, MADANAPALLE

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WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Annual reports of the company:-

Particulars

amount

Particulars

Amount

To Opening stock

1061067

By Sale of milk

3436700

To Purchase of milk products


To Transport charges
To Packing material
To Processing and conversion
To Shares consumed
To Gross profit

1382998
857491
472920
769820
628297
4257247
9429840
226950
192321
258929
236281
183699
148329
448496
238294
4313521
6246820

By Sale of milk products


By Closing stock

3143280
2849860

By Gross profit

9429840
4257247
1989573

To Salaries & wages


To Depreciation
TO Interest on loan
To Insurance charges
To Travelling and conveyance
To Advertisement
To Milk payments
To Selling and distribution
To Net profit

By Other incomes

6246820

SHIVASHAKTHI DAIRY PVT


TRADING AND PROFIT&LOSS A/C FOR THE YEAR ENDED 31st-03-2009
SHIVA SHAKTI DAIRY PVT.LTD
BALANCE SHEET AS AT 31st MARCH 2009
Particulars

B.T P.G College, MADANAPALLE

31.03.2009 31.03.2008

Page 51

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

sources of Funds:
1.share holder funds:
equity share capital
share advance
Add: profit & loss A/c
2.Loan funds:
secured loans
unsecured loans
TOTAL:
application of funds:
3.fixed assets
gross block
Add: additions during the year
Less: accumulated dep.
Net Block
4.current assets:
Cash and bank balance
Sundry debtors
Short term loans & advances to employees
Less: current liabilities:
Loans & borrowings
Employees stat liabilities
Other current liabilities
Net current assets
5.miscellaneous
expenditure:
profit & loss A/c
TOTAL

3138642
1794637
4313521
9245800

5892421
4113048
000000
10005469

000000
184552
9430352

282720
194242
10482431

16431124
11783959
19397869
8817214
5801648
4512121
1091318

4575212
4322122
1894615
613138

4559280
2545171
102490
7001961
5512130
4801648
1091340

4357212
4522122
1894615
631169

000000

2849301

94930352

10482431

SHIVASHAKTHI DAIRY PVT.LTD.


TRADING AND PROFIT&LOSS A/C FOR THE YEAR ENDED 31st-03-2010

B.T P.G College, MADANAPALLE

Page 52

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Particulars

Amount

Particulars

Amount

To Opening stock
To Purchase of milk products
To Transport charges
To Packing material
To Processing and

2849860
2729210
1229211
728500
1098256
957893
6896890
16489820
1595820
629621
789987
598920
942875
791357
5298285
1598285
875992
2246039
8576898

By Sale of milk of milk


By Sale of milk

8298290
5478250
2713280

conversion
To Shares consumed
To Gross profit
To Salaries & wages
To Depreciation
TO Interest on loan
To Other expenses
To Insurance charges
To Travelling and
conveyance
To Advertisement
To Milk payments
To Selling and distribution
To Net profit

products
By Closing stock

By Gross profit
By Other incomes

16489820
6896890
1680008

8576898

SHIVA SHAKTI DAIRY PVT.LTD


BALANCE SHEET AS AT 31st MARCH 2010

B.T P.G College, MADANAPALLE

Page 53

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Particulars

31.03.2010

31.03.2009

equity share capital

3620300

3138642

share advance

2879461

1794637

Add: profit & loss A/c

2246039

4313521

8745800

9245800

secured loans

00000

00000

unsecured loans

91784

184552

TOTAL

8837584

9430352

gross block

6460087

16431124

Add: additions during the year

2472088

11783959

Less: accumulated dep.

2011342

19397869

Net Block

6920833

8817214

Cash and bank balance

8542212

5801648

Sundry debtors

4432211

4512121

Short term loans & advances to employees

948009

1091318

Loans & borrowings

5421984

4575212

Employees state liabilities

3654655

4322122

Other non stat liabilities

2929042

1894615

Net current assets

1916751

613138

profit & loss A/c

00000

00000

TOTAL

8837584

94930352

sources of Funds:
1.share holder funds:

2.Loan funds:

application of funds:
3.fixed assets

4.current assets:

Less: current liabilities:

5.miscellaneous expenditure:

SHIVASHAKTHI DAIRY PVT.LTD.


TRADING AND PROFIT&LOSS A/C FOR THE YEAR ENDED 31-12-2011

B.T P.G College, MADANAPALLE

Page 54

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Particulars

Amount

Particulars

Amount

To Opening stock

2713280

By Sale of milk of milk

4892450

To Purchase of milk products


To Transport charges
To Packing material
To Processing and conversion
To Shares consumed
To Gross profit

729290
250800
495000
175184
325876
4892870
9582300
1123945
252588
799867
595298
725790
452000
1687260
878970
297292
443780
7256790

By Sale of milk products


By Closing stock

3120400
1569450

By Gross profit

9582300
4892870
2363920

To Salaries & wages


To Depreciation
TO Interest on loan
To Insurance charges
To Travelling and conveyance
To Advertisement
To Milk payments
To Selling and distribution
To Other expenses
To Net profit

By Other incomes

7256790

SHIVA SHAKTI DAIRY PVT.LTD


BALANCE SHEET AS AT 31st MARCH 2011

B.T P.G College, MADANAPALLE

Page 55

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Particulars
Source of Funds
1.share holder funds:
equity share capital
share advance
Add: profit & loss A/c
2.Loan funds:

31.03.2011

31.03.2010

3529120

3620300

4772900

2879461

443780

2246039

8745800

8745800

00000

00000

99719

91784

8845519

8837584

18565780

6460087

7394564

2472088

21123028

2011342

4837316

6920833

9001221

8542212

7246521

4432211

1926193

948009

5243554

5421984

4724215

3654655

4197963

2929042

4008203

1916751

00000

00000

8845519

8837584

secured loans
unsecured loans
TOTAL:
application of funds:
3.fixed assets:
gross block
Add: additions during the year
Less: accumulated dep.
Net Block
4.current assets:
Cash and bank balance
Sundry debtors
Short term loans & advances to employees
Less: current liabilities:
Loans & borrowings
Employees stat liabilities
Other current liabilities
Net current assets
5.miscellaneous
expenditure:
profit & loss A/c
TOTAL

SHIVASHAKTHI DAIRY PVT.LTD.


TRADING AND PROFIT&LOSS A/C FOR THE YEAR ENDED 31-12-2012

B.T P.G College, MADANAPALLE

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WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Particulars

Amount

Particulars

Amount

To Opening stock

1569450

By Sale of milk of milk

4278900

To Purchase of milk products


To Transport charges
To Packing material
To Processing and conversion
To Shares consumed
To Gross profit

897480
345210
399895
325602
422403
4279400
8239440
948996
598865
759230
259686
789200
498967
1678560
590872
475622
274502
6874500

By Sale of milk products


By Closing stock

3452572
507968

By Gross profit

8239440
4279400
2595100

To Salaries & wages


To Depreciation
TO Interest on loan
To Communication
To Travelling and conveyance
To Advertisement
To Milk payments
To Selling and distribution
To Other expenses
To Net profit

By Other incomes

6874500

SHIVA SHAKTI DAIRY PVT.LTD


BALANCE SHEET AS AT 31st MARCH 2012

B.T P.G College, MADANAPALLE

Page 57

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Particulars

31.03.2012

31.03.2011

sources of Funds:
1.share holder funds:
equity share capital

3620300

3529120

share advance

5125500

4772900

Add: profit & loss A/c

274502

443780

2.Loan funds:

9020302

8745800

secured loans

9771572

00000

unsecured loans

1129775

99719

TOTAL:

19921649

8845519

gross block

25516561

18565780

Add: additions during the year

3053897

7394564

Less: accumulated dep.

22140183

21123028

Net Block

6430275

4837316

Cash and bank balance

9189751

9001221

Sundry debtors

7554321

7246521

Short term loans & advances to employees

3896353

1926193

Loans & borrowings

3100242

5243554

Employees stat liabilities

2383017

4724215

Other non stat liability

1665792

4197963

Net current assets

13491374

4008203

profit & loss A/c

00000

00000

TOTAL

19921649

8845519

application of funds:
3.fixed assets

4.current assets:

Less: current liabilities:

5.miscellaneous
expenditure:

SHIVASHAKTHI DAIRY PVT.LTD.


TRADING AND PROFIT & LOSS A/C FOR THE YEAR ENDED 31st-03-2013
B.T P.G College, MADANAPALLE

Page 58

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Particulars

Amount

Particulars

Amount

To Opening stock

507968

By Sale of milk of milk

4596330

To Purchase of milk products


To Transport charges
To Packing material
To Processing and conversion
To Shares consumed
To Utilities
To Gross profit

999470
398740
352020
498060
722110
292076
4928280
8698724
1172440
325742
442580
442820
1685892
272390
490704
2246039
7458450

By Sale of milk products


By Closing stock

2899880
1202514

By Gross profit

8698724
4928280
2530170

To Salaries & wages


To Depreciation
To Travelling and conveyance
To Selling & distribution
To Milk payments
To Advertisement
To Other expenses
To Net profit

By Other incomes

7458450

SHIVA SHAKTI DAIRY PVT.LTD


BALANCE SHEET AS AT 31st MARCH 2013

B.T P.G College, MADANAPALLE

Page 59

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

Particulars

31.03.2012

31.03.2011

sources of Funds:
1.share holder funds:
equity share capital

5684221

3620300

share advance

4001352

5125500

Add: profit & loss A/c

2246039

274502

2.Loan funds:

11931612

9020302

secured loans

6771572

9771572

unsecured loans

2572506

1129775

TOTAL:

21275690

19921649

gross block

46245621

25516561

Add: additions during the year

32456120

3053897

Less: accumulated dep.

58602868

22140183

Net Block

20098873

6430275

Cash and bank balance

589295

9189751

Sundry debtors

523686

7554321

Short term loans & advances to employees

345990

3896353

Loans & borrowings

124980

3100242

Employees stat liabilities

98745

2383017

Other non stat liability

58429

1665792

Net current assets

1176817

13491374

profit & loss A/c

000000

000000

TOTAL

21275690

19921649

application of funds:
3.fixed assets

4.current assets:

Less: current liabilities:

5.miscellaneous
expenditure:

BIBLIOGRAPHY
S.No

Title

Name of the author

B.T P.G College, MADANAPALLE

Publishing & Edition

Page 60

WORKING CAPITAL MANAGEMENT


SHIVASHAKTHI DAIRY Pvt.Ltd.

1.

Financial Management

I.M.Pandy

Vikas publishing
7th edition

2.

Financial Management,

Khan M.Y& Jain.

P.K Tata Mcgraw-hill


2nd edition

3.

Research Methodology

Maheswari S.N

Wishwa Prakasham
2nd edition

4.

Financial Management

Prasanna Chandra

Tata McGraw-hill
Publishing 3rd edition

5.

Annual reports of Shivashakthi dairy pvt.ltd.

Websites:
www.sivashakthi dairy.com
www.google .com

B.T P.G College, MADANAPALLE

Page 61