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Working capital is the most important concept in the financial structure of the firm. It signifies the funds to be kept in reserve for day to day operation of the Business. Working capital management is concerned with short term financial decision. The requirement of working capital varies from firm to firm’s nature of business, production policy, market condition, seasonality of operation, condition of supply etc. Working capital management if carried out effectively, efficiently and consistently will ensure the health of an organization. The term current assets refers to those assets which in ordinary course of business can be, or will be, converted into cash within one year without undergoing a diminution in value and without disrupting the operation of he firm. The major current assets are cash, marketable securities, accounts receivable and inventory. Current liabilities which are intended, at the inception, to be paid in the ordinary course of business, within a year, out of the current assets or earnings of the concern. The basic liabilities are accounts payable, bank overdraft, outstanding expenses. The goal of working capital management is to manage the firm’s current assets and liabilities in such a way that a satisfactory level of working capital is maintained. This is so because if the firm cannot maintain a satisfactory level of working capital, it is likely to become insolvent and may be forced into bankruptcy. The current asset should be large enough to cover its current liabilities in order to ensure a reasonable margin of safety. The interaction between current assets and current liabilities is, therefore, the main theme of the theory of working capital
Two concepts involved in working capital are: Gross working capital Net working capital
Gross working capital also referred to as working capital, means the total current assets Net working capital can be defined in two ways: Current assets (-) current liabilities Or The portion of current assets which is financed with long term funds
The need for working capital (gross) or current asset cannot be overemphasized. Since the objective of financial decision making is to maximize the shareholders wealth, it is necessary to generate sufficient profit. The extent to which the profit can be earned depends upon the magnitude of the sales. A successful sales program is, in other words, necessary for earning profit by any enterprise. However, sales do not convert into cash immediately; there is a timelag between the sale of goods and receipt of cash. There is therefore the need of working capital in the form of current assets to deal with the problem of arising out of the lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity. Technically, this is referred to as the operating or cash cycle.
The operating cycle is said to be the heart of the need of working capital. The continuing flow from cash to supplier, to inventory, to accounts receivable and back to cash is called the operating cycle.
Phase 1 Receivables
Phase 2 Cash
Inventory Phase 3
In other the term cash cycle refers to the length of time necessary to complete the following cycle of event Conversion of cash into inventory; Conversion of inventory into receivables; Conversion of receivables into cash. A firm must have an adequate working capital i.e., as much as needed by the firm. It should neither be excessive nor inadequate. Both situations are dangerous. Excessive working capital means the firm has an idle fund which earns no profit. Inadequate working capital means the firm does not have sufficient funds for running its operation which ultimately result in production interruption and deducing the profitability.
4 . A study is made to predict the future working capital requirement by comparing with the pervious five years. To test the hypothesis of casual relationship between the variables SCOPE OF THE STUDY: The scope of the study was limited to Britannia industries limited. To portray accurately the characteristics of a particular individual or situation. The factors affecting the working capital requirement of Britannia industries limited and brief study was made in order to analyze. The study was made to examine the working capital requirement of the company.INTRODUCTION ABOUT THE PROJECT NEED FOR SYUDY: It is used to gain familiarity for the given problem so that we can achieve new sight for the given problem.
To analyze the operating cycle of the company. 5 . To examine the factors affecting the working capital of the company. 4. To find the efficiency. To analyze the overall performance of the company. To view fluctuation in working capital.OBJECTIVES: Primary objective: To find how the working capital is used effectively and efficiently towards the day to day operation of the Britannia Industries Limited. 3. 6. 5. 2. health of the organization. Secondary objective: 1. liquidity. structure. To find the future sales and profit of the organization.
During the ‘50s and ‘60s. Delhi and Chennai. According to economic time’s survey in 2002’ it is the India’s second most trusted brand. In 1997. The company is a market leader in bakery products with over thirties well known brands of biscuits. The company has been doing quite well on exports as a consequence of which the.295 . Britannia made a humble beginning with an investment of a mere Rs. Currently.BIL is now looking keenly to attack new segments like mass market. 6 .5 billion marks during 1996 – 97. In 1892. a joint venture between Britannia and FONTERRA is formed.Britannia was incorporated in 1918 as Britannia biscuits co ltd in Calcutta .branding exercise which gave rise to its philosophy of ‘Eat Healthy. a joint venture with IMRPCO LTD of Hong Kong to manufacture beverage bases and essence of COCA – COLA . It is the largest food processing company in India with the sales turnover crossing 7. it went a re. breads and cakes.COMPANY PROFILE Britannia industry limited was incorporated in 1918. government of India has awarded a star trading house status to the company. The company is investing in the equity capital of BRITCO FOOD COMPANY. Britannia expanded operation to Mumbai. THE BISCUIT INDUSTRY: The growth of the biscuit industry in India is placing Britannia Industries Limited in leading the market.5% stake in Britannia Industries Limited. DONONE group of France and Nusli Waida each hold 22. Britannia has entered into partnership with BSN group. Think Better’ and the drive to make every third Indian a Britannia New Zealand food pvt ltd. the European giant.
MARKET SHARE: Britannia with 75 years of experience dominates the organized sector with an estimated market share of 38% followed by Parle with 30% and Bake man with 6% COMPETITORS: Britannia’s main competitors are as ordered Parle Bake man’s Kwlaity AMPRO foods ITC CHENNAI BRANCH: The Chennai branch was established in 1967. Due to the production constrain. The research and development located at Chennai is the only one operating on behalf of all branches. the Chennai branch has restrained itself in manufacturing biscuits only. VISSION STATEMENT: ‘ To dominate the food and beverage industry in India with a distinctive range of tasty yet healthy Britannia brands. to triple the turnover and operating income by the year 2003 ‘ 7 . The branch employs around 1100 employees and manufactures more than 1600 tones of biscuit per month. QUALITY SYSTEM: Britannia Industries Limited got ISO 22000 certificate for the quality maintenance.
Good Day. 50-50. The Thrust of this strategy lies in brand building to increase consumer relevance. The rapidly expanding modern Trade channel also presents a growth opportunity and the sales and infrastructure is being aligned to service this effectively. The mission for future is to make second Indian a Britannia consumer by 2010. The key drivers are availability. Packing. presence and merchandising for brands that offer consumers a satisfying experience across a variety of consumption occasions and price points that represent good value for money. Price and Channel mix. An effective and efficient supply chain to identify the high value opportunities. Milk Bikis. 8 .‘To make every third Indian a Britannia customer. by the year 2003’. Expanding the footprint of power brands like Tiger. and deliver against those through relevant and differentiated brand. Profitable growth will come from fortifying brands and tapping into new consumer segment. and new purchase and consumption occasions through a mix packing innovation and renovation. support the essence of your company’s strategy. preference and purchase. and Treat will be continued to be in priority The company will continue its focus on increasing width and depth of distribution in urban and rural markets. On the cost side your company has significantly strengthened its Supply chain incentives and is working towards that objective that start up new manufacturing unit at Uttaranchal in April 2005 is a major step. Marie. The overall goal is to strengthen Britannia’s position as the most significant players in biscuit market and increase its share of consumer spend in this category through a more profitable Brand.
Your company’s goals also include forting the bread. distribution strategies.THE PRODUCT AND ITS PERFORMANCE: Britannia is the market leader in the organized biscuit and bakery products market in India. The essence of your company is your company’s strategy is to identify & deliver on high value opportunities. The dairy product include s butter. The other products include dairy products.875 million. Besides consumer satisfaction and responsibility towards environment as the quality policy. bread and cakes. through relevant and differentiated brands. cheese. Britannia brand have value leadership interest of the 7 categories in the biscuit market.14500 million while the profit after tax was Rs. continuing efforts in product development and operating efficiency.whitener and flavored milk are specified under the brand name of ‘milkman’. Britannia stands out due to aggressive marketing. generating motivations to excel and instilling a sense of pride and commitment towards quality. A dedicated R&D team is involved in developing new products and improving production facility. Biscuits contribute to more than 80% of Britannia’s total turnover. underpinned by the effective and efficient supply chain. cake and Rusk business internationally and exporting the business to secure a greater width of international reach. dairy. it also mention that Britannia shall develop its human resources by improving skills and knowledge. packing system and processes. 9 . The sales turnover for 2001-2002 was Rs.
PRODUCT PORTFOLIO TIGER Tiger Glucose Tiger Cashew Badam Tiger Chai Biscoot Tiger Brita Energy Tiger Coconut Tiger Mast GOOD DAY Good Day Butter Good Day Cashew Good Day Pista Badam Good Day Coconut Good Day Choco chips Good Day ginger nut TIME PASS Time Pass Classic Time Pass Nimkee Time Pass Chatpata LITTLE HEARTS Little Hearts Classic Little Hearts Sesame Cream MARIE GOLD Marie Gold Vita Marie Gold 50-50 50 .50 50 – 50 Alaska Chaska PM COOKIES PM Coffee Almond PM Honey ‘n’ Raisin PM Danish PM Choco Chips PM Assorted NUTRI CHOICE Digestive Cream Cracker Jacob Thin MILK BIKIS Milk Cream Milk Bikis Funland 10 .
is concerned with providing the volume of net working capital requirement by the company’s current and future activities CONCEPT: Two concepts involved in working capital are: Gross concept Net concept 11 . which make up the gross working capital management. Funds deployed for short term are mainly for working capital (or) operational purpose. a certain portion for short term requirement and the remaining balance in long term investment in assets.REVIEW OF LITERATURE What is working capital? The total fund the firm are deployed in two ways. Working capital management: The management of working capital is concerned with two districts inter woven: short term and long term financial operation. a firm will have to provide money to meet the day to day obligation. The former the problem of managing the individual current assets balances.
GROSS CONCEPT: It focus attention on two important aspect of current asset management a) Optimum investment in current assets b) Financing of assets NET CONCEPT: a) It indicate the liquidity position of the firm b) Suggest the extent to which working capital needs may be financed by permanent source of funds MANAGEMENT OF WORKING CAPITAL: Working capital is concerned with the problem that arises in attempting to manage the current asset. inventories. Other current assets required to support a given volume output. the current liabilities and interrelationship that exist between them. Factors that influences the amount of cash. 12 . receivable. Three parts of working capital: Working capital is employed only when actual production is undertaken and the volume required is generally determined by the level of production and the price level of investment in working capital and predicted risk ∗ ∗ ∗ Management attitude towards risk.
Working capital management is concerned with the problems that arise in attempting to manage current assets and current liabilities and interrelationship between them. The greater the disparity between the maturities of the firms short terms debt instrument and its flow of internally generated funds.PRINCIPLES: It is concerned with the relationship between the level of working capital and sales The type of working capital to financial working capital directly affects the amount of risk that the firm assumes as well as the opportunity for gain or loss and cost of capital. 13 . POLICY: • Working capital management policies have a great effect on firm’s profitability. • A financial manager ensures higher profitability. liquidity and sound structural health of the organization. the greater the risk and vice versa. liquidity and its structural health.
It also grows with the size of business i. greater the size of the business. 14 . NEGATIVE WORKING CAPITAL: When current liabilities exceed current assets negative working capital emerges. The following are the characteristics of permanent working capital: Amount of permanent working capital remains in the business in one form or another.e.TYPES OF WORKING CAPITAL Working capital can be divided into three categories on the basis of time: Permanent working capital Temporary or variable working capital Negative working capital PERMANENT WORKING CAPITAL: This refers to the maximum amount of investment in all current assets which is required at all time to carry out minimum level of business activities. it represents the additional current assets required at different times during the year. greater the amount of working capital and vice versa. This is particularly important from the point of view of financing. TEMPORARY WORKING CAPITAL: The amount of such capital keeps on fluctuating from time to time on the basis of business activities. Such a situation occurs when a firm is nearing a crisis of some magnitude. In other words. Suppliers of temporary working capital can expect its return during off season when it is not required by the firm.
Decrease in current liabilities with the effect of decrease in working capital MAJOR COMPONENTS OF WORKING CAPITAL: The major components of working capital are: ⇒ Cash 15 .DETERMINANTS OF WORKING CAPITAL: General nature of the business Production cycle Business cycle Production policy Credit policy Growth and expansion Vagaries in availability of raw materials Profit level Level of taxes Dividend policy Depreciation policy Price level changes Operating efficiency CAUSES FOR CHANGES IN WORKING CAPITAL The causes for change in working capital of the concern are: Increase in current assets. resulting in decrease in working capital Decrease in current assets resulting in decrease in working capital. Increase in current liability with effect of decrease in working capital.
The firm should manage its current assets in such a way that the marginal return on investment in these assets is not less than the cost of capital employed to finance the current assets. 16 . The company should always be in the position to meet its obligation. the company can reduce the locking up of funds in working capital. meet its day to day financial obligation.⇒ Inventory ⇒ Receivable OBJECTIVES OF WORKING CAPITAL: The objectives of working capital management are: By optimizing the investment in current assets and by reducing the level of current liabilities. Thereby it can improve the return on capital employed in business. The firm should maintain proper balance between current assets and current liabilities to enable the firm to. The different sources through which the funds have to be raised. which should properly be supported by the current assets available with the firm. Two objectives of finance manager: Estimating the amount of working capital requirement.
The working capital is often used in evaluating a company’s ability to meet the maturing debts. Research design: There are various types of research which are helpful to conduct the research. Purpose of the study: The excess of current assets of an enterprise over its current liabilities is called working capital. They are: Exploratory research design: 17 . The main purpose is to study the working capital of Britannia industries limited for the past five years. Thus the solution helps in the future course of action. Aim of the study: The aim of the study is to examine the factors affecting the working capital of Britannia industries ltd and to compare the working capital of the previous year working capital with that of the past 5 years to predict the future need of the working capital. It has been defined as a careful investigation or inquiry especially through search for new facts in any branch of knowledge.RESEARCH METHODOLOGY Definition: Research is the process which the researcher wishes to find out the solution for the given problem.
The main purpose of such studies is that of formulating a problem for more precise investigation or of developing the working hypothesis from an operational point of view. Primary data: First hand information that is collected for the purpose of the study is called primary data. 18 . The researcher has to look into various sources for the data from where he can obtain data. The study is an analytical study. Published data will be available in: Magazine Technical Journals This study involves use of secondary data. Based upon the nature of the study the researcher has selected the exploratory and analytical research DATA COLLECTION METHOD The study is dependent on both primary and secondary data collected from various source. Descriptive Research Design: Descriptive research design is concerned with the research studies with a focus on the characteristics of a particular individual or a group. Secondary data: Secondary data means data that are already available in the organization. the balance sheet and profit & loss a/c statement are the data for the study.Exploratory research design studies are also termed as formulative research studies.
LIMITATION 1) The primary data collected is restricted only to Britannia industries 2) The major concern of the research was the project duration which was 45 days 3) This was insufficient to cover the various areas in the stipulated time. 4) The major limitation of the study is that the data’s are mostly secondary in nature. 6) Data only for 5 years has been analyze 7) The branch of Britannia was scattered and so it is difficult to collect data. TOOLS APPLIED: The most important analytical tools and interpretation of working capital are: Changes in working capital Ratio analysis Operating cycle Trend analysis 19 . annual report etc. 5) As it was taken from financial statement.
Trend in general signifies the tendency. In other words the 20 . theft and loses increases. Thus the rate of rate of return on investments slumps. Thus the chances of inventories manhandling. Shortage of working capital affects the firm’s profitability because of the production interruption.CHANGES IN WORKING CAPITAL: Both excessive and inadequate working capital position are dangerous from the firm’s point of view. Firm is unable to make speculative profit. Excess availability of cash tempts the executives to spend more. Fixed assets are not effectively utilized for the lack of working capital funds. Drawbacks due to inadequate working capital: It becomes difficult to implement operating plan and achieve the firms profit target. Operating inefficiency creep when it becomes difficult to meet the day to day operations. TREND ANALYSIS: Trend analysis is an important tool for data analysis and interpretation of financial statement. waste. Drawbacks due to Excessive working capital: It results in unnecessary accumulation of inventories.
A high ratio indicates efficient utilization of working capital. Financial statements of many years are required to calculate the trend ratio or percentage and information contained in these statements are tabulated separately for number of years WORKING CAPITAL GROUP RATIOS: The following three categories of ratios are used for efficient management of working capital. But very high ratio is not a good indication for the firm. If increase in sales is contemplated. It is expressed as follows’ Sales Working capital 21 . Such analysis plays a significant role in budgeting. Efficiency ratios Liquidity ratios Structural ratios EFFICIENCY RATIOS: WORKING CAPITAL TO SALES: The ratio helps to measure the efficiency of the utilization of the net working capital. working capital should be adequate and thus.review and appraisal of tendency in accounting variables are nothing but trend analysis. this ratio helps management to maintain the adequate level of working capital.
The formula is expressed as follows. It measures the velocity of converting stock into sales. It is expressed as follows Current assets Current liabilities Current assets mean assets that will either be used up or converted into cash within the year time or during the normal operating cycle of the business. the lesser amount of money is required to finance the inventory. The ratio shows how speedily the inventories are tuned into accounts receivable through sales. Current liabilities means liabilities payable within a year or during the normal operating 22 .INVENTORY TURNOVER RATIO: The ratio establishes the relationship between the sales with the average stock. Sales Inventory LIQUIDITY RATIOS: CURRENT RATIO: This ratio is an indicator of firm’s commitment to meet its short term liabilities. A low ratio indicates an inefficient management of inventory over investment. A high ratio indicates efficient management of inventory because more frequently the stocks are sold.
QUICK RATIO: This ratio is termed as ‘acid test ratio’ or ‘liquidity ratio’. Liquid liabilities Current liabilities ABSOLUTE QUICK RATIO: This is a variation of quick ratio.cycle of the business whichever is longer. It is expressed as. Absolute liquid assets Current liabilities STRUCTURAL HEALTH RATIO: CURRENT ASSETS TO TOTAL NET ASSETS 23 . cash at bank and other short term marketable securities which measures the ability of the company to meet their short term financial obligation. It takes into account only cash in hand. out of existing current assets or by creation of current liabilities. This ratio is ascertained by converting the liquid assets (which can be converted into cash without much loss) to current liabilities.
It measures the quality of debtors. Debtor’s turnover ratio is expressed as. The ratio represents the average number of days. Debtors Credit sales CREDITORS PAYMENT PERIOD: * 365 24 . Total net assets Current assets DEBTORS TURNOVER RATIO: This ratio indicates the extent of trade credit granted and the efficiency in the collection of debts. for which a firm has to wait before their receivables is converted into cash. Thus it is an indicative of efficiency of trade credit management and betters the quality of debtors. which in turn adversely affects the liquidity or short term paying capacity of the firm. Credit sales Debtors DEBTORS PAYMENT PERIOD: This ratio shows how long it takes to collect the amount from the debtors. Debtor’s turnover ratio is expressed as follows.A business enterprise should use it’s an assets effectively and economically because it is out of the management of the assets that profit accrue. The lower debtor means prompt payment by the customers.
The gross operating cycle is expressed as follows Gross operating cycle = Inventory conversion period+ Debtor’s conversion period INVENTORY CONVERSION PERIOD: Inventory conversion period is the sum of raw material conversion period. because delay in payment means the operation of the company are being financed interest free from suppliers’ funds. work in progress conversion period. may harm the company. the longer the credit period achieved the better. the credit rating of the company may suffer. In general. Creditor’s payment is expressed as follows. If too long the credit period is taken by the creditors to pay. thereby making more different to obtain suppliers credit in future. Creditors Credit Purchase * 365 GROSS OPERATING RATIO: The firm’s gross operating cycle can be determined as inventory conversion period plus debtor’s conversion period. finished goods conversion period and packing material conversion period. but there will be a point beyond which if they are operating in a seller market. 25 .The measurement of the creditor payment period shows the average time taken to pay for the goods and services purchased by the company.
The raw material conversion period is obtained when raw material is divided by raw material conversion per day. Finished goods conversion period = Finished goods inventory * 365 Cost of goods sold DEBTOR’S CONVERSION PERIOD: Debtor’s conversion period is the average time taken to convert debtors into cash. Debtor’s conversion period represent the average collection period.RAW MATERIAL CONVERSION PERIOD: The raw material conversion period is the average time period taken to convert materials into work in progress. Raw material conversion period = Raw material conversion Raw material consumption WORK IN PROGRESS CONVERSION PERIOD: Work in progress is the average time taken to complete the semi finished or work in progress. Debtors conversion period = Debtors 26 * 365 . Raw material Conversion period per day is given by the number of days in the year (365). Work in progress conversion period = Work in progress inventory Cost of production * 365 * 365 FINISHED GOODS CONVERSION PERIOD: Finished goods conversion period is the average time taken to sell the finished goods.
Credit sales TABLE-1.1 Schedule of changes in working capital for the year 2001-2002 Particulars 2001 2002 Increase Decrease Current assets: Inventories Sundry debtors Cash and bank balance Other current assets Loan and advances Total (A) 830764 326205 345829 1800 807743 2312341 714927 240060 540829 333 918874 2415023 115837 86145 195000 1467 111131 Current liabilities: Current liabilities Provisions Total (B) Working capital(A-B) Increase Total 1728815 240294 1969109 343232 364582 707814 1505831 201378 1707209 707814 707814 222984 38916 568031 568031 203449 364582 568031 27 .
2 Schedule of changes in working capital for the year 2002-2003 Particulars 2002 2003 Increase Decrease Current assets: Inventories Sundry debtors Cash and bank balance Other current assets Loan and advances Total (A) 714927 240060 540829 333 918874 2415023 819247 291611 708495 5452 934829 2759634 104320 51551 167666 5119 15955 Current liabilities: Current liabilities Provisions Total (B) Working capital(A-B) Increase Total 1505831 201378 1707209 707814 847170 1592622 319842 1912464 847170 847170 344611 139359 344611 86791 118464 28 . Similarly the cash and bank balance has also increased resulting in satisfy liquidity position of the firm. Decrease in current liabilities results in increase in working capital for Rs.364582 TABLE-1.INFERENCE: During this year the loans and advances has been increased which indicate the effective utilization of cash.
The loans and advances has been increased which indicates the effective utilization of cash.3 Schedule of changes in working capital for the year 2003-2004 Particulars 2003 2004 Increase Decrease Current assets: Inventories Sundry debtors Cash and bank balance Other current assets Loan and advances Total (A) 819247 291611 708495 5452 934829 2759634 1222464 191136 70827 4389 779375 2268191 403217 100475 637668 1063 155454 Current liabilities: Current liabilities Provisions Total (B) Working capital(A-B) Decrease Total 1592622 319842 1912464 847170 847170 1372980 781228 2154208 113983 733187 847170 219642 461386 733187 1356046 1356046 29 .139356 TABLE-1. Sundry debtors have been increased but to increase in credit sales.INFERENCE: For the year 2003 it has been noted that the entire current assets has been increased. Thus there is an increase in working capital of Rs. Increase in cash and bank balance shows a satisfactory liquidity position of the firm. There is an increase in current liabilities too.
Cash and bank balance have been reduced due to the payment of current liabilities. Increase in current liabilities and decease in current assets leads to decrease in working capital of Rs.733187 TABLE-1. Increase in sundry debtor is a result of increase in credit sales of the firm.4 Schedule of changes in working capital for the year 2004-2005 Particulars 2004 2005 Increase Decrease Current assets: Inventories Sundry debtors Cash and bank balance Other current assets Loan and advances Total (A) 1222464 191136 70827 4389 779375 2268191 1341899 443147 163062 2185 631468 2581761 119435 252011 92235 2204 147907 Current liabilities: Current liabilities Provisions Total (B) Working capital(A-B) Decrease Total INFERENCE: 30 1372980 781228 2154208 113983 113983 2059717 973431 3033148 -451387 565370 113983 686737 192203 565370 1029051 1029051 .INFERENCE: During the period 2003-2004 there is increase in inventories because of increase in production.
But current liabilities have also been raised resulting to an increase in overdraft.5 Schedule of changes in working capital for the year 2005-2006 Particulars 2005 2006 Increase Decrease Current assets: Inventories Sundry debtors Cash and bank balance Other current assets Loan and advances Total (A) 1341899 443147 163062 2185 631468 2581761 1847956 208516 353395 5558 940652 3356077 506057 234631 190333 3373 309184 1008947 234631 Current liabilities: Current liabilities Provisions Total (B) Working capital(A-B) Increase Total INFERENCE: 31 2059171 973431 3033148 -451387 777145 325758 2247006 783313 3030319 325758 325758 1199065 777145 1199065 187289 190118 .565370 TABLE-1.During this period there is an increase in current assets when compared to the previous year. As there is an increase in current liabilities over the current assets there is a decrease in working capital of Rs.
2006 there is an increase in current assets.98 14152.In the year2005.28 20114.777145. Inventories are increased because of increase in production.50 Conversion days 22 30 41 51 55 2002 2003 2004 2005 2006 RAW MATERIAL CONVERSION PERIOD= Raw material inventory_*365 Raw material conversion INFERENCE: 32 .2. The net working capital during this period is Rs. The current liabilities have been decreased because of repayment efforts. Cash and bank balance have been increased indicating more liquidity position of the firm.25 16144.1 Raw material conversion period Years Inventory of raw materials 233317 343009 585026 824354 1099776 Raw material consumption period 3880347 4160993 5165572 5892663 7341794 Consumption per day 10631. TABLE.09 11399.
41 days. As the company also increase the consumption of raw material this make the holding days to increase as the demand for biscuits were at higher ratio CHART-2. 30 days.2003.2005 and 2006 are 22 days.This table indicates material conversion period for the years 2002. From 2002 to 2006 that the days for which the raw material held during five years are moving upward from 22days to 55 days.1 RAW MAT 33 . 51 days and 55 days.2004.
46 0.94 29835.61 23983.TABLE-2.10 26189.2 Work in progress Years 2002 2003 2004 2005 2006 Inventories Of Work.95 Conversion Days 0.22 0.09 WORK.08 0.06 0.in – Progress 8750 4513 1996 1688 2641 Cost of Production 6916451 7512653 8753830 9559329 10890123 Cost of Production Per Day 18949.18 20482.IN-PROGRESS= Work-in-progress inventory * 365 Cost of Production 34 .
22 days.2004.0. This is due to highly fluctuating in inventory of work-in progress CHART-2.INFERENCE: This table indicates work in progress conversion period for the year for the year 2002.06 days.0.2006 are 0.46 days.09 days.08 days. The days for which the work-in-progress held during the five years are moving downward and upward.2005.0. 2003.2 35 .0.
W O R K IN P R O G R E S S C O N V E R S IO N P E R IO D 0.46 2002 2003 2004 2005 0.3 Finished goods conversion period Years Inventory of finished goods Cost of goods sold Cost of goods sold per day Conversion days 36 .22 2006 TABLE-2.08 0.09 0.06 0.
But in 2006 it shows higher so the company’s ability to convert its finished goods into debtors will be more efficient in future. 2005. CHART– 2.73 15053.31 16550. and 16 days. 13 days.3 37 .07 24318.18 15 19 25 13 16 Finished goods conversion period = Finished goods inventory *365 Cost of goods sold INFERENCE: From the above table finished goods conversion days for the year 2002. 25 days. The days for finished goods have been more downward and upward trend. 19 days. 2003.55 27533.2002 2003 2004 2005 2006 278005 278701 413729 316869 439029 6602022 5494458 6040775 8876269 10049609 18087. 2004. 2006 are 15 days.
F IN IS H E D G O O D S C O N V E R S IO N P E R IO D 16 15 2002 2003 13 19 2004 2005 2006 25 38 .
35 days and 46 days. 2003. 2005.91 4388. 2004.77 4337. 40 days. The days for which the raw materials held during five years are fluctuating.TABLE-2.89 44 39 40 35 46 2002 2003 2004 2005 2006 Packing material conversion Period = Inventory of packing materials * 365 Packing material consumption INFERENCE: The above table shows the statement of packing material conversion period for the year 2002. 39 .73 3601.24 5346. 2006 are 44 days. As the demand being increased the packing for materials also increased.4 Statement of packing material conversion period Years Inventory of packing raw materials 139464 138894 172328 153111 246201 Packing material consumption period 1158412 1314647 1583338 1601709 1951616 Consumption Conversion per day period 3173.39 days.
CHART – 2.4 P A C K IN G M A T E R IA L C O N V E R S IO N P E R IO D 46 44 2002 2003 2004 2005 2006 35 39 40 40 .
This shows the effective administration of debtors. But credit sales will be tied up the funds for some times until the debtors balance is realized that the way in 2006 the have reduced the conversion period.5 Debtor conversion period Years 2002 2003 2004 2005 2006 Book debts 240060 291611 191136 443147 208516 Credit sales 13985117 12958281 1496127 15095477 17133383 Credit sales per day 38315. 5 days.14 39441.39 35502. and 2006 are 6 days. 11 days.44 41357.47 Conversion day 6 8 5 11 4 Debtors conversion period = Debtors Credit sales * 365 INFERENCE: From the above table the debtor conversion period for the year 2002. 41 .47 46940. and 4days. 2005. 2004. 2003.TABLE-2. The days are higher because of the investment in debtors has considerably increased. 8 days.
CHART– 2.5 42 .
D E B T O R S C O N V E R S IO N P E R IOD 4 6 2002 2003 2004 11 8 2005 2006 5 43 .
02 Conversion days 84 87 88 88 80 Payment deferral period = creditors Credit purchase *365 INFERENCE: From the above table payment deferral period for the year 2002.17 21125. 88 days. 2005. and 2006 are 84 days. 2004. In 2004 and 2005 the deferral period is high due to delay payment by the company. 44 .6 Statement of payment deferral period Years 2002 2003 2004 2005 2006 Creditor 1485797 1571616 1548432 1863113 2123008 Credit purchase 6491277 6600609 64153. In 2006 it is decreased which indicates heavy profits have incurred due to more supply and company was in good position to make its payment.32 18083. 2003.TABLE-2.3 7710883 9661922 Credit purchase per day 17784. 88 days. and 80 days. 87 days.7 26471.86 17576.
6 45 .CHART– 2.
P AYM E N T D E F F E R AL P E R IO D 80 84 2002 2003 2004 88 87 2005 2006 88 46 .
09 16 46 117 4 121 3 80 41 47 .46 15 44 82 6 88 4 84 4 2003 30 0.2006 are 4 days. But in 2006 the operating cycle have increased. 21 days.06 13 35 99 10 109 3 88 21 2006 55 0.7 Statement of operating cycle Particulars Raw materials (A) Work-in-progress(B) Finished goods(C) Packing materials(D) MATERIAL CONVERSION (E=A+B+C+D) Receivable conversion period (F) Current asset conversion period (G=E+F) Gross operating cycle (360/F) Payment deferral period (H) Actual days (I = G-H) INFERENCE: From the above table the operating cycle of Britannia Company indicates that for the period of 2002. 2002 22 0.2005. 8 days. and 41 days.TABLE – 2.22 18 39 87 8 95 4 87 8 2004 41 0. In 2003 it shows as negative days the company has made advance payment and they made payment at later days.2004.08 25 40 106 5 111 3 88 23 2005 51 0. it shows the large amount of working capital is required. 23 days. 2003.
CHART -2.7 48 .
O P E R AT IN G C YC L E
2003 2004 2005 2006 21
TABLE-3.1 Efficiency ratio Working capital turnover ratio
Year 2002 2003 2004 2005 2006
Sales 13985117 12958281 14396127 15095477 17133383
Working capital 707814 847170 113983 -451387 325758 19.76 15.30
126.30 -33.44 52.60
Working capital turnover ratio =
sales_________ Working capital
INFERENCE: According to this table from the year 2002-2004 the working capital ratio shows an increasing trend but in the year 2005 it shows an increasing trend but in the year 2005 it shows decreasing trend due to current liabilities and outstanding debts. In the year 2006 the ratios have been increased which shows company is efficient t in maintaining its working capital.
CHART – 3.1
140 120 100 80 60 RATIOS 40 20 0 -2 0 -4 0 -6 0
W O R K IN G C A P IT A L T U R N O V E R R A T IO
W O R K IN G Y C A P IT A L T U R N O V E R R A T IO EARS
2 Inventory turnover ratio Year 2002 2003 2004 2005 2006 Cost Of Goods Sold 6602022 5494458 6040775 8876269 10049609 Stock 714927 819247 1222464 1341899 1847956 9. This indicates the lock up in stock level.23 6. So a high velocity indicates efficient management of inventory therefore the present inventory management is good and also if indicate the more frequently the stock are sold. inventory turnover is high. therefore there is an increase in 2005 and decrease in 2006.Table.94 6.3.61 5.71 4.44 Ratio Inventory turnover ratio = cost of goods sold Stock INFERENCE: In this table inventory turnover ratio of the organization shows continuous increase from 2003 to 2006. 52 . In 2005.
71 4.61 5.94 6.44 9.2 INVENTORY TURNOVER RATIO 10 9 8 7 6 5 4 3 2 1 0 2002 2003 2004 2005 2006 6.CHART – 3.23 INVENTORY TURNOVER RATIO 53 .
But in the year 2006 there is an increase in ratio which shows improvement in liquidity position of the firm.3 LIQUIDITY RATIO CURRENT RATIO Years 2002 2003 2004 2005 2006 Current assets 2415023 2759634 2268191 2581761 3356077 Current liabilities 1707209 1912464 2154208 3033148 3030319 Current ratio 1.87 1.44 1.41 1.TABLE -3.05 0.11 Current ratio = Current assets Current liabilities INFERENCE: In this table it indicates that in 2004 and 2005 there is a decrease in current ratio which indicate that there has been deterioration in the liquidity position of the firm. 54 .
4 1 1 . 8 0 .4 0 .8 7 2002 2003 2004 YEAR S 2005 2006 55 .1 1 0 .6 1 .2 1 R A T I O 0S.6 0 .05 1 .CHART – 3.4 1 .4 4 1.3 C U R R E N T R A T IO 1 .2 0 1 .
TABLE -3. The fluctuation is mainly due to increase in loan level and cash balance.41 0.51 Quick ratio = Quick assets Current liabilities INFERENCE: According to this table in the year 2004 it shows decrease in ratio it represent that the firm’s liquidity position is not good.00 1. But in year 2006 there is an increase in ratio it shows company has good liquidity position.4 QUICK RATIO Years 2002 2003 2004 2005 2006 Current liabilities 1707209 1912464 2154208 3033148 3030319 Quick Assets 1700096 1940387 1045727 1239862 1508121 Ratio 1. 56 .01 0.49 0.
0.0 0 1 .4 1 0 .4 9 0 .4 0.CHART – 3.8 R A T I O0 S 6 .2 1 0.4 Q U IC K R A T IO 1.0 1 57 .5 1 1 .2 0 2002 2003 2004 2005 2006 YEARS Q U IC K R A T IO 0 .
11 Absolute quick ratio = Absolute Quick Assets Current liabilities INFERENCE: According to this table during 2004 and 2005 there is a decrease in cash and bank balance and during 2006 there is an increase (0.37 0.3.03 0.11) which shows company’s ability to meet short term financial obligation.05 0.5 ABSOLUTE QUICK RATIO Years 2002 2003 2004 2005 2006 Absolute Quick Assets 540829 708495 70827 163062 353395 Current Liabilities 1707209 1912464 2154208 3033148 3030319 Ratio 0.32 0.TABLE. 58 .
CHART – 3.0 3 0 .0 5 2002 2003 2004 2005 2006 YEARS A B S O L U TE Q U IC K R A TIO 59 .1 1 0 .5 A B S O L U TE Q U IC K R A TIO 0 .3 7 0 .3 2 0 .
06 82.06 and 82.32. 44.44. 2005. In the year 2006 the debtors have been reduced even though the sales have increased which shows that the cash payment encouraged more in that period than the credit sales 60 .26 44. In the year 2005 it shows decrease in ratio which indicates debtors have increased and the company is efficient in collection policy.TABLE -3. 75. 2004.32 34.44 75. 34.26. 2006 are 58.17 Debtors turnover ratio = Credit sales Debtors INFERENCE: According to this table debtor’s turnover ratio for the year 2002. 2003.17.6 STRUCTURAL HEALTH RATIO DEBTOR’S TURNOVER RATIO Years 2002 2003 2004 2005 2006 Credit Sales 13985117 12958281 1496127 15095477 17133383 Debtors 240060 291611 191136 443147 208516 Ratio 58.
3.32 61 .6 D E B T O R S T U R N O V E R R A T IO 100 80 60 R A T IO S 40 20 0 2002 2003 2004 YEARS D E B T O R S T U R N O V E R R A T IO 2005 2006 5 8 .0 6 8 2 .CHART.2 6 44.44 3 4 .1 7 7 5.
54 days.TABLE-3.24 days.19 80. 2004.19 days and 80.20 days. 2003.09 days.7 Creditor’s payment period Years 2002 2003 2004 2005 2006 Creditors 1485767 1571616 1548432 1863113 2123008 Credit purchase 6491277 5600609 6415303 7710883 9661922 Payment period 83.88. But in 2006 it has been decreased which indicate a quick payment made by the company 62 . 2005 and 2006 are 83.88.09 88.102.20 Creditor payment = Period INFERENCE: Creditors Credit Purchase * 365 According to this table creditor’s payment period for the year 2002. In the year 2003 there has been increase in collection period and from 2004 to 2006 it started decreasing which indicate a quick and regular payment have been made by the company.52 88.54 102.
CHART – 3.1 63 .7 C R E D IT O R S P A Y M E N T P E R IO D 120 100 80 R A T IO S0 6 40 20 0 102 83 88 88 80 2002 2003 2004 2005 2006 YEARS C R E D IT O S P A Y M E N T P E R IO D TABLE-4.
TREND ANALYSIS OF SALES FOR THE YEAR 2007&2008 Years 2002 2003 2004 2005 2006 Total Sales(y) 13985117 12958281 14396127 15095477 17133383 73568385 X -2 -1 0 1 2 0 X^2 4 1 0 1 4 10 XY -27970234 -12958281 0 15095477 34266766 8433728 By applying the straight line equation.17243796 and Rs. Yc= a + bX Y= calculated trend value of y Y= ∑y / n 73568385 = 14713677 5 b= ∑xy / x^2 8433728 = 843373 10 Yc = a + bx 2007 2008 yc = 14713677 + 843373(2007-2004) = 17243796 yc= 14713677 + 843373(2008-2004) = 18087169 INFERENCE: Thus the sales of next two years are estimated to be Rs.2 TREND ANALYSIS OF PROFIT FOR THE YEAR 2007 & 2008 64 .18087169. TABLE-4.
Yc= a + bX Y= calculated trend value of y Y= ∑y / n 9453199 =1890640 5 b= ∑xy / x^2 -124914 =-12491 10 Yc = a + bx 2007 2008 Yc = 1890640 + (-12491) (2007-2004) =1853167 Yc = 1890640 + (-12491) (2008-2004) = 1840676 INFERENCE: Thus the profit for the next two years is estimated to be 1853167 & 1840676. 2003 and 2006 65 . FINDINGS 1) The company’s investment in working capital was adequate during 2004 and 2005 and excessive during 2002.Years 2002 2003 2004 2005 2006 Total Profit (y) 2279169 1493576 1717718 1998472 1964264 9453199 X -2 -1 0 1 2 0 X ^2 4 1 0 1 4 10 XY -4558338 -1493576 0 1998472 3928528 -124914 By applying the straight line equation.
it shows company’s ability to convert finished goods into debtor. But in 2006 it has been decreased which indicates heavy profit incurred during the year and the company is in good position to make profit. But the company is likely to enjoy higher profit with the increase of turnover of the company. 5) In debtor’s conversion period when compared to 5 years in 2003 and 2005 (8 days and 10 days) these days are higher because of investment in debtors has considerably increased. 9) Profitability of the company has been suffered due to fluctuation of sales. 4) In 2006 finished goods has been increased. 3) Work in progress has been fluctuating in past 5 years due to increase in cost of production. That is why in 2006 they have reduced the conversion days it shows effective administration of debtors. 66 . 6) In deferral payment period indicates that indicates that in 2003 the deferral days are higher due to delayed payment made by the company. 7) The investment in current assets increased with the corresponding increase in current liabilities because of which the liquidity position is not affected 8) From 2005 onwards the stock are being procured at opportunity cost.2) The raw material holding period has been increasing in past 5 years it shows that the demand for biscuits was at a higher rate.
15) The current ratio is increased which indicate usage of funds in current assets. 11)The current ratio for the 5 years shows less than the ideal ratio 2:1. but in 2006 which decreased it shows lock of funds in current assets. which indicate quick clearances of stock due to heavy demand. 13) Debtors collection period has been decreased which shows regular payment made by the customer. SUGGESTIONS 67 . This was due to increase in current assets in past 5 years. 14)The stock turnover ratio in 2006 is high.10) The operating cycle for the year 2002 to 2006 it shows increasing so number of operating cycle increase in times it increase the working capital requirement of the company reduced. this is due to fluctuation in current liabilities. 12)The quick ratio for the 5 years shows less than the ideal ratio 1:1.
Hence the company can follow current assets holding period i.e. estimating the number of days the raw material. So as to improve the performance the company can try to increase its income by exercising effective control over financial expenses. finished goods and debtors to be held by the company. 8) The company has not maintained the idle ratio 2:1. 4) Company has not adequately invested in working capital. work in progress. 68 . 7) There is a decrease in current asset ratio during 2006 therefore the company can reduce the lock up funds in current assets and they can invest more. therefore the company should try to keep optimum stock level. so the company shall increase current ratio to indicate a margin of safety for the creditors and to meet the current obligation. 6) The company shows a declining profit for 2007&2008 due to heavy financial expenses incurred during the year. 5) As the cost of raw material is also an important deciding factor of the profitability of the company. 2) The company is suggesting increasing the sales with reduced investment in inventories and debtors 3) Trend shows that the firm’s ability to produce more sales for the capital employed thereby increasing the profit which is important aspects of operating performance.1) The working capital shall be maintained adequately during the year 2004 & 2005 for which the company needs to maintain adequate inventories and cash balance and reduce the current liabilities.
9) The quick ratio shows a favorable position and show firm’s capacity to pay off the current obligation. 10)Company must have reserve of raw material in stock whenever the option of funding for the purchase of material from the supplier at the lower price. CONCLUSION 69 . 11)Britannia industries limited compete with other producers of biscuits using hi-fi technology and it can become a world market leader for biscuits.
The study reveals the better understanding about the real situation that is prevailing at present. Further the company shall aggressively improve the working capital and to have high yield on return. 70 . Britannia industries limited have grown a remarkable extent with its entire product selling all over India and even across the world. On the review of the performance of the company’s ratio and other financial statements for the past five years reveals that the company maintained the goods solvency position. The company shall turn to robust performance with the launch of a series of premium products and innovate distribution initiatives. so it can think something different for its prosperous future. Now the company is in the good position.Working capital management is one of the important factor in business is to manage current assets and current liabilities in satisfactory level.
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