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Project on Working Capital Management by A$HWIN CHOUHAN

Project on Working Capital Management by A$HWIN CHOUHAN

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A

PROJECT REPORT ON “WORKING CAPITAL MANAGEMENT” IN UNIVERSAL STARCH CHEM. ALLIED LTD. DONDAICHA.

SUBMITTED TO NORTH MAHARASHTRA UNIVERSITY TOWARDS PARTIAL FULFILLMENT OF BACHELOR DEGREE IN BUSINESS ADMINISTRATION SUBMITTED BY A$HWIN CHOUHAN BACHELOR IN BUSINESS ADMINISTRATION {FINANCIAL MANAGEMENT} {2010{2010-11} FROM

UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

ACKNOWLEDGEMENT
Words are indeed inadequate to convey my deep sense of gratitude to all those who have helped me in completing this project to the best of my ability. Being a part of this project has certainly been a unique and a very productive experience on my part. First of all I would like to thank North Maharashtra University, Jalgoan for providing me an opportunity to undertake a project as a partly fulfillment of BBA degree. I am really thankful to my mentor Mr. Ankush Agrawal Sir, for guiding and helping me to solve all kinds of queries regarding the project work. His systematic way of working and incomparable guidance has inspired the pace of the project to a great extent. I would also like to thank my project coordinator Mr. Sachin Surana Sir for guiding me about preparing project report and very thankful to all lecturers, office staff and library staff of Institute of Management Research And Development, Shirpur for their useful guidance and advise. I am very grateful to Mr. J.S Patil Sir (Sr. Administration Manager) UNIVERSAL STARCH-CHEM ALLIED LTD. Who has given me the opportunity to do this project in their esteemed organization. This project would not have been successful without the help of Mr. Altaf Sheikh Sir (Finance Manager) and Mr. Devendrasingh Rawal (A.C Maintenance Dept.) of UNIVERSAL STARCH-CHEM ALLIED LTD. Last but not least I would like to thank all the employees of UNIVERSAL STARCHCHEM ALLIED LTD. who have directly and indirectly helped me with their moral support for the completion of my project Finally I would to express sincere thanks to my Dad & Mom for their blessings and appreciation which helped me some or other way in making my project successful.

( Ashwin Chouhan )

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

TABLE OF CONTENTS
Chapter No. Ch No. 1 Ch No. 2 Ch No. 3 Ch No. 4 Ch No. 5 Subject Page No 4 5 7 11 27 28 32 45 45 48 66 68 70 72

Objective And Limitations…………………... Executive Summary…………………………. Company Profile ……………………………. Working Capital Management - An Overview………………………………. Calculation Analysis and Interpretation………………………………... 5.1 5.2 5.3 5.4 5.5 Changes In Working Capital……………….. Analysis of various components of Working capital……….................................. Calculation of Net Operating Cycle……….. Estimation of Working Capital Requirement………………………………… Calculation Working Capital Ratios And Interpretation…………………………... Major Finding………………………………… Recommendations…………………………….. Bibliography & Reference………………......... Annexure……………………………………… Profit & loss A/c, Balance Sheet (06-07, 07-08, 08-09, 09-10)

Ch No. 6 Ch No. 7 Ch No. 8 Ch No. 9

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

OBJECTIVES & LIMITATIONS

It is compulsory that under three year full time course of B.B.A. degree, a student has to undergo different training programs so as to establish himself capable of managing at the place of his work after the completion of this degree. Thus project work is an unique way of studying an organization. The main purpose of assigning this task of project report is to keep new practical knowledge, establishing relations with different persons outside the organization and to obtain first hand and factual information. The project helps to draw out the differences and similarities between the theoretical knowledge with the actual job conditions, this helps the students to persuade and activate strategy decision-making when they start their carriers. It provides an opportunity to develop communication skill and analytical skills. The project provides the opportunity to understand the working capital management of Universal Starch-Chem Allied Ltd. Limitations: This project focuses only on certain factors, which are important to discuss. But tool of ratio analysis has certain fundamental and conceptual limitations, this project as well. The study is only made on one organization so it does not provide any scope of comparison with other organization. The study is based only on last 4-year records. The study is restricted to financial position of the company with on attention given to loans and advances and deposit mobilization. While computing ratios, average, percentage, the figures are appropriated to two decimal places. Therefore sometimes the total may not exactly tally Sometime round figures are taken on place of accurate figures.

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

EXECUTIVE SUMMARY
The group was founded in the year 1973 by Hon'ble Shri Dadasaheb Rawal, the Ex-Ruler, Ex-MLA & Freedom Fighter. This visionary personality thought of bringing industry, power & water works to his town of Dondaicha, which was otherwise an under-developed region of North Maharashtra. In his vision he selected an agro- based industry to process Maize into value-added products. The project entitled “Working Capital Management and Analysis” deals with brief of management of their day to day expenses, inflow as well as outflow of cash in UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.which is an agrobased industry to process Maize into value-added products. The term of study was kept limited to make the title true. The purpose of the report is to get the in depth understanding of the process of working capital management. The Company has successfully enhanced the production capacity of Maize Refining from 60 MT to 400 MT per day. The objective of this project work is to focus on the working capital of the STARCHCHEM ALLIED LTD. DONDAICHA. And exploring its potential in the company. The project contain the basic postulates of working capital, procedure of analysis of working capital, ratio being used to define the working capital and the impact of working capital in the company in case of excess or inadequacy. Also, the project contains analysis of estimation of working capital requirement and the procedure to estimate working capital requirement in manufacturing and trading concern. and from the data available it can be concluded that it holds a very strong position in the market. The total turnover of company is around `.85 crores and still counting. Company showing good ratios which indicate sound efficiency , liquidity , and structural health of company.

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Founder Vision Mission Company History Structure Capacities Products

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Founder: A well-read, widely traveled, highly educated Law Graduate who has dedicated his life for the upliftment of human society beyond the boundaries of nation, caste & creed. The group was founded in the year 1973 by Hon'ble Shri Dadasaheb Rawal, the Ex-Ruler, Ex-MLA & Freedom Fighter. This visionary personality thought of bringing industry, power & water works to his town of Dondaicha, which was otherwise an under-developed region of North Maharashtra. In his vision he selected an agro- based industry to process Maize into value-added products. His two young sons assisted him to set up this industry. He being a progressive minded person took the lead in updating technology, products, quality, system and transportation and delivery of the liquid products etc. In his efforts he has been first in many spheres in India like introduction of tankerisation for transport of Liquid Glucose and Dextrose Syrup. In the fields of Education and Training, he started a Diploma Engineering College at Dhule, in 1945 the district headquarters, which was the first technical institute in the region. It followed by starting Science Colleges, Agriculture Schools and ITI training institutes under the inspiring guidance of Dadasaheb Rawal. He was the first person to introduce Rural Electric Power Company at Dondaicha before the SEB (State Electricity Board) could lay lines here. He is also the first to start reforestation of this area with Juliflora Prosopis to make fuel wood available to villagers and also to ensure protection of the soil from erosion. Vision: It is UNIVERSAL truth that maize is amazing and, we are committed to excellence giving products of UNIQUE quality to customer satisfaction. Mission: Our plant and machinery has been established on the strong foundation of modern technology for refining of Maize and to manufacture finished products conforming to the international quality standards. The plant and machinery are being operated by highly qualified, experienced & dedicated people who monitor continuously the day-to-day operations in maintaining the consistency of results in all the operations. The total administrative and technical manpower is working under the guidelines of dynamic and forward thinking Management.

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Company History

M/s. UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA. Has achieved remarkable milestones during the history of last 30 years since its incorporation in 1973. The Company has successfully enhanced the production capacity of Maize Refining from 60 MT to 400 MT per day. The product range has been also successfully expanded to cater the requirements of Food, Pharmaceutical, Textile, Paper & Adhesive industries. The process of new product development has been accomplished through the instantaneous efforts of different teams like Marketing, R & D, Engineering & Production. The Company’s R and D Laboratory is recognized by D.S.I.R., Govt. of India. The Company was awarded by OPPI as the “BEST VENDOR’ in the category of ‘Excipient Supplier” for the year 1998-99. The Company has a H.R.D. Centre for training the staff and workers on Total Quality Management, Productivity and ISO 9000. The Company is thriving in sectors of Energy, Environment under the dynamic leadership of Management. The Company has sophisticated and full-fledged Effluent Treatment Plant along with Bio-Digestors in which Biogas is generated from the factory effluents. The Biogas is being utilized as the fuel for by-product driers and boilers and actively participating in the National Campaign of “SAVE ENERGY SAVE NATION”. The Company has also established Wind Mill to generate 0.6 M.W. power and also succeeded in establishing a Co-Generation Power plant for captive consumption. The Management is dedicated in the service of Mankind with the production and supply of quality products through Maize Refining industry. Structure: Chairman & Managing Director : USA -- Universal Starch-Chem Allied Ltd. Director - Business Development Director Business Administration Director Chief Executive Officer Finance Advisor General Manager - R & D General Manager - Q.A. General Manager – Engg Hon'ble Rawal Shri.Sarkarsaheb

Shri. Jaykumar J. Rawal M.L.A. Shri. Rishikesh Rawal Shri. Vikrant Rawal Mr. M.N. Patwari Mr. D.A. Patil Mr. G.P. Chaudhary

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Capacities: Maize Crushing All Types Of Starches (Native+Modified) Liquid Glucose Dextrose Monohydrate Dextrose Anhydrous Dextrose monohydrate Syrup Cornello (Refined Corn Oil) Caramels (ISI Grade) Products: SR. NO. 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 Product Name Maize Starch Powder - IP (Super Quality) Maize Starch Powder - IP (Special Quality) Maize Starch Powder - (Pure) Maize Starch Powder - IP (Best Quality) Unigel - 160, 270 & 500 LIQUID GLUCOSE - IG & SO2-free Utexlose White Dextrins Unisol - B & T Dextrose Monohydrate Dextrose Anhydrous Dextrose Syrup High Maltose Corn Syrup Caramel ( All types of BIS Mark) Maize Germ Maize Germ Oil Cake Maize Gluten - 60%, 50% & 40% Maize Refined Oil – “CORNELLO” Pepsize – 200 (Oxidized Starch) Unicats 25/45 (Cationic Starch) Unifilm – 10 (Esterified Starch) Unistar – 65 (Amphoteric Starch) 400 MT Per Day 120 MT Per Day 100 MT Per Day 35 MT Per Day 10 MT Per Day 15 MT Per Day 08 MT Per Day 03 MT Per Day

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Working capital has been described as the “Life blood of any business which is apt because it constitutes a cyclically flowing stream through the business.”

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

This section includes: INTRODUCTION : The term working capital is commonly used for the capital required for day-to-day working in a business concern, such as for purchasing raw material, for meeting day-today expenditure on salaries, wages, rents rates, advertising etc. But there are much disagreement among various financial authorities (Financiers, accountants, businessmen and economists) as to the exact meaning of the term working capital.

DEFINITION AND CLASSIFICATION OF WORKING CAPITAL: Working capital refers to the circulating capital required to meet the day to day operations of a business firm. Working capital may be defined by various authors as follows: 1. According to Weston & Brigham - “Working capital refers to a firm’s investment in short term assets, such as cash amounts receivables, inventories etc. 2. Working capital means current assets. - Mead, Baker and Malott 3. “The sum of the current assets is the working capital of the business” - J.S.Mill Working capital is defined as “the excess of current assets over current liabilities and provisions”. But as per accounting terminology, it is difference between the inflow and outflow of funds. In the Annual Survey of Industries (1961), working capital is defined to include “Stocks of materials, fuels, semi-finished goods including work-in-progress and finished goods and by-products; cash in hand and bank and the algebraic sum of sundry creditors as represented by (a) outstanding factory payments e.g. rent, wages, interest and dividend; b)purchase of goods and services; c) short-term loans and advances and sundry debtors comprising amounts due to the factory on account of sale of goods and services and advances towards tax payments”.

The term “working capital” is often referred to “circulating capital” which is frequently used to denote those assets which are changed with relative speed from one form to another i.e., starting from cash, changing to raw materials, converting into work-inprogress and finished products, sale of finished products and ending with realization of cash from debtors. Working capital has been described as the “life blood of any business which is apt because it constitutes a cyclically flowing stream through the business”. Working Capital may be classified in two ways a) Concept based working capital b) Time based working capital Concepts of working capital

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

1. Gross Working Capital: It refers to the firm’s investment in total current or circulating assets. 2. Net Working Capital: The term “Net Working Capital” has been defined in two different ways: i. It is the excess of current assets over current liabilities. This is, as a matter of fact, the most commonly accepted definition. Some people define it as only the difference between current assets and current liabilities. The former seems to be a better definition as compared to the latter. ii. It is that portion of a firm’s current assets which is financed by long-term funds. 3. Permanent Working Capital: This refers to that minimum amount of investment in all current assets which is required at all times to carry out minimum level of business activities. In other words, it represents the current assets required on a continuing basis over the entire year. Tandon Committee has referred to this type of working capital as “Core current assets”. The following are the characteristics of this type of working capital: 1. Amount of permanent working capital remains in the business in one form or another. This is particularly important from the point of view of financing. The suppliers of such working capital should not expect its return during the lifetime of the firm. 2. It also grows with the size of the business. In other words, greater the size of the business, greater is the amount of such working capital and vice versa. Permanent working capital is permanently needed for the business and therefore it should be financed out of long-term funds. 4. Temporary Working Capital: The amount of such working capital keeps on fluctuating from time to time on the basis of business activities. In other words, it represents additional current assets required at different times during the operating year. For example, extra inventory has to be maintained to support sales during peak sales period. Similarly, receivable also increase and must be financed during period of high sales. On the other hand investment in inventories, receivables, etc., will decrease in periods of depression.Suppliers of temporary working capital can expect its return during off season when it is not required by the firm. Hence, temporary working capital is generally financed from shortterm sources of finance such as bank credit. 5. Negative Working Capital: This situation occurs when the current liabilities exceed the current assets. It is an indication of crisis to the firm. Need for Working Capital Working capital is needed till a firm gets cash on sale of finished products. It depends on two factors: i. Manufacturing cycle i.e. time required for converting the raw material into finished product; and ii. Credit policy i.e. credit period given to Customers and credit period allowed by creditors. Thus, the sum total of these times is called an “Operating cycle” and it consists of the following six steps:

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

i. Conversion of cash into raw materials. ii. Conversion of raw materials into work work-in-process. iii. Conversion of work work-in-process into finished products. iv. Time for sale of finished goods goods—cash sales and credit sales. s. v. Time for realization from debtors and Bills receivables into cash. vi. Credit period allowed by creditors for credit purchase of raw materials, inventory and creditors for wages and overheads.

Chart for operating cycle or working capital cycle.

CREDITORS

RAW MATERIAL

CASH
OPERATING CYCLE

WORK-INPROGRESS

DEBTORS

FINISHED GOODS

SALES

In case of trading concerns, the operating cycle will be:

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Cash Stock Debtors Cash.

CASH

STOCK

DEBTORS
In case of financial concerns, the operating cycle will be: Cash Debtors Cash only.

CASH

DEBTORS

DETERMINANTS OF WORKING CAPITAL :

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

The factors influencing the working capital decisions of a firm may be classified as two groups, such as internal factors and external factors. The internal factors includes, nature of business size of business, firm’s product policy, credit policy, dividend policy, and access to money and capital markets, growth and expansion of business etc. The external factors include business fluctuations, changes in the technology, infrastructural facilities, import policy and the taxation policy etc. These factors are discussed in brief in the following lines. I. Internal Factors 1. Nature and size of the business The working capital requirements of a firm are basically influenced by the nature and size of the business. Size may be measured in terms of the scale of operations. A firm with larger scale of operations will need more working capital than a small firm. Similarly, the nature of the business - influence the working capital decisions. Trading and financial firms have less investment in fixed assets. But require a large sum of money to be invested in working capital. Retail stores, business units require larger amount of working capital, whereas, public utilities need less working capital and more funds to invest in fixed assets. 2. Firm’s production policy The firm’s production policy (manufacturing cycle) is an important factor to decide the working capital requirement of a firm. The production cycle starts with the purchase and use of raw material and completes with the production of finished goods. On the other hand production policy is uniform production policy or seasonal production policy etc., also influences the working capital decisions. Larger the manufacturing cycle and uniform production policy – larger will be the requirement of working capital. The working capital requirement will be higher with varying production schedules in accordance with the changing demand. 3. Firm’s credit policy The credit policy of a firm influences credit policy of working capital. A firm following liberal credit policy to all customers requires funds. On the other hand, the firm adopting strict credit policy and grant credit facilities to few potential customers will require less amount of working capital. 4. Availability of credit The working capital requirements of a firm are also affected by credit terms granted by its suppliers – i.e. creditors. A firm will need less working capital if liberal credit terms are available to it. Similarly, the availability of credit from banks also influences the working capital needs of the firm. A firm, which can get bank credit easily on favorable conditions, will be operated with less working capital than a firm without such a facility. 5. Growth and expansion of business Working capital requirement of a business firm tend to increase in correspondence with growth in sales volume and fixed assets. A growing firm may need funds to invest in fixed assets in order to sustain its growing production and sales. This will, in turn,

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

increase investment in current assets to support increased scale of operations. Thus, a growing firm needs additional funds continuously. 6. Profit margin and dividend policy The magnitude of working capital in a firm is dependent upon its profit margin and dividend policy. A high net profit margin contributes towards the working capital pool. To the extent the net profit has been earned in cash, it becomes a source of working capital. This depends upon the dividend policy of the firm. Distribution of high proportion of profits in the form of cash dividends results in a drain on cash resources and thus reduces company’s working capital to that extent. The working capital position of the firm is strengthened if the management follows conservative dividend policy and vice versa. 7. Operating efficiency of the firm Operating efficiency means the optimum utilisation of a firm’s resources at minimum cost. If a firm successfully controls operating cost, it will be able to improve net profit margin which, will, in turn, release greater funds for working capital purposes. 8. Co-ordinating activities in firm The working capital requirements of a firm are depend upon the co-ordination between production and distribution activities. The greater and effective the co-ordinations, the pressure on the working capital will be minimized. In the absence of co-ordination, demand for working capital is reduced. II. External Factors 1. Business fluctuations Most firms experience fluctuations in demand for their products and services. These business variations affect the working capital requirements. When there is an upward swing in the economy, sales will increase, correspondingly, the firm’s investment in inventories and book debts will also increase. Under boom, additional investment in fixed assets may be made by some firms to increase their productive capacity. This act of the firm will require additional funds. On the other hand when, there is a decline in economy, sales will come down and consequently the conditions, the firm try to reduce their shortterm borrowings. Similarly the seasonal fluctuations may also affect the requirement of working capital of a firm. 2. Changes in the technology The technological changes and developments in the area of production can have immediate effects on the need for working capital. If the firm wish to install a new machine in the place of old system, the new system can utilise less expensive raw materials, the inventory needs may be reduced there by working capital needs. 3. Import policy Import policy of the Government may also affect the levels of working capital of a firm since they have to arrange funds for importing goods at specified times.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

4. Infrastructural facilities The firms may require additional funds to maintain the levels of inventory and other current assets, when there is good infrastructural facilities in the company like, transportation and communications. 5. Taxation policy The tax policies of the Government will influence the working capital decisions. If the Government follow regressive taxation policy, i.e. imposing heavy tax burdens on business firms, they are left with very little profits for distribution and retention purpose. Consequently the firm has to borrow additional funds to meet their increased working capital needs. When there is a liberalized tax policy, the pressure on working capital requirement is minimized. Thus the working capital requirements of a firm are influenced by the internal and external factors. MEASUREMENT OF WORKING CAPITAL : There are 3 methods for assessing the working capital requirement as explained below: a) Percent of Sales Method Based on the past experience, some percentage of sale may be taken for determining the quantum of working capital b) Regression Analysis Method The relationship between sales and working capital and its various components may be plotted on Scatter diagram and the average percentage of past 5 years may be ascertained. This average percentage of sales may be taken as working capital. Similar exercise may be carried out at the beginning of the year for assessing the working capital requirement. This method is suitable for simple as well as complex situations. c) Operating Cycle Method As a first step, we have to compute the operating cycle as follows: i) Inventory period: Number of days consumption in stock = I + M_ 365 Where I = Average inventory during the year. M = Materials consumed during the year. ii) Work-in-process: Number of days of work-in-process = W + _ K_ 365 Where W = Average work-in-process during the year. K = Cost of work-in-process i.e., Material + Labour + Factory overheads. iii) Finished products inventory period: G ÷ F_ 365 Where G = Average finished products inventory during the year F = Cost of finished goods sold during the year.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

iv) Average collection period of Debtors: D ÷ F_ 365 Where D = Average Debtors balances during the year. S = Credit sales during the year. C ÷ P_ 365 Where C= Average creditors’ balances during the year. P = credit purchases during the year. v) Credit period allowed by Suppliers: vi) Minimum cash balance to be kept daily. Formula: O.C. = M + W + F + D – C Note: It is also known as working capital cycle. Operating cycle is the total time gap between the purchase of raw material and the receipt from Debtors. Importance or Advantages of Adequate Working Capital Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is very essential to maintain the smooth running of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate amount of working capital are as follows: 1. Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. 2. Goodwill: Sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill. 3. Easy loans: A concern having adequate working capital, high solvency and good credit standing can arrange loans from banks and other on easy and favourable terms. 4. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs. 5. Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production. 6. Regular payment of salaries, wages and other day-to-day commitments: A company which has ample working capital can make regular payment of salaries, wages and other day-to-day commitments which raises the morale of its employees, increases their efficiency, reduces wastages and costs and enhances production and profits. 7. Exploitation of favorable market conditions: Only concerns with adequate working capital can exploit favorable market conditions such as purchasing its requirements in bulk when the prices are lower and by holding its inventories for higher prices. 8. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as depression because during such periods, generally, there is much pressure on working capital.

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
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9.Quick and Regular return on Investments: Every Investor wants a quick and regular Quick return on his investments. Sufficiency of working capital enables a concern to pay quick and regular dividends to its investors as there may not be much pressure to plough back profits. This gains the confidence of its investors and creates a favourable market to raise additional funds i.e., the future. rket 10. High morale: Adequacy of working capital creates an environment of security, confidence, high morale and creates overall efficiency in a business.

Importance or Advantages of Adequate Working Capital Advantages

Payments to Suppliers Regular Payments of Salaries & Wages Planning and Forecasting

Efficient Supply Chain Management

Working Capital
Creates Goodwill

Easy Loan from Banks

Increase in Efficiency

Excess or Inadequate Working Capital

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
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Every business concern should have adequate working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate nor shortage of working capital. Both excess as well as short working capital positions are bad for any business. However, out of the two, it is the inadequacy of working capital which is more dangerous from the point of view of the firm. Disadvantages of Redundant or Excessive Working Capital 1. Excessive Working Capital means ideal funds which earn no profits for the business and hence the business cannot earn a proper rate of return on its investments. 2. When there is a redundant working capital, it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft, waste and losses. 3. Excessive working capital implies excessive debtors and defective credit policy which may cause higher incidence of bad debts. 4. It may result into overall inefficiency in the organization. 5. When there is excessive working capital, relations with banks and other financial institutions may not be maintained. 6. Due to low rate of return on investments, the value of shares may also fall. 7. The redundant working capital gives rise to speculative transactions. Disadvantages or Dangers of Inadequate Working Capital 1. A concern which has inadequate working capital cannot pay its short-term liabilities in time. Thus, it will lose its reputation and shall not be able to get good credit facilities. 2. It cannot buy its requirements in bulk and cannot avail of discounts, etc. 3. It becomes difficult for the firm to exploit favourable market conditions and undertake profitable projects due to lack of working capital. 4. The firm cannot pay day-to-day expenses of its operations and its creates inefficiencies, increases costs and reduces the profits of the business. 5. It becomes impossible to utilize efficiently the fixed assets due to non-availability of liquid funds. 6. The rate of return on investments also falls with the shortage of working capital. MANAGEMENT OF WORKING CAPITAL: Working Capital Management involves management of different components of working capital such as cash, inventories, accounts receivable, creditors etc. A brief description follows regarding the various issues involved in the management of each of the above components of working capital. INVENTORY MANAGEMENT: Inventory constitutes an important item in the working capital of many business concerns.Net working capital is the difference between current assets and current liabilities. Inventory is a major item of current assets. The term inventory refers to the stocks of the product of a firm is offering for sale and the components that make up the product Inventory is stores of goods and stocks. This includes raw materials, work-inprocess and finished goods. Raw materials consist of those units or input which are used to manufactured goods that require further processing to become finished goods. Finished

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A PROJECT REPORT

goods are products ready for sale. The classification of inventories and the levels of the components vary from organisaion to organisation depending upon the nature of business. For example steel is a finished product for a steel industry, but raw material for an automobile manufacturer. Thus, inventory may be defined as “Stock of goods that is held for future use”. Since inventories constitute about 50 to 60 percent of current assets, the management of inventories is crucial to successful working capital management. Working capital requirements are influenced by inventory holding. Hence, the need for effective and efficient management of inventories. A good inventory management is important to the successful operations of most organisaions, unfortunately the importance of inventory is not always appreciated by top management. This may be due to a failure to recognize the link between inventories and achievement of organizational goals or due to ignorance of the impact that inventories can have on costs and profits. Inventory management refers to an optimum investment in inventories. It should neither be too low to effect the production adversely nor too high to block the funds unnecessarily. Excess investment in inventories is unprofitable for the business. Both excess and inadequate investment in inventories is not desirable. The firm should operate within the two danger points. The purpose of inventory management is to determine and maintain the optimum level of inventory investment. Techniques of Inventory Control The following are the various measures of selective control of inventory: F. Inventory Turnover Ratio i) Inventory Turnover Ratio: __ Cost of goods sold __ average total inventories. The higher the ratio, more the efficiency of the firm ii) Work in process turnover ratio = Cost of goods sold ________ Average inventory of finished goods at costs Here, in this ratio also higher the ratio, more the efficiency of the firm.

iii) Weeks inventory finished goods on hand = _________Finished Goods______ Weekly of finished sales goods The ratio reveals that the lower the ratio, the higher the efficiency of the firm iv) Weeks raw material on order = ______Raw material on order_______ Weekly consumption of raw material This ratio indicates that the lower the ratio, the higher the efficiency of the firm.

v) Average age of raw material inventory = _Average raw material inventory at cost_ Average daily purchases of raw material This ratio says that the lower the ratio the higher the efficiency of the firm.

vi) Average age of finished goods inventory

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A PROJECT REPORT

= __ Average finished goods invetory at cost_____ Average cost of finished goods manufactured per day This ratio comes that the lower the ratio the higher the efficiency of the firm. i) Out of stock index = _No. of times out of stock_ No. of items requisitioned This ratio indicates the lower the ratio higher the efficiency of the firm. ii) Spare parts index = Value of spare parts inventory Value of capital equipment This ratio reveals that the higher the ratio the more the efficiency of the firm. CASH MANAGEMENT : Cash management is one of the key areas of working capital management. Cash is the most liquid current assets. Cash is the common denominator to which all current assets can be reduced because the other major liquid assets, i.e. receivable and inventory ge get eventually converted into cash. This underlines the importance of cash management. The term “Cash” with reference to management of cash is used in two ways. In a narrow sense cash refers to coins, currency, cheques, drafts and deposits in banks. The broader view of cash includes near der cash assets such as marketable securities and time deposits in banks.The reason why these near cash assets are included in cash is that they can readily be converted into cash. Usually, excess cash is invested in marketable securities as it contributes to profitability. Cash is one of the most important components ecurities of current assets. Every firm should have adequate cash, neither more nor less. Inadequate cash will lead to production interruptions, while excessive cash remains i idle and will impair profitability. Hence, the need for cash management. The cash management assumes significance for the following reasons. Significance: 1. Cash planning - Cash is the most important as well as the least unproductive of all current assets. Though, it is necessary to meet the firm’s obligations, yet idle cash earns nothing. Therefore, it is essential to have a sound cash planning neither excess nor inadequate. 2. Management of cash flows - This is another important aspect of cash management. Synchronization between cash inflows and cash outflows rarely happens. Sometimes, the cash inflows will be more than outflows because of receipts from debtors, and cash sales in huge amounts. At other times, cash outflows exceed inflows due to payment of ales taxes, interest and dividends etc. Hence, the cash flows should be managed for better cash management. 3. Maintaining optimum cash balance - Every firm should maintain opt optimum cash balance. The management should also consider the factors determining and influencing the cash balances at various point of time. The cost of excess cash and danger of

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A PROJECT REPORT

inadequate cash should be matched to determine the optimum level of cash balances. 4. Investment of excess cash - The firm has to invest the excess or idle funds in short term securities or investments to earn profits as idle funds earn nothing. This is one of the important aspects of management of cash. Thus, the aim of cash management is to maintain adequate cash balances at one hand and to use excess cash in some profitable way on the other hand.

Motives Motives or desires for holding cash refer to various purposes. The purpose may be different from person to person and situation to situation. There are four important motives to hold cash. a. Transactions motive - This motive refers to the holding of cash, to meet routine cash requirements in the ordinary course of business. A firm enters into a number of transactions which requires cash payment. For example, purchase of materials, payment of wages, salaries, taxes, interest etc. Similarly, a firm receives cash from cash sales, collections from debtors, return on investments etc. But the cash inflows and cash outflows do not perfectly synchronize. Sometimes, cash receipts are more than payments while at other times payments exceed receipts. The firm must have to maintain sufficient (funds) cash balance if the payments are more than receipts. Thus, the transactions motive refers to the holding of cash to meet expected obligations whose timing is not perfectly matched with cash receipts. Though, a large portion of cash held for transactions motive is in the form of cash, a part of it may be invested in marketable securities whose maturity conform to the timing of expected payments such as dividends, taxes etc. b. Precautionary motive - Apart from the non-synchronization of expected cash receipts and payments in the ordinary course of business, a firm may be failed to pay cash for unexpected contingencies. For example, strikes, sudden increase in cost of raw materials etc. Cash held to meet these unforeseen situations is known as precautionary cash balance and it provides a caution against them. The amount of cash balance under precautionary motive is influenced by two factors i.e. predictability of cash flows and the availability of short term credit. The more unpredictable the cash flows, the greater the need for such cash balances and vice versa. If the firm can borrow at short-notice, it will need a relatively small balance to meet contingencies and vice versa. Usually precautionary cash balances are invested in marketable securities so that they contribute something to profitability. c. Speculative motive - Sometimes firms would like to hold cash in order to exploit, the profitable opportunities as and when they arise. This motive is called as speculative motive. For example, if the firm expects that the material prices will fall, it can delay the purchases and make purchases in future when price actually declines. Similarly, with the hope of buying securities when the interest rate is expected to decline, the firm will hold cash. By and large, firms rarely hold cash for speculative purposes. d. Compensation motive - This motive to hold cash balances is to compensate banks and other financial institutes for providing certain services and loans. Banks provide a variety of services to business firms like clearance of cheques, drafts, transfer of funds etc. Banks charge a commission or fee for their services to the customers as indirect compensation.

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Customers are required to maintain a minimum cash balance at the bank. This balance cannot be used for transaction purposes. Banks can utilise the balances to earn a return to compensate their cost of services to the customers. Such balances are compensating balances. These balances are also required by some loan agreements between a bank and its customers. Banks require a chest to maintain a minimum cash balance in his account to compensate the bank when the supply of credit is restricted and interest rates are rising. Thus cash is required to fulfill the above motives. Out of the four motives of holding cash balances, transaction motive and compensation motives are very important. Business firms usually do not speculate and need not have speculative balances. The requirement of precautionary balances can be met out of short-term borrowings. Objectives The basic objectives of cash management are (i) to make the payments when they become due and (ii) to minimize the cash balances. The task before the cash management is to the two conflicting nature of objectives.

reconcile

1. Meeting the payments schedule - The basic objective of cash management is to meet the payment schedule. In the normal course of business, firms have to make payments of cash to suppliers of raw materials, employees and so on regularly. At the same time firm will be receiving cash on a regular basis from cash sales and debtors. Thus, every firm should have adequate cash to meet the payments schedule. In other words, the firm should be able to meet the obligations when they become due. The firm can enjoy certain advantages associated with maintaining adequate cash. They are: a. Insolvency - The question of insolvency does not arise as the firm will be able to meet its obligations. b. Good relations - Adequate cash balance in the business firm helps in developing good relations with creditors and suppliers of raw materials. c. Credit worthiness - The maintenance of adequate cash balances increase the credit worthiness of the firm. Consequently it will be able to purchase raw materials and procure credit with favorable terms and conditions. d. Availing discount facilities - The firm can avail the discounts offered by the creditors for payments before the due date. e. To meet unexpected facilities - The firm can easily meet the unexpected cash expenditure in situations like strikes, competition from customers etc. with little strain. So, every firm should have adequate cash balances for effective cash management. 2. Minimising funds committed to cash balances - The second important objective of cash management is to minimise cash balance. In minimizing the cash balances two conflicting aspects have to be reconciled. A high level of cash balances will ensure prompt payment together with all advantages, but at the same time, cash is a non-earning asset and the larger balances of cash impair profitability. On the other hand, a low level of cash balance may lead to the inability of the firm to meet the payment schedule. Thus the objective of cash management would be to have an optimum cash balance. Factors determining cash needs - Maintenance of optimum level of cash is the main problem of cash management. The level of cash holding differs from industry to industry,

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A PROJECT REPORT

organization to organisation. The factors determining the cash needs of the industry is explained as follows: i. Matching of cash flows - The first and very important factor determining the level of cash requirement is matching cash inflows with cash outflows. If the receipts and payments are perfectly coincide or balance each other, there would be no need for cash balances. The need for cash management therefore, due to the non-synchronization of cash receipts and disbursements. For this purpose, the cash inflows and outflows have to be forecast over a period of time say 12 months with the help of cash budget. The cash budget will pin point the months when the firm will have an excess or shortage of cash. ii. Short costs - Short costs are defined as the expenses incurred as a result of shortfall of cash such as unexpected or expected shortage of cash balances to meet the requirements. The short costs includes, transaction costs associated with raising cash to overcome the shortage, borrowing costs associated with borrowing to cover the shortage i.e. interest on loan, loss of trade-discount, penalty rates by banks to meet a shortfall in compensating, cash balances and costs associated with deterioration of the firm’s credit rating etc. which is reflected in higher bank charges on loans, decline in sales and profits. iii. Cost of cash on excess balances - One of the important factors determining the cash needs is the cost of maintaining cash balances i.e. excess or idle cash balances. The cost of maintaining excess cash balance is called excess cash balance cost. If large funds are idle, the implication is that the firm has missed opportunities to invest and thereby lost interest. This is known as excess cost. Hence the cash management is necessary to maintain an optimum balance of cash. iv. Uncertainty in business - Uncertainty plays a key role in cash management, because cash flows cannot be predicted with complete accuracy. The first requirement of cash management is a precautionary cushion to cope with irregularities in cash flows, unexpected delays in collections and disbursements, defaults and expected cash needs the uncertainty can be overcome through accurate forecasting of tax payments, dividends, capital expenditure etc. and ability of the firm to borrow funds through over draft facility. v. Cost of procurement and management of cash - The costs associated with establishing and operating cash management staff and activities determining the cash needs of a business firm. These costs are generally fixed and are accounted for by salary, storage and handling of securities etc. The above factors are considered to determine the cash needs of a business firm.

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Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
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5.1 STATEMENT SHOWING CHANGES IN WORKING CAPITAL
Particulars (A)Current Assets a)Inventories b)Sundry Debtors c)Cash & Bank Balances d) Loans & Advances Total (A) (B) Current Liabilities a)Trade Creditors b)Other Liabilities c)Unclaimed Dividends d)Temporary Bank Overdraft e)Interest accrued but not due f)Provision for taxation g)Corporate Tax on Dividend h)Proposed Dividend i)Leave Encashment Total (B) 63201210 14913131 695953 ---818284 13595642 356895 2100000 2807488 98488603 109806615 11941806 779041 ---662710 5065873 356895 2100000 3369347 134082287 ---2971325 ------155574 8529769 ---------11656668 17803877 46605405 ---83088 ---------------561859 47250352 89675427 71871550 +19 +63 0 0 +20 -74 +20 -12 156107639 118442812 57389888 52904647 384844986 149519226 87926979 52069059 59051856 348567120 ---------6147209 6147209 6588413 30515833 5320829 ---42425075 -4 -26 -9 +12 2006-07 2007-08 Increase Decrease ‰

Total Increase/Decrease(A)+(B) Working Capital (A)-(B) 286356383 214484833

There is Net Decrease in Working Capital by `. 71871550 Interpretation: We see that there is a net decrease in the working capital, because in the year 2007-08 there was decrease in the sundry debtors by 26%, the cash and bank balance also decreased by 9% of the previous year. Along with it the trade creditors also increased by 74%.

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Particulars (A)Current Assets a)Inventories b)Sundry Debtors c)Cash & Bank Balances d) Loans & Advances Total (A) (B) Current Liabilities a)Trade Creditors b)Other Liabilities c)Unclaimed Dividends d)Temporary Bank Overdraft e)Interest accrued but not due f)Provision for taxation g)Corporate Tax on Dividend h)Proposed Dividend i)Leave Encashment Total (B)

2007-08

2008-09

Increase

Decrease

149519226 87926979 52069059 59051856

58248592.00 73917086.00 36834733.03 58696311.20

---------------------

91270634 14009893 15234325.97

-61 -16 -29

355544.80 -0.60 120870397.77

348567120 227696722.23

109806615 11941806 779041

89982941.48 16726276.92 857126.00

19823673.52 -------------

---4784470.92 78085 --------------------921156 5783711.92 126654109.69 104252825.17

-18 +40 +10

662710 5065873 356895 2100000 3369347 134082287

541994.00 5065873.00 --------4290503.00 117464714.40

120716 ----356895 2100000 ----22401284.52 22401284.52 -----

-18

-100 -100 +27

Total Increase/Decrease(A)+(B) Working Capital (A) - (B) 214484833 110232007.83

There is Net Decrease in Working Capital by `. 104252825.17 Interpretation: We see that there is a net decrease in the working capital, because in the year 2008-09 there was decrease in the inventories by 61%, the cash and bank balance also decreased by 29% of the previous year. Along with it the other liabilities also increased by 40%.

.

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Particulars (A)Current Assets a)Inventories b)Sundry Debtors c)Cash & Bank Balances d) Loans & Advances Total (A) (B) Current Liabilities a)Trade Creditors b)Other Liabilities c)Unclaimed Dividends d)Temporary Bank Overdraft e)Interest accrued but not due f)Provision for taxation g)Corporate Tax on Dividend h)Proposed Dividend i)Leave Encashment Total (B)

2008-09

2009-10

Increase

Decrease

58248592.00 73917086.00 36834733.03 58696311.20 227696722.23

95347031.67 37098439.67 106529364.52 32612278.52 28789632.72 -----

--------8045100.31 ----8045100.31

+64 +44 -22 +21

71298529.65 12602218.45 301964558.56 82312936.64

89982941.48 16726276.92 857126.00 ----541994.00 5065873.00 --------4290503.00 117464714.40

140837352.94 25953505.44 783140.00 2377923.87 846989.00 8849230.76 356895.00 210000.00 5770279.00 187875316.01

--------73986.00 ------------------------73986.00

50854411.46 9227228.52 ----2377923.87 304995.00 3783357.76 356895.00 2100000.00 1479776.00 50854411.46

+57 +55 -9 +100 +56 +75 +100 +100 +34

Total Increase/Decrease(A)+(B) Working Capital (A)-(B) 110232007.83 114089242.55

82386922.64 78529687.92 3857234.72 -----

There is Net Increase in Working Capital by `. 3857234.72 Interpretation: We see that there is a net increase in the working capital, because in the year 2009-10 there was increase in the inventories by 64%, sundry debtors were increased by 44%, loan and advances also increased by 21% as compared to the previous year 200809. .

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graph: Analysis through graph

Change In Working Capital
35000000 30000000 25000000 20000000 15000000 10000000 50000000 0 2006-07 2007-08 2008-09 2009-10 110232007 114089242.6 286356383 214484833

Analysis through graph:

Current Assets
60000000 50000000
98488603

Current Liabilities

40000000 30000000 20000000 10000000 0 2006-07
384844986

134082287 114089242.6 117464714.4

348567120 301964558.6 227696722.2

2007-08

2008-09

2009-10

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5.2 ANALYSIS OF VARIOUS COMPONENTS OF WORKING CAPITAL
Particulars (A)Current Assets a)Inventories b)Sundry Debtors c)Cash & Bank Balances d) Loans & Advances Total(A) (B) Current Liabilities a)Trade Creditors b)Other Liabilities c)Unclaimed Dividends d)Temporary Bank Overdraft e)Interest accrued but not due f)Provision for taxation g)Corporate Tax on Dividend h)Proposed Dividend i)Leave Encashment Total(B) 63201210 14913131 695953 ----818284 13595642 356895 2100000 2807488 98488603 109806615 11941806 779041 ----662710 5065873 356895 2100000 3369347 89982941.48 140837352.94 16726276.92 857126.00 ----541994.00 5065873.00 --------4290503.00 25953505.44 783140.00 2377923.87 846989.00 8849230.76 356895.00 210000.00 5770279.00 156107639 118442812 57389888 52904647 384844986 149519226 87926979 52069059 59051856 58248592.00 95347031.67 2006-07 2007-08 2008-09 2009-10

73917086.00 106529364.52 36834733.03 58696311.20 28789632.72 71298529.65

348567120 227696722.23 301964558.56

134082287 117464714.40 187875316.01

By studying schedule of change in working capital of last four year we can find that there is decreasing trend working capital and its component current assets. The current liabilities shows gentle increasing trend as compared to current assets. In further analysis will study year-wise changing structure of gross working capital as well as net working capital.

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Composition of Current Assets & Current Liabilities Liabilities:

2006-07 2006
In year 2006 2006-07 the total
Current Liabilities 98488603 20%

current assets comprises of 384844986 and it `. constitute 80% . The total current liabilities in year 2006-07 were `. 98488603 07 which constitute 20%.
Current Assets 384844987 80%

2007-08 2007
In year 2007 2007-08 the total current assets comprises of 348567120 and it `. constitute 72%, it decreased by `.36277866 (8%) as compared to previous year. The total current liabilities were `.134082287 and it `.134082287 constitute 28%, it increased by `.35593684 (8%).

Current Liabilitie s 13408228 7 28% Current Assets 34856712 0 72%

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2008-09 2008
In year 2008 2008-09 the total current assets comprises of `.227696722.23 and it constitute 66%, it decreased by `.120897397.77 (6%) as compared to previous year. The total current liabilities were `.117464714.40 and it constitute of 34% it decreased by `.16617572.6 but increased by 6% in proportion of current liabilities of previous year. In year 2009 2009-10 the total current assets comprises of `.301964558.65 and it constitute 62%, it increased by `.74267836 but it decreased by 4% in proportion of current assets of previous year. The total current liabilities were `.187875316.01 and it Current Assets 30196455 8.65 62% constitute ute 38%, increased `.70410601.61 (4%) compared year. to it by as

Current Liabilities 117464714 .4 34% Current Assets 227696722 .2 66%

2009-10 2009

Current Liabilities 18787531 6.01 38%

previous

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Composition of Current Assets for the following years:

2006-07 2006
In year 2006 2006-07 total current assets were of `.384844986 Loan & Advances 14% Cash & Bank Balances 15% Inventories 40% (100%), it inventories constitute of `.156107639

(40%), sundry debtors `.118442812 (31%), cash and bank balances `.57389888 (15%), loan & advances `.52904647 (14%).

Sundry Debtors 31%

2007-08 2007

In year 2007 2007-08 the total current assets were (100%) it `.348567120 constitute of inventories `.149519226 43% (↑3%),

Loans & Advances 17% Cash & Bank Balances 15% Inventories 43%

sundry debtors `.87926979 25% (↓6%), cash & bank balances `.52069059 15%, loan & advances `.59051856 17% (↑3%) with respect to 3%) previous year (2006 (2006-07).

Sundry Debtors 25%

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
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2008-09 2008
In year 2008 2008-09 the total current assets were `.227696722.23 (100%) it constitute `.58248592 of inventories 26% (↓17%),

Loans & Advances 26%

Inventories 26%

sundry debtors `.73917086 32% (↑7%), cash & bank Cash & Bank Balance 16% balances `.36834733.03 16% (↑1%), loan & advances `.58696311.20 (2007-08). 26% (↑9%) with respect to previous year

Sundry Debtors 32%

2009-10 2009

In year 2009 2009-10 the total current assets were `.301964558.56 (100%) it constitute of o inventories `.95347031.67 32% (↑8%),

Loans & Advances 24%

sundry debtors `.106529364.52 35% (↑3%), Inventories 32% cash & bank balances `.28789632.72 9% (↓7%), loan & `.71298529.65 advances 24% (↓2%)

Cash & Bank Balance 9% Sundry Debtors 35%

with respect to previous year (2008-09).

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
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Composition of Current Liabilities for the following years:

2006-07 2006
In year 2006 2006-07 the total current liabilities were of (100%), it `.98488603 constitute of liabilities `.79628578 (81%) and other provisions `.18860025 (19%). Liabilities 81%

Provisions 19%

Provisions 8%

2007-08
In year 2007 2007-08 the total current liabilities were 82287 (100%), it `.134082287 constitute of liabilities `.123190172 92% (↑11%) and provisions `.10892115 8% (↓11%) with respect to previous year (2006 (2006-07).

Liabilities 92%

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Provisions 4%

2008-09 2008
In year 2008 2008-09 the total current liabilities were `.117464714.40 (100%), it constitute of liabilities `.108108338.40 96% (↑4%) and provisions `.9356376 4% (↓4%) with respect to previous year (2007 (2007-08).

Liabilities 96%

2009-10 2009
Provisions 9%

In year 2009 2009-10 the total current liabilities were `.187875316.01 (100%), it constitute of titute liabilities `.170798911.25 91% (↓5%) and provisions `.17076404.76 9% (↑5%) with respect to previous year (2007 (2007-08).

Liabilities 91%

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(A) CURRENT ASSETS:
(i) Inventory Analysis: Inventory is total amount of goods and materials content in a store of factory at any given time. Inventory means stock of three things : :1. Raw materials 2. Semi finished goods. 3. Finished goods. Position of Inventory In Universal Starch Starch-Chem Allied Ltd. Inventories Stores and spare parts Raw Materials Finished Goods Process Stock Trading Goods Total Analysis through graph graph: 2006-07 21925917 105484298 20288509 7477572 931343 156107639 2007-08 24758427 82164065 30376893 11490084 729757 149519226 2008-09 16087585.00 11513249.00 21048142.00 9008707.00 590909.00 58248592.00 2009-10 19350543.65 48887468.02 12454023.00 14105579.00 549418.00 51347031.67

Inventories
18000000 16000000 14000000 12000000 10000000 80000000 60000000 40000000 20000000 0 2006-07 2006 2007-08 2008-09 2009-10 58248592 95347031.67 156107639 149519226

Interpretation: By analyzing the 4 years data we see that the inventories shows decreasing trend. We ca see that inventories are decreased by 4% and 61% in 07-08 and can % 08-09 respectively as compared to relevant previous year . By this decrease we can say years. that the company is trying to cut its investment in idle inventories. But in year 2009 2009-10 there is increase in inventories by 64% due to increasing turnover and uncertain availability of raw material on time.

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(ii) Sundry Debtors Analysis Analysis: Debtors or an account receivable is an important component of working capital and fall component under current assets. Debtors arise only when credit sales are made. Position of Sundry Debtors in Universal Starch Starch-Chem Allied Ltd. Sundry Debtors Debts outstanding for a period exceeding six months Other Debts Less: Provision For Doubtful Debts Total Analysis through graph graph: 110118729 122310214 3867402 118442812 74487292 90249565 2322586 65559028.00 94461050.73 76239672.00 108851950.22 2322586.00 2322585.70 2006-07 12191485 2007-08 15762273 2008-09 09 2009-10

10680644.00 14390833.49

87926979 73917086.00 106529364.52

Sundry Debtors
14000000 12000000 10000000 80000000 60000000 40000000 20000000 0 2006-07 2006 2007-08 2008-09 2009-10 118442812 106529364.5 87926979 73917086

Interpretation: In the table and graph we see that there is continuous fall in the debtors ee of USA Ltd. in the successive years. A simple logic is that debtors decrease when company adopts good credit policy. We can see 26% and 16% reduction in 07 07-08 and 0809 as compared to relevant previous years. But in year 2009-10 debtors raised by 44%. If 10 company controls the Debtors they can use the money in many investment plans and more the debtors more the bad debts and illiquid money.

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
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(iii) Cash & Bank Balance Analysis: Cash is called the most liquid asset and vital current assets, it is an important component of working capital. In a narrow sense, cash includes notes, bank draft, cheque etc while cheques in a broader sense it includes near cash assets such as marketable securities and time deposits with bank. Position of Cash & Bank Bala Balance in Universal Starch-Chem Allied Ltd. Chem Cash & Bank Balance
Cash Balance on hand Bank Balances with scheduled ces banks Cur. A/c Fixed Deposits* With others Current A/c Fixed Deposits*

2006-07 376256 775954 2984831 593655 52659192

2007-08 505715 1699517 3241377 421024 46201426 52069059

2008-09 09 377441.02 2751168.01

2009-10 516295.52 1121877.70

21294596.00 23150689.00 619087.00 1792441.00 2411978.50 1588792.00

Total otal Analysis through graph graph: 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 2006-07

57389888

36834733.03 28789632.72

Cash & Bank Balances
57389888 52069059 36834733.03 28789632.72

2007-08

2008-09

2009-10

Interpretation: If we a analyze the above table and graph we find that it follows a decreasing trend. In the year 2006 2006-07 it had maintained a huge amount of cash and bank balance which has fallen slightly by 9% in the year 2007-08 but there is huge fall by 29% n 08 & 22% in the year 2008 2008-09 and 2009-10 respectively. Although company’s cash & bank . balance is decreasing but this is very good sign for because unnecessary cash & bank this balance do not earn profits for company.

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

(iv) Loans & Advances Analysis: Loans and Advances here refers to any to amount given to different parties, company, employees for a specific period of time and in return they will be liable to make timely repayment of that amount in addition to interest on that loan. Position of Loan & Advances in Universal Starch Chem Allied Ltd. Starch-Chem
Loans & Advances Advances recoverable TDS Payments includes Advance Tax Loans to staff Excise Duty Other Deposits Total: 49564 75519 11606073 52904647 208522 921278 12690013 59051856 146940.00 461244.00 12601083.00 58696311.20 46450.00 634737.00 13838688.00 71298529.65 2006-07 25459011 15714480 2007-08 38486299 6745744 2008-09 09 37784489.20 7702555.00 2009-10 49056674.65 8356717.00

Analysis through graph graph:

Loans & Advances
80000000 70000000 60000000 50000000 40000000 30000000 20000000 10000000 0 2006-07 2007-08 2008-09 2009-10 59051865 52904647 58696311.2 71298529.65

Interpretation: If we analyze the table and the graph we can see that it follows an increasing trend which is a good sign for the company. In the year 2007 2007-08 & 2009-10 loans and advances increased by 12% and 21% respectively. But in the year 2008 2008-09 there is slight fall by 0.60%. It is good that company provide loans to staff and makes advance payment of taxes and duties.

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

(B) CURRENT LIABILITIES: IABILITIES
(i) Current Liabilities Analysis: Current liabilities are any liabilities that are incurred by the firm on a short term basis or current liabilities that has to be paid by the firm within one year Position of Current Liabilities in Universal Starch Chem Allied Ltd. Starch-Chem
Current Liabilities Creditors (All) Other Liabilities Unclaimed Dividends Temporary Bank Overdraft Interest Accrued But not Due 2006-07 2007-08 2008-09 2009-10

63201210 109806615 14913131 695953 11941806 779041

89982941.48 16726276.92 857126.00

140837352.94 25953505.44 783140.00 2377923.87

818284

662710

541994.00

846989.00

Total: Analysis through graph graph:

79628578 123190172 108108338.40 170798911.25

Current Liabilities
18000000 16000000 14000000 12000000 10000000 80000000 60000000 40000000 20000000 0 2006-07 2006 2007-08 2008-09 2009-10 79628578 123190172 108108338.4 170798911.3

Interpretation: If we analyze the above table and graph then we can see that it follow an uneven trend. The important component of current liabilities is sundry credit creditors and other liabilities. In the year 07 07-08 creditors increased by 74% in year 08 08-09 it decreased by 18% and in year 2009-10 it increased by 54%. In the year 07-08 other liabilities decreased 10 08 by 20% in year 08-09 it increased by 40 and in year 2009-10 it increased by 55%. The 09 40% 10 trade creditors of company are increasing every year. High trade creditors indicate that gh company is using credit facilities by creditors. These are liabilities for company so this e should be tried to reduce When company has minimum liabilities it creates a better reduce. goodwill in market.

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

(ii) Provisions Analysis: Provisions represents funds set aside by company for paying taxes, provisional expenses and losses that are anticipated to occur in future. The anticipated funds for expenses and losses are only accrued but not yet occurred. Position of Provisions in Universal Starch Starch-Chem Allied Ltd. Provisions
Provision for Taxation Corporate Tax on Dividend Proposed Dividend Leave Encashment

2006-07 13595642 356895 2100000 2807488 Total T 18860025

2007-08

2008-09 2008

2009-10 8849230.76 356895.00 2100000.00 5770279.00

5065873 5065878.00 356895 2100000 3369347 4290503.00

10892115 9356376.00 17076404.76

Provisions
20000000 18000000 16000000 14000000 12000000 10000000 8000000 6000000 4000000 2000000 0 2006-07 2006 18860025 17076404.76

10892115 9356376

2007-08

2008-09

2009-10

Analysis through graph graph: Interpretation: From the above table and graph we can see that provision shows an at decreasing trend in successive years 2007 2007-08 and 2008-09. But in the year 2009-10 there . is huge growth 83% in total provisions due increase in income tax by 74%, proposed dividend by 100% (not proposed in previous year), corporate tax on dividend by 100%. It is good sign that company pays taxes on time and proposes dividend These increase dividend. goodwill of company and shows that company is earning more profits.

Institute of Management Research and Development, Shirpur.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

5.3 CALCULATION OF NET OPERATING CYCLE Operating Activity Period (a) Raw material Storage period (b) W.I.P holding period (c) Finished goods storage period (d) Debtors collection period (e) Credit period availed Total operating cycle perod [ (a)+(b)+(c)+(d)] [34+30+5+40] Less: (e) Average credit period availed Net Operating Cycle Period (NOC Period) Number of operating cycle in a year ( 365 days / NOC Period) Days 34 30 5 40 70 114 70 39 9.35

5.4 ESTIMATION OF WORKING CAPITAL FOR YEAR 2010-11 & 2011-12. Working capital as percentage of sales method: 2006-07
Net Sales Total Current Assets Total Current Liabilities Current Assets as a % of Sales Current Liabilities as a % of Sales 741176005 384844986 98488603 51.92 % 13.28 %

2007-08
765190079 348567120 134082287 45.55 % 17.52 %

2008-09

2009-10

740434903.94 844485378.50 227696722.06 301964558.56 117464714.40 187875316.01 30.75 % 15.86 % 35.75 % 22.24 %

(a) The average of current assets as a percentage of sales is 41% (i.e. 51.92 % + 45.55 % + 30.75 % + 35.75 % = 163.97 % = 164*/4= 41 %) (b) The average of current liabilities as a percentage of sales is 17.25 % (i.e. 13.28 % + 17.52 % + 15.28 % + 22.24 % = 68.90 % = 69*/4=17.25 %) So, net working capital as a percentage of sales is 24% [i.e. (a) – (b) = (44 % - 17.25 %) = 23.75 % = 24%* ]

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

The percentage change in Net Sales: The average % change in Net Sales is 15% Year %Change (i.e., 16.73%+14.05% = 30.78 /2 = 15.39% = 15%*) 2007-08 16.73 2008-09 2009-10 -3.23 14.05

The net sales shows increase by 16.73 % and 14.05 % in year 2007-08 and 2009-10 respectively. But however in year 2008-09 net sales decresed by 3.23 %. The percentage of net sales decreased (3.23) in 2008-09 is neglected while finding the average % change in Net Sales. Estimation Of working Capital Requirement For Financial Year 2010-2011. Expected Sales = 844485378.50 + 15 % thereof. = 844485378.50 +126672806.77 = 971158185.27 Expected Net Working Capital Net working capital as % of sales = 24% Expected net working capital = 971158185.27 × 24% = 233077964.46 Expected Gross Working Capital (Current Assets) Current assets as % of sales = 41% Expected current assets = 971158185.27 × 41% = 398174855.96 Expected Current Liabilities Current liabilities as % of sales = 17% Expected current liabilities = 971158185.27 × 17% = 165096891.49

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Estimation Of Working Capital Requirement For Financial Year 2011-2012. Expected Sales = 971158185.27 + 15% thereof. = 971158185.27 + 145673727.79 = 1116831913.06 Expected Net Working Capital Net working capital as % of sales = 24% Expected net working capital = 1116831913.06 × 24% = 268039659.13 Expected Gross Working Capital (Current Assets) Current assets as % of sales = 41% = 1116831913.06 × 41% = 457901084.35 Expected Current Liabilities Current liabilities as % of sales = 17% = 1116831913.06 × 17% = 189861425.22 Table showing estimated working capital requirement for year 2010-11, 2011-12 2010-2011 Expected Sales Expected Current Assets Expected Current Liabilities Expected Net Working Capital 2011-2012

971158185.27 1116831913.06 398174855.96 165096891.49 233077964.46 457901084.35 189861425.22 268039659.13

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

5.5 WORKING CAPITAL RATIOS AND ITS INTERPRETATION Working capital ratios indicate the ability of a business concern in meeting its current obligations as well as its efficiency in managing the current assets for generation of sales. These ratios are applied to evaluate the efficiency with which the firm manages and utilizes its current assets. The following three categories of ratios are used for efficient management of working capital – (1) Efficiency ratios (2) Liquidity ratios (3) Structural health ratios 1. Stock Turnover Ratio or Inventory Turnover Ratio. The ratio indicates whether the investment in inventory is efficiently used and whether it is within proper limits. It is calculated as follows: Stock Turnover Ratio or Inventory Turnover Ratio = Net Sales _ Average Inventory

Significance: The ratio signifies the liquidity of inventory. A high inventory turnover ratio indicates brisk sales and vice-versa. The ratio is therefore a measure to discover possible trouble in the form of over-stocking or over-valuation of inventory. Calculation of Inventory Turnover Ratio: Year ____Net Sales _ Average Inventory 765190079_ 152813432.5 740434903.94 103883909 844485378.50 76797811.83 Ratio

2007-08

5.00

2008-09

7.12

2009-10

10.99

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Analysis through graph:

Inventory Turnover Ratio
12 10 8 6 4 2 0 08 2007-08 2008-09 2009-10 5 7.12 11

Interpretation: This ratio tells the story by which stock is converted into sales. A high stock turnover ratio reveals the liquidity of the inventory i.e., how many times on an average, inventory is turned over or sold during the year. A low stock turnover ratio reveals undesirable accumulation of obsolete stock. By analyzing the three year data it y seen that it follows an increasing trend. We see that from the year 2008 2008-09 goes on increasing in successive year. In the year 2008 09 ratio increased by 42% and in 2008-09 year2009-10 ratio increased by 54%. Higher the ratio more the efficiency of conversion 10 more of inventory into sales during year year.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

2. Debtors Turnover Ratio or Receivable Turnover Ratio. The ratio indicates the speed with which money is collected from the debtors. It is computed as follows: Debtors Turnover Ratio or Receivable Turnover Ratio = ____ Net Sales_______ Average Accounts Receivable Significance: Debtors Turnover Ratio or Debt Collection Period Ratio measures the quality of debtors since it indicates the rapidity or slowness with which money is collected from the debtors. A shorter collection period implies prompt payment by debtors. A longer collection period implies too liberal and inefficient credit collection performance. The credit policy should neither be too liberal nor too restrictive. The former will result in more blockage of funds and bad debts while the latter will cause lower sales which will reduce profits. Calculation of Debtors Turnover Ratio: Year _________Net Sales_________ Average Accounts Receivables 765190079_ 103184895.5 740434903.94 80922032.50 844485378.50 90223225.26 Ratio

2007-08

7.41

2008-09

9.14

2009-10

9.35

Analysis through graph:

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Debtors Turnover Ratio
10 9 8 7 6 5 4 3 2 1 0 9.14 7.41 9.35

2007-08 08

2008-09

2009-10

Interpretation: The debtors turnover ratio indicates efficiency of company to collect its debts. The ratio indicates the time at which the debts are collected on an average during . the year. Needless to say that a high Debtors Turnover Ratio implies a shorter collection period which indicates prompt payment made by the customer and lowers the chances of bad debts. Now if we analyze the three year data we can say that it holds a good position while receiving its money from its debtors. The ratios are in an increasing trend in every successive year, which implies that recovery position is good and company should , maintain these positions.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

3. Creditors Turnover Ratio or Payable Turnover Ratio. This is similar to Debtors Turnover Ratio. It indicates the speed with which payments for credit purchases are made to creditors. It can be computed as follows: Creditors Turnover Ratio or Payable Turnover Ratio = ___ Net Purchase______ Average Accounts Payable Significance: The creditors turnover ratio and the credit period enjoyed ratio indicate about the promptness or otherwise in making payment for credit purchases. A higher creditors turnover ratio or a lower credit period enjoyed ratio signifies that the creditors are being paid promptly thus enhancing the credit-worthiness of the company. However, a very favorable ratio to this effect also shows that the business is not taking full advantage of credit facilities which can be allowed by the creditors. Calculation of Creditors Turnover Ratio: Year _________Net Purchase_________ Average Accounts Payables 443607346_ 84834155 376862871_ 97464123.74 569321718.22_ 109600169.90 Ratio

2007-08

5.22

2008-09

3.86

2009-10

5.19

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Analysis through graph:

Creditors Turnover Ratio
6 5.22 5 4 3 2 1 0 2007-08 08 2008-09 2009-10 3.86 5.19

Interpretation: Actually this ratio reveals the ability of the firm to avail the credit facility from the suppliers throughout the year. Generally a low creditors turnover ratio implies favorable since the firm enjoys lengthy credit period Now if we analy the three analyze years data we find that in the year 2006 the ratio was very high which means that its ta 2006-0 position of creditors that year was not good, but in the next year 2008 was 2008-09 it is seen that the ratio has been decreased which is very good sign for the com company, these year company has enjoyed credit around 90 days But again in year 2009- the ratio rises. So days. -10 we can say that company enjoys a very good credit facility from the suppliers about 70 ity days in last year.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

4. Current Ratio. The ratio is an indicator of the firm’s commitment to meet its short-term liabilities. It is expressed as follows: Current Ratio = Current Assets__ Current Liabilities

An ideal current ratio is ‘2’. However, a ratio of 1.5 is also acceptable if the firm has adequate arrangements with its bankers to meet its short-term requirements of funds. Significance: The ratio is an index of the concern’s financial stability, since, it shows the extent to which the current assets exceed its current liabilities. A higher current ratio would indicate inadequate employment of funds, while a poor current ratio is a danger signal to the management. Calculation of Current Ratio: Year _ Current Assets___ Current Liabilities 384844986_ 98488603 348567120_ 134082287 227696722.23_ 117464714.40 301964558.56_ 187875316.01 Ratio

2006-07

3.90

2007-08

2.59

2008-09

1.93

2009-10

1.60

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Analysis through graph:

Current Ratio
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 2009-10 1.93 1.6 2.59 3.9

Interpretation: This ratio reflects the financial stability of the company The standard of financial company. the normal ratio is 2 but in most of companies standard is taken according to Tandon Committee which is taken as 1.33 Now if we analyze the four year data years data it can ommittee 1.33. be said that in 2006-07 ratio was too high (3.9) which means for every one rupee ( of 07 (`.) liabilities company possesses around `.4 of current assets this indica .4 indicates inadequate employment of funds. In next successive year ratio is in decreasing trend which indicate that company is efficiently employing its fund in current assets. In year 2008 2008-09 the ratio was an ideal i.e., around 2. In year 2009 2009-10 ratio has fallen below an ideal standard. n

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

5. Liquidity Ratio. The ratio is also termed as Acid Test Ratio or Quick Ratio. The ratio is ascertained by comparing the liquid assets i.e., current assets (excluding stock and prepaid expenses) to current liabilities. The ratio can be expressed as follows: Liquidity Ratio = Current Assets – Stock_______ Liquid Assets___ = Current Liabilities Current Liabilities – Bank Overdraft

Some accountants prefer the term liquid liabilities for current liabilities. The term ‘liquid liabilities’ means liabilities payable within a short period. Bank overdraft and cash credit facilities (if they become permanent modes of financing) are excluded from current liabilities for this purpose. The ratio may be expressed as follows: Liquidity Ratio = Liquid Assets__ Liquid Liabilities

The ideal ratio is ‘1’. Significance: The ratio is an indicator of short-term solvency of the company. A comparison of the current ratio to quick ratio should also indicate the inventory hold-ups. For instance, if two units have the same current ratio but different liquidity ratios, it indicates over-stocking by the concern having low liquidity ratio as compared to the firm which has a higher liquidity ratio. Calculation of Liquidity Ratio: Year Liquid Assets_ Liquid Liabilities 228737347_ 98488603 199047894_ 134082287 169448130.23_ 117464714.40 206617526.89_ 185497392.14 Ratio

2006-07

2.32

2007-08

1.48

2008-09

1.44

2009-10

1.11

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Analysis through graph:

Liquidity Ratio
2.5 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 2009-10 1.48 1.44 1.11 2.32

Interpretation: It is the ratio between quick liquid assets and quick liabilities. The and normal value for such ratio is taken to be 1:1. It is used as an assessment tool for testing the liquidity position of the firm. It indicates the relationship between strictly liquid assets whose realizable value is almost certain on one hand and strictly liquid liabilities on the other hand. Liquid assets comprise all current assets minus stock. By analyzing the four years data it can be said that the ratio was much higher than an ideal liquidity ratio in the n year 2006-07. but it improv significantly in the next three years. By comparing current improved ratios and liquidity ratios of the company it seems small difference between them this indicate that company does not generally invest more in illiquid assets like stock. In year 2009-10 the ratio (1.11) was good and close to ideal ra 10 ratio.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

6. Working Capital Turnover Ratio. Working capital turnover ratio establishes a relationship between net sales and net working capital. This ratio measures the efficiency of utilization of net working capital. It can be calculated as follows: Working Capital Turnover Ratio = Net Sales______ Net Working Capital

Significance: This ratio indicates the number of times the utilisation of working capital in the process of doing business. The higher is the ratio, the lower is the investment in working capital and the greater are the profits. However, a very high turnover indicates a sign of over-trading and puts the firm in financial difficulties. A low working capital turnover ratio indicates that the working capital has not been used efficiently. Calculation of Working Capital Turnover Ratio: Year _ Net Sales______ Net Working Capital 741176005_ 286356383 765190079_ 214484833 740434903.94_ 110232007.83 844485378.50_ 114089242.55 Ratio

2006-07

2.58

2007-08

3.56

2008-09

6.71

2009-10

7.40

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Analysis through graph:

Working Capital Turnover Ratio
8 7 6 5 4 3 2 1 0 2006-07 2007-08 2008-09 2009-10 2.58 3.56 6.71 7.4

Interpretation: This ratio indicates whether the investments in current assets or net current assets ( i.e., working capital ) have been properly utilized. In order words it shows the relationship between sales and working capital. Higher the ratio lower is the investment in working capital and higher is the profitability. But too high ratio indicates over trading. This ratio is an important indicator about the working capital position. Now if we analyze the four years data, we can find that it follows an increasing trend which means that its investment in working capital is lower and the company is generating more wer sales from it. In the year 2009 2009-10 the ratio is 7.4 which show that every rupee ( (`.) of working capital is ultilised 7 times to generate sales. Higher the ratio it means more efficiently utilization of working capital in process of business.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

7. Current Assets Turnover Ratio. Current Assets Turnover ratio, shows the productivity of the the company's current assets. Ratio that indicates how efficiently a firm is using its current assets to generate revenue. The amount of sales generated for every Rupees worth of assets. It is calculated by dividing sales in rupees by assets in rupees. It is calculated as follows: Current Assets Turnover Ratio = Net Sales___ Current Assets

Significance: Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the ratio better the utilization of its current assets. It also indicates pricing strategy; companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Calculation of Current Assets Turnover Ratio: Year Net Sales____ Current Assets 741176005_ 384844986 765190079_ 348567120 740434903.94_ 227696722.23 844485378.50_ 301964558.56 Ratio

2006-07

1.92

2007-08

2.19

2008-09

3.25

2009-10

2.79

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Analysis through graph:

Current Assets Turnover Ratio
3.5 3 2.5 2 1.5 1 0.5 0 2006-07 2007-08 2008-09 2009-10 1.92 2.19 3.25 2.79

Interpretation: This ratio tells a story that how effectively the company uses its current assets to generate sales. Higher the ratio high the efficiency of company to utilize its ratio, current assets. If we analyze four year data we can find increasing trend of ratio. This shows that company is increasing its efficiency year by year. In the year 2008 2008-09 the ratio (3.25) was good which shows that for every rupee ( ) worth of current assets company (`.) generates `. 3.25 of sales.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

8. Return On Working Capital Ratio. Return on Working capital employed establishes the relationship between the net profit and the Net working capital employed. It indicates the percentage of return on net woking capital employed in the business and it can be used to show the overall profitability and efficiency of the business. It can be calculated as follows: Return On Working Capital Ratio = Net Profit______ × 100 Net Working Capital

Significance: Return on working capital employed ratio is considered to be the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business. It is commonly used as a basis for various managerial decisions. As the primary objective of business is to earn profit, higher the return on capital employed, the more efficient the firm is in using its funds. The ratio can be found for a number of years so as to find a trend as to whether the profitability of the company is improving or otherwise. Calculation of Return On Working Capital Ratio: Year Net Profit____ Net Working Capital 17287748_ 286356383 2374533_ 214484833 27229836.64_ 110232007.83 2512127.85_ 114089242.55 × 100 Ratio

2006-07

× 100

6.03

2007-08

× 100

1.10

2008-09

× 100

24.70

2009-10

× 100

2.20

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Analysis through graph:

Return On Working Capital Ratio
30 25 20 15 10 6.03 5 1.1 0 2006-07 2007-08 2008-09 2009-10 2.2 24.7

Interpretation: This ratio describes company’s track of return on total working capital employed. Higher the ratio, high the return on working capital employed by company. If we study four years data we can find that there is uneven change net profit and net working capital employed. As we seen that company is increasing its efficiency year by year this means it employs less working capital to generate high sales result in high net profit in respect of working capital employed in previous year.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

9. Super-Quick Ratio. It is a slight variation of quick ratio. It is calculated by comparing the super quick assets with the current liabilities (or liquid liabilities) of a firm. The ratio may be expressed as follows: Super-Quick Ratio = Super-Quick Assets_ Liquid Liabilities The term ‘Super-Quick Assets’ means current assets excluding stock, prepaid expenses and debtors. Thus, super-quick assets comprise mainly cash, bank balance and marketable securities. Significance: This ratio is the most rigorous test of a firm’s liquidity position. In case the ratio is ‘1’, it means the firm can meet its current liabilities any time. The ratio is a conservation test and not widely used in practice Calculation of Super-Quick Ratio: Year Super-Quick Assets_ Liquid Liabilities 57389888_ 98488603 52069059_ 134082287 36834733.03_ 117464714.40 28789632.72_ 185497392.14 Ratio

2006-07

0.05

2007-08

0.38

2008-09

0.31

2009-10

0.15

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UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Analysis through graph:

Super-Quick Ratio Quick
0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2006-07 2007-08 2008-09 2009-10 0.05 0.15 0.38 0.31

Interpretation: This ratio shows super-liquidity position of firm. This ratio is not widely liquidity use but we can find our position of liquidity on respective day. This considers super liquid assets like cash and bank balance and marketable securities. Generally company does not believe in main aining enough cash and bank balance that would use to pay off maintaining their liabilities any time. But company should maintain enough cash and bank balance would be sufficient to meet its trade creditors any time. Table of ratios: Ratio Inventory Turnover Ratio Debtors Turnover Ratio Creditors Turnover Ratio Current Ratio Quick Ratio / Liquidity Ratio / Acid Test Ratio Working Capital Turnover Ratio Current Assets Turnover Ratio Return On Working Capital Ratio Super-Quick Ratio Years 06-07 ------3.90 2.32 2.58 1.92 6.03 0.05 07-08 08-09 09-10 07 5 7.41 5.22 2.59 1.48 3.56 2.19 1.10 0.38 7.12 9.14 3.86 1.93 1.44 6.71 3.25 24.70 0.31 10.99 9.35 5.19 1.60 1.11 7.40 2.79 2.20 0.15

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A PROJECT REPORT

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

As the project was conducted to analyze the Working Capital Management of “UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA, ” for the last four years. During calculations, analysis and making project report I came to some major finding that are as follows: Working capital shows a constant decrease every year. Current ratio is good of the company, which means the company has sufficient assets, which can be converted into cash to pay the debts when required. The acid test ratio is just above the standard ratio which is 1:1. Trade creditors of company are increasing in high proportion with respect to other liabilities. The company enjoys good credit period from creditors as compares to credit period they avail to their debtors. The working capital turnover ratio is rapidly increasing which shows increase in efficiency of production Year by Year Company increasing its turnover in respect to low net working capital. The debtor’s turnover ratio is found good. The creditor’s turnover ratio is improving every year. Cash and bank balances shows decrease every year. Company is generating better profit on net working capital employed every year.

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UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Institute of Management Research and Development, Shirpur.

68

UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Working Capital Management, there are mainly three parts they are Cash Management, Receivables Management and Inventory Management. For optimum use of working capital, these three parts should be managed properly, for that I would like to give suggestions to “UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.” they are as follows: Considering the cash management the company should maintain a cash flow budget every year, considering monthly or quarterly. During the preparation of the cash budget the credit period should be below 30 days allowed to the customer and company should held enough cash that it can meet its creditors any time. Considering the receivables management, certain credit standards and policy should be established, like: Establishment of policy in appointing sales recovery force. Cash discounts policy for cash purchases and early payment of debts balance by customer to be established. Credit rating systems to be established. Considering the inventory management, there should be a fast movement of inventory, by taking efforts in increment of the sales and inventories should be maintained considering bulk purchase discount and inflating price of raw material and according to market forecast to make saving in cost of raw material. Considering the creditors the management should set a price range for the creditors as company enjoy good credit. The creditors who are paid early should be given a low price. The creditors who are waiting for a longer period should be paid more.

Institute of Management Research and Development, Shirpur.

69

UNIVERSAL STARCH NIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA DONDAICHA.
A PROJECT REPORT

Institute of Management Research and Development, Shirpur.

70

UNIVERSAL STARCH-CHEM ALLIED LTD. DONDAICHA.
A PROJECT REPORT

Bibliography: Financial Management: ICAI, (Course-II). Finance Management & International Finance Management: ICWAI (Course-II). Financial Management – By Dr.R.M.Srivastava, Pragati Prakashan Meerut. Financial Management Principles And Practice – By G.Sudarsana Reddy, Himalaya Publishing House Financial Manage Management – By P.V.Kulkarni, Himalaya Publishing House. The Indian Financial System – By Bharati V.Pathak, Dorling Kindersley (India) Pvt. Ltd. Advanced Cost And Management Accounting – By V.K.Saxena & C.D.Vashist, Sultan Chand & Sons. Investment Analysis And Portfolio Management – By Prasanna Chandra, Tata Mcgraw Hill Publishing Co.Ltd

Reference: Mr. Ankush Agrawal Sir (9028677070) Mr. Sachin Surana Sir (9763713291) Mr. Amul Tamboli Sir (9763356722) Webliograghy: www.finance.mapsof world.com www.universalteacher4u.com www.universalstarch.com www.investorwords.com www.investopedia.com www.businessdictionary.com

Institute of Management Research and Development, Shirpur.

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