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CHAPTER- I

INTRODUCTION
Working Capital Management is concerned with the problems that arise in attempting to manage the current Assets, current liabilities and the inter-relationship that exists between them. The aim of working capital management is to manage the concern’s current assets and current liabilities in such a way that an adequate working capital is maintained. An adequate level of working capital provides a business with operational flexibility. Emerson has very rightly observed that, “business with an adequate level of working capital has more option available to it, and can make its own choice as to when working capital will be used. On the other hand, if a firm is short of working capital, it may be forced to limit business operations, extension of credit to customers and the amount that it invests in inventory. This will adversely affect production as well as sales which in turn will affect profitability of a concern.” MEANING AND DEFINITION There is no universally accepted definition of Working Capital, but the one most widely acceptable is the observation that ‘Working Capital’ represents the excess of current assets over current liabilities. Although the term ‘Working Capital’ has been depreciated by the Institute of FIGURES red Accountants for use in balance sheets and has preferred the term ‘current assets less liabilities’ nevertheless, for management purposes the former is useful phrase to summarize the factor, which is effective lifeblood of much businesses. IMPORTANCE Study of working capital is of major importance to internal and external analysis because of its close relationship to day-to-day business. Inadequacy or mismanagement of working capital is the leading cause of business failure. Choyal is of the view that, “The working capital of a firm is the lifeblood which flows through the veins and arteries of the structure, Indeed, it engages every part of the structure, gives courage and moral strength to brain (management) and muscles (Personnel), digests to the best degree the 1

raw material used by its constant and regular flow and returns to the heart (Cash flow) for another journey and so when working capital is lacking or slows down, the financial bodies have value just as much as junk.” It is reflected by the fact that Financial Manager spends a great deal of time in managing current assets and current liabilities. Arranging short term financing, negotiating favorable credit terms, controlling, administering accounts receivables and monitoring the investment in inventories consume a great deal of their time. In the words of I.M.Pandey “The net Working Capital indicates • • The liquidity position of the firm. Suggests the extent to which working capital needs may be financed by permanent sources of funds.” Concepts of Working Capital: There are two concepts of Working Capital: • • Gross Working Capital Net Working Capital

In the broad sense, the term Working Capital refers to the gross Working Capital and represents the amount of funds invested in current assets. Thus, the gross Working Capital is the capital invested in the ordinary course of business can be converted into cash within a short period of normally one accounting year. In the narrow sense, the term Working Capital refers to the net Working Capital. Net Working Capital is the excess of current assets over current liabilities, or say: Net Working Capital = Current assets – Current liabilities CLASSICIFICATION OR KINDS OF WORKING CAPITAL: Working capital may be classified in two ways: a) On the basis of concept b) On the basis of time On the basis of concept, working capital is classified as gross working capital and net working capital and networking capital as discussed

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earlier. This classification is important from the point of view of the financial manager. On the basis of time, working capital may be classified as:

1. Permanent or fixed working capital. 2. Temporary or variable working capital.

KINDS OF WORKING CAPITAL

ON THE BASIS CONCEPT

ON THE BASIS OF TIME

GROSS WORKING CAPITAL

NET WORKING CAPITAL

PERMANENT OR FIXED WORKING CAPITAL

TEMPORARY OR VARIABLE WORKINGCAPITAL

REGULAR WORKINGCAPIT

RESERVE

SEASONAL

SPEACIAL

1. Permanent or Fixed Working Capital:

Permanent or fixed working capital is the minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprise to carry out its normal business operations. For example, every firm has to maintain a minimum level of raw materials, work –in-process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of capital is permanently blocked in current assets. As the business grows, the requirements of permanent working capital can further be classified as regular working capital and reserve working 3

capital required to ensure circulation of current assets from cash to inventories, from inventories to receivables and from receivables to cash and so on. Reserve working capital is the excess amount over the requirement for regular working capital which may be provided for contingencies that may arise at unstated periods such as strikes, rise in prices, depression, etc. 2. Temporary or Variable Working Capital: Temporary or Variable working capital is the amount of working capital which is required to meet the seasonal demands and some special exigencies. Variable working capital can be further classified as seasonal working capital and special working capital. Most of the enterprises have to provide additional working capital to meet the seasonal and special needs. The capital required to meet the seasonal needs of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing campaigns for conducting research, etc. Temporary working capital differs from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in the business. FIGURES given below illustrate the difference between permanent and temporary working capital. ADVANTAGES OF ADEQUATE WORKING CAPITAL Working capital is the life blood and nerve center 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. 4

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 others on easy and favorable terms.
4. Cash discount. 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 favourable market conditions. Only concern

with adequate working capital can exploit favourable 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.
9. Quick and regular return on investments. Every Investor wants

a quick and regular 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 in the future.
10. High morale. Adequacy of working capital creates an environment

of security, confidence, and high morale and creates overall efficiency in a business. 5

In this study, the researcher made an attempt to study the Working capital management of SAKTHI SUGARS LTD, APPAKUDAL.

CHAPTER- 2

RESEARCH METHODOLOGY
In the modern business environment, finance plays a role in every organization. Financial Management is an integral part of the overall management and is mainly concerned with fund raising operations. At present most of the industrial undertakings are faced with the problem of effective utilization of resources. Working Capital is the major importance to internal and external analysis because of its close relationship with the day-to-day operations of a business. Working Capital is the portion of asset of a business, which are used in or related to current operations, and represented at any one time by the operating cycle of such items as against receivables and cash. The present study is an effort to analyze the working capital management of Sakthi sugars Limited over a period of time and to provide adequate support for the smooth functioning of the normal business operations of the company. Hence, the analysis of working capital helps the management to have knowledge of current asset required to business concern to have continuous production. It also helps the finance manager to know about the type of product, market share, attitude of the management, cost of funds, inflation the demand and the stages of business cycle. STATEMENT OF THE PROBLEM The present study seeks to collect in depth information of the working capital management of Sakthi sugars Limited with special emphasis on an examination of the management performance in regard to financial management. One among the reason that the company could perform well is the efficient management of the company’s working capital, which automatically includes inventory, account receivables and cash i.e., the 6

proper management of working capital has brought access to this company. The present study undertakes to deal with the net concept of working capital i.e., excess of current assets over current liabilities. RESEARCH DESIGN Research is an organized activity focused on specific objective with the support of data collection involving tools for analysis deriving logically sound inferences Research Design is purely and simply the framework or plan for a study that guides the collection and analysis of data. The function of researcher is to ensure that requires the data collected or accurate and economically. PRIMARY DATA As a part of strengthening the study, personal contacts are made with the officials and staff members of finance department in the form of discussions and collection of reports. SECONDARY DATA The Secondary Data are collected from Annual Reports, mainly Balance Sheet, Income and Expenditure and other broaches of the company. METHOD OF COLLECTION The data for the analysis are collected and gathered from the printed reports of Sakthi sugars Limited like annual reports, official files, records and other available related material. PERIOD OF STUDY The study covers a period of five years i.e. from the financial year 2006 to 2010. OBJECTIVE OF THE STUDY The following are the important objectives of the study. • To study the working capital management of Sakthi sugars Limited by analyzing the profitability, solvency and liquidity position of the company • To examine the effective utilization of working capital..

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• • • •

To critically analyze the working capital requirement of Sakthi sugars Limited. To evaluate the operating efficiency of Sakthi sugars Limited. To measure utilization of various assets with the turnover of the company. To project the future sales, profit and working capital requirements of Sakthi sugars Limited.

NEED OF THE STUDY • • • • • The study is needed to analyze the working capital management of the company. The study is being carried out, as it is necessary to identify the over utilization or underutilization of assets to the turnover of the company. It is also necessary to identify the idle assets and non-utilization of funds. It is necessary to identify the ‘liquidity dimension of Working Capital’ and the ‘Profitability’. The study is needed to identify the current position of the company through Z-Score Analysis. SCOPE OF THE STUDY • The study finds out the operational efficiency of the organization and suggests the proper utilization and allocation of cash resources, to improve the efficiency of the organization. • • The working capital of the organization will be further revealed through the adoption of various techniques available for analysis. These techniques reveal the measures that can adopt to improve the existing trend LIMITATION

The present study carried out based on the information gathered from the Secondary Data, mainly Profit and Loss Account, Balance Sheet. The study limited to observations of the past. The observation made will be related to laws operated in the past.

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Sufficient data may not be available to study the current operations being carried out in the company effectively.

TOOLS AND TECHNIQUES FOR COLLECTION OF DATA • • • • • • •

Ratio analysis and interpretation Statement of changes in working capital Common size balance sheet analysis Comparative balance sheet statement Trend analysis Z-Score analysis Time series analysis Operating Cycle analysis

STATISTICAL TOOLS IMPLEMENTED ARE

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CHAPTER- 3

INDUSTRY PROFILE
Sugars are a major form of carbohydrates and are found probably in all green plants. They occur in significant amounts in most fruits and vegetables. There are three main simple sugars sucrose, fructose and glucose. Sucrose is in fact a combination of fructose and glucose and the body quickly breaks down into these separate substances. The Need for Energy All energy stored in food is derived originally from the sun and it is made by green plant life. The sun's energy acts upon the green chemical "chlorophyll" in the leaves of plants to produce sugars and starches from the carbon-dioxide in the atmosphere and the water from the roots by a process known as Photosynthesis. These carbohydrates (starches and sugar) acts as a plants food and energy supply. The energy need of human body is largely dependent on the carbohydrates that are derived from plants. A Balanced Diet A balanced diet can come from a variety of different foods, calculated to give the desired levels of carbohydrates, proteins, fats, vitamins and minerals. Nutritional scientists advocate that carbohydrates should provide at least 50% of over energy requirements. HISTORY The discovery of sugarcane, from which sugar as it is known today, is derived dates back unknown thousands of years. It is thought to have originated in New Guinea, and was spread along routes to Southeast Asia and India. The process known for creating sugar, by pressing out the juice and then boiling it into crystals, was developed in India around 500 BC. Its cultivation was not introduced into Europe until the middle-ages, when it was brought to Spain by Arabs. Columbus took the plant, dearly held, to the West Indies, where it began to thrive in a most favorable climate.

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It was not until the eighteenth century that sugarcane cultivation was began in the United States, where it was planted in the southern climate of New Orleans. The very first refinery was built in New York City around 1690; the industry was established by the 1830s. Earlier attempts to create a successful industry in the U.S. did not fare well; from the late 1830s, when the first factory was built. Until 1872, sugar factories closed down almost as quickly as they had opened. It was 1872 before a factory, built in California, was finally able to successfully produce sugar in a profitable manner. At the end of that century, more than thirty factories were in operation in the U.S. Manufacturing Process and Technology Sugar (sucrose) is a carbohydrate that occurs naturally in every fruit and vegetable. It is a major product of photosynthesis, the process by which plants transform the sun's energy into food. Sugar occurs in greatest quantities in sugarcane and sugar beets from which it is separated for commercial use. The natural sugar stored in the cane stalk or beet root is separated from rest of the plant material through a process known as refining. For sugarcane, the process of refining is carried out in following steps
• •

Pressing of sugarcane to extract the juice. Boiling the juice until it begins to thicken and sugar begins to crystallize. Spinning the crystals in a centrifuge to remove the syrup, producing raw sugar. Shipping the raw sugar to a refinery where it is washed and filtered to remove remaining non-sugar ingredients and colour.

Crystallizing, drying and packaging the refined sugar Beet sugar processing is similar, but it is done in one continuous process without the raw sugar stage. The sugar beets are washed, sliced and soaked in hot water to separate the sugar -containing juice from the beet fibre. The sugar-laden juice is then purified, filtered, concentrated and dried in a series

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of steps similar to cane sugar processing. For the sugar industry, capacity utilization is conceptually different from that applicable to industries in general. It depends on three crucial factors the actual number of ton of sugarcane crushed in a day, the recovery rate which generally depends on the quality of the cane and actual length of the crushing season. Since cane is not transported to any great extent, the quality of the cane that a factory receives depends on its location and is outside its control. The length of the crushing season also depends upon location with the maximum being in south India. Sugarcane in India is used to make sugar, khan sari or gur. However, sugar products produced worldwide are divided into four basic categories: granulated, brown, liquid sugar and invert sugar. TYPES OF SUGAR Type Regular sugar Fruit sugar Usage house hold use, food Special characteristic Easier for bulk handling, not

processing susceptible to caking dry mixes like gelatins uniformity of crystal size prevents desserts, pudding separation or settling of smaller mixes and drink mixes. crystals at the bottom of the box baking industry sweetening fruits and dissolves easily iced-drinks icings, confections and whipping cream making of fondants, highly resistant to colour change

Bakers special Superfine sugar Confectioners or Powdered Sugar Coarse sugar Sanding sugar

confections and liquors or inversion at high temperatures to sprinkle on top of large crystals reflect light and give baked goods the product a sparkling appearance

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By-products of Sugarcane The Sugar mill produces many by-products along with sugar. A typical sugarcane complex of 3000 tad capacity can produce 345 ton of sugar, 6000 liters of alcohol, 3 ton of yeast, 15 ton of potash fertilizer, 25 ton of pulp, 15 ton of wax, 150 ton of press-mud fertilizer and 750KW of power from bagasse. Molasses Molasses is the final effluent obtained in the preparation of sugar by repeated crystallization. It is the end product from a refining process carried out to yield sugar. Sucrose and invert sugars constitute a major portion (40 to 60%) of molasses. The yield of molasses per ton of sugarcane varies in the range of 3.5 to 4.5%. Molasses is mainly used for the manufacture of ethyl alcohol (ethanol), yeast and cattle feed. Ethanol is in turn used to produce portable liquor and downstream value added chemicals such as acetone, acetic acid, butane, acetic anhydride, MEG, etc. Some of the alcohol based chemicals like MEG, acetic acid, acetone etc., face stiff competition from production through the petro-chemicals route. Bagasse Bagasse is a fibrous residue of cane stalk that is obtained after crushing and extraction of juice. It consists of water, fibers and relatively small quantities of soluble solids. The composition of bagasse varies based on the variety of sugarcane, maturity of cane, method of harvesting and the efficiency of the sugar mill. The usual bagasse composition is given below. Content Moisture Fibre Soluble solids Range % 46-52 43-52 2-6

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Bagasse is usually used as a combustible in the furnaces to produce steam which in turn is used to generate power. It is also used as raw material for production of paper and as feed stock for cattle. By making use of bagasse, sugar mills have been successful in reducing dependence on state electric boards for power supply. For example, Ballarampur Chini Mills procured 95% of its total power requirement for FY98 from captive generation from steam turbines. GROWTH IN TERMS OF CRUSHING PERFORMANCE
 Mills equipped with Auto Setting facilities.

 Best export quality of Sugar produced.  Scientific farming
 Continuous R&D in sugar rich, pest resistant and high yielding

sugarcane verities
 Mechanization of cane harvesting.

 Efficient Sugar manufacturing method used thereby reducing the sugar loss.
 Factory sites are maintained neat and clean - Hygiene at its best.

COMPANY PROFILE
SUGAR UNIT AT SAKTHI NAGAR The company is located at Appakudal village in Erode district in the state of TamilNadu. It commenced its operation in 1964 with an installation capacity of 1250 TCD which has been expanded to 7500 TCD. The company is under implementation of installation capacity expansion to 9000 TCD. The command area attached to the mill has the advantage of receiving rainfall from both South West and North East monsoons and the lands are fully irrigated. Also the climatic condition is suitable for planting and harvesting operations throughout the year. This has helped them to achieve the highest cane crushing ever made by a single mill in TamilNadu.

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COMPANY’S PRODUCTS i. MAIN PRODUCT White Crystal Sugar Grade S30 Grade M30 L30 ii. BY PRODUCT Molasses Baggasse iii. BY COMPOST Sugar manufactured is of international standard of ICUMSA 35 units maximum and exported overseas. HISTORY OF THE EXISTING MANUFACTURING FACILITIES SUGAR UNITS The first sugar unit of the company commenced its operation in the year 1964 with an installed crushing capacity of 1250TCD at Sakthi Nagar, Erode District. The cane crushing capacity was expanded to 4000 TCD in the year 1973 and further stepped-up to 6000 TCD in the year 1999. The second sugar unit is located at Padamathur village, Sivaganga District in the state of TamilNadu commenced its production in the year 1989 with an installed crushing capacity of 2500 TCD. The cane crushing capacity was expanded to 4000 TCD in the year 2000. The third sugar unit is located at Haripur village, Dhenkanal District in the state of Orissa with an installed crushing capacity of 1500 TCD. DISTILLERY UNITS

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The first Distillery unit is located at Sakthi Nagar, Erode District TamilNadu within the sugar factory premises. It commenced production in the year 1972 with an installed capacity of 9000 KL and expanded to18000 KL in the year 1982 and they further expanded to 27500 KL in the year1992. This distillery unit is the largest in the state of TamilNadu. The second Distillery unit is located at Haripur village, Dhenkanal District in the state of Orissa, within the sugar factory premises. It commenced production in the year 1995 with an installed capacity of 10000 KL. ETHANOL PLANT In the Distillery unit at Sakthi Nagar, an Ethanol plant with a capacity to produce 15000KL of Anhydrous Alcohol has been established in the year 2002. CO-GENERATION PLANT A co-generation plant had been taken up in the year 2001 with capacity of 35 MW. This plant at Sakthi Nagar unit was commissioned on 11.11.2003. It produced 1221.22 lakhs unit of power and 1011.14 lakhs unit of power where evaluated to State Grid of Tamil Nadu Electricity Board. In the last year 2005-2006 it has generated 2674.04 lakhs unit of power and evaluated 1939.69 lakhs unit of power to State Grid of TamilNadu Electricity Board. A 32 MW Co-generation plant with multi fuel boiler facility has been established in the year 2003 at Sakthi Nagar unit within the factory premises. The company has entered into an agreement with TamilNadu Newsprint and Paper Limited for receiving fuel against bagasse supply. A 2 MW incidental Co-generation plant is established at Sivaganga Sugar Unit within the sugar factory premises. 16

BIO-COMPOST UNITS They are located at Sakthi Nagar, Erode District TamilNadu and Dhenkanal District in Orissa, wherein organic manure is produced from the press-mud, a waste generated in sugar unit. SUBSIDIARY COMPANY Sakthi Auto Component Limited, the wholly owned subsidiary of the company, had acquired 51.83% of the equity capital of Bonomi Belgium Ventiel India Private Limited. So, it has become a subsidiary of Sakthi Auto Component Limited and the company was renamed as Sakthi Auto Ancillary Private Limited. Soya processing unit is located at Marchinaickenpalayam Village, Pollachi Taluk. This unit was taken over by merger in the year 1993 and its crushing capacity is 300 tonnes per day. COMPANY’S PHILOSOPHY The company’s philosophy on corporate governance endeavors

attainment of the highest levels of transparency, accountability and equity in the facts of its operations and in all the interactions with its stakeholders, including shareholders, employees, cane growers, lenders and the Government. POLLUTION CONTROL DIVISION In an effort to bring to India, state of the art technology for the treatment of distillery effluent, Sakthi Sugars entered into collaborations with M/s Societe Generale Pour Les Techniques Nouvellus (SGN) of France and M/s Smogless of Italy in the year 1985. A Pollution Control Division was set up in the company and the division started activiely offering solutions to distilleries, breweries and dairies. The disposal of treated effluents in a most scientific manner - composting with press mud, HRTS and ferti-irrigation - all methods approved by NEERI (National Environmental Engineering Research Institute) Pune, India and PCB (Pollution Control Board) India.

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PRIMARY TREATMENT PLANT (SGN ANAEROBIC FIXED FILM BIOMETHANISATION) The first Bio-Methanisation plant for primary treatment of distillery effluent was installed at Sakthinagar in the year 1987 and this was the first biggest digester erected in India at that time. This system is based on SGN Anaerobic Fixed Film Bio-Methanisation Process by which the effluent is treated efficiently with a BOD reduction of 90% and COD reduction of 65%. The bio-gas generated during the process is utilised in the boiler as fuel replacing furnace oil, saving substantial fuel costs. Sakthi Sugars has commissioned 15 similar effluent treatment plants in distilleries across the country, which have helped not only to save money by conserving substantial amounts of furnace oil, but have also helped reduce pollution. Sakthi Sugars has completed a project at Thailand offering consultancy services for establishing a similar bio-gas plant. Sakthi Sugars is now looking forward to similar projects from Asian countries. INFRASTRUCTURE Sakthi Sugars Limited is one of the largest producers of white crystal sugar in the country accounting for a capacity of 13,500 tonnes of cane crush per day. HEALTH AND EDUCATION For Sakthi, Industry is not the be-all and end-all. It has a deep rooted concern for the development of its area in the economic and social spheres. As a keen participant in social commitments, Sakthi Sugars has set up educational institutions and hospitals. It has also made significant contributions to rural development with a variety of social welfare activities and by creating employment opportunities. HUMAN RESOURCE AND THE WELFARE ACTIVITIES i. At present there are 1476 workers in all the units of Sakthi Sugars Limited. In Sakthi Nagar at Appakudal there are 520 workers. 18

ii. iii. iv. v.

Workers are given two sets of stitched uniform and a pair of shoes. Welders are given three sets of stitched uniform. Workers working in mill section are given a Hamam soap. 300 houses are allotted to Workers 150 houses within the campus. 150 houses at a distance of 2 kms. from the company.

vi.

Subsidiaries given  Electricity ∗ Workers are given free electricity of 40 to 125 units per month according to their designation.  Food Allowances

Those who stay within the campus Rs.8.50 per day is given. Those who stay out of the campus Rs.11.50 per day is given.

 Educational Allowances ∗ ∗ ∗ Merit scholarship is given to the employees’ children. Elementary and high school facilities are provided for the employees’ children. Company is also owing SIT Polytechnique which is providing good education at Government fixed price with Government aided education. ∗ ∗ ∗ ∗ ∗ Company is also providing free school bus facility for their employees’ children. Employees’ children are given Rs.10000 per year for doing MBBS on merit basis. For doing BE Rs. 9500 per year on merit basis is given.

 Medical and Other Allowances One month salary is given for medical allowances if they take medical facility in VMK Hospital. Also they are given allowances for cooperative stores and credit stores. 19

 Cultural Activities ∗ Company is owning two recreation clubs for the workers. Out of those two, one is for the family members.  Retirement Benefits ∗ At the time of retirement, workers are given one month salary and a gold coin. RESEARCH AND DEVELOPMENT 1. Specific areas in which Research and Development carried out by the company  Development Theraphy.  Pit method of cane planting, together with drip irrigation system.  Designing of filter point bore wells to suit hard formation in the middle zone of 100-150 feet.  Application of insecticides to control wooly aphid outbreak. 2. Benefits derived as a result of the above Research and development  Enables supply of quality and disease free seed material to farmers.  Improvement in cane growth and yield and conservation in water and labor requirement.  Facilitates irrigation.  Woolly aphid is effectively controlled. 3. Future plan of action  Elaborate study and implementation of pit and drip irrigation technology.  Introduction of mechanism in sugar agronomic practices  Cane development to improve the average yield as well as quality. GROWTH IN TERMS OF CRUSHING PERFORMANCE
 Mills equipped with Auto Setting facilities.

of

three

tier

nursery

programme,

primary,

secondary and commercial nurseries, using Aerated Steam

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 Best export quality of Sugar produced.  Scientific farming  Continuous R&D in sugar rich, pest resistant and high yielding sugarcane varities  Mechanisation of cane harvesting.  Efficient Sugar manufacturing method used thereby reducing the sugar loss.  Factory sites are maintainted neat and clean - Hygiene at its best.

FINANCIAL DETAILS The following are the accounting policies of the SAKTHI SUGARS LIMITED ACCOUNTING POLICIES 1. The company is closing their accounts on 30.06 of every year. 2. All ascertained income and expenses are accounted on accrual basis. Expenses less than Rs.5000 are charged on payment basis. Contract works when undertaken are accounted based on the level of completion. 3. Depreciation on fixed assets has been provided under Straight Line Method at the rates prescribed in Schedule XIV to the Companies Act, 1956, on revalued/original cost of assets as the case may be. The additional depreciation relating to increased value of revalued assets are adjusted again Revaluation Reserve. 4. Materials consumption is accounted net of CENVAT. 5. Valuation of Inventories a) Finished goods are valued at lower of Cost or the Net Realisable Value. b) Raw materials are valued as follows:Sugar Division : Raw Sugar at landed Cost.

Distillery Division: Molasses at Weighted Average Cost.

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Soya Division

: At Cost on FIFO basis.

c) Bagasse, Molasses and by products of Soya are valued at net realizable price. d) Newsprint, Fertilizer and Chemicals are valued at cost. e) Process stock is valued at estimated cost. f) Stores and Spare parts are valued at monthly weighted average cost. 6. Retirement Benefits Contribution payable by the company under defined contribution schemes towards Providend fund and superannuation fund for the year are charged to profit and loss account. Gratuity liability to the employees on actuarial basis upto 30.06.2006 has been accounted. The Company has opted for Life Insurance Corporation of India Group Gratuity Scheme. Leave salary is provided as per actuarial valuation.
7. a) Fixed Assets are shown at cost/revalued FIGURES, less accumulated

depreciation. Fixed Assets added during the year are valued at cost net of CENVAT but includes all direct expense like freight, erection charges and interest on related borrowing. b) Fixed Assets taken on lease are treated as the assets of the company and they are accounted at cost. Interest portion of the lease amount is charged to the Profit and Loss Account. 8. Expenses and income in foreign exchange are accounted for at the rate prevailing on transaction. Charges in foreign exchange rates at the year end are taken into account wherever and fluctuation are dealt in accordance with AS-11. 9. Deferred Revenue Expenditure Technical know-how, re-structuring fees, crop development expenses, soya product launching. Reserve and Development expenses incurred upto 30.06.2003, are written off over a period.

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Voluntary Retirement Scheme payments, syndication and ancillary cost incurred for raising written off over a period of five years and period of loan respectively. 10. Premium on pre-payment of loans/debentures is deferred and is being written off over the unexpired term of the loans/debentures. MAIN BANKERS OF THE COMPANY 1. Canara Bank 2. Punjab National Bank 3. Indian Overseas Bank 4. Citi Bank 5. State Bank of India 6. Allahabad Bank 7. Oriental Bank of Commerce 8. Bank of India 9. Infrastructure Development Finance Company Limited. 10. 11. IDBI Bank Limited Centurian Bank of Punjab limited, AWARDS WON BY THE COMPANY S.NO . 1 2 YEAR/SEASO N 1983-1984 1987-1988 AWARD DETAILS S.V.Parthasarathy Memorial Award of SISSTA for outstanding performance in Sugar Industry. Commendation Certificate-All India level for achieving Higher Standards of Technical Efficiency. National Efficiency Award for High Technical Efficiency in the field of Lower Total Losses (By Director of Sugar, Ministry of Food, New Delhi). SISMA Award for Reduced Mill Extraction. SISMA Award for Reduced Mill Extraction. National Efficiency Award for achieving Higher Standards of Technical Efficiency. Highest Mill Efficiency and Lowest Sugar Losses. National Efficiency Award for achieving Lowest 23

3 4

1987-1988 1987-1988

5

1988-1989

6

1989-1990

Total Sugar Losses and Highest Technical Efficiency. Special Award for manufacture of Superior Quality Export Sugar. Sugar Export Award for exporting highest quality of sugar among all the factories in India-by National Federation of Co-operative Sugar Factories Limited, New Delhi. S.V. Parthasarathy Memorial Award of SISSTA for Best Cane Development.

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1992-1993

8

2000-2001

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2000-2001

SAFETY AWARDS NATIONAL SAFETY AWARDS • • For the year 1983 under scheme II For the year 1984 under scheme II STATE SAFETY AWARDS GROUP A A A A A A A A A A Scheme Scheme Scheme Scheme Scheme Scheme Scheme Scheme Scheme Scheme SCHEME I,II,III II,III II,III II,III I,II,III – First Prize II – Second Prize III – First Prize I,II,III – First Prize II – First Prize II – First Prize YEAR 1984 1985 1986 1987 1991 1991 1994 1994 2003 2004

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ORGANISATION STRUCTURE

PRESIDENT

CANE DEPARTMENT

ADMINISTRATIVE DEPARTMENT

ENGINEERING DEPARTMENT

MANUFACTURING DEPARTMENT

DISTILLERY

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CANE DEPARTMENT

DY GENERAL MANAGER-CANE

ASST. GENERAL MANAGER-CANE

SR MANAGER-CANE

DY MANAGER-CANE

MANAGER-DIVISION HEADS

OFFICER-YARD AND TRANSPORT

CANE OFFICERS SECTION INCHARGE

WEIGHBRIDGE OPERATOR

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ADMINISTRATIVE DEPARTMENT

ASST.GENERAL MANAGER-ADMN.

SR.MANAGER-HRD

SR.MANAGER-ACCOUNTS

ELECTRONIC DATA PROCESSER

AUTO SECTION

HR OFFICE

LABOUR WELFARE OFFICE

MAIN ACCOUNTS

CANE ACCOUNT

GUEST HOUSE AND TELEPHONE ASST.SECURITY OFFICE

TIME OFFICE

ASST. MANAGER ACCOUNTS

OFFICER CANE ACCOUNT

ACCOUNTS STAFFS SECURITY

ACCOUNTS STAFFS

27

ENGINEERING DEPARTMENT

SR.MANAGER -ENGINEERING

DY.GENERAL MANAGERGENERATION

CO-

DY MANAGER MECHANICAL

DY MANAGER ELECTRICAL

DY MANAGER RO PLANT

DY MANAGER MECHANICAL

DY MANAGER ELECTRICAL

SHIFT ENGINEER

SHIFT ENGINEER

LAB-CHEMIST

DCS OPERATOR

DCS OPERATOR

WORKER

ELECTRICIAN

WORKER

ELECTRICIAN

28

MANUFACTURING DEPARTMENT

ASST.GENERAL MANAGER-PROCESS

MANAGER-PROCESS

ASST.MANAGER GODOWN

DY MANAGER-PROCESS

GODOWN STAFF

LABOURERS

SHIFT CHEMIST

MICROBIOLOGIST

LAB-IN-CHARGE

WORKER

LAB CHEMIST

29

DISTILLERY

ASST.GENERAL MANAGER

DEPUTY MANAGER

SHIFT CHEMIST

WORKER

30

CHAPTER-4

ANALYSIS AND INTERPRETATION
RATIO ANALYSIS
Ration analysis is on of the popular tools of financial statement analysis, in simple words ratio is quotient formed when one magnitude is divided by another measured in the same unit. A ratio is defined as “The indicated quotient of two mathematical expression” and as “ The relationship between two or more things” usually the ratio is started as a percentage.

LIQUIDITY RATIO
Liquidity ratio measures the ability of a firm to meet its short term obligations, and reflect its short-term financial strength or solvency. 1. CURRENT RATIO The current ratio is also known as the working capital ratio, since it is related to the working capital of the enterprises. It is an indication of the ability of an enterprise in regard to meeting current liability but not of quality

Current Assets Current Ratio = Current liabilities 1)

31

TABLE 4.1 CURRENT RATIO Current Assets 34159.46 41199.57 72215.30 62233.94 57407.71 (Rs. In lakhs) Current Liabilities 13116.66 12482.98 10677.28 13098.49 31374.76 Ratio (Percentag e) 2.60 3.30 6.76 4.75 1.83

Year 2006 2007 2008 2009 2010

Source: office records of Sakthi sugars ltd INTERPRETATION The table indicates the position of current assets and current liabilities for the year between 2006- 2010. The rule of thumb for current ratio is 2:1 that is two times of current asset for each current liability. In Sakthi sugars, the current ratio is high and it indicates the good liquidity position of the firm. It reflects the firm shall able to pay its current liability in time without facing difficulties. The firm has sufficient funds to pay off liabilities and the business may be trading with in its capacity.

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CURRENT RATIO

7 6 5 4 3 2 1 0

RATIO

CA/CL

2006 2007 2008 2009 2010
YEAR

2. QUICK RATIO

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Quick ratio is a rigorous measure of an enterprises ability to service short – term liabilities. Usually a high acid test ratio is an indication that the firm is liquid and has the ability to meet its current liabilities in time. As a rule of thumb or as a convention quick ratio of 1:1 is considered satisfactory Quick Assets Quick Ratio = ……………………………………….. (2) Current liabilities TABLE 4.2 QUICK RATIO Quick Assets 7359.29 13169.26 12826.38 17790.46 53055.27 Current Liabilities 13116.66 12482.98 10677.28 13098.49 31374.76 (Rs. In lakhs) Ratio (Percentag e) 0.56 1.05 1.20 1.36 1.69

Year 2006 2007 2008 2007 2010

Source: office records of Sakthi sugars ltd INTERPRETATION The table indicates the position of quick assets and current liabilities for the year between 2006- 2010. The ideal quick ratio is 1:1. Here the analysis has shown an increasing trend due to decrease in inventory level. There is corresponding increase in liquidity of current asset and there as the current liabilities as gone up. The quick ratio is tending to increase, the company is in a position to liquidate current asset.

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FIGURE 4.2: QUICK RATIO

2 1.5
RATIO

1 0.5 0 2006 2007 2008
YEAR QA/CL

2009

2010

ACTIVITY RATIOS

35

The activity ratio are also know as efficiency or turn over such ratio are concerned with measuring the efficiency in assets managements. The efficiency with which assects are management/used is reflected in the spped and rapidity with which they are convertible in to sales this the activity ratio are a test of relationship between sales/cost of good sold an assets. 3. DEBTORS TURNOVER RATIO A concern may sell goods on cash as well as on credit. Credit is one of the important elements of sales promotion. When credit payments are allowed during sales they are to be promptly collected within a short span of time. The liquidity position of a concern depends on the quality of its trade debtors. Debtor’s turnover ratio indicates the velocity of debt collection of Firm. It is also known as “Receivable Turnover ratio” Processing charges (Sales) Debtors Turnover Ratio = TABLE 4.3 DEBTORS TURNOVER RATIO lakhs) Average Debtors 1233.53 1473.63 3248.74 1254.70 1379.03 Ratio (Percentag e) 24.57 43.39 27.58 61.09 86.21 (Rs. In …………………………… (3) Average debtors

Year 2006 2007 2008 2009 2010

Sales 30313.24 63942.19 89601.78 76651.73 118884.98

Source: office records of Sakthi sugars ltd INTERPRETATION

36

The table indicates the position of sales and average debtor for the year between 2006- 2010. The debtor turnover ratio shows increasing trend. This implies that the collection of payments from debtors has been delayed. The company has allowed extend credit period to its customers. Hence from the observation, the year 2008-09 and 2008-09 increase significantly, it shows the credit allowed to customers are extended significantly.

37

FIGURE 4.3: DEBTORS TURNOVER RATIO

100 80
RATIO

60 40 20 0 2006 2007 2008 2009 2010
YEAR YEAR/DTR

4 .DEBTORS’ COLLECTION PERIOD: Days in a year 38

Debtors’ collection period=

………………………. (4)

Debtors’ turnover ratio Debtors’ collection period implies that the collection of payments extended credit period to its customers. TABLE 4.4 DEBTORS’ COLLECTION PERIOD days) Days in a year 365 365 365 365 365 Debtor turnover ratio 24.57 43.39 27.58 61.09 86.21 Ratio (Percentag e) 14.85 8.41 13.23 5.97 4.23 (Rs. In

Year 2006 2007 2008 2009 2010 INTERPRETATION

Source: office records of Sakthi sugars ltd

The table indicates the position of days in a year and debtor turnover ratio for the year between 2004- 2008. The debtor’s collection period shows a decreasing trend. It implies that the collection of payment from debtors has been collected quickly from the customer. Hence from the observation, the ratio for the year 2008-09 and 200809 shows better collection period of payment from the customers.

39

FIGURE 4.4: DEBTORS’ COLLECTION PERIOD

100
RATIO IN DAYS

80 60 40 20 0 2006 2007 2008 2009 2010
YEAR

YEAR/DTR

5. WORKING CAPITAL TURNOVER RATIO: Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio indicates the number of times the working

40

capital is being used by a firm. A higher ratio used by a firm. A higher ratio indicates efficient utilization of working capital and vice versa. Working capital Turnover ratio
=

Cost of sales Networking capital TABLE 4.5

……………………………. (5)

WORKING CAPITAL TURNOVER RATIO lakhs) Net Year 2006 2007 2008 2009 2010 INTERPRETATION Cost of sales 19970.85 37153.28 47128.24 42177.34 56522.81 working capital 21042.8 28716.59 61538.02 49135.45 26032.95 Ratio

(Rs. In

(Percentag e) 0.95 1.29 0.77 0.86 2.17

Source: office records of Sakthi sugars ltd The table indicates the position of cost of sales and net working capital for the year between 2004- 2008. It indicates extend of working capital funds had been employed in the business operation in the operation towards sales. For Sakthi sugars, the low ratio indicates efficient utilization of working capital, for 2009-10 the firm have high working capital turnover ratio. It is good situation for the firm.

41

FIGURE4.5: WORKING CAPITAL TURNOVER RATIO

2.5 2
RATIO

1.5 1 0.5 0 2006 2007 2008 2009 2010
YEAR

YEAR/WTR

6. STOCK TURNOVER RATIO Every company has to maintain certain level of inventory, so as to meet the requirements of the business but the level of inventory should neither be too high nor too low. Inventory turnover indicates the number of 42

times the stock has been turned over during the period and it evaluates the efficiency of the company. Cost of goods sold Stock Turnover Ratio = Average Stock TABLE 4.6 STOCK TURNOVER RATIO lakhs) Cost of goods sold 19970.85 37153.28 47128.24 42177.34 56522.81 Average stock 1761.69 2145.31 2333.32 1704.42 1735.01 Ratio (Percentag e) 11.33 17.32 20.19 24.74 32.59 (Rs. In ………………………………… (6)

Year 2006 2007 2008 2009 20010

Source: office records of Sakthi sugars ltd INTERPRETATION The table indicates the position of cost of goods sold and average stock for the year between 2006- 2010.The ratio is an indicator of the efficiency of the use of investment in stock. The control over the inventories increases the ratio. A high inventory ratio indicates the brisk sales of the firm. Hence from the observation of the study it indicates the high liquidity of the inventory

43

FIGURE 4.6 STOCK TURNOVER RATIO

35 30 25 20 15 10 5 0

RATIO

YEAR/STR

2006 2007 2008 2009 2010
YEAR

. 7. STOCK TURNOVER PERIOD: Days in a year Stock turnover period = (7) 44 …………………………………..

Stock turnover ratio This ratio reveals the number of times finished stock is turned over during a given accounting period. Higher the ratio, the better it is because it shows that finished stock is rapidly turned-over. On the other hand, a low stock turnover ratio is not desirable because it reveals the accumulation of obsolete stock, or the carrying of too much stock. TABLE 4.7 STOCK TURNOVER PERIOD days) Year Days a year 2006 2007 2008 2009 2010 365 365 365 365 365 in Stock turnover ratio 11.33 17.32 20.19 24.74 32.59 32.21 21.07 18.07 14.75 11.20 year/ITR (Rs. In days) (Rs in

Source: office records of Sakthi sugars ltd INTERPRETATION The table indicates the position of days in a year and stock turnover ratio for the year between 2006- 2010. The low inventory turnover period shows a good performance and better utilization of the company. The stock turnover period is gradually decreasing for every year. The stock turnover period shows good position of the company FIGURE 4.7: STOCK TURNOVER PERIOD

45

35 30 25 20 15 10 5 0

RATIO IN DAYS

YEAR/STP

2006 2007 2008 2009 2010
YEAR

.

8. OWENED CAPITAL TURNOVER RATIO: Sales Owned capital turnover ratio= (8) Shareholders’ fund ……………………..

46

This ratio shows the efficiency of capital employed in the business by computing how many times capital employed is turned over in a stated period. The higher the ratio, the greater are the profits. A low capital turnover ratio should be taken to mean that sufficient sales are not being made and profits are lower. TABLE 4.8 OWNED CAPITAL TURNOVER RATIO lakhs) Ratio (Percentage ) 0.92 1.78 2.21 1.90 1.81 (Rs. In

Year s 2006 2007 2008 2009 2010

Sale

Shareholder ’s Fund 32849.36 35852.08 40509.67 40339.53 65651.44

30313.24 63942.19 89601.78 76651.73 118884.9 8

Source: office records of Sakthi sugars ltd INTERPRETATION

47

The table indicates the position of sales and current shareholders fund for the year between 2006- 2010. The ratio has shown some improvement over the period of time. This means that the company has made use of the owners fund efficiently. However the company is searching for the better growth of company by improving the turnover of the company. Thus its aims how to maximize the profit and to maximize the wealth of the shareholders.

FIGURE 4.8: OWNED CAPITAL TURNOVER RATIO

2.5 2
RATIO

1.5 1 0.5 0 2006 2007 2008 2009 2010
YEAR YEAR/OCTR

48

9. TOTAL ASSETS TURNOVER RATIO Total Assets turnover Ratio indicates utilization of total Assets of Fixed and current Assets, loans and advance, stock, expenses, intangible assets all including Total Assets. The ratio indicates over a number of period sales and assets in a year of under taking. Total Assets Total Assets Turnover Ratio (9) = Net Sales TABLE 4.9 TOTAL ASSETS TURNOVER RATIO Year 2006 2007 2008 2009 2010 INTERPRETATION Total Assets 93577.59 105882.04 139526.85 169060.68 230249.26 Net Sales 28901.16 61691.91 87299.27 74647.67 116445.30 (Rs In lakhs) Ratio (Percentag e) 3.24 1.72 1.60 2.26 1.98 ………………………………..

Source: office records of Sakthi sugars ltd

49

The table indicates the position of total assets and net sales for the year between 2006- 2010. This ratio shows the firm’s ability in generating sales from all the financial resources committed to the total assets, For Sakthi sugars, the firm able to produce large volume of sales for a given of total assets. The total asset turnover 1.98 in 2010 show the firm generates in sales of Rs 1.98 for one rupee investments of fixed assets and current assets together

FIGURE 4.9: TOTAL ASSETS TURNOVER RATIO

50

3.5 3 2.5 2 1.5 1 0.5 0

RATIO

YEAR/TTR

2006 2007 2008 2009 2010
YEAR

PROFITABILITY RATIOS The profitability of a firm can be measured b the profitability of a firm can be measured by the profitability ratio such ratio can be computed either from sales or investments. 10. GROSS PROFIT RATIO: Gross profit ratio measures the relationship of gross profit by sales gross profit is derived through deduction production cost from sales or by adding operation expenses with operation profit. Gross profit ratio is considered as one of the most important ratios for measuring the profitability of the firm. Gross Profit Gross Profit Ratio = (10) Sales x 100……………………………….

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TABLE 4.10 GROSS PROFIT RATIO Year 2006 2007 2008 2009 2010 Gross Profit 8930.31 24538.63 40171.03 32470.33 59922.49 Sales 30313.24 63942.19 89601.78 76651.73 118884.9 8 Source: office records of Sakthi sugars ltd INTERPRETATION

(Rs. In lakhs) Ratio (Percentag e) 29.46 38.37 44.83 42.36 50.40

The table indicates the position of gross profit and sales for the year between 2006- 2010. The gross profit margin reflects the efficiency with which management produces each unit of product. The ratio indicates average spread between cost of goods sold and sales revenue.

FIGURE 4.10: GROSS PROFIT RATIO

52

60 50 40 30 20 10 0

RATIO

YEAR/GPR

2006

2007

2008
YEAR

2009

2010

11. NET PROFIT RATIO Net profit ratio establishes a relationship between net profit and sales. It indicates the efficiency of the management in Manufacturing, selling, administrative and other activities of the company. Net profit is derived by deducting non – operative expenses and adding non – operative expenses and adding non – operative incomes to operating profit. Net Profit Net Profit Ratio = Sales x 100………………………………. (11)

Higher net profit ratio, better is the profitability and vice versa. TABLE 4.11 NET PROFIT RATIO lakhs) 53 (Rs. in

Year 2006 2007 2008 2009 2010

Net Profit (Rs) -2535.32 2701.92 9528.04 3011.23 -7955.08

Sales (Rs) 30313.24 63942.19 89601.78 76651.73 118884.9 8

Ratio (Percentag e) -8.36 4.22 10.64 3.93 -6.69

Source: office records of Sakthi sugars ltd INTERPRETATION The table indicates the position of net profit and current sales for the year between 2006- 2010. A high net ratio indicates high profitability. It indicates management efficiency in manufacturing, administration and selling the product. This ratio is the overall measure of the firm’s ability to turn each rupee sale into net profit. For Sakthi sugars, the ratio is low for 2006 & 2010 and it is difficult to face of falling sales price and raising cost of production or declining demand for the product. But 2007-09, the net profit ratio is better and it is better and result in use of favorable conditions

FIGURE 4.11: NET PROFIT RATIO

54

15 10
RATIO

5 0 -5 -10 2006 2007 2008
YEAR YEAR/NPR

2009

2010

.

12. RETURN ON TOTAL ASSETS RATIO Return on total Assets indicates profitability can be measured in terms of relationship between net profit and total assets. It measures the profitability of investment. The overall profitability can be known by applying this ratio. It is also known as gross capital employed Net Profit Return on Total Assets = Total Assets TABLE 4.12 RETURN ON TOTAL ASSETS RATIO (Rs. in lakhs) ……………………………… (12)

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Ratio Year 2006 2007 2008 2009 2010 Net Profit -2535.32 2701.92 9528.04 3011.23 -7955.08 Total Assets 93577.59 105882.04 139526.85 169060.68 230249.26 (Percentag e) -2.71 2.55 6.83 1.78 -3.45

Source: office records of Sakthi sugars ltd INTERPRETATION The table indicates the position of net profit and total assets for the year between 2006 - 2010. The ratio indicates the assets are properly utilized or not. It also measures the profitability of total investment of the organization. Hence from the observation 2006 & 2010 the ratio is low, so the utilization of total assets is not satisfied. But for the remaining year, there is better utilization of total assets.

FIGURE 4.12: RETURN ON TOTAL ASSETS RATIO

56

8 6
RATIO

4 2 0 -2 -4 2006 2007 2008
YEAR YEAR/RTA

2009

2010

13. GROSS WORKING CAPITAL TO FIXED ASSETS RATIO This ratio measures the level of liquidity of the concern. Risk, profitability tradeoff is considered by varying the current assets, holding constantly the fixed assets. Suppose, when the company follows an aggressive policy (i.e.) the ratio of current assets to fixed asset is lowest, while risk and profitability is high. Gross working capital
=

Gross working Capital

………….. (13)

57

Fixed assets ratio

Fixed Asset TABLE 4.13

GROSS WORKING CAPITAL TO FIXED ASSETS RATIO (Rs. In lakhs) Gross working capital 34159.46 41199.57 72215.30 62233.94 57407.71 Fixed assets 52690.12 52663.33 52744.80 81133.31 134307.4 8 Source: office records of Sakthi sugars ltd INTERPRETATION The table indicates the position of gross working capital and fixed assets for the year between 2006 - 2010.The ratio of gross working capital to fixed assets ranged from 0.65 times inventory the year 2006 and 0.43 times inventory the year 2008. This was due to increase inventory receivables the year 200. This had increased the current assets on an average ratio 0.80 times showed a satisfactory level. Ratio (Percentag e) 0.65 0.81 1.37 0.77 0.43

Year 2006 2007 2008 2009 2010

58

FIGURE 4.13: GROSS WORKING CAPITAL TO FIXED ASSETS RATIO

1.4 1.2 1 0.8 0.6 0.4 0.2 0

RATIO

YEAR/GWFA

2004 2005 2006 2007 2008
YEAR

COMPARATIVE BALANCE SHEET COMPARATIVE BALANCE SHEET STATEMENTS
The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. The changes

59

can be observed by comparison of the balance sheet at the beginning and at the end of a period and these changes can help in forming an opinion about the progress of an enterprise. Balance sheets as on two or more different dates are used for comparing the assets, liabilities and the net worth of the company. Comparative balance sheet analysis is useful for studying the trends of an undertaking. ADVANTAGES: • • Comparative statements help the analyst to evaluate the performance of the company. Comparative statements can also be used to compare the performance of the firm with the average performance of the industry between different years. • It helps in identification of the weaknesses of the firm and remedial measures can be taken accordingly.

TABLE 4.14 COMPARTIVE BALANCE SHEET FOR THE YEAR 2006-07 (Rs. in lakhs)

60

PARTICULARS Current Asset : Inventories Sundry drs Cash and bank balance Other current assets Loans and advances Total current assets Fixed assets Intangible assets Investments Miscellaneous expenditure Deferred tax asset Total assets Liabilities and capital: Current liabilities Loan : Secured loan Un secured loan Capital: Shareholders fund Total liabilities

2006 4818.51 2467.07 867.24 5640.06 20366.58 34159.46 52690.12 5122.47 392.38 1213.16 93577.59 13116.66

2007 8250.29 2947.27 1420.25 8801.74 19780.02 41199.57 50663.33 7328.82 5123.01 386.78 1180.73 105882.0 4 12482.98

INC/DEC AMT 3431.78 480.2 553.01 3161.68 (586.56) 7040.15 (2026.79) 7328.82 (5.6) (32.63) 10.54 12304.45 (633.68)

INC/DEC (%) 71.22 19.46 63.77 56.06 (2.88) 20.61 (3.85) 100 (1.43) (2.69) 0.21 13.15 (4.83) 29.55 (19.35) 9.14 13.15

39125.89 8485.68 32849.36

50703.61 6843.37 35852.08

11577.72 (1642.31) 3002.72 12304.45

93577.59 105882.0 4

Source: office records of Sakthi sugars ltd
INTERPRETATION CURRENT FINANCIAL POSITION AND LIQUIDITY POSITION The current assets have increased by Rs.7040.15 lakhs (20.61%) and sundry debtors have increased by Rs.480.2 lakhs (19.46%). On the other hand,

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there has been an increase in inventories amounting to Rs3431.78 lakhs. The current liabilities have decreased by Rs.633.68 lakhs (4.83%). This further confirms that the company has improved in the short-term financial position. LONG TERM FINANCIAL POSITION There is a decrease in fixed assets of about Rs.2026.79 lakhs (3.85%). There is also a decrease in long-term loans of about Rs.1642.31 lakhs (19.35%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company. PROFITABILITY OF THE CONCERN There is an increase in the reserves and surplus of the company of about Rs.2638.62 lakhs (9.66.

TABLE 4.15 COMPARTIVE BALANCE SHEET FOR THE YEAR 2007-08

62

Source: office records of Sakthi sugars ltd
PARTICULARS Current Asset : Inventories Sundry debtors Cash and bank balance Other current assets Loans and advances Total current assets Fixed assets Intangible assets Investments Miscellaneous expenditure Deferred tax asset Total assets Liabilities and capital: Current liabilities Loan funds Capital: Shareholders fund Total liabilities 2007 8250.29 2947.27 1420.25 8801.74 19780.02 41199.57 50663.33 7328.82 5123.01 386.78 1180.73 105882.0 4 12482.98 57546.98 35852.08 105882.0 4 2008 4621.03 6497.49 27475.15 8853.74 24767.89 72215.30 52744.80 6963.08 6018.85 404.29 1180.53 139526.8 5 10677.28 88339.90 40509.67 (33644.81) 139526.8 5 (31.77) INC/DEC AMT (3629.26) 3550.22 26054.9 52 4987.87 31015.73 2081.47 (365.74) 895.84 17.51 33644.81 (1805.7) (30792.92) (4657.59) INC/DEC (%) (43.98) 120.45 1834.52 0.59 25..21 75.28 4.10 (4.99) 17.48 4.50 31.77 (14.46) (53.50) (12.99)

INTERPRETATION CURRENT FINANCIAL POSITION AND LIQUIDITY POSITION The current assets have increased by Rs.31015.73 lakhs (75.28%) and sundry debtors have increased by Rs.3550.22 lakhs (120.45%). On the other 63

hand, there has been a decrease in inventories amounting to Rs3629.26 lakhs. The current liabilities have decreased by Rs.1805.7 lakhs (14.46%). This further confirms that the company has improved in the short-term financial position

LONG TERM FINANCIAL POSITION There is an increase in fixed assets of about Rs.2081.47 lakhs (4.10%). There is also a decrease in long-term loans of about Rs.2317.87 lakhs (33.87%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. PROFITABILITY OF THE CONCERN There is an increase in the reserves and surplus of the company of about Rs.4657.59 lakhs (15.55%).

TABLE 4.16 64

COMPARTIVE BALANCE SHEET FOR THE YEAR 2008-09

Source: office records of Sakthi sugars ltd
PARTICULARS Current Asset : Inventories Sundry drs Cash and bank balance Other current assets Loans and advances Total current assets Fixed assets Intangible assets Investments Miscellaneous expenditure Deferred tax asset Total assets Liabilities and capital: Current liabilities Loan funds Capital: Shareholders fund Total liabilities INTERPRETATION CURRENT FINANCIAL POSITION AND LIQUIDITY POSITION The current assets have decreased by Rs.9981.36 lakhs (13.82%) and sundry debtors have decreased by Rs.3988.08 lakhs (61.37%). On the other hand, there has been an increase in inventories amounting to Rs.3476.08 lakhs. The current liabilities have increased by Rs.2421.21 lakhs (22.67%). 2008 4621.03 6497.49 27475.15 8853.74 24767.89 72215.30 52744.80 6963.08 6018.85 404.29 1180.53 139526.8 5 10677.28 88339.90 40509.67 40339.53 139526.8 5 169060.6 8 29533.83 21.16 2009 8097.11 2509.41 9113.35 6167.70 36346.37 62233.94 81133.31 6193.48 17016.26 1303.16 1180.53 169060.6 8 13098.49 115622.6 6 INC/DEC AMT 3476.08 (3988.08) (18361.8) (2686.04) 11578.48 (9981.36) 28388.51 (769.6) 10997.41 898.87 29533.83 2421.21 (27282.76) 170.14 INC/DEC (%) 75.22 (61.37) (66.8) (43.5) 46.74 (13.82) 53.82 (11.05) 182.71 222.33 21.16 22.67 (30.88) 0.42

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This further confirms that the company has no improvement in the liquidity position. LONG TERM FINANCIAL POSITION There is an increase in fixed assets of about Rs.28388.51 lakhs (53.82%). There is also an increase in long-term loans of about Rs.6967.2 lakhs (76.05%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company. PROFITABILITY OF THE CONCERN There is an increase in the reserves and surplus of the company of about Rs.1029.86 lakhs (2.97%). This fact depicts that there is an increase in the profitability of the concern.

TABLE 4.17 COMPARTIVE BALANCE SHEET FOR THE YEAR 2009-10

66

Source: office records of Sakthi sugars ltd
PARTICULARS Current Asset : Inventories Sundry drs Cash and bank balance Other current assets Loans and advances Total current assets Fixed assets Intangible assets Investments Miscellaneous expenditure Deferred tax asset Total assets Liabilities and capital: Current liabilities Loan funds Capital: Shareholders fund Deferred tax liability Total liabilities INTERPRETATION CURRENT FINANCIAL POSITION AND LIQUIDITY POSITION The current assets have increased by Rs.4826.23 lakhs (7.75%) and sundry debtors have increased by Rs.248.66 lakhs (9.90%). On the other hand, there has been a decrease in inventories amounting to Rs.3744.67 67 2009 8097.11 2509.41 9113.35 6167.70 36346.37 62233.94 81133.31 6193.48 17016.26 1303.16 1180.53 169060.6 8 13098.49 115622.6 6 40339.53 169060.6 8 2010 4252.44 2758.07 4223.43 6617.70 39456.07 57407.71 134307.4 8 20594.56 16736.68 1202.83 230249.2 6 18276.27 16999.79 31374.76 132622.4 5 65651.44 600.61 230249.2 6 25311.91 600.61 61188.58 139.52 14.70 62.75 100 36.19 INC/DEC AMT (3744.67) 248.66 4889.92 (450) (3109.7) 4826.23 53174.17 14401.08 (279.58) (100.33) 61188.58 INC/DEC (%) (46.25) 9.90 53.65 (7.29) (8.55) 7.75 65.54 232.52 (1.64) (7.70) 36.19

lakhs. The current liabilities have increased by Rs.18276.27 lakhs (139.52%). This further confirms that the company has improved in the liquidity position. LONG TERM FINANCIAL POSITION There is an increase in fixed assets of about Rs.53174.17 lakhs (65.54%). There is also a decrease in long-term loans of about Rs.5344.16 lakhs (33.13%). This depicts that fixed assets are not only financed from long term sources but part of working capital has also been financed from long term sources. This fact depicts that the policy of the company is to purchase fixed assets from the long-term sources of finance thereby not affecting the working capital. There is an increase in loaned funds than the share capital, so this increases the interest liability for the company. PROFITABILITY OF THE CONCERN There is an increase in the reserves and surplus of the company of about Rs.25311.91 lakhs (71.03%). This fact depicts that there is an increase in the profitability of the concern.

COMMON SIZE BALANCE SHEET ANALYSIS
A statement in which balance sheet items are expressed as the ratio of each asset to total assets and the ratio of each liability is expressed as a ratio of total liabilities is called common size balance sheet. The FIGURES are shown as percentages of total assets, total assets and total liabilities. The

68

total assets are taken as 100 and different assets are expressed as a percentage of the total. Similarly, various liabilities are taken as a part of total liabilities. The FIGURES shown in financial statements viz., Balance Sheet are converted to percentages so as to establish each element to the total figure of the statement and these statements are called Common Size Statements. These statements are useful in analysis of the performance of the company by analyzing each individual element to the total figure of the statement. These statements will also assist in analyzing the performance over years and also with the FIGURES of the competitive firm in the industry for making analysis of relative efficiency.

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TABLE 4.18 COMMON SIZE BALANCE SHEET ANALYSIS:

(VALUES IN %)

Particulars CURRENT ASSETS Inventories Sundry debtors Cash& bank balance Other current assets Loans and advance Total (C.A) Fixed assets Intangible assets Investments Misexpenditure Deferred tax asset Total assets Liabilities and capital Current liabilities Loan funds Secured loan Unsecured loan Foreign currency convertible bonds Capital Shareholders fund Total liabilities INTERPRETATION:

2006 5.14 2.63 0.92 6.02 21.76 36.47 56.30 5.47 0.41 1.29 100 14.01 41.01 9.06 -

2007 7.79 2.78 1.34 8.31 18.68 38.93 47.84 6.92 4.84 0.36 1.11 100 11.78 47.88 6.46 -

2008 3.31 4.65 19.69 6.34 17.75 51.74 37.80 4.99 4.31 0.29 0.84 100 7.65 37.02 6.56 19.74

2009 4.78 1.48 5.39 3.65 21.49 36.81 47.99 3.66 10.06 0.77 0.70 100 7.74 44.39 9.54 14.46

2010 1.89 1.20 1.83 2.87 17.13 24.92 58.33 8.94 7.27 0.52 100 13.62 40.29 4.68 12.62

35.10 100

33.86 100

29.03 100

23.86 100

28.51 100

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In common size balance sheet analysis in Sakthi sugars ltd, it is found that the total assets and liabilities are taken as 100% total and other components of assets and liabilities are also expressed in terms compared to total asset and total liability. The total capital % shows a decreasing trend. The percentage of loan funds are fluctuating which states that expansion of the business is not depended on loans. Fixed assets have fluctuating in FIGURES during all the years of study. It is due to a part of current liability arrives net profit have contributed to the increase in fixed assets. The current asset part has considerably decreased during 2008 and it is due to decrease in loans and advances. There is decrease in inventory; it is because the company is doing effective inventory management, so as to reduce the inventory cost.

STATEMENT OF CHANGES IN WORKING CAPITAL
This statement follows the statement of Sources and Application of Funds. The primary purpose of the statement is to explain the net change in Working Capital, as arrived in the Funds Flow Statement. In this statement, all current Assets and Current Liabilities are individually listed. Against each account, the figure pertaining to that account at the beginning and at the end of accounting period shown. The net change in its position also shown. The changes taking place with respect to each account should and up to equal the net change in working capital, as shown by the Funds Flow statement. While entering the effect of change in a current account on working capital, the following rules must be followed. 1. 2. 3. An increase in Current Assets means an increase in Working An decrease in Current Assets means an decrease in Working An increase in Current Liabilities means an decrease in Working Capital; Capital; Capital;

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4.

An decrease in Current Liabilities means an increase in Working

Capital TABLE 4.19 CHANGES IN WORKING CAPITAL – (2006-2007) Particulars Current Assets & Adv. Inventories Sundry Debtors Cash and Bank Balance Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities and provisions Total Current Liability (B) Net Working Capital (A-B) Net Increase in Working Capital (B/F) 2006 2007 Increase Decrease

4818.51 2467.07 867.24 5640.06 20366.58 34159.4 6

8250.29 2947.27 1420.25 8801.74 19780.02 41199.5 7

3431.78 480.2 553.01 3161.68 586.56

13116.66 13116.6 6 21042.8 7673.79

12482.98 12482.9 8 28716.5 9

633.68

7673.79

Total

28716.5 9

28716.5 9

8260.35

8260.35

INTERPRETATION In the year 2005, the inventory level is increased because of high production. The sundry debtors increased considerably indicating more credit being given to the customers. The cash and bank balance increased because of non-utilization of funds. The total current assets increased because of in-

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crease in inventory level and sundry debtors. The current liabilities decreased because of repayment of loans.

TABLE 4.20 CHANGES IN WORKING CAPITAL – (2007-2008) Particulars Current Assets & Adv. Inventories Sundry Debtors Cash and Bank Balance Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities and provisions Total Current Liability (B) Net Working Capital (A-B) Net Increase Capital (B/F) Total INTERPRETATION In the year 2006, cash and bank balance increased it indicating greater liquidity position of the company. However, it shows the best management of surplus funds. The inventory level is reduced because of decrease in production. The sundry debtors are increasing because of rise in sales level. Loans in Working 2007 2008 Increase Decrease

8250.29 2947.27 1420.25 8801.74 19780.02 41199.57

4621.03 6497.49 27475.15 8853.74 24767.89 72215.3

3629.26 3550.22 26054.9 52 4987.87

12482.98 12482.98 28716.59 32821.43

10677.28 10677.28 61538.02

1805.7

32821.43

61538.02

61538.02

36450.69 36450.69

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given were increased slightly. The total current liabilities are decreased due to reduction in the level of borrowings made by the business.

TABLE 4.21 CHANGES IN WORKING CAPITAL – (2008-2009) Particulars Current Assets & Adv. Inventories Sundry Debtors Cash and Bank Balance Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities and provisions Total Current Liability (B) Net Working (A-B) Capital 2008 2009 Increase Decrease

4621.03 6497.49 27475.15 8853.74 24767.89 72215.3

8097.11 2509.41 9113.35 6167.70 36346.37 62233.94

3476.08 3988.08 18361.8 2686.04 11578.48

10677.28 10677.28

13098.49 13098.49

2421.21

61538.02

49135.45

Net Increase in Working Capital (B/F) Total 61538.02

12402.57

12402.57

61538.02

27457.13

27457.1 3

INTERPRETATION

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In the year 2007, the inventory is increased slightly. The cash and bank balance reduced less stability in the liquidity position of the company. The level of debtors decreased indicating immediate cash flow into the business. The level of loans given also increased indicating effective utilization of cash. The current liabilities increased because of low repayment efforts.

TABLE 4.22 CHANGES IN WORKING CAPITAL – (2009-2010) Particulars Current Assets & Adv. Inventories Sundry Debtors Cash and Bank Balance Other Current Assets Loans and Advances Total Current Assets (A) Current liabilities, Prov. Current liabilities and provisions Total Current Liability (B) Net Working (A-B) Capital 2009 2010 Increase Decrease

8097.11 2509.41 9113.35 6167.70 36346.37 62233.94

4352.44 2758.07 4223.43 6617.70 39456.07 57407.71

3744.67 248.66 4889.92 3109.7

13344.06 13344.06

31374.76 31374.76

18030.7

48889.88

26032.95

Net Increase in Working Capital (B/F) Total 48889.88

22856.93

22856.93

48889.88

26665. 29

26665.2 9

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INTERPRETATION In the year 2008, the inventory is decreased slightly. The cash and bank balance reduced less stability in the liquidity position of the company. The level of debtors decreased indicating immediate cash flow into the business. The level of loans given also increased indicating effective utilization of cash. The current liabilities increased because of low repayment efforts.

TREND ANALYSIS
The financial statement for a series of years may be analysed to determine the trend of the data contained there in the trend percentage are also referred to as “trend ratio” this method of analysis is adopted to determine the direction upward or downward. This involves the computation of the percentage relationship tha each item in the statement bears to the corresponding items contained in that of the base year for this purpose, the earlist year involved in comparison or any intervening year may be considered as the base year.

TABLE 4.23
PARTICULARS Sales PAT Current Assets Current Liabilities Net Assets EBIT Dividend (%) Gross fixed assets 2006 100 100 100 100 100 100 100 100 2007 211 93.43 120.60 95.17 96.1 63.75 89.64 96.48 76 2008 295.58 175.81 211.40 81.41 101.04 121.35 82.91 104.59 2009 252.86 81.23 182.18 98.62 153.98 129.88 291.19 112.08 2010 392.05 313.77 168.05 239.19 254.90 86.27 210.88 180.43

INTERPRETATION
(i)

The sales have continuously increased in all the years except 2009. The percentage in 2010 is 392.05 as compared to the base of 100 in 2006. The increase in sales is quite satisfactory.

(ii)

The earning has increased in all the years except 2009. This is due to increase in value at production and higher demand for the product.

(iii)
(iv)

The profitability of the company has increased manifold as evidenced by the absolute numbers EBIT. The net assets has shown remarkable improvement over the base year figure. The company has been aggressively pursuing the dividend policy decisions and it declared a whopping 210% dividend for 2010.

(v)

OPERATING CYCLE ANALYSIS
A new concept, which is gaining more and more importance in recent years, is the ‘Operating Cycle Concept’ of Working Capital. The operating cycle refers to the average time elapses between the acquisition of raw materials and the final cash realization. Operating Cycle consists of four stages: • • • • The raw materials and stores inventory stage. The work-in-progress inventory stage. The finished goods inventory stage. The receivable stage.

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OPERATING CYCLE TABLE 4.24
Year R.M (a) WIP (b) Finishe Debto d rs Goods (d) (c) 52.64 38.08 23.09 46.43 14.73 7.22 7.15 8.99 4.03 4.80 Duration of operating cycle (a+b+c+d )=e 81.18 88.51 68.17 77.8 54.82 operating cycle in times (365/e) 4.49 4.12 5.35 4.69 6.65

2006 2007 2008 2009 2010

19.79 39.93 28.24 24.52 29.76

1.53 3.35 7.85 2.82 5.53

INTERPRETATION Operating Cycle refers to the average time elapses between the purchase of raw material and final cash collection. Cash is used to buy the raw materials and other stores. The collection process of the company has improved, but the company is not paying its trading creditors first, instead it has started closing the outside loans. The number of cycles if maximized, then it means that the company is able to collect the payments in time and they are using the funds efficiently for the production purposes. If the company maintains the present year situation, then there will be a comfortable growth for the company’s business. Operating Cycle shows an increasing trend because of increase in debtors and delayed payments to creditors. The decrease in the operating cycle of times reveals the possibility of delay or decrease in yielding the profit.

Z-SCORE ANALYSIS
The dozens of financial ratios seem to provide different answers to the same simple question of “How will a company do”. So, everyone is on the

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lookout for financial models that summaries one general aspect of overall company performance. An example is the Z score, which reveals the efficiency of working capital management. The original Z score was created by Edward I Altman at New York University in the mid 1960’s and it has stood as the test of time. Out of a selection of 22 financial ratios. Altman found 5 that could be combined to discriminate between the bankrupt and non-bankrupt companies in this study. The interesting thing about the Z score is that is good analytical tool no matter what shape the company is in. Even if the company is very healthy, if the Z score to fall sharply, warning bells should ring.

Z -SCORE ANALYSIS FOR THE YEAR 2006 TO 2009
The formula for calculating Z-Score analysis is Z = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.010X5 Where, Z = Financial Health Score X1 = Working Capital / Total Assets * 100 X2 = Retained Earnings / Total Assets * 100 X3 = EBIT / Total Assets * 100 X4 = Net Worth / Total Liability * 100 X5 = Sales / Total Assets * 100

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TABLE NO: 4.25(a)
Year 2006 2007 2008 2009 2010 X1 26.15 30.74 47.75 31.50 13.09 X2 1.18 1.02 0.20 X3 -5.34 2.93 7.39 1.93 -0.18 X4 6.12 4.64 3.34 1.99 1.78 X5 37.67 68.46 49.57 49.14 59.77

TABLE NO: 4.25(b)
Year 2006 2007 2008 2009 2010 Z-Value 0.3138+ 0.0330 + (0.5286) + 0.0146 +1.8835 0.3688 + 0.0285 + 0.2900 + 0.1113 + 3.423 0.573 + 0.7316 + 0.0801 + 3.4765 0.378 + 0.1910 + 0.0477 + 2.457 0.1570 + 0.0056 + (0.1841)+ 0.0427 + 2.9885 INTERPRETATION Z-Score more than 3.0 is financially sound and less than 1.8 shows certain in bankruptcy. Z-Score between 1.8 and 3.0 indicating that the company is prone to financial sickness. Z-Score for Sakthi sugars in (2007-2010) is more than 3.0. It indicates that the company’s financial position is sound in all the years. This is because of increase in turnover, which reacts to the growth in the financial grounds of the company. The past records of the company have revealed some sickness in finance. From the year 2006-2007 to the year 2007-08, the score is less than 4.0. Indicating sound financial policy. Z-Score 1.7163 4.1909 4.8612 3.0737 3.0097

TIME SERIES ANALYSIS

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The financial statements may be analysed by the computing trends of series of information. This method determines the direction upwards or downwards and involves computation of the percentage relationship that each statement items bears to the same item in base year. The information for a number of years is taken and the first year is taken as the base year. This is most widely used in practice. It is a mathematical method and with its help, a trend line is fitted to the data. The method of the least square may be used either to fit straight line trend or a parabolic trend. The straight line trend is represented by the equation. Yc= a+bx Yc is used to designate the trend value to distinguish them from the actual value, Yc is the intercept of Y on the compound trend figure of the Y variable when X=0. B represents the slope of the trend line or the amount of change in X variable.

TIME SERIES ANALYSIS :( least square method)
TABLE 4.26(a) CURRENT ASSETS lakhs) Year 2006 2007 2008 2009 2010 Actual value 34159.46 41199.57 72215.30 62233.94 57407.71 Trend value 39937.02 46690.11 53443.20 60196.29 66949.38 Fluctuation (5777.56) (5490.54) 18772.1 2037.65 (9541.67) (RS in

TABLE 4.26(b) CURRENT ASSET PROJECTION
(Rs. in lakhs)

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Year 2010 2012 2013 2014 2015 INTREPRETATION

Amount (RS) 73702.46 80455.56 87208.65 93961.74 100714.83

The table clearly shows that the trend value and fluctuation of current assets for the whole study period. The original value of current assets is higher than the trend value in the years 2008-2009. But for the other periodical years the original value is lower than the trend value. From this it indicates that the current assets was not used to the expected level. Using the trend analysis, the future expectation of current assets is computed for the period of 2011-2015. It shows that the company will achieve current assets Rs. 100714.83

TABLE 4.27(a) CURRENT LIABILITIES
Year 2006 2007 2008 2009 2010 Actual value 13116.66 12482.98 10677.28 13098.49 31374.76 Trend value 8721.69 12435.86 16150.03 19864.2 23578.37 (RS in lakhs) Fluctuation 4394.97 47.12 (5472.75) (6765.71) 7796.39

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TABLE 4.27(b) CURRENT LIABILITY PROJECTION
YEAR 2011 2012 2013 2014 2015 AMOUNT 27292.54 31006.71 34720.88 38435.05 42149.22 (Rs. in lakhs)

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INTREPRETATION The table clearly shows that the trend value and fluctuation of current liabilities for the whole study period. The original value of current liabilities is higher than the trend value in the years 2006-2007 & 2010. But for the other periodical years the original value is lower than the trend value. From this it indicates that the current liabilities was used to the expected level. Using the trend analysis, the future expectation of current assets is computed for the period of 2011-2015. It shows that the company will achieve current liabilities Rs. 42149.22

TABLE 4.28(a) WORKING CAPITAL
(Rs in lakhs) YEAR 2006 2007 2008 2009 2010 ACTUAL VALUE 21042.8 28716.59 61538.02 49135.45 26032.95 TREND VALUE 31213.34 34253.25 37293.16 40333.07 43372.98 FLUCTUATION (10170.54) (5536.66) 24244.86 8802.38 (17340.03)

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TABLE 4.28(b) WORKING CAPITAL PROJECTION (Rs in lakhs)
YEAR 2011 2012 2013 2014 2015 INTREPRETATION The table clearly shows that the trend value and fluctuation of working capital for the whole study period. The original value of current liabilities is higher than the trend value in the years 2008-2009. But for the other periodical years the original value is lower than the trend value. AMOUNT 46412.89 49452.8 52492.71 55532.62 58572.58

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Using the trend analysis, the future expectation of current assets is computed for the period of 2011-2015. It shows that the company will achieve the working capital Rs. 58572.58

TABLE 4.29(a) SALES
lakhs) YEAR 2006 2007 2008 2009 2010 ACTUAL VALUE 30313.24 63942.19 89601.78 76651.73 118884.98 TREND VALUE 37908.18 56893.48 75878.78 94864.08 113849.38 FLUCTUATION (7594.94) 7048.71 13723 (18212.35) 5035.6 (Rs in

TABLE 4.29(b) SALES PROJECTION (RS in lakhs)
YEAR 2011 2012 2013 2014 2015 INTERPRETATION AMOUNT 132834.68 151819.98 170805.28 189790.58 208775.88

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The table clearly shows that the trend value and fluctuation of sales for the whole study period. The original value of current liabilities is higher than the trend value in the years 2007-2008 & 2010. But for the other periodical years the original value is lower than the trend value. Using the trend analysis, the future expectation of current assets is computed for the period of 2011-2015. It shows that the company will achieve the working capital Rs. 208775.88

FINDINGS
 The profits achieved by the company shows an increasing trend because of increase in sales and reduction in interest charges for funds borrowed by the company. But for 2008, the profit is reduced due to decrease in sales.  The average collection period of the company is showing an decreasing trend.

 The inventory turnover of the company is satisfactory. There is no holding up of inventory thereby saving interest on investment amount. This is because of effective production techniques

implemented by the company.

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 The fixed asset of the company contributes more than 50% of the total asset position of the company. The company indicating good asset position of the company.
 There is a sudden decrease in the Cash Balance of the company in the

year 2007-2008. The cash balance has increased in the year 20072008. This may be due to prudent investment/portfolio management being forwarded in the company.
 The Working capital position of the company is satisfactory. The

Working capital requirement of the company to carry out the production purpose is satisfactory and is not suffering from any inadequacy.  It is projected from Z-Score analysis that the company is financially sound in the study period because it is more than 3.  It is projected from Operation Cycle the rotation of Debtors and Creditors are within the acceptable time period. The Duration of Operation Cycle and operating Cycle in Times is moderate.  The Common Size Balance sheet shows a decreasing trend in Current Assets and Current Liabilities of the firm indicating changes in policies of repayment made by the company.  It is projected from Trend Analysis that the sales, current assets, current liabilities, working capital trend of the company for the last 5 years is satisfactory.

SUGGESTION
 The company may try to reduce the Inventory Turnover Period by using the Inventory Management techniques such as EOQ and ABC analysis.

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 The payment policy adopted by the company to the suppliers can be reviewed.  The credit policy given can also be reviewed so that considerable amount of funds may not lock up in debtors. This will result in increase of cash balances of the company.  Effective Costing Techniques may be implemented to control the operating expenses incurred by the company.  Effective measures have to be carried out to resume the export of products for the current year, which will add further sophistication and low cost techniques of production.  There has been slightly decreasing trend in the financial soundness of the company in the near future. Effective steps should be taken to find the root cause and control it.  The company must utilize it total capacity for production to reduce the cost.  The solvency position of the company can be further improved by arresting the borrowings made by the company. If these steps are not taken, that may affect the long-term credit interest of the company.

CONCLUSION
To conclude that, Sakthi sugars Limited has mobilized the funds in the same manner the funds are invested productivity in the capital asset as well as working capital. There is a sudden increase in market price during the year 2009-2010 which is because of better control from top-level management. The company has a high operational efficiency, the profits for the company has increased over the past years which proves that the company has taken measures to generate profits by improving its capacity utilization which would maximize the generation of resources for expansion, growth and diversification. There is a sudden increase in market price during the year 2007-2008 due to better control from top-

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level management. To end with, I conclude that if the company takes the above actions as suggested, the company would remain number one leader in the Industry in future, with its excellent past records.

BIBLIOGRAPHY
Books 1. A vijaykumar (2001), working capital management a comparative study, Northen Book Centre, New Delhi. 2. Howard L.R. (May 1971), use of operating cycle concept for better management of working capital, the economic and political weekly. 3. Hampton J.J (June 1983) Financial Decision Making, Prentice Hall of India Pvt., Ltd., New Delhi. 4. R. Ramachandrean, R. Srinivasan Management Accounting (Theory Problems & Solutions).

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5. Statistics – R.S.N. Pillai, V.Bagavathi 6. Management accounting R.K. Sharma Shashi K. Gupta. 7. Donnel, O.and Goldberg (1964), Lets Reasses the profitability Liquidity trade off financial executive. 8. Mishra R.K. (1975) problems of working capital management somaiya publications Pvt. Ltd., Bombay.

WEBSITES: WWW.sakthisugarsltd.com WWW.sdsnotebooks.com/finz.htm WWW.google.com

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