UNITY

FINDINGS, SUGGESTIONS AND CONCLUSION

V-l SUMMARY OF FINDINGS 228

V-2 SUGGESTIONS 247

V-3 CONCLUSION 250

 UNITV
FINDINGS, SUGGESTIONS AND CONCLUSION

V-l SUMMARY OF FINDINGS:-

The study has been done on the working capital management of sugar
industry with reference to private sector sugar mills in Tamilnadu. The
primary objective of the study is to examine whether the working capital of the
private sector sugar industry in Tamilnadu is managed properly and
significantly. The specific objectives are: 1) To access the relative significance
of various sources and utilization of working capital in the selected sugar mills,
2) To analyze and evaluate the different components of working capital, 3) To
evaluate the liquidity position and operational efficiency through ratio analysis,
4) To examine the relationship between liquidity and profitability, 5) To
examine the effectiveness of working capital management practices of the
selected sugar mills and b) To summarize the main findings of the study by

offering suitable suggestions for the better management of working capital of

the selected sugar mills in Tamilnadu.

This study covers ten private sector sugar mills having registered office
or head office or plant located in Tamilnadu, For the purpose of comparative
study between the private sector sugar mills, the total sample units were
classified as large and medium sized mills (each 5 for large and 5 for medium)
on the basis of the paid up share capital of the sugar mills in the year 2001-02.
The period of study covers 10 years from 1992-93 to 2001-02. Necessary data
relating to working capital and other related financial information were
collected from both primary and secondary sources (The data were collected
from published annual reports, financial statements of the selected sugar mills,
official and unofficial records, journals and magazines, etc).

For the purpose of analysis, a variety of financial ratios such as working

capital ratios, profitability ratios, turnover ratio, etc., were used to achieve the

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objectives of the study. Various statistical techniques, such as simple
correlation, regression coefficient, multiple linear regression model, growth
rates, etc., were applied to analyze the effective management of working
capital. To test the significance of results of the analysis, the ‘t’ test and ‘F’ test
were also applied. For the purpose of the study, a few hypotheses were
framed. The hypotheses framed for the study were proved at the end of this
Unit. The thesis was divided into five major units and each unit includes many
chapters for an effective analysis and presentation of the study.

This unit covers the summary of major findings of the study and offers a
few suggestions for efficient and effective management of working capital in
the private sector sugar industry of Tamilnadu.

Liquidity Position: -

The liquidity position of large and medium sized mills has been
analyzed. Both the categories of mills have also compared with the total
industry. It has been found from the analysis that the current assets have
increased in all the sugar mills in large and medium except in ASEL during the
period of study. All the selected sugar mills of Tamilnadu have a positive net
working capital rate except in KSCL during the years 1998-99 to 2001-02. It
showed the negative approach followed by the KSCL. Though there is an
increase in the net working capital of both category mills, the rise in the rate of
working capital of medium sized mills is more than the large sized mills.

in large sized mills, on an average, the current assets have increased by

3.69 times, whereas the current liabilities have increased by 5.50 times during
the period 1992-93 to 2001-02. It was found that the increase in the rate of
current liabilities affected the rate of net working capital. The net working
capital was increased only by 2.68 times. Similarly, in the medium sized mills,
on an average, the rate of current assets was increased by 2.94 times, whereas
current liabilities were increased by 3.25 times. The rise in current liabilities

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affected the net working capital which was increased by only 2.77 times.
Though there is an increase in the rate of net working capital of both categories
of mills, the rise in medium sized mills is more than large sized mills.

The mean values of current ratio and quick ratio are very high in the
medium sized mills than in the large sized mills. But the current ratio of both
large and medium is very higher than the ideal ratio of 2:1. A relatively high
current ratio is an indication of sound liquidity position of the concern. Since
the average current ratio is more in the medium sized mills the liquidity
position of the medium sized mills is good than the large sized mills. In the
case of quick ratio, both large and medium category mills enjoy the high ratio.
It has been found that both category mills have the sound liquidity position
during the period of study.

It is resulted from the analysis of current liabilities to total liabilities

ratio that two out five large sized mills (EIDPL and KSCL) and 4 out of 5
medium sized mills (except JSCL) have the highest ratio. It is indicated that
the proportion of current liabilities in the total liabilities is high in these mills.
The net working capital position of these mills was affected by this high
proportion of current liabilities to total liabilities. On an average, the large
sized mills have the high percentage of this ratio than the medium sized mills.

Super quick ratio revealed that all the selected sugar mills are having the
average absolute liquidity of less 50 percent. In general the acceptable norms of
this ratio is 50 percent. SSL has the highest ratio among the large sized mills,
whereas KSCL has the highest ratio among the medium sized mills. It has been
found that all the sugar mills have the minimum absolute assets within which
the mills have been trying to make their operations.

Liquidity and Profitability: •*

For the purpose of establishing the relationship between liquidity and

profitability, the correlation coefficient has been applied. It has been found that

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there was a low degree of positive correlation between liquidity ratios and
profitability. It shows that the liquidity ratio has a positive effect increases the
profitability.

Impact of Working Capital Ratios on Profitability: -

The impact of working capital on profitability has been analyzed by

applying multiple linear regression and multiple correlation techniques to study
the join influence and by applying correlation and regression coefficient
techniques to study the impact individually. For this purpose, the working
capital ratios (CR, QR, ITR, WCTR, CTR and RTR) and profitability ratio
(PBT to TA) have been selected for the study. The analysis showed both
positive and negative impacts of working capital ratios on profitability. It
indicated that the set of working capital ratios was having high degree
correlation with profitability ratio. However, in an individual comparison, four
out of six working capital ratios (CR, QR, ITR and WCTR) have shown the
positive association with the profitability in the large sized mills. The
remaining two working capital ratios (CTR and RTR) have a negative
association with the profitability. In the medium sized mills, the set of working
capital ratios was having low degree of positive correlation with the
profitability ratio. However, in an individual comparison, three out of six
ratios (CR, CTR and RTR) have positive correlation with profitability and the
remaining three ratios have shown the negative correlation with the
profitability.

By applying regression coefficient, the impact of working capital ratios

on profitability is very encouraging in the large sized mills. It has been found
that the three out of six working capital ratios (CR, ITR and WCTR) have
shown the positive effect on profitability which influences the profitability
favorably and the remaining three ratios have shown the negative effect on
profitability which influence the profitability adversely. In the medium sized
mills, three out of six working capital ratios (QR, CTR and RTR) have shown

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the positive effect on profitability and the remaining three ratios have shown
the negative effect on profitability. However, on the basis of‘t’ test applied, it
has been found that CR and WCTR vary significantly at 1 percent level and
RTR vary significantly at 5 percent level from profitability ratio and the
remaining ratios were not vary significantly in the large sized mills. In the
medium sized mills, the working capital ratios have the shown insignificant
results. It has been found that in the total industry, ITR and WCTR vary
significantly at 1 percent level, whereas the remaining 4 ratios do not differ
significantly.

Changes in Working Capital:-

It has been found from the point of view of the change in working
capital of large and medium sized mills that there is heavy fluctuation in all the
sugar mills during the period of study. On an average, net working capital is
increased in all the years, except 1995-96, 2000-01 and 2001-02 8 in large
sized mills has compared to the previous years. It is inferred that the inventory
plays a predominant role in increase or decreasing net working capital of large
sized mills. On an average net working capital is increased in all the years
except 1998-99 in medium sized mills. As a whole, an increase in net working
capital is more than the medium sized mills. It has found from the analysis that
in large sized mills have the good net working capital positions during the
period of study.

Sources of Financing Working Capital: -

It has been found from the analysis of sources of financing working

capital that the average working capital has been financed from the external
sources by 22.53 percent in total industry, as against 20.28 percent in large
sized mills and by 27.65 percent in medium sized mills. It is also resulted from
the analysis that the average percentage of external sources used for financing
working capital in total industry was 13.71 percent, whereas 11.84 percent in

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large and 18.63 percent in medium sized mills. It can be observed that the
dependence on the external sources of finance which is used for financing
working capital is more in all the selected medium sized mills except in BASL.
Among the large sized mills, the average proportion of financing gross working
capital from external sources is 62.06 percent in DSCL. It is the highest ratio
than the ratio of other sugar mills. .Among the large sized mills, the percentage
of external sources of funds used for financing working capital is 31.12 percent
which is highest in SSL. At the same time, the percentage external sources is
not used in TASL and EIDPL. In these two mills 100 percent of internal
sources were used for financing working capital.

Size of Working Capital: -

It is resulted from the analysis of current assets to total assets ratio that
the current assets constituted a large proportion of total assets in the medium
sized mills (52.32 percent) than in the large sized mills (42.98 percent). 3 out of
5 mills (BASL, RSCL and JSCL) have the highest proportion of current assets
in the total assets among the medium sized mills. Similarly 3 out of 5 (SSL,
DSCL and EIDPL) have the highest ratio among the large sized mills. It has
been found that both large and medium sized mills were different from the total
industry average significantly at 5 percent level and 1 percent level
respectively. With regard to current assets to fixed assets ratio, it has been
found that the medium sized mills has the highest proportion of current assets
to fixed assets than the large sized mills. Among the large sized mills, SSL and
EIDPL have the highest proportion of current assets to Fixed assets and JSCL
has the highest proportion among the medium sized mills.

It has been shown from the current assets to sales ratio that the
utilization of working capital is better in the large sized mills than in the
medium sized mills, because of the lowest percent of current assets to sales in
large sized mills. Among the large sized mills. EIDPL has utilized working

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 *

capital effectively, followed by KSCL. Similarly, BASL has utilized the

working capital better among the medium sized mills.

By analyzing the current ratio, it has been found that the majority of
mills have the higher current ratio except in JSCL, on an average. However,
there is an ups and down in the current ratio of all the sugar mills. By applying
‘t’ test, it was found that there is a significant difference at 1 percent level
between the average current ratio of large and medium sized mills. With regard
to quick ratio, it was found that the medium sized mills have maintained higher
quick ratio than the large sized mills on an average. But the quick ratio of both
category mills is very nearest to the ideal ratio of 1:1. On the basis of ‘t* test
there is no significant relationship between large and medium sized mills. It
has been found from the above analysis that the medium sized mills have
enjoyed sound liquidity position, whereas the utilization of working capital is
better in the large sized mills.

Composition of working capital: -

It has been found that the average values of inventory, receivables, cash
and other current assets were 60.03 percent, 34.80 percent, 4.27 percent and
0.90 percent of the total current assets respectively in the large sized mills.
Similarly, inventory has 65.96 percent, receivables 30.31 percent, cash 3.17
percent and other current assets 0.56 percent of the total current assets in the
medium sized mills. It is evident that there is an effective control over the
inventory position in large sized mills than in the medium sized mills, and the
receivables were properly managed in the large sized mills than in the medium
sized mills on an average.

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Movement of Working Capital: -

An analysis of the movement of working capital revealed that the

various selected sugar mills have utilized their working capital with the varying
degrees of efficiency. It can be seen from the analysis that the average of 1TR
is high in the medium sized mills than in the large sized mills. It has been
shown that the performance of the inventory control is good in the medium
sized mills than in the large sized mills. As far as the RTR concerned, it is
resulted from the analysis that the average RTR resulted to 4.13 times for the
industry, as against 4.65 times in large and 3.61 times in medium. It showed
that the large sized mills have better receivables management than the medium
sized mills. KSCL from large and BASL from medium have the highest RTR.
These two mills enjoy better receivables management than the other mills.

It has been found from the analysis that the PSCL in medium and TASL
in large performed better cash management. On the whole, the large sized mills
exercised better cash management than the medium sized mills. The WCTR
revealed that the medium sized mills have the high ratio than the large sized
mills. It is concluded that the higher the ratio, the lower the investment in
working capital and the greater the profit. Therefore, it was found that the
medium sized mills had control over the working capital and resulted in the
higher profits of the concern. As far as the creditors turnover ratio concerned
that medium sized mills have the better performance in creditors turnover ratio
than the large sized mills during the period of study.

Adequacy of working capital: -

It has been found from the analysis of operational adequacy of working

capital that the KSCL in large sized mills and JSCL in medium sized mills have
the low ratio of working capital in term of months cost of production which
reveals that these mills faced more risk. At the same time, the profitability of
these two mills may be increased. On an average, the large sized mills enjoyed

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a low ratio which reflects that they faces high risks but the profitability may be
increased than the medium sized mills during the period of study.

Inventory Management: -

Inventories constituted a first major element of the working capital in

the sugar, industry of Tamilnadu. The size of inventory in the industry is
increased by 3.17 times, as against 3.40 times in large and 2.87 times in
medium. It is noticed that the increase in the size of inventory is more in large
sized mills than in the medium sized mills. The higher the investment leads to
better inventory management. It is reflected from the analysis that the large
sized mills enjoyed the better control over the inventory position. The major
components of inventory are raw materials, finished goods, work in progress
and stores and spares which amounted to 6.16 percent, 83.17 percent, 2.70
percent and 9.77 percent of the total inventory respectively in the total industry.

With regard to the proportion of finished goods to total inventory, the

E1DPL from large and ASEL from medium have done well in maintaining
proper balance in the major component of inventory. One mill (EIDPL) from
large and one mill (ASEL) have the high proportion of stores and spares to total
inventory. It is revealed that the another component of inventory is properly
maintained. KSCL from large sized mills maintains a high proportion of work
in progress to total inventory, which reveals that the inventory management in
goods in the mill in relation to work in progress. The EIDPL has enjoyed the
high proportion of raw materials to inventory than the other sugar mills. It has
been found from the analysis that the inventory management is better in the
large sized mills than in the medium sized mills.

Receivables management: -

Receivables constituted a significant portion of the working capital of

the sugar industiy of Tamilnadu next after inventories. It has been found from

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the size of receivables that all the units among the large sized mills have the
better investment in receivables. Similarly all the units among the medium
sized mills have the better receivalbes management except in ASEL and PSCL.
It has also been found that the average ratio of receivables to total assets
amounted to 14.26 percent in the total industry, as against 15.43 percent in
large and 13.09 percent in medium sized mills. Similarly, the average ratio of
receivables to total assets amounted to 32.55 percent as against 34.80 percent in
large and 30.31 percent in medium sized mills during period of study. Among
the large sized mills, SSL has the highest mean value. Similarly, among the
medium sized mills, ASEL has the highest mean value for this ratio.

It was noted that the proportion of receivables to current assets ratio

was high in large with 34.80 percent, as against 30.31 percent in medium sized
mills. In short, the large size category mills have the highest proportion of total
assets and current assets in the fonn of receivables. It has also been found that
medium sized mills have the higher proportion of inventory to sales than that of
large size category mills. It revealed that, the utilization of receivables is high
in medium sized mills in terms of sales, as compared to large size category
mills. It was also noted that large size category mills enjoyed the highest mean
value for the share of both debtors, and loans and advances in terms of current
assets. From the point of view of composition of receivables, it has been
found that the average proportion of loans and advances to total receivables
was high in medium sized mills, whereas the proportion of debtors to total
receivables was high in medium sized mills. At the same time, the loans and
advances constituted the huge amount of receivables both in large and medium
sized mills. By analyzing the debts and receivables collection period, it was
found that both large and medium sized mills have the sufficient collection
period in the form of receivables, on an average. Comparatively, the large sized
mills have the lowest collection period than that of medium sized mills.

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Management of Cash:

me size of cash was highly fluctuated among the large sized mills,
whereas there was slight fluctuation among the medium sized mills.
Comparatively, large sized mills maintained a high cash position than the
medium sized mills. It has been found from cash to total assets ratio that the
large sized mills have the low share of cash to total assets than that of medium
sized mills. However, the ‘t’ test revealed that the large and medium sized mills
did not significantly from the total industry average. It was evident from the
analysis of total cash to sales ratio that both category mills have the same cash
position in terms of sales. It was also proved by ‘t’ test. It showed that both
large and medium sized mills did not vary significantly from the total industry
average. From the point of view of total cash to total current assets ratio, it
was found that the proportion of this ratio was more in large sized mills than in
medium sized mills. At the same time, both category mills were insignificant
from the total industry average during the period of study.

It has also been found that the cash to current liabilities ratio was high in
medium sized mills than in large sized mills. At the same time, both categories
of mills did not vary significantly from the total industry mean. It revealed that
both large and medium sized mills performed the better control over this ratio.
The total cash consisted of two components, namely cash in hand and cash at
bank. It has been found that the large sized mills have the highest proportion of
cash at bank to total cash, whereas the medium sized mills have the highest
share of cash in hand to total cash during the period of study.

Components of working capital on sales:-

The analysis has been made to examine the impact of various

components of working capital (Inventory, receivables and cash) on sales of the
selected sugar mills in Tamilnadu. It'has been found that all the components of
working capital have the positive effect on sales in both large and medium

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 >

sized mills. It indicated that the positive effect increases the sales with regard to
correlation coefficient analysis.

The impact of component of working capital on sales was also examined

with the help of regression coefficient analysis. It was observed that, in the
large sized mills, the size of receivables varied significantly at 1 percent level
from the size of sales. The size of inventory and the size of cash were
insignificantly from the size of sales during the period of study. In medium
sized mills, the size of inventory and size of receivables varied significantly
from the size of sales at 1 percent level. But the size of inventory did not vary
significantly from the size of sales during the period of study.

Components of Working Capital on Gross Working Capital:-

An attempt had been made to analyze the inventory and other

components of working capital with gross working capital in the selected
sugar mills to identify the better management of each components of working
capital during the period under study.

It has been found that the proportions of inventory, receivables and cash
on gross working capital about were 72 percent, 25 percent and 3 percent in
medium sized mills respectively. Like this, the proportions of inventory,
receivables and cash on gross working capital were 53 percent, 42 percent and
5 percent in large sized mills respectively. It revealed that the proportion of
inventory to gross working capital was high in medium sized mills. But the
proportion of receivables and cash to gross working capital were high in large
sized mills. Comparatively, the management of inventory was better in
medium sized mills than in large sized mills and the management of
receivables and cash was better in large sized mills than in medium sized mills.

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Trend analysis:-

An attempt has been made to study the trend and growth rates of net
working capital, inventory, receivables, cash and sales. It indicated that there
was a high variation in net working capital in large sized mills as compared to
medium cizcd mills. However, the AAGR and CGR of net working capital in
large sized mills were more than in the medium sized mills. The analysis of
trend in inventory indicated that there was a high variation in inventory
position of large sized mills, as compared to medium sized mills. However, the
growth rates were high in large sized mills in medium sized mills. The analysis
of trend in receivables revealed that there was a heavy fluctuation in the
receivables position of large than the medium sized mills. But, AAGR was high
in medium sized mills, whereas CGR was high in large sized mills during the
period under study. The trend analysis in total cash indicated that there was a
heavy fluctuations in the cash position of large than the medium sized mills. At
the same time the growth rates were high in large than in the medium sized
mills. The trend analysis in sales position indicated that there was high
variation in large sized mills than in medium sized mills. It was reflected in the
growth rates also. The AAGR and CGR of the large sized mills were higher
than the medium sized mills during the period under study.

Analysis of Variance (ANOVA):-

To find the significance of variation in the working capital ratios

between the sample sugar mills both in large and medium categories and
between the years covered under the study, the ‘F’ test was applied. For this
purpose, current ratio, quick ratio, inventory to total current assets ratio,
receivables to current assets ratio, total cash to total current asset, sundry
creditors as to total current liabilities and other current liabilities and provision
to total current liabilities were selected.

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 It has been found that there was a significant difference at 1 percent
level between the large sized mills and there was no significant variation
between the years in current ratio. Similarly, there was a significant difference
at 1 percent level between the medium sized mills and there was no significant
variation between the years in the current ratio.

In quick ratio, there was a significant difference at 1 percent level

between large sized mills and there was no significant variation between the
years. Similarly, there was a significant difference at 1 percent level between
the medium sized mills and there was no significant variation between the
years. In both inventory to current assets ratio and receivables to current
assets ratio, there was a significant difference at 1 percent level between large
sized mills and insignificant difference between the years during the period of
study. Similarly, in the medium sized mills also, there was a significant
difference at 1 percent level between the medium sized mills and no
significant variation between the years in the ratios of both inventory to current
assets and receivables to current assets. In both total cash to current assets
ratio and other current assets to total current assets ratio, there was no
significant relationship between the large sized mills and between the years
during the period of study. Similarly, in the medium sized mills there was a
significant difference between the mills at 1 percent level and no significant
variation between the years in both of these ratios. In both Sundry as to total
current liabilities ratio and other current liabilities and provisions to total
current liabilities of large sized mills, there was a significant difference
between the at 1 percent level and no significant difference between the years.
In medium sized mills, there was no significant difference between the mills
and between the years in both of these ratios during the period of study.

Forecasting Analysis:-

In this study, forecasting was done for the selected financial values for
the years 2004-05 and 2005-06 by applying mathematical curve fitting models

241
which best describe the series data. Out of the important ten forecasting
models, the best fit model was chosen based on the highest R squared value
which was considered to be best fitting into the data, to predict the future
values.

According to this base, the power model forecast that the net working
capital for the year 2004-05 will be Rs. 169.30 crores and for the year 2005-06
will be Rs. 175.94 crores in the large sized mills, on an average. In the medium
sized mills, the cubic model forecast that the net working capital for the year
2004-05 will be Rs. 133.96 crores and for the year 2005-06 will be Rs. 169.02
crores, on an average. On the whole, the percent increase in networking
capital during the years 2004-05 and 2005-06 for medium sized mills will be
more than the large sized mills. The cubic model forecast that the current ratio
for the year 2004-05 will be 2.53 times and for the year 2005-06 will be 2.94
times, on an average in the large sized mills. In case of medium sized mills, the
cubic model forecast that the current ratio will be 5.40 times and 6.89 times for
the years 2004-05 and 2005-06 respectively, on an average. On the whole, the
rate increase in current ratio in the years 2004-05 and 2005-06 for medium
sized mills will be more, as compared to large sized mills, on an average.

With regard to quick ratio, the cubic model forecast that the quick ratio
will be 2.51 times and 3.29 times in the years 2004-05 and 2005-06
respectively in the large sized mills. In case of medium sized mills, the cubic
model forecast that the quick ratio will be 2.60 times in 2004-05 and 3.52 times
in 2005-06, on an average. On the whole, the quick ratio will be high in large
sized mills in the year 2004-05 and it will be high in medium sized mills in the
year 2005-06, as compared to the total industry.

In relation to inventor) position of large sized mills, the power model

forecast that the inventory will be Rs. 169.92 crores and Rs. 178.04 crores in
the years 2004-05 and 2005-06 respectively. In case of medium sized mills, the
cubic model forecast that the inventor)' will be Rs. 115.47 crores and Rs.

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133.87 crores during the years 2004-05 and 2005-06 respectively, on an
average On the whole, the amount increase in the inventory position will be
more in both the years 2004-05 and 2005-06 for large sized mills than that of
medium sized mills. In both large and medium sized mills, the cubic model
forecast that the size of receivables will be Rs. 66.52 crores, and Rs. 34.96
crores iti large sized mills and Rs. 88.84 crores and Rs. 121.83 crores during
the years 2004-05 and 2005-06 respectively. On the whole, the percent
increase in the receivables position will be more in medium sized mills than in
the large sized mills during the period of study.

In relation to size of cash, the cubic model forecast that the size of cash
will be Rs. 18.96 crores and Rs. 27.70 crores during the years 2004-05 and
2005-06 in large sized mills respectively. In case of medium sized mills,
the size of cash will be Rs. 1.68 crores and Rs. 1.55 crores in the years
2004- 05 and 2005-06 respectively, on an average. On the whole, the percent
increase in the cash position will be high in large sized mills than in the
medium sized mills.

Regarding the size of sales, the cubic model forecast that the sales
will be Rs. 675.44 crores and Rs. 783.55 crores during the years 2004-05 and
2005- 06 in large sized mills on an average. In case of medium sized
mills, the sales will be Rs. 246.40 crores and Rs. 311.94 crores in the years
2004-05 and 2005-06 respectively. On the whole, the percent increase in the
sales position in medium sized mills will be more than the large sized mills
during the period under study.

Discriminant function analvsis:-

Several ratios were computed relating to working capital and significant

difference large and medium sized mills were found and reported. However all
the ratios selected did not exhibit significant difference between the two
categories of mills.

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 /'itl uuuiyC i° h?.? been made to find out that what were all the ratios
which maximum discriminate between large and medium sized mills. For this
purpose 19 ratios which were found to have significant difference were
selected for discriminant function analysis. Finally, 5 ratios were selected based
on rertai.i ^election criteria, it has been found that out of these 5 ratios, raw

materials to current assets is the ratio which maximum discriminates between

large and medium sized mills, followed by current assets to total assets ratio.
The result suggested that the major difference in the working capital
management of large and medium sized mills lies in the raw materials
handling and current assets position.

Hypotheses Proving:-

The working capital management of selected sugar mills in Tamilnadu

has been studies based on some specific objectives. For this purpose, five
hypotheses were framed. Here, an attempt has been made to prove the
hypotheses framed for the study.
1. The proper management of working capital improves the liquidity and
profitability position of the sugar industry:-

To prove this hypotheses framed for the study, an attempt has been
made to analyze the liquidity position of the selected sugar mills in
Tamilnadu. It has been found that the medium sized mills enjoyed a
sound liquidity position than that of large size mills. It reveals that the
liquidity position is improved by the proper management of working
capital in medium sized mills. At the same time, the utilization of working
capital is better in the large sized mills that in the medium sized mills. The
short tern solvency and profitability are the important objectives of the
management of working capital. To ensure the solvency position, the
sugar mills should be very liquid. To have higher profitability, there
should be proper liquidity management. The working capital management

244
 is sometimes referred to as liquidity management. Hence, a comparison
has been made between liquidity and profitability. It is resulted from the
analysis that there was a low degree of positive correlation between
liquidity and profitability of the selected sugar mills. It is inferred that the
proper management of working capital improves the profitability position
of the sugar industry. Thus, the above hypotheses has been proved.

2. External Source of finance are extensively used in financing the working

capital requirements of the sugar industry

To prove this hypotheses framed for the study, various sources of

finance for working capital have been analysed from the point of view of
external and internal sources. The analysis revealed that the external
sources of finance are used for financing working capital in most of the
sugar mills selected for the study. However that the percent of external
sources of finance used for financing working capital requirements of the
medium sized mills were more than that of large sized mills. Hence the
second hypotheses has been proved.

3. Growth in sales has to be fairly accompanied by a growth in various

components of working capital for better results in the industry

To prove this hypotheses, the impact of various components of

working capital on sales has been examined. For this purpose, the
regression analysis and multiple correlation techniques have been applied
and studied the impact of components of working capital on size of sales.
It was resulted from the correlation coefficient analysis that all the
components of working capital have the positive effect on sales in large
and medium sized mills. It is inferred that the growth in sales has fairly
accompanied by a growth in.various components of working capital.
Hence the third hypotheses has been proved.

245
4. Positive correlation exists between growth in sales and the need for more
working funds in sugar industry:-

It is related with the above hypotheses that all the components of

working capital have the positive correlation on sales. It reveals that the
positive association between the components of working capital and sales
results in increase in sales. The positive growth in sales increases
profitability. The liigher the profitability an increase in the working funds
or the sugar industry. Hence, this hypotheses has been proved.

5. Inventory management is better in the sugar industry as compared to other

components of working capital and offers a greater scope for improvement:-

To prove this hypotheses, the proportion of various components of

working capital to gross working capital has been analysed. The analysis
revealed that in medium sized mills, the proportion of inventory to gross
working capital, is more than the other components of working capital.
Similarly, in large sized mills, the proportion of inventory to gross
working capital is more than the other components of working capital.
Comparatively the medium sized mills have the highest proportion of
inventory than the large sized mills. From the proportions of receivables
and cash to gross working capital points of view, the large sized mills
have the highest proportion. Therefore, it can be concluded that the
inventory management is better in medium sized mills and the receivables
management is better in large sized mills.

246
V-2 SUGGESTIONS AND RECOMMENDATIONS

Keeping in view the above observations and findings of the study, the
following points are suggested to improve the management of working capital
in the selected private sector sugar industries of Tamilnadu.

1. Since some of the sugar mills selected for the study have the
negative net working capital, they should increase the size of total
current assets.

2. Though all the selected sugar mills have the highest current ratio,
the medium sized mills should reduce its rate, particularly by BASL,
ASEL and RSCL, so that the idle funds locked in current assets may
be reduced and it may be used for some other purposes.

3. As compared to current ratio, the quick ratio shows the optimum

level in both categories of mills. It reveals that surplus investment in
inventory of selected sugar mills. Hence, the selected sugar mills
should take and effective steps to maintain the inventory position at
optimum level.

4. Since the liquidity and profitability are the important objectives of

the management of working capital, there is a positive correlation
between them. Though there is a positive correlation between the
liquidity and profitability, it is only at low level. Therefore, the
selected sugar mills should improve its liquidity position to maintain
the high degree of correlation between the liquidity and profitability
of the sugar industry.

5. Due to heavy fluctuations in the net working capital of the selected

sugar mills, it may affect the working capital position to the mills
adversely. The management of the selected sugar mills have to take
steps to maintain net working capital at a constant level.

247
6. With a view to low investments in receivables, the management of
the selected sugar mills should take necessary steps to improve the
receivables position.

7. Some of the selected sugar mills did not utilize the external sources
of funds for funding working capital. They used the internal sources
of funds fully for financing working capital. The management of the
selected mills should try to take steps for utilizing external sources of
finance for financing working capital.

8. Working capital in terms of months cost of production shows very

low period in large sized mills. This period should be increased to
minimize the risk of profitability.

9. The proportion of cash balance, as compared to other components of

working capital, is low in both categories of mills. Therefore, the
cash management of the selected sugar mills should be very
effective. The management of the mills should reduce the period of
cash flow cycle and the management should take an effective steps
to achieve the motive for holding cash in the mills.

10. Comparatively, the large sized mills have the lowest collection
period than that of medium sized mills. So, the management of
medium sized mills should establish the strict credit and collection
policy in the mills. Then only the medium sized mills can reduce its
bad debts, to some extent possible.

11. As a comparison has been made between the components of

working capital and sales in both categories of mills, there is a
positive correlation between them. It is proved that the components
of working capital have the positive effect on sales. This positive
effect increases the sales and simultaneously increases the profit. So,

248
 the management of the selected sugar mills should maintain the
proportion of various components of working capital in a positive
manner.

12. The trend analysis shows that the growth in sales is more in large
sized mills than in the medium sized mills. So the management of
selected sugar mills should take necessary steps for the effective
sales management to improve the sales.

13. Forecasting analysis was done to predict the future values of sales
which reveals that the percent increase in sales position will be more
in medium sized mills. Therefore, the management of large sized
mills should establish the effective principles of sales management
and should be followed by the management to improve its size of
sales in future

14. With regard to components of inventory, raw materials constituted a

major portion of the total inventory. The over stocking of raw
materials should be reduced to a certain level, not to the maximum
level.

15. Finally, on comparison between large and medium sized mills, the
discriminant function analysis reveals that the major difference in
the working capital management of large and medium sized mills
lies in the raw materials handling. Therefore, the selected sugar mills
have to take necessary steps to maintain the stock of raw materials at
optimum level.

249
V-3 CONCLUSION

Though both large and medium sized mills maintain better working
capital position, comparatively, the management of working capital by the
medium sized mills is better than that of large sized mills. But, the correlation
between the liquidity and profitability of the medium sized mills is low, as
compared to large sized mills. With regard to quick ratio, there is a negative
correlation with the profitability of the medium sized mills. Ultimately, the
liquidity and profitability of the selected sugar mills should be improved.

The medium sized mills enjoyed sound liquidity position, However,

the utilization of working capital is better in large sized mills with reference to
current assets to sales ratio. The analysis of variance reveals that current ratio,
quick ratio, inventory to current asset ratio, receivable to current asset ratio and
total cash to current assets ratio vary significantly between the large sized mills
and between the medium sized mills. Therefore, both large and medium sized
mills should reduce the heavy variations in the working capital ratios and the
various components of working capital.

Thus, the study can be concluded that with the implementation of some
measures suggested by researcher, by an effective financial management
techniques and control over the working capital of the selected sugar mills, and
by its effective utilization of capacity levels, both large and medium sized mills
can manage their working capital position properly and significantly.

250
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