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ASMIT

A PROJECT REPORT ON ÛWORKING CAPITAL MANAGEMENT OF SAKTHI SUGARS LTD.Ü

Submitted for
The partial fulfillment of the requirement for the Master of Finance and Control (MFC), Bhubaneswar

Under Utkal University, Bhubaneswar
Submitted By Anita Kumari Sahu Roll No. 13767U094006

UNDER THE GUIDANCE OF EXTERNAL GUIDE MR.SATYAPRIYA MISHRA MANAGER(ACCOUNTS) SHAKTHI SUGAR LTD INTERNAL GUIDE SANDHYA DARSAN DAS FACULTY IN FINANCE ASMIT

ARYA SCHOOL OF MANAGEMENT AND INFORMATON TECHNOLOGY BHUBANESWAR

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DECLARATION

I Anit Kumari Sahu of M.F.C. do hereby declare that the dissertation report on ³A Analysis On Working Capital Management Of Sakthi Sugars Limited´ has been prepared by me. This dissertation has not been submitted earlier for publication in any journal, magazine or anywhere else and it is completely genuine. The fact and findings presented in this dissertation report are to the best of my and belief, which is being submitted to ARYA SCHOOL OF MANAGEMENT AND INFORMATION AND TECNOLOGY, Bhubaneswar for partial fulfillment of M.F.C. degree.

Place: Bhubaneswar Date:

Anita kumari sahu

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ACKNOWLEDGEMENT

The knowledge gained through the MFC programme and especially this project work is invaluable. The experience will go a long way in future management assignments. I am indebted to my Institution Arya School of Management and Information Technology (ASMIT) & to Mr. Sandhya darshan dash, faculty of finance, ASMIT, Bhubaneswar for having given me this opportunity to take up this project work as a part of this Degree Programme. I m very much thankful to Mr.Satyapriya Mishra, who permitted me to avail training in esteemed company SHAKTHI SUGARS LTD and his valuable advice during the period of training. At last I m thankful to all my friends for their constant support, encouragement and all I m thankful to my parents for their blessing.

Place: Bhubaneswar Date:

Anita K umari Sahu

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PREFACE
Management of current assets and current liabilities and the relationship chat exists between them is turned as working capital management. Technically working capital management is an integral part of the overall financial management. This project work is based on the study undertaken by me at Sakthi Sugars Ltd, Dhenkanal. This project work is divided into various sections and each section deals with different aspects of financial management.

Place: Bhubaneswar Date:

Anita kumari sahu

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CONTENTS
CHAPTER ± 1
Introduction Scope of Study Object of Study Methodology Tools & Technique used for Study

CHAPTER ± 2
Company profile

CHAPTER ± 3
Project overview

CHAPTER ± 4
Data Interpretation & Analysis

CHAPTER ± 5
Finding, Suggestion & Conclusions Bibliography

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CHAPTERINTRODUCTION

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INTRODUCTION
³Working Capital Management´ means managing the current assets of a business firm. Current assets are those assets, which can be converted within a short period of time i.e. one year. It is the outcome of a need for proper management of funds in a business. Funds can be involved for permanent purpose such as acquisition of fixed asset, expansion and diversification of business, modernization of plant machinery, research and development etc. funds are also required for temporary purpose such as day ± to ± day activities of a business like purchase of row materials, payment of salaries & wages, other short-term expenses etc. which is known as working capital. It refers to the excess of current assets over current liabilities and the inter. Relation that exists between them. Working Capital = Current Assets ± Current liabilities There is hardly a business enterprise that does not require working capital. As a company¶s primary objective is to increase the wealth of its shareholders, which depends on the efficient management of funds, hence, proper analysis and efficient management of funds (both short-term and long term) is very important. Working capital management is to a very sensitive area in the field of financial management. It deals with the management of current assets i.e. deciding on the amount and composition of current assets and various means of financing these assets. It is very often noticed that profitable companies have succumbed due to inefficient management of working capital or inadequate liquidity. Over emphasis on profitability forces them to ignored cash outflow areas like wages, dividends, trade debtors that ultimately creates a cash run-

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out situation. Hence, management of working capital not only means efficient utilization of funds but also includes identification of important areas of cash inflow and cash outflow. Therefore working capital management has become as one of the vital activities in a business organization.

SCOPE OF STUDY
This is study of working capital management with particular reference to Sakthi Sugars Ltd a large public sector company. Being a capital intensive manufacturing concern, this particular company is selected for this project study. A three year period is covered in the study, which extends form financial year 2007-08, 2008-09 & 2009-2010. The study was restricted to different components of working capital like case management, inventory management, management of receivables and financing of current assets.
2.1 OBJECTIVE OF THE STUDY

The following are the main objectives of this project study. (a) (b) To study the challenges of working capital management To study the present system of working capital in the organization. To determine the working capital sugar product of India and work out the various ratios to working capital. To make an item-wise study of the various components of working capital with the help of trend analysis and graph.

(c)

(d)

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(e) To suggest steps that should be taken to increase the efficiency in management of working capital.

2.2

METHODOLOGY

Data were collected from both primary and secondary sources. These data have been analyzed with a view to arrive at conclusions regarding the practice of different methods by the management for effective control of working capital.

The financial data were collected from various sources like:

(i)

Annual financial report of the company for three year period form 2007-08, 2008-09 & 2009-2010. Internal reports. Manual report regarding management decisions on different aspects of working capital. Printed material carrying the policies of the organization.

(ii) (iii)

(iv)

2.3

LIMITATION OF THE STUDY

The study at hand is an empirical one and hence we faced some difficulties mostly in the area of data collection for analysis. However, with patience the difficulties were overcome to some extent and the stuffy is presented as in the present shape or in the form.

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2.4 TOOLS & TECHNIQUES USED FOR THE STUDY

The following tools and technique of financial analysis were used to measure the degree of efficiency in management of working capital. Ratio analysis Trend analysis Percentage Cash management Inventory management Management of receivable

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CHARTER-2
COMPANY PROFILE

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COMPANY PROFILE
Company

Sakthi Sugars Limited belongs to Sakthi Group of Companies having multivarious activities in different fields like sugar, industrial alcohol, soya products, power, textiles, transport, finance, dairy and software. Sakthi Sugars Limited was promoted by Dr.N.Mahalingam, Chairman of the Company. Incorporated in the year 1961, the commercial production of sugar commenced in the year 1964 at Sakthinagar with a crushing capacity of 1250 MT per day. Today the company has in its fold four Sugar plants; three in Tamil Nadu located at Sakthinagar, Sivaganga and Modakurichi, and one in Orissa State in Dhenkanal. With the aggregate capacity of 19,000 Tonnes of Cane Crush per Day (TCD), Sakthi Sugars Limited is one of the largest producers of sugar in the country. Expanding its industrial presence, Sakthi Sugars Limited expanded its activities into manufacture of Industrial Alcohol in the year 1972 at Sakthinagar, Tamil Nadu and at Dhenkanal, Orissa in the year 1996. These two distilleries are the largest in their respective states, with a capacity of 120 KLPD and 30 KLPD respectively. Soya Products is another range of products manufactured by Sakthi Sugars Limited. It has an advanced Soya processing unit with refinery complex near Pollachi, Tamil Nadu with an installed crushing capacity of 90,000 MT of soybeans per annum. The company has also installed three Co-generation Power plants at
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its sugar factories in Tamil Nadu. The combined capacity of power generation of these plants is 92 Mega Watt. Power generated is exported to State power grid and to third parties, after meeting the internal requirements. A second co-generation plant at Sakthinagar premises is under implementation.

Products Sugars
The Company produces High Quality plantation white sugar as well as by refining sugar from raw sugar. The sugar produced is at par with International Standards with very low NSR (Non Soluble Residue) value of less than 20 ppm, in different specifications as per the requirements of the customers like

Grade
S-30 S-30 M-30

ICUMSA
100 45 100

Microns
600 600 1000

Besides meeting the domestic requirements of sugar, the Company exports sugar to various countries. Industrial Alcohol In the Distillery Division, the Company produces the following spirits from Molasses, a bye-product in sugar manufacturing process, for industrial purposes:
y y y

Rectified Spirit Extra Neutral Alcohol / Neutral Spirit Ethanol

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Co-generation of Power The Company generates power by using bagasse as its primary fuel. Coal is used to supplement bagasse or during the off-season. The aggregate power generation capacity of all three cogeneration power plants is 92 MW as under:
y y y

Sakthi Nagar Unit - 32 MW Sivaganga Unit - 35 MW Modakurichi Unit - 25 MW

Power generated is exported to State power grid and to third parties after meeting the internal requirements. Soya Products Sakthi Soyas, a division of the company, produces the following products containing high protein for human consumption by processing soya beans:
y y y y

Refined soya bean oil. Soya nuggets/chunks. Soya granules. Soya flower.

De-oiled cakes meant for cattle feed is also manufactured by the Company. Bio Compost Bio-compost, an organic fertilizer and soil improver is produced, by using Bio-earth, a bye product in the sugar manufacturing process.

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Milestones & Achievements
The important milestones reached by various divisions and plants of the company and the accolades they have earned are listed below.
Name of the unit Sakthinagar Sugar Unit Sakthinagar Distillery Sivaganga Sugar Unit Soya Unit Dhenkanal Sugar Unit Dhenkanal Distillery Cogeneration Plant at Sakthinagar Modakurichi Sugar Unit Cogeneration Plant at Modakurichi Cogeneration Plant at Sivaganga Ethanol (Anhydrous Alcohol) Plant Year Estd. 1964 1972 1989 1990 1994 1996 2003 2007 2007 2008 2003 Capacity 9000 TCD 36000 KLPA 4000 TCD 90000 TPA 2500 TCD 10000 KLPA 32 MW 4000 TCD 25 MW 35 MW 15000 KLPA Remarks Expanded from 7500 TCD ² 2007 Expanded from 27500 KLPA Oct. 2007 Expanded from 2500 TCD ² May 2000 Commissioned on 15th June 1990 Expanded from 1500 TCD ² 2007 Commissioned on 20th January 1996 Commissioned on November 2003 Commissioned on 7th Sept.2007 Commissioned on 7th Sept.2007 Commissioned on 1st February 2008 Commissioned on 8th June 2003

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Awards and Recognition Year of Name of the award award 1997 Pollution Control Excellency award Award by Institution / Authority State Pollution Control Board Orissa Assembly of Small & Medium Enterprises, Industrial Estate,Cuttack SISTA State Safety State Safety

1998 200708 1996 1997

Best Medium Scales Industry Best Sugar factory award for highest cane crushing & recovery First prize for Lowest Weighted Frequency Rate of accident Third Position in Lowest Severity Rate of accident Outstanding performance in industrial Safety/ Occupational health/work environment management ² Third position Lowest Accident Free Period Third position in Lowest Severity Rate of accident Third position in Longest Accident Free period

2001

State Safety

2006 2007

State Safety State Safety

Performance
Performance Highlights: Performance of the various Divisions of the company for the current year ended 31st December 2010 and the last accounting year are furnished hereunder: Sugar Division
Description Sakthinagar Sivaganga 2010 2009 Cane Crushed (Lakh MTs.) 14.49 23.56 2010 4.35 2009 9.79 Dhenkanal Modakurichi 2010 1.63 2009 2010 3.66 --2009 7.14

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Recovery % Raw Sugar Processed (Lakh MTs.) Sugar Produced (Lakh Qtls.)-Out of Cane Sugar Produced (Lakh Qtls.)-Out of Raw sugar Total Sugar Produced (Lakh Qtls) Sales (INR in Lakhs)
Key Financial Information

9.24 0.64 13.38 5.54 18.92

9.01 --21.30 --21.30

9.08 0.49 3.94 4.23 8.17

8.83 --8.64 --8.64

9.39 0.50 1.51 4.36 5.87

9.99 ----1.09

9.10 --6.50 6.50 6.50 8940

3.63 ----9.77

3.63 9.77

42208 28333 19136 12575 14815 5936 24575

(Rs. in Lakhs) Description FY 2009 Net revenues Expenses EBITDA Interest, depreciation and amortization Foreign exchange fluctuation / Derivative transactions (Net) PBT Tax PAT EPS (Rs) Book value per share (Rs) Net worth Net Fixed Assets Number of shares 114,797 95,298 19,499 22,555 (5,658) (8,714) (759) (7,955) (25) 142 44,455 134,307 31,373,066 FY 2010 149,221 126,361 22,860 10,229 (161) 12,471 2,122 10,349 33 178 62,096 131,665 34,833,635

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CHAPTER-3
LITRETURE REVIEW

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WORKING CAPITAL
The part of long term finance locked in and u ed for upporting current activitie i.e to maintain the productivity of fixed a et i.e without the for current activitie for fixed a et are valuable . The amount blocked for or locked for the current activitie i really working capital. Tho e a et which can concentrated into ca h or ca h equivalent within a hort period i.e. the a et which are ultimately converted into ca h i.e. which are required to meet the day to day operation i current a et. ME OF WORKING CAPITAL can be cla ified under two main Working Capital

Capital required for a bu ine categorie . Fixed Capital

Fixed capital : The capital which i blocked on a permanent or fixed ba i i called fixed capital. Example ± Long term fund Working capital : Fund which are needed for hort term purpo e for the purpo e of raw material payment of wage & other day to day exp. Are know a working capital. Working capital i defined a the exce current liabilitie .
¥

of current a et over

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Current assets are those assets which will be converted into cash which is the current a/c period. They are cash or near cash resources these include. Cash & bank balance Receivables. Inventory o Raw materials, stores & spares. o Work-in-progress o Finished good Prepaid exp Short term advances Temporary investments Current liabilities are the debts of the firms that have to be paid during the current a/c period or within a year. 
Creditors for goods purchased.  O/S Expenses i.e. exp doe but not paid.  Short term borrowings  Advances receive against sales.

Working capital is also known as circulating capitals fluctuating capital and revolving capital. Circulation of current assets Cash Inventories Receivables

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OBJECTIVE OF WORKING CAPITAL
The basic objective of working capitals is as follows: By optimizing the investment in current assets & by reducing the level of current liabilities. The second imp objective of working capital management is that the company should always be in a position to meets its current obligations. The firm should manage its current assets in such a way that the marginal return on investment in these assets is not less than the cost of capital employed to finance the current assets.

CONCEPTS OF WORKING CAPITAL
There are two concepts of working capital gross concept & net concept.

Gross Working Capital refers to the firm¶s total investment on current assets. Net Working Capital: is the difference be in current asset & current liabilities.
The gross working capital is a financial or going concern concept where as net working capital is an a/c concept of working capital.

CLASSIFICATION OF WORKING CAPITAL
Working capital may be classified into two categories

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Working Capital

On th basic of concept

Gross working capital

Regular working capital

©

On the basic of time

Net working capital

Fixed working capital

Temporary or variable working capital

Reserve working capital

Seasonal working capital

Special working capital

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ASMIT PERMANENT WORKING CAPITAL
Fixed or permanent working capital is the amount of funds required for production of goods & services to satisfy the demand. For example every firm has to maintain a minimum level of raw materials, work-in-progress, finished goods & cash balance. The minimum level of current assets is called permanent or fixed working capital as this part of capital is permanently blocked in current assets.

TEMPORARY WORKING CAPITAL
Temporary or variable working capital is the amount of working needed over & above the minimum level of working capital to meet the special demands & some special agencies.

IMPORTANCE OF WORKING CAPITAL
Working capital is very essential to maintain the smooth running of a business. No business can run success fully without an adequate amount of working capital.

Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of productions.
Good will Easy loans Cash discount Regular supply or raw materials Regular payment of salaries & wages. Ability to face crisis

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Quick & regular return on investment High moral

DISADVANTAGE INSUFFICIENT WORKING CAPITAL
Trade discounts are lost Cash discount are lost The advantages of being able to offer a credit line to customer are forgone Financial reputations are lost.

NEED OF WORKING CAPITAL
The need for working capital due to the time gap bet production & realization of cash. For the purchase of raw materials, components & spares. To pay wages salaries To insure day-to-day expenses. To meet the selling cots. To provide credit facilities. To maintain the inventories of raw materials, work in progress.

FACTOR DETERMINING THE WORKING CAPITAL REQUIREMENTS
Nature of business Manufacturing cycle Business cycle fluctuation Sales of operation Credit policy Growth & diversification of business

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Supply situation Operating efficiency of performance

SIGNIFICANCE OF WORKING CAPITAL MANAGEMENT
Principles of risk variation Principles of cost of capital Principles of equity potion Principles of maturity of payment

Operating Cycle Concept : Operating cycle: The blockage of resources in the product cycle due to the time factor, which consists of there activities. Purchasing resources: i.e., procumbent of raw materials and other. Producing the product: i.e., the working progress and finished product which consists material, labour and other expenses. Distributing the product: i.e., sale of finished product either in cash or credit and converting the credit sale into cash.
To maintain liquidity and factoring properly the firm has to invest various certain assets like cash balance to pay the bill, investing stocks for production and sale and invest in sale to allow credit.

Operating cycle: the conversion periods of current asset to absolute liquid asset. i.e, cash or cash equivalent. Mathematically expressed: It is the sum of inventory conversion period and receivable conversion period, i.e, inventory conversion period + receivable conversion period.
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(It i the repre ent of gro working capital)

Operating cycle Operating cycle con i t of time duration tarting from procurement of raw material ended at ale realization i.e the time gap between the fir t event and the la t event i.e the ca h conver ion period i.e converting ca h to other current a et and other current a et to ca h.
Cash

Bill receivable Raw material

(Credit) Sale

Labour & factory over head work-in-progress

Finished goods

Fig

i op

ti g y l

PROCE

OF OPERATING CYCLE

Initial ca h requirement Procurement of raw material
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Payment of labour and factory over head i.e, conversion of raw material to working progress. Convert working progress to finished goods. i.e., charge or pay administrative expenses Convert finished good to sale If credit sale convert bills receivable (debtor) to cash. Operating cycle period is the length or time duration of operating cycle. i.e, it is the sum of inventory conversion period (ICP) and receivable conversion period (RCP) i.e. the gross operating cycle. i.e, the gross operating cycle. i.e. ICP + RCP = gross operating cycle inventory conversion period (ICP) = Raw material conversion period (RMCP) + Work in progress conversion period (WPCP) + finished good conversion period (FGCP), i.e.
ICP ! RMCP  WPCP  FGCP
RMCP ! average raw material i st k v 365 days t tal raw material sumed

WPCP !

average work i rogress v 365 days total cost f r ducti average fi ished goods v 365 days total cost of good sold 
   

FGCP !

Receivable conversion period (RCP) The time period required to convert credit sale into cash.
RCP ! average receivable v 365 days total credit sale   

 

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Ca h Management Introduction Ca h i the important current a et and i the ba ic input needed to keep the bu ine running on a continuou ba i . Thu the company hould keep ufficient ca h neither le nor more. The ca h include ca h in hand and ca h at bank. The entire bu ine man want ca h but he i not ready 0 hold it a ca h in hand which i a non earning a et. Effective ca h management involve an effort to minimize inve tment in ca h without affecting the liquidity of the organization. It i a proper balancing between liquidity and profitability. CASH MANAGEMENT CYCLE

Business Operation

Cash Collection

Deficit Surplus

Borrow Invest

Information and Control

Cash Payment

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ASMIT Motives for Holing Cash a. Transaction Motive

The transactions motive requires a company to hold cash to conduct its business in the ordinary course. The firm needs cash primarily to make payments for purchases, wages and salaries, other operating expenses, taxes, dividends etc.

b.

Precautionary Motives

The precautionary motive is the need to hold cash to meet contingencies in future or un predictable situation. The cash maintained for contingency needs is not productive or remain ideal. However, such cash may be invested in short period or low-risk marketable securities, which may provide cash as and when necessary.

c.

Speculative Motive

The speculative motive relates to the holding of cash for investing in profit making opportunities as and when they arise. The firm may speculate on securities, which depends on interest rates. The firm may also speculate on material's prices. Thus the primary motive to hold cash and marketable securities are the transaction and precautionary motive.

c.

Compensative Motive
The motive for holding, near cash to compensate bank for providing certain services or loans. For the services like cheke, clearance transfer funds the banks charges some direct fee or commission. But for the loan &

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other services the bank needs minimum balance of cash at bank, which is called compensating balance. Compensating balance = Absolute minimum balance and average minimum balance.

CASH MANAGEMENT Management of cash involves three things:
A. B. C. Managing cash flows into and out of the firm. Managing the cash flow with the firm. Financing deficit or investing surplus cash and thus coordinating cash balance at a point of time.

In case of well managed profitable companies like NALCO, the total amount of cash inflow for the year is usually higher than the total amount of cash outflows.

CASH PLANNING
It is a technique t plan and control the use of cash. Cash planning may be doe daily, weekly or monthly basis. The period and frequency of cash planning generally depends upon the size and policy f management f the firm. Larger firm often prepare cash forecasts on daily or weekly basis. As a firm grows and business operations became complex, cash planning becomes inevitable for its continuing success.

CASH FORECASTING AND BUDGETING
A cash budget is a summary statement of the firm's expected cash inflows and outflows over a projected time period. It is the most significant device t plan and control cash receipts and payments. It

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gives information on the timing and magnitude of expected cash flows and cash balances over the projected period. Cash forecasts are needed to prepare cash budgets. Cash forecasting may be done one year or less are considered as short-term. Both Short-term and lon8-term forecasts can be made with the help of the two most commonly used methods i.e. 1. The receipt and disbursement method. 2. Adjusted net income method. Though, these cash forecasts do not reflect the exact figures yet they enable the planners to make necessary arrangement for requirement.

CASH REPORTS: TOOLS OF CONTROL
Cash report is an important tool of cash management, which provides a comparison of actual development with forecast figures. It is very much helpful in reviewing cash forecasts on continuous basis and thus exercising effective control in cash flows. The cash reports include daily cash report.

MANAGEMENT OF CASH FLOWS
After ascertaining the probable cash flows, efforts should be made to procure or arrange the cash required for the smooth running of the organization. Cash management will be successful only if the cash collections are accelerated and cash disbursements are delayed. As far as possible, some popular methods adopted by different organizations for cash inflows and retardation of cash out flows are listed below;

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Prompt collections of cash from customers by prompt billing and mailing. Quick conversion of payments into cash by prompt presentation of cheques or drafts to bank. Decentralizing collections by opening collection centers at different places. Adopting a .lock box system under which a bank is authorized to collect cheques etc. directly from the post box of the company, set up for the purpose.

3)

4)

Methods for slowing down of cash out flows i) ii) iii) iv) Making payments on due date/ last date Paying through drafts instead of cheques Centralization of payments. Inter bank transfers, when the company has accounts in more than one bank. Making use of flow amount. Adjusting pay roll fund according to the needs of the organization. .

v) vi)

INVENTORY MANAGEMENT
Inventory constitutes the most significant par t of current assets of a large majority of companies in India. On an average inventories are approximately 60% of current assets in public limited companies and any effort in stock control will bring major benefits for the
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enterprise. An efficient management of inventory is an essential requirement for the success of the enterprises.

Classification of inventories: Raw materials: it includes direct material used in the manufacture of a product and it also includes the components, fuels etc. used in the manufacture. Work - in- progress: it includes partly finished goods and materials sub-assemblies etc held between manufacturing stages. Stocks of work in -progress are in the process of production. Finished goods: The goods ready for sale or distribution will come under this category. Need to hold inventories
Transaction motive emphasizes the need to maintain inventories to facilitate smooth production and sales operation. Precautionary motive necessitates holding inventories to guard against the risk of unpredictable changes in demand and supply forces and other factors. Speculative motive influences the decisions to increase or reduce inventory levels to make advantage of price fluctuation.

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To minimize the delay in production through regular supply of raw materials, storages, spares, tools and other equipments as and when required. To avoid unnecessary capital being locked of in inventory. To exercise economies in ordering and obtaining supplied and storage material.

Inventories determinants
In Sugar Products of India the inventory determinants are:

1) Load Period: it is the period between need and its fulfillment. During this period, no inflow of material is done and the production is supplied by existing inventory. Increase in lead time requires more inventory and decrease in lead time decreases the inventory level. So lead period is the some of time taken for identifying the needs & placing order to supplier, procuring from supplier, transport, receipt and inspection of material. 2) Cost of holding inventory: In order to avoid risk, the inventory management should balance the various costs so that the total cost is minimized. The different cost are material cost, cost of ordering cost of holding & carrying the inventory, under stocking and over stocking. 3) Re-order Point: It is the time when the order should be placed. It depends on assumption rate and the duration of lead period. So this point is fixed basing on consumption of lead period plus safety stock. 4) Kind of stock: It is of different kind i.e. safety stock, reserve stock buffer stock etc. buffer stock provides for normal

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consumption during an average lead time. The reserve stock provides for an increase consumption rate, stock is for an increasing lead time. As lead period is not constant, always safety stock is required.

Inventory Management Techni ues
Company having large inventories have the problem that the management can not give attention to all items. In Nalco to avoid these, they follow mainly these type of methods i. ii. iii. iv. v. ABC (Always Better Control) - For raw materials. VED (Vital, Essential, Desirable) - For Spare parts. FNSD (Fast moving, Non moving, Slow moving, Dead) EOQ (Economic Ordering Quantity) JIT (Just In Time)

ABC ANALYSIS
Here the important of items depends on its value. The high valued items are classified as 'A'; less valued as 'C' and in between them is 'B'. This is done in the following steps a) Classification of the items of inventories, determining expected use in units and price per unit for each items. b) Determination of total value of each item. c) Ranking the items according to their values.

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d) Computation of percentage of number of units in each items to the total units of all items and percentage of total value of each item to total value of all items. e) Combination of items on the basic of their relative value to form three categories i.e. A,B,C.

VED ANALYSIS
The demand for spare parts depends on the performance of equipments. The vital spare parts stored adequately for adverse situation. Essential parts are stocked rather sparingly and the desirable items are stored on basing on lead time. This is mainly followed in CPP, production Department.

FNSD ANALYSIS
The, items are classified basing on their consumption rate & helps the management to take decisions about storing of different inventories.

ECONIMIC ORDETRING QUANTITY
Economic ordering quantity is an optimum quantity of materials to be ordered after consideration of the following three categories of costs. Ordering cost are the costs which are associated with the purchasing or ordering of materials. Carrying cost are the costs for holding the inventories. These costs will be incurred if the inventories are not carried. Stock-out cost are the costs associated with running out of costs. The EOQ is the optimum size of order for a particular item of

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inventory calculated at a point where the total inventory costs are at a minimum for that particular stock item. It is an optimum size of either a normal outside purchase order or an internal production order that minimizes total annual holding and ordering costs of inventory.

JUST IN TIME INVENTORY MANAGEMENT
JIT focus upon the idea of producing in response to need rather than as a consequence of plans and forecast. Instead of pushing inventory into the system in order to make products, they turned the process round and used the pull from the market place or the next operation as a way of making the system more directly responsive and eliminating unnecessary wastes due to over production and so on. It attempts to minimize inventories through small incremental reductions rather than prescribe particular technology or methodology. Inventory proportion ratio =
Inventory current assets

MANAGEMENT OF RECEIVABLES
To achieve growth in sales and to meet competition in the industry .A firm may resort to credit sales. Receivables arise from the sale of goods and services on credit basis. Sales on credit depend upon the nature of business. To increase the sales volume, generally the credit facility will be offered to the customer which result in investment in receivables to maximize return on capital employed. The balance in receivable account is determined by the number of customers, length of credit, amount of credit allowed to each customer etc.

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To maintain the optimum volume of sales. To control the cost of credit and keep it at minimum. To maintain the optimum level of investment in receivables. Keep down the average collection period.

Cost of extending credit :
Capital cost includes the interest on capital blocked in the receivables balances. Administration cost associated with the credit decision making and controlling of debtor balances, cost of keeping the records of credit sales, cost of collection of payment from customers, opportunity cost of capital that can be employed else where than in receivables management. Default cost are associated with the risk of default i.e. a certain portion of receivables will never pay, and will become 'bad debt's which has to be written off the profits of the firm.

CREDIT POLICY
In Sakthi Sugars Ltd the credit and col1ection policy changes from time to time. The responsibility to administer credit and collection policy is assigned to the financial executive and marketing executives. The effective control of receivable management has divided credit control into different steps. Allocation of authority for granting credit and collection

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Selection of proper credit term Credit investigation before granting credit. Sound collection policies and procedures.

Credit policy can be divided into three variables:
1) 2) 3) Credit standard Credit term Collection policy

Credit standard:
It is the criteria which a firm follows in selecting customers for the purpose of credit extension. It may be loose or strict. In Sakthi Sugars Ltd they prefer strict credit standard i.e to extend credit to reliable and financially strong customers. This helps in minimizing the bad dents and cost of credit administration. Through the credit standard is strict, but management never allow it to be a negative strategy for sales growth. The following points are taken into consideration by Sakthi Sugars Ltd to grant credit to any customer A. B. C. D. E. Capacity to pay Company's repu ta tion Past experience Economic condition Bank reference

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Credit term:
The stipulation under which the firm sells on credit to customer is called credit. These includes credit period cash discount and credit limit¶s Credit period is the length of time for which credit is extended to customer. In Sakthi Sugars Ltd the credit period varies from 30 to 75 days. The period is different for different customers basing on the faith on the customer. Cash discount is the reduction in payment offered to customer to induce them to repay entire obligation within a specified period of time which is less than the normal credit period. It is usually as a percentage of sales. Credit limit is the maximum amount of credit which can be extended to particular customers. Management always fixed the limit basing on the quantity purchased by the customer and financial condition of the customer. For frequent buyer customer permanent credit limit is maintained.

Collection Policy:
The purpose of this is to speed up the collection of dues. The company has laid down collection procedure for the individual accounts i.e. customer wise book maintaining system. The collection procedure for past due or delinquent accounts should also be established in very clear terms.

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Accounts receivables reports are prepared for maintaining the debt. Company has also not allowing any sales through dealer special consideration.

Working capital management
Here the study is as the management of working capital which induce analysis of investment in different components of current assets like inventories, debtors cash & bank etc. Analysis or financial control measures taken by the company. The total analysis was conducted on the following heads. 1) 2) 3) 4) 5) Analysis or over all efficiency in mgt of no capital. Cash mgt. Inventory mgt. Mgt of receivable Financing of no cap.

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CHAPTER-4
DATA INTERPETATION & ANALYSIS

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TREND ANALYSIS OF WORKING CAPITAL OF SAKTHI SUGARS LTD.
CURRENT ASSET OR WORKING CAPITAL (Rupees in Lakhs)

2007-08

62,233.94

2008-09

57,407.71

2009-10

82,406.77

It shows that company is maintaining its level C.A. properly according to its changing business activity. CURRENT LIABILITY (Rupees in lakhs)

Year

Current Liability

2007-08

13,098.49 

Year

Current asset or wor ing capital

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It shows that company is maintaining its level C.L. properly according to its changing business activity.

Ta le: net workin

assets

Liability

Net workin

capital = Current Assets ± Current Lia ilities

If we analyze the net wor ing capital trend form the three years, it is having a going motion that is here is a decrease in 2008-09 in comparison to 2007-08 and suddenly increases in 2009 -10. 

$ 

 

2009-10

82,40 .77

,4 4.94

48971.8

# 

  



#

2008-09

7,407.71

1, 74.7

2 ,0 2.9

# #   

2007-08

2,2

.94

1 ,098.49

491

.4

"

Year

Current 



2009-10

,4 4.94

capital

Current 

Net wor ing capital 

 ! !

2008-09

1, 74.7

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90,000.00

80,000.00
70,000.00 60,000.00 62,233.94 57,407.71 49,135.45

50,000.00
40,000.00 30,000.00

20,000.00
10,000.00 0.00

2007-08

Working capital ratios Working capital ratio indicate the ability of a business concern in meeting it current obligations as well as its efficiency in managing the current asset for generation of sales. These ratios are applied to evaluate the efficiency with which the company manage & utilize its C. . The
'

&%

Gross working c

ital Vs Net working capital

82,406.77

48,971.83 Gross Working Capital
Net Working Capital

26,032.95

2008-09

2009-10

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following three categories of ratios are used for efficient mgt of wor ing capital. 1) 2) ) Efficiency ratio Liquidity ratio Structural health ratio

1.

Efficiency ratio

Workin

capital to sales

Ratio !

Sales Working Capital

The ratio helps to measure the efficiency of the utilization of net wor ing capital. It signifies that for an amount of sales, a relative amount wor ing capital in needed. This ratio helps the mgt to maintain the adequate level of wor ing capital. The mgt has maintain adequate level of wor ing capital with the increase in sales.

4

2009-10

140,4 5.07

48971.8

4

2008-09

118,884.98

26,0 2.95

3 34

2007-08

4

4

32 2

7 ,

1.7

491

1

Year

G. Sales

Wor ing Capital .4

Ratio 1.56

4.56

2.86

(

5

0

5

5

5

)

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160,000.00

140,435.07
140,000.00

118,884.98
120,000.00 100,000.00 80,000.00 60,000.00 76,651.73

G.Sales
W rking Capital

40,000.00 20,000.00 0.00 2007-08

26,032.95

2008-09

2009-10

2.

Inventoryt urnoverrat io !

2007-08

2008-09

2009-10

140,4 5.07

18790.40

7.47

This ratio indicates the effectiveness & efficiency of the inventory mgt. the ratio shows how speedily the inventory is turned into a/c receivable through sales. The higher the ratio, the more efficiency the

H

H

118,884.98

H

76,651.7

H

G

ear

ales

CB A@7 9876 9E D

S

s

Inventory 8,097.11

Ratio 9.46

4 52.44

27. 1

I

49135.45

48971.83

C lumn1

I

F

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inventory is said to be managed.
160,000.00

140,435.07
140,000.00 120,000.00 100,000.00 80,000.00 60,000.00 40,000.00 20,000.00 0.00 18790.4 118,884.98

76,651.73

Sales Inventory

Column1

8,097.11

4352.44 2008-09 2009-10

2007-08

3.

current assets turnover ratio = sales/current assets

2007-08

76,651.73

2008-09

118,884.98

2009-10

140,435.07

Q

ear

ales

Current assets 62,233.94

Ratio 1.23

P

57,407.71

2.71

82,406.77

1.70

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R

This ratio indicates the efficiency with which C.

turn into sales. A

higher ratio implies by & large a more efficient use of funds. Thus a higher turn over rate indicates reduced loch-up of funds in C.A turn over ratio.
160,000.00 1 0, 35.07 1 0,000.00 120,000.00 100,000.00 0,000.00

76,651.73

60,000.00 0,000.00

20,000.00 0.00

II. 1.

Liquidity ratio
C.Ratio !

C. Assets Loans & Adv C. ia. & Provisions
Current Assets & oans & Advanced 62,233.94

2007-08

13,098.49

2008-09

57,407.71

31,374.76

U

Year

Currents iability & rovision

a

V

a `

T

S

`

2007-0

200 -0

X

XY

62,233.

57, 07.71

X W

WY XWW W
2, 06.77 Sales Current Assets

11 ,

.

X X

U

X W X

Column1

200 -10

Ratio

4.75

1.82

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2.46

2009-10

82,406.77

33,434.94

This ratio indicates the extent of the soundness of the current financial position at an undertaking & the degree of safety provided to the creditors. A.C.A ratio of 2: indicates a highly solvent position A.C Ratio of V ± 33.1 is considered by banks as minimum acceptable for providing W.
c b b

Capital Finance. In improve it.

akthi

ugar td. should take necessary steps to

90,000.00 80,000.00

82,406.77

70,000.00
60,000.00 50,000.00

62,233.94 57,407.71
C. Assets & Loans & Advanced

40,000.00 31,374.76
30,000.00 20,000.00 13,098.49

33,434.94

Currents Lia. & Provision Column1

10,000.00 0.00 2007-08 2008-09 2009-10

2)

Quick atio !

C. Assets - Inventorie s C. iabilitie s - B.O.D
c

Year

e

d

Current Assets

Inventory

Current iability

Ratio

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8,097.11 4.13

2007-08

62,233.94

13,098.49

2008-09

57,407.71

4352.44

31,374.76

1.69

2009-10

82,406.77

18790.40

33,434.94

1.90

This ratio shows the extent of cushion of protection provided from the quick asset to the current creditors. A quick ratio of 1:1 is usually considered satisfactory though it is agin a rule of thumb only.
90,000.00
80,000.00

82,406.77

70,000.00 60,000.00
50,000.00

62,233.94 57,407.71 Current Assets 31,374.76
33,434.94 Inventory C. Lia

40,000.00 30,000.00
20,000.00 10,000.00

18790.4 13,098.49 8,097.11 4352.44

0.00
2007-08 2008-09 2009-10

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CHAPTER-5
FINDINGS, SUGESSTION, CONCLUSION & BIBLOGRAPHY

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FINDINGS 
From above all the data interpretation part it is found that the
working capital to sales ratio is decreased as compared to previous 2008-09 to 2.86. 

The inventory turnover ratio is not satisfactory, whether in the
year 2008-09 it is 27.31, and in this year it is decreased to 7.47. 

In the sakthi sugars ltd the current asset turnover ratio is
decreased as compared to previous year & it is decline to 1.70. 

The liquidity ratio of the sakthi sugars ltd is quite satisfactory &
it is improving as compared to previous year. 

The current ratio is quite satisfactory as compared to among the
three years, in the year 2009-10 the ratio is 2.46. 

The quick ratio of sakthi sugars ltd is increased as compared to
previous year 2008-09, in the current year the ratio is 1.90.

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SUGGESTIONS
After studying the components of the wor ing capital management system of Sa thi Sugars Ltd it is found that the company has an effective policy. How ever the following suggestions are made with the hope that implementation of these can add to the performance & efficiency of the systems followed at present. As the company is moving into the seller mar et, it should initiate process to do away with the credit facility extended to some customers. Collection procedure should be developed to do away with or reduce the bad debts. The collection procedure may some one tight or as per the expert opinion. More important should be given regarding the quality chec ing or raw materials and \finished goods. MIS ± is better from other organization. There is no difficulties regarding the raw materials.

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CONCLUSION

After a detailed and intensive study on the wor ing capital management of Sa thi Sugars Ltd. I came with the conclusion that Sa thi Sugar Ltd had adopted to use more and more improves techniques for managing its wor ing capital with an expectation of continue. The growth rate of the company shows a sound position. The organization does not utilize its assets. From the discussion we can say that the mar et value per share is low and boo value of the share is high.

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BIBLIOGRAPHY

This project report has been prepared with the help of following materials. Management accounting - Sharma and Gupta Financial Management ± I.M. Pandey Financial Management ± R.P. Rustagi

References:
www.sakthisu ars.com www.google.com www.wikipedia.com Annual financial report of Sa thi Sugars Ltd for the year ± 2007-08, 2008-09, 2009-10 Internal reports of Sa thi Sugars Ltd
r q p

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