ASMIT

A
PROJECT REPORT
ON
“WORKING CAPITAL MANAGEMENT OF SAKTHI SUGARS
LTD.”

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 Internal guide
Mr.satyapriya mishra SANDHYA DARSAN DAS
manager(accounts) Faculty In finance
sHAKTHI SUGAR LTD ASMIT

ARYA SCHOOL OF MANAGEMENT AND

INFORMATON TECHNOLOGY BHUBANESWAR

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Declaration

I Anita Kumari Sahu of M.F.C. do hereby declare that the

dissertation report on “A 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 Anita kumari sahu

Date:

Acknowledgement

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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 Anita Kumari Sahu

Date:

PREFACE
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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 Anita kumari sahu

Date:

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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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CHAPTER-1
INTRODUCTION

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INTRODUCTION
“Working 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) To study the challenges of working capital management

(b) To study the present system of working capital in the

organization.

(c) To determine the working capital sugar product of India and

work out the various ratios to working capital.

(d) To make an item-wise study of the various components of

working capital with the help of trend analysis and graph.

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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.

(ii) Internal reports.

(iii) Manual report regarding management decisions on

different aspects of working capital.

(iv) Printed material carrying the policies of the organization.

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

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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

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.

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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 ICUMSA Microns
S-30 100 600
S-30 45 600
M-30 100 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:

 Rectified Spirit
 Extra Neutral Alcohol / Neutral Spirit
 Ethanol

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:

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 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:

 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.

Milestones & Achievements

The important milestones reached by various divisions and plants of
the company and the accolades they have earned are listed below.
Year
Name of the unit Capacity Remarks
Estd.
Expanded from 7500 TCD –
Sakthinagar Sugar Unit 1964 9000 TCD
2007

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36000 Expanded from 27500 KLPA -

Sakthinagar Distillery 1972
KLPA Oct. 2007
Expanded from 2500 TCD –
Sivaganga Sugar Unit 1989 4000 TCD
May 2000
Commissioned on 15th June
Soya Unit 1990 90000 TPA
1990
Expanded from 1500 TCD –
Dhenkanal Sugar Unit 1994 2500 TCD
2007
10000 Commissioned on 20th
Dhenkanal Distillery 1996
KLPA January 1996
Cogeneration Plant at Commissioned on November
2003 32 MW
Sakthinagar 2003
Commissioned on 7th
Modakurichi Sugar Unit 2007 4000 TCD
Sept.2007
Cogeneration Plant at Commissioned on 7th
2007 25 MW
Modakurichi Sept.2007
Cogeneration Plant at Commissioned on 1st February
2008 35 MW
Sivaganga 2008
Ethanol (Anhydrous 15000 Commissioned on 8th June
2003
Alcohol) Plant KLPA 2003

Awards and Recognition

Year of Award by Institution /

Name of the award
award Authority
State Pollution Control
1997 Pollution Control Excellency award
Board
Orissa Assembly of Small &
1998 Best Medium Scales Industry Medium Enterprises,
Industrial Estate,Cuttack
2007- Best Sugar factory award for highest cane
SISTA
08 crushing & recovery
First prize for Lowest Weighted Frequency
1996 State Safety
Rate of accident

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Third Position in Lowest Severity Rate of

1997 State Safety
accident
Outstanding performance in industrial
Safety/ Occupational health/work
2001 State Safety
environment management – Third position
Lowest Accident Free Period
Third position in Lowest Severity Rate of
2006 State Safety
accident
Third position in Longest Accident Free
2007 State Safety
period

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 Dhenkanal Modakurichi
  2010 2009 2010 2009 2010 2009 2010 2009
Cane Crushed (Lakh
14.49 23.56 4.35 9.79 1.63 3.66 --- 7.14
MTs.)
Recovery % 9.24 9.01 9.08 8.83 9.39 9.99 --- 9.10
Raw Sugar Processed
0.64 --- 0.49 --- 0.50 --- 1.09 ---
(Lakh MTs.)
Sugar Produced (Lakh
13.38 21.30 3.94 8.64 1.51 3.63 --- 6.50
Qtls.)-Out of Cane
Sugar Produced (Lakh
5.54 --- 4.23 --- 4.36 --- 9.77 6.50
Qtls.)-Out of Raw sugar
Total Sugar Produced
18.92 21.30 8.17 8.64 5.87 3.63 9.77 6.50
(Lakh Qtls)
Sales (INR in Lakhs) 42208 28333 19136 12575 14815 5936 24575 8940

Key Financial Information

(Rs. in Lakhs)
 Description
 FY 2009  FY 2010

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Net revenues 114,797 149,221

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

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CHAPTER-3
LITRETURE REVIEW

WORKING CAPITAL

The part of long term finance locked in and used for supporting
current activities i.e, to maintain the productivity of fixed assets i.e,
without the for current activities for fixed asset are valuables. The
amount blocked for or locked for the current activities is really
working capital.

Those assets which can concentrated into cash or cash

equivalent within a short period i.e., the assets which are ultimately
converted into cash i.e., which are required to meet the day to day
operation is current asset.

MEANING OF WORKING CAPITAL

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Capital required for a business can be classified under two main

categories.

Fixed Capital Working Capital

Fixed capital : The capital which is blocked on a permanent or fixed

basis is called fixed capital.
Example – Long term funds
Working capital : Funds which are needed for short term purpose for
the purpose of raw materials, payment of wages & other day to day
exp. Are knows as working capital.
Working capital is defined as the excess of current assets over
current liabilities.

Current Assets – Current Liabilities

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

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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

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

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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

Working Capital

On the basic of concept On the basic of time

Gross working capitalNet working capital

Fixed working
Temporary
capital or variable working capital

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Reserve working capital

Regular working capital
ASMIT Seasonal working capitalSpecial working capital

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

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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
 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.

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 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
 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.

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 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.

(It is the represent of gross working capital)

Operating cycle

Operating cycle consists of time duration starting from

procurement of raw material, ended at sales realization i.e, the time
gap between the first event and the last event i.e, the cash conversion
period i.e, converting cash to other current asset and other current
asset to cash.
Cash

Bill receivable
Raw material

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 (Credit) Sale
Labour & factory over head work-in-progress
ASMIT

Finished goods

Figure in operating cycle

PROCESS OF OPERATING CYCLE

 Initial cash requirements

 Procurement of raw material

 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

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(RMCP) + Work in progress conversion period (WPCP) + finished

good conversion period (FGCP),

i.e. ICP = RMCP + WPCP + FGCP

average raw material in stock

RMCP= ×365 days
total raw material consumed

average work in progress

WPCP= ×365 days
total cost of production

average finished goods

FGCP= ×365 days
total cost of good sold

Receivable conversion period (RCP)

The time period required to convert credit sale into cash.

average receivable
RCP= ×365 days
total credit sale

Cash Management

 Introduction

Cash is the important current assets and is the basic input

needed to keep the business running on a continuous basis. Thus the
company should keep sufficient cash, neither less nor more. The cash
includes cash in hand and cash at bank. The entire businessman wants
cash but he is not ready 0 hold it as cash-in-hand which is a non-
earning asset.

Effective cash management involves an effort to minimize

investment in cash without affecting the liquidity of the organization.
It is a proper balancing between liquidity and profitability.

CASH MANAGEMENT CYCLE

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Business Operation Cash Collection

Deficit SurplusBorrow Invest

Information and Control Cash Payment

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

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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 & 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. Managing cash flows into and out of the firm.

B. Managing the cash flow with the firm.

C. Financing deficit or investing surplus cash and thus coordinating

cash balance at a point of time.

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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 to 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 of management of 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 to plan and control cash receipts and payments. It
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.

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 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;

 Methods of accelerating of cash inflows

1) Prompt collections of cash from customers by

prompt billing and mailing.

2) Quick conversion of payments into cash by prompt

presentation of cheques or drafts to bank.

3) Decentralizing collections by opening collection

centers at different places.

4) 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.

Methods for slowing down of cash out flows

i) Making payments on due date/ last date

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ii) Paying through drafts instead of cheques

iii) Centralization of payments.

iv) Inter bank transfers, when the company has accounts in more
than one bank.

v) Making use of flow amount.

vi) Adjusting pay roll fund according to the needs of the

organization. .

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
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.

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 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.

Objective of inventories management

 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:

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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
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 Techniques

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. ABC (Always Better Control) - For raw materials.

ii. VED (Vital, Essential, Desirable) - For Spare parts.

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iii. FNSD (Fast moving, Non moving, Slow moving, Dead)

iv. EOQ (Economic Ordering Quantity)

v. 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.

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

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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 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

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reductions rather than prescribe particular technology or

methodology.
Inventory
Inventory proportion ratio = 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.

Objective:

 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.

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 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

 Selection of proper credit term

 Credit investigation before granting credit.

 Sound collection policies and procedures.

Credit policy can be divided into three variables:

1) Credit standard

2) Credit term

3) Collection policy

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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. Capacity to pay
B. Company's repu ta tion
C. Past experience
D. Economic condition
E. Bank reference

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.

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 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.

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) Analysis or over all efficiency in mgt of no capital.

2) Cash mgt.

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3) Inventory mgt.
4) Mgt of receivable
5) Financing of no cap.

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CHAPTER-4
DATA INTERPETATION & ANALYSIS

Trend analysis of working capital of Sakthi SugarS Ltd.

CURRENT ASSET OR WORKING CAPITAL

(Rupees in Lakhs)

Year Current asset or working capital

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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

2008-09 31,374.76

2009-10 33,434.94

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

its changing business activity.

Table: net working capital

Year Current Current Net working

assets Liability capital

2007-08 62,233.9 13,098.4 49135.45

4 9

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2008-09 57,407.7 31,374.7 26,032.95

1 6

2009-10 82,406.7 33,434.9 48971.83

7 4

Net working capital = Current Assets – Current Liabilities

If we analyze the net working 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.

Gross working capital Vs Net working capital

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90,000.00
82,406.77
80,000.00

70,000.00
62,233.94
60,000.00 57,407.71

49,135.45 48,971.83
50,000.00
Gross Working Capital
40,000.00 Net Working Capital

30,000.00 26,032.95

20,000.00

10,000.00

0.00
2007-08 2008-09 2009-10

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.A. The
following three categories of ratios are used for efficient mgt of working
capital.

1) Efficiency ratio

2) Liquidity ratio

3) Structural health ratio

1. Efficiency ratio

Working capital to sales

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Sales
Ratio=
Working Capital

Year G. Sales Working Capital Ratio

76,651.73 1.56
2007-08 49135.45

118,884.98 4.56
2008-09 26,032.95

140,435.07 2.86
2009-10 48971.83

The ratio helps to measure the efficiency of the utilization of net

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

160,000.00
140,435.07
140,000.00

118,884.98
120,000.00

100,000.00

80,000.00 76,651.73 G.Sales

Column1
60,000.00
49,135.45 48,971.83

40,000.00
26,032.95
20,000.00

0.00
2007-08 2008-09 2009-10

Sales
Inventoryturnoverratio=
2. inventory

Year Sales Inventory Ratio

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76,651.73 8,097.11 9.46

2007-08

118,884.98 4352.44 27.31

2008-09

140,435.07 18790.40 7.47

2009-10

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
inventory is said to be managed.

160,000.00
140,435.07
140,000.00

118,884.98
120,000.00

100,000.00

80,000.00 76,651.73 Sales

Column1
60,000.00

40,000.00

18790.4
20,000.00
8097.11
4352.44
0.00
2007-08 2008-09 2009-10

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3. current assets turnover ratio = sales/current assets

Year Sales Current assets Ratio

76,651.73
2007-08 62,233.94 1.23

118,884.98
2008-09 57,407.71 2.71

140,435.07
2009-10 82,406.77 1.70

This ratio indicates the efficiency with which C.A 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

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ratio.

160,000.00
140,435.07
140,000.00

118,884.98
120,000.00

100,000.00
82,406.77
80,000.00 76,651.73 Sales
62,233.94 Column1
60,000.00 57,407.71

40,000.00

20,000.00

0.00
2007-08 2008-09 2009-10

II. Liquidity ratio

C . Assets, Loans & Adv

C . Ratio=
1. C . Lia . & Provisions

Year Current Currents Liability Ratio

Assets & & Provision
Loans &
Advanced

4.75
2007-08 62,233.94 13,098.49

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1.82
2008-09 57,407.71 31,374.76

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.
Capital Finance. In Sakthi Sugar Ltd. should take necessary steps to
improve it.

90,000.00
82,406.77
80,000.00

70,000.00
62,233.94
60,000.00 57,407.71

50,000.00
C. Assets & Loans & Advanced
40,000.00 Column1
33,434.94
31,374.76
30,000.00

20,000.00
13,098.49
10,000.00

0.00
2007-08 2008-09 2009-10

C . Assets - Inventories
QuickRatio=
2) C . Liabilities - B .O . D

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Year Current Assets Inventory Current Ratio

Liability

8,097.11 4.13
2007-08 62,233.94 13,098.4
9

4352.44 1.69
2008-09 57,407.71 31,374.7
6

18790.40 1.90
2009-10 82,406.77 33,434.9
4

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
82,406.77
80,000.00

70,000.00
62,233.94
60,000.00 57,407.71

50,000.00
Current Assets
Inventory
40,000.00
33,434.94 C. Lia
31,374.76
30,000.00

20,000.00 18790.4
13,098.49
10,000.00 8097.11
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 working capital management
system of Sakthi 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 market, 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

checking 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 working capital

management of Sakthi Sugars Ltd. I came with the conclusion that Sakthi

Sugar Ltd had adopted to use more and more improves techniques for

managing its working 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 market value

per share is low and book 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.sakthisugars.com

 www.google.com

 www.wikipedia.com

 Annual financial report of Sakthi Sugars Ltd for the

year – 2007-08, 2008-09, 2009-10

 Internal reports of Sakthi Sugars Ltd

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