INTRODUCTION

INTRODUCTION OF FINANCIAL MANAGEMENT:-

Financial management refers to that part of management activity, which is concerned
with the planning and controlling of firms financial resources. It deals with finding out various
sources for raising funds for the firm. The sources must be suitable and economical for the need
of the business. In simple words, financial management study about the procuring and judicious
use of financial resources with a view to maximize the value of a business enterprise there by the
value to the owner is maximized.
Financial management is very important to every type of organization. It refers to that part
of managerial activity concerned with the procurement and utilization of funds for the business
purposes.
Finance is an important function in any business, as money is required to support its
various activities. It has given birth to “Financial management” as a separate subject. As a
separate subject, financial management is of recent origin and has not acquired a body
knowledge of its own. It draws heavily on “Economics” for its theoretical concepts.

In the early half of the of financial operation became highly important. Thus now the
scope of last century, the job of financial management was largely confined to the acquisition of
funds. But as business firms continued to expand their markets and they became larger and more
diversified, greater control financial management is very wide and it should not be considered to
be merely restricted for raising of capital. It also covers other aspects of financing such as
assessing the needs of budgeting, maintaining liquidity lending and borrowing policies, dividend
policy and so on.

DEFINITIONS:

Ezra Solomon has defined “The financial management deals with the efficient use of an
important economic resource namely capital funds”.

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 “Financial management is the activity concerned with the planning, raising, controlling
and administrating the funds used in the business.” - Guthman and Dougall.

“Financial management is that managerial activity which is concerned with the planning and
controlling of the firm’s financial resources”. -I.M.Panday.
“Financial management is concerned with the efficient use of an important economic resource
namely capital funds”. -Ezra Solo man

“Financial management is the operation activity of a business that is responsible for obtaining
and effectively utilizing the funds necessary for efficient operations”. Joseph and Massie.

Firms create manufacturing capacities for production of goods; some Provide services to
customers. They sell their goods or services to earn Profit. They varies funds to acquire
manufacturing and other facilities. Thus, The three most important activities of a business firm
are:
 Production
 Marketing
 Finance
A Firm secures whatever capital it needs and employs it (Finance Activity) in activities which
generate returns on invested capital (production and marketing activities).
Functions of Finance:
 Investment or long - term asset - mix decision.
 Financing or capital- mix decision.
 Dividend or profit allocation decision.
 Liquidity or short - term asset - mix decision.
Finance is one of the most primary requisites of a business and the modern management
obviously depends largely on the efficient management of the finance. Financial management is
that managerial activity which is concerned with the planning and controlling of the firms,
financial resources. The financial goal is to maximise shareholders wealth.

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Finance is regarded as the life blood of the business enterprise this is because in the modern
money oriented economy, finance is one of the basic foundations of all kinds of economic
activities.

OBJECTIVES OF FINANCIAL MANAGEMENT:

Traditionally, the basic objectives of financial management are the maintenance of liquid assets.
The term nature as applied to financial management refers to its relationship with closely related
fields of accounting and economics, its functions and objectives.
Financial management, as an academic discipline, has undergone fundamental changes as
regards its scope and coverage. In the early years of its evolution it was treated synonymously
with the raising of funds. In the current literature pertaining to this growing academic discipline,
a broader scope so as to include, in addition to procurement of funds, efficient allocation of
resources in universally recognized. Similarly the academic thinking as regards the objective of
financial management is also characterised by a change over the years.
Financial management requires the existence of some objectives or goals because judgements as
to whether or not a financial decision if efficient must be made in light of some objectives:
1 Profit maximisation
2 Wealth maximisation

PROFIT MAXIMISATION:
Profit maximisation cannot be the role objective of a company. It is a best limited objective. In
this increased profits are taken while decreased profits are avoided it include investment
dividend and financial decisions of a firm should be taken for maximisation of profits. The profit
is vague.

WEALTH MAXIMISATION:
Wealth maximisation means maximising the net present value of a course of action. Net present
value is the different between present value of expected benefits and present value of costs.It is
also known as value maximisation
It is the universally accepted principal to remove technical limitation. It satisfy the 3 operational
objectives of financial course are exactness, quality of benefits, time value if money.

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 INTRODUCTION TO WORKING CAPITAL MANAGEMENT

Working capital management involves the relationship between a firm’s short-term assets and
its short-term liabilities. The goal of working capital management is to ensure that a firm is able
to continue its operations and that it has sufficient ability to satisfy both maturing short-term debt
and upcoming operational expenses. The management of working capital involves managing
inventories, accounts receivable and payable, and cash.

Working capital typically means the firm’s holdings of current, or short-term, assets such
as cash, receivables, inventory and marketable securities. These items are referred to as
circulating assets because of their cyclical nature. In a retail establishment, cash is initially
employed to purchase inventory, which is in turn sold on credit and results in accounts
receivables. Once the receivables are collected, they become cash-part of which is reinvested in
additional inventory and part going to profit or cash throw-off.

The need for working capital to run the day to day business activities cannot be
overemphasized. We will hardly find a business firm which does not require any amount of
working capital. Indeed, firms differ in their requirements of the working capital.

There are two concepts of working capital— Gross and Net.

Gross working capital refers to the firm’s investment in current assets. Current assets are
the assets which can be converted into cash within an accounting year an include cash, Short-
term securities, debtors, bills receivable and stock.

Net working capital refers to the difference between current assets and current
liabilities. Current liabilities are those claims of outsiders which are expected to mature for
payment within an accounting year and include creditors bills payable, and outstanding expenses.

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 Working Capital can be classified as:

CAPITAL:
CAPITAL

FIXED CAPITAL WORKING CAPITAL

GROSS NET WORKING OPTIMUM CONTINGENT

WORKING CAPITAL WORKING WORKING CAPITAL
CAPITAL CAPITAL

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NEED FOR THE STUDY:

The need of Working Capital can’t be over emphasized every businesses needs some
amount of working capital arises due to the time gap between production and realization of cash
from sales. There is time gap in purchases of raw material and production. Production, sales and
realization of cash thus, working capital needed for the following purposes.

 For the purchase of the raw materials, components and spares.

 To pay wages and salaries.
 To incur day to day expenses and overhead costs such as fuel, power and office expenses
etc.
 To meet the setting cost as packing, advertising, etc.
 To provide credit facilities to the customers.
 To maintain the inventories of raw material, work in progress, stores and spares and
finished stock.
 Adequate working capital enables a concern to face businesses in emergencies such as
depression, because during such period, generally there is such pressure on working
capital.
 Adequacy of working capital creates environment of confidence high morale and creates
overall efficiency in business.
 Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill.
 Adequate working capital helps in maintaining solvency position of the business by
providing uninterrupted flow of production.

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SCOPE OF THE STUDY:

The study is of significant help to the following groups.

 The study provides an insight into the various aspects of working capital management

 Studies of this type are also useful to competitors to make necessary steps to improve
working capital management

 Hence the company can make necessary changes in the policy relating to it.

 Studies of this type are also useful to policy makers to make necessary changes in the
policies retaining to the working capital management in JOCIL LTD.

The scope of my study constitutes to be one of the interesting and key

areas of working capital management. The study concentrates of the financial status or affairs of
the company and the management of working capital in the company which involves the study of
operating cycle and ratios of different periods and their comparison over the last five years.

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OBJECTIVES OF THE STUDY:

 To find out the liquidity position of the company

 To find out the determents of working capital in the company

 To know asset the working capital prices

 To find out the sources of working capital finance

 To examine the core management

Bills receivable management
Inventory management

 To measure the operational efficiency of JOCIL LTD.

 To determine the profitability trends of JOCIL LTD.

 To assess the components of the working capital management and determine the
fluctuations caused due to them.

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 METHODOLOGY
Data collection for the study has been collected from two main sources. They are as follows:

The collection of data has been done through them principle sources.

(1) Primary Data

(2) Secondary Data

 Primary Data:

The primary data is the data gathered for the first time (first hand information) by the
researcher. It is the original data. As for the study, Primary Data is gathered through a series of
detailed discussions with executives, managers of the company.

Data has been collected from financial statements and interaction with the employee
during the study for analyzing, interpreting, finding out the problems involved and giving
suggestions.

 Secondary data

Secondary data is the data collected by others, for purposes other than solution at hand.
Secondary data for the present study has been collected from magazines, journals, annual reports,
published books, reference books, websites and other indirect source.

Secondary data also collected from

 Five years balance sheets of JOCIL LTD. from 2012-2016

 Profit and loss Account from 2012-2016
 Reference from text books, websites and journals relating to financial management.

Secondary data means data already available that is ready to refer When the researcher
utilizes secondary data, then he has to look in to various sources from where data can be
obtained. Secondary sources offer interpretation or analyses based on primary sources and often
are used to establish a thread of an earlier academic conversation, to provide background
information, to give more support to a specific thesis or argument, to persuade the reader to
accept a certain point of view, etc.

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LIMITATIONS OF THE STUDY

 Due to shortage of time overall analysis of the company became difficult.

 Due to internal administration factors gathering total required information became difficult.
Some of the information was registered office of the company due to some statuary
requirements so it becomes difficult to get the overall information of the company.

 Since we are new to the company refused to provide its financial information.

 The study is limited to a period of five years for analyzing the data.

The study of working capital does not reflect the whole financial position of the company.

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 INDUSTRY PROFILE

INTRODUCTION

Soaps are categorized into men's soaps, ladies' soaps and common soaps. There are
few specialty soaps like the Glycerin soaps, sandal soaps, specially flavored soaps, medicated
soaps and baby soaps. Specialty soaps are high valued which enjoy only a small share of the
market in value terms. The market is growing at 7% a year. This means that the incremental
demand generation is 5% over and above the population growth. With increasing awareness of
hygienic standards, the market for the Soaps could grow at a rate higher than 8% annually.
Interestingly, 60% of the market is now sourced from the rural sector. This means that the
variance between the two segments is not very large. Since upper-end market focus is the urban
areas, margins come from the urban sector.

Soap is a product for many people and the lathering up can be a treasured part of a
morning or nightly routine. Whether it might be scented or unscented, in bars, gels, and liquids,
soap is a part of our daily lives. In the United States, soap is a $1.390 million (US$) industry
with over 50 mass market brands. But in Indian markets the sales potential for soap is only
beginning to be realized. At the end of the year 2000, soap was a $1.032 million (US$) business
in India.

India is a country with a population of 1,030 million people. With the household
penetration of soaps is 98%. People belonging to different income levels use different brands,
which fall under different segments, but all income levels use soaps, making it the second largest
category in India. Rural consumers in India constitute 70% of the population. Rural demand is
growing, with more and more soap brands being launched in the discount segment targeting the
lower socio-economic strata of consumers. Soap manufacturers originally targeted their products
to the lowest income strata in urban as well as rural areas, positioning their brands as a way to
remove dirt and clean the body. For some brands, that positioning persists even today with a
focus on removal of body odor and keeping the user healthy. However, soap positionings are
moving towards skin care as a value-added benefit.

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 Soap is primarily targeted towards women, as they are the chief decision-makers in
terms of soap purchase and for Medicated positioning like germ killing and anti-bacterial are
marketed to families. About 75% of soap can be bought through the different types of outlets.
This is the most common source for buying soap, which usually forms a part of the month's
grocery list.

Pan-Beady Shops: These are really small shops, almost like handcarts, and they are
primarily set up to dispense cigarettes and chewing tobacco. Personal wash market in India is
very high. Everyone is using toilet Soaps. It is one of the fast moving consumer products in
personal care segment.

The consumption percentage of toilet soaps was increased year by year. The total
consumption of toilet soaps in India is 5.3 lakh tones per year. The growth rate is 2-3 percent per
annum. But the consumption rate of soap used per an Indian is low, when we compare with
Thailand, Italy and Brazil people. Their consumption rate is 480 Gms, 700 Gms and 160 gms per
head in a month.

There are a number of reputed companies in the toilet soap market. Due to increased
competition, along with those companies several small scale manufacturers are also entered in to
the market. The crowded market place has also brought to the consumer as marketers of soap
have tried to woo consumers through upgraded offerings and better quality soaps. The marketers
of toilets’ soaps have increased the TFM (Total Fatty Matter) content in their brands, to offer
better quality soaps at a lower price. Industry watchers say that the IFM content on some brands
has moved up from the 50-60 per cent earlier to over 70 per cent of late.
Population growth, particularly households with children, drives demand in the consumer
sector, while economic growth drives demand in the commercial sector.  The profitability of
individual companies depends on efficient operations and effective sales and marketing.  Large
companies have scale advantages in purchasing, manufacturing, distribution, and marketing. 
Small companies can compete effectively by offering specialized products, providing superior
customer service, or serving a local market.  The industry is capital-intensive average annual
revenue per worker is over $700,000.

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 The industry is about evenly split between the consumer and commercial segments.  Both
segments are highly competitive, with large companies spending millions to maintain market
share.

PRODUCTS, OPERATIONS & TECHNOLOGY:

Major products include laundry detergent, soap, dishwashing detergent, and toothpaste. 
Laundry detergent accounts for 40 percent of industry revenue, soap for 20 percent, and
dishwashing detergent for 15 percent.  Laundry detergent comes in powder or liquid form, and
may contain bleach additives or color brighteners.  Dishwashing detergent comes in powder,
liquid, or gel form.  Soap comes in bars or liquids, and may have moisturizing, antibacterial, or
deodorant benefits.  Companies in the commercial sector may also sell dispensing equipment and
provide related training.

FABRIC WASH OVERVIEW:

The fabric wash market is valued at Rs 57 billion in India, and is the world's largest
market after China, and USA. With increase in the penetration of washing machines, increase in
disposable income, aggressive advertising, and convenience of usage, people prefer detergents
and powders in the place of bars in urban areas. Detergents' demand has been growing at the
rate of about 11% for the last 5 years. However, laundry bar market has registered a negative
growth. The rural fabric wash market is growing at the annual rate of 13-14%, while urban
market is at 8-9%.

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ORIGIN OF THE INDUSTRY IN INDIA:

The fatty acid industry is dependent on the availability of oils and oil seeds for extraction
and further processing, as mutton Tallow is banned in India. The industry found that rice bran oil
is one such source have chosen rice bran oil as their raw material and rice bran oil extraction
units found their place meant near the raw material source rice bran even through the customers
are well spread all over the country.

The consumption pattern of rice bran oil depends on the level of free fatty acid content
available as industry grade varies from time to time because the rice bran availability is seasonal
having direct relation to the rice cropping and harvesting schedules therefore fluctuations are
observed in the rice bran oil prices which are almost fixed in the pattern however at times due to
climatic conditions and temperature variations the status of the rice bran oil changes from
industrial grade to edible grade and vice versa.

In Andhra Pradesh there are about 70 Rice Bran Oil Extraction Units and 6 Fatty Acid
manufacturing units. Another new unit is coming up. Among all these, M/s Jocil Limited is the
second oldest and its products are well accepted among the customers. The installed capacity
sales of Satiric Acid by these Andhra Pradesh based units account approximately for 48 per cent
of the all India Sales volume.

Fatty Acids for commercial uses are produced by hydrolyzing oils and fats to fatty acid
and glycerol and then further purified and modified to suit different industrial applications.
India is rich in non-edible oils resources and production of fatty acids from these oils upgrades
them suitable for manufacture of all sorts’ soaps and greases. This ease the situation of edible
oils for human consumption there by helping reduces the shortage of edible grades in India. The
Fatty Acid manufacturing units in Andhra Pradesh are M/s. Food Fats and Fertilizers Ltd., M/s.
Jocil Ltd., M/s. Sudha Agro Oil and Chemical Industries Ltd., M/s. Siris Agro Ltd., M/s. Sree
Rayalaseema Alkalies and Allied Chemicals Ltd., M/s Swastik Oleo chemical Ltd., and M/s.
Golden Agro-Tech Industries Ltd., are yet to start commercial production.

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 All these are manufacturers of Stearic Acid and other Fatty Acids. Some of them are
utilizing portion of their capacities for captive consumption (on all India basis about 52 per cent
of Installed capacities is used for captive consumption and about 34 per cent is idle capacity.
About 14 per cent is used for commercial sales of Fatty Acids).

The idle capacity of M/S TOMCO, KSDL and Vegetable Vitamins and Fats alone is
about 73 per cent. Andhra Pradesh State is growing industrially and there is ample scope and
potential for entry of new industries

Traditionally, soap has been manufactured from alkali (lye) and animal fats (tallow),
although vegetable products such as palm oil and coconut oil can be substituted for tallow. The
major uses for soap were in the household, for washing clothes and for toilet soap, and in textile
manufacturing, particularly for fulling, cleansing, and scouring woolen stuffs.

In1920s three firms had come to dominate the industry: (1) Colgate-Palmolive-Peet, (2)
Lever Brothers, an English company that developed a full line of heavily advertised soaps in the
nineteenth century and in 1897 and 1899 purchased factories in Boston and Philadelphia; and (3)
In 1933 Procter and Gamble introduced a pioneer detergent, Draft, which targeted the
dishwashing market because it was too light for laundering clothes.

In urban sales of premium toilet soaps in 1984, the Liril brand manufactured by
Hindustan lever had sales of 3500 MT, representing 24.4% of the market share .Mysore sandal
made by Karnataka soaps sold 1588 MT or 11% of the market share, and shikakai manufactured
by swastika sold 1500 MT representing 10.6% of the market share for the same year Hindustan
lever produced the three top brands of popular Toilet soaps-Life boy with sales of 36000MT and
38.5 market share. Lux with sales 17600 MT for 18.6 % market share; and Rexona, 11300 MT
for an 11.9% market share.

The Indian Soap Industry includes about 700 companies with combined annual
revenue of about $17 billion. Major companies in this industry include divisions of P&G,
Unilever, and Dial. The Indian Soap Industry is highly concentrated with the top 50 companies
holding almost 90% of the market. The market size of global soap and detergent market size was
estimated to be around 31M tone in 2004, which is estimated to grow to 33M tone in the coming
years.
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 Toilet soaps account for more than 10% of the total market of soap and detergents. In
Asia, the countries like China and India are showing rapid growth in the toilet soap section.
Market share of body wash was estimated to be around 2% in 2004 and is showing signs of
healthy growth in these markets. India's soap market is Rs 41.75 billion.

Indian Soap Industry volume is Rs 4,800-crore. For the purpose of gaining a competitive
edge, Indian companies are now relaunching their brands with value-additions to woo consumers
across India. For instance, Hindustan Lever Ltd (HLL) has recently launched a host of toilet soap
brands which include Lifebuoy, Lux, Breeze and Liril-with value additions. Also is in the
process of rolling out 'Ayush' ayurvedic soap. The aim is to meet the evolving needs of
customers.

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GROWTH OF THE INDUSTRY IN INDIA:

The Soaps & Detergents Industry is characterized by a number of small scale

manufacturers at one end of the spectrum and large companies (including MNC's) at the
other end. The market for Soaps & Detergents has increased manifold with changing
lifestyles, growing purchasing power, increased awareness about personal hygiene,
responsiveness of the consumer to brands offering superior value and the spread of audio-
visual media
The growth of cities and the textile industry in the early nineteenth century
increased soap usage and stimulated the rise of soap-making firms. The period between
the end of the Civil War and 1900 brought major changes to the soap industry.

According to the report presented at toilet soap seminar conducted by the oil
technologists’ Association of India (Northern Zone) April 20, 1986, the largest growth potential
is in rural markets. A report on toilet soap manufacture in India by K.S. Holla and R.R. Press of
Tata oil Mills Co. Ltd. notes that toilet soap consumption in India is expected to rise about 9.5%
a year, to 374,000 metric tone (MT) by 1990, 580,0000 Mt by 1995 and 914,0000 MT by the
year 2000.

SOAP MARKET IN INDIA:

OPPORTUNITIES:

Indian market presents significant opportunities for soups primarily driven by

increasing urbanization, rising income and heavy marketing by the players to make soups part of
Indian diet. The penetration is significantly low as compared to western countries. The rise of
new players such as Capital Foods indicate that as the market increases, there will be scope for
new players with innovative products and correct pricing will be able to gain market share.
Introducing healthy soups is one such innovation which is gaining market traction.

Industry insiders said the trend among consumers to opt for cheaper option due to
overall economic slowdown and inflation forced companies to offer discounts to push volume
sales, which affected their value growth.

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 "Since consumer demand wasn't so buoyant, there were more promotional offers and
discounts last year, which eventually impacted the sales growth," said BK Rao, group product
manager at Parle Products, India's largest biscuit maker.

Biscuits grew just 7% last year, almost one-third the growth rate in 2012. Washing
powder sales growth halved to 10% last year as leading marketers such as Hindustan Unilever
and Procter &Gamble offered consistent price-cuts to gain market share, while toilet soap
segment grew just 4%, down from 23% in 2012.

"While Godrej Consumers continued to outperform the industry, overall consumption

for soaps took a big hit in the last year, largely a lag effect of slowing economic growth," said
VivekGambhir, MD at Godrej Consumer Products. "Given persistently high consumer inflation,
players had limited room to increase prices," he said.

At the same time, other popular FMCG segments such as snacks, packaged Atta and rice,
chocolates and non-refined oil grew more than 20% last year, partly because companies tried
aggressively to increase penetration level. "We increased our sales infrastructure with one lakh
visicoolers in the market and the company took big strides by expanding into rural India and
reaching seven states in 2013," said a spokeswoman for Cadbury India.

Such initiatives from top players helped the overall chocolates segment to improve its
growth rate last year to 22% from 19% in 2012. According to Nielsen data, rural and smaller
towns with less than one lakh population grew at a faster pace than urban markets in 2013,
growing 12.2% and 10.7%, respectively.

Godrej Consumers' Gambhir and Parle Products' Rao expect sales of soaps and biscuits to
bounce back in the coming months, helped by improved economic environment. "Given the
recent uptick in palm oil prices, we expect higher price-led growth (in soap segment) this year.
And with a better economic environment, we should see improved volume growth," Gambhir
said.

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PROBLEMS IN THE INDUSTRY:

1.PHYSICAL INFRASTRUCTURE REQUIREMENTS

Small and medium sized soap producers should require no special physical infrastructure.
They do need some of the basic services required by all businesses, such as good road access for
bringing in production inputs and sending out finished products. It is possible that larger producers
may need large amounts of utility services which, depending on the chosen location of the
production facility, may have to be constructed.

And depending on the types of inputs used (e.g., “hard” chemicals versus all natural
ingredients), certain kinds of environmental investments may be required. Generally speaking,
however, there appears to be no such requirements that would pose an insurmountable constraint to
even smaller communities trying to attract or retain soap makers.

2. SUPPORT INDUSTRIES

No industry operates in a vacuum; none is self-sufficient. All require inputs to their

production and marketing processes. As one small soap maker puts it, “Our Company is
independent in the sense that we make all of our own products but there are some items that we
must obtain from other industries. This would include some ingredients, product labels, containers
and shipping boxes. I do not know of any company that does not need to rely on other industries to
help them do their business.” Not only must soap makers have access to vital inputs, they must also
seek out low-cost suppliers as market forces lead them to cut costs. The rise of global markets can
help, and purchasing professionals at soap and detergents companies are exploring foreign regions,
including developing countries, for new sources of materials.

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3. GENERAL STRATEGIC ISSUES

The profitability of a business depends upon both the overall degree of competition in an
Industry and the position of the business relative to its rivals. A business has little control over the
general degree of competition in its industry but can take strategic actions to position itself
favorably relative to its rivals and thereby influence its profitability. Businesses that earn profits
above the industry average do so because they find a sustainable competitive advantage. This
advantage allows such firms to position themselves relative to their rivals in ways that emphasize
their relative strengths; and this in turn allows them to better cope with the various forces of
competition. It is common to distinguish between two broad strategies to achieve competitive
advantage. The first is cost leadership, and the second is product differentiation. Each of these
strategies represents a different route to sustainable competitive advantage and above-average
profitability

4. CHALLENGES

In the previous sections of this report we have discussed some issues that soap makers,
particularly smaller firms are now or will soon have to confront in order to maintain successful
businesses. While these issues are not generally unique to the soap industry, they certainly affect
soap makers. We will summarize those issues here, casting them as challenges to be met.

One important challenge is making a smooth transition to electronic commerce. Even if a

firm has no plans to sell directly to consumers over the Internet, it will almost certainly have an
increasing volume of electronic transactions with its suppliers and with the retailers to whom it
sells. While in many ways electronic commerce is simply old tasks performed in new ways, it
nevertheless requires a different set of skills to carry out successfully. One important shift in
traditional thinking involves the speed of change in electronic commerce. The techniques and
technologies employed to conduct such transactions are constantly changing, which requires firms
employing these methods (every firm, eventually) to be more nimble and to react more quickly.

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 TABLE NO:1
VARIOUS GRADES OF STEARIC ACIDS
JOTEX GRADE, Used in drugs, Pharmaceuticals
JOTEX SPECIAL GRADE Cosmetics, chemicals and plastics
JOSTRIC SPECIAL GRADE Chemicals, calcium carbonate
JOSTRIC GRADE Metal polish, Grease, Metallic Polish, PVC
Stabilizers and chemicals
JOCIL – 9 Metal polish, Grease, Metallic polish PVC
stabilizers and chemicals
JOSTRIC – 11 PVC
JOMEL Rubber, Cement and Paint,
RUBBER GRADE Rubber, Metallic polish
JOCIL Rubber, Metallic Polish, Grease.

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 TABLE NO:2

PRESENT MARKET SHARE OF STEARIC ACID MANUFACTURES

WISE

NAME OF THE QUANTITY MARKET REGION

MANUFACTURER (MT) SHARE (%)
Godrej Soaps Ltd., 17000 22% North
VVF Limited 9000 12% North
Jocil Limited 10000 13% A.P
FFF Limited 6000 8% A.P
Nahar Agro 5000 7% North
Raj Agro 5000 7% North
OCL &Thapar 2000 3% North
Wipro Limited 2000 3% Karnataka
Siris Agro Limited 5000 7% A.P
Soda Agro Limited 2000 3% A.P
RayalaseemaAlkalies 5000 7% A.P
Ltd. 7000 9% A.P
Swastik&Oieo chem. 1000 1% A.P

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 TABLE NO: 3
COMSUMPTION PATTEREN OF STEARIC IN DIFFERENT
INDUSTRIES

SI.NO
Rate Name of the industry Quantity Industry Growth
(%) (M.T) Share(%)
1 Rubber – type 13000 17 5

2 Rubber-Nontyre 12000 16 36

3 Stearates/stabilizers 15000 24 7

4 PVC/polymers 9000 12 65

5 Cement paints 3000 4 69

6 Chemical auxiliaries 6000 8 5

7 Calcium carbonate 3000 4 8

8 Food/pharma 1000 1 30

9 Metal polishes 3000 4 5

10 Lubricants/greases 3000 4 8
11 Cosmetics 3000 4 30

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SOAP INDUSTRY IN ANDHRA PRADESH:

The Rs.45 billion Indian soaps and detergents industry has been expiring low
growth and intense competition in urban areas.

The physical market for detergents at about 2.7 million tones in one of the largest
markets in the world. It categorized popular economy, premium and super premium. In India, the
per capita consumption of detergents is only 1.6 kg. Per annum as against over 16 kg.

In Western Europe consumption soaps 1.4 kg which is got from 93-94 report. In Taiwan
6.2kg.Thailand 32kg per annum. In Indonesia 2kg and in Korea 7.3kg per annum per capital.
Malaysia 3.7 kg per annum per capita, Japan 8.9 kg per annum per capita

The per capita consumption of toilet soap in India is at present whole fully low as compared
to many developing countries. The industry has made rapid progress after lifting of the price
control. The overall growth rate of the industry in the recent years has been in the neighborhood of
15% per annum.

The overall consumption of toilet soaps in the country has been increasing at the rate 6.7%
and at more than 12% per annum in rural areas.

The industry faces serious problem on account of inadequate availability of linear benzene,
which has to be imported on a large scale.

The gap between demand and supply of oil for production of toilet soaps is a matter of
serious concern. The working group has assessed the availability of oils by the year 1999 and 2000
A.D at 6.5 lakhs tones and 12.1 lakh tones respectively whereas the demand would be the order of
7.5 lakh tones and 16 lakh tones which will have to be the of present reckoning by imports.

The soap market is divided into sub-popular and popular premium on the basis of price and
fatty matter. But for the purpose of market study, the market is categorized into popular and
premium. The popular segment constitutes about 87% while the premium soaps make up the
remaining 13%.

24
 TABLE NO: 4
SEGMENTATION OF THE TOTAL TOILET SOAPS
Price range Soap Segment
Rs.6-8(for 75 grams) Sub-popular
Rs.8-12(for 75 grams) Popular
Rs.12+(for 75 grams) Premium

TABLE NO:5
MARKET SHARE OF PREMIUM, POPULAR, SUBS POPULAR.
Segment Market Share (%) Growth Rate (Rs.)
Premium 24 3
Popular 45 1
Sub-Popular 31 15

The above table shows the volume of growth rate of toilets soaps at different segments. Premium,
which is in the range of Rs.12 and above has price range between Rs.0.8 has 1% growth and sub-
popular has a growth rate of 15% which is the range of between Rs.8-12. Personal Wash market in
India is very high. Everyone is using toilet.

25
KEY MARKET PLAYERS:

Indian soup market is dominated by a few players. The market is consolidated and top
three players account for more than 90% of the market by value and volume.
The key players are:

1. Hindustan Uniliver – The Company sells soups under Knorr brand and has the largest
market share.
2. Nestle India – Nestle is another prominent player in the market with its brand name
Maggi
3. Capital Foods Ltd. – Relatively small and new player (launched in 2008) as compared to
top two the company has been gaining market share in last few years. It sells its products
under Ching’s Secret brand name

26
MAJOR DEVELOPMENT IN INDUSTRY:

A major change in soap making occurred in the 1840s when manufacturers began to
replace lye made from wood ashes with soda ash, lye made through a chemical process.

Many soap makers began to brand their products and to introduce new varieties of toilet
soap made with such exotic ingredients as palm oil and coconut oil. Advertising, at first modest
but constantly increasing, became the major innovation.
Advertising proved amazingly effective. In 1900 soap makers concentrated their
advertising, It put large soap makers at a competitive advantage, and by the late 1920s three
firms had come to dominate the industry: Colgate-Palmolive-Peet, Lever Brothers, Procter and
Gamble.
They produced a wide variety of products by 1949 acquired 75 percent of the soap and
detergent market. Tide had captured 25 percent of the laundry-detergent market.
In the early 2000s, the smaller firms within the industry still produced a multitude of
specialized cleansers for home and industry, although in the highly important fields of toilet
soaps, laundry soaps, and detergents, the big three remained dominant, controlling about 80
percent of the total market washing detergents, liquid cleaners, and toilet soap.
Indian cities have the potential to have over 300 new hypermarkets by 2011, mostly in
tier-I and tier-II cities, according to a joint study by global auditor KPMG and the Associated
Chamber of Commerce and Industry.

LATEST DEVELOPMENTS :

 In Indian Soap Industry the entry of new players in the 6,500-crore toilet soaps industry is
expected to bring about a new twist in the "Indian soap opera".
 ITC Ltd has started investing in aggressive brand-building and product development
projects to promote its brands, Fiama De Wills, Vivel and Superia.
 Godrej Consumer Products Ltd and Wipro Consumer Care Lighting are established
players in the Industry which are beefing up their research projects and advertising plans
to take on new rivals.

27
  With increasing competition, the Indian Soap Industry is expected to register a healthy
growth this fiscal. The sector registered a 15% value growth.
 GCPL is hiking its advertising budget by 20% to gain high visibility for its brands.

RESEARCH AND DEVELOPMENT (R & D):

1. Specific areas in which R & D carried out by the company quality improvement of the
products and efficient use of utilities.
2. Benefits derived as a result of above R & D. Improved product quality, quality and
conservation of utilities.
3. Future plan of action. Utilization of various field resources as fuel in power plant enhancing
capabilities through use of latest technology in fatty acid.

 RESEARCH AND DEVELOPMENT EXPENDITURE:

Revenue expenditure is charged to profit & loss account and capital
expenditure is added to the cost of fixed assets in the year in which it is incurred.

28
 COMPANY PROFILE

INTRODUCTION

Jocil limited was incorporated on 20 th Feb, 1978 with the name “Andhra Pradesh Oil
and chemical industries limited” as per the certificate of incorporation No 2260 granted by the
register of companies, A.P. Hyderabad. This was a joint venture with Andhra Pradesh industrial
development corporation (APIDC) and Jaya Lakshmi cotton and oil products private ltd (JCOP)
Perecharla Guntur district, a company belongs to Jaya Lakshmi group. ON 6th May, 1982 the
name of Andhra Pradesh oil and chemical industries limited was changed into Jaya Lakshmi oil
and chemical industries limited. The company’s name has been changed again from Jaya
Lakshmi oil and chemical industries limited to JOCIL limited effect from 17th September, 1992,
Jocil limited is a subsidiary of Andhra sugars limited.

ABOUT THE COMPANY

Type of company - Large Scale Unit

Nature of the company - Manufacturing

INITIAL INVESTMENT:

The company has set up Rs.3.3 cores fatty acid and soap project on turnkey basis through
M/s.Ballestra (India) limited, Bombay with technology and equipment of C.M.B., Italy.

LOCATION OF THE COMPANY:

The company is located at Dokiparru village in Medikonduru Mandal of Guntur district in

the state of Andhra Pradesh. The area was declared as backward one by the government of Andhra
Pradesh. It is only 15 km from Guntur and is on Guntur-Narasaraopet highway. It is well
connected by both road and rail road transportation. It is only 45km from Vijayawada, with
industrially located.

29
INDUSTRIAL LICENCING:

As the value of fixed assets envisaged in the project is less than Rs.3.3 corers the
industrial license is not required for setting of this project. The company as been registered with
Directorate general of technical development (DFTD), government of India, New Delhi bearing
No: DGTD/HQ/D-S-S/R-4737/C-26(N)/SE/79 with their letter dated 21-5-1979 and 31-3-1990 for
the manufacturer of -

Table No:6
1. Processed Fatty Acid/Industrial Fatty Acids 9000 M.T
2. Glycerin 900 MT
3. Toilet soaps 5000 M.T

SHARE HOLDERS PATTERN:

31-03-2014

 Promoters 55.02%

(The Andhra Sugars Ltd, Holding Company)

 Public 31.34%
 Institution (ICICI & ISEC) 12.44%
 Boolies Corporate 1.20%
 Face Value of Share Rs.10/-each

INCEPTION

Jocil limited was incorporated on 20 th Feb, 1978 with the name “Andhra Pradesh oil and
chemical limited” as per the certificate of incorporation No 2260 granted by the registrar of
companies, A.P. Hyderabad.
30
VISION OF JOCIL

The main vision of the company is to manufacture fatty acids and Toilet soaps. The
company received letter of intent from department of industrial development, ministry of
industries, government of India, Delhi. Enhancing the annual licensed capacity of fatty acids,
Glycerin and toilet soap. The company has implemented this letter by increasing installation
capacity of fatty acids plant from 6,205 M.T. per annum to 15,510 M.T. with effect from Feb,
1991. This enhanced capacity came into operation. Later the company enhanced the capacity to
37500 M.T. p.a.w.e.f. March’ 1995.

MISSION OF JOCIL

  To be a Successful Profit Making Organization.

 To Conduct its Operations with Honesty, Integrity and Transparency.

 To be the Market Leader in its Field of Operations through Continual

Improvement in Efficiency and Quality of Products & Services.

 To have Concern for Employees, Shareholders, Customers and Business

Associates alike.

 To Serve Society through Industry.

 To care for the Environment and the World in which we live.

31
OBJECTIVES OF JOCIL LIMITED:

 To study & analyze the sales & promotional activities of Jocil company triplex detergent
powder and soaps.

 To Study a customer perception towards Jocil company.

 To recognize the products position and build long term customer relationship with soap
works.

 To study influencing attributes of Jocil company.

 To study customer choice towards different media of advertisement

 Offer measures and Suggestion to improve sales of Jocil products.

 Vital signs
 Findings from physical examinations, such as posture, bruising, and abnormalities

JOCIL LIMITED ACCOUNTING POLICIES

 GENERAL

The accounts are prepared on historical cost convention and in accordance with normally
accepted accounting standards.

 FIXED ASSETS

Fixed assets are stated at historical cost less accumulated depreciation.

 DEPRICIATION

Depreciation is provided on the written down value method at the rates and in the manner
specified in schedule XIV of companies act, 1956.

 INVESTMENTS
Long term investments are stated at cost and income there on is accounted for on
accrual. Provision towards decline in the value of long term investments is made only
when such decline is other than temporary.

32
  INVENTORIES

Value of inventories as made as under. Raw materials, work in progress and finished
goods at cost or net reliable value whichever is lower. Stores and spares at cost.

 SALES

Sales are of inclusive of excise duty, packing charges and sales tax.

 RETIREMENT BENEFITS IN JOCILMLIMITED

Jocil ltd provides retirement benefits in the form of provident fund; superannuation and gratuity.
Contribution to the provident fund are made at prescribed rates to the provident fund
commissioner and absorbed in the profit and loss account.

Liabilities in respect of superannuation benefits extended to certain employees are

contributed by the company to life insurance Corporation of India against a master policy at 15%
of the basis salary of such employees.

The company has taken a group Gratuity insurance policy with life insurance Corporation
of India to secure gratuity paid on retirement and the amount recovered from LIC of India is
debited to profit and loss account. Leave encashment is accounted on accrual basis as required by
accounting standard – 15 issued by the institute of chartered accountants of India.

MILESTONES & ACHIVEMENTS:

 Jocil is a leading manufacturer of all kinds of fatty acids. It also manufactures Toilet
soaps.
 Jocil supplies different grades of stearic acid and other fatty acids to other manufacturing
companies of pharmaceuticals, chemicals, plastic etc.
 Jocil supplies fatty acids to meet their specific requirement of stearic acid, oleic acid etc.
 Jocil manufactures soaps on contract basis to HLL, Marico, ITC, Henkel etc, also supply
soap noodles to above customers.
 Jocil’s production of quality goods is due to the following factors.

33
 a. Usage of good quality raw materials like rice bran oils, cotton seed oils etc.
b. The processing and purification of fatty acids is done by using latest technology.
c. The technology and requirement of Jocil has been imported from C.M.B., Italy.
d. Maintenance of quality control by experienced and committed operating personnel.
e. Toilet soaps and glycerin are manufactured as per BISC (formerly known as ISI)
standards.

FUNCTIONAL AREAS:

 MARKETING :

The company mainly market its products from its depots held at Mumbai. Delhi,
Kolkata and Bangalore and also directly from the factory. The Prices are fixed basing on its
competitors and the variations in is an industrial product, the company does not allocate any
amount on advertisement and the customers come to depots basis or factory and place their
order.

In the case of soaps, there are manufactures on the contract basis like HLL, ITC, Marico,
Henkel etc., and hence no advertising is required. Jocil deals only with the soap production and
the marketing and advertising is taken over by HLL.

 FINANCIAL:

Jocil limited uses both its own capital and debt to perform its activities. The companies
aim is wealth maximization, rather earning more profits and transfer the rest to general reserve.
Retained earnings are used for re-investments in fixed deposits, and repayment of loans.

 HUMAN RESOURCES:

Human Resource department in Jocil it’s mainly focusing below functional activities.
Performing recruitment and selection activities. Training and development activities. Salary
preparation for employees. Performance appraisal activities.

34
 ORGANIZATION STRUCTURE OF JOCIL LIMITED

Board of directors

Managing directors

President GM GM Manager GM Sr.Manager

Marketing production (Production) (Development)

Asst Manager Stores Purchase Asst Manager Personnel Security

Officer Executive Officer (costing) Officer (Accounts)

Sr. Accounts Senior Senior SAO Dy. Personnel Security

Officer Asst Asst Officer Guard

SSA

Sr. Accounts Clerk

Asst. Executive AGM (Marketing)

Marketing Officer

Marketing Executive

35
BOARD OF DIRECTORS

P. NarendranathChowdary. Chairman

J. Murali Mohan, Managing Director

M. Thimmaraja. Director

Y.NarayanaraoChowdary. Director

V. S.Raju. Director

K.SrinivasaRao Director

36
M. Gopalakrishana. Director

SubbaraoV.Tipirneni. Director

M.Mruthyunjaya Prasad Director

P.VenkateswaraRao Director

SENIOR EXECUTIVES:

Mr. P. Kesavulureddy President& Secretary

BANKERS:

Andhra bank Guntur

State bank of India Guntur

AUDITORS:

Brahmmaiah& co Guntur

COST AUDITORS:-

Narsimha Murthy & Co. Hyderabad

REGISTERED OFFICE &FACTORY:-

JOCIL LIMITED

Dokiparru, Guntur – 522 438

Andhra Pradesh.

37
BOARD OF DIRECTORS

The board of directors of the company consists of 9 directors comprising of

promoter directors, additional director. The board of directors will meet once in three months to
review the working results, operations, financial and administrative matters and any other policy
matters of the company.

The managing director being responsible to the board shall appraise the board of directors
about the progress of the company.

MANAGING DIRECTOR

The managing director is the chief executive of the organization and looks after
the day to day operations of the company. He is the top person in the hierarchical system of
organization. He does business operations with the assistance of all the departmental heads. He is
the pivotal of the organization.

PRESIDENT& SECRETARY

He is the in charge of administrative and finance departments. He looks after all the
matters relating to general administrative, secreatarial, central excise, purchases, account, store,
personnel and all other matters relevant for smooth operations of the company.

He coordinates matters with all the departmental heads and takes policy decisions in the
absence of the managing director.

GENERAL MANAGER

He is the head of the production department. He looks after the fatty acid plant &
glycerin plant. He controls the overall production activities a term of engineers, supervisors and
helpers assist him.

38
SENIOR MANAGER – ELECTRICAL

He is the in charge of power house and responsible for all electrical installation in the
company. With the help of engineers, supervisors and electricians he looks after the matters like
power supply, operation of diesel generation sets ect.

MANAGER PRODUCTION (SOAP)

Production manager looks after the production of toilet soap and assisted by various
supervisory & other staff members.

ASST. MANAGER (ACCOUNTS)

Finance manager looks after all the works relating to audit books, commercial tax matters
and takes care of the accounting systems in the company. He will attend to the work of income
tax assessment orders given by the department.

He will further attend to the work of submission of working capital limits applications to the
banks and submit to the banks the required information with regard to sanction of working
capital limits to the company.

39
PRODUCTS OF JOCIL

FIG-1
REFINED GLYCERINE

TOILET SOAPS

40
 Jocil has set up a modern plant for the manufacturing of fatty acids, toilet soaps and refined
glycerin. The major equipments were imported with latest technology. The products manufacture
of international standards to suit different industrial uses. Jocil is manufacturing two types of
products.

1. Industrial goods (chemical)

2. Consumers goods (soaps)

Fatty acids, refined glycerin and other fatty acids pitches fall under the
category of industrial goods whereas soaps come under the category of consumer goods.

Fatty acids are manufactured from vegetable oils and fats. There are different types of
fatty acids for different industrial applications. The following are the different kinds of fatty
acids which can be manufacture in JOCIL.

1. Crude fatty acids of vegetables acids fats.

2. Distilled fatty acids of vegetables acids & fats.
3. Hydrogenated fatty acids of vegetables acids &fats.

Out of the above type of fatty acids. JOCIL is manufacturing the following fatty acid which is a
major portion of their sales.

1. Stearic acid
2. Oleic acid
3. Distilled & hydrogenated fatty acids.

Stearic Acid:

In the stearic acid, different grades are produced with standard specifications for different
industrial consumers

41
 The following are the different grades of Stearic acids consumed by different industries
in manufacturing their own industrial products.

TABLE NO: 7

VARIOUS GRADES OF STEARIC ACIDS

JOTEX GRADE-JOTEX Used in drugs, pharmaceuticals, cosmetics, chemicals
SPECIAL GRADE
& plastics

JOSTRIC SPECIAL GRADE Chemicals, Calcium carbonate

JOSTRIC GRADE Metal polish, Grease, Metallic polish PVC Stabilizers

and Chemicals

JOSTRIC 9 Metal polish, Grease, Metallic polish PVC Stabilizers

and Chemicals

JOSTRIC 11 PVC

JOMEL Rubber, Cement and Paints

RUBBER GRADE Rubber, Metallic polish

ECONOMY Rubber, Metallic polish, Grease

REFINED GLYCERIN:

There varieties of refined glycerin are produced namely.

1) Chemically pure grade (C.P)

2) Industrial White (I.W)
3) Pale Straw (P.S)

42
 Glycerin is used in pharmaceuticals, cosmetics, explosives, paints stroke ink,
chemicals, tooth paste etc.,

STATUS OF JOCIL:

Andhra Pradesh is predominantly a Rice growing State and location of Jocil is very close
to the rice-bowl of Andhra Pradesh i.e. Krishna and Godavari Districts. There are about 70 Rice
Bran processing units in and around Guntur, the location of Jocil.

It is for this reason the place has been chosen during 1978. Rice Bran Oil has been used by
most of the industries until recently. However, the Industry at present is using products made out
of Crude Palm Steatrine (CPS), Palm products like Palm Fatty Acid Distillate (PFAD), which
have become much less expensive.

TABLE NO:8
JOCIL’S PRESENT CAPACITY UTILIZATION IS AS UNDER:
Product Installed Capacity Production Capacity
(tons/day) 2012-2013 Utilization (%)
(tons/annum)
Fatty Acids 200tpd 28939 48

Toilet Soap 60tpd 2405 14

Soap Noodles 150tpd 21527 48

Glycerin 4.5tpd 1113 82

43
 PRODUCTION FLOW CHART
FIG-2:

44
PROCESS OF SOAP MANUFACTURING:

Fatty Acids

Specification

Reaction with Caustic soda

Neat soap

Spray drying (to reduce moisture to desired level)

Soap noodles

Amalgamation (addition of colour, perfume)

Mixing (homogenation)

Extrusion (Caking of soap bars)

Soap bars

Cutting

Stamping

Packing

Finished soap

45
 WORKING CAPITAL MANAGEMENT

INTRODUCTION:
Though working capital of vital significance to an undertaking in several ways, the
management of which did not receive adequate attention until recently the literature of finance
concentrated more on the infrequent episodic events mergers and liquidation neglecting
completely the management of working capital. Even now, the management of fixed assets is
getting precedence over the working capital.
It has been observed by shall and Haley that “managing current assets requires more
attention than managing plant and equipment expenditure. Mismanagement of current assets can
be costly. Too large an investment in current assets means tying up capital that can be used
productively elsewhere. On the other hand, too little investment can also be expensive.”

For example, insufficient inventory may result in loss of sales as the goods that a
customer wants to buy may not be available. The finance manager will be forced to spend a large
percentage of his time in managing current assets. It is because these assets vary quickly and a
lack of attention paid to them may result in appreciably lower profits for the firm.
Working capital Definitions:

The following are the some of the definitions given for working capital by experts in the
area of finance.

 “The sum of the current assets is the working capital of a business.”- J.S.Mil.
 “Any acquisition of funds which increases the current assets, increased working
capital, for they are one and the same.-Bonneville and Dewey
 “Working capital has ordinarily been defined as the excess of current assets over
current liabilities.”-C.W.Gerstenberg.

46
THE NEED FOR WORKING CAPITAL

The Working Capital is necessary to run the day-to-day business activities. It is very
difficult to find a business firm, which does not require any amount of working capital. However,
firms differ in their requirements of the working capital. Companies aim at maximizing the
wealth of shareholders. In their efforts to maximize shareholder’s wealth, they should earn
sufficient return from their operations. Earning a steady amount of profit requires successful
sales activity. The firm has to invest enough funds in current assets for the efficient sales activity.
Sales do not convert into cash immediately. There is always an operating cycle involved in the
conversion of sales into cash.

The organization may be faced with an uncertainty regarding availability of sufficient

quantity of critical inputs in future and reasonable price. This may necessitate the holding of
inventory i.e., current asset. To ensure that each of current assets is efficiently managed to ensure
overall liquidity of the unit and same time not keeping too high level of any one of them working
capital Management is must.

Nature of working capital management:

Working capital management is concerned with the problems that arise in attempting to
manage the current assets. The current liabilities and the inter relationship that exists between
them. The term of current assets refer to those assets which in the ordinary course of business
can be or will be converted into cash within one year without disrupting the operating of the
firm.

The major current assets are cash marketable securities. Account receivable and inventory.
The goal of working capital management is to manage the firm’s current assets and liabilities in
such a way that a satisfactory level of working capital is maintained. The current assets should be
large enough to cover its current liabilities in order to ensure a reasonable margin of safety. Each
of the current assets must be managed efficiently in order to maintain the liquidity of the firm
while not keeping too high a level of any one of them.

47
 Each of the short term sources of financing must be continuous managed to ensure that they are
obtained and used in the best possible way .The interaction between the current assets and
current liabilities, is there fore, the main theme of the theory of working capital management.

Concept of working capital:

Working Capital Management involves the relationship between a firm short – term assets
and its short – term liabilities. The goal of working capital management is to ensure that a firm is
able it continue its operations and that is has sufficient ability to satisfy both maturing short –
term debt and upcoming operational expenses. The management of working capital involves
managing inventories, account receivable and payable and cash to pay current liabilities as they
fall due. This implies a clearly designed risk policy to determine the required liquidity level.

TYPES OF WORKING CAPITAL

Working Capital may be classified in two ways.

 On the basis of Concept
 On the basis of time
On the basis of Concept Working Capital
1. Gross Working Capital
2. Net Working Capital
Based on time, Working Capital can be classified into
1. Permanent Working Capital
2. Temporary Working Capital
On the basis of Concept:
Gross working capital:
The ‘gross working capital’ also known as ‘current capital’ or ‘circulating capital’ is
represented by the sum total of all current assets of the enterprise. Current assets are the assets
which are meant to be converted into cash within a year or an operating cycle. Stock of raw

48
materials, stock of semi-finished goods, stock of finished goods, trade debtors, bills receivable,
prepaid expenses, cash at bank and cash at hand.

Net working capital:

On the other hand, the term net working capital refers to the difference between current
assets and current liabilities. Both the net and the gross concepts of working capital have their
own uses. The choice of a particular concept obviously depends upon the purpose in view.
If the objective is to measure the size and extent to which current assets are being used to
optimize productivity of the concern, the gross concept is more useful. If, on the other hand, the
objective lies in evaluating the liquidity position of an undertaking, the concept of net working
capital becomes pertinent and preferable.

On the basis of time:

Working Capital can be classified into
 Permanent Working Capital
 Temporary Working Capital

Permanent Working Capital:

Permanent or fixed Working Capital is the minimum amount, which is required to ensure
effective utilization of fixed facilities and for maintaining the circulation of current assets. There
is always a minimum level of current assets, which is continuously required by the enterprise to
carryout its normal business operations.
For example, every firm has to maintain a minimum level of raw materials, work-in-
progress, finished goods and cash balance. This minimum level of current assets is called fixed
Working Capital.
Temporary Working Capital:
Any amount over and above the permanent level of working capital is temporary,
fluctuating, or variable working capital. This portion of the required working capital is needed to
meet fluctuations in demand, Consequent upon the change in production and sales as a result of
seasonal changes.

49
Temporary working capital can be further classified as:
Seasonal working capital:
Most of the enterprises have to provide additional working capital to meet the seasonable
and special needs. The capital required to meet the seasonal needs of the enterprise is called
“Seasonal Working Capital”.

Special working capital:

Special working capital is that part of the working capital which is required to meet
special exigencies such as launching of extensive marketing campaigns for conducting research
etc.
Structure of working capital:
For a proper appreciation of the problems of working capital management, a closer
look at the individual items of working capital is essential. The components of current assets and
current liabilities, which are constituents of working capital, are shown in the following table.
Current Assets Current liabilities
1. Cash in Hand 1. Bills Payable
2. Cash at Bank 2. Sundry Creditors
3. Bills Receivable 3. Accrued Expenses
4. Stock 4. Short Term Loans
5. Prepaid Expenses 5. Dividends Payable
6. Accrued income 6. Bank over Draft
7. Short-Term Investment 7. Provisions for Taxes
8. Working in progress
9. Finished goods
10. Stores and spares
11. Advances to suppliers

Objectives of Working Capital:

The need for working capital cannot be over emphasized. Every business need some
amount of working capital. The need for working capital arises due to the gap between
production and realization of cash from sales it requires.

50
  For the purpose of materials, components and spares.
 To pay wages and Salaries.
 To incur day-to-day expenses and overheads such as full, prior, and office expenses etc.
 To meet the selling costs as packing, advertising etc.
 To provide Credit facilities to the customers.
 To maintain the inventories of raw materials, work in progress, stares and spores and
finished stock.

Aspects of working capital:

The aspects of management of working capital are:
 Determining the requirements of working capital
 Financing the requirements; and
 Efficient utilization of working capital.
Determination of the requirements of working capital:
Efficient management of working capital involves careful determination of working capital
requirements and formulation of plans for meeting them. A large number of factors influence the
working capital needs of firms. The most important of these are:
 The nature and size of business
 Manufacturing cycle
 Business fluctuations
 Production policy
 Credit policy
 Credit availability
 Growth and expansion activities
 Profit margin and profit appropriation
 Price level changes

Financing of working capital:

A working capital forecast is prepared to determine the amount of working capital
required to finance particular level of business operations. The exercise involves complicated

51
calculations embracing every aspect of business activity. The items usually taken into
consideration while preparing a working capital forecast are: --
Costs to be incurred on material; wages and overhead expenses. The budgetary approach
to determine the working capital requirements involves preparation of cash budget which is an
integral part of the overall budgetary process in any firm.
The information required for each of the items in the cash budget has to be assembled
from various functional budgets and supporting schedules. Cash budget may be prepared for any
frequency depending upon the efficiency of the information system used in the firm and the
relevance of the frequency.
Importance of working capital management:
The management of working capital is one of the key areas of financial decision making.
It is significant because the management must see that an excessive investment in current assets
should be minimized as it leads to low profitability. At the same time it should protect the
company from the problems of stock-outs and risk.
The management of fixed assets will be impossible without maintaining proper level of
current assets. Current assets will also determine the liquidity position of the company. The
importance of working capital can be understood from the following points.

Time devoted to working capital decisions:

The financial manager will mdevote their largest time for working capital financing,
control of current assets, management of liquidity etc. In view of this, it can be said that
effective working capital decisions are also significant for successful management of the
company’s affairs.

Investment in current assets:

Characteristically, current assets present more than sixty percent of the total assets of
many firms, because they represent a large investment in the various components of current
assets.
Further, the investment trends tend to be relatively volatile. Hence, the financial manager
has to show special attention for them

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Importance to small firms:
The management of working capital is particularly important to small firms, because for a
small firm it may be possible to minimize its investment in fixed assets but it cannot avoid an
investment in cash, receivables, and inventors.
Therefore, current assets are particularly significant for the financial managers of small
firms. Small companies have relatively limited access to long-term capital market, they have to
depend heavily on trade credit and short-term loans form banks, both of which affect the net
working capital.

Relationship between sales growth and current assets:

The relationship between growth in sales and increase in current asset investment are
very close and direct. An increase in sales will accompany a similar rate of immediate increase in
additional inventories and cash balance. All such needs must be financed.

Determinants of working capital:

There are no set rules or formula to determine the working capital requirements of a firm. A
large number of factors influence the size of investment in working capital these include:-

1. Nature of the business: The working capital requirements of a firm are basically
influenced by the nature of its business. Firms engaged in trading and financing activities
make very heavy investment in current assets as compared to the investment in fixed
assets, whereas in the case of rail and road transport and other public utility services,
steel, aluminum, automobile industries, working capital forms a relatively low proportion
of total assets.

2. Operating cycle: The operating cycle implies the stages or processes through which the
raw materials are processed to get the final product. If the process is lengthy and takes
long time to get the finished products, the requirements of working capital will be much
larger than that of a unit which has a relatively low operating cycle. The shortest
manufacturing process will minimize the investment in the form of work-in-
progress.

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3. Seasonal elements: The requirement of working capital to a company is influenced by the
demand for the product. If the firm’s product is seasonal demand-oriented not only the amount of
working capital fluctuates from one season to the other, but also the composition of working
capital changes over the time.
During the season, cash and bank balances are converted into inventory. The working capital
level will increase and cash balances may reduce.

54
Growth and expansion of business:
The working capital requirements of the firm will increase as it grows in terms of sales or
fixed assets. Current assets are closely related with that of sales. The requirements of working
capital for a growing firm will be more.
A growing company has to maintain proper balance between fixed and current assets in
order to sustain its growing production and sales. This will in turn increase the investment in
current assets to support the increased scale of operations.
Firm’s credit policy
The credit policy of the firm affects working capital by influencing the debtor balances.
The credit terms of a company may also depend upon the industry credit norms.
If a company follows a liberal credit policy, with out following the norms of credit, it will result
in more credit sales, increased book debts and increased investment in working capital.
Turnover of current assets:
Turnover of current assets refers to the speed at which the components of current assets
can be converted into cash.
The greater the turnover is, greater will be the cash flow and lesser will be the level of
working capital. If the turnover is low, the company can witness heavy piling up of various
components of current assets and increased level of working capital.
Availability of credit:
The level of working capital of a company also depends upon the credit facility available
to it. The firm will need less working capital, if liberal credit terms are available.
The availability of credit facility from commercial banks also influences working capital needs
of the firm. Generally, if a firm gets credit facility easily, on favorable conditions, it can operate
with less working capital than a firm without such facility.
Dividend policy:
Dividends are paid to shareholders of the company out of the profits. The payment of
dividends results in cash outflow.
Further, a desire to maintain an established dividend policy may affect the company by
reducing the cash balances. It will cause changes in the level of working capital. Often, changes
in working capital also bring an adjustment in the dividend policy. Shortage of working capital
therefore, acts as a powerful reason for reducing or skipping a cash dividend.

55
Principles of the working Capital:

With regard to management of working capital, three propositions will be there. These
propositions are also termed as the principles involving risk that serve as the basis of working
capital theory.

Investment – risk and return:

“If working capital is varied relative to fixed asset investment, the amount of risk that a firm
assumes is also varied and the opportunity for gain or loss is increased.”
This principle assumes that a definite relation exists between the degree of risk that a firm
assumes and the rate of return. The more the risk assumed, the greater is the opportunity for gain
or loss.
The opportunity for gain is increased by choosing an appropriate asset and liability
structure. The firm’s return on investment will be greater when there are a low proportion of
current assets to total assets and a high proportion of current liabilities to total liabilities.
Contribution to net worth:
“Capital should be invested in each component of working capital as long as the equity
position of the firm increases.” This principle is based on the concept that each rupee invested in
fixed or working capital should contribute to the net worth of the firm.
Flow of funds:
“The greater the disparity between the maturities of a firm’s short-term debt instruments
and its flow of internally generated funds, it is not possible to closely synchronies the schedule of
expected net cash flows and payments on debt will depend upon the risk preferences of
management. The shorter the maturity schedule of debt in relation to expected net cash flows, the
less the risk of inability to pay the debt.”
However, financing is likely to be costlier under longer maturity schedule thus cutting
into profits. Profits can be maximized by making every effort to tie debt maturities with the cash
inflows of internally generated funds, since in such a case, there will be no need to hold low
yielding liquid assets, nor to have more long-term financing then is absolutely necessary.

Techniques of working capital management:

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 There are several techniques of control as regards working capital management. Some of
the important techniques are ratio analysis, systems approaches applied in the case of material
management, PERT as applied in the case of operating cycle analysis, mathematical models as
applied in determining economic order quantities; safety stocks and order points; Discriminate
analysis, and decision three approaches as applied in credit granting and collection decisions;
discriminate analysis and simulation; and linear programming techniques as applied in cash
management decisions; cash flow and funds flow analysis

Concerned as it is with the determination of appropriate levels of current assets and their
efficient use, as well as the choice of the financing mix for raising current resources, working
capital management deals with decisions, acts and procedures relating to the use and the method
of financing each current assets and determining its optimal level. The important components of
working capital management, therefore, are inventory management, receivables management and
cash management.
A variety of factors influence the working capital needs of firms. All factors are of
different importance. Further the importance of the factors change for a firm over time. So, an
analysis of the relevant factors should be made in order to determine the total investment in
working capital. The following is the description of the factors, which largely influence the
working capital requirements of the companies.
 Nature and Size of the Business
 Business fluctuations
 Growth of the firm
 Manufacturing cycle
 Seasonal fluctuations
 Credit policy
 Production policy
 Operational efficiency
 Price changes
 Technology

57
Sources of Working Capital:
There are two types of financing sources. They are:
a) Long – term
Financing which have a maturity period for long – term, such as shares, debentures,
preference shares, and retained earnings, loans for financial institutions, public deposits etc.
b) Short – term
Financing which are to be repaid in short span like one year, bank overdraft, commercial
papers, and factoring receivables etc
Short – term financing refers to borrowing funds or raising credit for a maximum of 1
year period i.e., the debt is payable within a year at the most. Whereas, the Long – term
financing refers to the borrowing of funds or raising credit for one year or more. The finance
manager has to mix funds from these two sources optimally to ensure profitability and liquidity.
The mixing of finances from long – term and short term should be such that the firm not faces
either short of funds or idle funds. Thus, the financing of working capital should not result in
either idle or shortage of cash funds. A choice can be made between these two sources in the
following ways or approaches.

Approaches of Working Capital

Depending on the mix of short and long-term financing, the approach followed by any
company fall under these three categories
 Matching Approach
 Conservative Approach
 Aggressive Approach
a) Matching approach or Hedging approach:
In matching approach, long-term sources of finance are used to finance permanent
working capital. Temporary working capital can be financed from the short-term funds. The
rationale of matching approach is that the maturity of source of funds should match the nature of
assets to be financed.
b) Conservative approach:
According to this approach, most of the requirements of funds should be met from long-
term sources. Short – term sources should be used only for emergency requirements. Under a

58
conservative plan, a firm finances all its permanent current assets and part of the temporary
current assets with long – term sources. Conservative approach is less risky but more costly as
compared to matching approach. In other words, it is low profit low risk approach.
c) Aggressive approach:
In the aggressive policy, firm uses more short-term sources of financing than warranted
by the matching plan i.e., the firm finances apart of its permanent current assets with short term
financing. On the other hand more use of short-term financing makes the more risky but less
costlier.

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Financing of working capital:
The sources of finance for working capital can be classified as under:
1. Short-term sources.
 Sundry creditors
 Bank overdraft
 Advance payments receive
2. Long –term sources
 Redeemable debentures.
 Redeemable preference shares & Public deposits.
3. Permanent sources
 Share capital.
 Irredeemable debentures.
 Plough back of profits.
STATEMENT SHOWING THE CHANGES IN WORKING CAPITAL (YEAR-WISE)
Previous Current
PARTICULARS INCREASE DECREASE
Year Year
CURRENT ASSESTS XXX XXX XXX XXX
INVENTORIES XXX XXX XXX XXX
BOOK- DEBTS XXX XXX XXX XXX
CASH /BANK BALANCES XXX XXX XXX XXX
LOANS & ADVANCES XXX XXX XXX XXX
TOTAL CURRENT ASSETS (A) XXX XXX XXX XXX
CURRENT LIABILITIES XXX XXX XXX XXX
ADVANCES FROM
XXX XXX XXX XXX
CUSTOMERS
SUNDRY CREDITORS XXX XXX XXX XXX
OTHER LIABILITEIS XXX XXX XXX XXX
PROVISIONS XXX XXX XXX XXX
TOTAL CURRENT LIABILITIES
XXX XXX XXX XXX
(B)
NET WORKING CAPITAL XXX XXX XXX XXX

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(A-B)
DECREASING WORKING
XXX XXX XXX XXX
CAPITAL
TOTAL XXX XXX XXX XXX

CASH MANAGEMENT:
Effective management of working capital involves management of its components viz.,
cash, debtors, and stock. Out of all these current assets, cash assumes specific identification,
because the operations of business result in the conversion of cash into raw-materials. Cash is the
most liquid asset that a business firm possesses.

It includes money and such instruments as money orders, and bank drafts. Cash in the
enterprise maybe compared to the blood in the human body. Even though firms differ in terms
of nature of business, capital structure, and risk and so on, they have in common the basic
mechanism involving conversion of funds into saleable products and back into cash. But cash
balance in its own form will not yield any return

Functions of Cash Management:

Management
The following are the functions of cash after of any business concern irrespective of its
size, nature, volume of business, age etc. The same can also be said that management of receipts
and payments.

 Forecasting cash needs.

 Expediting cash collections.
 Disbursing cash to meet firm’s obligations.
 Gainful investment of surplus cash.

Importance of Cash Management:

Management
Cash is unique resource and not comparable with any other component of current asset. If
excess cash is held, it will not generate profits since cash is sterile. It will not be productive
directly as in the case of other assets. Inventory bought excess will be useful even after

61
sometime, without loss of value and many a time value of inventories tend to increase due to
inflation. Hence idle cash will not generate profit but causes loss of interest.

Further, cash shortage causes irreparable loss to the management, since firms loose not
only profitable business opportunities but also good will when they fail to clear the bills timely to
cash shortage.

Motives of Holding Cash:

Cash
Famous economist, Keynes said that businessmen hold cash for 3 motives, which are as
follows.
 Transaction motive.
 Speculation motive.
 Precautionary motive

Transaction motive:
Cash manager is expected to arrange appropriate amount of cash in right time to pay for a
right purpose. In fact, the cash receipts will never synchronize with cash obligations to pay for.

Hence to meet the expenses timely, a firm has to hold optimum amount of cash and keep
the firm comfortable in its cash transactions. Larger the business transactions more the amount of
cash balance to be maintained and vice – versa.

Precautionary motive:
Firms at times need cash without prior notice. They need cash under emergency
conditions such as break down of machines, fire, theft, accidents etc, failing which they have to
pay heavy penalties. In such cases, cash rich companies can with stand rather than nil less cash
complaints.

The causalities, accidents, theft, machinery break – down etc., in organizations generally
demand cash immediately. To meet the said eventualities, the firms have to maintain cash
balances. This cash balance is called precautionary cash balance. Hence they have to raise funds

62
in very short notice or some times spontaneously also. At that time only cash rich companies
credit worthy will be able to survive under hectic conditions cited above.

Speculative motive:
Of course, not all firms do business with speculative motives. Occasionally, every
business firm comes across speculative conditions such as sudden and heavy fluctuations in
prices of raw materials and rates or interest leading to rise in market for goods.

Hence, there is sudden rise in demand for goods, which warrants availability of cash in
very short notice. Thus the speculative conditions give chance to rise profitable opportunities.
Firms, having ability to generate cash in Short notice will take advantage of these speculative
conditions of business opportun

Factors affecting cash management:

management
The amount of cash requirement of a business firm depends upon the following factors,
which are discussed as under.

Credit Position:
Firms having goodwill in the market do not require cash balance much. They get services
and goods on credit as they re – pay the bills timely out of the sales proceeds and such firms need
not maintain heavy cash balances.

Nature of market:
It has great influence on cash requirement, in certain markets one has to buy on cash,
since credit facility is not available. In some of the UN organized sectors and small businesses
where bank loans are not extended, their firms have to arrange their own cash.

Inventory levels:
Higher the inventory levels a firm follows more the cash required. Lower the inventory
level, less lowly the cash balances to be needed. Thus, inventory level certainly influences the
cash requirements of the business.

Technology:

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 The firms, which are, followed manual methods need more cash by week ends to pay for
wages. Where as the firms whose business activities are more technologies based required less
amount of cash for the above said purposes.

Efficiency in using cash:

Cash balance depends upon the efficiency in using cash. Professional managements
maintain optimum cash balance and discharge cash obligations.

Techniques involved in Cash Management:

Management
A management cash flow involves vigilant and efficient practices on the part of financial
manager. Then only it becomes possible sound cash management. The financial manager should
see that there should not be a deviation between projected cash flows and actual cash flows.

In order to achieve this, cash management efficiency will have to be improved through a
proper control of cash collection and disbursement. The two objectives in managing the cash
flows.
 To accelerate cash collections as much as possible.
 To de accularate or delay cash disbursements as much as possible

1) Accelerating Cash Collections:

A company can reduce its requirements for cash balances, if it is able to speed up its cash
collections. An efficient financial manager can reduce the firm’s deposit float by speeding up the
mailing processing and collection times. Finance manager may use the technique of
decentralized collections or ‘lock box system’ in order to accelerate cash collections.

2) Lock box System:

In a ‘lock box system’, the company establishes a number of collection centers for its
customers and remittances. At each center, the company hires a post office box and instructs
customers to mail their remittances to the box. The local bank is given with the authority to pick
up the cheques directly from the lock box and deposit the cheques in firm’s account. The bank
prepares a detailed statement of cheques picked up and submits it to the company.

3) Controlling Disbursements:

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 The control of disbursement can also help the firm in conserving cash and so reducing the
financial requirements. The firm’s objective in collecting cash is to speed up collections as much
as possible. Whereas the objective of disbursements is to slow down the cash outflows as much
as possible. Disbursements (cash outflows) arise due to trade credit. The firm should make the
payments using the credit terms to the fullest extent. There is no advantage in paying them
sooner than agreed upon. But delaying payments as much as possible, the company makes
maximum use of trade credit as a source of funds. Often it is interest free source of funds.

Optimum Cash Balance:

Balance
Cash balance cannot be too high or low. If the cash balances are lower then the required
level, then it will create problem. The higher level of cash balance will ensure liquidity, but the
firm has to sacrifice profits, as excess cash will not yield returns. Thus, the cash manager of a
firm has to trade off between higher and lower levels of cash balance and reach out optimum
level of cash.

The optimum cash balance can be decided considering two types of costs involved in it.
They are:

Transaction costs:
Company has to maintain certain cash balance to meet transaction costs. If such balance
is lesser, firm has to borrow higher amounts from outside and consequently incurs higher interest
charges. Hence, such interest charges are higher when cash balance is lesser, and lower when
cash balance is more.

Opportunity costs:
Opportunity cost is the revenue forgone by the company when cash balance is more.
Because simply cash at bank does not yield any return. Such cost is higher when cash balance is
more and lower when cash balance is lesser.

Significance:

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 Cash management is concerned with minimizing unproductive cash balances, investing
temporarily excess cash advantageously, and to making the best possible arrangements for
meeting planned and unexpected demands on the firm’s cash.
It involves managing of cash flows in-and-out of the firm. Cash flows within the firm,
and cash balances held by the firm at a point of time. Cash management must be thought of in
terms of the overall liquidity needs of the firm.
Specifically its current assets and liabilities. In order to reduce the influence of
uncertainties with regard to cash needs and to ensure adequate liquidity, firms shall have the
need for protective liquidity.
The efforts involved for this purpose usually take the form of:
 Explicit identification of the kinds of contingencies against which protection is desirable.
 Assessment of the probabilities or odds that each of these will develop within a given
period in future, such as 5 years.
 Assessment of the probabilities that developments creating cash drains will occur at the
same time.
 Assessment of the likely amount of cash drain that will result of each of the contingencies
develops.
An important policy decision regarding cash management is: what should be the optimum
amount of cash balance to be held? In determining such a balance, the management needs to
consider the joint impact of the follows:
 The philosophy of the management regarding liquidity and risk of insolvency.
 The expected cash inflows and outflows based on the cash budget forecast encompassing
long-range and short-range cash needs.
 The size of sales in relation to fixed asset investment.
 The degree of deviation between the expected and actual net cash flows.
 The maturity structure of the firm’s liabilities.
 The firm’s ability to borrow at short notice in the event of an emergency.
 The status of the firm’s receivables and inventory.
 The credit position of the firm.
 The nature of business.
 Efficient planning and control of cash.

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Methods of cash control:
The methods which accelerate the collection process are concentration banking, lock-box
system, special handling of remittances which involves personal picking up of these cheques or
the use of air-mail or special delivery, initiating controls to accelerate the deposit and collecting
of those small cheques up inter-bank transfers of cash and transfers between various divisions of
the company, closing of unnecessary bank accounts which create unnecessary pockets of idle
funds.

The objective of control of disbursements is to slow them down and yet ensure that they
are made in time. Establishing a minimum level of cash balance depends in part, upon the
compensating balance requirements of banks.

In exercising such control, the firm should give consideration to such aspects as quick
shifting of funds to the disbursing bank accounts, preventing excessive balances being built up in
a particular bank, establishing well defined operating procedures for disbursement, eliminating
or minimizing the loss of cash discounts on accounts payable due to clerical inefficiencies and
the timing of payment. Some of the methods of delaying disbursements are:

Use of drafts instead of cheques, playing the float, maintaining a separate account for pay
roll disbursements in order to minimize cash balance in that account by predicting when the pay
cheques are likely to be presented for collection.

INVENTORY MANAGEMENT

The term inventory comprises raw material, work-in-progress, finished goods and stores
and spares. Inventories represent a significant portion of assets in the case of most of the
manufacturing firms and require substantial investments.
Inventory management is concerned with the determination of optimum level of
investment for each component of inventory and the inventory as a whole, the efficient use of the
components, and the operation of an effective control and review mechanism.

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Characteristics of inventory:
inventory

1. Stock out problem:

If adequate stocks are not maintained, the firm faces stock out problem risks for not
maintaining adequate stocks. If raw materials are not adequate, production schedules suffer and
interrupted production will not ensure regular supply of goods whereby firm looses its market.

If production activities are stopped due to irregular supply of raw materials and other
inputs, cost of production will be high since fixed costs per unit will be more.

2. Lead time:
It is the time taken from the initiation of order till the arrival of goods. Lead-time may
vary from one day to many days. It depends upon the availability of item, distance,
transportation, etc. The time gap can be reduced through proper inventory planning.

3. Quantity Discounts:
If goods are produced on large-scale, producers will enjoy economies of scale. These
economies or savings occur where fixed costs are distributed over large production; ultimately
cost of production per unit will be lower. Some times production will extend to customers by
giving quantity discounts. This is peculiar characteristic associated with inputs mainly raw
materials and other consumables.

Motives of Holding Inventories:

Inventories
In a country like India inventories are necessarily to be held. The motives for holding
inventories are 3 types such as:

 Transaction motive.
 Precautionary motive.
 Speculation motive.
a) Transaction motive:

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 To ensure continuous business transactions raw material are held. without adequate
inventories it is hardly possible to imagine continuity of production. If enough raw materials are
not held, production activities cannot be carried out regularly. If for any reason production is
stopped for want of raw materials the staff, depreciation, rent etc., will cause severe loss to the
firm.

b) Precautionary motive:
Some times accidents, machine break down, lay off, strikes, etc occur without prior
notice under which situation, production should not suffer. Hence inventories are necessarily to
be carried out for smooth going of production and sales even in adverse times.

c) Speculation motive:
Changes in technology, market conditions, and cause sudden rise or fall in prices of
supplies. To cope with changing conditions businessman carries inventories. Price fluctuations
affect demand and supply aspects of goods, which will in turn affect production and sales
activities. To avoid such odd situations inventory holding is appropriate.

Significance:
In inventory decisions, management has to take into consideration factors like inventory
carrying costs, ordering costs, costs of stock-outs, the rate of return on investment, and the cost
of capital. In the case of running enterprises, the decision is concerned, also with additional
investments in order to estimate and compare additional costs and additional returns and the net
effect on the maximization of the value of the firm.
While the technique of marginal analysis is found suitable in taking such decisions, the
classification of costs into fixed, variable and relevant, is considered as essential. The decision to
invest further, in inventory should be based on considerations of trade off between the resulting
savings associated with excess investment and the total cost of holding added inventory.

Factors of influencing inventory:

Levels of inventory holding are also influenced by the operational flexibility it offers to
the firm. A lower inventory level gives less flexibility while a higher inventory level gives

69
greater flexibility. In evaluating the level of inventories, management must therefore, balance the
benefits of economics of production, purchasing and increased production demand against the
cost of carrying the additional inventory.
Other things remaining constant, the greater the efficiency with which the firm manages
inventory, the lower the required investment and the greater the owner’s wealth. An important
step in inventory management is determination of investment in each component of inventory,
viz., raw material, work-in-process, finished goods and stores and spares. Some important factors
which influence the levels of each component are stated hereunder.

1. Raw material inventory:

 The volume of safety stocks needed to protect against material shortages that
interrupt production.
 Considerations of economy in purchase.
 The outlook for future movements in the price of materials.
 Anticipated volume of usage and consumption.
 The efficiency of procurement and inventory control functions.
 The operating costs of carrying the stocks.
 The costs and availability of funds for investment in inventory.
 Storage capacity.
 Recomponent cycle.
 Indigenous or foreign source.
 The lead time of supply.
 Formalities for importing.

2. Work-in-process inventory:
 The length of the complete production process.
 Technological considerations influencing process time.
 Management policies affecting the length of process time.
 Length of production runs.
 Actions that speed up the production process,
 Management’s skill in production scheduling and control.

70
  Sales expectations.
 Level of sales and new orders.
 Price levels of raw materials used, wages and other items that enter into
production costs and the values added in production.
 Customer requirements
 Usual period of ageing.

3. Finished goods inventory:

 The policy of the management to gear the production to meet the firm orders in
hand.
 The policy to produce for anticipated orders and stock-keeping.
 Goods required for the purpose of minimum and safety stocks.
 Sales policies of the firm.
 Need for maintaining stability in production.
 Price fluctuations for the product.
 Durability, spoilage, and obsolescence.
 Distribution system.
 Ability to fill orders without delay.
 Storage capacity.
 Availability of raw material on seasonal basis, while customers demand spread
throughout the year.
4. Stores and spares inventory:
 Nature of the product to be manufactured and its lead time of manufacture.
 State of technology involved.
 Consumption patterns.
 Lead time of supply.
 Indigenous or foreign sources.
 Minimum and safety stocks and ordering quantities.

Objectives of inventory management:

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 Turning to the practical aspects of inventory management, the first step is to define its
objectives. Some of these are;
 To assure continuity of operations in the most efficient manner possible , so that the
enterprise may reach its overall objectives.
 To achieve a balance between economics of holding large inventories and of holding small
inventories.
 To minimize direct and indirect costs associated with holding inventories.
 Some of the important inventory policies relates to;
 Procurement of raw materials and spares.
 Size of minimum, optimum, and maximum stocks;
 Safety stocks, order quantities, order levels and anticipation stocks.
 Waste, scarp, spoilage, and defectives;
 Policies relating to alternative use; and
 Policies relating to order filling.

Role of finance manager:

Inventory management having become a separate function by itself, there should be a
separate organization for it. The finance executive should therefore exercise an overall
supervision and control over inventory management. The finance executive’s role in inventory
management may be stated as follows;
 By understanding the implications of changing inventory policies and positions, he has to
anticipate changes in the need for funds.
 Where finances are a limited factor, he has to help directly in shaping inventory policies
that are consistent with the realities of the firm’s financial position.
 He has to help in the formulation of inventory policies designed to speed up turnover and
maximize return on investment.
Inventory control:
Inventory control is usually concerned with minimizing the total cost of the inventory.
Inventory control is the application of the general theory of material control to inventories. In
UK, the term often used is stock control. The efficiency of inventory control affects the
flexibility of the firm. They are;

72
  The economic order quantity which enables determination of optimum size of order to
place, on the basis of demand or usage of the inventory.
 The technique of safety stocks to overcome problems of uncertainty.
 The order point formula which tells us the optimum point at which to reorder a particular
item of inventory.

Techniques of inventory control:

The finance managers should aim at an optimum level of inventory on the basis the trade-off
between cost and benefit, to maximize the owner’s wealth. As observed above, in this section
some simple production-oriented methods of inventory control to indicate a board framework for
managing inventories efficiency in format with the goal of wealth-maximization. The major
problem that arises comprise the heart of inventory control are;
 The classification problem to determine the type of control required,
 The order quantity problem,
 The order point problem, and Safety stocks

Fixation of stock levels:

Inventory control demands the maintenance of every item of material at a low level but at
the same time making it available when needed. These twin objectives could be realized only
through proper planning of inventory levels. With out proper planning, the firm may be
compelled to incur losses in the form of either overstocking or under stocking.
The store-keeper and stock manager or purchase manager therefore fixes the maximum
and minimum levels for important stores items on a regular basis. The various stock levels that
are usually considered are;
1.Maximum level:
This is the level beyond which stock should not be maintained. In technical terms, it is
the sum total of the minimum quantity and the economic order quantity. If stock levels go
beyond this level, overstocking results in eating away capital, space and the energies of the store-
keeper.
The losses arising from depreciation in value, obsolescence, careless and reckless
handlings of materials also pose additional dangers. The maximum level is fixed after a careful

73
consideration of; the availability of capital, space available in stores, rate of consumption,
delivery time to obtain fresh stock, price fluctuations, cost of holding the inventories, seasonal
nature of supply, fashion changes, changes in governmental policies, reorder level and economic
order quantity.
Max. Stock level = (Reorder level + Reorder quantity) –
(Minimum consumption x Minimum reordering period)
2. Minimum level: (safety or buffer stock):
This is the level below which the stock of an item should not fall. This is essentially a
safety stock and hence, it is not normally touched. If the stock of an item goes below this level,
there is every possibility of production being held up for want of materials.
Consequently, the minimum level is fixed to avoid the danger of production dislocations
due to the non-availability of materials. This level is decided on the basis of rate of consumption,
the lead time, the availability of substitutes and reorder level.
Minimum stock level = Reorder level– (Average rate of
Consumption x Average lead time)
Or
Minimum stock level =Reorder level – (Normal consumption x
Normal reorders period or average delivery time).

3. Reorder level: (ordering level) :

This is the point at which the store-keeper should initiate purchase requisition for fresh
supply. This is normally the point lying between the maximum and minimum levels. It is fixed in
such a way that the difference between the minimum level and the reorder level is sufficient to
meet the production requirements till fresh stocks arrive. Basically two factors; maximum
consumption and lead time determine the reorder level.

Reorder level = Maximum consumption x Maximum reorder period

Or
= Minimum level + consumption during the time required to get fresh supply.
Or
= Safety stock +consumption during lead time.

74
4. Danger level: This is the level below which the stock should never be allowed to fall
under normal circumstances. It is slightly less than the minimum level. When the materials reach
danger level, the store-keeper should make special efforts to get fresh supplies, so that
production is not held up for want of material
Danger level = Average rate of consumption x Urgent supply time.

Economic order quantity:

It is the quantity of material which can be reasonably ordered at a time and purchased
most economically. It is the quantity which is most favorable to order when fresh supplies are
needed. Reorder quantity, it should be remembered, is such that when it is added to the minimum
stock it does not exceed the maximum stock level. EOQ is fixed after taking the following costs
into consideration

Ordering cost:
This is the cost of placing an order and securing the supplies. It depends on the number of
orders placed and the number of items ordered each time. Whenever orders increase in number
and fewer quantities are purchased on each order, the ordering cost would begin to rise.
Annual ordering cost = D/Q x S.
Where D = demand for item
Q = units to be purchased on each order
S= cost for order.

75
Carrying Costs:
Warehousing, insurance, wastage, loss due to theft, deterioration, etc. are called
inventory-carrying costs. These costs are more, as the level of stock is higher. These costs are
also known as holding cost.

Storage Costs:
Costs pertaining to warehousing of goods or inventory are generally called as storage
costs. Example: rent, lighting, insurance, checking.

Obsolescence Costs:
When goods are stored more quantity than demand for it, the quality deteriorates and
models will become outdated. At times they have to be sold at heavy discounts since the quality
of goods is poor and design or models are outdated.

Set up costs:
Normally production is made regularly any item for few days/ weeks. Whenever order is
placed for different items the producer changes the regular processing and shift to new process to
make it suitable to new order placed. Thus, when processing is shifted, the firm incurs costs of
design, loss of clerical time consumption, components, and spares etc. All these constitute set up
costs.

ACCOUNTS RECEIVEBLES / CREDIT MANAGEMENT:

76
 Sales cannot be done for cash alone and Trade credit is inevitable in the modern business
society, which is the basis of accounts receivables. Credit is also allowed by many as a sales
technique to maximize the sales and profit. Trade credit acts as bridge between producers, as
funds will be tied up. Hence, accounts receivables management is also a vital aspect of working
capital management.

In cash sales risk is zero whereas in credit sales risk is high. As the seller receives
payment later for transfer of goods effected today. In the credit business, it is not only the
uncertainty element but also depreciated value of the when served in the later date i.e., a rupee
received today is stronger than expected to receive tomorrow.

Objective:
Objective
The Objective of receivables management is to promote sales and profits until that point
is reached where the return on investment is further funding of receivables is less than the cost of
funds raised to finance that additional credit.

 Protecting its current sales from the competitors.

 Expanding sales by attracting potential customers.
 Obtaining more sales from existing customers.
Costs:
Costs

The major categories of costs associated with the extension of credit and accounts
receivables are:

Collection Costs:
These costs are administration cost incurred in collecting the receivables from the
customers to whom credit sales have been made.

77
 DATA ANALYSIS & INTERPRETATION

TABLE No. : 1
STATEMENT OF CHANGES IN THE WORKING CAPITAL THE YEAR
2011-12 to 2012-13
Particulars 2011-12 2012-13 Increase (+) Decrease (-)
CURRENT ASSETS
Inventories 172256321 187934012 15677691
Sundry Debtors 24937024 26860540 1923516
Cash/Bank
33465753 6059037 27406716
Balance
Other Current Assets 28656816 48679846 20023030
Loans &Advances 14928012 11723019 3204993
Total(A) 274243926 281256454
CURRENT
LIABILITIES
Sundry creditors 79663526 95118974 15455448
Other liabilities 28727905 44505210 15777305
Provisions 7256927 12018960 4762033
Total (B) 115648358 151643144
Net working capital
158595568 129613310
(A)-(B)
Net increasing
28982258 28982258
working capital
Total 158595568 158595568 66606495 66606495

78
INTERPRETATION:
In this year there is a decrease in working capital as compare to the previous year,
it is due to increase in sundry creditors and also maintenance of more provisions.
At last we can conclude that working capital is unsatisfactory.

79
 TABLE No. : 2
STATEMENT OF CHANGES IN WORKING CAPITAL THE YEAR
2012-13 & 2013-14
Particulars 2012-13 2013-14 Increase (+) Decrease (-)
CURRENT
ASSETS
Inventories 187934012 239880075 51946063
Book debts 26860540 35992686 9132146
Cash/Bank
6059037 7150276 1091239
Balance
Other Current
48679846 69640943 20961097
Assets
Loans
11723019 12529745 806726
&Advances
Total(A) 281256454 365193725
CURRENT
LIABILITIES
Sundry creditors 95118974 130585661 35466687
Other liabilities 44505210 71863653 27358443
Provisions 12018960 9073986 2944974
Total (B) 151643144 211523300
Net working
129613310 153670425 24057115
capital (A)-(B)
Net increasing
24057115
working capital
Total 153670425 153670425 86882245 86882245

80
INTERPRETATION:

In this year there is a significant increase in working Capital as compared

to previous years, it is due to increase in inventories and also due to the reduction
in maintenances of provisions. Overall it has good working capital.

81
TABLE No. : 3
STATEMENT OF CHANGES IN WORKING CAPITAL THE YEAR
2013-14 & 2014-15
Particulars 2013-14 2014-15 Increase (+) Decrease (-)
CURRENT
ASSETS
Inventories 239880075 236975762 2904313
Book debts 35992686 36258591 265905
Cash/Bank
7150276 13998934 6848658
Balance
Other Current
69640943 93687132 24046189
Assets
Loans
12529745 10864119 1665626
&Advances
Total(A) 365193725 391784538
CURRENT
LIABILITIES
Sundry creditors 130585661 121157551 9428110
Other liabilities 71863653 37294595 34569058
Provisions 9073986 21580520 12506534
Total (B) 211523300 180032666
Net working
153670425 211751872 58081447
capital (A)-(B)
Net increasing
58081447
working capital
Total 211751872 211751872 75157920 75157920

82
INTERPRETATION:

There is an increase in working capital in this year as compared to previous

year. It is because of increase in cash & Bank balances and Other Current assets
which has increased current assets to current liabilities. Overall we can conclude
that working Capital is satisfactory.

83
TABLE No. : 4
STATEMENT OF CHANGES IN WORKING CAPITAL THE YEAR
2014-15 & 2015-16
Particulars 2014-15 2015-16 Increase (+) Decrease (-)
CURRENT
ASSETS
Inventories 236975762 327412543 90436781
Book debts 36258591 22361498 13897093
Cash/Bank
13998934 73891461 59892527
Balance
Other Current
93687132 151568707 57881575
assets
Loans
10864119 13966691 3102572
&Advances
Total(A) 391784538 589200900
CURRENT
LIABILITIES
Sundry creditors 121157551 110746450 10411101
Other liabilities 37294595 32614510 4680085
Provisions 21580520 90860140 69279620
Total (B) 180032666 234221100
Net working
211751872 354979800
capital (A)-(B)
Net increasing
143227928 143227928
working capital
Total 354979800 354979800 226404641 226404641

84
INTERPRETATION:
There is an increase in working capital in this year as compared to previous
year. It is because of increase in Inventories cash & Bank balances and Other
Current assets which has increased current assets to current liabilities. Overall we
can conclude that working Capital is satisfactory.

85
TABLE No. : 5
STATEMENT OF CHANGES IN WORKING CAPITAL THE YEAR
2015-16 & 2016-17
Particulars 2015-2016 2016-2017 Increase (+) Decrease (-)
CURRENT
ASSETS
Inventories 327412543 341906868 14494325
Book debts 22361498 83013158 60651660
Cash/Bank
73891461 156007572 82116111
Balance
Other Current
151568707 219855601 68286894
Assets
Loans
13966691 16218624 2251933
&Advances
Total(A) 589200900 817001823
CURRENT
LIABILITIES
Sundry creditors 110746450 73145327 37601123
Other liabilities 32614510 52836878 20222368
Provisions 90860140 127893051 37032911
Total (B) 234221100 253875256
Net working
354979800 563126567
capital (A)-(B)
Net increasing
208146767 208146767
working capital
Total 354979800 563126567 265402046 265402046

86
INTERPRETATION:
During this year cash and bank balances is having a positive position and
also book debts have been increased this causes increase in the gross working
capital. During this year, increases in working capital are Rs.2081(Lacks).It is a
positive position.

87
 CURRENT RATIO

Year Current assets Current liabilities Ratio

2012-13 281256454 151643144 1.86

2013-14 365193725 211523300 1.73

2014-15 391784538 180032666 2.18

2015-16 589200900 234221100 2.52

2016-17 817001823 253875256 3.22

(Sources: Previous years Annual Reports)

88
CHART NO. : 1

Current Ratio

3.5 3.22
3 2.52
2.5 2.18
Ratio

2 1.86 1.73
Ratio
1.5
1
0.5
0
2012-13 2013-14 2014-15 2015-16

Year

INTERPRETATION:

It is a good sign of the company in 2015-16 the current ratio is more than the
standard i.e 2.52; this implies that for every one rupee of current liability and is
more than the previous year. It is a good sign of the company in 2016-17 the
current ratio is more than the standard i.e 3.22; this implies that for every one rupee
of current liability and is more than the previous year it is a good sing of the
company that it is more then the safe margin of solvency.

89
QUICK RATIO

Year Quick assets Current Liabilities Ratio

2012-13
93322442 151643144 0.62

2013-14
125313650 211523300 0.59

2014-15
154808776 180032666 0.86

2015-16
261788357 234221100 1.12

2016-17
475094955 253875256 1.87

(Sources : Previous Years Annual Reports)

90
CHART NO. : 2

Quick Ratio
Ratio
1.87

1.12

0.86
0.62 0.59

2012-13 2013-14 2014-15 2015-16 2016-17

INTERPRETATION:

In 2014-15 the liquidity position is increased when compared to 2012-13. In

2015-16, and 2016-17 the quick ratio of the company is satisfactory i.e. 1.1 which
is nearer to the standard.

91
ABSOLUTE LIQUID RATIO:
This ratio is to judge the immediate ability of the company to pay of its
current liability it obtained by subtracting both the debtors and inventory from
current assets a ratio of 0.5:1 is usually considered good.
BANK BALANCE
ABSOLUTE LIQUID RATIO=CASH +
CURRENTLIABILITES

YEAR ABSOLUTE CURRENT LIABILITES RATIONS

ASSETS

2012-13
71,50,276 21,15,23,300 0.03
2013-14
1,39,98,934 18,00,32,666 0.07
2014-15
7,38,91,461 23,42,21,100 0.31
2015-16
5,43,94,425 66,33,80,804 0.08
2016-17
1,83,54375 79,16,11,991 0.02

CHART NO.3

92
 rations
0.35
0.3
0.25
0.2
Axis Title
0.15
0.1
0.05
0 rations 0.02
2012-13 2013-14 2014-15 2015-16 2016-17
Axis Title

INTERPRETATION:
The above graph shows the quick ratio of JOCIL Ltd. for the successful
five years 2012-2013 to 2016-2017.
In the above table it is understand that the absolute ratio of the company
in the year 2012-13 was 0.03 and in the next year I.e. in the year 2013-14 it has
increased to 0.07 in the year 2014-15 it has increased to 0.31 and in the next year
2015-16 it has decreased to 0.08 .and the next year also decreased to 0.02 in the
year 2016-17.

DEBT-EQUITY RATIO:
The term debt signifies total in depthless of the company as shown by its
short and long term obligations .Equity refers to the aggregate ownership measured
93
by the total share capital plus any reserves. Ideals ratio usually recommended is 2:1
such if the debt is less than two times the equity .The logically conclusion is that
the financial structure of the concern is sound. On the other hand if the debt is
more than two times the equity, the conclusion is the financial structure of the
undertaking is week.
LONG TERM DEBT
DEBT EQUITY RATIO=
SHAREHOLDES FUNDS

YEAR OUTSIDERS SHAREHOLDERS RATIONS

FUNDS FUNDS

2012-13
57,87,63,681 16,41,36,957 3.52
2013-14
56,58,02,190 20,72,00,158 2.73
2014-15
55,46,64,223 35,89,01,071 1.54
2015-16
53,52,64,840 60,37,04,185 0.88
2016-17
58,97,88,433 59,26,41,764 0.99

CHART NO.4

94
 3.5
3.25
3
2.73
2.5

2
Ratios

1.54
1.5

1 0.88 0.99

0.5

0
Years

INTERPRETATION:
The above graph shows the quick ratio of JOCIL Ltd. for the
successful five years 2012-2013 to 2016-2017.
From the above it is understand that the equity ratio of the
company in the year 2012-13 was 3.52, and in the next year i.e., 2013-14 it has
decreased to 2.73 in the year 2014-15 it has decrease to 1.54 and in the next year
2015-16 it has decreased to 0.88, it has been increased to 0.99 in the year 2016-17.

FIXED ASSETS TO NET WORTH RATIO:

Fixed assets to net worth is a ratio measuring the solvency of a
company? This ratio indicates the extent to which the owners' cash is frozen in the
95
form of fixed assets, such as property, plant, and equipment, and the extent to
which funds are available for the company's operations (i.e. for working capital).
¿ ASSETS
¿ ASSETS ¿ NET WORTH RATIO =
SHAREHOLDES FUND

OUT SIDERS
YEAR SHAREHOLDERS
FUNDS RATIONS
FUNDS

2012-13
58,92,30,214 16,41,36,957 3.58
2013-14
56,12,50,476 20,72,00,158 2.70
2014-15
55,85,85,494 35,89,01,071 1.55
2015-16
66,26,45,159 60,37,04,185 0.10
2016-17
53,71,14,201 59,26,41,764 0.90

CHART NO.5

96
 4

3.5 3.58

3
2.7
2.5
Ratios

2
1.55
1.5

1 0.9

0.5
0.1
0
Years

INTERPRETATION:
The above graph shows the quick ratio of JOCIL Ltd. for the successful
five years 2012-2013 to 2016 - 2017.
From the above it is understand that the equity ratio of the company in
the year 2012-13, 3.58 was and in the next year i.e., 2013-14 it has decreased to 2.7
in the year 2014-15 it has decrease to 1.55 and in the next year 2015-16 it has
decreased to 0.1,it has been increased to 0.9 in the year 2016-17.

CURRENT ASSETS TO PROPRIETARY FUNDS:

Current Assets to Proprietors’ Fund Ratio establish the relationship
between current assets and shareholder’s funds. The purpose of this ratio is to

97
calculate the percentage of shareholders funds invested in current assets. This ratio
tells us, how much money of Shareholders Company management has invested in
current assets. Shareholder can get both items from current balance sheet. It is not
wrong to invest shareholders money in current assets. But after a limit, it is not
good to invest in short term or current assets.
CURRENTASSETS
CURRENT ASSETS ¿ PROPRIETARY FUNDS=
SHAREHOLDERS FUNDS

YEAR SHAREHOLDERS
CURRENT
FUNDS RATIONS
ASSETS

2012-13
16,41,36,957 36,51,93,725 2.22
2013-14
20,72,00,158 39,17,84,538 1.89
2014-15
35,89,01,071 58,92,00,900 1.64
2015-16
60,37,04,185 58,36,34,211 0.96
2016-17
59,26,41,764 50,89,09,374 0.85

CHART NO.5

98
 2.5
2.22

2 1.89
1.64
1.5
Ratios

0.960000000000
001 0.850000000000
1 001

0.5

0
Years

INTERPRETATION:
The above graph shows the quick ratio of JOCIL Ltd. for the successful
five years 2012-2013 to 2016-2017.
From the above it is understand that the equity ratio of the company in
the year 2012-13, 2.22 was and in the next year i.e., 2013-14 it has decreased to
1.89 in the year 2014-15 it has decrease to 1.64 and in the next year 2015-16 it has
decreased to 0.96, it has been decreased to 0.85 in the year 2016-17.

FINDINGS:

99
  The current ratio Jocil limited is fluctuating for the period of 2012-17. The

company maintains satisfactory current ratio. Which is more than the idle ratio

2:1 due to the current assets are more than the current liabilities.

 The company maintained high liquidity position, which might decrease its

profitability. Since the return assets are very low.

 There is no change investments for 2015-16.

 The net assets are decreased in 2015 while compare to 2016

 In 2015 there is no working capital progress.

 The assets turnover ratio of Jocil limited is increasing trend to the net assets are

more that the net sales.

SUGGESTIONS:

100
 It has been suggested that the company needs to maintain the same current

ratio, which useful to meet current obligation.

 It has been suggested that the company examined the quick ratio to the

beneficial of the Jocil limited.

 The company a make enough borrowings to make the optimum use of financial

leverage, which can reduce the overall cost of capital of Jocil.

 It has been suggested that the company needs to improve the more profits to

make earnings per share of Jocil.

CONCLUSION

101
 The economic life of any organization depends on some important financial aspects like
profits, expenses, turnover etc. A careful analysis of these areas is very much essential for the
success and survival of these organizations. For this purpose financial statement analysis with the
help of the technique like ratios, funds flow etc. is to be carried out. A study of this type is very
much useful for any organization to keep into the different financial aspects and to take some
measures to improve in the above areas.

The company under study JOCIL LIMITED being a unit of the soap industry as to
carefully watch the trends in the soap industry as should come forward with innovative
marketing strategies.

BIBLIOGRAPHY

102
Authors Name Name of the Book Publishers

I.M. Pandey Financial Management Vikas Publishing House Pvt. Ltd.,

1999

Kishore, R.M Financial Management Taxman Allied Services Pvt. Ltd.,

2001

R.K. Sharma and Financial Management Kalyani Publishers, 1996

Gupta S.K

Kuchhal, S.C Financial Management Chaitanya Publishing House, 1979

Prasanna, Chandra Financial Management Tata McGraw Hill Publishing

Company, 1984

Khan M.Y. and Jain Financial Management Tata McGraw Hill Publishing
P.K., Company, 1983

NEWSPAPERS :

The Hindu

Deccan chronicle

MAGAZINES:

Business Week

Business World

WEBSITES:

www.google.com

www.Jocil.in

ANNEXURE

103
STATEMENT OF PROFIT & LOSS ACCOUNT FOR THE YEAR 2012-13

BALANCE SHEET FOR THE YEAR ENDING 2013

PARTICULARS
PARTICULARS AS ON 31-3-2013
2012-2013
  SOURCES OF FUNDS   
Share holdre's funds
Revenues   
Capital
Sale of Products 4,44,10,500
323,50,31,620
Reserves
Less: Excise Duty and Surplus 100,38,82,029
21,83,96,299
NetLoan Funds
sale of Products   301,66,35,321
Increase in Secured
Stock loans 3,47,93,615
7,23,96,784
  Un Secured loans 7,82,92,794
308,90,32,105
NetIncome
Other Deffered Tax Liabilities 10,74,56,953
3,43,57,603
TOTAL
Total Income 126,88,35,891
312,33,89,708
APPLICATION OF FUNDS
Expenses   
FIXED
Cost ASSETS
of Material Consumed   201,47,23,347
Changes inGross Block Of finished goods, WIP and Stock in Trade 121,00,02,136
Inventories  
Less:Depreciation
Employee Benefit Expenses 65,94,27,245
11,93,91,601
Net Block
Financial costs 55,05,74,891
 
Capital Work in Progress
Depreciation 6,28,35,018
5,10,86,052
Advance for Capital goods
Other Expenses 3,92,84,067
61,74,87,697
Total expenses 65,26,93,976
280,26,88,697
Investments
Profit before tax 1,00,10,125
32,07,01,011
Current
Less: assets,Loans and Advances
Tax Expense:   
Inventories
Current tax 29,76,92,856
11,00,00,000
Sundry Debtors
Short /(Excess) Provision in early year 35,53,16,081
(5,18,817)
Deffered taxCash and bank balances
/(Credit) 10,37,57,796
(24,50,322)
Profit AfterOther
Tax Current Assets 5,35,381
21,36,70,150
Loans and Advances 24,04,35,361
99,77,37,475
Less:Current Liabilities and Provisions  
Current Liabilities 15,22,85,441
Provisions 23,93,20,244
104 39,16,05,685
Net Current Assets 60,61,31,790
TOTAL 126,88,35,891
STATEMENT OF PROFIT & LOSS ACCOUNT FOR THE YEAR 2013-14

PARTICULARS 2013-2014
   

105
 Revenues  
Sale of Products 418,61,69,010
Less: Excise Duty 36,08,87,271
Net sale of Products 382,52,81,739
Increase in Stock 11,00,18,212
  393,52,99,951
Other Income 3,64,06,218
Total Income 3,97,17,06,169
Expenses  
Cost of Material Consumed 280,53,70,177
Changes in Inventories Of finished goods, WIP and Stock in Trade  
Employee Benefit Expenses 16,64,09,618
Financial costs  
Depreciation 2,62,95,669
Other Expenses 64,71,44,564
Total expenses 368,71,72,699
Profit before tax 28,45,33,470
Less: Tax Expense:  
Current tax 8,30,00,000
Short /(Excess) Provision in early year (13,94,350)
Deffered tax /(Credit) 86,53,168
Profit After Tax 19,42,74,652

BALANCE SHEET FOR THE YEAR ENDING 2014

PARTICULARS AS ON 31-3-2014
SOURCES OF FUNDS  
Shareholder's funds  

106
 Capital 4,44,10,500
Reserves and Surplus 115,68,69,103
Loan Funds  
Secured loans 24,95,10,370
Un Secured loans 23,21,51,374
Net Deferred Tax Liabilities 11,61,10,121
TOTAL 179,90,51,468
APPLICATION OF FUNDS  
FIXED ASSETS  
Gross Block 139,44,35,216
Less:Depreciation 72,63,15,450
Net Block 66,81,19,766
Capital Work in Progress 12,66,93,414
Advance for Capital goods 92,32,105
80,40,45,285
Investments 1,45,40,374
Current assets,Loans and Advances  
Inventories 67,55,06,154
Sundry Debtors 43,85,61,908
Cash and bank balances 4,46,15,362
Other Current Assets 79,310
Loans and Advances 41,62,13,300
157,49,76,034
Less:Current Liabilities and Provisions  
Current Liabilities 29,89,46,810
Provisions 29,55,63,415
59,45,10,225
Net Current Assets 98,04,65,809
TOTAL 179,90,51,468

107
 STATEMENT OF PROFIT & LOSS ACCOUNT FOR THE YEAR 2013-14

PARTICULARS 2013-2014
   
Revenues  
Sale of Products 430,14,75,544
Less: Excise Duty 42,28,64,149
Net sale of Products 387,86,11,395
Processing Charges Received 3,60,82,016
  391,46,93,411
Other Income 2,58,42,886
Total Income 394,05,36,297
Expenses  
Cost of Material Consumed 277,66,05,488
Changes in Inventories Of finished goods, WIP and Stock in Trade 1,89,88,675
Employee Benefit Expenses 17,79,28,595
Financial costs 3,56,71,267
Depreciation 8,88,22,354
Other Expenses 65,64,77,474
Total expenses 375,44,93,853
Profit before tax 18,60,42,444
Less: Tax Expense:  
Current tax 6,00,00,000
Short /(Excess) Provision in early year  
Deffered tax /(Credit) 10,05,418
Profit After Tax 12,50,37,026

BALANCE SHEET FOR THE YEAR ENDING 2015

PARTICULARS AS ON 31-3-2015
I. EQUTY AND LIABILITIES

108
 SHARE HOLDERS FUNDS
Share capital 8,88,16,250
Reserves and surplus 118,58,90,906
  127,47,07,156
NON CURRENT LIABILITIES  
Deferred tax liabilities (Net) 11,71,15,539
Other Long term liabilities 9,27,308
Long term provisions 57,66,382
  12,38,09,229
CURRENT LIABILITIES  
Short term borrowings 30,08,01,689
Trade payables 7,37,38,813
Other current liabilities 10,44,51,403
Short term provisions 36,07,00,277
  83,96,92,182
TOTAL 223,82,08,567
II. ASSETS  
NON-CURRENT ASSETS  
Fixed Assets 81,83,19,599
Non Current investments 1,45,40,374
Long term loans and advances 4,60,61,033
  6,06,01,407
CURRENT ASSETS  
Current investment  
Inventories 50,64,56,758
Trade receivables 50,00,71,735
Cash and Cash equivalents 2,22,65,007
Short term Loans and advances 32,55,63,682
Other Current assets 49,30,379
  135,92,87,561
TOTAL 223,82,08,567

STATEMENT OF PROFIT & LOSS ACCOUNT FOR THE YEAR 2015-16

109
PARTICULARS 2015-2016
   
Revenues  
Sale of Products 453,46,35,784
Less: Excise Duty 51,60,21,770
Net sale of Products 401,86,14,014
Processing Charges Received 5,78,59,896
  407,64,73,910
Other Income 1,62,80,465
Total Income 409,27,54,375
Expenses  
Cost of Material Consumed 275,28,43,240
Changes in Inventories Of finished goods, WIP and Stock in Trade (72,30,616)
Employee Benefit Expenses 19,78,18,702
Financial costs 3,96,73,161
Depreciation 10,01,37,870
Other Expenses 78,00,65,757
Total expenses 386,33,08,114
Profit before tax 22,94,46,261
Less: Tax Expense:  
Current tax 8,50,00,000
Short /(Excess) Provision in early year 1,03,545
Deffered tax /(Credit) (18,63,353)
Profit After Tax 14,62,06,069

BALANCE SHEET FOR THE YEAR ENDING 2016

PARTICULARS As on 31-3-2016
I. EQUTY AND LIABILITIES  
SHARE HOLDERS FUNDS  

Share capital 8,88,16,250

110
 Reserves and surplus 126,97,53,966
  135,85,70,216
NON CURRENT LIABILITIES  
Deferred tax liabilities (Net) 11,52,52,186
Other Long term liabilities 9,27,308
Long term provisions 68,52,627
  12,30,32,121
CURRENT LIABILITIES  
Short term borrowings 35,69,14,185
Trade payables 9,98,50,727
Other current liabilities 10,31,38,178
Short term provisions 45,24,24,446
  101,23,27,536
TOTAL 249,39,29,873
II. ASSETS  
NON-CURRENT ASSETS  
Fixed Assets 83,53,50,799
Non Current investments 1,35,40,374
Long term loans and advances 1,46,92,375
  2,82,32,749
CURRENT ASSETS  
Current investment  
Inventories 57,20,00,689
Trade receivables 55,51,78,532
Cash and Cash equivalents 5,63,38,144
Short term Loans and advances 43,98,02,561
Other Current assets 70,26,399
  163,03,46,325
TOTAL 249,39,29,873

STATEMENT OF PROFIT & LOSS ACCOUNT FOR THE YEAR 2016-17

111
PARTICULARS 2016-2017
   
Revenues  
Sale of Products 417,18,29,039
Less: Excise Duty 44,99,40,340
Net sale of Products 372,18,88,699
Processing Charges Received 2,92,92,307
  375,11,81,006
Other Income 1,90,31,168
Total Revenue 377,02,12,174
Expenses  
Cost of Material Consumed 267,74,50,232
Changesin Inventories Of finished goods, WIP and Stock in Trade (6,21,46,029)
Employee Benefit Expenses 19,19,49,361
Financial costs 1,73,16,158
Depreciation 10,26,23,440
Other Expenses 67,99,73,125
Total expenses 360,71,66,287
Profit before tax 16,30,45,887
Less: Tax Expense:  
Current tax 6,50,00,000
Short /(Excess) Provision in early year (9,54,329)
Deffered tax /(Credit) (1,42,53,041)
Profit After Tax 11,32,53,257

PARTICULARS As on 31-3-2017
I. EQUTY AND LIABILITIES  
SHARE HOLDERS FUNDS  
Share capital 8,88,16,250
Reserves and surplus 133,10,54,716

112
  141,98,70,966
NON CURRENT LIABILITIES
Deferred tax liabilities (Net) 10,09,99,145
Other Long term liabilities 9,03,000
Long term provisions 60,13,202
  10,79,15,347
CURRENT LIABILITIES
Short term borrowings 12,10,83,663
Trade payables 20,02,31,660
Other current liabilities 12,60,27,874
Short term provisions 45,70,34,234
  90,43,77,431
TOTAL 243,21,63,744
II. ASSETS
NON-CURRENT ASSETS
Fixed Assets 74,21,71,690
Non Current investments 1,35,55,874
Long term loans and advances 2,04,21,984
  3,39,77,858
CURRENT ASSETS
Current investment 5,03,468
Inventories 60,65,11,283
Trade receivables 44,59,78,198
Cash and Cash equivalents 7,37,55,660
Short term Loans and advances 55,33,10,831
Other Current assets 59,54,756
  165,60,14,196
TOTAL 243,21,63,744

113