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Institutional Training Report On Working Capital Management Of Eastern Condiments Pvt Ltd, Submitted in partial fulfillment of the requirements

for the degree of Masters of Business Administration [MBA] Institutional Training

Done by

Mohamed Rahees.K

Eastern Condiments Pvt Ltd, Ernakulam

Under the Guidance of

Prof. Sathish.A.S

VIT Business
School fostering UNIVER innovation S I
(Estd. u/s 3 of UGC Act 1956)

Vellore - 632 014, Tamil Nadu, India

This is to certify that Institutional Training Report submitted by Mr. Mohamed Rahees.K, Reg. No. [10MBA0085] to VIT Business School, VIT University, Vellore in partial fulfillment of the requirements for the degree of Master of Business Administration is a bonafide record of work carried out by him under my supervision. The contents of this report, in full or in parts have not been submitted in any form to any other institute or university for the award of any degree or diploma.

Faculty Guide

Programme Manager

Internal Examiner

External Examiner


I, Mohamed Rahees.K (10MBA0085), a Bonafide student of the VIT Business School, VIT University, Vellore, hereby declare that the Institutional Training Report submitted in partial fulfillment of the requirements of the Degree of Master of Business Administration of the VIT University, is my original work. . Date: Place: Vellore

Mohamed Rahees.K


I would like to express my sincere gratitude to my company guide Mrs.Rahana, senior finance manager of Eastern Condiments Pvt Ltd, Ernakulam, for guiding me throughout my research project. Her encouragement, time and effort are greatly appreciated. I would like to thank my faculty guide, Prof. SATHISH.A.S, Assistant Professor (Senior) , VIT Business School for all her valuable inputs and constant support towards me throughout my project and providing me an opportunity to learn outside the class room and constantly motivating me to give my best. It was a truly wonderful learning experience I would also like to thank my parents for supporting and encouraging me to complete the project. Last but not the least I thanks the ALMIGHTY for his blessing to complete my project successfully.







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The ultimate objective of any organization is to maximize its profits. This objective can be achieved through various methods like increasing sales, reducing cost, reducing overheads, reducing prices, increasing sales promotion and so on. All these factors have an influence on the working capital and how effectively are being managed. Profits will increase considerably if the organization manages its working capital optimally. Thus efficient working capital is one of the prerequisites of success of an enterprise. Every business organization needs fund to satisfy their long term and short term needs. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is divided on a fixed basis and that is called fixed capital. Short term funds are required for short term purposes, for the purchase of raw materials, payment of wages and other day to day operations. These funds are known as working capital. In simple terms , working capital refers to that part of firms capital which is required for financing short term or current asset such as cash , marketable securities, debtors and inventories, fund thus invested in the current asset keep revolving fast are being constantly converted in to cash and this cash flows out again in exchange for other current asset. Hence it is also known as revolving or circulating capital or short term capital. Circulating capital means that current asset of a company that are changed in the ordinarily course of business from one form to another, for example from cash to inventories , inventories to receivables, receivables to cash, etc


Primary Source
Primary data for the research was collected by conducting interviews with the officials and concerned employees. The information provided by them was very helpful in the research.

Secondary Data Secondary data were collected form the company profile, annual reports, company website etc.


Interview Observation Published sources


Every study has an objective for which it is conducted. This study is no exception. The following are the objectives of the study: To study the Working Capital requirement of the organization. To find out the liquidity position of the company. To analyze the profitability of the concern.



Both primary and Secondary data has been be used for the study. Primary data was collected through direct interaction with the companys finance and accounts department. And I collected the data from the secondary sources comprising Annual Reports of the firm, other journals and periodicals. Apart from the conducting this research works on the basis of this informations, various techniques of financial management e.g., ratio analysis etc. was used in the present study. To present a broad view so far the purpose of the analysis and to make it easy to understand the problem/concept of a few graphs and tables shall also be presented. In each chapter, the analysis has been compared with actual management practices of the company under study.


Spice, aromatic vegetable product used as a flavoring or condiment, normally refers to the derivatives from certain herbs seeds, leaves, bark, roots etc. They are used mainly for enhancing taste of the food. The name spice is derived from the word species, which was applied to groups of exotic food stuffs in the middle ages. The term spice was formerly used to refer to pungent or aromatic foods, to ingredients of incense or perfume and to embalming agents. Modern usage tends to limit the term to flavorings used in food or drinks, although many spices have additional commercial uses, e.g., as ingredients of medicines, perfumes, incense and soaps. The earliest literary record in India on spices is the Rig Veda (around 6000 BC).The story of Indian Spices dates back to 7000 years into the past. In the modern world, major trade is related to food, and spices provide the major thrust. Traditionally being a country of agriculture, India leads the trade. Spices can improve the palatability and the appeal of dull diets or spoiled food. Piquant flavors stimulate salivation and promote digestion. Pungent spices can cause sweating, which may even cause a cooling sensation in tropical climates; on the other hand they can add a sense of inner warmth when present in cooked foods used in cold climates. In India, traditionally, spices formed a part of common man's daily food.

India and Spices

Indian spices paid important role in the history of various lands, discovered or destroyed, kingdoms built or brought down, wars won or lost, treaties signed or flouted, flavors sought or offered. Spices have also played a political role in the history. The use of spices from the East became a status symbol by the year 1200 and the European preoccupation with the world of spice was born. The use of spice in food meant money and power, and the desire to acquire these precious status symbols led to world exploration pan-global communication, trade, alliances and wars.

Indian Spices also fitted into philosophic concepts of improving health, since it was understood that they could affect the four humors (blood, phlegm, yellow bile and black bile) and influence the corresponding moods (sanguine, phlegmatic, choleric and melancholic). Thus, ginger would be used to heat the stomach and improve digestion; clove was believed to comfort the sinus; mace would prevent colic and bloody fluxes or diarrhea; nutmeg would benefit the spleen and relieve any bad cold.

The Indian share.

At present, India produces around 2.5 million tones of different spices valued at approximately US $, 3 billion and holds the premier position in the world. Because of the varying climates suitable for the spice cultivation, almost all spices are grown in this country. In almost all of the 25 states and seven union territories of India, at least one spice is grown in abundance. No country in the world produces as many kinds of spices as India. In recent years, export of Indian spices has been taking giant leaps. The Spices Board India is the apex body for the export promotion of Indian Spices. The Board has been very cooperative with the Indian spice industry. The Board plays a far reaching and influential role as a developmental, regulatory and promotional agency for Indian Spice.

Spice Business in Kerala

Kerala is a land of spices considering the large variety of spices grown in the state. Today there are as many as 26 Indian spices that are greatly in demand in different countries. The most popular among the spices are pepper, cardamom, turmeric, chilies and ginger. Pepper, known as the 'King of Spices' is perhaps the world's oldest known spice and is cultivated in over 158,000 hectares in Kerala, which accounts for 96 % of the total production in the country. There are a lot of opportunities for investors in the spice sector and Spices Board, the caretaker of the sector in India is based in the state.

The story of the Eastern Curry powder began in a small mountain township called Adimali. The group was founded by Mr. M. E. Meeran started with a dream making food product available to the common man at the right prices. The company established in 1983 is a pioneer in the state to produce packed curry powders, masala powders, spices, coffee powders, tea and food products. The high ranges are well known as centre of spices. The peculiar type of climate and fertility of soil is very suitable for agriculture in Adimali, where the best spices from all over India are sourced, powdered and packed in most stringent conditions. The purity and freshness of Eastern curry powder has made Eastern a house hold name in India and abroad. The company has been exporting products to countries like the Kingdom of Saudi Arabia and the United Arab Emirates for the past few years and currently is exporting to the Middle East, U.K, U.S.A, Australia and Germany. Today, Eastern has grown into a favorite brand in Indian homes across the world. Eastern condiments Pvt Ltd is a well established name and Keralas largest manufacturer and market leader with a market share of 70% in Kerala and one of the leading brands in South India. Two well equipped factories and over two million satisfied households across the world stand as solid evidence of its exceptional repute.


Eastern Condiments Pvt Ltd (ECPL), the flagship company of the Eastern Group, has achieved 500 crore turn over in 2010 compared with the previous year, The Eastern Group have successfully expanded its pan-Indian presence by making its products available in nearly 650 towns in the country. In Kerala, the company has a market share of 96% in 2009-2010.


The expansion has been achieved by deploying a combination of direct distribution units as well as the conventional distribution model. During the year, the company has also made impressive gains by launching ethnic products to cater to the diverse palate of the Indian consumer. These initiatives helped the company clock a 72 per cent sales growth in the states other than Kerala during the year. The exports division of Eastern Group has registered 60 per cent growth as its products established a niche in more than 15 countries across the globe. The achievement in exports was crowned by bagging the Spices Boards award for the largest selling brand in blended spice powder in consumer packs for the tenth year in a row.


To be the preferred supplier entering to the basic needs of mass market by providing products of outstanding value through the adoption of global standard and innovative practice. To be the preferred employer in the industry by providing a challenging work environment and adding value to our people through varied exposure and continuous education. To be the preferred business partner of all our stakeholders by providing them with exemplary benefits.


Mr. Meeran, the founder and Chairman of Eastern group started his career as a businessman in Adimali in 1969 with his first venturing Eastern Trading Company. He could establish a good sales network in Idukki district and the businessman in him felt the need for producing spice powders at the time households were sparingly using such powders in their daily cooking. As years passed, he started an agency business in 1975 by the name Eastern Agencies at Adimali where its wholesale shop was located. He had taken products from in and out of the state and worked as an agency for trading. The shown scope for better prospects and the present popular Eastern Condiments was established in 1983. Within a short span of time, it could

become the market leader in curry powders and the only ISO 22000 certified company and the exporter of curry powders worldwide. From the very beginning, the group founder Mr. M. E Meeran has been the Chairman and the Managing Director of Eastern Condiments Pvt Ltd. In addition to that Mr. Navas Meeran and Mr. S.M Mohammed hold the chairs of Directors. The company started functioning only with 25 workers. Now it is grown to more than 2500 workers and three production units-one in Adimali and the other in Theni in Tamil Nadu and one in kothamangalam, Cochin. The companys new plant is in Guntoor (A.P) the company management and the workers are working with the heart and soul for the achievement of the goals of the organization.

The group is managed by teamed professional and family members. From the very beginning Mr. M. E Meeran has been the chairman and the manager of the company. In addition Mr. Navas Meeran, Mr. S. M Mohammed holds the chair of directors plays a key role behind the success of the Eastern Group. Besides this, there is an administration office working at Ernakulum for its proper administration. As head of administration, there is a chairman to whom the vice-chairman reports.

The Eastern Group of Associates

Eastern curry powder comes from the Eastern group of companies. With an experience of over thirty years in producing spices, they have provided their consumers with consistently high quality powders and blends. An eastern condiment operates from three modern factories situated in the Western Ghats of South India. The strength and success of the Eastern spices worldwide lies in its simple attitude of applying old time values to a new world technology. Strict quality parameters are employed in every sphere of production. Strongest hygiene measures are applied with regular laboratory testing. The stress on hygiene is accelerated by strict procedures such as steam sterilization, etc. name one more process.

Eastern group of associates is a group with diverse interests and a world leader in Indian spices. Eastern has ventured into various areas like tyre retreads, mattresses, garments, packaged foods, mineral water and public school.

Group of Associates
Eastern Condiments Pvt. Ltd Eastern Treads Ltd Eastern Mattress (P) Ltd Eastern Clothing Company Eastern Aqua Minerals Eastern Public School Eastern Chai (P) Ltd


India is considered to be the world market for spices. Spices play a vital role in the economic development of the country. About 70% of our national income is derived from the agricultural sector. The peculiar type of climatic conditions and fertility of soil is very suitable for the cultivation of spices like pepper, ginger, cardamom, grampus, turmeric etc. The purity and the freshness of the Indian spices and spice powders have made in India a favorite market of spices in the world. Spices are used in many countries as flavoring agents. They improve the flavor and acceptability of cooked food and make them more delicious. Eastern Condiments Pvt Ltd has different varieties of spices, curry powders and pickles on its product mix. The purity and freshness of Eastern powders has made Eastern a household name and it has grown to be a leading brand and market leader and the only exporter of curry powders from Kerala..

An impressive infrastructure with the most sophisticated and advanced plantation management system for spices is at its disposal. With its most fertile plans, a thoroughly competitive Eastern Condiments Pvt Ltd is operated from two modern factories situated in the Western Ghats of South India. The Eastern has direct route sale to every nook and corner of Kerala. The strength and success of the Eastern spices worldwide lies in its simple attitude of applying old time values to a new world technology. Strict quality parameters are employed in every sphere of production. Be it the workforce or the latest equipment, Eastern leaves a sensational trail of standardized excellence. Stringent hygienic measures are applied with regular laboratory testing. The stress on hygiene is accentuated by strict procedures such as steam stabilization. Tropical high range provides extremely congenial agro climatic conditions for the Eastern spice cultivation. Thus mountains fertility is what imparts the destinity, high versatility and authority to the Eastern flavors. SPICE POWDERS







Eastern Condiment Pvt. Ltd Ernakulum has ventured its functioning into various departments. The study areas carried out in nine departments namely Human Resources Marketing Finance Production IT Purchase Quality Control Maintenance Production Planning and Control




DGM -Finance & Co.Secy

Finance Controller

Manager -Sales Accounting

DGM -Finance

Manager MI S & Budgeting

Asst.Manage r-Finance

Regional Accountants

J r.Officers -AR

Dy.Manager Taxation

Factory Accounts

J r.Officer AP

Finance plays a key role in the all the activities of business. It may be defined as the service of money. It deals with the principles and methods of obtaining control money from those who have saved it and of administrating it by those who control it. The success of finance function depends on how finance is planned at the various levels of administration under the management. Financial management is that managerial activity which is concerned with the planning and controlling of the firms financial resources. It deals with finding out various sources for raising funds for raising funds for the company.


1. Financial department has an impact on all activities of the firm. 2. Financial department aims to discharge the finance functions successfully 3. Financial departments main aim is to use business funds in such a way that the earnings are maximized

4. Financial department is necessary to every type of organization, irrespective of its size, kind and nature 5. Financial department is useful for all types of organization where there is any use of finance.



Working Capital management is the management of assets that are current in nature. Current assets, by accounting definition are the assets normally converted in to cash in a period of one year. Hence working capital management can be considered as the management of cash, market securities receivable, inventories and current liabilities. In fact, the management of current assets is similar to that of fixed assets the sense that is both in cases the firm analyses their effect on its profitability and risk factors, hence they differ on three major aspects: 1. In managing fixed assets, time is an important factor discounting and compounding aspects of time play an important role in capital budgeting and a minor part in the management of current assets. 2. The large holdings of current assets, especially cash, may strengthen the firms liquidity position, but is bound to reduce profitability of the firm as ideal car yield nothing. 3. The level of fixed assets as well as current assets depends upon the expected sales, but it is only current assets that add fluctuation in the short run to a business. To understand working capital better we should have basic knowledge about the various aspects of working capital. To start with, there are two concepts of working capital: Gross Working Capital Net working Capital Gross Working Capital: Gross working capital, which is also simply known as working capital, refers to the firms investment in current assets: Another aspect of gross working capital points out the need of arranging funds to finance the current assets. The gross working capital concept focuses attention on two aspects of current assets management, firstly optimum investment in current assets and secondly in financing the current assets. These two aspects will help in remaining away from the two danger points of excessive or inadequate investment in current assets. Whenever a need of working capital funds arises due to increase in level of business activity or for any other reason the arrangement should be made quickly, and similarly if some

surpluses are available, they should not be allowed to lie ideal but should be put to some effective use. Net Working Capital: The term net working capital refers to the difference between the current assets and current liabilities. Net working capital can be positive as well as negative. Positive working capital refers to the situation where current assets exceed current liabilities and negative working capital refers to the situation where current liabilities exceed current assets. The net working capital helps in comparing the liquidity of the same firm over time. For purposes of the working capital management, therefore Working Capital can be said to measure the liquidity of the firm. In other words, the goal of working capital management is to manage the current assets and liabilities in such a way that an acceptable level of net working capital is maintained.


Management of working capital is very much important for the success of the business. It has been emphasized that a business should maintain sound working capital position and also that there should not be an excessive level of investment in the working capital components. As pointed out by Ralph Kennedy and Stewart MC Muller, the inadequacy or mis-management of working capital is one of a few leading causes of business failure. Current assets, in fact, account for a very large portion of the total investment of the firm.

Determinants of Working Capital:

There is no specific method to determine working capital requirement for a business. There are a number of factors affecting the working capital requirement. These factors have different importance in different businesses and at different times. So a thorough analysis of all these factors should be made before trying to estimate the amount of working capital needed. Some of the different factors are mentioned here below:1. Nature of business: Nature of business is an important factor in determining the working

capital requirements. There are some businesses which require a very nominal amount to be invested in fixed assets but a large chunk of the total investment is in the form of working capital. There businesses, for example, are of the trading and financing type. There are businesses which require large investment in fixed assets and normal investment

in the form of working capital.

2. Size of business: It is another important factor in determining the working capital

requirements of a business. Size is usually measured in terms of scale of operating cycle. The amount of working capital needed is directly proportional to the scale of operating cycle i.e. the larger the scale of operating cycle the large will be the amount working capital and vice versa.
3. Business Fluctuations: Most business experience cyclical and seasonal fluctuations in

demand for their goods and services. These fluctuations affect the business with respect to working capital because during the time of boom, due to an increase in business activity the amount of working capital requirement increases and the reverse is true in the case of recession. Financial arrangement for seasonal working capital requirements are to be made in advance.
4. Production Policy: As stated above, every business has to cope with different types of

fluctuations. Hence it is but obvious that production policy has to be planned well in advance with respect to fluctuation. No two companies can have similar production policy in all respects because it depends upon the circumstances of an individual company.
5. Firms Credit Policy: The credit policy of a firm affects working capital by influencing

the level of book debts. The credit term is fairly constant in an industry but individuals also have their role in framing their credit policy. A liberal credit policy will lead to more amount being committed to working capital requirements whereas a stern credit policy may decrease the amount of working capital requirement appreciably but the repercussions of the two are not simple. Hence a firm should always frame a rational credit policy based on the credit worthiness of the customer.


Ratio analysis is one of the powerful tools of the financial analysis. A ratio can be defined as the indicated quotient of two mathematical expressions, and as the relationship between two or more things. Ratio is, thus, the numerical or an arithmetical relationship between two figures. It is expressed where one figure is divided by another. A ratio can be used as a yardstick for evaluating the financial position and performance of a concern, because the absolute accounting data cannot provide meaningful understanding and interpretation. Ratio analysis helps the analyst to make quantitative judgment with regard to concerns financial position and performance.


The following are the main points of importance of ratio analysis: 1. Accounting ratios reveal the financial position of the concern. This helps banks,

insurance companies and other financial institutions in lending and making investment decisions. 2. 3. 4. 5. 6. Accounting ratios simplify, summaries and systematize the accounting figures in Accounting ratios help in assessing the operational efficiency of the concern. Accounting ratios can be used for forecasting purpose when they are calculated Accounting ratios are of great assistance in locating the weak spots in the Through accounting ratios comparison can be made between one department of a order to make them more understandable and in lucid form. They diagnose the financial health by evaluating liquidity, solvency, profitability etc. for a number of years. business even though the overall performance may be efficient. firm with another of the same firm in order to evaluate the performance of various departments in the firm .



CURRENT RATIO Current ratio is defined as the ratio of current asset to current liabilities. It shows the relationship between total current asset &total current liabilities and indicate short term solvency. Current asset includes cash, sundry debtors, and inventory. A current ratio 2:1 has long been considered generally satisfactory. Current Ratio = Current Assets/Current Liabilities Year Current asset (in laks) 2006 2007 2008 2009 2010 4385.14 6503.76 9449.96 9244.66 8492.35 Current liability (in laks) 2252.34 2073.49 2256.34 3252.12 2697.87 1.95 3.14 4.19 2.84 3.15 Current ratio


The above table and chart shows that the current ratio has an increasing and decreasing trend. This ratio shows a firms ability to cover its current liabilities with its current assets. In the year 2007-2008 the current ratio was the highest which slightly decreased in 2008-2009. But in 2009-2010 it has again increased. Thus the current ratio is favorable. The current ratio is increase in 2007-2008 than other years because in this year there is increase in inventory and cash and bank balance compare to 2009 and 2010. QUICK RATIO It is determined by dividing Quick asset i.e. Marketable investments, cash and sundry debtors by Current Liabilities .The ratio is a better test of financial strength than the current ratio as it given no consideration to inventory which may be very slow moving. As a conventional rule quick ratio of 1:1 is considered satisfactory.


Quick Ratio= Liquid Asset/Current Liability Year Liquid asset (in laks)
2006 2007

Current liability (in laks) 2252.34 2073.49 2256.34 3252.12 2697.87

Quick ratio

2454.10 4216.09 6887.46 7108.08 4820.3

1.09 2.03 3.05 2.18 1.79

2008 2009 2010


The quick ratio is the highest in the year 07-08, but it started decreasing in the next years. The quick ratio is showing a decreasing trend. This ratio shows a firms ability to meet current liabilities with its most liquid assets. 1:1 ratio is considered ideal ratio for a concern because it is wise to keep the liquid assets at least equal to the liquid liabilities at all times. In 2007-08 the ratio is increasing because of increase in bank and cash balance. ABSOLUTE LIQUID RATIO Absolute liquid assets include cash in hand and at bank and marketable securities or temporary investments. The acceptable norm for this ratio is 0.5:1 or 1:2 i.e. Re 1 worth absolute liquid assets are considered adequate to pay Rs. 2 worth current liabilities in time as all the creditors are not expected to demand cash at the same time and then cash may at the same time and then cash may also be realized from debtors and inventories. Absolute liquid ratio = Absolute liquid assets / Current liabilities Where absolute liquid assets = Cash + Bank + marketable securities. Year Absolute Liquid asset (in laks) 2006 2007 2008 2009 2010 2150.40 1900.50 2,659.04 1956.12 846.96 2252.34 2073.49 2256.34 3252.12 2697.87 0.95 0.91 1.17 0.60 0.31 Current liability (in laks) Absolute liquid ratio


From the above table and chart it is evident that the absolute liquid ratio of the company is low in 2010. The industry standard for this ratio is 1:2 i.e. Re.1 worth or absolute liquid assets are sufficient for Rs.2 worth of current liabilities. However in the last financial year it has shown decreasing trend. This ratio is decrease in all years other than 2008, this is because in this year they have more current assets, and by this they can easily turn assets into cash.


GROSS PROFIT RATIO: This ratio indicates the average spread between the cost of goods sold and the sales revenue. This ratio is expressed in percentage.

Gross profit ratio: [Gross profit / Net sales] *100

Gross profit = Net sales Cost of goods sold Year Gross Profit (Lakhs) 2006 2007 2008 2009 2010 3891.42 4040.73 6419.84 6947.53 10905.21 Net Sales (lakhs) 10958.39 16019.05 19847.84 27514.45 32026.17 35.51% 25.22% 32.34% 25.25% 34.05% Gross Profit Ratio

40 35 30 25 20 15 10 5 0 2006 2007 2008 2009 2010 Gross Profit Ratio


It is evident from the table and chart that the Gross Profit of the company has increasing and decreasing trend. Higher the ratio, the higher is the profit earned on sales. In the year 2005-2006, Gross Profit was the highest than ever. On the whole the gross profit ratio of the firm is good. NET PROFIT RATIO Another measure of profitability is net profit margin. This ratio gives a measure of net income by each unit of sales and often measured as percentage of sales. This measures the overall profitability. Net Profit Ratio: [Net Profit /Net Sales] *100


Net Profit (Lakhs)

Net Sales (lakhs) 10958.39 16019.05 19847.84 27514.45 32026.17

Net Profit Ratio

2006 2007 2008 2009 2010

1426.68 1385.41 591.79 1210.42 3190.54

13.02 8.65 2.98 4.39 9.96


The net profit of the company was low only in the year 2007--2008. But in all other years the net profit of the firm is favorable. The year 2005-06 shows the highest ratio. Higher the Net Profit ratio, more profitable is the sales. The net profit is decreased in 2007, 2008 and 2009 because in these years companies cost production is high. OPERATING RATIO: Operating ratio expresses the relationship of cost of goods sold plus operating expenses to net sales. Operating profit ratio = (Operating profit / Net sales) x 100


Operating Cost

Net Sales

Operating Profit

(lakhs) 2006 2007 2008 2009 2010 8417.28 13251.71 17092.04 24186.36 25984.71 10958.39 16019.05 19487.84 27514.45 32026.17

Ratio 76.81 82.72 87.71 87.90 81.13

It is clear from the table and chart that the company has good amount of Operating Profit in the year 2009 is increased further in the next year decreased. It indicates the portion remaining out of every rupee worth of sales after all operating expenses have been met. Higher the ratio, the better it is.



Inventories are the stock of the product made for sale by the company or semi finished goods or raw materials. Inventory of finished goods which are ready for sale is required to maintain smooth marketing operation. The inventory of raw material and work in progress is required in order to maintain an unobstructed flow of material in the production line. These inventories serve as a link between the production and consumption of goods. The aspect of management of inventory is especially important in respect to the fact that in country like India, the capital block in terms of inventory is about 70% of the current assets. It is therefore, absolutely imperative to manage efficiently and effectively in order to avoid unnecessary investment in them. Although to maintain low inventories may prove to be profitable but to maintain very low inventories may prove risky on the contrary. This aspect of management if tackled in a proper way may prove to be a boon its effective and efficient management would result in the maintaining of optimum level of inventories. At this level the profitability of the organization will not be jeopardized at the cost of inventory.


In the modern business world there is practically nothing that is done without objective. The objective is also one that would help the organization in reaching its goals in a better way. Hence it can be inferred that the importance given to management of inventory in the business world is not devoid of a concrete reasons behind it. The two main reasons behind all this are, firstly, to maintain a inventory big enough that the production and sales operation are carried on without any hindrance and secondly, to minimize the investment in inventory, in order to maximize the profits. Both, excessive as well as inadequate inventory level is not good. They are the two danger points that a company should try to avoid and should always try to maintain optimum level of inventory. The excessive investment in the inventory has the following drawbacks: Unnecessary tie up of firms fund and loss of profit. Excessive carrying cost. The risk of liquidity.

The over investment of funds in inventory eat up the precious funds which could have been put to some profitable use. The carrying cost incurred, cannot be ignored, this is the cost of storage, handling insurance, recording and inspecting. These all costs incurred in order to have large inventories impair the profitability of the firm. Another danger of carrying excessive inventory is the deterioration, obsolescence and pilferage of raw materials. Maintaining inadequate inventory is also dangerous. The consequences of under investment in inventory are Production hold ups; Failure to meet commitment If the inventory of finished goods is not adequate than the demand of customer is peak periods may be left unmet and it the under investment is in the area of raw materials that is likely that the production process may be held up frequently. The aim of inventory management thus should be to avoid excessive and inadequate level of inventory and to maintain sufficient inventory for smooth production and sales operation efforts should be made to place an order at the right time to right source to acquire right amount at the right price and for right quantity. The aspects of a effective inventory management should take care of areas: Ensure continuous supply of material to facilitate uninterrupted production. To maintain sufficient stocks of raw material in the periods of short supply and evident price rise. To maintain sufficient inventory of finished goods for smooth sales operation. Minimize carrying cost and time. Control investment and keep it to the optimum level.



In this section of this chapter, an attempt has been made to judge the efficiency of inventory management in Eastern Condiments by examine composition movement and level of inventory held by the firm. Composition of Inventory: Composition of inventory generally depends upon the nature of business. The proportion of each component in the total inventory varies from industry to industry. In order to assure effective control on the total investment in inventories it is desirable to maintain a proper balance in all the components. The structure of inventory shows us that which part of the inventory is more in the organization. Such knowledge helps us in the efficient management of inventory. Company is purchasing their raw materials in seasonal wise, because these are seasonal products. They are using First in First out (FIFO) method of inventory. INVENTORY TURNOVER RATIO Inventory turnover ratio = Net Sales/ Average Inventory Year Net Sales (in lakhs) 2006 2007 2008 2009 2010 10958.39 16019.05 19847.84 27514.45 32026.17 Average inventory (in laks) 1260.11 1515.28 2044.58 2349.54 2904.31 Stock turnover ratio 8.69 10.57 9.70



We can understand from the table and chart that the Stock Turnover Ratio shows a increasing trend. The highest ratio is in the year 2008-2009. This ratio indicates the speed at which the inventory will be converted into sales, thereby contributing for the profits of the concern. Higher the ratio, the better it is. In 2008 and 2010 there is decrease in ratio because, in these years they launched new products to the market. By this their inventory is increased and it doesnt turn compare to other years. TOTAL ASSET TURNOVER RATIO The ratio indicates the number of times total assets are being turned over in a year. Higher the ratio indicates overtrading of total assets, while a low ratio indicates idle capacity. Total asset turnover ratio = net sales /total asset


Net Sales (in laks)

Total Asset (in laks) 4209.97 6535.29 9449.96 9244.66 8492.35

Total asset turnover ratio 2.60 2.45 2.10 2.97 3.77

2006 2007 2008 2009 2010

10958.39 16019.05 19847.84 27514.45 32026.17


T otal AssetT urnov ratio er

4 3.5 3 2.5 2 1.5 1 0.5 0 2006 2007 2008 2009 2010
Total Asset Turnover ratio

It is observed from the table and chart that the Total Asset Turnover Ratio shows increased trend. A high ratio is an indicator of over-trading of total assets while a low ratio reveals idle capacity. The industry standard for the ratio is two times.


Working capital turnover ratio indicates the velocity of utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of a year. This ratio measures the efficiency with which the working capital is being used by a firm. A higher ratio indicates efficient utilization of working capital. It is computed to test the efficiency with which the net working capital is utilized. A firm may also like to relate net current assets to sales ratio can best be used. Working Capital Turnover Ratio = Net Sales/Net Working Capital


Net Sales (in laks)

Net Working Capital (in laks)

Working Capital turnover ratio

2006 2007 2008 2009 2010

10958.39 16019.05 19847.84 27514.45 32026.17

2132.39 4430.21

5.14 3.61

7193.63 5992.54 5794.48

2.70 4.59 5.52


From the table and chart it is clear that Working Capital Turnover Ratio shows increasing trend, the highest in the year 09-10 and lowest in the year 07-08.This ratio shows the number of times working capital is turned over. The higher the ratio, the lower is the investment in working capital and greater are the profits

Trade credit, the tool which as a bridge for movement of goods through production and distribution stages to customer, is a force in the present day business and a essential device. Trade credit is granted with a motive of protecting the sale from ones, competitors and attaching more of the potential customers. Trade credit is said to be extended to a customer when a firm sell its services or goods and does not receive the payment for them immediately. Thus trade credit creates receivable which refer to the amount which a firm is expected to collect in near future. The book debt or receivable which arise a result of trade credit have the following features: It involves a element of risk and hence should never to be fiddled with. As credit sale leave a sum to be recovered in future and future can never be the certainty, hence it is

risky. It is based on economic value, while for the buyer, the economic value in goods passes immediately at the time of purchase, while the seller expects an equivalent value to be received later on. It represents futurity. The cash payments for the goods or services received by the buyer will be made in future. The management of receivable gain more importance in the view of the fact that more than one third of the total current assets is blocked in the form of trade debtors. The interval between the date of sale and the date of payment is financed by working capital. Thus trade debtors represent the investment. As substantial amount are tied up as trade credit hence it requires careful analysis and proper management


Evaluation of the performance of the credit department is a difficult task. Yet a successful receivable management must ensure a comparatively slow growth of receivable as against sales, as factory collection period and receivable task over minimum bad debts losses and effective use of capital invested in receivable. To what extent the concerns have been successful in their efforts, can be gauged by their actual performance. Accordingly the following criterion have been employed to evaluate the performance of receivable management in Eastern Condiments. 1. Composition of Receivable: It helps in showing the point where receivable are concentrated most. 2. Ageing of accounts receivable: To have a detail idea of a quality of accounts receivable through agency schedule. 3. 4. Average collection period: To measure the effectiveness of collection efforts. Relationship between debtors and sales: To know growth rate and also co-efficient of correlation and determination. 5. Receivable as percentage of sales ratio: To examine the level of investment is receivable


Average collection period explains how many days of credit; a company is allowing to the customer, a higher collection period indicates towards a liberal and inefficient credit and collection performances shorter the collection period the better the credit management and liquidity of accounts receivable. DEBTORS TURNOVER RATIO Debtors turnover ratio = Net Sales/Average Debtors Debt Collection Period = 365/Debtors Turnover Ratio Year Net sales (in laks) 2006 2007 2008 2009 2010 10958.39 16019.05 19487.84 27514.45 32026.17 Average Debtors (in laks) 1561.47 2344 2246.83 1782.98 1827.14 7.02 6.83 8.67 15.43 17.53 Debtors turnover ratio Debt Collection Period 52 days 53 days 42 days 23 days 20 days


60 PERIOD 50 PERIOD 40 30 PERIOD 20 10 0 2006 2007 2008 2009 2010 PERIOD DebtorsTurnover Ratio Debt Collection Period PERIOD

The debtors turnover ratio is increasing which signifies good side of debtor. The collection period of debtors should be kept at lowest level for the reduction in cost of capital and better productivity.



The Working Capital Management of the company is in liquid position; the ratio like current ratio and quick ratio are in their standard norms. The ratio used for analysis of liquidity position is current ratio and quick ratio. These ratios reveal that company has sound liquidity position throughout the period of study. Both the ratio shows fluctuating trend within reasonable limit but these ratio are higher than conventionally accepted norms i.e. 2:1 in case of current ratio & 1:1 in case of quick ratio, which shows ineffectiveness of the management in managing current/quick assets in relation to current liabilities.

The absolute liquidity ratio of the organization in the year 2010 is not at its recommended level. It shows low rate of absolute liquidity, this is not good for the company.

Creditors turnover ratio is showing decreasing trend which is good to the company. Debtors turnover ratio is showing in increasing trend which means the company is collecting their money from debtors as soon as possible.

The inventory turnover ratio for the last three years shows an increasing trend; this means the companys sales efforts are effective.

Working Capital Turnover Ratio shows increase in trend, which shows the number of times working capital is turned over.

Total Asset turnover Ratio shows increase in trend, which means over-trading of total assets.

The gross profit ratio for the last three years keeps on varying in each year at a diminishing rate. That is because of the increase in cost of goods or decrease in selling price.


The net profit ratio for the last three years is in increasing trend. It is shows efficiency and profitability of the firm.

The operating ratio for the last three years shows the proportion of the cost of sales to total sales which is fluctuating every year.

Increase the absolute liquid ratio at the level of 0.5: 1 by adding more amounts of cash and marketable securities in the current asset and without changing the total of current asset. To have an efficient working capital management, the short term funds should be

used effectively in the operation of the business.

By increasing the operating profit the firm can increase its return on investment.

The company should have take up new measures to face the competition to remain market leaders.


This study was conducted to find out the working capital management and profitability of Eastern Condiments Pvt Ltd, Ernakulam. All the tools used in this analysis suggest that the company has strong working capital management. The company is more dependable on owners fund than on lenders fund which has helped to improve their financial position. In the present condition the rate of effectiveness is appropriate for the organization. Because of this effective management of working capital the company can yield high turnover and maintain a strong financial position in future also. It is evident from the study that the company is making good profits for the past years which shows its financial strength. The company has three facilitated production units, two in Kerala and one in Tamil Nadu. However more concentration must be given on the working capital of the firm. The interaction with the finance manager of the company about the process they followed in each and every transaction gave me an idea about how the company operates, though what we studied various concepts in our subjects. At the same time, I also learnt that where processes are not available, the company must put in place some sort of process for future guidance. This knowledge enhancing process has given me an idea of the practical working of an organization. The research was an absolute success as it was able to achieve the objectives for which it was conducted.



Pandey I.M. Financial Management Sashi K Gupta and R K Sharma Financial management Annual Report Eastern Condiments Pvt Ltd