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A STUDY ON WORKING CAPITAL OF CHEYYAR CO-OPERATIVE SUGAR MILLS LTD-CHEYYAR A Project Report In partial fulfillment of the requirement for

the award of degree of MASTER OF BUSINESS ADMINISTRATION By K.PALANI (110906031) Under the Supervision and Guidance of Mr.R.Jayaraman MBA, M.PHIL,. Lecturer Department of management studies

DEPARTMENT OF MANAGEMENT STUDIES


SRI CHANDRASEKHARENDRA SARASWATHI VISWA MAHA VIDHYALAYA
(University Established Under Section 3 of the UGC Act1956) ENATHUR, KANCHIPURAM-631 561 JUNE, 2011

CHAPTER 1
INTRODUCTION

Finance is the life blood of business and commerce. Financial management is the managerial activity is which is concerned with planning and controlling of the firms financial resources. It was a branch of economics till 1890 and has become a separate discipline recently. Though it has unique body of knowledge, it derives its theoretical concepts majorly from economics. The subject of financial management is immense interest to both academicians and practicing managers. It is of great interest to academicians because the subject is still developing. There are areas where controversies exist for which unanimous solution has reached yet. MEANING OF FINANCE It can be concluded that the term business finance mainly involves, raising of funds and effective utilization keeping in view of overall objective of the firm. This requires great caution and wisdom on the part of management. The management makes use of financial technique, devices, tools etc for administrating the financing affairs of the firm in the most effective and efficient manner. DEFINITION OF FINANCIAL MANAGEMENT According to Solomon, financial management is concerned with the efficient use of an important economic resource viz, capital funds. Phillippalus has given a clearer definition stating that financial management is concerned with managerial decision that result in the acquisition and financing of long-term and short-term credit for the firm Definition of finance Financial management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operation. J.L.Massie Objectives of the study

To analysis about the financial performance of co-operative sugar factory at cheyyar. To analysis about the earning capacity of co-operative sugar factory at cheyyar. To understand the information contained financial statements with a view of knowing the strength or weakness of the firm and to make forecast about the future.

Prospects of the firm and thereby enabling the analyst to take different decision regarding the operations of the firm.

Meaning of working capital:


A measure of both a company's efficiency and its short-term financial health

Working capital (abbreviated WC) is a financial metric which represents operating liquidity available to a business, organization, or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. Net working capital is calculated as current assets minus current liabilities. It is a derivation of working capital that is commonly used in valuation techniques such as DCFs (Discounted cash flows). If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company's sales volumes are decreasing and, as a result, its accounts receivables number continues to get smaller and smaller. Types of working capital Gross working capital Total or gross working capital is that working capital which is used for all the current assets. Total value of current assets will equal to gross working capital. In simple words, it is total cash and cash equivalent on hand. But remember, we do not account of current liabilities in gross working capital. 2. Net Working Capital Net working capital is the excess of current assets over current liabilities. Net Working Capital = Total Current Assets Total Current Liabilities This amount shows that if we deduct total current liabilities from total current assets, then balance amount can be used for repayment of long term debts at any time. It also measure of both a company's efficiency and its short-term financial health.

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3. Permanent Working Capital Permanent working capital is that amount of capital which must be in cash or current assets for continuing the activities of business. It also shows the minimum amount of all current assets that is required at all times to ensure a minimum level of uninterrupted business operations. 4. Temporary Working Capital Sometime, it may possible that we have to pay fixed liabilities, at that time we need working capital which is more than permanent working capital, then this excess amount will be temporary working capital. In normal working of business, we dont need such capital TREND PERCENTAGES Trend percentages are immensely helpful in making a comparative study of financial statement for several years. The method of calculating trend percentages involves calculation of percentage relationship that each item bears to the same item in the base year (any year may be taken as base year). It is usually the earliest year any intervening year may be taken as base year. Each item of base year is taken as 100 and on the basis of percentages for each of the items of each of the year are calculated.

COMMON SIZE FINANCIAL STATEMENT


Common-size financial statements are those in which figures reported are converted to percentage with common base in the income statement. Here the sales figure statement is assumed to 100 and all figures are expressed as a percentage of this total.

COMPARATIVE FINANCIAL STATEMENT:


Common-size financial statements are those in which figures reported are convert in to percentages to some common base in the income statement the sales figure is assumed to be 100 and all figures are expressed as a percentage of this total.

COMPARATIVE FINANCIAL STATEMENTS


Comparative financial which have been designed in a way so as to provide time perspective to the consideration of various elements of financial position embodied in such statements in these statement figures for two or more periods are placed side by side to facilitate comparisons.

FUND FLOW ANALYSIS


Fund flow analysis has become an important tool in analytical kit of financial and analysiss credit granting institutions and managers. This is because the balance sheet at a particular point of time does not sharply focus that major financial transaction which has been behind the balance sheet changes.

CASH FLOW ANALYSIS:


Cash flow analysis records the amounts of cash and cash equivalents entering and leaving a company. The CFS allows Financial Managers to understand how a company's operations are running, where its money is coming from, and how it is being spent. Here you will learn how the CFS is structured and how to use it as part of your analysis of a company. RESEARCH METHODOLOGY: SAMPLE OF THE STUDY: The balance sheet and P&L account of past three years of Cheyyar co-operative sugar mills has been taken as the sample for the project study. DATA COLLECTION METHOD: The data was collected from secondary data source. They are copies of Balance Sheet and P&L account collected from the accounts department of Cheyyar cooperative sugar mills, Thandalam. Scope

The scope of the study is limited to past three years of the companys performance ie (2008,2009 and 2010) The scope of the study pertains to Cheyyar co-operative sugar mills, Thandalam and not the industry. The scope of the study is for the academic purpose alone The scope of the project does not take into account the opportunities and threats such as (Demand and Supply of Raw material) that the organization faces that affects its nature of business. The project work is studied under the presumption that the organization has performed to the best of its efficiency and fair decision-making system. Change in working capital needs that may have risen out irregularities in production planning and other managerial issues has been ignored from consideration.

LIMITATION
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The study was made on analysis of the secondary data which was provided by the accounts department of Cheyyar co-operative sugar mills which was assumed to be authentic and accurate. Change in working capital needs that arise out of inflation and other economic factors are ignored for the purpose of the study which is a limiting factor