INTRODUCTION WORKING CAPITAL MANAGEMENT

Working capital management is the part of financial management. In working capital management, management of cash, management of inventory, management of debtor and creditor will include. Its become perfects in managing your company's working capital

MEANING
Working capital refers to the firms investment in short-term assets (cash, marketable securities, accounts receivable and inventories). Net working capital is the difference between a firms current assets and its current liabilities. Working capital management involves administering to both short-term assets and short-term liabilities. Assets and

liabilities must be matched and coordinated in order to keep costs to a minimum and to control risks. Generally, we want to match the firms financing with the lives of its assets. If we consider a company that is growing over time, then its assets can be decomposed into three categories fixed assets, permanent current assets and fluctuating current assets.

DEFINITION
A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

COMPONENTS OF WORKING CAPITAL CASH

Cash is probably the least productive asset you can have. Not only does it not earn anything, it actually loses purchasing power as a consequence of inflation. So why do firms hold cash? The three Keynsian motives for holding cash balances are Transactions motive to conduct day-to-day business of paying for purchases, labor, etc. Precautionary motive to cover unexpected expenditures. If the delivery truck breaks down, it must be repaired or replaced if you want to stay in business. Speculative motive unusually good opportunities occasionally arise. If you have the money available, you can take advantage of these opportunities. While cash is necessary to cover the transactions motive, the precautionary and speculative motives can be covered with the near money (or near cash) of marketable securities. In order to maximize your cash balances, you can do one of two things; either accelerate the inflow of funds (ask for an advance on your salary) or delay the outflow of funds (postpone paying the phone bill until next month).

MARKETABLE SECURITIES
Marketable securities are a way of holding cash but with the attribute of earning interest. Market securities have three characteristics: 1. Short-term maturity (less than one year, or money market instruments 2. High marketability 3. Virtually no risk of default Several types of marketable securities exist, the major ones being U.S. Treasury bills Anticipation notes Commercial paper Bankers Acceptances
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ACCOUNTS RECEIVABLE
Accounts receivable are generated when a firm offers credit to its customers. The first thing that needs to be addressed when establishing a credit policy is to set the standards by which a firm is judged in determining whether or not credit will be extended. There is whats known as the 5 Cs of credit: Character Capacity Capital Collateral Conditions

INVENTORIES
Inventories (raw materials, work-in-process, finished goods) make up a large portion of most firms current assets, and for many, total assets. As such, the extent to which a firm efficiently manages its inventories can have a large influence on its profitability. Thus, keeping abreast of inventory policy is critical to the profitability (and value) of the firm. Inventory costs can be broken down into three major categories A. B. C. Stock-out Costs Ordering Costs Carrying Costs

STATEMENT OF PROLEM:
It is required to produce the best possible results, firms should keep no unproductive assets and should finance with cheapest available sources of funds. It has to meet the obligations and current liabilities as and when required and to incur day-to-day expenses. It has to maintain inventories, work in progress, spares and finished products. This is the project deals with study on working capital management which aims to find out the liquidity and profitability position of the company and it is concerned with problems involved in working capital like estimation of working capital and provision of working capital at the time it is needed.

OBJECTIVES OF STUDY:
To study the working capital management of HATSUN AGRO PRODUCTS LTD. To determine the periodic differences in financial performance of the company by preparing comparative statements. To see that the company meets its current obligations and check the Proper balance between current assets and current liabilities. To improve profitability by keeping the investment in working capital to the minimum required. To offer suggestions and recommendations for improving the effectiveness of financial system IN HATSUN AGRO PRODUCTS LTD. To see the changes in working capital.

SCOPE OF THE STUDY:

This project helps to have practical exposure in the organisations by working with the employees and to know about their working conditions and also how they handle the situations. It is like learning approach to all students. It helps to learn about the various methods of working capital to find firms financial position and ability to meet its obligations. Through various findings in this project it makes me to some suggestions to the firm.

RESEARCH METHODOLOGY RESEARCH DESIGN:

Research design is the framework, blue print, and states the outline in which the research has to be conducted. It acts as a guideline to the researcher. It is an analytical research. With help of already available information and annual reports the researcher has to use the analyze them and make critical evaluation of working capital management.

DATA COLLECTION METHODS: PRIMARY DATA COLLECTION:

It is the fresh and first hand information collected by the researcher. It is collected through personal interview, observation and questionnaire.

SECONDARY DATA COLLECTION:

These are the data which have been collected and stored already. It is collected from journals, ledgers, magazines, periodicals and annual reports.

SOURCE OF DATA USED IN THIS STUDY:

Secondary datas which is collected from last 5 years of annual report.

SAMPLE SIZE:
5 years annual report. (From 2007-8 to 2011-2012)

TOOLS USED IN THIS STUDY:

Comparative balance sheet. Ratio analysis Statement showing changes in working capital Trend analysis.

INDUSTRY PROFILE
INTRODUCTION:
A dairy product is food produced from the milk of mammals. Dairy products are usually high energy-yielding food products. A production plant for the processing of milk is called a dairy or a dairy factory. Apart from breastfed infants, the human consumption of dairy products is sourced primarily from the milk of cows, yet goats, sheep, yaks, camels, and other mammals are other sources of dairy products consumed by humans. Dairy products are commonly found in European, Middle, and Indian cuisine, whereas aside from Mongolian cuisine they are little-known in traditional East Asian cuisine.

INDIAN DAIRY INDUSTRY - A PROFILE

The Leading Dairy Product Companies in India consist of both government organizations and private companies which are mostly under the control of different state governments. The Leading Dairy Product Companies in India are working together with the National Dairy development Board (NDDB) towards the elimination of malnutrition amongst children. These companies offer host of highly nutritious milk products The Leading Dairy Product Companies in India, which are under the control of different state governments, are generally cooperatives. These cooperatives buy milk from the dairy farmers at minimum support price. Later these cooperatives process it to different high nutritious milk products. The leading private milk product companies of India are more into producing and further processing of these milks. Most of the Leading Dairy Product Companies in India are well equipped to handle processing of bulk quantities of cow and buffalo milk. Further, the technology used by these leading companies of India to process the milk is at par with international standards. Furthermore, they strictly adhere to international quality manufacturing and environment safety standards and such that they follow GMP and HACCP. Some of these Leading Dairy Product Companies in India are having state-of-the-art R&D centres, aggressively working on development of quality milk products rich in nutritious value. India is the largest producer of milk and milk products in the world Today, India is 'The Oyster' of the global dairy industry. It offers opportunities galore to entrepreneurs worldwide, who wish to capitalize on one of the world's largest and fastest
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growing markets for milk and milk products. A bagful of 'pearls' awaits the international dairy processor in India. The Indian dairy industry is rapidly growing, trying to keep pace with the galloping progress around the world. As he expands his overseas operations to India many profitable options await him. He may transfer technology, sign joint ventures or use India as a sourcing centre for regional exports. The liberalization of the Indian economy beckons to MNC's and foreign investors alike. Indias dairy sector is expected to triple its production in the next 10 years in view of expanding potential for export to Europe and the West. Moreover with WTO regulations expected to come into force in coming years all the developed countries which are among big exporters today would have to withdraw the support and subsidy to their domestic milk products sector. Also India today is the lowest cost producer of per litre of milk in the world, at 27 cents, compared with the U.S' 63 cents, and Japans $2.8 dollars. Also to take advantage of this lowest cost of milk production and increasing production in the country multinational companies are planning to expand their activities here. Some of these milk producers have already obtained quality standard certificates from the authorities. This will help them in marketing their products in foreign countries in processed form. The urban market for milk products is expected to grow at an accelerated pace of around 33% per annum to around Rs.43,500 crores by year 2005. This growth is going to come from the greater emphasis on the processed foods sector and also by increase in the conversion of milk into milk products. By 2005, the value of Indian dairy produce is expected to be Rs 10,00,000 million. Presently the market is valued at around Rs7,00,000mn India with 134mn cows and 125mn buffaloes, has the largest population of cattle in the world. Total cattle population in the country as on October'00 stood at 313mn. More than fifty percent of the buffaloes and twenty percent of the cattle in the world are found in India and most of these are milch cows and milch buffaloes. Indian dairy sector contributes the large share in agricultural gross domestic products. Presently there are around 70,000 village dairy cooperatives across the country. The cooperative societies are federated into 170 district milk producers unions, which is turn has 22state cooperative dairy federation. Milk production gives employment to more than 72mn dairy farmers. In terms of total production, India is the leading producer of milk in the world followed by USA. While world milk production declined by 2 per cent in the last three years,
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according to FAO estimates, Indian production has increased by 4 per cent. The milk production in India accounts for more than 13% of the total world output and 57% of total Asia's production. The top five milk producing nations in the world are India ,USA, Russia, Germany and France. Although milk production has grown at a fast pace during the last three decades (courtesy: Operation Flood), milk yield per animal is very low. The main reasons for the low yield are

Lack of use of scientific practices in milching. Inadequate availability of fodder in all seasons. Unavailability of veterinary health services.

Milk Yield comparison:

Country Milk Yield

(Kgs per year) USA UK Canada New Zealand Pakistan India World (Average) 7002 5417 5348 2976 1052 795 2021

PRODUCTION OF MILK IN INDIA

Year 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 Production in million MT 48.4 51.4 53.7 56.3 58.6 61.2

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00(E) 2000-01(T)

63.5 65 68.5 70.8 74.7 78.1 81.0

FRESH MILK
Over 50% of the milk produced in India is buffalo milk, and 45% is cow milk. The buffalo milk contribution to total milk produce is expected to be 54% in 2000. Buffalo milk has 3.6% protein, 7.4% fat, 5.5% milk sugar, 0.8% ash and 82.7% water whereas cow milk has 3.5% protein, 3.7% fat, 4.9% milk sugar, 0.7% ash and 87% water. While presently (for the year 2000) the price of Buffalo milk is ruling at $261-313 per MT that of cow is ruling at $170-267 per MT. Fresh pasteurized milk is available in packaged form. However, a large part of milk consumed in India is not pasteurized, and is sold in loose form by vendors. Sterilized milk is scarcely available in India. Packaged milk can be divided according to fat content as follows, Whole (full cream) milk - 6% fat Standardized (toned) milk - 4.5% fat Doubled toned (low fat) milk - 3% fat

DIARY INDUSTRY IN 2011-2012

India ranks first in the world in milk production, which went up from 17 million tonnes in 1950-51 to 121.84 million tonnes in 2010-11. The per capita availability of milk has also increased from 112 grams per day in 1968-69 to 281 grams in 2010-11. The world average per capita availability was 284 grams per day in 2009-10 compared to 273 grams per day for India. The Indian dairy sector acquired substantial growth momentum from the Ninth Plan onwards, achieving an annual output of 121.84 million tones of milk during 2010-11. This

represents sustained growth in the availability of milk and milk products for the growing population of the country. Dairying has become an important secondary source of income for millions of rural families and has assumed an important role in providing employment and income-generating opportunities next to agriculture

CHALLENGES
Each June, the dairy industry celebrates Dairy Month and promotes the importance of milk production, the nutritional value of dairy products, and the economic impact of the $110 billion dairy industry to the United States. "Dairy managers will be challenged in 2011-2012 to remain economically viable as feed and fuel prices increase," said Mike Hutjens, University of Illinois professor of animal sciences emeritus. "They will need to find ways to produce milk at an economical price for consumers while maintaining the highest quality milk possible." Hutjens said dairy managers are continuing to play catch-up after an economically disastrous 2009 and 2010 business year with milk prices down 40 percent. Illinois dairy managers need $17 per 100 pounds or $1.45 per gallon of milk sold to cover feed, variable, fix, and labour costs with a return on assets. Although current milk prices have been favourable, Hutjens said three factors will impact the price of milk and dairy farm profit margins this year. "First, milk prices depend on supply and demand with more than 13 percent of current U.S. milk solids being exported," he said. "World demand may be impacted by the financial status in Europe and unrest in the Mideast areas."

CONCLUSION:
In India, the dairy sector plays an important role in the countrys socio-economic development, and constitutes an important segment of the rural economy. Dairy industry provides livelihood to millions of homes in villages, ensuring supply of quality milk and milk products to people in both urban and rural areas. With a view to keeping pace with the countrys increasing demand for milk and milk products, the industry has been growing rapidly.
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COMPANY PROFILE

Hatsun Foods was incorporated as a private limited company in Mar.'86, by R G Chandramohan. In Apr.'86, the company was admitted as a partner in Chandramohan & Co, a partnership firm, promoted by the same promoter. During the same month, Chandrmohan & Co was dissolved and all the assets and liabilities of the firm vested with the company, except the Arun brand name which was vested with R G Chandramohan. In 1987, the company acquired the Arun brand name, subject to a payment of 1% royalty on the company's gross ice cream sales turnover. The company became a public limited company in Aug.'95. Till Apr.'95, the company was carrying on its manufacturing activities. It scrapped its manufacturing facilities at Tolgate unit, since the facilities became old and outlived its utilities. The company is concentrating only on marketing of ice cream and milk- and dairybased products under the Arun brand name. For sourcing ice cream and other ice cream based products, the company has entered into contractual arrangements with Atlantic Foods, a group concern. The name of the Company has been changed with the approval of the Central Government from Hatsun Milk Food Limited to Hatsun Agro Product Limited effective from 7.4.1998. The Company has diversified its activities and entered into production and sale of Toor Dhall and Urad Dhall under the brand name "Apurva". Hatsun Milk Products Limited was merged with the Company with retrospective effect from 1.4.98 vide order of high court dated 18.2.99. And the process of amalgamation was completed on 26.2.99. Ajith Dairy Industries too merged with the company. The company has also amalgamated Hatsun Foods Company Ltd. During 2000-2001 the company's second dairy plant was commissioned at Belgaum. Hatsun Agro Product Limited is based in South India and was incorporated in 1970. R.G.Chandramogan is the founder of this company. Hatsun started marketing fresh milk in pouches from 1993 and manufacturing dairy ingredients from 2003. KEY PERSONS IN HASTSUN AGRO PRODUCTS LTD. R.G.CHANDRAMOGAN - CHAIRMAN & MD K.S.THANARAJAN - JOINT MANAGING DIRECTOR
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C.SATHYAN

- EXECUTIVE DIRECTOR

NON-EXECUTIVE DIRECTORS: P.VAIDYANATHAN KIRTI P SHAH B.S.MANI N.CHANDRASEKARAN COMPANY SECRETARY S.CHANDRASEKAR CORPORATE OFFICE: Domaine, Door No: 1/20A, Rajiv Gandhi Salai (OMR), Karapakkam, Chennai - 600 097.

STOCK EXCHANGE- BOMBAY STOCK EXCHANGE. Hatsun is the largest private sector dairy company in India and hence has a distinct advantage of dealing in cow's milk. The company procures around 1.65 million litres of liquid milk per day by directly collecting it from farmers spread over 4500 villages in south India. Over 350 field's staffs are employed to ensure timely collection, testing of milk at the point of collection, weekly payment; cattle feed sales, encouraging farmers to grow their herd size, bank loans, animal insurance, training farmers on a better animal management and clean milking. It is having high-tech processing plants operating at 7 locations. This is the only company in India using Bactofuge Technology (from West FaliaGermany) to clarify liquid milk. PLANT LOCATIONS: Salem, TN Madurai, TN
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Kanchipuram, TN Dharmapuri, TN Belgaum, KARNATAKA Chennai, TN Honnali, KARNATAKA.

BUSINESS OBJECTIVES
Build Brands Worthy of Customers Trust Maximise Return to all Stakeholders through Continuous Improvement Develop People to Deliver the Above.

CERTIFICATIONS:
ISO 22000:2005 ISO 9001:2000 ISO 14001:2004 ISO 15000:1998 HACCP certified manufacturing facilities Export Inspection Council Kosher Certificate HALAL USFDA

PRODUCTS: ARUN ICE CREAM:

Quality ice cream, world-class facilities and a heritage of over 40 years in the business. The first Indian ice cream brand to be certified ISO 9000
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More than 70 mouth-watering ice cream flavours and combinations Unparalleled service to customers through exclusive franchise parlours.

Arun Ice creams introduced the concept of exclusive franchise parlours in India. This bold decision to travel a path less travelled - reaching out to towns with a population of about 30,000 or even less, gained Arun Ice-cream an edge over its competitors.

AROKYA

Arokya

Milk is

full

of

the Natural

Richness of Villages and Collected

with

Care from Healthy, Well Fed cows, launched in 1995, this brand is the trusted choice of millions in Tamil Nadu, Karnataka & Andhra Pradesh, making it the Largest Milk Brand from the Indian Private sector today. Its consists of Standardised milk Toned milk Double toned milk Full cream.

HATSUN

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The Cornerstone of the Brand Philosophy of Hatsun Milk & Milk products stems from the product essence in itself. Every product coming from the stable is Made from the Purest of Cow Milk. Milk sourced from very fine quality cows that are reared in the pastoral heart lands. Fed on lush green grass,drinking clean water, breathing in crisp fresh air and basking in golden sunlight, the cows provide creamy, frothy milk that goes into the making of every dairy product of Hatsun. The brand commands a national presence and is available in various product formsCooking & Table Butter, Ghee, Varieties of Curd, Dairy Whitener.

DIARY INGREDIENTS: India, the largest producer of milk in the world produces over 97 million tonnes annually. Hatsun is proud to be a part of this achievement. Based in South India, Hatsun is the largest private sector dairy company in India and deals only with cow's milk. In 1993, Hatsun started marketing fresh milk in pouches and manufacturing dairy ingredients from 2003. IBACO:

Ibaco is a nation-wide chain of ice cream outlets offering customers the pleasures of a perfect ice cream sundae bar. Customers can indulge in an enchanting ice cream experience in our cool, fun and friendly ambience or take home a pack of sheer joy. 36 flavours of rich and creamy icecreams 10 varieties of sauces 12 exciting toppings List of exclusive sundaes to choose from.
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FRIENDS TO FARMERS: Hatsun understands that its strength lies in consolidating its source the dairy farmer. Our development policies are always based on building a strong bond with the farmer. Hatsun is proud of making prompt and timely payments to our farmers SERVICES Our farmer assistance services include but are not limited to:

Introducing farmers to banks to help the financing of milch animals Sending veterinary doctors to visit the farmers regularly Educating farmers on preferable breeds, cross fertilization, health care, and productivity Providing cattle feed at procurement costs and encourage farmers to cultivate fodder crops Conducting training camps, discussions and seminars for the farmers Our support helps farmers to be more professional and productive. Unlike our competitors, Hatsun procures milk from farmers daily, assuring them a steady source of income. INFRASTRUCTURE: MILK PROCUREMENT Hatsun has an excellent network to collect harvested milk. We have: Chilling centers in more than 68 locations More than 1348 contract vehicles Milk sheds spread over 10 districts in Tamil Nadu and 3 districts in Karnataka Over 3 lakh milk producers

In addition, we offer dairy extension services to farmers for the development and productivity of livestock; over 1110 veterinary doctors are employed by us to render total healthcare for animals. Hatsun has also tied up with banks to arrange animal loans for dairy farmers. PROCESSING After procurement and chilling, milk tankers take the tested milk to plants for the third level of quality testing and weight check. Hatsun employs at least two types of testing: Gerber Method and Eko Milk Analyser. The milk is then subjected to pasteurization, homogenization, and bacteria clarification through superior technologies. Hatsun is India's pioneer for the homogenization processes, where the fat globules are broken and evenly distributed in the milk. At every stage, we show an unyielding commitment to preserve the quality and purity of milk. Our staffs work with one mind to enforce the tough standards set for ourselves.

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DISTRIBUTION Daily, our puff-insulated trucks travel 3.9 times the distance around the world, i.e. 1, 82,730 kms. They carry milk across the states of Tamilnadu, Karnataka, Goa and parts of Andhra Pradesh. We are proud to have a large cold-chain network to ensure that every consumer gets fresh milk every day. LOGISTICS The company has a strong logistics and distribution network in icecream and milk. Around 2305 Arun Icecreams parlours spread over the entire Tamilnadu and parts of Andhra Pradesh and Karnataka. The company has fourteen cold room distribution points, strategically located for quick and easy distribution of its products. Change text to In the milk segment, the Company's distribution network comprises of 1400 Hatsun distribution centres and 650 dealers for Arokya / Hatsun Milk. More than 1348 vehicles handling distribution, and each covering a distance of 200 to 250 km every day.

PERFORMANCE OF THE COMPANY

During the year, the company earned revenue from operations (net) of Rs.1,60,353.67 lakhs which represents of 55.70% over last 5 years. The company has secured Rs.2660.19 lakhs as compared to previous years net profit of Rs.1874.55 lakhs. During the year the company has issued 107,821,648 equity shares as increase of 6.30% in share capital as compared to last 5 years (2007-08 the company issued 6,788,818 shares). During the year the company has the current assets upto amount of Rs. 18845.50 lakhs as increase of more than 100% as compared last 5 years. (2007-2008 the company has current assets value upto Rs. 8929.78 lakhs) During the year the company has given the Bonus in the Ratio of 1:2 During the year the Board recommends Final Dividend @20 % During the year the Company has splits its Face value of Shares from Rs 2 to Re 1 whereas as compared to last 5 years The Company has splits its face value from Rs10/- to Rs2/-.

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LITERATURE REVIEW THEROTICAL AND CONCEPTUAL REVIEW

MEANING OF WORKING CAPITAL:The process of managing activities and processes related to working capital. This level of management serves as a check and balances system to ensure that the amount of cash flowing into the business is enough to sustain the companys operations. This is an ongoing process that must be evaluated using the current level of assets and liabilities. Working capital management may involve implementing short-term decisions that may or may not carry over from one earnings period to the next. In simple words working capital means that which is issued to carry out the day to day operations of a business. Capital required for a business can be classified under two main categories Fixed capital Working capital

CONCEPT OF WORKING CAPITAL:

Gross Working Capital It is simply called working capital refers to the firms investment in current assets so the total current assets of the firm are known as gross working capital. Net Working Capital It represents the difference between current assets and current liabilities. Net working capital may be positive or negative. Positive net working capital is that when current assets are more than current liabilities. But when current liabilities become more than current assets than it is negative working capital.

IMPORTANCE OF WORKING CAPITAL:

It is the life blood and nerve centre for the business. It is very essential to maintain smooth running of business. Some of the importance is Strengthen the solvency Enhance goodwill
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Easy obtaining of loan Ability to face crisis Regular supply of raw material Smooth business operations.

TYPES OF WORKING CAPITAL:

1. Permanent Working Capital: As the operating cycle is a continuous process so the need for working capital also arises continuously. But the magnitude of current assets needed is not always same; it increases and decreases over time. However there is always a minimum level of current assets. This level is known as permanent or fixed working capital. 2. Temporary Working Capital: The extra working capital needed to support the changing production and sales activities, is called variable or functioning or temporary working capital. This can be shown in the following diagram:-

Amount of Working Capital Temporary capital

TIME DETERMINENTS OF WORKING CAPITAL: Followings are the main determinants of working capital. Nature and Size of Business:

Permanent Capital

The working capital of a firm basically depends upon nature of its business for e.g. Public utility undertakings like electricity; water supply needs very less working capital because offer only cash sales whereas trading & financial firms have a very less investment in fixed assets but require a large sum of money invested in working capital.
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The size of business also determines working capital requirement and it may be measured in terms of scale of operations. Greater the size of operation, larger will be requirement of working capital. Manufacturing Cycle: The manufacturing cycle also creates the need of working capital. Manufacturing cycle starts with the purchase and use of Raw Material and completes with the production of finished goods. If the manufacturing cycle will be longer more working capital will be required or vice versa. Seasonal variation: In certain industries like VTM raw material is not available throughout the year. They have to buy raw material in bulk during the season to ensure an uninterrupted flow and process them during the year. Generally, during the busy season, a firm requires large working capital than in the slack season. Production Policy: Production policy also determines the working capital level of a firm. If the firm has steady production policy, it may require need of continuous working capital. But if the firms adopt a fluctuating production policy means to produce more during the lead demand season then the more working capital may require at that time but not in other period during a financial year. So the different productions policy arises different type of need of working capital. Firms Credit Policy: The firms credit policy directly affects the working capital requirement. If the firm has liberal credit policy, hence the more credit period will be provided to the debtors so this will lead to more working capital requirement. With the liberal credit policy operating cycle length increases and vice versa. Sales Growth: Working capital requirement is directly related with sales growth. If the sales are growing, more working capital will be needed due to arises need of more Raw Material, finished goods and credit sales.
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Business Cycle: Business cycle refers to alternate expansion and contraction in general business. In a period of boom, larger amount of working capital is required where as in a period of depression lesser amount of working capital is required. Earning Capacity & Dividend Policy: If the firm has enough earnings and it is not paying dividend then it will not be in need of external borrowings. If firm wants to increase its earning power then more working capital will be required also to pay more dividend more profits are needed which give rise to more working capital. Company is paying 42% dividend to its shareholder. Price Level Changes: Changes in the price level also effects the working capital requirements. Generally, the rising prices will require the firm to maintain larger amount of working capital as more funds will be required to maintain the same current assets. Condition of Supply: The inventory of raw material, spares and stores depends on the condition of supply. If the supply is prompt the firm can manage with small inventory. However if the supply is unpredictable then the firm to ensure continuity of production, should acquire stocks as and when they are available and have to carry larger inventory on an average. Other Factors: Other factors such as operating efficiency, management ability, irregularities of supply, import policy, asset structure, importance of labour, banking facilities, time lag. etc. also influence the requirement of working capital. So these are the main determinants of working capital. The importance of influence of these determinants on working capital may differ from firm to firm. MEANING AND NATURE OF WORKING CAPITAL MANAGEMENT The management of working capital is concerned with two problems that arise in attempting to manage the current assets, current liabilities and the inter relationship that asserts between them.
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The basic goal is working capital management is to manage current assets and current liabilities of a firm in such a way that a satisfactory of optimum level of working capital is maintained i.e. it is neither inadequate nor excessive. This is so because both inadequate as well as excessive working capital position is bad for business. MAJOR DECISIONS IN WORKING CAPITAL MANAGEMENT There are two major decisions management relating to working capital management:1. 2. What should be ratio of current assets to sales? What should be the appropriate mix of short term financing and long term financing for financing these current assets?

OPERATING CYCLE The term operating cycle is also known as Cash Cycle. The term capital cycle or operating cycle refers to the length of time between the Firm paying cash for raw materials, applying those materials into production process, stock and inflow of cash from debtors. The operating cycle is the average time between purchasing or acquiring inventory and receiving cash proceeds from the sale of finished products The working capital cycle refers to the length of time between the firms Paying the cash for materials, etc., entering into production process/stock & The inflow of cash from debtors (sales), suppose a company has certain Amount of cash it will need raw materials. Some raw materials will be Available on credit but, cash will be paid out for the other part immediately. Then it has to pay labour costs & incurs factory overheads. These three combined together will constitute work in progress. After the production cycle is complete, work in progress will get converted into sundry debtors. Sundry debtors will be realized in cash after the expiry of the credit period. This cash can be again used for financing raw material, work in progress etc. thus there is complete cycle from cash to cash wherein cash gets converted into raw material, work in progress, finished goods and finally into cash again. Short term funds are required to meet the requirements of funds during this time period. This time period is dependent upon the length of time within which the original cash gets converted into cash again. The cycle is also known as operating cycle or cash cycle.

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Working capital cycle can be determined by adding the number of days required for each stage in the cycle. For example, company holds raw material on average for 60 days, it gets credit from the supplier for 15 days, finished goods are held for 30 days & 30 days credit is extended to debtors. The total days are 120, i.e., 60 15 + 15 + 15 + 30 + 30 days is the total of working capital. Thus the working capital cycle helps in the forecast, control & management of working capital. It indicates the total time lag & the relative significance of its constituent parts. The duration may vary depending upon the business policies. In light of the facts discusses above we can broadly classify the operating cycle of a firm into three phases viz. 1. Acquisition of resources. 2. Manufacture of the product and 3. Sales of the product (cash / credit).

Operating cycle consists of the following: Conversion of cash into raw-materials; Conversion of raw-material into work-in-progress; Conversion of work-in-progress into finished stock; Conversion of finished stock into accounts receivable through sales; and Conversion of accounts receivable into cash.

In the form of an equation, the operating cycle process can be expressed as follows: Operating cycle = R + W + F + D C R = Raw material storage period W = Work in progress holding period F = Finished goods storage period D = Debtors collection period C = Credit period availed

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RESEARCH REVIEW
Working capital management and firm profitability. Thorsten Knauer, Arnt Whrmann // May 2013, Vol 24, Issue 1, pp 77-87
The research work done on Managing a firms current assets and liabilities (working capital management) is highly relevant to the success of that firm. While the short-term liquidity effects of working capital management are straightforward to derive, it is an empirical question how it affects firm profitability. This short survey paper consolidates the empirical literature on the association between working capital management and firm profitability. This state of the art analysis provides evidence of positive effects of accounts receivable management and inventory management on profitability. However, results for the effects of accounts payable management on profitability are driven by reverse causality. Finally, this paper highlights critical aspects of prior research and points to avenues for future research. How does working capital management affect the profitability of Spanish SMEs?Sonia Baos-Caballero, Pedro J.Garca-Teruel Pedro Martnez-Solano//Small Business Economics September 2012, Volume 39, Issue 2, pp 517-529 This paper analyzes the relation between working capital management and profitability for small and medium-sized enterprises (SMEs) by controlling for unobservable heterogeneity and possible endogeneity. Unlike previous studies, we examine a non-linear relation between these two variables. Our results show that there is a non-monotonic (concave) relationship between working capital level and firm profitability, which indicates that SMEs have an optimal working capital level that maximizes their profitability. In addition, a robustness check of our results confirms that firms profitability decreases as they move away from their optimal level. Working Capital Management P. K. Jain, Shveta Singh, Surendra Singh Yadav//Financial Management Practices //India Studies in Business and Economics 2013, pp 177-255 Working capital management is concerned with the problems that arise in managing current assets (CA), current liabilities (CL) and the interrelationships that exist between them. Business success heavily depends on the ability of financial executives to manage effectively receivables, inventory and payables. While inadequate working capital has the potential to
24

disrupt production/sales operations of otherwise well-run business enterprises, excessive working capital adversely impacts profitability. Therefore, the firms should strive to maintain adequate amount of working capital to ensure smooth production and sales operations. The importance of efficient working capital management (WCM) is therefore indisputable. This chapter is a modest attempt to gain insight on the working capital management practices of the sample companies. The sample companies do not appear to face any problems in meeting their short-term maturing obligations, and therefore, the importance of liquidity is not lost on the sample companies. This is in tune with the findings on the importance of liquidity for a firms survival. However, the sample companies could do well to be less conservative with their working capital management as they are large and stable companies and may attempt a better trade-off between risk and profitability. As far as cash management is concerned, it is gratifying to note that the sample companies are following sound cash management practices. While cash credit limit (from the banks) constitutes the major source of dealing with cash deficit situations, short-term deposit with banks has been identified as the important method of deploying cash by majority of the sample companies. Another notable finding is that the sample companies adopt the scientific method of determination of individual components of current assets and current liabilities (based on raw material holding period, debtors collection period, creditors payment period and so on) as the basis of working capital determination. As far as the policy towards financing working capital is concerned, permanent needs from long-term sources and temporary/seasonal needs from short-term sources seem to be favoured by the majority. These findings are in conformity with sound theory of financial management.

Working capital management describes cash is king. Herrfeldt.b.//American

journal of business (2006) part 2, vol. 6 issue 2, p927 The research work done on how to understand working capital management describes that cash is king so say the money managers who share the responsibility of running this countrys businesses. And with banks demanding more from their prospective borrowers, greater emphasis has been placed on those accountable for so called working capital management. Working capital management refers to the management of current or short term
25

assets and short term liabilities. In essence, the purpose of that function is to make certain that company has enough assets to operate its business.

EFFECT

OF

WORKING

CAPITAL

MANAGEMENT

ON

FIRM

PROFITABILITY . SAMILOGLU F. & DEMIRGUNE. K//OXFORD JOURNALS

The research work done on the effect of working capital management on firm profitability. Evidence from turkey (2008) describes that the effect of working capital management on firm profitability. In accordance with this aim, to consider statistically significant relationships between firm profitability and components of cash conversion cycle at length, a sample consisting of Istanbul stock exchange (ISE) listed manufacturing firms for the period of 1998-2007 has been analysed under a multiple regression model. Empirical findings of the study show that accounts receivable period, inventory period and leverage affect firm profitability negatively, while growth (in sales) affects firm profitability positively.

26

TOOLS AND TECHNIQUES USED: COMPARATIVE FINANCIAL STATEMENT: These statements summarize and present related data for a number of years, incorporating therein changes (absolute & relative) in individual items of financial statements. These statements normally comprise comparative balance sheet, comparative profit and loss account, and comparative statement of changes in total capital as well as in working capital. These statement help in making inter-period and inter-firm comparisons and also highlights the trends in performance efficiency, and financial positions. WORKING CAPITAL STATEMENT: The statement of change in working capital in concerned with the current asset and liabilities alone, as they shown in the balance sheet of the current year and the previous year. Increase or decrease in each of the assets and liabilities is noted. The effect of such increase or decrease during the period in each item individually on the working capital is recorded. It is possible that working capital might have increased during the period or it might have decreased. INCREASE IN CURRENT ASSET DECREASE IN CURRENT ASSET - INCREASE IN WORKING CAPITAL - DECREASE IN WORKING CAPITAL

INCREASE IN CURRENT LIABILITY - DECREASE IN WORKING CAPITAL DECREASE CAPITAL IN CURRENT LIABILITY- INCREASE IN WORKING

RATIO ANALYSIS It is defined as Analysis and interpretation of financial statement with the help of ratios is termed as Ratio analysis. Ratio analysis involves the process of computing, determining and presenting the relationship of items or groups of items of financial statements. A ratio is a mathematical relationship between two items expressed in a quantitative form.

27

Ratios can be defined as relationship expressed in quantitative terms, between figures which have cause and effect relationships or which are connected with each other in some manner or the other. TREND ANALYSIS Trend signifies a tendency and as such the review and appraisal of tendency in accounting variables are nothing but trend analysis. It is carried out by calculating trend ratios (percentage) and by plotting the accounting data on graph paper or chart. It is significant for forecasting and budgeting. It discloses the changes in financial and operating data between specific periods.

28

COMPARTIVE BALANCE SHEET TABLE 4.1.1 FOR YEAR ENDED 2007 & 2008 AMOUNT PARTICULARS ASSETS CURRENT ASSETS INVENTORIES SINDRY DEBTORS CASH & BANK LOAN & ADVANCES TOTAL ASSETS (A) FIXED ASSETS (B) TOTAL ASSETS (A+B) LIABILITIES CURRENT LIABILITIES SHAREHOLDERS FUNDS SHARE CAPITAL RESERVES & SURPLUS TOTAL SHAREHOLDERS FUNDS (C) LOAN FUNDS SECURED LOANS UNSECURED LOANS TOTAL LOAN FUNDS OTHER LIABILITIES TOTAL LIABILITIES 837156 443981 1281137 107511 2647189 523582 350217 873799 111878 1816633 +313574 +93764 +407338 -4367 +830556 +37.45% +21.11% +31.79% -4.13% +31.37% 481576 360731 +120845 +33.30% 118721 362855 118721 242010 +120845 +33.30% 776965 470225 +306080 +39.39% 1754211 2647189 1436041 1816633 +318170 +830556 +18.13% +31.37% CURRENT 421349 149654 118440 203535 892978 169675 52549 34554 123814 380592 +251674 +97105 +83886 +79721 +512386 +59.73% +64.86% +70.82% +39.16% +57.37% @ 2008 AMOUNT @ 2007 INCREASE OR DECREASE AMOUNT PERCENTAGE

29

COMPARTIVE BALANCE SHEET TABLE 4.1.2 FOR YEAR ENDED 2008 & 2009 AMOUNT PARTICULARS ASSETS CURRENT ASSETS INVENTORIES SINDRY DEBTORS CASH & BANK CLAIMS RECEVIABLE LOANS & ADVANCE TOTAL ASSETS (A) FIXED ASSETS (B) INVESTMENTS TOTAL ASSETS (A+B) LIABILITIES CURRENT LIABILITIES SHAREHOLDERS FUNDS SHARE CAPITAL RESERVES & SURPLUS LOAN FUNDS SECURED LOANS UNSECURED LOANS OTHER LIABILITIES TOTAL LIABILITIES 1932401 356396 119518 3595904 837156 443981 107511 2647189 +1095245 -87585 +12007 +948715 +56.67% -24.45% +10.05% +26.38% 118721 453952 118721 362855 -+91097 -+20.24% 614916 776965 -162049 -26.35% 2945701 1396 3595904 1754211 2647189 +1191490 +1396 +948715 +40.44% 100% +26.38% CURRENT 278926 85716 60482 145800 209103 648807 421349 149654 118440 56183 147352 892978 -142423 -63938 -57958 -89617 +61751 -244171 -51.06% -74.59% -95.82% -61.45% +29.53% -37.63% @ 2009 AMOUNT @ 2008 INCREASE OR DECREASE AMOUNT PERCENTAGE

30

COMPARTIVE BALANCE SHEET TABLE 4.1.3 FOR YEAR ENDED 2010 & 2009 AMOUNT PARTICULARS ASSETS CURRENT ASSETS INVENTORIES SINDRY DEBTORS CASH & BANK CLAIMS RECEVIABLE LOANS & ADVANCE TOTAL ASSETS (A) FIXED ASSETS (B) TOTAL ASSETS (A+B) LIABILITIES CURRENT LIABILITIES SHAREHOLDERS FUNDS SHARE CAPITAL RESERVES & SURPLUS LOAN FUNDS SECURED LOANS UNSECURED LOANS OTHER LIABILITIES TOTAL LIABILITIES 2136678 1000707 204484 4660739 1932401 356396 119518 3594683 +204277 +644311 +84966 +1066056 +9.56% +64.38% +41.55% +22.87% 67921 467250 118721 452731 -50800 +14519 -74.7% +3.10% 783699 614916 +168783 +21.53% 3551907 4660739 2845701 3594683 +606206 +1066056 +17.06% +22.87% CURRENT 570616 136595 139822 14180 247619 1108832 278926 85716 60903 14580 208857 648982 +291690 +50879 +78913 -400 +38762 +459850 +51.11% +37.24 +56.44% -2.82% +15.65% +41.47% @ 2010 AMOUNT @ 2009 INCREASE OR DECREASE AMOUNT PERCENTAGE

31

COMPARTIVE BALANCE SHEET TABLE 4.1.4 FOR YEAR ENDED 2011 & 2010 AMOUNT PARTICULARS ASSETS CURRENT ASSETS INVENTORIES SINDRY DEBTORS CASH & BANK CLAIMS RECEVIABLE LOANS & ADVANCE TOTAL ASSETS (A) FIXED ASSETS (B) TOTAL ASSETS (A+B) LIABILITIES CURRENT LIABILITIES SHAREHOLDERS FUNDS SHARE CAPITAL RESERVES & SURPLUS LOAN FUNDS SECURED LOANS UNSECURED LOANS OTHER LIABILITIES TOTAL LIABILITIES 2387462 568163 244479 4858248 2136679 1000707 204484 4660739 +40435 -432544 +39995 +197509 +17.07% -79.13% +16.35% +4.06% 71827 856120 67921 467250 +3906 +388870 +5.43% +45.42% 715651 763030 -47379 -6.62% 3631022 4858248 3551907 4660739 +79115 +197509 +2.17% +4.06% CURRENT 643159 96701 100221 11975 375170 1227226 570616 136595 139822 14180 247619 1108832 +72543 -39894 -39601 -2205 +127551 +118394 +11.27% -41.25% -39.5% -18.41% +33.99% +9.64% @ 2011 AMOUNT @ 2010 INCREASE OR DECREASE AMOUNT PERCENTAGE

32

COMPARTIVE BALANCE SHEET TABLE 4.1.5 FOR YEAR ENDED 2012 & 2011 AMOUNT PARTICULARS ASSETS CURRENT ASSETS INVENTORIES SINDRY DEBTORS CASH & BANK OTHER C.ASSETS LOANS & ADVANCE TOTAL ASSETS (A) FIXED ASSETS (B) TOTAL ASSETS (A+B) LIABILITIES CURRENT LIABILITIES SHAREHOLDERS FUNDS SHARE CAPITAL RESERVES & SURPLUS LOAN FUNDS LONG TERM LOANS DEFEERED TAX OTHER LIABILITIES TOTAL LIABILITIES 1075860 254013 6125 5682688 1002689 237474 6565 488248 +73171 +16539 -440 +1985897 +6.80% +6.51% -7.18% +34.94% 107725 969424 71827 856120 +35898 +113304 +33.32% +11.68% 3269541 2683573 +585968 +17.92% 3798138 5682688 3696791 4858248 +101347 +1985897 +2.66% +34.94% CURRENT 1412194 86162 101699 4238 208257 188455 643159 96701 100221 11975 309401 1161457 +769035 -10539 +1478 -7737 -101144 +723073 +54.45% -12.23% +1.45% -181.5% -48.56% +38.36% @ 2012 AMOUNT @ 2011 INCREASE OR DECREASE AMOUNT PERCENTAGE

33

INTERPRETATION:
It is very clear that from comparative balance sheets it has an increase in total assets and liabilities in all these five financial years. During the year 2007-2008 the current assets have been drastically increased almost 50% and fixed assets increased nearly 18%. Even though company has capacity to meet cuurent obligations the current liabilities have also been increased upto 40% and the other long term liabilities have been increased to 31%. During the year 2008-2009 the current assets have been decreased to 38% where the company has failed to maintain adequate current assets to meet the obligations in case it has occurred and even current liabilities have also been decreased to 26% and long term secured loan have been increased to 57% where it is companys risk to borrow debts. The fixed assets have been increased to 40% and company started to invest in subsidiary company. During the year 2010-2009 the company realised their situation and taken some series steps to increase their current assets and also there is gradual decrease in share capital nearly 75% and the company has incurred unsecured loans of 65% and even the profit of the company is low as compared to previous year. During the year 2011-2010 the company has earned a very good profit to 45% as compared to previous year where the company has been able to pay 75% of unsecured loans in the year. Since there is decrease in debtors and the company has to encourage its credit sales to increase the debtors value. There is much growth in assets side. During the year 2012-2011 the company has started to raise the capital by 34%, the company has incurred more loans as compared to previous year. The company has more inventories and it has to reduce it by supply the goods as and when required instead of keeping it more as stock.

34

TABLE 4.2.1

STATEMENT SHOWING CHANGES IN WORKING CAPITAL AMOUNT @ 2008 AMOUNT @ 2007 CHANGES IN WC INCREASE DECREASE

PARTICULARS

CURRENT ASSETS INVENTORIES SINDRY DEBTORS CASH & BANK LOANS & ADVANCE TOTAL ASSETS (A) CURRENT LIABILITIES SUNDRY CREDITORS ADVANCE CUSTOMERS OTHER LIABILITIES SECURITY DEPOISTS UNCLAIMED DIVIDEND BANK OD INTEREST ACCURED PROVISIONS TOTAL CURRENT 5982 135451 307 5219 1415 118019 776965 11015 111608 307 472 1176 58899 470225 5033 23843 4747 239 59120 FROM 493990 16582 275538 11210 218452 5372 CURRENT 421349 149654 118440 123814 892978 169675 52549 34554 203535 380592 251674 97105 83886 79721

LIABILITIES (B) WORKING CAPITAL (AB) NET INCREASE / 205646 205646 (89633) 116013

DECREASE IN ORKING CAPITAL TOTAL

116013

116013

517419

517419

35

INTERPRETATION:
During the year 2007-2008 the company the incurred an increase in working capital, where it has raised its current assets gradually and it has maintained well in order to meet the current obligations and liabilities. The performance of company during the year is also increased.

36

TABLE 4.2.2

STATEMENT SHOWING CHANGES IN WORKING CAPITAL AMOUNT AMOUNT @ 2008 CHANGES IN WC INCREASE DECREASE

PARTICULARS CURRENT ASSETS INVENTORIES SINDRY DEBTORS CASH & BANK LOANS & ADVANCE CLAIMS RECEVIABLE TOTAL ASSETS (A) CURRENT LIABILITIES SUNDRY CREDITORS ADVANCE CUSTOMERS OTHER LIABILITIES SECURITY DEPOISTS UNCLAIMED DIVIDEND BANK OD INTEREST ACCURED PROVISIONS TOTAL CURRENT FROM CURRENT

@ 2009

278926 85716 60482 209103 14580 648807

421349 149654 118440 147352 56183 892978

61751 -

142423 63938 57958 41603

366977 180930

493990 135451

127013 -

45479

15269 7761 307 1755 1553 40364 614916

5982 16582 307 1415 5219 118019 776965

8821 3666 77655 -

9287 340 -

LIABILITIES (B) WORKING CAPITAL (AB) NET INCREASE / 82122 82122 33891 116013 -

DECREASE IN ORKING CAPITAL TOTAL 116013 116013 361022 361022

37

INTERPRETATION:
During the year 2008-2009 the company has incurred a decrease in working capital, where the company failed to maintain sundry debtors by giving credit sales, and has to maintain adequate cash balances to meet sudden expenditures. The creditors, bank overdraft and other provisions to be paid off must be maintained adequately

38

TABLE 4.2.3

STATEMENT SHOWING CHANGES IN WORKING CAPITAL AMOUNT AMOUNT @ 2009 CHANGES IN WC INCREASE DECREASE

PARTICULARS CURRENT ASSETS \INVENTORIES SINDRY DEBTORS CASH & BANK LOANS & ADVANCE CLAIMS RECEVIABLE TOTAL ASSETS (A) CURRENT LIABILITIES SUNDRY CREDITORS ADVANCE CUSTOMERS OTHER LIABILITIES SECURITY DEPOISTS UNCLAIMED DIVIDEND BANK OD INTEREST ACCURED PROVISIONS TOTAL CURRENT FROM CURRENT

@ 2010

570616 136595 139822 247619 14180 1108832

278926 85716 60903 208857 14580 648982

291690 50879 78919 38762 -

400

480077 26832

366977 7761

113100 19071

21333 217425 307 10787 6269 20669 783699

15269 180930 307 1553 1755 40364 614916

19695

6064 36495 9234 4514 -

LIABILITIES (B) WORKING CAPITAL (AB) NET INCREASE / 291067 291067 325133 34066

DECREASE IN ORKING CAPITAL TOTAL 325133

325133

479945

479945

39

INTERPRETATION:
During the year 2010-2009 the company has incurred an increase in working capital where it maintains its inventories, s.debtors, cash balances more than the required. Since current liability has shown its decline during the year it is very important for companys growth.

40

TABLE 4.2.4

STATEMENT SHOWING CHANGES IN WORKING CAPITAL AMOUNT AMOUNT @ 2010 CHANGES IN WC INCREASE DECREASE

PARTICULARS CURRENT ASSETS \INVENTORIES SINDRY DEBTORS CASH & BANK LOANS & ADVANCE CLAIMS RECEVIABLE TOTAL ASSETS (A) CURRENT LIABILITIES SUNDRY CREDITORS ADVANCE CUSTOMERS OTHER LIABILITIES SECURITY DEPOISTS UNCLAIMED DIVIDEND BANK OD INTEREST ACCURED PROVISIONS TOTAL CURRENT FROM CURRENT

@ 2011

643159 96701 100221 375170 11975 1227226

570616 136595 139822 247619 14180 1108832

72543 127551 -

39894 39601 2205

395437 22662

480077 26832

84640 4170

31245 246021 1155 15069 4062 14546 730197

21333 217425 307 10787 6269 20669 783699

2207 6123

9912 28596 848 4282 -

LIABILITIES (B) WORKING CAPITAL (AB) NET INCREASE / 171896 171896 497029 325133

DECREASE IN ORKING CAPITAL TOTAL 497029 497029 291111 291111

41

INTERPRETATION:
During the financial year 2011-2010 the company has incurred an increase in working capital, the company still have to maintain a limit on bank overdraft, security deposits and other current liabilities. It has shown increase in inventories only but not in other current assets like s.debtors, cash in hand and bank and in receivables etc.

42

TABLE 4.2.5

STATEMENT SHOWING CHANGES IN WORKING CAPITAL AMOUNT AMOUNT @ 2011 CHANGES IN WC INCREASE DECREASE

PARTICULARS CURRENT ASSETS \INVENTORIES SINDRY DEBTORS CASH & BANK LOANS & ADVANCE OTHER C.ASSETS TOTAL ASSETS (A) CURRENT LIABILITIES SUNDRY CREDITORS SHORT-TERM BORROWINGS OTHER LIABILITIES PROVISIONS TOTAL CURRENT CURRENT

@ 2012

1412194 86162 101699 280257 4238 1884550

643159 96701 100221 309401 11975 1161457

769035 1478 -

10539 29144 7737

605337 1656579

366582 1355008

238755 301571

979917 33833 3269541

954002 14546 2683573

25915 19287

LIABILITIES (B) WORKING CAPITAL (AB) NET INCREASE / 137125 137125 (1384991) (1522116)

DECREASE IN ORKING CAPITAL TOTAL

1522116

1522116

770513

770513

43

INTERPRETATION:
During the financial year 2012-2011 the company has incurred a decrease in working capital because of inadequate current assets maintained to meet the current obligations and liabilities. Instead of current asset the current liabilities have been keep on increasing. It must strive to reduce the short term borrowings and other provision to have fair working capital. It must try to focus more on maintaining cash in hand and bank, debtors, stock to meet the obligations.

44

RATIO ANALYSIS CURRENT RATIO: It is used to measure the short term liquidity or solvency of a concern, comparison of current asset and current liabilities. It indicates the ability of the concern to meet the current obligations as and when required. CURRENT RATIO=CURRENT ASSETS CURRENT LIABILITIES TABLE 4.3.1 Year 2008 2009 2010 2011 2012 Current assets 892978 650203 1108832 1227226 1884550 CURRENT RATIO Current liabilities 776965 614916 783699 730197 3269541 Current ratio 1.15:1 1.06:1 1.41:1 1.68:1 0.58:1

1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 2011 2012 Current ratio

45

INTERPRETATION:
The internationally accepted current ratio is 2:1, but the company has failed to maintained as it is decreasing year by year. So it must strive to increase current assets 2 times greater than current liabilities to meet the obligations.

46

QUICK RATIO: It is also known as liquid ratio or acid test ratio. It refers to the assets which are quickly convertible into cash. It includes current assets other than stock and prepaid expenses. QUICK RATIO=LIQUID ASSETS / CURRENT LIABILTIES TABLE 4.3.2 Year 2008 2009 2010 2011 2012 Liquid assets 268094 160778 290597 208897 192099 QUICK RATIO Current liabilities 776965 614916 783699 730197 3269541 Quick ratio 0.34:1 0.26:1 0.37:1 0.27:1 0.05:1

Quick ratio
0.4 0.2 Quick ratio 0 2008 2009 2010 Quick ratio 2011 2012

INTERPRETATION: The ideal liquid ratio or generally accepted ratio is 1:1, here again the company has started to decline in quick ratio. So it has to maintain adequate cash in hand and bank, debtors, and other receivables that can be easily converted into cash.

47

WORKING CAPITAL TURNOVER RATIO: It measures the effective utilization of working capital. It also measures the smooth running of business or otherwise. Higher sales in comparison to working capital indicate overtrading and lower sales in comparison to working capital indicates under trading. WORKING CAPITAL TURNOVER RATIO = NET SALES / WORKING CAPITAL TABLE 4.3.3 WORKING CAPITAL TURNOVER RATIO Working capital Year Sales Working capital turnover ratio (in times) 2008 2009 2010 2011 2012 8631936 10130501 11408756 13557222 16035367 116013 33891 325133 497029 (1384991) 74.4 298.91 35.09 27.27 11.57

wc turnover ratio
200 180 160 140 120 100 80 60 40 20 0 2008 2009 2010 2011 2012

wc turnover ratio

48

INTERPRETATION: Even though the company has maintained a fair working capital, only during the year 2009 it has got higher working capital to run the business smoothly and maximized their return on investment. In the last financial year 2012 the company had negative working capital so it makes clear that business operations is not carried successfully.

49

CURRENT ASSET TURNOVER RATIO: It measures how effective, management is in controlling the current assets. It shows the over or under trading position in relation to the quantum of working capital. CURRENT ASSET TURNOVER RATIO = NET SALES / CUURENT ASSETS TABLE 4.3.4 CURRENT ASSSET TURNOVER RATIO Current asset Year Sales Current assets turnover ratio (in times) 2008 2009 2010 2011 2012 8631936 10130501 11408756 13557222 16035367 892978 650203 1108832 1227226 1884550 9.66 15.61 10.28 11.04 8.50

CA turnover ratio
2012 2011 2010 2009 2008 0 5 10 15 20 CA turnover ratio

INTERPRETATION: During last 5 years the company has secured a good current asset turnover ratio, but not to the best optimum level to maintain current assets effectively. Management has to still take serious steps in controlling the current assets.

50

STOCK TURNOVER RATIO: It is calculated to ascertain the efficiency of inventory management in terms of capital investment. This ratio is helpful in evaluating and review the inventory policy. It indicates whether the investment in inventory is optimum or not. STOCK TURNOVER RATIO = COST OF GOOS SOLD / AVERAGE STOCK TABLE 4.3.5 Year 2008 2009 2010 2011 2012 STOCK TURNOVER RATIO Cost of goods sold 8631936 10130501 11408756 13557222 16035367 Average stock 892978 650203 1108832 1227226 1884550 Stock turnover ratio 9.66 15.61 10.28 11.04 8.50

stock turnover ratio

2008 2009 2010 2011 2012

INTERPRETAION: It is very clear that the company has maintained a fair stock turnover ratio. It is has still work more hard on to keep optimum stock level. During the year 2009 and 2010 it has more stock turnover ratio comparing to other financial years.

51

TREND ANALYSIS
Y=a+bx Where a=XY / X 2 & b = Y/n TABLE 4.4.1 YEAR 2008 2009 2010 2011 2012 TOTAL X -2 -1 0 1 2 0 (TREND ANALYSIS OF INVENTORIES) X2 1 4 0 1 4 10 Y (Rs. In thousands) 421349 278926 570616 643159 1412194 3326244 XY -842698 -278926 0 643159 2824388 2345923

a=XY / X 2 a= 2345923 / 10 a= 234592.3 Y=a+bx

b = Y/n b= 3326244 / 5 b= 665248.8

Y= 234592.3+665248.8(2013-2010) Y= Rs.1369025.7 thousands

INTERPRETATION: From the above trend analysis, we could interpret that value of inventories in 20122103 will be about Rs.1369025.7 thousands.

52

TABLE 4.4.2 YEAR 2008 2009 2010 2011 2012 TOTAL X

(TREND ANALYSIS OF CASH & BANK BALANCES) X2 1 4 0 1 4 10 Y (Rs. In thousands) 118440 60482 139822 100221 101699 520664 XY -236880 -60482 0 100221 203398 6257

-2 -1 0 1 2 0

a=XY / X 2 a= 6257 / 10 a= 625.7 Y=a+bx

b = Y/n b= 520664 / 5 b= 101432.8

Y= 101432.8+625.7(2013-2010) Y= Rs.106009.9 thousands

INTERPRETATION: From the above trend analysis, we could interpret that value of cash and bank balances in 2012-2103 will be about Rs.106009.9 thousands.

53

TABLE 4.4.3. YEAR 2008 2009 2010 2011 2012 TOTAL X -2 -1 0 1 2 0

(TREND ANALYSIS OF CURRENT LIABILITIES) X2 1 4 0 1 4 10 Y (Rs. In thousands) 776965 614916 783299 2683573 3269541 8128694 XY -1553930 -614916 0 2683573 6539082 7053809

a=XY / X 2 a= 7053809 / 10 a= 705380.9 Y=a+bx

b = Y/n b=8128694 / 5 b= 1625738.8

Y= 705380.9+1652738.8(2013-2010) Y= Rs.3741881.5 thousands

INTERPRETATION: From the above trend analysis, we could interpret that value of CURRET LIABILITIES in 2012-2103 will be about Rs.3741881.5 thousands.

54

FINDINGS In comparative balance sheet of last five financial years it found that current assets and current liabilities of the company have been increased, but still company finds it difficult to meet its obligations as well it has increase cash in and bank, debtors and inventories. In statement showing changes in working capital it is required to note that during last year the current liabilities is more than that of current assets which means there is decrease in working capital. It implies that company cannot operate its smoothly and efficiently. In current ratio it shows clearly that there is decline from (1.15:1 to 0.58:1) in last five years, since 2:1 is the satisfactory level the company could not able to reach even that level. But still has to work more effectively to increase current assets double the times of current liability. In quick ratio, the company again fails to satisfy the accepted ratio of 1:1, where it is difficult for the company to the assets into cash readily as when required. The company has to invest in some particular field where they earn more in limited periods. In working capital turnover ratio only during the year 2009 the company has secured a good record where as in other financial years it has decreased from 75% to 12%. It is very much important for them to run the business smoothly. In current asset turnover ratio, it is being fluctuating from year to year as it goes on increases and decreases in last five financial years. It shows that company has control over the current assets; still it must work on to meets its obligations. In stock turnover ratio, it has been decreased from 28% to 15%, it shows that company inefficient performance in inventory management. In trend analysis of inventories, we could interpret that value of inventories in the year 2012-2013 will be about Rs. 13690.25 lakhs. In trend analysis of cash and bank balances, we could interpret that value of inventories in the year 2012-2013 will be about Rs. 1060.09 lakhs. In trend analysis of current liabilities, we could interpret that value of inventories in the year 2012-2013 will be about Rs. 37418.81 lakhs.

55

SUGGESTIONS

Even though the performance of the company is good in last five years, it should take necessary steps to improve its working capital which helps to run the business smoothly.

Current ratio of the company has not still reached the satisfactory level so the company must work efficiently to maintain currents by having adequate cash balances, debtors, inventories and investments.

As already stated quick ratio of the company has not reached even its satisfactory level, it must have adequate assets that can be easily converted into cash. The working capital of the company could be managed in a better manner to achieve other objectives of the concern. The company must keep the trade and other receivables in control; this will generate the possible cash flows. It has to lower down its expenses and maximizes its profits and to have control in cash position of the company. It is companys own risk to increase its debt. The company has to decrease the current liability as it keep on increasing every year more than that of current assets which is mainly required to meet the obligations.

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CONCLUSION Working capital is the lifetime of every industry, irrespective of whether its a manufacturing industry or service industry. It is the prime and most important requirement for carrying out the day to day operations of the business. It gives much needed liquidity to the business. It reduces the overall fund requirement, required to build up the current assets, which in turn helps to improve companys turnover ratios. It is the process of planning and controlling the level and mix of current assets of the concern. Specifically, working capital management requires financial managers to decide what quantities of cash, other liquid assets, accounts receivables and inventories of firm will hold at any point of time. By conducting the study about working capital management it is found out that working capital management of HATSUN AGRO PRODUCTS LTD., is good and efficient one but still it has to work effectively to reduce the current liabilities and to have adequate cash and bank balances, to meets its obligations. The performance of the company is also good, only that the company has to maintain its current assets double the current liabilities to run the business smoothly and efficiently. For any organization it is important to maintain the inventory policy. This company also has to make some necessary steps in changing the inventory policy and to maintain optimum level of stock.

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BIBLIOGRAPHY BOOKS REFFERED: 1. I.M.PANDEY, financial management. 2. M.Y.KHAN & P.K.JAIN, financial management. 3. T.S.REDDY & MURTHY, management accounting. 4. C.R.KOTHARI, Research methodology.

ANNUAL REPORTS: Five years annual report of HATSUN AGRO PRODUCTS LTD. (2008-2012)

WEBSITES: 1. www.google.com 2. www.hatsun.com 3. www.wikipedia.com 4. www.investopedia.com

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