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INTRODUCTION
The function of any business organization includes finance, marketing, personnel and production. These four functions are interlinked and cumulatively. They lay greater stress on management for its successful endeavor. Among the four Finance Function has a dominant role. Through the ages it has been said that finance is the life and blood of business it is the most primary function that starts laying its influences from the very beginning of the entrepreneurial ideal its presence is felt in every bit of organizational functioning. One use of accounting information is decision making about a firm by outsiders. Creditors and investors. The decision-making is done with the help of finance analysis. The finance analysis the main tools is ratio analysis. Fund flow and cash flows statements are prepared. The ratios are analyzed to prepared and to know the liquidity position, longterm solvency operating efficiency and over all profitability. The finance analysis prepared through balance sheets and profit and loss accounts. These statements are prepared to know the changes in working capital positions. Technique of ratio funds flow and cash flow statements are used to analyze and interpret the balance sheet and profit and loss account. The funds flows statement provides an analysis of changes in the firms working position. Funds from operation is calculated by adjusting the figure of net profit for Non funds items such as depreciation dividend etc. cash flow statement is prepared to analyze changes in the firms cash from operation changes in current assets and current liabilities are also adjusted in net profit.
INDUSTRY PROFILE
Introduction :
Milk is the food, which contains Vitamins, Proteins, rate and carbohydrates. Every human being consumers milk at one time or the other world health organization suggests that the infants should be fed compulsorily with mother milk. Because it provides all the necessary fats, proteins, etc. which is essential for the growth of the baby. If other milk is not available they suggest animal milk. This shows what major role milk is playing in our daily life. India is the second highly, Populated country and is about to occupy the first position in India. The major source of income is Agriculture. Dairying is a part of Agriculture dairying is one of the best instruments for bringing up the socio-economic development of the country. Developing country like India rural people depend on agriculture. Income like farming, dairying etc. The India dairy is expected to retain its indigence character for a long time because of consumer tastes for articles of food so far delicacies are concerned.
Dairy Development :
In India has been most spectacular in recent years, while chef-contributing factor to this achievement is the Anand pattern of dairy cooperatives. No less creditable has been a concerned effort of the national dairy development and Indian dairy development. These two institutional have been responsible for dairy development in India since 1970. Dairying is considered as a whole when it contains elements like production procurement and marketing. Karina District Co-operative milk producers union limited adopted the integrated approach this integrated approach.
In dairying is proved to be successful with Amul and latter this integrated approach is came to be known as Anand pattern of dairy cooperatives.
has 66% of economically active population engaged in agriculture derives 31% of Gross Domestic Product GDP from agriculture. The share of livestock product is estimated at 21% of total agricultural sector. Indian dairy sector has come a long way from post independence of acute milk shortage and dependent milk demand. According to published reports, Indias milk production in 1905-51 was as low as 17 millions tones. Today, the country has emerged as the second largest milk producer in the world. According to currently, there are over 275 dairy plants and 83 milk product factories in the co-operative, public and private sectors. The growing affluence of middle class has been consumers waiting to upgrade their living standards. This provides the dairy industry and opportunity to expand the dairy products market, in addition to the distribution of branded liquid milk. The tremendous potential of the dairy industry was given a major fillip with, finance minister. Dr. Manmohan Singhs move to diligence the milk industry. The deliquescing of the industry will enable a massive inflow of private investment. This would automatically argument and strengthen existing organized sector and would ensure available of better quality milk and its products to a lager cross section of the population. Organized handling or milk would also lead to proper procurement measure, which would in turn be beneficial to farmers. Entire process of development in milk production enhancement is to be brought organizations owned and managed by farmers themselves. Out country, which has a population of over than 800 millions and almost every individual consuming milk in one way or the other, has a vast potential for daily industry with is major contribution coming from agriculture India has also a vast potential to produce milk.
Maximum stimulation of milk production will be needed where such production is economically viable. The developing countries have a large potential demand for milk and dairy products. At present, milk consumption is confined to middle and high income groups the income elasticity of the demand for milk and its products is high.
2 percent) from year to year. There are a number of reasons for this. Firstly, most milk production (65 percent) is concentrated in the developed countries. Here, output in many countries is limited by production restraints. The above trends re expected to result in a shifting the balance of milk production away from the developed countries to the developing countries. By the year 2005, developing countries are anticipated to account for over 40% of world milk production, a share that could be expected to grow further during the course of production towards the developing countries will also imply the increased importance of milk other from cow? In the total picture of the worlds production.
Considering low cost of milk production and increasing production, multinational companies have planned to expand their activities. Recently, some big milk producers have obtained quality standards certificates. By this way they can market their products which can be exported to the foreign countries. According to the National Dairy Development Board (NDDB) milk production is increasing at one percent per annum in the world, while it is increasing at 4% in India. Per capita per day consumption of milk has increased to 212 gm. In the coming 10 years, the shares of co-operatives in the distribution of milk in municipal corporation area and other cities will be 60 percent and 50 percent respectively. It has decided to increase milk production three times (21 Crores) in the coming 10 years. It is felt that the milk producers should get remunerative price for their milk. Except, the Government of Maharashtra, no other state fixes minimum prices for milk.
ROLE OF DAIRYING :
Milk and milk products play a vital role in the countries agricultural economy. Milk has second rank among all the agricultural produce in India dairying provides a source of income to millions of farmers. It creates livelihood to about 75% of the population in the country. Majority of them are low income group of rural areas. The office of dairying and agriculture is characterized by mutual influence. Dairying enables the small farms to generate working capital to procure the needed output of agriculture viz. Seeds, Fertilizers etc. Thus, the impact of dairying on agriculture is note worthy. The role and prevalence of milk animals contribute not only to the dairying industry but also to agriculture by way of providing manure, feed wastages animal labour days etc. thus, the success of dairying industry depends on the farmers maintenance of milk animals.
CHAPTER II
Importance of Milk :
Milk as well as known is a mixture of a variety of nutrients. Milk is a polysaccharide constitute of our food. Milk on digestion gives glucose and lactose. We all known that out body does eventually stop growing outwardly, but our bones and tissues dons. They are constantly being renewed in fact bone are alive and theyneed constant supplied of calcium and other nutrients in order to be strong. As IDE from ca, milk provides at least the other important nutrients all performing different and important functions. As part of a well balanced diet milk and other milk products are important throughout our life.
As we grow into adulthood, we tend to consume less and less of milk in todays market place. Where there is a be wildering array of milk products. There is a milk product for almost every one once consuming cows milk, infants under 1 year should stock to whole milk for growth and energy needs. Milk Beverage (1 cup = 802=250 ml) Whole Milk 2% 1% Skim B Milk Chocolate partly skimmed 6 (2%) 7 Dry Skin, instant (25 grams) Trace 91 5 189
Sl.No. 1 2 3 4 5
SCOPE :
Management and our are they related to firms other actnortres working capital management if concern with it problem the raise in attempting the manage the current assets. The current liabilities on the inter relationship between the tows. The producing manufacturers and sold to won profits. Thus, the most important activities of business firm. Which include working capital management are cash marketable securities a/c, receivable inventory control a/c, payable etc. which generates returns on invested capital and compression of assets and liabilities profits and loss of past and present year.
SIGNIFICANCE OF STUDY :
The only principle people follow in these days is look not back, no, not even if you see the dearest and nearest cry. Look not back, but forward. Making it true, they have travelled their way into a competitive world were each and everyone only concentrate on success and nothing but success, their goal, ambition. Industries are large scale and small scale, depending on the investment, input on it. Therefore careful pre-planning is required for proper establishment of these industries, which requires huge funds, and in utilization of these funds. Hence, working capital management is that part of management which makes study on working capital in the organizations. A study on it gives an idea about the working progress of the organization. In brief working capital can be explained as those funds, which are required for day-to-day operations of the firm. In short it can be said the working capital is the basic necessity of any organization. It is that amount without which the functioning of any industry becomes blind. The further development of such organization is difficult.
Study of working capital management in Visakha Dairy gives out the exact idea of working capital because it is an organization with huge production and which also requires huge funds to meet its day-to-day expenses. It is an organization with continuous production (i.e.) procuring storing and distribution. The products or derivatives of this organization play an important role in dayto-day life or every individual since it enhances the convenience. A huge Working Capital is required to meet its expenses. This made me study the working capital requirement of the organization.
OBJECTIVES :
Working capital is the most widely used and powerful technique of financial analysis, the main objective of the present study is to know the financial condition of the company. 1. To analyze the working capital position in Visakha Dairy for the fast five year. 2. To study Working Capital Management in it. 3. To study on the contents of working capital means a study on all the items of current assets and current liabilities. 4. To analyze the working capital procedures and policies in Visakha Dairy Vizag. 5. To study the functioning process of Visakha Dairy. 6. To study above how working capital is financed in the Visakha Dairy. 7. To interpret the finance Position of Visakha Dairy is appropriate (or) not. 8. To analyze the financial situation in Visakha Dairy before and after decontrol.
METHODOLOGY
Methodology includes the different methods or means through which the data is collected. This methodology plays an important role in preparation or study of the project because it includes the collection of data, which is the root cause of the project. Hence, the main sources through which the data had been collected is through Primary and Secondary sources. Primary Data : Collection of data through Primary source includes the information or data given by the executives of the organization directly (i.e.) the co-operation and assistance given by the organization and also my personal experience. Secondary Data : Secondary source includes the information gathered through previous financial records, statements of Visakha Dairy and financial journals and books.
LIMITATIONS
The financial position is reflecting in the annual reports of the company related to the day of the Accounting and is not relevant for the remaining part of the year.
This study is done from the scope of an outside analysis and naturally the material available for analysis is limited compare to ours in company analysis without such limitations.
Another limitations is that the time for the study is only 2 months and is confirmed Visakha Dairy.
Also data about the Industry average is not available for the comparison.
CHAPTER III
ORGANISATION PROFILE
SRI VIJAYA VISAKHA MILK PRODUCERS COMPANY LTD.
Introduction :
The milk shed of Sri Vijaya Visakha Milk producers company limited (Visakha Dairy), Visakhapatnam is comprising of three districts Srikakulam, Vizianagaram and Visakhapatnam. These three districts are situated in the northeastern part of the coastal area of Andhra Pradesh state and considered to be backward for Agriculture and industrial development.
The Srikakulam district is declared as the back ward district for the Industrial development and the government has sanctioned subsidy and also sales tax exemption for five years for the date of starting of an industry. The perennial source of was for irrigation through rivers and river lets is also very much limited in Visakhapatnam and Vizianagaram Districts. Therefore, the rural farmers mostly belonging to small and marginal categories have necessarily to depend on some other source of income for their livelihood.
INTRODUCTION :
The history of India reveals the fact that milk plays a very vital role in life of people and the development of culture. This dairy industry started since the time of Lord Krishna, which could make much modification and exists as dairy industry. In the past the people of a particular sect called Yadavas had this occupation of rearing / breeding the cattle and get milk and its by-products. The modified version of this is the dairy industry that exists today. People thus accepted dairy as their occupation. In order to encourage them Government of India had taken certain necessary steps. The main intention of the Government is the upliftment of backward people by granting loans and also solves the unemployment. Taking advantage of these schemes a new and a large number of dairy farms have come to existence. A group of people from a village from society and represent the dairy. This has made their standard of living easier. Sri Vijaya Visakha Milk Producers Company Ltd. is one among them. This is a fast growing organization meeting all its customers requirements and successful in satisfying them. Since its working operations are vague its working capital requirements also very high. Working capital is the amount required to meet day-to-day operation at the organization. An absence of these makes the functioning of the organization blind. A proper study on working capital management results in prevention of mismanagement and misutilisation of funds. It also help in functioning of organization in the preplanned way of achieving all its goals and objectives. ex. A good plan of working capital also results of the organization.
ESTABLISHMENT OF VISAKHA DAIRY : State Government of Andhra Pradesh started the Anand Pattern for Dairy development through Operation Flood programme in which this Dairy had joined and became its member in 1981. Sri Vijaya Visakha District Milk Producers Co-operative Union Limited (Sri Vijaya Visakha Milk Producers Company Ltd.) was registered under Co-operatives societies Act 1964 in 1973 and it was re-registered under the Mutually aided co-operative societies Act 1955 in the name of Sri Vijaya Visakha District Milk Producers mutually aided Co-operative Union Limited (Visakha CoOperative Dairy) in 1999. The present new Dairy was constructed with an initial capacity of 50,000 Ltrs. Per day with a loan of Rs.98.50 lakhs from National Co-operative Development Corporation (NCDC), which completed and Commissioned during the year 1977. The present dairy was started as a small society with a group of Milk suppliers in the year 1977. Later on due to its continuous profits it was undertaken by State Government of Andhra Pradesh, which brought many changes. A union comprising of
Visakhapatnam, Vizianagaram and Srikakulam was formed under the name Sri Vijaya Visakha Milk Producers Limited during the year 198182. It affiliated to Andhra Pradesh Dairy Development Co-operation Federation Limited
(A.P.D.D.C.F.).
converted to mutually Aided Cooperative Act 95 from 08-07-1999 and its name also changed as Sri Vijaya Visakha Milk Producers Company Limited. The production and procurement started increasing year by year with more participation of rural farmers the production capacity of Sri Vijaya Visakha Milk Producers Company Ltd. increased time as follows.
1986 87
50,000 lts
to
1,00,000 lts.
Per day
1989 90
10,00,000 lts
to
1,50,000 lts.
Per day
1991 92
1,50,000 lts
to
2,00,000 lts.
Per day
2000 01
2,00,000 lts.
to
3,00,000 lts.
Per day
2002 03
3,00,000 lts
to
5,00,000 lts.
Per day
2003 04
5,00,000 lts.
to
6,00,000 lts.
Per day
2004 05
6,00,000 lts.
to
7,00,000 lts.
Per day
The Plant Installed Capacities : Present Handling Capacity (lts/Per day) 6,00,000 50,000 30,000 20,000 20,000 20,000 6,000 1,000
S.No.
Unit Name Sri Vijaya Visakha Milk Producers Company Ltd. MCC Narsipatnam MCC Ramabhadrapuram MCC Srikakulam MCC Vizianagaram MCC Tuni MCC Tekkali MCC Seethampet
Peak Handling Hr. Per day 7,00,000 4,13,111 23,090 16,200 25,896 15,388 800
1 2 3 4 5 6 7 8
PROFILE OF VISAKHA DAIRY : The milk shed of Sri Vijaya Visakha Milk Producers Company Limited, Visakhapatnam comprises of three districts Srikakulam, Vizianagaram and Visakhapatnam. These three districts are situated in the northeastern part of the coastal area of Andhra Pradesh State and considered to be backward for Agricultural and Industrial Development. The perennial source of water for irrigation through rivers and river lets is also very much limited especially in Visakhapatnam and Vizianagaram Districts. Therefore, the rural farmers mostly belonging to small and marginal categories have necessarily to depend on some other source of income for the livelihood. The government after considering dairying is one of the best instrument for bringing socioeconomic development in the rural areas has started a dairy with an handling capacity of 10,000 liters per day in 1996.
Dairying not only creates subsidiary occupation to the rural farmer by creating reasonable market price for his produce at his doorstep but also meets the demand of the urban consumers for the supply of hygienic quality at reasonable price. After observing the success of the small dairy, the present new dairy was constructed with an initial capacity of 50,000 liters per day taking loan Rs.89.50 lakhs from National Cooperative Development Corporation, which completed and commissioned during the year 1977. This dairy was registered under cooperative societys act 1973. At the initial stage, the area of operation was limited to Visakhapatnam district only. The farmers took lot of interest in dairying after realizing it as the subsidiary occupation as it is giving them regular income for their livelihood. With the result, more and more small and marginal farmers and agricultural labour joined in the stream for increasing their economy at village level utilizing the infrastructure available at their doorsteps. When the A.P. State has adopted Anand Pattern for dairy development through operation (or) programme this co-operative dairy has also joined in the line 1981 and become a member of A.P. level. At the state, union comprising of Districts Viz., Srikakulam, Vizianagaram and Visakhapatnam was formed under the name of Sri Vijaya Visakha Milk Producers Company Limited during the year 1981 1982. The union is converted to mutually aided cooperative act 1995 from 08-07-1999 and its name also changed as Sri Vijaya Visakha Co -operative Milk Producers Mutually Aided Co-operative Union Limited.
LOCATION : The selected unit Sri Vijaya Visakha Milk Producers Company Limited, Visakhapatnam is situated at Akkireddypalem. It is on the National Highway of Howrah to Madras. It is surrounded by number of village where people habituated in dairying the selected unit is ideal in all respects either in procurement of milk or distributed milk. Milk Procurement : The union is procuring milk through a network of 848 primary milk producers cooperatives and 1258 unregistered centers in the 3 districts of Visakhapatnam, Vizianagaram and Srikakulam. He average daily procurement of this union during 2003 04 is 3,19,450-00 liters per day and during 2004 05 up to June is 6,90,266 liters per day and as on date of present procurement is 3,20,000 liters per day. The peak quantity touched during the year 2002 2003 is 4.20 liters per day. The payment for the milk procured is made once in fortnight based on the fat and SNF contents of the milk transported to dairy and its units through a network of 54 milk routes in three districts. 1) Technical Input activities : The Visakha union is not only Procuring, processing and marketing the milk which collected from various inputs to the producers to improve their cattle wealth and also to improve socio-economic living standards through increase in milk production.
The following inputs are provided to milk producers : Animal Health care Artificial Insemination Feed and fodder activity Premixed cattle feed is being supplied at the rate of Rs.4.00 / Kg. 1 Distribution of fodder minikits on 50% subsidy etc. Extension activities Film shows Pamphlets and Charts Distribution Cattle insure scheme Statement showing the Details of Different Activities of Visakha Union as on June 2004 : 1 2 3 4 5 6 7 8 9 10 11 12 13 14 No. of Societies No. of Women Societies No. of MPACS No. of Milk Chilling Centers No. of feed mixing plants Union training centers No. of Bulk cooling centers No. of milk collection routes No. of veterinary fist aids centers No. of emerging veterinary routes No. of producers in Societies No. of women members No. of animals vaccinated (Triovac) No. of cattles insured 848 67 1258 6 1 1 47 50 592 19 1,68,782 312 10,000 13,980
2) Training Center : The union has its own regional training center near Hanumanthawaka with boarding and lodging facilities and is imparting for the society personnel in the following fields. 40 Days A1 Programme 20 Days A1 Programme 10 Days Veterinary first aid training 30 Days paid secretaries training etc.
Bulk Cooling Centers : With a view to stand stiff in global competition, Visakha union on the quality front installed 47 bulk milk cooling centers covering procurement of 1,55,680 during. The year 2003 04 and as on date 1,60,300 liters of quality milk is being received and in unique feature of this union. OBJECTIVES : There is time saving for the farmers in supply of milk to their respective village milk collection centers both AM PM. The quality of milk will be maintained by restricting the transit me. The weithment and testing of milk will be done in the presence of the representatives who bring milk to the bulk cooling points. The expenditure involved in transport of milk both times will be reduced by 50% by collecting milk once in a day through milk tankers.
3) Marketing : At present we have total no. of 2172 milk booths, out of which 450 outlets are selling milk and milk products round the clock. We are supplying milk and milk products in the three districts of north coastal Andhra Viz., Srikakulam, Vizianagaram, Visakhapatnam, Kakinada, Rajahmundry and Tuni in East Godavari District. We are distributing milk through 36 routes for a wider coverage and accessibility of the public. We have been doing many of sales promotion activities with innovative ideas for development of milk market. 1) Promotional Activities i. ii. iii. iv. v. Hoardings Glow Sign boards Wall Painting Banners, Carry bags Press add etc.
2) Consumer education programmed 3) Training to field staff to upgrade the skills. I. Milk Products are being sold through distributors : At present we have total no. of 2172 milk booths, out of which 450 outlets are selling milk and milk products round the clock. We are supplying milk and milk products in the three districts of north coastal Andhra Viz., Srikakulam, Vizianagaram, Visakhapatnam, Kakinada, Rajahmundry and Tuni in East Godavari District.
VETERINARY HEALTH CARE : 346 veterinary first aid centers are functioning in the union. These centers are started where there are no A.H. Departmental Institutions. One of the employees of dairy co-operative society is trained in veterinary firs aid that is attending to this work. The union is presently handling 14 emergency routes in Visakhapatnam District with different mandals in their districts of cater the emergency veterinary needs of the milk producers of motorcycle. The medicine is supplied on free of cost. SOCIETY BUILDING CONSTRUCTED SO FAR : Visakhapatnam District Vizianagaram District Srikakulam District 275 68 20 363 TRAINING CENTERS : This union has its own regional training center near Hanumanthwaka with boarding and lodging facilities and is imparting for the society personnel. FOODER FORM : In the training premises a Fodder Farm is established both for demonstration to the trainees and seed multiplication. The following fodder grasses are growth in the farm. 1. CO-1 2. NB-21 3. Para 4. Gunia
During the year 1997 98 fodder slips to cover an area of 130 acres were produce and distributed to the milk producers free of cost.
EDUCATION PROGRAMMES : 1. Member education programme. 2. Women education programme. 3. Paid secretaries organization programme. 4. P & T organization and motivation programme etc. Through Visakha Dairy Training center, which is situated at Mudasarlova, Visakhapatnam, which has got all facilities for intensive training, programme. TECHNICAL INPUT PROGRAMMES : 1. Veterinary first aid centers and emergency routes 2. Artificial insemination and distribution of breeding bulls. 3. Distribution of feed and fodder at subsidized rates. 4. Extension activities like film shows, cattle shows and distribution of certain vacancies are 50% cost. WELFARE ACTIVITY FOR MILK PRODUCERS & EMPLOYEES : This union has constituted a Trust by name milk producers and Employees educational, Health & Medical Welfare facilities to the milk producers, dairy employees and their children. It is not our of place to mention that this a unique enterprise embarked upon by his entire state. LIFE INSURANCE SCHEME TO THE MILK PRODUCERS : Life Insurance Scheme and Accidental policy were covered by to nearly 1.00 lack farmers in this union.
MILK MARKETING : To cater the needs of the consumers in Visakhapatnam city and also in the important towns of Anakapalli, Paderu, Araku, Narsipatnam, Vizinagaram, Srikakulam, Tuni and Kakinada Milk is being supplied in sachets as indicated hereunder. VISAKHA DAIRY BRANCHES : Visakhapatnam District : 1. Distribution Routes 2. Parlors 3. Milk Sales Points Vizianagaram District : 1. Distribution Routes 2. Parlors 3. Milk Sales Points Srikakulam District : 1. Distribution Routes 2. Parlors 3. Milk Sales Points East Godavari District : 1. Parlors 2. Milk Sales Points 30 815 4 40 120 7 18 130 38 400 1500
The present milk sales in the Union in 3,12,000 lts. per day. The following types of milk are being sold.
Table No. 2.1 Quality 2,00,000 30,000 10,000 60,000 Type of Milk Tones Milk Whole Milk S.T. Milk H.T. Milk Quality Standard Fat 3%, SNF 8.5% Fat 6%, SNF 9% Fat 4%, SNF 9% Fat 3%, SNF 8.5% Rate of Liters Rs.16/Rs.22/Rs.18/Rs.16/-
ORGANISATION STRUCTURE OF VISAKHA CO-OPERATIVE DAIRY : Sri Vijaya dairy is the first of its kinds in A.P. established in the co-operative sector. This dairy is set up in the Ananda Pattern. In this setup the milk producers from co-operative societies are at the village level. These societies are managed by the elected representation. The president of each of the co-operative union elected the director. There are nominated director also the board comprising chairman of the board. Thus, this dairy is established on a three cover systems. The three-cover system means village dairy co-operative society at the village level managed by the managed representative of producers. A co-operative federation union at district level managed by the village representatives. Dairy co-operative societies and a co-operative federation at the state leve, which is apex body. In the year 1971, dairy co-operative normally launched a plant in Visakha with a handling capacity of 6000 liters per day. The board management of union comprising 12 elected board of directors from the village dairy co-operative society and 5 ex office board of directors comprising of one representation from AP Dairy development co-operative
federation. Director of Animal Husbandry, Register of Co-operative Societies representative of financing agency and dairy expert. After a big spell of one and half year the management of the dairy was hundred over to the Visakha district milk producers co-operative union limited by the government of A.P. The general management is responsible for implementation of policies and decisions, which are taken by the board of directors. Board of directors elect the chairman for every 3 years and be taken the important decisions regarding the management of Sri Vijaya Visakha Dairy under the General Manager. There are three deputy General Managers for 1. Finance & Accounts 2. Procurement & Input and 3. Plant & Production Under deputy general manager, one account manager and five assistant managers are working under the deputy general manager procurement and input, one sub veterinary officer and 5 managers are there to look after the procurement fodder, co-operative artificial and inseminating and training center. Activities respectively under the deputy general manager (plan and production) one assistant dairy engineer, one dairy manager, cattle feed plant manager. Coverage Junior Engineer is working in each and every department; senior assistant and junior assistants are employed for electrical activities. DATA BASE : The data required for this study is collected from both primary and secondary sources. The statistical statement relating to financial structure of the solicited unit
consents of secondary sources of information. Such information is collected from various annual reports, records of the unit. PERIOD OF STUDY :
The period is so taken for their present study from 2000 01 to 2005 2006 (6 years).
CHAPTER IV
The management of fixed assets and current assets differs in 3 important ways : In managing fixed assets the time factor is very important. That is why discounting and compounding play a very important role in any Capital budgeting decision. But, because the time frame of current assets is only one accounting period, the time value of money is less significant in the management of current assets. The liquidity position of a firm is dependent on the investment in current assets, the more, the better, whereas the role of fixed assets as far as liquidity is concerned is negligible. Any short run, immediate need of the company whether it be need for cash or adjustments to fluctuations in sales can be made only through adjusting the levels of the various components of the current assets. This calls for efficient management of current assets, which form part of management of working capital. Working capital is the amount of capital required for the smooth and uninterrupted functioning of the normal business operations of a company ranging from the procurement of raw materials, converting the same into finished products for sale and realizing cash along with profile from the accounts receivables that arise from the sale of finished goods on credit. Therefore, working capital is the difference between current assets and current liabilities. It is required to meet daily obligations of a company. In other words, it is the basic necessity of any company. It involves not only managing the different components of current assets, but also managing the current liabilities, or to be more precise, the financing aspect of current assets.
STATIC VIEW OF WORKING CAPITAL : Traditionally (he term working capital is defined in two ways, viz. gross working capital and net working capital. Gross working capital is equal to the total of all current assets (including loans and advances) of a company. Net working capital is defined as the difference between gross working capital and current liabilities (including provisions) Sometimes net working capital is also referred to as net current assents. Since both gross working capital and net working capital are obtained from the data contained in the balance sheet, working capital viewed in either sense denotes the position of current assets (or net current assets) as at the end of a companys accounting year. An important characteristic of current assets is conventionally considered to be their convertibility into cash within a single accounting year unlike fixed assets which provide the production capacity for the manufacture of finished goods for sale. Current liabilities arise in the context of and hence are derived from current assets. Conventionally current liabilities are of short-term nature and come up for payment within a single accounting year. Consequently, a lot of emphasis is traditionally placed on the current assets (which are valued on a conservative principle1 of accounting) via-a-vis current liabilities. As a rule of thumb, the value of 2:1 for the ratio of current assets to current liabilities (popularly known as current ratio) is considered to be satisfactory by the short-term creditors, the underlying logic being that a company can face the unlikely situation of meeting all of its current liabilities by liquidating its current asset even at half of their recorded value without any financial embarrassment.
DYNAIMIC VIEW OF WORKING CAPITAL : In the light of shortcomings of the traditional view of working capital there is a need for evolving a more expressive definition that highlights the importance of working capital to a company. Working capital can be viewed as the amount of the normal business operations of a company ranging from the procurement of raw materials, converting the same into finished products for sale and realizing cash along with profit form the accounts receivable that arise from the sale of finished goods on credit. From the above definition, the need for working capital by a typical manufacturing and selling company becomes self-evident. In order to meet the production plans of a company some quantity of raw materials has to be maintained in the form of inventory as there will usually be a time lag from the moment of placing an order for raw materials with suppliers till the same are received by the company. Absence of adequate raw materials inventory may result in stoppage of production for want of raw materials. The quantum of raw material inventory to be maintained by a company depends, internal, on the availability of raw materials in case they are not indigenously available, the existence or otherwise of curbs by the government on imported raw materials, the lead time (the time gap between placing an order and receiving the supply of raw materials) for the procurement of raw materials, availability of bulk purchases discounts offered by suppliers and inflationary pressure on the price of raw materials.
Once the raw materials are put into the production process, the company has to incur manufacturing expenses like wages and salaries, fuel and other manufacturing overheads. The nature of process technology adopted by the company is an important in determining the time taken for converting raw materials into finished goods, consequently. The company may have some amount of finished goods and the balance in the form of partly finished goods denoted by the term work in process. Thus, work-in process inventory, which a company carries, becomes an inevitable concomitant of the production process. The quantum of finished goods inventory a company carries is basically determined by the degree of accuracy in forecasting sale demand, the ability to meet sudden and unforeseen spurts in the demand considered in conjunction with the production policy and the amenability of the product to become perishable in a relatively short period off time (as in the case of cigarettes and certain types of Pharmaceuticals). The amount of finished goods inventory held by a company should normally provide its sales executives reasonable elbowroom for negotiating and clinching deals with new customers. Unless a company enjoys special advantage over its competitors, it may have to honor the practices followed by the industry to which it belongs in the sale of finished goods. By and large in a competitive market, finished goods re sold on a credit basis. When a company gives accredit period to its customers from the date of consummation of sale, the amount of sales value will become accounts receivable or sundry debtors, which get converted into cash only after the expiry of credit period.
Further, a company usually maintain at all times some amount of liquid cash either on hand or at bank towards meeting cash payments arising out of transactions as also for providing adequate cushion towards meeting unanticipated demand for cash such as, for example, availing cash discount on purchases suddenly, introduced by the suppliers, before the generation of cash takes place in the normal course of business. One more point needs to be considered at this stage. Just as the company extends credit to its customers, in many instances it can receive credit to its customers, in many instances it can receive credit from its suppliers of materials. Consequently, the drain on cash resources of the company can be delayed till the expiry of credit period. Until such time the amount will become Accounts Payable of the company and as such provides a spontaneous source of credit. From this discussion it is evident how important a role working capital plays in supporting the normal business operations of a typical manufacturing and trading company.
Bills receivable : These represent the promises made in writing by the debtors to pay definite sums of money after some specified period of time. Bills are written by the firm and become effective when accepted by the debtors. These are discounted with bank and are converted to cash immediately. Stock (or) Inventory : This includes raw materials, work-in-process and finished goods in case of manufacturing firms. This is maintained for smooth production and serving customers on a continuing basis. They are carried in the balance sheet at the original or market cost, which ever is less, they are the least liquid current asset. Prepaid expenses and accrued incomes : They are the expenses of future period paid in advance. Examples of these are prepaid insurance, prepaid rent, taxes paid in advance. They are current assets because their benefits will be received within the accounting period. Accrued incomes are the benefits, which the firm has earned, but not yet received. They include accrued dividends, accrued commission or accrued interest. Loans and Advances : They include dues from employees or associates advances, advances for current supplies and advances against acquisition of capital assets. Except for the advance payment for current supplies, it is not proper to include loans and advances in current assets.
CURRENT LIABILITIES : They are debts payable within an accounting period. Current assets are converted to cash to pay current liabilities. Some times new current liabilities may be incurred to liquidate the existing ones. These are mainly classified as : Sundry Creditors (or) Accounts Payable : They represent the current liabilities towards suppliers whom the firm has purchased raw materials on credit. Bills payable : They are the promises made in writing by the firm to make payment of a specified sum toe creditors at some specified date. Bills are written by creditors over the firm and become bills payable once the firm accepts them. They have a life of less than a year. Bank Borrowings : Commercial banks advance short-term credits to firms for purchasing their current assets. They may also provide for financing fixed assets. Such loans will be grouped under long-term liabilities. In India, both long and short-term borrowing is included under loan funds. Provisions : They include provision for taxes or provision for dividends. Every business has to pay taxes on its income. Usually, it takes some time to finalize the amount of tax with the tax authorities. Therefore, the amount of tax is estimated and shown as provision for taxes.
Outstanding Expenses : The firm may owe payments to its employees and others at the end of the accounting period for the services received in the current year. These are payable within a year short period. Examples are wages payable, rent payable, or commission payable. Income received in advance : A firm can sometimes receive income for goods or services to be supplied in future. As goods or services have to be provided within the accounting period, they are treated under current liabilities. Deposits from Public : A firm for financing its current assets raises these. These are raised for a duration of one year through three years. CONCEPTUAL EXPOSITION : The concept of working capital has been a matter of greater controversy among the financial wizards. Broadly speaking, these re divided into a) Gross working capital and (b) Net working capital. Gross working capital deals with the problems of managing individual current assets in day-to-day operations. Current assets are the assets that can be converted into cash within an accounting year and these include cash, debtors, stock (inventory), bills receivables, marketable securities etc. Thus, the gross concept is in the nature of a quantitative definition that focuses attention on the levels of current assets for a given activity.
Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders that are expected to mature of payments within an accounting year and include creditors, bills payable and outstanding expenses. This net working capital can be either positive or negative. A positive net working capital will arise when current assets exceeds current liabilities and a negative working capital when current liabilities are in excess to current assets. Thus, the Net concept is a qualitative definition, which focuses attention on the character of the sources from which the funds have been procured to support that portion of current assets which is in excess of current liabilities. OBJECTIVES : Working capital Management is concerned with all the aspects of managing current assets and current liabilities. The significant objectives, which require attention of financial executives, are : a) Managing Investment in Current Assets : Determination of appropriate level of investment in current assets is the first and foremost responsibility of working capital manager. Although, the amount of investment in any current assets ordinarily varies from day-to-day, the average amount or level over a period of time can be used in determining the fluctuating and permanent investment in current assets. Besides, the level of investment, the type of current assets to be held is equally important decision variables. The result is that there is a very large number of alternative levels of investment in each type of current asset. Therefore, in principle current asset investment is a problem of evaluating large number or mutually exclusive investment opportunities.
a) Financing of Working Capital : Another important dimension of working capital management is determining the mix of finance for working capital, which may be a combination of spontaneous, short-term and long-term sources. Spontaneous sources of financing consist or trade credit and other account payable that arise spontaneously in the firms day-to-day operations. b) Inter-relatedness : The financial manager cannot simply decide that the investment in inventory, for example, will be so much and stop there,. The desired level of inventory is, itself, an changing quantity. For example, the desired level of inventory for a period when its sales are very high would not be the same as the desired level for a period when its sales are very low. Further, no decision regarding inventory and sales could be made without considering the implications for accounts receivables. Moreover, any business decision that results in increased sales and collection for the firm that or I likely to mean that lower average cash balance will be needed a new cash management system will be desirable. Thus, all current assets decisions are inter related. POLICIES : It is clear that the transmission of cash to raw materials, this to work-in-progress then to finished goods and to cash, and all this is a cyclical process. The firms working capital is compared of two components. 1) Permanent Working capital : The minimum level of investment in current assets regularly employed in business is called Fixed or Permanent working capital. They represent the amount of cash, receivable and inventory maintained as minimum to carry on operations at any time.
2) Variable working capital : The extra working capital needed to support the changing business activities is called Variable or Fluctuating working capital. Additional cash, inventory and receivables may be needed to pay for increased supplies or to support peak selling periods finance after a period of high sales. LIMITATIONS : Working capital considers the purpose of current assets as providing adequate cover for current liabilities. This definition suffers from many limitations as stated below : First, the amount of working capital, viewed in either sense, is obtained from the data contained in the balance sheet, which merely includes the financial position of company as on specific date and is therefore, static in nature. Secondly, the balance sheet of a company is prepared and presented in the annual report in accordance with the Schedule VI requirements of the Indian Companies Act. As a result the amount of net working capital obtained by subtracting current liabilities from current assets presented in the balance sheet falls to reflect the true amount of net working capital. BALANCED WORKING CAPITAL POSITION : The firm should maintain a sound working capital position. It should have adequate working capital to run its business operation. Both excessive as well as inadequate working capital positions are dangerous from the firms point of view. Excessive working capital means idle funds which earn no profits for the firm. Paucity of working capital not only impairs the firms profitability but also results in production interruptions and inefficiencies.
The dangers of excessive working capital are as follows : It results in unnecessary accumulation of Inventories. Thus, chances of inventory mishandling, waste, theft and loses increases. It is an indication of defective credit policy and slack collection period. Consequently, higher incidence of bad debts results, which adversely affects profits. Excessive working capital makes management co placement, which degenerates into managerial inefficiency. Tendencies of accumulating inventories tend to make speculative profits grow. This may to make dividends policy liberal and difficult to cope with in future when the firms is unable to make speculative profits. Inadequate working capital also results in dangers : It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds. It becomes difficult to implement operating plans to achieve the firms profit target. Operating inefficiencies creep in when it becomes difficult even to meet day-today commitments. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firms profitability would deteriorate. Paucity of working capital render the firm unable to avail attractive credit opportunities etc. The firm loses its reputation when it is not in position to honor its short term obligations.
GOALS OF WORKING CAPITAL POLICIES : The firms policy for managing its working capital should be designed to achieve three goals; 1) Adequate liquidity : If a firm lacks sufficient cash to pay its bills when due, it will experience continuing problems. The most important goal is to achieve adequate liquidity for the conduct of day-today operations. 2) Minimization of risk : In selecting its sources of financing payables and other short-term liabilities may involve relatively low costs. The firm must ensure that these near current assets on hand to pay them. The matching of assets and liabilities among current accounts is task of minimizing the risk of being unable to pay bills and other obligations. 3) Contribute to maximizing firms value : The firm holds working capital for the same purpose as it holds any other assets, that is, to maximize the present value of common stock and value of the firm. It should not hold idle current assets any more than it should have idle fixed assets. The investment of excess cash, minimizing of inventories, speedy collection of receivables, and elimination of unnecessary and costly short-term financing all contribute to maximizing the value of the firm. FACTORS : A large number of factors affect the working capital of firms. The following are the few factors, which generally, affect the working capital of firms:
1) Nature of business : Working capital requirements of a firm are basically influenced by the nature of its business. Trading and financial firms have a very small investment is fixed assets, but require a large sum of money to be invested in working capital. Retail stores, for examples, must carry large stock of a variety of goods to satisfy varied and continuous demands of their customers. 2) Nature of raw materials used : The nature of major raw material used in the manufacture of finished goods will greatly influence the quantum of raw material inventory. For example, if the raw material is an agricultural product whose availability is pronouncedly seasonal in character the proportion of raw material inventory to total current assets will be quite high. For example, tobacco is the major raw material for cigarette industry whose availability is seasonal in nature and also the tobacco produced requires a reasonably long curing period. Consequently, the percentage of raw material inventory to total current assets will be quite high compared to other items. 3) Seasonal and cyclical factors : Most firms experience seasonal fluctuations in the demand for their products and services. These variations in sales affect the level of working capital. Similarly, the overall economy undergoes business and financial cycles. In a recession, a firms sales may temporarily decline, thus reducing the need for inventories and the level of receivables. In a period of high interest rates, customers may be slow in paying their bills, a fact that will cause an increase in receivables.
4) Process technology used : Technological developments, particularly related to the production process, can have sharp impacts on the need for working capital. If the firm purchases new equipment that processes raw materials at a faster rate than previously, the permanent need for inventory may be changed. If the faster processing requires more raw materials for efficient production runs, the permanent inventory will increase. If the machine can useless expensive raw materials, the inventory needs may be reduced. 5) Policies of the firm : Many of the firms policies affect the levels of permanent and variable working capital. If the firm changes its credit policy from 30 to net 60, additional funds may be permanently tied up in receivables. If it changes production policies, inventory requirements may be permanently or temporarily affected. If it changes it safely level of cash on hand, permanent working capital may increase or decrease. If the level of cash is linked to the level of sales, variable working capital may be affected. 6) Degree of competition in the market : When the degree of competition in the market for finished goods in an industry is high, then companies belonging to the industry may have to resort to an increased credit policy to its customers, partially lowering credits standards and similar other practices to push their products. These practices are likely to result in a high proportion of accounts receivable. Similarly, in a competitive market when the demand for finished product is seasonal the manufacturing company may have to report to increased credit period, special incentives, etc. for achieving off-season sales. All this will result in an accumulation of accounts receivable.
7) Paving habit of customers : It is a well recognized fact that Government departments and to some extent public sector units are more rule-bound resulting in delayed payments to organizations that have sold products or rendered services to them. Consequently, the organization whose customers happened to be Government departments will have an accumulation of accounts receivable. OPERATING CYCLE APPROACH TO WORKING CAPITAL MANAGEMENT : The normal business operations of manufacturing and trading company start with cash, go through the successive segments of the operating cycle, viz., raw material storage period, conversion period, finished goods storage period and average collection period before getting back cash along with profit. The total duration of all the segments mentioned above is known as Gross operating cycle period. This can also be shown in a diagrammatic form:
Finished Goods
Work-in Process
Selling and Distribution General Administration and Financial Costs Wages, Salaries and Manufacturing Costs Raw Materials, Components Stores etc.
Cash
The above picture depicts the inter-dependence among the components of working Capital. For this purpose the company has to make payments towards wages, salaries and other manufacturing costs. Payments to suppliers have to be made on purchase in the case of cash purchases
On the expiry of credit period in the case of credit purchases. Further, the company has to meet other operating costs such as selling and distribution costs, general, administrative costs and non-operating costs described as financial costs (interest on borrowed capital). In case the company sells its finished goods on a cash basis it will receive cash along with profit with least delay. When it sells goods on credit basis, it will pass through one more stage, viz., accounts receivable and gets back cash along with profit on the expiry of credit period. Once again the cash will be used for the purchase of materials and / or payments to suppliers and the whole cycle termed as working capital or operating cycle repeats itself. The process indicates the dependence of each stage or component of working capital on its previous stage or component. In case the company is placed in an advantageous position of being able to sell its products for cash then the segment of average collection period will disappear from the gross operating cycle period and to that extent the total duration of the cycle gets reduced. In case advance payments are to be made for procuring materials, the operating cycle period increase. The purchase of raw materials, components etc., are usually made on a credit basis, thereby giving rise to the spontaneous current liability, viz. accounts payable. When the average payment period of the company to its suppliers is deducted from the gross operating cycle period the resultant period is called net operating cycle period or simply operating cycle period. It become obvious that the shorter the duration of operating cycle period, the faster will be the transformation of current assets into cash. The operating cycle approach is quite useful both in controlling and forecasting working capital. It can also be that operating cycle approach proves quite useful as a technique for exercising control-overworking capital.
CHAPTER V
ANALYSIS
WORKING CAPITAL MANAGEMENT IN SRI VIJAYA VISAKHA MILK PRODUCERS COMPANY LIMITED
Working capital is the amount of capital required for the smooth and uninterrupted functioning of the normal business operation of a company. This is the difference between current assets and current liabilities. These current assets must always be in excess to current liabilities which results in positive working capital, which is good, sign to the organization. This must also be not in excess, which results in this management. Hence, an optimum level of working capital is to be maintained. From all the 5 years statements of working capital or Visakha Dairy it can be noticed that the working capital during 2004 is very high. It represents a high liquidity position and also an overall increase in current assets it is also noticed that there is an increase in Working Capitals from year to year. This is indication for the smooth functioning of this organization. It also represents an increase in Production process, which increases the sales. The more the production undergone, the more will be its expenses an a result in high volume of sales which simultaneously results in Profitability of the organization. Even though is had incurred loss during 2002 2006. It was successful in overcoming by the assets it had. It was able to meet out all its obligations without declaring insolvent. From all above it can be concluded that is an organization with high Working Capital and high liquidity. It can also be said that it is successful in maintaining sufficient Current Assets to compensate its Current Liabilities. At last it can be said that this is a fast growing, profit-oriented organization occupying its own position in the market.
CRITERIA FOR EVALUATION OF WORKING CAPITAL MANAGEMENT First, when working capital is viewed as the difference between current assets and current liabilities the basic objective of working capital appears to be one of the providing adequate cover to meet the current obligations of a company as and when they become due. This approach lays greater emphasis on liquidity aspect of working capital. Secondly, when working capital is looked upon as the amount held in different forms of current assets to provide adequate support to the smooth function of the normal business operations of a company the objective becomes one of deciding on the trade-off between liquidity and profitability. While developing suitable criteria for the evaluation of working capital Management we shall bear in mind both approaches to working capital. The following criteria may be adopted for evaluating the working capital management of company: Liquidity : By and large the current assets of company are considered to be more liquid than fixed assets. Even among the current assets, some items are considered to be much more liquid than others. In a descending order of liquidity the current asset items can be stated as cash and bank balances. Marketable securities, sundry debtors, raw material inventory, finished goods inventory and work-in-process inventory. But, of these items, inventories are considered to be less liquid as they have to pass through the different stages of the operating cycle before becoming accounts receivable and eventually back to cash. The ultimate test of liquidity is the ability of company to meet its current obligations.
Availability of Cash : Even the most profitable companies may have faced at some time or the other problems of cash shortage. In seasonal industries it is much more common to pass through bouts of cash shortage while in other cases it can happen because of mismatching of cash inflows and cash outflows. As a result companies keep some minimum cash balance. It should be noted that the large the proportion of current assets be noted that the larger the proportion of current assets held in the form of cash and bank balance, the liquidity position of the company improves but at the cost of sacrificing profitability as idle cash fetches no return. However, the great uncertainty surrounding future cash flows, lack of synchronization between cash inflows and cash outflows, the liquidity mix in terms of cash and bank balances and marketable securities, the attitude of management towards risk are some of the important factors that are likely to influence the proportion of cash in the total current assets of a company. Inventory Turnover : Any type of inventory will represent the amount of cash locked up and the amount of carrying costs. Too high a level of inventory and too low a level of inventory are not conducive to the financial health of a company as the former can create problems of liquidity while the later can affect profitability due to stoppage of work of raw goods in the inventory in adequate quantity. Credit Extended to Customers : In a competitive market environment, the output of a company is usually sold on credit basis, Credit sales has got many dimensions. Indiscriminate sale of output without reckoning with the credit standards may result in higher volume of sales, larger amount of cash locked up in the receivables and higher incidence of bad debt losses. By flowing high credit standards, the companys sales volume may get adversely affected. It is therefore, necessary to ensure whether reasonable credit is provided to customers as part of the evaluation of working capital management.
Credit obtained from Suppliers : Just as a company extends credit to its customers it would also obtain credit from its suppliers in most cases. Working capital management should provide adequate flexibility to the purchase department so that they can shop around and obtain better terms for procurement of supplies. Further, regular payment habit on the part of the company can instill confidence in the minds of the suppliers. This can be quantified by the average payment period. Ratios : The liquidity position of the organization can also be found by using these ratios. These are mainly attributable to the simplicity in calculation and indication of the direction in which further probing is necessary. Therefore, the ratios are : CURRENT RATIO : Current ratio is the ratio of current assets to current liabilities, which can be represented as : Current Ratio = _____Current Assets____ Current Liabilities
A firm having this ratio in 2:1 is said to be perfectly good A high ration indicates that the firm is having more idle cash and a low ratio indicates inadequacy of cash. The following table explains the current ratio of Visakha Dairy during past 5 years. Year 2003 2004 2005 2006 2007 2008 2009 Current Assets (Rs. In Crores) 50.93 67.45 70.41 82.81 94.21 Current Liabilities (Rs. In Crores) 17.22 29.92 35.65 39.73 54.52 Ratio 2.96:1 2.25:1 1.97:1 2.08:1 1.72:1
INTERPRITATION
From the above table, it is clear that the liquidity position of this organization is good and also high. It had tried to maintain a constancy of 2.25:1 during all these five years, Even though it was high during 2002. The current ratios has decrease to 0.71 in year 2004 and it has decreased to 0.28 in year 2005 and it has increased to 0.11 in the year 2006. It had regained it original position. It is also clear that the current assets percent in it are high compensating all current liabilities. There was a gradual increase in current assets. It can also be concluded that the current assets percent in this organization is high. Hence, it can be said the organization is able to meet its day-to-day operations.
QUICK (OR) ACID TEST RATIO : This is the ratio of Quick assets to Current Liabilities, which gives out the exact liquidity position of the organization. Quick asstes are obtained after deducting inventory from current asset. This is represented as follows : Quick Ratio = ____Quick Assets___ Current Liabilities
An increase in ratio indicates the mis management of the organization and decrease in the ratio indicates inability to meet its payments. The following table explains the quick ratio of Visakha Dairy during 2002 2006. Calculation of Quick Ratio of Visakha Dairy from 2002 2003 to 2006 2007 (Rs. In lakhs) Quick Ratio 1.32 0.93 0.79 1.41 0.89
Year 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009
INTERPRITATION : The above table gives out a brief idea about the liquidity position of Visakha Dairy. The liquidity position in this organization is very high when compared to the standard ratio. It is noticed that the ratio is always in a one and half proportion to the required ratio. This indicated that the organization is successful in meeting out all its payment. An Increase in the quick assets represents the liquidity (i.e.) the liquid assets are more in number. There was an gradual increase in liquidity or liquid assets till 2004 and then started declining. When compared to the liquidity position of 2003 there is drastic change in the liquidity position of 2006. Even through there is decline in the quick ratio; the liquidity position of the organization is still high.
DEBTORS TURNOVER RATIO : A ratio between sales to Debtors indicates the total receivables of the organization that there are to be received in that particular year. It is represented in the form: Debtors Turnover Ratio = ___Net Credit Sales__ Average Debtors ______ 365 Days_____ Debtors Turnover Ratio
A high ratio indicated that the organization is good in its credit policy and able to collect its receivables. A low ratio indicates the inefficient credit policy followed by the organization. The following table explains the debtors turnover ratio of Visakha Dairy during 2007-2009. Calculation of Debtors Turnover Ratio of Visakha Dairy from 2002-03 to 2008-09. Debtors Turnover Ratio 41.81 51.25 84.53 113.60 126.76
INTERPRITATION The debtors turnover ratio has decreased to 1.75 in the year 2003, 26.05 in increase the year 2004 and it has increased to 45.25 in year 2005 and 7.84 in decrease the year 2006. It is clear from the above table that the credit policy followed by this organization is very good. There is continuity in an increase of this ratio. It makes us clear that the sales (i.e.) cash as well as the credit of this organization are good and also the efforts in collection of receivables. Even though there was increase in Debtors in 2004 it had failed in collection efforts, hence the ratio is low. It is not that same in 2006 the organization had proved once again that it is good in its credit policy by achieving a high ratio.
AVERAGE COLLECTION PERIOD The second type of ratio of measuring the liquidity of a firms debtors is the average collection period. This ratio is fact interrelated with the dependent upon, the receivables turnover ratio. Average collection period = ____No. of days in year__ Debtors turnover Ratio
Calculation of Average collection period of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002 03 to 2008 09 Debtors Turnover Ratio 41.81 51.25 84.53 113.60 126.76 Average Collection Period 9 7 4 3 3
STOCK/INVENTORY TURNOVER RATIO : It is a ratio between sales to inventory, which indicates the efficiency of the organization in producing, and selling its products. Inventory Turnover Ratio = Cost of Goods Sold____ Average Inventory Cost of Goods Sold = Net Sales Gross Profit
This ratio must not be too high or too low, but the according to the demand. If the ratio is low it indicates inefficiency of the organization and high indicates mis-management. The following table explains the inventory turnover ratio of Visakha Dairy during 2002 - 2009.
WORKING CAPITAL TURNOVER RATIO: Working capital turnover ratio indicates the velocity of the utilization of net working. This ratio indicates the number if times the working capital is turned over in the course of a year. This ratio measures the efficiency with which the working capital being used by a firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. Working Capital Turnover Ratio = __Cost of Good Sold___ Net Working Capital Calculation of Working capital Turnover Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-2003 to 2007-2009. Working Capital Turnover Ratio 5.73 6.14 7.24 6.47 7.88
CREDITORS TURNOVER RATION: Creditors turnover ratio indicates the velocity of Credit collection of firm. In simple it indicates the number of times average Creditors are turned over during a year. Generally, the higher the value of Creditors turnover the more efficient is the management of Creditors / Sales or more liquid the Creditors. Similarly, low Creditors turnover implies inefficient management of Creditors / rates and less liquid Creditors.
AVERAGE CREDITORS
Calculation of Creditors Turnover Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2007-09. Creditors Turnover Ratio 1.48 1.66 0.15 0.35 0.23
CASH RATIO The cash ratio is computed by dividing cash by current liabilities. Here, cash means cash, marketable securities. Current liabilities consist of account payable, short-term notes payable, current matures of long term debt, accrued income taxes and other accrued expenses. Since cash is the most liquid asset, this ratio shows the liquidity position of the company. Trade investment of marketable securities are equivalent of the cash, therefore, theory may be included in the computation of the cash ratio. CASH RATIO = __CASH AND BANK BALANCE__ CURRENT LIABILITIES Calculation of Cash Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2008-09. Cash and Bank Balance 63665169 77342614 61230579 126180149 148049623 Current Liabilities 1722521176 299224234 356559009 97947312 545287880 Cash Ratio 0.37 0.25 0.17 0.31 0.27
DEBT EQUITY RATIO : The debt equity ratio shows the relative contributions of creditors and owners. The numerator of this ratio consists of all debt, short-term as well as long-term and the denominator consists of net worth plus preference capital plus deferred tax liability. The Debt Equity Ratio is an important tool of financial analysis to appraise the financial structure of the firm. Debt equity ratio is the measure of relative claim of creditors and owners point of view of the firm. The debt equity ratio can be calculated in several ways. Whatever method is employed the ratio shows the extent to which the debts finance is used in the business high ratio shows higher claim of creditors over assets of the firm than those of owner and it is an unfavorable position for rising funds. A low debt equity ratio is considered favorable from the firms point of view. DEBT EQUITY RATIO = __DEBT___ EQUITY Calculation of Debt Equity Ratio of Sri Vijaya Visakha Dairy Milk Producers Company Ltd. from 2002-03 to 2007-09 Years 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Debt 258343283 313888301 283328209 400811910 362008209 Equity 288410530 302025602 311412440 340641469 371231474 Ratio 0.89 1.03 0.91 1.17 0.97
DEBT ASSET RATIO : The debt asset ratio measures the extents to which borrowed funds support the firms assets. The numerator of this ratio includes all debt, short -term as well as long-term, and the denominator of this ratio is the total of all assets (the balance sheet total)
____DEBT__ ASSETS
Calculation of Debt Asset Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2007-09. Years 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Debt 258343283 313888301 283328209 40811910 362008209 Asset 719005989 915138137 951299658 1139400692 1278527562 Ratio 0.35 0.34 0.29 0.35 0.28
NET PROFIT RATIO : The ratio shows the earning left for shareholders (both equity and preference) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing, and tax management. Jointly considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit structure of the firm and enable the analyst to identify the sources of business efficiency / inefficiency.
Calculation of Net Profit Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2008-09 Ratio 0.04 0.08 0.09 0.05 0.09
OPERATING RATIO : Operating profit ratio is calculated by dividing operating profit by sales. The operating profit ratio varying between 13% to 20% during the study period, the higher the operating profit, the better is this ratio helps in determining the efficiency with which affairs of the business are being managed. An investor has to judge the adequacy (or) otherwise of this ratio by taking in to account the cost of capital, the return in the industry as a whole and market condition such as norms (or) depression period. No norms can be laid down. However, constant increase in the above ratio year after year is a define indication of improving condition of the business. Thus, this ratio is an effective measure to check the profitability of business. Operating Ratio = COST OF GOODS SOLD + OPERATING EXPENSES NET SALES Cost of Goods Sold = Net Sales Gross Profit Operating Expenses = Administrative Expenses + Selling & Distribution Expenses Calculation of Operating Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2008-09 Cost of Goods Sold + Operating expenses 1763264980 2017404230 2242139685 2572788092 2992207127
PROPRIETARY RARIO : Proprietary Ratio establishes the relationship between shareholders funds to total assets of the firm. The ratio of proprietors funds to total is an important ratio for determining long-term solvency of a firm. A higher Proprietary Ratio or the share of the shareholders in the total capital of the company, better in the long-term solvency position of the company. Proprietary Ratio = Shareholder Fund Total Assets Equity Total Assets = = Share Capital + Reserves and Net Current Assets Net Fixed Assets + Investments + Net Current Assets
Calculation of Proprietary Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2008-09 Ratio 0.7 0.25 0.17 0.31 0.27
102,498,300.00 16,205,410.58 169,706,819.52 25,408,773.05 182,070,261.52 50,864,248.64 546,753,813.31 14,209,037.30 147,547,042.04 20,723,015.39 102,763,313.11 59,514,742.64 441,293,950.48 445,389,96.94
APPLICATIONOF FUNDS Gross Block Less : Depreciation Reserve 225,961,482.12 Net Block CURRENT ASSETS, LOANS & ADVANCES : Inventories Sundry Debtors Cash & Bank Balances Deposits Loans & Advances 9 10 11 12 13 8
497,124,911.77
Less : Current Liabilities & Provisions Current Liabilities Net Current Assets 14 172,252,175.92 324,608,220.79 546,753,813.31 162,163,973.93 219,340,418.66 441,293,950.48
Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balances Deposits Loans & Advances Less : Current Liabilities & Provisions Current Liabilities Net Current Assets
9 10 11 12 13
14
As at 31st March 2005 111,486,350 23,620,733 176,305,356 29,507,134 250,657,324 3,163,751 594,740,648
7(a) 8
Inventories Sundry Debtors Cash and Bank Balances Deposits Loans and Advances Misc. Expenditure (Asset)
Less : Current Liabilities & Provision
9 10 11 12 13 13(a)
14
INCOME
Gross Profit from Mfg. & Teaching Account Other Income Interest Received Profit on Sale machinery Total 24 25 361,500,682 9,753,704 21,544,193 341,077 393,139,655 33,303,790 6,602,796 23,990,755 879,258 362,776,599
EXPENDITURE Personal Expenditure Administrative Expenses Interest and Finance Charges Interest on Share Capital Selling and Distribution Expenses Repairs and Maintenance Depreciation Total 29 30 7 26 27 28 131,177,314 224,804,736 17,156,863 1,182,475 199,929,600 6,537,614 10,846,301 389,634,903 96,130,924 22,538,404 13,447,678 1,114,779 204,361,475 10,782,300 11,338,351 359,714,111
PROFIT BEFORE TAX Less : Provision for Income Tax Less : FBT Less : Deferred Tax Profit After Tax (Transferred to Balance Sheet) Notes on accounts 31
3,062,488
2,105,075
2005-06 Rs.
Net Profit after tax Adjustment for Depreciation Interest Interest Received Dividend Received OPERATING PROFIT BEFFORE WORKING CAPITAL CHANGES Adjustment for Inventories Trade and Other receivables Trade Payables CASH GENERATED FROM OPERATIONS BEFORE ADVANCE TAX PAID
NET CASH GENERATED FROM OPERATIONS
50,333,030 13,447,876
(23,990,755)
26,271,670
41,895,227
66,555,662
(139,508,267)
CASH FLOW FROM ACTIVITIES Purchase of Fixed Assets Investments Interest Received
CASH FLOW FROM FINANCING ACTIVITIES Receipts from equity share capital Raise in Reserves and Surplus Adjustment in depreciation provision Raise in Grants Borrowing from Banks & other (Net) Interest Paid Net Increasing cash & cash equivalents Opening balance as at 1st April 2005 Closing Balance as at 31st March 2006
77,342,615 61,230,579
STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2003
2002
2003
Investment on Deposits Sundry Debtors Interest receivable Advance to Staff Due from others Loans and Advances Current Assets Stock Stock of Stores and spares Cash and Bank balances Total Current Liabilities Working Capital Increase capital in Working
1029807.88 106514791.94 183069660.00 27095951.23 20451865.7 63665169.00 384029442.59 496860396.00 197206294.48 172252176.00 186823148.11 324608220.00 137785071.89 324608220.00 324608220.00
249541002.86
STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2004
Particulars Current Assets Inventory Debtors Deposits Loans and Advances Cash and Bank Total Current Liabilities Total Working Capital Increase Capital in Working
2003
2004
183069660.00 49487728.00 115214052.00 85423787.00 63665169.00 496860396.00 172252176.00 172252176.00 324608220.00 22676310.00 347284530.00
126972058.00
STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2005
Particulars Current Assets Inventory Debtors Deposits Loans and Advances Cash and Bank Total Current Liabilities Total Working Capital Increase Capital in Working
2004
2005
206022439.00 21671867.00 201122953.00 680072264.00 61230579.00 680072264.00 356559009.00 356559009.00 323513255.00 23771275.00
27435933.00
161122035.00
57334775.00
347284530.00
347284530.00
STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2006
Particulars Current Assets Inventory Debtors Deposits Loans and Advances Cash and Bank Total Current Liabilities Total Working Capital Increase Capital in Working
2005
2006
206022439.00 21671867.00 201122953.00 680072264.00 61230579.00 680072264.00 356559009.00 356559009.00 323513255.00 93602115.00 417115370.00
66555655.00 -
563888498.00 -
41388303.00
417115370.00
STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2007
Particulars Current Assets Inventory Debtors Deposits Loans and Advances Cash and Bank Total Current Liabilities Total Working Capital Increase Capital in Working
2006
2007
305789378.00 22238567.00 318461760.00 146448263.00 148049623.00 940987591.00 545287880.00 545287880.00 395699711.00 21415659.00
417115370.00
417115370.00
CHAPTER VI
FINDINGS
It is observed that Sri Visakha Dairy is a fastest developing organization, which is able to withstand all its competitors in the market and run successfully. This was a small organization with very few societies during its establishment but at present it had developed to such an extent that is has many number of branches also planning to start few more. It is observed that Sales, which increases the profitability of the organization, had increased tremendously This indicates the efficiency of the organization in following all its policies and achieving it goals. Due to it continuous profits it is able to install a new plant of its own for deriving milk power from the excess milk it procures. The amount that is collect from sales is generally deposited in banks after meeting out all its payments and expenses a part of it is remained as cash to meet out any further requirement and the other part is deposited in banks as deposits. From all the above it is clear that the particular organization is following a milk production of working capital all its current liabilities are compensated with its current assets. The liquidity position is also high which concludes that this is a profit market organization.
SUGGESTIONS
The liquidity position is quite good; hence it is advisable to divert its cash in other investments.
New and innovative technique of sales are to be introduced in order to improve them.
CONCLUSION
The success of any organization depends mainly how well it can forecast the environmental changes. The company can attain its objective only when its predicts the opportunities and converting them in to profitable activities. Otherwise it would not have become such a very big milk company. The networking capital position of the company was high increased from the year 2002-2006, the VISAKHA DAIRY liquidity position is good. The average collection period of the company is high not only opening. This is the brief summary in the entire dissertation work in VISAKHA DAIRY Visakhapatnam with a special performs to its milk products.
BIBLOGRAPHY
Financial Management
I.M. Pandey