Vous êtes sur la page 1sur 62

INDUSTRY PROFILE

Sugarcane is one of the important crops for the Indian farmer. Sugar and
jiggery are the main products that we get from sugarcane. Other products such as
biogases for industrial use, molasses for distillery, filter cake. Mud as an organic
manure and green leaves with tops for cattle feed are also available as byproducts,
Because of its multi uses sugarcane has played crucial role in Indian economy with Rs.
20, 000 cores turnover and width 450 sugar mills providing assistance to 45 million
sugarcane farmers and 2 million sugarcane farmers and2 million workmen directly and
indirectly.
In Andhra Pradesh sugar industry is an important agro based industry,
occupying the second position next to textile industry. The annual cultivated area is
about 4.00 lakes hectares with a yield of 209.72 lakes of tones during 2007 2008. At
present, there are 36 sugar factories in the state and 50% of them are in co operative
sector. The co operative sugar units in the states have been suffering due to lack of
adequate can irrigation facilities, working capital, by products utilization, excessive
employment etc.
The sugar industries which provide direct employment to about 3 lakes
persons of sugarcane followed by Brazil & Cuba. Sugarcane existed in India from 3000
B.C. The center place of origin of sugarcane regarded as northeastern India, from
sugarcane seems to have been to china and other places by early travelers and no mans
between 1800 and 1700 B.C. Later. It was penetrated to Philippines. Jews and other
places. Actually the work sugar derived from a Sanskrit word SHAKRA.
India as the worlds largest producer of sugarcane occupies a very pride place
in the world. In India, the cultivation of sugarcane is 10,000 miles tones. The average
yield being 56 tons per acre of total cultivating land is occupied by sugarcane
cultivation. Sugarcane is grown in almost all part of India, except in colder regions and
extreme North Jammu & Kashmir, Himachal Pradesh.

List of co operative sugar factories in A.P.

S.No

Sector

No. of

Areas

factors
Coastal area

Rayalaseema

Telangana

Co operative

18

12

Public sector

Total

25

13

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.

The chodavararn co operative sugars Ltd., chdavaram.


The Anakapalle co operative sugars Ltd., Anakapalle.
The Etikoppaka co operative Agricultural of industrial society Ltd.Etikoppaka.
Sri Vijayarama Gajapathji co operative sugars Ltd., SPOK. Yen kind.
The Amadavalasa co operative agricultural industrial society Ltd., Srikukulam.
The west Godavari co operative sugars Ltd., Elure.
Palakol co operative agricultural & industrial society Ltd., Palakol.
The Thandara co operative sugars Ltd., Visakhapatnam.
Nizamabad co operative sugars Ltd., Nizamabad.
The Chittoor co operative sugars Ltd., Chittoor.
Sri Venkateswara co operative sugars Ltd., Renigunta.
The cuddapah co operative sugars Ltd., Channur.
The Nandyal co operative sugars Ltd., Ponnapuram.
The Kovur co operative sugars Ltd., Nellore.
Nagarjuna co operative sugars mills Ltd., Gurzala.
Nannapaneni Venkatrao co operative sugars Ltd., Hanuman junction.
Sri Hanuman co operative sugars Ltd., Hanuman junction.
Palair Co operative sugars Ltd., Ammugudem.

NATURE OF SUGAR INDUSTRY


Seasonality of the Industry:

The industry is seasonal, with the season starts from November and continues
till April /May, sugarcane is available during these 6 7 months and therefore crushing
is also takes place during these months.

Licensing System
To protect sugar producing units and ensure a sufficient quantity of raw
material (sugarcane), licensing system was introduced. Under this system, each unit had
a command area from where the sugarcane was produced. The present licensing system
is trying to encourage the setting up of new units by providing them with sops and other
benefits.

COMPANY PROFILE
SRI VENKATESWARA CO OPERATIVE SUGAR FACTORY LTD.
Tirupathi was registered in the year 1972. The plant was commissioned on 2203
1978. The original cost was Rs. 634.00 Lakes. There was no over run in the cost.
The installed capacity of the plant is 1250 TCD. Subsequently the society has
taken up modernization programs with the addition of balancing equipment in the year
1994 95 and the plant is poised to crush about 1500 TCD.

The objective of S.V. Co operative Sugar Factory Ltd is to protect economic


interests of members by encouraging proper development of agricultural industries on
co operative lines and through co operative principles with a special attention to
small and marginal farmers. Accordingly the sugar factory was established in 1978.
The S.V.Co operative Sugar factory is located at a distance of 6 K.M from
Renigunta Railway station and about 17 KM from the Tirupathi about National High
way 27 from Mumbai to Chennai.
The sugar cane zone of factory consists of 22 Mandals and spread over in 507
villages. There are about 11, 126 members and about 4000 farmers supplying sugar
cane. During the crushing season 2007 2008 the cane area was 4002 hectors. For the
season 2007 2008 the factory entered into agreement with the cane growers for supply
of 2, 56,671 Mts out of which the sugar factory crushed only 2,09,728 Mts. About
46,943 Mts of cane was diverted to neighboring private factories.

A part from the

above, the growers divert cane about 1.00 Lakhs MTs to neighboring private factories
i.e., K.C.P Mayura, Sudalagunta and Prudential sugars Ltd., Nitra for every year.
Water is drawn from 7 Bore wells drilled in the factory premises. This factory installed
effluent treatment facilities as required under the law.
The factory arranges the following loans, which are standing against the cane grower
as on 31 03 2000.
1.
2.
3.
4.
5.

Seed loans.
Factory loans.
Pesticides loans.
R.D.B. loans
Bore well loans.

Organization structure:
Election was conducted to this factory during April 2000. From then on wards.
The official Board nominated by the government consists of:
1.
2.

Revenue divisional officer. Tirupathi as person in charge.


Managed Director.

The Board of S.V. Co operative sugar Factory Ltd. Used to meet frequently
from time to time as and when required. Annual general body meetings of the members
of the society were held on 08 09 2003, 25 11 2003, 15 09 2004 and 29 09
2007.
Sri Venkateswara Sugars Factory limited has strength of 508 employees consisting:
(a)
(b)
(c)
(d)
(e)
(f)

Managing Director
Common Cadre
Permanent employees
Seasonal Employees
Consolidated Employees
N.M.Rs

Total no. of employees

508

PRODUCT PROFILE
Sugar cane:

1
4
138
114
156
95

Sugar canes cultivated by the growers are promising varieties in terms of sugar
content and yield. Cultivation techniques maturity of (decided by the cane personnel)
harvested and supplied to the factory in trucks fresh less tops and roots. Trucks are
weighed with cane on Weigh Bridge and unloaded on the moving cane carrier.
Mechanical UN loaders do unloading. Again empty truck is weighed to assertion in
the weight of cane unloaded.

Milling:
Provided with a tandem of four mills and each mill is provided with three
rollers. On the cane carried for cane preparation cane knives driven by motor and
followed by a Furzier driven steam turbine are provided to chop the cane into small
pieces and fiber to make milling move efficient and to extract maximum juice from the
cane. To make this process more effective assured quantity of water is added to Mills.
After extraction of juries the wasted materials is called biogases.

Boilers:
Provided with 2 nos. of boilers of each water evaporation capacity of 25 Mts.
Per hour steam at 300 p sig (21 Kegs.). Steam is used for driving the Furzier, mills by
turbines and generator power, by steam turbine alternator. For boilers main fuel is
biogases. Surplus biogases are sold to paper industries.

Clarification:
A juice extracted from sugar cane in mills is weighed in automatic weighing
scale. It is preheated in juice heaters to 50 750. Then it is limited and supplied
simultaneously. Juices will be coagulated from and will not settle. To induce settings
cheaply and abundantly available positive is to be added i.e., namely lime in slurry
from, also called milk of lime, By using addition of such alkaline medium is again
brought down to natural PH medium by bubo ling of sculpture dioxide gas. This gas is
produced in sculpture burners and bubbled in preheated juices. By the aid of
compressed air passing through sculpture burners. As such juices are kept at slightly
alkaline medium say 701 to 7.2. Then this treated juice is heated again in other row of
juices heaters to 102oC and to send to graver. Graver is a big tank where settling is

taking place. Continuously, such juices is sent and drawn from it with the detention time
of juices of about 3.30 hours, in U tube principles.

Evaporation:
Graver juices will be well settled and will have a golden yellow color of 7.0
PH (Neutral). This clear juice will contain more than 85% of water and the remaining
soiled (Sugar maximum + a little sugar). In evaporators about 75% of water is removed
and made syrup. This consists of one vapor cell and is followed by four bodies. Boiling
is done under vacuum using exhaust stream from turbines (Spend steam) Bodies
containing a calandria with number of tubes. Both ends of tubes emerging out through
tube plates and above this calandria vapor space or shell. Steam circulated through
calenderer and heating the outer point of helices is brought well below its original
boiling point. In the vapor cell alone exhaust stem is admitted into the calandria
produced vapor to its subsequent body and soon. Vacuum is helping is drawing vapor
from the preceding body and this boiling is called multi effect boiling and maximum
fuel economy. Thus when juices are emerges out from last body it will be syrup, losing
about 75% of water.

Vacuum filter:
Mud settled in graver is taken in rotary filters to extract juices from it and
waste is called filter cake sent out and used as manure. Extracted juices are again mixed
juices from mills after weighment tank and takes the path of process along with mills
juices in acyclic from.

Suspiration & syrup:


The syrup from evaporator last body is again supplied to beach to get white
sugar and sent to pan supply tanks.

Pans:
Pan bodies are similar to evaporators in construction with different design.
Materials are individually boiled in four numbers under vacuum. When the syrup is
further boiler in pans. When the super saturation point reaches crystals come out its is
again boiled up by addition kept in pan and the rest 2 portions sent to receivers. Then
again pan is boiled. This process will help growth or crystal as desired by us.

Three boiling are bone A, B, C. these are called masscults. All these mass cuties
(sugar + molasses) are purged in centrifugals respectively sugar and molasses are
separated. Pans are boiler on vapor produced from vapor cell.

Centrifugals:
Such made masscults are dropped in crystallizers (a storage tank with stirring
mechanism). From crystallizes taken into centrifugal machines and sugar and molasses
separator. Centrifugal machines contain a basket fitted with mesh and screen of small
opening and will not allow sugar crystals to pass through but only molasses. When one
machine changed with masscults and spun at 1500 RPM molasses gets out and collets
in a tank. Sugar remains in basket washed and dried by steam. Then dropped on hopper
(to & for) shaking medium sugar will get dry when flowing and galls on sugar grader
(fitted with meshes) screened and bagged. Bags weighed on P.O. scales of 100 Kegs.
And sent to go down.
Molasses got from masscults; sugar and molasses from B masscults and sugar
from C masscults (Final) are again boiled in pans in cyclic manner. Molasses got from
C masscults called final molasses is a waste and sent to storage tanks (Raw material for
alcohol industries). Sugar is graded in accordance when ISS (Indian Sugar Standards).
In term of size, it is classified as small, medium and large i.e., S 29, S 30. As the
demand in the market is for S 30 it is made in the fact.

Objectives of the study


To analysis the schedule of changes in working capital for year 2006-2011.

Analysis of balance sheet of Sri Venkateswara CO- OP sugar factory.


To compare the statement of changes in the current assets and current liabilities.
To analyze the working capital performance of the company for consecutive five
years from 2006-2011 through ratio analysis.
To suggest possible solutions for better management of working capital in Sri
Venkateswara CO-OP sugar factory.
To know the financial strength of in Sri Venkateswara CO-OP sugar factory.

METHODOLOGY OF THE STUDY

In carrying out the study both primary and secondary data is collected in appeased
manner as follows.

Initially preliminary discussion with general manager, sales manager and account
officer was carried on.
The information about profit and loss account and balance sheet reports.
Some more information is gathered from lecturers in my college.
The ratios are calculated by studying balance sheet and the necessary information
required for the study was being obtained from fruitful interaction with the
employees of organization.
And some of the information is gathered from the secondary data and from the
finance books.

LIMITATIONS OF THE STUDY


The information available in the balance sheet has been taken from the published
annual reports. So it has its own limitations in the form of non availability
information of exceptional transactions.
The balance sheet statements are analyzed during the year 2006-2011 so it is difficult
to analyze company performance before 1999.

The information provided in company balance sheet is only the some of data source
available.
Due to time constraint, we have analyzed only 5 years data that is 2006-2011.

REVIEW OF LITERATURE
Working Capital Management
Working capital may be regarded as the lifeblood of a business. Its effective
provisions can do much to ensure the success of business, which its inefficient
management can lead not only to loss of projects but also to the ultimate downfall of

what otherwise, might be considered as promising concern. Thus, its management is


considered as one of the most important aspects of firm's Financial Management.
The term working capital stands for that part of the capital, which is required for
the financial working of the company in simple words; we can say that working capital
is the investment needed for carrying out day-to-day operations of the business
smoothly.
Working capital refers to a firm's investment in short term assets, viz. Cash shortterm securities, Accounts receivable (debtors) and inventories of raw materials, work in
progress and finished goods.
It can be regarded as that portion of the firm's total capital, which is, employed
in short-term operations. Funds thus invested in current assets keep revolving false and
are being constantly concerted in to cash and this cash flow out again in exchange for
other current assets. Hence, it is also known as revolving or circulating capital.

According to Genestenberg," circulating capital means current assets of a


company that are changed in the ordinary course of business from one form to another,
as for example from cash to inventories, inventories to receivables, receivables into
cash".
These are invariably a time lag between the sale of gods and the receipt of
cash. There is therefore need for working capital in the form of current assets to deal
with the problem arising out of lack of immediate realization of cash against goods sold.
Therefore, sufficient working capital is necessary to sustain sales activity.

Classification of Working Capital


Working capital can be classified into two ways.
1) On the basis of concept.
2) On the basis of time.

On the basis Concept


1) Gross working capital.
2) Net working capital.

1) Gross Working Capital


The gross working capital refers to the firms' investment in the total current assets
of the enterprise. The current assets are those assets within the ordinary course of
business can converted into cash with in the short period of normally one accounting
year.

2) Net Working Capital


The net working capital can be defined into two ways the most common
definition of working capital is difference between current assets and current liabilities.
Net working capital can also be defined as that portion of firm's current
assets. Which are financed with long-term funds?

Need for Working Capital


The need for working capital to run the day to day activities cannot be over
emphasized we will hardly find a business firm, which does not require any amount of
working capital.

Indeed, every firm differs in these requirements of the working

capital.
The main objective of financial decision making is to maximize shareholders
wealth and to endeavor this firm should earn sufficient returns requires a successful
sales activity. For a successful sales activity the firm has to invest sufficient funds in
current assets.

Current assets are needed because sales do not concert into cash

instantaneously. There, is always an "operating cycle" involved in the conversion of


sales into cash.

Operating Cycle
Operating cycle is the time duration required to convert sales after the
conversion of resources into inventories into cash. In other words, an operating cycles
refers to length of time necessary to complete
The following cycle of events.
1) Conversion of cash into raw materials.

2) Conversion of raw materials into work in Progress.


3) Conversion of work-in-progress into finished goods.
4) Conversion of finished goods into accounts receivables.
5) Conversion of accounts receivables into cash.

Raw Material

Working progress

Cash

Finished goods
Accounts receivables

Sales

1.5. On the basis of time


1) Permanent or fixed working capital
2) Temporary or variable working capital

Permanent working capital


Permanent working capital is the minimum amount or minimum level of
current assets. Which is continuously required by the enterprise to carry out its normal
business operation? For e.g., every enterprise has to maintain a minimum level of raw
materials. Work-in-progress, finished goods and cash balance for paying Wages,
salaries, rent etc.during the year.

This minimum level of current assets is called

permanent or fixed working capital as this part of capital is permanently blocked in


current assets. Regular working capital is the amount of working capital needed for the
continuous operations of the business of the company without any breakage.

Temporary or variable working capital:


Temporary working capital is the amount of working capital, which is required
to meet the seasonal and special needs of the business.

1)

Seasonal working capital refers to that financial requirement that crop up

during a particular season behind the regular working capital most businesses require
at stated intervals large amount of current assets to fill the demands of the seasonal
busy periods
2)

Special working capital refers to that part of the working capital, which

is required to meet special extengencies such as launching of extensive marketing


campaigns or conducting research etc.,

Composition of Working Capital


The individual composite items of working capital consist of current asset and
current liabilities.

Currents Assets
Current assets are those, which can be converted into cash within one year without
Effecting the operations of the firm.
List of current assets:
1)

Cash in hand & bank balance

2)

Bills receivables

3)

Sundry debtors

4)

Short term loans and advances

5)

Investments

a)

Government other trustee securities

b)

Fixed deposits with the banks

6)

Inventories of stock

a)

Raw materials

b)

Work in progress

c)

Stores and spares

d)

Finished goods

7)

Prepaid expenses

8)

Accrued income

Current Liabilities
Current liabilities are those, which are intended to be paid in the ordinary course of
business within a short period of normally one year out of the current assets or the
income of the business.

List of current liabilities:


1)

Bills payable

2)

Sundry creditors or accounts payable

3)

Short term borrowings

a)

Banks

b)

Others

i.

Unsecured loans

ii.

Public deposits maturing one year

iii. Deposits from dealers, selling against.


4)

Dividends payable

5)

Bank overdraft

6)

Accrued or outstanding expenses

7)

Provision for taxation

8)

Sales tax and excise tax.

Theme of Working Capital


Working capital management is considered as one of the most important
aspects of firms financial management. The goal of working capital management is to
manage the firms current assets and current liabilities in such a way that the
satisfactory level of working capital is maintained. Each of the current assets should be
managed efficiently in order to maintain the liquidity the firm while not keeping too
high a level of any one of them.
The success of business concerns among other things depends upon the
manner in which its working Capital is managed. The interaction between the current
assets and current liabilities is therefore the main theme of the theory of working
capital.

It is a task of financial manager to maintain an appropriate level of working


capital i.e. enough current assets to pay off current liabilities, either excess nor less
because in either cases the result could be the failure of the business. Excessive working
capital impairs firms profitability, as ideal investment earns nothing. On the other
hand, inadequate amount of working capital can threaten the solvency of the firm
because of its inability to meet its current obligations.

Optimum Working Capital Position:


The firm should maintain a sound working capital position. It should have
adequate working capital to run its business operations. 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
interruption and inefficiencies.

The dangers of excessive working capital are as follow:


1.

It results of unnecessary accumulation of inventories. Thus, chances of


inventories handling, wastage, theft and losses increase.

2.

It is an indication of defective credit policy and slag credit collection period.


Consequently higher incidence of bad debts results, which adversely affects
profits.

3. It makes management complacent, which degenerates into managerial


inefficiency.
4. Tendencies of accumulating inventories tend to make speculative profits grow.
This may tend to make dividend policy liberal and difficult to cope with when
firm is unable to make speculative profits.

Inadequate working capital is also bad causes following:


a. It stagnates growth. It becomes difficult for the firm to undertake profitable projects
due to inadequate of funds.
b. It becomes difficult to implement operating plans and achieve firms profit targets.
c. Operating inefficiencies creep in and it becomes difficult even to meet day-to-day
commitments

d. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the
firms profit would deteriorate.
e. Paucity of working capital fund renders the firm unable to avail attractive credit
opportunities.
f. The firms losses its reputations when it is not in a position to honor its short-term
obligations. As a result, the firm tight credits terms.

Determinants of Working Capital:


There are no set rules of formulae to determine the working capital
requirements of firms. A large number of factors each having a different importance,
influence working capital leads of firms. Therefore, an analysis of relevant factors
should be made in order to determine total investment in working capital.

The

following is the description of factors generally influences the working capital


requirements of firms.

Nature of Business:
Working capital requirements of a firm basically influenced by nature of its
business. Trading and financial firms have a very small investment in fixed assets, but
require a large sum of money to be invested in the working capital. In contrast public
utilities may have limited need for working capital and have to invest abundantly in
fixed assets. Their working capital requirements are nominal because they may have
only cash sales and supply services not products. Such concerns have to make adequate
investment in current assets depending upon the total assets structure and other
variables.

Market and demand condition:


The working capital needs of a firm are related to its sales. However, it is
difficult to precisely determine the relationship between volume of sales and working
capital needs.
Growing firms may need to invest funds in fixed assets in order to sustain
growing production and sales. Sales depend on demands conditions. Large number of

firms experience seasonal and cyclical fluctuations in the demand for their products and
services.
Seasonal fluctuations not only affect working capital requirements but also
create production problems for the firm. During periods of peak demand, increasing
production may be expensive for the firms. Similarly, it will be more expensive during
slack periods when the firm has to sustain its working force and physical facilities
without adequate production and sales.
The increasing level of inventories during the slack season will require
increasing funds to be tied up in the working capital for some months. Unlike cyclical
fluctuations seasonal fluctuations generally confirm to a steady pattern. Therefore
financial arrangements for seasonal working capital requirements can be made in
advance.

Technology and Manufacturing policy:


The manufacturing cycle comprises of the purchase and use of raw materials
and the production of finished goods. Longer the manufacturing cycle larger will be the
firms working capital requirements.

Thus there are alternative technologies of

manufacturing a product, the technological process with the shortest manufacturing


cycle may be chosen. Once a manufacturing technology has been selected, it should be
ensured that manufacturing cycle is completed within the specific period. This needs
proper planning and coordination at all levels of activity. Any delay in manufacturing
process will result in accumulation of work-in- process and waste of time. In order to
minimize their investment in working capital.

Credit Policy:
The credit policy of the firm affects the working capital by influencing the
level of debtors. The credit terms to be granted to the customers may depend upon the
norms of the industry to which the firm belongs. But a firm has the flexibility of
shaping its credit policy within the constraint of industry norms and practices. The firm
should use discretion in granting credit terms to its customers. Depending upon the
individual case different terms may be given to different customers. A liberal credit
policy without rating the credit worthiness of customers will be detrimental to the firm
and will create a problem of collections latter on.

Availability of credit from suppliers:


The working capital requirements of firm have also affected by the credit
terms granted by its suppliers. A firm will needless working capital if liberal credit
terms are available to it from suppliers. Suppliers credit finances the firms inventories
and reduces the cash conversion cycle. In the absence of suppliers credit the firm will
have to borrow funds for bank. The availability of credit at reasonable at reasonable
cost from banks is crucial. It influences the working capital policy of a firm.

The Operating Efficiency:


The operating efficiency of a firm relates to the optimum utilization of all its
resources at minimum costs. The efficiency in controlling operating costs and utilizing
fixed and current assets leads to operating efficiency. The use of working capital is
improved and pace of cash conversion cycle is accelerated with operating efficiency.
Better utilization of resources improves profitability and thus, helps in releasing the
pressure on working capital.

Price level changes:


The increasing shifts in price level make functions of financial manager
difficult. She should anticipate the effect of price level changes on working capital
requirements of the firm. Generally rising price level will require a firm to maintain
higher amount of working capital. Same levels of current assets will need increased
investments when prices are increasing. However, companies that can immediately
revise their product prices with raising price levels will not face a severe working
capital problem.

RATIO ANALYSIS
INTRODUCTION:

The ratio analysis is the most powerful tool of the financial analysis. Several
ratios, calculated from the accounting data, can be grouped in to various classes
according to financial activity or function to be evaluated.

DEFINITION:
The indicated quotient of two mathematical expressions and as The relationship
between two or more things. It is evaluating the financial position and performance of
the firm.
As started in the beginning many diverse groups of people are interested in
analyzing financial information to indicate the operating and financial efficiency, and
growth of the firm. These people use ratios to determine those financial characteristics
of the firm in which they are interested with the help of ratios one can determine.
a) The ability of the firm to meet its current obligations.
b) The extent to which the firm has used its long-term solvency by borrowings funds.
c) The efficiency with which the firm is utilizing its assets in generating sales revenue.
d) The overall operating efficiency and performance of the firm.

TYPES OF RATIOS
So many ratios, calculated from the accounting data can be grouped into
various according to financial activity or function to be evaluated. The parties interested
in financial analysis are short and long creditors, owners and management. Short-term
creditors main interest is in the liquidity position or the short-term solvency of the firm.
Long-term creditors are interested in long-term solvency and profitability and financial
condition. Management is interested in evaluating every aspect of the firms
performance. In view of the requirement of the various users of ratios, we may classify
them into the following four important categories.
1.

Liquidity Ratio

2.

Leverage Ratio

3.

Activity Ratio

4.

Profitability Ratio

LIQUIDITY RATIO:

Liquidity Ratios are essential for a firm to be able to meet its obligations as they
become due. Liquidity Ratios help in establishing a relationship between cast and other
current assets to current obligations to provide a quick measure of liquidity. A firm
should ensure that it does not suffer from lack of liquidity and also that it does not have
excess liquidity. A very high degree of liquidity is also bad, idle assets earn nothing. The
firms funds will be unnecessarily tied up in current assets. Therefore it is necessary to
strike a proper balance between high liquidity.
Liquidity Ratios can be divided into three types:
I. Current Ratio
II. Quick Ratio
III. Cash Ratio
I. CURRENT RATIO:
Current Ratio is an acceptable measure of the firms short-term solvency.
Current assets include cash within a year, such as marketable securities, debtors and
inventories. Prepaid expenses are also included in current assets as they represent the
payments that will not made by the firm in the future. All obligations maturing within a
year are included in current liabilities. Current liabilities include creditors, bills payable,
accrued expenses, short-term bank loan, income-tax liability and long-term debt
maturing in the current year.
The current ratio is a measure of the firms short-term solvency. It indicated
the availability of current assets in rupees for every one rupee of current liability. A
current ratio of 2:1 is considered satisfactory. The higher the current ratio, the greater
the margin of safety; the larger the amount of current assets in relation to current
liabilities, the more the firms ability to meet its obligations. It is a crude-and-quick
measure of the firms liquidity.
Current ratio is calculated by dividing current assets and current liabilities.
Current Assets

Current Ratio =

Current Liabilities

II. QUICK RATIO:


Quick Ratio establishes a relationship between quick, or liquid, assets and
current liabilities. An asset is liquid if it can be converted into cash immediately or
reasonably soon without a loss of value. Cash is the most liquid asset, other assets that
are considered to be relatively liquid asset, other assets which are considered to be
relatively liquid and included in quick assets are debtors and bills receivables and
marketable securities (temporary quoted investments).
Inventories are converted to be less liquid. Inventories normally require some
time for realizing into cash; their value also has a tendency to fluctuate. The quick
ration is found out by dividing quick assets by current liabilities.

Quick Ratio =

Current Assets - Inventories


Current Liabilities

Generally a quick ratio of 1:1 is considered to represent a satisfactory current


financial condition. Quick ratio is a more penetrating test of liquidity than the current
ratio, yet it should be used cautiously. A company with a high value of quick ratio can
suffer from the shortage of funds if it has slow-paying, doubtful and long duration
outstanding debtors. A low quick ratio may really be prospering and paying its current
obligation in time.
III. CASH RATIO:
Cash is the most liquid asset; a financial analyst may examine Cash Ratio and
its equivalent current liabilities. Cash and Bank balances and short-term marketable
securities are the most liquid assets of a firm, financial analyst stays look at cash ratio.
Trade investments are marketable securities of equivalent of cash. Therefore they may
be included in the computational cash ratio. If the company carries a small amount of
cash there is nothing to be worried about the lack of cash if the company has reserves
borrowing power. In India, firms have credit limits sanctioned from banks and easily
draw cash. Cash Ratio is perhaps the most stringent measure of liquidity. Indeed, one

can argue that it is overly stringent. Lack of immediate cash may not matter if the firm
stretch its payments or borrow money at short notice.

Cash Ratio =

Cash and Bank Balances + Current


Investments
Current liabilities

LEVERAGE RATIOS:
Financial Leverage refers to the use of debt finance while debt capital is a
cheaper source of finance; it is also a riskier source of finance. Leverage ratios help in
assessing the risk arising from the use of debt capital. Two types of ratios are commonly
used to analyze financial leverage.
Structural Ratios &
Coverage Ratios.
Structural Ratios are based on the proportions of debt and equity in the financial
structure of the firm.
Coverage Ratios shows the relationship between Debt Servicing, commitments and the
sources for meeting these burdens.
The short-term creditors, like bankers and suppliers of raw material, are more
concerned with the firms current debt-paying ability. On the other hand, long-term
creditors, like debenture holders, financial institutions are more concerned with the
firms long-term financial strength. To judge the long-term financial position of the
firm, financial leverage, or capital structure, ratios are calculated. These ratios indicated
mix of funds provided by owners and lenders.
There should be an appropriate mix of Debt and owners equity in financing the firms
assets. The process of magnifying the shareholders return through the use of Debt is
called financial leverage or financial gearing or trading on equity. Leverage
ratios are calculated to measure the financial risk and the firms ability of using Debt to
share holders advantage.

Leverage Ratios can be divided into five types:


A.

Debt equity ratio

B.

Debt ratio

C.

Interest coverage ratio

D.

Proprietary ratio

E.

Capital gearing ratio

A.

DEBT EQUITY RATIO:


Debt equity ratio indicates the relationship describing the lenders contribution

for each rupee of the owners contribution is called debt-equity ratio. Debt equity ratio
is directly computed by dividing total debt by net worth. Lower the debt-equity ratio
higher the degree of protection. A debt-equity ratio of 2:1 is considered ideal. The Debt
consists of all short term as well as long term, and equity consists of Net worth Plus
Preference Capital plus Deferred Tax Liability.
Debt
Debt Ratio =

B.

Equity

DEBT RATIO:

Several debt ratios may used to analyze the long-term solvency of a firm. The firm may
be interested in knowing the proportion of the interest-bearing debt (also called funded
debt) in the capital structure. It may, therefore, compute debt ratio by dividing
Total debt by capital employed on net assets. Total debt will include short and long-term
borrowings

from

financial

institutions,

debentures/bonds,

deferred

payment

arrangements for buying capital equipments, bank borrowings, public deposits and any
other interest-bearing loan. Capital employed will include total debt and net worth.

C.

INTEREST COVERAGE RATIO:

The interest coverage ratio or the time interest earned is used to test the firms
debt-servicing capacity. The interest coverage ratio is computed by dividing earnings
before interest and taxes (EBIT) by interest charges. The interest coverage ratio shows
the number of times the interest charges are covered by funds that are ordinarily
available for their payment. Since taxes are computed after interest, interest coverage is
calculated in relation to before tax earnings. Depreciation is a non-cash item. Therefore,
funds equal to depreciation are also available to pay interest charges. We can thus
calculate the interest average ratio as earnings before depreciation, interest and taxes
(EBDIT) divided by interest.
EBIT
Interest Coverage =
Interest

D.

PROPRIETARY RATIO:

The total share holders fund (net worth) is compared with the total tangible assets of
the company. This ratio indicates the general financial strength of the concern. It is a
test of the soundness of the financial structure of the concern. The ratio is of great
significance to creditors since it enables them to find out the proportion of shareholders
funds in the total investment of the business.
Net worth
Proprietary ratio= _____________________*100
Total tangible assets

E.

CAPITAL GAINING RATIO:


This ratio makes an analysis of the capital structure of the firm. The ratio

shows relationship between equity share capital and the fixed cost bearing i.e.,
preference share capital and debentures.
Equity capital
Capital gaining ratio= _________________________
P.S. capital +Debentures +Loans

ACTIVITY RATIOS:

Turnover ratios also referred to as activity ratios or asset management ratios,


measure how efficiently the assets are employed by a firm. These ratios are based on the
relationship between the level of activity, represented by sales or cost of goods sold, and
levels of various assets. The improvement turnover ratios are: inventory turnover,
average collection period, receivables turnover, fixed assets turnover, and total assets
turnover.
Activity ratios are employed to evaluate the efficiency with which the firm
manages and utilizes its assets. These ratios are also called turnover ratios because they
indicate the speed with which assets are being converted or turned over into sales.
Activity ratios thus involve a relationship between sales and assets. A proper balance
between sales and assets generally reflects that assets are managed well. Activity ratios
help to judge the effectiveness of asset utilization.

Activity ratios can be divided into four types:


1. Total capital turnover ratio
2. Working capital turnover ratio
3. Fixed assets turnover ratio
4. Stock turnover ratio
1. TOTAL ASSET TURNOVER RATIO:
This ratio expresses relationship between the amount invested in this assets
and the resulting in terms of sales. This is calculated by dividing the net sales by total
assets. A higher ratio would mean better utilization and vice-versa.
Some analysts like to compute the total assets turnover in addition to or
instead of the net assets turnover. This ratio shows the firms ability in generating sales
from all financial resources committed to total assets.
Sales
Total Assets Turnover =
Capital employed
2 WORKING CAPITAL TURN OVER RATIO:

This ratio measures the relationship between working capital and sales. The
ratio shows the number of times the working capital results in the sales. Working capital
as usual is the excess of current assets over the current liabilities. The following formula
is used to measured this ratio,
Sales
Working capital turnover ratio= ______________
Working capital
3. FIXED ASSET TURNOVER RATIO:
The firm may wish to know its efficiency of utilizing fixed assets and current assets
separately. The use of depreciated value of fixed assets in computing the fixed assets
turnover may render comparison of firms performance over period or with other firms.
The ratio is supposed to measure the efficiency with which fixed assets are employed
a high ratio indicates a high degree of efficiency in asset utilization and a low ratio
reflects inefficient use of assets. However, in interpreting this ratio, one caution should
be borne in mind. When the fixed assets of the firm are old and substantially
depreciated, the fixed assets turnover ratio tends to be high because the denominator of
the ratio is very low.
Net Sales
Fixed Asset Turnover Ratio =
Fixed assets
4. STOCK TURNOVER RATIO:
Stock Turnover Ratio indicates the efficiency or the firm in producing and
selling its product. It is calculated by dividing the cost of goods sold by the average
stock. It measures how fast the inventory is moving through the firm and generating
sales.
The Stock turnover reflects the efficiency of inventory management. The
higher the ratio, the more efficient the management of inventories and vice versa.
However, this may not always be true. A high inventory turnover may be caused by a

low level of inventory which may result in frequent stock outs and loss of sales and
customer goodwill.
Cost of Goods sold
Stock Turnover Ratio =
Average Stock
Opening Stock+ Closing Stock
Average Stock =
2

PROFITABILITY RATIOS:
A company should earn profits to survive and grow over a long period of time. Profits
are essential but it would be wrong to assume that every action initiated by management
of a company should be aimed at maximizing profits. Profit is the difference between
revenues and expenses over a period of time.
Profit is the ultimate output of a company, and it will have no future if it fails
to make sufficient profits. Therefore, the financial manager should continuously
evaluate the efficiency of the company in term of profits. The profitability ratios are
calculated to measure the operating efficiency of the company. Besides management of
the company, creditors and owners are also interested in the profitability of the firm.
Creditors want to get interest and repayment of principal regularly. Owners want to get
a required rate of return on their investment. This is possible only when the company
earns enough profits.
Generally, two major types of profitability ratios are calculated:

Profitability in relation to sales

Profitability in relation to investment.

Profitability Ratios can be divided into six types:


1. Gross profit ratio
2. Operating profit ratio
3. Net profit ratio
4. Return on investment
5. Earnings per share
6. Operating expenses ratio

1. GROSS PROFIT RATIO:


First profitability ratio in relation to sales is the gross profit margin the gross profit
margin reflects
The efficiency with which management produces each unit of product. This ratio
indicates the average spread between the cost of goods sold and the sales revenue.
When we subtract the gross profit margin from 100 percent, we obtain the ratio of cost
of goods sold to sales. A high gross profit margin ratio is a sign of good management. A
gross margin ratio may increase due to any of the following factors: higher sales prices
cost of goods sold remaining constant, lower cost of goods sold, sales prices remaining
constant. A low gross profit margin may reflect higher cost of goods sold due to the
firms inability to purchase raw materials at favorable terms, inefficient utilization of
plant and machinery, or over investment in plant and machinery, resulting in higher cost
of production or due to fall in prices in the market.
This ratio shows the margin left after meeting manufacturing costs. It
measures the efficiency of production as well as pricing. To analyze the factors
underlying the variation in gross profit margin, the proportion of various elements of
cost (Labour, materials and manufacturing overheads) to sales may be studied in detail.
Gross profit
Gross Profit Ratio =
Net sales

2. OPERATING PROFIT RATIO


This ratio expresses the relationship between operating profit and sales. It is worked out
by dividing operating profit by net sales. With the help of this ratio one can judge the
managerial efficiency which may not be reflected in the net profit ratio.
Operating profit
Operating profit ratio=

___ __________
Net sales

3. NET PROFIT RATIO:


Net profit is obtained when operating expenses; interest and taxes are
subtracted from the gross profit. Net profit margin ratio established a relationship
between net profit and sales and indicates managements efficiency in manufacturing,
administering and selling the products. This ratio is the overall measure of the firms
ability to turn each rupee sales into net profit.
This ratio also indicates the firms capacity to withstand adverse economic
conditions. A firm with a high net margin ratio would be in an advantageous position to
survive in the face of falling selling prices, rising costs of production or declining
demand for the product.
This 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.
Net profit
Net Profit ratio =
Net sales
4. RETURN ON INVESTMENT:
This is one of the most important profitability ratios. It indicates the relation of net
profit with capital employed in the business. Net profit for calculating return of

investment will mean the net profit before interest, tax, and dividend. Capital employed
means long term funds.
EBIT
Return on investment= _________________
Capital employed
5. EARNING PER SHARE:
This ratio is computed by dividing earning available to equity share holders by the total
number of equity share outstanding. This ratio reveals the amount of the period earnings
after taxs which occurs to each equity share this ratio is an important index because it
indicates whether the wealth of each share holder on a per share basis as changed over
the period.
Net profit
Earnings Per share = ____________________
Number of equity shares
6. OPERATING EXPENSES RATIO:
The operating expenses ratio explains the changes in the profit margin ratio. A
higher operating expenses ratio is unfavorable since it will leave a small amount of
operating income to meet interest, dividends. Operating expenses ratio is a yardstick of
operating efficiency, but it should be used cautiously. It is affected by a number of
factors, such as external uncontrollable factors, internal factors. This ratio is computed
by dividing operating expenses by sales. Operating expenses equal cost of goods sold
plus selling expenses and general administrative expenses by sales.
Operating expenses
Operating Expenses Ratio

=
Sales

SCHEDULE OF CHANGES IN WORKING CAPITAL SRI VENKATESWARA


CO-OPERATIVE SUGAR FACTORY LTD, GAJULAMANDYAM

(RS

IN CRORES)
PARTICULARS
CURRENT
ASSETS
Cash in hand
bank balance
postage on hand
adhesive stamps
revenue stamps
bills receivable
loans &advances
pre paid expenses
closing stock
stock
as
per
schedule
lay sugar
free sugar
molasses
sugar in progress
work in progress
TOTALCURRENT
ASSETS(A)

2006-07

2007-08

INCREASE

DECREASE

0.0619
1.3705
0.00029
0
0
2.0026
3.63
0.0399

0.00051
0.1272
0.000129
0
0
1.936
3.1269
0.0609

0
0
0
0
0
0
0
0.0213

0.06139
1.2433
0.000161
0
0
0.0666
0.5031
0

1.0591
2.22
21.77
1.2195
0.2474
0.0366

1.029
1.728
8.5648
0.0000859
0
0.03665

0
0
0
0
0
0

0.14
0.5
13.2
1.219
0.2474
0

33.72779

16.61

19.16
1.14

11.88
0.799

7.28
0.611

0
0

20.57

12.679

13.1577

3.931

7.9123

17.1809

9.2686
17.1809

17.1809

CURRENT
LIABILITIES
payables
sundry creditors
total
current
liabilities(B)
net working capital
(A-B)
decrease in net
working capital

INTERPRETATION

The current assets in 2006-2007 are 33.72cores. But in2007-08 it is 16.61 cores. it
shows that the current assets decreased by 17.1809.
The current liabilities in2006-07 are 20.57 cores, but in 2007-08 it is 12.679 cores it
shows that the current liabilities decreased by 7.891.
A decrease in current asset and decrease in current liability does not affect working
capital.

While preparing a schedule of changes in working capital it should be noted


that
An increase in current asset increases working capital.
A decrease in current assets decreases working capital.
An increase in current liabilities decreases working capital.
A decrease in current liabilities increases working capital.
Decrease in working capital: - decrease in working capital. Is the result of decrease in
current asset or current liabilities. In both the cases inflow of funds takes place.

SCHEDULE OF CHANGES IN WORKING CAPITAL SRI VENKATESWARA


CO- OPERATIVE SUGAR FACTORY LTD, GAJULAMANDYAM
(RS
IN CRORES)
PARTICULARS

2007-08

2008-09

INCREASE

DECREASE

CURRENT ASSETS
Cash in hand
bank balance
postage on hand
adhesive stamps
revenue stamps
bills receivable
loans &advances
pre paid expenses
closing stock

0.00051
0.1272
0.000129
0
0
1.936
3.1269
0.0609

0.0085
0.893
0.0002
0
0
1.84
4.7459
0.0052

0.0079
0.7659
0.00008
0
0
0
1.619
0

0
0
0
0
0
0.096
0
0.0557

1.029
1.728
8.5648
0.0000859
0
0.03665

1.2344
0.5353
7.6806
1.1464
0.2431
0.366

0.2051
0
0
1.1463
0.2431
0

0
1.1933
0.8842
0
0
0.005

16.61

18.698

payables
sundry creditors
total current liabilities(B)

11.88
0.799
12.679

12.51
0.701
13.211

0
0.0989

0.63
0

net working capital (A-B)


increase in net working
capital

3.931

5.487

4.0862

2.859

4.0862

1.227
4.0861

stock as per schedule


lay sugar
free sugar
molasses
sugar in progress
work in progress
TOTAL
CURRENT
ASSETS(A)
CURRENT
LIABILITIES

INTERPRETATION

The current assets in 2007-08 are 16.670 cores, but in 2008-09 it is 18.698 cores. it
shows the current assets increased by 2.028.
The current liability in 2007-08 is 12.679 cores but in 2008-09 it is 13.211 cores it
shows current liabilities increased by 0.532.
An increase current asset and increase in current current liability does not affect
working capital.
There was adecrease in working capital Rs 1.227 due to decrease in levy sugar , free
sugar ,free sugar ,pre paid expenses and sundry creditors . And an increase in cash in
hand, bank, loan& advances, stock, molasses, sugar in progress. It is better than the
preceding years.

SCHEDULE OF CHANGES IN WORKING CAPITAL SRI VENKATESWARA


CO- OPERATIVE SUGAR FACTORY LTD, GAJULAMANDYAM
(RS
IN CRORES)

PARTICULARS
CURRENT
ASSETS
Cash in hand
bank balance
postage on hand
adhesive stamps
revenue stamps
bills receivable
loans &advances
pre paid expenses
closing stock
stock
as
per
schedule
lay sugar
free sugar
molasses
sugar in progress
work in progress
TOTALCURRENT
ASSETS(A)

2008-09

2009-10

INCREASE

DECREASE

0.0085
0.893
0.0002
0
0
1.84
4.7459
0.0052

0.0311
2.1488
0.00107
0
0
2.4277
4.8794
2.2978

0
1.2558
0.00086
0
0
0.58795
0.1335
2.2926

0.0548
0
0
0
0
0
0
0

1.2344
0.5353
7.6806
1.1464
0.2431
0.366

1.0522
1.26669
16.6598
0.8266
0.35
0.366

0
0.73139
8.9792
0
0.1069
0

0.1822
0
0
0.3198
0
0

18.698

31.9779

12.51
0.701

13.75805
1.3823

0
0

1.2478
0.6813

13.211

15.1403

5.487

16.837

14.088

2.4859

CURRENT
LIABILITIES
payables
sundry creditors
total
current
liabilities(B)
net working capital
(A-B)
increase
in
net
working capital

14.088

11.602
14.088

INTERPRETATION
The current assets in 2008-09 are 18.698 cores, but in 2009-10 it is 31.9779 cores. It
shows that current assets increased by 13.279.

The current liabilities in 2008-09 are 13.211 crores, but in 2009-10 it is 15.1403 crores.
it shows that the current liabilities increased by 1.929.
An increase in current asset and increase in current liability does not affect working
capital.
There is a decrease in working capital 11.602 due to decrease cash in hand stock
moiasses and increase in bank balance, creditors, loans, pre paid expenses. It is
satisfactory.

SCHEDULE OF CHANGES IN WORKING CAPITAL SRI VENKATESWARA


CO- OPERATIVE SUGAR FACTORY LTD, GAJULAMANDYAM

(RS

IN CRORES)
PARTICULARS

2009-10

2010-11

INCREAE

DECREASE

CURRENT ASSETS
Cash in hand
bank balance
postage on hand
adhesive stamps
revenue stamps
bills receivable
loans &advances
pre paid expenses
closing stock

0.0311
2.1488
0.00107
0
0
2.4277
4.8794
2.2978

0.0057
2.8177
0.00019
0
0
2.2462
5.6029
2.1244

0
0
0
0
0
0
0.7235
0

0.0254
0.6689
0.00081
0
0
0.1817
0
0.1734

1.0522
1.26669
16.6598
0.8266
0.35
0.366

0.9721
0
13.676
1.0968
0.3682
0.0366

0
0
0
0.2702
0.0182
0

0.0801
1.2666
2.9838
0
0
0

31.9779

28.946

payables
sundry creditors
total current liabilities(B)

13.75805
1.3823
15.1403

21.396
1.4326
22.8286

0
0

7.636
0.0503

net working capital (A-B)


decrease in net working
capital

16.837

6.1174

1.0119

13.069

12.0571
13.069

13.069

stock as per schedule


lay sugar
free sugar
molasses
sugar in progress
work in progress
TOTAL
CURRENT
ASSETS(A)
CURRENT LIABILITIES

INTERPRETATION
The current assets in 2009-10 are 31.9779 crores, but in 2010-11 it is 28.946 crores, it
shows that the current liabilities decreased to 3.031.

The current liabilities in 2009-10 are 15.211 crores, but in 2010-11 it is 22.8286 crores.
It shows that the current liabilities increased to 7.617.
There is a decrease in working capital 12.0571 due to decrease cash in hand , bank
balance , postage, receivables, pre paid expenses, stock , levy sugar, free sugar, and
increase the loans, molasses , sugar in progress. It is satisfied.
Hence, both the current assets and current liabilities are decreased; there is no affect on
working capital.

1. CURRENT RATIO
Current ratio, includes cash and those assets, which can be converted into cash within a
year, such as marketable securities, debtors and inventories,

Current liabilities include creditors, payables, accrued expenses, short term bank loan,
income tax liability and long term debt maturing in current year.
The current ratio is a measure of the firms short term solvency. A current ratio of 2 to 1
or more is considered satisfactory. The current ratio represents s a margin of safety for
creditors. The higher the current assets are in relation to current liabilities, the more is
the firms ability to meet its current obligations.
Current ratio in a business concern indicates the availability of current assets
to meet its current liabilities. Higher the ratio, better the coverage. Traditionally, the
stranded of current ratio is 2:1, i.e., 2 is the standard for current assets for each unit of
current liabilities.

Current ratio

Current asset
= ---------------------Current liabilities
TABLE-4.1

current

current

year

assets

liabilities

ratio

2006-07

33.7277

20.57

1.63

2007-08

16.61

12.679

1.31

2008-09

18.698

13.211

1.41

2009-10

31.977

15.14

2.11

2010-11

28.946

22.828

1.26

CHART-4.1

INTERPRETATION
According to convention, current ratio should be 2:1 from the above table. if we see in
the year 2010-11 the ratio is 2.11 but in the years 2008,2009,2010,2011, the ratio is
1.63,1.31,1.41,1.26, generally in the next year the ratio increases to 2.11. Compare with
2010 the ratio is 2.11 in the in the next year 2011 the ratio is 1.26 so the ratio is
satisfactory.

2. Quick ratio:

Quick Ratio indicates the short-term solvency of the firm. Ideally, Quick Ratio should
be above one for the firm to be comfortable. This will mean that the firm can meet all
its liabilities without having to sell any of its stock. Quick Ratio is a more rigorous test
of liquidity than the current ratio.
Generally a quick ratio of 1:1 is considered to represent a satisfactory current
financial conditional company with a high value of quick ratio can suffer from the
shortage of funds it is has slow playing ,doubtful and long duration outstanding book
debts. On the other hands accompany with a low value of quick ratio may really be
prospering and playing its obligation in time if it has been turning over its inventories
efficiently.

Quick ratio=

Current assets-inventory
---------------------------Current liabilities
TABLE-4.2

year

Quick assets

current liabilities

ratio

2006-07

8.27

20.57

0.04

2007-08

6.32

12.679

0.49

2008-09

9.092

13.211

0.68

2009-10

12.874

15.14

0.84

2010-11

13.805

22.828

0.6

CHART-4.2

INTERPRETATION
As per convention, the normal quick ratio should be 1:1from the above table. It is clear
that liquidity ratio is less than the standard norm. The ratio has been decreasing over the
year from 0.04in 2006to 0.84 2011 so quick ratio is not satisfactory.

3. Cash Ratio:

Since cash is the most liquid asset, a financial analyst may examine cash ratio and its
equivalent to the current liabilities. Trade investment are marketable securities are
equivalent of cash can be calculated as follows.

Cash + marketable securities


Cash ratio= --------------------------------------Current liabilities
TABLE-4.3

year

cash

current liabilities

ratio

2006-07

1.43

20.57

0.069

2007-08

0.12

12.679

0.009

2008-09

0.9

13.211

0.068

2009-10

2.17

15.14

0.143

2010-11

2.82

22.828

0.123

CHART-4.3

INTERPRETATION
Cash ratio shows the difference by dividing the cash /marketable securities with current
liabilities. The cash ratio has been decreasing year by year from 2006, 2007, 2008, the
ratio are 0.069, 0.009, 0.068 year cash ratio is decreases. There is increase in the year
2010, 2011 the ratio is 0.143, 0.123 gradually. So the ratio is satisfactory.

4. Net working capital ratio


NWC is sometimes used as a measure of a firms liquidity. It measures the firms
potential reservoir of funds. It can be related to net assets are capital employed.

Net working capital


NWC ratio=------------------------Net assets
TABLE-4.4

year

cash

current liabilities

ratio

2006-07

13.15

33.727

0.389

2007-08

3.931

16.61

0.236

2008-09

5.487

18.698

0.293

2009-10

16.836

31.977

0.526

2010-11

6.177

28.946

0.211

CHART-4.4

INTERPRETATION
The ratio considered that the larger NWC ratio has the greater ability to meet the current
obligation, compare the year2010 the ratio is increased 0.526. so the ratio is satisfactory.

5. Changes in net working capital


This statement is prepared with the help of current assets and current liabilities derived
from balance sheets.

Working capital = current assets current liabilities


TABLE-4.5

year

current assets

current liabilities

ratio

2006-07

33.7277

20.57

13.15

2007-08

16.61

12.679

3.931

2008-09

18.698

13.211

5.487

2009-10

31.977

15.14

16.836

2010-11

28.946

22.828

6.117

CHART-4.5

INTERPRETATION
The change in net working capital in the year 2006 the ratio is 13.15 and it was
decreasing year by year 2011the ratio is 16.836. There is working capital change is
fluctuated. So it is not satisfactory.

6. Creditors turnover ratio


Net credit sales
Credit turnover ratio=----------------------------Average creditors

Average creditors = {payables+ creditors}/2


TABLE-4.6
year
2006-07
2007-08
2008-09
2009-10
2010-11

current assets
22.61
18.74
12.83
10.16
12.85

current liabilities
19.13
11.88
12.51
13.75
15.56

ratio
1.18
1.68
0.01
0.73
1.02

CHART-4.6

INTERPRETATION
In the above table and chart shows creditors turnover ratio five years2006-2011.
In started with low rate of 1.18at the end of the year 2006. It was slightly decreased to
the next year 2006,2009,2010,2011 and it remains it was slightly increased in the year
2007. So it is satisfactory.

7. Inventory turnover ratio


Inventory Turnover Ratio measures the velocity of conversion of stock into
sales. Inventory Turnover Ratio indicates whether inventory has been efficiently used or
not. It indicates the no of time the stock has been turned over during the period and
evaluated the efficiency with which a firm is able to manage its inventory.
Sales

Inventory turnover ratio =

--------------------------------Inventory
TABLE-4.7

year

sales

avg inventory

ratio

2006-07

24.6

28.31

0.868

2007-08

18.06

17.75

1.047

2008-09

9.85

9.82

2009-10

8.21

14.05

0.58

2010-11

31.85

16.76

1.9

CHART-4.7

INTERPRETATION
The inventory turnover ratio in the year 2010 the ratio is 1.90 it has increase compared
2006 in the preceding year the ratio gradually decreasing from 0.868,0.047,1,0.68 in
the year from 2006-2010 it is not satisfactory.

8. Debtors turnover ratio:


It indicates the number of times debtors turnover each year. It indicates the efficiency of
staff entrusted with collection of debts. The higher the ratio is better since it would
indicate the debtors are being collected more promptly. Debtors should be always being

taken at gross value. No provision for bad & doubtful debts should be deducted from
them.
Sales
Debtors Turnover Ratio = ----------------------Debtors
TABLE-4.8
year

sales

avg debtors

ratio

2006-07

22.61

11.3

2007-08

18.74

1.93

9.7

2008-09

12.83

1.83

6.97

2009-10

10.16

2.42

4.19

2010-11

28.82

2.24

12.86

CHART-4.8

INTERPRETATION
The debtors turnover ratio is increasing from 2005-06 the ratios from 11.3 to
9.7and year 2008,2009,2010 the ratio is decrease i.e. 9.7,6.667,4.19 the present year
2010 the ratio is good.

9. Working capital turnover ratio


This ratio makes clear whether the business is being carried on with small or large
amount of working capital in relation to sales.

Net sales
Working capital turnover ratio =--------------------------Net working capital

(net working capital =total current assets- current liabilities)


TABLE-4.9
year
2006-07
2007-08
2008-09
2009-10
2010-11

sales

NWC
22.61
18.74
12.83
10.16
28.82

ratio
13.15
3.931
5.487
16.836
6.117

1.719
4.767
2.38
0.603
4.711

CHART-4.9

INTERPRETATION
It shows the amount used for the day today consumption. The ratio is ups and
down ones the ratio is increasing from the year 2007-11. The ratios are 4.767; 4.711and
the other years has decreasing. So it is not satisfactory.

FINDINGS:
The schedule of changes in working capital shows net decrease in 06-07, 07-08 &
10-11 that is 10.402, 9.2686, & 12.0571.
The increase in working capital in the year 2007-08 & 2009-10 that is 1.27&11.602.
In 2006-07 & 2010-11 the company did not earned any gross profit. Because the
company running under loss.

The sales turned into cash are below 16% in my study period.
The current assets occupies below 60% in total assets in my study period .
By observing the calculations of current ratio, the company should maintain
standards of current ratio 2:1. The company reached its standards in 09-10. But in
the remaining year the company failed to meet the standards.

Suggestions
The company is under loss zone, so it needs some subsidy form the govt to develop
it pogession.
By merging the company with other profitable company, the firm may improve its
performance.
By selling molasses to other plant the company can earn additional profits.
By using the sugar cane scrap the firm can generate its electrically supply.

By selling the scrap to bio plant it can generate funds.


The company should use the 100%material from the production of farmers.
The company should provide best quality sugarcane seeds to the farmers on credit
basis.
In the year 07-08, 08-09, 09-10 & 10-11the Company was below the standards of
current ratio. So it would be better to maintain a standard of current ratio by
reducing current liabilities and increasing the current assets

CONCLUSION
From the observation It conclude that final position of the company is good and
satisfactory.
Expect in the year 2006-07and 2009-2010 2010-2011 finally all the years working
capital increased.
An increase in current assets represents the financial pogession of the company is
satisfactory to meet the obligations.
Sri Venkateswara Sugars Co-operative Ltd., Tirupathi
BALANCE SHEET AS ON 31-03-2007

Sri Venkateswara Sugars Co-operative Ltd., Tirupathi


BALANCE SHEET AS ON 31-03-2008

Sri Venkateswara Sugars Co-operative Ltd., Tirupathi


BALANCE SHEET AS ON 31-03-2009

Sri Venkateswara Sugars Co-operative Ltd., Tirupathi


BALANCE SHEET AS ON 31-03-2010

Sri Venkateswara Sugars Co-operative Ltd., Tirupathi


BALANCE SHEET AS ON 31-03-2011

Bibliography

K.ASWATHAPPA & K. SRIDHAR BHAT production and


operations management Himalaya public house Mumbai.
I.M PONDAY.FINANCE MANAGEMENT VIKAS publishing
house pvt ltd. New Delhi.
M.Y. KHAN& P.K JAIN management accounting Tata MC
Graw hill publishing company ltd.
RAJESHWARA RAO finance and accounting jay bharath
publishing company ltd.