Académique Documents
Professionnel Documents
Culture Documents
MBA programme
P.G. DEPARTMENT OF MANAGEMENT STUDIES
SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENGINEERING&
TECHNOLOGY , MANAGEMENT STUDIES
(AFFLIATED TO JNTU)
KAKINADA
ACKNOWLEDGEMENT
I am greatly indebted to many people for mailing the present study
possible and I shall be failing in my duty if I dont acknowledge
DECLARATION
Station:
Date:
Ganga rama vasu .chinta
{Regd no:09MR1E0012}
CERTIFICATE
submitted by
Project guide
P.G department of management studies
S v k r college gollakoderu
PREFACE
The first chapter deals with the introduction , where the information is
briefed about the oil & chemical industry
The second chapter discuss the need of the study, the methodology used and
limitation thereof.
The third chapter deals with the organization profile in detailed.
The forth chapter deals with the literature review of the study.
The fifth chapter deals with analysis and interpretation.
The sixth chapter findings, suggestions, conclusions and Bibliography
regarding the study with the help of last five years balance sheets.
CONTENTS
CHAPTER-1
CAPITAL
INTRODUCTION TO WORKING
MANAGEMENT
Methodology
Objective of study
Significant of the study
Limitations of the study
CHAPTER-2
PROFILE
CHAPTER-3
WORKING CAPITAL
CHAPTER-4
CHAPTER-5
FINIDING&SUGGESTIONS
REFERENCES & BIBLIOGRAPHY
CHAPTER-1
INTRODUCTION
Working capital management is significant in financial management. It plays a
vital role in keeping the wheel of the business running. Every business
requires capital ,without it cant be promoted. Investment decisions is concerned
with investment in current assets and fixed assets .working capital plays a key role
in a business enterprise just as the role of heart in human body . it acts as grease
to run the wheels of fixed assets .its effective provision can ensure the success
of business while its inefficient management can lead not only to loss but
also to the ultimate downfall of what otherwise might be considered as a
promising concern . Efficiency of a business enterprise depends largely on its
ability to its working capital .working capital management is one of the
important facts of affirms overall financial management
For increasing shareholders wealth a firm has to analyze the effect of fixed
assets and current assets on its return and risk.working capital management of
current assets . the management of current assets on the basis of the following
points:
1. current assets are for short period while fixed assets are for more than one year
2. The large holding of current assets ,especially cash, strengthens liquidity
position but also reduce overall profitability ,and to maintain an optimal level of
liquidity and profitability , risk return trade off is involved holding current assets
3. Only current assets can be adjusted with sales fluctuating in the short run. thus
the firm has greater degree of flexibility in managing current assets. The
management of current assets help affirm in building a good market reputation
regarding its business and economic conditions.
Now first let us discuss the paradigms of working capital management.
1.Gross working capital: Gross working capital refers to the firms investment in
current assets .current assets are the assets, which can be converted into cash
within an accounting year or operating cycle. It includes cash, short term
securities ,debtors (account receivables or book debts),bills receivables and stock
(inventory).
2.Net working capital: net working capital refers to the difference between
current assets and liabilities are those claims of outsiders, which are expected to
mature for payment within an accounting year. It includes creditors or accounts
payables bills payable and outstanding expenses. Net working copulate can be
positive or negative. A positive working capital will arise when current assets
exceed current liabilities and vice versa.
assets which in the ordinary course of business can be ,or will be converted
into cash within one year without undergoing a diminution in value and
without disrupting the operation of the firm. the major current assets are
cash, marketable securities, accounts receivables and inventory. current
liabilities are those liabilities, which are intended at their inception ,to be paid
in the ordinary course of business, within a year out of the current or the
earning of the concern .The basic current liabilities are accounts payable
,bills payable ,bank overdrafts and outstanding expense. The goal of working
management is to manage the firms assets and liabilities in such a way that a
satisfactory level of working capital is maintain. This is because if the firms
cannot maintain a satisfactory level of working capital ,it is likely to become
insolvent and may even be forced into bankruptcy. The current assets should
be large enough to cover its current liabilities in order to ensure a reasonable
margin of safety. Each of the short term source of financing must be
continuously managed to ensure that they are obtained and used in the way.
Interaction between current liabilities is ,therefore the main theme of the of
management of working capital.
METHODOLOGY
For the purpose of the study necessary information has been collected
through primary and secondary sources.
PRIMARY DATA:
DEFINATION
The primary data are those which are collected a fresh and for the first time,
and thus happened to be original in character . primary data include the
information collected from the officials and existing company through
discussions
SECONDARY DATA :
DEFINITION
The secondary data ,on the other hand are those which have already been
collected by some one else and which have already been passed though the
stastical process.
The secondary data include the information from the company annual reports
which include financial statement like balance sheet and income statements
and such other information from text books of financial management ,journals
and magazine has also been collected.
that exists among. The different items appeared in the financial statements, which
are effectively helpful to describe the company should monitor key indication of
operating performance and where possible must compare, itself with the
competitors in the industry.
A systematic financial analysis of accounting figure
helps to analysis the probable caused relationship among different items after
analyzing scrutinizing the past result which helps the management to prepare
budgets ,to formulate company policy and to prepare future plan of action. It
focuses on companys relative performance in sales growth margins and assets
management .It is a simple tool where by a company can make its internal audit to
evaluate internal strengths and weakness of the part of the strategic planning.
The study conducted and done is analytical ,subject to the following limitations
1)The study is mainly carried out based on the secondary data provided in the
financial statements .
2)this study is based on the historical data and information provided in the annual
reports therefore it may not be a future indicator .
3)There may be some fractional differences in the calculated ratios.
As the study was for short span of 8 weeks and due to lack of time other areas
could not be well focused.
CHAPTER -2
INDUSTRY PROFILE
COMPANY PROFILE
INDUSTRY PROFILE
Oils have come to play vital role in the economy of our country .These oils not
only for human diet but also provide essential raw materials for industries
products like soaps, paints ,varnishes and lubricants .there are many reasons for
ever growth demand for oils.
The main reason is due to various factors such as increase in population,
rapid industrialization of the country and improved standard of living with the
recent liberalization of licensing and trade control policies of the government
,there is going to be further increase in the demand for oils human consumption
and industries purpose now a days india has been facing the problem of shortage
and raises in the price of oils. It is the burning problem from the 20 years . the
situation is due to the production of major oil seeds ground nut, mustered ,sesame,
sun flower ,soybean and linseed & caster seed.
The presently available sources of oil in india can be divided as follows.
1. perennial oil seed plant like coconut and palm.
2.Annual oil seed like groundnut , rapeseed, sesame, Niger, sunflower, soybean
caster and linseed are non edible types.
3.minor oil seeds, like sal, neem, karanja, kusum, maharaj etc.
4.oils obtained through technological process such as extraction from rice bran,
cotton seeds.
We are at present tapping about 25% to 30% of the available potential for
production in all the above sources .All these various oil seeds have different
yields of oil per unit area, depending in their oil content and yields of oil seeds
per unit area. The following table gives the average yields of oils per unit area for
various oil seeds.B?
Oil seeds
Palm
Average oil
3200-3500
Coconut
1900-2000
Niger
175-200
Castor
200-225
Sesam
300-325
Mustard
350-375
Linseed
400-450
Ground nut
600-625
In India most of the production comes from rainfall areas, and hence there
are wide fluctuation in production owing to monsoons progress in the evaluation
and introduction of high yielding hybrid varieties are poor when compared to rice
and cotton etc. owing to these factors ,yield projector is very low.
In these circumstances oil seeds production has to be stepped up and self
efficiency should be achieved as early as possible hence our goal is to achieve self
sufficiency in the production of the oils with in the shortest possible span of time.
ROLE OF CO-OPERATIVE SECTOR:Co- operator is assisted by N.C.D.C and N.D.D.B having oil seed
producer as their members have been supporting co-operative endeavour in
OIL FROM BY PRODUCTS OF OTHER INDUSTRIES:There are several by products of various agro based industries
which and can be utilized to obtain oil either industries or edible purpose cotton
seed, grossed nut cake rice bran are presently the important sources
The spectra of scarcity if oils has been hunting our national economy in
deferent every since the beginning of seventies lastly since 1977 huge be ports of
oils have become a necessity to arrest the raise in price and met the demand and
supply gap by spending huge foreign exchange to crude oil.
The crisis has become the more serious on account of standard in the
production of traditional oil seeds mainly ground nut and mustard on one hand and
ineffective utilization of the vast of resources of oil which can available by taping
rice bran and minor oil seed of origin and not adopting a concrete national policy
has made the crisis serious.
In fact the rice bran oil can argument substantial quality of oil in the
country like many Asain countries including Japan Hermans thus land where rice
bran oil came to stay as a cooking medium and also for industrial purpose.
21STATE
Andhra Pradesh
DAILY
PRODUCTION(MT)
ANNUAL
PRODUCTION(MT)
7425
22,27,500
Assam
110
33,000
Delhi
30
9000
Gujarat
1740
5,22,000
Haryana
185
Karnataka
5,05,000
2050
6,15,000
470
1,41,000
Madhya Pradesh
2690
8,07,000
Maharastra
1715
5,14,500
Orissa
140
42,000
Punjab
2580
7,74,000
Rajasthan
2680
2,04,000
Tamilnadu
1330
3,99,000
Uttar Pradesh
2932
879,600
West Bengal
720
2,16,000
Pondicherry
150
45,000
Kerala
The following is the state wise advent extraction plant and their
processing capacity
STATE
NO.OF SOLVENT
Andhra Pradesh
DAILY
ANNUAL
PROCESSING
PROCESSING
CAPACITY(MTS)
CAPACITY(MTS)
57
10,610
31,83,000
Assam
150
45,000
Delhi
45
13,500
Gujarat
55
11,645
34,93,500
Haryana
20
2,290
66,87,000
750
2,25,000
Madhya Pradesh
67
27,475
82,42,500
Maharastra
60
11,803
35,41,500
Orissa
330
99,000
Punjab
22
3,510
10,53,000
Rajasthan
27
7,125
21,37,500
Tamilnadu
21
2,660
7,98,000
Uttar Pradesh
26
4,000
12,00,000
West Bengal
12
1,060
3,18,000
200
60,000
88,700
2,66,10,000
Karnataka
Pondicherry
TOTAL
1
421
In view of the growing demand for oils and for cattle feed ,the importance of
the solvent extraction industry is very significant and it plays a very import role in
Indian economy .the present growth rate of industry is around 5%.
The inflation rate of general goods is above 20%.it is surprised that in case
of oils the inflation is above 30%.there is still a danger in as government has no
other growth expert to resort to fix the inflationary to be standard price in order to
fill reservoir of resources to meet the budget.
Many learned and eminent industries ,technologist and manufactures about
manufactures about modernization of rice bran .processing to producer quality with
low concern by installing stabilizers of three or four varieties and to extract oil
with 10%to15%suitable for industries purpose by refining scope of exploitation of
complete bran available in Indian for production of bran oil , problem formed by
rice mills ,solvent extraction industries types of stabilizer to install to control T.T.A
.rice bran is problem in refining the bran oil like maxell eimming dewoding
neutralization bleaching and deodorization and physical refining etc.
In view of the growing demand for oils and for cattle feed, the importance of
the solvent extraction industry is very significant and it plays a very import role in
Indian company .the present growth rate of industry is around 5%.
Previously the oils obtained by solvent extraction are used in the
manufacture of soaps ,detergents but with the recount development in technology
and solvent extraction plants are able to produce edible grade oils . which the fit
for refining in order produce refined cooling grade oils ,which is a source
commodity in India .thus this industry has major role to pay in Indias oil trade.
The activities of the industry are monitored by the solvent extractors moderation of
India, located at Mumbai .
COMPANY PROFILE
HISTORY OF THE COMPANY:SUDHA AGRO OIL AND CHEMICAL LIMITED , Sri E .Rajarao, who
has vast experience in the same line ,prompted an existing profit making company.
The company was incorporated on 7th December 1981 as a private limited
company and became limited company on 13 th august 1988. Initially the promoters
brought Rs53.55lakhs as equity capital out of 750lakhs were sudscribed by apde
subsequently 5000 shares in the yaer 1987 and 2500 shares in the year 1992 were
brought back by promoters.
In the year 1993-94 the company issued a bonus shares of 42,840 shares of
rs.100 paid up at the ratio of 5:4 out of reserves of Rs 104-58 lakhs available with
the company . the equity capital was increased to Rs 177.61 lakhs by subscribing
26,775 shares at per and 54.445 shares at premium of Rs 50 per share of Rs 500
paid up.
In the year 1996-97 the equity capital was further increased to 225 lakhs by
subscribing 47,390 shares at per by the existing promoters . thus the equity capital
of the company stood at Rs 11.361lakhs as on 31st march ,1997.
The company paid 10% dividend on equity in the first year itself and is
continuously paying dividend for the eight years.
PROMOTORS OF THE COMPANY:The chief promoters of the company is sri E. Rajarao, B.A . who was earlier
associated with the promotion of Gowthami solvent oil ltd .as an executive director
,he has aged above 60 years of experience in the oil and fats business.
BOARD OF DIRECTORS
1. Sri E. RAJA RAO
DIRECTOR
2. Sri E. RAMAKRISHNA
DIRECTOR
3. Sri E. SUDHAKAR ,MS USA
4. Sri V. BALA MOHAN DAS
5. Sri G.M.K. MOHAN
6. Sri M. VENKANNA
CHAIRMAN&MANAGING
-
JOINT MANAGING
EXECUTIVE DIRECTOR
NOMINEE OF IREDA
DIRECTOR
DIRECTOR
..................................................................................................
AUDITORS:M\s. BRAHMAYYA& CO.
Charted accounts
3-16c-40\1,8th road
Gazette officers colony
Shanti nagar,
Kakinada.
BANKERS :-
NAME
AGE
QUALIFICATION SERVICE
FUNCTION
Sri A. Narendra
40
10 years
Sri T.
Narasimha rao
Sri S. Meera
45
Engineering
Graduate
Oil Technologist
Commerce
graduate
26 years
Raw material
and oil sales
Production
activity
Accounts of
the company
52
PRODUCTION FACILITIES:-
23 years
The company initially started with 150 TPD rice bran solvent extraction
plant in 1982 and subsequently expended its acids ,glycerin and oxygen .
The particulars of the various plants installed in the companys existing
premises given below.
NAME OF THE
PLANT
INSTALL
ED TPD
CAPACITY
TPA
45,000
DATE OF
COMMENCEMEN
T OF
PRODUCTION
May 1983
15,000
May 1986
12,000
Feb 1994
40
12,000
Sep 1994
Glycerin
600
April 1996
Physical refinery
20
6,000
June 1996
Oxygen booting
1667
5,00,000
Feb 1997
Power plant
1,800
Dec 2000
The company had started the solvent the extraction plant on its own
fill in 1989-90 and it ran this on job work basis with minimum quality
guarantee to ITC limited and Essar Gujarath limited from September 1990
.due to shifting of job work processing the operating capacity of the plant of
the plant came down from 84%to 66% . now this plants running on its own.
The company has entered a processing agreement for its
hydrogenation plan with Colgate Pamolive (1)ltd. the process a minimum
quality of 2,400 Mt. per year and the agreement is renewable every year.
Colgate Palmolive (1) ltd also supplied electrolysis equipment on hire
purchase basis for the period of three years commencing from year 1995
november.
EXPANSION SCHEME EXECUTED:Company commanded its 150 TPD solvent extraction plan in may 1986 at a
cost of 134 lakh and the project was partly financed by APSFC and APIDC by
sanctioning a term loan of 30 lakhs repaid in scheduled time .In may 1986 it
commenced a 30 PTW hydrogenation. Plant to harden commercial rice bran oil for
soap at a cost of 66 lakhs. APIDC party financed this project by sanctioning the
term loan of 39.64 lakhs. This loan was also repaid in the scheduled time . in 1986
the company took a term loan of Rs 5.80 lakhs from APTS for purchasing a
generator .in 1992 they took a term loan of Rs 19.60 lakhs from APIDC for
purchase of a boiler .these two term also repaid in time. In 1993 company added
seed prepatory system at a cost of Rs 16.20 lakhs as its own funds.
In 1993 the company took an expansion and diversion programme in a
phase manner by obtaining the financial assistance from IDBI. In 1993 it took loan
of Rs 410 lakhs to part finance its 30 TPD chemical refinery and 20 TPD fatty acid
plant in 1994. In the year 1995 the company went for further expansion and
diversification it took rs.350 lakhs from IDBI and increased capacity from 30 TPD
to 50 TPD.
The company is banking with state bank of india. Peddapuram branch
since inception and it presently enjoying working capital fund based limit of Rs 50
lakhs. The company is maintaining good financial relation with different finance
institutions. Which are extending loan facility. The repayment of loans is made in
time.
Dealing with financial institution and banks as on 31st august, 1997 is given in
the following table.
PERFORMANCE:-
The company is regular in both earning the profit and declaring the dividend
to its share holder. The turnover in 1992-93 and 1995-96 were low due to reason
that unit under took job works for ITC limited and Essar Gujarat limited. The turn
over started increasing from 1996-97 on words due to diversification of the
activities in a phased manner. The company could not show a net profit in 1998-99
as it changed the method of depreciation from straight line method to written down
value method. Due to availability of surplus in profit and loss account the company
declared dividend of 15% on its equity on proportionate basis.
RAW MATERIALS:The main raw material of this unit is rice bran oil. The unit requires a
quality of 150 Mt .of rice oil per day and 100 Mt of rice bran oil per day. The
company is located in the center of east Godavari district surrounded by huge
number of rice mills. Since the company is 15 years old it established a strong net
work for procurement of rice bran. The required rice bran is produced through
urgently brokers who collect rice bran from mills at the price indicated by the
company depending on the marketing fluctuation. The company has 30 bran agents
in Godavari district, srikakulam and southern Orissa.
Out of the 100Mt of rice bran oil around 15tones per day available from
the solvent extraction plant of the company.
The chemical such as nickel catalyst caustic soda, sulphuric acid,
phosphoric acid bleaching earth etc . Are available in the required capacities to run
the plan at envisaged capacities .
The raw material for solvent extraction for is rice bran . there are two
verities of rice bran.
1. Raw rice bran.
2. Boiled rice bran.
The oil content is raw rice bran is 16% and increase as boiled rice bran
is 19% the purchase price of rice bran fixed on the basis of oil content
According if oil content is less than 16% the price will be reduced
proportionately and if oil content is more than 16% a premium will be paid
proportionately similarly in the case of boiled rice bran rebate of premium is
considered on the basis of 19% oil content .
The bran is usually produced through agents appointed by company or
directly from the rice mills . the bran after is tested in the laboratory for its content
and FFA (free fatty acids) . based on this laboratory results the payment will be
mode.
In the case of boiled bran the F.F.A content in it will be around 4% to
7% if it is processed with in 3 days from the day of production by the rice mills. By
F.F.A content in rice bran increased to maximum 60% if they are stored beyond 10
days . the advantage of low F.F oil
(I.e. 4% to 5%) is that it can be used for manufactures of refined rice bran oil.
The sweet water obtain at the splitting tower contain glycerine heating
process in the glycerine refine unit refines the crude glycerine. The refines
glycerine of 90% purity is the stored in drums for sale.
RFSADBNPE
LEICOTD
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RNTDPAEB
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DESCRIPTION
The commercial grade rice bran oils taken an autoclave. Hydrogen and nickel
catalysis are then put into autoclave and then stirred. In the process oil absorbs
the hydrogen gas. The hydrogenated oil then bleached to remove color and
other impurities the oil is then cooled to temperature 80c. The cooled oil is
then filter and the final oil is stored for sale.
The soap stock ( fatty acids obtain from the neutralization process is treated
with sulfuric acid and then washed ). The oil thus obtain is called as acid and is
stored for sale or for further use in the fatty acid plant.
HERMD
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BNRCAS
.ATEFPC
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ROAT
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ABN
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The commercial grade rice bran oil is taken into an auto calve. Hydrogen
and nickel catalysis are then put into autoclave and then stirred. In the process
oil absorbs the hydrogen gas. The hydrogenated then bleached to remove color
and other impurities. The oil is then cooled to temperature of 80 C. the cooled
oil is then filtered and the final oil is stored for sale.
NHFCBA
AYIOLM
CDLOEA
KRTLAOG
LORICHD
EGANHDR
CITGEOB
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TAOGI
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The commercial grade rice bran oil is taken into an auto calve. Hydrogen and
nickel catalysis are then put into autoclave and then stirred. In the process oil
absorbs the hydrogen gas. The hydrogenated then bleached to remove color and
other impurities. The oil is then cooled to temperature of 80C. the cooled oil is
then filtered and the final oil is stored for sale.
DESCRIPTION:-
The rice bran received from various rice millers is first fed into a Pelletier
machine to convent the bran, Which is in powder from into pellets. These pellets
which are run through a pellet cooler to reduce the heat in the pellets. These pellets
are fed into the extraction conveyor through conveyors. The extraction bed hexane
is poured on to the bran pellets. The hexane while passing through the bran pellets,
absorbs the oil content in the bran. This mixture of oil and hexane is called miscella.
The hexane in oil is then separated by condensation process. The oil thus obtain is
stored in storage tanks for sale or for further use in other plants.
The de-oiled bran . Which still contains traces of hexane, is run through
direct to aster to recover the hexane . The de-oiled bran (DOB) which is free from
hexane is bagged for sale.
The hexane recovered by condensation process is recalculated for use in
the extraction bed.
Chapter-3
o THEORETICAL FRAME
WORK OF WORKING CAPITAL
CONCEPT OF WORKING CAPITAL:There are 2 concepts of working capital : gross and net.
The term gross working capital also referred to as a working capital, means
the total current assets.
NEED FOR WORKING CAPITAL:In order earn sufficient profits, a firm has to depend on its sales activities
apart from others. We know that sales are not analysis converted into cash
immediately. i.e, there is a time lack between the sale of a product and the
realization of cash so, an adequate amount of working capital is required by a firm
in the form of different current assets for its activities to continue un interrupted
and to tackle the problem that may arise because of the time lay. Practically this
happens simply owing to the operating cycle(or) cash cycle, involves the
following steps.
(a) Conversion of cash into inventory.
(b) Conversion of inventory into receivables.
(c) Conversion of receivables into cash.
NATURE OF WORKING CAPITAL:The term working capital refers to current assets which may be defined as
(1) Those which are convertible in to cash or equivalents with in a period of
one year and
(2) Those which are required to meet day operations.
This fixed assets as well as current assets, both required investment of funds. So,
the management of working capital and of fixed assets, appearently seen to involve
same type of consideration but it is not so. The management of capital involves
different concepts and methodology than the techniques used in fixed assets
management. The reason for this different is obvious. The very basics of fixed
assets decision process (i.e the capital budgeting ) and the working capital decision
process are different. The fixed assets involve long period perspective and
therefore, the concept of time value of money is applied where as in working
capital the time horizon is limited, in general, to one year only and the time value
of money concept is not considered. The fixed assets the long term profitability of
the while the current assets affect the short term liquidity position. Managing
current assets may require more attention than managing fixed assets. The financial
manager must.
Therefore continuously monitor the assets to ensure that the desire levels are
being maintained. Since the amount of money invested in current assets can change
rapidly. So does the financing required. Mis management of current assets can be
costly. Too large an investment in current means tying up funds that can be
productively used else where (or it means added interest cost if the firm has
borrowed funds to finance the investment in current assets). Excess investment
may also expose the firm to undue risk eg. In case, the inventory cannot be sold or
the receivable cannot be collected.
On the other hand, too little investment also can be expensive for ex:insufficient inventory may mean that sales are lost as the goods which a customer
wants are not available. The results is that financial managers spend a large chunk
of their time managing the current assets because level of these assets changes
quickly and a lack of attention paid to them may result in appreciably lower profits
for firm. So, in the working capital management, a financial manager is faced with
a decisions involving some consideration as follows:
THE OPERTING CYCLE AND THE WORKING CAPITAL NEEDS:The working capital requirement of a firm depends, to a great extent up on
the operating cycle of the firm. The operating cycle may defined as the duration
from the procurement of goods or raw materials and ending with sales realization.
The length and nature of the operating cycle may differ from one firm to another
depending up or the size and nature of the firm.
TOCP-D
= ICP+RCP- DP.
OPERATING CYCLE
The duration of time required for completing the following sequencies of events
in case of manufacturing firm s called the operating cycle.
1. Conversion of cash into raw material.
2. Convertion of raw material into work in progress.
3. Conversion of work inprogress into finished goods.
4. Conversion of finished goods into debtors & bills receivable through sale.
5. Conversion of debtors & bills receivable into cash.
CASH
ACCOUNTS
RECIEVABLE
FINISHED GOODS
RAW MATERIAL
WORK IN
PROGRESS
The duration of the operating cycle for the purpose of estimating working capital
requirement is equalant to the sum of duration of each of these tables less the credit
period allowed by the suppliers of the firm.
working capital indicates the adequacy of the cash flow. Which is an essential prerequisite of a business.
7. NEGATIVE WORKING capital:
Numbers working capital emerges when current liabilities exceed current
assets. Such a situation is not absolutely theoretical, and occurs when a firm is
nearing a crisis of some magnitude.
49 DETERMINANTS OF WORKING CAPITAL:Numbers of rules are formulated to determine the working capital
requirement of the firm. a large number of factors influence the working capital
needs of the firm. All these factors have different importance, also the importance
of the factor change for a firm over time. Therefore analysis of the relevant factor
should be made in order to determine the total investment in working capital
requirements of the firm.
NATURE OF BUSINESS:The working capital requirement of a firm is closing related to the nature
of its business. A service firm like an electricity. A service firm like an electricity
undertaking of a transport corporation, which has short operating cycle and sells on
cash basis, has modest working capital requirement. On the other hand
manufacturing concern like machine tools units which has long operating cycle and
which sells largely on credit had varied substantial working capital management.
SEASONALITY OF OPERATION:Firms which have market seasonally in their operation usually have highly
function working capital requirement. For a sugar industry the raw material i.e.,
sugar cane is available in particular season only. So sugar industry mainly depends
upon seasonality of operations.
PRODUCTION POLICY
A firm marked by pronounced seasonal fluctuations in its sales many pursue a
production policy which many reduce the shape variation is working capital
requirement.
MARKETING CONDITIONS:
In view of competitive conditions prevailing in the firm may have to offer
liberal credit terms, to customs resulting in higher debtors, even large inventories
many be maintain to serve an order as and when received. Thus the working capital
tends to be high as a result of investors in inventions & receivable.
BUSINESS CYCLE FLUCTUATIONS:Different phases of business cycle i.e boom, recession, recovery etc,
also effect working capital requirement. In case of born conditions inflationary
pressure appear and business activities expand. As a result the overall need for cash
, inventories etc., increase resulting more and more funds blocked in these current
assets. In case of recession period. How ever, there is usually dullness in business
activities and there will be opposite effect on the level of working capital.
CREDIT POLICY:The credit policy means the totality of terms and conditions on which goods
are sold and purchased. At firm has interact with 2 types of credit policies at a time
one, the credit policy of the supplier of raw material, goods etc, and two the credit
policy relating to credit which it octends to its customer. In both the cases, however
,the firm while deciding its credit policy has to take care of credit policy of the
market for example affirm might be purchasing goods and services on credit but
selling foods only for cash the working capital requirement of this firm will be
lower than that of a firm which is purchasing cash, but has to sell on credit basis.
CONDITIONS OF SUPPLY:If the supply is prompt and adequate the firm can manage with small
inventory, if the supply is unpredicted and service then the firm has to ensure
continuity of production.
WORKING CAPITAL POLICY:Two important issue in formulation the working capital policy are:
1. What should be the ratio of current assets to sales.
2. What should be the ratio of short term financing to long-term financing.
CURRENT ASSETS IN RELATION TO SALES:
It usually does the investment in current assets cannot be specified
unequally. In sales of uncertainty the outlook on current assets would consist of
base component meant to meet normal requirement and safety component mean to
copy with unusual demands and requirements. The safety assets policy of the firm .
1. If the firm pursues a very conservation current assets policy is should carry a
high level of current assets in relation to sales.
2. If the adopts a moderate current assets policy it would carry a moderate level
of current assets in relation to assets.
3. If the term follows highly aggressive current assets policy. It would carry a
low level of current assets in relation of sales.
A conservative current assets policy trends to reduce risk. The surplus current
assets under the policy enable firm to copy rather easily with variations in sales.
CONSERVATIVE:
A conservative overall working capital policy means that the firm chooses
conservative current assets policy along with conservative current assets financing
policy.
MODERATE:
Where the commitments are certain but cash flows are not clearly
predictable, it would wise to cut down drastically the number and extent of short
term debts to manageable levels and prefer longer maturity schedules for debts.
Short term debts can take care of the seasonal needs of the organization even
here to take care of vagaries in cash flow, a past of the funds required may be
obtained from sources with longer maturity schedules of the debts. Thus usually
permanent and long-term finance is used to finance the permanent requirements or
fixed assets and the net permanent current assets and a apart of the reasonable short
term needs.
The important sources of finance which more or less exclusively support
current assets are:
1.
2.
3.
4.
5.
6.
7.
Trade credit
Working capital advances by commercial bank.
Public corporate deposits
Inter corporate deposits
Short term loans from financial institutions .
Rights debentures for working capital.
Emerging sources commercial paper and factoring.
Of all the above the most significant sources of working capital finance are
trade credit and bank borrowings, after trade credit bank borrowing are the next
important sources of financing working capital requirements of firms in India.
Tanton committee has suggested guidelines for the ratio allocation and optimum
use of the bank credit for the working capital requirement.
TANDON COMMITTEE RECOMMENTIONS:1. The borrowers should indicate the likely demand for credit. For this purpose,
he should draw operating plans for the ensuring year and supply them
bankers. This procedure will facilitate credit planning at the bankers credit
needs in a realistic manner and the periodic follow up during the ensuring
year
2. The bankers should finance only the genuine production needs of the
borrower. The borrower should maintain the reasonable levels of the investor
and receivable. He should hold just enough to carry on his targets
production. Efficient management of resources should, therefore, be
ensured to eliminate slow moving and flabby inventories.
CHORE COMMITTEE RECOMMENDATIONS:1. Borrowers should submit quarterly projection of cash credit banks.
2. The banks while assessing the credit requirements from borrowers should fix
separate limits where as feasible.
3. As far as possible the borrowers should be discouraged for approaching the
bank frequently limitation in excess of sanction limits.
4. Suitable provision should be made for charging of pena rate of interest in
even of any defaults in the timely repayment of working capital loan.
CHANGES IN WORKING CAPITAL:The working capital of a concern is subject to changes due to several
reasons. As we know that the gross working capital is equal to current assets. But
net working capital we mean the excess of current assets over current liabilities.
The net working capital is therefore, affected by the following transactions.
1. Which increase the current but not the current liabilities.
2. Which decrease the current assets and current liabilities both increase in the
same direction by a transaction it does not bring any change in the net
working capital of the concern. Only the total of current assets and current
liabilities increase and decrease.
REASONS FOR CHANGES IN WORKING CAPITAL:1. Changes in the level of sales and\ or operating expenses.
2. Policy changes.
3. Changes in the technology.
STATEMENT OF CHANGES IN WORKING CAPITAL:Until now any increase decrease in any individual item of current assets
and current liabilities was shown in the funds flow statement. But now a statement
is prepared to deficit the changes in working capital. The net increase or decrease
is then carried forward to the funds flow statement.
The statement of working capital is prepared with the help of current assets
and current liabilities of the two periods the figures of 2 periods are compared. If
there is an increase in the amount of any current liabilities in the current year in
comparison to that in that in the previous year, it will result to an increase in the
working capital. Similarly, a decrease in the amount of any current assets or an
increase in amount of current liabilities in the current year in comparison to that in
the previous year and total decrease in the end is compared and the different of
total increase and total decrease shows net increase or decrease in the working
capital.
Net increase in working capital is an application of funds and net decrease
in working capital in the source of funds. A form of statement is shown below.
CHAPTER-4
ANALYSIS AND INTERPRETATION.
RATIO ANALYSIS.
2013-14
PARTICULARS
CURRENT ASSETS,
LOANS AND ADVANCES
2013-14
PERCENTAGE
Inventory
623.39
42.51
Sundry Debtors
52829
36.02
105.58
7.19
5837
3.38
150.77
10.30
1466.40
100.00
Current liabilities
411.21
87.06
Provision
61.90
12.94
472.03
994.10
100.00
CURRENT LIABILITIES
&PROVISION
2010-11
PERCENTAGE
CURRENT ASSETS,
LOANS AND ADVANCES
Inventory
706.99
46.14
Sundry Debtors
543.83
35.44
154.90
10.12
54.77
3.54
71.63
4.67
1532.14
100.00
Current liabilities
423.43
82.68
Provision
88.65
17.32
512.08
100.00
1020.06
2011-012
PERCENTAGE
CURRENT ASSETS,
LOANS AND ADVANCE
Inventory
991.05
Sundry Debtors
630.62
217.39
10.89
90.43
4.53
65.32
3.27
1994.81
100.00
Current liabilities
534.43
77.52
Provision
154.94
22.47
689.37
100.00
49.68
31.61
CURRENT LIABILITIES
&PROVISION
1305.44
2012-013
PERCENTAGE
CURRENT ASSETS,
LOANS AND ADVANCES
Inventory
1411.41
59.06
Sundry Debtors
521.80
105.58
12.05
104.65
4.37
63.62
2.66
2389.59
100.00
Current liabilities
661.73
75.34
Provision
216.50
24.65
878.23
100.00
21.83
1511.36
2013-14
PERCENTAGE
CURRENT ASSETS,
LOANS AND ADVANCES
Inventory
1164.56
Sundry Debtors
482.37
162.31
8.14
91.93
4.60
93.23
58.40
24.18
4.68
1994.4
100.00
567.43
83.73
PARTICULERS
BALANCE
CHANGES IN
WORKING CAPITAL
INCREAS DECREASE
E
2009
2010
658.25
623.39
--
34.85
709.36
528.29
--
181.06
147.95
105.87
--
42.08
26.30
58.37
226.37
150.77
1768.25
1466.71
515.25
411.21
12.00
61.09
527.25
472.31
1241.00
CURRENT ASSETS
inventories
Sundry Debtors
Cash & Bank Balance
Other current assets
Loans and advances
TOTAL (A)
32.06
--
-75.59
CURRENT
LIABILITIES
104.04
--
Current liabilities
Provision
TOTAL (B)
---
49.09
--
994.40
--
--
246.60
246.60
--
1241.00
382.70
Working capital
(A-B)
Increasing in
working capital
TOTAL
-1241.00
382.70
BALANCE
CHANGES IN
WORKING CAPITAL
INCREAS DECREASE
E
2010
2011
623.39
706.99
83.60
--
528.29
543.83
15.53
--
105.87
154.90
49.03
--
58.37
54.77
150.77
71.63
1466.71
1532.14
411.21
423.23
--
12.21
61.09
88.65
---
27.55
--
472.31
512.08
994.40
1020.05
--
--
25.65
--
--
25.65
CURRENT ASSETS
inventories
Sundry Debtors
Cash & Bank Balance
Other current assets
Loans and advances
TOTAL (A)
---
3.59
79.14
CURRENT
LIABILITIES
Current liabilities
Provision
TOTAL (B)
Working capital
(A-B)
Increasing in
working capital
TOTAL
1020.05
102.05
148.16
148.16
BALANCE
CHANGES IN
WORKING CAPITAL
INCREAS DECREASE
E
2011
2012
706.99
901.05
284.06
--
543.83
630.62
86.79
--
154.90
217.39
62.48
--
54.77
90.43
71.63
65.32
1532.14
1994.82
423.43
575.62
--
152.19
88.65
154.94
---
66.29
--
512.08
730.57
CURRENT ASSETS
inventories
Sundry Debtors
Cash & Bank Balance
Other current assets
Loans and advances
TOTAL (A)
35.66
--
-6.31
CURRENT
LIABILITIES
Current liabilities
provision
TOTAL (B)
Working capital
(A-B)
Increasing in
working capital
TOTAL
1020.05
1264.25
244.19
--
1264.25
1264.25.00
--
--
--
244.19
468.99
468.99
BALANCE
CHANGES IN
WORKING CAPITAL
INCREAS DECREASE
E
2012
2013
991.05
1411.41
420.36
--
630.62
521.80
--
108.82
217.39
288.11
70.72
90.43
104.65
65.32
65.32
1994.82
2389.59
575.62
661.73
--
86.11
154.94
216.50
---
61.56
--
CURRENT ASSETS
inventories
Sundry Debtors
Cash & Bank Balance
Other current assets
Loans and advances
TOTAL (A)
14.22
--
--1.7
CURRENT
LIABILITIES
Current liabilities
Provision
TOTAL (B)
730.57
878.23
1264.25
1511.36
Working capital
(A-B)
Increasing in
working capital
TOTAL
247.11
1511.36
--
--
--
247.11
-1511.36
505.30
505.30
BALANCE
CHANGES IN
WORKING CAPITAL
INCREAS DECREASE
E
2013
2014
1411.41
1164.54
--
246.85
521.80
482.38
--
39.42
288.12
162.32
--
104.65
91.94
CURRENT ASSETS
inventories
Sundry Debtors
Cash & Bank Balance
Other current assets
63.62
93.23
2389.61
1994.44
-29.61
125.80
12.71
--
CURRENT
LIABILITIES
661.73
567.44
216.51
110.30
878.24
677.74
1511.37
94.29
--
Current liabilities
Provision
TOTAL (B)
106.21
--
---
1316.70
--
--
194.67
194.67
--
Working capital
(A-B)
Increasing in
working capital
TOTAL
-1511.37
1511.37
424.78
424.78
INTERPRETATION
Sudha agro chemical industries pvt ltd has a current ratio in the year
2010-11 it was 3.11 and in the year 2011-12it was 2.99 after 2012-13 it was
decreasing trend but in the year 2013-14 the ratio is 2.94 which is above the
standard ratio .
The company in the years of 2010-11 and 2011-12 as 1.61 ,
where as in the year of 2012-13 ,it was in decreased to 1.37 and in the year 201314 it was decreased. At last the companies overall liquidity position is not in
good
The absolute liquidity ratio of the company was not upto the mark during
all the years. From the year 2010-11,it shows an increasing trendup to next year .
In the year 2012-13 is same . During the year 2012-13 it was declined that means
it has never reached the standard of 0.5 . Thesituation is due to very small
balance of cash maintain by the firm for itsworking capital requirements. In the
year 2013-14 the firm shows an
increasing trend .
For the company efficiency is decreasing .In the year 2010-12 it is 7.29,
which is highest recorded . After that it went on decreasing to lowest of 1.64 in
2010-12. It shows that there is no proper control over 72the inventory by the
management
The company showed a holding period return of nearly 37 days in
the year 2013-14which is very better compare to other years .Then it is gradually
increased to 98days in 2013-14which means liquidity of inventory is not better.
The above statement showing about the details of stock at the
opening of the year and at the closing .in the year of 2011-12 there is decrease in
the stock at the end of the year .
RATIO ANALYSIS
Several ratios calculated from the accounting date, can be grouped into
various classes according to financial activity or function to be evaluated. As
stated earlier, the parties interested in financial analysis are short and short and
long-term creditors, owners and management.
Short-term creditors main interest is in liquidity position or the
short-term solvency of the firm. Long-term creditors, on the other hand, and more
interested in the long-term solvency and profitability of the firm. Similarly, owners
concentrate on the firms profitability and financial conditions. Management is
interested on in evaluating every aspect of the firms performance. They have to
protect the interests of all parties and see that the firm grows profitably. In view of
the requirements of the various users of ratio, we may classify them into the
following four important categories.
TYPES OF RATIO: Liquidity ratios
Leverage ratios
Activity ratios
Profitability ratios
Liquidity ratio:The liquidity refers to the maintenance of cash, bank balance and those assets,
which are easily convertible into cash in order to meet the liabilities as and when
arising. So, the ratios study the firms short-term solvency and its ability to pay off
the liabilities.
Current ratio:Current ratio is the ratio of current and current liabilities. Current assets
are assets which can be converted into cash within one year and include cash in
hand and at bank, bills receivable, net sundry debtors, stock of raw materials,
finished goods and work in progress, prepaid expenses, outstanding and occurred
incomes, and short term or temporary investments. Current liabilities are liabilities,
which are to be repaid with in a period of 1 year and include bills payable, sundry
creditors, bank over drafts, and outstanding expenses, Income received in
advanced, proposed dividend, provision for taxation, unclaimed dividends and
short term loans and advances repayable within 1 year
Current assets
Current Ratio=
-----------------------------------------------
Current liabilities
A current ratio 2:1 is considered as ideal: if a business has an undertaking
with its bankers to meet its working capital requirements short notices, a current
ratio of is adequate.
2) quick Ratio:Quick assets
Quick ratio =
-------------------------------------------------Quick liabilities
------------------------------------------------Current liabilities
a) Leverage ratios:
leverage ratio indicate the relative interest of owners and creditors in a
business. It shows the proportions of debt and equity in financing the firms assets
the long- term solvency of a firm can be examined by using leverage ratio. The
long-term creditors like debenture holders, financial institutions etc,. are more
concerned with firms long term financial strength.
There are two aspects of the long-term solvency of a firm
1) Ability to repay the principal when due, and
2) Regular payment of the interest they leverage ratio are calculated to measure
the financial rest and firms abilities of using debt.
I)
Total debt will include short and long-term borrowing from financial
institution debentures bonds. Capital employed will include total debt and net
worth.
The firm may be interested in knowing the proportion of the interest bearing
debt in the capital structure by calculating total debt ratio. A highly debt burdened
firm difficulty in raising funds from creditors and owners in future. Creditors treat
the owners equities as a margin of safety.
Total Debt
Total Ratio =
---------------------------------------------Capital Employed
3) DEBT -EQUITY RATIO:It reflects the relative claims of creditors and shareholders against the assets
of the business. Debt, usually, refers to long-term liabilities. Equity include
preference share capital and reserves.
The relationship describing the lenders contribution for each refers of the
owners contribution is called debt equity ratio.
A high ratio shows a large share of financing by the creditors relative to the
owners and therefore, large claim against the assets of the firm.
A low ratio implies a smaller claim of creditors. The equity indicates the
margin of satisfy to the creditors so, there is no doubt the Beth high and low debt
equity ratios are not desirable. What is needed is a ratio, which strikes a proper
balance between debt and equity.
Total Debt
Debt-Equity
= ------------------------------------Net worth
Some financial experts opine that debt should indicate current liabilities
also. However, this is not a popular practice. In case of preference share capital, it
is treated as a part of shareholders funds, but if the preference shares are
redeemable, they are taken as a part of long-term debt shareholder funds are also
known as proprietor funds and it indicates items equity share capital, reserve, and
surplus. A debt equity ratio of 3:1 is considered ideal.
1. PROPRIETORY RATIO:It expresses the relation between net worth and total assets.
Net worth
Property ratio=
---------------------------------------Total assets
iii) ACTIVITY RATIOS:Activity assets turnover ratio, measures the efficiency of a firm in
managing and utilizing its assets. The higher the turnover ratio, the more efficiency
the management and utilization of the assets while low turnover ratio is indicate of
under- utilization of available resources and presence idle capacity. The total assets
turnover ratio is computed by dividing sales by total assets.
Sales
78 Total assets turnover ratio = ------------------------------------Total assets
2) WORKING CAPITAL TURNOVER RATIOS:Cost of goods sold
Working capital turnover ratio = ------------------------------------Working capital
Where if cost of goods sold is known. Net sales can be taken in the
numerator.
Working capital = current assets current liabilities.
A high working capital turnover ratio indicates efficiency utilization of the
firms funds. However, it should not result in over trading.
3) DEBTORS TURNOVER RATIO :Debtors turnover ratio expresses the relationship between debtors and
sales. It is calculated.
Net credit sales
Debtors turnover ratio = ------------------------------------Average debtors
Net credit sales inspire credit sales after adjusting for sales returns. In case
information no credit sale is not available. sales can be taken in the numerator.
Debtors include bills receivable. Debtors should be taken at gross value, without
adjusting provisions for bad debts. In case, average debtors be found; closing
balance of debtors should be taken in the denominator. A high debtors turn over
ratio or a low debt collection period is indicative of a sound credit management
policy. A debtors turnover collection period of 30-36 days is considered ideal.
1.
---------------------------------------------
Average creditors
Net credit purchase imply credit purchase after adjusting for purchases
returns. In case information on credit purchase is not available purchase may be
taken in the numerator. Creditors include bills payable. In case avenue creditors
cant be found, closing balance of creditors should be taken in the denominator.
The creditors turnover ratio is 12 or more. However, very less creditors
turnover ratio, or a high debt payment period, may indicate the firms inability in
meeting its obligation in time.
3 .PAYMENT PERIOD RATIO:Creditors turnover rate can also be expressed in terms of number of days
by the business to pay off its debts. It is termed as debt payment period which is
calculated as:Number of days in a year
Payment period ratio = -------------------------------------------Creditors turnover ratio
Fixed assets imply net fixed assets i.e. after depreciation. A high fixed assets
turnover ratio indicates better utilization of the firms fixed assets. A ratio around 5
is considered ideal.
4. INVENTORY TURNOVER RATIO:Stock turnover ratio indicates the number of times the stock has turned over
into sale sin the year. It is calculated.
Cost of goods sold
Inventory turnover ratio = ------------------------------------------Average inventory
Cost of goods sold = sales gross profit
Average stock = (opening stock and closing stock 1\2)
In case, information regarding cost goods sold is not known. Sales may be
taken in the numerator. Similarly, if average stock cant be calculated, closing
stock should be taken in the denominator.
A stock turnover ratio of 8 is considered ideal. A high stock turnover ratio
indicates that the stocks are fast moving and get converted into sales quickly.
However, it may also be on account of holding low amount of stocks and
replenishing stocks in larger number of installments.
Iv) PROFITABILITY RATIO:It measure the overall performance and effective of the firm. Poor
operational performance may indicate poor sales and hence poor profits. A lower
profitability may arise due to the lack of control over the expenses. Bankers,
financial institutions and other creditors look at the profitabilitys. ratio as an
indicator whether or not the firm earns substantially more than it pays interest for
the use of borrowed funds and weather the ultimate repayment of their debt appear
reasonably certain owner are interest to know the profitability as it indicates the
return which they can get on this instruments.
3.RETURN ON NET WORTH RATIO :It indicates the return, which the shareholders are earning on their resources
invested in the business.
Profit after tax
Return on net worth ratio = -----------------------------------------Net worth
Net worth = share holders funds = equity share capital + preference share
capital + Reserves factious assets.
The higher the ratio, the better it is for the share holders. However, inter
firm comparisons should be made to ascertain if the returns from the company are
adequate. A trend analysis of the ratio over the past few years much is done to find
out the growth or deterioration in the profitability of the business.
3) EARNINGS PER SHARE RATIO:Earnings per share are the net profit after tax and preferences dividend,
which is earned on the capital representative of one equity share. It calculated as :Profit after tax available to equity holders
Earnings per share ratio = ----------------------------------------------------------------Number of ordinary share
ADVANTAGE OF RATIOS
Ratio analysis is very useful for ranking management decisions and also
highlights the performance in the area of profitability financial stability and
operational efficiency.
The ratio analysis is widely used of technique to evaluate the financial position and
performance of business. But there are certain problems in using ratios.
The analyst should be aware of these problems the following are some of the
limitations of ratio analysis.
LIQUIDITY RATIO
A)Current ratio
Current ratio=
Current assets
Current liabilities
Year
Current assets
2013-14
1468
472.31
3.11
2010-11
1533
512.08
2.99
2011-12
1995
730.57
2.73
2012-13
2390
878.23
2.72
2013-14
1994.4
677.73
2.94
Interpretation
B) quick Ratio:
Quick Ratio =
quick Assets
Current liabilities
year
Quick assets
2013-14
844.61
472.31
1.79
2010-11
826.01
512.8
1.61
2011-12
1003.95
730.57
1.37
2012-13
978.59
878.23
1.11
2013-14
829.84
677.73
1.22
INTERPRETATION
This ratio establishes relation between the quick assets ¤t liabilities.
As assets is liquid if it can be converted into cash immediately or reasonably soon
without loss of value .the accepted standard is 1:1
The quick ratio of sudha agro chemical ltd was favorable in the years of
2013-14 and 2010-11 as 1.79 and 1.61 ,where as in the years of 2007-06 ,it was in
decreased to 1.37 and in the year of 2012-13,it was decreased .At last the
companys overall liquidity position is not in good
cash
Current liabilities
year
cash
current liability
Ratio
2009-10
105.58
472.31
0.22
2010-11
154.90
512.8
0.30
2011-12
217.39
730.57
0.30
2012-13
105.58
878.23
0.12
2013-14
162.31
677.73
0.24
INTREPRETATION:
The ratio establish the relation between cash and current liabilities. Cash
is the most or absolute liquid asset for any firm. The accepted standard ratio
The absolute liquidity ratio of sudha agro chemical ltd was not up to the
mark during all the years 2013-14, it shows an increasing trend up to next year.
In the year of 2011-12 is same. During the year of 2012-13 it was declined that
means it has never reached the standard of 0.5.The situation is due to very small
balance of cash maintain by the firm for its working capital requirements. In the
year 2013-14 the firm shows an increasing trend.
Average stock
Ratio
2013-14
Cost of goods
sold
2939
547.74
5.36
2010-11
3955.18
556
7.11
2011-12
5207.7
704
7.39
2012-13
7034.89
1023.21
6.88
2013-14
1812.89
1101.72
1.64
INTERPRETATION:
The ratio indicates the efficiency of the firm in selling its product it is
calculated by dividing the cost of goods sold with average inventory.
For sudha agro chemicals limited ,the efficiency is decreasing .in the year of
2011-12.it is 7.39 ,which is highest recorded. After that it went on decreasing to
lowest of 1.64 in 2013-14. It shows that is no proper control over the inventory by
the management
Holding period =
Year
365
ITR
Inventory
turnover ratio
Holding period
return
2009-10
Number of days
in Number of
days in year
365
5.36
68.09
2010-11
365
7.11
51.33
2011-12
365
7.39
49.39
2012-13
365
6.88
53.05
2013-14
365
1.31
222.56
INTERPRETATION:
The ratio indicates the speed with which the stock or inventory gets
converted in to cash i.e., sales the lower the period , the better liquidity of the
inventory.
Sudha agro chemicals limited showed a holding period return of nearly
Sudha agro chemicals limited showed a holding period return of nearly 37 days in
the year of 2013-14 , which is very better compare to other years then it is
gradually increased to 98days in 2013-14 which means the liquidity of inventory
is not better.
year
Opening stock
Closing stock
Increase/decrease
2013-14
623.39
707
83.61
2010-11
707
991.05
284.06
2011-12
991.05
141141
420.35
2012-13
1411.41
1164.56
246.85
2013-14
1164.56
1316.70
152.13
Increase/decrease
450
400
350
300
Increase/decrease
250
200
150
100
50
0
2005-06
2006-07
2007-08
2008-09
2009-10
INTREPRETATION:
The above statement showing about the details of stock at the opening of the
year at the closing .in the year of 2013-14 there is decrease in the end of the of the
year.
3.RECEIVABLE MANAGEMENT .
sales
Average debtor
Year
sales
ratio
5214.83
Average
debtors
271.91
2013-14
2010-11
3680.32
264.14
19.17
2011-12
6553.88
315.31
20.78
2012-13
8746.55
260.90
33.52
2013-14
6497.69
241.18
26.94
13.93
ratio
40
35
30
25
ratio
20
15
10
5
0
2005-06
2006-07
2007-08
2008-09
2009-10
INTREPRATATION:
Book debts are expected to be converted in to cash over a short period and
therefore are included in current assets .the liquidity position of the firm depends
on the quality of a great extent.
The ratio indicated the number of items on an average that the turn over
takes place each year .generally the ratio the more efficient is the management of
credit .
Sudha agro limited ,maintain a good ratio of 33.52 in the year 2012-13 it
was decreased to 13.93 in the year of 2013-14 ,which not good compared to all the
previous years.
ACP =
365
Debtor turnover ratio
Year
No. of days
Dtr
period
2013-14
365
13.91
26.25
2010-11
365
19.17
19.04
2011-12
365
20.78
17.56
2012-13
365
33.52
10.88
2013-14
365
26.94
13.54
period
30
25
20
period
15
10
5
0
2005-06
2006-07
2007-08
2008-09
2009-10
INTREPRETATION:
The ratio indicates the period in which debt can be recovered. From the
above table in the year 2013-14are 26.25 which is good, where it was decreased in
the year 2012-13 ,which is not good.
CHAPTER-5
o FINDINGS & SUGGESSIONS
o REFERECE & BIBLIOGRAPHY
FINDINGS
With reference to the working capital study of SUDHA AGRO OIL AND
CHEMICALS quantity of working capital is contributed by short source of
finance
In this gross working capital of the firm, a major part is occupied by
inventory and sundry debtors.
The current ratio is maintained by the company is 2:1; the company exceed
minimum current ratio at all the years statement.
The quick asset ratio minimally maintained by the company are 1:1 , the
company was satisfy this position up to 2010.
The absolute liquid ratio is not satisfied position fluctuations are take place it
is high and some at the years 2007 to 2008.
Inventory turn ratio is well in satisfied position it is high at 2011-12. It is
very poor at the current year of the study that is 1.64.
In the debtor turn over ratio is also at well satisfied position it is highly
obtain at the year of 2012-13. The current position is less than that of
previous year that is 26.94.
Average collection period high is at the 2006 and is poor at 2009.
In order to achieve to the goals of the organization as whole and
achievement of performance appraisal technique is very useful .
The company has been maintaining sufficient amount of working capital in
all the years
SUGGESTIONS
CONCLUSION