Introduction

Capital is just like a blood in the human body because capital is significant in

financial management due to the fact that it plays a vital role in keeping the wheel of the

business running. Every business requires capital, without which it can not be promoted.

The capital is required for fixed capital and working capital. Fixed capital required for

establishment of a business, where as working capital required for day-to-day operations

of a business.

Working capital plays a key role in a business enterprise just as the role of heart in

human body. Working capital acts as grease to run the wheels of fixed assets. Its effective

provision can ensure the success of a business while its inefficient management can lead

not only to loss but also to the ultimate downfall of funds. Working capital relates in other

words, efficiency of a business enterprise depends largely and its ability to manage its

working capital.

Meaning

Working capital is refers to short-term funds to meet operating expenses. It refers to

the funds, which a company must possess to finance its day-to-day operations of the

business. It is concerned with the management of the firm’s current assets and current

liabilities. It relates with the problems that arise in attempting to manage the current

assets, current liabilities and their inter-relationship that exists between them. If a firm can

not maintain a satisfactory level of working capital, it is likely to become insolvent and may

even be forced into bankruptcy.

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DEFINITIONS

1. “Financial management is concerned with the efficient use of important

economic sources namely “capital funds”.

- Soloman

2. “Financial management is the application of the planning and control functions

to the finance function”.

- Howard and Upton

Concept of working capital

The concept of working capital has been a matter of great controversy, among the

financial wizards and they view it differently. Working capital can be classified in to

broadly two concepts of working capital commonly found in the existing literature of

finance, such as:

• Gross working capital (quantitative concept)

• Net working capital (qualitative concept)

Both of these concepts of working capital have operational significance.

These two concepts are not to be regarded as mutually exclusive. Each has its relevance

in specific situations from the management point of view.

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Gross working capital concept

According to the gross working capital concept, the total current assets are termed

as the gross working capital or circulating capital or operating the capital as rotate

continuously as long as the firm exists. A total current asset includes cash, marketable

securities, accounts receivables, inventory, prepaid expenses, advance payments etc.

This concept also called as quantitative or broader approach. Gross working capital

refers to firm’s investments in the short-term assets such as cash, short-term securities,

accounts receivables and inventory.

1. Optimum investment in current assets

Investment in current assets must be just adequate to the needs of the firm. In

other words, current assets investment should not be inadequate or excessive.

Inadequate working capital can disturb production and can also threaten the solvency of

the firm, if it fails to meet its current obligations.

2.Financing of current assets

Need for working capital arise due to the increasing level of business activity.

Therefore, there is a need to provide or arrange it quickly. Some times surplus funds may

arise as invested into short-term securities. They should not be kept as idle.

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Net working capital concept

As per this net working capital concept, the excess of current assets over current

liabilities represents net working capital. Net working capital concept represents the

amount of the current assets, which would remain after all the current liabilities were paid.

It may be either positive or negative. It will be positive, if current assets exceed the current

liabilities and negative, if the current liabilities are in excess of current assets.

A net working capital concept indicates or measures the liquidity and also suggests

the extent to which working capital needs may be financed by the payment source of

funds.

1) Maintaining liquidity position

For maintaining liquidity position there is a need to maintain current assets helps in

meeting its financial obligation with in the operation cycle of the firm.

2) To decide upon the extent of long-term capital in financing current assets

Net working capital (NWC) means the portion current assets that should be

financed long-term funds. This concept helps to decide the extent of long-term funds

required in finance current assets.

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 Kinds of working capital

The categorizing of working capital can be made either based on its concept or the

need to maintain current assets either permanently or temporarily.

Table-1.1

Kinds of working capital

Concept base Time base

Gross Net Permanent or Temporary

working working regular or variable
capital or capital or working working
quantitative qualitative capital capital

Permanent working capital

Permanent working capital is the minimum investment kept in the form of inventory

of raw-materials, working progress, finished goods, stores & spares, and book debts to

facilitate uninterrupted operation in a firm. The minimum level of current assets

maintained in a firm is usually known as permanent or regular working capital.

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Temporary working capital

A firm is requires to maintain an additional current assets temporarily over and

above permanent working capital to satisfy cyclical demands. Any additional working

capital required to support the changing production and sales activities is referred to as

temporary or variable working capital. The difference between permanent and temporary

working capital can be shown graphically as bellow.

Components of working capital

Efficient management of working capital involves control over the current assets

and current liabilities, which are the main components of working capital.

a) Components of current assets

Current assets ate those assets that in the ordinary course of business can

be turned in to cash with in an accounting period, without under going diminution in value

and without disruption the operations.

b) Components of current liabilities

Current liabilities are those liabilities intended to be paid in the ordinary course of

business with in a reasonable period (normally with in a year) out of the current assets or

revenue of the business. The current liabilities consists of sundry creditors, loans and

advances, bank-over draft, short-term borrowings, taxes and posed dividend.

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Importance of working capital

Working capital is considered as central nervous system of a firm. The importance

of working capital management is reflected in the fact that financial managers spend most

of their time in managing current assets and current liabilities. Adequate working capital

needs to be maintained in order to discharge day-to-day liabilities and protect the

business from adverse effects in times of calamities and emergencies. It aims to

protecting the purchasing power of assets and maximize the return on investment.

Need for working capital

The need for working capital in a business under taking can not be over

emphasized. The objective of financial decision making is to maximize the share holder’s

wealth. To achieve this, it is necessary to generate sufficient profits of the sales among

their things. There is invariability a time lag between the sales of goods and the receipts of

cash. A need for in the form of current assets to deal with the problem arising out the lack

of immediate realization of cash against goods sold. Sufficient working capital will

necessary to sustain sales activity.

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Objectives of working capital

The objectives of working capital management could be stated as,

1. To ensure optimum investment in current assets.

2. To strike a balance between the twin objectives of liquidity and profitability

in the use of funds.

3. To ensue adequate flow of funds for current operations.

4. To speed up the flow of funds or to minimize the stagnation of funds.

Factors influencing working capital

The total working capital requirement bare determined by a variety of factors. The

factors which determine the quantum of working capital in the business undertaking as

follows:

1. General nature of the business companies which sell a service and that too for

immediate cash, require little working capital. But a manufacturing firm which produce a

product and sell on credit basis, working capital required with high.

2. Production cycle if the production process is lengthy working capital needs with high.

3. Speed of operations cycle, if the speed of operational cycle is slow working capital

needs high.

4. Credit terms if the company purchases raw-materials on credit basis and sills finished

goods on cash base, working capital requirement will be low.

5. Growth and expansion is firm’s larger growth prospects demand grater working capital.

6. Dividend policy is firm’s pursuing liberal dividend policy requires more working capital.

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Working capital cycle

Maximization of share holder’s wealth of a firm is possible only when there ate

sufficient returns for their operations. But profits can be earned will naturally depend upon

the magnitude of the sales. In other words, successful sales activity is necessary for

earning profits. Sales do not convert in to cash immediately. There is invisible time

between sale of goods and receipt of cash. In other words, sufficient working capital is

necessary to sustain sales activity.

The operating of working capital cycle concept penetrates to the heart of working

capital management in a more dynamic form. The time elapses to convert raw-materials

in to cash is known as working capital operating cycles. In other words the time that

elapses between the purchase of raw-materials and collection of cash for sale is referred

to as the working capital operating cycle.

The working capital operating cycle involves the following procedure:

a) Conversion of into raw-materials.

b) Conversion of raw-materials into work-in-progress.

c) Conversion of work-in-progress into finished goods.

d) Conversion of finished goods into sales (debtors & cash).

e) Conversion of debtors into cash.

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 The working capital operating cycle normally confines to a year to year with

reference to which various affecting working capital are evaluated. Working capital cycle

is the period with in which either raw-material converts it self to cash or commences with

cash and ends with cash.

Raw-materials

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 The components of raw-materials in a working capital cycle assumes very

significant role. Generally more than 50% of the year turnovers are spent on raw-

materials. An undue accumulation of raw-materials tells upon the profitability due to costs

of its carrying.

The maintenances of optimum level of inventory or raw-materials maximizes with

low working capital requirement and shortage of raw-materials lead to distribution in

production, non-production of capacities of production and consequent adverse impact on

profitability (since larger generation from higher profitability directly leads to lesser cost on

working capital). There have been scientific methods established not only for procurement

but also for storing. Working capital cycle is the period with which either raw-materials

convert it self to cash or commence with cash and ends with cash necessities certain

would be controllable. There can be host of measure that could be taken for maintaining

minimum quantity in the form of finished goods.

Receivables

The sale of the products against cash would be an ideal situation to eliminate a
stage in the working capital cycle thus achieving the objectives of the requirements of the
working capital. The existence of numerous competitors in the area of the globalization
and liberalized economy, such sales on cash could only be next to impossible if the
growth of the organization in any aspiration.
In the complex market scenario one lead the other, in offering move value for
money to such major step. The encounters the organization with substantial blockage of
working capital. Indiscriminate extension or creditors in the name of the growth could
earns the entire profitability would keep the warranted to keep receivables at the optimum
level. There are two measures in this regard:
1. Laying down credit policy

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 The organization specifying applicability of general credit policy i.e., period of credit

extendable as a thumb rule would fall short of its effort in the controlling receivables. The

credit policy requires being more selective and should bear, the growth, recoverability, the

product strength, distribution network etc., in upper most mind. The variation in the credit

policy should also customer based as we would observe would be two sets of

organization, one is looking for a lower margin with high growth throw liberal credit policy,

the other one, higher margin with reasonable growth a conservative credit policy.

The credit policy should not lay-down to period of credit but also well throw out

procedures for extending credit in order to prevent or minimize the throw out procedures

for extending credit in order to prevent or minimize the debts going bad, a systematic

evaluation of customer’s creditability, financial strength and their usefulness to the

organization in terms of quantum of sale etc., would fetch desired results.

The credit policy should specify the level of management authorized to extend

general credit and instead of decentralized the power of extending any further

dispensation such decision could be taken by fairly senior personal, few in number.

Depending upon the market conditions the policy could also specify incentives for early

payment like cash discounts, so also interest on delayed payments.

2. Monitoring receivables

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 Monitoring receivables are important, if not more, as lay down a credit policy. It has

to be constant and continuous in order to bring down level of receivables to an optimum

level in conformity with the laid down credit policy of the organization. When we take off

monitoring receivables two reads in directors are remembered. The collection period and

the age of book debts.

a) Collection period

This collection period would be in terms of number of days average credit sales.

Such a calculation area-wise, marketing personnel wise at frequent intervals would

provide information for selective credit control. An application of incentives for faster

collection in selective areas also would render possible, the collection fester.

b) Age of book debts

The collection efforts could be intensified on greater of receivables from the point of

view of the number of the days it is out standing. Higher the number of days, the debts is

outstanding, the probably of it becoming doubtful of recovery is higher, earlier detection of

such outstanding from customers would facilitate taking hard decision of stoppage of

further sales in order to minimize bad debts. Collection of books debts just as per the

credit would enable he organization to achieve planned profitability.

Cash and its management

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 Cash is the starting point and the end point of a working capital. The management

necessary means, ways and means of maintaining as low level in growth each stage

possible, with to hampering the laid down objectives of the organization of growth and

profitability. While the efforts were only to reduce the conversation period at each stage

and to reach to the cash stage as early as possible. Cash management includes

efficiency of inventory management, work-in-process management, receivables

management etc., having deal with these.

Cash management as such of course, depends on the nature of the organization,

market condition for the deal with by the organization policy perused, other external

factors affecting.

The management of cash mainly should serve the following objectives

a) The cost of capital being a major completion in the determining of profitability,

the optimum level of its maintenance is so essential that any shortage even temporary

would disrupt the whole activity of the employee’s statutory authorities etc.

b) The inflow and out flow of cash should be nearly matched in order to enable

meeting of all its commitments on time at a minimum cast.

c) The cash should be available even at the time of an unexplained deviation in the

plan of production and sale.

Management of cash is an important as an the other component of working capital.

It involves, planning zero based budget, exercising economy in spending marketing short-

term and long-term forecasts.

1. Effective debt control system

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 While dealing with monitoring receivables the needs for reducing book debts and

also control books debts through ageing analysis. In addition, the system could build in

the following for accelerating debt collection even with in the over all credit policy of

organization.

a) Extending cash discounts for early payments by the customers.

b) Collection through demand drafts, places of cheques, particularly that from out

stations.

c) Opening up of as many collection bank accounts as required near to the sales point for quicker

realization.

2. Economy in distribution

Better management of cash could be achieving through exercise of economy

on disbursement. The following measures would be useful.

a) Collection bank accounts should be as may but the disbursement bank

accounts should be as possible.

b) Proper assessment of man power to restrict on labor.

c) Exploring possibilities of exercising economy in all major operating costs.

It would be desirable to invest such funds in really marketable securities like

treasure bills, certificates of deposits etc., so as to earn income even in the short run

convert these securities just when the cash is required.

Financing of working capital needs

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 Financing the working capital needs of a business enterprise is yet another key-

area where the financing manager can play an active role. The manager employs different

sources in financing of current assets.

1. Long-term financing

It consist equity and preference share, retained earnings, debentures and

borrowed funds from financial institutions.

2. Short-term financing

It includes short-term bank loans, commercial papers and factoring bills

receivables.

3. Spontaneous financing

It acts as an instantaneous source which is includes trade credit and accruals.

Every firm tries its best for the maximum use of the spontaneous source which are cost

free.

1. Statement of the problem

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 Working capital plays a key role in a business enterprise just as the role of heart in

human body. Working capital is acts as grease to run the wheel of fixed assets. Working

capital effective provision can ensure the success of a business while its inefficient

management can lead not only to loss but also to the ultimate downfall of business funds.

Working capital relates in other words, efficiency of a business enterprise depends largely

and it’s ability to manage its Working capital.

Working capital management is concerned with the problem that arises in attempting

to manage the current assets, the current liabilities and the inter-relationship that exists

between them. The term current assets refers to those assets which in the ordinary

course of business can be converted into cash with in one year without undergoing a

diminution in value and without disrupting the operations of the firm. Current liabilities are

those liabilities which are intended, at their inception, to be paid in the ordinary course of

business, with in a year, out of the assets or earnings of the concern. “The goal of

Working capital management is to manage the firm’s current assets and current liabilities

in such a way that a satisfactory level of Working capital is maintained”.

2.Need for the study

The management has to be constantly alert to the changes in the environmental

factors, as well as internal working of the organization. It is hoped that this kind of study

will be supporting help for the financial management of companies.

3. Objectives of the study

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 1. To analyze the changes in Working capital for the study period of SARITA

SUGARS LTD, PRABHAGIRI PATNAM.

2. To analyze the Working capital performance of the firm through ratio analysis.

3. To ensure adequate flow of funds for current operations of the business.

4. To ensure optimum investment in current assets.

5. To suggest possible solution for better management of Working capital are

SARITA SUGARS LTD, PRABHAGIRI PATNAM.

4. Methodology of the study

In carrying out the study both primary and secondary data collected in a phased

manner as follows.

Initially preliminary discussion with general manager, sales manager and accounts

officer was carried on.

The information about profit and loss reports.

• Some more information gathered from professors and lectures of out collage.

• The ratios are calculated by studying balance sheet and the necessary information

required for the study was being obtained from truthful interaction of the researched with

the employees (Finance dept.) of the organization.

• Some of the information gathering from the secondary data and some of finance

management books.

• The study period of project is 2003-04, 2004-05, 2005-06, 2006-07, 2007-08.

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5. Sources of data

Primary Data

Unstructured interviews with finance managers, executives and other

exports in other departments of the company

Secondary Data

Company and annual reports

Reference books and internet

Project report of the SARITA SUGARS LTD.

6. Limitations of study

1. 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 of information of exceptional transactions.

2. The balance sheet analyzed in the firm during the years 2003-04 to

2007-2008. So, it is difficult to analyze firm’s performance before 2003.

3. The information provide in the firm balance sheet is only the data

source available.

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3.1 INDUSTRY PROFILE

Sugarcane belongs to the genus SACHARAM. The word Sugar is derived from the

Sanskrit word SHARAKARA from which the word SACCHARAM seems to have been

derived indelicate the antiquity of knowledge of sugarcane in India. Sugar industry is the

second largest agro based industry in India next to textiles, producing an all time record of

400 lakh tones of direct plantation sugars as on 30 th April 2005.3 It has grown in about 102

countries in the world and India occupies the first rant from the point of area- followed by

Brazil and Cuba. Andhra Pradesh occupies the firth place with regard to cane area and

cane production in the country. There are around 493 sugar mills across the country with

an aggregate installed capacity of 16.2 million tones. These are sitting on a mountain of

inventory -10 months consumption of closing stocks, to be precise. A combination of factors

emanating primarily from unfavorable policies – some are there for long and some are

there for long and some others have come in recently has ensured that the industry ahs

lost the confidence of all the major stakeholders such as investors, banks, financial

institutions and farmers. This has led the industry from one crisis to another. The resultant

rush by mills, especially from the North and the West, to scuttle the sugar release

mechanism by moving the courts has sent not only prices but the industry as well hurtling

down –hill. The present cost structure is such that the mills could never be profitable

exporters. Not surprisingly, they are caught in a pincer like situation – caught between

mounting stocks and unviable operations. The most question is : how many will survive by

the time they see light at the end of the tunnel. A peep into the regulatory regime for the

industry will put its predicament in perspective. Sugar comes under the Essential

Commodities the installed capacity, the minimum support price for cane, the reservation of

20
cane area for mills and the control over price and movement to sugar as well its by product

molasses, have all triggered a situation totally out of sync with market realities. The duel

pricing policy pursued by the Government –where a fixed percentage of regulated

periodical releases is sold to the Government at a pre determined price for sale through

ration shops and the balance allowed for sale in the open market regularly – has only

meant that the industry’s hand are tied and it has to contend with for the Season 2000-2001

up to 30th April 2005 was 350 lakh tones, which is more than the last year’s production for

the same period.

 The proportion of levy sugar has been reduced from 12% to 10% effective from 1 st,

March, 2002. On sugar production achieved from the beginning of the season until 28th

February, 2002 the proportion of levy sugar would be 12% on production thereafter i.e.

beginning 1st March, 20023 the levy proportion would be reduced to 8%

 Consequent upon the recent increase in the ex- factory price levy sugar, the issue

price of levy sugar has been increased by Rs. 3 Ps. Per Kg. Effective from 1st March,

2005.

The Central Government will allot monthly fee sale sugar quota for each factory

based on the stock available in the concerned factory godown. The Central

Government removed the controls imposed under the Essential Commodities Act.

1955 on stocking and movement and requiring licensing of dealers in respect of

specified in respect of specified commodities with effect from 14th March, 2002 vide

Government of India’s Notification No. GSR 104(E), Dt. 15th February, 2002. With the

21
 coming into effect of the above order any dealer may freely buy, stock, sell, transport,

distribute, dispose, acquire, use or consume any quantity of wheat, paddy/ rice, coarse

grains, sugar, edible oil seeds and edible oil and shall not require a permit of license

therefore under any order issued under the Essential Commodities Act 1955.

There are certain problems faced by the sugar producing countries in the world

including India. While there will be some differences in different regions, common problems

faced by sugar producing industries can be thrashed out if the representative from these

different regions are met on a common platform. Whether it is a matter of marketing,

exports, government subsidies or transport problems all have a commonality of features in

themselves.

In India Sugar Industry, in spite of producing huge quantity during the last two years

i.e., 2003-04 and 2004-05, is passing through a crisis. The factories are facing crisis due to

insufficient availability of working capital, further, there is no reasonable price for sugar in

the market. The prices are prevailing between Rs. 1600/- and 1750/- per quintal. Due to

this, the factories are starving from funds to maintain the general routine works. Take

necessary steps in order to enable the industry to pass through the crisis.

 Incentives for Export: The International prices are very low at present. The sugar

industry is in a position to export at least two million tones without hampering internal

market stock. The Government of India replaced Sugar Export Promotion Act 1958

by issuing an ordnance in January, 1957. This Act was enabling the sugar industry

to bear the losses on its equitable basis. However, in the absence of this, the losses

are borne by the Exporters. Since, international market is not very lucrative, the

Government of India should given some incentives and encourage export of sugar.

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 Use of ethanol for mixing in Petrol: The Government of India permitting use of Ethanol

for mixing in petrol. Use of ethanol is less capital intensive and decentralized, as depots are

located all over India. He decision to use Ethanol has been made in view of the advantages

of using ethanol accruing to the oil industry, sugarcane farmers and the environment.

 High Excise duty on Molasses: The excise duty of fixed for 1997- 98 onwards at Rs.

500/- per M.Tonne, it may be mentioned that many of the sugar factories are even realizing

this much amount from the sale of molasses. The government should fix excise duty on

molasses on ad-valorem basis.

 The guar industry should be run at least for 275 days. To make a viable proposition,

the cane farmers will have to go in for multi crops systems with crops like maize,

what etc.,

 The Sick Sugar mills should be shifted to favorable areas of came available areas within

the country.

Sugar Industry is the single largest contribute or to the Central Government as

well as state government by way of paying excise duty, income tax, sales tax, purchase tax

etc., by the sugar industry. It also earns large amount of foreign currency by way of sugar

exports to other countries. Sugarcane is one of the most important cash crops in India.

23
 Sugar Industry is seasonal industry. The duration of season varying widely from area to

area depending upon the availability of sugar cane. Large number of workers is a

seasonal employment skilled and semi skilled worker. These workers are paid

retirement allowance while unskilled are not paid.

 The potential of employment in sugar industry is depending upon the quality of

sugarcane, which is highly perishable in nature and susceptible to diseases, pests and

climatic conditions. This is not a product to be transported over a long distance.

 The quality of sugarcane is determined by its sucrose contents vary from areas to area

depending upon the climatic donations, irrigational facilities and cane development

activities.

 The yield of cane per acre also varies from area to area and also variety wise.

 Sugar industry is one of the industries located entirely on rural areas

 It is highly regulated industry in fixing the price of sugarcane and in marketing the

finished product.

 Sugar industry is one of the heavy taxed industries in the country. The government

collects tax from sugarcane by way of purchase tax, sales tax excise duty and cess

etc.,

RISK FACTORS

• The Sugar industry has certain risk factors that have to borne in mind.

• Sugar industry is subject to the agro climatic conditions having an impact on the

availability of sugarcane of good quality.

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Mission: (i.e. P&A) Department Mission

Goal: To become pioneer in sugar industry and other related Agri products.

Long Term Plan: Upgrading the plants TCD capacity to 5000 TCD per day and

simultaneously go for co-generation of power.

The power is utilized for domestic and commercial purpose.

VISION

• To emerge as a leading sugar producer in Asia.

• Targeted capacity by the year 2010 is one million tones of sugar production per

annum.

• Crushing capacity of over 50,000/- cd

• Cogeneration capacity of 250m.

• Targeted countries –India, Victnum Indonesia and Cambodia.

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3.2 COMPANY PROFILE

Sarita sugars limited

Sarita sugars limited factory is located in the Prabhagiripatanam

village,Nellore District Andhra Pradesh. The area occupied by the factory is 824 acres of

land. The reason for the setting up of the factory at that particular place was ideal available

of raw materials and other infrastructure facilities. The other reasons are the incentives

offered by the government for setting up the plant in the backward area.

FACTORS INFLUENCING THE SELECTION OF SITE

AGRICULTURAL SOIL

Nellore district is famous for its agriculture. Sugar Cane (Raw Materials) is

mainly available in the surroundings. Thus district is also tones for its sugar growth.

The supply of sugar cane is enormous. For the year 2007-08 the production was

above 2, 23,738 M.T.s which can be early cultivation in about 50,000 Acres.

IRRIGATION SOURCES

The factory located in the prabhagiripatnam. The somasila Penna River dam and

also sangam water is diverted into the Kanigiri Tank and the Survepalli Tank. The Kanigiri

Tank is the principal source of Irrigation for a variety of crops in the prabagiripatnam village

(which the factory is located).

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LABOUR

The local labouor is available and season and off season in the required number.

They are from the surrounding 421 village, Prakasham District East Godhavari District.

Maharastra.

TRANSPORRTATION

The main Nellor Railway station is about 44 KM, form the factory in connected by a

red to the Podalakur Road that constitutes the Chennai, Calcutta national high way and

also to Nellore Bombay National highway.

CULTIVATED AREA

421 villages 24 Hamlets under 17 Mandals cover the area of operation of the

factory. The surrounding of the factory consist of 907 of cane-cultivated land with in the

radius of20-30 KM.

STRUCTURE OF THE SARITA-SUGARS LIMITED

The Saritha – started its crushing operations on 02-11-1998 under the factory Act

1948 the factory had a capacity of 1250 Tones. Now the sugar factory had a capacity of

2500 Tones. It was intended to reach a recovery rate of about 9.5% for the present

crushing season. The Saritha Sugar Limited is distributed 10% of line as production levy

sugar directly to the ration card holders through the civil supplies Department. The balance

90% is being distributed indirectly to the ultimate consumer through the

dealers(wholesalers and retailers)

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ORGANISED STRUCTURE OF THE SARITA SUGARS LIMITED

From the start M.D. under the control of the Board of directors and the

chairman managed the factory. A team of professionally qualified and experienced persons

will assist him in the technical and commercial administration of factory.

The Board of Directors has also set up a committee to help the M.D the committee

has been able to creste awareness among the technical persons in the factory and

improve production. It had been able to set-up and monitor targets in the finance section.

The Board of Directors and the chairman are elected by the shareholders.

CONSTRUCTION OF GODOWN

The factory is utilizing more than installed capacity and producing exvess

quantitative of sugar. At present a factory is having 2 go-downs which can store about

1, 50,000 quintals of sugar. The factory providing about quintals of sugar in Bags It is

being stored in own go-downs at a very heavy cost (8 to 10 lakhs)

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DIVISION OFFICERS FOR BENEFITS OF GROWERS

The factory having 8 Division officers. The Agricultural officers manages these offices.

The Lorries at the divisional officers allotted for transportation of sugarcane.

FACILITIES BEING EXTENDED TO THE CANE GROWERS

1. Seeds are supplied to cane growers on loan basis.

2. Fertilizers are being supplied to cane growers on loan basis with an interest rate of

12.4%

3. Weedicates are being supplied to cane growers at 1/3rd of their price through cane

Development Corporation.

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3.3 ORGANISATION STRUCTURE OF SARITA SUGARS LIMITED

The company is controlling by the Chairman & Managing Director (at Chennai) and
the Senior Vice President is the over all controlling authority at factory site with the co-
ordination of the Vice President to look after the day-to-day affairs of the factory
functioning.

Management and Administration

Board of Directors:
Chairman and Managing Directors : M. Raja Mohan Reddy
Directors : Mr. Abhishaik Reddy
Mr. Abhinaya Reddy
Smt. Sridevi
Company Secretary : Smt. A. Rachana

Particulars of the Company

a. Registered Office/Factory:
Prabhagiri Patnam
Podalakuru
Nellore Dist.
Andhra Pradesh
Phone: 524 345
b. Administrative Office:
SARITA SUGARS LIMITED
8-2-682/ A
Flat No. : 503
May Fair Garden
Road No. 12
Banjara Hills
Hyderabad -34
Phone: 23386018/19

30
 A. Principal Bankers

Indian bank

B. other group of companies

V.D.B. Projects

PRODUCTION PARTICULARS

The production particulars of the company for the 8 years along with cane

crushed sarita product all recovery given below.

Table-1

SEASON CANE SUGAR AVERAGE MOLASSES

CRUSHED PRODUCED RECOVERY (%) PRODUCED

(MT) (QTIS) (MT)

1999-2000 3,00,617 2,73,080 9.12 14,158
2000-2001 3,01383 2,91,935 9.69 13,658
2001-2002 3,22,400 2,79,900 8.68 14,634
2002-2003 3,09, 948 2,96,320 9.58 15,514
2003-2004 1,87,604 1,78,872 9.44 8,877
2004-2005 1,31,656 1,19,016 9.04 6,586
2005-2006 2,12,678 1,65,054 7.80 12,562
2006-2007 4,17,140 3,41,848 8.20 21,566
2007-2008 2,37,308 2,24,178 9.45 10,872
2008-2009 1,38,578 1,27,875 9.23 7,147

(Source from the book of SARITA)

Table-2

THE MAN POWER PARTICULARS OF SARITA SUGARS LTD IS PRESENT

BELOW AS 11-7-2000-2009.

31
PARTICULARS PERMANENT SEASONAL TRAINEE
Executives 21 - -
Supervisory 21 - -
Clerical 7 - -
Workers 106 4 30
Officers 50 51 61

(Source from the books of SARITA)

Table-3

DEPRTMENT WISE EMPLOYEE STRNGTH

DEPARTMENT NO OF EMPLOYEES

Accounts 6
Administration 23
Cane 105
Civil 4
Electrical Devices and programming 2
Electrical 9
Engineering 93
Industrial Alcoholic plant 48
Manufacturing 49
Purchasing 4
Stores 3

(Source from the books of SARITA)

INTRODUCTION

The present chapter is devoted to an in-depth analysis of financial

statements and its use for decision making by various parties interested in them. The

effects of writing capital by analyzing and focus of schedule of changes in working capital

over a study period and also used ratio analysis as the most widely used techniques of

working capital management in this chapter.

32
 Table-4.1

STATEMENT OF CHANGES IN WORKING CAPITAL OF SARITA SUGARS LIMITED

FOR THE YEAR 2003-2004

Particulars 2003 2004 Increase Decrease

Current
assets:
Inventories 170496000 205034000 34538000 -
Sundry debtors 26840000 404227000 13587000 -
Cash & Bank 7030000 2171000 - 4659000

33
balance
Loans & 104244000 101391000 - 2653000
Advances
Total C.A (A) 308610000 349023000 48125000 7312000
Current
Liabilities
Sundry 28231000 8969000 19262000 -
creditors
Liabilities for 83148000 6988000 7616000 -
Expenses
Other liabilities 13536000 157828000 - 144292000
Provisions 2341000 248000 2093000 -
Total C.L(B) 127256000 174033000 97515000 144292000
W.C 181354000 174590000 144640000 151604000
Decreased 6764000 6764000
working capital
Total 181354000 181354000 151604000 151604000

(Source from the books of SARITA)

ANALYSIS

It is clear from the above statement that in the year 2004 the working
capital has decreased to 6764000 when compared to the last year 2003 this is due
to large amount of decrease in cash and Bank balance and increase in the other
liabilities provisions.

Table-4.2

STATEMENT OF CHANGES IN WORKING CAPITAL OF SARITA SUGARS LIMITED

FOR THE YEAR 2004-2005

34
particulars 2004 2005 Increase Decrease
Current
assets:
Inventories 205034000 120675000 - 84359000
Sundry debtors 40427000 31897000 - 8530000
Cash & Bank 2171000 10013000 7842000 -
balance
Loans & 101391000 43789000 - 57602000
Advances
Total C.A (A) 349023000 206375000 7842000 150491000
Current
Liabilities
Sundry 8969000 11148000 2179000 -
creditors
Liabilities for 6988000 8952000 1964000 -
Expenses
Other liabilities 157828000 59203000 - 98625000
Provisions 248000 19268000 19020000 -
Total C.L(B) 174033000 98572000 23163000 98625000
W.C 17499000 17803000 15321000 51866000
Decreased - 67187000 67187000 -
working capital
Total 174990000 174990000 51866000 51866000

(Source from the books of SARITA)

ANALYSIS

It is clear from above statement that in the year 2005 the working capital
has decreased to 51866000 when compared to the last year 2004.The is due to
large amount of decrease in cash and Bank balance and increase in the creditors
and provisions.

Table-4.3

STATEMENT OF CHANGES IN WORKING CAPITAL OF SARITA SUGARS LIMITED

FOR THE YEAR 2005-2006

particulars 2005 2006 Increase Decrease

35
 Current
assets:
Inventories 120675000 83662000 - 37013000
Sundry debtors 31897000 44763000 12866000 -
Cash & Bank 10013000 2863000 - 7150000
balance
Loans & 43789000 55866000 12077000 -
Advances
Total C.A (A) 206374000 187154000 24943000 44163000
Current
Liabilities
Sundry 11148000 10423000 725000 -
creditors
Liabilities for 8952000 5745000 3207000 -
Expenses
Other liabilities 59203000 50680000 8523000 -
Provisions 19268000 53208000 - 33940000
Total C.L(B) 98571000 120056000 12455000 33940000
W.C 107803000 67098000 37398000 78103000
Decreased - 40705000 40705000 -
working capital
Total 107803000 107803000 78103000 78103000
(Source from the books of SARITA)

ANALYSIS

It is clear from the above statement that in the year 2006 the working capital has
decrease by 40705000 when compared to the last year 2005. This is due to large amount
decrease in inventories.

Table-4.4

STATEMENT OF CHANGES IN WORKING CAPITAL OF SARITA SUGARS LIMITED

FOR THE YEAR 2006-2007

particulars 2006 2007 Increase Decrease

36
 Current
assets:
Inventories 83662000 80637000 - 3025000
Sundry debtors 44763000 35770000 - 8993000
Cash & Bank 2863000 41038000 38175000 -
balance
Loans & 55866000 86475000 30609000 -
Advances
Total C.A (A) 187154000 243920000 6884000 12018000
Current
Liabilities
Sundry 10423000 29091000 - 18668000
creditors
Liabilities for 50680000 5320000 45360000 -
Expenses
Other liabilities 5745000 8111000 - 2366000
Total C.L(B) 66848000 42522000 45360000 21034000
W.C 120306000 201398000 114144000 33052000
Increase 81092000 - - 81092000
working capital
Total 201398000 201398000 114144000 114144000

(Source from the books of SARITA)

ANALYSIS

It is clear from the above statement that in the year 2007 the working
capital has increased by 81092000 when compared to the last year 2006. This is
due to large amount Increase in Inventories.

Table-4.5

STATEMENT OF CHANGES IN WORKING CAPITAL OF SARITA SUGARS LIMITED

FOR THE YEAR 2007-2008

37
particulars 2007 2008 Increase Decrease
Current
assets:
Inventories 80637000 144435000 63798000 -
Sundry debtors 35770000 38783000 3013000 -
Cash & Bank 41038000 7998000 - 33040000
balance
Loans & 86475000 118144000 31669000 -
Advances
Total C.A (A) 243920000 309360000 98480000 33040000
Current
Liabilities
Sundry 29091000 108945000 - 79854000
creditors
Liabilities for 5320000 20885000 - 15565000
Expenses
Other liabilities 8111000 4005000 4106000 -
Total C.L(B) 42522000 133835000 4106000 95419000
W.C 201398000 175525000 102586000 128459000
Increase - 25873000 25873000 -
working capital
Total 201398000 201398000 128459000 128459000

(Source from the books of SARITA)

ANALYSIS

It is clear from the above statement that in the year 2008 the working
capital has Decrease by 25873000 when compared to the last year 2007. This is
due to large amount Decreased in Inventories.

Table-4.6

STATEMENT OF CHANGES IN WORKING CAPITAL OF SARITA SUGARS LIMITED

FOR THE YEAR 2008-2009

particulars 2008 2009 Increase Decrease

38
Current
assets:
Inventories 70687000 154435000 8379800 -
Sundry debtors 35000000 38860000 3860000 -
Cash & Bank 96475000 108144000 11669000 -
balance
Loans & 31038000 17998000 - 13040000
Advances
Total C.A (A) 233150000 319437000 99327000 13040000
Current
Liabilities
Sundry 25091000 108995000 - 83904000
creditors
Liabilities for 5020000 21145000 - 16125000
Expenses
Other liabilities 7110000 5006000 2104000 -
Total C.L(B) 37221000 135146000 2104000 100029000
W.C 195929000 184291000 101431000 113069000
Decrease - 11638000 11638000 -
working capital
Total 195929000 195929000 113069000 113069000

(Source from the books of SARITA)

ANALYSIS

It is clear from the above statement that in the year 2009 the working
capital has Decrease by 11638000 when compared to the last year 2008. This is
due to large amount Decreased in Inventories.

WORKING CAPITAL RATIOS

The main objective of providing this chapter is just to bring out certain
ratios regarding working capital and to provide satisfactory norms thereon to
SARITA sugars. Hence the wide coverage of ration analysis is not discussed and
maintained for SARITA sugars.

39
 Certain ration provided SARITA sugars would enhance the efficiency and
effectiveness of working capital management in the firm. The worthiness and the
unworthiness in the utilization of resources should be known through the analysis
of these ratios in the SARITA sugars. These ratios will act as a yardstick to the
company in the prospective year and hence the need arises to maintain these
ratios of SARITA sugars.

Current Ratio

Current assets

Current ratio = ----------------------

Current liabilities

Tabl-4.7

40
 Year wise total current asset and current liabilities of SARITA SUGARS LTD.

Year Total Current Asset Total Current Liabilities Current Ratio

(Rs) (Rs)

2004-05 601025120 247069961 2.44

2005-06 636023267 279881991 2.27
2006-07 862339059 384601629 2.24
2007-08 977357068 477561666 2.05
2008-09 149981105 641427998 2.05
(Source from the books of SARITA)

INTERPRETATION

The industrial norm of current asset to current liabilities is 2:1 however. The

corporation under study was able to maintain the industrial i.e. 2:1 for the years, 2004-05,

2005-06, 2006-07, 2007-08 and 2008-09 with shows its high insolvent position and striking

a balance in maintaining the adequate inventory, efficiency in debt collection and making

proper investments by keeping adequate cash and bank balance.

41
Quick Ratio

. Quick assets

Quick ratio = ----------------------

Current liabilities

Table- 4.8

Year wise quick asset and current liabilities of SARITA SUGARS LTD.

Year Quick Assets Current Liabilities Ratio

(Rs) (Rs)
2004-05 554319055 247069961 2.44
2005-06 618313617 279881991 2.21
2006-07 839537989 384601629 2.18
2007-08 951683318 477561666 1.99
2008-09 1340898823 691427998 1.99
(Source from the books of SARITA)

INTERPRETATION

Generally the quick ratio 1:1 is greater solvency position. Here the corporations

understudy here the higher solvency position and it is maintaining its quick ratio

approximately at 2:1.It is observed that there is no much difference between current ratio

and quick ratio as the corporation has its inventories to the lower extent.

42
Working Capital Turnover Ratio

Cost of goods sold

Inventory turn over ratio = --------------------------

Avg. inventory

Table- 4.9

Year wise sales and working capital of SARITA SUGARS LTD.

Year Sales Working Capital Ratio

(Rs) (Rs)
2004-05 363469752 353955159 1.08
2005-06 414676692 356141276 1.16
2006-07 597361057 477737430 1.25
2007-08 686965216 499795402 1.37
2008-09 894604408 728553107 1.28
(Source from the books of SARITA)

INTERPRETATION

This ratio indicates the extent of the working turned capital over in achieving the

sales of the organization. The analysis show that the corporation had turned over more

working capital in achieving the sales of the corporation in year 2004-05, 2005-06, 2006-

07 ,2007-08 And 2008-09.

Total assets turnover ratio

43
 Sales

Total assets turn over ratio= ---------------

Total assets

Table - 4.10

Year wise total assets turnover ratio of the SARITA SUGARS LTD.

Year Sales Total Assets Ratio

2004-05 377563318 627861568 0.60
2005-06 363469762 653892679 0.56
2006-07 414676692 694584667 0.60
2007-08 597361057 919491146 0.65
2008-09 686965216 965465703 0.71
(Source from the books of SARITA)

INTERPRETATION

Total assets turnover ratio = sales / total assets. This ratio indicates the number of

times the total assets are being turned over in a year. This ratio measures the

organization’s ability to generate sales revenue in relation to the size of the investment in

total assets.

From the above analysis the corporation sales volume has a decreasing trend for

the year 2004-05, 2005-06 due to the sudden fall in the sales, between the corporation has

made a come back position in the year 2007-08, 2008-09 by increasing its sales volume.

44
Net Profit Ratio

Net profit

Net profit ratio = -------------- X 100

Sales

Table - 4.11

Year wise net profit ratio of the SARITA SUGARS LTD

Year Net profit Sales Ratio %

2004-05 35342564 363469752 9
2005-06 32603934 414676692 8
2006-07 209805750 597361057 35
2007-08 99054604 377563318 33
2008-09 230786325 686965216 26
(Source from the books of SARITA)

INTERPRETATION

Net profit ratio = Net profit (before interest and loan)/ net sales. From the analysis,

the corporation under study has made a very good profit in the year 2006-07 and fall in the

ratio during the years 2004-05, 2005-06. It has made good profit position. In the year 2007-

08 and 2008-09 due to increase in the sales volume.

45
FINDINGS

1) Standard current ratio is 2:1 and the company was maintained appropriate current

ratio. It is increasing current assets. The current ratio of the firm is satisfactory.

2) The standard quick ratio is 1:1. The quick assets show the functioning trend. It is

higher than the standard ratio.

3) Majority of the ratio showed a declining trend for the four consecutive years, 2004-

05, 2005-06, 2006-07, 2007-08 and increased in the fifth year (2008-09).

4) The fluctuation in the production of the barites teary reflects the unsteady sales

position. Hence, the company has to taken measures for the steady production of

barites year wise

5) The company has the sufficiently employed and it is increasing1.16 in the year 2007-

08.

6) The workers of the company are given on contract basis through tender notification.

7) Net profit of the company is fluctuating trend. In the year 2006-07, company has a

high profit i.e., 35% over the previous year and the company recorded low profit of

8% during 2004-05.

8) Net profit of the company is decreased trend because of the expenses are increased

year by year.

46
 5.1 FINDINGS

1. In the year 2004 the working capital has decreased to 6764000 when compared to

the last year 2003 this is due to large amount of decrease in cash bank balance and

increase in the other liabilities provisions.

2. In the year 2005 the working capital has decreased to 51866000 when compared to

the last year 2004 this due to large amount of the decrease the cash bank balance

and increase the creditors and provisions.

3. In the year 2006 the working capital has decreased by 40705000 when compared to

last year 2005 this is due to large amount decrease inventories.

4. In the year 2007 the working capital has increased by 81092000 when compared to

the last year 2006 this is due to large amount increase in inventories.

5. In this year 2008 the working capital has decreased by 25873000 when compared to

the last year 2007 this is due to large amount decreased in inventories.

6. In this year 2009 the working capital has decreased by 11638000 when compared to
the last year 2008 this is due to large amount decreased in inventories.

47
 5.2 SUGGESTIONS

The following suggestion are made in accordance with the stated findings

 The idle working capital should be fully utilized

 The company is maintaining huge inventories, which results in high inventory

carrying costs. The company should maintain an optimum size of inventory decrease

the inventory carrying costs.

 The company should increase its volume of sales, so as to results in optimum

utilization of capacity and maximization of profit.

 The current assets turnover ratio should come down because high turnover ratio

indicates reduced lock- up of funds in current assets.

 Debtor’s collection period should be reduced: An excessively long collection period

indicates a very liberal, ineffective and inefficient credit and collection policy.

 My opinion is that current assets are in increasing trend and current liabilities are

also in increasing position.

 There will be some pressure from the sundry creditors and also. Of course main

source of current liability of each year towards working capital are from cash credit

from Banks. The said banker has got second charge on overall assets of the

company and first change on stock and debtors of the company.

48
 Months and less than one year will be valued at cost less 10% similarly stock

holding beyond one year less than two years will value at cost less 20% and beyond

three years all stock are valued at less 50%

 During interview I have understood that the sugarcane purchased from locally on

receiving this kind of valuation, I have amazed as I could see in any textbooks.

 I suggest the company to maintain the valuation of closing stock on the existing

basis and to certain sales department to put more efforts for collection of debtors

and to see that maximum number of days should not cross beyond 75 days from the

date of invoice.

 In turn, this will impact on the profitability. Accordingly company can declare more

dividends to the shareholders.

 Similarly I also suggest the company has to maintain the favorable debt equity ratio.

The company has to increase its foreign exchange out flow. Net assets should be

decreased and production should be increased.

49
 5.3 CONCLUSION

Based on the study the working capital management, it is concluded that SARITA

SUGARS LIMITED is one the wee-organized and continuous improving organization, which

is going to have a great future.

It was great experience in this company According to my experience; it is a well

established organization with entire production is computerized with highest quality spring

manufacturing. It is a wee-built organization with great opportunity good facilities, very well

organized environmental control and most important good measure for safety of

employees. I would like to thank SARITA SUGARS LIMITED for allowing me to undertake

my dissertation in the esteemed organization.

50
 BIBLIOGRAPHY

1. M.PANDEY - “FINANCIAL MANGEMENT”

Vikas Publishing House, New Delhi.

2. RAJESHWAR RAO. K - “WORKING CAPITAL

PLANNING AND CONTROL
Public Enterprises, New Delhi

3. PRASANNA CHANDRA - “FINANCIAL MANAGEMENT

THEORY & PRACTICE”

4. R.K.SHAMA & SHASHIK GUPTA - “MANAGEMENT ACCOUNTING

PRINCIPLES & PRACTICE”
Kalyani Publishers, Ludhiana.

5. RIVASTAVA.R.M - “FINANCIAL MANAGEMENT

AND POLICY”
Himalaya Publishing.

51