WORKING CAPITAL MANAGEMENT OF MEAT PRODUCTIONS OF INDIA LTD

A Project report submitted in partial fulfillment of requirement for the award of degree of MASTER OF BUSINESS ADMINISTRATION Of the Mahatma Gandhi University, Kottayam, Kerala

Submitted by SRUTHY PR Roll No: 10301

Under the guidance of Ms.ALPHONSE

Faculty guide

June - July11 DC School of Management and Technology

Pullikkanam, Vagamon, Idukki 685503 Tel: 04869 248322, 248323

DECLARATION
I here by declare that the project report entitled Working Capital Management Of Meat HLL submitted by me for the award of the degree of Master of Business Administration of the M.G. University, Kottayam, Kerala is my own work. The report has not been submitted for the award of any other degree or diploma of this University or any other University.

Name and signature of the candidate. Place: Date Roll No:10301

ACKNOWLEGEMENT
I wish to express my indebtedness to the following persons without whom this project work would not been possible. I extend my gratitude to my faculty guide, Mr. Criz Abraham Lecturer, DC School of Management & Technology (DCSMAT), for his valuable guidance and encouragement has helped me to complete this project report successfully. I take pleasure in expressing my deep sense of gratitude to Mr.C.KRISHNAN,chairman of The Meat Productions of India facilities at all times. I owe my sincere gratitude to Mr. i who have co ordinate my efforts and provided me with valuable guidelines and furnished me with requisite materials for my study. I wish to pay my gratitude to my parents and friends for their constant encouragement, motivation, help and support throughout my academic pursuits. Above all, I thank the God Almighty, without his grace nothing could have been done. Ltd. for having

permitted under take this project for the company, and for ensuring all supportive

CONTENTS
Chapter No. 1.1 1.2 1.3 1.4 1.5 1.6 1.6.1 1.6.2 1.6.3 1.6.4 1.6.5 1.6.6 1.7 2. 3. 4. 5. 6. Title Introduction Research Problem Review of Literature Scope of Study Objectives of the study Research Methodoly Research Design Method Of Data Collection Nature Of Data Period of study Data analysis tools and techniques Presentation of data Limitation Industry Profile Company Profile Data Interpretation and Analysis Findings, Suggestions and recommendations Bibliography Page No. 9 10 11 42 42 43 44 44 44 44 44 44 44 45 55 65 96 98

LIST OF TABLES
Table No.

Title International Consumption Current ratio Quick asset Quick ratio Cost of goods sold Inventory turn over ratio Net working capital Working capital turn over ratio Current asset turn over ratio Fixed asset turn over ratio Inventory as a percentage of sales Inventory as a percentage of current asset Debt equity ratio Equity/proprietary ratio Ratio of current asset to proprietors fund Ratio of current liability to proprietors fund Ratio of reserves to equity capital Schedule of changes in working capital Schedule of changes in working capital Schedule of changes in working capital Schedule of changes in working capital Schedule of changes in working capital

Page No. 47 65 66 67 69 70 71 73 74 75 78 79 80 82 84 86 87 89 90 91 92 93

2.1
4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21

LIST OF CHARTS

Chart No.

Title Current ratio Quick ratio Inventory turn over ratio Net working capital Working capital turn over ratio Current asset turn over ratio Fixed asset turn over ratio Inventory as a percentage of sales Inventory as a percentage of current asset Debt equity ratio Equity/proprietary ratio Ratio of current asset to proprietors fund Ratio of current liability to proprietors fund Ratio of reserves to equity capital

Page No. 65 67 70 71 73 74 77 78 79 81 83 85 86 87

4.1
4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14

CHAPTER1 INTRODUCTION

CHAPTER1 INTRODUCTION

1.1

INRODUCTION

A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing shortterm debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash The project is intended to access or to acquire the knowledge regarding the functional as well as the management aspects of the firm. The project is a report on working capital management at Meat Products of India Ltd, Edayar, Kerala. It is one of the fastest growing public sector consumer goods manufacturing industry in Kerala. Meat Products of India Ltd, Edayar, the infrastructure development arm of the Kerala Government, is busy with a mission to make Kerala the most favored destination for meat products industry in the country. According to Meat Products of India Ltd, Edayar, officials,
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amenities at the food park will include uninterrupted power supply, a modern sewage treatment plant, drinking water supply and a quality control laboratory, besides a small industries park along with the food park. 1.2 RESEARCH PROBLEM The essence of effective working capital management is proper cash flow forecasting. This should take into account the impact of unforeseen events, market cycles, loss of a prime customer, and actions by competitors. The effect of unforeseen demands on working capital should be factored in. It pays to have contingency plans to tide over unexpected events. While market leaders can manage uncertainty better, other companies must have risk management procedures. These must be based on an objective and realistic view of the role of working capital. Addressing the issue of working capital on a corporate-wide basis has certain advantages. Working capital is a highly effective barometer of a company's operational and financial efficiency and effectiveness. The better its condition, the better positioned a company is to focus on developing its core business. By addressing the drivers of working capital, in fact, a company is sure to reap significant operating cost and customer service improvement. The present study attempts to explore the following research problem What in the impact of working management policies on the corporate performance?

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1.3. LITERATURE REVIEW Working capital refers to the funds invested in current assets, i.e., investment in stocks, sundry debtors, cash and other current assets. Current assets are essential to use fixed assets profitably. The requirements for current assets are usually greater than the amount of funds payable through current liabilities. In other words, the current assets are to be kept at a higher than the current liabilities. Working capital is a firms investment in short-term assets- cash, short-term securities, accounts receivables and inventories. Working capital management, which encompasses all aspects of the administration of both current assets and current liabilities, has two main functions, 1) Maintenance of working capital at appropriate level 2) Availability of ample funds as and when they are needed Every business needs funds for two purposes for its establishment and to carry out its day-to-day operations. Long-term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on a permanent or fixed basis and it is called fixed capital. Funds are also needed for short-term purposes for the purchase of raw materials, payment of wages and other day-to-day expenses, etc. These funds are known as working capital. In simple words, working capital refers to that part of
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the firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors and inventories. Funds, thus, invested in current assets keep revolving fast and are being constantly converted into cash and this cash flow out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short-term capital.

1.3.1 CONCEPTS OF WORKING CAPITAL There are two concepts of working capital: A) Balance Sheet Concept B)Operating Cycle or Circular Flow Concept

A) Balance Sheet Concept There are to interpretations of working capital under the balance sheet concept:
1.3.1.1Gross working capital:

Gross working capital refers to the firms investment in current assets. Current assets are the assets, which are which can be converted into cash with an accounting year and include cash, short-term securities, debtors, bills receivables and stocks. 1.3.1.2.Networking capital:

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Networking capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outside which are expected to mature for payment with an accounting year and include creditors, bills payable and outstanding expenses. Networking capital can be positive or negative. A positive networking capital will arise when current asset exceed current liabilities. A negative net working capital occurs when current liabilities in excess of current assets. B) Operating Cycle or Circular Flow Concept: Funds, thus, invested in current assets keep revolving fast and are being constantly converted into cash and this cash flow out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital. The circular flow concept of working capital is based upon this operating or working capital cycle of a firm. The cycle starts with the purchase of raw material and other resources and ends with the realization of cash from the sale of finished goods. It involves purchase of raw material and stores, its conversion into stock of finished goods through work- in- progress with progressive incensement of labour and service costs, conversion of finished stock into sales, debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on.

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Cash

Debtors Material

Raw

Sales progress

Work in

Finished goods Working Capital Cycle: Circular Flow Concept

1.3.2. CLASSIFICATION OR KINDS OF WORKING CAPITAL Working capital may be classified in two ways: (a) (b) On the basis of concept On the basis of time
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On the basis of concept, working capital is classified as gross working capital and net working capital. On the basis of time, working capital may be classified as: (1) (2) Permanent or fixed working capital Temporary or variable working capital
KINDS OF WORKING CAPITAL

ON THE BASIS OF CONCEPT

ON THE BASIS OF TIME

GROSS WORKING CAPITAL

NET WORKING CAPITAL

PERMANENT OR FIXED WORKING CAPITAL

TEMPORARY OR VARIABLE WORKING CAPITAL

REGULAR WORKING CAPITAL

RESERVE WORKING CAPITAL

SEASONAL WORKING CAPITAL

SPECIAL WORKING CAPITAL

(Chart 2.1) Source: http://www.planware.org/workingcapital.htm#1 1.3.3. IMPORTANCE OR ADVANTAGES OF ADEQUATE WORKING CAPITAL

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Working capital is the life blood and nerve centre of a business. No business can run successfully without an adequate amount of working capital. The main advantages of maintaining adequate amount of working capital are as follows: Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production.

Goodwill: Sufficient working capital enables a business concern to make prompt and hence helps in creating and maintaining goodwill.

Easy Loans: A concern having adequate working capital, high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms.

Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs.

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Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production.

Regular payments of salaries, wages and other day-to-day commitments: A company which has ample working capital can make regular payment of salaries, wages and other day-today commitments which raises the morale of its employees, increases their efficiency, reduces wastages and costs and enhances production and profits.

Exploitation of favorable market conditions: Only concerns with adequate working capital can exploit favorable market conditions such as purchasing its requirements in bulk when the prices are lower and by holding its inventories for higher prices.

Quick and regular return on investment: Every investor wants a quick and regular return on his investments. Sufficiency off working capital enables a concern to pay quick and regular dividends to its investors as there may not be much pressure to plough back profits.

High morale: Adequacy of working capital creates an environment of security, confidence, high morale and creates overall efficiency in business.
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1.3.4. DEMERITS OF EXCESS WORKING CAPITAL Excess working capital means idle funds which earn no profits for a business and hence the business cannot earn a proper rate of return on its investments. Excess working capital may lead to unnecessary purchasing and accumulated inventories causing more changes of theft, waste and losses. Excess working capital implies excessive debtors and defective credit policy which may cause higher incidence of bad debts. It may also result into inefficiency of the organization. Chance of speculative transaction. The value of shares may fall due to low rate of return on investment.

1.3.5. DANGERS OF INADEQUATE WORKING CAPITAL Leading to inability of the concern to pay its short term liabilities on time.

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 May lead to inability of the concern to buy its requirements in bulk and cannot avail discounts etc. Inability of the firms to meet day to day expenses. Leading to fall in rate of return on investments.

1.3.6. THE NEED OR OBJECTS OF WORKING CAPITAL Working capital is needed for the following purposes: For the purchase of raw materials, components and spares. To pay wages and salaries To incur day-to-day expenses and overhead costs such as fuel, power and office expenses, etc. To meet the selling costs as packing, advertising, etc. To provide credit facilities to the customers To maintain the inventories of raw materials, work-inprogress, stores and spares and finished stock. 1.3.7. FACTORS DETERMINIG THE WORKING CAPITAL REQUIREMENTS The working capital requirements of a concern depend upon a large number of factors such as nature and size of business, the character of their operations, the length of production cycles, the rate of stock turnover and the state of economic situation. The following are important factors generally influencing the working capital requirements.
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Nature or Character of Business: The working capital requirements of a firm basically depend upon the nature of its business. Public utility undertakings like Electricity, Water supply and Railways need very limited working capital because they offer cash sales only and supply services, not products and as such no funds are tied up in inventories and receivables. On the other hand trading and financial firms require less investment in fixed assets but have to invest large amounts in current assets like inventories, receivables and cash; as such they need large amount of working capital.

Size of Business / Scale of Operations: The working capital requirements of a concern are directly influenced by the size of its business which may be measured in terms of scale of operations. Greater the size of the business larger will be the requirements of working capital.

Production policy: In certain industries the demand is subject to wide fluctuation due to seasonal variations. The requirements of working capital, in such cases, depend upon the production policy. The production could be kept either steady by accumulating inventories during slack periods with a view to meet high demand during the peak season or the production
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could be curtailed during slack season and increased during the peak season.

Manufacturing Process / Length of Production Cycle: In manufacturing business, the requirements of working capital increase in direct proportion to length of manufacturing process. Longer the process period of manufacture, larger is the amount of working capital required.

Seasonal Variations: In certain industries raw material is not available throughout the year. They have to buy raw material in bulk during the season to ensure and uninterrupted flow and process them during the entire year.

Working capital Cycle: In a manufacturing concern, the working capital cycle starts with the purchase of raw material and ends with the realization of cash from the sale of finished products. This cycle involves purchase of raw materials and stores, its conversion into stocks of finished goods through work-in-progress with progressive increment of labour and service costs, conversion of finished stock into sales, debtors and receivables and ultimately realization of cash and this cycle continues again from cash to purchase of raw material and so on.

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Rate of stock Turnover: There is a high degree of inverse co-realization between the quantum of working capital and the velocity or speed with which the sales are affected. A firm having a high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate of turnover.

Credit Policy: The credit policy of a concern is its dealings with debtors and creditors influence considerably the requirements of working capital. A concern that purchases its requirements on credit and sells its products / services on cash requires amount of working capital. On the other hand a concern buying its requirements for cash and allowing credit to its customers, shall need large amount of working capital as very huge amount of funds are bounds to be higher than that of a provision store.

Business Cycles: Business cycle refers to alternate expansion and contraction in general business activity. In a period of boom i.e., when the business is prosperous, there is need for larger amount of working capital due to increase in sales, rise in prices, optimistic expansion of business, etc. On the contrary in the times of depression i.e., when there is a down swing of the cycle, the business contracts, sales decline, difficulties

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are faced in collection from debtors and firms may have a large amount of working capital lying die.

Rate of Growth of Business: The working capital requirements of a concern increase with the growth and expansion of its business activities.

Earning capacity and Dividend Policy: some firms have more earning capacity than others due to quality of their products, monopoly conditions etc. Such firms with high earning capacity may generate cash profits from operations and contribute to their working capital. The dividend policy of a concern also influences the requirements of its working capital than the firm that retains larger part of its profits and does not pay so high rate of cash dividend.

Price Level Changes: Changes in the price level also affect the working capital requirements. Generally the rising prices will require the firm to maintain larger amount of working capital as more funds will be required to maintain the same current assets.

1.3.8. PRINCIPLES OF WORKING CAPITAL MANAGEMENT

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The following are the general principles of a Sound Working Capital Management Policy. Principle of Risk Variation: Risk here means the inability of a firm to meet its obligations as and when they become due for payment. Larger investment in current asset with less dependence on short term borrowing increases the opportunity for gain or loss.

Principle of Equity position: The principle is concerned with planning total investment in current asset. According to this principle the amount of working capital invested in each component should be adequately justified by a firms equity position. Every Rupee invested in current asset should contribute to the net worth of the firm.

Principle of Cost of Capital: The various sources of raising working capital finance have different cost of capital and the degree of risk involved. Generally, higher the risks lower the cost. A sound working capital should always try to achieve a proper balance between these two.

Principle of Maturity of Payments: This Principle concerned with planning the sources of finance for working capital. According to this principle, the firm
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should make every effort to relate maturities of payments to pattern of various current obligations. It is an important factor in a risk assumption and risk assessments generally, shorter the maturity schedule of current liabilities in relation to expected cash flows the greater the inability to meet its obligation in time.

Working capital, in general refers to the excess of current asset over current liabilities. Management of working capital therefore, is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exist between them. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e. it is neither inadequate nor excessive. This is so because with inadequate as well as excessive working capital implies idle funds, which earns profit for the business. Working capital management policies of a firm have a greater effect on its profitability, liquidity and structural health of the organization. The management of working capital has following problems; i) requirements. ii) To decide optimum level of investment in various assets. Estimating the Working capital

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iii) iv)

To mix optimum mix of short term To locate the appropriate means of

funds in relation to long term capital. short term financing. We need to know when to look for working capital funds, how to use them and how to measure, plan and control them. Thus the finance manager has to perform the following two basic functions: 1) Forecasting the working capital requirements. 2) Financing of working capital needs. 1.3.9. FINANCING OF WORKING CAPITAL The sources of financing working capital in a concern may be classified broadly into two categories -long-term sources and short-term sources. Each of them is again classified into internal and external sources. Long-term internal sources Surprise or retained earnings Provisions for depreciation Long-term external sources Equity share sources Preference share capital Debentures, bonds and public fixed deposits Long term loans from public financial institutions and commercials banks Short-term external sources
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 Creditors for goods Creditors for expenses Bank credit Public deposits Short-term internal sources Proposed dividend Provision for taxation

One of the important tasks of financial manager is to select the appropriate sources of financing the working capital. Generally the capital of affirm is supported by spontaneous current liabilities, short-term bank credit and long-term source of finance. A spontaneous source of resource is also refers to automatic source of short-term fund. A financial manager would like to finance its working capital a maximum possible extend with spontaneous sources. Therefore the real choice of financing working capital is between short term and long-term sources of finance. In such case there are three approaches of financing working capital. Once is the financial manager may adopt that a financial policy which involves the matching of the expected life of assets with the expected life of assets with the expected life of the source of funds to finance the assets. Under an aggressive policy, the firm finances a portion of its permanent working capital with short term and long
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term source of finance only and part of it by long tern sources. Under a conservative policy, the firm finances its fixed assets, permanent working capital and a part of seasonal working capital with long term sources of finance. The important aspect of working capital policy is the ratio of short-term financing to long term financing. The relative liquidity of the firms financial structure can be measured by this ratio. 1.3.10 SOURCES OF WORKING CAPITAL Permanent or fixed sources Permanent or fixed working capital is the minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum level of current assets which is continuously required by the enterprise to carry out its normal business operations. The minimum level of current assets is called permanent or fixed working capital as this part of capital is permanently blocked in current assets. As the business grows, the requirements of permanent working capital also increase due to the increase in current assets. The permanent working capital can further be classified as regular working capital and reserve working capital required ensuring circulation of current assets from cash to inventories to receivables and from receivables to cash and so on. The main sources are: (1) Shares

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(2) (3) (4) (5)

Debentures Public deposits Ploughing back profits loans from financial

institutions Temporary or Variable sources Temporary or variable working capital amount of working capital is which is required to meet the seasonal demands and some special exigencies. Variable working capital can be further classified as seasonal working capital and special working capital. Most of the enterprises have to provide additional working capital to meet the seasonal and special needs. The capital required to meet the seasonal needs of the enterprise is called seasonal working capital. Temporary working capital differs from permanent working capital in the sense that it is required for short periods and cannot be permanently employed gainfully in the business. The main sources are: (1) (2) (3) (4) (5) (6) (7) Commercial banks Indigenous bankers Trade creditors Installment credit Advances Accounts receivablesAccrued expenses

Credit/Factoring

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(8) Working Capital

Commercial paper

1.3.11 Working Capital Analysis or Measuring the The analysis of working capital can be conducted through a number of devices, success: 1. Ratio Analysis 2. Funds Flow Analysis 3. Budgeting Ratio Analysis. A ratio is a simple arithmetical expression of the relationship of one number to another. The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. The following ratios may be calculated for this purpose. (a) (b) (c) (d) (e) (g) (h) Current Ratio Acid test Ratio Absolute Liquid Ratio Inventory Turnover Ratio Receivables Turnover Ratio Working Capital Turnover Ratio Working Capital Leverage

(f) Payables Turnover Ratio

(i) Ratio of Current Liabilities to Tangible Net Worth Funds Flow Analysis Funds flow analysis is a technical device to study the sources from which additional funds were derived and the
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use to which these sources were put. It is an effective management tool to study changes in the financial position of business enterprises between beginning and ending financial statements dates. The funds flow analysis consists of I. Preparing schedule of changes in working capital II. Statement of sources and application of funds Working Capital Budget A budget is a financial or quantitative expression of business plans and policies to be pursued in the future period of time. Working capital budget, as a part of total budgeting process of a business, is prepared estimating future long-term and short-term working capital needs and the sources to finance them, and then comparing the budgeted figures with the actual performance for calculating variances, if any, so that corrective actions may be taken in the future. The objective of working capital budget is to ensure availability of funds as and when needed, and to ensure effective utilization of these resources the successful implementation of working capital budget involves the preparing of separate budgets for various elements of working capital, such as, cash, inventories and receivables, etc.

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Working capital management includes other management such as cash, inventory, and receivables. 1.3.12 Cash is the important current asset for the operations of the business. Cash is the basic input needed to keep the business running on a continuous basis. The firm should keep sufficient cash, neither more nor less. Cash is the money that a firm can disburse immediately without any restriction. The term cash includes coins, currency, and cheque held by the firm and balances in its bank accounts. Generally when a firm has excess cash, it invests it in marketable securities. 1.3.12.1 Motives for holding cash: The firm needed to hold cash may be attributed to the following three motives. Transaction Motive: The transaction motive requires a firm to hold cash to conduct its business in the ordinary course. The firm needs cash primarily to make payment for purchase, wages and salaries, other operating expenses, taxes, dividends etc. The need to hold each would not arise if there were perfect synchronization between cash receipt and cash payment ie, enough cash is received when the payments has to be made. For transactions purpose, a firm may invest its cash in marketable securities.
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 Precautionary Motive It is the need to hold cash to meet contingencies in the future. It provides a cushion or buffer to withstand some unexpected emergency. The precautionary amount of cash depends upon the predictability of cash flows. If cash flows can be predicted with accuracy, less cash will be maintained for an emergency. The amount of precautionary cash is also influenced by the firms ability to borrow at short notice when the need arises.

Speculative Motive: The speculative motive relates to the holdings of cash for investing in profit-making opportunities as and when they arise. The opportunity to make profit may arise when the security price change. The firm will hold cash. When it is expected that interest rates will rise and security prices will fall. Securities can be purchased when the interest rate is expected to fall. Thus, the primary motives to hold cash and marketable securities are the transactions and precautionary motives. Compensation Motive: The compensation motive requires that the clients of the banks should keep minimum cash balance which will help the bank earn interest and thus compensate them for free services that they provide. Of the four motives of holding cash, the most important ones are the transaction motive and compensation motive.
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1.3.12.2 Objectives of Cash Management: The basic objectives of Cash Management are; To meet the cash disbursement needed as per the payment schedule. To minimize the funds locked up as cash balances. 1.3.12.3 Functions of Cash Management: The functions of cash management are explained as follows; Cash Planning: Cash Planning is a technique for planning and controlling the use of cash. It can help anticipate future cash flows and needs of the firms and reduces the possibility of idle cash balances and cash deficits. Cash budget is the most significant device to plan for and control the receipts and payments. Managing cash flows: The two objectives of managing the cash flows are cash inflows and cash outflows. The inflows of cash should be accelerated while, as far as possible, the outflow of cash should be decelerated. The firm controls the cash outflows by adopting the following measures uch as centralized system for disbursement and avoidance of early payments etc Managing surplus cash or deficit: The business firm should also be managing the surplus cash or deficit. Excess cash is normally invested in marketable securities, which can be conveniently and promptly be
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converted into cash. The deficiency in cash is usually met through the short-term borrowings. Determining the optimum balance: Cash balance is to be maintained for day today transactions. The financial manager determines the appropriate amount of cash balance. Such decision is influenced by a trade off between risk and return. So the firm should maintain an optimum cash balance neither a small nor a large cash balance. 1.3.13 Receivables: Trade credit arises when a firm sells its products or services on credit and does not receive cash immediately. It is an essential marketing tool, acting as a bridge for movement of goods through production and distribution stages to customers. Trade credit creates accounts receivable are trade debtors that the firm is expected to collect in the near future. The customers from whom receivable or book debts have to be collected in the future are called trade debtors. A credit sale has three characteristics. First, it involves an element of risk that should be carefully analyzed. Second, it is based on economic value. Third, it implies futurity. 1.3.13.1 Need for maintaining Receivables: The need for maintaining receivables is as follows; 1. Expansion of sales:

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Customers may not be willing to buy goods on cash basis. So they have to be encouraged with the offer of credit terms. 2. Increase in profits: If the level of sales increases, the profit will also increase. 3. Maintaining Liquidity: It facilities the task for maintaining liquidity in business because it can easily be convertible into cash. 1.3.13.2 Objectives of Receivables Management: The basic objective of receivables management is to maximize the value of the firm by way of achieving a tradeoff between risk and profitability. In fact, the firm should manage its receivables in such a way that sales are expanded to the extent to which risk remains within an acceptable limit. The objectives of receivables management are as follows: To obtain the optimum of sales To control the cost of credit and keep it at the minimum. To maintain the optimum level of investments in receivables. To keep down the average collection period. 1.3.13.3 Phases in Receivables Management: Receivables Management consists of two phases. They are

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 Establishing credit Policy Establishing collection Policy

1.3.13.4 Establishing credit Policy One of the major controllable variables that affect sales price is credit policy.Credit policy consists of two aspects. 1. Credit standards 2. Credit terms. 1. Credit standards: The credit standard followed by the firm has an impact on sales and receivables. Credit standards are used to determine the credit worthiness of the credit applicants. The credit worthiness, in the HLL life care ltd, involves the following steps; a) Obtain data about the credit applicants from their financial statements, banks dealings, asking other business persons with whom they have dealings, and also by making of credit reporting agencies. b) Analyze the data for determining the ability and willingness to pay. c) Make credit decision i.e., either accept or reject the credit application.

2. Credit terms:
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The stipulation under which the firm sells on credit to its customers is called credit terms. The time duration for which credit is extended to the customers is referred to as credit period. It is generally stated in terms of net data. The credit period offered by HLL is period. It is generally stated in terms of net data. The credit period offered by HLL is 30 days. 1.3.13.5 Establishing collection Policy A collection policy is required because all customers do not pay the firms bills in time. The basic idea underlying formulation of collection policy is to ensure the earliest possible payment on receivables without any customer losses. At HLL life care ltd, sales executives make sure that the receivables are collection with in a stipulated time. 1.3.14 Inventory: Inventory constitutes the most significant part of current assets of a large majority of companies in India. On an average, inventories are approximately 60 percent of current assets in public limited companies in India. Because of the large size of inventories maintained by firms, a considerable amount of funds is required to be committed them. It is therefore, imperatives to manage inventories effectively and efficiently in order to avoid unnecessary investment. 1.3.14.1 Kinds of Inventories:

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Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The three various kinds of Inventories are Raw materials: Raw materials are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units, which have been purchased and stored for future production.

Work-in-progress:

Work-in-progress inventories are semi-manufactured products. They represent products that need more work before they become finished products for sale. Finished goods: Finished goods inventories are those completely manufactured products, which are ready to sale. Stock of raw material and work-in-progress facilitate production, while stock of finished goods is required for smooth marketing operations. Thus, inventories serve as a link between the production and consumption of goods. Stores and spares: It refers to those materials that do not directly enter production but are necessary for the production process.

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1.3.14.2 Need to hold inventories. There are general motives for holding inventories. They are:1. The transactions motive which emphasizes the need to maintain inventories to facilitate smooth production and sales operations. 2. The precautionary motive which necessitates holding of inventories to guard against the risk of unpredictable change in demand and supply forces and other factors. 3. The speculative motive which influences the decision to increase or reduce inventory levels to take advantage of price fluctuations. 1.3.14.3 Objectives of Inventory Management: The main objectives of inventory management are operational and financial. The operational objectives mean that the materials and spares should be available in sufficient quantity so that work is not disrupted for want of inventory. The financial objective means that investments in inventories should not remain and minimum working capital should be locked in it. The following are the objectives of inventory management: To maintain a large size of inventories of raw material and work-in-progress for efficient and smooth production and finished goods for uninterrupted sales operations. To maintain a minimum investment in inventories to maximize profitability.

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 To ensure continuous supply of materials, spares and finished goods so that production should not suffer at any time and the customers demand should also be met. To avoid both over-stocking and under-stocking of inventory. To eliminate duplication in ordering or replenishing stocks. To ensue right quality goods at reasonable prices.

Some of the research studies show certain results such as, relation between working capital management and corporate profitability is investigated for a sample of 1009 large Belgian non-financial firms for the 1992-1996 period. Trade credit policy and inventory policy are measured by number of days accounts receivable, accounts payable and inventories, and the cash conversion cycle is used as a comprehensive measure of working capital management. The results suggest that managers can increase corporate profitability by reducing the number of days accounts receivable and inventories. Less profitable firms wait longer to pay their bills. 1.3.15 Measures to Improve Working Capital Management. i) The essence of effective working capital management is
41

proper cash flow forecasting. This should take into account the impact of unforeseen events, market cycles, loss of a prime customer, and actions by competitors. The effect of unforeseen demands on working capital should be factored in. ii). It pays to have contingency plans to tide over unexpected events. While market leaders can manage uncertainty better, other companies must have risk management procedures. These must be based on an objective and realistic view of the role of working capital. iii) Addressing the issue of working capital on a corporatewide basis has certain advantages. Cash generated at one location can well be utilized at another. For this to happen, information access, efficient banking channels, good linkages between production and billing, internal systems to move cash and good treasury practices should be in place. iv) An innovative approach, combining operational and financial skills and an all encompassing view of the company's operations will help in identifying and implementing strategies that generate short term cash. This can be achieved by having the right set of executives who are responsible for setting targets and performance levels. They are then held accountable for delivering. They are also encouraged to be enterprising and to act as change agents.

42

v) Effective dispute management procedures in relation to customers will go along way in freeing up cash otherwise locked in due to disputes. It will also improve customer service and free up time for legitimate activities like sales, order entry, and cash collection. Overall, efficiency will increase due to reduced operating costs. vi) Collaborating with your customers instead of being focused only on your own operations will also yield good results. If feasible, helping them to plan their inventory requirements efficiently to match your production with their consumption will help reduce inventory levels. This can be done with suppliers also. vii) Working capital management is an important yardstick to measure a company's operational and financial efficiency. This aspect must form part of the company's strategic and operational thinking. Efforts should constantly be made to improve the working capital position. This will yield greater efficiency and improve customer satisfaction 1.4 SCOPE OF THE STUDY There is a significant difference that exists between industries in working capital measures across time. In addition, it is also discovered that these working capital measures, themselves, change significantly within industries across time.

43

The study entitled IMPACT OF WORKING CAPITAL MANAGEMENT POLICIES ON CORPORATE PERFORMANCE is an attempt to understand the functions of finance department and also to find out its various different departments. The present study attempts to identify the importance of managing the Working Capital. 1.5 OBJECTIVES OF THE STUDY Primary Objective: The Primary objective of the research study is to study the Impact Working Capital Management policies on corporate performance of Meat Products of India Ltd, Edayar. Secondary objectives To identify the factors that influence the levels of working capital To study the impact of cash management on sales and inventory (ratios) To study current asset position compared to sales in different years. To study fixed asset position compared to sales in different years. 1.6. RESEARCH METHODOLOGY 1.6.1 Research Design A research work will be successful, only with a sound research design .The research design for the purpose of the study is Analytical in nature.
44

The major purpose of analytical research is to analyze the state affaires as it exists at present. Analytical research includes survey and in-depth analysis of variables. The research plan calls for gathering primary and secondary data. 1.6.2 Methods of Data Collection In this research, the collection of data is from various sources and the are two types. 1. Primary Data 2. Secondary Data 1.6.2.1 Primary Data Primary data collection was mainly done through the mainly done through direct interview and telephone contacts. 1.6.2.2 Secondary Data Secondary data was collected from Company records, Internet, and books.
1.6.3 Nature of Data

Information for this work has been collected from previous records viz.profit and loss and Balance sheet of the past five years. Both primary and secondary data have been used for the study. 1.6.4 2011. 1.6.5 Tools of Data analysis Period of the study The research periods were from 2nd June to 26th July

45

Tools used for the purpose of the study are Ratio analysis and statement of changes in working capital. The tables and charts are used for the purpose of the analysis and interpretation. To define any research problem and give a suitable solution for the problem, a sound research plan is inevitable. Research methodology underlines the various steps involved by the researcher in systematically solving the problem with the objective of determining various facts. 1.6.6 Presentation of data Tables and charts are used to present the data. 1.7. LIMITATIONS OF THE STUDY The reliability of the analysis is depends on the accuracy of the data provided in the financial report. Offices show reluctance to disclose details in certain areas. Time to time company meetings also restricted the visits to several departments. No business will reveal its every business information so availability of data is limited

46

CHAPTER-2
47

INDUSTRY PROFILE

CHAPTER-2 INDUSTRY PROFILE

2.1 INDUSTRY PROFILE World meat production has been increasing reaching a estimated 258 million tons in 2004 2% above 2003, according to world watch institutes report vital signs 2003 . Meat production has more than doubled and since 1970, because of higher demand and the introduction of large scale production process. By 2020, the international food policy Research institute estimate that people in developing countries will eat more than 36 kg/head o meat on average twice as much
48

as in the 1980 's in contrast people in industrial countries to increase world wide the methods of production are also changing. Industrial animal agricultural is the most rapidly growing production system for pigs, chicken and cattle with more than half of the worlds poultry and parm forecast development of per capital consumption of meat between 1997/99 and 2015 data in kg per year.

(Table:2.1) (International consumption) Region World Developing countries Without china and Brasil Sub-Sharan Africa North Africa and near east Latin America and Caribbean South Asia Without China Threshold countries Industrial states 1997/99 36.4 25.5 15.5 9.4 21.2 53.8 5.3 37.7 22.7 46.2 2015 41.3 31.6 19.8 10.9 28.6 65.3 7.6 50 31 53.8 inc% 13.5 23.9 27.7 16 34.9 21.4 43.4 32.6 36.6 116.05

Source: ( FOA , world Agriculture.) The above table shows that FAO (The UN Food and Agriculture organization) has forecasted an increase in
49

average meat. Consumption per capital of the world population from 36.4 kg to 41.3 kg or 13.5% for the period between 1997/99 and2015. The relative rated of increase flustered between just 8.5 % in industrial countries and 43.4% in southern Asia.

2.1.2.ELEMENTS OF SAFE MEAT PRODUCTION

Ante-mortem preparation and inspection

Pre-operational Hygiene

Operational Hygiene

Post operational Hygiene

Personal Hygiene and training

4. find carcass presentation Good

Acceptable micro biological stander

50

Safe meat

( Fig 2.1) Source:(www.meatproducts of India.com)

Export market plays a major role With a production volume of 8.4 billion pounds in 2004, the food machine of packaging machine branch belong to the highest selling machine manufacturing branches in Germany. Some 600 companies operate in this field of employ work force of 57000 . Half of the production volume is accounted for by the food machine industry. High quality as core competence World wide export, are substantial to German economy and were totaling last year approximately 730 billion pounds . Product made in Germany enjoy an excellent international reputation. Main criteria for this positive image as the high quality standard of the product and the performance and reliability o the enterprise. More accurate and detailed picture

51

An electronic data base to record the post mortem disposition in a high volume high speed Austrian abettor, processing over 3000 head of cattle per day was developed and accessed. ROBOTS surpass special machines The use of well tried and tested standard industrial robots with almost unrestricted freedom of movement and exemplary dynamic together with the latest pc technology open up a whole range of new possibilities interims of slaughter and meat processing technology.

Working with vacuum Technology Vacuum technology has become an integral part of

industrial food processing vacuum is essential throughout the entire process of high. Quality meat and souses production . This commences, with vacuum tumblers. Continuous with vacuum cutters of vacuum fillers and ends with packing of final product. 2.1.3 INDIAN SCENARIO India has the largest cattle population in the world but a comparatively low meat production. The current production of meat and poultry product, excluding eggs is estimated at over two million tones per annum, while the later is around 20000 million tones per year. Traditionally popular poultry and meat products include goat meat pork product chicken and eggs although met of other cattle like buffalo and sheep are also consumed most of the meat consumed is in fresh from.

52

In India the meat and poultry industry is set largely in the unorganized sector. Very little meat is scientifically produced processed and packaged poultry farming is slowly becoming an established the improvement in yield and quality is yet desired. The key constant, facing the industry relate to lack of organized facilities for rearing meat producing animal, and the absence of cold chains. With growing urbanization and increasing quality consciousness the market for scientifically produced meat products, are expected to grow rapidly. There is also growing demand for ready to eat and semi processed meat product an account of change in life style as also through export to neighboring countries especially the Middle East export of meat has grown steadily a figure of 80808 million in 97-98.The traditional method of meat production in our country is characterized by low production absence of proper measures of quality control lack of hygiene processing handling etc. The rate of earnings of people engaged in the traditional form of meat production is very low most of them are selling meat cheaply without getting the necessary certification from veterinarians or other authorities the traditional system of meat production failed to contribute to the development of Indian economy as the system failed to make effective to use of the actual live stock wealth. Owing to the increasing quality consciousness and health awareness of people the government recognized the need for scientific meat production. This lead to the modernization in meat production processing and marketing

53

to ensure the quality of the product bacon factories were established during the quality of the meat product 8 bacon factories were established during the 5th five year plan. They were started in Kerala, Bihar, Uttar Pradesh, Maharashtra, Andhra Pradesh, Goa, etc. The central board food technology institute Mysore, the Indian veterinary research institute Izatnagaret are providing training to workers in the organized and unorganized sector to improve the productivity of meat processing units. Training is give in meat handling, dressing, packing etc. the modern methods of meat production and selling helped in increasing the returns obtained from the live stock sector. 2.1.4 MEAT INDUSTRY IN KERALA Kerala is state of agricultural economy. More than70% of people is agricultural, animal husbandry plays on important role in this agrarian economy. But in this state the livestock product and by product, have not yet acquire importance both public and private sectors in Kerala for hygienic processing and distribution of meat and meat product, the government of India established meat products India Ltd at Koothattukulam at 1963 the state unique venture of Kerala Government its primary objective is to provide good and hygienic mean and meat product, with strict quality control at reasonable price its installed capacity is limited to 300 mt of meat and meat products per year . Taking into consideration the wide scope of the sector and the export potential, steps should be taken to restructure the

54

whole operations of the meat industry to achieve a significance growth.

CHAPTER-3
55

COMPANY PROFILE

CHAPTER-3 COMPANY PROFILE

3.1 Management of MPI Ltd. MPI is a government owned company in which the state government constitutes the board of directors headed by the chairman. The management of day to day affairs of the company is vested with the board of directors. The appointment of managing director is always done by the government he is responsible for the affairs of the company. There are four managers in the company finance manager, production manager, marketing manager administration and
56

human resource manager. The total manpower of MPI consists of 150 employees. The chairman is the superior authority in the organizational structure. He delegates his authority to functional manager. Functional managers delegate their authority to their subordinates of ultimately reaches to the lower level. 3.2. List of Board of directors of MPI Ltd. 1. 2. 3. 4. 5. 6. 7. 8. 9. C. Krishnan (Chairman MPI Ltd) Dr. Ani S. Das Shri. N. K. Manoj Dr. V. Sunil Kumar Shri. K. Thulaseedharan Dr. P. Kutty Narayanan Shri. V. Rajappan Shri V. K. Vasudevan IAS Shri. K. A. Joy

10. The A/c General of Kerala 11. The Principal secretary to the Honble minster of food civil supplies and animal husbandry government of Kerala. 3.3 Working Hours The working hours of MPI 8 am to 5 pm with one hour lunch break for factory workers and half on one hour leisure break for office staff. There is 10 minutes of tea break for factory employees are provided in company from 3 pm. 3.4 Activities of the organization
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 Production of meat and meat product Production of supply of feed to poultry and pig farms of animal husbandry department Production of pet foods Production of feather meal, bone meal, meat cum bone meal etc. Distribution of pig lings and rabbits to farmer under buy back scheme. Training to student, in food processes and farm management. 3.5 Objectives of the company The basic objective the organization is to satisfy the needs of customers. To save primary producers and livestock farmers from exploitation of traders and middlemen. To provide quality of hygiene products to customer by improve the quality of animals used for meat production. To improve the expert of meat and meat products. To deviate from the traditional system of food processing religious controversy and to provide hygienic products. To facilitate effective inspection on and mortem and post mortem to produce wholesome hygienic meat and meat product on commercial lined market at low price To reduce cruelty towards, animal used for slaughter by providing proper transportation to the terminal plant.
58

 Adoption of scientific and modernized system of production. Increase overall performance with cost effectiveness

3.6 Vision MPI promoters a healthy world and closer connection to food sources by managing its economic power with commonly focused co-operative values. 3.7 Mission MPI provides services and natural product that promote nutritional awareness environmental responsibility and a sustainable community for all. 3.8 Different phases of development The meat processing factory at Koothattukulam was stated under guidance of animal husbandry of Kerala as KEKE Bacon factory. The construction and erection work of the factory building started in 1965 and the units was commission in the year 1968. The meat products of India Ltd. Were incorporated in the year 1973 with the objective of establishing an export oriented buffalo meat processing project. The company took over the Bacon factory under animal husbandry department in the year 1976, because the factory comes to a closing down stage 1976. The company was originally design to
59

slaughter and process 30 pigs per day. The MPI Ltd. Diversified its activities by handling cattle buffalo, goat, rabbit and poultry for the effective utilization of the existing capacities and facilities. At present the company processing more than 50 varieties of meat products. The company has changed its subsidiary status and it is functioning an independent company from 1984 onwards. In 2003 the company has done some modernization for the development of the plant facilities such as purchase of new machines, flooring computerization etc. 3.9 Export Oriented Project The company had acquired 15 acres of land at pariyaram, chalakkudy for the establishment of an export oriented meat project. The proposed outlay for the project is two cores . The government of India and other allied agencies meets the financial out lay for the project. The investment required to meet by the state government will be Rs. 50 lakhs it will be completed nearby future. 3.10 INFRASTRUCTURE OF THE COMPANY The company has the following facilities. Plant and Machinery The major part of the plant and machinery of the existing unit was establishment in the year 1960. Now totally outdated, many of the vital equipment are due for replacement. The existing facility is designed only for

60

handling 30 pigs a day which will steady the production of one tone of meat a day in 8 hours single shift operation. With in the limited capacity the company is now handling the production of meat out of cattle, buffalo, rabbit and poultry. To have better facility for handling large animals and other species and to introduce sophisticated method of slaughter a new plant is being set up as an expansion programmed. The government approved the company's proposal for modernizing the existing units. It involves a capital outlay of Rs. 84.55 lakhs during the period of 1990-91, 199192 and the period of 1992-93 and the company revised the proposal with an outlay ofRS.130 lakhs. The amount to this process is contributed by the central and stage governments 50: 50 basis. The fund expected to be revised from the state and central government during the period 1990 Poultry Farm The company has poultry farm having capacity 01 80,000 birds per annum. The birds reared by the company used for the processing of various chicken products in the company. It assures quality of chicken products marketed by the company. Pig Farm The capacity of pig farms in 400 sows. On an average per year, the company produces 750 nos. of piglets; out of these 3000 piglets 2000 will be sold to farmers and the company will fall 1000. The piglets fattened by farmers are
61

to be sent back to the company accepts to increases additional feeder units and it is possible to improve the supply of quality fattened pigs required in the company. Now the company is proposes to expand its farms activities. Rabbit Farm The rabbit farm was setup with the financial aid from District Rural Development Agency Capital outlay was Rs.2.88 lakhs. The breeding stock was produced during the year 1984-85. Hence considering the export opinion to replace the stock, the company programmed to renovate the farm by Introducing fresh breeding stock. Feed Mixing Unit The feed mixing unit was established during the year 1988-89 at a cost of RS.l.4 lakh with a capacity to produce 8MT of feed per 8 hours shift. On an average the company produces feed at the rat of 12 tones per day. Now the company supplies the feed to various feed units to own farmer and also to the farmers of Animal Husbandry Department, Kerala Agricultural University and to the societies in the special Livestock Breeding Programmed of the animal husbandry department. The main problem -of the company is inadequate working capital produce the feed ingredients during the season and stocks the same. The company has constructed a separate go down attached the feed mixing plant to store 50 tones of feed ingredients. 3.11 MEAT PROCESSING IN THE FACTORY
62

Meat processing companies of four steps, they are: i) Slaughter and inspection of animals ii) Grading of meat iii) Refrigeration of meat iv) Marketing i) Slaughter and Inspection of Animals MPI has installed a large plant for the slaughter of animals. The slaughtered carcass in huge up on monorail system and moved from worker to worker in regular disassembly line factory. It is monorail to the hot pox shrouding, shaping and bleaching and removal of the animal beat lot the cooler for storage. Independent supervision and inspection is necessary to ensure public health. Inspection is intended for the removal of the meat of diseased animal inspection occurs in slaughter house and other levels, for processors, jobbers, canners or others wishing to handle meal in any form and offers it in interstate or foreign commerce. The basic areas of inspection are: a) Detection and elimination of diseased meat b) Clean and sanitary handling and preparation of food composed of meat c) Prevention of harmful substances in meat food d) Application of an inspection mark ii) Grading of Meat

63

Grading means classification on the basis of quantity. The meat grader observes the beef carcasses approximately 24 hours or more after slaughter. He appraise the carcasses with a coded shield stamp placing the proper number of stamps on each quarter, one for good two for choice and three for prime. Beef is now graded after it ribbed down. After preliminary grade designations are completed, the beef of the same value as the key stamps. iii) Refrigeration of Meat The third step in meat processing is the refrigeration of meat. To prolong or extend the commercial life of the produce in its natural raw state is that fundamental function of the application at cold. This applies to temperature above the freezing point. The farmers freezing temperature is known as 'cooler' and the takes as freezer storage. The application of refrigeration begins immediately after slaughter when the carcass is removed to the hot box. The animal heat is removed and internal temperature of the carcass is reduced as quickly as possible depending on the practice of the particular packer. From these the product while it is moved through the trade channels on and off trucks in and out of coolers in good practice is maintained at a more or less uniform interned temperature. There are rooms per chilling, for curing and for finished products in MPI for the refrigeration of the meat products. An amount of Rs. 4.5 lakhs has been spent for this plant.

64

iv) Marketing Of The Product Marketing meat and meat products to consumer is the last step in meat processing. The company central sales department is at Thiruvanathapuram. It is handling 16% of the total production and earning a reasonable profit on sale. The company has regional departments in important centers like Kottayam, Trissur, Palghat and Calicut. The depots at Koothattukulam and Ernakulam were dropped more over the company has 140 authorized dealers all over the state.

65

CHAPTER 4 DATA ANALYSIS AND INTERPRETATION

CHAPTER 4 DATA ANALYSIS AND INTERPRETATION

A study of working capital would reveal whether it is serving the purpose for which it has been created or not. Working capital typically means the firms holding of current, or short term assets, such as cash receivables, inventory, and marketable securities.
66

RATIO ANALYSIS A ratio is a simple arithmetical expression of the relationship of one number to another. The technique of ratio analysis can be employed for measuring short-term liquidity or working capital position of a firm. The following ratios may be calculated for this purpose. 4.1 Current ratio Current ratio is the ratio of current assets to the total current liabilities. It is expressed as follows. The current ratio of the firm measures its short term solvency (Its ability to meet short term obligations). A current ratio of 2:1 is considered to be an ideal one. Alight ration indicates a sound solvency position and vice versa. Current ratio = Current asset Current liabilities Current assets include cash and those assets can be converted into cash with a year such as marketable securities, debtors, and inventories. Prepaid expenses are also included in the current asset. Current liabilities include expenses, short-term bank loan and income tax liability etc. Current ratio= Current asset/current liability*100 (table 4.1)

67

Year 200506 200607 200708 200809 200910

Current Assets 15166157.43 19350465.7 26025007.82 28588587.54 29374897.68

Current Liabilities 14572246.0 9 17101626.5 9 20314437.9 7 24206083.3 7 23995753.0 9

Current Ratio 1.041 1.131 1.281 1.181 1.224

(chart 4.1)

68

1.4 1.2 1 0.8 0.6 0.4 0.2 0 2005- 2006- 2007- 2008- 200906 07 08 09 10 current ratio

Interpretation: Current ratio for the year 2005-06,200607,2007-08,2008-09,2009-10are good. The ratio should be 2:1 4.2 Quick ratio Quick ratio= Quick asset/ quick liability x 100 (Table 4.2) 1.04, 1.131, 1.28,1.18, 1.24 respectively. Current ratio for different years is not

69

Year 200506 200607 200708 200809 200910

Current Assets Year 15166157.43

Stock

Advances

Quick

Quick Current Quic Assets 5781073.92 2194483.10 7190600.4 Assets Liabilitie k 0 10 s Rati 9348740.5 19350465.7 6115402.49 3886322.65 o 0 60 2005-06 7190600.41 14572246 0.49314979442. 26025007.82 6214064.53 4831501.15 .09 0 140 2006-07 9348740.56 17101626 0.54718456854. 28588587.54 7612872.37 2518861.15 .59 0 020 2007-08 14979442.14 20314437 0.73716391709. 29374897.68 10549471.64 2433716.35 .97 0 690 2008-09 18456854.02 24206083 0.762 .37 23995753 .09

2009-10

16391709.69

0.683

(Table 4.3)

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0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.0493 2005-06 2006-07 2007-08 2008-09 2009-10 0.547 quick ratio 0.737 0.762 0.683

(Chart 4.2.)

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Interpretation: Quick 07-08,08-09,09-10 respectively. Quick are

ratio for the year 2005-06, 06-07, .493, for .547, different .737, years .762,.683 is not

ratio

satisfactory. The ratio should be 1:1 4.3 Inventory turn over Ratio Inventory turnover ratio also known as stock velocity is normally calculated as sales/average inventory or cost of goods sold/ average inventory. It would indicate whether inventory has been sufficiently used or not. The purpose is to see whether only the required minimum funds have been locked up in inventory. Inventory turnover ratio indicates the number of times the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. Inventory turn over Ratio =Cost of good sold/Average inventory at cost x 100

(Table 4.4)

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Year 200506 200607 200708 200809 200910

Opening stock 6417396. 12 5781073. 92 6115402. 49 6214064. 53 7612872. 37

Purcha ses 301953. 2 368658 143224 19993 4297

Direct Expenses 23700597. 910 22835918. 760 2269380.6 40 26250015. 820 30639322. 590

Closing Stock 5781073. 92 6115402. 49 6214064. 53 7612872. 37 10549471 .64

Cost of Goods Sold 246388 73 228702 48 231394 2 248712 00 277070 20

(Table 4.5) Cost of Year goods Sold 200506 24638873.31 9307933.08

73

Average Stock

Inventory turnover ratio 2.647

200607 200708 200809 200910 22870248.19 2313942.6 24871200.98 27707020.32 8838775.165 9222434.755 10020500.72 12887608.19 2.587 2. 51 2.482 2.150

(Chart 4.3)
3 2.5 2 1.5 1 0.5 0 2005- 2006- 2007- 2008- 200906 07 08 09 10 inventory turnover ratio

Interpretation From the graph it is clear that Inventory turnover ratio for the year 2005-06,06-07,07-08,08-09,09-10 are .2.647,2.587,2.51,2.48,2.15 respectively. Higher inventory turnover ratio indicates an efficient management of inventory. Hence it is clear that Inventory turnover ratio is a satisfactory. 4.4 Net Working capital
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Net Working capital= Current asset current liability (Table 4.6) Current Year Current Asset Liability Net Working Capital 200506 200607 200708 200809 200910 15166157.43 19350465.7 26025007.82 28588587.54 29374897.68 14572246.09 17101626.59 20314437.97 24206083.37 23995753.09
(chart 4.4)
6000000 5000000 4000000 3000000 2000000 1000000 0 2005- 2006- 2007- 2008- 200906 07 08 09 10 net working capital

593911.340 2248839.110 5710569.850 4382504.170 5379144.590

Interpretation- From the graph it is clear that net working capital for the year 2005-06,06-07,07-08,08-09,09-10 are 593911,2248839,5710569,4382504,5379144
75

respectively.

Net working capital is showing is increasing trend. Hence Financial position of the company is satisfactory.

4.5 Working Capital turn over Ratio Working capital turnover ratio indicates the velocity of the utilization of net working capital. This ratio indicates the number of times the working capital is turned over in the course of a year. This ratio measures the efficiency with which the working capital is being used by the firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. But a very high working capital turnover ratio is not a good situation for any firm and hence care must be taken while interpreting the ratio. Working Capital turn over Ratio= sales/ net working capital

(Table 4.7)

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Working Year Sales 200506 200607 200708 200809 200910 33169827.15 33225934.3 31424091.05 38361283.2 41866509.88 Net working capital 593911.34 2248839.11 5710569.85 4382504.17 5379144.59 capital turnover ratio 55.850 14.775 5.503 8.753 7.783

(Chart 4.5)

77

60 50 40 30 20 10 0 working capital turnover ratio

2005-06 2006-07 2007-08 2008-09 2009-10

Interpretation-Working capital ratio for the year 200506,06-07,07-08,08-09,09-10, 55.80,14.77,5.503,8.75,7.78 respectively. are Present ratio is

optimum and should be maintained, 2003-04 working capital ratio was not at all optimum. Higher working capital turnover ratio shows optimum utilization of fund.

4.6 Current Assets turn over Ratio Current Assets turn over Ratio= sales/ current asset (Table 4.8)

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Year 200506 200607 200708 200809 200910

Current asset Sales 33169827.15 33225934.3 31424091.05 38361283.2 41866509.88 Current asset 15166157.43 19350465.7 26025007.82 28588587.54 29374897.68 turnover ratio 2.187 1.717 1.207 1.342 1.425

(Chart 4.6)

79

2.5 2 1.5 1 0.5 0 2005- 2006- 2007- 2008- 200906 07 08 09 10 current asset turnover ratio

Interpretation From the graph and table it is clear that current asset turnover ratio for the year 2005-06,06-07,0708,08-09,09-10 are 2.18,1.7,1.2,1.3,1.4 respectively. Current asset turnover ratio is showing decreasing trend. Higher ratio shows optimum utilization of fund. Current asset turnover ratio is optimum. 4.7 Fixed asset turn over ratio Fixed asset turn over ratio = sales/ fixed asset x100 (Table 4.9)

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Year Sales 200506 200607 200708 200809 200910 33169827.15 12140820.73 33225934.3 11028814.33 31424091.05 10244784.33 38361283.2 9513243.33 41866509.88 9068090.33 Fixed asset

Fixed asset turnover ratio

2.732

3.013

3.067

4.032

4.617

(Chart 4.7)

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5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2005- 2006- 2007- 2008- 200906 07 08 09 10 fixed asset turnover ratio

Interpretation From the table it is clear the fixed asset turnover ratio is increasing which is satisfactory. Various ratios for the year 2005-06.06-07,07-08,08-09, 09-10 are 2.732, 3.013, 3.067, 4.032,4.67 respectively. 4.9 Inventory as a percentage of sales Inventory as a percentage of sales= Inventory/sales x 100

82

(table 4.10) Year Inventory 6,417,396 5,781,073 6,115,402 6,214,064 7,612,872 2009-10 Sales ( Rs.) 34,885991 34907,754 34,888,901 32,073,030 19.4 37,922,663 20.1 Ratio 18.4 16.6 17.5

2005-06 2006-07 2007-08 2008-09

(chart 4.8)
25 20 15 10 5 0 ratio

2005-06 2006-07 2007-08 2008-09 2009-10

Interpretation-From the graph and table it is clear that inventory as a percentage of sales for the year 2005-06,0607,07-08,08-09,09-10 are
83

.18.4,16.6,17.5,19.4,20.1

respectively. Higher ratio shows the optimum utilization of fund. 4.10 Inventory as a percentage of current asset Inventory as a percentage of sales= Inventory/current asset x 100 (table 4.11) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Current asset 13,320,803 15,166,157 19,350,465 26,025,007 28,588,587 (chart 4.9) Inventory 6,417,396 5,781,073 6,115,402 6,214,064 7,612,872 Ratio 48.2 38.1 31.6 23 .8 26.7

50 40 30 20 10 0 2005-06 2006-07 2007-08 2008-09 2009-10 ratio

Interpretation: Inventory as a percentage of current asset for the year 200506, 06-07,07-08,08-09,09-10 are

84

48.2, 38.1, 31.6, 23.8, 26.7 respectively. Inventory as a percentage of current asset showing decreasing trend. Present ratio is optimum, company should maintain that. 4.11 Debt-equity ratio Debt-equity ratio= Outsiders funds/shareholders fund (table 4.12) (in thousands) Year 2005-06 2006-07 2007-08 2008-09 2009-10 Outsiders fund 22029 21996 26,086 29,300 33,972 Shareholder s fund 114908 119718 124462 135337 .22 153179 .23 Ratio .20 .19 .21

(chart 4.10)

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0.25 0.2 0.15 0.1 0.05 0 2005- 2006- 2007- 2008- 200906 07 08 09 10 ratio

Interpretation- From the graph it is clear that shareholders fund is more than debtors fund from 2005 to 2010. They are .20,.19,.21,.22,.23 for 2005-06,06-07,07-08,08-09,09-10 respectively. Debt equity ratio should be 1:1. Ratio is not optimum. 4.12 Equity ratio or proprietary ratio A variant to the debt-equity ratio is the proprietary ratio which is also known as Equity ratio or shareholders to Total Equities or Net worth to Total Assets ratio. This ratio establishes the relationship between shareholders funds to total assets of the firm. The ratio of proprietors funds to total funds is an important ratio for determining long-term solvency of a firm.. The ratio indicates the extent to which the assets of the company can be lost without affecting the interest of creditors of the company. Equity ratio = Shareholders fund/total asset (table 4.13)

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(In thousands) Year 2005-06 2006-07 2007-08 43,642 2008-09 53,432 2009-10 55,432 153179 135337 2.5 2.8 Total asset 40,407 41,145 Shareholder s fund 114908 119718 124462 Ratio 2.8 2.9 2.9

(chart 4.11)

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2.9 2.8 2.7 2.6 2.5 2.4 2.3 2005-06 2006-07 2007-08 2008-09 2009-10

equity ratio

Interpretation: From the graph and table it is clear the equity ratio for the year 2005-06,06-07,07-08,08-09,09-10 are 2.8,2.9,2.9,2.5,2.8 respectively. It shows that shareholders fund is more in total capital of the company hence long-term solvency position of company is satisfactory. 4.13 Ratio of current asset to proprietors fund. The ratio is calculated by dividing the total of current assets by the amount of shareholders funds. The ratio indicates the extent to which proprietors funds are invested. There is no rule of thumb for this ratio and depending upon the nature of the business there may be different ratios for different firms.
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Ratio of current asset to proprietors fund. = current asset/shareholders fund x100

(table 4.14 ) (in thousands) Year Current asset Shareholders fund 2005-2006 13,321 1,14,908 11.60 Ratio

2006-2007

15,166

1,19,718

12.67

2007-2008 1 2008-2009 5 2009-2010

1935

1,24,462

15 .6

26,02

1,35,337

19. 22

22,589

1,53,179

14.7

(chart 4.12)

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20 18 16 14 12 10 8 6 4 2 0 2005-06 2006-07 2007-08 2008-09 2009-10 ratio

Interpretation: From the graph and table it is clear that ratio of current asset to proprietors fund for 2005-06,06-07,07-08,08-09,0910 are 11.60,12.67,15.6,19.22,14.7 respectively. Hence companys position is satisfactory. 4.14 Ratio of current liability to proprietors fund. Ratio of current liability to proprietors fund. =Current liability/shareholders fund

(Table 4.15)

(In thousands) 90

Year

Current liability

Shareholders fund

Ratio

2005-2006

14,982

1,14,908

.13

2006-2007

14,572

1,19,718

.12

2007-2008 2 2008-2009 4 2009-2010

17,10

1,24,462

.13

20,31

1,35,337

.15

24,206

1,53,179

.16

(Chart 4.13)

0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2005-06 2006-07 2007-08 2008-09 2009-10 ra tio

Interpretation: From the table and graph it is clear that ratio of current liability to proprietors fund for 2005-06,06-07,0708,08-09,09-10 are .13,.12,.13,.15,.16 respectively.

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Shareholders fund should be more than current liability. Hence company position is satisfactory. 4.15 Ratio of reserves to equity capital Ratio of reserves to equity capital = reserve/equity share capital

(table 4.16) (in thousands)

Year Reserve Equity share capital 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 42,207 47,457 47,457 53,857 61,357 18,111 18,111 18,111 18,111 18,111 2.33 2.62 2.62 2.97 3.38 Ratio

(chart 4.14)

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3.5 3 2.5 2 1.5 1 0.5 0 2005-06 2006-07 2007-08 2008-09 2009-10 ra tio

Interpretation: From the graph and table it is clear that ratio of reserves to equity capital for 2005-06,06-07,07-08,0809,09-10 are 2.33,2.62,2.62,2.97,3.38 respectively. Higher the ratio, generally, better is the position of the firm. Companys ratio of reserves to equity capital is satisfactory.

4.16 Schedule of changes in working capital Schedule of changes in working capital for the year 2005-2006(Rs.)

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(Table: 4.17)

Particulars Stocks Sundry Debtors Cash & Bank balance Loans and Advances Total (A)

2005 2006 A. Current Assets 6417396.12 5781073.92 5381822.03 6477164.26 512887.59 713436.15 1008697.10 2194483.10 13320802.84 15166157.4 3 B. Current Liabilities 1603229.65 1603229.65 4034295 7355611.60 370869.70 878500 6504.75 251635.49 481799.50 14982445.69 -1661643 2255554 593911 4298828 6850542.50 257169.70 983800 6504.75 209671.49 362500 14572246.0 9 593911

Increase

Decrease 636323

1095342.2 200548.56 1185786

Advance from Kerala state civil supplies corp. ltd Interest due Sundry Creditors Earnest money deposit Security deposits Advance against special component program Advance against sales Advance from director & provisions for bonus Total (B) Working Capital (A-B) C.Net increase in working capital Total

0 264533

505069.1 113700 105300 0 41964 119299.5 0

2255554 593911

Interpretation The working capital has increased considerably compared to the previous year. The main reason behind this is the increase in debtors and loan amount, cash & Bank balance.
Table:4.18: Schedule of changes in working capital for the year 2006-2007 (Rs.) Particulars 2006 2007 Increase Decrease

A. Current Assets Stocks Sundry Debtors 5781073.92 6477164.26 94 6115402.49 7564373.54 334328.57 1087209.28

Cash & Bank balance Loans and Advances Total (A)

713436.15 2194483.10 15166157.43

1784367.02 3886322.65 19350465.7 0

1070930.87 1691839.55

B. Current Liabilities Advance from Kerala state civil supplies corp. ltd Interest due Sundry Creditors Earnest money deposit Security deposits Advance against special component program Advance against sales Advance from director & provisions for bonus Total (B) Working Capital (A-B) C.Net increase in working capital Total Interpretation 1603229.65 4298828 6850542.50 257169.70 983800 6504.75 209671.49 362500 14572246.09 593911.34 1654927.77 2248839.11 1603229.05 4563361 9050363.7 261314.70 1058800.00 6504.75 208216.69 356500 17101626.5 9 2248839.11 2248839.11 0 1454.8 6000 0 0 264533 2199821.2 4145 75000 0

1654927.77

The assets increased and liability decreased considerably, which ultimately resulted in increasing trend of working capital this year. Table:4.19: Schedule of changes in working capital for the year 2007-2008(Rs.)
Particulars 2007 2008 Increase Decrease

A. Current Assets Stocks Sundry Debtors Cash & Bank balance Loans and Advances Total (A) 6115402.49 7564373.54 1784367.02 3886322.65 19350465.70 6214064.53 5720600.17 9258841.97 4831501.15 26025007.8 2 95 98662.04 1843773.3 7 7474474.95 945178.5

B. Current Liabilities Advance from Kerala state civil supplies corp. ltd Interest due Sundry Creditors Earnest money deposit Security deposits Advance against special component program Advance against sales Advance from director & provisions for bonus Total (B) Working Capital (A-B) C.Net increase in working capital Total Interpretation 1603229.05 4563361 9050363.7 261314.70 1058800.00 6504.75 208216.69 356500 17101626.59 2248839.11 3461730.74 5710569.85 1603229.65 4827894.00 11650324 444984.70 1116000.00 6504.75 220700.02 444800 20314437.9 7 5710569.85 5710569.85 3461730.74 0 0 264533 2599960.3 183670 57200 0 12483.33 88300

The working capital has increased considerably compared to the previous year. The main reason behind this is the increase loan amount, cash & Bank balance. Table:4.20; Schedule of changes in working capital for the year 2008-2009(Rs.)
Particulars Stocks Sundry Debtors Cash & Bank balance Loans and Advances Total (A) 2008 2009 Increase 1398807.84 710044 2767367.88 2312640 Decrease

A. Current Assets 6214064.53 7612872.37 5720600.17 6430644.17 9258841.97 12026209.8 4831501.15 26025007.82 5 2518861.15 28588587.5

4 B. Current Liabilities Advance from Kerala state civil supplies corp. ltd Interest due Sundry Creditors 1603229.65 4827894.00 11650324 1603229.65 5092427.00 15164636 0

264533 3514312

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Earnest money deposit Security deposits Advance against special component program Advance against sales Advance from director & provisions for bonus Total (B) Working Capital (A-B) C.Net decrease in working capital Total Interpretation

444984.70 1116000.00 6504.75 220700.02 444800 20314437.97 5710569.85 5710569.85

586586.70 1199500.00 6504.75 246198.64 307000 24206083.3 7 4382504.17 1328065.68 137800 0

141602 83500

25498.62

1328065.6 8

5710569.85

The working capital has decreased considerably compared to the previous year. The main reason behind this is the increase in sundry creditors and security deposits. Table:4.21: Schedule of changes in working capital for the year 2009-10 (Rs.)
Particulars 2009 2010 Increase Decrease

A. Current Assets Stocks Sundry Debtors Cash & Bank balance Loans and Advances Total (A) 7612872.37 6430644.17 12026209.85 2518861.15 28588587.54 10549471.6 4 5577315.11 10814394.5 8 2433716.35 23995753.0 9 B. Current Liabilities Advance from Kerala state civil supplies corp. ltd Interest due Sundry Creditors Earnest money deposit Security deposits 1603229.65 5092427.00 15164636 586586.70 1199500.00 776834.00 5356960.00 264533 15314578 827186.70 1166604.09 149942 240600 32895.91 826395.65 2936599.27 853329.06 1211815.2 7 85144.8

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Advance against special component program Advance against sales Advance from director & provisions for bonus Total (B) Working Capital (A-B) C.Net decrease in

6504.75 246198.64 307000 24206083.37 4382504.17

6504.75 247083.67 300000 23995753.0 9 0 4382504.17 4382504.17 4382504.17 7000 0 885.03

working capital Total Interpretation

4382504.17

The working capital has decreased considerably compared to the previous year. The main reason behind this is the increase in sundry creditors and interest due.

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CHAPTER-5 FINDINGS,CONCLUSION AND SUGGESTIONS

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CHAPTER-5 FINDINGS,CONCLUSION AND SUGGESTIONS

5.1. FINDINGS

Companies short term financial position is not satisfactory. Inventory ratio is high. It is good for company. Overall management of working capital is good. Fixed turnover ratio is fluctuating between the periods. Company has poor profitability.. Companies liquidity position is not satisfactory. Quick ratio is not satisfactory. Company has good working capital turnover ratio. Company has optimum working capital. Companys current asset turn over ratio is satisfactory. Companies inventory as a percentage of sales and current asset satisfactory. Companys quick ratio is not satisfactory. Company is showing increasing trend in working capital for 2003-04, 04-05, 05-06 and decreasing trend for the

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year 06-07, 07-08. Hence companies working capital position is not satisfactory for last few years. 5.2. CONCLUSION Organizations are generally focused on cash, accounts payable, and supply chain issues. However, external issues like the legal and business environment, or internal mechanisms like organization structure and information systems, can significantly impact working capital. Owing to market pressures, companies are led to paying a lot of attention to producing good quarterly results quarter after quarter. Undue focus on this may sometimes produce a flattering but inaccurate snapshot of working capital performance. This also happens in companies that have a marked seasonality of operations with working capital requirements varying widely from quarter to quarter. An innovative approach, combining operational and financial skills and an all encompassing view of the company's operations will help in identifying and implementing strategies that generate short term cash. This can be achieved by having the right set of executives who are responsible for setting targets and performance levels. They are then held accountable for delivering. They are also encouraged to be enterprising and to act as change agents.

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5.3 SUGGESTIONS

A well planned collection program should be adopted so as to reduce the amount of receivables. Cash budget should be prepared on a monthly basis instead of quarterly basis, as it will help to plan and control the cash flow effectively. ABC analysis, Just-in-time Inventory control system should be used for the better management of inventories. The firm should overcome its depending on the government and the banks for its working capital management. The firm should identify those products that contribute greatly to their revenue so as to maintain their contribution in the future. The firm should identify various investment avenues suitable to it. The company could be used current assets more effectively. The company should diversify to related product. More Research and development should be done. There should be monthly review of inventory.

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 Interest may be charged for the delayed payments. Tight follow up of debtors to ensure that payments are received in time. If the company prefers a large volume of sales and thereby increase its profits, more amount of working capital may be converted into sales. But, if the company prefers high liquidity the existing system is satisfactory.

BIBLIOGRAPHY
1)www.meatproductionsofindia.com 2) companys annual report 3) www.planware.org/workingcapital.com

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