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A project report on estimation of working capital reqiurements krishna sugar factory athani

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A project report on estimation of working capital reqiurements krishna sugar factory athani

A project report on estimation of working capital reqiurements krishna sugar factory athani

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  • 1. CONTENTSSL. NO PARTICUALARS PAGE .NO 1 EXECUTIVE SUMMARY 1-3 2 INTRODUCTION TO THE STUDY 4 3 INDUSTRY PROFILE 5-8 4 ORGANIZATION PROFILE 9-31 5 WORKING CAPITAL MANAGEMENT 32-44 6 OBJECTIVES OF THE STUDY 45 7 ANALYSIS OF THE STUDY 46-65 8 FINDINGS 66 9 SUGGESTIONS 67 10 CONCLUSION 68 11 BIBLIOGRAPHY 69
  • 2. The Krishna Co-operative Sugar Factory Limited, Athani EXECUTIVE SUMMARYINDUSTRY PROFILE:The advent of modern sugar industry began in 1930 with grant of tariff protection to theIndian sugar industry. The number of sugar mills increased from 30 in the year 1930-31 to135 in the year 1935 and the production during the same period increased from 1.20 lakhtones to 9.34 lakh tones under dynamic leadership of the private sector. The era of planningfor industrial development began in 1950-51 and government laid down targets of sugarproduction and consumption licensed and installed capacity, sugarcane production duringeach of the five-year plan periods.Total sugar industries in India are 506 out of which 67 are public sector companies, 157 areprivate sector companies and 282 are co-operative societies. Total sugar industries inKarnataka are 40 out of which two are public sector companies,18 are private sectorcompanies,19 are co-operative societies and one is joint venture.COMPANY PROFILE:The Krishna Co-Operative Sugar Factory Limited, Athani, is a co-operative societyregistered under Karnataka co-operative societies Act in 1969. The Plant is located atSankonattii Village of Athani in Belgaum district. The registration number of the company isDSK/REG/01/80-81 dated 10-03-1981. The industrial license number of the factory isL.I.667 (1988) dated 02/11/1988.The founder of this organization was Late Sri. A.B.Jakanur Ex Min.of Karnataka. At presentit has an attractive campus with magnificent buildings over it. There are totally 18,103shareholders of TKCSFL and it has paid up share capital of Rs.18.39 Crores. During the year2007-08, it has earned a net profit of Rs.18.34 lakh. During the same year it has produced7.00 lakh Quintals of sugar and it has crushed 5.60 lakh Tonnes of cane.There are 610 workers in TKCSFL. It is paying salary of Rs. 1500,000 per month to itsworkers. Total Turnover of sugar is Rs.60.03 crores.Babasabpatilfreepptmba.com Page 2
  • 3. The Krishna Co-operative Sugar Factory Limited, AthaniNEED FOR THE STUDY:Whether a manufacturing unit or non-manufacturing one, working capital is is the life-line ofevery concern. Without adequate Working Capital there progress in the industry. InadequateWorking Capital means shortage of raw materials, labour, etc., resulting in partial utilizationof available machine capacity. Moreover, research and development in the industry will be atlow ebb and essential innovations fail to appear. Inadequate Working Capital frustrates theobjectives of the enterprise through lack of funds and contributes towards the failure of abusiness. On the other hand, more Working Capital may lead to less control over worker’sperformance, inefficient store-keeping, excessive stocks of raw material and finished goods,delay in the flow of work-in-progress and lack of coordination in the enterprise. So theamount of Working Capital in every concern should be neither more nor less than what isrequired.OBJECTIVES OF STUDY: • To study the sources and application of fund of TKCSFL • To examine how the working capital requirements is estimated • A study on the interpretation of working capital on the basis of calculations and estimations • To study the system of inventory management, receivables management and cash management. • To identify weakness and short comings if any as a result of the survey and to offer suggestionsMETHODOLOGY:DATA COLLECTION METHOD:1. PRIMARY DATA: The information is collected from the personal interaction With the Accounts officer & workers of the union2. SECONDARY DATA: This is collected through A) .Annual Reports of the TKCSFLBabasabpatilfreepptmba.com Page 3
  • 4. The Krishna Co-operative Sugar Factory Limited, Athani B) Related Information from Internet.FINDINGS: • The current and quick ratios are satisfactory i.e. 2.09 and 0.267 on an average respectively. So the firm’s liquidity position is good. It shows that it is able to meet its current obligations. • The cash reserves maintained by the company are good. But as compared to financial status it is not at remarkable extent. This is serious liquidity crunch to the company. However the company is much safer side because of their outstanding due to farmers, who have also hold shares of company. Another point is farmers are not aggressive to recover their dues. • Proportion of cash to sales maintenance of the cash balance is inadequate. As a rule when sales increase cash also increase, but at a decreasing rate. It shows that inadequate of cash balance.SUGGESTIONS: • The inventory turnover ratio of the company was more than 75%. The firm should search for new customers, and also the firm should focus on it’s foreign exports. • When we analyzed the proportion of cash in sales and current assets, the cash is not sufficient to meet the current expenses. So the firm should maintain sufficient cash balance and bank balance through effective credit policies. The major drawback for the insufficient of cash is that, the inventory has not been selling fast. So the firm should force to think about it. • As it is well known fact that sugarcane grown is not only produces sugar. It can produce many other products also like molasses, cartons, electricity and beverages therefore company need to focus in these areas also.CONCLUSION: When I analyzed the financial performance, the firm’s commitment to meet shortobligations is good i.e. liquidity position of the company is good. And in respect cashbalance, the firm has not sufficient balance. As a result of that, it may affect the workingBabasabpatilfreepptmba.com Page 4
  • 5. The Krishna Co-operative Sugar Factory Limited, Athanicapital, so totally the firm is struggling to meet its current expenses. And with regard toresources, the firm is not utilizing the assets properly. And similarly the firm has amaintained high inventory. INTRODUCTION TO STUDYThe aim of the present study is to examine the Small Scale Industry practices in WorkingCapital management and to evaluate management performance for the same purpose. “Sincethe efficiency of the Working Capital management is determined by the efficientadministration of its various components- cash, accounts receivable and inventory, the studyattempts to determine the management of each component”.“Working Capital in a business enterprise may be compared to the blood in a human body:Blood gives life and strength to the human body. Similarly Working Capital injects life andstrength- profits and solvency - to the business organization”. Working Capital refers to shortterm funds required for the purpose of business operations. The funds used for meeting day today expenses like, purchase of raw materials, payment of wages and other expenses, stockingof goods, granting of credit to customers and maintenance of the minimum balance. It is notnecessary that the funds should be in the form of cash only. It can be in the form of near cashitems like, marketable securities, inventories and account receivableBabasabpatilfreepptmba.com Page 5
  • 6. The Krishna Co-operative Sugar Factory Limited, Athani INDUSTRY PROFILEINTRODUCTION TO SUGAR INDUSTRY: The Indian sugar industry is a key driver of rural development, supporting Indiaseconomic growth. The industry is inherently inclusive supporting over 50 million farmers andtheir families, along with workers and entrepreneurs of almost 500 mills, apart from a host ofwholesalers and distributors spread across the country. The industry is at a cross roads today, where it can leverage opportunities created byglobal shifts in sugar trade as well as the emergence of sugarcane as a source of renewableenergy, through ethanol and cogeneration. While some of these opportunities have been wellresearched in the past, there was a need to assess the potential for India and to develop acomprehensive and actionable roadmap that could enable the Indian industry to take itsrightful place as a food and energy producer for one of the worlds leading economies. India is second largest producer of sugarcane next to Brazil. As per last year data,about 4 million hectares of land is under sugarcane with an average yield of 70 tones perhectare. India is largest producer of sugar including traditional sugar sweetener, Khandasariand Gur equivalent to 26 million tones raw value followed by Brazil in the second place at18.5 million tones. Even in respect of white crystal sugar, India has ranked No position 7 outof last 10 years. Traditional Khandasari and Gur are consumed mostly by the rural population in theearly 1930’s nearly 2/3rd of sugarcane production was utilized for production of alternatesweetener, Gur & Khandasari. With better standard of living and high income, the sweetenerdemand has shifted to white sugar. About 1/3 rd of sugarcane production is utilized by the Gur& Khandasari sectors. Being in the small scale sector, these two sectors are completely freefrom controls and taxes, which are applicable to the sugar sector.Babasabpatilfreepptmba.com Page 6
  • 7. The Krishna Co-operative Sugar Factory Limited, AthaniPROFILE OF THE SUGAR INDUSTRY:Sugar mills with cane crushing capacity and sugar production per unit in variouscountriesCountry No. of Units Avg. cane crushing Avg. production per per day dayThailand 45 10307 140540Australia 28 9216 183321Brazil 213 9168 64018South Africa 13 6877 137769Mexico 67 4749 71015Colombia 10 4590 214900Cuba 150 4229 45538Hawaii 9 4111 44111Mauritius 16 3195 42970India 506 2527 35000The advent of modern sugar industry began in 1930 with grant of tariff protection to theIndian sugar industry. The number of sugar mills increased from 30 in the year 1930-31 to135 in the year 1935 and the production during the same period increased from 1.20 lakhtones to 9.34 lakh tones under dynamic leadership of the private sector. The era of planning for industrial development began in 1950-51 and government laid downtargets of sugar production and consumption licensed and installed capacity, sugarcaneproduction during each of the five year plan periods.Total sugar industries in India are 506 out of which 67 are public sector companies, 157 areprivate sector companies and 282 are co-operative societies. Total sugar industries inKarnataka are 40 out of which two are public sector companies, 18 are private sectorcompanies, 19 are co-operative societies and one is joint venture.Babasabpatilfreepptmba.com Page 7
  • 8. The Krishna Co-operative Sugar Factory Limited, AthaniGovernment enacted the Sugar Development Fund Act & Rules, which provides for levy ofper quintal of sugar known as Sugar Development Fund (SDF). The SDF is utilized forgranting term loans to sugar mills modernization and grants for research projects in the sugarbesides creation of buffer stocks as and when required to ensuring price stability.Government de-licensed sugar sector in August 1998. It is now open to entrepreneurs to setup mills without license but at distance of 15 kms away from the existing factory. Sugar unitsfree to expand their capacity and also put up higher capacity new units. This should help toconsolidate and expand their capacities wherever cane potential exists.SUGAR INDUSTRY IN INDIA Most of the sugar industries are located in U.P, Bihar, Maharashtra, A.P., Karnatakaand T.N. The sugar industry is one of the largest organized industries with total capitalinvestment of more than Rs.500 crores. It employees more than 2.5 lakhs of workers besidescreating extensive indirect employment over 25 to 30 million cultivators of sugar cane,dealers in sugar and confectioneries. When sugar industry was granted tariff protection the history of sugar industry startedagain before 1932, which gave driving force to growth of industry. Again the government in1951 provided incentives by fixing minimum prices of cane and maximum prices of sugar.This incentive scheme increased the production of sugar but discouraged the cane production.We will see later on how contradictory government. Policies have adversely affected thegrowth of sugar industry. Unfortunately, government policy has been that of control and re-control from time to time creating an environment inimical (hostility, unfriendly) to thegrowth of sugar industry. Up to 1957-58 both consumption and production of sugar rose to20 lakhs tones each. During 1969’s production of sugar rose to 35lakshs tones and during1970’s it was in between 40 to 50 lakh tones. And during 2000-01 it was in-between 80 to 90lakhs tones.Babasabpatilfreepptmba.com Page 8
  • 9. The Krishna Co-operative Sugar Factory Limited, AthaniINDIAN SUGAR INDUSTRY AT GLANCE:No of sugar factories established 574Total capital employed Rs. 50,000 croresTotal annual turnover Rs. 25,000 croresTotal payment to cane growers Rs. 18,000 croresContribution to central & state exchequers Rs. 1700 crores+800 croresDirect employment : rural educated Rs. 5.00 LakhsFarmers/families involved in sugar cane Rs. 45 million(7.5% of rural population)In global economy, the Indian sugar industry has achieved a number of milestonesLargest Sugar Producer in 7 out of 10 yearsSecond Largest Area under Cane/Cane productionAmongst the cost effective industries with its field cost (Sugar cane) being the second lowest,despite small land-holding and low productivityFourth efficient processor of sugar despite low capacity of its sugar plants as compared verylarge-size plants in other parts of the worldGOVERNMENT POLICY: The present policy of decontrol 10% of production by each unit is supplied for publicdistribution system I as levy sugar at Govt. notified prices admittedly bellow 20% of theactual cost of production. The levy sugar is I to the public irrespective of their economicstatus. The balance 90% is sold in the free market against monthly/ issued by theGovernment. This policy has been continuing since 1967-68 except for brief periods of de-control during the years of surplus production and accumulated sugar stocks. GovernmentBabasabpatilfreepptmba.com Page 9
  • 10. The Krishna Co-operative Sugar Factory Limited, Athaniannounces the Statutory Minimum price (SMP) for sugarcane every year based onrecommendations of the Commission for Agricultural Cost & Prices (CACP). ORGANISATIONAL PROFILE The Krishna Co-Operative Sugar Factory Limited, Athani (Krishna Sahakari SakkareKarkhane Niyamit, Athani.) is a co-operative society registered under Karnataka co-operativesocieties Act in 1969. The industrial license number of the factory is L.I.667 (1988) dated02/11/1988. The Krishna Co-Operative Sugar Factory Limited, Athani is a co-operative unit.It is situated near Sankonatti village, at a distance of about 6 Km from Athani town. Thefactory at present has an attractive campus with magnificent buildings over it.Agriculture continues to be an extremely important sector in our country. Cooperativesystem, as one of its main pillars providing vital support services, is crucial for thetransformation of agriculture. It is how inspired the founder Late Sri. A B Jakanur, anagriculturist and a co-operator, to establish this factory during 2000-01 with the financialsupport from cane growers of this area and the State Government, with an initial crushingcapacity 2500 TCD and as a stand-alone sugar industry. This factory had faced a lot ofproblems all these years in coming out as a viable unit. Though this factory had emerged inthis area with a meager beginning, it had not only provided a source of income for formingcommunity but also created a sustainable employment opportunity in this rural area.After a lot of dispute on location of plant, near Sankonatti village, the construction workstarted in year 1990 and comp elected in the year 2000. The factory was inaugurated by Co-Operative minister of Karnataka State Sri H Vishwanath on 24/03/2002. The regularproduction was started from 24/03/2002, and the first season lasts from 24/03/2002 to09/04/2002.The factory started on 24/03/2002 with initial Crushing capacity of 2500 TCD with totalexpenditure of Rs.46.95 Crore. The area of operation covered 22 villages from AthaniTaluka,At present total sugar cane supplied to this sugar industry is from 15,000 acres with averageyield per acre of 25 MT.Babasabpatilfreepptmba.com Page 10
  • 11. The Krishna Co-operative Sugar Factory Limited, AthaniThe entire plant and Machinery has been supplied by M/s Triveni Engineering and IndustriesLimited New Delhi, Rs. 28.17 Crore long-term loan was borrowed from the Co-operativeBanks. The factory had created a financial set backs due to the lack of professionalism bothin technical and financial managements and not adopted the range of different bi-productactivities and had suffered due to a weak governance on efficiency, effectiveness, adaptabilityand internal and external accountability in the management. However this cooperative andrural based industry must succeed if the poor farmers and the rural unemployed youths haveto be prosperous.AREA OF OPERATION:The area of operation of the society shall be confined to the villages of Athani, and RaibagTaluka of Belgaum District and Jamakhandi Taluka of Bagalkot District of Karnataka State.OWNERSHIP PATTERN: A. The authorized share capital of the Society shall be Rs.18.37 crores divided in to total 17971 shares of RS.2, 000/-each as under.i) Rs.3, 00, 29,000/-divided in to 13048 shares of the face value of Rs.2, 000/-each reserved for the grower members called as “A” Class.ii) Rs.5, 98,000/-divided in to 89 shares each reserved for Co-operative Institutions called as “B” Class.iii) Rs.14, 08, 50,000/- from one Government share issued to Government of Karnataka called as “C” Class.iv) Rs.71, 66, 000/- divided in to 4, 309 shares of face value of Rs.2, 000/-each reserved for non-grower members called as “D” ClassBabasabpatilfreepptmba.com Page 11
  • 12. The Krishna Co-operative Sugar Factory Limited, AthaniBabasabpatilfreepptmba.com Page 12
  • 13. The Krishna Co-operative Sugar Factory Limited, Athani The Krishna Sahakari Sakkare KarkhaneName of the Company Niyamit AthaniDate of Incorporation/Registration No. DSK/REG/01/80-81 Date : 10-03-1981Nature of Constitution Co-operative SectorFactory code no. 40501Date of commencement of commercialproduction of sugar 12/6/2002Crushing capacity 2500 TCDProject Cost 48.86 crores Production of sugar and its by Products likeActivity under taker Molasses ad BagasseWorking period 180-210 daysType unit Large scale Agro based manufacturing unitMain raw material Sugar caneLabour employed 61OAreas of operations 22 villagesBOARD OF DIRECTORS:Babasabpatilfreepptmba.com Page 13
  • 14. The Krishna Co-operative Sugar Factory Limited, Athani 1) Shri P.C. Savadi : Chairman 2) Shri M.B. Patil : Vice Chairman 3 Shri A.P. Akiwate : Director 4) Shri C.H. Patil : Director 5) Shri B.M. Patil : Director 6) Shri B.M. Kavatakoppa : Director 7) Shri S.A. Mudakannavar : Director 8) Shri G.K. Butali : Director 9) Shri M.K. Kubasad : Director 10) Shri V.G. Telasang : Nominee Director 11) Smt. P.B.Reddy : Nominee Director 12) Shri V.M.Shinge : Nominee Director 13) Shri P.R.Mahajan : Nominee Director 14) Shri I.M. Maniyar : Managing DirectorSTAFF: The employees are responsible for the success or failure of company.There are totally 530 workers in the company.No. of Workers1) Permanent worker 3202) Seasonal workers 290 610Company is paying salary of Rs. 21, 00, 000 per month in season and 15,00,000 per month inoff Season to its workers.WORKERS SHIFT SYSTEM:Babasabpatilfreepptmba.com Page 14
  • 15. The Krishna Co-operative Sugar Factory Limited, Athani Sugar manufacturing process is continues process it needs employees to take care ofthe operations 24 hours. So company employs its workers in 3 different shifts and alsoprovide weekly off on routine basis. The shift system of the company is as follows. Shifts Timings Break I 4:00 am to 12:00 pm 30 min II 12:00 pm to 8:00 pm 30 min III 08:00 pm to 4:00 am 30 minGENERAL AND ADMINISTRATION 8:00 am to 12:00 pm 60 min 1:00 pm to 5:00 pm CENTRAL OFFICE 10:00 am to 2:00 pm 30 min 02:30 pm to 5:30 pmJOB SPECIFICATION IN TKCSFL ATHANI Every organization is made not made up only machineries but also consists ofpeople. Hence manpower is very essential and improvement in the production industry .SoTKCSFL ATHANI is having manpower sufficiently.Babasabpatilfreepptmba.com Page 15
  • 16. The Krishna Co-operative Sugar Factory Limited, Athani Departments Order Daily Wages Enhancement No Change Total Engineering 121 60 57 09 247 Department Production 88 37 31 09 165 Department Cane development 32 0 15 08 55 Department Administration 11 20 16 12 59 Department Civil Department 0 0 0 28 28 Time Office 2 2 0 00 04 Stores 14 29 0 0 43 Department Vehicle 06 03 0 0 09 Department Total 274 151 119 66 610COMPETITORS:Ugar sugarsHira sugarsRenuka sugarsDatt sugars (Maharashtra)Panchaganga sugars (Maharashtra)Athani farmer’s sugar factoryDkssk chikkodiINFRASTRUCTURE FACILITIES:Babasabpatilfreepptmba.com Page 16
  • 17. The Krishna Co-operative Sugar Factory Limited, AthaniNearer to raw materialsGood transportation facilities.Nearer to river place (Krishna River)Good networking.Proper accommodation for its employeesACHIEVEMENTS/AWARDS:STAI, SISSTA & DSTA in their recent 10 th annual convention at Chennai held on 11-08-2007 have honored this sugar factory with the most prestigious award as the “THE BESTEFFICIENCY & PERFORMANCE SUGAR FACTORY” in the country for the year2006-07. Hon’ble Union Minister gave the award for agricultural, food & Civil Supplies, inpresence of Hon’ble Chief Minister of Tamilnadu. The TKCSFL Athani has also bagged Firstplace for Best Cane Development Award, SISSTA-2007. The companies have the Honor of achieving the Highest Sugar Recovery @ 11.68% inSouthern part of India for the year 2008-09.2.7 VISION & MISSION OF THE ORGANIZATION:“To continue to remain the best performer among sugar manufacturing companies in India &to provide more value to the shareholders by means of efficient capacity utilization of itssugar, power and distillery based facilities.”VISION: The vision statement of The Krishna Co-operative Sugar Factory Limited is “We arededicated to deliver overall value to our customers by delivering high quality products,exceptional financial performance to our share holders & complete satisfaction to canegrowers, employees & stakeholders”.MISSION:Babasabpatilfreepptmba.com Page 17
  • 18. The Krishna Co-operative Sugar Factory Limited, Athani At TKCSFL, Athani, they believe in growth through quality, innovation and Researchand Development in Agriculture. Their mission is to reduce the overheads and increase theprofitability by maximum utility of raw material by way of producing various products.To encourage agro-based co-operative industryTo develop co-operative movement in rural sectorTo encourage the farmers to grow sugarcane for production of sugar and its by-productsOBJECTIVES OF TKCSFL, ATHANI  To give the good market rate to the farmers who supply the sugar cane to their factory.  To keep the good relations with the customers and. farmers and to maximize their satisfaction.  Maximum utilization of man power and production capacity and proper utilization of raw material for good recovery.  To promote the economic and social betterment among the members through self-help and mutual aid in accordance with the co-operative principles specified in the first schedule of the Act.  To encourage self-help, thrift and co-operation amongst member  To acquire lands either by way of purchase or otherwise for cultivation of sugar cane and other crops and for erection of buildings, godowns, staff quarters, administrative blocks etc., and for installation of machinery.  To manufacture sugar jaggery and their by-products out of sugar-cane grown and supplied by members of the society and other and to sell the same to the best advantage.  To undertake such other activities as are identical and conducive to the development of the society.Babasabpatilfreepptmba.com Page 18
  • 19. The Krishna Co-operative Sugar Factory Limited, Athani  To acquire and install machinery for the utilization of the by-products and buy raw material and sell finished product in the course of utilizing and marketing the by- products.PRODUCT PROFILE: The main and direct product of the sugarcane is sugar. The factory has byproducts likedistillery, arrack, co-generation, press mud and ethanol etc.SUGAR:The factory initially started crushing at the rate of 2500 Tonnes crushing per day (TCD). It isneedless to emphasis here that this factory has its own credibility and enjoys its own sanctityin the sugar industry.The TKCSFL Athani produces the sugar which can be classified as shown in the table below.The sugar is divided in to three types based on the crystal size; they are large, medium, andsmall. The production of these is dependent on the crushing capacity of the factory. Toproduce large sized crystals it takes more time, which in turn affects the crushing. As the sizeincreases the impurity increases and colour of the crystals decreases.TYPE OF SUGAR PRODUCED IN TKCSFL ATHANI: TYPE OF SUGAR SIZE (IN MICRONS) %AGE PRODUCTION IN 2007 LARGE (L30) 1400 NILL MEDIUM (M30) 1120 10-15% SMALL (S30) 600 85-90%DISTILLATION:Babasabpatilfreepptmba.com Page 19
  • 20. The Krishna Co-operative Sugar Factory Limited, AthaniThe unit uses molasses, which is waste in the production of sugar, as raw material fordistillation. This molasses has about 40% to 45% of sugar in it. The yeast strain used infermentation process is Sacchromyces Uvarum.BAGASSES:The fibrous material of sugar cane which after extraction of juice comes out from mill houseis called Bagasse and is used as fuel for Boilers. In TKCSFLthey use the Bagasse for highpressure boilers to generate steam. Thus generated steam is used to produce electric power byusing Extraction Turbo Generation set. Thus produced power is used to run the factory andexcess power is exported through KEB Grid.CO-GENERATION:The factory started producing Power by using Bagasse in the year 2002 with the initialcapacity of 6 MW... It installed turbo generator set of capacity 6 MW in the year 2002. As on2006 the Factory has the total capacity of 6 MW, out of which 4 MW is used for in-houseconsumption and the remaining power is transported.PRESS MUD: The press mud is obtained in the process of juice purification process. It is used asmanure. In K S K N, the press mud is sold to the farmers.PROCUREMENT:The factory obtains the sugarcane, which is required from more than 1000 farmers and by thecompany farms and others raw materials which are required for the operation is taken fromthe vendor, here vendors will be evaluated on the basis of price and quality and then therequired raw materials will be taken for the efficient vendors.Babasabpatilfreepptmba.com Page 20
  • 21. The Krishna Co-operative Sugar Factory Limited, AthaniThe transport of sugar cane from farmers to the factory will be engaged through Lorries, whowill be taken through bidding at the time of harvesting, and also farmers themselves supplyby their own bullock carts or by tractors.CANE WEIGHMENT: There are 12 outlaying weigh bridges situated round about Athani for delivering thesugarcane from the farmers. Double check has been provided over the weighment of canetransported from out stations.OPERATIONS:The sugarcane, which is carried by Lorries or other, will be directly fed to the machine wherethe initial process starts. At the starting point there are knives, which cut sugar cane bunchesinto individual sugar cane.After this in the next step there are sharp cutter, which cuts the sugarcane bunches into verysmall pieces. Then it will go to trade marbs (a series of rollers used for crushing purpose) forcrushing. Then the juice produced will go for further processing and the Bagasse will be leftout there itself. Then they add flocculent [used for mud setting] milk sanitation etc and thenafter it will go through pans and Masscuite for this Masscuite they will add sodium HydroSulphite (to bleach the Masscuite) and it will be separated out and the molasses will be sentto distillery and then white sugar will be bagged.Babasabpatilfreepptmba.com Page 21
  • 22. The Krishna Co-operative Sugar Factory Limited, Athani ORGANISATION STRUCTURE: BOARD OF DIRECTORS CHAIRMAN& VICE CHAIRMAN MANAGING DIRECTORGEN GEN GEN CIVIL STORE MEDICA HEAD CHIEF CHIEF OFFICE LWO WATCHMGR MGR MGR KEEPER L TIME ACCOUNTS SPDT WARD(S) (P) (DS) ENG. OFFICER KEEPER C.D.O OFFICER TOOL ROOM & DIESEL PUMPCHIEF ENG. CHIEF CHEMIST DIST. CHEMIST CO-GEN CANE YARD AGRL DEV GODOWN SECTION GEN ACCOUNT CANE ACCOUNT SALES CASH COMPUTER GAD EST MEETING INWARD & SHARE TYPING GUEST LEGAL PURCHASE SECTION SECTION SECTION OUTWARD SECTION SECTION HOUSE SECTION SECTION Babasabpatilfreepptmba.com SECTION Page 22
  • 23. The Krishna Co-operative Sugar Factory Limited, AthaniFUNCTIONAL DEPARTMENTS Functional heads 1) Managing Director (M.D) 2) Chief Engineer 3) Chief Chemist 4) Chief Accountant 5) Cane Development Officer (C.D.O) 6) Office Superintendent 7) Accountant (Cane) 8) Labour Welfare Officer (L.W.O) 9) Civil Engineer 10) Accountant (General) 11) Store Keeper 12) Sales Officer 13) Purchase Officer 14) Time Keeper 15) Gudown Keeper 16) Cashier 17) Security HeadBRIEF ABOUT FINANCE AND ACCOUNTS DEPARTMENT:Finance plays a vital role in the functioning of all industrial units. Finance is the lifeblood ofthe organization. In sugar Industry Finance and accounts Department has very vital roles.The financial plan basically deals with raising and proper utilization of funds. The funds canbe raised by issue of shares as well as by raising loans through various sources. The financeBabasabpatilfreepptmba.com Page 23
  • 24. The Krishna Co-operative Sugar Factory Limited, Athanimanager supported with accounts manager and an accounts assistant manages financedepartment.FUNCTIONS: -They look after the overall financial requirements of the company.They see that a proper inflow and outflow of income and expenditure is maintained.Accounting of sales and sales realizationReceipt of cash, cheque and bank drafts etc and issue of official receipts for the sameMaintenance of journal, expense ledger and general ledgerCosting and accounting is framed and maintained.Yearly budget is framed so that each department can meet their cash requirements.Budget prepared is based on sales forecasting, expenses forecasting, cost forecasting,purchase forecasting etc.Registration and scrutiny of sale orders pertaining to equipment and spare partsFINANCE DEPARTMENT CONSISTS OF FOLLOWING SECTIONS: - • General Accounts Section. • Cane Accounts Section. • Sales Section. • Cash Section.An Accounts Officer is the head of this department. Accountant, sales manager, and headcashier assist him.Babasabpatilfreepptmba.com Page 24
  • 25. The Krishna Co-operative Sugar Factory Limited, AthaniAS FUNCTIONING OF EACH SECTION IS SUMMARIZED FOLLOWS:GENERAL ACCOUNTS SECTION:General Accounts are looking after the passing of bills and payments. Management is alsodone by General account section and preparation of financial statements i.e., Balance sheet,profit and loss account is attended by general accounts section.CANE ACCOUNTS SECTION: -The Bills and payment concerned to procurement of sugar cane, is attended by cane accountssection. Payments like cane bills, transport and harvesting bills etc., are prepared and passedin cane accounts section.SALES SECTION:It is looking after sales of sugar and by products molasses, Rectified spirit and other scrapmaterials. It is keeping records concerned to all sales section.CASH SECTION:It is looking after the payments of all general bills and salary bills apart from cane paymentand it is also looking after receipt of cash and cheque payment. All accounts are maintainedin usual manner.Various records and books kept are: -General ledgerSub ledgerSubsidiaryCash bookBank bookVouchersBabasabpatilfreepptmba.com Page 25
  • 26. The Krishna Co-operative Sugar Factory Limited, AthaniEach branch prepares trading and profits and loss account and Balance Sheet as on 31 st Marchevery year. And the government Auditor audits the accounts.BANKS (TO PAY BILLS OF THE SUGARCANE SUPPLIERS) SLNO NAME OF THE BANK 1 THE BDCC Bank Ltd, Athani 2 THE BDCC Bank Ltd, Satti 3 THE BDCC Bank Ltd, Halyal 4 THE BDCC Bank Ltd, Konnur 5 THE BDCC Bank Ltd, Kulgod 6 THE BDCC Bank Ltd, Gokak 7 THE BDCC Bank Ltd, Ankali 8 THE BDCC Bank Ltd, Kalloli 9 THE BDCC Bank Ltd, Kabbur 10 THE BDCC Bank Ltd, Gudas 11 THE BDCC Bank Ltd, Harugeri 12 THE BDCC Bank Ltd, Mudalagi 13 THE BDCC Bank Ltd, Ghataprabha 14 THE BDCC Bank Ltd, Shiraguppi 15 THE BDCC Bank Ltd, YaragattiPURCHASE DEPARTMENT Purchase officer heads Purchase Department. He is responsible for purchasing thespare parts required for the industry. The storekeeper is responsible for stacking; maintainingand issuing required materials to the concerned section.The important functions of this department are: -• Purchasing materials• Calling quotationsBabasabpatilfreepptmba.com Page 26
  • 27. The Krishna Co-operative Sugar Factory Limited, Athani• Preparing C.S.Q (comparative statement quotation)• Placing before meeting for decision• Placing orders for supply of materials.• Passing bills to Accounts section for payment.Purchase department hierarchyProcedure of purchasing PURCHASE MANAGER GODOWN SUPERVISORS STORE KEEPERS ASSISTANTS1. Determination of purchase budget In the beginning of the year the purchase manager, with the help of productionplanning department, prepares a purchase budget. This budget guides him in knowing whatand when he has to buy and also quantity.2. Determination of quantity The stock availability in each location is determined and compared with the actualrequirements. After receiving the sales order, raw materials needed are scheduled accordingto these order level.3. Purchase order: After satisfy with the quality of materials and reputation of the supplier, purchaseorder is sent to the supplier. Purchase order includes the date of order, description ofmaterials to be supplied. The copies of this order are sent to the Administrative office,Accounts departments and to the Storekeeper.Babasabpatilfreepptmba.com Page 27
  • 28. The Krishna Co-operative Sugar Factory Limited, Athani4. Receiving and issuing raw materials: - The department heads and the storekeeper check the quality and quantity of rawmaterials received respectively. The storekeeper enters the details of purchased materials inthe store receipt book. Then the general manager passes the amount for payment.PRODUCTION DEPARTMENT Production management refers to the application of management principles to theproduction function in a factory. In other words production management involves applicationof planning, organizing, directing and controlling the production process. A well-organized production function can offer competitive advantage to a firmin the following areas. • Higher quality • More inventory turns • Shorter new product lead time • Greater flexibility • Shorter manufacturing lead time • Better customer satisfaction • Reduced wastageLaboratory The factory is having well equipped lab, and the main activity of the lab is to checkthe content of sugar cane & fixing the correct shape & size of sugar. The lab prepares hourlyreports which advice on the addition of the other chemicals in productionCHEMICAL SECTIONStructure: CHIEF CHEMIST MANUFACTURING CHEMIST DEPUTY CHEMISTBabasabpatilfreepptmba.com Page 28
  • 29. The Krishna Co-operative Sugar Factory Limited, Athani LAB IN CHARGE LAB BOYPRODUCTION PROCESS:The main Raw material in the production of sugar isSUGAR CANEThe raw materials has to go through following stages before it become finished product. Theprocess in each stage is as under:STAGE:1 SUGAR CANE SUPPLY:The harvested and transported sugar can received is weighed on the weigh Bridge. It isunloaded and kept on the feeder tables. It is fed to the cane carrier as per the requirement.Note: 4500 tons received, 1000 tons stocked and 3500 tons crushing per day.STAGE:-2 MILLING OF CANE/ EXTRACTION OF JUICE:This cane is passed through leveler and fibrizor by making the fine making the fine chips. Itis crushed through series of mills. Imbibitions hot water is added prior to the last mill toextract more possible sugar. The Bagasse from the last will is carried through Bagasseconveyor and required quantity of Bagasse is fed to the boilers and excess quality is sent forstorage.STAGE:-3 CLARIFICATION AND EVAPORATIONS:The juice from all the mills is pumped to juice weighting scale. It is heated to about 70-77’oc in the juice heaters. It is taken to continuous juice sulphitor in which milk of lime andsulphur di-oxide gas are adjusted to maintain ph 7.0. It is again heated in juice heaters toabout 100 to 105’oc and sent to continuous clarifier. Clear juice is taken to multiple effectevaporators to concentrate up to 60oc Brix.Babasabpatilfreepptmba.com Page 29
  • 30. The Krishna Co-operative Sugar Factory Limited, AthaniThe settled mud from the bottom of the clarifier is taken to mud mixer to mix with beguileand taken to continuous vacuum filer. The filtrate is transferred to raw juice receiving tankfor treatment. The adhered mud on the screens is scraped and sent out as filter cake, whichwill be used for composting the manure.STAGE:-4 SUGAR MANUFACTURE AND CRYSTALLIZATION PURING:The concentrated syrup from evaporator is taken to syrup sulpthitor to adjust Ph 4.8 to 5.2.This is stored in the supply tanks and fed to “A” masscult boiling by taking B-seed as afooting. It is concentrated to 92o Brix and dropped to the crystallizer. This masscult ispurged in the centrifugal machines. The adhered crystals are scraped to hopper and treatedwith hot air and cold air blower. It is sent to grader the size for gradation. This graded sugaris stored in SILOS. Weighed and bagged sugar bags are transferred to respective godownsfor stacking.STAGE 5:- FURTHER PROCESS:While purging A- massecuite the A-light molasses received is sent to supply tanks and fed to‘B’- masscult boiling with b-grain as footing. This is purged in the centrifugals. This sugaris used as B- seed and excess is melted and fed to ‘A’- masscult’s. White purging low purityB- Heavy molasses obtained is used for boiling C- massecuite with C- grain as footing.This C- massecuite is taken for purging in Centrifugal machines. The final molasses isseparated, weighed and sent to storage tanks. C.F.Magma is sent to melt supply tanks and fedto ‘A’ massecuite boiling. C-light molasses obtained is tired in supply tanks and used for C-massecuite boiling and C- graining also 0.STORES DEPARTMENT This department is headed by storekeeper. To keep the stores and required materialsfor the factory section wise in a proper way and to maintain their registers and big cards ofindents (order goods)Functions: 1) To make the materials requisition for the purpose of knowing the quantity materials. 2) To make purchase order or in simple terms the tenders.Babasabpatilfreepptmba.com Page 30
  • 31. The Krishna Co-operative Sugar Factory Limited, Athani 3) To make approval memo for verification of materials. 4) The main function of store department is to prepare a Bin Card. 5) The store Department issues material with reference with store requisitions. 6) To make classification & codification of materials. 7) Receipts of materials. 8) Inspect it with ordered quantity, quality and if any other specifications. 9) Some of the materials like chemicals are to be sent to laboratory for inspection and testing. 10) Getting indents from departmental head and issuing it. 11) To make purchase returns if the materials are rejected. 12) To maintain minimum level of materials. 13) Informing purchase department when materials require.In stores there are two sections 1) Transport Entry table. 2) Store Receipt Table 1) Transport Entry Table They maintain records the receipt of materials at what data, at what time, vehicle number, and quantity in kg. Acknowledgement from vehicles etc 2) Store receipt Table The store keeper maintain the records of receipt of materials, serial no made of transport, purchase order reference, bill no, the name of the supplier etc. the store keeper has given proper conditions to the materials to identify the materials.MARKETING AND SALES DEPARTMENT The American Marketing Association offers the following formal definition:Marketing is an organizational function and a set of processes for creating, communicating,and delivering value to customers and for managing customer relationships in the ways thatbenefit the organization and its stake holders. It can be viewed Marketing Management as, an art and science of choosing targetmarkets and getting, keeping, and growing customers through creating, delivering, andcommunicating superior customer value.Babasabpatilfreepptmba.com Page 31
  • 32. The Krishna Co-operative Sugar Factory Limited, AthaniChannel of distribution Most producers do not sell their goods directly to the final users. Between them standsset of intermediaries performing a variety of function Those intermediaries constitute amarketing channel. Marketing channels are sets of interdependent organizations involved in the processof making a product or service available for use or consumption. Marketing channel decisions are among the most critical decisions facingmanagement. The channel chosen intimately affects all the other marketing decision. Thecompany’s pricing depends on whether it uses mass merchandisers or high quality boutiques.The firm’s sales force and advertising decisions depends upon how much training andmotivation dealers need. In addition, the companys channel decisions involve relatively longterm commitments to other firms.Role of marketing manager 1) To collect information for sale forecasting. 2) Pricing the products as per the demand. 3) To appoint new dealers and distributors 4) .To have full and perfect knowledge of marketing conditions and policies 5) Marketing department also looks after dispatching goods to the vendorsFunctions of sales department1. Sales officer is responsible for selling the products.2. To look after dispatch of the ordered products.3. Suggestion, ideas, complaints, feedback from the market to the company.4. Stocking planning, godown maintenance.Release mechanism of sugar The sale of sugar is controlled by the Chief Director of sugar, New Delhi throughrelease mechanism. Sugar industry is basically a seasonal industry. Hence the sugar will be produced during the season and the sugar thus produced will have to be marketed throughout the year by the sugar mills.Babasabpatilfreepptmba.com Page 32
  • 33. The Krishna Co-operative Sugar Factory Limited, Athani The Directorate of sugar will release monthly sugar sale quota for the sugar factoriesin India and the sugar thus released for the specific month will have to be sold and dispatchedbefore the end of the month. In case any factory not able to sell the entire quantity of the sugar released for theparticular month, the remaining quantity will be treated as lapsed. So every factory tries tosell their sugar quote of the month within the validity period.Sales procedure Procedure adopted for sale of sugar and power1. SugarDomestic Sale of SugarThe sugar is sold in the domestic market through tender system. Sugar tenders will be calledperiodically from the various sugar traders. The traders are intimated well in advance aboutthe grade and quality being offered in tender over telephone. The sugar tender is some timesconducted at Karnataka Sugar Institute, Belgaum and also at factory site. The officer of KSIwill be present at the time of tenders. The rates will be collected over telephone from thevarious parties along with grade and quantity of sugar required by them. The parties whohave offered higher price will be allotted the sugar and they will be instructed to take thesugar delivery within the stipulated period. The sugar will be sold against 100% payment.The rate of domestic price of sugar in the state and the rate of neighboring sugar factories willbe compared while selling the sugar in tenders.Export of Sugar When the international price of sugar is remunerative compared to domestic price ofsugar, the company exports some of the stock of sugar. The sugar export is mainlyundertaken through the mercantile exports or through EXIM Corporation New Delhi. Theprice for export sugar is negotiated taking into account, the prevailing international sugarprice and the price being offered by various sugar factories for export of sugar. Once the ratesare finalized, the company will enter into agreement with the party. Then the party willobtain a release orders from chief Director of sugar, New Delhi and necessary excise bondfrom the concerned authority. After completing all the necessary formalities, sugar will bedelivered to the party for export against full payment of the consignment. After the exportshipment is completed necessary documents in proof of export of consignment will becollected from the parties. The same will be submitted to the excise department.Babasabpatilfreepptmba.com Page 33
  • 34. The Krishna Co-operative Sugar Factory Limited, Athani2. Export of Power to the KPTCL Grid In addition to the above company is also receiving its revenue from its power plant.Company is having a power plant of 6.0 MW capacities. It is using about 4.0MW for itsown/captive consumption; the excess power of about 2.0MW is being exported to theKPTCL. WORKING CAPITAL MANAGEMENT:The aim of the present study is to examine the Small Scale Industry practices in WorkingCapital management and to evaluate management performance for the same purpose. “Sincethe efficiency of the Working Capital management is determined by the efficientadministration of its various components- cash, accounts receivable and inventory, the studyattempts to determine the management of each component”.“Working Capital in a business enterprise may be compared to the blood in a human body:Blood gives life and strength to the human body. Similarly Working Capital injects life andstrength- profits and solvency - to the business organization”. Working Capital refers to shortterm funds required for the purpose of business operations. The funds used for meeting day today expenses like, purchase of raw materials, payment of wages and other expenses, stockingof goods, granting of credit to customers and maintenance of the minimum balance. It is notnecessary that the funds should be in the form of cash only. It can be in the form of near cashitems like, marketable securities, inventories and account receivableCONCEPT OF WORKING CAPITAL:Like most other financial concepts, the concept of ‘Working Capital’ is used in differentconnotations by different writers. Obviously, it is understood either as the total current assetsor as the excess of current assets over current liabilities. The former is referred to the grossworking Capital and the latter the net Working Capital.So there are two concepts in Working Capital:Gross Working Capital.Net Working CapitalBabasabpatilfreepptmba.com Page 34
  • 35. The Krishna Co-operative Sugar Factory Limited, AthaniGross Working Capital is the total of all current assets, viz. cash, marketable securitiesaccount receivable and inventory Net Working Capita refers to excess of current assets overcurrent liabilities. Both of these concepts have their own importance. “The gross concept is agoing concern concept in which management is particularly interested because for theproductive utilization of fixed assets all the currents are necessary.The net concept is useful to gauge the financial soundness of a form and is of special interestto sundry creditors and suppliers of short-term loans and advances. It creates confidenceamong the creditors about the security of their amounts”.No special distinction is made between the terms ‘total current assets’ and ‘Working Capital’by some authors “ Working Capital is nothing but total of current assets. It is a substitute forWorking Capital, though not a perfect one”“Working Capital is the capital circulating into cash over an operating cycle. Working Capitalis equated with all the current assets”.“Working Capital and current assets are interchangeable”.The precise meaning of current assets and current liabilitiesCURRENT ASSETS:Current assets are those assets which are used in the current operation of a business such asinventories, receivables, cash and bank balances and easily convertible securities. Theseassets generally change their form within an accounting period. “Current assets have a shortlife span. Cash balance may be held idle for a week or two, accounts receivable may have alife span or 30 to 60 days, and inventories may be held for 30 days 100 days”.CURRENT LIABILITIES:Current liabilities are those claims of outsiders which are expected to mature for paymentwithin an accounting year and include creditors, bill payable, bank-overdraft, outstandingexpenses, outstanding tax and income received in advance. “Current liabilities are thoseliabilities where liquidation is reasonably expected to require the use of existing resourcesBabasabpatilfreepptmba.com Page 35
  • 36. The Krishna Co-operative Sugar Factory Limited, Athaniproperly classifiable as current assets, or the creation of other current assets, or the creation ofother current assets, or the creation of other current liabilities”.FACTORS AFFECTING WORKING CAPITAL NEEDS:The Working Capital requirements of a form depend on many factors. It is a commonproposition that the size of Working Capital is a function of sales. Sales alone do notdetermine the size of Working Capital. But it is constantly affected by the crisis- crossingeconomic currents flowing in a business. The nature of the firm’s activities, the industrialhealth of the country, the availability of materials, the ease or tightness of the money marketare all parts of these shifting forces.Realizing the complication involved in Working Capital estimates, Gerstenberg observes,“Although no definite rule can be established for determining Working Capital requirements,we can arrive at some general principles. Certain influences, some inherent in the nature ofthe business and the others arising out of business management policies, affect each of theitems of current capital.The following factors affect not only the requirements of Working Capital but also influenceto a great extent the composition or structure of Working Capital. It is believed that anyattempt at Working Capital management could be improved upon with greater understandingof the underlying factors.THE FOLLOWING FACTORS ARE IMPORTANT:Nature of businessPeriod of manufacture and cost of production,Volume and terms of purchase,Babasabpatilfreepptmba.com Page 36
  • 37. The Krishna Co-operative Sugar Factory Limited, AthaniSize of business unit,Capacity utilization,Degree of specialization,Seasonal variations,h) Coordination between production and distribution,i) Business cycles,j) Management policy,k) Miscellaneous factors such as government policies, transport and communication systemand economic and political environment.FINANCING OF WORKING CAPITAL: In that GFEL, it was financing the working capital from the following five commonsources. They are:1. SHARES: The TKCSFL has issued the equity shares for raising the funds. The EquityShares do not have any fixed commitment charges and the dividend on these shares is to bepaid subject to the availability of sufficient funds. These funds have been injected from thecompany’s own personal resources, from the members and from the third party investors.2. TRADE CREDITORS: The trade creditors refer to the credit extended by the suppliers ofmilk in the normal course of business. The firm has a good relationship with the tradecreditors. So that suppliers send the milk to the firm for the payment to be received in futureas per the agreement or sales invoice. In this way, the firm generates the short-term financesfrom the trade creditors. It is an easy and convenient method to finance and it is informal andspontaneous source of finance for the firm.3. FACTORING OR ACCOUNTS RECIEVABLE CREDIT: Another method of raisingshort-term finance in The Krishna Co-Operative Sugar Factory Limited, Athani, is throughaccounts receivables credit offered by the commercial banks. A commercial bank hasBabasabpatilfreepptmba.com Page 37
  • 38. The Krishna Co-operative Sugar Factory Limited, Athaniprovided finance by discounting the bills or invoices of its customers. Thus, a firm getsimmediate payment for sales made on credit. The factor is also a financial institution, whichoffers services relating to management and financing of debts arising out of credit sales.Factors render services varying from bill discounting facilities provide commercial banks tothe total take over of administration of credit sales including maintenance of sales ledger,collection of accounts receivables, credit control, and protection from bad debts, provision offinance and rendering of advisory services to the firm’s clients.4. LINE-OF-CREDIT: The business is well capitalized by equity and is has a very goodcollateral, the business (the firm) might quality fore one. A line-of-credit allows firm toborrow funds for short-term needs when they arise. The funds are rapid once the collectionsof accounts receivables that result from the short-term sales peak. Lines-of-credit typicallyare made for one year at a time and expected to be paid it for 30 to 60 consecutive days sometimes during the year to ensure funds are used for short-term needs only.5. SHORT-TERM LOAN: The firm has borrowed the funds from the commercial banks tofinance for the working capital needs. The short-term loans duration is less than one year.They provide a wide verity of loans to meet the specific requirements of a concern. Thedifferent forms in which the banks normally provide loan and advances areLoansCash creditsOverdraftCOMPONENTS OF WORKING CAPITAL:The components of working capital are:Cash managementReceivables managementInventory managementCASH MANAGEMENT:Babasabpatilfreepptmba.com Page 38
  • 39. The Krishna Co-operative Sugar Factory Limited, Athani Cash is the liquid form of an asset. It is the ready money available in the firm or withthe business, essential for its operations. A firm needs the cash for the following threepurposes:Transaction motive: The firm must and should keep the funds for transactions like purchase,sales etc. These activities, which are not known in advance, are not considered whilepreparing a cash budget.Precautionary motive: The firm also keeps funds for the safeguard against uncertainties,which are an integral part of business operations.Speculative Motive: To tap profits from opportunities arising from fluctuations incommodity prices, security prices, interest rates etc. The company with surplus cash is in abetter position to exploit such situations.Cash Flows: The flow of cash into and out of the business over a period refers to cash flow.Cash inflow can be in the form of cash received from customers, lenders and investors. Cashoutflow can arise because of payments made to employees (salaries), suppliers and creditors.Positives Cash flow: When cash inflow exceeds outflow it results in positive cash flows.Positive cash flow is beneficial to the business, the only thing to be cautious about is theopportunity cost, incurred as a result of idle money.Negative Cash flows: Negative cash flows arise when cash outflow exceeds inflows. Thiscan be due to various reasons.A good cash management has a major impact on the overall working capital management. Itis required to meet the business obligations in the firm. The benefits of good cashManagement are:Control of financial riskOpportunity for profitIncreased customer, supplier, and shareholder confidenceThe cash management is commonly deals with the following aspects.Babasabpatilfreepptmba.com Page 39
  • 40. The Krishna Co-operative Sugar Factory Limited, AthaniCash planning or identifying sources of cash flowsManaging the cash flowsOptimum cash levelIdentifying various avenues to invest surplus cashTYPES OF WORKING CAPITAL:While planning for the Working Capital one has to keep in mind different classification ofWorking Capital. They are:Permanent of fixed Working Capital: Permanent Working Capital is the minimum amountof current assets, which is needed to conduct a business even during the dullest season of theyear. This amount varies from year to year, depending upon the growth of a company andthe stage of the business cycle in which it operates. It is the amount of funds required toproduce the goods and services, which are necessary to satisfy demand at a particular point. Itrepresents the current assets, which are required on a continuing basis over the entire year. Itis maintained as the medium to carry on operations at any time.Temporary or variable Working Capital: Temporary or variable or fluctuating WorkingCapital is the amount of Working Capital which is required to meet seasonal in nature, itmeans the blocking of Working Capital in stock and it will take time to convert it into cash.In order to meet special exigencies like, launching of extensive marketing campaign, forconducting research etc., special Working Capital is required.OPERATING CYCLE:The operating cycle can be said to be at the heart of the need for Working Capital. “Thecontinuing flow from cash as advances to suppliers, to inventory, to accounts receivable andback into cash is what is called the operating cycle”. In other words, the terms cash cyclerefers to the length of time necessary to complete the following cycle of events. Fuel, powerand office expenses to meet selling costs, such as packing, advertising etcBabasabpatilfreepptmba.com Page 40
  • 41. The Krishna Co-operative Sugar Factory Limited, AthaniThe aim of such an approach is not only directed towards management of Working Capitalfund inflows and outflows, but also directed to refine the balancing judgment betweenliquidity and profitability.ADEQUACY OF WORKING CAPITAL:A business enterprise should have enough Working Capital. Without adequate WorkingCapital it cannot be run effectively a manufacturing concern is sure to collapse if it is run forlonger period without or with meager amount of Working Capital. Therefore, the enterprisehas to maintain adequate Working Capital can avail following advantages:It enables the enterprise to enjoy uninterrupted flow of production by obtaining the rawmaterial well in time.It enables an enterprise to avail cash discounts on the purchase and hence, it reduces costs,It enables to make regular payments of salaries, wages and other day to day commitmentswhich raise the morale of its employees, increases their efficiency, reduce-wastage and costs,It enables to extend favorable credit terms to customers,It will help to maintain the good will and credit worthiness which is essential for raising theloans from banks and others on easy and favorable terms,It helps to exploit favorable market conditions such as, purchasing its requirements in bulkwhen the prices are lower and by holding its inventories for higher prices,This gains the confidence of its investors and creates a favorable market to raise additionalfunds in the future andIt creates an environment of security, confidence, high morale and overall efficiency in abusiness, etc.Babasabpatilfreepptmba.com Page 41
  • 42. The Krishna Co-operative Sugar Factory Limited, AthaniINADEQUACY OF WORKING CAPITAL:At the same time inadequacy of Working Capital will affect business prospects adversely.Goodwill of the firm will be at stake if the Working Capital gap is not bridged. Shortage ofWorking Capital or inadequacy of Working Capital will affect profitability. Liquidity andsoundness of a business enterprise, it can cause following damages:It stagnates growth. It becomes difficult for the enterprise to undertake profitable projects fornon-availability of the Working Capital funds,It becomes difficult to implement operating plans and achieve an enterprise’s profit target,An enterprise may not be able to take advantage of cash discount facilities,An enterprise will not be able to pay its dividends because of the non availability of funds,An enterprise may have to borrow funds at exorbitant rates of interest,Operating inefficiencies creep in when it becomes difficult even to meet day-to-daycommitments,An enterprise loses its reputation when it is not in a position to honor its short termobligations. As a result, an enterprise faces tight credit terms.SHORT-TERM BANK CREDIT - A SOURCE OF FINANCE:There are four categories of sources of Working Capital namely;Trade creditBank creditCurrent provisions and non-bank short term borrowing, andLong term source comprising equity capital and long-term borrowingsBabasabpatilfreepptmba.com Page 42
  • 43. The Krishna Co-operative Sugar Factory Limited, AthaniTrade credit and short-term credit are the primary sources for financing Working Capital, inour country. According to an estimate, both these sources together finance about threefourth of the Working Capital requirements of an industry”.FORMS OF CREDIT:After getting the overall credit limit sanctioned by the banker, the borrower draws fundsperiodically. The following forms of credit are available to him.Loan arrangement: Under this arrangement, the amount of the loan is credited by the bankto the borrower’s account and the interest is payable on the balances outstanding.Overdraft arrangement: The borrower is allowed to overdraw in his current account withthe bank up to a stipulated limit and the interest is payable on the actual loan utilized.Cash credit arrangement: The borrower can draw to a stipulated limit based on the securitymargin. Usually, such credit is allowed against Pledge or hypothecation of goods but theborrower can provide alternative securities also in conformity with the terms of advance.Bills purchased and bills discounted: This arrangement is of relatively recent origin inIndia. With the introduction of the New Bill Market Scheme in 1970 by the Reserve Bank ofIndia, a bank credit is made available through discounting of bills by banks. This schemeintends to link credit with the sale and purchase of goods. To popularize this scheme, thediscount rates are fixed lower than those of cash credit.Term loans: Bank advance loans for 3 to 7 years payable in yearly or half yearlyinstallments.PRINCIPLES OF WORKING CAPITAL MANAGEMENTE. L. Walker’s Capital Propositions and James C. Van Home’s elucidation of the same.These propositions are also known as the principles dealing with risk factors and serve as thebasis of Working Capital theory.Principle-1Babasabpatilfreepptmba.com Page 43
  • 44. The Krishna Co-operative Sugar Factory Limited, AthaniThe first principle is concerned with the relationship between the levels of Working Capitaland sales. Briefly, it may be stated as follows: if Working Capital is varied relative to sales,the amount of risk that a form assumes is also varied and the chances of gain or loss areincreased This principle implies that a definite relation wrists between the degree of risk andthe rate of return. That is the more the risk that a firm assumes, the greater is the possibility ofgain or loss. The opportunity for gain is enhanced by choosing an appropriate asset andliability structure.The firm’s return on investment will be comparatively large when there are a low proportionof current assets to total assets and a high proportion of current liabilities to total liabilities.This strategy, no doubt, will result in a low level of Working Capital and relatively greatprofitability but the firm assumes a risk of technical insolvency, i.e., the inability to meet itscash obligations. Therefore, the risk involved with various levels of current assets and currentliabilities must be evaluated in relation to the profitability associated with those levels.Principle -2As already stated above, the main purpose of management is determining the ideal level ofWorking Capital. This principle serves as a basis for determination and is applicable toinvestments made not only in various components of Working Capital but also in fixedassets. Stated precisely, it is as follows: capital should be invested in each component ofWorking Capital as long as the equity position of the firm improves.Principle - 3The third principle is concerned with the risk resulting from the type of capital used tofinance Working Capital directly affects the amount of risk that a firm assumes as well as thepossibility of gain or loss, and cost of capitalBabasabpatilfreepptmba.com Page 44
  • 45. The Krishna Co-operative Sugar Factory Limited, AthaniPrinciple - 4As stated above, the extent of the of debt depends upon the level of risk a managementwishes to undertake. It should be noted that the risk is not only associated with the amount ofdebt used relative to equity but also related to the nature of the contacts negotiated by theborrower. The dates of maturity and restrictive clauses of the contracts are the most importantcharacteristics of debt contracts that directly affect the firm’s operations.The greater the disparity between the maturities of a firm’s short -term debt instruments andits flow of internally generated funds, the greater the risk and vice versa.Incidentally, management is not compensated for assuming the risk referred to in thisconcept; therefore, under no circumstances should the risk be assumed.On the whole, a management has to determine the liquidity of the firm on the basis ofinformation about risk and opportunity. Costs of holding liquidity. The degree of liquidity,desirable is a function of profitability of insolvency of various levels of liquidity, theopportunity cost of maintaining those levels and the cost of bankruptcy. Therefore, thebehavior of the management should be influenced not only by the risk and the opportunitycosts associated with the various levels of liquidity, but also by the cost of bankruptcy. Thusthe management must behave in a manner consistent with the maximization of shareholder’swealth.FACTORS INFLUENCING WORKING CAPITAL REQUIREMENTSNature of business – This is one of the primary factors influencing the working capitalrequirements of a firm. The Krishna Co-Operative Sugar Factory Limited, Athani, is amanufacturing firm, has a longer operating cycle for manufacturing the products, andinvesting more funds in its current assets. Therefore, it requires much more working capital.Babasabpatilfreepptmba.com Page 45
  • 46. The Krishna Co-operative Sugar Factory Limited, AthaniMarket conditions – The level of competition existing in the market also influences workingcapital requirement. When competition is high, the company should have enough inventoriesof finished goods to meet a certain level of demand. Otherwise, customers are highly likelyto switch over to competitor’s products. It thus has greater working capital needs. Whencompetition is low, but demand for the product is high, the firm can afford to have a smallerinventory and would consequently require lesser working capital. But this factor has notapplied in these technological and competitive days.ESTIMATION OF WORKING CAPITAL REQIUREMENTSManaging the working capital is a matter of balance. The firms must have sufficient funds onhand to meet its immediate needs. The Krishna Co-Operative Sugar Factory Limited, Athani,is manufacturing oriented organization; the following aspects have to be taken intoconsideration while estimating the working capital requirements. They are:• Total costs incurred on material, wages and overheads.• The length of time for which raw material are to remain in stores before They are issued for production.• The length of the production cycle or work-in-process, i.e., the time taken for conversion of raw material into finished goods.• The length of sales cycle during which finished goods to be kept waiting for sales.• The average period of credit allowed to customers.• The amount of cash required paying day-today expenses of the business.• The average amount of cash required to make advance payments• The average credit period expected to be allowed by suppliers.• Time lag in the payment of wages and other expenses.Babasabpatilfreepptmba.com Page 46
  • 47. The Krishna Co-operative Sugar Factory Limited, Athani OBJECTIVES OF STUDY  To study the sources and application of fund of TKCSFL  To examine how the working capital requirements is estimated  A study on the interpretation of working capital on the basis of calculations and estimations  To study the system of inventory management, receivables management and cash Ma nagement.  To identify weakness and short comings if any as a result of the survey and to offer suggestionsBabasabpatilfreepptmba.com Page 47
  • 48. The Krishna Co-operative Sugar Factory Limited, Athani ANALYSIS AND INTERPRETATION OF DATA: TABLE 1: CALCULATION OF WORKING CAPITALParticulars 2005-06 2006-07 2007 – 08Current AssetsInventories 193771415 624968314 717284971.5Sundry debtors 11081938.99 25182025.76 5727392Cash 72521 325153.45 28456.45Bank 27143285.9 26566127.5 14554932.44Other assets 939201052 12356005.85 16419308.96Loans & advances 37226454.5 4315300.17 4315300.17Receivables from govt. 1859709 1859709 1859709 1210356376.39 693712926.73 76019007Current LiabilitiesSundry creditors 1893901.5 18503328 11822912 Babasabpatilfreepptmba.com Page 48
  • 49. The Krishna Co-operative Sugar Factory Limited, AthaniTerm loansDCC bank 51010105.66 61987719 68212128OthersStatutory payable 2640680 5336185 8322361Excise duty 551827 551827 551827Net Working Capital 1154259862.23 607333867.73 48500689 The Net Working Capital has been increased in 2006 – 2007, when compared to other years. This is due to huge rise in inventories …………. TABLE 2: STATEMENT SHOWING INCREASE & DECREASE IN WORKING CAPITAL: Babasabpatilfreepptmba.com Page 49
  • 50. The Krishna Co-operative Sugar Factory Limited, AthaniParticularsParticularsIncrease in Current AssetsDecrease in Current AssetsInventories 431196899 92316657.5Inventories -Sundry debtors 14100086.77 -Sundry debtors - 19424634Cash 252632.45 -Cash - 296697Bank - -Bank 577158.4 12011195.06Other assets - 4063303.11Other assets 926845046.15 -Loans & advances -Loans & advances 32911154.33 -Receivables from govt. - -Receivables from govt. - -Decrease in Current LiabilitiesIncrease in Current LiabilitiesSundry creditorsSundry creditors 16609426.5 - - 66804156Term loans 10977613.34 - 6224409 -DCC bank 2695505 2986176OthersStatutory payable - - - -Excise dutyExcise duty - -- -Increase in working capitalDecrease in working capital - 62534882.96 546925994.5 -Total 990615903.72 103477994Total 992475612.72 163184116.61 Babasabpatilfreepptmba.com Page 50
  • 51. The Krishna Co-operative Sugar Factory Limited, AthaniTABLE 3: COMPUTATION OF WORKING CAPITAL:Year Current Assets Current Liabilities Working Capital2005-06 25,88,44,064 12,83,39,937 13,05,04,1272006-07 72,30,11,048 32,37,78,891 39,92,32,1572007-08 81,24,64,742 39,73,58,597 41,51,06,145 Working Capital 450000000 399232157 415106145 400000000 Working Capital 350000000 300000000 250000000 200000000 Working 130504127 150000000 Capital 100000000 50000000 0 2005-06 2006-07 2007-08 YearInterpretation: It was in positive in the following 3years i.e., from 2005-06 to 2006-07 andin 2007-08 it has been in comparatively high positive terms i.e., amount of Rs. 41,51,06,145.It indicates that, in the 2007-08, the working capital has met its current obligations...Babasabpatilfreepptmba.com Page 51
  • 52. The Krishna Co-operative Sugar Factory Limited, AthaniCURRENT RATIO: Current ratio is also known as ‘working capital ratio’ which comparesthe total current assets of the business unit to its current liabilities. This ratio measures itsshort-term solvency, which only reflects its ability to meet short-term obligation. The higherthe ratio the greater the business unit’s ability to meet current obligation and more the safetyof funds of the short-term creditors Thus, a current ratio of 2:1 is considered satisfactory. Current Assets Current ratio = ——————— Current liabilitiesTABLE 4 : COMPUTATION OF CURRENT RATIOYear Current Assets Current Liabilities Ratio2005-06 25,88,44,064 12,83,39,937 2.012006-07 72,30,11,048 32,37,78,891 2.232007-08 81,24,64,742 39,73,58,597 2.04 Ratio 2.25 2.2 2.15 2.1 Ratio Ratio 2.05 2 1.95 1.9 2005-06 2006-07 2007-08 YearInterpretation: The Current Ratio for the year 2005-06 is below standard ratio. It isincreased to 2.01 to 2.23 for 2006-07, which is above standard ratio. For the year 2007-08 itBabasabpatilfreepptmba.com Page 52
  • 53. The Krishna Co-operative Sugar Factory Limited, Athaniis decreased to 2.23 to 2.04, which below standard ratio. It indicates that, the firm is able tomeet its current obligations.QUICK RATIO:It establishes a relationship between quick, or liquid assets and current liabilities. An asset isliquid if it can be converted into cash immediately or reasonably soon without a loss of value.Cash is the most liquid asset. Inventories are considered to be less liquid. Quick assets (current assets - Inventory) Quick ratio = ———————————————— Current liabilitiesTABLE 5 : COMPUTATION OF QUICK RATIO: Year Current Assets Current Liabilities Ratio 2005-06 4,95,54,229 12,83,39,937 0.380 2006-07 7,64,04,609 32,37,78,891 0.235 2007-08 7,04,60,447 39,73,58,597 0.177 Ratio 0.4 0.35 0.3 0.25 Ratio 0.2 Ratio 0.15 0.1 0.05 0 2005-06 2006-07 2007-08 YearBabasabpatilfreepptmba.com Page 53
  • 54. The Krishna Co-operative Sugar Factory Limited, AthaniInterpretation: The ideal ratio is 1:1. The Quick ratio of current assets & liabilities arebelow the standard ratio. It indicates that the firm’s liquidity position is good.CURRENT ASSET TURNOVER RATIO:Assets are used to generate sales. Therefore, a firm should manage its assets efficiently tomaximize sales. The relationship between sales & assets is called assets turnover. SalesCurrent asset turnover ratio= ______________ Current assetsTABLE 6 : COMPUTATION OF CURRENT ASSET TURNOVER RATIO: Year Sales Current Assets Ratio 2005-06 94,06,20,046 25,88,44,064 3.63 2006-07 79,13,32,804 72,30,11,048 1.09 2007-08 40,96,02,092 81,24,64,742 0.50Babasabpatilfreepptmba.com Page 54
  • 55. The Krishna Co-operative Sugar Factory Limited, Athani Ratio 4 3.5 3 Ratio 2.5 2 Ratio 1.5 1 0.5 0 2005-06 2006-07 2007-08 YearInterpretation: The above table exhibits how the current assets were efficiently utilized ingenerating sales. In the above table the ratio shows that, the firm has utilized the currentsassets properly.WORKING CAPITAL TURNOVER RATIO: Net salesWorking capital turnover ratio = ———————— Net working capitalTABLE 7: COMPUTATION OF WORKING CAPITAL TURNOVER RATIO: Year Net Sales Net working Capital Ratio 2005-06 94,06,20,046 1,15,42,59,862 0.81 2006-07 79,13,32,804 60,73,33,868 1.30 2007-08 40,96,02,092 73,12,59,661 0.56Babasabpatilfreepptmba.com Page 55
  • 56. The Krishna Co-operative Sugar Factory Limited, Athani Ratio 1.4 1.2 1 0.8 Ratio Ratio 0.6 0.4 0.2 0 2005-06 2006-07 2007-08 YearInterpretation: The ratio is fluctuating. That was high in 2006-07, 1.30.and it was negativein 2005-06 i.e. 0.81 and 2007-08 i.e.0.56 it indicates that the working capital has beenutilized effectively in 2006-07.INVENTORY MANAGEMENTS:Inventory management is one of the components of working capital. This management isconcerned with the effective management of stock or inventory. Inventory consisting of rawmaterial, work-in-progress and finished goods, represent a significant proportion of totalcurrent assets.In the case of TKCSFL, the inventory consisting only finished goods these finished goodsconsist of sugar, molasses& bagasse these inventories are not sold then and there butdisposed of as per the company act guidelines for sugar and it’s by products. Theeffectiveness of working capital is depends on this inventory managements effective.So, effective management of particular in working capital in general can also be evaluated bythe computing inventory related ratios. Inventory turnover ratio reflects the relationshipBabasabpatilfreepptmba.com Page 56
  • 57. The Krishna Co-operative Sugar Factory Limited, Athanibetween costs of goods old during or given period and the average inventory. This ratio helpsthe average inventory. This ratio helps in determining the liquidity of a business concern in asa much as it indicates the rate at which the inventories are converted into sales and then intocash ultimatelyThis ratio is calculated by the following ratio. Cost of goods soldInventory turnover ratio = ———————— Average inventoryWhere,Cost of goods sold = Sales - Gross profit Opening stock + Closing stockAnd average inventory = ------------------------------ 2 365Inventory holding period = ——————————— Inventory turnover ratioTABLE 8: COMPUTATION OF INVENTORY TURNOVER RATIO: Year Sales Average Inventory Ratio 2005-06 26,40,87,564 10,11,41,647 2.61 2006-07 69,74,45,272 67,11,26,643 1.03 2007-08 84,53,40,822 73,42,01,254 1.15Babasabpatilfreepptmba.com Page 57
  • 58. The Krishna Co-operative Sugar Factory Limited, Athani Inventory turnover ratio 3 2.5 2 1.5 Ratio ratio 1 0.5 0 2005-06 2006-07 2007-08 yearInterpretation: A higher rate of inventory turnover ratio reduces investment in inventory andthus reduces the requirement of working capital. Hence efforts should be made to magnifythe ratio to get the benefits, reduction in investment on stock and reduction in requirement ofworking capital.The above table reveals that, the turnover of inventory in 20005-06 was 2.61 were as in 2006-07 there was a increase of 1.03 come up to, in 2007-08 there was a decrease of 1.15, thisshows of finished goods inventory is more in 2006-07which reflects more sales in 2006-07.TABLE 9: COMPUTATION OF PROPORTION OF INVENTORY TO CURRENT ASSETS: Year Inventory Current Assets PercentageBabasabpatilfreepptmba.com Page 58
  • 59. The Krishna Co-operative Sugar Factory Limited, Athani 2005-06 19,37,21,415 25,88,44,064 0.74 2006-07 62,49,68,314 72,30,11,048 0.86 2007-08 71,72,84,972 81,24,64,742 0.88 Percent age 0.9 0.85 0.8 Percent a ge 0.75 0.7 0.65 2005-06 2006-07 2007-08 YearInterpretation: The above table exhibits how the current assets were efficiently utilized ingenerating sales. In the above table the ratio was found near to1. It shows that, the firm hasutilized the currents assets properly.TABLE 10: COMPUTATION OF PROPORTION OF CURRENT ASSETS AND FIXED ASSETS: Year Fixed assets Current Assets RatioBabasabpatilfreepptmba.com Page 59
  • 60. The Krishna Co-operative Sugar Factory Limited, Athani 2005-06 50,68,16,681 25,88,44,064 1.95 2006-07 47,00,50,942 72,30,11,048 0.65 2007-08 45,46,52,642 81,24,64,742 0.56 Ratio 2.5 2 1.5 Ratio 1 0.5 0 2005-06 2006-07 2007-08 YearInterpretation: The table shows the proportion of current assets and fixed assets undertakenby the unit. The above table clears that proportion of investment in fixed assets is more thanproportion of investment in current assets. The ratio ranges between 0.56:1 to 0.65TABLE 11: COMPUTATION OF SIZE OF INVENTORY: Year Inventory Indices(04-05=100)Babasabpatilfreepptmba.com Page 60
  • 61. The Krishna Co-operative Sugar Factory Limited, Athani 2004-05 23,78,03,265 100 2005-06 19,47,71,415 81.90 2006-07 62,49,68,314 262.7 2007-08 71,72,84,972 301.5 Indices(04-05=100) 350 300 250 200 150 Indices(04- 100 05=100) 50 0 2004-05 2005-06 2006-07 2007- 08 YearInterpretation: The above table throws light on investment in total inventory and theprogressive base year percentage growth in total inventory. The growth rate in inventory wason a downward trend in 2005-06 as compared to 2004-05 by 81.90% respectively. In 2006-07the trend was on a upward by 262.7% as compared to 2005-06. In 2007-08 the trend was on aupward by 301.5% as compared to 2006-07. However, the size of inventory had that leads tothe increase in output and sales has a positive impact on its growth in unit.RECEIVABLE MANAGEMENT:Trade credit is the most prominent force of modern business. It is considered or an essentialmarketing tool, acting as a bridge for the movement of goods through production andBabasabpatilfreepptmba.com Page 61
  • 62. The Krishna Co-operative Sugar Factory Limited, Athanidistribution stages to ultimate consumers. The management of amount receivables is animportant part of working capital management part of working capital management is anundertaking, which sell their goods on credit. Accounts receivables include book debts, andbills receivables. The level of accounts receivable of an undertaking is determined withreference to the volume of credit sales and the average period between sales and realizationfrom the customer like inventories.In the context of dairy union the finished products – sugar and their by products on the basisof cash and credit system. So the question of credit sales which leads to accounts receivablesdoes not arise but the factory providing credit facilities to the farmers by way of supplyingfertilizers. This credit given by factory can be recovered by the sugar which is provided byfarmers. Therefore the scope of amounts receivables management in dairy unit is verylimited.RECEIVABLE TURNOVER RATIO:This ratio is also known as “Debtors turnover ratio” which related credit sales of businessunit to trade debtors. This ratio indicates the rate at which cash is generated by turnover ofreceivables or debtors. It measures the liquidity of the business unit.By and large the amount of trade debtors and bills receivables depends upon the extent ofsales, credit facilities extended and the effectiveness of collection policy in force. The DTR isascertain how many days of average sales are locked up in the amounts owning by debtors asdepicted in the balance sheet. Credit sales Total sales RTR = ———————— or ———————— Average debtors closing debtorsEx:In the year 2006 - 07Babasabpatilfreepptmba.com Page 62
  • 63. The Krishna Co-operative Sugar Factory Limited, Athani Total sales RTR = ———————— Closing debtors 79, 25, 85,774.00 = ———————— 26001540.16 = 30.48 365Average collection period = ----------------------- RTR 365 = ---------- 30.48 = 11.81 daysTABLE 12: COMPUTATION OF RECEIVABLE TURNOVER RATIO: Year Sales Closing debtors RTR AverageBabasabpatilfreepptmba.com Page 63
  • 64. The Krishna Co-operative Sugar Factory Limited, Athani collection Period 2005-06 40,96,02,092 1,10,81,938 36.96 9.87 2006-07 94,06,20,046 2,51,82,026 37.35 9.77 2007-08 79,13,32,805 57,27,392 138.16 2.64 160 140 RTR 120 100 Average Values 80 60 collection Period 40 20 0 2005-06 2006-07 2007-08 YearInterpretation: In the above chart, the Debtor turnover ratio is low in all years i.e. it was36.96 in 2005-06. As a result of that, the payment period will increase. But a very low isdangerous. Lower the DTR it affects increases in working capital.TABLE 13: COMPUTATION OF PROPORTION OF RECEIVABLES TOCURRENTBabasabpatilfreepptmba.com Page 64
  • 65. The Krishna Co-operative Sugar Factory Limited, Athani ASSETS: Year Total Receivables Current Assets Percentage 2005-06 3,73,02,784 25,88,44,064 14.4 2006-07 6,95,56,533 72,30,11,048 9.61 2007-08 5,73,74,008 81,24,64,742 7.06 Percent age 16 14 12 10 8 Percent age 6 4 2 0 2005- 06 2006-07 2007-08 Ye a rInterpretation: Total receivablesPercentage of total = ————————— x100 Receivables to total current assetsTotal current assetsTotal receivable includes the sundry debtors, loan and advances.The above table indicates that 14.4% of the total current assets were kept in receivables in2005-06. This share decreased up to 9.61% during the period of 2006-07. Further the trendwas towards declined to 7.06% during the period of 2007-08.Babasabpatilfreepptmba.com Page 65
  • 66. The Krishna Co-operative Sugar Factory Limited, AthaniTABLE 14: COMPUTATION OF SIZE OF TOTAL RECEIVABLES: Year Total Receivables Indices(04-05=100) 2004-05 2,77,12,355 100 2005-06 3,73,02,784 134.6 2006-07 6,95,56,533 251 2007-08 5,73,74,008 207 Indices(04-05=100) 300 250 200 Values 150 Indices(04- 05=100) 100 50 0 2004-05 2005-06 2006-07 2007-08 YearInterpretation: The table throws light on the position of total receivables. It is evident fromthe table that, there was an increased in the size of receivables up to 134.6% during 2005-06.In the year 2006-07 the trend was again increased i.e. 251%. Further decreased to 207 for theyear 2007-08Babasabpatilfreepptmba.com Page 66
  • 67. The Krishna Co-operative Sugar Factory Limited, AthaniCASH MANAGEMENT: Cash is another significant element of working capital it includescash in hand and bank balances. Without cash no business unit can survive at any time duringits life cycle. Cash occupies an important place in the structure of working capital in order tomaintain good trade and credit, cash is needed for repayments that must be made onscheduled time. Hence quantum of cash should be neither more nor less than therequirements. This optimum level depends on various factors such as manufacturing cycle,the sale and collection cycle, age of the enterprise, the liquidity of other current assets, debtredemption etc. CashPercentage of cash to current assets = ———————— x 100 Total current assetsTABLE 15: Computation of Proportion of Cash to Total Current Assets: Year Cash Current Assets Percentage 2005-06 2,72,15,806 25,88,44,064 10.51 2006-07 3,64,67,361 72,30,11,048 5.04 2007-08 1,51,03,607 81,24,64,742 1.85 Per cent age 12 10 8 6 Per cent age 4 2 0 2005-06 2006-07 2007- 08 Ye a rBabasabpatilfreepptmba.com Page 67
  • 68. The Krishna Co-operative Sugar Factory Limited, AthaniInterpretation: From the table it can be derived the fact that the average cash to currentassets ratio is the lowest at 10.51 in 2005-06. However, the ratio has decreased of 5.04% in2005 – 06. But there was increased by 1.85 % in the year 2007-08. The proportion of totalassets to cash there was high in the year of 2005-06. In the total, the average cash balance tototal current assets is very low. It shows inadequate cash balance or situation is undesirablefrom the point of profitability and liquidity of the unit.CASH RATIO:It is the method for measuring the liquidity of the factory by calculating the ratio betweencash & all current liabilities. It is also known as Cash Asset Ratio. CashCash Ratio = _________________ Current liabilitiesTABLE 16: COMPUTATION OF CASH RATIO: Year Cash Current Ratio Liabilities 2005-06 2,72,15,806 12,83,39,937 0.212 2006-07 3,64,67,361 32,37,78,891 0.112 2007-08 1,51,03,607 39,73,58,597 0.038 Ratio 0.25 0.2 0.15Interpretation: Ratio Ratio 0.1 From the table 0.05it can be derived 0 2005-06 2006-07 2007-08the fact that the Yearaverage cash toBabasabpatilfreepptmba.com Page 68
  • 69. The Krishna Co-operative Sugar Factory Limited, Athanicurrent liabilities ratio is the lowest at 0.212 in 2005-06. However, the ratio has decreased of0.112% in 2006 – 07. But there was decreased by 0.038 % in the year 2007-08.FINDINGS: • The current and quick ratios are satisfactory i.e. 2.09 and 0.267 on an average respectively. So the firm’s liquidity position is good. It shows that it is able to meet its current obligations. • The cash reserves maintained by the company are good. But as compared to financial status it is not at remarkable extent. This is serious liquidity crunch to the company. However the company is much safer side because of their outstanding due to farmers, who have also hold shares of company. Another point is farmers are not aggressive to recover their dues. • Proportion of cash to sales maintenance of the cash balance is inadequate. As a rule when sales increase cash also increase, but at a decreasing rate. It shows that inadequate of cash balance. • When analyzed the financial performance, the firm’s commitment to meet short term obligations is good i.e. liquidity position of the company is good. And in respect cash balance, the firm has not sufficient balance. As a result of that, it may affect the working capital, so totally the firm is struggling to meet its current expenses. And with regard to resources, the firm is not utilizing the assets properly. And similarly the firm has a maintained high inventory. • The current assets turnover ratio of the firm was greater than 1.It was 1.74on an average. It shows that, the firm has been utilized the current assets properly. • The size of the inventory is more than 75% of the working capital as compared to the last three year. It shows that the inventory has not been disposed off in those years i.e. goods might be stably in the warehouse due to may be either decreased in sales or higher purchase of raw materials.Babasabpatilfreepptmba.com Page 69
  • 70. The Krishna Co-operative Sugar Factory Limited, AthaniSUGGESTIONS: • The inventory turnover ratio of the company was more than 75%. The firm should search for new customers, and also the firm should focus on it’s foreign exports. • When we analyzed the proportion of cash in sales and current assets, the cash is not sufficient to meet the current expenses. So the firm should maintain sufficient cash balance and bank balance through effective credit policies. The major drawback for the insufficient of cash is that, the inventory has not been selling fast. So the firm should force to think about it. • With regard to resources (assets) the firm has not been utilized the assets properly in making sales. So it is forced to think for proper utilization of that to have sufficient cash balance. • The firm has invested more on fixed assets. By investing in fixed assets is useless because they cannot be converted into cash. Major problem of the firm is that it does not have sufficient cash balance, so I personally feel that the firm better to invest in current assets instead of having high inventory. • As it is well known fact that sugarcane grown is not only produces sugar. It can produce many other products also like molasses, cartons, electricity and beverages therefore company need to focus in these areas also.Babasabpatilfreepptmba.com Page 70
  • 71. The Krishna Co-operative Sugar Factory Limited, AthaniCONCLUSION: When I analyzed the financial performance, the firm’s commitment to meet shortobligations is good i.e. liquidity position of the company is good. And in respect cashbalance, the firm has not sufficient balance. As a result of that, it may affect the workingcapital, so totally the firm is struggling to meet its current expenses. And with regard toresources, the firm is not utilizing the assets properly. And similarly the firm has amaintained high inventory.Babasabpatilfreepptmba.com Page 71
  • 72. The Krishna Co-operative Sugar Factory Limited, AthaniBIBLIOGRAPHY:Prasanna Chandra : Financial Management theory and practice, Tata, McGraw – Hill Publishing Co. Ltd., New Delhi, 1998M. Y. Khan and P. K. Jain : Financial management, Tata McGraw Hill Publishing Co. ltd. Financial Management, The Institute of Chartered Accountants of India, New Delhi.N. Vinayakam and I.B. Sinha : Management Accounting, Himalaya Publishing HouseN. K. Agarwal : Management of Working Capital, Sterling Publishers, Pvt. Ltd.Website : www.google.comBabasabpatilfreepptmba.com Page 72
  • 73. The Krishna Co-operative Sugar Factory Limited, Athani www.msn.com www.answers.comBabasabpatilfreepptmba.com Page 73

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