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working capital management project

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working capital management project

  1. 1. <ul><li>A STUDY ON FINANCIAL PERFORMANCE THROUGH
  2. 2. WORKING CAPITAL MANAGEMENT
  3. 3. IN
  4. 4. SUDHA AGRO OIL AND CHEMICAL INDUSTRIES LIMITED
  5. 5. SAMALKOT
  6. 6. A project report submitted to Jawaharlal Nehru university Kakinada in
  7. 7. Partial fulfillment of the award of award of the degree of
  8. 8. MASTER OF BUSINESS ADMINISTRATION
  9. 9. BY
  10. 10. GANGA RAMA VASU CHINTA
  11. 11. (Regd. No. 09MR1E0012)
  12. 12. Under the esteemed guidance of
  13. 13. Mr.M.v. srinivas rao (MBA)
  14. 14. MBA programme
  15. 15. P.G. DEPARTMENT OF MANAGEMENT STUDIES
  16. 16. SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENGINEERING& TECHNOLOGY , MANAGEMENT STUDIES
  17. 17. (AFFLIATED TO JNTU)
  18. 18. KAKINADA
  19. 19. ACKNOWLEDGEMENT
  20. 20. I am greatly indebted to many people for mailing the present study possible and I shall be failing in my duty if I don’t acknowledge
  21. 21. the help and guidance extended to me by each of them.
  22. 22. I am the student to Mr .M.V.SRINIVASRAO, head of management department, SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENG IN-EERING & MANAGEMENT STUDIES , gollakoderu for his kind co- operation extended to pursue the project work in sudha agro oil & chemical limited ,samalkot
  23. 23. I take this opportunity to express my deep sense of gratitude to Mr. Rajendra lecturer of krishnam raju college of post graduate studies, gollakoderu, for his valuable guidance in sharing his knowledge and expertise was a pillar of support in bringing this project in such an elegant form.
  24. 24. I am especially thankful to S. MEERA executive in FINANCE DEPARTMENT for accepting to be for my representing for doing project in SUDHA AGRO OIL &CHEMECAL INDUSTRIES LTD
  25. 25. And I want to convey my humble regards to all of my family members and friends who have contributed their co-operation and helped me in completing this report </li></ul>DECLARATION<br />I here declare that the project report entitled “WORKING CAPITAL <br />MANAGEMENT” have been completed successfully and this project<br />report submitted towards the partial fulfillment of the requirement<br /> the award of the degree of “MASTER OF BUSINESS ADMINIST-<br />RATION” in specialization finance . This report has not been sub<br />-mitted to any other university or institution for award of degree<br />Station:<br />Date: <br /> Ganga rama vasu .chinta<br /> {Regd no:09MR1E0012}<br />CERTIFICATE<br />This is certify that the project titled “A STUDY ON WORKING<br /> CAPITAL MANAGEMENT “IN SUDHA AGRO AND CHEMICAL<br />INDUSTRIES LIMITEDT ,SAMALKOT , being submitted by<br />GANGA RAMA VASU . CHINTA in partial fulfillment of the <br />award of m.b.a. degree to the P.G OF MANAGEMENT STUDIES ,<br />SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENGINEERING<br /> &TECHNOLOGY , GOLLAKODERU . Is a record of bonafied work<br /> Carried out by him under my guidance and supervision <br /> Project guide <br /> P.G department of management studies <br /> S v k r college gollakoderu <br />. PREFACE<br />The present study is conducted with objectives of identified the WORKING CAPITAL MANAGEMENT from the five years balance sheets provided by the SUDHA AGRO OIL AND CHEMICAL INDUSTRIES LIMITED.<br /><ul><li>The first chapter deals with the introduction , where the information is briefed about the oil & chemical industry
  26. 26. The second chapter discuss the need of the study, the methodology used and limitation thereof.
  27. 27. The third chapter deals with the organization profile in detailed.
  28. 28. The forth chapter deals with the literature review of the study.
  29. 29. The fifth chapter deals with analysis and interpretation.
  30. 30. The sixth chapter findings, suggestions, conclusions and Bibliography regarding the study with the help of last five years balance sheets.</li></ul>CONTENTS<br />CHAPTER-1 INTRODUCTION TO WORKING CAPITAL MANAGEMENT<br /><ul><li>Nature of working capital management
  31. 31. Methodology
  32. 32. Objective of study
  33. 33. Significant of the study
  34. 34. Limitations of the study</li></ul>CHAPTER-2 INDUSTRY PROFILE COMPANY PROFILE<br />CHAPTER-3 THEORETICAL FRAME WORK OF WORKING CAPITAL<br />CHAPTER-4 ANALYSIS AND INTREPRETATION<br />CHAPTER-5 FINIDING&SUGGESTIONS <br /> REFERENCES & BIBLIOGRAPHY<br />CHAPTER-1<br /><ul><li>INTRODUCTION TO WORKING CAPITAL MANAGEMENT.
  35. 35. NATURE OF WORKING CAPITAL MANAGEMENT.
  36. 36. OBJECTIVE OF THE STUDY.
  37. 37. SIGNIFICANCE OF THE STUDY.
  38. 38. METHODOLOGY.
  39. 39. LIMITATIONS OF THE STUDY.</li></ul>INTRODUCTION<br />Working capital management is significant in financial management. It plays a vital role in keeping the wheel of the business running. Every business requires capital ,without it can’t be promoted. Investment decisions is concerned with investment in current assets and fixed assets .working capital plays a key role in a business enterprise just as the role of heart in human body . it acts as grease to run the wheels of fixed assets .its effective provision can ensure the success of business while its inefficient management can lead not only to loss but also to the ultimate downfall of what otherwise might be considered as a promising concern . Efficiency of a business enterprise depends largely on its ability to its working capital .working capital management is one of the important facts of affirms overall financial management<br /> For increasing shareholder’s wealth a firm has to analyze the effect of fixed assets and current assets on its return and risk.working capital management of current assets . the management of current assets on the basis of the following points:<br />1. current assets are for short period while fixed assets are for more than one year<br />2. The large holding of current assets ,especially cash, strengthens liquidity position but also reduce overall profitability ,and to maintain an optimal level of liquidity and profitability , risk return trade off is involved holding current assets<br />3. Only current assets can be adjusted with sales fluctuating in the short run. thus the firm has greater degree of flexibility in managing current assets. The management of current assets help affirm in building a good market reputation regarding its business and economic conditions.<br />Now first let us discuss the paradigms of working capital management.<br />CONCEPT OF WORKING CAPITAL:<br />The concept of working capital includes current assets and current liabilities both. There are two of working capital of working capital they are gross and net working capital.<br />1.Gross working capital: Gross working capital refers to the firm’s investment in current assets .current assets are the assets, which can be converted into cash within an accounting year or operating cycle. It includes cash, short term securities ,debtors (account receivables or book debts),bills receivables and stock (inventory).<br />2.Net working capital: net working capital refers to the difference between current assets and liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. It includes creditor’s or accounts payables bills payable and outstanding expenses. Net working copulate can be positive or negative. A positive working capital will arise when current assets exceed current liabilities and vice versa.<br />NATURE OF WORKING CAPITAL <br /> Working capital management is concerned with the problems that arise<br /> in attempting to manage the current assets ,the current liabilities and the<br /> inter relationship that exists between them. The term current refers to those<br /> assets which in the ordinary course of business can be ,or will be converted <br />into cash within one year without undergoing a diminution in value and <br />without disrupting the operation of the firm. the major current assets are<br /> cash, marketable securities, accounts receivables and inventory. current <br />liabilities are those liabilities, which are intended at their inception ,to be paid<br /> in the ordinary course of business, within a year out of the current or the <br />earning of the concern .The basic current liabilities are accounts payable <br />,bills payable ,bank overdrafts and outstanding expense. The goal of working<br /> management is to manage the firms assets and liabilities in such a way that a<br /> satisfactory level of working capital is maintain. This is because if the firms<br /> cannot maintain a satisfactory level of working capital ,it is likely to become <br />insolvent and may even be forced into bankruptcy. The current assets should<br /> be large enough to cover its current liabilities in order to ensure a reasonable<br /> margin of safety. Each of the short term source of financing must be <br />continuously managed to ensure that they are obtained and used in the way.<br /> Interaction between current liabilities is ,therefore the main theme of the of<br /> management of working capital.<br />METHODOLOGY<br />For the purpose of the study necessary information has been collected <br />through primary and secondary sources.<br />PRIMARY DATA:<br />DEFINATION<br />The primary data are those which are collected a fresh and for the first time, <br />and thus happened to be original in character . primary data include the <br />information collected from the officials and existing company through <br />discussions<br />SECONDARY DATA :<br />DEFINITION<br />The secondary data ,on the other hand are those which have already been<br /> collected by some one else and which have already been passed though the<br /> stastical process.<br />The secondary data include the information from the company annual reports<br /> which include financial statement like balance sheet and income statements <br />and such other information from text books of financial management ,journals<br /> and magazine has also been collected.<br /> <br />OBJECTIVES OF THE STUDY<br />Working capital is the most widely used and powerful technique of financial<br /> analysis .The main objective of the present study is to know the financial<br /> condition of the company.<br /><ul><li>To know the overall operational efficiently and performance of the sudha agro oil and chemical industries limited.
  40. 40. To interpret the financial position of company of is appropriate (or) not.
  41. 41. To asses the long term financial viability of company .to know whether the management is constantly concerned about the over all profitability of the company (or) not.
  42. 42. To provide reliable financial information about economic resources and obligation of a business enterprise.
  43. 43. To provide reliable financial information those add ,it’s in estimating the potential of the enterprise.
  44. 44. To disclose to the extent possible other information related to the financial statements users. </li></ul>NEED OF THE STUDY<br />During the post –liberalization are the worlds assail as economic india’s scenario has shown a great progress and is growing with increased phase this has necessitated the complex and efficient ways of management .thinking practically the main concern is of the influence of external environment on business providing a modern dimension to business to management .they find solution for many problems in the aspect of financial analysis .financial establishes inter relationship that exists among. The different items appeared in the financial statements, which are effectively helpful to describe the company should monitor key indication of operating performance and where possible must compare, itself with the competitors in the industry.<br /> A systematic financial analysis of accounting figure helps to analysis the probable caused relationship among different items after analyzing scrutinizing the past result which helps the management to prepare budgets ,to formulate company policy and to prepare future plan of action. It focuses on company’s relative performance in sales growth margins and assets management .It is a simple tool where by a company can make its internal audit to evaluate internal strengths and weakness of the part of the strategic planning.<br /> <br />LIMITATIONS OF THE STUDY <br />The study conducted and done is analytical ,subject to the following limitations<br />1)The study is mainly carried out based on the secondary data provided in the financial statements .<br />2)this study is based on the historical data and information provided in the annual reports therefore it may not be a future indicator .<br />3)There may be some fractional differences in the calculated ratios.<br /> As the study was for short span of 8 weeks and due to lack of time other areas could not be well focused.<br />CHAPTER -2<br /><ul><li>INDUSTRY PROFILE
  45. 45. COMPANY PROFILE</li></ul>INDUSTRY PROFILE<br />Oils have come to play vital role in the economy of our country .These oils not only for human diet but also provide essential raw materials for industries products like soaps, paints ,varnishes and lubricants .there are many reasons for ever growth demand for oils.<br /> The main reason is due to various factors such as increase in population, rapid industrialization of the country and improved standard of living with the recent liberalization of licensing and trade control policies of the government ,there is going to be further increase in the demand for oils human consumption and industries purpose now a days india has been facing the problem of shortage and raises in the price of oils. It is the burning problem from the 20 years . the situation is due to the production of major oil seeds ground nut, mustered ,sesame, sun flower ,soybean and linseed & caster seed.<br /> The presently available sources of oil in india can be divided as follows.<br />1. perennial oil seed plant like coconut and palm.<br />2.Annual oil seed like groundnut , rapeseed, sesame, Niger, sunflower, soybean caster and linseed are non –edible types.<br />3.minor oil seeds, like sal, neem, karanja, kusum, maharaj etc.<br />4.oils obtained through technological process such as extraction from rice bran, cotton seeds.<br /> We are at present tapping about 25% to 30% of the available potential for production in all the above sources .All these various oil seeds have different yields of oil per unit area, depending in their oil content and yields of oil seeds per unit area. The following table gives the average yields of oils per unit area for various oil seeds.B?<br />AVERAGE YIELDS OF OIL PER UNIT AREA TABLE<br />Oil seeds Average oil Palm3200-3500Coconut1900-2000Niger175-200Castor200-225Sesam300-325Mustard350-375Linseed400-450Ground nut600-625<br /> In India most of the production comes from rainfall areas, and hence there are wide fluctuation in production owing to monsoons –progress in the evaluation and introduction of high yielding hybrid varieties are poor when compared to rice and cotton etc. owing to these factors ,yield projector is very low.<br /> In these circumstances oil seeds production has to be stepped up and self efficiency should be achieved as early as possible hence our goal is to achieve self sufficiency in the production of the oils with in the shortest possible span of time.<br />ROLE OF CO-OPERATIVE SECTOR:-<br /> Co- operator is assisted by N.C.D.C and N.D.D.B having oil seed producer as their members have been supporting co-operative endeavour in integrated development, storage and marketing. the approach adopted b then is comprehensive enough to associated oil seed growers co-operated at the gross root level with oil seed producers as the participants and beneficiaries it is important that the formers who are actually engaged in production of oil seeds are associated with any strategies adopted for segment action oil seeds through co –operatives .there action involvement would entire then to give further inputs for production of oils.<br />IMPORTANCE THE RODUCT<br /> Non trading oil an lay an important part an important part in the achievement of oil self-sufficient in our country cotton seed has already established it self as an important oil source .rice bran is fast catching up with cotton seed. rice bran is fast catching up seed rice bran has great potential in the future. the minor oil seeds of free origin are slowly gaining importance mainly because of their low cost. If the policy makers can encourage at even force to the industries to exploit the vast qualities of minor seeds the edible in wild as non –edible industries)oil demand can e satisfactory.<br />OIL FROM BY PRODUCTS OF OTHER INDUSTRIES:-<br /> There are several by –products of various agro –based industries which and can be utilized to obtain oil either industries or edible purpose cotton seed, grossed nut cake rice bran are presently the important sources<br />ABOUT THE PRODUCT RICE BRAN OIL:-<br /> The spectra of scarcity if oils has been hunting our national economy in deferent every since the beginning of seventies lastly since 1977 huge be ports of oils have become a necessity to arrest the raise in price and met the demand and supply gap by spending huge foreign exchange to crude oil.<br /> The crisis has become the more serious on account of standard in the production of traditional oil seeds mainly ground nut and mustard on one hand and ineffective utilization of the vast of resources of oil which can available by taping rice bran and minor oil seed of origin and not adopting a concrete national policy has made the crisis serious.<br /> In fact the rice bran oil can argument substantial quality of oil in the country like many Asain countries including Japan Herman’s thus land where rice bran oil came to stay as a cooking medium and also for industrial purpose.<br />State wise processing capacity of rice bran oil in india <br />21STATEDAILY PRODUCTION(MT)ANNUAL PRODUCTION(MT)Andhra Pradesh742522,27,500Assam11033,000Delhi309000Gujarat17405,22,000Haryana1685 5,05,000Karnataka20506,15,000Kerala4701,41,000Madhya Pradesh26908,07,000Maharastra17155,14,500Orissa 14042,000Punjab25807,74,000Rajasthan26802,04,000Tamilnadu13303,99,000Uttar Pradesh2932879,600West Bengal7202,16,000Pondicherry15045,000<br />A conference organized by the solvent extract association of india on 1977 on rice bran oil of the significant trails taken up by or industrial organization on the fields of oil since a slightest hike in import price crude oils brings a marked change in Indian in markets especially of oils.<br />Solvent extraction industry in india:-<br /> Solvent extraction is pre –dominantly on agricultural on agricultural based industry .in solvent extracting the oil contents in various agricultural products .that is rice bran ,soya bean , sal seed –decorticated oil cakes etc, is extracted without changing the other properties of the input material .in view of the agricultural depend this industry occupies a significant place in india economy , the overall installed capacity of the industry in india 22,66,10,000 MTS per year and the total no of solvent interaction plant in india 42%.<br /> <br /> The following is the state wise advent extraction plant and their processing capacity<br />STATE NO.OF SOLVENTDAILY PROCESSING CAPACITY(MTS)ANNUAL PROCESSING CAPACITY(MTS)Andhra Pradesh5710,61031,83,000Assam115045,000Delhi14513,500Gujarat5511,64534,93,500Haryana 202,29066,87,000Karnataka67502,25,000Madhya Pradesh6727,47582,42,500Maharastra6011,80335,41,500Orissa533099,000Punjab223,51010,53,000Rajasthan277,12521,37,500Tamilnadu212,6607,98,000Uttar Pradesh264,00012,00,000West Bengal121,0603,18,000Pondicherry 120060,000TOTAL42188,7002,66,10,000<br />23STATE WISE SOLVENT EXTRACTION PLANTS IN INDIA:-<br />In view of the growing demand for oils and for cattle feed ,the importance of the solvent extraction industry is very significant and it plays a very import role in Indian economy .the present growth rate of industry is around 5%.<br /> The inflation rate of general goods is above 20%.it is surprised that in case of oils the inflation is above 30%.there is still a danger in as government has no other growth expert to resort to fix the inflationary to be standard price in order to fill reservoir of resources to meet the budget.<br /> Many learned and eminent industries ,technologist and manufactures about manufactures about modernization of rice bran .processing to producer quality with low concern by installing stabilizers of three or four varieties and to extract oil with 10%to15%suitable for industries purpose by refining scope of exploitation of complete bran available in Indian for production of bran oil , problem formed by rice mills ,solvent extraction industries types of stabilizer to install to control T.T.A .rice bran is problem in refining the bran oil like maxell eimming dewoding neutralization bleaching and deodorization and physical refining etc.<br /> In view of the growing demand for oils and for cattle feed, the importance of the solvent extraction industry is very significant and it plays a very import role in Indian company .the present growth rate of industry is around 5%.<br /> Previously the oils obtained by solvent extraction are used in the manufacture of soaps ,detergents but with the recount development in technology and solvent extraction plants are able to produce edible grade oils . which the fit for refining in order produce refined cooling grade oils ,which is a source commodity in India .thus this industry has major role to pay in India’s oil trade.<br />The activities of the industry are monitored by the solvent extractors moderation of India, located at Mumbai .<br />COMPANY PROFILE<br />HISTORY OF THE COMPANY:-<br /> SUDHA AGRO OIL AND CHEMICAL LIMITED , Sri E .Rajarao, who has vast experience in the same line ,prompted an existing profit making company. The company was incorporated on 7th December 1981 as a private limited company and became limited company on 13th august 1988. Initially the promoters brought Rs53.55lakhs as equity capital out of 750lakhs were sudscribed by apde subsequently 5000 shares in the yaer 1987 and 2500 shares in the year 1992 were brought back by promoters. <br /> In the year 1993-94 the company issued a bonus shares of 42,840 shares of rs.100 paid up at the ratio of 5:4 out of reserves of Rs 104-58 lakhs available with the company . the equity capital was increased to Rs 177.61 lakhs by subscribing 26,775 shares at per and 54.445 shares at premium of Rs 50 per share of Rs 500 paid up.<br /> In the year 1996-97 the equity capital was further increased to 225 lakhs by subscribing 47,390 shares at per by the existing promoters . thus the equity capital of the company stood at Rs 11.361lakhs as on 31st march ,1997. <br /> The company paid 10% dividend on equity in the first year itself and is continuously paying dividend for the eight years.<br />PROMOTORS OF THE COMPANY:-<br />The chief promoters of the company is sri E. Rajarao, B.A . who was earlier associated with the promotion of Gowthami solvent oil ltd .as an executive director ,he has aged above 60 years of experience in the oil and fats business.<br />BOARD OF DIRECTORS<br /><ul><li>Sri E. RAJA RAO - CHAIRMAN&MANAGING DIRECTOR
  46. 46. Sri E. RAMAKRISHNA - JOINT MANAGING DIRECTOR
  47. 47. Sri E. SUDHAKAR ,MS USA - EXECUTIVE DIRECTOR
  48. 48. Sri V. BALA MOHAN DAS - NOMINEE OF IREDA
  49. 49. Sri G.M.K. MOHAN - DIRECTOR
  50. 50. Sri M. VENKANNA - DIRECTOR</li></ul> ..................................................................................................<br />AUDITORS:-<br /> Ms. BRAHMAYYA& CO.<br /> Charted accounts<br /> 3-16c-401,8th road<br /> Gazette officers colony<br /> Shanti nagar,<br /> Kakinada.<br />BANKERS :-<br /> STATE BANK OF INDIA<br /> Commercial branch <br /> KAKINADA<br />FACTORY & REGD. OFFICE :-<br /> 19-1-422, G . Ragampeta, <br /> Post box no .9,<br /> Samalkot - 533440<br /> East Godavari district<br /> Andhra Pradesh<br />MANAGEMENT<br /> The following financial executives who have good amount of experience in the oils and chemicals field further assist the managing director and executive director<br /><ul><li>NAMEAGEQUALIFICATIONSERVICEFUNCTIONSri A. Narendra40Engineering Graduate 10 yearsRaw material and oil salesSri T. Narasimha rao45Oil Technologist 23 yearsProduction activitySri S. Meera52Commerce graduate 26 yearsAccounts of the company
  51. 51. PRODUCTION FACILITIES:-
  52. 52.
  53. 53. The company initially started with 150 TPD rice bran solvent extraction plant in 1982 and subsequently expended its acids ,glycerin and oxygen . The particulars of the various plants installed in the company’s existing premises given below.
  54. 54. NAME OF THE PLANTINSTALL ED TPDCAPACITYTPADATE OF COMMENCEMENT OF PRODUCTION Solvent extraction plant 15045,000May 1983Hydrogenation plant5015,000May 1986Chemical refinery4012,000Feb 1994Fatty acids plant 4012,000Sep 1994Glycerin2600April 1996Physical refinery206,000June 1996Oxygen booting16675,00,000Feb 1997Power plant41,800Dec 2000
  55. 55.
  56. 56. The company had started the solvent the extraction plant on its own fill in 1989-90 and it ran this on job work basis with minimum quality guarantee to ITC limited and Essar Gujarath limited from September 1990 .due to shifting of job work processing the operating capacity of the plant of the plant came down from 84%to 66% . now this plants running on its own.
  57. 57. The company has entered a processing agreement for its hydrogenation plan with Colgate Pamolive (1)ltd. the process a minimum quality of 2,400 Mt. per year and the agreement is renewable every year. Colgate Palmolive (1) ltd also supplied electrolysis equipment on hire purchase basis for the period of three years commencing from year 1995 november.</li></ul>EXPANSION SCHEME EXECUTED:-<br /> Company commanded its 150 TPD solvent extraction plan in may 1986 at a cost of 134 lakh and the project was partly financed by APSFC and APIDC by sanctioning a term loan of 30 lakhs repaid in scheduled time .In may 1986 it commenced a 30 PTW hydrogenation. Plant to harden commercial rice bran oil for soap at a cost of 66 lakhs. APIDC party financed this project by sanctioning the term loan of 39.64 lakhs. This loan was also repaid in the scheduled time . in 1986 the company took a term loan of Rs 5.80 lakhs from APTS for purchasing a generator .in 1992 they took a term loan of Rs 19.60 lakhs from APIDC for purchase of a boiler .these two term also repaid in time. In 1993 company added seed prepatory system at a cost of Rs 16.20 lakhs as its own funds.<br /><ul><li> In 1993 the company took an expansion and diversion programme in a phase manner by obtaining the financial assistance from IDBI. In 1993 it took loan of Rs 410 lakhs to part finance its 30 TPD chemical refinery and 20 TPD fatty acid plant in 1994. In the year 1995 the company went for further expansion and diversification it took rs.350 lakhs from IDBI and increased capacity from 30 TPD to 50 TPD.
  58. 58. The company is banking with state bank of india. Peddapuram branch since inception and it presently enjoying working capital fund based limit of Rs 50 lakhs. The company is maintaining good financial relation with different finance institutions. Which are extending loan facility. The repayment of loans is made in time.
  59. 59. Dealing with financial institution and banks as on 31st august, 1997 is given in the following table.
  60. 60. PERFORMANCE:-
  61. 61. The company is regular in both earning the profit and declaring the dividend to its share holder. The turnover in 1992-93 and 1995-96 were low due to reason that unit under took job works for ITC limited and Essar Gujarat limited. The turn over started increasing from 1996-97 on words due to diversification of the activities in a phased manner. The company could not show a net profit in 1998-99 as it changed the method of depreciation from straight line method to written down value method. Due to availability of surplus in profit and loss account the company declared dividend of 15% on its equity on proportionate basis.
  62. 62. RAW MATERIALS:-
  63. 63. The main raw material of this unit is rice bran oil. The unit requires a quality of 150 Mt .of rice oil per day and 100 Mt of rice bran oil per day. The company is located in the center of east Godavari district surrounded by huge number of rice mills. Since the company is 15 years old it established a strong net work for procurement of rice bran. The required rice bran is produced through urgently brokers who collect rice bran from mills at the price indicated by the company depending on the marketing fluctuation. The company has 30 bran agents in Godavari district, srikakulam and southern Orissa.
  64. 64. Out of the 100Mt of rice bran oil around 15tones per day available from the solvent extraction plant of the company.
  65. 65. The chemical such as nickel catalyst caustic soda, sulphuric acid, phosphoric acid bleaching earth etc . Are available in the required capacities to run the plan at envisaged capacities .
  66. 66. THE RAW MATERIALS:-
  67. 67. PRODUCTION PROFILE
  68. 68. The raw material for solvent extraction for is rice bran . there are two verities of rice bran.
  69. 69. Raw rice bran.
  70. 70. Boiled rice bran.
  71. 71. The oil content is raw rice bran is 16% and increase as boiled rice bran is 19% the purchase price of rice bran fixed on the basis of oil content
  72. 72.
  73. 73. According if oil content is less than 16% the price will be reduced proportionately and if oil content is more than 16% a premium will be paid proportionately similarly in the case of boiled rice bran rebate of premium is considered on the basis of 19% oil content .
  74. 74. The bran is usually produced through agents appointed by company or directly from the rice mills . the bran after is tested in the laboratory for its content and FFA (free fatty acids) . based on this laboratory results the payment will be mode.
  75. 75.
  76. 76. In the case of boiled bran the F.F.A content in it will be around 4% to 7% if it is processed with in 3 days from the day of production by the rice mills. By F.F.A content in rice bran increased to maximum 60% if they are stored beyond 10 days . the advantage of low F.F oil
  77. 77. (I.e. 4% to 5%) is that it can be used for manufactures of refined rice bran oil. </li></ul>The sweet water obtain at the splitting tower contain glycerine heating process in the glycerine refine unit refines the crude glycerine. The refines glycerine of 90% purity is the stored in drums for sale.<br />Refinery plant flow chart<br />Description <br />The commercial grade rice bran oils taken an autoclave. Hydrogen and nickel catalysis are then put into autoclave and then stirred. In the process oil absorbs the hydrogen gas. The hydrogenated oil then bleached to remove color and other impurities the oil is then cooled to temperature 80°c. The cooled oil is then filter and the final oil is stored for sale.<br />The soap stock ( fatty acids obtain from the neutralization process is treated with sulfuric acid and then washed ). The oil thus obtain is called as acid and is stored for sale or for further use in the fatty acid plant.<br />Solcant extraction plant flow chart<br /> <br />Fatty plant flow chart<br />The commercial grade rice bran oil is taken into an auto calve. Hydrogen and nickel catalysis are then put into autoclave and then stirred. In the process oil absorbs the hydrogen gas. The hydrogenated then bleached to remove color and other impurities. The oil is then cooled to temperature of 80° C. the cooled oil is then filtered and the final oil is stored for sale. <br />Hydrogenation plant flow chart<br />The commercial grade rice bran oil is taken into an auto calve. Hydrogen and nickel catalysis are then put into autoclave and then stirred. In the process oil absorbs the hydrogen gas. The hydrogenated then bleached to remove color and other impurities. The oil is then cooled to temperature of 80°C. the cooled oil is then filtered and the final oil is stored for sale. <br />DESCRIPTION:-<br /><ul><li> The rice bran received from various rice millers is first fed into a Pelletier machine to convent the bran, Which is in powder from into pellets. These pellets which are run through a pellet cooler to reduce the heat in the pellets. These pellets are fed into the extraction conveyor through conveyors. The extraction bed hexane is poured on to the bran pellets. The hexane while passing through the bran pellets, absorbs the oil content in the bran. This mixture of oil and hexane is called miscella. The hexane in oil is then separated by condensation process. The oil thus obtain is stored in storage tanks for sale or for further use in other plants.
  78. 78. The de-oiled bran . Which still contains traces of hexane, is run through direct to aster to recover the hexane . The de-oiled bran (DOB) which is free from hexane is bagged for sale.
  79. 79. The hexane recovered by condensation process is recalculated for use in the extraction bed.
  80. 80. Chapter-3
  81. 81. THEORETICAL FRAME
  82. 82. WORK OF WORKING CAPITAL</li></ul>WORKING CAPITAL MANAGEMANT THEORY <br />MEANING AND DEFINATION: <br /> A part from investment in fixed assets , every enterprise has to arrange for adequate funds for meeting day (operations) expenses to kept it a concern. So originally speaking working capital refers to the flow funds , necessary for working of enterprise however these is no agreement among the financial experts regarding the meaning of working capital. They define working capital in the following ways.<br />ACCORDING TO MEAD MALLOT:<br /> “Working capital means current assets”.<br />ACCORDING TO WESTON AND BRIGHAM:<br /> “working capital refers to a firm investment in short term assets, cash, short term securities, accounts receivable and inventories”.<br />CONCEPT OF WORKING CAPITAL:-<br /> There are 2 concepts of working capital : gross and net.<br /> The term gross working capital also referred to as a working capital, means the total current assets.<br /> The term net working capital can be defined in 2 ways. <br /><ul><li>The most common definition of net working capital is the different between current assets and current liabilities
  83. 83. Alternate definition of net working capital is that portion of current assets which is financed with long term funds.</li></ul>The task of the financial manager in managing working capital efficiency is to ensure sufficient liquidity in the operation of the enterprise. The liquidity of a business firm is measured by its ability to satisfy short term obligations as they become due. The three basics measure of a firm’s overall liquidity are <br /><ul><li>The acid test ratio
  84. 84. The net working capital
  85. 85. The current ratio</li></ul> In brief , they are useful in inter firm comparison of liquidity . net working capital as a measure of liquidity, is not very useful for comparing the performance of different firms, but it is quite useful for internal control. The net working capital helps in comparing the same firm over time. <br />NEED FOR WORKING CAPITAL:-<br /> In order earn sufficient profits, a firm has to depend on its sales activities apart from others. We know that sales are not analysis converted into cash immediately. i.e, there is a time lack between the sale of a product and the realization of cash so, an adequate amount of working capital is required by a firm in the form of different current assets for its activities to continue un interrupted and to tackle the problem that may arise because of the time lay. Practically this happens simply owing to the “operating cycle”(or) “ cash cycle”, involves the following steps.<br /><ul><li>Conversion of cash into inventory.
  86. 86. Conversion of inventory into receivables.
  87. 87. Conversion of receivables into cash.</li></ul>NATURE OF WORKING CAPITAL:- <br />The term working capital refers to current assets which may be defined as<br /><ul><li>Those which are convertible in to cash or equivalents with in a period of one year and
  88. 88. Those which are required to meet day operations.</li></ul>This fixed assets as well as current assets, both required investment of funds. So, the management of working capital and of fixed assets, appearently seen to involve same type of consideration but it is not so. The management of capital involves different concepts and methodology than the techniques used in fixed assets management. The reason for this different is obvious. The very basics of fixed assets decision process (i.e the capital budgeting ) and the working capital decision process are different. The fixed assets involve long period perspective and therefore, the concept of time value of money is applied where as in working capital the time horizon is limited, in general, to one year only and the time value of money concept is not considered. The fixed assets the long term profitability of the while the current assets affect the short term liquidity position. Managing current assets may require more attention than managing fixed assets. The financial manager must.<br /> Therefore continuously monitor the assets to ensure that the desire levels are being maintained. Since the amount of money invested in current assets can change rapidly. So does the financing required. Mis management of current assets can be costly. Too large an investment in current means tying up funds that can be productively used else where (or it means added interest cost if the firm has borrowed funds to finance the investment in current assets). Excess investment may also expose the firm to undue risk eg. In case, the inventory cannot be sold or the receivable cannot be collected.<br /> On the other hand, too little investment also can be expensive for ex:- insufficient inventory may mean that sales are lost as the goods which a customer wants are not available. The results is that financial managers spend a large chunk of their time managing the current assets because level of these assets changes quickly and a lack of attention paid to them may result in appreciably lower profits for firm. So, in the working capital management, a financial manager is faced with a decisions involving some consideration as follows:<br /><ul><li>what should be the total investment in working capital of the firm?
  89. 89. What should be the level of individual current assets?
  90. 90. What should be the relative proportion of different sources to financial the working capital requirements?</li></ul> Thus the working capital management may be defined as the management of firm’s sources and uses of working capital in order to maximize the wealth of the share holders. The proper working capital management requires both the medium term planning (say up to 3 years) and the immediate to changes arising due to fluctuation in operating levels of the firm.<br /> THE OPERTING CYCLE AND THE WORKING CAPITAL NEEDS:-<br /> The working capital requirement of a firm depends, to a great extent up on the operating cycle of the firm. The operating cycle may defined as the duration from the procurement of goods or raw materials and ending with sales realization. The length and nature of the operating cycle may differ from one firm to another depending up or the size and nature of the firm.<br /> In a treading concern there is a serious of activities starting from procurement of goods ending with realization of sales revenue. Similarly in case manufacturing concern . This serious start form procurement of raw material and ending with the sales realization of finished foods. In both the cases however there is a time gap between the happening of the first event and the happening of last event . this time gap is called operating cycle. Thus the operating cycle of a firm consists of time required for the completion of chronological sequence of some or all of the following.<br /><ul><li>Procurement of raw material and services
  91. 91. Conversion of raw material in the work in progress.
  92. 92. Conversion of work in progress in to finished goods.
  93. 93. Sales of finished goods. (cash or credit).
  94. 94. Conversion of receivable into cash. </li></ul> The firm is after required to extend credit facilities to customers. The finished goods must be kept in store to take care of the orders and minimum cash balance must be maintained. It must also have minimum of raw material to have smooth and uninterrupted production process. So in order to have a proper and smooth running of the business activities, the firm must make investment in all these current assets. This requirement of funds depend up on the operating cycle period of the fiem and also denoted as the working capital needs of the firm.<br />OPERATING CYCLE PERIOD:-<br /> The length or time duration of the operating cycle of any firm can be defined as the sum of it’s inventory conversion period and the receivable conversion period.<br />(1)INVENTORY CONVERSION PERIOD:-<br /> It is the time required for the conversion of raw material in to finished goods sales. In a manufacturing concern the ICP is consisting of raw materials conversion period(RMCP), work in progress conversion period (WPCP), and the finished goods conversion period (FGCP). The RMCP refers to the period for which the raw material is generally kept in store before is issued to the production department. The WPCP refers to the period for which the raw material remain in the production process before it is taken out as a finished unit. The FGCP refers to the period for which finished units remain in stores before being sold to the customers.<br /><ul><li>RECEIVABLES CONVERSION PERIOD: (RCP)</li></ul> It is the time required to convert the credit sales in to cash realization. It refers to the period between the occurrence of credit sales and collection of debtors.<br /> The total of ICP and RCP is also known as total operating cycle period (TOCP). The firm might be getting some credit facilities from the supplier of raw material wag earners etc. this period for which the payment it these parties are deferred or delayed is known as deferral period. The net operating cycle of a firm is arrived at by deducting the deferral period from total operating cycle period. Thus<br /> NOC = TOCP-D = ICP+RCP- DP.<br />OPERATING CYCLE<br />The duration of time required for completing the following sequencies of events in case of manufacturing firm s called the operating cycle.<br /><ul><li>Conversion of cash into raw material.
  95. 95. Convertion of raw material into work in progress.
  96. 96. Conversion of work inprogress into finished goods.
  97. 97. Conversion of finished goods into debtors & bills receivable through sale.
  98. 98. Conversion of debtors & bills receivable into cash.</li></ul> CASH<br />ACCOUNTS RECIEVABLERAW MATERIAL<br />FINISHED GOODSWORK IN PROGRESS<br />The duration of the operating cycle for the purpose of estimating working capital requirement is equalant to the sum of duration of each of these tables less the credit period allowed by the suppliers of the firm.<br />TYPES OF WORKING CAPITAL<br /><ul><li>NET WORKING CAPITAL:</li></ul> The net working capital is the different between current assets and current liabilities. The concept of net working capital enables a firm to determine how much amount is left for operational requirements.<br /><ul><li>GROSS WORKING CAPITAL:</li></ul>Gross working capital is the amount of funds invested in the various components of current assets.<br /><ul><li>PERMANENT WORKING CAPITAL:</li></ul> Permanent working capital is the minimum amount of current assets which is needed to conduct a business even during the dullest season of the year. The amount varies from year to year depending up on the growth of the company and stage of business cycle in which it operates. It is the amount of funds required to produce goods and services which are necessary to satisfy demand at a particular point.<br /><ul><li>TEMPORARY OR VARIABLE WORKING CAPITAL:</li></ul> It is represents the additional assets which are required at different times during the operating year additional inventory, extra cash etc., seasonal working capital is the additional amount of current assets particularly cash, receivables and inventory which is required during the more active business seasons of the year.<br /><ul><li>BALANCE SHEET WORKING CAPITAl:</li></ul> The balance sheet working capital is one which calculated from the items appearing in the balance sheet. Gross working capital which is represented by the excess of current assets, and net working capital which is represented by the excess of current assets over current liabilities are examples of balance sheet working capital.<br /><ul><li>CASH WORKING CAPITAl: </li></ul> Cash working capital is one which is calculated from the appearing in the profit and loss account. It shows the real flow of money or value at a particular time and is considered to be the most realistic approach in working capital management. It is the basis of the operating cycle concept which has assumed a great importance in financial management in recent years. The reason is the working capital indicates the adequacy of the cash flow. Which is an essential pre-requisite of a business.<br /><ul><li>NEGATIVE WORKING capital:</li></ul> Numbers working capital emerges when current liabilities exceed current assets. Such a situation is not absolutely theoretical, and occurs when a firm is nearing a crisis of some magnitude. <br />49 DETERMINANTS OF WORKING CAPITAL:-<br /> Numbers of rules are formulated to determine the working capital requirement of the firm. a large number of factors influence the working capital needs of the firm. All these factors have different importance, also the importance of the factor change for a firm over time. Therefore analysis of the relevant factor should be made in order to determine the total investment in working capital requirements of the firm.<br /><ul><li>Nature and size of business
  99. 99. Seasonality of operation
  100. 100. Production policy
  101. 101. Marketing conditions
  102. 102. Business cycle fluctuation
  103. 103. Credit policy
  104. 104. Conditions of supply
  105. 105. Working capital policy
  106. 106. Current assets in relation to sales</li></ul> NATURE OF BUSINESS:-<br /> The working capital requirement of a firm is closing related to the nature of its business. A service firm like an electricity. A service firm like an electricity undertaking of a transport corporation, which has short operating cycle and sells on cash basis, has modest working capital requirement. On the other hand manufacturing concern like machine tools units which has long operating cycle and which sells largely on credit had varied substantial working capital management.<br />SEASONALITY OF OPERATION:-<br /> Firms which have market seasonally in their operation usually have highly function working capital requirement. For a sugar industry the raw material i.e., sugar cane is available in particular season only. So sugar industry mainly depends upon seasonality of operations.<br />PRODUCTION POLICY <br /> A firm marked by pronounced seasonal fluctuations in its sales many pursue a production policy which many reduce the shape variation is working capital requirement.<br />MARKETING CONDITIONS:<br /> In view of competitive conditions prevailing in the firm may have to offer liberal credit terms, to customs resulting in higher debtors, even large inventories many be maintain to serve an order as and when received. Thus the working capital tends to be high as a result of investors in inventions & receivable.<br />BUSINESS CYCLE FLUCTUATIONS:-<br /> Different phases of business cycle i.e boom, recession, recovery etc, also effect working capital requirement. In case of born conditions inflationary pressure appear and business activities expand. As a result the overall need for cash , inventories etc., increase resulting more and more funds blocked in these current assets. In case of recession period. How ever, there is usually dullness in business activities and there will be opposite effect on the level of working capital.<br />CREDIT POLICY:-<br /> The credit policy means the totality of terms and conditions on which goods are sold and purchased. At firm has interact with 2 types of credit policies at a time one, the credit policy of the supplier of raw material, goods etc, and two the credit policy relating to credit which it octends to its customer. In both the cases, however ,the firm while deciding its credit policy has to take care of credit policy of the market for example affirm might be purchasing goods and services on credit but selling foods only for cash the working capital requirement of this firm will be lower than that of a firm which is purchasing cash, but has to sell on credit basis.<br />CONDITIONS OF SUPPLY:-<br /> If the supply is prompt and adequate the firm can manage with small inventory, if the supply is unpredicted and service then the firm has to ensure continuity of production.<br />WORKING CAPITAL POLICY:-<br /> Two important issue in formulation the working capital policy are:<br /><ul><li>What should be the ratio of current assets to sales.
  107. 107. What should be the ratio of short term financing to long-term financing.</li></ul>CURRENT ASSETS IN RELATION TO SALES:<br /> It usually does the investment in current assets cannot be specified unequally. In sales of uncertainty the outlook on current assets would consist of base component meant to meet normal requirement and safety component mean to copy with unusual demands and requirements. The safety assets policy of the firm .<br /><ul><li>If the firm pursues a very conservation current assets policy is should carry a high level of current assets in relation to sales.
  108. 108. If the adopts a moderate current assets policy it would carry a moderate level of current assets in relation to assets.
  109. 109. If the term follows highly aggressive current assets policy. It would carry a low level of current assets in relation of sales.</li></ul> A conservative current assets policy trends to reduce risk. The surplus current assets under the policy enable firm to copy rather easily with variations in sales. 54&55 An aggressive current assets policy seeking to minimize the investment in current assets exposes the firm to greater risk.<br />RATIO OF SHORT TERM FINANCING TO LONG TERM FINANCING:-<br /> What would be the relative proportions of short-term bank financing on one hand and long-term sources of finance and the other hand. The board policy alternatives in the respect are:<br /><ul><li>A conservative current assets financing policy.
  110. 110. An aggressive current assets financing policy. A conservative current assets financing policy refills less on short-term bank financing and more long on term sources like debentures. An aggressive current financing policy relies heavily on short-term bank finance and seek to reduce dependants on long –term financing.</li></ul> CHOOSING THE WORKING CAPITAL POLICY:-<br /> The overall working capital policy adopted by the firm may broadly:-<br /><ul><li>Conservative
  111. 111. Moderate
  112. 112. Aggressive</li></ul> CONSERVATIVE:<br /> A conservative overall working capital policy means that the firm chooses conservative current assets policy along with conservative current assets financing policy. <br />MODERATE: <br /> A moderate overall working capital policy reflects a combination of a conservative current assets policy and aggressive current assets financing policy or a combination of an aggressive current assets policy and conservative current assets financing policy.<br />AGGRESSIVE:<br /> An aggressive overall working capital consists of an aggressive current assets policy and aggressive current assets financing policy.<br />FINANCING OF WORKING CAPITAL:-<br /> Normally, financing arrangements are planned for a combination of needs including capital expenditure and working capital investment the assessment of sources of funds from a package and rarely will be possible to concept upto a particular shows to a specific application or use at the same time financing manager does make an assessment of the investment needs as well as current assets and decider an a proper mix of long and short term funds. Taking note of the internal generation of funds for 56 &57 the period in question be decisions on the extent to which the firm would resort to issue of share or long short-term borrowing to mobile the required sources.<br /> Typically the current assets of a firm are supported by the combination of long term and short term sources of financing long term sources of finance are equity, preference term loans and debentures which primarily are fixed assets and secondarily provide working capital margin.<br /> Where the commitments are certain but cash flows are not clearly predictable, it would wise to cut down drastically the number and extent of short term debts to manageable levels and prefer longer maturity schedules for debts.<br /> Short term debts can take care of the seasonal needs of the organization even here to take care of vagaries in cash flow, a past of the funds required may be obtained from sources with longer maturity schedules of the debts. Thus usually permanent and long-term finance is used to finance the permanent requirements or fixed assets and the net permanent current assets and a apart of the reasonable short term needs. <br /> The important sources of finance which more or less exclusively support current assets are:<br /><ul><li>Trade credit
  113. 113. Working capital advances by commercial bank.
  114. 114. Public corporate deposits
  115. 115. Inter corporate deposits
  116. 116. Short term loans from financial institutions .
  117. 117. Rights debentures for working capital.
  118. 118. Emerging sources commercial paper and factoring.</li></ul> Of all the above the most significant sources of working capital finance are trade credit and bank borrowings, after trade credit bank borrowing are the next important sources of financing working capital requirements of firms in India. Tanton committee has suggested guidelines for the ratio allocation and optimum use of the bank credit for the working capital requirement.<br /> TANDON COMMITTEE RECOMMENTIONS:-<br /><ul><li>The borrowers should indicate the likely demand for credit. For this purpose, he should draw operating plans for the ensuring year and supply them bankers. This procedure will facilitate credit planning at the bankers credit needs in a realistic manner and the periodic follow up during the ensuring year
  119. 119. The bankers should finance only the genuine production needs of the borrower. The borrower should maintain the reasonable levels of the investor and receivable. He should hold just enough to carry on his targets production. Efficient management of resources should, therefore, be ensured to eliminate slow moving and flabby inventories.
  120. 120. The working capital needs of the borrower cannot be entirely financed by the bankers. They will finance only a reasonable part for the remaining borrower should depend upon his own funds, generated internally and externally.</li></ul>CHORE COMMITTEE RECOMMENDATIONS:-<br /><ul><li>Borrowers should submit quarterly projection of cash credit banks.
  121. 121. The banks while assessing the credit requirements from borrowers should fix separate limits where as feasible.
  122. 122. As far as possible the borrowers should be discouraged for approaching the bank frequently limitation in excess of sanction limits.
  123. 123. Suitable provision should be made for charging of pena rate of interest in even of any defaults in the timely repayment of working capital loan.</li></ul>CHANGES IN WORKING CAPITAL:-<br /> The working capital of a concern is subject to changes due to several reasons. As we know that the gross working capital is equal to current assets. But net working capital we mean the excess of current assets over current liabilities. The net working capital is therefore, affected by the following transactions.<br /><ul><li>Which increase the current but not the current liabilities.
  124. 124. Which decrease the current assets and current liabilities both increase in the same direction by a transaction it does not bring any change in the net working capital of the concern. Only the total of current assets and current liabilities increase and decrease.</li></ul>REASONS FOR CHANGES IN WORKING CAPITAL:-<br /><ul><li>Changes in the level of sales and or operating expenses.
  125. 125. Policy changes.
  126. 126. Changes in the technology. </li></ul> <br /> <br />STATEMENT OF CHANGES IN WORKING CAPITAL:-<br /> Until now any increase decrease in any individual item of current assets and current liabilities was shown in the funds flow statement. But now a statement is prepared to deficit the changes in working capital. The net increase or decrease is then carried forward to the funds flow statement.<br /> The statement of working capital is prepared with the help of current assets and current liabilities of the two periods the figures of 2 periods are compared. If there is an increase in the amount of any current liabilities in the current year in comparison to that in that in the previous year, it will result to an increase in the working capital. Similarly, a decrease in the amount of any current assets or an increase in amount of current liabilities in the current year in comparison to that in the previous year and total decrease in the end is compared and the different of total increase and total decrease shows net increase or decrease in the working capital.<br /> Net increase in working capital is an application of funds and net decrease in working capital in the source of funds. A form of statement is shown below.<br />CHAPTER-4<br /><ul><li>ANALYSIS AND INTERPRETATION.
  127. 127. CHANGES IN WORKING CAPITAL.
  128. 128. RATIO ANALYSIS.</li></ul>statements of sudha agro oil & chemical industries limited for the year 2005-06<br />Particulars2005-06PercentageCurrent assets, loans and advancesInventorySundry Debtors Cash & Bank BalanceOther current assetsLoans and advances 623.3952829105.585837150.7742.5136.027.193.3810.30Gross working capital (A)1466.40100.00Current liabilities &provisionCurrent liabilitiesProvisionTotal current liabilities and provisions(B)411.2161.90472.0387.0612.94100.00Net working capital(A-B)994.10<br /> STATEMENTS OF SUDHA AGRO OIL &CHEMICAL<br /> INDUSTRIES LIMITED FOR THE YEAR 2006-07 <br />Particulars2006-07PercentageCurrent assets, loans and advancesInventorySundry DebtorsCash & Bank BalanceOther current assetsLoans and advances706.99543.83154.9054.7771.6346.1435.4410.123.544.67Gross working capital (A)1532.14100.00Current liabilities &provisionCurrent liabilitiesProvisionTotal current liabilities and provisions(B)423.4388.65512.0882.6817.32100.00Net working capital(A-B)1020.06<br /> STATEMENTS OF SUDHA AGRO OIL &CHEMICAL<br /> INDUSTRIES LIMITED FOR THE YEAR 2007-08 <br />Particulars2007-08PercentageCurrent assets, loans and advanceInventorySundry DebtorsCash & Bank BalanceOther current assetsLoans and advances991.05630.62217.3990.4365.3249.68 31.6110.894.533.27Gross working capital (A) 1994.81100.00Current liabilities &provisionCurrent liabilitiesProvisionTotal current liabilities and provisions(B)534.43154.94689.3777.52 22.47100.00Net working capital(A-B)1305.44<br />STATEMENTS OF SUDHA AGRO OIL &CHEMICAL<br />INDUSTRIES LIMITED FOR THE YEAR 2008-09<br />Particulars2008-09PercentageCurrent assets, loans and advancesInventorySundry DebtorsCash & Bank BalanceOther current assetsLoans and advances1411.41521.80105.58104.6563.6259.06 21.8312.054.372.66Gross working capital (A) 2389.59100.00Current liabilities &provisionCurrent liabilitiesProvisionTotal current liabilities and provisions(B)661.73216.50878.2375.34 24.65100.00Net working capital(A-B)1511.36<br />STATEMENTS OF SUDHA AGRO OIL &CHEMICAL<br /> INDUSTRIES LIMITED FOR THE YEAR 2009-10<br />Particulars2009-10PercentageCurrent assets, loans and advancesInventorySundry DebtorsCash & Bank BalanceOther current assetsLoans and advances1164.56482.37162.3191.93 93.2358.40 24.188.144.604.68Gross working capital (A) 1994.4100.00Current liabilities &provisionCurrent liabilities567.43 83.73<br /> <br />STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2005-06<br /><ul><li>PARTICULERS BALANCECHANGES IN WORKING CAPITAL20052006INCREASEDECREASECURRENT ASSETSinventoriesSundry Debtors Cash & Bank BalanceOther current assetsLoans and advances658.25709.36147.9526.30226.37623.39528.29105.8758.37150.77 -- -- -- 32.06 -- 34.85 181.06 42.08 -- 75.59TOTAL (A)1768.251466.71CURRENT LIABILITIESCurrent liabilitiesProvision515.2512.00411.2161.09 104.04 -- -- -- 49.09 --TOTAL (B)527.25472.31Working capital(A-B)Increasing in working capital 1241.00 --994.40 246.60 -- 246.60 -- --TOTAL1241.001241.00 382.70 382.70</li></ul> STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2006-07<br /><ul><li>PARTICULERS BALANCECHANGES IN WORKING CAPITAL20062007INCREASEDECREASECURRENT ASSETSinventoriesSundry Debtors Cash & Bank BalanceOther current assetsLoans and advances623.39528.29105.8758.37150.77706.99543.83154.9054.7771.63 83.60 15.53 49.03 -- -- -- -- -- 3.59 79.14TOTAL (A)1466.711532.14CURRENT LIABILITIESCurrent liabilitiesProvision411.2161.09423.2388.65 -- -- -- 12.21 27.55 --TOTAL (B)472.31512.08Working capital(A-B)Increasing in working capital 994.40 25.651020.05 -- -- -- -- 25.65TOTAL1020.05102.05 148.16 148.16</li></ul> STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2007-08<br /><ul><li>PARTICULERS BALANCECHANGES IN WORKING CAPITAL20072008INCREASEDECREASECURRENT ASSETSinventoriesSundry Debtors Cash & Bank BalanceOther current assetsLoans and advances706.99543.83154.9054.7771.63901.05630.62217.3990.4365.32 284.06 86.79 62.48 35.66 -- -- -- -- -- 6.31TOTAL (A)1532.141994.82CURRENT LIABILITIESCurrent liabilitiesprovision423.4388.65575.62154.94 -- -- -- 152.19 66.29 --TOTAL (B)512.08730.57Working capital(A-B)Increasing in working capital 1020.05 244.191264.25 -- -- -- -- 244.19TOTAL1264.251264.25.00 468.99 468.99</li></ul> STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2008-09<br /><ul><li>PARTICULERS BALANCECHANGES IN WORKING CAPITAL20082009INCREASEDECREASECURRENT ASSETSinventoriesSundry Debtors Cash & Bank BalanceOther current assetsLoans and advances991.05630.62217.3990.4365.321411.41521.80288.11104.6565.32 420.36 -- 70.72 14.22 -- -- 108.82 -- -- 1.7TOTAL (A)1994.822389.59CURRENT LIABILITIESCurrent liabilitiesProvision575.62154.94661.73216.50 -- -- -- 86.11 61.56 --TOTAL (B)730.57878.23Working capital(A-B)Increasing in working capital 1264.25 247.111511.36 -- -- -- -- 247.11TOTAL1511.361511.36 505.30 505.30</li></ul> STATEMENT OF CHANGES IN WORKING CAPITAL OF SUDHA AGRO OIL &CHEMICAL INDUSTRIES LIMITED FOR THE YEAR 2009-10<br /><ul><li>PARTICULERS BALANCECHANGES IN WORKING CAPITAL20092010INCREASEDECREASECURRENT ASSETSinventoriesSundry Debtors Cash & Bank BalanceOther current assetsLoans and advances1411.41521.80288.12104.65 63.621164.54482.38162.3291.94 93.23 -- -- -- -- 29.61 246.85 39.42 125.80 12.71 --TOTAL (A)2389.611994.44CURRENT LIABILITIESCurrent liabilitiesProvision661.73216.51567.44110.30 94.29 106.21 -- -- -- --TOTAL (B)878.24677.74Working capital(A-B)Increasing in working capital 1511.37 --1316.70 194.67 -- 194.67 -- --TOTAL1511.371511.37 424.78 424.78</li></ul>INTERPRETATION<br /> Sudha agro chemical industries pvt ltd has a current ratio in the year 2005-06 it was 3.11 and in the year 2006-07it was 2.99 after 2007-08 it was decreasing trend but in the year 2009-10 the ratio is 2.94 which is above the standard ratio .<br /> The company in the years of 2005-06 and 2006-07 as 1.61 , where as in the year of 2007-08 ,it was in decreased to 1.37 and in the year 2008-09it was decreased. At last the companies overall liquidity position is not in good <br /> The absolute liquidity ratio of the company was not upto the mark during all the years. From the year 2005-06,it shows an increasing trendup to next year . In the year 2007-08 is same . During the year 2007-08 it was declined that means it has never reached the standard of 0.5 . Thesituation is due to very small balance of cash maintain by the firm for itsworking capital requirements. In the year 2000-10 the firm shows an <br />increasing trend .<br /> For the company efficiency is decreasing .In the year 2006-07 it is 7.29, which is highest recorded . After that it went on decreasing to lowest of 1.64 in 2009-10. It shows that there is no proper control over 72the inventory by the management <br /> The company showed a holding period return of nearly 37 days in the year 2005-06 which is very better compare to other years .Then it is gradually increased to 98days in 2009-10which means liquidity of inventory is not better.<br /> The above statement showing about the details of stock at the opening of the year and at the closing .in the year of 2008-09 there is decrease in the stock at the end of the year .<br />RATIO ANALYSIS<br /> Several ratios calculated from the accounting date, can be grouped into various classes according to financial activity or function to be evaluated. As stated earlier, the parties interested in financial analysis are short and short and long-term creditors, owners and management.<br /> “Short-term creditors” main interest is in liquidity position or the short-term solvency of the firm. Long-term creditors, on the other hand, and more interested in the long-term solvency and profitability of the firm. Similarly, owners concentrate on the firm’s profitability and financial conditions. Management is interested on in evaluating every aspect of the firm’s performance. They have to protect the interests of all parties and see that the firm grows profitably. In view of the requirements of the various users of ratio, we may classify them into the following four important categories.<br />TYPES OF RATIO:-<br /><ul><li>Liquidity ratios
  129. 129. Leverage ratios
  130. 130. Activity ratios
  131. 131. Profitability ratios </li></ul>Liquidity ratio:-<br /> The liquidity refers to the maintenance of cash, bank balance and those assets, which are easily convertible into cash in order to meet the liabilities as and when arising. So, the ratios study the firm’s short-term solvency and its ability to pay off the liabilities.<br />Current ratio:-<br /> Current ratio is the ratio of current and current liabilities. Current assets are assets which can be converted into cash within one year and include cash in hand and at bank, bills receivable, net sundry debtors, stock of raw materials, finished goods and work in progress, prepaid expenses, outstanding and occurred incomes, and short term or temporary investments. Current liabilities are liabilities, which are to be repaid with in a period of 1 year and include bills payable, sundry creditors, bank over drafts, and outstanding expenses, Income received in advanced, proposed dividend, provision for taxation, unclaimed dividends and short term loans and advances repayable within 1 year<br /> Current assets<br />Current Ratio= ----------------------------------------------- <br /><ul><li> Current liabilities</li></ul> A current ratio 2:1 is considered as ideal: if a business has an undertaking with its bankers to meet its working capital requirements short notices, a current ratio of is adequate. <br />2) quick Ratio:-<br /> Quick assets<br />Quick ratio = --------------------------------------------------<br /> Quick liabilities<br /> A quick ratio of 1 is considered as ideal. A quick ratio of less than 1 is indicated of inadequate liquidity of the business. A very high ratio is also not available as funds can be profitability employed.<br /> Absolute liquid ratio:-<br /> It is ratio of absolute liquid ratio assets to quick liabilities. However, for calculation purposes, it is taken as ratio of liquid assets of current liabilities. Trade investment or marketable securities are equivalent of cash therefore, they may be included in the computation of absolute liquid ratio.<br /> Absolute liquid ratio<br />Absolute quick ratio = -------------------------------------------------<br /> Current liabilities<br /><ul><li>Leverage ratios:</li></ul> leverage ratio indicate the relative interest of owners and creditors in a business. It shows the proportions of debt and equity in financing the firm’s assets the long- term solvency of a firm can be examined by using leverage ratio. The long-term creditors like debenture holders, financial institutions etc,. are more concerned with firms long –term financial strength.<br /> There are two aspects of the long-term solvency of a firm<br /><ul><li>Ability to repay the principal when due, and
  132. 132. Regular payment of the interest they leverage ratio are calculated to measure the financial rest and firms abilities of using debt.
  133. 133. TOTAL DEBT RATIO:-</li></ul> Total debt will include short and long-term borrowing from financial institution debentures bonds. Capital employed will include total debt and net worth. <br /> The firm may be interested in knowing the proportion of the interest bearing debt in the capital structure by calculating total debt ratio. A highly debt burdened firm difficulty in raising funds from creditors and owners in future. Creditors treat the owner’s equities as a margin of safety. <br />Total Debt<br /> Total Ratio = ---------------------------------------------- <br /><ul><li> Capital Employed
  134. 134. DEBT -EQUITY RATIO:-</li></ul> It reflects the relative claims of creditors and shareholders against the assets of the business. Debt, usually, refers to long-term liabilities. Equity include preference share capital and reserves.<br /> The relationship describing the lenders contribution for each refers of the owner’s contribution is called debt equity ratio.<br /> A high ratio shows a large share of financing by the creditors relative to the owner’s and therefore, large claim against the assets of the firm.<br /> A low ratio implies a smaller claim of creditors. The equity indicates the margin of satisfy to the creditors so, there is no doubt the Beth high and low debt equity ratios are not desirable. What is needed is a ratio, which strikes a proper balance between debt and equity.<br /> <br /> Total Debt<br /> Debt-Equity = -------------------------------------<br /><ul><li> Net worth</li></ul> Some financial experts opine that debt should indicate current liabilities also. However, this is not a popular practice. In case of preference share capital, it is treated as a part of shareholders funds, but if the preference shares are redeemable, they are taken as a part of long-term debt shareholder funds are also known as proprietor funds and it indicates items equity share capital, reserve, and surplus. A debt equity ratio of 3:1 is considered ideal. <br /><ul><li>PROPRIETORY RATIO:-</li></ul>It expresses the relation between net worth and total assets.<br /> Net worth<br />Property ratio= ----------------------------------------<br /> Total assets<br /> Net worth= equity share capital + preference share capital + reserves – fictitious assets.<br /> Total assets= fixed assets + current assets (excluding fictitious assets)<br /> Reserve earmarked specifically for a particular purpose should not be included in calculation of net worth. <br /> A high proprietor’s ratio is indicative of strong financial position of the business. The higher the ratio, the better it is.<br />77 4. FIXED ASSETS RATIO:-<br /> Fixed assets <br />Fixed Assets = ------------------------------------------<br /> Capital employed<br /> Capital employed – equity share capital + preference share capital + reserves + long term liabilities – fictitious assets.<br /> This ratio indicates the mode of financing the fixed assets. A financially well- managed company will have its fixed assets financed by long term funds. Therefore, the fixed assets ratio should never be more than <br /><ul><li>A ratio of 0.67 is considered idea</li></ul>INTEREST COVERAGE RATIO:<br /> This interest coverage ratio is computed by dividing earnings before interests and taxed by interest charges.<br /> Debt<br />Interest coverage ratio = ---------------------<br /> Interest <br /> This interest coverage ratio shows the number of times the interest charges are covered by funds that are or demurely available for their payment. A high ratio is desirable but too high ratio indicates that the firm is very conservative in using debt and that is not using credit to the debt advantage of shareholder. A lower ratio indicates excessive use of debt or inefficiency operations. The firm should make efforts to improve the operating efficiency or to retire debt to have a comfortable coverage ratio.<br />iii) ACTIVITY RATIOS:-<br /> Activity assets turnover ratio, measures the efficiency of a firm in managing and utilizing its assets. The higher the turnover ratio, the more efficiency the management and utilization of the assets while low turnover ratio is indicate of under- utilization of available resources and presence idle capacity. The total assets turnover ratio is computed by dividing sales by total assets.<br /> Sales <br /> 78 Total assets turnover ratio = -------------------------------------<br /> Total assets<br /><ul><li>WORKING CAPITAL TURNOVER RATIOS:-
  135. 135. Cost of goods sold </li></ul>Working capital turnover ratio = -------------------------------------<br /> Working capital<br /> Where if cost of goods sold is known. Net sales can be taken in the numerator.<br /> Working capital = current assets – current liabilities.<br /> A high working capital turnover ratio indicates efficiency utilization of the firm’s funds. However, it should not result in over trading.<br /><ul><li>DEBTORS TURNOVER RATIO :-</li></ul> Debtor’s turnover ratio expresses the relationship between debtors and sales. It is calculated.<br /> Net credit sales<br />Debtors turnover ratio = -------------------------------------<br /> Average debtors<br /> Net credit sales inspire credit sales after adjusting for sales returns. In case information no credit sale is not available. “sales” can be taken in the numerator. Debtors include bills receivable. Debtors should be taken at gross value, without adjusting provisions for bad debts. In case, average debtors be found; closing balance of debtors should be taken in the denominator. A high debtors turn over ratio or a low debt collection period is indicative of a sound credit management policy. A debtors turnover collection period of 30-36 days is considered ideal.<br /><ul><li> DEBT COLLECTION PERIOD:-</li></ul> The debt collection period measures the quality of debtors since it indicates the speed of the collection. The shortest the average collection period implies the prompt payment by debtors.<br /> No. of days year<br /> Debt collection period = -----------------------------------------<br /> Debt collection period<br /> An excessively long collection period implies a very liberal and inefficient credit and collection performance. This certain delays the collection delays the collection of each and impairs the firm’s liquidity. The average no. of days for which debtors remain outstanding is called debt collection period or average collection period.<br /><ul><li>CREDITORS TURNOVER RATIO:-</li></ul> Creditor’s turnover ratio expresses the relationship between creditor’s and purchases.<br /> Net credit purchase<br />Creditors turnover ratio = --------------------------------------------- <br /> Average creditors<br /> Net credit purchase imply credit purchase after adjusting for purchases returns. In case information on credit purchase is not available purchase may be taken in the numerator. Creditors include bills payable. In case avenue creditors can’t be found, closing balance of creditors should be taken in the denominator.<br /> The creditor’s turnover ratio is 12 or more. However, very less creditors turnover ratio, or a high debt payment period, may indicate the firm’s inability in meeting its obligation in time.<br />3 .PAYMENT PERIOD RATIO:-<br /> Creditors turnover rate can also be expressed in terms of number of days by the business to pay off its debts. It is termed as debt payment period which is calculated as:-<br /> Number of days in a year<br /> Payment period ratio = --------------------------------------------<br /> Creditors turnover ratio<br /><ul><li> FIXED ASSETS TURNOVER RATIO:-</li></ul>It is defined as <br /> Net sales<br />Fixed assets turnover ratio = ---------------------------------<br /> Fixed assets<br /> Fixed assets imply net fixed assets i.e. after depreciation. A high fixed assets turnover ratio indicates better utilization of the firm’s fixed assets. A ratio around 5 is considered ideal.<br /><ul><li>INVENTORY TURNOVER RATIO:-</li></ul> Stock turnover ratio indicates the number of times the stock has turned over into sale sin the year. It is calculated.<br /> Cost of goods sold<br />Inventory turnover ratio = ------------------------------------------- <br /> Average inventory<br /> Cost of goods sold = sales gross profit<br />Average stock = (opening stock and closing stock 12)<br /> In case, information regarding cost goods sold is not known. Sales may be taken in the numerator. Similarly, if average stock can’t be calculated, closing stock should be taken in the denominator.<br /> A stock turnover ratio of ‘8’ is considered ideal. A high stock turnover ratio indicates that the stocks are fast moving and get converted into sales quickly. However, it may also be on account of holding low amount of stocks and replenishing stocks in larger number of installments.<br />Iv) PROFITABILITY RATIO:-<br /> It measure the overall performance and effective of the firm. Poor operational performance may indicate poor sales and hence poor profits. A lower profitability may arise due to the lack of control over the expenses. Bankers, financial institutions and other creditors look at the profitability’s. ratio as an indicator whether or not the firm earns substantially more than it pays interest for the use of borrowed funds and weather the ultimate repayment of their debt appear reasonably certain owner are interest to know the profitability as it indicates the return which they can get on this instruments.<br /> Profitability ratio’s measure the profitability of a concern generally. They are calculated either in relation to sales or in relation to investment.<br /><ul><li>NET PROFIT RATIO</li></ul> It indicates the result of the overall operation of the firm.<br /> The higher the ratio, per profitable is the business. The net profit ratio is reassured by dividing net profit ratio indicates management efficiency in manufacturing administration and selling the products. This ratio is the overall firms ability to turn each rupee of sale into net profit. If the profit margin is inadequate, the firm fails to achieve satisfactory return on share holder’s funds.<br /> Profit after tax<br />Net profit ratio = ----------------------------------<br /> Net sales<br /> A firm with high net profit margin can make better use of favorable conditions. Such as rising selling prices, falling cost of products or increasing demand for the product. Such a firm will be able to accelerate its profits at a faster rate than a firm with a low net profit margin. This ratio also indicates the firm capacity to withstand adverse economic conditions.<br /><ul><li>3.RETURN ON NET WORTH RATIO :-</li></ul> It indicates the return, which the shareholders are earning on their resources invested in the business.<br /> Profit after tax<br />Return on net worth ratio = ------------------------------------------<br /> Net worth<br /> Net worth = share holders funds = equity share capital + preference share capital + Reserves – factious assets.<br /> The higher the ratio, the better it is for the share holders. However, inter firm comparisons should be made to ascertain if the returns from the company are adequate. A trend analysis of the ratio over the past few years much is done to find out the growth or deterioration in the profitability of the business.<br /><ul><li>RETURN ON ASSETS RATIO :-</li></ul> Profit after tax<br />Return on assets ratio = ------------------------------------------<br /> Total assets<br /> Total assets do not include fictitious assets. The higher the ratio, the better it is.<br /><ul><li>EARNINGS PER SHARE RATIO:-</li></ul> Earnings per share are the net profit after tax and preferences dividend, which is earned on the capital representative of one equity share. It calculated as :-<br /> Profit after tax available to equity holders<br />Earnings per share ratio = -----------------------------------------------------------------<br /> Number of ordinary share<br />Advantage OF RATIOS<br />Useful of evaluation performance in terms of profitability and financial stability.<br />Useful for intra & inter firm comparison.<br />Useful forecasting and budgeting.<br />It is just in tabular form over a period of years indicated the trend of business.<br />Smile to understand rather than the reading but the figures of financial statement.<br />Key tool in the hand of modern financial management.<br />Enable outside parties to assess the strength and weakness of the firm.<br />Ratio analysis is very useful for ranking management decisions and also highlights the performance in the area of profitability financial stability and operational efficiency.<br /> <br />LIMITATIONS OF FINANCIAL RATIOS <br />The ratio analysis is widely used of technique to evaluate the financial position and performance of business. But there are certain problems in using ratios.<br />The analyst should be aware of these problems the following are some of the limitations of ratio analysis.<br /><ul><li>It is difficult to decide on the proper basis of comparison.
  136. 136. The comparison is rendered difficult because of differences in situations of two companies or of one company over years.
  137. 137. The price level changes make the interpretation of ratios invalid. the differences in the definitions of items in the balance sheet and the profit & loss statement make the interpretation of ratios difficult.
  138. 138. The ratios calculated at a point of time or less informative and defective as they suffer from short term changes.
  139. 139. Difference in accounting policies and accounting period make the accounting data of firms non comparable as also the accounting ratios.
  140. 140. It is very difficult to generalize weather a particular ratio is good or bad.
  141. 141. For ex: a low current ratio may be said bad from the point of view of low liquidity. But a high current ratio may not be good. As this may results from in efficient working capital management.</li></ul>LIQUIDITY RATIO<br />A)Current ratio<br /> Current ratio= Current assets<br /> Current liabilities<br />YearCurrent assetsCurrent liabilitiesRatio2005-061468472.313.112006-071533512.082.992007-081995730.572.732008-092390878.232.722009-101994.4677.732.94<br />Interpretation<br /> The current ratio is calculated by dividing current assets with current liabilities .it is a measure of firms short-term solvency. As conventional rules a current ratio of 2:1 is satisfactory.<br /> Sudha agro chemical industries pvt ltd has a current ratio in the year 2005-06 was recorded 3.11 and in and in the year 2006-07 it was 2.99 after 2007-08 it was in decreasing trend but during in the ratio is 2.94 which is above the standard ratio<br /> B) quick Ratio: <br />Quick Ratio = quick Assets<br /> Current liabilities <br /> <br />yearQuick assetsCurrent liabilitiesRatio2005-06844.61472.311.792006-07826.01512.81.612007-081003.95730.571.372008-09978.59878.231.112009-10829.84677.731.22<br /> <br /> INTERPRETATION<br /> <br /> This ratio establishes relation between the quick assets &current liabilities. As assets is liquid if it can be converted into cash immediately or reasonably soon without loss of value .the accepted standard is 1:1<br /> The quick ratio of sudha agro chemical ltd was favorable in the years of 2005-06 and 2006-07 as 1.79 and 1.61 ,where as in the years of 2007-06 ,it was in decreased to 1.37 and in the year of 2008-09,it was decreased .At last the company’s overall liquidity position is not in good <br /> C) Absolute liquid ratio <br /> Absolute liquid ratio = cash<br /> Current liabilities <br />yearcashcurrent liabilityRatio2005-06105.58472.310.222006-07154.90512.80.302007-08217.39730.570.302008-09105.58878.230.122009-10162.31677.730.24<br /> INTREPRETATION:<br /> The ratio establish the relation between cash and current liabilities. Cash is the most or absolute liquid asset for any firm. The accepted standard ratio <br /> The absolute liquidity ratio of sudha agro chemical ltd was not up to the mark during all the years 2005-06, it shows an increasing trend up to next year. In the year of 2007-08 is same. During the year of 2008-09 it was declined that means it has never reached the standard of 0.5.The situation is due to very small balance of cash maintain by the firm for its working capital requirements. In the year 2009-10 the firm shows an increasing trend.<br /> 2. INVENTORY TURN OVER RATIO<br /><ul><li>Inventory turnover ratio:
  142. 142.
  143. 143. yearCost of goods soldAverage stockRatio2005-062939547.745.362006-073955.185567.112007-085207.77047.392008-097034.891023.216.882009-101812.891101.721.64
  144. 144. Inventory turn over ratio= cost of goods sold
  145. 145. Average stock
  146. 146. INTERPRETATION:
  147. 147. The ratio indicates the efficiency of the firm in selling its product it is calculated by dividing the cost of goods sold with average inventory.
  148. 148. For sudha agro chemicals limited ,the efficiency is decreasing .in the year of 2006-08.it is 7.39 ,which is highest recorded. After that it went on decreasing to lowest of 1.64 in 2009-10. It shows that is no proper control over the inventory by the management
  149. 149. HOLDING PERIOD RETURN:
  150. 150. Holding period = 365
  151. 151. ITR
  152. 152. YearNumber of days in Number of days in yearInventory turnover ratioHolding period return2005-063655.3668.092006-073657.1151.332007-083657.3949.392008-093656.8853.052009-103651.31222.56
  153. 153. INTERPRETATION:
  154. 154. The ratio indicates the speed with which the stock or inventory gets converted in to cash i.e., sales the lower the period , the better liquidity of the inventory.
  155. 155. Sudha agro chemicals limited showed a holding period return of nearly Sudha agro chemicals limited showed a holding period return of nearly 37 days in the year of 2005-06 , which is very better compare to other years then it is gradually increased to 98days in 2009-10 which means the liquidity of inventory is not better.
  156. 156. C) Statement showing changes in stock at the end of the year
  157. 157. yearOpening stock Closing stock Increase/decrease2005-06623.3970783.612006-07707991.05284.062007-08991.05141141420.352008-091411.411164.56246.852009-101164.561316.70152.13
  158. 158. INTREPRETATION:
  159. 159.
  160. 160. The above statement showing about the details of stock at the opening of the year at the closing .in the year of 2005-06 there is decrease in the end of the of the year.
  161. 161. 3.RECEIVABLE MANAGEMENT .
  162. 162.
  163. 163. Debtors turnover ratio:
  164. 164.
  165. 165. DTR= sales
  166. 166. Average debtor
  167. 167. YearsalesAverage debtorsratio2005-065214.83271.9113.932006-073680.32264.1419.172007-086553.88315.3120.782008-098746.55260.9033.522009-106497.69241.1826.94
  168. 168.
  169. 169. INTREPRATATION:
  170. 170. Book debts are expected to be converted in to cash over a short period and therefore are included in current assets .the liquidity position of the firm depends on the quality of a great extent.
  171. 171. The ratio indicated the number of items on an average that the turn over takes place each year .generally the ratio the more efficient is the management of credit .
  172. 172. Sudha agro limited ,maintain a good ratio of 33.52 in the year 2008-09 it was decreased to 13.93 in the year of 2005-06 ,which not good compared to all the previous years.
  173. 173. b)Average collection period:
  174. 174. ACP = 365
  175. 175. Debtor turnover ratio
  176. 176. YearNo. of daysDtrperiod2005-0636513.9126.252006-0736519.1719.042007-0836520.7817.562008-0936533.5210.882009-1036526.9413.54
  177. 177. INTREPRETATION:
  178. 178. The ratio indicates the period in which debt can be recovered. From the above table in the year 2005-06are 26.25 which is good, where it was decreased in the year 2008-09 ,which is not good.
  179. 179. CHAPTER-5
  180. 180. FINDINGS & SUGGESSIONS
  181. 181. REFERECE & BIBLIOGRAPHY</li></ul>FINDINGS<br /><ul><li>With reference to the working capital study of SUDHA AGRO OIL AND CHEMICALS quantity of working capital is contributed by short source of finance
  182. 182. In this gross working capital of the firm, a major part is occupied by inventory and sundry debtors.
  183. 183. The current ratio is maintained by the company is 2:1; the company exceed minimum current ratio at all the years statement.
  184. 184. The quick asset ratio minimally maintained by the company are 1:1 , the company was satisfy this position up to 2010.
  185. 185. The absolute liquid ratio is not satisfied position fluctuations are take place it is high and some at the years 2007 to 2008.
  186. 186. Inventory turn ratio is well in satisfied position it is high at 2007-08. It is very poor at the current year of the study that is 1.64.
  187. 187. In the debtor turn over ratio is also at well satisfied position it is highly obtain at the year of 2008-09. The current position is less than that of previous year that is 26.94.
  188. 188. Average collection period high is at the 2006 and is poor at 2009.
  189. 189. In order to achieve to the goals of the organization as whole and achievement of performance appraisal technique is very useful .
  190. 190. The company has been maintaining sufficient amount of working capital in all the years</li></ul>SUGGESTIONS<br /><ul><li>suggested the company should follow the present working capital.
  191. 191. The company spends reasonable amount on inventory so that it should be followed.
  192. 192. The current ratio is maintained at a satisfied level. So that company peruses this much of current assets to meet the objective of the firm.
  193. 193. Company is maintaining high quick assets to overcome current liabilities for better results.
  194. 194. For better results company has to maintain cash inflows to overcome current liabilities of the firm.
  195. 195. To gain good profits company has to improve the sales through inventory management.
  196. 196. The company b should try to reduce external liabilities, having pay high EPS & DPS.
  197. 197. The company should make arrangement of receivables and cash. </li></ul> <br />CONCLUSION<br />Working capital management analysis is an in depth analysis .,overages the entire financial management the with refers to integrated. The SUDHAAGRO OIL AND CHEMICALS is company, which give preference to the common mans privilege. Hence ,it is on integrated appr

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