capking capital

PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT

OF

BRITANNIA GROUP OF INDUSTRIES

SUBMITTED TO

PROF. TANVEER SHAHAB

(Academic Coordinator)

GEMA, New Delhi

SUBMITTED BY

VIKASH KUMAR

MBA, JULY BATCH (2008-10)

2009

GEMA

GEMA 2

FINAL REPORT

ON

“STUDY OF WORKING CAPITAL MANAGEMENT ON BRITANNIA”

SUBMITTED TO

PROF. TANVEER SHAHAB

(Academic Coordinator)

GEMA, New Delhi

SUBMITTED BY

VIKASH KUMAR

Regn. No: -08-JLDE-10504

MBA, JULY BATCH (2008-10)

GEMA 3

ACKNOWLEDGEMENT

As part of the curriculum at GEMA (MBA college), New Delhi, Project enables

us to enhance our skills us to face the extremely „competitive corporate world‟ in

the near future.

I respectfully express my gratitude to Prof. Tanveer Shahab (Academic coordinator

in GEMA) for giving me an opportunity to undertake this project work.

I have tried my level best to put my knowledge and analysis in writing this report. I

am grateful to GEMA &it‟s all members.

VIKASH KUMAR

M.B.A

(III-Sem, July 2008-10)

Lastly I would like to thank my parents, friends and well wishers who

encouraged me to do this research work and all those who contributed directly or

indirectly in completing this project to whom I am obligated to.

GEMA 4

DECLARATION

I Vikash Kumar hereby declare that the project entitled “a study on working capital

& investment analysis” with reference to Britannia, submitted by me ,department

of finance management, GEMA, New Delhi, (Affiliated to MDU) is of my own

and has not been submitted by another

GEMA 5

ABSTRACT

There are a number of functions that have assumed significance in the Corporate

Finance. With rapid globalization, this complexity is likely to accelerate in the

future. Hence, the relentless pace of liberalization and integration of the Indian

financial markets with the global markets has lead to study of WORKING

CAPITAL MANAGEMENT and has made it quite significant in the modern

world.

The primary objective of the project is to study and understand WORKING

CAPITAL MANAGEMENT with reference to BRITANNIA. The other objectives

were to understand the BRITANNIA industry, various Government and RBI

policies governing the sector, position of GOOD DAY BUSICT in the industry and

analyze the performance of the company using ratio analysis.

The business concerned here is the BUSCIT manufacturing, which plays a major

role in the company‟s organization. The significance and need for the study will

help the company to analyze the factors that affect the working capital of the

business the most, and subsequently find out what should be the composition of

these factors in order to have a sound working capital. The project involved

collecting of both primary data provided by the company as well as secondary data

through various sources.

The findings include that the various components of Working Capital Management

require differentiated treatment and hence it is recommended that each component

should be treated according to its merit and peculiarities.

GEMA 6

CONTENTS

01 Acknowledgement

03 02 Abstract 04 03 Declaration 05

04

Working Capital Management 07-09 1) Introduction

2)Need Of Working Capital

)

3)Gross W.C And Net W.C 4)Type Of Working Capital 5)Determinants Of Working Capital 05 Research Methodology 09-11 1)Introduction 2)Type Of Research Methodology 3)Objective Of Study 4)Scope And Limitations Of Study 06 Introduction Company 12-16 1)Corporate Philosophy 2)Corporate History 3)Products Profile 4)financial highlights 07 WORKING CAPITAL LEVEL AND

ANALYSIS

17-23 1)Working Capital Level

2)Working Capital Trend Analysis 3)current assets analysis 4)current liabilities analysis 4) Changes Of Working Capital 5)Operating Cycle 08 Working Capital Ratio Analysis 24-30 1)Introduction 2)Role Of Ratio Analysis 3)Limitation Of Ratio Analysis 4)Efficiency Ratio 5)Liquidity Ratio 09 Working Capital Finance And Estimation 31-32 1)Sources Of Working Capital Finance 2)Estimation Of Working Capital 10 Conclusion And Recommendations 33-33 11 Previous Four Year Balance Sheet 34-35 11 Balance sheet of four year

GEMA 7

1. Working Capital Management

1.1) Introduction

Working capital management is concerned with the problems arise in attempting to manage the

current assets, the current liabilities and the inter relationship that exit between them. The term

current assets refers to those assets which in ordinary course of business can be, turned in to cash

within one year without undergoing a diminution in value and without disrupting the operation

of the firm. The major current assets are cash; marketable securities, account receivable and

inventory .current liabilities ware those liabilities which intended at this inception to be paid in

ordinary course of business, within a year, out of the current assets or earnings of the concern.

The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding

expenses.

Definition:-

According to Guttmann & dougall:-

“Excess of current assets over liabilities”

1.2) Need Of Working Capital Management

The need for working capital gross of current assets cannot be over emphasized. As already

observed, the objective of financial decision making is to maximize he shareholders wealth. To

achieve this, it is necessary to generate sufficient profits can be earned will naturally depend

upon the magnitude of the sales among other things bur sales cannot convert into cash. There is

need of working capital in the form of current assets to deal with the problem arising out of lack

of immediate realization of cash against goods sold. Therefore sufficient working capital is

necessary to sustain sales activity.

1.3) Gross Working Capital and Net Working Capital

There are two concepts of working capital management

1. Gross working capital

Gross working capital refers to the firm‟s investment in current assets. current assets are the

assets which can be convert in to cash within year includes cash, short term securities, debtors,

bills receivable and inventory.

GEMA 8

2. Net working capital

Net working capital refers to the difference between current assets and current liabilities. Current

liabilities are those claims of outsiders which are expected to mature for payment within an

accounting year and include creditors, bills payable and outstanding expenses, net working

capital can be positive or negative.

1.4) Type of Working Capital

The operating cycle creates the need for current assets (working capital).however the need does

not come to an end after the cycle is completed to explain this continuing need of current assets

a destination should be drawn between permanent and temporary working capital.

1. Permanent working capital

The need for current assets arises, as already observed, because of the cash cycle. To carry on

business certain minimum level of working capital is necessary on continues and uninterrupted

basis. For all practical purpose, this requirement will have to be met permanent as with other

fixed assets. This requirement refers to as permanent of fixes working capital.

2. Temporary working capital

Any amount over and above the permanent level of working capital is temporary, fluctuating or

variable; working capital .This portion of the required working capital is needed meet fluctuation

in demand consequent upon changes in production and sales as result of seasonal changes

Temporary

Amt. of W.C

Permanent

Time

GEMA 9

1.5) Determinants of Working Capital

The amount of working capital is depends upon a following factors

1. Nature of business

2. Length of production cycle

3. Size and growth of business

4. Business trade cycle

5. Terms of purchase and sales

6. Profitability

7. Operating efficiency

2. RESEARCH METHODOLOGY

2.1) INTRODUCTION

Four types of studies can be called research namely, reporting, description, explanation and

prediction can be called research. Cooper & Emory (1995:21) define research as a systematic

inquiry aimed at providing information to solve problems business research on the other hand

can be defined as a systematic inquiry that will provide information to guide business decision

making.

2.2) Types Of Research Methodology

There are two types of research methodology.

1. Primary data collection method

The Primary data are those which is collected fresh or first hand, and for first time which is

original in nature. Primary data can collect though personal interview, questionnaire etc. to

support the secondary data.

2. Secondary data collection method

The secondary data are those which have already collected and stored. Secondary data easily get

those secondary data from records, journals, annual reports of the company etc. it will save the

time, money and efforts to collect the data. Secondary data also made available through trade

magazines, balance sheets, books etc.

GEMA 10

This project is based on secondary data collected through four years annual report of the

company, supported by various books and internet sides. The data collection was aimed at study

of working capital management of the company

Project is based on

1. Annual report of Britannia 2003-04

2. Annual report of Britannia 2004-05

3. Annual report of Britannia 2005-06

4. Annual report of Britannia 2006-07

2.3) Objective of the Study

Study of the working capital management is important because unless the working capital is

managed effectively, monitored efficiently planed properly and reviewed periodically at regular

intervals to remove bottlenecks if any the company cannot earn profits and increase its turnover.

With this primary objective of the study, the following further objectives are framed for a depth

analysis.

1. To study the working capital management of Britannia group.

2. To study the optimum level of current assets and current liabilities of the company.

3. To study the working capital components such as receivables accounts, cash

management, inventory position.

4. To study the liquidity through various working capitals related ratios group.

5. To study the way and means of working capital finance of the Britannia group.

6. To estimate the working capital requirement of Britannia group.

7. To study the operating and cash cycle of the company.

2.4) scope & limitations of the study

Scope of the study

The scope of the study is identified after and during the study is conducted. The study of working capital

is based of tools like trend analysis, ratio analysis, working capital leverage, operating cycle etc. further

GEMA 11

the study is based on last 4 years annual reports of Britannia group. And even factors like competitor‟s

analysis, industry analysis were no considered while preparing this project

Limitations of the study

Following limitations were encountered while preparing this project;

1. Limited data

2. Limited period

3. Limited area

GEMA 12

3. Introduction of Company

3.1) Corporate Philosophy

Vision

We are committed to providing extraordinary end of life care to any person living

in the Cayman Islands.

Mission

We offer quality comfort care to anyone who has cancer or other terminal illnesses,

free of charge .Our Palliative Care Specialist Nurses reduce pain, manage other

distressing symptoms and attend to the Social, psychological, spiritual and

emotional needs of both patient and family. We are committed to enhancing and

improving the lives of all those affected by death and to assuring long-term support

for survivors after loss.

Values

We pledge to:

Honour each patient and to respect his or her journey.

Support patient & family wishes in end-of-life care.

Care for survivors, helping them heal and move through their grief.

Become life-long learners, ensuring our patients receive the finest care possible.

Value our colleagues, believing in the dignity of our mission and acknowledging

each

GEMA 13

3.2) Corporate History of BISCUITS

Sweet or salty, Soft or crunchy. Simple or exotic. Everybody loves munching on biscuits, but do

they know how biscuits began?

The history of biscuits can be traced back to a recipe created by the Roman chef Apicius, in

which "a thick paste of fine wheat flour was boiled and spread out on a plate. When it had dried

and hardened it was cut up and then fried until crisp, then served with honey and pepper."

The word 'Biscuit' is derived from the Latin words 'Bis' (meaning 'twice') and 'Coctus' (Meaning

cooked or baked). The word 'Biscotti' is also the generic term for cookies in Italian. Back then,

biscuits were unleavened, hard and thin wafers which, because of their low water content, were

ideal food to store.

Making good biscuits is quite an art, and history bears testimony to that. During the 17th

and 18th

Centuries in Europe, baking was a carefully controlled profession, managed through a series of

'guilds' or professional associations. To become a baker, one had to complete years of

apprenticeship - working through the ranks of apprentice, journeyman, and finally master baker.

Not only this, the amount and quality of biscuits baked were also carefully monitored.

BRITANNIA

The story of one of India's favorite brands reads almost like a fairy tale. Once upon a time, in

1892 to be precise, a biscuit company was started in a nondescript house in Calcutta (now

Kolkata) with an initial investment of Rs. 295. The company we all know as Britannia today.

1987-a humble genesis was acquired by Gupta brothers who moved operation to Dum Dum in

Calcutta under the name of V.S brothers.

1918- Mr C. H. Holmes, an English business man, partnered with Gupta Brothers ,Britannia was

incorporated on the21st of march 1918 as a public limited company under the Indian companies

Act VII if 1913.

1921-ia obtained priority Britannia certificate to import new machinery. It became the first

company east of the Suez Canal to use gas ovens.

1924-new factories were establishes in Mumbai and Calcutta .Britannia became a subsidiary of

peek , Frean & company limited ,a leading biscuit company in UK.

1935-45-During World War II Britannia diverted 95% of its production for manufacturing

„service biscuits‟ for soldiers.

1954- High quality slice and packaged bead was pioneered and launched in Delhi.

GEMA 14

1979-On 3rd

October, the company was re- christened from Britannia biscuit company limited to

Britannia industries Limited.

1983-Sales crossed the Rs. 100 crore milestones.

1992- Britannia celebrated its platinum jubilee and launched “Little hearts”.

1993- The wadia Group acquired a stake in ABI Holdings Limited (ABIH) and 50-50 was

launched.

1997- “Eat Healthy, Think Better” became the new corporate mantra. Britannia entered the dairy

business. „Tiger‟ biscuits were launched.‟ Jim Jam‟and‟Chekkers‟ ere launched.

2000- Forbes global ranked Britannia among top 200 small companies with NO. 1 food brand of

the country.

2002- Britannia formed a joint venture with Fonterra, the world‟s second largest dairy company

and Britannia New Zealand Food private Limited was born.

2005-„50-50 pepper chakkar‟ was launched.

2007- in a survey conducted by AC Nielsen ONG-Marge and published in the Economic times

,Britannia was rated the No.1 MOST TRUSTED FOOD BRAND it also ranked as No.1 brand in

Metros across all categories.

2008- Britani launched Iron fortified (tiger‟ biscuits,‟ Good Day Classic Cookies‟, Low FT, DAI

and Renovated „Marie Gold‟.

The company's offerings are spread across the spectrum with products ranging from the healthy

and economical Tiger biscuits to the more lifestyle-oriented Milkman Cheese. Having succeeded

in garnering the trust of almost one-third of India's one billion populations and a strong

management at the helm means Britannia will continue to dream big on its path of innovation

and quality.

GEMA 15

PRODUCTS

Tiger Banana

NutriChoice Sugar Out

Britannia 50-50 Pepper Chakkar

Treat Fruit Rollz

New Britannia Milk Bikis

Britannia is committed to help secure every child's right to Growth

& Development through good food every day. Purposefully taking

forward the credo of 'Eat Healthy, Think Better’.

NUTRICHOICE Sugar Out is sweetened with "Sucralose," derived

from sugar, which provides the same sweetness as any other biscuit,

without the added calories of sugar.

The launch of the latest 50-50 variant left everybody guessing "What it

eez?" From TV ads, radio, outdoor and in-store display materials to

events, a website and SMS and email blasts, traditional and new media

were blended synergistically to create excitement and curiosity about

the unique taste of the biscuit

All kids who have relished the yummy creamy treasures of Britannia

Treat in exciting flavors, have yet another reason to celebrate! Britannia

Treat launches the amazingly yummy Treat Fruit Rollz!! These tasty

soft rolls are filled with real fruits and provide a healthy yet mouth-

watering treat to the kids

Milk Bikis, the favorite growth partner of Kids, now brings greater

value and delight to all with its new product and pack design. Recently

re-launched in its existing Southern & Eastern markets, and extended

across India, the new Milk Bikis is all set to add excitement and appeal

to „nutritious‟ food. Whoever said that „good food‟ needs to look „dull

and boring‟, will just have to take a look at Milk Bikis.

GEMA 16

Good Day

3.4) Financial Highlights

Financial Highlights for Year 2006-07

Rs. mn 2006-07(A) 2005-06(B) %Change(A-B/B)

Sales 23171 18179 27%

Operating profit 972 1762 -45%

Shareholders' funds 6148 5491 12%

Capital expenditure 889 407 118%

Before exceptional items

Profit before tax 1238 1958 -37%

Profit after tax 1131 1415 -20%

Cash flow generation 1385 1632 -15%

After exceptional items

Profit before tax 1184 2007 -41%

Profit after tax 1076 1464 -26%

Cash flow generation 1384 1681 -18%

Per equity share (Rs.)

Earnings 44.16 59.96 -26%

Dividend 15.00 15.00 0%

Dividend + Tax 17.55 17.10 3%

Britani launched Iron fortified (tiger‟ biscuits,‟ Good Day Classic

Cookies‟, Low FT, DAI and Renovated „Marie Gold‟.

GEMA 17

4) WORKING CAPITAL LEVEL AND ANALYSIS

4.1) the consideration of the level investment in current assets should avoid two danger points excessive

and inadequate investment in current assets. Investment in current assets should be just adequate, not

more at less, to the need of the business firms. Excessive investment in current assets should be avoided

because it impairs the firm‟s profitability, as idle investment earns nothing

Size of working capital

Particulars 2003-04 2004-05 2005-06 2006-07

A)current assets

Inventories 1222464 1,342,237 1847956 2,149,406

Sundry debtors 191,136 427,764 208516 286,070

Cash & bank balance 70,827 163,062 353393 486,460

Other assets 4,389 1,847 5558 10,979

Loan & advance 779,375 708,720 94052 880,746

Total of A (gross W.C) 2,268,191 2,643,630 3356077 3,813,661

B)current liabilities

Current liabilities 1,372,980 2,059,717 2247006 2,367,195

Provisions 781,228 973,431 783313 863,071

Total of B 2,154,208 3,033,148 3030319 3,230,266

Net W.C.(A-B) 113,983 (389,518) 325758 583,395

4.2) working capital trend analysis

Working capital is one of the important fields of management .it is therefore vey essential for an annalist

to make a study about the trend and direction of working capital over a period of time .such analysis

enables as to study the upward and downward trend in current assets and current liabilities and its effect

on the working capital position.

According to R.C. galeziem “The trend is defined as smooth irreversible movement in the series. It

can be increasing or decreasing”.

GEMA 18

Working capital size

Years 2003-04 2004-05 2005-06 2006-07

Net W.C.w 113,983 (389,518) 325758 583,395

W.C. Indices 100 341.73 285.63 511.54

W.C. Indices of 2004-05= 389518*100/113983 =341.73

W.C. Indices of 2005-06=325578*341.73/389518=285.63

W.C. Indices of 2006-07=583395*285.63/325755=511.54

Working capital indices

Observations

It was observed that major source of liquidity problem is mismatch between current payments

and current receipts from the comparison of funds flow statement of Britannia for four years .it

was observed that in the year 2004 -05 pushed down the net working capital to the present level

due to current assets increased by around(2643630-2268191*100/2268191= 16.6%) And current

liabilities increased only by 40.8% .the working capital decreased by 441.73%, is clear indication

that the company is utilizing its short term resources with efficiency .In the year 2005to 2006 net

working capital increased to Rs 326758 lakhs from Rs (389518) lakhs, the increase in working

capital is close to 183.63% While current assets increased by 26.95% a current liabilities by

9.8%. it shows that management is using long term funds to short term requirements .and it has

gone up to Rs.58339lakhs in the year 2007 because current assets gone up only 13.6%, current

liabilities grown by 6.6% .This two together gone up the net working capital to the present level

GEMA 19

.The increase in working capital is a clear indicated that the company is utilizing its long term

funds to short term resources with efficiency.

4.3) current assets

Total assets are basically in two parts as fixed assets and current assets. Fixed assets are in the

nature of long term or life time for the organization .current assets convert in the period of one

year .it means that current assets are liquid assets or assets which can convert in to cash within a

year.

Table of Current assets size

(Rs. In lakhs)

Particulars 2003-04 2004-05 2005-06 2006-07

Inventories 1222464 1,342,237 1847956 2,149,406

Sundry debtors 191,136 427,764 208516 286,070

Cash & bank balance 70,827 163,062 353393 486,460

Other assets 4,389 1,847 5558 10,979

Loan & advance 779,375 708,720 94052 880,746

Total (gross W.C) 2,268,191 2,643,630 3356077 3,813,661

C.A. Indices 100 116.55 147.96 168.13

s

GEMA 20

4.4) Current Liabilities

Current liabilities mean the liabilities which have to pay in current year. It includes sundry

creditors means whose payment is due but not paid yet. Thus creditors called as current

liabilities .current liabilities also include short term loan and provision as tax provision .current

liabilities also includes bank overdraft. For some current assets like bank overdrafts and short

term loan, company has to pay interest thus the management of current liabilities has

importance.

Table of Current Liabilities size

(Rs. In lakhs)

Particulars 2003-04 2004-05 2005-06 2006-07

Current liabilities 1,372,980 2,059,717 2247006 2,367,195

Provisions 781,228 973,431 783313 863,071

Total 2,154,208 3,033,148 3030319 3,230,266

Indices of C.L 100 140.80 140.66 149.94

Pie Chart of Indices of C.L

GEMA 21

Observations

Current liabilities show not regular growth each year, because company establishing new factory

in Rudrapur, Uttaranchal in 2005 but company creates the credit in the market by good

transaction. To get maximum/minimum credit from supplier which is reduces/increase the need

of working capital of firm. As a current liability decrease in the year2006-07 by 6.6% from 9.8%

it increases the working capital size in the same year.

4.5) changes in working capita

There are so many reasons to changes in working capital as follow

1. Changes in sales and operating expanses

The changes in sales and operating expenses may be due to three reasons

There may be long run trend of change e.g. the price of row material say oil may

constantly raise necessity the holding of large inventory.

Cyclical changes in economy dealing to up and down in business activity will influence

the level of working capital both permanent and temporary.

Changes in seasonality in sales activities.

2. Policy changes

3. Technology changes

Statement of changes In working capital

Particulars 2005-06 2006-07 Changes in W.C

A)current assets Increase Decrease

Inventories 1,851,667 2,149,406 297739

Sundry debtors 208,494 286,070 77576

Cash & bank balance 353,395 486,460 133065

Other assets 1,847 1,709 138

Loan & advance 940,316 890,016 50300

Total of A (gross W.C) 3,355,719 3,813,661

B)current liabilities

Current liabilities 2,246,648 2,381,169 134521

GEMA 22

Provisions 783,313 849,097 65784

Total of B 3030319 3,230,266

Net W.C.(A-B) 325758 583,395

Net increase in working

capital

257637 257637

Total 583395 583395 508380 508380

Observations

Working capital increased in the year 2006 to 2007 because

1. Sales increase by around 27%, where cost of raw material purchased decreased by 9.00%

and manufacturing expenses decreased by 20%.

2. Cost of material and manufacturing decreasing because of India inflation rate5.21% in

july, 5.45% in November, 2006 and in 2007 ,March 10 - (week ending 24 Feb) 6.10

percent ,March 16 - 6.46 percent ,April 6 - 6.39 percent ,April 14 - 5.74 percent ,April 20

- (week ended 7 April) 6.09 percent ,May 4 - 5.77 percent ,May 10 - 5.25 percent ,June

23 - (week ending 9 Jun) 4.38 percent ,July 13 - 4.27 percent ,August 11 - (week ending

28 July) 4.45 percent

4.6) Operating Cycle

The need of working capital arrived because of time gap between production of goods and their

actual realization after sale. This time gap is called “operating cycle” or “working capital cycle”.

The operating cycle is the length of time between the company‟s outlay on raw materials ,wages

and other expanses and inflow of cash from sales of goods.

The duration of the operating cycle depends on nature of industries and efficiency in working

capital management.

Calculation of operating cycle

To calculation of Britannia used last four years data.

(in days)

Year 2003-04 2004-05 2005-06 2006-07

ADD.

GEMA 23

Raw Mat. Holding Period 76 78 66 37

WIP Period 9 16 7 27

Finished Goods Holding

Period

14 22 42 23

Receivable Collection Period 9 3 12 12

Gross Operating Cycle 108 119 127 99

LESS.

Creditors Payment Period 13 15 12 6

Net Operating Cycle 95 104 115 93

Observations.

Operating cycle of Britannia shows the number of day is decreasing in these years it is reflect the

efficiency of management. Days of operating cycle shows period of lack of funds in current

assets, if no of day are more than it increases the cost of funds as taken from outside of the

business. In 2005-06 shows the high no. of days because of reduced of creditors holding period.

GEMA 24

5) WORKING CAITAL RATIO ANALYSIS

5.1) INTRODUCTION

Ratio analysis is tool of financial statements analysis .a ratio is define as “indicated quotient of

two mathematical expressions” and as “ the relationship between two or more things”. The

absolutes figures reported in the financial statement do not provide meaningful understanding of

the performance and financial position of the firm. Ratio helps to summaries large quantities of

financial data and to make qualitative judgment of the firm‟s financial performance.

5.2) Role of ratio analysis.

Ratio analysis is helps to appraise the firms in term of their profitability and efficiency of

performance, either individually of in relation to other firms in same industry. It is one of the

best possible techniques available to management to impart the basic functions like planning and

control .as future in closely related to the immediately past, ratio calculated on the vasis

historical financial data may be good assistance to predict the future.

It enables the interested persons to know the finance and operational characteristics of an

organization and take suitable decisions.

5.3) limitations of ratio analysis

To difficult to find a basis for making the comparison

Technique of ratio analysis may prove inadequate in some situations if there is differs I

opinion regarding the interpretation of certain ratio.

5.4) Classification Of Working Capital Ratio

Working capital ratio means ratios which are related with the working capital management e.g. current

assets, current liabilities, liquidity, profitability and risk turnoff etc. these ratio are classified as follows

1) Efficiency ratio Efficiency ratio is called as activity ratio or assets management ratio. The important of efficiency

ratio as follow:

working capital turnover ratio

inventory turnover ratio

receivable turnover ratio

current assets turnover ratio

GEMA 25

2) liquidity ratio

The ratios compound under this group indicate the short term position the organization and

also indicate the efficiency the efficiency with which the working capital is being used . The

most important ratio under this group is follows

current ratio

quick ratio

Working capital turnover ratio.

It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase in

sales contemplated working capital should be adequate and thus this ratio helps management to maintain

the adequate level of working capital . The ratio measures the efficiency with which the working capital is

being used by a firm. It may thus computer net working capital turnover by dividing salse by working

capital.

Table of Working capital turnover ratio.

particulars 2003-04 2004-05 2005-06 2006-07

Sales 14705263 16154485 18179211 23171135

Net W .C. 113,983 (389,518) 325758 583,395

W. C. TOR 129.01 (41.47) 55.80 39.72

GEMA 26

Working capital turnover ratio indicates the capability of the organization to achieve maximum

sales with the minimum investment in working capital. Company‟s working capital ratio shows

mostly more than to, except for the year 2006-07 because of excess of cash balance in current

assets which occurred due to encashment of deposits. In the year 2003-04 the ratio was around

129, it indicates that the capability of company to achieve maximum sales with the minimum

investment in working capital.

Inventory Turnover Ratio :

Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products.

It is calculated by dividing the cost of goods sold by average inventory:

COST OF GOODS SOLD or (sale-gross profit)

INVERNTORY T0R = AVARAGE INVENTORY

The Average inventory is the average of opening and closing balance of inventory in a

manufacturing company like Britannia inventory of finished goods is used to calculate inventory

turnover ratio

TABLE OF INVENTORY TURNOVER RATIO

particulars 2003-04 2004-05 2005-06 2006-07

Cost of goods sold 12741979 13733918 16220848 21933267

Average inventory 1172958 1282182 1596783 2000537

inventory 10.86 10.71 10.15 .47

GEMA 27

Receivable turnover ratio

The derivation of this ratio is made in following way

Receivable turnover ratio shows the relationship between unpaid credit sales to total credit sales.

It indicates, in general, the effectiveness (or lack of it) of a firm's credit policies and cash

collection efforts.

CURRENT ASSETS TURNOVER RATIO

Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current

assts. Current assets includes the assets like inventories, sundry debtors, bills receivable, cash in

hand or bank , marketable securities, prepaid expenses and short term land and advance. This

ratio includes the efficiency with which current assets turn into sales. A high ratio implies a

more efficient use of funds thus high turnover ratio indicate to reduced the lock up of funds in

current assets. An analysis of this ratio over a period of time reflects working capital

management of a firm.

Sales

Current assets TOR =

CURRENT ASSET

particulars 2003-04 2004-05 2005-06 2006-07

Sales 14705263 16154485 18179211 23171135

Current

assets

2,268,191 2,643,630 3356077 3,813,661

Current

assets TOR

6.48 6.11 5.41 6.07

GEMA 28

Observations

Turnover ratio was 6.48 in the year 2002-03 and decrease to .11 and 5.41 in the year 2004 and 2005

respectively because of high cash balance. Cash did not help to increase In sales volume, as cash is non

earning asset. In the year 2006-07 company increased its sales with increased investment in current asset,

thus current assets turnover ratio increased to 6.07 from 5.41.

LIQUIDITY RATIO

1) CURRENT RATIO

A measure of the degree to which current assets cover current liabilities (Current Assets /

Current Liabilities). A high ratio indicates a good probability the enterprise can retire current

debts. A ratio of 2:1 or higher is a comfortable financial position for most enterprises.

particulars 2003-04 2004-05 2005-06 2006-07

Current

assets

2,268,191 2,643,630 3356077 3,813,661

Current

liabilities

2,154,208 3,033,148 3030319 3,230,266

Current ratio 1.05 0.87 1.10 1.18

GEMA 29

The current ratio indicates the availability of fund to payment of current liability in the form of

current assets. A higher ratio indicates that there were sufficient assets available with the

organization which can be converted in cash, without any reduction in the value. As ideal current

ratio is 2:1. Where current ratio of the firm is more than 2:1, it indicates the unnecessarily

investment in the current assets in the form of debtor and cash balance. Ratio is higher in the

year 2006-07 where cash balance is more than requirement which came through encashment of

deposits of ZCCB funds.

Quick ratio.

Quick ratio establishes the relationship between quick of liquid assets and liabilities. Quick ratio

is found out by dividing quick assets by current liabilities

particulars 2003-04 2004-05 2005-06 2006-07

Liquid Current assets 1045727 1301393 1508121 1664255

Current liabilities 2,154,208 3,033,148 3030319 3,230,266

Current ratio .49 .43 .49 .52

GEMA 30

Quick ratio indicates that the company has sufficient liquid balance for the payment of current

liabilities. The liquid ratio of 1:1 is suppose to be standard of ideal but here ration is more than

1:1 over the period of time, it indicates that the firm maintains the over liquid assets than

actual requirement of such assets. Ratio of each year is less than 1:1. So firm does not maintain

the liquid assets.

GEMA 31

Working Capital Finance and Estimation

In India short term finance are used as working capital finance .two most significant short term

sources of finance for working capital are trade credit and bank borrowing .trade credit ratio of

current assets is about 40 % it is indicated by RBI data that trade credit has grown faster that the

growth in sales. Bank borrow is the next source of working capital finance. The relative

importance of this varies from time to time depending of the prevailing environment. In India the

primary source of working capital financing are trade credit and short term bank credit .after

determine the level of working capital, a firm has to consider how it will finance. Following are

sources of working capital finance

Source of working capital finance

1. Trade credit

2. Bank finance

3. Letter of credit

Trade credit

Trade credit refers to the credit that a customer get supplier of goods in the normal course of

business s. the buying firms do not have to pay cash immediately for the purchase made .this

deferral of payments is a short term financing called trade credit. The cost of credit may be

transferred to the buyer via the increased price of goods supplied by him.

After trade credit, bank credit is the most import source of financing working capital in

India. A banks considers a firms sales and production plane and desirable levels of current assets

in determining its working capital requirements .the amounts approved by bank for the firm‟s

can obtain from the banking limit .credit limit is the maximum funds which a firm can obtain

from the banking system. In practice banks do not lend 100% credit limit; they deduct margin

money.

Forms of bank finance:-

1. Term loan

2. Overdraft

3. Cash credit

4. Purchase of discounting of bills

Banks have been certain norms in granting working capital finance to companies.

These norms have been greatly influenced by the recommendation of various committees

appointed by the RBI from time to time.

GEMA 32

Working capital loan

391865

6137993583

478130

50000

100000

150000

200000

250000

300000

350000

400000

450000

2003-04 2004-05 2005-06 2006-07

working capital loan

working capital loan

As per table of working capital loan indicates that in 2003-04 company had more loan because

firm was expanding his geographical area. After that firm got more profit is shown by year 2005

to 2007. Still firm has a few working capital loans.

particulars 2003-04 2004-05 2005-06 2006-07

Working capital term loan from

bank

391865 61379 93583 47813

GEMA 33

Conclusion and recommendations

Working capital management is important aspect of financial management .the study of

working capital management of Britannia industries has revealed that the current ratio was as per

the standard industrial practice but the liquidity position of the company showed an increasing

trend. The study has been conducted on working capital ratio analysis, working capital

components which helped the company to manage its working capital efficiency and affectively

1. Working capital of the company was increasing and showing positive working per year.

It shoes good liquidity position.

2. Positive working capital indicates that company has the ability of payments of short

terms liabilities.

3. Working capital increased because of increment in the current assets is more than

increase in the current liabilities.

4. Company‟s current assets were always more than requirement it affect on profitability of

the company.

5. Current assets are mare than current liabilities indicate that company used long term

funds for short term requirement, where long-term funds are most costly then short term

funds.

6. Inventory was supporting to sales, thus inventory turnover ratio was increasing ,but

company increased the row material holding.

Recommendations

Recommendation can be use by the firm for the betterment increased of the firm after study and

analysis of project report on study and analysis of working capital. I would like to recommend.

1. Company should raise funds through short term sources for short term requirement of

funds, which comparatively economical as compare to long term fund part of current

assets.

2. Company should take control on debtor‟s collection period which is major part of current

assets.

3. Company has to take control on cash balance because cash is non earning assets and

increasing cost of funds.

4. Company should reduce the inventory holding period with use of zero inventory

concepts.

Over all company has good liquidity position and sufficient funds to repayment of liabilities.

company has accepted conservative financial policy and thus maintaining more current assets

balance .company is increasing sales volume per year which supported to company for

sustain 2nd

position in India.

GEMA 34

APPENDICES

Balance sheet

As on 31st march (Rs .in lakhs)

Particulars 2004 2005 2006 2007

Shareholders fund

Share capital 251,121 238,902 238,902 238,902

Reserve and surplus 4,059,133 4,196,341 5,251,994 5,909,275

4,310,254 4,435,243 5,490,896 6,148,177

Deferred Tax liability 202,472 170,600 16,913 --------

Secured loans 391,865 61,379 16,200 15,346

Unsecured loan 202,472 170,600 77,383 32,467

Total 4,904,591 4,667,222 5,601,392 6,195,990

Application of funds

Goss block 2,735,089 2,503,463 3,153,666 3,921,168

Less accumulated

depreciation

1,460,670 1,543,940 1,748,063 1,937,478

Net block 1,274,419 959,523 1,405,603 1,983,690

Capital work in progress 8,607 317,007 110,782 160,264

Investment 2,913,159 3,300,767 3,598,641 3,200,463

Current assets, loans &advances

Inventories 1,222,464 1,342,237 1,851,667 2,149,406

Sundry debtors 191,136 427,764 208,494 286,070

Cash and bank balance 70,827 163,062 353,395 486,460

Other current assets 4,389 1,847 1,847 1,709

Loan & advances 779,375 708,720 940,316 890,016

GEMA 35

Total 2,268,191 2,643,630 3,355,719 3,813,661

Less

Current liabilities 1,372,980 2,059,717 2,246,648 2,381,169

Provision 973,431 781,228 783,313 849,097

Net current assets 113,983 (389,518) 325,758 583,395

Miscellaneous

expenditure.

463,006 342,359 160,608 255,752

4,904,591 4,667,222 5,601,392 6,195,990

REFERENCES

Books/Newspapers/Magazines

Financial Management - I. M. Pandey.

Business Today

India Today

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