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    Working Capital KBD SUGARS &DISTILLERIES LTD

    INTRODUCTION

    Financial Management is that managerial activity which is concerned with

    the planning and controlling of the firms finance. Finance is the one of the

    foundations of all kinds of economic activities. Finance is the life-blood of a

    business. The financial management study deals with the process of procuring

    necessary financial resource and their judicious use with a view to maximizing the

    value of the firm and there by the value of the owners i.e. equity share holders in a

    company. Practicing managers are interest in this subject because among the most

    crucial decisions of the those which relate to finance, and an understanding of the

    theory of financial management provides hem with conceptual and analyticalinsights to make those decisions skillfully.

    FINANCIAL MANAGEMENT

    Finance management emerged as a distinct field of study at the turn of this

    century many eminent persons defined in the following ways

    DEFINITIONSAccording the BONNEVILE AND DEWEY Finance consists in the

    rising providing and managing of all the money, capital or funds of any kind to be

    used in connection with the business.

    According to Prof. EZRA SOLOMAN Financial management is

    concerned with the efficient use of any important economic resource, namely

    capital funds.

    FINANCE FUNCTIONS

    It may be difficult to separate the finance functions from production,

    marketing and other functions, but the functions themselves can be readily

    defined. The functions of raising funds investing them in assets and distributing

    returns earned from assets to shareholders are respectively known as.

    Long term assets mix (or) Investment Decision

    Capital mix (or) Financing Decision

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 1

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    Profit allocation (or) Dividend Decision

    Short term asset mix (or) Liquidity Decision

    GOALS OF FINANCIAL MANAGEMENT

    Maximize the value of the firm to its equity shareholders.

    Maximization of profit

    Maximization of earning per share.

    Maximization of return on equity

    Maintenance of liquid assets in the firm

    Ensuring maximum operational efficiency through planning directing and

    controlling of the utilization of the funds.

    Building up of adequate reserves for financing growth and expansion

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 2

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    INDUSTRY PROFILE

    ABOUT SUGAR INDUSTRY IN INDIA

    Sugar consumption rate is highest in India as shown in the statistical

    received from Foreign Agriculture Service. However, as per production is

    concerned, India has notched up 2nd position following Brazil, the largest sugar

    producer in the world.

    The Indian sugar industry uses sugarcane in the production of sugar and

    hence maximum number of the companies is likely to be found in the sugarcane

    growing states of India including Uttar Pradesh, Maharashtra, Gujarat, Tamil

    Nadu, Karnataka, and Andhra Pradesh. Uttar Pradesh alone accounts for 24% of

    the overall sugar production in the nation and Maharastras contribution can be

    totaled to 20%. There are 453 sugar mills in India. Co-operative sector has 252

    mills and private sector has 134 mills. Public sector boasts of around 67 mills.

    SUGAR INDUSTRY SET UP ACROSS INDIA

    Andhra Pradesh Sugar Industry

    Bihar Sugar Industry

    Gujarat Sugar Industry

    Haryana Sugar Industry

    Himachal Pradesh Sugar Industry

    Karnataka Sugar Industry

    Madhya Pradesh Sugar Industry

    Maharastra Sugar Industry

    Chhattisgarh Sugar Industry

    Manipur Sugar Industry

    Orissa Sugar Industry

    Punjab Sugar Industry

    Tamilnadu Sugar Industry

    Uttaranchal Sugar Industry Uttar Pradesh Sugar Industry

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 3

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    BEGINNING OF SUGAR INDUSTRY IN INDIA

    Sugar is made from sugarcane, which was arguably discovered thousands

    of years ago in New Guinea. From there, the route was traced to India and

    Southeast Asia. It was India which began producing sugar following the process

    of pressing sugarcane to It was in 1950-51 the government of India made serious

    industrial development plans and set the targets for production and consumption

    of sugar. It projected the license and installment capacity for the sugar industry in

    its Five Year plans.

    TYPES OF SUGAR INDUSTRY IN INDIA

    The sugar industry can be divided into two sectors including organized and

    unorganized sector, Sugar factories belong to the organized sector and those who

    product traditional sweeteners fall into unorganized sector. Gur and khandsari are

    the traditional forms of sweeteners.

    MANUFACTURING PROCESS FOLLOWED IN SUGAR

    INDUSTRY IN INDIA

    Several steps are usually followed to produce sugar. These steps can be

    mentioned as below:

    Extracting juice by pressing sugarcane

    Boiling the juice to obtain crystals

    Creating raw sugar by spinning crystals in extractors

    Taking raw sugar to a refinery for the process of filtering and washing to

    discard remaining non-sugar elements and hue

    Crystallizing and drying sugar

    Packaging the ready sugar

    MACHINERY SUPLIERS FOR SUGAR INDUSTRY IN INDIA

    Some of the suppliers that offer cutting-edge machines to the companies

    involved in sugar industry of India are:

    Sakthi sugar Ltd

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 4

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    Sri Sujay Engineering Products

    Sri Vijayalakshmi Industries

    Murthy Industries

    Parveen Perforaters & Allied Industries

    Aeromen Engg Co

    Kamla Foundry & workshop

    Tinytech Plants

    Baba Vishwakarma Engineering Co(p) Limited

    ANDHRA PRADESH SUGAR INDUSTRY

    About Andhra Pradesh Sugar Industry

    Andhra Pradesh (AP) abounds in maximum number of private sector sugar

    companies in India along with Tamil Nadu and Karnataka. In the year 1933-34,

    vacuum process was adopted for sugar manufacturing in the state. Previously, the

    state government was planning to support Cooperative sector as against other

    sectors. However with passing time, a consideration change in the policy in the

    was noticed. Letters of intent (L.O.I) were given to the deserving entrepreneurs

    including 20LOIs to the private sector companies.

    This gradually resulted in major benefits for the state government as well

    as for India as a whole. Today, Andhra Pradesh sugar industry rank 3 rd in terms of

    recovery and 5th in terms of cane crushing. As per production capacity is

    concerned. Andhra Pradesh stands at the position 5 in India.

    The agriculture laborers who do sugarcane harvest n and cultivation are

    employed in the sugar i9ndustry in Andhra Pradesh. Today the unprecedented

    growth of this industry in the state has led to the consolidation of village resource

    and facilitated communication, employment and transport system here.

    TYPES OF SUGAR INDUSTRY IN ANDHRA PRADESH

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 5

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    Andhra Pradesh sugar industry can be classified into two parts such as

    organized sector including sugar mills and unorganized sector including

    manufacturing of gur(jaggery)and khan sari. The unorganized sector is often

    referred to as the rural industry. The rural industry plays major role the level of

    production.

    DIRECTORATE OF SUGAR AND COMMISSIONERATE OF

    CANE IS ANDHRA PRADESH

    Belonging to Industries and Commerce Department, the Directorate of

    sugar and Commissioner ate of cane has been vested with the power to guide and

    deal with the sugar factories in Andhra Pradesh. It is the responsibility of the

    department to encourage sugarcane farmers and to help this developing industry

    contribute effectively towards Gross State Domestic product (GSDP). The

    department also takes care of the technological advancements of the industry.

    SUGAR MILLS IN ANDHRA PRADESH

    Some of the major players in the Andhra Pradesh sugar industry are listed below:

    Bhagwathi Khandasari Sugar mills

    N C S Sugar Ltd

    The Kirlampudi Sugar Mills Ltd

    Tirumala khandasari Udyog

    Sri Sarvaraya sugar Ltd

    The KCP Sugar & ?Industries corpn. Ltd

    KBD Sugars & Distilleries Ltd

    Deccan Sugars Ltd

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 6

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    KARNATAKA BRAVERIES DISTILLERIES SUGAR

    AND INDUSTRIES LIMITED PROFILE

    COMPANY PROFILE

    The irrigation in Chittoor district mostly depends on open wells. Recharge

    of water in the wells depends in ground water level and rainfall. However, rainfall

    depends in monsoon which is uncertain. The soils in district are almost suitable

    for sugarcane cultivation. The farmers also having good knowledge of growing

    sugarcane. In olden days, total quality of sugarcane produce in the district was

    converted as jaggery by gangues (bullock crushers)and power crushers. The

    jaggery making was very difficult to the small farmers due to lack of crusher and

    unfavorable price. The big farmers also faced difficulty to crush the cane for long

    period.

    The jaggery made in the district was brought to the Chittoor and Pakala

    which are the market places with railway transportation. There was list of

    exploitation of farmers by the jaggery mundi owners by advancing the money

    with high interest rates, commission and also not properly weighment. The price

    fluctuation created by the traders was also a reason for poor realization, but there

    was no other choice to the farmers.

    NAME : K.B.D.SUGARS AND DISTILLERIES LTD

    LOCATION AND ADDRESS: MUDIPANAPALLI (VILLAGE)SUGALIMITTA (POST)

    PUNGANUR-5117241

    CHITTOOR (DT), A.P

    BRIEF HISTORY ABOUT THE COMPANY

    The company was originally incorporated on 16 th day of October, 1984

    under the name of SREE TELUGU SUGARS LIMITED. Subsequently the name

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    of the company was changed to SHREE VANI SUGARS AND INDUSTRIES

    LIMITED on the 5th day of April, 1990. Again subsequently the name of the

    company was changed to KARNATAKA BREVARIES DISTILLLERIES

    SUGAR LIMITED ON THE 1ST MARCH, 2005.

    The company was initially promoted by Sri. T. Suryachandra Rao,

    Managing director and Sri S.Gokul Executive Director commence its Commercial

    production from 01st July, 1992.

    In the initial years it performance of the company was much below the

    break even levels. Due to poor performance the company accumulated substantial

    cash loses and also defaulted in meeting the terms loan comities to AIFIs.

    In these circumstances, the promoters have inducted Sri D.K.

    Audikesavulu as a co-promoter in order to facilitate the company to meet.

    The cost over run of the project and also provide for the short fall in the

    Margins for working capital. Sri. Gokul has since come out of the board and left

    the company.

    MAIN OBJECTIVES OF THE COMPANY

    To carry on the business as manufacture, producers, processors, sellers,

    distributors, stockiest an traders of sugar and its derivatives, molasses,

    biases and all materials an substances arising as by products and waste

    products out of and in the course of manufacture of sugar.

    To carry on the business as manufacturers, producers, brewers, blenders,

    dealers, distillers, stockiest and traders of rectified spirit, ethyl alcohol,

    gasohol, acetic acid, acetone anhydride, vinyl acetate, polymers, plastics,

    polyvinyl chloride, liquors and all products made the from

    To carry on the business as manufactures, producers packers, dealers,

    stockiest, and traders of furfural bulk drugs, pharmaceutical and medicinal

    preparations, made out of by products of sugar or either derivatives

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 8

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    To carry on the business as manufacturers dealers, distributors stockiest

    and trades of business pulp, paper pulp and pulp made out agricultural

    residues or other fibrous materials, paper, newsprint, paper boards, mill

    boards, strew boards, coated papers of all kinds, paper bags, fibrils boxes,cartons, paper of all kinds, paper bags fibrils boxes, cartons corrugated

    containers, wrapping and packing materials.

    To carry on the business as planters, growers, cultivators, formers and

    producers of sugarcane sugar beet.

    PRESENT BOARD OF DIRECTORS

    NAME DESTINATION

    SRI D.K. AUDIKESAVULU

    SRI D.A. SRINIVAS

    SRI K.M. SRINIVAS MURTHI

    SRI.D.J. INDRAPRAKASH

    CHAIRMAN AND MANAGING

    DIRECTOR

    JR. MANAGING DIRECTOR

    DIRECTOR

    VICE PRESIDENT

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    PRODUCT PROFILE

    MANUFACTURING PROCESS

    Sugar manufacturing from sugar cane is a continuous process involving

    several stages viz., milling, clarification, concentrating and crystallization and

    curing.

    MILLING

    The raw material sugar cane is fibrous plant body with a hard rind

    conversing the bulk of the fibrous mass. In outer to extract juice from cane the

    practice is to crush the cane in a tandem of 3 rollers mills. Prior to milling the cane

    has to be prepared so that maximum numbers of calls in the cane have to be

    exposed to the pressure applied in the mills. In cane preparation the whole cane is

    reduced to tiny pieces and the hard rind in broken with the help of mincer.

    In order to extract as much juice as possible water is added the crushed

    mass, which further dilutes whatever left over juice hence making further extract

    possible in subsequent mills. This practice of the adding water in milling is known

    as inhibition. The

    Quantity of water to be adders to achieve the efficiency norms varies with the

    quality of cane in terms of fiber % cane and on the pressure applied in the process,

    however, on the average, 30% on cane is the imbibitions rate which satisfies the

    efficiency norms.

    The juice thus extracted in the mills in termed as mixed juice as it

    contains juices from all the mills in the tandem both diluted and undiluted. The

    mixed juice is weighted scale and sent for further processing.

    The fibrous mass coming out of mills Is called BEGASSE which is used

    as fuel for the boiler which generates high pressure steam (40kg/cm2) the stem is

    fed to turbines to generates power required from the plant. A part of this steam is

    also fed to mill turbines.

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    Which run the mills?

    The stem which is coming out of these prime movers is called Exhaust steam

    which is used to boil juices in different stages of sugar manufacturing process.

    CLARIFICATION OF JUICE

    The weighed mixed juices are heated in juice Heaters in the stages. In the

    first stage of heating the juice is heated from about 35 degree C to 70 degree C.

    This heated juice is mixed with mils of lime and sulpher-di-oxide gas in a milk of

    lime and sulphur-di-oxide and called as Clarifying Agents and their

    consumption is 0.24% on cane and 0.06% on cane respectively.

    Now the juice is subjected o the second stage of heating in which it is

    heated from about 70 degree centigrade to 105 degree centigrade.

    These clarifying agents react with the several organic importing and

    coloring matters in the juice, which have to be eliminated out before further stage

    of concentration of juice the propos of applying heat is to hasten these reaction

    and also through co-adulate the colloidal impurities such as proteins. These

    clarifying agents combine with various impurities to from precipitation and the

    precipitates are allowed to settle down living clear juice at the top. This setting

    is carried out in a large vessel known as door clarifier. The juice retention time

    is above 3 hours.

    FILTRATION

    This precipitate is known as Mud and is continuously being with

    drawn. This mud contains juice and also to recover this juice, the med in

    subjected to filtering filtration is carried cut in Vaccum filters in which the

    juice is sucked from the mixed of mud and small biogases particles known as

    begascillo, through as suitable arrangement. The quantity of juice recovered from

    filtration is estimated to be around 6% on cone. The mud after filtration comes in

    the form of cake and is known as Filter Cake or Filter Mud. This filter

    contains nutrition elements and used as manure, thus filter mud is on of the by

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    products of the process and its quantity is about 3%on tone. The filtered juice is

    sent back from processing along with mixed juice.

    The clear juice from Door is further boiled in a set of tubular vassels know

    as Evaporators. As stated earlier the heating medium is exhaust steam and on an

    average about 70% to 76% of evaporation. In order to achieve steam economy.

    This evaporation is carried out in vacuum is a system which is called

    QUADRAUPLE EFFECT. In this system one pound of stem evaporation for

    pound of water.

    SULPHITATION

    This concentrated juice is now called as Syrup, which contains 60% (on an

    average) solids by weight. In contains several coloring matters which have to be

    eliminated or neutralized before the final stage of concentration. For this

    purpose the syrup is Sulphited again with SO2 gas. Hence this clarification

    process is known as Double Sulphitation.

    The sulphited syrup is sent to pan floor, where the final stage of boiling

    are carried out. This principle is to concentrate the syrup to super saturation

    level where crystallization of sucrose starts.

    CRYSTALLISATION

    It is not possible to crystallize all the sugar content of syrup in a single

    stage of boiling due to various factor the details of which are beyond the scope of

    this description Hence, the boiling is carried out in 3 stages viz, A-Boiling, B-

    Boiling, and C- Boiling.

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 12

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    NEED FOR THE STUDY

    The need for the working capital is in order to know the liquidity position of the

    firm. KBD SUGAR AND DISTILLIRIES LTD operating profit is decreases year

    to year

    Every Industry for the past few years has been finding it difficult to

    managing the working capital. Every Business has to use to their available

    resources for the improvement and development of the business their earningmore profits.

    Effective management of working capital has become a problem for such

    organizations The purpose of study is to analyze and evaluate working capital

    management in KBD SUGAR AND DISTILLIRIES LTD.

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    OBJECTIVE OF THE STUDY

    This study is mainly focused to examine the short time financial viability of KBD

    Sugar & Distilleries Ltd.

    1. To know the working capital requirement of the KBD sugars & Distilleries

    Ltd.

    2. To analyze the liquidity position of KBD sugars & Distilleries Ltd.

    3. To know the efficiency of Account Receivables and Account payable of

    KBD sugars & Distilleries.

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    SCOPE OF THE STUDY

    The scope of the study is spread over for a period of six years i.e. 2007-

    2012 for purpose off evaluating the financial position and data for the past Five

    years i.e. 2007-2012 has been used in order to understand the overall performance

    of SCCL for the past five years. The study has been done for a period of 45 days.

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    LIMITATIONS OF THE STUDY

    The Study is taken to consider the data only five years.

    Since only 5 years data is used for the analysis the out come may not be

    generalized.

    Due to limitation of time, it was unable to go for a depth study into the

    subject.

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    RESEARCH METHODOLOGY

    SOURCES OF DATA ANALYSIS

    The study required both primary and secondary data

    PRIMARY DATA

    Primary data has been collected by interviewing certain executives who

    were chosen on the basis of their in depth knowledge and experience in the

    company. The interviews in nature are under to gain as much information as

    possible.

    SECONDARY DATA;

    Secondary data was obtained from the past records file and reports of the

    organization also from other financial statements.

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    REVIEW OF LITERATURE

    TOOLS FOR ANALYSIS OF WORKING CAPITAL:

    The quantum of working capital as well as its financing pattern is subject

    to constant monitoring and review by the financial manager. There are different

    analytical tools which can help a financial manager in monitoring in viewing and

    controlling the working capital. The popularly used tools are:

    1. Schedule of changing working capital.

    2. Working capital ratios.

    WORKING CAPITAL MANAGEMENT

    One of the most important areas in the day-to-day management of the firm

    is the management of working capital. Working capital management is the

    functional area of the finance that covers all the current account of the firm. It is

    concerned with management of the level of individual current assets as well as the

    management of total working capital. Financial management means procurement

    of funds and effective utilizations of these procured funds. Procurement of funds

    is firstly concerned for financing working capital requirement of the firm and

    secondary for financing fixed assets,

    MEANING OF WORKING CAPITAL

    Ordinarily the term working capital stands for that part if the capital,

    which is required for the financing of working or current needs of the company.

    Working capital is the life time of every concern. Whether it is manufacturing or

    non-manufacturing one with out adequate working capital, there can be no

    progress in the industry.

    In adequate working capital means shortage of raw materials, labor etc.,

    resulting in partial current assets les current liabilities has no economic meaning in

    the sense of implying some type of normative behavior. According to this line of

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    reasoning, it is largely an accounting artifact. Working capital management then is

    a misnomer.

    The working capital of the firm is not managed. The term describes a

    category of management decisions affects specific type of current assets and

    current liabilities. In turn those decisions should be rooted in the overall valuation

    of the firm.

    DEFINITIONS

    According to western and Brigham, Working capital refers to firms

    investment in short term assets-cash, short term securities, accounts receivables

    and inventories.

    According to Hoagland working capital is descriptive of that capital

    which is not fixed. But the more common use of the working capital is to consider

    it as the difference between the book value of the current assts and current

    liabilities.

    TYPES OF WORKING CAPITAL

    There are two types of working capital. They are:

    I. ON THE BASIS OF CONCEPT

    1. Gross working capital

    2. Net working capital

    1. GROSS WORKING CAPITAL

    Gross working capital refers to the firms investment in current

    assets are the assets, which can be concerned into and with in an accounting year

    (or operating cycle) and include cash short-term securities, debtors (accounts

    receivables or book debts) bills receivables and stock (inventory) Gross working

    capital points to the arranging of funds to finance current assets.

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    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 nature for payment with in accounting year and include creditors

    (account payables). Bills payables and outstanding expenses. Networking capital

    can be positive or negative. A positive working capital will arise when current

    assets exceed current liabilities and negative working capital will arise when

    current liabilities excess of current assets.

    II.ON THE BASIS OF TIME

    1). Permanent/fixed/fluctuating working capital

    2). Temporary working capital

    PERMANENT WORKING CAPITAL

    The need for current assets arises because of the operating cycle the

    operating cycle is a continuous process and therefore, the need for the current

    assets is felt constantly. But the magnitude of current assets needed is not always a

    minimum level of current assets, which is continuously required by the firm to

    carry on its business operations. This minimum level of current assets is referred

    to as permanent or fixed working capital.

    EXAMPLE

    Every firm has to maintain a minimum level of raw materials, work-in-

    progress, finished goods and cash balance. The minimum level of current assets is

    called permanent or fixed working capital as this part of capital is permanently

    blocked in current assets. As the business grows, the requirements of permanent

    working capital also increase due to the increase due to the increase in current

    assets.

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    y-axis

    x-axis

    PERMANENT WORKING CAPITAL CAN BE FURTHER

    DIVIDED INTO:

    A. Regular working capital

    B. reserve working capital

    A.REGULAR WORKING CAPITAL

    It is the minimum amount of liquid capital needed to keep up the

    circulation of the capital from cash to inventories to receivables and again to cash

    this would include sufficient minimum bank balance to discount all bills, maintain

    adequate supply of raw materials etc.

    B.RESERVE WORKING CAPITALIt is the excess over the needs or regular working capital that should be

    kept in reserve for contingencies that may arises at any time these contingencies

    include rising prices, business depression, strikes and special operations such as

    experiments with new products.

    2. TEMPORARY WORKING CAPITAL

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 21

    Temporary

    Or

    Fluctuating

    Permanent

    Time

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    Temporary

    Or

    Fluctuating

    Permanent

    Working Capital KBD SUGARS &DISTILLERIES LTD

    Depending upon the changes in production and sales, the for working

    capital over and above permanent working capital, will have in be maintained to

    support the peak proceeds of sale and investment in raw material, work in

    progress and finished goods will fall if the market is slack.

    The extra working capital needed to support the changing production and

    sales activities is called fluctuating or variable or temporary working capital. The

    Firm to met liquidity measurement that will last only temporary creates temporary

    working capital.

    y-axis

    x-axis

    THE NEED OF WORKING CAPITAL

    The need for working capital to run day-to-day business activities cannot

    be over emphasized we will hardly find business firms which doesnt require any

    amount if working capital and firms differ in their requirements f the working

    capital we know that a firm should aim at maximizing the wealth of its share

    holders. In its endeavor to do so. A firm should earn sufficient return form its

    operation. Earning a study amount of profits required successfully sale activity.

    The firm to invest enough funds in current assets for cash instantaneously. There

    is always an operation cycle involved in the conversion of sale of sales in to cash.

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    VARIOUS NEEDS OF WORKING CAPITAL IS AS FOLLOWS

    1. To pay wages and salary.2. It helps to the purchase of raw materials, components and spares.

    3. It helps to incur day-to-day expenses and overhead costs such as fuel,

    power and office expenses etc.

    4. It also to meet the selling cost as packing, advertising etc.

    5. It provides credit facilities to the customer.

    6. It helps to maintain the inventories of raw material, working progess,

    stores and spares and finished stock.

    ADVANTAGES OF GOOD WORKING CAPITAL

    MANAGEMENT

    The main advantages of good working capital are as follows:

    1. Solvency of the business: adequate working capital helps in maintainingsolvency of the business by providing uninterrupted flow of production.

    2. Goodwill: sufficient working capital enables a business concern to make

    prompt payments and hence helps in crating and maintaining goodwill.

    3. Easy loans: a concern having adequate working capital, high solvency and

    good credit standing can arrange loans from banks on easy and favorable

    terms.

    4. Cash discount: adequate working capital also enables a concern to avail

    cash discounts on the purchases and maintaining goodwill.

    5. Regular supply of raw materials: sufficient working capital ensures regular

    supply of raw materials and continuous production.

    6. Regular payment of salaries, wages and other day-to-day commitments: a

    company which has ample working capital can make regular payment

    towards it day-to-day commitments which would raise the morale of its

    employees, increase their efficiency, reduce wastage cost and enhance

    production and profits.

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    7. Exploitation of favorable market conditions: only concerns with adequate

    working capital exploit favorable market conditions such as purchasing its

    requirements in bulk when the prices are lower and holding its inventories

    for high prices.

    8. Crisis handling ability: adequate working capital enables a concern to face

    business crisis such as depression, inflation successfully.

    9. Quick and regular return on investments: sufficiency of working capital

    enables a concern to pay quick and regular dividends to its inventors, as

    there may not be mush pressure to plough back profits.

    DISADVANTAGES OF INADEQUATE WORKING

    CAPITAL

    1. A concern which has inadequate working capital cannot pay its short term

    liabilities in time. Thus it will lose its reputation and shall not be able to

    obtain good credit facilities.

    2. It can not buy its requirement in bulk and cannot avail discounts.

    3. It becomes difficult for the firm exploits favorable market conditions and

    under take profitable projects

    4. The firm cannot pay its day-to-day expenses, which would increase cost

    and reduce the profits of the business.

    5. It becomes impossible to utilize efficiency the fixed assets due to the non-

    availability of liquid funds.

    6. The rate of return on investment will also fall with the shortage of working

    capital

    DETERMIMINATES OF WORKING CAPITAL OR FACTORS

    AFECTING

    The working capital requirements of a firm affected by number of factors.

    The various factors, which affect the working capital requirements of a concern,

    are as follows:

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    FACTORS OF WORKING CAITAL

    Internal factors External factors

    Nature of business Business fluctuations

    Product cycle Technological

    Developments

    Business cycle Transport and

    Communication

    Credit policy Developments

    Scale of production Import policy

    Growth and Expansion of business Taxation policy

    Operating efficiency

    INTERNAL FACTORS

    NATURE OF BUSINESS:

    The working capital requirements of enterprises are basically related to the

    conduct of business. Public utilities have certain features which have a bearing on

    their working capital needs. They do not maintain big inventories arid have,

    therefore, probably the least requirements of working capital. On the other hand

    trading and amount of cash inventories and book debts.

    PRODUCTION CYCLE

    The term production or manufacturing cycle refers to the span between the

    procurement of raw materials and completion of the manufacturing process

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    leading to the production of finished goods. In other words, there is a some time

    gap before raw materials become finished goods. There fore the longer the time

    span, the larger will be the working capital needed and vice versa.

    BUSINESS CYCLE

    The business fluctuations influence the size of working capital mainly

    during updated phase when boom conditions prevail, the need for working capital

    is likely to cover the lag between increases sales and receipt of cash as well as

    invest in plant and machinery to meet the increased demand. The down swing a

    opposite effect on the level of working capital requirements.

    CREDIT POLICY

    The credit policy relating to sales and purchases also affect the working

    capital the credit policy in influences the requirements of working capital in two

    ways:

    Though credit terms granted by the firm to its customers buyers of goods

    credit terms available to the firms its creditors. A firm, which more credit sales

    and cash purchase required high working capital than a firm having more credit

    purchase and cash sales.

    SCALE OF PRODUCTION

    A concern carrying on activities on a small scale of needs less working capital

    on the other hand a concern undertaking activities on large scale need large

    amount of working capital.

    GROWTH AND EXPANSION OF BUSINESS

    The growth and expansion of business also affect the working capital

    requirements. When there is growth and expansion in the business of firm the

    working capital needs of the firms will also increase

    OPERATING EFFECIENCY

    The operating efficiency of the management is also important determinantof the level of working capital. A firm enjoying operating efficiency can eliminate

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    wastage and use its resources efficiency and there by reduce its working capital

    needs considerably.

    EXTERNAL FACTORS

    BUSINESS FLUCTUATIONS

    Business enterprises usually experiences fluctuations in demand for their

    products and services because of changes in economic conditions. In view of this,

    working capital requirements of these enterprises are affected. Thus, in the event

    of economic prosperity, general demand of the good and services tends to shoot

    up. To cope with increased demand and consequently increased production the

    firm will require additional working capital.

    TECHNOLOGICAL DVELOPMENTS

    Technological developments in the area of production can have sharp effects

    on the need for working capital if a firm switches over to new manufacturing

    process and install new equipments with which it is able to cut period involved in

    converting raw materials into finished goods, permanent working capital

    requirements of the firm will decrease.

    TRANSPORT AND COMMUNICATION DEVELOPMENTS

    Where the means of transport and communication in a country are not well

    developed, industries may need additional funds to maintain big inventory of raw

    materials and other accessories which would otherwise not be needed where the

    transport and communications system are high developed.

    IMPORT POLICY

    Import policy of the government may also have its bearing on the levels of

    working capital of the enterprises since they have o arrange funds for importing

    goods at specified times.

    TAXATION POLICY

    Working capital needs of business enterprises are affected sharply

    by taxation policy of the government. In the event of regressive taxation policy of

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    the government as it exits today in India, imposing heavy tax burdens on business

    enterprises leaves very little profits for distribution and retention purposes.

    SOURCES OF WORKING CAPITALAmong the various sources available for financing working capital

    needs finance manager has to select the best suitable source depending on working

    capital need of company.

    The need of working capital is increased by raising prices of end products

    and relative inputs. On the other hand the government and monetary authorities

    play their own role to curd the malice in period of inflation. The control measures

    often take the firm of dear of money policy and restriction credit. Financing of

    additional working capital in such an amusement becomes a problem to finance

    manager of a concerned unit. Commercial banks play the most significant role in

    providing working capital finance, particularly in Indians context.

    In view of mounting inflation, the R.B.I has taken up certain social

    measures to check the money supply in the economy. The balancing need has to

    be managed either by long-term borrowings or by issuing equity or by earning

    sufficient profits and retaining the same of coping with the additional working

    capital requirements. The first choice before a finance manager, where banks do

    not provide a part of additional working capital is to take the long-term source of

    finance.

    LONG TERM FINANCING

    Loans from financial institutions the option is normally rules out, because

    financial institutions do not provide finance for working capital requirements.

    Further this facility is not available to all companies this option is not practical.

    FLOATING OF DEBENTURES

    The profitability of a successful floating of debentures seems to be rather

    merging. In Indian capital market, floating of debentures has still to gain popularly

    debentures issues of companies in private sector not associated with certain

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    reputed groups generally failed to attract investors to invest their funds in

    companies. In this context the mode of rising funds by issuing convertible

    debenture/ bonds also gaining.

    SOURCES OF WORKINGCAPITAL

    Long term sources Short term sources

    Internal sources External sources

    With drawing the Bank

    Depreciation fund

    Using the renouncement Trade credit

    For taxation

    Postponement of payment Bill of

    Accrued expenses Exchange

    Public deposits Government

    Assistance

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    ACCEPTING PUBLIC DEPOSITS

    The issue of tapping deposits is directly to the image of the company

    seeking to invite public deposits.

    ISSUE OF SHARE

    With a view of financing additional capital needs, issue of additional

    equity share could be considered. Many Indian company have still to go ahead to

    command respect of investors in the context low profit margin as well as lack of

    knowledge about company make the success of a capital Issue very dim.

    RAISING FUNDS BY INTERNAL FINANCING

    Raising funds operational profits poses problems for many companies,

    because price of their end products are controlled and do not permit companies to

    earn profits sufficient requirements to finance additional working assets, still a

    largely feasible solution lies in increase profitability through cost control and cost

    reduction measures managing the cash operating cycle, rationalizing inventory

    stock and so on.

    PROBLEMS ASSOCIATED WITH EXCESS AND IN

    ADEQUATE WORKING CAPITAL

    DANGERS OF EXCESS WORKING CAPITAL

    1) It results in unnecessary accumulation of inventories. Thus the changes of

    inventory mishandling, the losses increase.

    2) It is an indication of defective credit policy and stock collection period.

    3) Excessive working capital makes management compliment, which

    degenerates into managerial efficiency.

    4) Tendencies of accumulating to make speculative profits grow. This may

    trend to make dividend policy liberal and difficult to cope with in future

    when the firm is unable to make speculation profits.

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    DANGERS INADEQUATE WORKING CAPITAL

    1) It strategy growth. It becomes difficult to undertaken profitable project due

    to non availability.

    2) It becomes difficult to implement to operating plans and achieve the firmprofit target.

    3) Operating in efficiencies creep in when it becomes difficult even to meet

    day-to-day commitments.

    4) Fixed assets are not efficiently utilized for the working capital funds. Thus

    the rate of return on investment surplus.

    5) Paucity of working capital funds renders the firm unable to avail of

    attractive credit opportunities etc. The firm losses it reputation when it is

    not in a position to turnover short term obligation.

    METHODS FOR ESTIMATING WORKING CAPITAL

    REQUIREMENTS

    There widely used methods for determining working capital requirements

    of a firm are:

    Percentage of sale method

    Regression analysis method

    Operating cycle method

    1. PERCENTAGE OF SALE METHOD

    In this method level of working capital requirements on the basis of past

    experience. The past relationship between sales and working capital is taken as a

    base for determining the size of working capital requirements for future. I it

    however, presumed that the relation ship between sales and working capital that

    has existed in the past has been stable. This may be explained with the help of the

    following illustration.

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    Percentage of sale method is a simple and easily understood method and

    practically used for ascertaining short-term changes in working capital in future.

    However this method lacks reliability in as much as its basic assumption of linear

    relation ship between sales and working capital does not hold true in all the cases.

    As such, this method cannot be recommended for universal application.

    2. REGRESSION ANALYSIS METHOD

    This is a statistical method of determining working capital requirements by

    establishing the average relationship between sales and working capital and its

    various components in the past years. In this regard the method of least squares is

    employed and the relationship between sales and working capital is expressed by

    the equation:

    Y=a+bx

    The value of a and b is obtained by the solution of simultaneous linear

    equations given as under:

    Where

    a=fixed component

    b=variable component

    x=sales

    y=inventory

    n=number of observations

    3. OPERATING CYCLE APPROACH

    Operating cycle refers to the length of time necessary to complete the

    following cycle of events.

    o Conversion of cash into inventory

    o Conversion of inventory into receivable

    o Conversion of receivable into cash

    If the operating cycle is length than the working capital requirements will be more

    on the other hands, if the operating cycle is short then the working capital

    requirement will be less.

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    According to this approach size of working capital requirements of a firm

    is determining by multiplying the duration of the operating cycle by cost of

    operations. The duration of the operating cycle may be found with the help of the

    following formula:

    O=R+W+F+A-P

    WHERE

    O=Duration of operating cycle

    R=Duration of raw materials

    W=Duration of work-in-process

    F=Duration of finished goods

    A= Duration of accounts receivable

    P=Duration of accounts payable

    DURATION OF RAW MATERIALS

    It reflects the number of days for which raw materials remain in inventory

    before they are issued for production. The following formula can be used to

    determine duration of raw materials.

    Average stock of raw materials

    R=----------------------------------------------

    Per day consumption of raw materials

    DURATION OF THE WORK-IN-PROCESS

    It denotes the number of days required in the work-in-process stage. It may

    be ascertained with the help of the following formula:

    Average work-in-process inventory

    W=-----------------------------------------------

    Average production per day

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    OPERATING CYCLE

    DURATION OF FINISHED GOODS

    It refers to the number of days for which finished goods remain in

    inventory before they are sold. This can be computed by the following formula:

    Average finished goods inventory

    F=---------------------------------------------

    Per day sale of goods

    DURATION OF THE ACCOUNTS RECEIVABLE

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 34

    CASH

    BILLSRECEIVABLES

    OR DEBTORS

    RAW

    MATERIALS

    CREDIT SALES

    FINISHED GOODS

    WORK IN

    PROGRESS

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    It represents the number if days required to collect the accounts

    receivables. This may be calculated as under:

    Average book debts

    A=--------------------------------------

    Average credit sales per day

    DURATION OF ACCUNTS PAYABLE

    It refers to the number of days for which the suppliers of raw materials

    offer credit. This may be measured with the help of the following formula:

    Average trade creditors

    P= --------------------------------------------

    Average credit purchases per day

    RATIO ANALYSIS

    Ratio analysis is the process of determining and interpreting numericalrelationship based on financial statements. A ratio is a statistical yardstick that

    provides a measure of the relationship between variables of figures. This

    relationship can be expressed as a percentage or as quotient.

    TYPES OF RATIOS

    Ratios can be grouped into various classes according to financial activity

    of function to be evaluated. The parties interested in financial analysis are short

    and long term creditor. Owner and management. Short-term creditors main

    interest is in the liquidity positions or the short-term solvency o the firm. Long-

    term creditors on the other hand are more interested in the long term solvency and

    profitability of the firm.

    A. Liquidity ratios

    B. Leverage ratios

    C. Activity ratios/ Turn over ratio

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    D. Profitability ratio.

    Financial ratio analysis refers to the mathematical expression of

    relationship between two accounting figures drawn either from balance sheet or

    from profit and loss account or both. In order to apprise, interpret and review

    the effectiveness of the company, the following ratios are used in the present

    study:

    Cash ratio

    Liquid ratio

    Current ratio

    Debtors turnover ratio

    Creditors turnover ratio

    Stock or inventory turnover ratio

    Working capital turnover ratio

    Cash related to working capital ratio

    Inventory to working capital ratio

    Profit to gross working capital ratio

    Profit to net working capital ratio

    Gross profit ratios

    Return on investment ratio

    Gross working capital to sales

    Net working capital to sales

    Ratio analysis takes two forms behavior of ratios over a period of years to

    determine trend, comparing ratios for one concern with those of the other

    concerns in the same line of business. In making such comparisons allowance

    must be made for differences in the character of enterprise and for special

    accounting practices and policies pursed by each undertaking.

    B. LIQUIDITY RATIOS

    Liquidity ratios measure the firms ability to meet current

    obligations.

    1. CURRENT RATIO

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    The current ratio is calculated by dividing current assets by current

    liabilities.

    Current assets

    Current ratio= __________________Current liabilities

    CURRENT ASSETS : include cash and bank balances,

    marketable

    securities debtors and inventories and also prepaid expenses etc.

    CURRENT LIABILITIES : include creditors, bills payable,

    accruedexpenses, short-term bank loan, income tax liability etc.

    2. QUICK RATIO

    Quick ratio establishes a relationship between Quick, or liquid assets and current

    liabilities.

    Current assets-Investments& Loans advances

    Quick Ratio =_______________________________________

    Current LiabilitiesWhere;

    LIQUID ASSETS include cash, debtors, and bills receivables and marketable

    securities.

    3. ABSOLUTE QUICK (CASH) RATIO

    Since cash is the most liquid assets, a financial analyst may examine cash

    ratio and its equivalent to current liabilities. Trade investments (or)

    Marketable securities are equivalent of cash.

    Cash + Marketable Securities

    Cash Ratio=________________________________

    Current Liabilities

    B) LEVERAGE RATIOS

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    Leverage ratio may be calculated from the balance sheet items to

    determine the proportion of debt in total financing. Leverage ratios are also

    computed from the profit and loss items by determining the extent to which

    operating profits are sufficient to cover the fixed charges.

    1. TOTAL DEBT RATIO

    Several debt ratios may be used to analysis the long-term solvency of a firm.

    The firm may be interested in knowing the proportion of the interest bearing debt

    (also called funded debt) in the capital structure. It may compute debt ratio by

    dividing total debt by capital employed (or) net assets.

    Total Debt

    Total Debt Ratio=_______________________

    Total Debt + Net Worth

    Where;

    Total Debt = Secured + Unsecured loans

    Capital Employed=Total Debt + Shareholders Fund

    2. DEBT EQUITY RATIO

    This relationship describing the lenders contribution for each rupee of the

    owners contribution is called debt-equity ratio. Debt equity ratio is directly

    computed by dividing total debt by net worth.

    Total Debt

    Debt Equity Ratio=_____________

    Net Worth

    Where;

    Total Debt = Secured + Unsecured

    Net Worth = Share Capital + Reserves and Surplus

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    3. INTEREST COVERAGE RATIO

    Debt ratios described above are static in nature, and fail to indicate the

    firms ability to meet interest (and other fixed charges) obligations. The interestcoverage ratio (or) the times interest coverage ratio is completed by dividing

    earnings before interest and taxes by interest charges

    EBIT

    Interest coverage ratio = _______

    Interest

    C)ACTIVITY RATIOS

    Activity ratios involve a relationship between sales and assets. A proper

    balance between sales and assets generally reflects that assets are managed well.

    Several activity ratios can be calculated.

    1. INVENTORY TURNOVER RATIO

    Inventory turnover ratio indicates the efficiency of the firm in producing

    and selling its product. It is calculated by dividing the cost of goods sold by the

    average inventory.

    Cost of goods sold

    Inventory Turnover Ratio=_____________________

    Average inventory

    Where;

    Cost of goods sold=raw material, wrapping and packing materials

    consumed + purchase of finished goods + manufacturing expenses

    2. WORKING CAPITAL TURNOVER RATIO

    A firm may also like to relate net current assets (or net working capital

    gap) to sales. It may thus compute net working capital turnover by dividing sales

    by net working capital.

    Sales

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    Net current assets turnover=______________________

    Net working capital

    3. DEBTORS TURNOVER RATIO

    A firm sells goods for cash and credit. Credit is used as a marketing tool

    by a number of companies. When a firm extends credits to its customers, debtors

    (account receivables) are created in the firms accounts. Debtors are expected to

    be converted into cash over a short period.

    Debtors turnover is found out by dividing credit sales by average debtors.

    Credit sales/sales

    Debtors turnover=________________

    Average debtors

    Debtors turnover indicates the number of times debtors turnover each year.

    4. CREDITORS TURNOVER RATIO

    This ratio gives the average credit period enjoyed from the creditors and is

    by dividing credit purchases by average accounts payable (creditors + bills

    payable)

    Creditors purchases

    Creditors turnover=___________________

    Average creditors

    Where;

    Purchases= Raw materials, wrapping and packing materials consumed +

    purchase of finished goods.

    Note: here, credit purchases are not available. There fore we consider the total

    purchases for calculation.

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    5. FIXED ASSETS TURNOVER RATIO

    Fixed assets are used in the business for producing goods to be sold. The

    effective utilization of fixed assets in increased production and reduced cost. It

    also ensure whether investment. In the assets have been judicious (or) not.Sales

    Fixed assets turnover ratio= ____________

    Fixed assets

    D). PROFITABILITY RATIOS

    The profitability ratios are calculated to measure the operating efficiency

    of the company. Besides management of the company, creditors and owners arealso interested in the profitability of the firm. Creditors want to get interest and

    payment of principal regularly owners want to get a required rate of return on their

    investment.

    1) GROSS PROFIT RATIO

    The first profitability ratio in relation to sales is the gross profit margin. It

    is calculated by dividing the gross profit by sales.

    Gross Profit

    Gross profit= ______________ X 100

    Sales

    Where;

    Gross profit = sales (Raw material, wrapping and packing material consumed +

    purchases of finished goods + manufacturing expenses)

    2) NET PROFIT RATIO

    Net profit is obtained when operating expenses, interest and taxes are

    subtracted from the gross profit. The net profit ratio is measured by dividing

    profit after tax by sales.

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    Net Profit

    Net Profit Ratio=________________ X 100

    Sales

    Where, Net profit = PBIDT

    3) RETURN ON INVESTMENT (ROI)

    The term investment may refer to total assets (or) Net assets. The funds

    employed in net assets in known as capital employed . Alternatively, capital

    employed is equal to net worth plus total debt.

    PBIDT

    ROI=________________________ x 100

    Capital Employed

    Where;

    Capital Employed = Share Capital + Reserves and Surplus + Secured loans +

    Unsecured loans.

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    COMPOSITION OF WORKING CAPITAL

    CURRENT ASSETS

    Inventories Raw materials

    Work in progress

    Finished goods

    Stores and spares

    Miscellaneous goods

    Receivables Trade debtors

    Loans and advances

    Other debtors balances

    Marketable securities Government securities

    Semi Government securities

    Shares, debenture, etc.,

    Cash and bank balances Cash in hand

    Cash at bank

    Cash in transit

    CURRENT LIABILITIES

    Sundry creditors Advances received from customers

    Short term loans from banks

    Trade dues and other liabilities

    Deposits from public etc.,

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    STATEMENT OF CHANGES IN WORKING CAPITAL

    FOR THE YEAR 2006-2007

    PARTICULARS 2006 2007

    EFFECT OF WORKING

    CAPITAL

    INCREASE DECREASE

    CURRENT ASSETS

    Inventories 175448000 303238111 127790111

    Sundry debtors 8069520 8256619 187099

    Cash & bank balances 2214515 2907579 693064

    Loans & Advances 74538006 89584621 15046615

    Total current assets(A) 260270041 403986930

    CURRENT

    LIABILITIES

    Sundry creditors 41152506 91008350 49855844

    Bills payable 69153301 265573013 196419712

    Provision for tax 71000 68042 2958

    Advances 2029250 4407965 2378715

    Total current liabilities (B) 112406057 361057370

    Net working capital(A-B) 147863984 42929560

    Decreased working capital 104934424 104934424

    147863984 147863984 248654271 248654271

    INTERPRETATION

    The above table shows statement of changes in working capital

    during the year 2006-200

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    STATEMENT OF CHANGES IN WORKING CAPITAL

    FOR THE YEAR 2007-2008

    PARTICULARS 2007 2008

    EFFECT OF WORKING

    CAPITAL

    INCREASE DECREASE

    CURRENT ASSETS

    Inventories 303238111 375676892 72438781

    Sundry debtors 8256619 8416762 160143

    Cash & bank balances 2907579 5067311 2159732

    Loans & advances 89584621 150964503 61379882

    Total current assets(A) 403986930 540125468

    CURRENT

    LIABILITIESSundry creditors 91008350 118673654 27665304

    Bills payable 265573013 344582844 79009831

    Provision for tax 68042 85082 17040

    Advances 4407965 2623395 1784570

    Total current liabilities(B) 361057370 465964975

    Net working capital(A-B) 42929560 74160493

    Increased working capital 31230932 31230933

    74160493 74160493 137923108 137923108

    INTERPRETATION: The above table shows statement of changes in

    working capital during the year 2007-2008 it as net increased in working capital

    Rs. 31230933

    STATEMENT OF CHANGES IN WORKING CAPITAL

    FOR THE YEAR 2008-2009

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 45

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    PARTICULARS 2008 2009

    EFFECT OF WORKING

    CAPITAL

    INCREASE DECREASE

    CURRENT ASSETS

    Inventories 375676892 156306246 219370646

    Sundry debtors 8416762 7348982 1067780

    Cash & bank balances 5067311 8755709 3688398

    Loans & advances 150964503 145766518 5197985

    Total current assets(A) 540125468 318177455

    CURRENTLIABILITIESSundry creditors 118673654 44215344 74458310

    Bills payable 344582844 195998366 148584478

    Provision for tax 85082 75897 9185

    Advances 2623395 16505043 13881648

    Total current liabilities(B) 465964975 256794650

    Net working capital(A-B) 74160493 61382805

    Decreased working capital 12777688 12777688

    74160493 74160493 239518059 239518059

    INTERPRETATION

    The above table shows statement of changes in working capital during the year

    2008-2009 it as net decreased in working capital Rs. 12777688

    STATEMENT OF CHANGES IN WORKING CAPITAL

    FOR THE YEAR 2009-2010

    PARTICULARS 2009 2010

    EFFECT OF WORKING

    CAPITAL

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 46

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    INCREASE DECREASE

    CURRENT ASSETS

    Inventories 156306246 136429420 19876826

    Sundry debtors 7348982 8062874 713892

    Cash & bank balances 8755709 3903005 4852704

    Loans & advances 145766518 145443323 323195

    Total current assets(A) 318177455 293838622

    CURRENT

    LIABILITIES

    Sundry creditors 44215344 34687285 9528059

    Bills payable 195998366 160800195 35198171

    Provision for tax 75897 85877 9980

    Advances 16505043 5760575 10744468

    Total current liabilities(B) 256794650 201333932

    Net working capital(A-B) 61382805 92504690

    Increased working capital 31121885 31121885

    92504690 92504690 56184590 56184590

    INTERPRETATION:

    The above table shows statement of changes in working capital

    during the year 2009-2010 it as net increased in working capital Rs. 31121885.

    STATEMENT OF CHANGES IN WORKING CAPITAL

    FOR THE YEAR 2010-2011

    EFFECT OF WORKING

    CAPITAL

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 47

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    PARTICULARS 2010 2011 INCREASE DECREASE

    CURRENT ASSETS

    Inventories 136429420 456904598 320475178

    Sundry debtors 8062874 16803678 8740804

    Cash & bank balances 3903005 3470866 432139

    Loans & Advances 145443323 144280277 1163046

    Total current assets(A) 293838622 621459419

    CURRENT

    LIABILITIESSundry creditors 34687285 123537482 88850197

    Bills payable 160800195 174367576 13567381

    Provision for tax 85877 80999 4878

    Advances 5760575 67154404 61393829

    Total current liabilities (B) 201333932 365140461

    Net working capital(A-B) 92504690 256318958

    Increased working capital 163814268 163814268

    256318958 256318958 32922086 329220860

    INTERPRETATION: The above table shows statement of changes in

    working capital during the year 2010-2011 it as net increased in working capital

    Rs. 163814268

    RATIO ANALYSIS

    CURRENT RATIO

    CURRENT ASSETSCURRENT RATIO = ---------------------------

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 48

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    CURRENT LIABILITIES

    CURRENT RATIO DURING THE YEAR 2006-2011

    YEARCURRENT

    ASSETS

    CURRENT

    LIABILITIESRATIO

    2006-2007 403986930 36157370 1.12

    2007-2008 540125468 465964976 1.16

    2008-2009 318177455 256794650 1.24

    2009-2010 293838622 201333932 1.45

    2010-2011 621459419 365140461 1.70

    Source: Annual published reports of KBD sugars & Distilleries Ltd.

    INTERPRETATION

    The ideas current ratio that 2:1 it implies that for every one rupee of

    current liabilities, 2 rupees of current assets are available to meet them all the

    years 2007-2008, 2008-2009,2009-2010,2010-2011,2011-2012 liquidity position

    is not satisfactory.

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 49

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    CURRENT RATIO

    0

    100000000

    200000000

    300000000

    400000000

    500000000

    600000000

    700000000

    2006-

    2007

    2007-

    2008

    2008-

    2009

    2009-

    2010

    2010-

    2011

    YEARS

    RATIO

    CURRENT

    ASSETS

    CURRENT

    LIABILITIES

    RATIO

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 50

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    QUICK RATIO

    CASH + SUNDRY DEBTORS

    QUICK RATIO = ---------------------------------------------CURRENT LIABILITIES

    YEARS

    CASH &

    BANK

    BALANCES

    SUNDRY

    DEBTORS

    CURRENT

    LIABILITIE

    S

    RATIO

    2006-2007 2907579 8256619 361057370 0.03

    2007-2008 5067311 8416762 465964976 0.02

    2008-2009 8755709 7348982 256794650 0.06

    2009-2010 3903005 8062874 201333932 0.05

    2010-2011 3470866 16803678 365140461 0.05

    Source: Annual published reports of KBD sugars & Distilleries Ltd.

    INTERPRETATION:

    Quid Ratio is also known as liquid ratio or Acid test ratio. The

    standard liquid ratio is 1:1 for every one rupee. There should be one rupee of

    Quick assets. The liquidity ratio for the periods of 2007-08, 2008-2009,2009-

    2010, 2010-2011, 2011-2012 are not satisfactory.

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 51

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    QUICK RATIO

    0

    50000000

    100000000

    150000000

    200000000

    250000000

    300000000

    350000000

    400000000

    450000000500000000

    2006

    -2007

    2007

    -200

    8

    2008

    -200

    9

    2009

    -201

    0

    2010

    -201

    1

    YEARS

    RATIOS

    CASH & BANK

    BALANCES

    SUNDRY

    DEBTORS

    CURRENT

    LIABILITIES

    RATIO

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 52

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    ABSOLUTE QUICK RATIO

    CASH + MARKETABLE SECURITIESABSOLUTE LIQUID RATIO = ------------------------------------------------------

    CURRENT LIABILITIES

    YEARS CASHCURRENT

    LIABILITIESRATIO

    2006-2007 2907579 361057370 0.008

    2007-2008 5067311 465964975 0.01

    2008-2009 8755709 256794650 0.032009-2010 3903005 201333932 0.019

    2010-2011 3470866 365140461 0.01

    Source: Annual published reports of KBD sugars & Distilleries Ltd.

    INTERPRETATION:

    It is also called cash position ration. The ratio should be one 1:2 it indicate

    50% worth of absolute liquid assets are considered adequate to pay the 100%

    claim of current liabilities 2009-2010 are satisfied and in the year 2007-

    2008,2008-2009, 2010-2011, 2011-2012 are not satisfied.

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 53

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    ABSOLUTE QUICK RATIO

    0

    100000000

    200000000

    300000000

    400000000

    500000000

    2006

    -200

    7

    2007

    -200

    8

    2008

    -200

    9

    2009

    -201

    0

    2010

    -201

    1

    YEARS

    RATIOS

    CASH

    CURRENT

    LIABILITIES

    RATIO

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 54

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    WORKING CAPITAL TURNOVER RATIO

    SALESWORKING CAPITAL TURNOVER= -----------------------------

    WORKING CAPITAL

    YEARS SALES

    NET

    WORKING

    CAPITALRATIO

    2006-2007 321056780 42929560 7.48

    2007-2008 446392044 74160492 6.02

    2008-2009 407989582 61382805 6.63

    2009-2010 318263738 92504690 3.44

    2010-2011 226717032 256318958 0.88

    Source: Annual published Reports of KBD Sugars distilleries Ltd.

    INTERPRETATION

    The higher, the ratio, the lowest is the profiles. The ratio has increased from

    the periods of 2007-2008, 2008-2009, 2009-2010 but there has been decreases in

    the period of 2010-2011, 2011-2012.

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 55

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    WORKING CAPITAL RATIO

    0

    50000000

    100000000

    150000000

    200000000

    250000000

    300000000

    SALES

    321056780

    446392044

    407989582

    318263738

    226717032

    SALES

    RATIOS

    NET WORKING

    CAPITAL

    RATIO

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 56

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    FINDINGS

    In the over all evaluation of the working capital management at each and every

    aspects the following are the findings.

    Working capital ratio of the KBD sugars & Distilleries Ltd is decreasing in

    all the years which indicate the poor liquidity positions of the company.

    The current ratio represent a margin of safety for creditors the higher the

    current ratio the greater the margin of safety the larger amount of current

    assets in relation to current liabilities The more firms ability to meet its

    current obligations KBD sugars & Distilleries Ltd current ratios shows not

    satisfactory in order to all the years i.e. 2007-2008, 2008-2009, 2009-2010,

    2010-2011, 2011-2012.

    The liquid ratio of the KBD sugars Distillers Ltd is not satisfactory all the

    years

    Absolute Quick ratio of the KBD Sugars & Distilleries ltd is not

    satisfactory all the years every one rupee worth of assets is not sufficient to

    pay rupee 2 worth of current liabilities.

    The company sales have been decreased in all the years.

    Movement of accounts payable shows an increasing trend this indicates

    company is able to generate credit liberal terms and generate revenue yet

    other cost.

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 57

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    SUGGESITIONS

    The KBD sugars Distillers Ltd should try to maintain an optimum level of

    inventory and develop this strategy for investing excess cash balances.

    The KBD sugars Distillers Ltd should improve the profits by reducing

    the indirect expenses.

    The KBD sugars Distillers Ltd should maintain adequate working

    capital.

    The KBD sugars Distillers Ltd should maintain the high liquidity

    position.

    The KBD sugars Distillers Ltd should develop an optimum credit

    policy.

    The KBD sugars Distillers Ltd should determine maximum rate of cash

    discount they can give to the customers.

    The KBD sugars Distillers Ltd should utilize the reserves and surplus

    by either capitalizing or invest the money some where as investment to get

    benefits.

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 58

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    CONCLUSION

    From the analysis on the working capital management at KBD Sugars &

    Distilleries Ltd. I conclude that the company has to reduce its production cost to

    increase profit.

    The inventory turn over is good in all the five years. The company should try

    to increase their sales. It should maintain the high liquidity position. Hence, the

    suggestions given are realistic which will lead to increase in the profitability of the

    company. The company should try to tap the market and set in brand value and do

    the best.

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 59

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    KBD SUGARS AND DISTILLERIES LIMITED-SUGAR

    DIVISION BALANCESHEET AS AT 31.03.2007

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 60

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    KBD SUGAS AND DISTILLERIES LIMITED SUGAR DIVISIONPROVISIONAL PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH, 2007

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 61

    DESCRIPTION SCHDULE SUGAR

    DIVISION

    POWER

    DIVISION

    TOTAL

    I. SHARE CAPITAL A 0 0 0

    II. RESERVES AND SURPLUS B -6425313 -14234661 -20659974

    III. LOANS & ADVANCES

    1. Secured Loans

    2. Unsecured Loans

    3. Deferred Tax

    Liability

    C

    170318211

    98014487

    0

    83090635

    7900000

    0

    253408846

    105914487

    0

    261907384 76755974 338663359

    IV. FIXED ASSETS

    1. Gross Block

    Less. Depreciation

    Net. Block

    D

    444742528

    259907670

    118065951

    18876529

    562808479

    278784199

    184834858 99189422 28402480

    V. CURRENT ASSETS

    1. Inventories

    2. Sundry debtors

    3. Cash and Bank Balances

    4. Loans and Advances

    Less: Current Liabilities

    E

    F

    G

    H

    I

    302113330

    5247667

    2858458

    89518334

    1124781

    3008952

    49121

    66287

    303238111

    8256619

    2907579

    89584621

    39973789

    361221189

    4249141

    1014854

    403986930

    36223604338516600 3234287 41750887

    VI. MISCELLANEOUS

    INCOME

    J 367278 0 367278

    232111721 106551638 338663359

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    DESCRIPTION SCH FOR THE YEAR ENDED 31st March

    2007

    SUGAR

    DIVISION

    POWER

    DEVISION

    TOTAL

    INCOME

    Sales And Other Income

    Increase/(Decrease) In Stocks

    EXPENDITURE

    Consumption of Raw Material

    Manufacturing Expensess Salaries, Wages & Other Benefits

    Interest and Financial Charges

    Duties & Taxes

    Administrative expenses

    depreciation

    Profit/Loss For The Year

    Prior Period Items Net

    Profit/Loss For The YearDeferred Tax Asset

    Loss Brought Forward From Previous

    Year

    LOSS CARRIED TO BALANCE SHEET

    K

    L

    M

    N

    O

    P

    Q

    318251683

    1

    077010616

    2805097

    0

    321056780

    107701016

    425952699 2805097 428757796

    301448545

    4033856523300302

    9463676

    29444670

    9852517

    18529737

    1716287

    2602175531

    9862397

    0

    83991

    5275531

    303164

    832

    4036458523375833

    19326073

    29444670

    9936508

    23805268

    432378012 17039759 449417770

    (6

    425313)

    0

    (6425313)0

    0

    (1

    4234661)

    0

    (14234661)0

    0

    (20659

    974)

    0(20659974)

    0

    0

    642513 14234661 20659974

    KBD SUGARS AND DISTILLERIES LIMITED-SUGARDIVISION BALANCESHEET AS AT 31.03.2008

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 62

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    KBD SUGAS AND DISTILLERIES LIMITED SUGAR DIVISION

    PROVISIONAL PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH, 2008

    DESCRIPTION SCH FOR THE YEAR ENDED 31st March2008

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 63

    DESCRIPTION SCHDULE SUGAR

    DIVISION

    POWER

    DIVISION

    TOTAL

    I. SHARE CAPITAL A 0 0 0

    II. RESERVES AND SURPLUS B -71563643 -7078007 -78641650

    III. LOANS & ADVANCES

    1. Secured Loans

    2. Unsecured Loans

    3. Deferred Tax

    Liability

    C

    290451741

    60389487

    0

    74691204

    7900000

    0

    365142945

    68289487

    0

    279277584 75513197 354790781

    IV. FIXED ASSETS

    1. Gross Block

    Less. Depreciation

    Net. Block

    Capital work in progress

    D

    462430669

    279089573

    183341096

    4196167

    118065951

    24152123

    93313828

    113017

    580496620

    303241696

    27254924

    4309183

    187537262 9406845 281564107

    V. CURRENT ASSETS

    1. Inventories

    2. Sundry debtors

    3. Cash and Bank Balances

    4. Loans and Advances

    Less: Current Liabilities

    E

    F

    G

    H

    I

    375140470

    3534587

    4788074

    150933218

    536423

    4882175

    279237

    31285

    375676892

    8416762

    5067311

    150964503

    534396349

    466570599

    5729120

    573049

    540125469

    467143647

    67825751 5156071 72981822

    VI. MISCELLANEOUS

    INCOME

    J 244852 0 244852

    255607865 99182916 354790781

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    SUGAR

    DIVISION

    POWER

    DEVISION

    TOTAL

    INCOME

    Sales And Other Income

    Increase/(Decrease) In Stocks

    EXPENDITURE

    Consumption of Raw Material

    Manufacturing Expenses

    Salaries, Wages & Other Benefits

    Interest And Financial ChargesDuties & Taxes

    Administrative Expenses

    Depreciation

    Profit/Loss For The Year

    Prior Period Items Net

    Profit/Loss For The Year

    Deferred Tax Asset

    Loss Brought Forward From Previous Year

    LOSS CARRIED TO BALANCE SHEET

    K

    L

    M

    N

    O

    P

    Q

    4389

    97392

    74444167

    7394652

    0

    446392044

    74444167

    513441560 7394652 520836212

    391

    334724

    57600161

    31543420

    28185073

    48400517

    8759405

    19181903

    101786

    224679

    81853

    8788747

    0

    0

    5275594

    391436

    510

    57824840

    31625273

    36373820

    48400517

    8759405

    24457497

    585005203 14472659 599477862

    (715

    63643)

    0

    (71563643)

    0

    0

    (7

    078007)

    0

    (7078007)

    0

    0

    (786416

    50)

    0

    (78641650)

    0

    0

    71563643 7078007 78641650

    KBD SUGARS AND DISTILLERIES LIMITED-SUGAR

    DIVISION BALANCESHEET AS AT 31.03.2009DESCRIPTION SCHDULE SUGAR

    DIVISION

    POWER

    DIVISION

    TOTAL

    I. SHARE CAPITAL A 0 0 0

    II. RESERVES AND SURPLUS B -44143754 -6976589 -51120343

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 64

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    III. LOANS & ADVANCES

    1. Secured Loans

    2. Unsecured Loans

    3. Deferred Tax

    Liability

    C

    22847433

    102348323

    0

    64357833

    7900000

    0

    253408846

    105914487

    0

    286679102 65281244 351960346

    IV. FIXED ASSETS

    1. Gross Block

    Less. Depreciation

    Net. Block

    Capital work in progress

    D

    497422330

    299496627

    197925703

    4914492

    118108912

    29428336

    88680576

    113016

    615531243

    328924963

    286606280

    5027507.90

    202840195 88793593 291633788

    V. CURRENT ASSETS

    1. Inventories

    2. Sundry debtors

    3. Cash and Bank Balances4. Loans and Advances

    Less: Current Liabilities

    E

    F

    G

    H

    I

    155302989

    593127

    8546034

    145739026

    1003257

    1417155

    209675

    27492

    156306246

    7348982

    8755709

    145766518

    315519877

    257396433

    2657578

    576890

    318177455

    257973323

    58123444 2080688 60204132

    VI. MISCELLANEOUS

    INCOME

    J 122426 0 122426

    261086065 90874281 351860346

    KBD SUGAS AND DISTILLERIES LIMITED SUGAR DIVISION

    PROVISIONAL PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH, 2009

    DESCRIPTION SCH FOR THE YEAR ENDED 31st March

    2009

    SUGAR

    DIVISION

    POWER

    DEVISION

    TOTAL

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 65

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    INCOME

    Sales

    Less: Excise Duty

    Other Income

    Increase/(Decrease) In Stocks

    EXPENDITURE

    Consumption Of Raw Material

    Manufacturing Expenses

    Salaries, Wages & Other Benefits

    Interest And Financial Charges

    Administrative Expenses

    Depreciation

    Profit/Loss For The Year

    Prior Period Items Net

    Profit/Loss For The Year

    Deferred Tax AssetLoss Brought Forward From Previous Year

    LOSS CARRIED TO BALANCE SHEET

    K

    L

    M

    N

    OP

    Q

    4019

    03062

    27168636

    6086520

    0

    407989582

    27168636

    374734427

    26118647

    -217914213

    6086520

    0

    0

    380820947

    26118647

    -217914213

    182938861 6086520 189025381

    103

    459245

    36428063

    3056429827376162

    8847793

    20407054

    0

    23650

    1339017594511

    34834

    5276213

    103459245

    3645171

    3069819934970673

    8882627

    25683267

    227082615 13063109 240145724

    (44143754)

    0

    (44143754)

    0

    0

    (

    6976589)

    0

    (6976589)

    0

    0

    (511203

    43)

    0

    (51120343)

    0

    0

    44143754 6976589 51120343

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 66

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    KBD SUGARS AND DISTILLERIES LIMITED-SUGAR

    DIVISION BALANCESHEET AS AT 31.03.2010

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 67

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    KBD SUGAS AND DISTILLERIES LIMITED SUGAR DIVISION

    PROVISIONAL PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH, 2010

    DESCRIPTION SCH FOR THE YEAR ENDED 31st March

    V.C.R.INSTITUTE OF MANAGEMENT STUDIES 68

    DESCRIPTION SCHDULE SUGAR

    DIVISION

    POWER

    DIVISION

    TOTAL

    I. SHARE CAPITAL A 0 0 0

    II. RESERVES AND SURPLUS B -24244211 -10551568 -34795778

    III. LOANS & ADVANCES

    1. Secured Loans

    2. Unsecured Loans

    3. Deferred Tax

    Liability

    C

    239892160

    109948323

    0

    59536565

    7900000

    0

    299428725

    111248323

    0

    318996272 56884998 375881270

    IV. FIXED ASSETS

    1. Gross Block

    Less. Depreciation

    Net. Block

    Capital work in progress

    D

    498312592

    319263909

    179048683

    21990549

    118108912

    3470590

    83403005

    113016

    616421505

    353969816

    262451689

    2210356504

    201039232 83516022 284555254

    V. CURRENT ASSETS

    1. Inventories

    2. Sundry debtors

    3. Cash and Bank Balances

    4. Loans and Advances

    Less: Current Liabilities

    E

    F

    G

    H

    I

    135750568

    4601803

    3696880

    145443323

    678852

    3461071

    206125

    0

    13642920

    8062874

    3903005

    145443323

    289492574

    201954289

    4346048

    558317

    293838622

    202512606

    87538286 3787730 91026016

    VI. MISCELLANEOUS

    INCOME

    J 0 0 0

    288577518 87303752 375881270

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    Working Capital KBD SUGARS &DISTILLERIES LTD

    2010

    SUGAR

    DIVISION

    POWER

    DEVISION

    TOTAL

    INCOME

    Sales

    Less: Excise Duty

    Other Income

    Increase/(Decrease) In Stocks

    EXPENDITURE

    Consumption Of Raw Material

    Manufacturing Expenses

    Salaries, W