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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
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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
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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
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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
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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
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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
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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
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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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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.
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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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Working Capital KBD SUGARS &DISTILLERIES LTD
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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Working Capital KBD SUGARS &DISTILLERIES LTD
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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Working Capital KBD SUGARS &DISTILLERIES LTD
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
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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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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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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
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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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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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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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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
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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
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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
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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 = ---------------------------
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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.
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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
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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.
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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
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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.
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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
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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.
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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
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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.
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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.
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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.
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Working Capital KBD SUGARS &DISTILLERIES LTD
KBD SUGARS AND DISTILLERIES LIMITED-SUGAR
DIVISION BALANCESHEET AS AT 31.03.2007
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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
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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
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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
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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
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Working Capital KBD SUGARS &DISTILLERIES LTD
KBD SUGARS AND DISTILLERIES LIMITED-SUGAR
DIVISION BALANCESHEET AS AT 31.03.2010
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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