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SUMMER TRAINING PROJECT REPORTSUMMER TRAINING PROJECT REPORT
ON
“WORKING CAPITAL” “WORKING CAPITAL”
OF OF
VITA MILK PLANT VITA MILK PLANT
SIRSASIRSA, (, (HARYANAHARYANA))
In partial fulfillment of the requirement for the award of
the degree of
MASTERS OF BUSINESS ADMINISTRATION
(SESSION 2010-2012)
UNDER GUIDENCE OF: SUBMITTED BY :
MR.SITA RAM SONI AJAY AGGRAWAL
DEPT. OF ACCOUNTS MBA(BE) 2.3
ROLL NO.04
Submitted to
Chaudhary Devi Lal University,Sirsa
ACKNOWLEDGEMENT
This is to acknowledge with sincere thanks for the assistance, guidance and support
that I have received during the Summer Training. I place on record my deep sense of
gratitude to “Working Capital of VITA MILK PLANT SIRSA.” for giving me an
opportunity to pursue my Summer Training. My very special thanks to (Mr. SITARAM
SONI) and Mr. Rakesh Sir head of the Finance department and very thankful to Mr.
Amit Aggarwal head of marketing department for his valuable guidance & leadership in
completion of six weeks training period “Working Capital of VITA MILK PLANT
SIRSA..” for his constant advice and support.
I am highly grateful to my project incharge Mr.Sita ram soni for providing me every
possible help in my first step into professionalism and propelling me in the right direction
for the success of my project.
We are also thankful to other officers and staff of personal department for their
cooperation.
AJAY AGGARWAL
PREFACE
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This department is intended for the experience gained by me during Summer
Training in Vita Milk Plant, Sirsa.
While making this project I became familiar with the financial terms that are usually
used in a company and the different functions that a Finance Manager has to perform. I
have learnt how to manage Working capital. How to take decisions regarding working
capital in an organization.
I have also gained confidence to interact with different persons working at reputed
positions during the summer training, in preparing the project report I have tried my level
best effort to make it reliable, compact and accurate organization.
Ajay Aggarwal
CONTENTS
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1. Aknowledgement
2. Preface
3. Company Profile
4. History
5. Research Methodology
5.1. Objectives
5.2. Data Collection
5.3. Working Capital Management
5.4. Determinants of Working Capital
5.5. Ratio Analysis
6. Suggestions
7. Conclusion
Biblography
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(1.1) Haryana Dairy Development Co-operative
Federation
Designation Name Phone Email
ChairpersonSmt
Chandravati0172-2585507 [email protected]
Managing Director
Sh Devender Singh
0172-2586826,2585159
Chief Administrative
Officer
Sh Pradeep Kasni
0172-2583050 [email protected]
HARYANA is one of the most progressive states of Republic of India. In the domain of
dairy development it is well known for its productive milch cattle particularly the 'Murrah'
Buffaloes and Haryana Cows. The economy of the state is predominantly based on
agriculture. People rear and breed cattle as a subsidiary occupation. Milk production in
the State was estimated around 135.18 lacs liters per day during 2008-2009.
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The essence of various programmes launched in the State has been to adopt the
Anand pattern of Milk Co-operatives. Under this system, all the functions of dairying like
milk procurement, processing and marketing are controlled by the Milk Producers
themselves. It has three tier system comprising milk Producers Societies at the village
level, Milk Producers Co-operative Union at the district level and the state Milk
Federation as an apex body at the State level.
The Haryana Dairy Development Co-operative Federation Ltd. registered under
Haryana Co-operative Societies Act
Came into existence on April 1, 1977. Its authorized share capital is Rs.2000 lacs. It
was established with the primary aim to promote economic interests of the milk
producers of Haryana particularly those belonging to weaker sections of the village
community by procuring and processing milk into milk products and marketing thereof
by itself or through its unions. In furtherance of the above objects, the Federation
undertakes a number of activities such as establishment of milk plants, marketing of
VITA BRAND milk products of the Milk Unions. Its turnover during 2008-09 was to the
tune of Rs.395.00 crores. It also extends technical guidance to the Unions in all spheres
of personnel, technical, marketing and financial management as well as makes them
quality conscious, through use of modern methods of laboratory testing of various
products.
Quality - VITA the Hallmark of Quality
As part of stringent quality measures, milk required for processing VITA products is
procured from Dairy Cooperative Societies only. It is ensured that the milk is transported
to chilling centers and plants in clean and sterilized milk cans as quickly as possible. Al
quality measures as per Standard of Bureau of Indian Standards/Agmark are being
applied before the products are marketed. Well-equipped laboratories are functioning in
the chilling centres and milk plants to maintain ideal quality standards. VITA is the
endorsement of quality, a commendation we are Proud of.
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(1.2) DISTRICT MILK PRODUCERS CO-OPERATIVE UNIONS
The Primary Milk Societies (PMS) functioning at the village level join to form a Milk
Union for carrying out such activities which are conducive and essential for the socio-
economic development of milk producers, by procuring and processing of milk and
marketing of milk products. The Board of Directors comprising 9 members elected out of
the Chairmen of affiliated Primary Milk Societies run the day-to-day administration
through Chief Executive Officer.
These Unions either process milk at their own level or pass the same to the milk plants
of other milk unions for processing. They also organize new Primary Milk Societies at
the village level.
A brief matrix of the Milk Unions is as follows:
Sr. No. Name of the Union Date of Registration
1. Ambala 10.03.1973
2. Rohtak 12.07.1991
3. Jind 10.07.1991
4. Kurukshetra 05.07.1991
5. Sirsa 10.01.1978
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The Primary Milk Society is the foundation of the Cooperative structure. The efficiency
of the movement solely lies in the strength of these Societies. Primary Milk Societies are
organised at the rate of one society per village. The purpose of such a society is to
promote the economic interests of its members by improving quality, and increasing
quantity of milk production per buffalo or cow and to provide necessary guidance and
assistance to its members and supply milk to the Milk Unions. These societies also
supply cattle feed etc. to their members with a view to enhaning milk production. The
Managing Committee of the Society comprises members elected by those members.
who are eligible to participate and vote in the General Body Meeting.
(1.3) GROWTH AT A GLANCE
Functional Societies (Avg)
Year 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09
Nos. 141 1521 1709 2037 2499 2707 2810 2985 3366 3550 4206
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MANGO DRINK
SWEETENED FLAVOURED DOUBLE TONED MILK
NAMKEEN LASSI
MITHI LASSI
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TABLE BUTTER GHEE (AGMARK)
DAHI
MILK CAKE
MILKPANEER
JALJEERA
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KHEER
PIZZA CHEESE
PROCESSED CHEESE
MILK CAKE BURFI
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TINNED RASGULLA GULAB JAMUN MIX
LADDOO
KAJU PINNI
JALEB
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SOAN PAPDI
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1. DELHI
Sales Office Delhi,
C-55 New Moti Nagar.
Milan Cinema Road, New Delhi.
INDIA
(91)-011-2546 5025
(91)-011-2546 7681
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2. CALCUTTA
Sales Office Calcutta,
E-1 Chiterlekha Apartment
15- Baluganj Park Road,
Calcutta, INDIA
(91)-033-2240 1678
(91)-033-229 9138
3. CHANDIGARH
Sales Depot, Chandigarh
Amar Building Sector 17-A,
Chandigarh, INDIA
(91)-0172-270 3427
4. HIMACHAL PRADESH
Sales Depot Parwanoo,
Sector 2, Kasauli Road,
Parwanoo,
Himachal Pradesh, INDIA
(91)-017292-232 654
5. HARYANA
5a. Sales Depot, Ambala
C/o Milk Plant, Ambala,
Haryana, INDIA
(91)-0171-254 0622
5b. Sales Depot, Ballabgarh
C/o Milk Plant, Ballabgarh,
Haryana, INDIA
(91)-0129-224 2376
(91)-0129-224 7820
5c. Sales Depot, Jind (91)-01681-226 310
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C/o Milk Plant, Jind,
Haryana, INDIA
5d. Sales Depot, Rohtak
C/o Milk Plant, Rohtak,
Haryana, INDIA
(91)-01262-277 360
5e. Sales Depot, Gurgaon
Opposite Civil Hospital,Gurgaon
Haryana, INDIA(91)-0124-222 2284
5f. Sales Depot, Sirsa
C/o Milk Plant, Sirsa
Haryana, INDIA
(91)-01666-245 059
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(1.4) Chilling Centers
There are four cities where chilling have been placed, that are Rohtak,
Jind, Ambala, Kurukshetra.
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(2.1) HARYANA DAIRY DEVELOPMENT FEDERATION CORPORATION
INTRODUCTION:-
Haryana Dairy Development federation Corporation (HDDFC) has
been established under Haryana Society Act on 1st April 1977. Its authorized financial
part capital 2000 lakhs. The main aim of HDDFC is to develop the economic position of
milk productor. Its associate’s societies purchase the milk by payment of good cost of
milk. Milk and milk products are sold in Vita brand packets. During 2008-09 there is
turnover of Rupees 395.45 crores of milk & milk made products. Dairy federations give
the technical suggestion to its association & guide them to able produce the quality.
PROCESS:- Milk societies are working in three phases
(A) At village level, village societies.
(B) At District level, District dairy federation.
(C) At State level, Haryana society federation.
In Haryana there are six Dairy Development Federation Corporation,
Hissar – Jind , Rohtak , Bhalabgarh , Kurukshetra – Karnal , Ambala and Sirsa. And
every Federation is linked with village dairy development societies.
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Every Dairy Federation and Dairy Societies is a unit itself. This is having its
own Directorate. The divisional Directorate elects its President. The village level society
collects the milk from milk producer and sale it to Dairy Federation.
WOMEN DAIRY FEDERATION:-
In all over state there are constituted 438 women milk societies.
These societies are purely managed by the women/ladies.
MILK PLANT:-
At present there are five milk plants in Haryana Corporation. The milk
processing capability of which are 4.70 lakhs everyday.
Year of plant Products Everyday handling cap-Establishment ability in thousand lt. Jind 1970- 71 liquid milk, powder, ghee, cheese, 100.0 Jaljeera, mango drink, curd
Ambala 1973 -74 liquid milk, cheese, curd, lassi, 70.0 Milk cake, SFM (sweet milk) Rohtak 1976-77 powder, ghee, liquid milk, curd, 100.0 Table butter
Bhalabgarh 1979-80 liquid milk, curd, ghee, cheese 100.0
Sirsa 1996-97 liquid milk, ghee, powder, cheese, 100.0 Milk cake,curd,lassi
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(2.2) OTHER FACILITIES TO MILK PRODUCTOR:-
Milk productor are being given cattle feed Vita mineral mixture,
good seeds of forage, medicine for animals on minimum rates. Beside this Artificial
Insemination Center are also being run by Seeman bank, so that good variety of milk
producer animals can be predicted. Seeman Bank is also giving technical knowledge to
peoples those having animals.
IMPROVEMENT IN QUALITY:-
It is necessary to have good quality milk to produce good quality
product, so that milk is being purchase by the corporation societies directly from the milk
productor and the corporation societies sent the milk to chilling center and at milk plants
to minimum time, so that quality of milk be maintain. Neat and clean milk canes are
being used. The products are made of as per instruction of Berue of Indian Standard
and Aggmark and then sale in markets. To maintain the quality there established a
laboratory at chilling center and plants. So that the quality of product being maintain at
No.1. Milk plants, Rohtak, Bhalabgarh and Ambala have I.S.O 9002 and I.S15000
certificates.
(2.3) NEW OPPORTUNITIES:-
To achieve the aim the training is being given to all level. Whether he
is worker, society secretary Board member of society & federation or milk productor
itself. This training is given at good institutes like N.D.D.B, Irma, Hipa etc.The training to
the Societies made by ladies is being given by Seeman Bank of Federation.
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INCREASE IN THE COST OF MILK:-
YEAR AVERAGE INCREASE IN PERCENTAGE COST OF MILK /lt (Rs) OF INCREASE
2003-2004 10.70 5.94 2004-2005 10.96 2.43 2005-2006 10.55 ----
2006-2007 11.09 5.12
2007-2008 13.05 17.67
2008-2009 13.01 6.03 (up to sep)
WEB SITE FACILITY:-
Haryana Dairy Development has started a web site to benefit the
peoples, the code of which is “http/w.w/vtindia.com. Under which we are receiving
international letter.
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(2.4) WORKING RESULT (2004-2005 TO 2008-09)
Particular 1.4.04- 1.4.05- 1.4.06- 1.4.07- 1.4.08-
31.3.05 31.3.06 31.3.07 31.3.08 31.3.09
Milk Federations 5 5 5 5 5
Milk plants 5 5 5 5 5
Chilling Center 13 17 23 25 25
Co. societies 2607 2710 2885 3166 3350
Milk collection 918.28 1009.35 1237.09 1355.62 1209.15 (Lakh liter)
Pick milk collection 4.42 5.26 6.23 6.35 5.85 (Lakh liter)
Average milk collect- 2.52 2.77 3.39 3.71 3.30ion in a day (lakh lt)
No. of putting milk 66747 71885 94632 94672 87688
Average cost of milk 10.7 10.96 10.55 11.09 13.05Per liter in rupees
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(2.5) ORGANISATION CHART Of VITA MILK PLANT SIRSA
SANJAY SETIA C.E.O
Executive assistance Sales manager Mr. Bansal
H R manager Production manager Mr. Jaswant
Accounts manager Marketing manager Mr. Aggarwal
Workers Workers Workers Workers Workers
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OBJECTIVES
(1) TO provide an analytical overview of Working Capital Management at the
Vita Milk Plant.
(2) TO study & analysis various financial data over a period of 2 years
(3) To give suggestion and comments to improve specific areas of weakness
DATA COLLECTION
Data is collected by secondary method.
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Techniques Used For Analysis
1. RATIO ANALYSIS:
The ratios calculated & analyzed have been broadly divided under four parameters
a) Ratio to analyze the liquidity position.
b) Profitability ratios.
c) Ratio to calculate the efficiency of working capital management.
d) Ratios to analyze the structural health of the divisions’ working capital
structure.
2. FINANCING OF WORKING CAPITAL:
To study the financing of working capital, its components and other short term sources
of financing.
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Management and control of working capital is important for any kind and size of an
organization because working capital makes the long-term assets operative. Number of
instances is there, where many firms met with failure due to inefficient management of
working capital. Amount of working capital must be in accordance with size of business.
Excessive levels of current assets can result in a firm realizing a substandard return on
investment. However, firm with too few current assets can result in difficulties in smooth
operations. There are two concepts of working capital:
1. Gross working capital.
2. Net working capital.
1. GROSS WORKING CAPITAL
Gross working capital is a financial concept. It refers to the firm’s investment in current
assets. Current assets are assets, which can be converted into cash within an
accounting year and include cash, debtors, bills receivables, loans and advances,
inventories, prepaid expenses etc. Current assets have short life span and these are
swiftly transformed into other assets form. Cash is used to buy raw material, raw
material is converted into finished goods, finished goods are converted into receivables
and finally, receivables are converted into cash. Hence, working capital is also called
circulating or revolving capital and its cycle is shown as shown on the following page:
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Gross working capital of in F.Y.2008-2009
Work in Process
Finished Goods
AccountsReceivable
Wages, salaries, Factory
overheads
RawMaterials
SuppliersCash
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CURRENT ASSETS RS.
Closing Stock 13224924.63
Stock in Trade 279136225.16
Debtors 3176553.58
Cash & Bank Balance 6618167.62
Loan & Advances 11533786.52
Deposits 1245016.00
Total 314,934,673.51
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Gross Working Capital = Current Assets
Therefore, Gross working Capital of Vita = 314,934,673.51
2. NET WORKING CAPITAL
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It is an accounting concept. It is the difference between current assets
and current liabilities. Current liabilities are those claims of outsiders which
are expected to mature for payment within an accounting year and include
creditors, bills payable, outstanding expenses, short term loans, bank
overdraft, provisions etc.
Net working capital of Vita Milk Plant in F.Y. 2008-2009is
Current Assets RS.LACS Current Liabilities RS.LACS
Closing Stock 13224924.63 Creditors 48741897.29
Stock in Trade 279136225.16 Securities 6926477.48
Debtors 3176553.58 Duties&Taxes 3250982.50
Cash &Bank 6618167.62 Other Liabilities 11551478.74
Loan Advances 11533786.52
Deposits 1245016.00
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Total 314,934,673.51 Total 70,470,836.01
currentassets
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current liabilities
Net working capital is = Current Assets - Current Liabilities
Therefore, Net Working Capital Of the Vita= 244,463,837.50Lacs
The need for current assets is felt constantly. But the magnitude of current assets
needed is not always same; it decreases and increases over time. However, there is
always a minimum level of current assets, which is continuously required by a firm to
carry on its business operations. The minimum level of current assets is referred to as
permanent or fixed working capital. Depending upon changes in production and sales
the need for working capital, over and above permanent working capital, will fluctuate
for example, extra inventory of finished goods has to be maintained to support the peak
periods of sales. The extra working capital, needed to support the charging production
and sales activities is called variable or temporary working capital. Both kinds of working
capital permanent and temporary are necessary to facilitate production and sale through
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the operating cycle, but temporary working capital is created by the firm to meet liquidity
requirement that will lost temporarily.
NEEDS OF WORKING CAPITAL
The need of working capital arises due to time gap between production and realization
of cash from sales. There is an operating cycle involved in the sales and realization of
cash. Thus it is needed for following purposes:
For the purchase of raw materials, components and spares.
To pay wages and salaries.
To incur day to day expense and overhead cost.
To meet the selling costs.
To provide credit facilities to customers.
To maintain the inventories.
DETERMINANTS OF WORKING CAPITAL
1. Nature and size of business.
Working capital requirement of a firm are basically influenced by nature of its business.
Trading and financial firms have a very small investment in fixed assets, but require a
large sum of money to be invested in working capital. In contrast, public utilities have a
very limited need of working capital because they provide services on cash basis.
Hence no funds will be tied up in debtors and stocks. Working capital needs of most
manufacturing concerns fall between two extremes. The size of business also has an
important impact on its working capital needs. Size may be measured in terms of scale
of operations. A big firm will need more working capital than a small firm will.
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The size of the Vita is large.. It has undertaken expansion projects which call for
increase in requirements of working capital.
2. Manufacturing cycle
The manufacturing cycle comprises of purchase and use of raw materials and the
production of finished goods. Longer the manufacturing cycle, larger will be the firm’s
working capital requirements.
Since Vita is a fully integrated plant with using Milk raw material and producing
ghee,Butter, Lassi,Kheer,Dahi its manufacturing cycle is Short.
3. Sales growth
The working capital need of a firm increases as the sale grows. It is difficult to precisely
determine the relationship between the volume of sales and working capital needs. As
sales grow, the firm needs to invest more in inventories and debtors. These needs
become very frequent and fast when sales grow continuously.
The Plant sales are growing in the past few years which require increased need
of working capital. It has increase 8.74% in 2008-2009from 2007-2008i.e. Rs.
955624380.97 lacs from Rs. 872172299.27lacs.
4. Price level change
Generally, rising prices will require a firm to maintain higher amount of working capital.
However, companies, which can immediately revise their product prices with rising price
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levels, will not face a severe working capital problem. Effect of rising prices will be
different for different companies. Some will face no working capital problem, while
working capital problems of other may be aggravated.
Average Increase in Cost of Milk is 13.01.
5. Operating efficiency and performance
The operating efficiency of a firm relates to the optimum utilization of resources at
minimum cost. Better utilization of resources improves profitability and thus helps in
releasing the pressure on working capital. Firms differ in their capacity to generate profit
from business operations. Some firms enjoy a dominant position due to quality product
or good marketing management or monopoly in the market and earn a high profit
margin and vice-versa can be there.
A high net profit margin contributes towards working capital pool.
Since Vita is operating at about 90% capacity utilization, it has been able to
reduce its unutilised capacity and thereby increasing its production which
reduces its operating cycle.
6. Market condition
The degree of competition prevailing in the market place has an important bearing on
working capital needs. When competition is keen, a large inventory of finished goods is
required to promptly meet the needs of customers. Also lenient terms of credit are to be
given to attract the customers.
Since Vita sells its Products both cash basis & credit bases, the debtors
collection period is very minimal.
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7. Production policy
In certain industries the demand is subject to wide fluctuations due to seasonal
variations. The requirements of working capital, in such cases, depend upon the
production policy. The production could be kept either steady by accumulating
inventories during slack periods with a view to meet high demand during the peak
season or the production could be curtailed during the slack season and increased
during peak season. If the policy is to keep production steady by
accumulating inventories it will require higher working capital.
MANAGEMENT OF WORKING CAPITAL
Working capital, in general practice, refers to the excess of current assets over current
liabilities. Management of working capital therefore, is concerned with the problems that
arise in attempting to manage the current assets, the current liabilities and the inter
relationship that exists between them. In other words, it refers to all aspects of
administration of both current assets and current liabilities. The basic goal of working
capital management is to manage the current assets and current liabilities of a firm in
such a way that a satisfactory level of working capital is maintained, i.e., it is neither
inadequate nor excessive. This is so because both inadequate as well as excessive
working capital positions are bad for any business. Inadequacy of working capital may
lead a firm to insolvency and excessive working capital implies idle funds, which earn no
profits for the business. Working capital management policies of a firm have a great
effect on its profitability, liquidity and structural health of the organization.
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In this context, working capital management is three dimensional in nature:
Dimension I is concerned with the formulation of the policies with regard to
profitability, risk and liquidity.
Dimension II is concerned with the decisions regarding the composition and level
of current assets.
Dimension III is concerned with the decisions about the composition and level of
current liabilities.
There is a definite inverse relationship between the degree of risk and profitability. A
conservative management prefers to minimize risk by maintaining a higher level of
current assets while a liberal management assumes greater risk by reducing working
capital. However, the goal of the management should be to establish a suitable trade off
between profitability and risk.
CLASSIFICATION OF WORKING CAPITAL
1. Permanent or Fixed Working Capital.
2. Temporary or Variable Working Capital.
1- FIXED WORKING CAPITAL
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Fixed working capital is the minimum amount, which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every
firm has to maintain a minimum level of raw materials, work-in-progress, finished goods
etc. This minimum level of current assets is called fixed working capital. It can be
regular and reserve.
Regular Working Capital:
It is the minimum amount of working capital required to ensure circulation of current
assets.
Reserve Working Capital:
It is the excess amount over the requirement for regular working capital, which may be
provided for contingencies that may arise at unstated periods such as strikes, rise in
price etc.
2- VARIABLE WORKING CAPITAL
It is the amount of working capital, which is required to meet the seasonal demands and
special exigencies.
Seasonal Working Capital:
It is the capital required to meet the seasonal needs of the enterprise.
.
Special Working Capital
It is required to meet special exigencies such as launching of extensive marketing
campaigns for conducting research etc.
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Variable
Fixed
The figure shows that fixed working capital is stable or fixed over time while the variable
working capital fluctuates.
In Vita permanent working capital is fixed while the variable or seasonal working
capital is applicable.
I OPERATING CYCLE
Operating cycle is the time duration required to convert sales, after the conversion of
resources, into cash. Cash inflows are not certain because sales & collection which give
rise to cash inflows are difficult to forecast accurately. Cash outflows, on other hand are
relatively certain. The firm is, therefore, required to invest in current assets for smooth,
uninterrupted functioning. It needs to maintain liquidity to purchase raw materials & pay
expenses such as wages & taxes as there is hardly a matching between cash inflows
and cash outflows.
Cash is hold to meet any future exigencies. Stocks of raw material and work-in-
progress are kept to ensure smooth production and to guard against non-availability of
raw material and other components. The firm holds stock of finished goods to meet
the demand of customers on continuous basis and sudden demand from some
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customers. Thus, a firm makes adequate investment in inventories, for smooth,
uninterrupted production and sale.
OPERATING CYCLE ANALYSIS
In order to understand the length of time which reports are committed to various
components of working capital, operating cycle analysis has been done. The operating
cycle of a firm begins with the acquisition of raw material and ends with the collection of
receivable. There are four aspects of operating cycle, which involves commitment of
resources, a material stage, and accounts finished stage.
ANALYSIS OF WORKING CAPITAL FROM DIFFERENT
ASPECTS:
1. COMMON SIZE STATEMENT OF THE UNIT
Particulars 2008-09 %age 2007-08 %age
Current Assets
Closing stock 13224924.63 4.20 14449720.70 5.43
Stock in trade 279136225.16 88.64 219806352.35 82.72
Debtors 3176553.58 1.00 13252051.64 4.98
Cash&Bankbalance 6618167.62 2.10 11341653.11 4.26
Loans&Advances 11533786.52 3.66 5600506.98 2.17
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Deposite 1245016.00 .40 1245016.00 0.46
Total 314,934,673.51 100 265,695,300.78 100
Liabilities
Creditors 48741897.29 69.16 46620231.98 77.22
Securities 6926477.48 9.82 6924949.39 11.47
Duties&Taxes 3250982.50 4.61 2245584.13 3.71
Other Liabilities 11551478.74 16.39 4577969.90 7.58
Total 70,470,836.01 100 60,368,735.40 100
2. SCHEDULE OF CHANGES IN WORKING CAPITAL
(Rs. )
Particulars 2008-09 2007-08 Icrease/Decrease
Current Assets
Closing stock 13224924.63 14449720.70 (1224796.07)
Stock in trade 279136225.16 219806352.35 59329872.81
Debtors 3176553.58 13252051.64 (10075498.06)
Cash&Bankbalance 6618167.62 11341653.11 (4723485.49)
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Loans&Advances 11533786.52 5600506.98 5433279.54
Deposite 1245016.00 1245016.00 0
Total 314,934,673.51 265,695,300.78 49239372.73
Liabilities
Creditors 48741897.29 46620231.98 44081665.31
Securities 6926477.48 6924949.39 1528.09
Duties&Taxes 3250982.50 2245584.13 1005398.37
Other Liabilities 11551478.74 4577969.90 6973508.84
Total 70,470,836.01 60,368,735.40 10102100.61
3. WORKING CAPITAL
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It is clear from the above graph that net working capital of Vita is increasing in year
2009 is comparison to the year 2008.
II RATIO ANALYSIS
A ratio is an arithmetical relationship between two figures. Financial ratio analysis
is a study of ratios between various items or group of items in financial
statement, turnover ratios have been used for analysis. Ratio analysis is the
powerful tool of financial analysis of accounting data. The relationship of the
figures should be meaningful. Financial analysis & ratio is used as an index or
yardstick for measuring performance of the firm.
Working capital is that part of total capital which is important in current assets, to
get better insights about the working capital position of the Vita, it is better to
utilize ratio analysis. To analyze the working capital position I shall here interpret
the following ratios of Vita for two consecutive financial years 2008-09 and 2007-
08.
1. Liquidity Ratio
a) Current ratio
b) Quick ratio
2. Activity Ratios
a) Current asset turnover ratio
b) Working capital turnover ratio
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1. LIQUIDITY RATIOS : The liquidity aspect is essential for both the creditors
as well as management of a business enterprise. These ratios are used to judge a firm’s
ability to meet short term obligations. From them much insight can be obtained to
present cash solvency of the firm and its ability to remain solvent in the event of
adversities. We wish to compare short-term obligations with the short-term sources
available to meet these obligations.
a) Current ratio: - The current ratio is very popular financial ratio
measure as the ability of the firm to meet current liabilities. Current assets are converted
into cash for the payment of current liabilities. Apparently higher the current ratio the
greater the short term solvency, Current ratio of Vita can be shown as under: -
Current Assets_ _
Current Liabilities
Table showing the Current Ratio
(Rs Lacs)
Particulars 2008-09 2007-08
Current assets 314,934,673.51 265,695,300.78
Current Liabilities 70,470,836.01 60,368,735.40
Current ratio 4.46 4.40
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A current ratio of 2:1 is generally considered satisfactory. The current ratio of the unit is
much above the recommended and it ensures the payment of dues in time.
b) Quick ratio: - Although current ratio is a valuable indicator of
liquidity yet it may lead to misleading conclusion, in case of inventories forms a major
component of current assets, the quick ratio is a fairly stringent measure of liquidity. It is
based on those current assets which are the highly liquid or which are easily converted
into cash. Inventories and prepaid expenses are excluded from this category, because
these are the best liquid component of and has the ability to pay its current liabilities in
time when these are due, the ratio may be expressed as:-
Quick assets
Current liabilities
Table showing the Quick ratio
(Rs.)
Particulars 2008-09 2007-08
Quick assets 301,709,748.88 251,245,580.08
Current Liabilities 70,470,836.01 60,368,735.40
Quick ratio 4.28 4.16
The standard for quick ratio is 1:1. The ratio of the company is more than standards
considerably.
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1. ACTIVITY RATIOS : The funds of creditors and owner are invested in various
kinds of assets to generate sales and profits. Activity ratios measure how efficiently the
firm employs the assets. These ratios arebased on the relationship between the level of
activity, represented by sales and level of various assets. The important turnover ratios
are:
a) Current assets turnover ratio: The idea of the current assets turnover is to
ascertain the contribution of the current assets to sales. The relationship indicates
efficiency or otherwise of the utilization of current assets to attain the maximum sales. It
is a relative measure as it is compared with previous year. Lower ratio tells us that the
company is employing more current assets for a given level of sales and vice-versa, the
ratio may be expressed as:-
NET Sales
Current Assets
Table showing current assets turnover ratio
(Rs.)
Particulars 2008-09 2007-08
Sales 955,624,380.97 872,172,299.27
Current assets 314,934,673.51 265,695,300.78
Turnover ratio 3.03 3.28
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Thus current assets are contributing 3.03 times to sales in 2008-09 as compared to
3.28 in 2007-08.,
Working capital turnover ratio: Net working capital turnover ratio indicates the
velocity of the utilization of working capital. A higher ratio indicates the effective
utilization of working capital and a low ratio indicates otherwise, the ratio may be
expressed as:-
NET Sales
Net Working Capital
In the JSL, working capital turnover ratio can be made through following table: -
Table showing working capital
(Rs.)
Particulars 2008-09 2007-08
Sales 955,624,380.97 872,172,299.27
Net working capital 244,463,837.50 205,326,565.38
Working capital turnover ratio 3.90 4.24
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The above table shows that the net working capital turnover ratio of the unit is
decreasing which means no better utilization of funds by the company this year than the
previous year.
2. FINANCING OF WORKING CAPITAL
After a firm has decided upon the level of working capital to be maintained it has to
decide the mode of financing. Financing of working capital:
The sources of finance and form of credit.
a) Sale Realisation
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b) Bank credit
c) Trade credit
d) Current provision of non bank short term borrowings
e) Long term sources comprising equity capital and long term borrowings
Source of financé of Vita is Secured Loan.
1. Vita should finance all its requirement of working capital through short term
sources of finance as they are cheaper than the long term sources. It is financing a part
of its working capital from long term sources of finance as it is clear from the fixed
assets to total long term fund ratio.
2. The Company is not adopting proper inventory systems like A.B.C. analysis,
V.E.D. analysis etc. this inventory system can make the inventory management more
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result oriented. Since, inventory covers the major potion of VITA current assets, it
should be given prime attention.
3. The company should do proper Cost-to-Benefit analysis before purchasing the raw
material i.e. scraps for following months in light of its storage cost, current prices,
estimated future prices, further demand etc. along with the opportunity cost of holding
such inventory.
4. The surplus fund of the unit should be invested in some short marketable
securities, rather than providing it to its overseas subsidiary free of cost, to improve
profitability along with liquidity.
5. The company should reduce its Reduction in debtors cycle and finished good Cycle.
VITA has opted for a moderate overall working capital policy. This suggests that it is risk
averse. It wants a reasonable profit with a reasonable amount of risk. If it goes in for an
aggressive policy the profits generated could be high but accompanied with the high
level of profits will come high level of risk, which they feel is not appropriate. Since with
this policy the profits being generated are substantially high a change in the working
capital policy is not called for.
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Since VITA produces only on orders therefore the inventory requirements for the
following months can be accurately forecasted. Since, the raw material, it should be
stored for following months by analyzing the benefit of storing it, the storage cost
associated with it, scrap prices, its availability and also further requirements of the
company as per its orders. Every month if forecast is made accordingly and order is
placed, it would help in bringing down the time required in the raw material storage
period.
Company doing well by efficiently employing funding of creditors.
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Vita milk plant sirsa.
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