Working Cap (1)

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EXECUTIVE SUMMAR

Introduction

Working capital may be regarded as lifeblood of business. Working capital is

needed to meet the day-to-day requirement of the business unit. The various information

regarding the project entitled A STUDY OF WORKING CAPITAL MANAGEMENT.

Classification determinants, components, operating cycle has been discussed and aspects

relating to the prospective of ghataprabha sugars ltd Gokak. The Operating cycle & Ratio

analysis has been carried out using Financial information , Ratios like Average collection

period, inventory Turnover Ratio and Debtors Turnover Ratio have also been analyzed.

The objective of the study pattern and procedures followed for managing

various components of working capital; so as to evaluate the efficiency of working capital

management .The project study is based on five years Balance sheet Profit & Loss account of

the company. The information is collected through discussion with concerned departmental

persons.

1.2 Title of the study

A study on working capital management and operating cycleat PANDHE INFRACON

CONSTRUCTION COMPANY

2.1 Introduction about sugar industry:

India is the largest consumer and second largest producer of sugar in the

world. The Indian sugar is the second largest agro industry located in the rural area.

About 50 million sugar cane fanners and a large number of agriculture Labor

are involved in sugarcane cultivation and ancillary activities constituting 8% of the rural

population.

Sugar production is found in states like Uttar Pradesh, Maharashtra,

Karnataka, Gujarat, Tamilnadu, Andhra Pradesh, Haryana, Punjab, Uttaranchal & Bihar.

Overall turnover of states in the (2003-04) is 12% and 15%.sugar availability occupies about

3% of the total cultivated area and it is one of the most important cash crops in the country. It


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is not only meant for Indian countries but also its global wide like Brazil, EU, U.S, Mexico,

Australia, South Africa, Malaysia, Pakistan, Vietnam, Fiji.

Internationally Brazil and India are the largest producing countries followed by

china USA, Thailand, Australia, Mexico, Pakistan, France and Germany.

2.2 Introduction about the GSSKN :

The Ghataprabha co-operative sugar factory established in the year 1977-78 &

it is registered under co-operative societies act.

The sugar industry engages in the manufacture and distribution of sugar,

molasses, press mud and bugasse in north Karnataka districts and its surrounding areas. The

sugar industry started crushing during 1979-80 and crushes the sugarcane 1250 metric tons

for per day. Further it has been increased its sugar cane crashing capacity to 2500 metric tons

per day.

The founder and promoter of this sugar industry shri.B.M kaujalgi and now

the board of management is under the shri.lakhann jarakiholi.

This sugar industry is situated near lolsur village left side of the Gataprabhah

river. Its sugarcane area covered gokak, hukkeri, savadatti talluk (125 villages). This Sugar

industry start its crashing during 1979-1980 procedure and activities of this industry

mentioned in the by lows of the factory.


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2.3 Company profile:

Name : Ghataprabha co-operative sugar industry Gokak.

Number and date of registration : - H1/RCS/SF/1434/74-75

Address: Ghataprabha co-operative sugar industry Gokak.

Tq : Gokak Dist: Belgaum.

Registration year : 1974-1975

Established year : 1977-78

Founder : B.M kaujalgi

Main Row material : sugarcane

Type of unit : private company limited

Area covered : 125 villages (Gokak,

hukkeri, savadatti taluk)

Crushing capacity : 2500metric tons per year

2.4 Objectives of the industry:

Offering best quality products. Maintaining consistency in quality. Processing the order in time. Meeting the statutory requirements in time. Increasing the turnover and profit. Running the business in lawful manner. Maintaining stability in distribution of the profit. Utilizing all assets to increasing the profit level. Reducing the waste.


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Following the lows. Provide better working conditions. Giving for wages to the employees.

Vision and mission of sugar industry:

Vision:

The main vision of industry is to develop the rural area and provide the better

infrastructure facility to the localities and the formers.

Mission:

The mission of the company is to pay better returns for its shareholders in

terms of higher cane rate and to the shareholders in terms of reasonable salary and wages.

Quality policy:-

The quality policy of factory is producing the sugar in better quality which

helps to compute with private sector.

Competitors

Shri Renuka Sugars Munnoli.Nandi SugarsHira Sugar SankeshwarSatish Sugars, GokakDudha Ganga Sugars chikkodi

Awards and Achievements:-

Best tax payer award given by taxation department of the state government

Bangalore During 2004-2005 financial year.


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2.9 Availability of sugarcane in the area

a) 15,863 acres: - Sugarcane grower category.

b) 5,000 acres: - Non member sugar cane Grower.

ORGANISATION STRUCTURE

Board of directors

Voice chairman

(Elected by chairman)

Managing director

Govt. executive director

Secretary

(M.D supervising all directors)

a) Administrative

Department

b) Accounting

Department

c) Mechanical

Department

d) Chemical

Department

e) Other

independent

departments


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Board of management

SL.No Name Designation

01.

02.

03.

04.

05

06

07

08

09

10

11

12

13

Shri. Lakkanna. L. Jharkehole

Shri. Ashok. R. Patil

Shri. Kenchagowda. S. Patil

Shri. Basagowda. S. Patil

Shri. Krishnappa. K. Bandrolli

Shri. Tammanna. S. Paarshi

Shri. Shivabasappa. M. Shilannavar

Shri. Mallappa. U. Jaganur

Shri. Laxman. Y. Gannapgo

Shri. Adiveppa. L. Haadimani

Shri. Girish. V. Hallur

Shri. Ramappa. K.Bandi

Shri. C. A. Upadhya

Chairman

Vice Chairman

Director

Director

Director

Director

Director

Director

Director

Director

Director

Director

Managing

Director

DEPARTMENTS

Following are the departments maintained by the Ghataprabha CO-operative

sugar Industry was as follows.

1. Administrative Department.2. Labour Welfare Department.3. Cane yard department.


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4. Sales department.5. Purchase department.6. Sugar Department.7. Medical Department.8. Manufacturing Department.

a. Mechanical Department.

b. Chemical Department.

8. Civil Department.

9. Security Department.

10. Accounts Department.

3.1.1 Administrative Department

This department is supervised by office superintendent. Under this department

operating the functions such as offering requirement, work transfer, disciplinary actions are

held and conduct the board meetings of every month.

Structure of Administrative Department

Administrative department

Secretary

Chief Head M D

Office superintendent

Other departmental

head


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Functions of administrative departments

1) Maintain share holder bio-data.2) Appointment/requirement of employee.3) Discipline action against miss conducted employee.4) Transfer & promotion etc.5) Conducting board meeting & other department meeting.6) Maintain of personal records of employees.7) Supervising guesthouse, telephone section.

3.1.2 Labour welfare Department

As per factory act any industry having more than 500 workers shall have a

labour welfare department. This factory is having 800 employees. Therefore it has separate

labour welfare department. It provides promotional facility, transfer facility, health facility

and other facility like pension scheme, insurance scheme and so on.

Functions of labour welfare department

a) Supervising safety committees & He shall inspect accident case if happened to workerduring working hour & providing medical aid.

b) He should settle the issues demanded from trade unions through negotiations.c) Supervising welfare committee, canteen & works committee.d) He shall advise to the management regarding transfers, promotions of employees.

Labour Welfare Department Labour welfare officerAssistant


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3.1.3 Cane yard Department:-

a) The main work of this section is to weight the sugar cane.b) They prepare three copy of weighment one for farmer , second for transport controller

& third one is remitted to sugar cane accounts department.

c) They give total information of sugarcane received to cane account department.

3.1.4 Sales Department:-

a) The main product of G.S.S.K.N is sugar & bye products are bagasse, molasses, pressmud.

b) Sugar is sold by calling tenders because the factory has no right sales productdirectly in open market.

c) The officer super intends does this work and sales officer with help of sugardirectors officer Bangalore, central government, fixing selling quantity.

3.1.5 Purchase Department:-

a) All kind of factory purchases are made by this section.b) Except stationary all purchase is based on negotiation supply will place by purchase

in charge.

c) A copy of supply orders goes to store department & account section.d) As per co-operative society rules low quoted supplier should be selected & even

quality should also be considered.

Cane yard Department Cane SupervisorStaff

Sales Department Sales in charge Staff

Purchase Department Purchase in -charge Staff


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3.1.6 Sugar Department

This department is maintained by one account officer. In this section prepare the

sugarcane bill, transportation bill and making advance. Every once in 15 days will prepare the

said bill on basis of sugar cane payment report.

Functions of sugar department

a) Preparation of cane bill, transport bill.b) The collected information about sugarcane received harvest labour, sugarcane

harvested & sugarcane transported by each vehicle.

c) The keep records of name of sugar cane supplier, place, & bank account.d) They will submit a copy of sugar cane bill harvesting bill & transport to account for

factionary of amount.

e) They prepare a single cheque to each circle & deposit to particulars circle bank.

3.1.7 Medical Department

According to provision of factory act is maintain dispensary with qualified

medical officer on employee and his family are eligible to take free general treatment.

Factory will help in case of major treatment is required for his family an amount in advance

will be given to employees for treatment purpose an advanced amount will deducted for with

salary two equal installment.

The factory instant a hospital for higher treatment is j.j. co-operative

Ghataprabha hospital and K.L.E hospital Belgaum, for employeessustain body while at work

and the whole expenditure will be paid by the factory and wages also paid to him for absent

period.

Functions of medical departments

a) Medical allowances are given to all workers.b) Free checkup & medicine to employees & other facilities.


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c) Any accident cases happen during working time will treat and if needed his needshigher treatment will be reefers to change in co-operative hospital &

K.L.E.Belgaum.

d) Expenses of such accident cases will be consider from factory.e) Factory will provided Rs.250 per month as medical allowances to all employees

with irrespective free medical checkup.

3.1.8 Manufacturing Department

Manufacturing department is divided into:

a) Mechanical Department.b) Chemical Department.

a) Mechanical DepartmentA chief engineer is head of this department and he has six assistant engineers.

Each assistant engineer is supervising their own unit.

Functions of mechanical department.

1) This department has mill unit, boiler unit, Boiling house unit ,Electrical unit , Storeand workshop.

2) Each unit is supervised by one engineer along with other skilled techniques.3) Before starting of sugar cane crushing boiler unit will be keep study before one unit.4) To generate power store steam will be required that stream will produce from water,

and then stream converting into power .Some quantity of stream is used for the

purpose of boiling the juice.

5) Extract juice transported to boiling house.


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b) Chemical Department

Chief chemist is head of this department and this department receives

sugar cane juice and boils it. Juice is converted into syrup.

Mechanical department

General manager

Chief engineer

Assistant engineer

Senior technicians

Technicians

Workers


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3.1.9 Civil Department

Civil engineering is supervising this department and other staffs are working

as work inspector 3 members, plumber, water limens, guide and helpers are working. The

main work of this department is maintains of resiqual quarters, factory road, plant cleaning

work etc, In respect of building foundation work and plant work.

Chemical department

Chief chemist

Lab in charge

Manufacturing chemist

Supervisors

Technicians

Workers

Civil department Civil Engineer Staff


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3.1.10 Security Department

This department is maintained by one security officer with their staff (watch

man and head watch man). The main duties are of this office is watch property of factory,

maintaining of visitors registers, vehicle registers and observation on any scheme etc. If fire

occurs at any place of the factory they will make effort to stop.

3.1.11 Account Department

In this factory the account department will be managed by the account officer. This

department has a separate office like Sugar account department.

Functions of Accounting Department:

01) All Finance matters of the factory is control under this department.02) They will receive receivable amount through cash.03) They will make payment as factory & wages, sugar cane bill, Suppliers bill etc.04) For the recovering of receipt & payments.05) They will maintain separate ledger account A/c of each member.06) They will prepare the balance sheet of ending the accounting year.

Accounting department

Chief account officer

General accountant

clerks


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Chapter IV

4.1Product profile

The main and direct product of sugar cane is sugar. The factory also produces by

products like distillery, molasses, press mud, bagasse, etc.

Sugar cane

1) Sugara) L-30 1) Distillery

b) M -30 2) Press mudc) S1-30 3) Molassesd) S2-30 4) Bagasses

By products:-

1) Distillery:-

The factory has its own distillery unit as by product industry with capacity of

50000 liters per day .earlier it was 18000 liter taking in account the stage wise expansion of

sugar mill and the excess availability of molasses, they installed capacity later increased to

27000 liters, this was further expanded to 54000 liters.

2) Press mud:-

Press mud is given to farmer to use fertilizers to grow sugarcane at a low cost. It

is prepared by the remaining by product after they production of sugar.

Main product By product


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3) Molasses:-

It is used in cattle feed as well as in the production industry alcohol, yeast,

organic chemicals and rum. Molasses is used as a major content in production of wines and

other alcoholic products .It is sold to liquor industries.

4) Bagasse:-

Bagasse is one of the byproduct obtained during the process. IT is used

as fuel for boilers to produce steam through which electricity is obtained .The bagasse

produced after extracting the juice from sugar cane is used to fuel to generate steam in

factories. Increasingly large amounts of bagasse are being made into paper, installing boards

and hard board, as well as furfural, a chemical intermediate for the synthesis of furan.

4.2 Manufacturing process

1) Pressing of sugar cane to extract the juice.

2) Boiling the juice until it begins to thicken and sugar begins to crystallize.

3) spinning the crystals in a centrifuge to remove the syrup ,producing row sugar.

4) Shipping the row sugar to a refinery where it is washed and filtered to remove remaining

non sugar ingredients.

5) Crystallizing, drying and packaging the refined sugar.


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4.3Production report

Performance of the company for last 3 years

Years Cane crushed Sugar produced

31st

marchMT QTLS

2009 76,040.948 76,940

2010 2,43,900 2,47,020

2011 4,41486.34 4,68,945.00

1.4Sales report

1) LEVY SALESYEARS QUINTALS RATE TOTAL

20052006 25,215 1398.65 3,52,67,023

20062007 26,402 1345.33 3,55,19,409

20072008 25,579 1459.35 3,73,28,866

20082009 4,274 1345.82 57,52,052

20092010 2,341 1346.90 31,53,095

20102011 9,762 1785.30 1,74,28,091


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2)FREE SALES

YEARS QUINTALS RATE TOTAL

20052006 5,20,596 1,635.07 85,12,15,513.00

20062007 62,848 1,523.09 9,57,23,420.00

20072008 2,93,732 1,183.75 34,77,01,629.00

20082009 4,17,763 1,611.09 67,30,54,904.00

20092010 74,350 2,815.13 20,93,05,191.00

20102011 4,42,780 2,504.42 110,89,07,285.00

4.5 This sugar firm share holders is mentioned.

Category A : - Sugar cane Gross (members) 9 Directors

Category B : - 1 Director Co-operative societies (operated area)

Nominated from distinct co-operative Bank.

Category C : - State government (Managing Director

& nominated director) 1+3.

Category D : - Non-Grossers of sugar cane (members) 1

Director.

Category E : - Nominal Members

Chairman : - Shri. Lakkan Jarkiholi

Voice chairman : - A.R.Patil

Managing Director : - C.A.Upadhya (in charge MD)


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Part b

Capital:

Capital means initial investment invested by businessman or owner at the time of

commencing the business.

Definition: capital is a factor of production with a specific, changeable value attached to it

that could, potentially, proved its owner with more wealth.

Features of capital :

Capital has the following features

1) Capital is a man made.2) Capital is a human control possible.

Every organization invests their funds in two terms of capital namely,

1. Fixed Capital.2. Working Capital

Introduction

The aim of the present study is to examine the working capital

management. Since the efficiency of the working capital management is determined the

efficient administration of its various componentscash, account receivables and inventory.

The study attempts to determine the management of each component.

Working capital is the life blood and nerve center of the business. As

the circulation of blood is essential in the human body for maintains of life, in the same way

working capital is essential to all the organizations to maintain the smooth running of

business. Working capital refers to short term funds required for the purpose of business

operations. The fund used for meeting day to day expenses like, purchase of row materials,

payment of wages and other expenses, stoking of goods and maintenance of the minimum

balance. It is not necessary that the funds should be in the form of cash only.


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There is operative aspects of working capital i.e. current assets which is

known as funds also employed to the business process from the gross working capital current

assets comprises cash receivable, inventories, marketable securities held as short term

investment and other items nearer to cash.

Definition:

Working capital means current assets of company that are changed in the

ordinary course of business from one form to another, ex: from cash to inventories, inventories

to receivables, receivables into cash.

Objectives of the study

1. To understand the different components of current assets and current liabilities andtheir impact on working capital

2. To understand the working capital management of the company.3. To compare the present and previous years performance of the company in

reference to working capital.

4. To understand functioning of different departments in the company.Scope of the study

This study has a wider scope to cover components and determinants of

capital sources and types of working capital, components of capital management such

as cash, receivables and inventory.

Research Methodology

The level of any systematic research depends upon collection of data by

keenly observing the existing conditions, classification and interpretation of data. The

research design should be such that it maximizes reliability of the evidence collected.

The data required for the preparation of financial statement analysis and working

capital management was collected through primary and secondary data.


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Primary data:

This method of data collection involves the fresh collection of data directly

from the field. They are first-hand data. The primary sources of data are collected from the

finance manager through personal discussion.

Secondary data:

In this project the sources of secondary data are annual report, Internet,

published text books, balance sheet, profit and loss account etc.

CONCEPTS OF WORKING CAPITAL

THERE ARE TWO CONCEPTS OF WORKING CAPITAL:

a) Balance sheet concept.b) Operating cycle concept.

(A) BALANCE SHEET CONCEPT.It is understood either as the total current assets or as the excess

of current assets over current liabilities. The former is referred to the gross working

capital and the later the net working capital.

There are two interpretations of working capital under the balance sheet

concept:

(i) Gross working capital.Gross working capital is the amount of funds invested in various

components of current assets. Current assets are those assets which are

immediately converted into cash within short period of time. Current assets

includes cash in hand and cash at bank, inventories, bills receivable, sundry

debtors, short term loans and advances.

(ii) Net working capital.Net working capital is the excess of current assets over current liabilities. it is

explained in the form of equation as follows.


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Net working capital = Current Assets -- Current Liabilities.

Net working capital may be positive or negative when the current assets

exceed the current liabilities the working capital is positive and the negative working capital

results when the current liabilities are more than the current assets.Current liabilities are

those liabilities which are intended to be paid in the ordinary course of business.

Components of Working Capital

There are two components of Working Capital

A. Current AssetsB. Current Liabilities

A)Current Assets:Components of Current Assets are as follows:

1. Cash & Bank Balance

2. Stock of Raw Material at cost- work in process and Finished

Goods.

3. Advanced Recoverable in Cash.

4. Debtors

B) Current Liabilities:

Components of Current Liabilities are as follows:

1. Sundry Creditors for the goods and expenses.

2. Income tax deducted at sources from contractors.

3. Expenses Payable.

4. Unclaimed Dividend.

5. Security Deposits.

6. Liabilities for bills discounted.

7. Bank Overdraft Acceptance


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Classification of working capital

1)permanent working capital

Permanent working capital is the minimum amount of current assets, which is

needed to conduct a business even during the dullest season of the year. This amount varies

from year to year, depending upon the growth of a company. It is the amount of funds

required to produce the goods and services, which are necessary to satisfy demand at a

particular point. It represents the current assets, which are required on a continuing basis over

the entire year.

2) Temporary or variable working capitalVariable working capital refers to the amount of working capital which goes

on changing from time to time with the change in the volume of business activities.

Difference between fixed and variable working capital.

3) Seasonal Working Capital:

There are many lines of business where the volumes of operations are

different in different seasons and hence the amount of working capital varies with seasons.

The capital required to meet the seasonal needs of the enterprise knows as Seasonal Working

Capital.


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ADVANTAGES OF WORKING CAPITAL OR IMPORTANCE OF

WORKING CAPITAL :

The following are the advantages

1) It protects the solvency of the firmAdequate working capital helps in maintaining solvency of the business , because

suppliers of the goods, creditors, customers, and the like keep their faith in such a firm that is

in a position to meet all its financial obligations promptly.

2) Good willSufficient working capital helps the firm concern to make prompt payment to

creditors which in turn results in the creation of goodwill.

3) Easy loanAn organization having sufficient working capital creates goodwill, high

solvency. This will help to obtain term the loans from the banks and others on easy and

favorable terms.

4) Cash discountAdequate working capital helps the concerned to purchase in bulk. This will

get more cash discount. Ultimately it reduces the costs.

5) High moraleAdequate working capital helps the organization for regular payment of salary to

staff and prompt payment to creditors. So it creates an environment of security, confidence,

in tern its result increases the morale of employees.

OBJECTIVES OF THE WORKING CAPITAL

Every business needs some amount of working capital. The need

for working capital arises due to the time gap between production and realization of

cash from sales. Working capital is needed for the following purpose

1. for the purchase of raw materials and components.

2. To pay wages and salaries.


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3. To incur day-to-day expenses

4. To provide credit facilities to the customers.

5. To maintain the inventories of raw material, work-in-progress, stores.

FACTORS AFFECTING WORKING CAPITAL

The following factors affect not only the requirements of working

capital but also influence to a great extent the composition or structure of working capital it is

believed that any attempt at working capital management could be improved upon with

greater understanding of the underlying factors.

The following factors are important

a) Nature of businessThe nature of the business effects the working capital requirements to a great

extent. For instance public utilities like, railways electric companies, etc. The GSSKNG is a

manufacturing firm having a longer operating cycle for manufacturing the products andinvesting more funds in its current assets. Therefore it requires more working capital .

b)Size of the firmThe size of business unit is also important factor in influencing working capital

needs of the firm. Large scale industries required huge amount of working capital compared

to small scale industries.

c) Changes in technologyTechnology used in manufacturing process is mainly determined need of working

capital. Modernize technology needs low working capital, where as old and traditional

technology needs grater working capital.

d) Production policies


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Production policies also determined the working capital requirement. Through

the production schedule i.e. the plan for production, production process etc. The GSSKNG

has large production process.

d)Type of industryA capital intensive industry is purely based on machines required more fixed capital

and less working capital. Whereas, a labour intensive industry based on manpower resources

required more working capital for the payment of salaries and wages etc.

ESTIMATION OF WORKING CAPITAL REQUIREMENT

Managing the working capital is a matter of balance. The

firms must have sufficient funds on hand to meet its immediate needs. The GSSKNG is

manufacturing oriented organization; the following aspects have to be taken into

consideration while estimating the working capital requirements. They are:

Total costs incurred on material, wages and overheads The length of time for which materials are to remain in stores before they are issued

for production.

The length of production cycle or work in process, i.e., the time taken forconversation of row material into finished goods.

The length of sales cycle during which finished goods to be kept waiting for sales. The average amount of cash required to make advance payments. The average credit period expected to be allowed by suppliers. Time lag in the payment of wages and other expenses.

5.10 Efficient Utilization of Working Capital Management

Well working capital management refers to the administration of all aspects of the current

assets and liabilities. It is necessary to get maximum benefit.

1) Cash Management


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Cash is required to meet the firms transactions and precautionary needs. The firm

needs cash to make payments for acquisition of resources and services, for the normal consist

of the business. It keeps addition funds to meet any emergency situation.

Cash Management involves three things.

Managing cash flow in and out of the firm. Managing cash flow within the firm. Financing deficit or investing surplus cash. And thus controlling of cash balance at the

point of time.

2.Receivables Management:

Business firm generally sell goods on credit to facilitate sales. When goods are

sold on credit finished goods are converted into receivable. Receivable when realized

generate cash for forecasting standard ratio of accounts receivables based on analysis of part

data of two years. Recessions analysis and making may be appeared.

3. Inventory management:

Every enterprise needs inventory for smooth running of its activities. It serves as a

link between production and distribution process. There is, generally a time lag between the

recognition of a need and its fulfillment. The greater the time lag, the higher the requirements

for inventory. The unforeseen fluctuations in demand and supply of goods necessitate the

need for inventory. Moreover, it provides a cushion for future price fluctuations


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ANALYSIS AND INTERPRETATION:

Statement showing working capital on 2008-09

Particulars Amount

A)current assets

Cash in hand

Bank account

Advances

General machinery

Road and bridges

Furniture and fixtures

Stores

Tools and equipment

Receivable account

Factory electrification

Other assets

Deposits

Closing stock

Total current assets

B) Current liabilities

Deposits

Suspense account

Other liabilities

Bank O D accounts

Total current liabilities

77,366.98

34,91575.46

1,06,06,555.53

42,49,295.88

16,68,061.53

16,68,680.87

3,58,47,490.47

78,67,794.07

27,09,64,000.01

9,30,899.91

36,82,648.52

32,79,962.00

61,61,01,923.60

96,04,36,254.83

5,19,33,166.58

33,62,872.13

31,63,28,635.95

6,21,36,129.90

43,37,60,804.56

Net working capital 52,66,75,450.27


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Particulars Amount

A)current assets

Cash in hand

Bank account

Advances

General machinery

Road and bridges


Stores

Tools and equipments

Receivable account


Other assets

Deposits

Closing stockTotal current assets


Deposits

Suspense account

Other liabilities

Bank O D accounts


36,562.02

9,56,534.49

1,25,35,830.58

42,49,295.88

16,68,016.53

16,68,680.87

2,86,77,675.24

78,67,794.07

60,95,39,841.45

9,30,899.91

29,80,957.72

32,79,962.00

17,41,92,388.84

84,77,23,539.6

4,16,44,779.01

72,00,094.44

26,43,21,513.57

3,01,52,509.5734,33,18,896.59

Net working capital 50,44,04,643.01


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PARTICULARS AMOUNTS

A )Current Assets

Cash in hand

Bank account

Advances

General machinery

Road and bridges


Stores


Receivable account


Other assets

Deposits

Closing stock



Deposits

Suspense account

Other liabilities

Bank O D accounts


5,43,31,411.03

1,72,43,808.98

1,35,53,683.66

4249295.88

16,68,061.53

16,68,680.87

2,71,35,787.48

79,08,392.82

15,68,23,616.75

9,30,899.91

30,23,800.99

28,12,047.00

74,93,63,571.50

1,04,07,13,058.40

4,14,93,090.81

67,61,584.49

25,69,71,610.03

99,98,369.65

31,52,24,654.97

Net Working capi tal (A-B) 72,54,88,403.43


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PARTICULARS AMOUNTS

A )Current AssetsCash in hand

Bank account

Advances

General machinery

Road and bridges


Stores

Tools and equipment

Receivable account


Other assets

Deposits

Closing stock



Deposits

Suspense account

Other liabilities

Bank O D accounts


12,03,151.39

56,52,907.70

1,69,43,939.61

4249295.88

16,68,061.53

16,68,680.87

3,32,61,102.07

82,84,103.40

35,51,08,313.76

9,30,899.91

31,59,234.79

28,12,047.00

73,04,12,683.69

116,53,54,421.60

9,46,92,206.91

67,40,659.00

39,50,84,626.40

1,95,72,867.75

51,60,90,360.06

Net Working capi tal (A-B) 64,92,64,061.54


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Table showing net working capital Ghataprabha sugars, ltd. ( Rs in crore )

Particulars 2008-09 2009-10 2010-11 2011-12

Current

assets 96,04,36,254 84,77,23,539 1,04,07,13,058 116,53,54,421

Current

liabilities 43,37,60,804 34,33,18,896 31,52,24,654 51,60,90,360

net working

capital 52,66,75,450 50,44,04,643 72,54,88,403 64,92,64,061

Statement of changes in working capital (Rs in crore)

Particulars 2010-11 2011-12 Effect of w c

increase

Effect of w c

decrease

A)current assets

cash in hand

cash at bank

advances

General machinery

Road and bridges


StoresTools and equipment

Receivable account


Other assets

Deposits

Closing stock


5,43,31,411.03

1,72,43,808.98

1,35,53,683.66

42,49,295.88

16,68,061.53

16,68,680.87

2,71,35,787.487908392.82

15,68,23,616.75

9,30,899.91

30,23,800.99

28,12,047.00

74,93,63,571.50

104,07,13,058.40

12,03,151.39

56,52,907.70

1,69,43,939.61

42,49,295.88

16,68,061.53

16,68,680.87

3,32,61,102.0782,84,103.40

35,51,08,313.76

9,30,899.91

31,59,234.79

28,12,047.00

73,04,12,683.69

116,53,54,421.60

33,90,255.95

61,25,314.593,75,710.58

19,82,84,697.01

1,35,433.8

5,31,28,259.64

1,15,90,901.28

1,89,50,887.81


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B)current liabilities

Deposits

Suspense account

Other liabilitiesBank O D account


Net working capital

Decrease in working

capital

Total working capital

4,14,93,090.81

67,61,584.49

25,69,71,610.03

99,98,369.65

31,52,24,654.98

72,54,88,403.42

72,54,88,403.42

9,46,92,206.91

67,40,659.00

39,50,84,626.40

1,95,72,867.75

51,60,90,360.06

64,92,64,052.54

7,62,24,350.88

72,54,88,403.42

20,925.49

208332337.42

7,62,24,350.88

284556679.30

5,31,99,116.1

13,81,13,016.37

95,74,498.1

284556679.30

28,45,56,679.30

INTERPRETATION

Reduction in inventory is favorable however reduction in cash is not favorable hence itcan be inferred that inventory turnover ratio may be low in the year 2011-12 and 2010-

11.

Hear debtors have increased which is not favorable. Due to this debtors turnover ratioin 2010-11 is less than that of 2011-12 and collection period is more in 2010-11 than in

2011-12.

An advance is increased in the year 2011-12 significantly which is not favorable.Advances increased hence the company seems to be more earning from non core

activities.

Bank over draft is increased in the year 2011-12 because seems debtors increased theyhave less liquid cash with them so the current liability has increased.


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Statement of changes in working capital (Rs in crore)

Particulars 2009-10 2010-11

Effect of w c

increase

Effect of w c

decrease

A)current assets

cash in hand

cash at bank

advances

General machinery

Road and bridges


Stores


Receivable account


Other assets

Deposits

Closing stock



Deposits

Suspense account

Other liabilities

Bank O D account


Net working capital

increase in workingcapital


36,562.02

9,56,534.49

1,25,35,830.58

42,49,295.88

16,68,016.53

16,68,680.87

2,86,77,675.24

78,67,794.07

60,95,39,841.45

9,30,899.91

29,80,957.72

32,79,962.00

17,41,92,388.84

84,77,23,539

4,16,44,779.01

72,00,094.44

26,43,21,513.57

3,01,52,509.57

34,33,18,896.59

50,52,65,543.01

22,02,22,860.41

72,54,88,403.42

5,43,31,411.03

1,72,43,808.98

1,35,53,683.66

42,49,295.88

16,68,061.53

16,68,680.87

2,71,35,787.48

79,08,392.82

15,68,23,616.75

9,30,899.91

30,23,800.99

28,12,047.00

74,93,63,571.50

1,04,07,13,058.40

4,14,93,090.81

67,61,584.49

25,69,71,610.03

99,98,369.65

31,52,24,654.98

72,54,88,403.42

72,54,88,403.42

5,42,94,849.01

1,62,87,274.49

10,17,853.08

40,598.75

42,843.27

57,51,71,182.66

1,51,688.2

4,38,509.95

73,49,903.54

2,01,54,139.92

67,49,48,842.87

67,49,48,842.87

15,41,887.76

45,27,16,224.7

4,67,915.00

45,47,26,027.46

22,02,22,860.41

67,49,48,842.87


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INTERPRETATION

Inventory has increased more than that of cash so it is favorable. Reduction in inventory is favorable however reduction in cash is not favorable hence it

can be inferred that inventory turnover ratio may be high in the year 2010-11 and

2009-10.

Here debtors have decreased which is favorable. Due to this debtors turnover ratio in2009-10 is more than that of 2010-11 and collection period is less in 2009-10 than in

2010-11.

An advance is increased in the year 2010-11 significantly which is not favorable.Advances increased hence the company seems to be more earning from non core

activities.

Bank over draft is decreased in the year 2010-11 because seems debtors decreased theyhave more liquid cash with them so the current liability has decreased.


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Statement of changes in working capital

Rs.in crore)

Particulars 2008-09 2009-10

Effect of w c

increase

Effect of w c

decrease

A)current assets

cash in hand

cash at bank

advances

General machinery

Road and bridges


Stores


Receivable account


Other assets

Deposits

Closing stock



Deposits

Suspense account

Other liabilities

Bank O D account


Net working capital

Decrease in working

capital


77,366.98

34,91,575.46

1,06,06,555.53

42,49,295.88

16,68,061.53

16,68,680.87

3,58,47,490.47

78,67,794.07

27,09,64,000.01

9,30,899.91

36,82,648.52

32,79,962.00

61,61,01,923.60

96,04,36,254.83

5,19,33,166.58

33,62,872.13

31,63,28,635.95

6,21,36,129.90

43,37,60,804.56

52,66,75,450.27

52,66,75,450.27

36,562.02

9,56,534.49

1,25,35,830.58

42,49,295.88

16,68,016.53

16,68,680.87

2,86,77,675.24

78,67,794.07

60,95,39,841.45

9,30,899.91

29,80,957.72

32,79,962.00

17,41,92,388.84

84,77,23,539

4,16,44,779.01

72,00,094.44

26,43,21,513.57

3,01,52,509.57

34,33,18,896.59

50,52,65,543.01

2,14,09,907.26

52,66,75,450.27

19,29,275.05

33,85,75,841.44

1,02,88,387.57

5,20,07,122.38

3,19,83,620.33

43,47,84,246.77

2,14,09907.26

45,61,94,109.03

40,804.96

25,35,040.97

71,69,815.23

7,01,690.8

44,19,09,534.76

38,37,222.31

45,61,94,109.03

45,61,94,109.03


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INTERPRETATION

Cash has decreased more than that of inventory so it is not favorable. Reduction in inventory is favorable however reduction in cash is not favorable hence

it can be inferred that inventory turnover ratio may be low in the year 2008-09 and

2009-10.

Here debtors have increased which is not favorable. Due to this debtors turnover ratioin 2008-09 is less than that of 2009-10 and collection period is more in 2008-09 than

in 2009-10

An advance is increased in the year 2009-10 significantly which is not favorable.Advances increased hence the company seems to be more earning from non-core

activities. Bank overdraft is decreased in the year 2009-10 because seems debtors increased they

have more liquid cash with them so the current liability has decreased.

Table showing changes in working capital Ghataprabha sugars, ltd.

Years Changes in working capital

2008-09 and 2009-10 2,14,09,907.26 (decrease)

2009-10 and 2010-11 22,02,22,860.41(increase)

2010-11and 2011-12 7,62,24,350.88 (decreased)


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Ratio Analysis

Current ratio:

The current ratio is a measure of short- term solvency of the company. It indicates the rupee

of current assets available for each rupee of current liability. The higher the current ratio the

larger the amount of rupees available per rupee of current liability and the greater the safety

of the short- term creditors. This margin of safety to the creditors is essential due to the

unevenness of the flow of funds through current assets and current account

Formula: Current Assets /Current Liabilities

Years Current assets Current liabilities Ratio

2008-09 96,04,36,254 43,37,60,804 2.214

2009-10 84,77,23,539 34,33,18,896 2.46

2010-11 1,04,07,13,058 31,52,24,654 3.3

2011-12 1,16,53,54,421 51,60,90,360 2.25

Interpretation:

2.214

2.46

3.3

2.25

0

0.5

1

1.5

2

2.5

3

3.5

2008-09 2009-10 2010-11 2011-12

2008-09

2009-10

2010-11

2011-12


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The ratio is above standard that shows short term solvency of GSSKN is good. GSSKN has

sufficient current assets to meet its short term liabilities. Current ratio indicates a good

liquidity and satisfactory debt payment capacity of the company.Current ratio has increased

in 2010-11 to 3.3 because of increase in cash and stock. GSSKN has managed comparatively

higher current assets to pay off its liabilities and have smooth flow of production which can

be seen by ratio of 2.214 , 2.46and 2.25 in 2008-09 ,2009-10 and 2011-12 respectively

Inventory turnovers ratio

It indicate the efficiency of the firm in producing the selling its product. The ratio

indicates how fast inventory is sold. A high ratio is good from viewpoint of liquidity and vice

versa. A low ratio would signify that inventory does not sell and stay on the shelf or in

warehouse for a long time.

Inventory Turnover Ratio = cost of goods sold

Average Inventory

( Rs in crore)

Year Cost of goods sold Average inventory Ratio

2008-09 32,53,92,497.76 50,98,45,157.565 0.63

2009-10 67,90,24,925.86 39,51,47,156.22 1.71

2010-11 14,63,40,898.08 44,82,77,980.17 0.32

2011-12 118,92,31,382.39 73,98,88,127.6 1.60


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Interpretation

The above graph shows that inventory turnover ratio was more in the year 2009-

10 but a decline was seen in the ratio in the year 2010-11. Again in the year 2008-09 there

was increase in the ratio compared to 2011-12. In the year 2010-11 the inventory turnover

ratio was very less compared to 2008-09. In the year 2011-12 again an increase was seen

in the ratio. We can conclude that a higher ratio is preferable.

Debtors turnover ratio

The high ratio is indicative of shorter time between credit sales and cash

collection. A low ratio shows that debts are not being collected rapidly.

Deters turnover ratio = Net credit sales

Average debtors

(Rs in crore)

Years Net credit sales Average debtors Ratio

2008-09 43,23,07,539 29,10,42,702.35 1,48

2009-10 74,6323879 44,02,51,920.73 1.69

0.63

1.71

0.32

1.6

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2008-09 2009-10 2010-11 2011-12

Ratio

2008-09

2009-10

2010-11

2011-12

year


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2010-11 22,91,63,839 38,31,81,729.1 0.59

2011-12 126,74,32,116 25,59,65,965.2 4.95

Interpretation

The above graph shows that the debtors turnover ratio was more in the year 2011-12

but a decline was seen in the ratio in the year 2010-11. Again in the year 2009-10 there wasincrease in the ratio compared to 2008-09. In the year 2010-11 the debtors turnover ratio was

very less compared to 2011-12. In the year 2011-12 again an increase was seen in the ratio.

We can conclude that a higher debtors turnover ratio is better.

Debtors collection period

The shorter the collection period the better is the quality of debtors as a

short collection period implies quick payment by debtors. Similarly a higher collection

period implies an inefficient collection performance, which in turn adversely affects the

liquidity or short term paying capacity of a firm out of its current liabilities .

Debtors collection period = 365 days

Debtors turnover ratio

0

1

2

3

4

5

1.481.69

0.59

4.95

amount

years

Ratio

2007-08

2008-09

2009-10

2010-11

2008-09 2009-10 2010-11 2011-12


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Years No of days in a

year

Debtors turnover

ratio

Ratio

2008-09 365 1,48 246.6

2009-10

365

1.69 215.9

2010-11 365 0.59 618.6

2011-12 365 4.95 73.73

Interpretation

The debt collection period is 246 days for 2007-08, 215 days for 2008-09, 618

days for 2009-10 and 73 days for 10-11. Low debtors turnover period is preferable on an

average debtors take this much days to pay money

0

100

200

300

400

500

600

700

2007-08 2008-09 2009-10 2010-11

246.6215.9

618.6

73.3

amount

years

ratio

2007-08

2008-09

2009-10

2010-11


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Total asset turnover ratio

This ratio measures how efficiently assets are using to generate the

sales .it is calculated as follows.

Total asset turnover ratio = cost of goods sold

Average total assets

(Rs in crore )

Years Cost of goods sold Average total assets Ratio

2008-09 32,53,92,497.76 1,20,75,66,541.56 0.26

2009-10 67,90,24,925.86 1,21,00,61,686.18 0.56

2010-11 14,63,40,898.08 1,23,68,90,667.55 0.11

2011-12 118,92,31,382.39 1,39,52,29,641.54 0.85

0.26

0.56

0.11

0.85

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

2008-09 2009-10 2010-11 2011-12

Ratio

2008-09

2009-10

2010-11

2011-12


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Interpretation

The above graph shows that total asset turnover ratio was more in the year

2011-12 but a decline was seen in the ratio in the year 2010-11. Again in the year 2009-10

there was increase in the ratio compared to 2008-09. In the year 2010-11 the total asset

turnover ratio was very less compared to 2011-12. In the year 2011-12 again an increase was

seen in the ratio. We can conclude that a higher ratio is preferable. Because it means the

assets are used very efficiently.

7.5 Current asset turnover ratio

Current asset turnover ratio= cost of goods sold

Average current assets

(Rs in crore )

Years Cost of goods sold Average current assets Ratio

2008-09 32,53,92,497.76 90,03,78,747.91 0.36

2009-10 679024925.86 90,45,10,347.215 0.75

2010-11 146340898.08 94,46,48,749 0.15

2011-12 118,92,31,382.39 1,10,30,33,740 1.07

0.36

0.75

0.15

1.07

0

0.2

0.4

0.6

0.8

1

1.2

2008-09 2009-10 2010-11 2011-12

Ratio

2008-09

2009-10

2010-11

2011-12


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Interpretation

The above graph shows that current asset turnover ratio was more in the year

2011-12 but a decline was seen in the ratio in the year 2010-11. In the year 2010-11 the

current asset turnover ratio was very less compared to 2011-12. In the year 2011-12 again an

increase was seen in the ratio. We can conclude that a higher ratio is preferable. Because it

means the assets are used very efficiently.

Working capital turnover ratio

Working capital turnover ratio = cost of goods sold

Net working capital

(Rs in crore)

Years Cost of goods sold Net working capital Ratio

2008-09 32,53,92,497.76 52,66,75,450.27 0.61

2009-10 679024925.86 50,44,04,643.1 1.34

2010-11 146340898.08 72,54,88,403.42 0.20

2011-12 118,92,31,382.39 64,92,64,061.54 1.83


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Interpretation

The above graph shows in the year 2009-10 there was increase in the ratio

compared to 2008-09. In the year 2010-11 the working capital turnover ratio was very less

compared to 2011-12. In the year 2011-12 again an increase was seen in the ratio. We can

conclude that a higher ratio is preferable. Because it means the assets are used very

efficiently.

Capital turnover ratio

Capital turnover ratio = cost of goods sold

Average capital employed

(Rs in crore)

Years Cost of goods sold Average capital

employed

Ratio

2008-09 32,53,92,497.76 82,00,15,183.565 0.39

2009-10 67,90,24,925.86 82,06,21,835.6 0.82

2010-11 14,63,40,898.08 90,76,18,891.78 0.16

0.61

1.34

0.2

1.83

0

0.2

0.4

0.6

0.8

1

1.2

1.41.6

1.8

2

2008-09 2009-10 2010-11 2011-12

ratio

2008-09

2009-10

2010-11

2011-12


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2011-12 118,92,31,382.39 97,95,72,134.02 1.21

Interpretation

The above graph shows that capital turnover ratio was more in the year 2011-12

but a decline was seen in the ratio in the year 2010-11. Again in the year 2009-10 there was

increase in the ratio compared to 2008-09. In the year 2010-11 the capital turnover ratio was

very less compared to 2011-12. In the year 2011-12 again an increase was seen in the ratio.

We can conclude that a higher ratio is preferable. Because it means the assets are used very

efficiently.

CONSOLIDATED STATEMENT OF THE RATIOS FOR FOUR YEARS

Particulars 2008-09 2009-10 2010-11 2011-12

Inventory Turnover Ratio 0.63 1.71 0.32 1.60

Debtors turnover ratio 1,48 1.69 0.59 4.95

Debtors collection period 246.6 215.9 618.6 73.73

Total asset turnover ratio 0.26 0.56 0.11 0.85

Current asset turnover ratio 0.36 0.75 0.15 1.07

0.39

0.82

0.16

1.21

0

0.2

0.4

0.6

0.8

1

1.2

1.4

2008-09 2009-10 2010-11 2011-12

Ratio

2008-09

2009-10

2010-11

2011-12


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Working capital turnover

ratio

0.61 1.34 0.20 1.83

Capital turnover ratio 0.39 0.82 0.16 1.21

Chapter VIII

Operating cycle of working capital

Every business firms requires fund for two purpose viz. for investing in fixed

assets and for investing current assets. Funds required for investing in current assets such as

inventories, debtors, bills, etc. keep on changing shape and volume. For example a company

has some cash in beginning. It may use this cash balance for making payment to the suppliers

of raw materials, for payment of wages, salaries and to meet over head costs. Those costs viz.

cost of raw materials cost of labor and other over heads costs together would generate work-

in-process which will be converted into finished goods on the completion of production

process. On the sale of these goods, they get converted into debtor or bills and promissory

notes i.e., account receivables and when the debtors pay, the company will get cash.

This cash will again be utilized for financing raw materials, work-in-process, labor,

overhead cost etc. to produce finished goods, which when sold, will be converted into debts,

which will be finally converted into cash.

Thus there will be a complete cycle when cash converted into raw materials, work-in-

progress, finished goods, and debtors finally again into cash. In manufacturing concern, the

duration of time required to complete the sequence of events is called operating cycle.

The operation cycle of a manufacturing concern with the following events


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Conversion cash of raw materials Conversion of raw materials into work-in-progress Conversion of work-in-progress into finished goods

Conversion of finished goods into sales. Conversion of sales into debtors. Conversion of debtors into A/C Receivable

Operating cycle

In the picture of operating cycle cash is converted into raw material which is

converted into Work-in progress which I turn into finished stock which will be converted into


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sales and sales into debtors and again which is circulating from one into another. Hence

working capital is sometimes called as circulating capital.

Working capital cycle indicates the length of time between firms paying of raw

material entering into finished stock and receiving cash on the sale of such finished goods.

Computation of Operating Cycle

Average Inventory = Opening Inventory + Closing Inventory

2

Average Account Receivables

= Opening Receivables + Closing Receivables

2Inventory Period = Average Inventory

Annual COGS 365

Average Account Receivables Period =

Average Account Receivables

Annual Sales 365

Operating Cycle =

Inventory Period + Average Account Receivables Period


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Calculation of operating cycle

Financial information of THE GSSKN 2009-2010

Particulars P&L a/c data Particulars Beginning Ending

Sales

Cost of goods

sold

74,63,23,879

67,90,24,925.86

Inventory

A/c Receivable

61,61,01,923.60

27,09,64,000.01

17,41,92,388.84

60,95,39,841

1) Average Inventory = Opening Inventory + Closing Inventory2

= 616101923.60 +174192388.84

2

= 395147156.22

2) Average Account Receivables= Opening Receivables + Closing Receivables

2

= 270964000.01 + 60,95,39,841.45

2

= 440251920.72


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3)

Inventory Period = Average Inventory

Annual COGS 365

= 395147156.22

679024925.86 365

= 395147156.22

1860342.2

= 212.40

4) Account Receivables Period =Average Account Receivables

Annual Sales 365

= 440251920.72

74,6323879 365

= 440251920.72

2044722.95

= 215.31

Operating cycle = Inventory period + Account receivable period

= 212.40 + 215.31

= 427.71 Days


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Interpretation:

Here the firms operating cycle is 427 days during 2008-09. However it is also

observed that the debtors collection period has decreased. Due to company is in loss from

several years.

Financial information of THE GSSKN 2010-2011 Rs in crores


Sales

Cost of goods

sold

22,91,63,839

14,63,40,898.1

Inventory

A/c Receivable

17,41,92,388.84

60,95,39,841.45

74,93,63,571.50

15,68,23,616.75

Sales = sugar sales +molasses sales+ press mud sales+ other sales

= 21,98,16,763 + 41,15,086 +11,01,358+ 41,30,632

= 22,91,63,839

1) Average Inventory = Opening Inventory + Closing Inventory

2

= 17,41,92,388.84 + 74,93,63,571.50

2

= 46,17,77,980.2

2) Average Account Receivables = Opening Receivables + Closing Receivables

2

= 60,95,39,841.45 + 15,68,23,616.75


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2

= 38,31,81,729.1

3)

Inventory Period = Average InventoryAnnual COGS 365

= 46,17,77,980.2

14,63,40,898.1 365

= 46,17,77,980.2

4,00,933.96

= 1,151.75

4) Account Receivables Period = Average Account ReceivablesAnnual Sales 365

= 38,31,81,729.1

22,91,63,839 365

= 38,31,81,729.1

6,27,846.13

= 610.3

Operating cycle = Inventory period + Accounts receivable period

= 1151.75 + 610.3

= 1762.05 Days

Interpretation

Here the firms operating cycle has increased from 427 days during 2008-09 to

1762 days during 2009-10. The operating cycle of the firm is not satisfactory because it has


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increased by 1300days. However it is also observed that the debtors collection period has

increased . Due to company is in loss from several years.

Financial information of THE GSSKN 2011-2012


Sales

Cost of goods

sold

126,74,32,116

118,92,31,382

Inventory

A/c Receivable

74,93,63,571.50

15,68,23,616.75

73,04,12,683.69

35,51,08,313.76

Sales = sugar sales +molasses sales+ pressmud sales+ other sales

= 117,04,65,387 + 7,98,29,676 + 12,52,258 + 1,58,84,795

= 126,74,32,116

1) Average Inventory = Opening Inventory + Closing Inventory2

= 74,93,63,571.50 +73,04,12,683.69

2

= 73,98,88,127.6

2) Average Account Receivables= Opening Receivables + Closing Receivables

2

= 15,68,23,616.75 + 35,51,08,313.76


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2

= 25,59,65,965.2

3)

Inventory Period = Average InventoryAnnual COGS 365

= 73,98,88,127.6

118,92,31,382 365

= 73,98,88,127.6

32,58,168.17

= 227.08

4) Account Receivables Period = Average Account Receivables

Annual Sales 365

= 25,59,65,965.2

126,74,32,116 365

= 25,59,65,965.2

34,72,416.756

= 73.71

Operating cycle = Inventory period + Accounts receivable period

= 227.08 + 73.71

= 300.79 Days


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Interpretation:

Here the firms operating cycle has decreased from 1762 days during 2010-

11 to 300 days during 2011-12. The operating cycle of the firm is satisfactory because it has

come down by 1400days. However it is also observed that the debtors collection period has

decreased because company is in loss from several years.

Findings:

This study was undertaken at GSSKNG to understand and analysis working capital

management to find out companys present financial status. Accordingly last five years

balance sheet was considered for analyzing working capital management. The major findings

with respect to study are given below

The changes in working capital of 2008-09 and 2009-10 is Rs 52,66,75,450.27 and Rs50,52,65,543.01 respectively. It shows working capital decreased to Rs

2,14,09,907.26 in 2009-10 which compared to 2009-10 has decreased the net working

capital of firm may not satisfactory with its working capital.

The changes in working capital of 2009-10 and 2010-11 is Rs 50,52,65,543.01 and Rs72,54,88,403.42 respectively. It shows the working capital increased of Rs

22,02,22,860.41 in the year 2010-11 compare to 2009-10. By decreasing net working

capital the firm is satisfactory with its working capital.

The working capital decreased of Rs 7,62,24,350.88 in the year 2011-12 compared to2010-11.

Inventory turnover ratio was highest in the year 2009-10 i.e. 1.71 which came downin the year 2010-11 at 0.32 because of increase in the average inventory, further it

increased in the year 2011-12 at 1.60 due to the increase in the amount of cost ofgoods sold compared to that of average inventory. On an average , inventories are

converted to sales 2.11 number of times. So higher ratio is preferable.

Debtor turnover ratio has increased in the year 2011-12 but in 2010-11 it hasdecreased, suddenly increased in the year 2011-12 by 4.95.

. The total assets turnover ratio has been decreasing through the years from 0.11 in theyear 2010-11. The high ratio is favorable because it means the assets are used very

efficiently.


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Documents

Working Cap (1)