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A Report On AStudy of WorkingCapital Management Ofjaipur Dairy
A Report On AStudy of WorkingCapital Management Ofjaipur Dairy
Live Project
A
Study of Working
Capital Management of
Jaipur Dairy
Faculty Guide:
Company Guide:
Dr.Bhunesh Vyas Mr.
R.N.Mittal
Submitted By:
Rajesh Kumar
kumar.rajesh129@gmail.com
08OSB622
A
Study of Working
Capital Management of
Jaipur Dairy
Submitted By:
Rajesh Kumar
kumar.rajesh129@gmail.com
08OSB622
AT
2
A REPORT
ON
A
Study of Working
Capital Management of
Jaipur Dairy
Submitted By:
Rajesh Kumar
kumar.rajesh129@gmail.com
08OSB622
A report submitted in partial fulfillment of the requirements of
MBA Program
Submitted to the
DR.J.M.OVASDI
Principal
Omegan School of Business
JAIPUR
DISTRIBUTION LIST:
HEAD OF THE COMPANY : J.R.DHAKA
COMPANY GUIDE : R.N.MITTAL
FACULTY GUIDE : DR.BHUNESH VYAS
3
CERTIFICATE
Dr.Bhune
sh Vyas
(Faculty
Guide)
4
DECLARATION
Rajesh Kumar
(Student of OSB,
Jaipur)
5
6
7
ACKNOWLEDGEMENT
RAJESH KUMAR
Jaipur MBA (IIIrd SEM)
Date: - 27 /06 /2009
8
PREFACE
In this study, a sincere attempt has been made to analyze the working of Jaipur
Dairy ltd. by making use of different financial appraisal techniques like ratio
analysis, trend analysis, common-size analysis etc. The period of study was 3
year from 2005-06 to 2007-08. The data for the studies were obtained form the
published annual reports of the company.
An effort has been made to appraise the overall financial performance and
efficiency of management, but the scope and depth of study remained limited
due to the limiting factors of time, and resources. However, it is expected that
the study will provide useful information for better and easier understanding of
the financial results of the company.
This study has been divided into six chapters. The first chapter has been
devoted to the introduction and last to the summary of conclusion and
suggestion. The second chapter deals with the objectives. Third chapter takes
care of introduction to financial analysis. In addition to this fourth chapter deals
with significance of working capital, whereas fifth chapter deals with the
analysis aspects of working capital. The main source of data has been the
annual reports of the company.
9
CONTENTS
1. Company Profile:-
References
Glossary
10
TABLE OF CONTENTS
Acknowledgments
Preface
Abstract
Chapterisation
1. Introduction
11
4.3 Importance of Working Capital analysis .. 45-47
4.4 Operating and cash conversion cycle......... 47-50
4.5 Methods and ratios .................................... 50-56
References
Glossary
12
ABSTRACT
13
There are 2000 societies, there are 26 Dairies in Rajasthan, Head Office of all
Rajasthan dairies is RCDF (Rajasthan Cooperative Dairy Federation) and
about Establishment of society.
There are two types of suppliers of the milk regular and non regular suppliers
called POURER and non regular suppler called NON POURER. .Per day milk
collection is 5.75 lac/ltr in non session and in session 7.80 lac/ltr.which one
Pourer who supply daily then he can take Bonus.
EMT it is Fat Testing Machine, MCC:- Milk Collection Center, Cow milk fat
measurement point is 3.0% to 5.2% and buffalo 5.3% to10%.secratry have
available purchase register to note day to day Transaction of Milk. And pourer
has pass books. Society collects the milk two time morning and evening. After
receiving milk by Jaipur dairy it decides three qualities sweet sour and curdle
and according to this payment to society is done. Women empowerment is
given a due weight age.
Wednesday 29th April 2009, Mr. Kailash Khangarot the corporate guide
briefed about some systems of milk collection in Jaipur Dairy :-
(1) Reception dock
(2) Lock Sheet
(3)Online programmed
(4) Variety of milk
(5) Plunger of milk
(6) EMT System
There are nine Chilling center under Jaipur dairy. Standard SNF is 8.7% . The
Jaipur Dairy milk rates will be very important. The new rates would be
affected from 21-4-09.
14
Internal Audit is an important part of this system. Mr.R.D.Jat (Designation
Cashier ).briefed about the transaction e.g. telephone, mobiles, medical claim
bills, of the employees and staffs. It is not more than 20,000 and about deposits,
about employee’s salary. How it is made.
15
Right to left : -Rajesh Kumar (student of OSB Jaipur) Geeta yadav (student of OSB Jaipur),
Dr.B.Vyas (Faculty guide), Rupali Sharma (student of OSB Jaipur), Moh.SadiqPathan
(student of OSB Jaipur), Arun Jangir (student of OSB Jaipur),
INTRODUCTION
Lot of Indian people start day with tea & milk. Milk is an essential factor of our
daily life. In Indian milk business is very old business. Dairy business adopt
16
modern concept in 1970 with the help of national dairy develop board through
operation flood plan. in first section of this plane, ten state selected.
Our country is on first position in production of milk. But in field per capita
availability of milk we are very behind. In America per capita availability of
milk is almost 900gm while in India it is almost 200 gm. The ideal average per
capita availability of milk should be at least 250gm.
General review:-
17
which rural milk production and procurement system have been
effectively linked to urban markets consumption centers.
• Of every 100 litters of milk produced, 44 liters were retained by the rural
fold and 56 liters were the marketable surplus for the urban area. Of
which only 10 liters was handled by the organized sector cooperative and
remaining by traditional sector.
• Operation flood brought milk revolution in the country by transforming
dairying into a core economic activity. The main challenges before the
Indian dairy sector to improving quality, developing international
accepted products and stepping up global marketing strategy.
• The future of Indian dairy industry is promising, since its de-licensing in
1992,the intrest of multinationals and Indian corporate in the industry has
been growing, and the industry’s growth potential is high as there is
sufficient domestic demand and good scope for exports of milk and milk
products.
• India is emerging as one of the largest and fastest growing consumers
market in the world with high income elasticity of demand of dairy
product. Indian dairying is energy –efficient, labor intensive and
ecological sound.
• Over 80% of milk sold in urban & semi urban areas is non –pasteurized
from unorganized sector. The overall market for liquid milk is growing
4% per anum.
18
whole Rajasthan with the help of the dairy unions, established in the different
parts of the state.
BRIEF HISTORY
19
In june1981, Jaipur Dairy ltd. Plant was commissioned as a unit of Rajasthan
cooperative dairy federation ltd.Jaipur for processing and manufacturing milk
products. The initial handling capacity of the dairy plant was 1.5 Lakh Lt. per
day with a powder plant of 10 MT scapacities. Processing facilities of the dairy
plant presently include multidimensional activities like chilling, Pasteurization,
standardization, sterilization, production of Ghee, Butter (Salted / Unsalted),
Skimmed Milk Powder(SMP), Indigenous fresh Milk Products (Paneer,
Shrikhand, Chhach (Plain / Salted), Lassi, Mawa (Khoa)& Dahi (Plain / Mishti)
and Aseptic Milk (which was handed over to Jaipur Dairy only in 1997-98).
The Dairy procures milk through its strong network of over 1200 Village level
Dairy Co-operative spread in Jaipur & Dausa district. Dairy arranges
transportation of milk from doorsteps of milk producers to the receiving point
at dairy plant and its chilling centers. Payments of milk are disbursed to the
milk producers on ten-day basis.
Over the years, there has not been looking back for Jaipur Dairy and the
significant growth has been achieved during the year 1998-1998,monthaly sale
has been 143000 liter./day with peak milk procurements during besides the near
by sale milk unions like Sikar , Tonk , Sawaimadhopur and Bharatpur also sent
their milk to Jaipur Dairy ltd. For processing during peak flush season.
20
To Jaipur dairy ltd.provides liquid milk of four types name as:-
• Toned
• Double toned
• Standard
• Gold full cream and
• Various product like Ghee, Butter(Salted/Unsalted),Paneer,Chhach (Plain /
Salted/ podina), Lassi, Mawa (Khoa)& Dahi (Plain / Mishti) and Aseptic
Milk (which was handed over to Jaipur Dairy only in 1997-98). Shrikhand
in the district of Jaipur & Dausa and also contributes to the national grid.it
sales tetra pack milk through the country.
21
22
The plant is managed and operated by well-qualified, competent and
experienced managerial cadre and highly motivated work force to provide
highest quality of products and best of the services to our esteemed customers.
23
OBJECTIVES
The primary concern of Jaipur dairy is to provide best quality and safe products
and services. To achieve this quality objective of Jaipur Dairy ltd.are designed
to.
QUALITY POLICY
The dairy believes the delighted customer is the only key for overall
development of the organization and their families.
This is achieved by:
24
25
26
ORGANIZATION STRUCTURE
Jaipur dairy is a registered under Rajasthan cooperative act and is owned by
thousands of its milk producers members. It works on world famous Amul
pattern. As all other cooperative dairies, Jaipur dairy is a part of three tier
structure i.e. dairy cooperative society at village level which form district level
milk producer union which are further federated in state level federation. All
three entities are autonomous and linked to each other by provisions of their
byelaws.
The dairy co-operative movement operates on three tier system wherein farmer
members own dairy co-operative societies (DCS) which own district milk
producer's union. The unions collectively own the RCDF.
Federation - Provides service & support to unions. Marketing within & outside
state, Liaison with government and NGO agencies, mobilization of resources &
coordinating & planning programmers / projects.
Union - Develops village milk cooperative network, procures milk from DCS,
processes & markets. Sale of cattle feed and related inputs, promotion of cross
breeding through AI and NS, promotion of fodder development and general
support & supervision to DCS.
DCS - Provides input services (AH, AI) to its members and procurement of
milk.
27
The dairy co-operatives depict the following institutional
FORMULATION OF DCCS AND INTERRELATION WITH JAIPUR
DAIRY
Milk producers of villages
Chairman of DCSS
28
Jaipur Zila Dugdh Utpadak Sahakari Sangh Ltd.
Near Gandhi Nagar Railway Station, Jaipur
PABX No. : 91-141-5108363( 5 Lines), 2710052
Sales :91-141-5108368
Fax No. : MD:91-141-2711075, MANAGER (PLANT):91-141-5105116
E-Mail : jaipurdairy@jaipurdairy.com
Website : http://www.jaipurdairy.com
29
DR.BHUNESH VYAS
(Faculty Guide)
30
OBJECTIVES
FACTUAL :-( Analysis of facts (results) derived from the financial technique
RESEARCH METHODOLOGY
31
• Research Methodology is a systematically solve the research problem. It has
many dimensions and research methods constitute a part of the research
methodology.
• Thus when we talk about research methodology, we do not only talk of the
research methods but also consider the logic behind the methods. We use in
context of our research study, so that research results are capable of being
evaluated either by researcher himself or by others.
• To effectively carry out in research, I would use the following research
process, which consists of series of actions or steps.
32
This is the first step under which the problem is stated in general way and then
ambiguities i.e. understanding and rephrasing the problem thoroughly and
rephrasing the same into a meaningful terms from an analysis point of view.
The research problem under the present project was to study data of various
funds. For this research process was to be formulated and the execution of
which would result in the desired data.
Research Design
• Type of research
• Sample design
TYPE OF RESEARCH
33
• The type of research under present is an analytical research. In analytical
research; we use tact's or information already available, and analyze these to
make a critical evaluation of the material. Hence the same would be done.
SAMPLE DESIGN
A sample design is a definite plan determined before any data is actually
collected for obtaining a sample. Researcher must select a sample design,
which should be reliable and appropriate for his report.
• Primary data
• Secondary Data
Primary data
34
Primary data are the data that are collected afresh and for the first time. Thus
happens to be in character. Primary data are collected by the following ways:-
a) Observation
b) Interview
c) Schedule
d) Questionnaire
Secondary Data
Secondary data are the data that are already collected and are only
analyzed by different sources these sources are as follows:-
• Corporate magazine
• Employment exchange
35
Meeting with Corporate Guide: Mr. R.N. Mittal (F&A)
36
Introduction to financial analysis
FININACIAL ANALYSIS
PRELUDE:-
Financial accounting involves recording transaction and preparing
report and financial statement that can be used by management, owners,
creditor, government agencies and other to understand what is happening in the
business or nonprofit organization. “Accounting” is the process of identifying,
measuring and communicating economic information to permit informed
judgment and decision by users of the information.
37
CONCEPT OF FINANCIAL STATEMENTS
38
(A) The Balance Sheet:-
*Assets: -
Assets are valuable resources owned by a business, which are
acquired at a measurable money cost these are economic resources of a firm
which provide economic benefits to the company.
Liabilities:-
Liabilities are claim of creditors against the enterprises arising
out of past activities that are to be satisfied by the disbursement of utilization of
corporate resources. They are economic obligation of the firm.
*Owner’s equity:-
39
The owner’s equity is the owner’s current investment in the
assets of company.
The entire system of recording business transaction is based on
accounting equation. The accounting equation is an accounting formula
expressing equivalence of the two expressions of assets and liabilities.
ACCOUNTING EQUATION
OR
OR
40
An income statement is a financial statement summarizing the result of a
company’s income (profit) making activities for a specific time period. It
summarizes revenues and expenses in a manner that discloses whether a
company’s activates in a particular fiscal period have resulted in profit or a
loss. The income statement is a scoreboard of the firm’s performance during a
particular period of time. “The profit and loss account is the condensed and
classified record of the gains losses posing change in the owner’s interest in the
business for a period of time.”
The income statement or the profit and loss account presents the summary of
revenues, expenses and net income (or net loss) of a firm for a period of time.
Thus, it serves as measure of the firm’s profit ability. It’s systematic array of
the data of the revenues, revenues deduction (expenses, revenues, revenue
deductions, expenses, losses, taxes etc.)
Net income and distribution or assignment of the net income to creditors and
property investors of a particular period.
PARTIES INTERESTED
41
According to the American institute of certified public accountants, financial
statement reflects, a combination a recorded facts, accounting convention and
personal judgments and the judgments and conventions applied, affect them
materially.
Credit, suppliers and others are having business with the company.
Debenture holders.
Credit institutions and banks.
Potential lenders and investors.
Trade unions and employees.
Important customers wishing to make a long standing with the company.
Economist and analyst.
Members of parliament, the public committee in respect in government
companies.
Taxation authorities.
Other departments dealing with the industry in which the company
engaged cooperative.
The company law board.
42
FINANCIAL APPRAISAL
But the numerical data in the financial statement are quit calm. They cannot
speak. Analytical data are not ending in themselves, but they are meant to an
end. Financial appraisal is an attempt to determine the significance, and
meaning of the financial statement data so that forecast may be made of the
prospects for future earnings, ability to pay interest, debt maturities both
current as well as long term profitability of a sound dividend policy. Financial
appraisal involves the assessment of firm’s past, present and anticipated future
financial condition.
Financial appraisal is a scientific evaluation if the profitability and financial
strength of a business concern. In fact financial appraisal and analysis of
financial statement have nearly the same meaning. Financial statement analysis
is used for the purpose of financial appraisal. Financial appraisal is the process
of making a scientific proper, critical and comparative evaluation of the
profitability and financial health of given concern through the application of
43
financial statement analysis. Financial statement analysis is a preliminary step
towards the evaluation of result dawn by the analysis or management
accountant. Appraisal or evaluation of such results is made thereafter. Financial
appraisal begins where financial analysis ends, and financial analysis starts
where the summarization of financial data in the form of profit and loss
account and balance sheet ends, in the words of Kenney and mecmillan,
“financial statement analysis attempts to unveil the meaning and significance of
the items composed in profit and loss account and balance sheet so as to assist
the management in the formation of sound operating financial policies. The
appraisal or analysis of financial statement spotlights the significant facts and
relationship concerning managerial performance, corporate efficiency, financial
strength or weakness and credit worthiness, that would have otherwise been
buries in the maze of details.”
Appraisal of financial statement alone can answer such queries. Its true that
statement analysis merely reveals what has taken place in the past, but past
events given some indication of what may be expected in future unless some
drastic changes take place in business it. Will continue to move in the same
direction in the past.
Roy .A. Faulke is very correct to say “if a train is moving forward at a known
rate of speed, it is reasonable to assume that it will continue to move at
44
approximately the same rate unless some obstacle interrupts its progress
abruptly or the motive power is increased or decreased.” Similarly it is a
reasonable to assume that unless some realistic change take places in the places
in the business, it will continue to move in the same general direction as
indicated by its comparative trends.
45
Cherishable Memories: Dr. Bhunesh Vyas (Faculty Guide), Ms. Nikita
Deshpande (Soft Skills Trainer), Mr. Shashank Minocha (Student_ OSB,
Jaipur) Meeting With Mr. Kailash Khangarot (Jaipur Dairy)
46
Introduction:-
47
Gross working capital:-
48
capital, over and above permanent working capital, will fluctuate. For
example extra inventory of finished goods will have to be minted to support
the peak period of sale, and investment in debtors (receivable) may also
increase during such periods. On the other hand, investment in raw material,
work in process and finished goods will fall if the market is slack.
Temporary or
Amount of
Fluctuating
working
capital (Rs)
Time
49
fluctuating (temporary)-are necessary-to facilitate production and sales
through the operating cycle. But the firm to meet liquidity requirements that
will last only temporary working capital. In figure illustrates differences
between permanent and temporary working capital. It is shown that
permanent working capital is stable over time, while temporary working
capital is fluctuating – some times increasing and sometimes decreasing.
However, the permanent working capital need not be horizontal if the firm’s
requirement for permanent capital is increasing (or decreasing) over a period
Temporary or
Fluctuating
Amount of Permanent
working
capital (Rs)
Time
The gross working capital concept focuses attention on two aspects of current
assets management:
1. How to optimize investment in current assets?
2. How should current assets be financed?
50
The consideration of the level of investment in current assets should
avoid two danger points- excessive or inadequate investment in current assets.
Investment in current assets should be just adequate to the needs of the
business firm. Excessive investment in current assets should be avoided
because it impairs the firm’s profitability, as idle investment earns nothing. On
the other hand, inadequate amount of working capital can threaten solvency of
the firms because of its inability to meet its current obligations. It should be
released that the working capital needs of the firm may be fluctuating with
changing business activity. This may cause excess or shortage of working
capital frequently. The management should be prompt to initiate an action and
correct imbalances.
Another aspect of the gross working capital point to the need of
arranging funds to finance current assets. Whenever a need for working capital
funds arises due to the increasing level of business activity or for any other
reason. Financing arrangement should be made quickly. Similarly, if suddenly,
some surplus funds arise they should not be allowed to remain idle, but should
be invested in short- term securities. Thus, the financial manager should have
knowledge of the sources of working capital funds as well as investment
avenues where idle funds may be temporarily invested.
51
liquidity position poses a threat to the solvency of the company and makes it
unsafe and unsound. A negative working capital means a negative liquidity, and
may prove to be harmful for the company’s reputation excessive liquidity is
also bad. it may be due to mismanagement of current assets. There for, prompt
and timely action should be taken by management to improve and correct the
imbalances in the liquidity position of the firm.
Networking capital concept also covers the equation of judicious mix of long
term and short term funds for financing current assets. For every firm, there is a
minimum amount of net working capital which is permanent. Therefore, a
portion of the working capital should be financed with the permanent sources
of funds such as equity share capital, debentures, long term debt, performance
share capital or retained earnings. Management must, therefore, decide the
extent to which current assets should be financed with equity capital and/or
borrowed capital.
In summary, it may be emphasized that both gross and net concepts of working
capital are equally important for the efficient management of working capital.
There is no precise way to determine the exact amount of gross or net working
capital for any firm. The data and problems of each company should be
analyzed to determine the amount of working capital. There is no specific rule
as to how current assets should be financed. It is not feasible in practice to
finance current assets by short – term sources only. Keeping in view the
constraints of the individual company, a judicious mix of long and short term
finances should be invested in current assets. Since current assets involve cost
of funds, they should be put to productive use.
52
a steady amount of profit requires successful sells activities. The firm has to invest
enough funds in current assets for generating sales. Currents assets are needed
because sales do not convert into cash instantaneously. There is always an operating
cycle involved in the conversion of sales into case.
53
RMCP+WIPCP+FGCP
54
operating cycle of a firm increases, it means further need for negotiated
working capital.
Let us illustrate the computation of the length of operating cycle. Consider the
statement of cost of sales for a firm given in below-
Statement of Cost of Sales
( Rs in lakh)
ITEM ACTUAL 20X1 PROJECTED 20X2
1 Purchase of raw material X1 X.
2 Opening raw material inventory X2 ..
3 Closeing raw material inventory X3 ..
4 Raw material consumed (1+2-3) X4 X.
5 Direct labour X5 X.
6 Depriciation X.. X.
7 Other mfg. expences X… X.
8 Total cost (4+5+6+7) .. X.
9 Opening work-in-process inventory X.. X.
1
0 Closing work-in-process inventory … X.
11 Cost of production (8+9-10) .. X.
1
2 Opening finished goods inventory .. X.
1
3 Closing finished goods inventory .. X.
1
4 Cost of goods sold (11+12-13) .. X.
1
5 Selling administrtive and gen expences .. X.
1
6 cost of sales (14+15) .. X.
The firm's data for sales and debtors and creditors are given below
55
Gross operating cycle (GOC)
Raw material
Raw material Inventory
Conversion =
Period [ Rawmaterial
consumption]/360
56
RMC RMC*360
RMCP = RMI ÷ = ……(3)
360 RMC
Work-in-process
Work-in-process Inventory
Conversion =
Period [Cost of production]/360
Finished goods
Finished goods Inventory
Conversion =
Period [Cost of goods sold]/360
CGI FGI*360
FGCP = FGI ÷ = ……..(5)
57
360 CGS
Gross Creditors
Net operating = Operating = deferral
Cycle Cycle period
58
Net operating cycle is also referred to as cash conversion cycle. Some people
argue that depreciation and profit should be excluded in the computation of
cash conversion cycle since the firm’s concern is with cash flow associated
with conversion at contrary view is that a firm has to ultimately recover total
costs should include depreciation, and even the profits. Also, in using the
above-mentioned formulae, average figures for the period may be used.
For example, Table shows detained calculations of the components of a
firm’s operating cycle. Table provides the summary of calculations.
During 20X1 the daily raw material consumption was Rs 12.1 lakh and the
company held an ending raw material inventory of Rs827 lakh. If we assume
that this is the average inventory held by the company, the raw material
consumption the projected raw material conversion period is 60 days. This has
happened because both consumption (Rs 16.5 lakh per day) and level of
inventory (Rs 986 lakh) have increased, but the consumption rate has
increased) by 36.4 percent). Thus, the raw material conversion period has
declined by 8 days. Raw materials are the result of daily raw material
consumption and total raw material consumption and total raw material
consumption and total raw material consumption during a period given the
company’s production targets. Thus, raw material inventory is controlled
through control over purchases and production. We can similarly interpret other
calculations in table below
( Rs. In lakh)
Actual Projected
Item 19X1 19X2
1 Raw Materials Conversion Period
(a) Raw material consumption 4,349 5,932
(b) Raw material consumption per day 12.1 16.5
(c) raw material inventory 827 986
68
(d) Raw material inventory holding days d 60d
59
2 Work-in-process Conversion Period
(a)cost of production* 5,212 7,051
(b)cost of production per day 14.5 19.6
(c)work-in-process inventory 325 498
(d) Work-in-process inventory holding
days 22d 25d
3 Finished Goods Conversion Period
(a) Cost of goods sold* 5,003 6,582
(b) Cost of goods sold per day 13.9 18.3
(c) Finished goods inventory 526 995
(d)Finished goods inventory holding 38
days d 54d
4 Collection period
(a) Credit sales (at cost)** 6,087 8,006
(b) sales per day 16.9 22.2
(c) debtor 735 1,040
43
(d) debtors outstanding days d 47d
5 Creditors Deferral Period
(a) Credit purchases 4,653 6,091
(b) purchase per day 12.9 16.9
(c) creditors 454 642
35
(d) Creditors outstanding day d 38d
*Depreciation is including.
**All sales are assumed on credit.
Actual Projected
GROSS OPERATING CYCLE
1 Inventory Conversion Period
(i) Raw material 68 60
(ii) Work- in- process 22 25
(iii) Finished goods 38 128 54 139
2 Debtors Conversion Period 43 47
3 Gross operating cycle (1 + 2) 171 186
4 Payment Deferral period 35 38
NET OPERAING CYCLE (3-4) 136 148
60
We note a significant change in the company’s policy for 20X2 with regard
to finished goods inventory. It is expected to increase to 54 days holding from
38 days in the previous year. One reason could be a conscious policy decision
to avoid stock out situations and carry more finished goods inventory to expand
sales. But this policy has a cost; the company, in the absence of a significant
increase in payables (creditors) deferral period, will have to negotiate higher
working capital funds, In the case of the firm in our example, its net operating
cycle is expected to increase from 136 days to 148 days How does a company
manage its inventories, debtors and suppliers’ credit? How can it reduce its
operating cycle?
The operating cycle concept as shown in Figure relates to a manufacturing
firm. Non-manufacturing firms such as wholesalers and retailers will not have
the manufacturing phase. They will acquire stock of finished goods and convert
them into debtors (receivable) and debtors into cash. Further, service and
financial enterprises will not have inventory of goods (cash will be their
inventory). Their operating cycles will be the shortest. They need to acquire
cash, then lend (create debtors) and again convert lending into cash.
61
STUDENTS OF OSB, JAIPUR ENJOYING A MIX OF SPIRTUAL AND
PRACTICAL KNOWLEDGE AT JAIPUR DAIRY
62
Realizing the impotence of working capital in financial management the
analysis of working capital becomes an essential phenomenon. It facilitates the
adequacy and management of working capital. The management of working
capital provides a careful inquiry into its components so as to control the
working capital and to conserve it properly. It helps in determining the
optimum level of working capital in the firm. The process of measurement and
analysis of working capital is performed on the basis of financial statements of
the business enterprise for past few years.
In the present study the analysis of working capital of Jaipur dairy ltd. Has
been made by two techniques vis., trend analysis and ratio analysis.
63
Following table below shows the structure and trend of working capital of
Jaipur dairy ltd.during the period under review.
Inference
• Current Assets increase to 20.59% in the year of 2007-2008 as
Compare to in the year 2005-2006.
64
The analysis shows the effective and efficient management of working
capital by the Jaipur Dairy.
Current ratio
Quick ratio
Absolute ratio
Stock or inventory ratio
Working capital turnover ratio
CURRENTRATIO
Current ratio is one of the important ratios used in testing liquidity of a
concern. this is a good measure of the ability of company to maintain solvency
over a short run. This is computed by dividing the total current assets by the
total current liabilities and is expressed as:
65
The current assets of a firm represent those assets, which
can be in the ordinary course of business, converted into cash within one
accounting year. The current liabilities are defines as obligation maturing
within a short period (usually one accounting year). Excess of current assets
over current liabilities is known as working capital and since these two (current
assets and current liabilities) are used in current ratio therefore, this ratio is also
known as working capital ratio.
With the help of this ratio the analyst can review the extent to which the
company can covert such liabilities with current assets. The current ratio gives
the analyst a general picture of the adequacy of the working capital of a
company and ability of the company to meet its day-to-day payment obligation.
“it likewise measures the margin of safety provided for paying current debts in
the event of a reduction in the values of current assets.”
The current ratio is very useful as a measure of short terms debt prying ability
but it is tricky to interpret this ratio. Experts are of the view that the value of
current assets should be at least double the amount if current liabilities.
Walker and Bough have the same view when they ay “a good current ratio may
mean a good umbrella for creditors against the rainy days.”But to the
management it reflects bad financial planning or presence of idle assets or over
capitalization”
Under trading
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Shortage of stocks, less credit sales, shortage of cash.
Over trading
INFERENCE:-
This table reveals that current ratio has increased that is
making improvements in its short term solvency. It is because of increase in
current assets as compared to current liabilities. Still this is lower than standard
current assets ratio that shows a little bit unsatisfactory liquidity position of the
company.
The Current Ratio for the year 2007-2008 has taken the Value of 2.01:1, which
is very satisfactory and as per the standard required (2:1).The current ratio of
2.01:1 indicates, that for every Rs 1 of current liability the company Rs 2 of
current assets, which indicates more liquidity and hence more amount of
working capital.
QUICK RATIO
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The term quick assets include all current assets except inventories and prepaid
expenses. It shows the relationship of quick assets and current liabilities. The
Ratio is calculated as following:
INFERENCE:-
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Although it is less idle ratio still it has increasing trend that
shows dairy’s improving condition of short term solvency of Jaipur dairy.
Quick ratio for the year 2007-08 is above the ideal standard. It is 1.04:1, which
indicates that for every Re1 of current liability the company has Rs 1.04 of
current assets, hence the company is in sound position in terms of working
capital position.
The term liquid assets include cash bank balance and marketable securities, if
current liabilities are to pay at once, only balance of Cash and marketable
securities will be utilized. Therefore, to measure the absolute liquidity of a
business, this ratio is calculated.
The idea behind the norm id that if all creditors for demand for payment, at
least 50% of their claim should be satisfied at once.
The table shown on the next page reflects the absolute liquidity ratio Jaipur
Dairy Ltd.
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ABSOLUTE CURRENT ABSOLUTE
YEAR
LIQUID ASSETS LIABILITIES RATIO
(A) (B) (C) (B)/(C)
2005-2006 18955185.12 526439722 0.04
2006-2007 36792167.67 512950750.7 0.07
2007-2008 28054901.36 442009648.8 0.06
INFERENCE
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Same volume of sales from less stock or more sales from
Same stock
Too high ratio shows stock outs or over trading.
Less working capital requirement.
The ration is calculated by dividing the cost of goods sold by the amount of
average stock at cost.
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INVENTORY TURNOVER RATIO OF JAIPUR DAIRY LTD.
DURING 2005TO 2008
YEAR COST OF AVERAGE INVENTORY INVENTORY
GOOD SOLD INVENTORY TURNOVER(TIMES) TURNOVER(DAYS)
(A) (B) (C) (D) = (B)/(C) (E)= 365/D
2005-2006 2955076031 377580243.7 7.83 46.64
2006-2007 3501014350 427327384.8 8.19 44.55
2007-2008 3995104641 465048573.5 8.59 42.49
INFERENCE:-
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WORKING CAPITAL RATIO OF JAIPUR DAIRYLTD. DURING
2005 TO 2008
NET WORKING CURRENT
YEAR SALES CAPITAL RATIO
(A) (B) (C) (B)/(C)
2005-2006 3207510314 242121714.4 13.24
2006-2007 3747805031 347033040 10.8
2007-2008 4266143965 484788939.4 8.8
INFERENCE:
In spite of an increase in Net Working Capital, the Working
capital turnover ratio of Jaipur Dairy got reduced to 10.8 times in the year
2006- 2007, as compared to the year 2005-07. Similarly, in the year 2007-08,
the working capital turnover ratio further reduced to 8.8 times as compared to
13.24 times in the year 2005-06. The reduction in working capital turnover
ratio is on account of massive growth in net working capital as compared to a
slight growth in the sales of the company.
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Saras Plant:-The family that would be in our
hearts throughout the life.
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Financial analysis is analysis of financial statements
of and enterprise. Financial statement reorganized collection of data according
to logical and constituent accounting procedures. How ever financial
statements in their traditional from giving historical data and information are of
little us to these who use them to draw certain conclusion.
PROFITABILITY
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The measurement of profitability is a tool of overall measurement of efficiency
an overall study profitability of Jaipur dairy has been Dade in relation to sales
operating assets capital employed and its net worth.
By analysis the working result i.e. Profit and loss account of Jaipur dairy ltd. It
was found that the net profit before interest and tax of the Jaipur dairy is
showing increasing trends. This is very good for Jaipur dairy ltd. The increase
in the profits is nearly 24% more then previous year the reason is good sales
growth between years. For this following suggestion should be considered.
• Proper cost control is required and cost control technique should be
adopted for it.
• Operating expenses, admn. Expenses should be specially considered to
be reduced.
• Inventory is the biggest items of balance sheet that must have demanded
a large amount of maintaining cost. So efficient inventory management
should be done. Inventory should be reduced extent that would help to
recover blocking money in inventory.
• The service staff should be given proper training and better environment
for work.
• Proper advertisement and sales promotion is required.
• Dairy has to pay large fix interest charged. Hence long term borrowing
should be reduced so that the earning are satisfactorily earmarked with
them.
Working capital
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• In the year 2006-2007 the growth in working capital was
43.33%As compare to the year 2005-2006 similarly working capital in
the year 2007-2008 has grown to 100.03% as compared to the working
capital in the year 2005-2006. The management should follow the
same trend in near future too so to have considerable appreciation in
working capital every year.
• The Current Ratio for the year 2007-2008 has taken the Value of 2.01:1,
which is very satisfactory and as per the standard required (2:1).The
current ratio of 2.01:1 indicates, that for every Rs 1 of current liability the
company Rs 2 of current assets, which indicates more liquidity and
hence more amount of working capital. The company need to further
enhance the value of ratio.
• Quick ratio for the year 2008-09 is above the ideal standard (1:1). It is
1.04:1, which indicates that for every Re1 of current liability the
company has Rs 1.04 of current assets, hence the company is in sound
position in terms of working capital position. It would be better for the
company if in near future it could further enhance the value of the
ratio
• Absolute quick ratio for the years right from 2005 up to 2008 are close
to the standard. For year 2007-08, the ratio is well above the standard
(0.5:1), which indicates the healthy picture of the company in terms of
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availability of working capital (quick assets) in order to meet current
liabilities. The same position should be sustained in near future too.
REFRENCES
78
I.M.Pandey, (1978), financial management, Ninth addition, UBS
Publication New Delhi.
Van Horn,(2002),Financial Management and Policy,12th edition,
Publisher Dorling Kindersley India ltd.
Horne Wwachonicz, J.R.Bhaduri (2005), Fundamentals and Financial
management, 12th edition, Pearson publisher.
MY Khan, P.K.Jain (1981), Financial Management,5th edition, Publisher
Mc graw hill companies.
Financial statement for the year ended 2007-08 as obtained from Jaipur Dairy
Annual-Report 2006-07 of Jaipur Dairy.
Study module on financial management by ICFAI HYDRABAD INDIA.
Financial dailies.
Economic Times
Business Standard
Business Magazines
Business India
Business World
Internet Portals:
www.jaipurdairy.com
www.dairyindia.com
www.scribd.com
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GLOSSARY
1) HACCP: HACCP stands for Hazard Analysis and Critical Control Points.
HACCP is an industry-wide effort approved by the scientific community as
well as regulatory and industry practitioners. This effort is designed to focus
specifically on food safety, including food safety in retail establishments.
HACCP, or the Hazard Analysis Critical Control Point system, is a process
control system that identifies where hazards might occur in the food
production process and puts into place stringent actions to take to prevent
the hazards from occurring. By strictly monitoring and controlling each step
of the process, there is less chance for hazards to occur. HACCP is
important because it prioritizes and controls potential hazards in food
production. By controlling major food risks, such as microbiological,
chemical and physical contaminants, the industry can better assure
consumers that its products are as safe as good science and technology
allows. By reducing food borne hazards, public health protection is
strengthened.
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