2009

capking capital

PROJECT REPORT
ON
WORKING CAPITAL MANAGEMENT
OF
BRITANNIA GROUP OF INDUSTRIES

SUBMITTED TO

PROF. TANVEER SHAHAB

(Academic Coordinator)

GEMA, New Delhi

SUBMITTED BY

VIKASH KUMAR

MBA, JULY BATCH (2008-10)

GEMA
 FINAL REPORT

ON

“STUDY OF WORKING CAPITAL MANAGEMENT ON BRITANNIA”

SUBMITTED TO

PROF. TANVEER SHAHAB

(Academic Coordinator)

GEMA, New Delhi

SUBMITTED BY

VIKASH KUMAR

Regn. No: -08-JLDE-10504

MBA, JULY BATCH (2008-10)

GEMA 2
 ACKNOWLEDGEMENT
As part of the curriculum at GEMA (MBA college), New Delhi, Project enables
us to enhance our skills us to face the extremely „competitive corporate world‟ in
the near future.

I respectfully express my gratitude to Prof. Tanveer Shahab (Academic coordinator

in GEMA) for giving me an opportunity to undertake this project work.

I have tried my level best to put my knowledge and analysis in writing this report. I
am grateful to GEMA &it‟s all members.

Lastly I would like to thank my parents, friends and well wishers who
encouraged me to do this research work and all those who contributed directly or
indirectly in completing this project to whom I am obligated to.

VIKASH KUMAR

M.B.A

(III-Sem, July 2008-10)

GEMA 3
DECLARATION

I Vikash Kumar hereby declare that the project entitled “a study on working capital
& investment analysis” with reference to Britannia, submitted by me ,department
of finance management, GEMA, New Delhi, (Affiliated to MDU) is of my own
and has not been submitted by another

GEMA 4
ABSTRACT
There are a number of functions that have assumed significance in the Corporate
Finance. With rapid globalization, this complexity is likely to accelerate in the
future. Hence, the relentless pace of liberalization and integration of the Indian
financial markets with the global markets has lead to study of WORKING
CAPITAL MANAGEMENT and has made it quite significant in the modern
world.
The primary objective of the project is to study and understand WORKING
CAPITAL MANAGEMENT with reference to BRITANNIA. The other objectives
were to understand the BRITANNIA industry, various Government and RBI
policies governing the sector, position of GOOD DAY BUSICT in the industry and
analyze the performance of the company using ratio analysis.
The business concerned here is the BUSCIT manufacturing, which plays a major
role in the company‟s organization. The significance and need for the study will
help the company to analyze the factors that affect the working capital of the
business the most, and subsequently find out what should be the composition of
these factors in order to have a sound working capital. The project involved
collecting of both primary data provided by the company as well as secondary data
through various sources.
The findings include that the various components of Working Capital Management
require differentiated treatment and hence it is recommended that each component
should be treated according to its merit and peculiarities.

GEMA 5
 CONTENTS

01 Acknowledgement 03
02 Abstract 04
03 Declaration 05
Working Capital Management 07-09
04 1) Introduction
2)Need Of Working Capital
3)Gross W.C And Net W.C
)4)Type Of Working Capital
5)Determinants Of Working Capital
05 Research Methodology 09-11
1)Introduction
2)Type Of Research Methodology
3)Objective Of Study
4)Scope And Limitations Of Study
06 Introduction Company 12-16
1)Corporate Philosophy
2)Corporate History
3)Products Profile
4)financial highlights
07 WORKING CAPITAL LEVEL AND 17-23
1)Working
ANALYSIS Capital Level
2)Working Capital Trend Analysis
3)current assets analysis
4)current liabilities analysis
4) Changes Of Working Capital
5)Operating Cycle
08 Working Capital Ratio Analysis 24-30
1)Introduction
2)Role Of Ratio Analysis
3)Limitation Of Ratio Analysis
4)Efficiency Ratio
5)Liquidity Ratio
09 Working Capital Finance And Estimation 31-32
1)Sources Of Working Capital Finance
2)Estimation Of Working Capital
10 Conclusion And Recommendations 33-33
11 Previous Four Year Balance Sheet 34-35
11 Balance sheet of four year

GEMA 6
 1. Working Capital Management
1.1) Introduction

Working capital management is concerned with the problems arise in attempting to manage the
current assets, the current liabilities and the inter relationship that exit between them. The term
current assets refers to those assets which in ordinary course of business can be, turned in to cash
within one year without undergoing a diminution in value and without disrupting the operation
of the firm. The major current assets are cash; marketable securities, account receivable and
inventory .current liabilities ware those liabilities which intended at this inception to be paid in
ordinary course of business, within a year, out of the current assets or earnings of the concern.
The basic current liabilities are account payable, bill payable, bank over-draft, and outstanding
expenses.

Definition:-

According to Guttmann & dougall:-

“Excess of current assets over liabilities”

1.2) Need Of Working Capital Management

The need for working capital gross of current assets cannot be over emphasized. As already
observed, the objective of financial decision making is to maximize he shareholders wealth. To
achieve this, it is necessary to generate sufficient profits can be earned will naturally depend
upon the magnitude of the sales among other things bur sales cannot convert into cash. There is
need of working capital in the form of current assets to deal with the problem arising out of lack
of immediate realization of cash against goods sold. Therefore sufficient working capital is
necessary to sustain sales activity.

1.3) Gross Working Capital and Net Working Capital

There are two concepts of working capital management

1. Gross working capital

Gross working capital refers to the firm‟s investment in current assets. current assets are the
assets which can be convert in to cash within year includes cash, short term securities, debtors,
bills receivable and inventory.

GEMA 7
2. Net working capital
Net working capital refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders which are expected to mature for payment within an
accounting year and include creditors, bills payable and outstanding expenses, net working
capital can be positive or negative.

1.4) Type of Working Capital

The operating cycle creates the need for current assets (working capital).however the need does
not come to an end after the cycle is completed to explain this continuing need of current assets
a destination should be drawn between permanent and temporary working capital.

1. Permanent working capital

The need for current assets arises, as already observed, because of the cash cycle. To carry on
business certain minimum level of working capital is necessary on continues and uninterrupted
basis. For all practical purpose, this requirement will have to be met permanent as with other
fixed assets. This requirement refers to as permanent of fixes working capital.

2. Temporary working capital

Any amount over and above the permanent level of working capital is temporary, fluctuating or
variable; working capital .This portion of the required working capital is needed meet fluctuation
in demand consequent upon changes in production and sales as result of seasonal changes

Temporary

Amt. of W.C

Permanent

Time

GEMA 8
1.5) Determinants of Working Capital

The amount of working capital is depends upon a following factors

1. Nature of business

2. Length of production cycle

3. Size and growth of business

4. Business trade cycle

5. Terms of purchase and sales

6. Profitability

7. Operating efficiency

2. RESEARCH METHODOLOGY
2.1) INTRODUCTION

Four types of studies can be called research namely, reporting, description, explanation and
prediction can be called research. Cooper & Emory (1995:21) define research as a systematic
inquiry aimed at providing information to solve problems business research on the other hand
can be defined as a systematic inquiry that will provide information to guide business decision
making.

2.2) Types Of Research Methodology

There are two types of research methodology.

1. Primary data collection method

The Primary data are those which is collected fresh or first hand, and for first time which is
original in nature. Primary data can collect though personal interview, questionnaire etc. to
support the secondary data.

2. Secondary data collection method

The secondary data are those which have already collected and stored. Secondary data easily get
those secondary data from records, journals, annual reports of the company etc. it will save the
time, money and efforts to collect the data. Secondary data also made available through trade
magazines, balance sheets, books etc.

GEMA 9
This project is based on secondary data collected through four years annual report of the
company, supported by various books and internet sides. The data collection was aimed at study
of working capital management of the company

Project is based on

1. Annual report of Britannia 2003-04

2. Annual report of Britannia 2004-05

3. Annual report of Britannia 2005-06

4. Annual report of Britannia 2006-07

2.3) Objective of the Study

Study of the working capital management is important because unless the working capital is
managed effectively, monitored efficiently planed properly and reviewed periodically at regular
intervals to remove bottlenecks if any the company cannot earn profits and increase its turnover.
With this primary objective of the study, the following further objectives are framed for a depth
analysis.

1. To study the working capital management of Britannia group.

2. To study the optimum level of current assets and current liabilities of the company.

3. To study the working capital components such as receivables accounts, cash

management, inventory position.

4. To study the liquidity through various working capitals related ratios group.

5. To study the way and means of working capital finance of the Britannia group.

6. To estimate the working capital requirement of Britannia group.

7. To study the operating and cash cycle of the company.

2.4) scope & limitations of the study

Scope of the study

The scope of the study is identified after and during the study is conducted. The study of working capital
is based of tools like trend analysis, ratio analysis, working capital leverage, operating cycle etc. further

GEMA 10
the study is based on last 4 years annual reports of Britannia group. And even factors like competitor‟s
analysis, industry analysis were no considered while preparing this project

Limitations of the study

Following limitations were encountered while preparing this project;

1. Limited data

2. Limited period

3. Limited area

GEMA 11
3. Introduction of Company

3.1) Corporate Philosophy

Vision
We are committed to providing extraordinary end of life care to any person living
in the Cayman Islands.

Mission
We offer quality comfort care to anyone who has cancer or other terminal illnesses,
free of charge .Our Palliative Care Specialist Nurses reduce pain, manage other
distressing symptoms and attend to the Social, psychological, spiritual and
emotional needs of both patient and family. We are committed to enhancing and
improving the lives of all those affected by death and to assuring long-term support
for survivors after loss.

Values
We pledge to:
Honour each patient and to respect his or her journey.
Support patient & family wishes in end-of-life care.
Care for survivors, helping them heal and move through their grief.
Become life-long learners, ensuring our patients receive the finest care possible.
Value our colleagues, believing in the dignity of our mission and acknowledging
each

GEMA 12
3.2) Corporate History of BISCUITS
Sweet or salty, Soft or crunchy. Simple or exotic. Everybody loves munching on biscuits, but do
they know how biscuits began?

The history of biscuits can be traced back to a recipe created by the Roman chef Apicius, in
which "a thick paste of fine wheat flour was boiled and spread out on a plate. When it had dried
and hardened it was cut up and then fried until crisp, then served with honey and pepper."

The word 'Biscuit' is derived from the Latin words 'Bis' (meaning 'twice') and 'Coctus' (Meaning
cooked or baked). The word 'Biscotti' is also the generic term for cookies in Italian. Back then,
biscuits were unleavened, hard and thin wafers which, because of their low water content, were
ideal food to store.

Making good biscuits is quite an art, and history bears testimony to that. During the 17 th and 18th
Centuries in Europe, baking was a carefully controlled profession, managed through a series of
'guilds' or professional associations. To become a baker, one had to complete years of
apprenticeship - working through the ranks of apprentice, journeyman, and finally master baker.
Not only this, the amount and quality of biscuits baked were also carefully monitored.

 BRITANNIA
The story of one of India's favorite brands reads almost like a fairy tale. Once upon a time, in
1892 to be precise, a biscuit company was started in a nondescript house in Calcutta (now
Kolkata) with an initial investment of Rs. 295. The company we all know as Britannia today.

1987-a humble genesis was acquired by Gupta brothers who moved operation to Dum Dum in
Calcutta under the name of V.S brothers.

1918- Mr C. H. Holmes, an English business man, partnered with Gupta Brothers ,Britannia was
incorporated on the21st of march 1918 as a public limited company under the Indian companies
Act VII if 1913.

1921-ia obtained priority Britannia certificate to import new machinery. It became the first
company east of the Suez Canal to use gas ovens.

1924-new factories were establishes in Mumbai and Calcutta .Britannia became a subsidiary of
peek , Frean & company limited ,a leading biscuit company in UK.

1935-45-During World War II Britannia diverted 95% of its production for manufacturing
„service biscuits‟ for soldiers.

1954- High quality slice and packaged bead was pioneered and launched in Delhi.

GEMA 13
1979-On 3rd October, the company was re- christened from Britannia biscuit company limited to
Britannia industries Limited.

1983-Sales crossed the Rs. 100 crore milestones.

1992- Britannia celebrated its platinum jubilee and launched “Little hearts”.

1993- The wadia Group acquired a stake in ABI Holdings Limited (ABIH) and 50-50 was
launched.

1997- “Eat Healthy, Think Better” became the new corporate mantra. Britannia entered the dairy
business. „Tiger‟ biscuits were launched.‟ Jim Jam‟and‟Chekkers‟ ere launched.

2000- Forbes global ranked Britannia among top 200 small companies with NO. 1 food brand of
the country.

2002- Britannia formed a joint venture with Fonterra, the world‟s second largest dairy company
and Britannia New Zealand Food private Limited was born.

2005-„50-50 pepper chakkar‟ was launched.

2007- in a survey conducted by AC Nielsen ONG-Marge and published in the Economic times
,Britannia was rated the No.1 MOST TRUSTED FOOD BRAND it also ranked as No.1 brand in
Metros across all categories.

2008- Britani launched Iron fortified (tiger‟ biscuits,‟ Good Day Classic Cookies‟, Low FT, DAI
and Renovated „Marie Gold‟.

The company's offerings are spread across the spectrum with products ranging from the healthy
and economical Tiger biscuits to the more lifestyle-oriented Milkman Cheese. Having succeeded
in garnering the trust of almost one-third of India's one billion populations and a strong
management at the helm means Britannia will continue to dream big on its path of innovation
and quality.

GEMA 14
PRODUCTS
Tiger Banana

Britannia is committed to help secure every child's right to Growth

& Development through good food every day. Purposefully taking
forward the credo of 'Eat Healthy, Think Better’.

NutriChoice Sugar Out

NUTRICHOICE Sugar Out is sweetened with "Sucralose," derived

from sugar, which provides the same sweetness as any other biscuit,
without the added calories of sugar.

Britannia 50-50 Pepper Chakkar

The launch of the latest 50-50 variant left everybody guessing "What it
eez?" From TV ads, radio, outdoor and in-store display materials to
events, a website and SMS and email blasts, traditional and new media
were blended synergistically to create excitement and curiosity about
the unique taste of the biscuit

Treat Fruit Rollz

All kids who have relished the yummy creamy treasures of Britannia
Treat in exciting flavors, have yet another reason to celebrate! Britannia
Treat launches the amazingly yummy Treat Fruit Rollz!! These tasty
soft rolls are filled with real fruits and provide a healthy yet mouth-
watering treat to the kids

New Britannia Milk Bikis

Milk Bikis, the favorite growth partner of Kids, now brings greater
value and delight to all with its new product and pack design. Recently
re-launched in its existing Southern & Eastern markets, and extended
across India, the new Milk Bikis is all set to add excitement and appeal
to „nutritious‟ food. Whoever said that „good food‟ needs to look „dull
and boring‟, will just have to take a look at Milk Bikis.

GEMA 15
 Good Day

Britani launched Iron fortified (tiger‟ biscuits,‟ Good Day Classic

Cookies‟, Low FT, DAI and Renovated „Marie Gold‟.

3.4) Financial Highlights

Financial Highlights for Year 2006-07
Rs. mn 2006-07(A) 2005-06(B) %Change(A-B/B)

Sales 23171 18179 27%

Operating profit 972 1762 -45%

Shareholders' funds 6148 5491 12%

Capital expenditure 889 407 118%

Before exceptional items

Profit before tax 1238 1958 -37%

Profit after tax 1131 1415 -20%

Cash flow generation 1385 1632 -15%

After exceptional items

Profit before tax 1184 2007 -41%

Profit after tax 1076 1464 -26%

Cash flow generation 1384 1681 -18%

Per equity share (Rs.)

Earnings 44.16 59.96 -26%

Dividend 15.00 15.00 0%

Dividend + Tax 17.55 17.10 3%

GEMA 16
4) WORKING CAPITAL LEVEL AND ANALYSIS
4.1) the consideration of the level investment in current assets should avoid two danger points excessive
and inadequate investment in current assets. Investment in current assets should be just adequate, not
more at less, to the need of the business firms. Excessive investment in current assets should be avoided
because it impairs the firm‟s profitability, as idle investment earns nothing

Size of working capital

Particulars 2003-04 2004-05 2005-06 2006-07

A)current assets

Inventories 1222464 1,342,237 1847956 2,149,406

Sundry debtors 191,136 427,764 208516 286,070

Cash & bank balance 70,827 163,062 353393 486,460

Other assets 4,389 1,847 5558 10,979

Loan & advance 779,375 708,720 94052 880,746

Total of A (gross W.C) 2,268,191 2,643,630 3356077 3,813,661

B)current liabilities

Current liabilities 1,372,980 2,059,717 2247006 2,367,195

Provisions 781,228 973,431 783313 863,071

Total of B 2,154,208 3,033,148 3030319 3,230,266

Net W.C.(A-B) 113,983 (389,518) 325758 583,395

4.2) working capital trend analysis

Working capital is one of the important fields of management .it is therefore vey essential for an annalist
to make a study about the trend and direction of working capital over a period of time .such analysis
enables as to study the upward and downward trend in current assets and current liabilities and its effect
on the working capital position.

According to R.C. galeziem “The trend is defined as smooth irreversible movement in the series. It
can be increasing or decreasing”.

GEMA 17
 Working capital size
Years 2003-04 2004-05 2005-06 2006-07

Net W.C.w 113,983 (389,518) 325758 583,395

W.C. Indices 100 341.73 285.63 511.54

W.C. Indices of 2004-05= 389518*100/113983 =341.73

W.C. Indices of 2005-06=325578*341.73/389518=285.63

W.C. Indices of 2006-07=583395*285.63/325755=511.54

Working capital indices

Observations
It was observed that major source of liquidity problem is mismatch between current payments
and current receipts from the comparison of funds flow statement of Britannia for four years .it
was observed that in the year 2004 -05 pushed down the net working capital to the present level
due to current assets increased by around(2643630-2268191*100/2268191= 16.6%) And current
liabilities increased only by 40.8% .the working capital decreased by 441.73%, is clear indication
that the company is utilizing its short term resources with efficiency .In the year 2005to 2006 net
working capital increased to Rs 326758 lakhs from Rs (389518) lakhs, the increase in working
capital is close to 183.63% While current assets increased by 26.95% a current liabilities by
9.8%. it shows that management is using long term funds to short term requirements .and it has
gone up to Rs.58339lakhs in the year 2007 because current assets gone up only 13.6%, current
liabilities grown by 6.6% .This two together gone up the net working capital to the present level

GEMA 18
.The increase in working capital is a clear indicated that the company is utilizing its long term
funds to short term resources with efficiency.

4.3) current assets

Total assets are basically in two parts as fixed assets and current assets. Fixed assets are in the
nature of long term or life time for the organization .current assets convert in the period of one
year .it means that current assets are liquid assets or assets which can convert in to cash within a
year.

Table of Current assets size

(Rs. In lakhs)

Particulars 2003-04 2004-05 2005-06 2006-07

Inventories 1222464 1,342,237 1847956 2,149,406

Sundry debtors 191,136 427,764 208516 286,070

Cash & bank balance 70,827 163,062 353393 486,460

Other assets 4,389 1,847 5558 10,979

Loan & advance 779,375 708,720 94052 880,746

Total (gross W.C) 2,268,191 2,643,630 3356077 3,813,661

C.A. Indices 100 116.55 147.96 168.13

GEMA 19
4.4) Current Liabilities
Current liabilities mean the liabilities which have to pay in current year. It includes sundry
creditors means whose payment is due but not paid yet. Thus creditors called as current
liabilities .current liabilities also include short term loan and provision as tax provision .current
liabilities also includes bank overdraft. For some current assets like bank overdrafts and short
term loan, company has to pay interest thus the management of current liabilities has
importance.

Table of Current Liabilities size

(Rs. In lakhs)

Particulars 2003-04 2004-05 2005-06 2006-07

Current liabilities 1,372,980 2,059,717 2247006 2,367,195

Provisions 781,228 973,431 783313 863,071

Total 2,154,208 3,033,148 3030319 3,230,266

Indices of C.L 100 140.80 140.66 149.94

Pie Chart of Indices of C.L

GEMA 20
Observations
Current liabilities show not regular growth each year, because company establishing new factory
in Rudrapur, Uttaranchal in 2005 but company creates the credit in the market by good
transaction. To get maximum/minimum credit from supplier which is reduces/increase the need
of working capital of firm. As a current liability decrease in the year2006-07 by 6.6% from 9.8%
it increases the working capital size in the same year.

4.5) changes in working capita

There are so many reasons to changes in working capital as follow

1. Changes in sales and operating expanses

The changes in sales and operating expenses may be due to three reasons
There may be long run trend of change e.g. the price of row material say oil may
constantly raise necessity the holding of large inventory.
Cyclical changes in economy dealing to up and down in business activity will influence
the level of working capital both permanent and temporary.
Changes in seasonality in sales activities.

2. Policy changes
3. Technology changes

Statement of changes In working capital

Particulars 2005-06 2006-07 Changes in W.C

A)current assets Increase Decrease

Inventories 1,851,667 2,149,406 297739

Sundry debtors 208,494 286,070 77576

Cash & bank balance 353,395 486,460 133065

Other assets 1,847 1,709 138

Loan & advance 940,316 890,016 50300

Total of A (gross W.C) 3,355,719 3,813,661

B)current liabilities

Current liabilities 2,246,648 2,381,169 134521

GEMA 21
Provisions 783,313 849,097 65784

Total of B 3030319 3,230,266

Net W.C.(A-B) 325758 583,395

Net increase in working 257637 257637

capital

Total 583395 583395 508380 508380

Observations

Working capital increased in the year 2006 to 2007 because

1. Sales increase by around 27%, where cost of raw material purchased decreased by 9.00%
and manufacturing expenses decreased by 20%.
2. Cost of material and manufacturing decreasing because of India inflation rate5.21% in
july, 5.45% in November, 2006 and in 2007 ,March 10 - (week ending 24 Feb) 6.10
percent ,March 16 - 6.46 percent ,April 6 - 6.39 percent ,April 14 - 5.74 percent ,April 20
- (week ended 7 April) 6.09 percent ,May 4 - 5.77 percent ,May 10 - 5.25 percent ,June
23 - (week ending 9 Jun) 4.38 percent ,July 13 - 4.27 percent ,August 11 - (week ending
28 July) 4.45 percent

4.6) Operating Cycle

The need of working capital arrived because of time gap between production of goods and their
actual realization after sale. This time gap is called “operating cycle” or “working capital cycle”.
The operating cycle is the length of time between the company‟s outlay on raw materials ,wages
and other expanses and inflow of cash from sales of goods.

The duration of the operating cycle depends on nature of industries and efficiency in working
capital management.

 Calculation of operating cycle

To calculation of Britannia used last four years data .

(in days)

Year 2003-04 2004-05 2005-06 2006-07

ADD.

GEMA 22
Raw Mat. Holding Period 76 78 66 37

WIP Period 9 16 7 27

Finished Goods Holding 14 22 42 23

Period

Receivable Collection Period 9 3 12 12

Gross Operating Cycle 108 119 127 99

LESS.

Creditors Payment Period 13 15 12 6

Net Operating Cycle 95 104 115 93

Observations.
Operating cycle of Britannia shows the number of day is decreasing in these years it is reflect the
efficiency of management. Days of operating cycle shows period of lack of funds in current
assets, if no of day are more than it increases the cost of funds as taken from outside of the
business. In 2005-06 shows the high no. of days because of reduced of creditors holding period.

GEMA 23
5) WORKING CAITAL RATIO ANALYSIS
5.1) INTRODUCTION

Ratio analysis is tool of financial statements analysis .a ratio is define as “indicated quotient of
two mathematical expressions” and as “ the relationship between two or more things”. The
absolutes figures reported in the financial statement do not provide meaningful understanding of
the performance and financial position of the firm. Ratio helps to summaries large quantities of
financial data and to make qualitative judgment of the firm‟s financial performance.

5.2) Role of ratio analysis.

Ratio analysis is helps to appraise the firms in term of their profitability and efficiency of
performance, either individually of in relation to other firms in same industry. It is one of the
best possible techniques available to management to impart the basic functions like planning and
control .as future in closely related to the immediately past, ratio calculated on the vasis
historical financial data may be good assistance to predict the future.

It enables the interested persons to know the finance and operational characteristics of an
organization and take suitable decisions.

5.3) limitations of ratio analysis

 To difficult to find a basis for making the comparison
 Technique of ratio analysis may prove inadequate in some situations if there is differs I
opinion regarding the interpretation of certain ratio .

5.4) Classification Of Working Capital Ratio

Working capital ratio means ratios which are related with the working capital management e.g. current
assets, current liabilities, liquidity, profitability and risk turnoff etc. these ratio are classified as follows

1) Efficiency ratio
Efficiency ratio is called as activity ratio or assets management ratio. The important of efficiency
ratio as follow:
 working capital turnover ratio
 inventory turnover ratio
 receivable turnover ratio
 current assets turnover ratio

GEMA 24
 2) liquidity ratio
The ratios compound under this group indicate the short term position the organization and
also indicate the efficiency the efficiency with which the working capital is being used . The
most important ratio under this group is follows

current ratio
quick ratio
 Working capital turnover ratio.
It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase in
sales contemplated working capital should be adequate and thus this ratio helps management to maintain
the adequate level of working capital . The ratio measures the efficiency with which the working capital is
being used by a firm. It may thus computer net working capital turnover by dividing salse by working
capital.

particulars 2003-04 2004-05 2005-06 2006-07

Sales 14705263 16154485 18179211 23171135

Net W .C. 113,983 (389,518) 325758 583,395

W. C. TOR 129.01 (41.47) 55.80 39.72

 Table of Working capital turnover ratio.

GEMA 25
Working capital turnover ratio indicates the capability of the organization to achieve maximum
sales with the minimum investment in working capital. Company‟s working capital ratio shows
mostly more than to, except for the year 2006-07 because of excess of cash balance in current
assets which occurred due to encashment of deposits. In the year 2003-04 the ratio was around
129, it indicates that the capability of company to achieve maximum sales with the minimum
investment in working capital.

 Inventory Turnover Ratio :

Inventory turnover ratio indicates the efficiency of the firm in producing and selling its products.
It is calculated by dividing the cost of goods sold by average inventory:

COST OF GOODS SOLD or (sale-gross profit)

INVERNTORY T0R = AVARAGE INVENTORY

The Average inventory is the average of opening and closing balance of inventory in a
manufacturing company like Britannia inventory of finished goods is used to calculate inventory
turnover ratio

TABLE OF INVENTORY TURNOVER RATIO

particulars 2003-04 2004-05 2005-06 2006-07

Cost of goods sold 12741979 13733918 16220848 21933267

Average inventory 1172958 1282182 1596783 2000537

inventory 10.86 10.71 10.15 .47

GEMA 26
  Receivable turnover ratio
The derivation of this ratio is made in following way

Receivable turnover ratio shows the relationship between unpaid credit sales to total credit sales.
It indicates, in general, the effectiveness (or lack of it) of a firm's credit policies and cash
collection efforts.

 CURRENT ASSETS TURNOVER RATIO

Current assets turnover ratio is calculate to know the firms efficiency of utilizing the current
assts. Current assets includes the assets like inventories, sundry debtors, bills receivable, cash in
hand or bank , marketable securities, prepaid expenses and short term land and advance. This
ratio includes the efficiency with which current assets turn into sales. A high ratio implies a
more efficient use of funds thus high turnover ratio indicate to reduced the lock up of funds in
current assets. An analysis of this ratio over a period of time reflects working capital
management of a firm.

Sales

Current assets TOR =

CURRENT ASSET

particulars 2003-04 2004-05 2005-06 2006-07

Sales 14705263 16154485 18179211 23171135

Current 2,268,191 2,643,630 3356077 3,813,661

assets

Current 6.48 6.11 5.41 6.07

assets TOR

GEMA 27
Observations
Turnover ratio was 6.48 in the year 2002-03 and decrease to .11 and 5.41 in the year 2004 and 2005
respectively because of high cash balance. Cash did not help to increase In sales volume, as cash is non
earning asset. In the year 2006-07 company increased its sales with increased investment in current asset,
thus current assets turnover ratio increased to 6.07 from 5.41.

LIQUIDITY RATIO

1) CURRENT RATIO

A measure of the degree to which current assets cover current liabilities (Current Assets /
Current Liabilities). A high ratio indicates a good probability the enterprise can retire current
debts. A ratio of 2:1 or higher is a comfortable financial position for most enterprises.

particulars 2003-04 2004-05 2005-06 2006-07

Current 2,268,191 2,643,630 3356077 3,813,661

assets

Current 2,154,208 3,033,148 3030319 3,230,266

liabilities

Current ratio 1.05 0.87 1.10 1.18

GEMA 28
The current ratio indicates the availability of fund to payment of current liability in the form of
current assets. A higher ratio indicates that there were sufficient assets available with the
organization which can be converted in cash, without any reduction in the value. As ideal current
ratio is 2:1. Where current ratio of the firm is more than 2:1, it indicates the unnecessarily
investment in the current assets in the form of debtor and cash balance. Ratio is higher in the
year 2006-07 where cash balance is more than requirement which came through encashment of
deposits of ZCCB funds.

 Quick ratio.
Quick ratio establishes the relationship between quick of liquid assets and liabilities. Quick ratio
is found out by dividing quick assets by current liabilities

particulars 2003-04 2004-05 2005-06 2006-07

Liquid Current assets 1045727 1301393 1508121 1664255

Current liabilities 2,154,208 3,033,148 3030319 3,230,266

Current ratio .49 .43 .49 .52

GEMA 29
Quick ratio indicates that the company has sufficient liquid balance for the payment of current
liabilities. The liquid ratio of 1:1 is suppose to be standard of ideal but here ration is more than
1:1 over the period of time, it indicates that the firm maintains the over liquid assets than
actual requirement of such assets. Ratio of each year is less than 1:1. So firm does not maintain
the liquid assets.

GEMA 30
  Working Capital Finance and Estimation
In India short term finance are used as working capital finance .two most significant short term
sources of finance for working capital are trade credit and bank borrowing .trade credit ratio of
current assets is about 40 % it is indicated by RBI data that trade credit has grown faster that the
growth in sales. Bank borrow is the next source of working capital finance. The relative
importance of this varies from time to time depending of the prevailing environment. In India the
primary source of working capital financing are trade credit and short term bank credit .after
determine the level of working capital, a firm has to consider how it will finance. Following are
sources of working capital finance

Source of working capital finance

1. Trade credit
2. Bank finance
3. Letter of credit
 Trade credit
Trade credit refers to the credit that a customer get supplier of goods in the normal course of
business s. the buying firms do not have to pay cash immediately for the purchase made .this
deferral of payments is a short term financing called trade credit. The cost of credit may be
transferred to the buyer via the increased price of goods supplied by him.

After trade credit, bank credit is the most import source of financing working capital in
India. A banks considers a firms sales and production plane and desirable levels of current assets
in determining its working capital requirements .the amounts approved by bank for the firm‟s
can obtain from the banking limit .credit limit is the maximum funds which a firm can obtain
from the banking system. In practice banks do not lend 100% credit limit; they deduct margin
money.

 Forms of bank finance:-

1. Term loan
2. Overdraft
3. Cash credit
4. Purchase of discounting of bills
Banks have been certain norms in granting working capital finance to companies.
These norms have been greatly influenced by the recommendation of various committees
appointed by the RBI from time to time.

GEMA 31
 Working capital loan

particulars 2003-04 2004-05 2005-06 2006-07

Working capital term loan from 391865 61379 93583 47813

bank

working capital loan

450000

400000

350000

300000

250000

200000 working capital loan

391865

150000

100000

50000 93583
61379 47813
0
2003-04 2004-05 2005-06 2006-07

As per table of working capital loan indicates that in 2003-04 company had more loan because
firm was expanding his geographical area. After that firm got more profit is shown by year 2005
to 2007. Still firm has a few working capital loans.

GEMA 32
  Conclusion and recommendations
Working capital management is important aspect of financial management .the study of
working capital management of Britannia industries has revealed that the current ratio was as per
the standard industrial practice but the liquidity position of the company showed an increasing
trend. The study has been conducted on working capital ratio analysis, working capital
components which helped the company to manage its working capital efficiency and affectively

1. Working capital of the company was increasing and showing positive working per year.
It shoes good liquidity position.
2. Positive working capital indicates that company has the ability of payments of short
terms liabilities.
3. Working capital increased because of increment in the current assets is more than
increase in the current liabilities.
4. Company‟s current assets were always more than requirement it affect on profitability of
the company.
5. Current assets are mare than current liabilities indicate that company used long term
funds for short term requirement, where long-term funds are most costly then short term
funds.
6. Inventory was supporting to sales, thus inventory turnover ratio was increasing ,but
company increased the row material holding.

Recommendations
Recommendation can be use by the firm for the betterment increased of the firm after study and
analysis of project report on study and analysis of working capital. I would like to recommend.

1. Company should raise funds through short term sources for short term requirement of
funds, which comparatively economical as compare to long term fund part of current
assets.
2. Company should take control on debtor‟s collection period which is major part of current
assets.
3. Company has to take control on cash balance because cash is non earning assets and
increasing cost of funds.
4. Company should reduce the inventory holding period with use of zero inventory
concepts.

Over all company has good liquidity position and sufficient funds to repayment of liabilities.
company has accepted conservative financial policy and thus maintaining more current assets
balance .company is increasing sales volume per year which supported to company for
sustain 2nd position in India.

GEMA 33
 APPENDICES
Balance sheet
As on 31st march (Rs .in lakhs)

Particulars 2004 2005 2006 2007

Shareholders fund

Share capital 251,121 238,902 238,902 238,902

Reserve and surplus 4,059,133 4,196,341 5,251,994 5,909,275

4,310,254 4,435,243 5,490,896 6,148,177

Deferred Tax liability 202,472 170,600 16,913 --------

Secured loans 391,865 61,379 16,200 15,346

Unsecured loan 202,472 170,600 77,383 32,467

Total 4,904,591 4,667,222 5,601,392 6,195,990

Application of funds

Goss block 2,735,089 2,503,463 3,153,666 3,921,168

Less accumulated 1,460,670 1,543,940 1,748,063 1,937,478

depreciation

Net block 1,274,419 959,523 1,405,603 1,983,690

Capital work in progress 8,607 317,007 110,782 160,264

Investment 2,913,159 3,300,767 3,598,641 3,200,463

Current assets, loans &advances

Inventories 1,222,464 1,342,237 1,851,667 2,149,406

Sundry debtors 191,136 427,764 208,494 286,070

Cash and bank balance 70,827 163,062 353,395 486,460

Other current assets 4,389 1,847 1,847 1,709

Loan & advances 779,375 708,720 940,316 890,016

GEMA 34
Total 2,268,191 2,643,630 3,355,719 3,813,661

Less

Current liabilities 1,372,980 2,059,717 2,246,648 2,381,169

Provision 973,431 781,228 783,313 849,097

Net current assets 113,983 (389,518) 325,758 583,395

Miscellaneous 463,006 342,359 160,608 255,752

expenditure.

4,904,591 4,667,222 5,601,392 6,195,990

REFERENCES
Books/Newspapers/Magazines
Financial Management - I. M. Pandey.
Business Today
India Today
Previous 4 Year Annual Report of Britannia Group of Industries

GEMA 35