A

SYNOPSIS REPORT
ON
WORKING CAPITAL MANAGEMENT
AT
HERITAGE FOODS IND LTD
Submitted
By
ARSHIA BEGUM
H.T.NO: 1325-20-672-274
PROJECT SUBMITTED IN PARTIAL FULFILLMENT FOR THE AWARD OF DEGREE
OF
MASTER OF BUSINESS ADMINISTRATION

Department of Business Administration

AURORA’S PG COLLEGE
RAMANTHAPUR
(Affiliated to Osmania University)
2020-2022

AURORA’S PG COLLEGE ,RAMANTHAPUR

 Department of Management
SYNOPSIS

TITLE OF THE PROJECT : WORKING CAPITAL MANAGEMENT

STUDENT NAME : ARSHIA BEGUM

HALL TICKET NUMBER : 1325-20-672-274

SIGNATURE OF THE STUDENT:

SIGNATURE OF THE GUIDE:

 TABLE OF CONTENTS
S. No. CHAPTER Page No

1.1 INTRODUCTION

1.2 NEED FOR THE STUDY

1.3 SCOPE OF THE STUDY

1.4 OBJECTIVES OF THE STUDY

1.5 RESEARCH METHODOLOGY

2.1 THEORITICAL REVIEW OF

LITERATIRE
2.2 ARTICLES

3.1 INDUSTRY PROFILE

3.2 COMPANY PROFILE

6 PROPOSED OUTCOMES

7 LIMITATIONS OF THE STUDY

8 CHAPTERISATION

10 BIBLIOGRAPHY

INTRODUCTION
WORKING CAPITAL:

Cash is the lifeline of a company. If this lifeline deteriorates, the company's ability to fund

operations, reinvest and meet capital requirements and payments also deteriorate.

Understanding a company's cash flow health is essential for making investment decisions. A

good way to judge a company's cash flow prospects is to look at its working capital

management (WCM).

Working capital of a company reveals more about the financial condition of a business than

almost any other calculation.  It tells you what would be left if a company raised all of its

short term resources, and used them to pay off its short term liabilities.  The more working

capital, the less financial strain a company experiences.

 Working capital also gives investors an idea of the company's underlying operational

efficiency. Money that is tied up in inventory or money that customers still owe to the

company can't be used to pay off any of its obligations. So, if a company is not operating in

the most efficient manner (slow collection) it will show up in the working capital. This can be

seen by comparing the working capital from one period of time to another; slow collection

may signal an underlying problem in the company's operations.

DEFINITION

The definition of working capital is that it is the difference between an organization’s

current assets and its current liabilities. Of more importance is its function which is primarily

to support the day-to-day financial operations of an organization, including the purchase of

stock, the payment of salaries, wages and other business expenses, and the financing of credit

sales. It’s a measure of both a company's efficiency and its short-term financial health.
The better a company manages its working capital, the less the company needs to borrow.

Even companies with cash surpluses need to manage working capital to ensure that those

surpluses are invested in ways that will generate suitable returns for investors.

There are two concepts of working capital. They are

→ Gross working capital and

→ Net working capital.

The term gross working capital, also referred to as working capital means the total current

assets.

The term net working capital can be defined in two ways:

 The most common definition of net working capital is the difference between the

current assets and the current liabilities.

 The alternate definition of NWC is that portion of current assets which is financed

with long term funds. Since the current liabilities represent the sources of short term

funds, as long as current assets exceed current liabilities, the excess must be financed

with long term funds.

The net working capital, as a measure of liquidity is quite useful for internal control. The net

working capital helps in comparing the liquidity of the same firm over time.

Therefore:

Current Assets - Current Liabilities = Working Capital

A positive working capital means that the company is able to pay off its short-term

liabilities. A negative working capital means that a company currently is unable to meet its

short-term liabilities with its current assets (cash, accounts receivable, inventory).

Management must ensure that a business has sufficient working capital. Too little of the

working capital will result in cash flow problems highlighted by an organization exceeding

its agreed overdraft limit, failing to pay suppliers on time, and being unable to claim

discounts for prompt payment. In the long run, a business with insufficient working capital

will be unable to meet its current obligations and will be forced to cease trading even if it

remains profitable on paper.

On the other hand, if an organization ties up too much of its resources in working capital it

will earn a lower than expected rate of return on capital employed. Again this is not a

desirable situation.

As it is said that working capital is the difference between the current assets and the current

liabilities, the management of the company has to manage their current assets and current

liabilities.

NEED OF THE STUDY

 Working capital management is one of the key areas of financial decision-making. It is

significant because, the management must see that an excessive investment in current assets

should protect the company from the problems of stock-out. Current assets will also

determine the liquidity position of the firm.

The goal of working capital management is to manage the firm current assets and current

liabilities in such a way that a satisfactory level of working capital is maintained. If the firm

cannot maintain a satisfactory level of working capital, it is likely to become insolvent and

may be even forced into bankruptcy.

SCOPE OF THE STUDY:

A study of the Working capital involves an examination of long term as well as short

term sources that a company taps in order to meet its requirements of finance. The scope of

the study is confined to the sources that HERITAGE FOODS IND LTD tapped over the

years under study i.e. 2017-2021.

OBJECTIVES OF THE STUDY

 To study the existing working capital management system of HERITAGE FOODS

IND LTD.

 To find the liquidity position of the current assets and current liabilities of the

company.

 To examine the feasibility of the present system of managing working capital.

 To understand how the company finances its working capital

 To analyze the financial performance of the company with reference to working

capital.
 RESEARCH METHODOLOGY

 The study of Working Capital management is based on primary as well as secondary

data.

Data relating to. Has been collected through

SECONDARY SOURCES:

Published annual reports of the company for the year 2017-2021.

PRIMARY SOURCES:

Detailed discussions with Vice-President.

Discussions with the Finance manager and other members of the Finance department.

DATA ANALYSIS

The collected data has been processed using the tools of

 Ratio analysis

 Graphical analysis

 Year-year analysis

These tools access in the interpretation and understanding of the Existing scenario of the

Working capital .

 The primary data was gathered through personal interaction with the director of the

company.

 The secondary data was collected from company’s annual reports from 2015-16 to 2020-

21, various books and Internet.

THEORETICAL FRAMEWORK

WORKING CAPITAL MANAGEMENT

Management of working capital plays a very important role in the financial management of a

company because maintaining a balance of income to debt can be difficult and owners must

be diligent to assure that it is kept. Sometimes it takes a little assistance to maintain levels of

fluidity or make major purchases.

If working capital dips too low, a business risks running out of cash. Even very profitable

businesses can run into trouble if they lose the ability to meet their short-term obligations.

Working capital financing can be used as a fast cash option to cushion the periods when the

flow is not ideal or readily available. Even when owners are meticulous in managing working

capital, finding the right levels to remain comfortable and competitive can be difficult.

The Importance of Good Working Capital Management

Working capital constitutes part of the Company’s investment in a department. Associated

with this is an opportunity cost to the company. (Money invested in one area may "cost"

opportunities for investment in other areas.) If a department is operating with more working

capital than is necessary, this over-investment represents an unnecessary cost to the Company

From a department's point of view, excess working capital means operating inefficiencies. In

addition, unnecessary working capital increases the amount of the capital charge which

departments are required to meet

Working capital management takes place on two levels:

 Ratio analysis can be used to monitor overall trends in working capital and to identify

areas requiring closer management

 The individual components of working capital can be effectively managed by using

various techniques and strategies

When considering these techniques and strategies, departments need to recognize that each

department has a unique mix of working capital components. The emphasis that needs to be

placed on each component varies according to department.

Furthermore, working capital management is not an end in itself. It is an integral part of the

department's overall management. The needs of efficient working capital management must

be considered in relation to other aspects of the department's financial and non-financial

performance.
2.2 ARTICLES

Article: 1

Title: Working capital and firms performance in emerging markets: the case of Jordan

Author(s): BanaAbuzayed (Talal Abu-Ghazaleh College of Business, the German

Jordanian University, Amman, Jordan)

Source: International Journal of Managerial FinanceISSN: 1843-9132

Abstract:

The purpose of this paper is to examine the effect of working capital management on

Firm’s performance for a sample of firms listed on a small emerging market, namely Amman

Stock Exchange. The paper includes a conceptual as well as empirical analysis, in which

data from a sample of listed firms for a period from 2000-2008 are analysed to examine if

more efficient working capital management improves firms accounting profitability and

firms value. Cash conversion cycles as well as its components are used as measures of

working capital management skills. In this study two performance measures are used one

accounting two marketing measure, believing that well maximization is shareholders main

concern. To bring up more robust results, this study used more than one estimation technique,

including panel data analysis, fixed and random effects and generalized methods of moments.
Article: 2

Title: Management of working capital

Authors: Singh, J.P; Pandey, Shishir

Source: ICFAI journals of financial economic .December 2008, volume 6 issue 4, p62-

7211p.5 charts, 1 graph.

Abstract:

For the successful working of any business organization, fixed and current assets play a vital

role .Management of working capital is essential as it has a direct working capital

components and the impact of working capital management on profitability of Hindalco

industries limited. The paper also makes an attempt to study the correlation between

liquidity ,profitability and profit before tax (PBT) of Hindalco .The study is based on

secondary data collected from annual reports of Hindalco for the study period 2090-2007.The

ratio analysis, percentage method and coefficient of correlation have been used to analyze the

data. Multiple regressions are used to check the significant impact on the profitability of

Hindalco.
Article: 3

Title: Working capital Management Survey

Authors: Grey Filbeck (Schweser study program)

Thomas M Krueger (University of Wisconsin-La Crosse)

Sources: Grey Filbeck Thomas M Krueger 2005 “An analysis of working capital

Management results across industries “, American Journal of Business, vol.20 Isuess; 2 p.11-

20

Abstract:

Firms are able to reduce Financing cost and/or increase the funds available for expansion by

minimizing the amount of funds tied up in current assets. We provide insights into the

performance of surveyed firms across key components of working capital Management by

using CFO Magazine’s annual working capital management survey. We discover that

significant differences exist between industries in working capital measures across time. In

addition we discover that these measures for working capital change significantly within

industries across time.

Article: 4

Title: Working capital Management

Authors: Maynard E.Rafuse (managing director, bennecon limited, process analysis and

stock management consultant London UK)

Sources: Maynard E.Rafuse”Working capital management:an urgent need to

refocus”,management decision Vol. 34 issue: 2, pp59-63.

Abstract:

Argues that attempt to improve working capital by delaying payment to creditors is counter-

productive to individuals and to the economy as a whole. Claims that altering debtors and

creditor’s level of individual tiers within a value system will rarely produce any net

benefit.Proposes that stock reduction generates system wide financial improvement and other

important benefits.Urges those organization seeking concentrates working capital reduction

strategies to focus on stock management strategies based on “lean supply chain”

Article: 5

Title: Shorter range or working capital decision making

Authors:Smith Keith V

Sources: Journals of economics and international finance, Vol 5, No.9, Pg 373-379.

Abstract:

It believes that research which concerns shorter range or working capital decision making

would appear to have been less productive. The inability of financial managers to plan and

control properly the current assets and current liabilities of their respective firms has been the

probable cause of business failure in recent years. Current assets collectively represents the

single largest investment for many firms, while current liabilities account for major part of

total financing in many instances. This paper covers eight distinct approaches to working

capital management. The first three aggregate guidelines, constraint set and cost balancing

are partial models; two other approaches probability model and portfolio theory , emphasize

future 94 uncertainty and interdepencies while remaining three approaches mathematical

programming, multiple goals and financial simulation have a wider systematic focus.
 INDUSTRY PROFILE

The Indian food industry is poised for huge growth, increasing its contribution to world food
trade every year. In India, the food sector has emerged as a high-growth and high-profit
sector due to its immense potential for value addition, particularly within the food processing
industry.

Accounting for about 32 per cent of the country’s total food market, The Government of
India has been instrumental in the growth and development of the food processing industry.
The government through the Ministry of Food Processing Industries (MoFPI) is making all
efforts to encourage investments in the business. It has approved proposals for joint ventures
(JV), foreign collaborations, industrial licenses, and 100 per cent export oriented units.

Market Size
The Indian food and grocery market is the world’s sixth largest, with retail contributing 70
per cent of the sales. The Indian food processing industry accounts for 32 per cent of the
country’s total food market, one of the largest industries in India and is ranked fifth in terms
of production, consumption, export and expected growth. It contributes around 8.80 and 8.39
per cent of Gross Value Added (GVA) in Manufacturing and Agriculture respectively, 15 per
cent of India’s exports and six per cent of total industrial investment. The Indian gourmet
food market is currently valued at US$ 1.3 billion and is growing at a Compound Annual
Growth Rate (CAGR) of 20 per cent. India's organic food market is expected to increase by
three times by 2020.

The online food ordering business in India is in its nascent stage, but witnessing exponential
growth. With online food delivery players like FoodPanda, Tomato, TinyOwl and Swiggy
building scale through partnerships, the organised food business has a huge potential and a
promising future. The online food delivery industry grew at 170 per cent year-on-year with
an estimated Gross Merchandise Value (GMV) of US$ 300 million in 2018.
 COMPANY PROFILE
The Heritage Group, founded in the year 2092 by Mr. Nara Chandrababu Naidu, is one of the
fastest growing Public Listed Companies in India, with two-business divisions-Dairy and
Renewable Energy under its flagship Company Heritage Foods Limited (Formerly known as
Heritage Foods (India) Limited).The annual turnover of Heritage Foods crossed Rs.2642.89
crores in financial year 2018-19.

Currently Heritage's milk and milk products have a market presence in Andhra Pradesh,
Telangana, Karnataka, Kerala, Tamil Nadu, Maharashtra, Odessa, NCR Delhi, Haryana,
Rajasthan, Madhya Pradesh, Punjab, Uttar Pradesh, Gujarat and Uttarakhand.

In the year 2094, HFL went Public and was oversubscribed 54 times. HFL shares are listed
on BSE (Stock Code: 520552) and NSE (Stock Code: HERITGFOOD).

About the founder:

Mr. Nara Chandrababu Naidu
Heritage Foods Limited, India

Mr. Nara Chandrababu Naidu is one of the greatest dynamic, pragmatic, progressive and
visionary Leaders of the 21st Century.

With an objective of "Bringing prosperity into rural families through co-operative efforts", he
along with a few likeminded, friends and associates promoted 'Heritage Foods' in the year
2092 taking opportunity from the Industrial Policy, 2091 of the Government of India to
which end he has been successful.

At present, Heritage has a market presence in the states of Andhra Pradesh, Telangana,
Karnataka, Kerala, Tamil Nadu, Maharashtra, Odessa, NCR Delhi,Haryana, Rajasthan,
Madhya Pradesh, Punjab, Uttar Pradesh, Gujarat and Uttarakhand.More than three thousand
villages and three lacks farmers are being benefited in these states. On the other side,
Heritage is serving millions of customers needs by, employing more than 2400 people and
generating indirect employment opportunities for more than 10000 people. Beginning with a
humble annual turnover of Rs.4.38 crores in 2093-94, the annual turnover of Heritage Foods
crossed Rs 2642.89 crores in financial year 2018-19.
Mr. Chandrababu Naidu was born on April 20, 2051 in Naravaripally Village, Chittoor
District, AndhraPradesh, India. His late father Mr. N. Kharjura Naidu was an agriculturist and
his late mother Smt. Ammanamma was a housewife. Mr. Naidu did his schooling in
Chandragiri. He went on to study at the Sri Venkateswara Arts College, Tirupati. He later
also obtained his Masters in Economics from the Sri Venkateswara University, Tirupati. Mr.
Naidu is married to Mrs. Bhuvaneswari, the daughter of Mr. N T Rama Rao, Ex-Chief
Minister of Andhra Pradesh and a famous star of Telugu Cinema. Mrs. N Bhuvaneswari is
the Vice Chairperson & Managing Director of the company.
PROPOSED OUT COMES

Improve position funds should be utilized properly. Better Awareness to increase the

sales is suggested. Cost cut down mechanics can be employed. Better production technique

can be employed. The investment on raw material should be made as per the requirement.

Unnecessary investment may block up the funds. Neither too high nor too low inventory

turnover ratios may reduce profit and liquidity position of the industry. So, proper balance

should be made to increase profits and to ensure liquidity. The raw material should be

acquired from the right source at right quality and at right cost. The process that was being

used by HERITAGE FOODS IND LTD with the purchasing department should undergo

changes; so that, it seeks enhance the celerity of the delivery of a product without

compromising its quality by improving the utilization of materials, labor and equipment.
LIMITATIONS

 Due to the busy schedule of the executives in the company, all the required primary data

could not be collected, which might affect the results of the study.

 Recommendations of the study are only personal opinions. Hence the judgments may be

biased and could not be considered as ultimate and standard solutions.

 Short period of time is one of the limitations, due to which a detailed study could not be

conducted on the topic

 CHAPTERISATION

CHAPTER -1 - INTRODUCTION

CHAPTER - 2 REVIEW OF LITERATURE

CHAPTER - 3 - INDUSTRY PROFILE & COMPANY PROFILE

CHAPTER - 4 - DATA ANALYSIS AND INTERPRETATION

CHAPTER - 5 – SUMMARY AND CONCLUSION

 BIBLIOGRAPHY

BOOKS:

1. M.Y.Khan and P.K.Jain (2012) Management Accounting (Third Edition),Tata

McGraw Hill. Noida.

2. M.Y.Khan and P.K.Jain (2015) Financial Management (Fourth Edition), Tata

McGraw Hill, Noida.

3. D.M.Mittal (2012) Money, Banking, International Trade and Public Finance

(Eleventh Edition) Himalaya Publishing House, Mumbai.

JOURNALS:

● P.J. Edwards, P.A. Bowen (2002). Risk and risk management in construction: a review

and future decisions.

● Gabriele Sabato. Credit scoring

● Jean- paulLaurent(2008). Credit risk models

● Markus Rudolf, Michael Frenkel. Basel Ⅱ to solvency Ⅱ- risk management in the

insurance sector

● Philippe Jorion. Risk management: Historical perspectives

Annual reports of HERITAGE FOODS IND LTD: 2019-2020.

www.heritagefood.com

www.bankingindia.com

www.evanimics.com

www.damodaram.com

www.investopedia.com

NEWS PAPERS

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