CONTENTS

CHAPTER NONAME OF THE CHAPTERPAGE NO

CHAPTER 1 INTRODUCTION
CHAPTER 2
 Need for the study

 Scope of the study

 Objectives of the study

 Methodology

 Limitations of the study

 Plan of the study

CHAPTER 3 INDUSTRY PROFILE

COMPANY PROFILE

CHAPTER 4 THEORETICAL FRAMEWORK

CHAPTER 5 DATA ANALYSIS &

INTERPRETATION
CHAPTER 6 FINDINGS, SUGGESTIONS

BIBLI OGRAPHY
 CHAPTER-1

INTRODUCTION
 INTRODUCTION

Working capital may be regarded as the lifeblood of a business. The term working
capital refers to the capital required for day-to-day operations of a business enterprise.

It is represented by excess of current assets over current liabilities. It is essential that a

certain proportion of funds be kept invested in the form of different current assets like
inventories, receivables, cash and marketable securities. Managing current assets require
more attention than managing plant and equipment expenditure.

Too large investments in current assets affect the firms’ profitability. On the other
hand too little investment can also be expensive. All this indicates that proper assessment of
working capital requirements is a must for running the business efficiently and profitability.

Technically, working capital management must determine the optimum level of

working capital funds and also the optimum composition of current assets and current
liabilities. It has been found that largest portion of a Finance Manager’s time is utilized in the
management of working capital.

Requirement of working capital depends upon the operating cycle of the firm.
Operating cycle of concern begins with the acquisition of raw material and stops with the
collection of receivables.

 Conversion of cash into raw materials.

 Conversion of raw material into work-in progress.
 Conversion of work-in progress into finished stock.
 Conversion of finished goods into accounts receivables.
 Conversion of accounts receivables into cash.
Definitions of working capital:

Ordinarily the term working capital stands for that part of the capital cash is required
for financing of working or current needs of the company. Working capital is the lifeline of
every concern whether it is manufacturing one without adequate working capital.

There can be no progress in the industry. Inadequate working capital means shortage
of raw material, labor etc. Resulting in partial utilization of available has no economic
meaning in the sense of neither implying some type of nor motive behavior.

According to Weston and Brisk working capital refers to “a firm’s investment in short
term assets.”

Cash, short – term securities, Accounts Receivables and Inventories.

According to Hog land “working capital is descriptive of that capital which is not fixed. But
the more common use of the working capital is to consider it as the difference between the
book value of the current assets and the current liabilities.”
1.2 Concept of Working Capital Management

Working capital management can be conceptualized under two categories:

• Quantitative and

• Qualitative

These concepts are well known as "gross working capital" concept and "net working capital"

concept. In quantitative working capital concept, current assets are considered as working

capital which is termed as gross working capital too. In qualitative, current assets and current

liabilities are taken into account, working capital is defined as excess or deficit of current

assets over current liabilities. "Variance of current assets over current liabilities" L.J.

Guthmann also described working capital as "the portion of a firm's current assets which are

financed from long—term funds."

It becomes essential to know and understand the current assets components and current

liabilities components to understand working capital management.

Current assets — This is imperative to facilitate "Current assets have a short life span. These

types of assets are connected in current operation of a business and normally used for short—

term operations of the firm. The two important characteristics of these assets are; (i) short life

span, and (ii) swift conversion into other form of assets. Cash balance may be held idle for

few weeks, account receivable may have a period of 30 to 60 days"

Fitzgerald also described current assets, "cash & other assets which are expected to be

converted in to cash in the ordinary course of business within one year or within such longer

period as constitutes the normal operating cycle of a business."

Current liabilities — Business generates liability for purchasing raw material and other

essential things on credit, these are called as creditors or account payable. Until remittances

towards creditors are male, it is categorized under liabilities section of balance sheet. Current

liabilities are explained as all obligations that are due in near future for payment.
 CHAPTER-II

NEED OF THE STUDY

OBJECTIVES OF THE STUDY

METHODOLOGY OF THE STUDY

SCOPE OF THE STUDY

LIMITATIONS OF THE STUDY

PLAN OF THE STUDY

NEED FOR THE STUDY

The study is conducted for the following needs:-

 The need of working capital management when a company does not have enough

working capital to cover its obligations and financial insolvency can result and lead to

legal troubles, liquidation of assets and potential troubles.

 The need and evaluate the structure of working capital management at Maddi

Lakshmaiah Company Limited.

 The identify working capital management for the best efficiency

 The analyze identify the liquidity position ie., (cash inflows & out flows)

 The efficient working capital management allows a firm to management its short term

assets and short term liabilities.

 Suitable suggestions to improve the working capital management.

SCOPE OF THE STUDY

The scope and period of study is restricted to the following:

 The scope is limited to the operations of M.L. & Company Ltd.,

 The information obtained from the Primary and Secondary sources were limited to

M.L. & Company Ltd.,

 The key performance indications were taken from 2011 to 2017.

 The operating results, the Balance sheet was of last seven years.

OBJECTIVE OF THE STUDY

  To ensure smooth operating cycle of the business is primary objective..

 To optimize the level of working capital and minimize the cost of such funds is

secondary objective.

 To know various procedures and patterns.

 To study the role of working capital and its applications.

 To have personal exposure by visiting the Maddi LakshmaiahCompancy Limited for

many times.

 To know more information about the working capital management both theoretically

and practically.

METHODOLOGY OF STUDY

Methodology
 Methodology is a systematic procedure for collecting information in order to analyze

and verify a phenomenon. The collection of data or information is alone through

principle sources.

Primary data:

Primary data is the information collected directly with out any reference. It was

collected with the help of the standard and accepted techniques which are in use for

this kind of studies.

The required primary data was collected through structural questionnaire and personal

interviews, questionnaire was used because of its versatility, time, cost, reliability and

its suitability in getting all information pertaining to the study.

Secondary data:

This has been collected through annual reports, periodical statements and statistics etc

and also collected from journals, manuals and departmental instructions.

SIGNIFICANCE OF THE STUDY

The study is of significant help to the following Groups:

  The study provides an insight into the various aspects of working capital

management.

 Hence the company can make necessary changes in the Policy relating to it.

 Studies of this type are more useful to academicians and scholars to make further

insights into the various aspects of the working capital management in other similar

organizations.

 Studies of this type are also useful to competitors to make necessary steps to improve

working capital management.

 Studies of this type are also useful to policy makers to make necessary changes in the

policies relating to the working capital management in maddilakshmaiah company ltd.

LIMITATION OF THE STUDY:

 Some aspects of financial information were not available because of the

confidentiality.

 Information provided is mostly of secondary nature, so the accuracy of the study is

limited.

 Current year’s information is not available.

 The period of study is limited to only 6 weeks.

 The data and analysis given in the report is applicable to similar purpose of study.
 CHAPTER-III

INDUSTRY PROFILE
&
COMPANY PROFILE
INDUSTRY PROFILE

Tobacco industry is an agro based industry. It is Cultivated mainly in the states Andhra

Pradesh and Karnataka. Most of the states of Andhra Pradesh and Karnataka most of the

Tobacco used for the manufacture of cigarettes and for exports is produced from these state

tobacco is also grown in Thailand, West Bengal, Uttar Pradesh, Gujarat, Madhya Pradesh,

Maharashtra and Orissa. However the tobacco grown in these states is of very less quantity

and it is not used for manufacturing of cigarettes and export.

Several verities of tobacco such as Virginia flue cared, Virginia air cured, light soil

burley, sun cured Virginia, Natu, chewing tobacco, HDBRG wrapper tobacco, bide tobacco

and Hookah. Tobacco etc; are grown in India .Virginia flue cured is a major variety grown in

India. More than 80% of Indian tobacco crop belong to this variety.

The tobacco cultivation exports and some other. Industrial activities are regulated by

central Government (Ministry of commerce) through tobacco board is headed by I.A.S officer

of senior category generally from the central Government .The board consists of several

central Govt. officers, state Govt. officers, political leaders representatives of framers and

repeated industrialist one of the directors of ML Group is always representing the industrialist

in the tobacco board.

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 Introduction to Tobacco Industry:

India is the second largest producer of tobacco in the world after china. Produced 572

million kgs of tobacco in 2002-2003. India only holds a major 0.7% share of the us$30

billion global import-export trade in tobacco, with cigarettes /cigarette tobacco accounting for

85% of the country total tobacco exports. The tobacco industry holds tremendous potential

for India. For the government, it means excise duties and sell overseas revenues, and for the

country in general, it translates into huge employment opportunities

Dispute being the second largest producer, India is only the largest exporter of tobacco

products in the world out of the total tobacco products in India; only one_ third is flue_ cured

tobacco suitable for the manufacture of chewing tobacco, bides and other cheap tobacco

products, which have no demand outside the country. There is only an export demand for flue

cured tobacco, which is used for cigarette manufacturing.

If India adopted a rational tax polity for the tobacco industry that encouraged the

growing of export tobacco, Tobacco farmer income would income would increase and export

revenue would grow. If India adopted china’s tax policy on tobacco, tax revenue could rise

from the current rs.6, 031 cores to rs.54, and 000 cores. China’s economy_ oriented tax

policies have given cigarettes 100% share of domestic tobacco consumption. This strong

domestic base has proved to be conducive to exports as well as revenue generation.

Tobacco industry in Andhra Pradesh & Karnataka:

Huge stocks of tobacco accumulated from last few years inventory that are laying

with traders and exporters, a fall in domestic prices and a depressed international market for

the crop appear to be the reasons behind the unprecedented decision of the India tobacco

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board. To declare a crop(holiday for the growing season of 1999-2000). While various

segments of the industry in Andhra Pradesh and Karnataka the two states that accent for

almost all the tobacco cultivation and trade on the country.

The crop holiday declared early, this year is limited to Andhra Pradesh, which

produced around 140mkg in the current season. In Karnataka where a superior variety of

cultivated and last year crop was fully lifted. The board has capped production at 25 mkg for

the next season. It is Andhra Pradesh, with its powerful grower, trader and exporter lobbies

that determine tobacco policy.

An indication of the sluggishness of the tobacco market is that by April 22, the auction in

Andhra Pradesh, which begins in February, saw an off take of around 5.32 mkg as against an

off take of 34.19 mkg on the same date last year; there were only 12 buyers as against 23 in

1999. ‘It is estimated that the tobacco market has carried forward stocks of around 150mkg

from the previous crop’. By end 2000, it is estimated that the total surplus available with be

about 120mkg.

The scenario in the international market is also not favorable for Indian exports, which

are normally in the range of Rs.850 cores to Rs 1000 corers every year. It is estimated that

the global surplus sticks is about 750mkg. Anti smoking campaigns by public health activists

and litigation in many western countries have depressed sales. The countries of the common

wealth of independent states (cis), which are going through a recession, have been unable to

found their imports. The repeated devaluation of the currencies of tobacco producing

countries, such as brazil, Zimbabwe, Argentina, Malawi and china, has made there exports

more competitive than those of India.

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No dealer or farmer or buyer is permitted to transport in Virginia flue curd tobacco other

than through tobacco board action platforms. Central government as also established several

tobacco research institutes for betterment of quality of tobacco in India. The other varieties of

tobacco are not regulated by tobacco board.

History of Tobacco

Tobacco has a long history in the America. The Mayan Indians of Mexico carved

drawings in stone showing tobacco use. These drawings date back to somewhere between

600 to 900 A.D. Tobacco was grown by American Indians before the Europeans came from

England, Spain, France, and Italy to North America. Native Americans smoked tobacco

through a pipe for special religious and medical purposes. They did not smoke every day.

Tobacco was the first crop grown for money in North America. In 1612 the settlers

of the first American colony in Jamestown, Virginia grew tobacco as a cash crop. It was their

main source of money. Other cash crops were corn, cotton, wheat, sugar, and soya beans.

Tobacco helped pay for the American Revolution against England. Also, the first President of

the U.S. grew tobacco.

By the 1800's, many people had begun using small amounts of tobacco. Some chewed

it. Others smoked it occasionally in a pipe, or they hand-rolled a cigarette or cigar. On the

average, people smoked about 40 cigarettes a year. The first commercial cigarettes were

made in 1865 by Washington Duke on his 300-acre farm in Raleigh, North Carolina. His

hand-rolled cigarettes were sold to soldiers at the end of the Civil War.

It was not until James Bonsack invented the cigarette-making machine in 1881

that cigarette smoking became widespread. Bonsack's cigarette machine could make 120,000

cigarettes a day.

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 He went into business with Washington Duke's son, James "Buck" Duke.They built a

factory and made 10 million cigarettes their first year and about one billion cigarettes five

years later. The first brand of cigarettes was packaged in a box with baseball cards and was

called Duke of Durham. Buck Duke and his father started the first tobacco company in the

U.S. They named it the American Tobacco Company.

The American Tobacco Company was the largest and most powerful tobacco

company until the early 1900's. Several companies were making cigarettes by the early

1900's. In 1902 Philip Morris company came out with its Marlboro brand.

They were selling their cigarettes mainly to men. Everything changed during World

War I (1914-18) and World War II (1939-45). Soldiers overseas were given free cigarettes

every day. At home production increased and cigarettes were being marketed to women too.

More than any other war, World War II brought more independence for women. Many of

them went to work and started smoking for the first time while their husbands were away.

By 1944 cigarette production was up to 300 billion a year. Service men received

about 75% of all cigarettes produced. The wars were good for the tobacco industry. Since

WW II, there have been six giant cigarette companies in the U.S. They are Philip Morris, R.J.

Reynolds, American Brands, Lorillard, Brown & Williamson, and Liggett & Myers (now

called the Brooke Group). They make millions of dollars selling cigarettes in the U.S. and all

over the world.

In 1964 the Surgeon General of the U.S. (the chief doctor for the country) wrote

a report about the dangers of cigarette smoking. He said that the nicotine and tar in cigarettes

cause lung cancer. In 1965 the Congress of the U.S. passed the Cigarette Labelling and

Advertising Act. It said that every cigarette pack must have a warning label on its side stating

"Cigarettes may be hazardous to your health."

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 By the 1980's, the tobacco companies had come out with new brands of

cigarettes with lower amounts of tar and nicotine and improved filters to keep their customers

buying and to help reduce their fears. The early 1980's were called the "tar wars" because

tobacco companies competed aggressively to make over 100 low tar and "ultra" low tar

cigarettes. Each company made and sold many different brands of cigarettes.

In 1984 Congress passed another law called the Comprehensive Smoking

Education Act. It said that the cigarette companies every three months had to change the

warning labels on cigarette packs. It created four different labels for the companies to rotate.

Since the 1980's, federal, state, local governments, and private companies have

begun taking actions to restrict cigarette smoking in public places. The warning labels were

the first step. Tobacco companies cannot advertise cigarettes on television or radio. It is

against a law that was passed by Congress in 1971. Many cities across the U.S. do not allow

smoking in public buildings and restaurants. Since 1990, airlines have not allowed smoking

on airplane flights in the U.S. that are six hours or less. State taxes on cigarettes have

increased.

As it becomes more difficult for tobacco companies to sell their products in the

U.S., they are looking outside. U.S. tobacco companies are now growing tobacco in Africa,

South America (Brazil and Paraguay), India, Pakistan, the Philippines, Greece, Thailand, and

the Dominican Republic. Fifty percent (50%) of the sales of U.S. tobacco companies go to

Asian countries, such as Thailand, South Korea, Malaysia, the Philippines, and Taiwan.

India is the third largest producer and eighth largest exporter of tobacco and

tobacco product in the world.

While India's share in the world's area under tobacco crop has risen from 9% to 11%

in the last 3 decades, its share in production has inched up from 8% to 9% in tobacco
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industry. Asia and America, together account for 75% of world's production of tobacco.

China, USA and India are the three leading tobacco-producing nations in the world.

Production area:

Andhra Pradesh, Gujarat and Karnataka account for the major portion (80%) of raw

tobacco production in India. These states produce FCV tobacco, bidi tobacco, natu tobacco,

cigar tobacco, cheroot tobacco and snuff tobacco. Other states which manufacture tobacco is

Maharashtra, Orissa, Tamil Nadu, West Bengal, UP and Bihar.

Growth promotional activities:

FCV (Flue cured Virginia) tobacco production and is regulated by The Tobacco Board.

About 0.75mn growers are engaged in tobacco production. Easy availability of tobacco has

helped development of cottage industry for manufacture of chewing tobacco, cigar, cheroot,

flux etc. Bidi industry provides employment to 4.4mn rural people, mostly women and the

cigarette industry provides employment to 0.55mn people.

Types:

Tobacco is consumed in two ways, either by smoking or chewing. While smoking the

following tobacco products are consumed: Cigarette, Cigar, Bidi (Hand rolled, leaf wrapped

country cigarettes) and to chew the products are: Raw tobacco, Supari (Arecanut), Gutkha,

Pan Paragetc.Due to diverse climatic conditions every type of tobacco is grown in India.

Almost 90% of area is accounted for by Nicotine tobacem. and 10% by NicotinaRestica.

Only one third of the tobacco output in the country is Flue cured Virginia (FCV) variety,

suitableforcigarette manufacturing.

There are seven major categories of tobacco, Viz. Flue cured Virginia tobacco (FCV),

Burley, Oriental, Bark flue cured, Sun cured, Light flue cured cigar and Dark flue cured.

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 Flue cured Virginia tobacco is mainly used for manufacture of cigarettes. Light air

cured tobacco is used in the manufacture of bidis. Unmanufactured tobacco is also consumed

in India, for chewing purpose.

Tobacco value sales rise in 2009:

There were at least two factors that drove value sales growth in 2009. Firstly, the shift

from unfiltered to filtered cigarettes after a very high increase in excise tax in 2008 drove a

robust unit price increase. Furthermore, with a volatile US dollar and a high increase in the

unit price of raw tobacco, manufacturers were forced to pass on some of the unit price

increase to consumers, which helped to boost value sales.

India was one of the first countries to ratify the FCTC in 2004, and in 2009 it finally

introduced pictorial health warnings. However, India has very significant sales of single stick

purchases of cigarettes, which reduces the impact of these pictorial warnings as many

smokers never actually see them. Thus, volume sales of cigarettes are more affected by price

rises and taxation than pictorial health warnings.

Cigarette companies account for the most revenue from tax:

Although cigarette volume consumption in India is lower than that of smokeless

tobacco and beedis, cigarettes accounted for the highest share of government revenue from

tobacco taxation.

Thus, ITC, Godfrey Philips and VST Industries remained the leading companies in

terms of tax revenue because there are a large number of unorganised companies which evade

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paying tax on other tobacco products, such as Chemon Group in cigars and even Dhariwal

Industries Ltd, the leading company in chewing tobacco.

Traditional stores remain dominant:

Smokeless tobacco and cigarettes were the biggest contributors to overall tobacco

sales in India in 2009. With these tobacco products being sold mostly in traditional stores

such as paan shops due to the large number of these outlets across the country, consumers can

easily purchase tobacco products minutes from where they live. Nonetheless, more

consumers were able to find mid and high-end cigarettes and mass cigars in modern grocery

stores such as supermarkets/hypermarkets which target middle and upper-income consumers.

Positive outlook for tobacco companies:

After the global crisis which impacted India in 2008 and 2009, the Indian

government is expected to maintain the excise tax on tobacco products in the short term in

order to normalise volume demand for tobacco products, particularly cigarettes, thus

normalising government revenue. Furthermore, should the GST (Goods & Service Tax) rate

which is predicted to be implemented in 2011 be in line with tobacco industry expectations,

then the tobacco industry can enjoy a positive outlook for the forecast period.

Economic History of Tobacco:o history of tobacco

The immediate and tangible benefits that accrue from tobacco cultivation,

manufacture and marketing act as incentives for farmers to growtobacco and for the

government to encourage tobacco cultivation and manufacture.Tobacco has developed from a

commodity to which great importance and value were attached (because of its presumed

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medicinal and evident intoxicant properties), and hence used for barter trade during the

sixteenth and seventeenth centuries, to a cash crop in subsequent periods.

The following aspects of tobacco can help in understanding why it has developed as a cash

crop:

1. Tobacco has been contributing substantially to the total agricultural income.

2. It yields high net returns per unit of cultivation as compared to other crops.

3. It provides employment opportunities, both in agriculture and activities involved in the

manufacture of tobacco products.

4. It is a major foreign exchange earner.

5. It is an important source of revenue.

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 COMPANY PROFILE

ML group was a multifaceted corporate leader of which the group consists of

5concern namely.

MaddiLakshmaiah and co ltd:Tobacco threshers, packers & exporters real estate

&leasing.

ML agro products :-Tobacco treshers, packers &exporters.

KS subbaiahpillai& co (India) ltdTobacco export.

MLexports house.

Coramandal agro products & oils ltd.

Bulk producers of oils.

ML GROUP:-

The highly competitive tobacco market represented tremendous growth potential to

Mr.MaddiLakshmaiah. Foreseeing the and for quality Indian tobacco a long term strategy

was formulated.

Right from its inception, the company adhered to international standards and made

rapid in roads into global tobacco markets.

A sophisticated threshing plant of international standards was commissioned in 1976.

The first in Andhra Pradesh, it created a revolution in tobacco processing and led to a huge up

surge in demand.

This led to the commissioning of two modern plants with threshers, re dryers and

other sophisticated equipment for the processing of quality tobacco.

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 ML group has taken its credo of total quality to the furthest. Whether in the quality of

processes, products or working conditions for the vast workforce , the for sighted innovation

of Sri. Maddilakshmaiah have given the group strong edge . The personal involvement of the

directors in all aspects of the business has resulted in high quality operational parameters.

The company can proudly claim some of the most skilled work force and a highly

efficient management. People who have contributed significantly to the preminent position

the company holds today. The company has earned recognition from apex institutions and is

a recognized leader in tobacco markets the world over. The quantum growth in of MLCO:

spread investment in infra structure and diversification into other business.

The information about the establishment of the group which consists of 5 concerns are

as fallows displayed on the preceding pages, let us have a look on the various concern of ml

group individually.

Maddilakshmaiah&co Ltd:-

(Spear heading Indian excellence)

ML & company limited, the force runner of all the companies of ML group, the

company enjoys a pre eminent standing in the world of tobacco, exporting to china, Russia,

the cis, Western Europe, Africa and Bangladesh among others.

Supported by a team of experts, techniques, engineering and a skilled world –force,

the company has forged a head setting standards that have become benchmarks in the

industry.

Today Chilakaluripet is a well known name in the global tobacco business ,in no little

measure due to the pioneering efforts of the intrepid founder, Sir Maddilakshmaiah.

ML AGRO PRODUCTS LTD:-

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 (The imperatives of demand)

ML agro products ltd was born of a increase in demand for quality tobacco in

both the domestic and foreign markets. Building on the rich experience of running a

profitable operation, a new plant was set up in 1976 at MarturPrakasam district.

It spreads over is hectares , it is fully self sufficient with modern treshers, lamina

redryers,automatic double ram press sophisticated quality control laboratory and mammoth

ware houses .it ranks among the largest threshing units in the country.A part from its export

commitments.

The company also processes tobacco for domestic cigarette manufactures. The

company today has a global each and a global Vision, from what was a small beginning this

modern gaint symbolises the striving for excellence that characteristics ML group.

KS subbiahpillai& co (India) ltd:

K.S.S.P & Co ltd was acquired in 1982 with all its assets K.S.SubbaiahPillai& co

(India) ltd is the groups leading tobacco exporting unit. In a field that is extremely

competitive, the excellent performance of the company is an indicator of the trust that it

enjoys across the global.

COROMANDAL AGRO PRODUCTS & OILS LTD (CAPOL):

Capol was started in 1976,capol extracts and refines cotton seed oil. Today it is a

mulyi products company with equipment to process all kinds of oil seeds. The plant has a

storage capacity of 2100 tonnes for different types of oil.

Extreme care is taken to ensure that at every stage in the process of production right

from selection of the raw material to packing the products, only the best is passed this

ensured by using some of the latest equipment.

Minimum human intervention and rigorous application of quality control processes to

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ensure that the final product conforms to all appropriate standards. The by products, hulls and

ne-oiles cakes are in high demand in many parts of the world.

ML EXPORTS:

(Exporting to the world)

ML exports is a totally export oriented unit, with clients in a variety of markets

around the world. The company enjoys a reputation for excellent delivery schedules and

transparent business practice in global markets.

SHARE HOLDING PATTERN& MANAGEMENT OF GROUP:

The group has been successfully improving its business in all of its activities such as

domestic sales, export sales, tobacco processing & other tobacco development activities,

warehousing facilities etc. The group has 2 tobacco processing plants and one solvent

extraction plant in south India. The group owns around 1,00,000 sq. mts of warehousing

complexes in south India.

INCORPORTATION:

ML Company is a demand limited company (m/s maddilakshmaiah and company

limited). Which was originally incorporated on 8th day of October 1970 under the name,

maddilakshmaiah and company private limited having delay passed the necessary special

resolution on the 23rd day of march 2002 , in terms of sec31(1)/44 of the companies act 1956

the name of the company changed to maddilakshmaiah and company limited.

NATURE OF ACTIVITY:

This factory products good quality tobacco.

 The production capacity per each day is 1 lakh 20 tonnes

 The production current assets capacity per year is around

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 1.5 million tonnes.

FINANCIAL STRUCTURE;

The initial investment of ml company is 10, 00,000.

PROJECT MANAGEMENT

The management of construction projects requires knowledge of modern management

as well as an understanding of the design and construction process. Construction projects

have a specific set of objectives and constraints such as time frame for completion within a

prefixed budget.

MaddiLakshmaiah and Company Limited ltd will constantly enhance its project

management capabilities to optimally utilize its resources. It would utilize sophisticated

software tools to keep track of the project status.

It is already planning to implement Enterprise Resource Planning (ERP) software to

support its operations. Further, for timely completion of projects, adequate planning is carried

out at the beginning of each project.

The traditional triple constraints like SCOPE, TIME & COST are taken care and all

constraints are removed

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PROJECT MANAGEMENT TRI ANGLE

TURN OVER OF THE GROUP:

The turnover of the group for the financial year 2011-2012 standards at around Rs2800

million. The net earnings after taxes of the group have been maintained at Rs 1950/2000

million per annuam.

The group has sound assets base having assets spread in most of the prime centres &

ports of south India. The group has development excellent infrastructure during the past 30

years which have been yielding a promising regular income of more than Rs 225 million

every year.

TURN OVER OF THE COMPANY:The turnover of ML company for the following years

of 2010-2014 are as follows.

S NO NO OF YEARS AMOUNT IN RS IN LAKHS

1 2010 966

2 2011 2557

3 2012 2579

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 4 2013 2806

5 2014 5886

7000

6000

5000

4000
NO OF YEARS
3000 AMOUNT IN RS IN
LAKHS

2000

1000

0
1 2 3 4 5

Profit after tax:

AMOUNT IN Rs.
SNO NO OF YEARS
IN LAKHS

1 2013 -47

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 2 2014 210

3 2015 406

4 2016 1516

5 2017 787

2500

2000

1500
NO OF YEARS
1000
AMOUNT IN Rs. IN LAKHS
500

0
1 2 3 4 5
-500

The above table represents the profit for the following years after paying all the taxes.

The products of the M.L Company &their main uses:

The various products of the ML company and their economic uses are as follows.

Karnataka light soil-my sore:

This tobacco is preferred for low nicotine content, high filling capacity and suitability

to blend well with any tobacco.

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Monsoon burley: Used in U.S. blended cigarettes

Traditional burley: Used for pipe mixture, chewing plugs and hookah tobacco paste.

Kurnool and Telangana (natu): Primarily used for cigarette blending and for

hookah tobacco paste making.

Eluru (natu tobacco): Mainly used for cheroots, snuff pipe tobacco, cigarette blending

and for hookah paste making.

Oriental: Used for cigarette blending.

Century fire cured tobacco: Used in pipe mixtures and hookah tobacco paste.

Bidi tobacco: Used in the manufacture of bids, a hand rolled smoking products made by

wrapping tobacco with natured bony leaves.

Cigar wrapper tobacco:Mainly used for wrapping the cigars.

Cigar filler tobacco: Mainly used in the manufacture of cigars &exported to some

countries for use in hookah tobacco paste.

Rustic tobacco: Used as chewing tobacco, hookah tobacco for tobacco sheet making, for

kreteks in Indonesia, pipe mixers& cigarette blending to some extent.

Motihari:Used in manufacture of various tobacco products such as chewing tobacco,

hookah paste, bidis etc.

Southern light soil (sls):Blend with any tobacco.

Black soil (traditional):Blends well with any tobacco.

Northern light soil (nls):Thosetobacco is flavoured/flavourful to semi/flavourful with

excellent ageing properties.

Objectives:

 To serve the nations vital interest in the tobacco related sectors.

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  To maintain vicinity of supplies through M.L is tobacco& marketing network at

optimum costs and provide up to date technical assistance to the consumer to

conceive the valuable energy resources.

 To earn a reasonable return on investment.

 To work towards achievement of self reliance in the field of tobacco, threshing

formulation& distribution system.

 To create strong research& development in the field of tobacco and stimulate R&D of

development of exports.

 To maximise utilisation of the existing facilities in order to improve efficient and

increased productivity.

 To import training, conduct seminary, workshop and educational courses on

computers. Computer maintenance software development and software exports and to

develop and design software in India.

 Abroad and to start software technology part in India or abroad and to offer

relationship management solutions for individuals and organisations both individually

and through strategic alliances with others companies.

 To employ experts to investigate and examine into the conditions, prospects, value

character and circumstance of any business concern and under taking and generally of

any assets property or right.

 To carry on all kinds of agency business.

BOARD OF DIRECTORS:

Managing Director : Sri MaddiLakshmaiah

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Director : Sri MaddiSeetha Devi

Director : Sri MaddiVenkateswaraRao (M.B.A in USA)

Director : Sri Maddi Ramesh

Executive Director : Sri Mallavarapu Rama MohanaRao

Executive Director : Sri MeadenSekhar

MANAGEMENT TEAM:

Managing Director : M. VenkateswaraRao

Director : M. Lakshmaiah

General Director : M. Rama MohanaRao

Personnel Manager B. BabuRao

Leaf Manager : M. Rama MohanaRao

Finance Manager : M. Shekhar

Export Manager : M. Shekhar

Production Manager : K.S. Rami Reddy

Circle Manager : AnjiBabu

Factory : P. SubbaRao

ORGANIZATION STRUCTURE

M.L. & Company Ltd., a private sector is a firm of organization with corporate

functions in business sectors and operating units under the control of Chairman and

Managing Directors reporting to Board of Directors.

Each unit is headed by an Executive Director/General Manager’s in charge. There are

6 Directors for a board; each Director holds ONE division each.

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  Chairman and Managing Director 1

 Directors 3

 Whole time Executive Directors 2

(Functional Directors)

ORGANIZATIONAL CHART

CHAIRMAN & MANAGING DIRECTOR:

MaddiLakshmaiah B.E

Chairman & Managing Director.

INDEPENDENT DIRECTORS:

MaddiSeetha Devi

Director

MaddiVenkateswaraRao B.Com MBA (USA)

Director

Maddi Ramesh Babu B.Com

Director

EXECUTIVE DIRECTORS:

Mallavarapu Rama MohanaRaoB.Sc

Executive Director

MeademSekhar B.Com F.CURRENT ASSESTS

Executive Director

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ABOUT M.L. & Co. Ltd., GANAPAVARAM UNIT

MaddiLakshmaiah& Co. Ltd., the first Threshing and Redrying Plant in the industry it

was a multifaceted corporate leader

The Ganapavaram unit was setup in 1976 The Company threshes quality tobaccos

with an installed capacity of 120 tons per day with modern machinery consisting to counter-

flow classifiers, conditioning cylinders, threshers, vibrators etc and automated re-drying

facility. Stem Dryer with a capacity of 40 tons/day. 2 world class Automated double ram

pressing systems with 20 ton capacity, connected to Auto Strapping machines.

The supporting infrastructure includes 11 ton FBC boiler and Country’s best Thermax

10 m³/ hr. Reverse Osmosis water treatment plant. The rest of the machinery is from most

reputed manufacturers. Supported by a team of experts, engineers, technicians and highly

skilled workforce, the company has forged ahead, setting standards that have become

benchmarks in the industry

The entire plant is catered with a power of 1100 KVA with 3000 HP connected load

through 33 KV dedicated feeder from Electricity Board grid and complete line of control

panels & switchgears from L & T, Crompton with a back-up of self generation by 4.5 MW

SKODA, Czech D.G. Sets.

The mammoth warehouses are built with natural wind power ventilating system in 5,000

m² storage area for Raw material storage, and 10,000 m² storage area for Finished goods

storage. 

The company has annual production of 25 million Kgs. Used mainly for Exports and

balance for domestic sales. It ranks among the largest threshing units in the country.

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Organisation:

Departmentalisation of functions: The group has different departments.

Personnel department:This department deals with the matters of industrial relations,

HRD, welfare activities, labour legislations, recruitment and issues of wages etc. which is the

main department in the organisation.

Leaf department:This department deals with the matters of tobacco leaf .if looks after

Buying of tobacco from the farmers for the processing of tobacco.

Export department: It looks after the export matters of the organisation. This

organisation exports tobacco leaf to china, Bangladesh &u.k.

Production department:This department takes care to produce quality tobacco to

customers.

Marketing department: This department takes care of marketing the company Tobacco

to others countries such as Russia ,Europe ,CIS ,countries, middle east ,Bangladesh, African

countries etc at the time of requirement.

They sell varieties of tobacco in market and maintain good relationship with the

customers. This is one of the main/important departments in this organisation.

1 M.L group was concentrating on domestic market.

2 It ties up with Indian strongest cigarette manufacturing company, ITC.

3 Monopoly in L.S.B variety-producing 3-4 millions of tobacco.

A BRIEF ACCOUNT OF THE ORGANISATION:-

ML group of companies (ML group) was founded by Mr.Maddilakshmaiah in 1970.

He joined in his family business in 1952.after completing of his engineering degree. The joint

family business started payback in 1943 dealing with tobacco exports, well before India.

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 ML group of companies (ML group) a pioneer in Indian un manufactured tobacco

industry has been exporting tobacco to all over the world for the past 3 decades it has

solidified its relationship with overseas tobacco merchants& manufactures.

MaddiLakshmaiah& co ltd, was set up at Chilakaluripet, a village in Andhra Pradesh

that products some of the best tobacco in the country. Today it has evolved into a diversified,

multi products conglomerate known as ML group that is recognised world over for its

excellence. The company processes tobacco and another agro based products that are used

both in the country and exported to the most quality conscious of world markets.

An emphasis on total quality and dedication to the interests of its client’s world- wide

is a hallmark of ML group. The group is performing excellently well from the date of its

incorporation and has been exporting large volume of tobacco to Russia.

CIS countries, U.K, Europe, African countries, china, Latin American countries,

middle east countries, Bangladesh & Nepal etc. The group established its branches in Russia

& European countries and has strong ties up with African and Latin American countries and

especially with the neighbour giant china.

Established of the group:-

The group is founded by Sri Maddilakshmaiah, a mechanical engineer after 15 years

of versatile experience in tobacco industry in 1970 at Chilakaluripet , Günter dist, A.P .the

group has 5 major concern namely;

1 Maddilakshmaiah& co ltd (MLCO)

2 ML agro products (MLAP)

3 K.S subbaiahpillai& co ltd (KSSP)

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 4 ML exports (MLE)

5 Coromandal agro products & oils ltd (CAPOL)

Expecting capol which is engaged in edible oils all are engaged in tobacco

industry. MLCO & MLAP have concentrated on processing activities where as KSSP&MLE

are leading exporters and are recognised by govt of India as export house.

Future plans:-

1 The company (Maddilakshmaiah) for an ECB for 50 million dollars and

development of regular trade and also infrastructure projects in India.

2 Maddilakshmaiah Company is also working on joint venture basis with UK based

Commodities Company for supply of agri products to southsian countries.

3 The company already entered into joint venture with an US based company by name

CARGIL for the south Indian need.

4 They have worked for joint venture arrangements with Yugoslavian govt for their

requirement for India.

Achievements/awards:-

 MaddiLakshmaiah Company has no particulars /peculiar/, achievements/ awards.

 Other than that are of the concern of lakshmaiah group maddi i.e. (capol)

 (Chirala ,Prakasamdist ) got several achievement awards .

CAPOL:-

 All India cotton feeds crushers association, Mumbai it was III highest exporter and II

highest domestic seller of cotton seed extraction for the year 1992-93.

CAPOL is the highest exporter and III highest domestic set of cotton seed extraction for

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 the year 1993-94.

 CAPOL is the III highest domestic seller of cotton seed extraction in the year 1994-

95.

CAPOL is the II highest domestic seller of cotton seed extraction in the year 1995-96.

CAPOL is the II highest domestic seller of cotton seed extraction in the year 1997-98

CAPOL is the III highest domestic seller of cotton seed extraction for the year 1999-

2000.

CAPOL is the II highest extraction of cotton linter for the year 2000-01.

CAPOL is the III highest exporter of cotton linter and III highest domestic seller of

cotton seed extraction for the year 2001-02.

 The company (CAPOL) has been awarded may commendation led by govt of AP for

its continuous harmonious relations with its employees in the years 1994,95,96,97.

The company (CAPOL) M.D has been facilitated by honourable president of India,

Dr.Sankardayalsaram.

The company got productivity council awards.

Track record:-The company has 30 years of performance.

 It never failed in meeting the scheduled repayments of loans with the bank. Rather it

postpones most of the loans with the lenders.

 From the date of incorporation 1977, till date uninterruptedly running in fleshing field.

 It was the first company in India (un manufacturing tobacco industry trusting field).

LAND MARKS :-
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  MaddiLakshmaiah Company was the first India Company entered with china to did

business.

 It was the first company to import tobacco and export tobacco.

 Ambassadors have already come here and 4th one is coming in this august.

GRADING POINTS:-

MaddiLakshmaiah Company has 3 grading points at Chilakaluripet i.e.

MarturMuppavaram and some other on national highway bet Guntur and Chilakaluripet 3

more in Guntur city.

NEGOTIATIONS:-

 The company is trying to develop world class information technology building in

Bangalore, china and Hyderabad in the coming 5 years time

 The company is going for sheet tobacco plant in joint venture with one of the Indian best

tobacco cigarette manufacture.

 The company is also contemplating for 100% tobacco joint venture association with one

of the best cigarette manufacture.

 The company exports with the second strongest country china, Russia and India.

 The finance manager is assisted by a team of experienced management and non

management staff who takes care of the finance & accounts activities of the organisation.

 The export manager (ML Company) deals all the matters regarding the exports

department and directly reports to the managing director.

ORGANISTION STRUCTURE:-

The company (ML Company) is under the complete administrative control of the

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managing director and he is reported by the director and he is reported by general manager.

The general manager (ML Company) is assisted by 5 general managers.

 Manager personnel.

 Manager leaf department.

 Manger finance.

 Manager exports.

 Manager production.

The personnel department is headed by personnel manager who reports directly to

G.M. he looks after the areas of personnel& administration under may by a personnel officer,

welfare officer and a safety officer.

The leaf manager is headed by G.M and assisted by circle manager, a branch

manager, buyers, factory co-ordinator and shift in charge.

METHODS OF PURCHASING OF TOBACCO:-

In ML Company the methods of purchasing of tobacco is of various types i.e.

1 Which tenders rise in market document will be filled up by various companies or

merchants can purchase them.

2 They have good contracts with various merchants (mediators between manufacture &

exporters) in reputed companies Günter.

3 Every year they were producing 1000 tonnes of various varieties /grades of tobacco.

4 They usually doing their business with the international reputed companies like.

 Universal

 Dimon

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  Standard commercial.

The company have some direct contracts with other countries and they directly ask

them at the time of requirement.

MARKETING CHANNELS:-

 Normally they send samples/verities.

 At the time of requirement, they send samples through carriers.

 Participating in exhibitions- every year ML company was taking participation in 5-6

exhibitions.

 The people who have connection in tobacco may visit tobacco stalls usually, even from

Europe, Russia & china.

 People like manufactures, dealers, bankers, merchants of tobacco may visit the tobacco

exhibitions.

ANOTHER MODE:-

The other mode of marketing (channel) is through business delegations tobacco board

of central govt, ministry of commerce govt of India, Guntur. The tobacco board usually.

 Regulation crop.

 They register the foreigners.

 They fix the crop size.

 The board explore marketing possibilities with the help of exporters.

 Another type of business mode is tobacco trade delegations from different countries

(usually every year 5-6 delegations may takes place).

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  The tobacco delegations meet exporters and inspect all the tobacco.

 They get the business through reputation.

 Customers usually approach them because of the good will of the Company.

MODE OF PAYMENT:-

 Exporters normally receive payment from their buyers through L.C’S (letters of

credit).

 Some time through advance payment ion terms of D.A&D.P.

 Document against payment

 Document against acceptance.

 After customers chockers in the madras port it may send to abroad.

 Shipment of tobacco is through Chennai port only.

 At the same time shipment of tobacco the pay/buyers send payment to bank in the

company account

CREDIT:-

1 Some parties asks/needs some time for payment with in certain period from the date

of bill of payment (up to 180 days).

2In India there is a rule that on credit basis, the payment must be done with in 180

days from the date

MARKET RANGE:- ML Company was marketing 7-10 million kilos of tobacco every

year. But the market range is not fixed. The market range depends on supply &demand

forces.
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When there is demand, the company produces more.

In the tobacco field, the marketing/market range may be flexible internationally

supply demand.

FINANCE DEPARTMENT: In this department,

1 Cash payments will be checked by cashiers.

2 Cash bills and credit bills may get from trashing factory and engineering be sent to

concerned heads.

3 Concerned accounts may be generalised by the accountants and may besent to

concerned heads.

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 CHAPTER-IV

THEORITICAL FRAME WORK

MBA PROGRAMME MLCPL

THEORITICAL FRAME WORK

1 INTRODUCTION

This review covers a wide range of issues related to tobacco in nine subject areas:

demand, supply, and trade of tobacco leaves, demand for cigarettes, cigarette advertising,

cigarette taxes, social costs of smoking, economic significance of tobacco industry, and farm

issues associated with tobacco control. To select for the most relevant literature for the

review, first, key words were used to search for articles related to the nine topics from three

large databases: Arcola created by the National Agricultural library of the United States

Department of Agriculture, National Smoking Data Base maintained by the Office on

Smoking and Health of Centres for Disease Control and Prevention in the United States, and

Ecolit (economic literature) available at the library of Kansas State University.

The abstract and full text of each identified study were then reviewed, and results

from the reviewed study summarized. The study period covered by this review is between

1985 and 2000, but a few important studies conducted before 1985 are also included.

2. DEMAND FOR TOBACCO LEAVES

Most of the tobacco produced in the world is not consumed as a final consumer
product, but is used to produce tobacco products. Cigarette production accounts for most of
the tobacco use in the world. In the United States, for example, cigarette production utilized
90 percent of the total tobacco consumed in 1996 (USDA, 1996). Other products include
smokeless tobacco and cigars.

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3. SUPPLY OF TOBACCO LEAVES

Tobacco is grown in more than 100 countries, including about 80 developing

countries. Given its hardiness, tobacco can be grown in a variety of climatic conditions and

topographies. Tobacco grows well in sandy soil with low water-holding capacity. It is

tolerant to extreme weather conditions (Jacobs et al., 2000). World tobacco production is

geographically concentrated. The four top countries, China, the United States, India and

Brazil, produced about two-thirds and the top twenty countries produced more than 90

percent of the world production in 1997 (Jacobs et al., 2000).

4. TOBACCO LEAF TRADE

Tobacco is traded in the world market for three main reasons: (1) some countries do

not produce tobacco, produce too little, or do not produce a particular kind of tobacco; (2)

some countries do not produce high enough quality tobacco or enough of it to meet domestic

demand; and (3) prices vary for given kinds and qualities between countries with different

product demand mixes (Grise, 1990).

About one fifth of the global tobacco production was traded in the world market in

1997. The proportion of the export to production for individual countries varies from none to

three-fourths (Jacobs et al., 2000). An individual country can be both exporter and importer

of leaf tobacco since tobaccos produced in different countries are not homogenous. For

example, Spain exported about half of its tobacco production and also imported 1.3 times as

much as it produced in 1997.

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5. DEMAND FOR CIGARETTES

Modelling the demand for cigarettes has long been an interest of economists. Many
economists once viewed cigarette smoking and other addictive behaviours as irrational and
therefore not suitable for conventional economic analysis (Winston, 1980; Schelling, 1984).
They believe that demand for cigarettes does not follow the basic law of economics including
the downward-sloping demand curve. However, this view has changed as a large body of
economic research demonstrates that demand for cigarettes clearly responds to changes in
prices and other factors. Demand for cigarettes has been studied extensively since 1985.

Studies on demand for cigarettes have applied several types of economic models to

different types of data with various estimation techniques. In general, two types of economic

models are used: the conventional demand model and the addictive demand model. These

models have been applied to two types of data: aggregate level data including time-series data

for a single geographical unit and pooled cross-sectional time-series data, and individual level

of survey data.

Cigarette consumption is found to be negatively related to price. The estimated price

elasticity from those studies using aggregated data varies from -0.14 to -1.23, but most fall in

the narrower range from -0.3 to -0.5, including the result from the two quasi-experimental

studies (Baltagi and Goel, 1987; Peterson et al., 1992). The estimated price elasticities from

the studies using individual-level data, in general, are comparable to those estimates from the

studies using the aggregate data.

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Income effect

Findings on how demand for cigarettes changes as consumers’ income increases are
inconsistent.

The estimated coefficient of the income variable in most studies of demand for
cigarettes is significant and positive, implying that cigarettes are “normal” goods and that
increasing income would have a positive effect on demand for cigarettes. However, a number
of studies (e.g., Wasserman et al., 1991, Keeler et al., 1993, Yurekli and Zhang, 2000),
particularly those using cross-sectional survey data also found that income has either an
insignificant effect or negative effect on demand for cigarettes. A meta-analysis by Andrews
and Franke (1991) who used results from 48 studies found that the weighted mean income
elasticity is 0.36, which is significantly greater than zero. They also found that the income
elasticity for cigarettes fell over time.

Smoking restrictions in public places and private work sites

As information on the health consequences of exposure to environmental tobacco

smoking (ETS) has become more widespread, governments at all levels in many countries

have adopted policies to limit smoking in public places and private work sites. A World

Health Organization (1997) survey of tobacco control policies in 134 countries indicated that

the vast majority of countries had some form of restrictions on smoking in public places.

Although the restrictions are primarily intended to reduce non-smokers’ exposure to ETS,

they can also affect the smokers since the restrictions reduce the smokers’ opportunities to

smoke or otherwise raise the “cost” of smoking. Smoking restrictions may also alter the

perceived norms related to smoking by changing attitudes concerning the social acceptability

of smoking.

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Summary and discussion

A large number of studies have been conducted to estimate demand for cigarettes in

many countries. The estimated price elasticities of demand for cigarettes from those studies

vary. But most of the estimates tend to be less than one, i.e., the demand for cigarettes A

Meta-analysis of the determinants of cigarette consumption, which analysed results

from 48 studies, yielded a weighted mean price elasticity of demand for cigarettes of -0.4

(Andrews and Franke, 1991). The short-term price elasticity recommended by an expert panel

for policy analysis is -0.4 (National Cancer Institute, 1993). The long-term elasticity is about

1.5 times the short-term price elasticity. Youth and the poor tend to be more responsive to

changes in cigarette prices. Income, in general, is positively related to demand for cigarettes.

The estimated income elasticity is 0.36, but decreases with time. Restrictions on smoking in

public places and private work sites have significantly reduced demand for cigarettes.

6 .CIGARETTE ADVERTISING AND PROMOTION

Cigarettes are one of the most heavily advertised and promoted products in the world.

Cigarette advertising and promotion, however, have been controversial. Many countries

restrict cigarette advertising and promotion, but levels of the restriction are very different.

While some countries have few restrictions, others ban advertising and promotion

completely.

7. CIGARETTE TAXES

Tobacco and tobacco products have long been taxed, primarily because the relatively

inelastic demand for these products make them an easy source of revenue. In recent decades,

however, taxation has been applied to cigarettes and other tobacco products in order to

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promote health as well as raising revenue. Cigarettes and other tobacco products are taxed in

a variety of ways. The most commonly used methods of taxation include specific taxes, value

added and other ad valorem taxes, and import duties (Chaloupkaet al., 2001).

Specific taxes (or excise taxes) add a fixed amount to the price of cigarettes while ad

valorem taxes are a percentage of the base prices. Cigarette taxes in some countries such as

the United States have been imposed by various levels of government, national, state and

local level. Governments in nearly every country impose taxes on cigarettes and other

tobacco products. The levels of taxes imposed on cigarettes vary from

8 .SOCIAL COSTS OF TOBACCO CONSUMPTION

The economic costs of smoking have been estimated in many countries, but mainly in

the industrial countries. The high prevalence of smoking in developed countries could lead to

higher economic costs in the future since most of the smoking-related illness would occur

many years later after smoking.

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Estimates of tobacco-related employment

Estimated tobacco related employment

Model and
Studies Direct jobs Indirect jobs
assumptions Years Total Expenditure- induced jobs
(core sector) (supplier sector)

United States Econometric 1994 3 000 730 000 (core sector and supplier 2 270 000

Tobacco model at 000 sector)

Merchant Wharton

Association Econometric

(1995) Forecasting

Associates

United States Accounting 1990 2 282 426 407 254 994 1 601 156

Price techniques 507

Waterhouse

(1992)

Zimbabwe Accounting 1993 153 11 971 8 120 25 567

Maravanyika, techniques 404 (multiplier effect, 0.2 times the

(1998) job number)

Malaysia Frank not clear 1982 9 090 75 280 (FTE) 13 090 (FTE) 7 720

Small and (FTE) (FTE)

Associates

(1983)

EC, Portugal, not clear 1982 694 107 450 801 650 (FTE) not included

and Spain 200 (FTE)

PEIDA (FTE)

(1985)

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Estimated net changes in employment from the loss of tobacco consumption

Studies Model and assumptions Conclusions

Scotland Model: Static input-put model Net gain of 7 869 jobs in 1989

McNicoll& Boyle Assumptions:

(1991) (1) Elimination of domestic

consumption expenditure

(2) Expenditure was allocated

according to “average expenditure

pattern”

Michigan (United Model: Dynamic regional economic Net job gains: 5 600 in 1992 and 1 500

States.) Warner & model. Assumptions: by 2005; 300 in 1992 and 880 by 2005

Fulton (1994) (1) Two scenarios: Elimination of with consumption decline

domestic consumption expenditure &

doubling the rate of consumption

decline during 1992-2005.

(2) Expenditure was allocated

according to “average expenditure

pattern.”

United States Model: Dynamic regional economic Net job gains: 47 in 1993 and 133 000

Warner et al. (1996) model. Assumptions: by 2000; 78 in 1992 and 19 719 by

(1) Two scenarios: Elimination of 2000 with consumption decline

domestic consumption expenditure &

doubling the rate of consumption

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decline during 1993-2009.

(2) Expenditure was allocated

according to “average expenditure

pattern”

United Kingdom Model: Static input-put model Net gain of 15 542 jobs or 115 688 full

Buck et al. (1995) Assumptions: time equivalent jobs in 1990 with

(1) 40 percent decline in cigarette “recent stopper” expenditure and the

expenditure same government spending

(2) Expenditure was allocated

according to “recent stopper”, “non-

smoker,” “former smokers” and

“average expenditure pattern.”

Canada Irvine & Model: Static input-put model Net loss of 6 129 jobs in 1995

Sims (1997) Assumptions:

(1) 20 percent decline in cigarette

expenditure

(2) Expenditure was allocated

according to average expenditure

pattern.

IMPACT OF TOBACCO CONTROL ON FARMERS

The aim of tobacco control is to reduce tobacco consumption, and hence production

would be reduced. Tobacco farmers would be affected during this transition.

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Studies have been conducted to examine a number economic issues related to tobacco

farmers during this transition.

1.Tobacco control policies and farm revenues

The impact of federal cigarette taxes on farmers’ incomes have been examined in

various studies in the United States, e.g. Chase Econometrics, 1985; Price Waterhouse, 1992;

Sumner and Wohlgenant, 1985; Brown, 1995. Some studies use a macro-econometric model

or accounting method to estimate the impact of cigarette tax increases on each sector of the

tobacco industry including the farm sector. These studies have concluded that increased

cigarette taxes would reduce demand for tobacco, and reduce the incomes of tobacco farmers.

For example, the Price Waterhouse study (1992) estimated that increases in the federal tax on

cigarettes from 24 to 48 cents per pack in the United States would lead to a loss of farm

revenues by $50 millions and farm jobs by 8140.

2.Effectiveness of farm diversification efforts

Reducing cigarette consumption can create economic hardship for those whose

livelihood depends on tobacco. Thus, in developed countries, there have been efforts to

diversify the economic activities for tobacco farmers and reduce their dependence on tobacco

farming.There have been efforts in a few countries to encourage tobacco farmers to grow

alternative crops. In the United States, the efforts have been scattered and farmers have not

been offered any financial incentive to switch crops.

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The search for alternatives has included the labour-intensive specialty crops such as

vegetables and value-added activities such as food processing. The high return from growing

tobacco has generally limited the impact of efforts to encourage the production of

alternatives.

SOURCES OF WORKING CAPITAL

A large
Sources of
working capital
scale

Short Terms Sources

Long Term Sources
Internal Depreciation Fund Provision
Issue of shares
Of taxation Accrued expenses
Issue of
External Normal trade Credit papers
Debentures
Bank Credit.
Sale of fixed assets

manufacturing company may procure funds from various sources to meet its working capital

and they may be classified under two heads.

 Sources of long term or Regular working capital.

 Sources of short term or Seasonal working capital.

LIST OF CURRENT ASSETS AND CURRENT LIABILITIES

CURRENT ASSETS: CURRENT LIABILITIES:

Cash in hand. Bills payable

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Cash at bank Sundry creditors

Bills receivables Accrued expenses

Sundry Debtors Short-term loans

Stock Dividends payable

Prepaid expenses Bank over draft

Accrued income Provision For Taxation

INADEQUATE WORKING CAPITAL:

Every business concern should have adequate working capital to run its business

operations. It should have neither redundant excess Working Capital nor inadequate /

shortage of working capital.

KINDS OF WORKING CAPITAL

Error: Reference source not found

Kinds of Working Capital

On the Basis of Concept On the Basis of Time

Importance of working capital:

The need for working capital would be over emphasized. Every business needs
Gross Working Capital
Net Working capital
Permanent WorkingTemporary
Capital Working Capital
amount of working capital arises due to time gap between production and realization of cash

from sales. There is one operating cycle Involved in the sales and realization of cash.

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The working capital is needed for the following purpose:-

 For the purchases of raw materials, components and spares.

 To pay wages and salaries.

 To incur day-to-day expenses and overhead costs, such as fuel power and office

expenses etc.

 To meet the selling costs as packing advertisement and Distribution.

 To provide credit facilities to firm.

Working capital is often classification Gross working capital and Net working capital.

The farmer refers to the total of act current assets and the late is the difference between total

current assets and the total current liabilities.

These are acceptable terms from the management point of view Gross working capital

deals with the problems of managing individual current assets in the day-to-day operations.

But for having along run view of working capital we have to concentrate on the new value to

current assets. The operation of current assets, which is constant, is short run analysis and

decision making but variable and managerial in long run operation.

The Net working capital is a qualitative. It indicates the liquidity position of the firm

and suggests the extent to which working capital needs may be financed by permanent

sources of funds.

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It helps the management to look for permanent sources of its financing since working

capital under this approach day not increase with in short term borrowings on the other hand

it is argued

The total funds available for operating periods than with the sources from whether the

funds come profits are earned with the help of assets, which are partly fixed and partly

current similarity to ascertain degree, can be observed in fixed and current assets, So far as

both partly finance and the borrowing and yield profit over and about the interest cost

management has to pay attention to the total amount of current asset and their profit earning

cash.

Factors Effecting The Assessment of Working Capital.

A large number of factors affect the working capital requirements. All of them have

different type of importance. These factors are:

Nature and size of Business:

The com position of an asset is a function of the size of a business and the industry to

which it belongs. Trading and financial firms need relatively large a mounts of working

capital, while public utilities need comparatively small amounts, and manufacturing concerns

stand between these two.

The size of business also affects its working capital requirement. The size can be

measured in terms of the scale of operations. A firm with a larger scale of operation will

require more working capital than one with a smaller scale of operations.

Manufacturing cycle:

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Time taken to convert raw materials into finished stock is termed as the

manufacturing or production cycle. Thus longer the manufacturing cycle, the larger the

firm‘s working capital requirements.

Business cycle fluctuations:

Requirements of working capital of a firm vary with the business variations. Most

firms experience seasonal and cyclical variations in the demand for their products and

services.

When there is an upward swing in the economy, sales will increase and

correspondingly the firm’s investment in working capital will also increase. On the contrary,

when there is a decline in the economy, sales will decrease and consequently the level of

working capital will also go down.

Credit policy:

The credit policy of the concerned affects the working capital requirement by

influencing the level of account receivables. A longer collection period will mean a tie-up of

funds in accounts receivables.

Growth and Expansion Activities:

The working capital requirement of a concern increases as it grows, it is difficult to

precisely determine the relationship between the volume of the turnover and the working

capital requirements.

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A growing concern may need to invest funds in fixed assets in order to sustain its

growing production and turnover. This will in turn, increases the current assets to support the

enlarged scale of operations. It should be noted that a growing firm needs funds continuously.

Availability of credit:

The requirement of the working capital of a concern is also affected by the credit

terms granted b y its creditors. A firm will require less working capital funds if liberal credit

terms are available to it. Similarly, the availability of credit from banks also affects the

working capital needs of a concern.

Other factors:

First, the absence of co-ordination in policies of production and distribution of

merchandise in a concern results in a high need of the working capital. Secondly, the absence

of specialization in the distribution of products may enhance the need for the working capital.

Thirdly, if the means of transport and communication are not well developed, the

concern may need high investment in the working capital. Fourthly, the imports policy of the

government may also effect the requirement of the working capital.

Structure of the working capital:

Structure of working capital means the study of elements of current assets and current

liabilities. The main elements of current assets are cash and bank balances, inventory,

receivables and other quick resources like short term or temporary investments. Current

liabilities include payables, bank overdrafts, outstanding expenses and proposed dividends.

Inventory:

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Inventory generally constitutes a major portion in current assets. The profitability of a

business depends upon the turnover of working capital and that in turn depends to large

measures upon the turnover of inventory.

Receivables:

Receivables play an important role in ensuring a higher turnover for the firm

concerned. The practice of carrying receivables has a few advantages such as (i) the reduction

of collection costs over cash collection, (ii) reduction in the variability of sales, and (iii)

increase in the level of near-term sales.

Cash:

Cash is one of the most significant means of day to day operations of business, as it is

a form of liquid funds available for payment for any item.

Marketable Securities:

To avoid too much redundant cash by investing a part of their earnings in assets,

which are easily convertible into cash. Such assets may consist of government securities,

bonds, debentures and shares that are known to be readily saleable and that may be converted

at a very short notice as and when cash is required.

Current assets are not only factor, which count in designing the structure of

working capital, there is the liabilities’ side also such as bank overdraft, creditors, tax and

dividend.

WORKING CAPITAL POLICIES

 The working capital policy covers normally two facets.

 The Target levels for each category of current assets; and

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 The method of financing current assets.

GOALS OF WORKING CAPITAL POLICIES

Minimization of risk:

The selection of its source of financing payables and other short-term liabilities may

involve relatively low costs. The firm must ensure that these near term obligations do not

become excessive compared to the current assets on hand to pay them. The matching of

assets and liabilities among current accounts is a task of minimizing the risk of being unable

to pay bills and other obligations.

Contribute to maximizing Firm’s Value

The firm holds working capital for the same purpose as it holds any other assets that

are to maximize the present value of common stock and value of the firm. It should not hold

idle current assets any more than it should gave idle fixed assets. The investment of excess

cash, minimizing of inventories, speedy collection of receivables, and elimination of

unnecessaryand costly short term financing all contributes to maximizing the value of the

firm.

ESTIMATING WORKING CAPITAL REQUIREMENTS

In order to determine the amount of working capital needed by a firm a number of

factors such as production policies, nature of business, length of manufacturing process,

credit policy, rapidly of turnover, seasonal fluctuations etc., is to be considered by the

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Finance Manager. A brief explanation about each of these factors has already discussed

above. Besides this a Finance Manager can apply any of the following techniques for

assessing the working capital requirements of a firm. Working capital requirements can be

determined mainly in two ways:

PERCENTAGE-OF-SALES METHOD:

It is a traditional and simple method of determining the level of working capital and

its components. In this method, working capital is determined as a percentage of forecasted

sales. It is determined on the basis of past experience. If over the year the relationship

between sales and working capital is found to be stable, then this relationship may be taken as

a base for determining the working capital for future. This method is simple, easy and useful

in the forecasting of working capital. However, the basic drawback of this method is the

assumption of liner relationship between sales and working capital. Therefore, this method

cannot be universally applied

OPERATING CYCLE METHOD

The opening cycle of a concern begins with the acquisition of raw materials and stops

with the collection of receivables. It may be divided into four stages.

 Raw material and stores stage.

 Work-in-process stage.

 Finished goods inventory stage.

 Receivables collection stage.

OPERATING CYCLE

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Sales Cash

Finished Procurement of
Goods Raw Materials

Manuf
acturing

The duration of the operating cycle for the period of estimating working capital is

equal to the sum of the duration of each of these stages less the credit period allowed by the

suppliers of the concern.

Symbolically the duration of the working capital cycle can be put as follows:

=R+W+F+D–C

Where:

O = Duration of operating cycle.

R = Raw materials and stores storage period.

W = Work in process period.

F = Finished stock storage.

D = Debtors collection period.

C = Creditors payment period.

Each of the components of the operating cycle can be calculated as follows:

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Average stock of raw materials and stores

R= ------------------------------------------------------------------------

Average raw materials and stores consumption per day

Average work in process inventory

W = -----------------------------------------------------------------------

Average cost of production per day

Average finished stock inventory

F= ------------------------------------------------------------------------

Average cost of goods sold per day

Average book debts

Debtors = -----------------------------------------------------------------

Average credit sales per day

Average trade creditors

Creditors = ---------------------------------------------------------------

Average credit purchases are day

After computing the period of operating cycle, the total number of operating cycles

that can be completed during a year can be computed by dividing 365 days with the number

of operating days in a cycle. The total operating expenditure in the year when divided by the

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number of operating cycles in a year will give the average amount of the working capital

requirements.

NOTE:

For the purpose of simplicity, based on the information readily available in the unit

and also keeping in view the fact that the historical data of the unit shows a linear relationship

between sales and debtors/receivables, this study proposes to use 1 st method, to calculate the

Working capital.

CASH MANAGEMENT:

Cash management concerned with the managing of (1) cash flows into and out of the

Firm, (2) cash flows within the firm, and (3) cash balances held by the firm at a point of time

by financing deficit or investing surplus cash. It can be represented by a cash management

cycle.

Cash
Business
Operations Collections

Information Deficit Borrows

and control
Surplus Invest

Cash

Payments

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Cash management more assumes more importance than other current assets because

cash is the most significant and the latest productive asset that a firm holds. It is significant

because it is used to pay the firm’s obligations.

The firm should evolve strategies regarding the following four facts of cash

management.

Cash planning:

Cash inflows and outflows should be planned to project cash surplus or deficit for

each period of the planning period. Cash budget should be prepared for this purpose.

Managing the cash flows:

The flow of cash should be properly managed. The cash inflows should be accelerated

while, as far as possible, the cash outflows should be decelerated.

Optimum cash level:

The firm should decide about the appropriate level of cash balances. The cost of

excess cash and danger of cash deficiency should be matched to determine the optimum level

of cash balances.

Investing surplus cash:

The surplus cash balances should be properly invested to earn profits. The firm should

decide about the division of such cash balance between alternative short-term investment

opportunities such as bank deposits, marketable securities, or inter-corporate lending.

CASH PLANNING:

Cash planning is a technique to plan and control the use of cash. Cash planning may

be done on daily, weekly, or monthly basis. Cash planning involve cash forecasting and

budgeting.

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Cash budget gives the information on the timing and magnitude of expected cash flow

and cash balance over the projected period. This information helps the financial manager to

determine the future cash needs of the firm.

Forecasting covering periods of one year or less are considered short-term, those

extending beyond one year are considered long-term,Short-term forecasts.

1. Receipts and disbursements method:

The prime aim of receipts and disbursements forecasts is to summaries cash flows in

and out flows during a predetermined period. Once the forecasts for cash receipts and

payments have been developed, they can be combined to obtain the net cash inflows and

outflows for each month. The net balance for each month would indicate whether the firm has

excess cash or deficit.

2. Adjusted net income method:

This method of cash forecasting involves the tracing of working capital flows. It is

sometime called the sources and uses approach. Two objects of the adjusted net income

approach are: (1) to project the company’s need for cash at a future date and (2) to show

whether the company can generate the required funds internally, and if not, how much will

have to be barrowed or raised in the capital market.

MANAGING CASH COLLECTIONS AND DISBURSEMENTS

Once the cash budget has been prepared and appropriate net cash flow established, the

Finance Manager should ensure that there does not exist a significant deviation between

projected cash flows and actual cash flows. The twin objectives in managing the cash flow

should be to accelerate cash disbursement as much as possible.

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Accelerating cash collections:

A firm can conserve cash and reduce its requirements for cash balances if it can speed

up its cash collections. Reducing the lag can accelerate cash collections or gap between the

time a customer pays bill and the time the cheque is collected and funds become available for

the firm’s use.

Decentralized collections:

Large firms operating over wide geographical area can speed up its collections by

following a decentralized collection procedure. Under decentralized collections, the firm will

have a large number of bank accounts operated in the areas where the firm has its branches.

This system saves mailing and producing time and, thus, reduces the deposit float, and

consequently, the financing requirements.

Lock-box system:

A lock box is a post office box under the control of a bank. The bank providing the

lock box service collects the mail and deposits that checks directly into the firm’s account.

The bank then sends a copy of the cheques along with letters or other materials in the copy of

the cheques along with letters or other materials in the envelopes to the company’s

accounting department.

A lock box is the most widely used service accelerating the collection of receivables.

A lock system reduces the mail float because lockboxes can be established at different

geographical locations and thus reduces mailing time. It eliminates the cheque-processing

float completely because the firm does not record the cheques until after they have been

deposited.

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To ensure the cheque processing time is minimized some banks offering lockbox

services pickup and process mail on a continuing basis and process checks on a 24-hour

basis.

A final service of the lockbox bank is the wire transfer, which is the fastest way to

transfer cash between banks. With a wire transfer the cash is available immediately to the

firm in the receiving bank. Two-wire system is available.

INVENTORY MANAGEMENT

Cash management Components, Consumables, and Loose Tools etc. of these, of Raw

material, Work in process and Finished Goods represents a significant portion of the total

assets – generally varying between 15 percent and 45 percent, with an average around 30

percent.

TYPES OF INVENTORY

1. Raw material inventory:

This consists of basic materials that have not yet been committed to production in

manufacturing firm. Raw materials that are purchased from vendors to be used in the firm’s

production operations.

2. Stores and spares:

This category includes those products, which are accessories to the main products

produced for the purpose of sale.

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3. Work-in-process inventory:

This category includes that material that has been committed to the production

process but has not been completed. The more complex and lengthy the production process,

the largest will be the investment in work-in-process inventory.

4. Finished Goods Inventory:

These are the completed products awaiting sale. The purpose of a finished goods

inventory is to uncouple the productions and sales functions so that it no longer is necessary

to produce the goods before a sale can occur.

INVENTORY CONTROL:

The carrying costs tend to increase. On the other hand, if the unit carries a large safety

stock to reduce shortage costs, again the carrying costs tend to be high. Inventory control

signifies the conversion of idle resources into ideal resources.

The objectives of inventory control is:

1. To ensure the lowest cost to the manufacturing / production / assembly department.

2. To maintain standard of quality of manufactured products.

3. To ensure continuity of supply of uniform quality inputs so as to meet the delivery

schedule of the customers.

4. To devise systems and procedures to reach the optimum level without stock-out and

minimize the funds locked up in inventory.

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5. To limit the organization’s investment in stock and thereby reduce the cost of holding

the inventory.

6. To reduce wastage of material due to obsolescence, deterioration.

7. To monitor the surplus, unserviceable materials.

There are the three type of costs in the context of inventory management.

 Ordering cost, which include expenses on requisitioning, preparation of purchase

Order, expediting, transport, receiving and storing.

 Carrying cost, which includes expenses like interest on capital, locked up in

inventory, storage, insurance, and obsolescence.

 Shortage costs, which arise when inventories are short of requirement for production

or the demand of the customers.

If the unit orders large quantities in order to reduce the ordering costs.

INVENTORY MANAGEMENT TECHNIQUES:

A system for effective inventory management involves three subsystems namely

economic orders quantity, reorders point and stock level. ECONOMIC ORDER QUANTITY

(EOQ): EOQ is that size ordered which minimize the total cost of ordering plus inventory

carrying plus incurring shortage and is calculated as per the following model:

EOQ=
√ 2CD
H
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Where C = Ordering cost

D = annual demand

H = holding cost

There are two questions to inventory management”

1.What should be the size of the order

2.At what level should

Reorder point:

At re-order point, the level of stock is equal to the average expected consumption of

the item during the lead time, the idea being that till the time the purchase order materializes,

there is sufficient stock to meet the demand. While determining the reorder point, it is

necessary to add an extra buffer stock or safety stock to the expected average consumption

during the lead-time to act as a protection against a possible stock-out.

Safety Stock:

The term ‘safety stock’ refers to extra inventory held as protection against the

possibility of a stock out. A larger inventory of safety stock means higher inventory carrying

costs.

The factors that influence safety stock are:

i. Lead time
ii. Consumption rate
iii. Stock out costs
iv. Nature of the item
v. Risk of obsolescence or deterioration
vi. Storage space

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vii. Category of items

Two important aspects of inventory management from the financial viewpoint are:

 Pricing of Raw Material issue and

 Valuation of inventories

VALUATION OF INVENTORIES

Valuation of raw material inventories depends on the cost of acquiring raw material

and the pricing of raw material issued for production. The valuation of work-in-process and

finished goods inventory depends on the method used for pricing materials and the manner in

which fixed manufacturing overheads costs are treaded-direct costing, absorption costing.

Executives in production, purchasing and marketing departments, take decisions

relating to inventories. Purchasing and production executives shape raw material policies.

Work-in-process inventory is influenced by the decisions of production executives.

Production and marketing executives evolve finished goods inventory policy. As inventory

management has important financial implications, the Finance Manager has the responsibility

to ensure that inventories are properly monitored and controlled.

ABC ANALYSIS:

Analysis is a rational approach for determining the degree of control that should be

exercised on each item of an inventory. It reveals the items that contribute most to the cost

gives deeper cost perspective to management.

The method consists of determining the product cost and consumption of each item,

arranging the resulting consumption value in descending order of magnitude and determining

percentage of the inventory that is responsible for a given percentage of the total costs. Such

an analysis reveals that a small percentage of items (about 10%) is responsible for a very

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large percentage (about 70%) of the total value of the order of 5% or so is contributed by the

bulk of the items in the inventory.

Obviously ‘A’ class items should be subject to strict management control. These may

either be subjected to a continuous review or a periodic review with short review cycle. The

‘C’ class items require little attention and may be subjected to periodic review period of the

order of one year. The control of ‘B’ class items should be between the controls exercised for

A and C class items.

JUST IN TIME (JIT) CONCEPT

In this system the consumers pull their requirements from the shop floras against the

conventional method of pushing the product to the market. in the it system the advanced stage

of production draws the right amount of inventory from the preceding stage to sustain

activity.

In this process, production activity is planned upto the actual demand, rather a

predetermined schedule, since the cycle time for production of various model is given only to

the final assembly point of mixed production line. This process is repeated at each stage, right

down to raw material or up to subcontracted items.

Advantages of this system – eliminates the wastage arising from the following areas:

Over production, Waiting time in the assembly process, Transportation bottle necks, Excess

inventories, Increased process timings, Low labour utilization, Generation of scrap and

rework.

MAINTANANCE OF DEBTORS

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Trade credit arises when a firm sells its products or services on credit and does not

receive Cash immediately it is an essential marketing tool, acting as a bridge from the

movement of goods through production and distribution stages to customers.

A firm grants trade credit to protect its sales from the competitors and to attract the

potential customers to buy its products at favorable terms. Trade credit creates receivable or

book debts, which the firm is expected to collect in the near future.

The interval between the date of sale and the date of payment has to be financed out

of working capital. A firm’s investment in accounts receivable depends on (a) the volume of

credit sales, and (b) the collection period. The term credit policy is used to the combination of

three decision variables; (i) credit standards, (ii) credit terms, (iii) collection efforts, on which

the financial manager has influence.

Credit standards are criteria to decide the types of customer to whom goods could be

sold on credit. If a firm has more slow-paying customers, its investment in accounts

receivable will increase. The firm will also be exposed to higher risk of default.

Credit terms specify duration of credit and terms of payment by customers.

Investment in accounts receivables will be high if customers are allowed extended time

period for making payments.

Collection efforts determine the actual collection period. The lower the collection

period, the lower the investment in accounts receivable and vice versa.

Goals of credit policy

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A firm may follow a lenient or a stringent credit policy. The firm following a lenient

credit policy tends to sell on credit to customers on very liberal terms and standards; credit

are granted for longer period even to those customers whose creditworthiness is not fully

known or whose financial position is doubtful.

In contrast, a firm following a stringent credit policy sells on credit on a highly

selective basis only to those customers who have proven creditworthiness and who are

financially strong. In practice, firm follow credit polices ranging between stringent to lenient.

Optimal credit policy:

The firms operating profit is maximized when total cost is minimized for a given level

of revenue. Optimum credit policy is one, which maximizes the firm’s value. The value of the

firm is maximized when the incremental rate of return of an investment is equal to the

incremental cost of funds used to finance the investment. Period is found to be consistently

higher than the net credit period extended by the company to its customers, then the

collection efforts has to be more effective as cash is locked up for a period more than what is

warranted by the credit terms extended.

Factors influencing working capital requirements:

The working capital needs of the firm are influenced by numerous factors. The

imported ones are

 Nature of Business:

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Generally trading in financial companies needs to carry large amounts of working

capital where as public utilities need small amount. Manufacturing concerns stand between

these two categories.

 Manufacturing Process:

The longer the production cycle time, the larger is the inventory in form of semi-

finished goods. Hence higher working capital is needed.

 Terms of purchasing and sales:

An organization making purchase on credit basis and sales on cash basis will require

relatively less working capital.

 Transportation bottle necks/conditions of supply:

The inventory of raw material stores and spares depend on the condition of supply. If

the supply is prompt and adequate, the firm can manage with small inventory. However, if

supply were unpredictable and scantly, then the firm to ensure continuity of production would

have to acquire stocks as and when they are available and carry large inventory on an

average.

Availability of shopping space in case of imported item effect time taken in supply.

Transportation form the far these concern of the country, increase the length of operating

cycle there by including.

 Profit levels:

A Company carrying huge amount of profit can add to the working capital pool a

large quantum of fund. However, such companies should guard against the temptation of

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expanding beyond necessity and training the funds in unproductive capital expenditure dicker

or allow unnecessary increase in overhead. Generally it is seen that companies with high

profit level become easy in management of funds and usually mismanagement by blocking

funds excessively in stocks or debtors.

 Tax levels and Planning:

Cash outlays Income Tax Laws provide for payment of advance tax in installments

excise and sales tax are payable at time of dispatch of goods from the factory premises and

the point of sales respectively. Any working capital management must make adequate and

finely provision for the same as all of them involve.

 Dividend policy and Retained Earnings:

Dividend policy and retained earnings are directly related. There has to be proper

balance between the need to preserve cash resources and the oblication to satisfy shareholders

become the short-term liability, which has to be paid for in cash and thus impact, should be

recognized in the working capital budget.

 Depreciation policy:

The extent to which the depreciation provision in made during the course of marking

financial statement has direct bearing on the dividend policy and retained earnings.

This so because higher quantum of depreciation would leave lesser profits resulting in

reduced earnings and dividend.

The quantum of depreciation can be made by choosing different methods to provide for the

use of assets.

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As for depreciation is actually only book entries and represent no cash flow at that

time, they will have no bearing on working capital expect the extent they may hold back

distribution of dividends.

 Importance of adequacy of Working Capital:

Working Capital is the lifeblood and nerve center of a business. Just as circulation of

blood is essential in the human body for maintain the smooth running of a business.

No business can run successfully without an adequate amount of working capital. The

main advantages of maintaining adequate amount of working capital are as follows

Solvency of the Business:

Adequate working capital helps on maintaining solvency of the business by providing

uninterrupted flow of production.

1. Good will:

Sufficient Working Capital enables a business concern to make prompt

payments and hence helps in creating and maintaining goodwill.

2. Easy loans:

A concern having adequate working capital high solvency and good credit

standing can arrange loans from banks and others on easy favorable terms.

3. Cash discounts:

Adequate Working Capital also enables a firm to avail cash discounts on the

purchase and hence it reduces costs.

4. Regular supply of raw material:

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Sufficient Working Capital ensures regular supply of raw materials and

continuous production

5. Regular payment of salaries, wages and other day-to-day

commitments:

A company which has enable Working Capital can make regular payment of

salaries, wages and other day-to-day commitments which raises the moral.

CONSTRUCTION CAPABILITY

Capability of construction, availability of construction equipment, appropriate

construction technology and manpower are vital for implementation of the capacity addition

programme and enhancement of business.

MADDI LAKSHMAIAH COMPANY LTD has grown significantly and has acquired

adequate experience in the field of construction and infrastructure projects.

Expert Service Philosophy.

Quality
& Safety

Commercial Construction The company has

Integrated
Management Management
Management
adopted “Expert

Service
Project
Management
Philosophy”.

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MaddiLakshmaiah and co ltd shall provide one stop shop for integrated knowledge based

end-to-end solution provider to infrastructure industry.

MaddiLakshmaiah and co ltd is also committed to achieve the higher quality

standards, in its entire project to avoid redeployment of manpower and resources for

rectification.

MaddiLakshmaiah and co ltd is aiming for OHSAS 18001 – 2000, Occupation Health

Safety and Services to ensure zero accident.

CORPORATE PROFILE

To be recognized leading infrastructure company in power sector industry based on

excellence creative ideas, innovative methods, comprehensive in execution of projects and

commitment to the customer with total confidence.

“A VISION IS NOT A PROJECT REPORT OR A PLAN TARGET. IT IS AN

ARTICULATION OF THE DESIRED END RESULTS IN BROADER TERMS”

– A.P.J. ABDUL KALAM

MISSION

 To ensure quality workmanship to meet or exceed customer requirement. To enhance

organization skill and growth by adopting new techniques.

 Capability of human resources by upgrading skill and competence.

CORPORATE VALUES

We recognize our primary assert is people. To be successful MaddiLakshmaiah and

Company must be a rewarding place to work.

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We provide opportunity and encouragement to help our people to reach their

potential.

We work with our client as a team. Mutual respect provides the foundation for our

success. And encouragement to help our people to reach their potential. We work with our

client as a team. Mutual respect provides the foundation for our success.

We remain true to our founding values of quality, honesty and hard work. We have

the highest ethical standards in the industry. We “do the right thing”. MaddiLakshmaiah and

Company Limited is a business based on trust.

MaddiLakshmaiah and Company Limited ltd is consistently associated with the high

standards of service, quality, personal attention to clients and integrity.

Because of this reputation, the company has the privilege of leading some of the

higher profile, often one-of-a-kind, projects in INDIA.

QUALITY POLICY

MaddiLakshmaiah and Company t Limited will adopt established quality standards in

all its Endeavour to be the most favored in National and International market and pursue

continual improvements in the quality of its services and performance leading Total customer

satisfaction and Business Growth through total commitment innovation and team work of all

employees.

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CHAPTER-V
DATA ANALYSIS

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DATA ANALYSIS
WORKING CAPITAL OF M.L. COMPANY LTD.,
(Sources:Previous Years Annual Reports)
current assets 2011-12 2012-13 2013-14 2014-15 2015-16 2020-21

inventories 187934012 239880075 236975762 32741254 341906868 286746201

3
Sundrydebtors 26860540 35992686 36258591 22361498 83013158 189578498
cash/bank balance 6059037 7150276 13998934 73891461 156007572 27637213
other current assets 48679846 69640943 93687132 15156870 219855601 …………
7
Loans&advances 11723019 12529745 10864119 13966691 16218624 9096384
subtotal(B) 2812566454 365193725 391784538 58920090 817001823 513058296
0
current liabilities

sundry creditors 69812092 130585661 121157551 11074645 73145327 47555839

0
other liabilities 69812092 71863653 37294595 32614510 52836878 33968457
provisions 12018960 9073986 21580520 90860140 127893051 54349532
subtotal© 151643144 211523300 180032666 23422110 253875256 135873828
0
net working capital(b)-© 129613310 153670425 211751872 35497980 563126567 377184468
0

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ANALYSIS AND INTERPRETATION

Working capital ratios indicates the ability of a business concern in meeting its current

obligations as well as its efficiency in managing the current assets for generation of sales.

These ratios are applied to evaluate the efficiency with which the firm manages and utilizes

its current assts.

The following are some types of important ratios:

1. Liquidity Ratio : Current Ratio

: Acid Test or Quick Ratio

2. Efficiency Ratio : Current Assets To Turnover Ration

: Inventory Turnover Ratio

: Working Capital To Sales Ratio

3. Structural Health Ratio : Current Assets To Total Net Assets

: Debtors Turn over Ratio

: Debtors Collection Period (in days)

: Creditors Payments Period (in days)

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1. Liquidity Ratio:

Liquidity refers to the Liquidity refers to the ability of a firm to meet its obligations in

the short run, usually one year. Liquidity ratios are generally based on the relationship

between current assets and current liabilities. A firm should ensure that it does suffer from

liquidity and also that it is not highly liquid.

A. Current Ratio:

The current ratio is calculating by dividing current assets by current liabilities.

Current ratio = Current Assets / Current Liabilities

A relatively high value of the current ratio is considered as an indication that the firm

is liquid and has got the ability to pay its bills. Conversely, a relatively low value of the

current ratio is considered as an indication of the current obligation retiring difficulty. The

current ratio represents a margin of safety, i.e., a cushion or protection for creditors. The

current ratio is a crude and quick measure of the firm’s liquidity.

B. Quick Ratio or Acid Test Ratio:

The quick ratio or acid test ratio is a more refined measure of a firm’s liquidity. This

ratio establishes a relationship between quick or liquid assets and current liabilities. And asset

is considered as liquid, if it can be converted into cash immediately or reasonably quickly

without a loss of value. Inventories are typically the least liquid of a firm’s current assets and

the assets on which losses are most likely to occur in the event of liquidation. As such the

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quick or liquid assets are separated for calculating the quick ratio. The quick ratio is found

out by dividing the total of the quick assets by total current liabilities.

Quick Ratio or Acid Test Ratio = Quick Assets / Current Liabilities

The interpretation of the quick ratio is the same as the current ratio except for that the

margins for the ratio are less in this case. A relatively high quick ratio indicates a debt retiring

ability; where as a low quick ratio implies a lesser margin of safety and greater risk.

2. Efficiency Ratios:

Efficiency ratios are employed to measure how effectively the firm employs the

resources at its command i.e. how efficiently the management utilizes and manages its assets.

These ratios are also called Turnover ratios because they indicate the speed with which assets

are being converted or turned into sales. It involves relationship between sales and various

assets, and presumes that there exists an appropriate balance between sales and the various

assets. A proper balance between sales and assets generally reflects that assets are managed

well.

Several efficiency ratios can be calculated to judge the effectiveness of assets utilization.

They are as follows:

A. Working Capital to Sales Ratio: This ratio helps to measure the efficiency of the

utilization of net working capital its signifies that for an amount of sales, a relative

amount of working capital is needed.

WORKING CAPITAL TO SALES RATIO = SALES / WORKING CAPITAL

B. Inventory Turnover Ratio = Sales / Inventory Sales

C. Current Assets Turnover Ratio = Sales / Current Assets

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3. Structural Health Ratio:

Structural health ratios are employed to measure how effectively the firm employs the

resources at its command i.e., how efficiently the management utilizes and manages its

assets.

These ratios are also called Turnover ratios because they indicate the speed with

which assets are being converted or turned into sales. It involves relationship between sales

and various assets, and presumes that there exists an appropriate balance between sales and

the various assets.

A proper balance sales and assets generally reflects that assets are managed well.

Several efficiency ratios can be calculated to judge the effectiveness of assets utilization,

They are as follows:

A. Current Assets to Total Net Assets

B. Debtors Turn Over Ratio

C. Debtors Collection Period (in days)

D. Creditors Payment Period (in day

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Current Ratio

The current ratio is calculating d by dividing current assets by current liabilities.A

relatively high value of the current ratio is considered as an indication that the firm is liquid

and has got the ability to pay its bills. Conversely, a relatively low value of the current ratio is

considered as an indication of the current obligation retiring difficulty.

Table-4.1

Year CURRENT CURRENT Ratio

ASSESTS. LIBILITIES.

2011-12 2812566454 151643144 18.5

2012-13 365193725 211523300 1.73

2013-14 391784538 180032666 2.18

2014-15 589200900 234221100 2.52

2015-16 817001823 253875256 3.22

2020-21 513058296 135873828 3.78

Interpretation:

The above table shows the current ratio during the study period 2008-2014. The ratio

was 18.5:1 in 2006-2007 which decreases to 1.73:1 in2007-2008 and again increased a bit

2.18:1 in 2010-2011. In 2013-2014 the ratio was increased to 3.78:1 but it is above from the

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standard ratio 2:1.So it is suggested to the company that it should continue or more improve

the ratio.

GRAPH-4.1

MaddiLakshmaiah Company Ltd current ratio

Current Ratio
20 18.5
18
16
14
12
Values

10
Ratio
8
6
3.22 3.78
4 2.18 2.52
1.73
2
0
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Years

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Cash Ratio

The cash ratio is the ratio of cash and bank balance to the current liabilities. This ratio

is the most rigorous and conservative test of a firm’s liquidity position. Conventionally, a

ratio of 0.5 i.e., for every rupee of current liability there should be 50 paise of cash and bank

balance, which is considered satisfactory.

Table-4.2

MaddiLakshmaiah Company Ltd cash ratio

Year CASH&BANK CURRENT Ratio

BALANCES. LIBILITIES.

2011-12 6059037 151643144 0.04

2012-13 7150276 211523300 0.03

2013-14 13998934 180032666 0.08

2014-15 73891461 234221100 0.32

2015-16 156007572 253875256 0.61

2016-17 27637213 135873828 0.20

Interpretation:

The ratio was 0.04:1 in 2008-2009 which decreased to 0.03:1 in 2009-2010. The

highest cash ratio was recorded as 0.20:1 during the year 2013-2014. It indicates that the firm

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is maintaining idle cash balance. The firm shall take steps to invest the idle cash to increase

its operations.

GRAPH-4.2

Cash Ratio
0.7 0.610000000000
001
0.6
0.5
0.4 0.320000000000
Values

002
0.3 Ratio
0.2
0.2
0.1 0.08
0.04 0.03
0
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Years

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WORKING CAPITAL TURNOVER RATIO

Net Sales
WORKING CAPITAL Turnover Ratio = ---------------------
Working Capital

TABLE-4.3

MaddiLakshmaiah Company Ltd WORKING CAPITAL Turnover Ratio

Year NET SALES. WORKING Ratio

CAPITAL.

2011-12 96695127 129613310 0.75

2012-13 255762587 153670425 1.66

2013-14 257993866 211751872 1.22

2014-15 280678564 354979800 0.79

2015-16 588655944 563126567 1.05

2016-17 678175554 377184468 1.79

Interpretation:

The ratio was 0.75 in 2008-2009. The highest working capitalratio was recorded as

1.66 during the year 2010-2011 and decrease the working capital ratio in the years 2009-2010

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and 2013-2014.But it increased a bit in 2013-2014 to 1.79. It indicates that the firm is

effectively utilizing the working capital to generate revenue.

GRAPH-4.3

Working Capital Turnover Ratio Ratio

2 1.79
1.8 1.66
1.6
1.4 1.22
1.2 1.05
Values

0.750000000000
1 Ratio
003 0.79
0.8
0.6
0.4
0.2
0
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Years

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Debtors Turnover Ratio

It is the ratio of sales and average debtor’s. Firm sales goods, for cash and credit is

used as marketing tool by a member of companies when the firm extends creditors to its

customer; debtors are created in the firm’s accounts.

Debtors Turnover Ratio = Net sales/ Debtors

TABLE-4.4

MaddiLakshmaiah Company Ltd Debtors Turnover Ratio

Year NET SALES. DEBTORS. Ratio

2011-12 96695127 26860540 3.06

2012-13 255762587 35992686 7.11

2013-14 257993866 36258591 7.12

2014-15 280678564 22361498 12.55

2015-16 588655944 83013158 7.09

2016-17 678175554 189578498 3.58

Interpretation:

The lower ratio was recorded as 3.06 in 2008-2009 and the highest ratio was recorded

as 12.55 in 2011-2012. A ratio of 3.58 is recorded in the year 2013-2014. It indicates that the

firm’s performance in making collections from debtors is reduced.

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GRAPH-4.4

Debtors Turnover Ratio

14 12.55
12
10
8 7.11 7.12 7.09
Values

6 Ratio
4 3.06 3.58

2
0
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Years

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Creditors Turnover Ratio

This Ratio shows the velocity of debt payment by the firm.

Net Credit Purchases

Creditors Turnover Ratio = -----------------------------
Avg Creditors

TABLE-4.5

MaddiLakshmaiah Company Ltd Creditors Turnover Ratio

Year NET CREDIT AVERAGE Ratio

PURCHASES. CREDITORS.

2011-12 111121750 139624184 0.80

2012-13 280314175 202449314 1.38

2013-14 211640666 158452146 1.34

2014-15 336888367 143360959 2.35

2015-16 441026464 125982205 3.50

2016-17 533575603 135873828 3.92

Interpretation:

The lower ratio was recorded as 0.80 in 2008-2009 and the highest ratio was recorded

as 3.92 in 2013-2014. It indicates that the firm is reducing dependency on creditors for its

operations.

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GRAPH-4.5

Creditors Turnover Ratio

4.5
3.92
4
3.5
3.5
3
2.5 2.35
Values

2 Ratio
1.5 1.38 1.34
1 0.8
0.5
0
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Years

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Schedule of Changes in Working Capital of 2011-12&2012-13

TABLE-4.6

PARTICULARS 2011-12 2012-13 INCREASE DECREASE

Current Assets:

Inventory 187934012 239880075 51946063

Debtor 26860540 35992686 9132146

Cash and Bank balance 6059037 7150276 1091239

Other current assets 48679846 69640943 20961097

Loans & Advances 11723019 12529745 806726

Total Current Assets [A] 281256454 365193725

Current Liabilities:

Other current liabilities 139624184 202449314 62825130

Provisions 12018960 9073986 2944974

Total Current Liabilities [B] 151643144 211523300

Working Capital C=[A-B] 129613310 153670425 24057115

86882245 86882245

Increase in working capital = 24057115

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Schedule of Changes in Working Capital of 2013-14& 2014-15

Table-4.7

PARTICULARS 2013-14 2014-15 INCREASE DECREASE

Current Assets:

Inventory 239880075 236975762 2904313

Debtor 35992686 36258591 265905

Cash and Bank balance 7150276 13998934 6848658

Other current assets 69640943 93687132 24046189

Loans & Advances 12529745 10864119 1665626

Total Current Assets [A] 365193725 391784538

Current Liabilities:

Other current liabilities 202449314 158452146 43997168

Provisions 9073986 21580520 12506534

Total Current Liabilities [B] 211523300 180032666

Working Capital C=[A-B] 153670425 211751872 58081447

75157920 75157920

Increase in working capital = 58081447

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Schedule of Changes in Working Capital of 2015-16&2016-17

Table-4.8

PARTICULARS 2015-16 2016-17 INCREASE DECREASE

Current Assets:

Inventory 236975762 327412543 90436781

Debtor 36258591 22361498 13897093

Cash and Bank balance 13998934 73891461 59892527

Other current assets 93687132 151568707 57881575

Loans & Advances 10864119 13966691 3102572

Total Current Assets [A] 391784538 589200900

Current Liabilities:

Other current liabilities 158452146 143360960 15091186

Provisions 21580520 90860140 69279620

Total Current Liabilities [B] 180032666 234221100

Working Capital C=[A-B] 211751872 354979800 143227928

Increase in Working Capital

226404641 226404641

Increase in working capital = 143227928

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CHAPTER-VI
SUMMARY OF FINDINGS AND
SUGGESTIONS

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FINDINGS

The current ratio of the company is varying from 2.17 to 3.77, so, it is satisfactory as

per the actual norms it shows that short-term solvency is high.

By observing net working capital ratio, it shows that the liquid position of the

company is strong.

By comparing the working capital turnover ratio, the conversion of the working

capital into sales is good. So, the efficiency in the management of the working capital

is very high.

In debtors turnover ratio the efficiency in the management of the credit is more i.e. the

collection period from the debtor’s is becoming high.

In creditors turnover ratio it has a slight increased from 3.50 to 3.92 it shows that

there is prompt credit paid in year by year.

In cash to current liability ratio the payment of the liabilities has decreased more

which has reduced the cash position.

On an overall the company is maintaining higher working capital in the year 2008-

2009 when compared to the previous years. This is due to the storage of less

inventory and payment of less liability, which has to be increase

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SUGGESTIONS

It is suggested that the company has to maintain more number of current assets and

should maintain the bank balances.

It is suggested that the company has to convert the working capital into sales very

quickly which improves the efficiency of the management of working capital.

It is suggested that the collection period from the debtors has to become much shorter.

It is suggested that the company has to maintain more cash in the banks and reduce

the payment of liabilities.

The suggestions made to the company is that it should maintain current standards of

performance and continue its efforts to the growth and development of Indian tobacco

Industry, which ultimately benefits its employees, formers, Government and others

who are linked with this corporate giant today.

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CONCLUSION

The overall performance of ML Company from last decade is outstanding. By

observing net working capital ratio, it shows that the liquid position of the company is strong.

By comparing the working capital turnover ratio, the conversion of the working capital into

sales is good. So, the efficiency in the management of the working capital is very high. It

suggested that the company has to maintain more number of assets and should maintain the

bank balances and suggested that the company has to convert the working capital into sales

very quickly which improves the efficiency of the management of WORKING CAPITAL.

the company is that it should maintain current standards of performance and continue its

efforts to the growth and development of Indian tobacco Industry, which ultimately benefits

its employees, formers, Government and others who are linked with this corporate giant

today.

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ANNEXURE

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BIBLIOGRAPHY

Serial No Name Of The Book& Publications Name Of Author

1. Financial Management IM PANDEY

2. Financial Management PRASANNA CHANDRA

3. Financial Management KHAN&JAIN

4. Financial Management S.N MAHESWARI

websites

www.gtnews.com

www.slideshare.com

www.managementmentor.com

www.ml.co.in

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