CHAPTER I

INTRODUCTION

1.1 Introduction of Working capital

The concept of ‘working capital’ is much confusing in the business circles. It

is very unfortunate, there is much disagreement among financiers, accountants,
businessmen and economists as to the exact meaning of the term ‘working capital’.
According to a few, working capital means current assists. For some others it is an
excess of current assets over current liabilities. Some authorities prefer to call it
circulating capital in place of working capital.

Meaning of working capital

The term working capital is commonly used for the capital required for day-to-
day working in business concern. Such as for purchasing raw material for meeting
day-to-day expenditure on salaries, wages, rent rates advertising etc. but there is much
disagreement among various financial authorities as to the exact meaning of the term
working capital

Definition of working capital

Working Capital refers to that part of the firm’s capital, which is require for
financing short-term or current assets such a cash marketable securities, debtors and
inventories. Funds thus, invested in current assets keep revolving fast and are
constantly converted into cash and this cash flow out again in exchange for other
current assets. Working capital is also known as revolving or circulating capital or
short-term capital.

1.2 Importance of working capital management

Working capital management includes a number of aspects that make it

especially important for the financial health of the firm. Surveys indicate that the
largest portion of the financial manager time is devoted to the day-to-day operations
of the firm, which fall under the heading of working capital management.

1
 Current assets represent the largest proportion i.e. if total assets forms 1% then
current assets are generally above 60%. Moreover current assets fluctuate with sales
and sales vary over time. Thus managing current asset is the dynamic process and it
requires the financial mange to closely monitor sales to ensure that assets in hand are
at the right level for actual sales production levels.

1.3 Determinants of working capital

 Nature of Industry

 Seasonality of Operations

 Production Policy

 Market Conditions

 Conditions of supply

 Size of Business

 Volume of Sales

 Terms of Purchase and Sales

 Business Cycle

 Growth and Expansion of the firm

 Price Level Changes

 Operating Efficiency of the firm

2
  Profit Appropriation

 Capital Structure of the firm

1.4 STATEMENT OF THE PROBLEM

The present study is titled “A STUDY ON WORKING CAPITAL

MANAGEMENTOF SAK AGRO FARM INDUSTRY, MANNARGUDI,
TIRUVARUR”

In order to study the statement it is necessary to define important terms used in

statement of the problem. The term “Working Capital Management” refers to the total
current assets of “SAK AGRO FARM INDUSTRY”. During a particular period of
time, current assets are the assets which can be converted into cash within accounting
year.

The term working capital management implies determination of requirements

of working capital, financing the requirements and efficient utilization of working
capital in SAK AGRO FARM INDUSTRY.

1.5 NEED OF THE STUDY

As Current assets must be managed efficiently in order to maintain the

liquidity of the firm to know about the financial mixed strategies.

Exactly the working capital wants to know the balances of current assets
&current liabilities increases or decreases to know the corrected net-profit of balance
and wean know the difference of the year of balance how much it is profit or loss will
be there in company.

3
1.6 OBJECTIVES OF STUDY

Primary objectives:

 To Analysis the working capital management of SAK AGRO FARM

INDUSTRY.

Secondary objectives

 To assess or evaluate the efficiency of working capital analysis of SAK

AGRO FARM INDUSTRY.
 To determine the profitability position of the company
 To analyze the working capital position of the SAK AGRO FARM
INDUSTRY.
 To suggest to the measure of working capital management.

1.7 SCOPE OF THE STUDY

 The study is confined to SAK AGRO FARM INDUSTRY and analysis of

its financial statements.

 The main aim of the study is to assess the proper management of current
assets & current liabilities.

 The study concentrates more on the working capital management of SAK

AGRO FARM INDUSTRY

 Working capital gives only a good basis for quantitative analysis of

financial problem.

4
1.8 LIMITATIONS OF THE STUDY

 In present study the analysis is mainly based on secondary data given in

annual audited balance sheets, Profit and Loss A/C and reports of SAK
AGRO FARM INDUSTRY.
 The study does not touch all the units of SAK AGRO FARM
INDUSTRY.
 Limited span of time is a major limitation of this project.
 The present study cannot be used for inter firm comparison.
 The result does not reflect the day to day transactions.
 The study does not cover the all working capital.
 Balancing liquidity, profitability and risk in managing working capital.

1.9 RESEARCH METHODOLOGY

 PERIOD OF THE STUDY

The period of the study of this project of working capital management on

SAK AGRO FARM INDUSTRY for two months.

 RESEARCH DESIGN
The research design adopted for the study is analytical in nature.
 COLLECTION OF DATA

To achieve a fore said objective the following methodology has been adopted.
The information for this report has been collected through the Primary and Secondary
sources.

1. Primary Data Sources

2. Secondary Data Sources

 SECONDARY DATA SOURCES

5
 For the study only secondary data was collected through the sources, i.e.
financial statement, annual reports of SAK AGRO FARM INDUSTRY and other
journals and magazines.

CHAPTER II

COMPANY PROFILE&INDUSTRY PROFILE

2.1 COMPANY PROFILE
SAK Group at a Glance:

The SAK Group, founded in 2002 by Sri Baba Abdul Kader, is one of the
fastest growing Private Sector Enterprises in India, with three-business divisions viz.,
Dairy, Domestic and Agri - Products under its flagship Company of SAK AGRO
FARM INDUSTRY, one infrastructure subsidiary - SAK Filling Station and other
associate Companies viz., SAK Gas Agencies. The annual turnover of SAK Group
crossed Rs.3 crores in 2007-08 and is aiming for Rs.7 crores during 2014-15.
Presently SAK milk products have market presence in Tamil Nadu its retail stores
across Pondicherry and Chennai. Integrated agaric operations are in Thanjavur and
Nagai Districts and these are backbone to retail operations.

About the founder:

Sri Baba Abdul Kader is one of the greatest Dynamic, Pragmatic, Progressive
and
Visionary Leaders of the 21st Century. With an objective of bringing prosperity in to
the rural families through co-operative efforts, he along with his relatives, friends and
associates promoted SAK group in the year 2002 taking opportunity from the
Industrial Policy, 2002 of the Government of India and he has been successful with
endeavor.
At present, SAK has market presence in all over Tamilnadu. More than two
hundred villages and two thousand farmers are being benefited in 3-4 districts. On the
other side, SAK is serving more than 50000 customers needs, employing more than

6
70 employees and generating indirectly employment opportunity to more than 300
people. Beginning with a humble annual turnover of just Rs.1 crore in 2002-03, the
sales turnover has reached close to Rs.4 crores during the financial year 2011-2012.
Sri Baba Abdul Kader held various coveted and honorable positions including
President of District Small Industries Development Board.
Sri Baba SAK was chosen as one of 50 leaders at the forefront of change in
the year 2010 by the Ulavar Ulagam magazine for being an unflinching proponent of
technology and for his drive to transform the State of Tamilnadu .

Forward looking statements:

“We have grown, and intended to grow, focusing on harnessing our

willingness to Experiment and innovate our ability to transform our drive towards
excellence in quality, our people first attitude and our strategic direction.

Mission:

Bringing prosperity into rural families of India through co-operative efforts

and providing customers with hygienic, affordable and convenient supply of "Fresh
and Healthy" food products.

Vision:

To be a progressive billion dollar organization with a pan India foot print by

2020.
To achieve this by delighting customers with "Fresh and Healthy" food
products, those are a benchmark for quality in the industry.
We are committed to enhanced prosperity and the embodiment of the farming
community through our unique "Relationship Farming" Model.
To be a preferred employer by nurturing entrepreneurship, managing career
aspirations and providing innovative avenues for enhanced employee prosperity.

7
SAK Slogan:

When you are healthy, we are healthy

When you are happy, we are happy

We live for your "HEALTH & WEALTH”

Quality policy of SAK:

We are committed to achieve customer satisfaction through hygienically

processed and packed Milk and Milk Products. We strive to continually improve the
quality of our products and services through up-gradation of technologies and
systems.
SAK's soul has always been imbibed with an unwritten perpetual commitment
to
itself, to always produce and provide quality products with continuous efforts to
improve the process and environment.

Adhering to its moral commitment and its continuous drive to achieve

excellence
in quality of Milk, Milk products & Systems, SAK has always been laying emphasis
on not only reviewing & re-defining quality standards, but also in implementing them
successfully. All activities of Processing, Quality control, Purchase, Stores, Marketing
and Training have been documented with detailed quality plans in each of the
departments.

Today SAK feels that the ISO certificate is not only an epitome of achieved
targets, but also a scale to identify & reckon, what is yet to be achieved on a
continuous basis. Though, it is a beginning, SAK has initiated the process of
standardizing and adopting similar quality systems at most of its other plants.

8
 Commitments:

Milk Producers:

Change in styles of rural families in terms of:

 Regular high income through co-operative efforts.

 Women participation in income generation .

 Saved from price exploitation by un-organized sector .

 Remunerative prices for milk .

 Increase of milk productivity through input and extension activities

 Shift from risky agriculture to dairy farming

 Financial support for purchase of cattle; insuring cattle

 Establishment of Cattle Health Care Centers

 Supplying high quality Cattle feed

 Organizing "Rythu Sadasu" and Video programmes for educating the farmers in dairy
Farming Customers

 Timely Supply of Quality & Healthy Products

 Supply high quality milk and milk products at affordable prices

9
 Focused on Nutritional Foods More than 1 lakh happy customers

 High customer satisfaction

 24 hours help lines ( <10 complaints a day)

Employees:

 Enhancing the Technical and Managerial skills of Employees through continuous

training and development

 Best appraisal systems to motivate employees

 Incentive, bonus and reward systems to encourage employees

 SAK forges ahead with a motto "add value to everything you do"

Suppliers:
 Alfa-Laval: supplier of high-end machinery and technical support Focusing on Tetra
pack association for products package.
 SHV-Gas: Supplier of Domestics gas.

 HPCL: Supplier of Petro products for the motor vehicles and agriculture equipments.

Society:
 Potential Employment Generation more than 350 employees are working with SAK
Agro Farm more than 950 procurement agents got self employment in rural areas
more than 500 sales agents associated with the company.

 Employment for the youth by providing financial and animal husbandry support for
establishing MINI DAIRIES.

 Producing highly health conscious products for the society

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Qualities of management principles:

1. Customer focus to understand and meet the changing needs and expectations of
Customers.

2. People involvement to promote team work and tap the potential of people.

3. Leadership to set constancy of purpose and promote quality culture trough out the
Organization.

4. Process approach to assess the efficiency and effectiveness of each process.

5. Systems approach to understand the sequence and interaction of process.

6. Factual approach to decision making to ensure its accuracy.

7. Continual improvement processes for improved business results.

8. Development of suppliers to get right product and services in right time at right
place.

Product/Market wise performance:

The total turnover is Rs 3 Cores during the financial year 2014-15 against the
turnover of 1 Crore in 2014-15. Today SAK Agro Farm distributes quality milk &
domestics products.
During the year 2007-08 liquid milk and other products sales was Rs.25 lakhs against
Rs.24 lakhs in the previous year.

Milk sales:

13% growth was recorded in 2014-15 against 1.35 LLPD in 2006-07.

11
Overall growth of 6% was recorded-5.49 LLPD in 2007-08 against 5.16 LLPD.

Agro Product sales 17% was recorded against 7 %

Outlook:

Considering the growth potential in the liquid milk market, the company has
drawn plans to increase its market share in the existing markets and to enter into new
markets there by doubling revenues in dairy business in the next 3 years. To achieve
this object, company is undertaking major expansion in dairy business by investing
over Rs20 crores during 2013-14 and over Rs3 crores during the current year to
strengthen the milk procurement and other Agro based projects.

BRANCHES OF SAK:

SAK has 3 wings. They are as follows:

1. Dairy
2. Domestic LPG
3. Agro Products

Dairy
It is the major wing among all. The dairy products manufactured by SAK are
Milk and Curd.
Retail
SAK has outlets to sale milk, vegetables, agro products and domestic gas supplies.
Agro Products
In this business, SAK employees will go to farmers and have a deal with them. Those
farmers will sell their goods like Scuba grasses for the diary. Cultivated vegetables,
pulses sold to wholesale purchasers. And SAK will transport the goods to retail
outlets also.
The agricultural and horticulture experts will examine the farm. And finally they
report to the Head. Representatives as per the instructions given by experts.

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2.2 INDUSTRY PROFILE

India is the world's second largest producer of food next to China, and has the
potential of being the biggest with the food and agricultural sector. The total food
production in India is likely to double in the next ten years and there is an opportunity
for large investments in food and food processing technologies, skills and equipment,
especially in areas of Canning, Dairy and Food Processing, Specialty Processing,
Packaging, Frozen Food/Refrigeration and Thermo Processing.
Fruits & Vegetables, Fisheries, Milk & Milk Products, Meat & Poultry,
Packaged/Convenience Foods.

India is one of the world’s major food producers but accounts for less than 1.5
per cent of international food trade. This indicates vast scope for both investors and
exporters. Food exports in 1998 stood at US $5.8 billion whereas the world total was
US $438 billion. The Indian food industries sales turnover is Rs 140,000 crore
(1 crore = 10 million) annually as at the start of year 2000.

India's food processing sector covers fruit and vegetables; meat and poultry;
milk and milk products, alcoholic beverages, fisheries, plantation, grain processing
and other consumer product groups like confectionery, chocolates and cocoa products,
Soya-based products, mineral water, high protein foods etc. We cover an exhaustive
database of an array of suppliers, manufacturers, exporters and importers widely
dealing in sectors like the -Food Industry.
The most promising sub-sectors includes -Soft-drink bottling, Confectionery
manufacture, Fishing, aquaculture, Grain-milling and grain-based products, Meat and
poultry processing, Alcoholic beverages, Milk processing, Tomato paste, Fast-food,
Ready-to-eat breakfast cereals, Food additives, flavors etc.

The food industry is the complex, global collective of diverse businesses that
together supply much of the food energy consumed by the world population. Only

13
 subsistence farmers, those who survive on what they grow, can be considered outside
of the scope of the modern food industry.

The food industry includes:

• Regulation: Local, regional, national and international rules and regulations for food
production and sale, including food quality and food safety, and industry lobbying
activities within the FSSAI standard.
• Education: academic, vocational, consultancy

• Research and development: food technology

• Financial services, credit Manufacturing: agrichemicals, seed, farm machinery and

supplies, agricultural construction, etc.

• Agriculture: raising of crops and livestock, seafood Food processing: preparation of

fresh products for market, manufacture of prepared food products

• Marketing: promotion of generic products, new products, public opinion, through

advertising, packaging, public relations , etc

• Wholesale and distribution: Warehousing, Transportation, Logistics

• Retail: supermarket chains and independent food stores, direct-to-consumer,
restaurant and food services

Consumer: End user has one of the highest influences on the food industry through
things like preference The Economic Research Service of the USDA uses the term
food system to describe the same thing:

"The U.S. food system is a complex network of farmers and the industries that link to
them. Those links include makers of farm equipment and chemicals as well as firms
that provide services to agribusinesses, such as providers of transportation and
financial services. The system also includes the food marketing industries that link

14
farms to consumers, and which include food and fiber processors, wholesalers,
retailers, and foodservice establishments."

History

Food processing dates back to the prehistoric ages when crude processing
incorporated slaughtering, fermenting, sun drying, preserving with salt, and various
types of cooking (such as roasting, smoking, steaming, and oven baking). Salt-
preservation was especially common for foods that constituted warrior and sailors'
diets, up until the introduction of canning methods.

Evidence for the existence of these methods exists in the writings of the
ancient Greek ,Chaldean, Egyptian and Roman civilizations as well as archaeological
evidence from Europe, North and South America and Asia. These tried and tested
processing techniques remained essentially the same until the advent of the industrial
revolution. Examples of ready-meals also exist from pre industrial revolution times
such as the Cornish pasty and the Haggis Modern food
processing technology in the 19th and 20th century was largely developed to serve
military needs. In 1809Nicolas Appert invented a vacuum bottling technique that
would supply food for French troops, and this contributed to the development of
tinning and then canning by Peter Durand in 1810. Although initially expensive and
somewhat hazardous due to the lead used in cans, canned goods would later become a
staple around the world Pasteurization. discovered by Louis Pasturing 1862, was a
significant advance in ensuring the micro-biological safety of food.

In the 20th century, World War II, the space race and the rising consumer
society in developed countries (including the United States) contributed to the growth
of food benzoate processing with such advances as spray drying, juice concentrates,
freeze drying and the introduction of artificial sweeteners, coloring agents, and
preservatives such as sodium . In the late 20th century products such as dried instant
soups, reconstituted fruits and juices, and self cooking meals such as MRE food ration
were developed.

15
 In western Europe and North America, the second half of the 20th century
witnessed a rise in the pursuit of convenience, food processors especially marketed
their products to middle-class working wives and mothers. Frozen foods (often
credited to Clarence Birdseye) found their success in sales of juice concentrates and
"TV dinners". Processors utilized the perceived value of time to appeal to the postwar
population, and this same appeal contributes to the success of convenience foods
today.

The Indian packaged processed foods industry is estimated at US$ 10.87

billion – US$ 13.05 billion, including biscuits, chocolates, ice-cream, confectionery,
snacks, cheese and butter. Growing at a healthy 14-15 per cent over the past two-three
years, major players in the sector include Britannia, Nestle, Amul, ITC Foods, Parle,
Kellogg’s, GlaxoSmithKline, Wrigley and Frito-Lay, among others.

The industry received foreign direct investments (FDI) totaling US$ 143.80
million in 2007-08 against US$ 5.70 million in the previous fiscal. The cumulative
FDI received by the industry from April 2000-August 2009 stood at US$ 878.32
million.

However, India’s share in exports of processed food in global trade is only 1.5
per cent; whereas the size of the global processed-food market is estimated at US$ 3.2
trillion and nearly 80 per cent of agricultural products in the developed countries get
processed and packaged.
In order to further grow the food processing industry, the government has
formulated a Vision-2015 action plan under which specific targets have been set. This
includes tripling the size of the food processing industry from around US$ 70 billion
to about US$ 210 billion, raising the level of processing of perishables from 6 per cent
to 20 per cent, increasing value addition from 20 per cent to 35 per cent, and
enhancing India’s share in global food trade from 1.5 per cent to 3 per cent. This
would require an investment of US$ 20.6 billion.

16
 According to an Ernst and Young (E&Y) presentation, the food processing
industry in India will grow 30-40 per cent as against the present 15 per cent in the
next 10-years.
Prime Minister Dr Manmohan Singh on October 6, 2009 laid out a blueprint
for rapid growth in the country’s food processing sector. The Prime Minister said that
this can be achieved by simplifying the tax structure, formulating a National Food
Processing Policy and improving rural infrastructure.
Moreover, according to Union Minister for Food Processing Industries,
Subodh Kant Sahai the central government is envisaging an investment of US$ 21.50
billion in the food processing industry over the next five years, a major chunk of
which it plans to attract from the private sector and financial institutions.

17
 CHAPTER III

REVIEW OF LITERATURE

3.1 REVIEW OF LITERATURE

Definition of working capital

Working Capital refers to that part of the firm’s capital, which is required for
financing short-term or current assets such a cash marketable securities, debtors and
inventories. Funds thus, invested in current assets keep revolving fast and are
constantly converted into cash and this cash flow out again in exchange for other
current assets. Working Capital is also known as revolving or circulating capital or
short-term capital.

Meaning of working capital

The term working capital is commonly used for the capital required for day-to-
day working in business concern. Such as for purchasing raw material for meeting
day-to-day expenditure on salaries, wages, rent rates advertising etc. but there is much
dis-agreement among various financial authorities as to the exact meaning of the term
working capital.

3.2 WORKING CAPITAL MEANING AND SIGNIFCANCE

The concept of ‘working capital’ is much confusing in the business circles. It

is very unfortunate, there is much disagreement among financiers, accountants,
businessmen and economists as to the exact meaning of the term ‘working capital’.
According to a few, working capital means current assets. For some others it is an
excess of current assets over current liabilities. Some authorities prefer to call it
circulating capital in place of working capital. The present study is related to working
capital management in SAK AGRO FARM INDUSTRY, more effective and

18
interacted for research work in corporate sectors for the assessment of working capital
management.

The researchers evaluated working capital management on this study consider

to involve the administration of current assets and current liabilities in such a way that
an option level of working capital maintained in the business she also narrated such a
way that an option level of working capital maintained in the business and also
narrated that firm may resist without making profits but it cannot survive without
liquidity. I therefore based on case study, I have selected my topic on different
approach .

3.4 IMPORTANCE OF WORKING CAPITAL MANAGEMENT

Working capital management includes a number of aspects that make it

special importance for the financial health of the firm. Surveys indicate that the
largest portion of the financial manager time is devoted to the day-to-day operations
of the firm, which fall under the heading o working capital management.

Current assets represent the largest proportion i.e. if total assets forms 1% then
current assets are generally above 60%. Moreover current assets fluctuate with sales
and sales vary over-time. Thus managing current asset is the dynamic process and it
requires the financial mange to closely monitor sales to ensure that assets in hand are
at the right level for actual sales production levels.

3.5FACTORS INFLUENCING WORKING CAPITAL NEEDS

Nature of Business

The amount of working capital is basically related to the nature and volume of
the business. In concerns, where the cost of raw materials to be used in the
manufacture of a product is very large in proportion to its total cost of manufacture
the requirements of working capital will be very large. For instance, a cotton or sugar
mill requires a large amount of working capital. On the contrary, concerns having
large investments in fixed assets require less amount of working capital.

19
Size of Business Unit

Size of the business unit is also a determining factor in estimating the total
amount of working capital. The general principle in this regard is that the bigger the
size the larger will be the amount of working capital required as because the larger
business units are required to maintain big inventories for the flow of the business.

Seasonal Variations

Strong seasonal movements create certain special problems of working capital

in controlling the internal financial swings. A great many companies have to carry on
seasonal business such as sugar mills, oil mills or woolen mills etc. and therefore they
require large amount of working capital in the season to purchase the raw materials in
large quantities and utilize them throughout the year.

Time Consumed In Manufacture

The average time taken in the process of manufacture is also an important

factor in determining the amount of working capital. The longer the period of
manufacture the large the investor required.

Turnover of Circulating Capital

Turnover means the ratio of annual gross sales to average working assets. In
simple words, it means the speed with which circulating capital completes its rounds
or the number of times the amount invested in working assets has been converted into
cash by sales of the finished goods and reinvested in working assets during a year.

Labor Intensive vs. Capital Intensive Industries

In labor intensive industries, large working capital is required because or

regular payment of heavy wage-bills and more time taken in completing the
manufacturing process. Conversely, the capital intensive industries require lesser
amount of working capital because of the heavy investment in fixed and shorter
period in manufacturing process.

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Need to Stockpile Raw Material and Finished Goods

In industries where it is necessary to stockpile the raw materials and finished

goods increase the amount of working capital lied up in stocks and stores in certain
lines of business where the materials are bulky and best purchasable in large
quantities such as cements stockpiling of raw material is very usual or where labor
stoppage is frequent finished goods stock have to be large in stored quantities.

Terms of Purchase and Sales

Terms of purchase and sales also affect the amount of working capital. If a
company purchases all goods in cash and sells its finished production credit also
naturally it will require large amount of working capital. On the contrary a concern
having credit facilities and allowing no credit to its customers will require lesser
amount of working capital

Conversion of Current Assets into Cash

The need of having cash in hand to meet the day to day requirements payment
of wages and salaries rent rates has an important bearing in deciding the adequate
amount of working capital. The greater the cash requirement the higher will be the
need of working capital but if a company has sample stock of liquid current assets
will require lesser amount of working capital because the company can earn cashes
such assets immediately in the open market.

Growth and Expansion of Business

Growing concerns require more working capital than those that are static. It is
logical to expect larger amount of working capital in a growing concern to meet its
growing needs of funds for its expansion programmers though it varies with economic
condition and corporate practices.

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Business Cycle Fluctuations

Business cycle affects the requirement of working capital. At times when the
prices are going up and up and boom conditions prevail the tendency management is
to pile up a big stock of raw materials and to maintain a bitstock of finished goods
with an expectation to earn more profits.

Profit Margin and Profit Appropriation

Some firms enjoy a dominant position in market due to quality product or
good marketing management or monopoly power in the market and therefore earn a
high profit margin. On the other hand form facing tough competition earn low margin
of profit.

Price level changes

The financial manager should also anticipate the effect of price level changes
on working capital requirements of the firm. Generally, rising price levels will require
a higher amount of working capital because to maintain the same levels of current
assets will require higher investment. However if companies may revise their product
prices will not face a severe working capital problem. The effects of rising price
levels will be different for different firms depending upon their price policies nature
of the product etc.

Dividend policy
There is a well-established relationship between dividend and working capital
in companies where conservation dividend policy is followed. The changes in
working capital position bring a about an adjustment in dividend policy. With a view
to maintain and established dividend policy is the management before declaring a
dividend gives due consideration to its effects on cash and cash requirements.

22
3.6 WORKING CAPITAL MANAGEMENT-AN OVER VIEW

Working capital of a firm may be different as the amount by which its current
assets exceed its current liabilities. Working capital management is concerned with
the problem that arises attempting to manage current assets, current liabilities and the
inter-relationship that exists between them. The current assets to those assets, which
in the ordinary course of the business can be, or will be, turned into cash within a year
without disrupting the operations of the firm. The major current assets are cash
marketable securities account receivable and inventories. Current liabilities are those
liabilities, which are intended at their inception to be payee in the ordinary course of
business with in the year, out of current assets or earning of the concern. The basic
current liabilities are account payable, bills payable, bank overdraft and outstanding
expenses.
The goal of working capital management is to manage the firm’s current assets
and
Current liabilities in such a way that the satisfactory level of the working capital is
maintained. The Interaction between the current assets and current liabilities is the
main theme of the theory of the working capital management.
The important elements of working capital includes inventory management,
cash
management, credit and collection policy and short term borrowings where as long
term financial analysis is primarily concerned with strategic planning, working capital
management is primarily concerned with day to day operations making share,
production lines out stop as firms run out of the raw material and thus preventing the
slowing down of the process. Obviously without good working capital management
no firm can be efficient and profitable.

23
3.7CONCEPT OF WORKING CAPITAL
There are two possible interpretations of working capital concept:
 Balance Sheet concept
 Operating Cycle concept

Balance sheet concept

There are two interpretations of working capital under the balance sheet
concept.

a) Excess of Current Assets over Current Liabilities

b) Gross or Total Current Assets

 Excess of current assets over current liabilities are called the net working
capital or net current assets.

 Working capital is really what a part of long term finance is locked in and
used for supporting current activities.

 The balance sheet definition of working capital is meaningful only as an

indication of the firm’s current solvency in repaying its creditors.

 When firms speak of shortage of working capital they in fact possibly imply
scarcity of cash resources.

 In fund flow analysis an increase in working capital, as conventionally

defined,
Represents employment or application of funds.

24
3.8 Operating Cycle Concept

A company’s operating cycle typically consists of three primary activities:

 Purchasing resources,
 Producing the product and
 Distributing (selling) the product.
 These activities create funds flows that are both unsynchronized and uncertain.

Unsynchronized because cash disbursements (for example, payments for resource

purchase) usually take place before cash receipts (for example collection of
receivables).The firm has to maintain cash balance to pay the bills as they come due.

 In addition, the company must invest in inventories to fill customer orders

promptly.
 And finally, the company invests in accounts receivable to extend credit to
customers.
 Operating cycle is equal to the length of inventory and receivable conversion
periods.

25
TYPES OF WORKING CAPITAL

26
3.9 TYPES OF WORKING CAPITAL
 Permanent working capital
 Temporary or variable working capital

Permanent Working Capital

Minimum amount of investment in all current assets which is required at all
times to carry out minimum level of business activities.

Permanent working capital = core current assets

Temporary working capital:

The amount of temporary working capital fluctuates depending upon the

changes in the production and sales.

Temporary working capital = fluctuating working capital -variable working capital

3.10 MANAGEMENT OF WORKING CAPITAL

Management of working capital is concerned with the problems that arise in

attempting to manage the current assets, the current liabilities and the inter-
relationship that exists between them. In other words, it refers to all aspects of
administration of CA and CL.
Working Capital Management Policies of a firm have a great effect on its
profitability, liquidity and structural health of the organization

27
Nature of working capital management

Dimension I
Profitability,Risk
& Liquidity

Dimension II Dimension III

Composition & Composition &
Level of CA Level

28
3.11 OBJECTIVES OF WORKING CAPITAL MANAGEMENT

 To study on working capital a large portion of total investment in assets.

 To study on working capital requires much of financial managers time.

 To study on working capital changes in price level.

 To study on working capital day-to-day activities.

 To study on working capital current assets and current liabilities.

RATIO ANALYSIS

Meaning of Ratio
A ratio is simple arithmetical expression of the relationship of one number to
another. It may be defined as the indicated quotient of two mathematical expressions.
According to Accountant’s Handbook by Wixon, Kell and Bedford, “a ratio is an
expression of the quantitative relationship between two numbers”.
Ratio Analysis
Ratio analysis is the process of determining and presenting the relationship of
items and group of items in the statements. According to Batty J. Management
Accounting “Ratio can be assists management in its basic functions of fore-casting,
planning coordination, control and communication”.
It is helpful to know about the liquidity, solvency, capital structure and
profitability of an organization. It is helpful tool to aid in applying judgment,
otherwise complex situations.

29
Ratio may be expressed in the following three ways

Pure Ratio or Simple Ratio: - It is expressed by the simple division of one number
by another. For example, if the current assets of a business are Rs. 200000 and its
current liabilities are Rs.100000, the ratio of ‘Current assets to current liabilities’ will
be 2:1.
‘Rate’ or ‘So Many Times:-In this type, it is calculated how many times a figure is,
in comparison to another figure. For example, if a firm’s credit sales during the year
are Rs.200000and its debtors at the end of the year are Rs. 40000, its Debtors
Turnover Ratio is 200000/40000 =5 times. It shows that the credit sales are 5 times in
comparison to debtors.
Percentage:-In this type, the relation between two figures is expressed in hundredth.
For example, if a firm’s capital is Rs.1000000 and its profit is Rs.200000 the ratio of
profit capital, inters of percentage, is 200000/1000000*100 = 20%

Types of ratios (working capital associated ratios)

1) CURRENT RATIO
Current Ratio may be defined as the relationship between current assets and
current liabilities. This ratio is also known as working capital ratio, is a measure of
general liquidity and is most widely used to make the analysis of a short-term
financial position or liquidity of a firm. It is calculated by dividing total current assets
by total of the current liabilities.

Current Ratio = Current Assets

Current Liabilities

30
 2) QUICK RATIO

Quick ratio is a ratio of assets to quick liabilities. Quick assets are assets that can
be converted into cash very quickly without much loss. Quick liabilities one
liabilities, which have to be necessarily paid within a year.
The acid test ratio is a measure of liquidity designed to over-come of firm’s ability
to convert its current assets quickly into cash in order to meet its current liabilities.
Thus, it is measure of quick or acid liquidity.
The acid test ratio is the ratio between current assets and current liabilities and
to be calculated by dividing the quick assets by the current liabilities.

Quick Ratio = Quick Assets

Current Liabilities

Quick Assets = Current Assets – (Inventory + Prepaid Expenses)

31
 3) CASH RATIO (SUPER QUICK RATIO)

Definition

Total dollar value of cash and marketable securities divided by current

liabilities.
For a bank this is the cash held by the bank as a proportion of deposits in the bank.
The cash ratio measures the extent to which a corporation or other entity can quickly
liquidate assets and cover short-term liabilities, and therefore is of interest to short-
term creditors also called liquidity ratio or cash asset ratio.

Cash Ratio = Cash & Bank Balances

Current Liabilities

4) WORKING CAPITAL TURNOVER RATIO

Working capital of a concern is directly related to sales.

The working capital is taken as:
Working capital = Current assets – Current Liabilities

Working Capital Turnover Ratio = Sales x100

Net Working Capital

32
 The working capital turnover ratio indicates the velocity of the utilization of
net working capital.

5)DEBTORS TURNOVER RATIO

Definition: Debtor’s turnover ratio indicates the velocity of debt collection of a firm.
In simple words it indicates the number of times average debtors (receivable) are
turned over during a year.

Formula of Debtors Turnover Ratio:

Debtors Turnover Ratio = Net Credit Sales / Average Trade Debtors

The two basic components of the ratio are net credit annual sales and average trade
debtors. The trade debtors for the purpose of this ratio include the amount of Trade
Debtors & Bills Receivables. The average receivables are found by adding the
opening receivables and closing balance of receivables and dividing the total by two.
It should be noted that provision for bad and doubtful debts should not be deducted
since this may give an impression that some amount of receivables has been collected.
But when the information about opening and closing balances of trade debtors and
credit sales is not available, then the debtors turnover ratio can be calculated by
dividing the total sales by the balance of debtors (inclusive of bills receivables) given
and formula can be written as follows.

Debtors Turnover Ratio = Total Sales / Debtors

33
 6) AVERAGE COLLECTION PERIOD RATIO:-

The average collection period represents the average days for which a firm has to wait
before its receivables are into cash. This ratios is calculated as follows:-

Average collection period = 365

Debtors turnover ratio

7) STOCK TURNOVER/INVENTORY TURN-OVER RATIO:

DEFINITION:

Stock turnover ratio and inventory turn-over ratio are the same. This ratio is a
relationship between the cost of goods sold during a particular period of time and the
cost of average inventory during a particular period. It is expressed in number of
times. Stock turn-over ratio/Inventory turn-over ratio indicates the number of time the
stock has been turned over during the period and evaluates the efficiency with which a
firm is able to manage its inventory. This ratio indicates whether investment in stock
is within proper limit or not.
Formula of Stock Turnover/Inventory Turnover Ratio:

The ratio is calculated by dividing the cost of goods sold by the amount of average
stock at cost.

(a) Inventory Turnover Ratio = Cost of goods sold / Average inventory at cost

Generally, the cost of goods sold may not be known from the published financial
statements. In such circumstances, the inventory turnover ratio may be calculated by
dividing net sales by average inventory at cost. If average inventory at cost is not

34
known then inventory at selling price may be taken as the denominator and where the
opening inventory is also not known the closing inventory figure may be taken as the
average inventory.

(b) [Inventory Turnover Ratio = Net Sales / Average Inventory at Cost]

(c) [Inventory Turnover Ratio = Net Sales / Average inventory at Selling Price]

(d) [Inventory Turnover Ratio = Net Sales / Inventory]

Every business needs adequate liquid resources in order to maintain day-to-day cash
flow. It needs enough cash to pay wages and salaries as they fall due and to pay
creditors if it is to keep its workforce and ensure its supplies.

Maintaining adequate working capital is not just important in the short-term.

Sufficient liquidity must be maintained in order to ensure the survival of the business
in the long-term as well.
Even a profitable business may fail if it does not have adequate cash flow to meet its
liabilities as they fall due.

Therefore, when businesses make investment decisions they must not only consider
the financial outlay involved with acquiring the new machine or the new building, etc,
but must also take account of the additional current assets that are usually involved
with any expansion of activity. Increased production tends to engender a need to hold
additional stocks of raw materials and work in progress. Increased sales usually
means that the level of debtors will increase. A general increase in the firm’s scale of
operations tends to imply a need for greater levels of cash.

35
8) CREDITOR TURNOVER RATIO:

When the firm sells goods on credit the creditor is naturally interested in
finding out how much time the firm is likely to take in receiving its trade debtors.
Like debtors turnover ratio, creditors turnover is calculated in two forms i.e. Creditors
payable ratio and average payment period ratio, Creditors payable ratio can be
calculated as follows

Purchase (turnover)
Creditors Turnover ratio = -------------------------------
Account payable

9)AVERAGE FAYNENT PERIOD RATIOs-

This ratio represents the average number of days taken by the firm to pay its creditors.
Generally the lower the ratio the better is the liquidity position of the firm and higher
the ratio less liquid is the position of the firm. But higher payment period also implies
greater credit period enjoyed by the firm and sonsequent larger the benefit reaped
from credit suppliers. But sometimes the higher ratio may simply lesser discount
facilities availed or higher prices paid for the goods purchased on credit. Average
payment is calculated as followss-

365 days
Average payment period ratios = --------------------------
Creditors turnover ratio

INTERPRETATION OF AVERAGE PAYMENT PERIOD RATIO:-

36
 In rice industry average payment period is almost stagnant ie. 52 days in 4 year
and 46 days only in 1993,In dal industry creditors payable ratio was 91 days in 1990
and 1991, 73 days in 1992 and 1993 and 61 days in 1994. Payment period to the
creditors is in decrease trend as it was reduced from 91 days to 61d
Introduction of Working Capital Management
Working capital management is the device of finance. It is related to manage of
current assets and current liabilities. After learning working capital management,
commerce students can use this tool for fund flow analysis. Working capital is very
significant for paying day to day expenses and long term liabilities.

Meaning and Concept of Working Capital and its management

Working capital is that part of company’s capital which is used for purchasing raw
material and involve in sundry debtors. We all know that current assets are very
important for proper working of fixed assets. Suppose, if you have invested your
money to purchase machines of company and if you have not any more money to buy
raw material, then your machinery will no use for any production without raw
material. From this example, you can understand that working capital is very useful
for operating any business organization. We can also take one more liquid item of
current assets that is cash. If you have not cash in hand, then you cannot pay for
different expenses of company, and at that time, your many business works may delay
for not paying certain expenses. If we define working capital in very simple form,
then we can say that working capital is the excess of current assets over current
liabilities.

Types Of Working Capital

37
Gross working capital

Total or gross working capital is that working capital which is used for all the
current assets. Total value of current assets will equal to gross working capital.
Net Working Capital

Net working capital is the excess of current assets over current liabilities.

Net Working Capital = Total Current Assets – Total Current Liabilities

This amount shows that if we deduct total current liabilities from total current assets,
then balance amount can be used for repayment of long term debts at any time.

Permanent Working Capital

Permanent working capital is that amount of capital which must be in cash or

current assets for continuing the activities of business.

Temporary Working Capital

Sometime, it may possible that we have to pay fixed liabilities, at that time we
need working capital which is more than permanent working capital, then this excess
amount will be temporary working capital. In normal working of business, we don’t
need such capital.

In working capital management, we analyze following three points

1st Point

What is the need for working capital?

After study the nature of production, we can estimate the need for working capital. If
company produces products at large scale and continues producing goods, then
company needs high amount of working capital.

2nd Point

What is optimum level of Working capital in business?

38
Have you achieved the optimum level of working capital which has invested in
current assets? Because high amount of working capital will decrease the return on
investment and low amount of working capital will increase the risk of business. So, it
is very important decision to get optimum level of working capital where both
profitability and risk will be balanced. For achieving optimum level of working
capital, finance manager should also study the factors which affects the requirement
of working capital and different elements of current assets. If he will manage cash,
debtor and inventory, then working capital will automatically optimize.
3rdPoint

What are main Working capital policies of businesses?

Policies are the guidelines which are helpful to direct business. Finance manager can
also make working capital policies.

1st Working capital policy

Liquidity policy

Under this policy, finance manager will increase the amount of liquidity for reducing
the risk of business. If business has high volume of cash and bank balance, then
business can easily pays his dues at maturity. But finance manger should not forget
that the excess cash will not produce and earning and return on investment will
decrease. So liquidity policy should be optimized.

2nd Working Capital Policy

Profitability policy

Under this policy, finance manger will keep low amount of cash in business and try to
invest maximum amount of cash and bank balance. It will sure that profit of business
will increase due to increasing of investment in proper way but risk of business will
also increase because liquidity of business will decrease and it can create bankruptcy
position of business. So, profitability policy should make after seeing liquidity policy
and after this both policies will helpful for proper management of working capital.

39
 CHAPTER-IV

RESEARCH METHODOLOGY
 PERIOD OF THE STUDY

The period of the study of this project of working capital management on

SAK AGRO FARM INDUSTRY for two months.

 RESEARCH DESIGN
The research design adopted for the study is analytical in nature.

SOURCE OF DATA

To achieve a fore said objective the following methodology has been adopted.
The information for this report has been collected through the Primary and Secondary
sources.

1. Primary Data Sources

2. Secondary Data Sources

SECONDARY DATA SOURCES

For the study only secondary data was collected through the sources, i.e.
financial statement, annual reports of SAK AGRO FARM INDUSTRY and other
journals and magazines.

DATA ANALYSIS

The collected data was analyzed using ratio analysis

Various ratios are used to analyze the financial position of the company

40
 Current ratio = Current Assets
Current Liabilities

Quick ratio = Liquid Assets

Current Liabilities

Cash ratio = Cash & Bank balances

Current Liabilities * 100

Working capital turnover ratio = Sales (turnover)

Working capital

Debtors turnover ratio = Sales (turnover)

Accounts Receivable

Average collection period = 360

Debtor turnover ratio

Stock turnover ratio = Sales (turnover)

Inventory

Creditor turnover ratio = purchase (turnover)

Account payable

Average payment period = 360

Creditor turnover ratio

41
 CHAPTER-V

DATA ANALYSIS AND INTERPRETATION

5.1 STATEMENT OF CHANGES IN WORKING CAPITAL FOR

2014-2015
TABLE 5.1 Changes in working capital

Particulars 31-3-2014 31-3-2015 Increase Decrease

Current Assets
Inventories 2623.00 3938.00
Sundry Debtors 16566.00 14891.00
1314.00
Cash and Bank Balance 371.00 398.00
1675.00
Bills Receivables 4940.00 9361.00
Loan and Advances 1565.00 345.00
27.00
4421.00
Total Current Assets (1) 26065.00 28933.00 1220.00
Current Liabilities
Sundry Creditors 6268.00 6171.00
2867.00
Deposits 2556.00 4490.00
Other Liabilities and Provisions 5207.00 8880.00
Interest 985.00 710.00

96.00 1934.00
Total Current Liabilities (2) 15016.00 20251.00
3673.00

Working Capital [(1) -(2)]

11049.00 8682.00
274.00
2368.00
5235.00
Increase in working capital :

2368.00

11049.00
11049.00 5235.00 5235.00

Source: annual reports of SAK AGRO FARM INDUSTRY for the year 2014-15

42
5.2 STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2013-2014

TABLE 5.2 Changes in working capital 2013-2014

Particulars 31-3-2013 31-3-2014 Increase Decrease

Current Assets

Inventories 2888.00
Sundry Debtors 19794.00 2623.00 265.00
Cash and Bank Balance 707.00 16566.00 3228.00
Bills Receivables 2984.00 371.00 336.00
Loan and Advances 870.00 4940.00
1956.00
1565.00
695.00
Total Current Assets (1) 27243.00

1178.00
Current Liabilities 26065.00
Sundry Creditors 3999.00
Deposits 1986.00
6268.00 2269.00
Other Liabilities and Provisions 4582.00
2556.00 570.00
Interest 872.00
5207.00 625.00
985.00 113.00
Total Current Liabilities (2) 11439.00

3577.00
Working Capital [(1) -(2 )] 15016.00
15804.00

11049.00

Increase in working capital : 4755.00

4755.00

15804.00 15804.00 4755.00 4755.00

Source : annual reports of SAK AGRO FARM INDUSTRY for the year 2013-14

43
5.3 STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2012-2013

(Rupees in lakhs) Table 5.3 Change in working capital 2012-2013

Particulars 31-3-2012 31-3-2013 Increase Decrease

Current Assets

Inventories 2283.00 2888.00

605.00
Sundry Debtors 20316.00 19794.00 522.00
Cash and Bank Balance 168.00 707.00
539.00
Bills Receivables 1024.00 2984.00
1960.00
Loan and Advances 972.00 870.00 102.00

Total Current Assets (1) 24763.00 27243.00

2480.00

Current Liabilities
Sundry Creditors
4904.00
Deposits 3999.00
1769.00 217.00 905.00
Other Liabilities and 1986.00
4309.00 272.00
Provisions 4582.00
828.00 44.00
Interest 872.00

11810.00
Total Current Liabilities (2) 11439.00
371.00
12953.00
Working Capital [(1) - (2 )] 15804.00

2851.00 2851.00

Increase in working capital : 15804.00 15804.00 2851.00 2851.00

Source: annual reports of SAK AGRO FARM INDUSTRY for the year 2012-13

44
5.4 STATEMENT OF CHANGES IN WORKING CAPITAL FOR 2011-2012

(Rupees in lakhs) TABLE 5.4 Change in working capital 2011-2012

Particulars 31-3-2011 31-3-2012 Increase Decrease

Current Assets

Inventories 2879.00
167.00
Sundry Debtors 18619.00 2283.00 596.00
Cash and Bank Balance 620.00 20316.00
Bills Receivables 1246.00 168.00 452.00
Loan and Advances 1273.00 1024.00 222.00
972.00 301.00
Total Current Assets (1) 24637.00
24763.00
126.00
Current Liabilities
Sundry Creditors
8696.00
Deposits
1716.00 4904.00
Other Liabilities and Provisions
2533.00 1769.00 3792.00
Interest 53.00
611.00 4309.00
1776.00
828.00
Total Current Liabilities (2) 217.00

13556.00
Working Capital [(1) - (2 )]
11810.00
11071.00 1746.00

1882.00 12953.00
Increase in working capital :
1882.00

12953.00 12953.00 1882.00 1882.00

Source: Annual reports of SAK AGRO FARM INDUSTRY for the year 2011-12

45
 5.5 STATEMENT OF WORKING CAPITAL FOR YEAR 2011-15

(Rupees in lakhs)

Net Working
Current Current Working Capital
Year
Assets Liabilities Capital Increas
Decrease
e
2011-12 24763.00 11810.00 12953.00 1882.00
2012-13 27243.00 11439.00 15804.00 2851.00
2013-14 26065.00 15016.00 11049.00 4755.00
2014-15 28933.00 20251.00 8682.00 2369.00

Interpretation:

 For the periods 2011-12 and 2012-13 the net working capital is decreased due to high
of current assets and current liabilities.

 For The periods 2011-12 and 2012-13 increase in working capital due to remaining
year figures, because in these 2 years current assets are high and current liabilities are
low.

 In the year 2013-14 the current liabilities are very low & current assets are high, so
the working capital is increased.

 In the year 2014-15 the current liabilities are low & current assets are high, so the
working capital is increased.

46
 COMPARISION OF INCREASE AND DECREASE OF WORKING CAPITAL

Net Working Capital

Year
Increase/ Decrease

2011-12 (-)1882

2012-13 (-)2851

2013-14 (+)4751

2014-15 (+)2368

Interpretation:

 For the periods 2014-15 and 2012-13 the net working capital is decreased due to
lower investments in acquisition of fixed assets and making less payments to the
payables.

 For the periods 2014-15 and 2010-2011increase in working capital leads to major
investments in fixed assets as well as capital expenditure.

47
 1. Calculation of Current Ratio:

Year Current Assets Current Liabilities Ratios

(Rs. In crores) (Rs. In crores)

24763 11810 2.096

2011-12
27243 11439 2.381
2012-13
26065 15016 1.735
2013-14
28933 20251 1.428
2014-15

Interpretation:

 Variance of current ratio in the year 2012-13 shows that increase in current assets as
well as decrease in current liabilities when compare to 2014-15 figures.

 For the year 2014-15 and 2010-2011the current ratio has been declined due to
increase in current liabilities and decrease in current assets.

 The above ratio clearly indicates that for the period 2014-15 and 2013-2014 the
current ratio is below 2 hence it indicates that the firm has not maintaining
sufficient current assets to meet current liabilities.

48
 Current ratio

current assert current liablities ratio

28933
27243 26065
24763
20251

15016
11810 11439

2.096 2.381 1.735 1.428

2011-12 2012-13 2013-14 2014-15

49
 2. Calculation of Quick Ratio:

Year Liquid Assets Current Liabilities Ratios

(Rs. In crores) (Rs. In crores)

22480 11810 1.090

2011-12
24356 11439 2.129
2012-13
23442 15016 1.560
2013-14
24996 20251 1.234
2014-15

Interpretation:

 For the years 2014-15 and 2009-010 the firm has maintained sufficient current
assets (excluding inventory of stock) in order to meet its current liabilities.

 Due to the increase in current liabilities for the year 2014-15 and 2013-2014 it
leads to decrease in Quick ratios when compare to 2014-15 and 2012-13 figures.

50
 Quick Ratio
Liquid Assets Current Liabilities Ratios

24356 24996
23442
22480
20251

15016
11810 11439

1.09 2.129 1.56 1.234

2011-12 2012-13 2013-14 2014-15

3. Calculation of Cash Ratio:

51
 Year Cash & Bank balances Current Liabilities Ratios
(Rs. In crores) (Rs. In crores)

2011-12 168.00 11810 0.014

2012-13 707.00 11439 0.061
2013-14 371.00 15016 0.024
2014-15 398.00 20251 0.019

Interpretation:

 The cash ratio of the organization clearly indicates that the firm has maintaining
moderate cash balances to meet its current liability obligations

 In order to maintain sufficient cash balance the firm has to maintain control over its
credit sales (Debtors) and making payments to the suppliers

52
 Cash Ratio
Cash & Bank balances Current Liabilities Ratios

20251

15016
11810 11439

168 0.014 707 0.061 371 0.024 398 0.019

2011-12 2012-13 2013-14 2014-15

53
 4)Calculation of Working Capital Turn Over Ratio:

Year Sales(Turnover) Net Working Capital Ratios

(Rs. In crores) (Rs. In crores)

2011-12 41725.00 12953.00 3.221

2012-13 38886.00 15804.00 2.460
2013-14 41999.00 41999.00 3.810

2014-15 46170.00 46170.00 5.317

Interpretation:

 The overall position of the working capital turnover ratio is positive

 For the year 2014-15 and 2010-2011there is a substantial growth in sales turn over
due to this the firm has huge working capital turnover ratio for the above said periods

 For the period 2012-13 the sales turn over of the firm has been decreased when
compare to 2014-15 figures due to this the working capital turnover ratio is declined.

54
 Working Capital Turn Over Ratio
Sales(Turnover) Net Working Capital Ratios
46170 46170
41725 41999 41999
38886

15804
12953

3.221 2.46 3.81 5.317

2011-12 2012-13 2013-14 2014-15

5. Calculation of Debtors Turn Over Ratio:

55
 Year Sales(turnover) Account receivable Ratios
(Rs. In crores)

2011-12 41725.00 20316.00 2.053

2012-13 38886.00 19794.00 1.964
2013-14 41999.00 16566.00 2.535
2014-15 46170.00 14891.00 3.017

Interpretation :

Account receivable includes sundry debtors and bills receivable

 The debtors turnover ratio of the firm is ideal for the year 2014-15

 There is substantial decrease in sundry debtors for the year 2012-13 due to this the
debtors turnover ratio is decreased when compare to 2014-15 and remaining years
figures.

 For the year 2014-15 and 2010-2011the firm has maintained sufficient debtors
Turnover ratio.

56
 Debtors Turn Over Ratio
Sales(Turnover) Account receivable Ratios
46170
41725 41999
38886

20316 19794
16566 14891

2.053 1.964 2.535 3.017

2011-12 2012-13 2013-14 2014-15

57
6. Calculation of Average collection period

Year 365 DAYS DEBTOR turnover Ratios

ratio

2011-12 365 2.053 178 days

2012-13 365 1.964 186 days
2013-14 365 2.535 144 days
2014-15 365 3.017 121 days

Interpretation:

 Average collection period is ideal for the year 2014-15.

 For the year 2012-13, it is high. Thus, it is not ideal.

58
 Average collection period
365 DAYS DEBTOR turnover ratio Ratios
365 365 365 365

178 186
144
121

2.053 1.964 2.535 3.017

2011-12 2012-13 2013-14 2014-15

7. Calculation of stock or inventory TurnOver Ratio:

59
 Year Stock(turnover) Sales turnover Ratios
(Rs. In crores)

41725 2283.00 18.275

2011-12
2012-13 38886 2888.00 13.462

2013-14 41999 2623.00 16.006

46170 3938.00 11.721
2014-15

Interpretation:

 The stock turnover ratio of the firm is ideal for the year 2014-15

 There is substantial decrease in stock for the year 2012-13 due to this the stock
turnover ratio is decreased in 2010-2011when compare to 2014-15 and
remaining years figures .

 In the year 2014-15 the firm has maintained sufficient stock turnover ratio.

60
 stock or inventory TurnOver Ratio
Stock(turnover) Sales turnover Ratios
46170
41725 41999
38886

228318.275 2888 262316.006 3938

13.462 11.721
2011-12 2012-13 2013-14 2014-15

8. Calculation of creditors Turnover ratio

Year Purchase (turnover) Accoount Payable Ratios

(Rs. In crores) (Rs. In crores)

32274 18500 1.744

2011-12
2012-13 18500 12725 1.45
30225 22750 1.32
2013-14

61
 27750 15850 1.75
2014-15

Interpretation:

 The creditor’s turnover ratio of the firm is ideal for the year 2013-14.
 The creditor’s turnover ratio is high in 2010-12. Thus, it is to be unideal.

62
 creaditors turnover Ratio
Purchase (turnover) Accoount Payable Ratios
32274
30225
27750

22750
18500 18500
15850
12725

1.744 1.45 1.32 1.75

2011-12 2012-13 2013-14 2014-15

9. Average Payment Period.

Year 365 days Creditor turnover Ratios

ratio

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2011-12 365 1.744 209 days

2012-13 365 1.45 252 days

2013-14 365 1.32 276 days

2014-15 365 1.75 208 days

Interpretation:

 Average payment period is ideal for the year 2010-2011.

 For the year 2014-15 and 2014-15, it is less. Thus, it is unideal.

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 Average Payment Period
365 days Creditor turnover ratio Ratios
365 365 365 365

276
252
209 208

1.744 1.45 1.32 1.75

2011-12 2012-13 2013-14 2014-15

CHAPTER -VI

FINDINGS, SUGGESTIONS AND CONCLUSION

FINDINGS

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 For the periods 2011-12 and 2012-13 the net working capital is decreased due
to high of current assets and current liabilities.

 For The periods 2011-12 and 2012-13 increase in working capital due to
remaining year figures, because in these 2 years current assets are high and
current liabilities are low.

 In the year 2013-14 the current liabilities are very low & current assets are
high, so the working capital is increased.

 In the year 2014-15 the current liabilities are low & current assets are high, so
the working capital is increased

 For the periods 2014-15 and 2012-13 the net working capital is decreased due
to lower investments in acquisition of fixed assets and making less payments
to the payables.

 For the periods 2014-15 and 2010-2011increase in working capital leads to

major investments in fixed assets as well as capital expenditure

 Variance of current ratio in the year 2012-13 shows that increase in current
assets as well as decrease in current liabilities when compare to 2014-15
figures.

 For the year 2014-15 and 2010-2011the current ratio has been declined due to
increase in current liabilities and decrease in current assets.

 The above ratio clearly indicates that for the period 2014-15 and 2013-2014
the current ratio is below 2 hence it indicates that the firm has not maintaining
 sufficient current assets to meet current liabilities.

 For the years 2014-15 and 2009-010 the firm has maintained sufficient current

 assets (excluding inventory of stock) in order to meet its current liabilities.

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 Due to the increase in current liabilities for the year 2014-15 and 2013-2014 it

 leads to decrease in Quick ratios when compare to 2014-15 and 2012-13

figures.

 The cash ratio of the organization clearly indicates that the firm has
maintaining moderate cash balances to meet its current liability obligations

 In order to maintain sufficient cash balance the firm has to maintain control
over its credit sales (Debtors) and making payments to the suppliers

 The overall position of the working capital turnover ratio is positive

 For the year 2014-15 and 2010-2011there is a substantial growth in sales turn
over due to this the firm has huge working capital turnover ratio for the above
said periods

 For the period 2012-13 the sales turn over of the firm has been decreased
when compare to 2014-15 figures due to this the working capital turnover ratio
is declined.
 Account receivable includes sundry debtors and bills receivable

 The debtors turnover ratio of the firm is ideal for the year 2014-15

 There is substantial decrease in sundry debtors for the year 2012-13 due to this
the debtors turnover ratio is decreased when compare to 2014-15 and
remaining years figures.

 For the year 2014-15 and 2010-2011the firm has maintained sufficient debtors
Turnover ratio.

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 Average collection period is ideal for the year 2014-15.

 For the year 2012-13, it is high. Thus, it is not ideal.

 The stock turnover ratio of the firm is ideal for the year 2014-15

 There is substantial decrease in stock for the year 2012-13 due to this the stock
turnover ratio is decreased in 2010-2011when compare to 2014-15 and
remaining years figures .

 In the year 2014-15 the firm has maintained sufficient stock turnover ratio.

 The creditor’s turnover ratio of the firm is ideal for the year 2013-14.

 The creditor’s turnover ratio is high in 2010-12. Thus, it is to be undead

 Average payment period is ideal for the year 2010-2011.

 For the year 2014-15 and 2014-15, it is less. Thus, it is undead

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 SUGGESIOTNS

 As the working capital has been reduced in 2014-15 and 2010-2011 though the profit
has increased, the company is advised to take all necessary steps to find out the
reasons for reduction in the working capital.

 High availability ensuring minimum cost of generation

 To add generating capacity, with in prescribed time and cost

 To maintain the financial soundness of SAK AGRO FARM INDUSTRY

 Managing financial operations in accordance with good commercial utility practices

 To develop R&D for achieving improved plant reliability

 In order to increase the working capital, discount should be given to debtors and see
that the average collection period reduces.

 Reference to Tamilnadu State gazette, the generating company and distribution

license may actually agree to a maximum rebate of 2% on bill amount these
provisions in the act may utilize by SAK AGRO FARM INDUSTRY.

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CONCLUSION

The efficiency of management at financial position of SAK AGRO FARM

INDUSTRY is good. From the analysis it is clear that the share capital remained
intact during the five years up-to 20010-2011and the reserves and surplus reached to
1976.59 Lakhs. From the observation it is clear that capital expenditure on fixed
assets is increased gradually over the period of time which might be due to
construction and commission of new livestock like goat farm projects. Company
inventories observed an increment except in the year 2014-15.Cash and bank balances
was increased during the years 2012-13 and 2011-2012.Miscellaneous expenses
observed decrement over the years and is Nil during the year2014-15.Current
liabilities also increased from 2004-05 to 2010-2011which shows prompt clearance of
liabilities. The SAK AGRO FARM INDUSTRY uses more of long term loans/debts
than owner’s equity. Based on the analysis made the total financial position is good.

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 BIBLIOGRAPHY

BOOKS
V.C.Shukla “Principles of Financial Management”, Gupta
Publications, Vikas publishers,
Tata mcgrawhills, New Delhi.
Prasanna, Chandra, “Financial Management theory and practice”-
(tata –Mcgrahill publishing co. New Delhi(U) 2002)
“Management Accounting and Research”-A journal l, August
2002, Publications.
JIMS8M ,july-september, 1997
I.M Pandey-“Financial management ”Vikas publishing house Pvt
ltd,
Brealey, Richad (1998),principles of corporate finance, New York:
Mgrahill-hill
Stoner, James A.F (1996) Management. New Delhi: prentice hall
of India

WEB SITES

www.askmgt.com
www.google.com
www.acountingexplained.com

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