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    (WITH SPECIAL REFERENCE TO THESRINIVASAHATCHERIES PVT.LIMITED, VIJAYAWADA )

    A Project report submitted to the

    ANDHRA UNIVERSITY, VISAKHAPATNAM.

    In partial fulfillment for the award of thedegree of

    MASTER OF BUSINESS ADMINISTRATION

    By

    Y.ARJUN REDDY

    Under the guidance of

    Smt.K.NEELIMAM.B.A

    D.N.R COLLEGEP.G. DEPARTMENT OF MANAGEMENT STUDIES

    (Accredited at the A Level by NAAC)(Approved by AICTE,NEWDELHI and affiliated to

    ANDHRA UNIVERSITY,VISAKHAPATNAM)BHIMAVARAM-534202

    (2010-2012)

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    DECLARATION

    I hereby declare that the project titled

    A STUDY ON WORKING CAPITALMANAGEMENT WITH REFERENCE TO THE

    SRINIVASA HATCHERIES PVT.LTD,

    VIJAYAWADA has been prepared by meduring the year 2010-2012, in partial fulfillment

    of the requirement for the award ofPOSTGRADUATION DIPLOMA IN BISINESS

    MANAGEMENTwhich is affiliated toANDHRAUNIVERSITY, VISAKHAPATNAM.

    Y.ARJUN REDDY

    (REGD.NO.110274802002)

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    ACKNOWLEDGEMENT

    I would like to convey my respectful thanks to

    Dr.P.KOTESWARA RAJU, director, K.NEELIMA, facultyP.G. of Business Administration, D.N.R COLLEGE,

    BHIMAVARAM, for their mortal support during the research

    work.

    I am thankful to MR.K.SOMI REDDY (MANAGINGDIRECTOR) and MR.MURALI KRISHNA (FINANCEMANAGER) who granted me the project and guided me with theirexpertise knowledge through out my project work.

    I would also express my sincere gratitude to

    MR.B.SATYANARAYANA RAO, MY PARENTS, WELL

    WISHERS and FRIENDS for their support to complete thisproject.

    I deem it a great privilege to express profound respect, deep sense

    to Gratitude to my lecturer and my project guide K.NEELIMA,

    Lecturer in M.B.A. DANTULURI NARAYANA RAJU

    COLLEGE, BHIMAVARAM, of his constant encouragement and

    valuable guidance.

    Y.ARJUN REDDY(Regd. no.110274802002)

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    CONTENTS

    CHAPTER PARTICULARS

    CHAPTER-I INTRODUCTION

    NEED FOR THE STUDY

    OBJECTIVES OF STUDY

    METHODOLOGY

    LIMITATIONS OF STUDY

    CHAPTER-II INDUSTRY PRIOFILE

    INTRODUCTION TO INDUSTRY

    PRODUCT DETAILS

    PROBLEMS OF THE INDUSTRY

    CHAPTR-III COMPANY PROFILE

    GENERAL PROFILE

    FUNCTIONAL PROFILE

    CHAPTER-IV CONCEPTUAL FRAME WORK

    THEORY OF WORKING CAPITAL

    CHAPTER-V FINDINGS AND SUGGESTIONS

    FINDINGS

    SUGGESTIONS

    BIBLOGRAPHY

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    INTRODUCTION

    Financial management:

    Financial management is the life of every business enterprise. A business

    under taking at a given point time can be viewed as a pool of funds raised from various

    sources like inventory and the source of internal financing. The funds raised from these

    sources are utilized for.

    Acquiring fixed Assets needs for the production of goods and services.

    Inventories that facilitate production and sales accountants receivablesowned by customers.

    Cash and marketable securities used for liquidity purpose and businesstransactions.

    The modern thinking in financial management accords a far greater

    importance to management in decision-making and formulation of policy. Financial

    management occupies key position in top management and plays a dynamic role in

    solving complex management problems. They are now responsible for shaping the

    fortunes of the enterprise and are involved in allocation of capital.

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    DEFINITIONS:

    Financial Management is an area of financial division making,

    harmonizing individual motives and enterprise goals.

    -Weston and Brigham

    Financial Management is the application of the planning and control

    functions to the finance function.

    -Howard and Upon

    Financial Management is the operational activity of a business that is

    responsible for obtaining and effectively utilizing the funds necessary for efficient

    operations.

    -Joseph and Messie

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    FINANCIAL ANALYSIS:

    The success of a company of a great extent depends on its financial performance.

    Financial performance involves assessing the financial position and the companys ability

    to meet the debts utilizing of assets and profitability financial performance is evaluate

    through financial analysis.

    Financial analysis is the process of identifying the financial strengths and

    weakness of the firm by properly establishing relationship between the items of balance

    sheet and profit and loss account. The information contains in financial statements

    balance sheet and profit and loss a/c is used to give the judgment about the operatingperformance and financial position of the firm. Management should interest in knowing

    the financial strength of the firm to make their best use and to the able to spot out the

    financial business weakness of the firm to take suitable corrective action.

    Apart from the management, there are outside parties,

    outsiders, creditors, investors, etc.., restore confidence in those firms that so steady

    growth in earnings. As such they concentrate on the analysis of the firms present and

    future profitability. Financially, management of the firms would be interested in every

    aspects of the financial analysis. Thus financial analysis is the starting point for making

    plans before using any sophisticated forecasting budgeting procedure

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    Steps To Be Taken For Financial Statement Analysis:

    Identifying the users purpose

    Identification of the data sources. (Which part of the annual report or other

    information is required to be analyzed to suit the purpose?)

    Selecting the technique to be used for such analysis.

    Thus financial statement analysis is purposive and not necessarily

    comprehensive to cover all possible uses. Since it is purposive, analysis may be restricted

    to any particular portion of the available financial statement, taking care to ensure

    objectivity and unbiased ness.

    Financial statement analysis covers study of relationships with a set of

    financial statements at a point of time and with trends in these relations over time. This

    means that it may be a study of some comparable firms at a particular time, say a

    financial year 2003-2004, or it may be a study of particular firm over a period of time

    says 1994-2004 or it may cover both.

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    OBJECTIVES OF THE STUDY:

    The case study ofWORKING CAPITAL MANAGEMENT under taken

    with the following objectives.

    To analyze the current assets and current liabilities with a view to

    point out the liability of the company.

    To discuss the pattern of working capital in relation to total net

    asset and gross fixed asset with a view to highlight whether the

    company has been operating with high/low amount of working

    capital.

    To examine the pattern of financing the working capital

    requirements in order to bring out the relative importance of short

    term/long term sources of funds.

    To present the turnover of working capital and its components with

    a view to analyze the efficiency with which the working capital and

    its components were used.

    To analyze the funds flow to find out the ways and means of

    corporation.

    To know the profitability of the funds.

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    To find out the financial stability of the firm

    To manage the extent to which the company has been financed through borrowing

    PERIOD OF THE STUDY:

    The study is made for a period of five years i.e., from 2005-

    06 to 2009-10.

    SCOPE OF THE STUDY:

    Scope is limited to the extent of analyzing the working capital

    of the company by calculating various components of working capital

    through the help of the ratios, trend analysis and funds flow.

    SOURCES OF INFORMATION:

    The sources of information are divided into two(a) Primary and (b) Secondary. Most of the data is collected throughsecondary source i.e., printed matter. This data is from the annualreports and original records of ECIL.

    And the data collected by way of primary source

    is through the personal interview with the finance manager.

    METHODOLOGY:

    Working capital analysis is done through the various

    components by using ratio analysis, trend analysis and funds flows.

    The techniques used as per the theoretical practice addressing the

    liquidity position and turnover ratios and their overall trends.

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    Those are crucial for any informed judgment

    regarding the financial state of affairs a company. This analysis has

    been done with the help of the following TOPICS.

    1. Study of various components and its analysis.

    2. Ratio analysis and trend analysis.

    3. Conclusions and suggestions.

    LIMITATIONS OF THE STUDY

    The study has been conducted is a systematic and comprehensive wayso as to make the project work an enviable one. However the topic under my

    study may not be free form limitations due to the factors listed below.

    Non-availability of complete information. Limitation in information aboutcash sales and credit sales out of total sales is not available.

    In the list of the above, it is not possible for the analyst to calculate the exactworking capital ratios.

    The study covers a period of five years form 2006-2010.The information ismostly depends upon the secondary data. As it is not possible to cover all the

    supervisors, so the student trainee selected the supervisors of working capital

    analysis.

    Time constraint is another limitation for the study because the project traineehas to study the whole work with in a 2 months.A study of risk coverage

    could not make as no records are available in organization to the student

    trainee.

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    INDUSTRIAL PROFILE

    Srinivasa Hatcheries was incorporated as a private limited company on May 8,

    1978, converted into a public limited company on October 26, 1994, and came

    out with a public issue on February 10, 1995.

    The layer and broiler breeding activities are located in the Krishna and

    Vizianagaram districts of Andhra Pradesh with a total installed capacity of

    70,162,200 chicks. The company procures genetic packages under a franchise

    from the Venkateshwara Hatcheries group and caters mainly to the needs of

    poultry farms located in the eight coastal districts of Andhra Pradesh.

    In financial year 2007, the company joined as a 10% partner in SHL Ventures, a

    partnership firm engaged in real estate, construction and property development.

    It has committed to contribute an amount of Rs 5 crore towards the capital of the

    firm.

    The registered office of the company is situated at Plot No 1028, Srinivasa

    House, Road No. 45, Jubilee Hills, Hyderabad-500033, Andhra Pradesh.

    Business area of the company:

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    The company is engaged in the breeding of layers and broilers, rearing of

    commercial broilers, and trading in poultry and poultry related products.

    Associate companies:

    Srinivasa Foods and Feeds private limited

    Varuna Hatcheries private limited

    Corporate Leasing private limited

    Srinivasa Agri Tech private limited

    Sri Srinivasa Aqua Feeds private limited

    Kansas Feeds private limited

    Jagapati Finance private limited

    Sri Chitturi Agencies private limited

    Sri krishnadevaraya Hatcheries private limited

    Jagapati Investments private limited

    Harsha Hospitalities private limited

    Rhapsody Foods and Beverages private limited

    TECHNICAL SERVICES

    SHL has 9 Senior Veterinarians, located one in each district, to provide

    services to the farmers like giving computerized project reports, helping

    farmers in locating and designing poultry sheds, computerized feed

    formulations, disease diagnosis, feed analysis, advise on prevention and

    treatment of diseases, liaison between egg traders and poultry farmers etc.

    SHL takes help from PDRC for advanced diagnostic facilities like viral

    isolation and differential diagnosis, etc.

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    SHL has one central laboratory at Vijayawada headed by a very senior

    veterinarian and assisted by a microbiologist and chemist. It has 4 satellite

    labs for disease diagnosis in different districts.

    SHL also has one central feed analytical laboratory and 4 separate

    satellite feed laboratories in its area of operations.

    SHL is equipped with advanced facilities like ELISA equipment for

    microbiological work and NIR equipment for quick feed analysis.

    SHL is proud to be closely associated with farmer welfare organizations

    like NECC and BEPA.

    The company area is divided into 4 NECC zones for egg rate declaration.

    There are about 43 big egg traders in these 4 zones.

    The Executive Chairman Sri C. Jagapati Rao and Joint Managing Director

    Dr. K. Somi Reddy spends a couple of hours every day in coordinating egg

    marketing and price declaration work among NECC officials, farmers and

    traders in all the company Zones.

    Approximately 30% of the eggs produced in SHL area are consumed

    locally and balance 70% eggs are sent to other markets within India like Bihar,

    Bengal and North Eastern States.

    Average egg price realized by the farmers for the year 2010 is Rs. 2.287.

    TRAINING:

    One of the policies of the company is to offer consultancy services and training

    support to all poultry related agencies such as poultry farmers, breeders and

    marketers. As part of the company CSR policy this training is usually provided

    free to all the company customer farmers.

    From the inception, Srinivasa Hatcheries has been actively involved into this

    concept and has created a strong and well trained community of poultry farmers

    which keeps growing each day. The trust that the company has gained from the

    farmers through this concept is unique and gratifying and has substantially

    enhanced the company profile.

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    The potential of poultry breeding is truly immense and it is the earnest intent of

    the company is ensure that agriculturists comprehend the scope of this business

    and actively venture into it and profit adequately as the market for chicken and

    poultry products grows bigger each year. The company believes that it is

    essential that even illiterate poultry farmers are kept updated with the latest

    trends in the business and understand constantly changing threats and prepare

    themselves accordingly.

    Following are some of the activities that the group undertakes as

    part of the Farmer Training Program :

    Identifying potential individuals and agencies desirous of establishing

    farms.

    Evaluating space, infrastructure and financial requirements of the farmers.

    Preparing area specific project reports for establishing poultry farms.

    Educating all poultry agencies about the need to be abreast of current

    trends in the industry and work accordingly for their own success.

    BV300 - THE FIRST CHOICE OF LAYER FARMERS:

    BV300 is the result of 30 years of R&D efforts of the scientists of Venkateshwara

    Hatcheries Group. Over eighty percent of table eggs produced in India are laid by

    BV300. This breed has been dominating the Indian layer market since its

    introduction over four decades ago in the Indian market by the Father of Indian

    Poultry Industry, Late Padmashree, Dr.B.V.Rao.

    The ability of its performance viz., early maturity, high & sustained peak over

    exceptionally long periods, excellent livability, disease resistance, ideal eggshell

    strength and egg weight, with an extra advantage of less feed consumption per

    egg has endeared BV300 as the poultry farmers first choice. Todays BV300 is a

    product of continuous research and development. It enjoys over 85% market

    share in India, and over 95% market share in Coastal Andhra Pradesh, due to its

    consistent performance.

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    COBB 400 BROILER :

    The consumption of poultry meat has been steadily on the rise across homes

    and hospitality. Factors governing the consistent growth in poultry meat

    consumption include easy availability of the product as well as social acceptance

    as a protein rich item in culinary tradition.

    Vencobb chicken is the most sought in India after considering its high quality and

    superior characteristics. The breed is the first choice of independent poultry

    farmers, and has achieved a market share over 80% among independent broiler

    farmers.

    Price affordability of poultry meat by a large section of people and absence of

    religious taboos (unlike in the case of beef and pork) contributed to the rise in

    chicken consumption. Not surprisingly, today poultry meat is preferred to other

    meat forms considering the advantages of its price, nutritional values high

    protein and low fat and adaptability of the meat to fit into various culinary

    preferences in all segments of social, cultural and economic activities.

    Though there is a good demand for processed chicken meat, freshly dressed

    chicken rules the current poultry meat markets in India. The soaring popularity of

    poultry meat across the homes both in urban and rural areas resulted in the

    poultry industry treading a sustained and promising growth path.

    Vencobb broilers fulfil the needs of poultry farmers through its superior genetics

    and other attributes like fast growth, low feed consumption, disease resistance,

    high survival rate and excellent adaptability

    INFRASTRUCTURE:

    Srinivasa Hatcheries has some of the finest poultry infrastructure in place,

    located in strategic areas. Sheds are designed to ensure the highest productivity

    and health of breeder birds. The company core operations are based in and

    around Hyderabad, Visakhapatnam and Vijayawada in Andhra Pradesh.

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    The company infrastructure facilities include separate brooding, growing and

    laying sheds, cold storage rooms for hatching eggs, separate farms and

    hatcheries for layer and broiler breeders, feed and disease testing laboratories

    with modern analytical and diagnostic facilities like NIR, Elisa equipment etc.

    Throughout the production cycle, from arrival of parent chicks to dispatch of

    commercial chicks to customers, and from arrival of raw material in the feed plant

    to dispatch of finished feed, every step is controlled under strict supervision and

    biosecurity measures are followed.

    Parent Bird Housing:

    All the company parent birds are segregated and categorized age wise and

    breed wise, and housed separately in well structured independent sheds. All

    birds are housed in cages for better productivity and disease control. Cages

    ensure savings in housing, labor and power costs. All the sheds are equipped

    with feeding and watering facilities ensuring minimum wastage, and, fans and

    foggers to reduce the shed temperature in summer. All birds are monitored by

    experienced veterinarians. All the company hatchery units follow internationalstandards of hazard control and sanitation.

    Most of the sheds are Environment Controlled and are equipped with advanced

    climate control systems which help in superior feed conversion ratio, better

    quality bird meat, increased productivity and health of the chicken, and reduced

    mortality.

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    Company profile

    Srinivasa Hatcheries Limited (SHL) was incorporated in 1978 with the main

    objective of carrying on the business of poultry breeding and production oflayer chicks to carrying mainly to the needs of the poultry farms located in

    eight coastal districts of Andhra Pradesh.

    The company had a modest beginning of 6,000 layer parents in 1979 and has

    grown to a stage of 3, 00,000 layer parents and 2, 00,000 broiler parents at

    present.

    Srinivasa hatcheries limited is the flagship company of srinivasa hatcheries

    group which has in its fold, companies engaged in poultry breeding

    manufacturing, real estate, hospitality services etc.

    The company is mainly engaged in poultry breeding activity i.e. production

    and sale of day old commercial layer and broiler chicks. The farms and

    hatcheries are strategically located at several locations in coastal districts of

    Andhra Pradesh.

    The company is a franchisee of venkateswara hatcheries group ,market

    leaders in the poultry industry , for the eight coastal districts of Andhra

    Pradesh , i.e Krishna,Guntur,praksam,eastgodavari,westgodavari,visakhapatnam,vizianagaram,and

    srikakulam.

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    PROMOTERS AND MANAGEMENT

    The company was promoted by Sri C. Jagapati Rao and Dr.K.Somireddy.

    Sri C.Jagapati Rao, Executive Chairman has about 30 years experiencein poultry industry. His pioneering dynamism and stewardship have resulted

    in steady increase in the groups turn over and profitability. He is also a

    member of the International Egg Commission based in U.K.

    SriC.Suresh Rayudu, Vice-chairman and managing director of thecompany is a graduate in computer engineering and also he has done MBA

    from Emory University, Atlanta, USA.

    Dr.Somi Reddy is a gold medalist in poultry science from Andhra

    Pradesh Agricultural University. He is the Joint Managing Director of thecompany and is a actively involved in the day-to-day operations of the

    company.

    A professional director such as Dr.T.Krishna Reddy.who is director ofthe company. Sri.K.Ashok Reddy, whole time Director.Sri srikanth,director, is a practicing chartered accountant.

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    CAPACITIES AND MARKET SHARE

    The company has a capacity of 3, 00,000 layer parents and 2, 00,000 broiler

    parents at present.

    The companys market share of layer chicks at present is 99.50% in its area

    of operations and 42% in broiler chicks.

    The success of the group can be gauged from the fact that every 7th egg

    consumed in India comes from the chicks produced by the SH Group and

    this represents 3 eggs per capita per annum for the company bears eloquent

    testimony to the foresight and missionary zeal of the promoters.

    FUTURE PLANS

    During the next three years, the company proposes to consolidate its position

    with improved productivity and also increase its market share both in the

    layer chick segment and broiler chick segment.

    The company also proposes to offer integrated services to the farmers to

    enable them to achieve production in an ever expanding market.

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    CONCEPTUAL FRAME WORK

    WORKING CAPITAL MANAGEMENT

    THEORY:

    Capital required for a business can be classifies under two main

    categories:

    Fixed Capital

    Working Capital

    Every business needs funds for two purposes for its

    establishments and to carry out day to day operations. Long term

    funds are required to create production facilities through

    purchase of fixed assets such as plant and machinery, land and

    building, furniture etc. Investments in these assets are

    representing that part of firms capital which is blocked on a

    permanent or fixed basis and is called fixed capital. Funds are

    also needed for short term purposes for the purchasing of raw

    materials, payments of wages and other day to day expenses etc.

    These funds are known as working capital. In simple words,

    Working capital refers to that part of the firms capital which is

    required for financing short term or current assets such as cash,

    marketable securities, debtors and inventories.

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    CONCEPTS OF WORKING CAPITAL:

    There are two concepts of working capital:

    Balance Sheet concepts

    Operating Cycle or circular flow concept

    BALANCE SHEET CONCEPT:

    There are two interpretation of working capital under the balance

    sheet concept:

    Gross Working Capital

    Net Working Capital

    The term working capital refers to the Gross working capital and

    represents the amount of funds invested in current assets . Thus,

    the gross working capital is the capital invested in total current

    assets of the enterprises. Current assets are those assets which

    are converted into cash within short periods of normally one

    accounting year. Example of current assets is:

    Constituents of Current Assets:

    Cash in hand and Bank balance

    Bills Receivable

    Sundry Debtors

    Short term Loans and Advances

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    Inventories of Stock as:

    Raw Materials

    Work in Process

    Stores and Spaces

    Finished Goods

    Temporary Investments of Surplus Funds

    Prepaid Expenses

    Accrued Incomes

    The term working capital refers to the net working capital. Net

    working capital is the excess of current assets over current

    liabilities or say:

    Net Working Capital = Current Assets CurrentLiabilities.

    NET WORKING CAPITAL MAY BE NEGATIVE ORPOSITIVE:

    When the current assets exceed the current liabilities, the

    working capital is positive and the negative working capital

    results when the current liabilities are more than the current

    assets. Current liabilities are those liabilities which are intendedto be paid in the ordinary course of business within a short period

    of normally one accounting year of the current assets or the

    income of the business. Examples of current liabilities are:

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    CONSTITUENTS OF CURRENT LIBILITIES:

    Bills Payable

    Sundry Creditors or Account Payable

    Accrued or Outstanding Expenses

    Short term Loans, Advances and Deposits

    Dividends Payable

    Bank Overdraft

    Provision for Taxation, If does not amount to appropriation

    of profitsThe gross working capital concept is financial or going concern

    concept whereas net working capital is an accounting concept of

    working capital.

    OPERATING CYCLE OR CIRCULATING CASH FORMAT:

    Working Capital refers to that part of firms capital which is

    required for financing short term or current assets such as cash,

    marketable securities, debtors and inventories. Funds thus

    invested in current assets keep revolving fast and being

    constantly converted into cash and these cash flows out again in

    exchange for other current assets. Hence it is also known as

    revolving or circulating capital. The circular flow concept ofworking capital is based upon this operating or working capital

    cycle of a firm. The cycle starts with the purchase of raw material

    and other resources. And ends with the realization of cash from

    the sales of finished goods. It involves purchase of raw material

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    and stores, its conversion into stocks of finished goods through

    work in progress with progressive increment of labor and service

    cost, conversion of finished stocks into sales, debtors and

    receivables and ultimately realization of cash and this cyclecontinuous again from cash to purchase of raw materials and so

    on. The speed/ time of duration required to complete one cycle

    determines the requirements of working capital longer the period

    of cycle, larger is the requirement of working capital.

    The gross operating cycle of a firm is equal to the length of the

    inventories and receivables conversion periods. Thus,

    WORKING CAPITAL CYCLE

    CAS

    H

    Raw

    Materia

    lll

    WIPFinished Goods

    Debtors

    Gross Operating Cycle = RMCP + WIPCP + FGCP + RCP

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    Where,RMCP = Raw Material Conversion Period

    WIPCP = Work in- Process Conversion Period

    FGCP = Finished Goods Conversion Period

    RCP = Receivables Conversion Period

    However, a firm may acquire some resources on credit and thus

    defer payments for certain period. In that case, net operating

    cycle period can be calculated as below:

    Further, following formula can be used to determine the

    conversion periods.;

    Raw Material Conversion Period =

    Average Stock of Raw Material.Raw Material Consumption per

    day

    Work in process Conversion Period =

    Average Stock of Work-in-ProgressTotal Cost of Production per day

    Finished Goods Conversion Period =

    Average Stock of Finished Goods

    Total Cost of Goods sold per day

    Receivables Conversion Period =

    Net Operating Cycle Period = Gross Operating Cycle Period Payable Deferral

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    Average Accounts Receivables Net Credit Sales per day

    Payable Deferral Period =

    Average PayableNet Credit Purchase per day

    CLASSIFICATION OR KIND OF WORKING CAPITAL:

    Working capital may be classified in two ways:

    On the basis of concept

    On the basis of time

    Om the basis of concept, working capital is classified as gross working

    capital and net working capital. The classification is important from

    the point of view of the financial manager.

    On the basis of time, working capital may be classified as:

    Permanent or Fixed working capital

    Temporary or Variable working capital.

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    1. PERMANENT OR FIXED WORKING CAPITAL:

    Permanent or fixed working capital is the minimum amount which

    is required to ensure effective utilization of fixed facilities and for

    maintaining the circulation of current assets. There is always a

    minimum level of current assets which is continuously required

    by the enterprises to carry out its normal business operations.

    2. TEMPRORAY OR VARIABLE WORKING CAPITAL:

    Temporary or variable working capital is the amount of working

    capital which is required to meet the seasonal demands and

    some special exigencies. Variables working capital can be further

    classified as second working capital and special working capital.

    The capital required to meet the seasonal needs of the

    enterprises is called the seasonal working capital.

    Temporary working capital differs from permanent working

    capital in the sense that is required for short periods and cannot

    be permanently employed gainfully in the business

    IMPORATNCE OR ADVANTAGE OF ADEQUATEWORKING CAPITAL:

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    Working capital is the life blood and nerve centre of a business .

    just a circulation of a blood is essential in the human body for

    maintaining life, working capital is very essential to maintain the

    smooth running of a business. No business can run successfullywithout an adequate amount of working capital. The main

    advantages of maintaining adequate amount of working capital

    are as follows:

    Solvency of the Business

    Goodwill

    Easy Loans

    Cash discounts

    Regular supply of Raw Materials

    Regular payments of salaries, wages & other day to day

    commitments.

    Exploitation of favorable market conditions

    Ability of crisis

    Quick and regular return on investments

    High morals

    THE NEED OR OBJECTS OF WORKING CAPITAL:

    The need for working capital cannot be emphasized. Every

    business needs some amount of working capital. The need ofworking capital arises due to the time gap between production

    and realization of cash from sales. There is an operating cycle

    involved in the sales and realization of cash. There are time gaps

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    in purchase of raw materials and production, production and

    sales,

    And sales, and realization of cash, thus , working capital is

    needed for the following purposes: For the purchase of raw materials , components and spaces

    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, advertising etc.

    To provide credit facilities to the customers.

    To maintain the inventories of raw materials, work in-

    progress, stores and spares and finished stock.

    FACTORS DETERMING THE WORKING CAPITALREQUIRMENT:

    The working capital requirements of a concern depend

    upon a large number of factors such as nature and size of the

    business, the characteristics of their operations, the length of

    production cycle , the rate of stock turnover and the state of

    economic situation. However the following are the important

    factors generally influencing the working capital requirements.

    NATURE OR CHARACTERSTICS OF A BUSINESS:

    The nature and the working capital requirement of

    enterprises are interlinked. While a manufacturing industry

    has a long cycle of operation of the working capital, the

    same would be short in an enterprises involve in providing

    services. The amount required also varies as per the nature,

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    an enterprises involved in production would required more

    working capital then a service sector enterprise.

    MANAFACTURE PRODUCTION POLICY:

    Each enterprises in the manufacturing sector has its own

    production policy, some follow the policy of uniform

    production even if the demand varies from time to time and

    other may follow the principles of demand based production

    in which production is based on the demand during the

    particular phase of time. Accordingly the working capital

    requirements vary for both of them. OPERATIONS:

    The requirement of working capital fluctuates for seasonal

    business. The working capital needs of such business may

    increase considerably during the busy season and decrease

    during the

    MARKET CONDITION:

    If there is a high competition in the chosen project category

    then one shall need to offer sops like credit, immediate

    delivery of goods etc for which the working capital

    requirement will be high. Otherwise if there is no

    competition or less competition in the market then the

    working capital requirements will be low.

    AVABILITY OF RAW MATERIAL:

    If raw material is readily available then one need not

    maintain a large stock of the same thereby reducing the

    working capital investment in the raw material stock . On

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    other hand if raw material is not readily available then a

    large inventory stocks need to be maintained, there by

    calling for substantial investment in the same.

    GROWTH AND EXAPNSION:Growth and Expansions in the volume of business result in

    enhancement of the working capital requirements. As

    business growth and expands it needs a larger amount of

    the working capital. Normally the needs for increased

    working capital funds processed growth in business

    activities.

    PRICE LEVEL CHANGES :

    Generally raising price level requires a higher investment in

    the working capital. With increasing prices, the same levels

    of current assets needs enhanced investments.

    MANAFACTURING CYCLE:

    The manufacturing cycle starts with the purchase of raw

    material and is completed with the production of finished

    goods. If the manufacturing cycle involves a longer period

    the need for working capital would be more. At time

    business needs to estimate the requirement of working

    capital in advance for proper control and management. The

    factors discussed above influence the quantum of workingcapital in the business. The assessment of the working

    capital requirement is made keeping this factor in view.

    Each constituents of the working capital retains it form for a

    certain period and that holding period is determined by the

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    factors discussed above. So for correct assessment of the

    working capital requirement the duration at various stages

    of the working capital cycle is estimated. Thereafter proper

    value is assigned to the respective current assets,depending on its level of completion. The basis for assigning

    value to each component is given below:

    COMPONENTS OF WORKINGCAPITAL

    BASIS OF VALUATION

    Stock of Raw Material

    Stock Of Work-in-progress

    Stock of Finished Goods

    Debtors

    Cash

    Purchase of Raw Material

    At cost of Market value which

    is lower Cost of Production

    Cost of Sales or Sales value

    Working Expenses

    Each constituent of the working capital is valued on the basis of

    valuation

    Enumerated above for the holding period estimated. The total ofall such valuation becomes the total estimated working capital

    requirement.

    The assessment of the working capital should be accurate even in

    the case

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    of small and micro enterprises where business operation is not

    very large. We know that working capital has a very close

    relationship with day-to-day operations of a business. Negligence

    in proper assessment of the working capital, therefore, can affectthe day-to-day operations severely. It may lead to cash crisis and

    ultimately to liquidation. An inaccurate assessment of the

    working capital may cause either under-assessment or over-

    assessment of the working capital and both of them are

    dangerous.

    PRINCIPLES OF WORKING CAPITAL MANAGEMENTPOLICY:

    The following are the general principles of a sound working

    capital management policy:

    1. PRINCIPLE OF RISK VARAITAION (CURRENT ASSETSPOLICY):

    PRINCIPLES OF WORKING CAPITAL

    MANAGEMENT POLICY

    PRINCIPLES

    OF

    MATURITY

    OF

    PAYMENTS

    PRINCIPLE

    S OF

    EQUITY

    PRINCIPLES

    OF COST OF

    CAPITAL

    PRINCIPLES

    OF RISK

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    Risk here refers to the inability of a firm to meet its obligations as

    and when they become due for payment. Larger investment in

    current Assets with less dependence on short term borrowings,

    increase liquidity, reduces risk and thereby decreases the

    opportunity for gain or loss. On the other hand less investments

    in current assets with greater dependence on short term

    borrowings, reduces liquidity and increase profitability. In other

    words there is a definite inverse relationship between the degree

    of risk and profitability. In other words, there is a definite inverse

    relationship between the risk and profitability. A conservativemanagement prefers to minimize risk by maintaining a higher

    level of current assets or working capital while a liberal

    management assumes greater risk by reducing working capital.

    However, the goal of management should be to establish a

    suitable tradeoff between profitability and risk.

    2. PRINCIPLES OF COST OF CAPITAL:

    The various source of raising working capital finance have

    different cost of capital and the degree of risk involved.

    Generally, higher and risk however the risk lower is the

    cost and lower the risk higher is the cost. A sound working

    capital management should always try to achieve a proper

    balance between these two.

    3.PRINCIPLE OF EQUITY POSITION:

    The principle is concerned with planning the total investments in

    current assets. According to this principle, the amount of working

    capital invested in each component should be adequately

    justified by a firms equity position. Every rupee invested in

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    current assets should contribute to the net worth of the firm. The

    level of current assets may be measured with the help of two

    ratios:

    1. Current assets as a percentage of total assets and2. Current assets as a percentage of total sales

    While deciding about the composition of current assets, the

    financial manager may consider the relevant industrial averages.

    1. PRINCIPLES OF MATURITY OF PAYMENT:

    The principle is concerned with planning the source of

    finance for working capital. According to the principles, a

    firm should make every effort to relate maturities of

    payment to its flow of internally generated funds. Maturity

    pattern of various current obligations is an important factor

    in risk assumptions and risk assessments. Generally shorter

    the maturity schedule of current liabilities in relation to

    expected cash inflows, the greater the inability to meet its

    obligations in time.

    CONSEQUENCES OF UNDER ASSESMENT OF WORKINGCAPITAL:

    Growth may be stunted. It may become difficult for the

    enterprises to undertake profitable projects due to nonavailability of working capital.

    Implementations of operating plans may brome difficult and

    consequently the profit goals may not be achieved.

    Cash crisis may emerge due to paucity of working funds.

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    Optimum capacity utilization of fixed assets may not be

    achieved due to non availability of the working capital.

    The business may fail to honor its commitment in time thereby

    adversely affecting its creditability. This situation may lead tobusiness closure.

    The business may be compelled to by raw materials on credit and

    sell finished goods on cash. In the process it may end up with

    increasing cost of purchase and reducing selling price by offering

    discounts both the situation would affect profitable adversely.

    Now availability of stocks due to non availability of funds may

    result in production stoppage. While underassessment of

    working capital has disastrous implications on business over

    assessments of working capital also has its own dangerous.

    CONSEQUENCES OF OUR OWN ASSESMNET OF WORKINGCAPITAL:

    Excess of working capital may result in un necessary

    accumulation of inventories.

    It may lead to offer too liberal credit terms to buyers and

    very poor recovery system & cash management.

    It may make management complacent leading to its

    inefficiency.

    Over investment in working capital makes capital lessproductive and may reduce return on investment.

    Working Capital is very essential for success of business &

    therefore needs efficient management and control. Each of the

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    components of working capital needs proper management to

    optimize profit.

    INVENTORY MANAGEMNT:

    Inventory includes all type of stocks. For effective working capitalmanagement, inventory needs to be managed effectively. The

    level of inventory should be such that the total cost of ordering

    and holding inventory is the least. Simultaneously stock out costs

    should be minimized. Business therefore should fix the minimum

    safety stock level reorder level of ordering quantity so that the

    inventory costs is reduced and outs management become

    efficient.

    RECEIVABLE MANAGEMENT:

    Given a choice, every business would prefer selling its produce

    on cash basis. However, due to factors like trade policies,

    prevailing market conditions etc. Business are compelled to sells

    their goods on credit. In certain circumstances a business may

    deliberately extend credit as a strategy of increasing sales.

    Extending credit means creating current assets in the form of

    debtors or account receivables. Investment in the type of current

    assets needs proper and effective management as, it gives rise

    to costs such as :

    Cost of carrying receivables

    Cost of bad debts losses

    Thus the objective of any management policy pertaining toaccounts receivables would be to ensure the benefits arising

    due to the receivables are more than the costs incurred for the

    receivables and the gap between benefit and costs increased

    resulting in increase profits. An effective control of receivables

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    Help a great deal in properly managing it. Each business should

    therefore try to find out coverage credit extends to its clients

    using the below given formula:

    Average Credit = Total amount ofreceivable

    (Extend in days) Average credit sale perday

    Each business should project expected sales and expected

    investments in receivable based on various factor, which

    influence the working capital requirement. From this it would

    be possible to find out the average credit days using the above

    given formula. A business should continuously try to monitor

    the credit days and see that the average. Credit offer to clients

    is not crossing the budgeted period otherwise the requirement

    of investment in the working capital would increase and as a

    result, activities may get squeezed. This may lead to cash

    crisis.

    Cash Budget: Management Tool

    Cash Budget is the most important tool in cash

    management. It is the statement showing the estimated cashinflows and cash outflows over the planning horizon.

    The various purposes of cash budgets are : (i) to co-

    ordinate the timings of cash needs. (ii) it pinpoints the period

    when there is likely to be excess cash, (iii) it assists management

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    in taking cash discounts on its account payables, (iv) it helps to

    arrange needed funds on the most favorable terms and prevents

    accumulation of excess funds.

    Preparation of Cash Budget :

    The principle aim of the cash budget, as a tool is to predict

    cash flows over a given period of time, and to ascertain whether

    at any point of time there is likely to be excess or shortage of

    cash.

    The first element of cash budget is the selection of the period

    of time to be covered by the budget. It is referred to as the

    planning horizon over which the cash flows are to be projected.

    There is no fixed rule. It varies form firm to firm. The period

    selected should be neither too long nor too short. If it is too long.

    It is likely that the estimates will be inaccurate. If, on the other

    hand, the time span is too small many important events which lie

    just beyond the period cannot be accounted for and the work

    associated with the preparation of the budget becomes excessive

    if the flows are expected sales and dependable, such a firm may

    prepare a cash budget covering of firms whose flows are

    uncertain, a quarterly budget, divided into monthly intervals, may

    be appropriate. If the flows are subjected to extreme fluctuations,

    even a daily budget may be called for. The idea behind

    subdividing the budget period into smaller intervals is to highlightthe movement of cash from one sub period to another.

    The second element of the cash budget is the selection of the

    factors that have a bearing or cash flow. Items included in cash

    budget are only cash items, non-cash items like depreciation and

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    amortization are excluded. The cash budgets are broadly divided

    into two broad categories: (a) operating and (b) financial. The

    former includes cash generated by the operations of the firms

    and are known as operating cash flows, the later consists offinancial cash flows.

    Operating Cash Flow

    Operating Cash Flow Items

    Inflows/Cash Receipts Outflows/ Disbursements

    1. Cash Sales

    2. Collection of Accounts

    Receivables

    3. Disposals of Fixed

    Assets

    1.Accounts payable /

    Payable payments

    2. Purchase of raw materials

    3.Wages and salaries

    4.Facotory Expenses

    5.Administrative and selling

    expenses

    6. Maintenance Expenses

    7. Purchase of Fixed Assets

    Among the operating factors affecting cash flows, are the

    collection of accounts (inflows) and accounts payable

    (outflows).the terms of credit and the speed with which the

    customer pay would determine the lag between the creation of

    accounts receivable and their collection. Also, discounts and

    allowances for early payments, returns from customers and bad

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    debts affect cash inflows. Similarly in case of accounts payable

    relating to credit purchase, cash outflows are affected by the

    purchase terms.

    Financial cash flows:

    Financial cash flows

    Cash Inflows/Receipts Cash outflows/Payments

    1.Loans/borrowings

    2.Sales of securities

    3.Interest receives

    4.Dividend received

    5.Rent received

    6.Refund of tax

    7.Issue of new shares and

    securities

    1.income-tax/tax payment

    2.Redemption of loan

    3.Repurchase of shares

    4. Interest paid

    5. Dividend paid

    Preparation of cash budget:

    After the time span of the cash budget decided and the

    pertinent operating and financial factors have been identified, the

    final step is the construction of the cash budget, thus the total

    cash inflows, cash outflows and the net receipt or payment is

    worked out.

    Cash management: Basic strategies

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    The cash budget, as a management tool, would throw light on

    the net cash position of the firm. After knowing the cash position,

    the management should workout the basic strategies to be

    employed to manage its cash.The broad cash management strategies are essentially related to

    the cash turnover process. That is the cash cycle together with

    the cash turnover. The cash cycle refers to the process by which

    has cash is used to purchase materials from which are produced

    goods, which are then sold to customers, who later pay the bills.

    The firm receives cash from customers and the cycle repeats

    itself. The cash turnover means the number of times the cash is

    used during each year. The cash cycle involves several steps

    along the way as fund flows from the firms accounts.

    Receivables management:

    A)Objectives

    The term receivables are defined as debt owed to

    the firm by the customers arising from sale of goods or servicesin the ordinary course of business. When a firm makes an

    ordinary sale of goods services and does not receive payment,

    the firm grants trade credit and creates accounts receivables

    which could be collected in the future. Receivables management

    is also called trade credit management. Thus accounts receivable

    represent an extension of credit to customers, allowing them a

    reasonable period of time in which to pay for the goods received.

    The sale of goods on credit is an essential part the modern

    competitive economic systems. In fact, the credit sale and,

    therefore, the receivables, are treated as a marketing tool to aid

    the sale of goods. As a marketing tool, they are intended to

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    promote sales and obligations through a financial instrument.

    Management should weigh the benefits as well as cost to

    determine the goal of receivables management. The objective of

    receivable management is to sales and profiles untilthat point is reached where the return on investment in further

    funding receivables is less than the cost of funds raised to

    finance that additional credit.

    The specific costs and benefits which are relevant to the

    determination of the objectives of receivables management

    are examined below.

    a) Costs: the major categories of costs associated with the

    extension of credit and accounts receivable are

    i. Collection cost:

    collection costs are administrative costs incurred in

    collecting the receivables from the customers to whom

    credit sales have been made.

    ii. Capital cost:

    the increased level of accounts receivable is an

    investment in assets. They have to be financed thereby

    involves a cost. It includes the additional funds requires

    to meet its own obligation while waiting for payment

    from its customer and also the cost on the use of

    additional capital to support credits sales, which

    alternatively could be profitably employed elsewhere.

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    iii. Delinquency cost:

    this cost arises out of the failure of the customers to

    meet obligations where payments on credit sales become

    due after the expiry of the credit period. Such costs are

    called delinquency costs.

    iv. Default costs:

    finally, the firm may not be able to recover the over dues

    because of the inability of the customers. Such debts are

    treated as bad debts and have to be written off as they

    cannot be realized.

    Inventory management:

    A) Objectives :

    The basic responsibility of the financial manager is to

    make sure the firms cash flows are managed efficiently. Efficient

    management of inventory should ultimately result in the

    maximization of the owners wealth. As we know that in order to

    minimize cash requirements, inventory should be turned over as

    quickly as possible, avoiding stock-outs that might result in

    closing down the production line or lead to a loss of sales. Is

    implies that while the management should try to pursue the

    financial objective of turning inventory as quickly as possible, it

    should at the same time ensure sufficient inventories to satisfy

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    production and sales demands. The objective of inventory

    management consists of two counter balancing parts.

    (i) To minimize investment in inventory, and

    (ii) Meet a demand for the product by efficiently

    organizing the production and sales operations. These

    two conflicting objectives of inventory management

    can also be expressed in terms of cost and benefit

    associated with inventory. That the firm should

    minimize investment in inventory implies that

    maintaining inventory involves costs, such that the

    smaller the inventory, the lower is the cost to the firm.

    But inventories also provide benefits to the extent that

    they facilitate the smooth functioning of the firm: the

    larger the inventory, the better it is from the

    viewpoint. Obviously, the financial managers should

    aim at a level of inventory which will reconcile these

    conflicting elements. That is to say, an optimum levelof inventory should be determined on the basis of the

    trade-off between costs and befits associated with the

    levels of inventory.

    (B)Techniques:

    There are many sophisticated mathematical techniques

    available to handle inventory management problems. We willdiscuss some of the simple production oriented methods of

    inventory control to indicate a broad framework for managing

    inventions efficiently in conformity with the goal of wealth

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    maximization. The major problem- areas that comprise the heart

    of inventory control are

    (i)Classification problem: A B C system

    The A B C system is a widely used classification

    techniques to classify different types of inventories and to

    determine the type and degree of control required for each. This

    technique is based on the assumption that a firm should not

    exercise the same degree of control on all items of inventory. It

    should rather keep a more rigorous control on items that are (a)

    the most costly, and/or b) the slowest turning, while items that

    are less expensive should be given less control effort.

    On the basis of the cost involved, the various inventory items are

    classified into three classes A, Band C. The items included in

    group A involve largest investment. Inventory control for such

    items must be most rigorous and intensive and most

    sophisticated inventory control techniques should be applied to

    these items. The C group item consists of items of inventory

    which involve relatively small investments although the number

    of items is fairly large. These items deserve minimum attention.

    The B group stands midway. It deserves less attention than A but

    more than C. it can be controlled by less sophisticated technique.

    (ii) Order quantity problem: economic quantity (EAQ)model:

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    After determining the type of controls for each categories of

    items (A B and C), question arises regarding the appropriate

    quantity to be purchased in each lot to replenish the stock.

    Busying a large quantity implies a higher average inventory.Level which will assure (a) smooth production/sales operations,

    and (b) lower ordering or setup costs? But it will involve higher

    carrying costs. On the other hand, if the order quantity is small

    then the carrying cost is reduced but it will increase the ordering

    costs. On the basis of trade-off between. The both the optimum

    level of order to be places should be determined. The optimum

    level of inventory is called as economic order quantity (EOQ). The

    economic order quantity can be defined as that level of inventory

    order that minimizes that total cost associated with inventory

    management.

    Assumptions: EOQ model is based on following

    assumptions:

    - The firm knows with certainty the annual consumption

    of a particular item of inventory.

    - The rate at which the firm uses inventory is steady

    over time.

    - The order placed to replenish inventory stocks are

    received at exactly that point in time when inventories

    reach zero.

    - There are two distinguishable costs associated

    inventories: cost of ordering and cost of carrying

    - Cost of order is constant regardless of the size of the

    order.

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    - The cost of carrying is fixed percentage of the average

    value of inventory.

    EOQ formula:

    EOQ = I 2FU

    PC

    WhereU=Annual salesF=Fixed cost per orderP=Purchase price per unitC=Carrying cost

    NET WORKING CAPITAL FOR THE YEAR -2006

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    Current assets Amount (in Rs.)

    Inventories 81,304,949

    Sun debtors 5,412,868

    Cash & bank balances 52,890,308

    Other current assets 12,899,241

    Loans & advances 125,941,612

    Total current assets 278,448,978

    Current liabilities Amount (in RS.)

    Current liabilities 80,766,830

    Provisions 46,683,501

    Total current liabilities 127,450,331

    Net working capital =(CA-CL) 150,998,647

    NET WORKING CAPITAL FOR THE YEAR -2007

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    Current assets Amount (in Rs.)

    inventories 109,607,481

    Sun debtors 3,583,565

    Cash & bank balances 27,554,332

    Other current assets 7,840,780

    Loans & advances 127,165,533

    Total current assets 275,751,691

    Current liabilities Amount (in RS.)

    Current liabilities 105,861,282

    provisions 13,021,801

    Total current liabilities 118,883,083

    Net working capital =(CA-CL) 156,868,608

    NET WORKING CAPITAL FOR THE YEAR -2008

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    Current assets Amount (in Rs.)

    inventories 127,137,185

    Sun debtors 6,006,361

    Cash & bank balances 17,416,648

    Other current assets 9,646,886

    Loans & advances 97,522,490

    Total current assets 257,730,260

    Current liabilities Amount (in RS.)

    Current liabilities 101,042,818

    Provisions 46,858,965

    Total current liabilities 417,901,783

    Net working capital =(CA-CL) 109,828,477

    NET WORKING CAPITAL FOR THE YEAR -2009

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    Current assets Amount (in Rs.)

    Inventories 126,721,943

    Sun debtors 4,383,347

    Cash & bank balances 19,657,285

    Other current assets 8,756,703

    Loans & advances 104,488,910

    Total current assets 264,008,188

    Current liabilities Amount (in RS.)

    Current liabilities 117,933,092

    Provisions 34,414,399

    Total current liabilities 152,347,491

    Net working capital =(CA-CL) 111,660,697

    NET WORKING CAPITAL FOR THE YEAR -2010

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    Current assets Amount (in Rs.)

    Inventories 169,365,999

    Sun debtors 2,861,203

    Cash & bank balances 37,265,679

    Other current assets 9,236,051

    Loans & advances 59,421,138

    Total current assets 278,150,070

    Current liabilities Amount (in RS.)

    Current liabilities 208,861,340

    Provisions 46,021,195

    Total current liabilities 254,882,535

    Net working capital =(CA-CL) 23,267,535

    NET WORKING CAPITAL DURING 2005-2006

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    Current assets 2005 2006 Increase

    (Rs)

    Decrease

    (Rs)

    Inventories 100,915,719 81,304,949 19,610,770

    Sun debtors 2,952,780 5,412,868 2,460,088

    Cash & bank

    balance

    58,890,308 52,890,308 5,390,763

    Other current assets 9,941,322 12,899,241 2,957,919

    Loans & advance 81,049,655 125,941,612 44,891,957

    TOTAL (A) 253,140,547 278,448,978

    Current liabilities

    Current liabilities 91,323,047 80,768,830 10,556,217

    Provisions 42,017,818 46,683,501 4,665,683

    TOTAL (B) 133,340,865 127,450,331

    WORKING

    CAPITAL (A-B)

    119,799,682 150,998,647

    increase 31,198,965

    total 150,998,647 150,998,647

    NET WORKING CAPITAL DURING 2006-2007

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    Current assets 2006 2007 Increase

    (Rs)

    Decrease

    (Rs)

    Inventories 81,304,949 109,607,481 28,302,532

    Sun debtors 5,412,868 3,583,565 1,829,303

    Cash & bank

    balance

    52,890,308 27,554,332 25,335,976

    Other current assets 12,899,241 17,840,780 5,058,461

    Loans & advance 125,941,612 127,165,533 1,223,921

    TOTAL (A) 278,448,978 275,751,691

    Current liabilities

    Current liabilities 80,768,830 105,861,282 25,094,452

    Provisions 46,683,501 13,021,801 33,661,700

    TOTAL (B) 127,450,331 118,883,083

    WORKING

    CAPITAL (A-B)

    150,998,647 156,868,608

    increase 5,869,961

    Total 156,868,608 156,868,608

    NET WORKING CAPITAL DURING 2007-2008

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    Current assets 2007 2008 Increase

    (Rs)

    Decrease

    (Rs)

    Inventories 109,607,481 127,137,875 17,530,394

    Sun debtors 3,583,565 6,006,361 2,422,796

    Cash & bank

    balance

    27,554,332 17,416,648 10,137,684

    Other current assets 7,840,780 9,646,886 1,806,106

    Loans & advance 127,165,533 97,522,490 29,643,043

    TOTAL (A) 275,751,691 257,730,260

    Current liabilities

    Current liabilities 105,861,282 101,042,818 4,818,464

    Provisions 13,021,801 46,858,965 33,837,164

    TOTAL (B) 118,883,608 147,901,783

    WORKING

    CAPITAL (A-B)

    156,868,608 109,828,479

    decrease 47,040,131

    Total 156,868,608 156,868,608

    NET WORKING CAPITAL DURING 2008-2009

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    Current assets 2008 2009 Increase

    (Rs)

    Decrease

    (Rs)

    Inventories 127,137,875 126,721,943 4,15,932

    Sun debtors 6,006,361 4,383,347 1,623,014

    Cash & bank

    balance

    17,416,648 19,657,285 2,240,637

    Other current assets 9,646,886 8,756,703 8,90,183

    Loans & advance 94,278,678 104,488,910 10,210,232

    TOTAL (A) 254,486,448 264,008,188

    Current liabilities

    Current liabilities 101,042,818 117,933,092 16,890,274

    Provisions 46,858,965 34,414,399 12,444,566

    TOTAL (B) 147,901,783 152,347,491

    WORKING

    CAPITAL (A-B)

    106,584,665 111,660,697

    increase 5,076,032

    Total 111,660,697 111,660,697

    NET WORKING CAPITAL DURING 2009-2010

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    Current assets 2009 2010 Increase

    (Rs)

    Decrease

    (Rs)

    Inventories 126,721,943 169,365,999 42,644,056

    Sun debtors 4,383,347 2,861,203 1,522,144

    Cash & bank

    balance

    19,657,285 37,265,679 17,608,394

    Other current assets 8,756,703 9,236,051 4,79,348

    Loans & advance 94,469,534 59,421,138 35,048,396

    TOTAL (A) 253,988,812 278,150,070

    Current liabilities

    Current liabilities 117,933,092 208,861,340 90,928,248

    Provisions 24,395,023 46,021,195 21,626,172

    TOTAL (B) 142,328,115 254,882,535

    WORKING

    CAPITAL (A-B)

    111,660,697 23,267,535

    decrease 88,393,162

    Total 111,660,697 111,660,697

    COMMON SIZE DURING 2005-2006

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    Particulars 31st march 2006

    Current assets 150,998,647

    Fixed assets 277,415,998

    Capital work in progress

    (gross block-depreciation)

    12,100,635

    Total investments 121.676,324

    Total assets 562,191,604

    Fixed assets: Tangible:

    Free hold land

    Buildings

    Plant and machinery

    Furniture & office equipment

    Vehicles

    Non-tangible:

    Soft ware license

    Feed & implementation cost.

    COMMON SIZE DURING 2006-2007

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    Particulars 31st march 2007

    Current assets 156,868,608

    Fixed assets 296,370,121

    Capital work in progress

    (gross block-depreciation)

    3,570,863

    Total investments 112,220,878

    Total assets 569,030,470

    Fixed assets: Tangible:

    Free hold land

    Buildings

    Plant and machinery

    Furniture & office equipment

    Vehicles

    Non-tangible:

    Soft ware license Feed & implementation cost.

    COMMON SIZE DURING 2007-2008

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    Particulars 31st march 2008

    Current assets 109,828,427

    Fixed assets 338,290,130

    Capital work in progress

    (gross block-depreciation)

    21,590,139

    Total investments 137,236,385

    Total assets 606,945,131

    Fixed assets: Tangible:

    Free hold land

    Buildings

    Plant and machinery

    Furniture & office equipment

    Vehicles

    Non-tangible:

    Soft ware license Feed & implementation cost.

    COMMON SIZE DURING 2008-2009

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    Particulars 31st march 2009

    Current assets 111,660,697

    Fixed assets 351,778,176

    Capital work in progress

    (gross block-depreciation)

    23,302,070

    Total investments 115,418,366

    Total assets 602,159,309

    Fixed assets: Tangible:

    Free hold land

    Buildings

    Plant and machinery

    Furniture & office equipment

    Vehicles

    Non-tangible: Soft ware license

    Feed & implementation cost.

    COMMON SIZE DURING 2009-2010

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    Particulars 31st march 2010

    Current assets 23,267,535

    Fixed assets 408,395,531

    Capital work in progress

    (gross block-depreciation)

    30,463,124

    Total investments 230,992,086

    Total assets 693,118,276

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    Fixed assets: Tangible:

    Free hold land Buildings

    Plant and machinery

    Furniture & office equipment

    Vehicles

    Non-tangible:

    Soft ware license

    Feed & implementation cost

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    CLOSING STOCK FOR THE YEAR 2005-06

    OPENING STOCK FOR THE YEAR 2005-06

    PARTICULARS OF

    CLOSING STOCK

    No.s quantity rupees

    A) manufacturing items

    a)work in progress

    Hatching eggs No.s 3,133,522 9,782,670

    Commercial broiler No.s 50,262 866,608

    b) by products

    Commercial eggs No.s 290,029 170,206

    B) trading goods

    culls No.s 2,437 58,303

    Commercial eggs No.s 10,000 2,800

    vaccines Doses 2,696,900 599,679

    Total(rupees) 11,480,266

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    CLOSING STOCK FOR THE YEAR 2006-07

    PARTICULARS OF

    OPENING STOCK

    No.s quantity rupees

    A) manufacturing items

    a)work in progress

    Hatching eggs No.s 6,629,157 24,657,712

    Commercial broiler No.s 62,803 1,612,408

    b) by products

    Commercial eggs No.s 24,896 8,530

    B) trading goods

    culls No.s 636 32,120

    Commercial eggs No.s 325 315

    vaccines Doses 0 0

    Total(rupees) 26,311,085

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    CLOSING STOCK FOR THE YEAR 2007-08

    PARTICULARS OF

    CLOSING STOCK

    No.s quantity rupees

    A) manufacturing items

    a)work in progress

    Hatching eggs No.s 6,462,281 30,868,546

    Commercial broiler No.s 77,045 2,271,661

    b) by products

    Commercial eggs No.s 18,920 8,112

    B) trading goods

    culls No.s 466 30,811

    Commercial eggs No.s 762 1,243

    vaccines Doses 2,773,500 618,338

    Total(rupees) 33,778,711

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    CLOSING STOCK FOR THE YEAR 2008-09

    PARTICULARS OF

    CLOSING STOCK

    No.s quantity rupees

    A) manufacturing items

    a)work in progress

    Hatching eggs No.s 4,404,079 22,498,788

    Commercial broiler No.s 68,483 2,790,860

    b) by products

    Commercial eggs No.s 35,774 13,100

    B) trading goods

    culls No.s 1,235 104,487

    Commercial eggs No.s 35,774 13,100

    vaccines Doses 1,273,500 392,136

    Total(rupees) 25,799,371

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    CLOSING STOCK FOR THE YEAR 2009-10

    PARTICULARS OF

    CLOSING STOCK

    No.s quantity rupees

    A) manufacturing items

    a)work in progress

    Hatching eggs No.s 3,857,469 23,845,053

    Commercial broiler No.s 0 0

    b) by products

    Commercial eggs No.s 24,797 10,160

    B) trading goods

    culls No.s 139 13,772

    Commercial eggs No.s 24,797 10,160

    vaccines Doses 1,479,500 228,646

    Total(rupees) 24,097,631

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    RATIO ANALYSIS

    PARTICULARS OF

    CLOSING STOCK

    No.s quantity Rupees

    A) manufacturing items

    a)work in progress

    Hatching eggs No.s 6,236,488 41,269,022

    Commercial broiler No.s 0 0

    b) by products

    Commercial eggs No.s 20,820 4,498

    B) trading goods

    culls No.s 395 44,747

    Commercial eggs No.s 20,820 4,498

    vaccines Doses 36,000 10,858

    Total(rupees) 41,329,125

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    CURRENT RATIO

    YEAR CURRENT ASSETS CURRENT

    LIABILITIES

    RATIO

    2005-06 278,448,978 127,450,331 2.18

    2006-07 275,751,691 118,883,083 2.32

    2007-08 257,730,260 147,901783 1.74

    2008-09 264,008,188 152,347,491 1.73

    2009-10 278,150,070 254,882,535 1.09

    RATIO= CURRENT ASSETSCURRENT LIABILITIES

    GRAPH:

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    CURRENT ASSETS TO FIXED ASSETES RATIO

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    YEAR CURRENT ASSETS FIXED ASSETS RATIO

    2005-06 278,448,978 277,415,998 1.00

    2006-07 275,751,691 296,415,998 0.93

    2007-08 257,730,260 338,290,130 0.76

    2008-09 264,008,188 351,778,176 0.75

    2009-10 278,150,070 408,395,531 0.68

    RATIO= CURRENT ASSETS

    FIXED ASSETS

    GRAPH:

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    QUICK RATIO

    YEAR QUICK ASSETS CURRENT

    LIABILITIES

    RATIO

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    2005-06 266,968,712 127,450,331 2.09

    2006-07 241,952,980 118,883,083 2.04

    2007-08 231,930,889 147,901,783 1.57

    2008-09 239,910,557 152,347,491 1.57

    2009-10 236,820,945 254,882,535 0.93

    QUICK RATIO = CURRENT ASSETS- CLOSING STOCK

    GRAPH:

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    CASH MANAGEMENT

    YEAR CASH CURRENT ASSETS PERCENTAGE

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    2005-06 52,890,308 278,448,978 18.9

    2006-07 27,554,332 275,751,691 9.9

    2007-08 17,416,648 257,730,260 6.76

    2008-09 19,657,285 264,008,188 7.45

    2009-10 37,265,679 278,150,070 13.4

    PERCENTAGE = CASH *100CURRENT ASSETS

    GRAPH:

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    PERCENTAGE OF CASH TO CURRENTLIABILITIES

    YEAR CASH CURRENT

    LIABILITIES

    PERCEN

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    2005-06 52,890,308 127,450,331 41

    2006-07 27,554,332 118,883,083 23

    2007-08 17,416,648 147,901,783 12

    2008-09 19,657,285 152,347,491 13

    2009-10 37,265,679 254,882,535 15

    PERCENTAGE = CASH *100CURRENT LIABILITIES

    GRAPH:

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    THE COMPANYS FINANCIAL PERFORMANCE INTHE LAST FIVE YEARS

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    (Rs. In lakhs)

    particulars 2005-06 2006-07 2007-08 2008-09 2009-10

    Paid up share(face value of Rs10/ pershare)

    485.35 485.35 485.35 485.35 485.35

    Reserves and surplus 4815.28 4891.93 5259.58. 5255.79 6212.22

    Net worth 5300.65 5377.27 5744.93 5741.14 6697.57

    Operating income 6945.45 6405.24 8427.00 8383.38 12336.74

    Other income 450.64 428.06 429.31 146.91 160.60

    Total income 7396.07 6833.31 8856.31 8530.29 12497.34

    Depreciation 170.53 245.31 234.80 254.21 331.29

    Interest 61.03 0 3.12 0 1.12

    P.B.T 736.78 186.07 704.22 153.77 1877.69

    Provision for tax 213.30 106.60 186.52 61.96 640.56

    P.A.T 523.48 175.41 517.70 91.81 1237.13

    Dividend (%) 25 25 25 20 25

    Book value (in Rs ) 109.34 110.92 118.50 120.77 143.99

    EPS(in Rs) 10.80 3.62 10.68 1.89 25.52

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    CONCLUSIONS

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    FINDINGS

    Working capital is the sum of the money invested in short

    term assets and used in the daily operations of a firm.Current assets are mainly composed of inventory, debtorsand cash.

    The concepts of working capital are gross and net. Thegross working capital refers to the total amount ofworking capital; whereas net working capital is thedifference between current assets and current liabilities.

    During the period under study, the unit was operating

    with relatively large proportions of current assetsinvestments to total assets and this trend was ondecreasing path.

    The unit has financed 100 percent of its current assetsrequirements through advances from cash.

    The share of bank borrowings in financing the inventoryin spite of retaining nominal profits.

    The study of working capital composition has revealed

    that inventory formed a major portion of current assets,while cash and bank balances accounted for minorportion.

    The reasons for high proportion of inventory are thenature of long term project and accumulation of inventoryresulting in lower rates of inventory turnover.

    The working turnover ratio tells us the efficiency of itsusage. The efficiency of working capital usage has

    marginally improved in the SHL during the period understudy.

    The current liabilities are increasing from 2007 to 2010.

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    SUGGESTIONS

    1. Working capital turnover into ratio decreasing during

    the time period 2005-2006 to 2009-2010 so the company

    has to increasing the current assets.

    2. Management information system relating to financial

    may be further refined by correlating variances to the

    assets on product which is turn help in decision making.

    3. Month to month production working capital levels

    should be shown.

    4.It is suggested that ratio analysis should be attempted

    based on the average of inventory & other components of

    working capital rather than the year ending balance sheet

    figures.

    5. Control on current assets so that further working

    capital may be increasing.