A

ON

FINANCIAL ANALYSIS
AND
WORKING CAPITAL MANAGEMENT
OF

BRINDABAN BEVERAGES PVT.LTD.

BAREILLY
SUBMITTED

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD OF

THE DEGREE OF

UNDER
GUIDANCE

MASTER OF BUSINESS ADMINISTRATION (MBA)

OF

SUBMITTED BY
Mr.PRAKASH KUNDNANI
DHOOPAR
(FACULTY)
(2010-2012)

VIVEK
MBA

Rol. No.
1001170134

UNITED
ALLAHABAD.

INSITITUTE

OF

MANAGEMENT

NAINI,

Acknowledgment
I wish to express my gratitude to BRINDABAN Beverages Private
Limited, management for giving me an opportunity to be a part of their
esteem organization and enhance my knowledge by granting permission
to do my summer training project under their guidance.
This would not have been possible if my project guide Mr. Vikas Johari
(Account officer) had given his advice at regular intervals. He made this
report possible by providing me needed information and guidance at
various stages of preparation of this report. I would like to express my
gratitude and warm regard to him for taking off his busy schedule to
take insightful suggestion and constant encouragement throughout the
period of study. His confidence on me, for allowing me to study the
market for him, inspiring guidance with valuable suggestion has made it
possible for the project to achieve the prospect form without that it
would not have been a success.
I express a deep sense of inmates towards my institute, United Institute
Of
Management, Naini Allahabad, hereby declare, for providing an
opportunity to enter into the corporate world as On-Job-Trainee for the
period of 45 Days
I am also thankful to all those respondent who at the outset answered
all the question patiently & honestly and helped me to complete the
project.

Last but not the least, I would like to thank my Principal of UIM
Prof. T.B. Singh and my HOD Mr. Vikas Mehrotra Sir and my
Lecturer of UIM Mr. Prakash Kundnani & my parents whose constant
love, support and blessed me throughout this project.
The success of this project work incorporates the contribution of
numerous people. At the outset, I take the opportunity to convey my
sincere gratitude to Coco-Cola for giving me a chance to undergo such
an interesting project.
.

Place:
DHOOPAR
Date:
2010-12)

VIVEK
(M.BA

PREFACE

The summer training programs are designed to give the practical

knowledge of corporate world. Training is usually meant for such
vocations where advance theoretical knowledge is to be backed up by
practical experience on the job and it is because of this reason that
summer training programs are designed. So, that the future manger must
be ready to take the future responsibilities.
It was exactly in this context that I was
privileged enough to join coca-cola one of the biggest brand in
beverages in the world.
I achieved lots of experience and confidence over the past eight weeks
which will help me to take the future responsibility on my shoulder.
During this period, I was given to find out the FINANCIAL
ANALYSIS AND WORKING CAPITAL MANAGEMENT . In the
training program I had tried my level best to arrange the work in
systematic and chronological way.
3

This endeavor work shall provide the coca-cola marketing department, an

idea about market condition. Therefore, I hope with all sincerity that this
work shall be of definite use to the organization.

DECLARATION

I, Vivek
Dhoopar, a bonafide student of from United Institute Of
Management,
Naini Allahabad, hereby declare that the Institutional
Training Report submitted in partial United Institute Of Management
fulfillment of the requirement of the degree of Masters Of Business
Administration University is my original work. This work is not being
submitted under any other institution.

DATE:
PLACE: NAINI ALLAHABAD

VIVEK
DHOOPAR
MBA
(2010-12)

Table of Contents
CHAPTER 1
OBJECTIVES
OF
STUDY6-7-

THE

CHAPTER 2
COMPREHENSIVE
CHAPTER
ORGANIZATION8-59-

ABOUT

THE

INTRODUCTION OF THE COMPANY:.....................................................................

MISSION, VISION & VALUES.....................................................................................
MISSION:........................................................................................................................
VISION WITH CLEAR GOALS:.................................................................................
VALUES:..........................................................................................................................
HISTORY OF COCA-COLA COMPANY....................................................................
INTRODUCTION OF SOFT DRINKS.........................................................................
Types of Soft Drink:......................................................................................................
HISTORY OF SOFT DRINK IN INDIA.....................................................................
HISTORY OF SOFT DRINK IN U.P.........................................................................
COCA-COLA COMPANY IN BAREILLY..................................................................
INTRODUCTION TO TOPIC........................................................................................
PROJECT ASSIGNED TO ME AT BBPL:.................................................................

CHAPTER 3
RESEARCH
METODOLOGY.60-71Scope of the study............................................................................................................
Review of Litureture......................................................................................................
Research Design..............................................................................................................
Tools and Techniques for analysis of Data.................................................................
Limitations of the
Study-

CHAPTER 4
Data Analysis and
Interpretation72-113-

CHAPTER
5
DATA
ANALYSIS
&
INTERPRETATION...114-121Findings
Suggestions
...Conclusion
....BIBLOGRAPHY................................................................................................................
ANNEXURE
....-

CHAPTE
R
8

OBJECTIVE

The main objective of this project is-

Primary Objectives:
The main objective of this project is to know practically about the
working capital of BBPL because it is one of the most important
financial aspects of any business concern. To fulfill this objective we
have to deeply study the financial position of the company and make
analysis of items of the balance sheet and profit and loss A/c related to
the working capital.

Secondary Objectives:

The other objective of the study is to gain deep insight knowledge of

working capital of BBPL knowing different aspects of working capital
like

How company manage its working capital ?

What are the sources through which BBPL finance its working capital ?
Basic factors which affects working capital requirement of BBPL ?
Check out the policies of BBPL regarding managing its cash,
receivables and inventory .

10

11

CHAPTE
R
2
12

HISTORY OF COCA-COLA COMPANY

Dr. John Smith Pemberton invented coca-cola in 1886. It was the
Doctors second drink with cola leaves and cola nut as basis. The doctor
first cola leaves drink, Pembertons French wine coca was actually an
imitation of vin mariani, a coca wine drink invented by Angelo Mariani,
in 1883. Although there were several limitations of French coca wine,
Pembertons formula was superior. He was actually quoted saying I
believe hat Im now producing a better preparation than that of Mariani.
Pemberton was not in a very good health. Not to mention he was
morphine addict, so in 1887, he began to sell parts of the company off.
On July 8th he sold 3rd to George Lowndes. Neither man had the time
to market, make or sell coke so they sold their portion of the company
to Wool folk and his younger sister Margeret Dozier. Dozier owned to
ninth and Walker own four ninth of the formula rights venable somehow
disposed its portion of coke to Joseph Jaobs, owner of Jaobs pharmacy.
In early October Pemberton ran a blind add looking for additional
investors and was able to 3 investors with the help of this add. He took
$2000 from each of them. In December 3 new partners move to Atlanta,
ready to produce all Pembertons medicine.
At this point of time formula of coke was officially owned by
Pemberton, Walker and Dozier, but several others started showing interest
in it inter as a Candler and ambitious Atlanta druggist. Candler somehow
acquired controlled of the company in 1888. Things got sticky for a
while with Pemberton claiming his right to the drink. This kicked off by
having two cokes by the name of Yum and Coke.
Pemberton grew even more ill and eventually he died in on August 16th
1888. Exactly two weeks after the death of Pemberton Candler brought
the remaining interest of Walker and Dozier for $1000. Therefore
Candler became the sole proprietor by 01 st May 1889. By the turn of
the century Candler became one of the wealthier men in Atlanta and
coke became one of the most famous soft drink in America.
The world has changed since pharmacist John Smith Pemberton first
introduced the refreshing taste of coca-cola in Atlanta. The name and the
product means so many god things to millions of consume around the
13

globe. Coca-cola products are served more than 705 million per day,
quenching the thirst of consumer of around 200 countries in every
climate.

BRANDS OF COCA-COLA(CSD)
Coke,
Sprite,
Thums Up (the most trusted brand in India),
Fanta orange,
Fanta apple &

Limca.

14

INTRODUCTION OF SOFT
DRINKS
Soft drink is a non-alcoholic beverage either carbonated or noncarbonated usually containing a sweetening agent, edible acids or natural
or artificial flavors. Soft drinks are so designed to distinguish them
from hard liquors or spirits, coffee, tea, milk, cocoa and undiluted fruits
and vegetables are not considered as soft drinks.

Types of Soft Drink:

Soft drinks can be divided into two parts Viz,
Carbonated Soft Drinks
Non-Carbonated Soft Drinks
The soft drinks which are not under pressure are termed as carbonated
soft drinks. These are packaged for sale in a variety of containers,
including glass bottles.

15

These soft drinks that are in pressure s known as Non-carbonated Soft

drinks. This may be packaged in not only in bottles and cans but also
in treated carbonated cartoons.

Water is the key element in a soft drink. Water taken from municipal
sources, undergoes further processing both to ensure uniformity and to
remove solid matter color, chlorine and any other tastes or odors that
may be present. The introduction of carbon dioxide protects the
carbonated beverages against spoilage, at the same time endowing it with
the characteristics effervescence and tangy taste. Sugar or other
sweeteners are dissolved or diluted with processed water and then
combined with flavoring substances, edible acids colorings and sometimes
preservation.

HISTORY OF SOFT DRINK IN INDIA

The first brand of soft drink, gold spot was established 53 years ago.
Before coca-cola entered the country to dominate the soft drink market,
the history of soft drink in India is quite drinking old. Down the age,
people consume soft drink to give them a refreshing feeling. Gold spot
is considered as the first brand of soft drink in India. It was established
in 1965. Coca-cola at the same time entered the Indian market and
dominated the soft drink market. It didnt face any competition from the
local market.dur to certain circumstances Coca-cola company discontinued
its operation from India. In 1993, Coca-cola was once again launched in
Agra with the slogan of OLD WAVES HAVE COME AGAIN.
Joining hand with Parle export pvt. Ltd. The company was trying its
best to regain prestige which it had before. St present only Coca-cola
and Pepsi food are giving tough competition to each other.
Coca-cola was the first foreign drink in India
in the year 1965. Coca-cola had a very good beginning in the Indian
16

market and it hardly faced any competition in India. The marketing

people did not even require advertising for Coca-cola.
Later in 1970, it introduced a lemony soft drink called Limca.
Before Limca they had introduced Cola-Pepsi, which they had to
withdraw soon in the face battering confrontation with Coca-cola. The
Indian drink had a significant opportunity in 1977 but Coca-cola decided
to wind up its operation.

HISTORY OF SOFT DRINK IN U.P.

When coca-cola re-entered the Indian market, The BRINDABAN
beverages pvt. Ltd. Of Bareilly U.P. took on lease for 20 years in 199798 and started its operation. The first product launched by BRINDABAN
Beverages Pvt. Ltd. was coca-cola and after that all the remaining
products came in the
U.P. market. At present the BRINDABAN
beverages pvt. Ltd. is 126 including all the departments.
The soft drink market in India is quite wide. The
production of soft drink in U.P. was started on 27 th March 1967 with
the installation of a coca-cola bottling plant in Jamshedpur under the
guidance of late Industrialist Mr. Dharma Chad Kumar which was named
as steel city beverages pvt. Ltd. The company controlled the lion share
in the soft drink market for nearly 10 years. Parle also entered in this
17

field in U.P. with the installation of bottling unit in collaboration with

Mr. Rajendra Poddar in the name of Orient Beverage Pvt. Ltd. in 1997
with the advent of Janta party govt. it created trouble for coca-cola
which led to withdraw its operation from India
After the withdrawal of coca-cola from India, the
Parle monopolized the soft drink market in U.P. took alliance share of
the beverage product from the industry even after McDowell pure drink
and local drinks entered the market. They could not compete with Parle.
Once again with the liberation of
economy in 1991, Pepsi food ltd. enter into the Indian market, it share
its bottling of products in U.P. by steel city beverage company on 24 th
March 1991 owned by Kamahis collaboration with the Birla group,
which was once the bottling plant for coca-cola. After the re-entry of
coca-cola in 1993, the market scenario of
U.P. also changed
dramatically. Coca-cola established its bottling plant in Jamshedpur and
Bareilly to counter its arch-rival Pepsi.
A soft drink is non-alcoholic beverage. It is flavored and
contained no fruit juice or pulp. The invent of soft drink is really a
classic example of todays marketing theory which says The real
marketing spirit of marketing man lies behind the fact of indenting a
need, a real need of consumer and providing the product to fulfill the
need.

COCA-COLA COMPANY IN BAREILLY

Coke began its operation in Bareilly unit on 4 th September 1998 by
taking over the plant from franchisee Bottler-Orient Beverages Limited. it
is located at E-1, Industrial Area, Patliputra, Bareilly just 3kms away
from the banks of river Ganga.
The plant is spread over an area of 1.7 acres and houses the most
sophisticated machinery to produce Coca-Cola and many other brands
marketed by the company. The Plant can produce around 20,000 cases
of soft drink per day and employees over 120 employees.
18

BRIEF OF THE ORGANIZATION

Brindavan Beverages Pvt. Ltd, a bottling company was started during the
year 1986 in Bangalore due to the humble services by Mr. S. N.
Ladhani, the Managing Director of the company, with and initial capital
of Rs. 25 Lac. Brindavan Beverages Pvt. Ltd has a franchisee agreement
with Parle exports for hundred years to manufacture and sell its
products.
During November 1993, Parle export sold all its 60 franchises to CocaCola in India in order to compete with Pepsi. Each franchisee can cover
up 16 districts. The company is in business of manufacturing and selling
Coca Cola and other soft drinks owned by Coca Cola like Thumsup,
Limca, Fanta, Maaza, Kinley Soda in area allocated to Bareilly
franchisee which covers districts such as Badaun, Moradabad, Rampur,
Pilibhit, Shahjahanpur, Lakhimpur Khiri.
M/s Brindavan Beverages Pvt. Ltd has its production unit having
capacity of 600 bottles per minute, located at Parsakhera Industrial
Estate, 12 Kilometer away from Bareilly town on Delhi highway. In
state of Uttaranchal the company establish a sales depot at Kichha.
As the product of company is sold in returnable containers (Glass bottles
in plastic Shells) large area is required for storage of empty glass bottles
as well as filled glass bottles. Company has maintained huge storage
capacity in respect of bottles, which is located adjacent to the production
unit. Brindavan Beverages Pvt. Ltd is owned by Ladhani Group which
owns three more bottling plants located at Baranbanki, Faizabad, and
Hathras having head office located at Bangalore.
The Managing Director, the head
administration matters. The G.M.
responsible for activities such as
distribution etc. and Production
production department.

of the organization is in charge of all

Sales and franchise Manager-sales is
sales, promotions, advertisements and
& Plant Manager takes care of the

19

MISSION, VISION & VALUES

20

Our mission, vision an values outline who we are, what we seek to

achieve, and how we want to achieve it. They provide a clear direction
for our company and help ensure that we are all working toward the
same goals.

MISSION:
To refresh the worldin body, mind, and spirit
To inspire moments of optimismthrough our brands and actions.
To create value and make a differenceeverywhere we engage.

VISION WITH CLEAR GOALS:

People: Being a great place to work where people are inspired to
be the best they can be.
Planet: Being a responsible global citizen that makes a difference.
Portfolio: bringing to the world a portfolio of beverage brands
that anticipate and satisfy peoples desires and needs.
Partners: Nurturing a winning network of partners and building
mutual loyalty.
Profit: Maximizing return to shareholders while being mindful of
overall responsibilities.

VALUES:
Leadership: The courage to shape future
Passion: Committed in heart and mind
Integrity: Be real
Accountability: If it is to be, its up for me
Collaboration: Leverage collective genius
Innovation: Seek, imagine, create, delight
Quality: What we do, we do well

Location of BBPL

21

The Brindavan Beverages, in Bareilly, is located in the area that affects

the Working Capital because of the following factors.
BBPL produces the beverages that are a seasonal product.
Weather of Bareilly is typical of the cities of Western Uttar Pradesh.
The city falls in the Rohilkhand area and thus can be considered as a
semi-arid region. The summers are scorching with daytime temperature
hovering around 37C to 45C. Nights are relatively cooler with
minimum temperature falling to 27-28C. The summers set in the month
of April and persist till June end. Venturing out during day without
proper protection might lead to heatstroke.
Monsoon sets in June end but brings very little respite to the simmering
city. The average annual rainfall is in the range of 400-500 Millimeters
that is precisely contributed by the Southwest jet of monsoon. Winters
set in the month of November and persist till February. Winters are
quite chilly with minimum temperature hovering around 4-5C.
The selling of coke product varies according to the weather and
temperature.
The production policy is also been divided into three seasons: Peak Season
Lean Season
Off Season
As according to the seasonal production policy the level of purchase
of Raw Material and others also varies. And most importantly the
requirement of Working Capital also changes

22

DISTRIBUTION NETWORK OF BRINDAVAN

BEVERAGES PVT. LTD.

As stated earlier that this particular plant has been taken over by
Brindavan Beverages P Limited from the Coca-Cola India. With the
passage of time, company has extended its distribution network from 60
to 230 distributors along with 05 depots and covers over 16 districts
under its belt and they are still growing. The names of the district are
as follows.
1. Bareilly

2. Badaun

3. Shahjahanpur

4. Pilibhit

5. Rampur

6. Moradabad

7. Chamoli

8. Chandausi

9. Pitoragarh

10. Karayanprayag

11. Rudraprayag

12. Kichha

13. LakhimpurKhiri

14. Haldwani

15. Bageshwar

16. Ranikhet

Right from the first year of the incorporation the company is running
in top profit. This is because of many reasons. One of them is being
excellent marketing strategy adopted by the company. Also the company
gives goods margins to the retailers along with various lucrative from
time to time.

BRINDAVAN BEVERAGES PRIVATE LIMITED

23

CORPORATE STRUCTURE

PRODUCTS OF THE COMPANY

Aerated Water:
Company is engaged in production of aerated water sweetened as
well as non sweetened. Products are manufactured exclusively on behalf
of Coca Cola India P Limited for distribution in allocated area to this
franchise. Aerated water covered under chapter heading 22 of Central
Excise and Tariff Act and valuation of product is governed by section
4A of Central Excise Act as the product is covered under Standard
Weight and Measurement Act. This product is liable to highest applicable
rate of tax under VAT @ 12.5% + SAT @ 1%.

Fruit Juices:
Along-with aerated water company is also manufacturing fruit juice
based drinks (Mango Pulp based in the name of Maaza and orange juice
based drinks in the name of Minute Maid Pulpy Orange or MMPO).
This product is exempted from Excise duty and is chargeable to 4% rate
of tax under VAT + 1% rate of tax under SAT.
Beside other applicable statutes company itself maintain stringent quality
norms. It has recently successfully undergone ISO 18001:2007 and E3/S3
norms.
Products of company are packed and sold in returnable glass bottles and
in PET bottles in various pack sizes as per market demand. Under
backward integration company has established production capacity of
producing PREFORMS an injection blown to form PET bottle.
All the products are in the form of Beverages have limited shelf life
varying from 3 months to 6 months. Company has various internal
controls to assure timely withdrawal of expired / products approaching
expiry to maintain the quality of product. Production cycle of product is
very short that vary from few hours to a day so company has very
nominal inventory in the form of WIP. Products are usually consumed in

24

moderate hot to very hot climate so the sale of products vary with in
year due geographical location of plant and franchise area. It peaks in
the month of May and June as summers are extremely hot and humid.
Depending upon the demand and seasonality of product the inventory
requirement
also vary with in year with maximum inventory in the month of March
and April and almost nil inventories in the month of November and
December.

INTRODUCTION TO TOPIC

Coca-Cola serves in India as most the recalled brands across the world
including names such as Diet Coke, Sprite, Fanta, Thumbs Up, Limca,
Mazza, and Kinley. We are partners with leading customers.
The business system in India is
directly related to BRINDABAN Beverages Pvt. Ltd.(BBPL). The vast
Indian operation comprises 25 companies owned bottling operation and
24 franchisee owned bottling operation. The company owned bottling
arm of Indian operation, BBPL is responsible for the manufacture, sale
and distribution of beverages across the country.

PROJECT ASSIGNED TO ME AT BBPL:

Title of the project is FINANCIAL ANALYSIS AND WORKING
CAPITAL MANAGEMENT . This project is related to the Finance area.
This project was assigned to me and I have to visit various retailers
outlet and was supposed to do a survey regarding the no. of times a
retailer orders products and also was to see whether there is any outlet
which is not ordering product during the periods time, if yes then, the
remedial process to convert them into the regular outlet i.e. converting
them into operating outlet. And which product they demanded more. In
this project I have to visit various retailers outlet and to classify them
as operating and non-operating outlets and then encouraging the nonoperating outlets to convert them into the operating outlets and also I
25

was supposed to take their views on the demand of product from the
consumers and which product of Coca-Cola is in more demand from the
consumers point of view.

26

SUMMARY OF THE TOPIC

FINANCIAL
ANALYSIS
CAPITAL MANAGEMENT :

AND

WORKING

Every business needs funds for two purposes for its establishment and
to carry out its dayto day operations. Long-term funds are required to
create production facilities through purchase of fixed assets such as plant
&machinery, land, building, furniture, etc. Investment in these assets
represents 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 purchase of raw
material, payment of wages and other day-to-day expanses, etc. These
funds are known as working capital. Working capital may be regarded as
life-blood of a business. Its effective provision can do much to ensure
the success of the business, while its inefficient management can lead
not only to loss of profits but also lead to the ultimate downfall of a
concern. Hence, FINANCIAL ANALYSIS AND WORKING CAPITAL
MANAGEMENT if carried out effectively, efficiently and consistently,
will assure the health of an organization.

MEANING OF WORKING CAPITAL

Working capital is commonly defined as the difference between current
assets and current liabilities. Efficient FINANCIAL ANALYSIS AND
WORKING CAPITAL MANAGEMENT requires that firms should
operate with some amount of working capital, the exact amount varying
from firm to firm and depending upon other things. For ex:- nature of
industry.
Capital required for a business can be classified in two main categories
viz.
Fixed capital, &
Working capital.

27

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified on two bases:A) On the basis of concept:On the basis of concept, working capital can be classified as,
Gross working capital
Net working capital
B) On the basis of time:On the basis of time, working capital can be classified as,
Permanent or fixed working capital
Temporary or variable working capital
Gross working capital:The gross working capital is the capital invested in the total current
assts of the enterprises. Current assets are those assets, which can be
converted into cash within a short period, normally an accounting year.
Gross working capital = Total current assets
Net working capital:The term net working capital refers to the excess of current assets
over current liabilities, or say,
Net working capital = current assets current liabilities
Net working capital can be positive or negative. 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
intended to be paid in the ordinary course of business within a short

28

period of normally one accounting year out of the current assets of the
income of the business.
The gross working capital concept is financial or going concern concept
whereas net working capital is an accounting concept of working capital.
Both the concepts have their own merits.
The gross concept is sometime preferred to the concept of working
capital for the following reasons:It enables the enterprise to provide correct amount of working capital at
correct time.
Every management is more interested in total current assets with which
it has to operate then the sources from where it is made available.
It takes into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.
The concept is also useful in determining the rate of return on
investment in working capital.
The net working capital concept, however, is also important for the
following reasons:It is a qualitative concept, which indicates the firms ability to meet its
operating expenses the short-term liabilities.
It indicates the margin of protection available to short term creditor
It is an indicator of financial soundness of enterprise.
It is suggesting the need of financing a part of working capital
requirement out of the permanent sources of funds.

Permanent or fixed working capital

Permanent or fixed capital is the minimum amount, which is required to
ensure effective utilization of fixed facilities and for maintaining the
circulation of current assets. Every firm has to maintain a minimum
level of current assets is called permanent or fixed working capital as
this part of working capital is permanently blocked in current assets. As
the business, grow the requirement of working capital also increase due
to increase in current assets.
Temporary or variable working capital

29

Temporary or variable working capital is the amount of working capital,

which is required to meet the seasonal demands and some special
exigencies. Variable working capital can further be classified as seasonal
working capital and special working capital. The capital required to meet
the seasonal need of the enterprise is called the seasonal working capital.
Special working capital is that part of working capital which is required
to meet special exigencies such as launching of extensive marketing
campaign for conducting research etc.
Temporary working capital differs from permanent working capital in the
sense that it is required for short periods and cannot be permanently
employed gainfully in business.
Needs and objectives for working capital
Every business needs some amount of working capital. The needs for
working capital, arises due to time gap between production and
realization of cash from sales. There is an operating cycle involved in
sales and realization of cash. There are time gaps in purchases of raw
material and production, and sales, and realization of cash.
Thus, working capital is needed for the following purposes:For the purchase of raw material, component and spares.
To pay wages and salaries.
To incur day to day expenses and overhead costs such as fuel, power
and office expenses etc.
To meet the selling costs such as packing, advertising etc.
To provide credit facilities to the customers.
To maintain the inventories of raw material, work in progress, store,
spares, and finished stock
For studying the need of working capital in a business, one has to study
the business under varying circumstances such as new concern, as a
growing and one, which has attained maturity. A new concern requires a
lot of funds to meets its initial requirement such as promotion and
formation etc. These expenses are called preliminary expenses and are
capitalized. The amount needed for working capital depends upon the
size of the company and the ambition of its promoters, greater the size
of the business unit, generally will be the requirement of the working
capital. The requirement of the working capital goes on increasing with
30

the growth and expansion of the business until its gains maturity. At
maturity, the amount of working capital required is called normal
working capital.

FACTORS
DETERMINING
CAPITAL REQUIREMENT

THE

WORKING

1. Nature of business:The management of working capital is very critical in FMCG utility

undertaking such as electricity, water supply and railways because they
offer cash sales only and supply services not products and no funds are
tied up in inventories and receivables. On the other hand, the trading
and financial firm requires less investment in fixed assets but have to
invest large amounts in current assets. The manufacturing undertaking
requires sizable amount of working capital along with fixed investments.
2. Production policy:The determination of working capital needs depends upon the production
policy of the business. The demand for certain products is seasonal i.e.;
such products are purchased in certain months of a year. For such
industries, two types of production policy can be followed. Firstly they
can produce the goods in the months of demand or secondly, they
produce for the whole year. If the second alternative were followed, it
would mean that until the time of demand finishes, product would have
to be kept in stock. It would require additional working capital.
3. Length of production cycle:The longer the manufacturing time, the raw material and other supplies
have to be carried for a longer time in the process with progressive
increment of labor and service costs before the final product is obtained.

31

Therefore, working capital is directly proportional to the length of the

manufacturing process.
4. Rate of stock turnover: There is an inverse co-relationship between the quantum of working
capital and the velocity or speed with which the sales are effected. A
firm having a higher rate of stock turnover will need lower amount of
working capital as compared to a firm having a low rate of turnover.

5. Credit policy:
Credit policy affects the working capital requirements in two ways:
Terms of credit allowed by customer to the firm,
Terms of credit available to the firm.
A concern that purchases its requirements on credit and sells its
product/services on cash requires lesser amount of working capital and
vice-versa.
6. Working capital cycle:The speed with which the working cycle completes one cycle determines
the requirements of working capital. Longer the cycle larger is the
requirement of working capit
7. Rate of growth and expansion of business:The larger size businesses require more permanent and variable working
capital in comparison to small business. If a company is growing, its
working capital requirements will also go on increasing. Thus, the
growing concerns require more working capital as compared to the stable
industries.
8. Seasonal variation:Generally, during the busy season, a firm requires larger working capital
than in the slack season.
32

9. Business fluctuation:In period of boom, when the business is prosperous, there is a need for
larger amount of working capital due to rise in sales, rise in prices,
optimistic expansion of business etc. On the contrary in time of
depression, the business contracts, sales decline, difficulties are faced in
collection from debtors and the firm may have a large amount of
working capital idle.

10. Earning capacity and dividend policy:Some firms have more earning capacity then other due to quality of
their products, monopoly conditions, etc. Such firms may generate cash
profits from operations and contribute to their working capital. The
dividend policy also effects the requirement of working capital. A firm
maintaining a steady high rate of cash dividend irrespective of its profit
needs more working capital than the firm that retains larger part of its
profits and does not pay so high rate of cash dividend.
11. Price level changes:Price level changes also affect working capital needs. If the prices of
different goods increase, to maintain same level of production, more
working capital is needed.
12. Availability of raw material:Availability of raw material on the continuous basis affects the
requirement of working capital. There are certain types of raw materials,
which are not available regularly. In such a situation firm requires
greater working capital to meet the requirements of production. Some
raw materials are available in particular season only for example wool,
cotton, oil seeds, etc. They have to keep greater working capital.

33

13. Magnitude of profit:Magnitude of profit

product, control on the
the quantum of profit.
arrange funds internally,

is different for different businesses. Nature of

market and ability of managers etc. Determine
If the profit margin is high, it will help to
which will also increase the working capital.

14. Other factor:a) Management ability b) Irregularities of supply

c) Import policy d) Assets structure
e) Importance of labor

FACTORS AFFECTING WORKING CAPITAL OF

BBPL
1) Nature of business: - BBPL is engaged in manufacturing (bottling) of
soft drinks hence it needs efficient management of working capital for
its day to day operations.
2) Production policy: - production policy, in BBPL, is divided seasons
according to the sales made/estimated by the management. Makes the
different level of production for different seasons: a) Peak season

b) Lean season

c) Off season

3) Expansion of business:- owners of BBPL always tries to expand their

business by manufacturing new products launched by their principals i.e.
Coca cola India limited. The company is currently expanding business by
manufacturing performs (injections) use in production of plastic bottles.
4) Business fluctuation: - seasonal industries located in geographical area
where temperature varies wildly summer being very hot and extremely
cold winters. So accordingly demand for product varies as maximize in
summer & minimized in winters.

34

5) Credit policy: - credit allowed by BBPL to its customers is advance

payment for sale of aerated water/fruit juices and credit allowed by
supplier to the firm varies from 15 days to 1 month.
6) Length of manufacturing cycle: - length of the production cycle is 01
to 02 days so it again increases the working capital requirements.
7) Price level changes: - fluctuation in the price of raw material is quite
often which fluctuate working capital requirement. In terms of BBPL, the
cost of raw material which is required for manufacturing soft drinks
going on high which again increases its working capital requirements.

MANAGEMENT OF WORKING CAPITAL

Management of working capital means management of all aspects of
current assets and current liabilities. Basically, FINANCIAL ANALYSIS
AND WORKING CAPITAL MANAGEMENT is concerned with the
problems that arise in attempting to manage the current assets, current
liabilities and the interrelationship that exist between them.
Financial management should determine the quantum and structure3 of
current assets. It should also see that current assets are financed from
the proper sources. Management should also see that current liabilities
are paid in time, while managing the working capital.
The main objective of FINANCIAL ANALYSIS AND WORKING
CAPITAL MANAGEMENT is to manage current assets and current
liabilities in a manner so that working capital can be kept in a
satisfactory level. It is also taken in to account that the working capital
should be neither excessive nor inadequate. The amount of current assets
should be adequate to pay the current liabilities in time and adequate
security margin can be maintained. Accordingly, proper balance among
the different constituents of current assets is maintained so that no
current has more than require amount invested in it.

35

Management of working capital affects profitability, risk and liquidity of

the business significantly. Management should, therefore, maintain proper
balance among there factors while managing working capital. If the
quantum of working capital is more, it will increase liquidity, but
decrease profitability and risk. If working capital relatively declines, it
will decrease liquidity but cause an increase in profitability and risk.
If business wants to earn more profit, it will have to bear higher risk.
Risk means inability of the firm to pay current liabilities in time.
FINANCIAL ANALYSIS AND WORKING CAPITAL MANAGEMENT
is three dimensional in nature:1) It concerned with the formulation of policies with regard to
profitability,
Liquidity and risk.
2) It is concerned with the decisions about the composition and level of
current assets.
3) It is concerned with the decisions about the composition and level of
current liabilities.

DEBTOR MANAGEMENT
It is very difficult for the organization to sell always on cash basis in
todays competitive market. In almost every business, we have to sell on
credit basis.
The basic objective of management of sundry debtor is to optimize the
return on investment on this asset. It is obvious that if there are large
amounts tied up in sundry debtors, working capital requirement would be
high and consequently interest charges will be high. On the other hand
if the credit policy is very tight, investment in sundry debtors is low but
the sale may be restricted, since the competitors may offer more liberal
credit term.
We have limited resources and therefore every resource has its own
opportunity cost. Therefore, the management of sundry debtors is an
important issue and requires proper policies and efficient execution of
such policies.

36

Debtors and cost of debtors have direct relation; cost will increase due
to increase in debtors and vice versa. It depends on the credit sale of
concern and credit period (collection period) allowed to customer. It is
in interest of customer to pay as late as possible, and company whom
made sales, would like to collect their debtor as early as possible. There
is a conflict between the two aspects.
Debtor management is the process of finding the equilibrium at which
company agrees to receive its payment without hampering or having any
adverse effect on its sales and customer agree to pay at their economical
buying concept.
Sundry debtor level depends on two measure issues: One is volume of credit sales and another is credit period allowed to
customer. It is the essence of every business that to sale on credit and
allow credit period to the customer in such a competitive market,
following factors may be considered before allowing credit period to the
customer: Nature of the product
Credit worthiness of the customer, which varies from customer to
customer.
Quantum of advance received from customers
Credit policy of company, say number of days allowed to customer for
payment to the customers.
Cost of debtors
Manufacturing cycle time of the product etc.

There are mainly three aspects of Management of Debtors: 1. Credit policy: The credit policy is to determine that in how much time money will
be realized from the debtors . It involves a tradeoff between the profits
on additional sale that arises due to credit being extended on one hand
and the cost of carrying those debtors and bad debts losses on the other.
In BBPL, there is one year contract with organizations that want to
relate as dealer/agent. This agreement requires an amount in form of
security which is given by the dealer. While placing an order, the dealer
37

has to make advance payment. There are some big dealers, to whom
credit is allowed.
2. Credit analysis: This requires determining as how risky is to advance credit to a
particular customer.
Before the undertaking of any dealer/agent, selling agents (of BBPL)
analyses the information about them. It includes the followings: What is the existing business of the party.
How much experience they have.
The amount of capital, they have invested
Infrastructure position like: - location, electricity (accessibility), storing.
Minimum load that they will ask to deliver
Goodwill position of the party
What is the Storage Capacity of the dealer.
Quality maintenance of the dealer.
Guarantee that is given to BBPL
3. Control of receivables: This requires to the firm to follow up debtors and decide about a
suitable credit collection policy. It involves both lying down of credit
policy and execution of such policies.
In BBPL, Credit is allowed to the bumper sellers (dealers), but after
the time placing one order on credit, the dealer cannot place next order
(until the payment is made).
There is a cost of maintaining receivables, which comprises cost of: The company requires additional funds as resources are blocked in
receivables, which involves a cost in the form of interest (loan fund) or
opportunity cost (own fund).
Administrative cost, which includes record keeping, investigation of credit
worthiness etc.
Collection cost,
Defaulting cost or bad debts.

DEBTORS MANAGEMENT IN BBPL

PARTICULARS
2009
Total debtors
426,780

2008
2,297,000

38

Turnover
309,750,000
TOTAL TO TURNOVER
days

242,579,000
3.5 days

0.5

Debtor collection period = Debtors *365 / Turnover

Total debtors to turnover are the relationship between total debtors and
turnover, in no. of days.
Interpretation: The reason behind such a ratio is that they, in BBPL, take advance
payment from their dealers in either form Cash or draft. Credit facility
is allowed in only few conditions like: Bumper sellers (dealers)
Long distance (too much of time spending in delivery)
& others
As stated earlier, BBPL sell the beverages to their dealers and
normally, takes the advance payment. But this transaction also creates a
hidden debt on the dealer which is that of Empty Bottles.
In fact, for example, when BBPL sell 100Rs Coke (to the dealer), they
take 100Rs as the advance, and this does not add the value of bottle
which may be 400Rs.

Steps involved in management of debts: The following steps are involved in debtors Management
There should a close contact with the customers.

39

 There should be proper age wise analysis of the debtors.

There should be proper classification between collectible between
collectible debtors and bad debts.
Bad debts should be written off as early as possible after making all
efforts for its collection.
Product cycle should be minimized so that cost of the product should
not become high to the agreed amount because of time factor.
There must be a provision of discount for early payment of debts by
the customers.
Regular checking of the records of the debtors is essential so as to
analysis the current position of that organization.
While making a policy, regarding the debtors the point should be
considered that customer having excellent past record, follow the
lenient policy is adopted for doubtful customers.
Manage the working capital according to need as recovering the debt
from customer as early as possible while, get extension of payment
of dues on the company of others as suppliers of raw material as
late as possible.

CREDIT TERMS

40

 Factors to be considered when granting credit

Past record of the debtors
Image of the debtors
Credit should not provide for the longer period
Whether company can take the load of credit or not

INVENTORY MANAGEMENT
41

Inventories constitute most significant part of current assets, in most of

the companies in India. To maintain a large size of inventory, a
considerable amount of fund is required. It is, therefore, absolutely
imperative to manage inventories efficiently and effectively in order to
avoid unnecessary investment. A firm neglecting the management of
inventories will be jeopardizing its long-run profitability and may fail
ultimately. It is possible for a company to reduce its levels of
inventories to a considerable degree, e.g. 10% to 20%, without any
adverse effect on production and sales, by using inventory planning and
control techniques. The reduction in excessive inventories carries
favorable impact o a companys profitability.
There are at least three motives for holding inventories:
1- To facilitates smooth production and sales operation (transaction
motive).
2- To guards against the risk of unpredictable changes in usage rate and
delivery time (precautionary motive).
3- To make advantage of price fluctuations (speculative motive).

Inventories represent investment of a firms funds. The objective of the

inventory management should be the maximization of the value of the
firm. The firm should therefore consider:
Costs,
Return, &
Risk factors in establishing its inventory policy.
Two types of costs are involved in the inventory maintenance:
Ordering costs: - requisition, placing of order, transportation, and staff
services, ordering costs are fixed per order size increases.
Carrying costs: - warehousing, handling, clerical and staff services,
insurance and taxes. Carrying cost increases.
The firm should minimize the total cost (ordering cost + carrying cost).
The economic order quantity (EOQ) of inventory will occur at a point
where the total cost is minimum. The following formula can be used to
determine EOQ:

42

EOQ= (2AO/C)^1/2
Where,
A= annual requirement.
O= per order cost
C= per unit carrying cost.
When should the firm place an order to replenish inventory?
The inventory level at which the firm places order to replenish inventory
is called reorder point. It depends on
(a) The lead time &
(b) The usage rate.
Under perfect certainty about the usage rate, the instantaneous delivery
(i.e. Zero lead time), the reorder point will be
=Lead-time * Usage rate + safety stock.
The firm should strike a trade-off between the marginal rate of return
and marginal cost of funds to determine the level of safety stock.
A firm, which carries a number of items in inventory, which differ in
value, can follow a selective control system. A selective control system,
such as the a-b-c analysis, classifies inventories in to three categories
according to the value of item.
A- Category consists of highest value items,
B- Category consists of high value items,
C- Category consists of lowest value items.
More categories of inventories can also be created. Tight control may
be applied for high-value items and relatively lose control for low-value
items.
BBPL holds inventory analyzing with ABC method & VED method
both. In ABC analysis, in Group A they keep: Essence Sugar
43

Perform Plastic Closer

CO2 Crown cork
Pulp (Orange & Mango)

Function of inventory control

Functions to be performed in the field of inventory control are:

44

1. Setting up norms for carrying inventory.

2. Determining what items to be stocked.
3. Setting rules for inventory replenishments.
4. Receiving, storing and issuing inventory items as needed.
5. Maintaining records of inventory quantities and values.
6. Identifying and deposing of slow moving, non-moving, obsolete or
damage inventories.
7. Furnishing summary information on inventory position for control
purposes.

INVENTORY MANAGEMENT IN BBPL

45

Inventories are valued at lower of cost or net realizable value except

waste which is valued at estimated realizable value as certified by the
management. The basis of determining cost for various categories of
inventories in the company are as follows:
Treated Method: - FIRST EXPIRY FIRST OUT
The selling of BBPL changes in different seasons (as mentioned
earlier) and the stock level also. They have to increase the inventory
level minimum 2 months before the peak season to achieve the target
selling. Some advance money to the suppliers also has to be given to
continuously receive the raw material.
Similarly 2 months before the lean season the inventory level is brought
down as the selling goes down. The Inventory level is reduced also
before the off season come.
Let us study the selling ledger to identify the real fluctuation in figures:
-

Sales
BRINDAVAN BEVERAGES PVT. LIMITED 2008-09
Particulars
1-Apr-2008 to 31-Mar2009
Transactions
Cumulative
Debit
Credit
Opening Balance
April
33,366,483
33,366,483
May
42,746,314
76,112,797
June
36,766,707
112,879,503
July
9,727,499
122,607,002
August
10,719,558
133,326,560
September
10,051,407
143,377,967
October
4,789,250
148,167,217

46

November
150,158,694
December
151,593,323
January
157,406,708
February
166,988,997
March
232,924,276
Grand Total
232,924,276

1,991,477
1,434,629
5,813,385
9,582,289
65,935,279
232,924,276

A sudden change in selling from Feb. (95,82,000) to march (6,59,35,000)

shows that how requirement of inventory changes because of the change
in season. This requires a very tight focus in keeping the inventory.

PARTICULAR
2009
Store & spare parts
Raw Materials
32,690,000
Finished & Traded goods
5,046,000
Waste
Work in process
TOTAL
37,736,000
Turnover
309,750,000
Avg. Inventory
49,679,500
Inventory turnover ratio
6.23
Days of Inventory holding
58.54

2008
9,888,000
3,999,000
23,887,000
242,579,000
40,490,500
5.99
60.92

47

INVENTORY RECORD OF PAST TWO YEARS

Opening Stock in the year2008 is 33,20,7000
Inventory turnover ratio= sales / Avg. inventory
Days of inventory holding= 365 / Inventory turnover Ratio
Interpretation:
From the above table we can see that the days of inventory holding
are decreases from 61in 2007 to 59 in 2008 which is good for the
company because it decrease the cost of kept inventory for the shorter
period and company should take measure to control increase in no. of
days of inventory holding.

48

NEED OF INVENTORY MANAGEMENT

Stiff competition, globalization of trade and liberalization.
Achieving, increasing and positive EVA.
Cost reduction.
Energy conservation
Conservation of natural resources.
Better, work environment.
Improved health and safety.
Enhanced public image.

MANAGEMENT OF CASH
It is the duty of the finance manager to provide adequate cash to all
segments of the organization. At the same time, he/she has also to
ensure that no funds are blocking in idle cash as this will involve cost
in terms of interest to the concern. A sound cash management scheme
has to maintain the twin objective of liquidity and cost.

49

Meaning of Cash Management

The term cash management refers to the management of cash and
near cash assets while cash includes coins, currency notes, cheques,
bank drafts, and the demand deposits, the near cash assets include
marketable securities and time deposits with banks. Such securities and
deposits are easily convertible into cash.

MOTIVES FOR HOLDING CASH

In spite of the fact that cash does not earn any substantial return for
the business, it is held by the concern with the following motives.
1. Transaction motive: A Company enters a variety of business
transaction resulting both inflow and outflow of cash; at times the cash
outflow exceed the cash inflow. In order to meet the business obligations
in such situation, it necessary to maintain adequate cash balance. Thus, a
firm with the motive of making routine business payments maintains
cash balance.
2. Precautionary motive: A firm holds cash balance to meet sudden cash
needs arising out of unexpected contingencies such as floods, strikes,
obsolesces, sharp increase in prices of raw materials, presentation of bills
for payment earlier than expected date. More amount of cash will be
kept by the firm if there is more possibility of such contingencies.

3. Speculative motive: A concern should also keep cash balance to take

advantage of unexpected business opportunities. Such motive is there of
speculative nature.
4. Compensation motive: Banks provide certain services to their
customers free of charge. So they usually require the customers to keep
minimum cash balance with them which enables them to earn interest
and compensate for the free services rendered.

REASONS OF CASH MANAGEMENT

Cash management involves the following four basic problems.
50

1. Controlling level of cash: One of the basic objectives of cash

management is to minimize the level of cash balances with the firm.
This objective is sought to be achieved by means of the following:
a) Preparing cash budget: Cash budget is the most important device for
planning and controlling the use of cash. It involves the future receipts
and payments of the firm. On the basis of this information the finance
manager can determine the future cash needs of the firm.
b) Providing for unpredictable discrepancies: - Cash budget whose
discrepancies between cash receipts and payments on the basis of normal
business activities.
c) Availability of alternative source of funds:- A firm may need not keep
large cash balance. If it has arrangements with banks for borrowing
money in times of emergencies.
2. Controlling of cash inflow: In order to prevent fraudulent diversion of
cash receipt and speeding up collections of cash, an adequate control on
cash inflow is necessary. A properly installed internal check system can,
to a great extent, a minimize the possibility of fraudulent diversion of
cash. Speedier collection of cash can be made possible by adoption of
the following two techniques: a) Concentration banking system: It is a system of decentralizing
collection of account receivables. According to this system, BBPL offices
are authorized to collect the payment from the customers, and deposit in
the local bank accounts. This system facilities fast movement of funds.
This system is good in case of the firms having their spread over a
large area.

b) Lock box system: This system is more popular in the USA and is
further step in speeding up collection of cash. This system has been
devised to element delay arising in cash of the concentration banking
system on account of a time gap between actual receipt of cheques by
the regional collection centers and its deposits in the local bank account.
Under this system company hires a post office box and instructs its
customers for their remits to the box. It also reduces the chances of
frauds in the cash collection process and controls the cash inflows better.

51

In order to avoid the unnecessary pockets of idle funds, the company

should maintain minimum number of the bank account
3. Controlling outflows of cash: - An efficient control over cash
outflows is equally important for conserving cash and reducing financial
requirements. Control over cash outflows signifies slow disbursement in
order to control the outflows of cash efficiently, a firm should keep in
view the following considerations: a) Centralized system for cash payments: Should be followed as
compared to decentralized system in cash of collections. All payments
should be made from a single control account, i.e., from the central
office of the company. However, the local office of the company may
pay local expenses.
b) Payment should be made on the due dates: Neither before nor after.
The company should neither lose cash discount nor its prestige on
account of delayed payments. The company should, therefore, made
payments within the terms offered by the suppliers.
c) Playing float: - Technique should be used by the company for
maximizing the availability of funds. The term float means the account
tied up in checks which have been issued by company but not have
been yet been presented for payment by the creditors. As a result of a
time lag between issue of a cheque and its actual presentation, the
actual bank balance of a firm may be more than the balance shown in
the books. The difference is called payment of float. The longer the
float period the greater would be the benefit of the firm.

TOOLS OF CASH CONTROL

52

1. Cash Budget: It is most significant tool of controlling the use of

cash. It provides a comparison between actual and budgeted cash receipts
and disbursements locating the points of deviations, if any. The financial
manager, after ascertaining the reasons for deviations between the actual
and budgeted figures, can take the necessary action to remove.
2. Inflows and outflows of cash: In order to check the change in cash
position of the firm from one period to another, a cash flow statement
is prepared. It helps management in controlling inflows and outflows of
cash.
3. Ratio analysis: Ratio analysis is also an important tool of cash
control. Different financial ratios are used for this purpose. There ratios
include current ratio, liquidity ratio, receivables turnover ratio, and
inventory turnover ratio and cash position ratios.

Cash Conversion Cycle

The cash conversion cycle is a measure of working capital efficiency,
often giving valuable clues about the underlying health of a business.
The cycle measures the average number of days that working capital is
invested in the operating cycle.
It starts by adding days inventory outstanding (DIO) to days sales
outstanding (DSO). This is because a company "invests" its cash to
acquire/build inventory, but does not collect cash until the inventory is
sold and the accounts receivable are finally collected.
Receivables are essentially loans extended to customers that consume
working capital; therefore, greater levels of DIO and DSO consume more
working capital. However, days payable outstanding (DPO), which
essentially represent loans from vendors to the company, are subtracted
to help offset working capital needs. In summary, the cash conversion
cycle is measured in days and equals DIO + DSO DPO:

Here we extracted two lines from BBPLs most recent income statement
and a few lines from their working capital accounts.

53

2009
2010
From Income Statement
Net Sales
309750000
Cost of Goods Sold (COGS)
153540000
Assets (from Balance sheet)
Accounts receivable trade
426780
Inventories
37736000
Liabilities (from Balance sheet)
Accounts payable
20480000

242579000
114236000
2297000
23887000
38718000

Here are the accounts needed to calculate the cash conversion cycle.
From the income statement, you need net sales and COGS. From the
balance sheet, you need receivables, inventories and payables. Below, we
show the two-step calculation. First, we calculate the three turnover
ratios: receivables turnover (sales/average receivables), inventory turnover
(COGS/average inventory) and payables turnover (purchases/average
payables). The turnover ratios divide into an average balance because the
numerators (such as sales in the receivables turnover) are flow measures
over the entire year.
Also, for payables turnover, some use COGS/average payables. That's
okay, but it's slightly more accurate to divide average payables into
purchases, which equals COGS plus the increase in inventory over the
year (inventory at end of year minus inventory at beginning of the
year). This is better because payables finance all of the operating dollars
spent during the period (that is, they are credit extended to the
company). And operating dollars, in addition to COGS, may be spent to
increase inventory levels.
The turnover ratios do not mean much in isolation; they are used to
compare one company to another. But if you divide the turnover ratios
into 365 (for example, 365/receivables turnover), you get the "days
outstanding" numbers. Below, for example, a receivable turnover of 227
becomes 2 days sales outstanding (DSO). This number has more
meaning; it means that, on average, BBPL collects its receivables in 2
days.

54

Cash Management in BBPL

Brindavan Beverages Private limited is engaged in manufacturing and
selling of fast moving consumer goods. Cash is required in bulk for
procurement and other manufacturing activities while is usually collected
in small quantity from consumers in such kind of industries. To manage
the collection of sale proceed company has adopted three way
distribution network.
Following is the structure of distribution in BBPL: -

In Depot:
Company is maintaining depots for sales and collection of funds in
various remote areas. These depots serve the distributors and FAT agents
in case of urgent requirement by distributed storage of finished goods.
They also act as cash collection centers of company where nearby
distributors are advised to remit funds to depots instead of plant at
Bareilly this cash collected at depots is deposited in CBS bank account
maintained by the company and information is forwarded on daily basis.
Cash disbursals against expenditure are incurred by plant at Bareilly
under centralized system of payment except in case of emergency with
prior approval of central office.

Sole Selling Agent:

Company is selling all the products in their allotted franchise area
through sole selling agents appointed on yearly basis. By this channel
company is able to collect the sale proceeds well on or before due dates
as and when required by the company. Company is also able to mitigate
the risk of bad debts through this distribution channel.

Direct Selling:
For sale of finished goods to area other than one allotted under
franchise agreement, company has adopted direct sales channel and sell

55

directly to bottler of that area. Usually funds are collected in advance

through R.T.G.S. mode so as to reduce the float.
Beside this for payments company has adopted the policy of making all
the payments in excess of Rs.2000/- by way of account payee cheque/
DD except in case of payment of freights where this limit is Rs.19000/-.
Monitoring of cash is done by use of monthly cash budgeting system.
For security of cash company has taken insurance policy for cash in
hand at various locations and for cash- in- transit.

ANALYSIS OF CASH MANAGEMENT

FORMULA

2009

2010

Current
Ratio =
Current assets / current liabilities 110,620,310/ 45,107,000 = 2.45
180,173,690/ 26,901,000 = 6.70
Liquidity
Ratio =
Liquid assets / current liabilities
7,397,780/ 26,901,000 = 0.275

2,583,000/ 45,107,000 = 0.058

CONCEPT OF WORKING CAPITAL

There are two concepts of working capital:
1.

Gross working capital

2.

Net working capital

The gross working capital is the capital invested in the total current assets
of the enterprises current assets are those
Assets which can convert in to cash within a short period normally one
accounting year.

56

CONSTITUENTS OF CURRENT ASSETS

1)

Cash in hand and cash at bank

2)

Bills receivables

3)

Sundry debtors

4)

Short term loans and advances.

5)

Inventories of stock as:

a.

Raw material

b.

Work in process

c.

Stores and spares

d.

Finished goods

6. Temporary investment of surplus funds.

7. Prepaid expenses
8. Accrued incomes.
9. Marketable securities.

57

In a narrow sense, the term working capital refers to the net working.
Net working capital is the excess of current assets over current
liability, or, say:
NET WORKING CAPITAL = CURRENT ASSETS CURRENT
LIABILITIES.
Net working capital can be positive or negative. When the current
assets exceeds the current liabilities are more than the current assets.
Current liabilities are those liabilities, which are intended to be paid in
the ordinary course of business within a short period of normally one
accounting year out of the current assts or the income business.

CONSTITUENTS OF CURRENT LIABILITIES

1.

Accrued or outstanding expenses.

2.

Short term loans, advances and deposits.

3.

Dividends payable.

4.

Bank overdraft.

5.

Provision for taxation , if it does not amt. to app. Of profit.

6.

Bills payable.

7.

Sundry creditors.

The gross working capital concept is financial or going concern concept

whereas net working capital is an accounting concept of working capital. Both
the concepts have their own merits.
The gross concept is sometimes preferred to the concept of working capital for
the following reasons:
1.

It enables the enterprise to provide correct amount of working capital

at correct time.

2.

Every management is more interested in total current assets with

which it has to operate then the source from where it is made available.

58

3.

It take into consideration of the fact every increase in the funds of the
enterprise would increase its working capital.

4.

This concept is also useful in determining the rate of return on

investments in working capital. The net working capital concept,
however, is also important for following reasons:

It is qualitative concept, which indicates the firms ability to

meet to its operating expenses and short-term liabilities.

IT indicates the margin of protection available to the short

term creditors.

It is an indicator of the financial soundness of enterprises.

It suggests the need of financing a part of working capital

requirement
out of the permanent sources of funds.

59

CLASSIFICATION OF WORKING CAPITAL

Working capital may be classified in to ways:
o

On the basis of concept.

On the basis of time.

On the basis of concept working capital can be classified as gross

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

Permanent or fixed working capital.

Temporary or variable working capital

PERMANENT OR FIXED WORKING CAPITAL

Permanent or fixed working capital is minimum amount which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation
of current assets. Every firm has to maintain a minimum level of raw material,
work- in-process, finished goods and cash balance. This minimum level of
current assts is called permanent or fixed working capital as this part of
working is permanently blocked in current assets. As the business grow the
requirements of working capital also increases due to increase in current assets.

TEMPORARY 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. Variable
working capital can further be classified as seasonal working capital and
special working capital. The capital required to meet the seasonal need of the
enterprise is called seasonal working capital. Special working capital is that
part of working capital which is required to meet special exigencies such as
launching of extensive marketing for conducting research, etc.
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.

60

IMPORTANCE OR
WORKING CAPITAL

ADVANTAGE

OF

ADEQUATE

SOLVENCY OF THE BUSINESS: Adequate working capital helps in

maintaining the solvency of the business by providing uninterrupted of
production.

Goodwill: Sufficient amount of working capital enables a firm to

make prompt payments and makes and maintain the goodwill.

Easy loans: Adequate working capital leads to high solvency and

credit standing can arrange loans from banks and other on easy and
favorable terms.

Cash Discounts: Adequate working capital also enables a concern to

avail cash discounts on the purchases and hence reduces cost.

Regular Supply of Raw Material: Sufficient working capital ensures

regular supply of raw material and continuous production.

Regular Payment Of Salaries, Wages And Other Day TO Day

Commitments: It leads to the satisfaction of the employees and raises
the morale of its employees, increases their efficiency, reduces wastage
and costs and enhances production and profits.

Exploitation Of Favorable Market Conditions: If a firm is having

adequate working capital then it can exploit the favorable market
conditions such as purchasing its requirements in bulk when the prices
are lower and holdings its inventories for higher prices.

Ability To Face Crises: A concern can face the situation during the
depression.

Quick And Regular Return On Investments: Sufficient working

capital enables a concern to pay quick and regular of dividends to its
investors and gains confidence of the investors and can raise more
funds in future.
61

High Morale: Adequate working capital brings an environment of

securities, confidence, high morale which results in overall efficiency in
a business.

EXCESS OR INADEQUATE WORKING CAPITAL

Every business concern should have adequate amount of working capital to
run its business operations. It should have neither redundant or excess
working capital nor inadequate nor shortages of working capital. Both
excess as well as short working capital positions are bad for any business.
However, it is the inadequate working capital which is more dangerous
from the point of view of the firm.

DISADVANTAGES OF REDUNDANT OR EXCESSIVE

WORKING CAPITAL
1.

Excessive working capital means ideal funds which earn no profit

for the firm and business cannot earn the required rate of return on
its investments.

2.

Redundant working capital leads to unnecessary purchasing and

accumulation of inventories.

3.

Excessive working capital implies excessive debtors and defective

credit policy which causes higher incidence of bad debts.

4.

It may reduce the overall efficiency of the business.

5.

If a firm is having excessive working capital then the relations

with banks and other financial institution may not be maintained.

6.

Due to lower rate of return n investments, the values of shares may

also fall.

7.

The redundant working capital gives rise to speculative

transactions

62

DISADVANTAGES OF INADEQUATE WORKING CAPITAL

Every business needs some amounts of working capital. The need for working
capital arises due to the time gap between production and realization of cash
from sales. There is an operating cycle involved in sales and realization of cash.
There are time gaps in purchase of raw material and production; production and
sales; and realization of cash.

Thus working capital is needed for the following purposes:

For the purpose of raw material, components and spares.

To pay wages and salaries

To incur day-to-day expenses and overload costs such as office

expenses.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customer.

63

To maintain the inventories of the raw material, work-in-progress,

stores and spares and finished stock.

For studying the need of working capital in a business, one has to study the
business under varying circumstances such as a new concern requires a lot
of funds to meet its initial requirements such as promotion and formation
etc. These expenses are called preliminary expenses and are capitalized.
The amount needed for working capital depends upon the size of the
company and ambitions of its promoters. Greater the size of the business
unit, generally larger will be the requirements of the working capital.
The requirement of the working capital goes on increasing with the growth
and expensing of the business till it gains maturity. At maturity the amount
of working capital required is called normal working capital.

ANALYSIS OF FINANCIAL STATEMENTS

FINANCIAL STATEMENTS:
Financial statement is a collection of data organized according to logical and
consistent accounting procedure to convey an under-standing of some financial
aspects of a business firm. It may show position at a moment in time, as in the
case of balance sheet or may reveal a series of activities over a given period of
time, as in the case of an income statement. Thus, the term financial
statements generally refers to the two statements
(1) The position statement or Balance sheet.
(2) The income statement or the profit and loss Account.
OBJECTIVES OF FINANCIAL STATEMENTS:
According to accounting Principal Board of America (APB) states
The following objectives of financial statements: -

64

1. To provide reliable financial information about economic resources and

obligation of a business firm.
2. To provide other needed information about charges in such economic
resources and obligation.
3. To provide reliable information about change in net resources (recourses less
obligations) missing out of business activities.
4. To provide financial information that assets in estimating the learning
potential of the business.

LIMITATIONS OF FINANCIAL STATEMENTS:

Though financial statements are relevant and useful for a concern, still they do
not present a final picture a final picture of a concern. The utility of these
statements is dependent upon a number of factors. The analysis and
interpretation of these statements must be done carefully otherwise misleading
conclusion may be drawn.
Financial statements suffer from the following limitations: 1. Financial statements do not given a final picture of the concern. The data
given in these statements is only approximate. The actual value can only be
determined when the business is sold or liquidated.
2. Financial statements have been prepared for different accounting periods,
generally one year, during the life of a concern. The costs and incomes are
apportioned to different periods with a view to determine profits etc. The
allocation of expenses and income depends upon the personal judgment of the
accountant. The existence of contingent assets and liabilities also make the
statements imprecise. So financial statement are at the most interim reports
rather than the final picture of the firm.
65

3. The financial statements are expressed in monetary value, so they appear to

give final and accurate position. The value of fixed assets in the balance sheet
neither represent the value for which fixed assets can be sold nor the amount
which will be required to replace these assets. The balance sheet is prepared on
the presumption of a going concern. The concern is expected to continue in
future. So fixed assets are shown at cost less accumulated deprecation.
Moreover, there are certain assets in the balance sheet which will realize
nothing at the time of liquidation but they are shown in the balance sheets.
4. The financial statements are prepared on the basis of historical costs Or
original costs. The value of assets decreases with the passage of time current
price changes are not taken into account. The statement are not prepared with
the keeping in view the economic conditions. the balance sheet loses the
significance of being an index of current economics realities. Similarly, the
profitability shown by the income statements may be represent the earning
capacity of the concern.
5. There are certain factors which have a bearing on the financial position and
operating result of the business but they do not become a part of these
statements because they cannot be measured in monetary terms. The basic
limitation of the traditional financial statements comprising the balance sheet,
profit & loss A/c is that they do not give all the information regarding the
financial operation of the firm. Nevertheless, they provide some extremely
useful information to the extent the balance sheet mirrors the financial position
on a particular data in lines of the structure of assets, liabilities etc. and the
profit & loss A/c shows the result of operation during a certain period in terms
revenue obtained and cost incurred during the year. Thus, the financial position
and operation of the firm.

FINANCIAL STATEMENT ANALYSIS

It is the process of identifying the financial strength and weakness of a firm
from the available accounting data and financial statements. The analysis is
done
CALCULATIONS OF RATIOS
Ratios are relationship expressed in mathematical terms between figures, which
are connected with each other in some manner.
66

CLASSIFICATION OF RATIOS
Ratios can be classified in to different categories depending upon the basis of
classification
The traditional classification has been on the basis of the financial statement to
which the determination of ratios belongs.

These are:

Profit & Loss account ratios

Balance Sheet ratios

Composite ratios

Dimensions of working capital

EXISTING SYSTEM OF WORKING CAPITAL IN BBPL
To maintain the optimum level of working capital in such a
organization is really a challenging task. The three basic components that
determine the level of working capital in any organization are:Cash
Debtors
Inventory
On the basis of our research in the BBPL, these basic components are
managed in the organization, in the under mentioned manner.

67

68

CHAPTE
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3
69

Research Methodology
In common research is refers to as a search for knowledge. Research
may also define as a scientific and systematic search for pertinent
information on a specific topic. In fact research is an art of scientific
investigation. According to Redman & Moray research is a systematized
effort to gain new knowledge. Some people consider research as a
movement, a movement form the known to the unknown.
The basic need of any reason is data and method of collecting it. Data
is an information on the basis of which inferences are drawn therefore
data becomes a very important factor to research study. The main
purpose behind this framing of methodology is to describe the research
procedure.
The areas where the study was conducted, in the jurisdiction of the
company.
Secondary data like the company profile, history, products details and
other facts were collected from data supplied by the companies data
bank, internet, books and papers. Moreover internet was one of the
major sources of secondary data.
The methodology, I have adopted for my study is the various tools,
which basically analyze critically financial position of to the organization:
I.

COMMON-SIZE P/L A/C

II.

COMMON-SIZE BALANCE SHEET

III.

COMPARTIVE P/L A/C

70

IV.

COMPARTIVE BALANCE SHEET

V.

TREND ANALYSIS

VI.

RATIO ANALYSIS

I sincerely hope, through the evaluation of various percentage, ratios and

comparative analysis, the organization would be able to conquer its in
efficiencies and makes the desired changes.

TYPES OF RESEARCH

1. APPLIED RESEARCH:- Applied research aims at finding a solution

for an immediate problems facing a society or an industrial / business
organization.
2.

FUNDAMENTAL RESEARCH:-

generalization

and

with

the

It

formulation

is

mainly
of

concerned
theory

with

''gathering

knowledge's sake is termed basic research''.

3. DESCRIPTIVE RESEARCH:- It includes surveys and fact-finding
enquires of different kinds. The major purpose of this research is
description of the state of affairs as it exists at present. The main
characteristic of this method is that the researcher has no control over
the variables.
4. ANALYTICAL RESEARCH:- In this research the researcher has to
use facts or information already available, and analyze these to make a
critical evaluation of the martial.

71

5. QUANTITATIVE RESEARCH:- It is based on the measurement of

quantity or amount. It is applicable to phenomena that can be expressed
in terms of quantity.
6.

QUALITIVE

RESEARCH:-

It

is

concerned

with

qualitative

phenomenon. This research aims at discovering the underlying motives

and desire, using in depth interviews for the purpose. It is especially
important in the behavioral sciences where the aims are to discover to
the underlying motives of human behavior.

7. CONCEPTUAL RESEARCH:- It is related to some ideas or theory.

It is generally by philosophers and thinkers to develop new ideas or
concepts.
8. EMPIRICAL RESEARCH:- It relies on experience or observation
alone, often without due regard for system and theory.

72

Scope of the project

The study of working capital behavior occupies an important position in

financial management. The earlier emphasis of financial management was
more on a long term financial position. Working capital management
while short term financial decision appears to have been relatively
neglected in the literature of finance

Decision Making Tool.

Management Planning.

Problem Solving Technique.

Suitable Marketing Operations.

73

Financial management and working capital are the dominant contributors

to the capital of a developing country.

Literature Survey

Literature Survey is a process of developing an insight into both

conceptual and research based studies available on the area and the topic
chosen. The objectives of such review is to understand the importance of
the topic and find out research gaps. Concentrating exclusively on
borrowing as a source of financing working capital requirement in the
corporate sector in India. Manjumdar (1994) has carried out an
empirical analysis among 20 corporate companies in India (10 from
private sector and 10 from public sector) for the period from 1981 to
1990. The study revealed that the share of public deposits to total
borrowing on an average was only 6% in public limited companies and
this way only 0.08% in private sector companies. The result indicated
that the public deposit was not a significant source of working capital
finance among the selected sample companies during the study period.
The study revealed that current ratio in the private corporate limited
companies was 1.38, which indicated aggressive policy. In government

74

companies the current ratio was 4.32 indicating conservative policies

adopted by them which in return resulted in higher debt equity ratio. On
overall basis, this comparative study indicated that FINANCIAL
ANALYSIS AND WORKING CAPITAL MANAGEMENT in public
sector companies was better than that of private sector companies.

Rafuse (1996) Working Capital may be regarded as the lifeblood of

any business unit. Its effective management can do much more to the
success of the business while its ineffective management will
undoubtedly led to ensured failure of the business. It is in this context
that management of working capital assumes paramount importance. In
the present scenario of cutthroat competition, the business does not have
any other option then cutting the cost of its operation in order to survive
and continue to be financially healthy. It is in this connection, effective
management of working capital forms an absolute part of cost reduction.
As it is quite vivid and evidenced by many research, in any
manufacturing unit barring knowledge industry, the proportion of raw
material in the total cost of the product will be highest and hence if the
organization wants to minimize the cost of production it has to tackle the
cost of raw material first. The present article makes an attempt to
analyze both concept and research based studies.
Suk, Seung and Rowland (1992) survey conducted on 94 Japanese
companies in US revealed that the Japanese companies differed in
working capital management practices from US companies in terms of
lower levels of inventory and higher level of account receivables. The
survey revealed that more than 70% of times, Japanese investors use
outside financing as a major sources of short term financing.

Chadda (1964) conducted a study on inventory management practices of

Indian companies and found that the management of individuals
components of inventory very scattered. The study recommended for the
usage of modern tools like operations research in ensuring the efficient
management of working capital.

75

Banerjee (1979) in his study established the relationship between

liquidity ratio , debtors turnover ratio ,creditors turnover ratio &
movement of overdraft. The study found out that when liquid ratio was
below the norm, debtor turnover ratio & creditors turnover ratio were
high while the movement of overdraft showed declining trend. Banerjee
demonstrated how turnover ratio would affect the financial performance
of a given company. The study concluded that the management of
working capital was not satisfactory .

Novneon (2002) survey on a chemical based company in US, found that

the prudent in working capital management resulted in increase in cash
inflows. The increase in cash inflows due to improved working capital
management was almost double which indicates the tangible benefits of
effective working capital management

RESEARCH DESIGN
A Research Design is the arrangement of conditions for collection and analysis
of data in a manner that aims to combine relevance to the research purpose with
economy in procedure. Research design is the conceptual structure within
which research should be conducted.
In this summer training report I have used descriptive research design. I
have been trying to find out the PepsiCo cooling equipment in
comparison to coca-cola cooling equipment.

76

I visited to different departments of the company to collect information,

which helped me to understand the process and the nature of the organization.
The preparation of the research design, appropriate for a particular research
problem, usually involves the consideration of the following:

The means of obtaining the information.

The availability and skills of the researcher.

The time available for research.

The cost factors relating to research, i.e. the finance available for
research.

SOURCES OF DATA COLLECTION

Types of data collection
Primary data
The primary data is that data which is collected fresh or first hand, and for the
first time which is original in nature. Primary data can collect though personal

77

interview, questionnaires etc to support the secondary data.

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

DATA COLLECTION
The next step is to determine the sources of data to be used. The researcher has
to decide whether to collected secondary data. When a study is to be based on
secondary data, whether partly or fully, it is necessary to satisfy oneself that the
data are quite suitable for the objectives spelt out by the study.
78

The various sources of collecting data in the project are:

From Officers & Employees

Record Files

Company Site

Annual Report 2010

Tools & Techniques For Analysis Of Data:

After the data have been collected, the researcher turns to the task of
analyzing them. The analysis of data requires a number of closely related
operations such as establishment of categories, coding, tabulation and then
drawing statistical references. For analysis of data, two types of tools are used:
Financial tools.
Statistical tools.
Graphs
Tables
Charts

1) Financial tools:
Financial tools are very important and help in systematically analyzing
the data.

Ratio Analysis

79

Comparative Analysis

Working Capital Analysis.

With the help of these tools, different items of balance sheet, profit &
loss account and capital employed of the company are analyzed.

2) Statistical tools:
Statistical tools are also important and significantly help in data analysis
and interpretation.

Tables

Bar graphs

Pie charts
Are used to show the trend of the company and to compare

the financial data.

Secondary data was collected with the help

of

journals, magazines, company site, office record

files.

Limitations

80

In the preparation of any report, one faces some sorts of

limitations in preparing it.
In this study of FINANCIAL ANALYSIS AND WORKING
CAPITAL MANAGEMENT , I had also faces some limitations which
are as follows:

Limitation in respect of time and cost.

Authenticity of the report based on authenticity of data collected.

Report is based on secondary data so lack of primary data in report.

81

CHAPTE
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82

83

DATA ANALYSIS OF WORKING CAPITAL

Table 1: STATEMENT SHOWING CHANGE IN

WORKING CAPITAL (2008-2009):
(Rupees in
thousands)
YEAR

YEAR

INCREAS

DECREASE

2008

2009

E IN W.C.

IN W.C.

Total Net Inventory

2729115

3862111

1133000

Total Net Debtors

9877929

11889443

2011514

Total

12607044

15751554

9537100

15404941

1124601

1111345

19784817

16516286

- 7177773

- 764732

PARTICULARS
CURRENT ASSETS (A)

CURRENT
LIABILITIES (B)
Total Creditors
Total Provisions for
Liabilities
Total
WORKING
CAPITAL=A-B

84

5867841
13256
9012355

13256

TABLE 2: Indicating change in working capital

(2008-2009)
STATEMENT SHOWING CHANGE IN WORKING
CAPITAL (2009-2010):
(Rupees in thousands)
YEAR

YEAR

INCREASE

DECREASE

2009

2010

IN W.C.

IN W.C.

Total Net Inventory

3862111

3790460

Total Net Debtors

11889443

15994357

Total

15751554

19784817

15404941

20320820

1111345

1098870

16516286

21419690

- 764732

- 1634873

PARTICULARS
CURRENT ASSETS
(A)

71651
4104914

CURRENT
LIABILITIES (B)
Total Creditors
Total Provisions for
Liabilities
Total
WORKING
CAPITAL=A-B

85

4915879
12475
9020793

84126

TABLE 3: Indicating change in working capital

(2009-2010)
CALCULATION OF WORKING CAPITAL FOR
COCA-COLA LTD. BAREILLY
(Rupees in thousands)
PARTICULARS

YEAR 2008

YEAR 2009

YEAR 2010

Total Net Inventory

2729115

3862111

3790460

Total Net Debtors

9877929

11889443

15994357

Total

12607044

15751554

19784817

Total Creditors

9537100

15404941

20320820

Total Provisions for Liabilities

1124601

1111345

1098870

Total

19784817

16516286

21419690

WORKING CAPITAL= A-B

- 7177773

- 764732

- 1634873

CURRENT ASSETS (A)

CURRENT LIABILITIES
(B)

86

TABLE 4:

Indicating working capital during

2008, 2009 &2010

ANALYSIS

OF

VARIOUS

COMPONENTS

OF

WORKING CAPITAL
INVENTORY ANALYSIS:
Inventory is the total amount of goods and material contents in a store
of factory in a given time. Inventory is Tangible property held for sale in the
ordinary course of business, in the process of production for such sale or, to be
consumed in the process of production of goods or services for sale.
Inventory of COCA-COLA Ltd Bareilly contains stock of two things:

Raw material

Work in progress

2008

2009

917243

2413018

1811872

1449093

2729115

3862111

Stock
Raw material
1644357
WIP
2146103
3790460

Interpretation:
87

2010

According to the given data we can clearly see that the inventory is increasing
in 2009 with respect to 2008 and then again decreases in 2010 with respect to
2009.

Size of Inventories
The first and the foremost objective of the inventory management is to
make all types of materials available at all times whenever they are needed by
the production department so that the production may not be held up for want
of materials. It is therefore advisable to maintain an optimum size of inventory
to move on the production on schedule.
The dominant position of inventories in working capital of COCACOLA LTD

makes it relevant to throw light on each component of

inventory at COCA-COLA LTD.

The size of inventory and percentage of inventory to total current assets
in COCA-COLA LTD is presented in table below:

88

TABLE 5:

Indicating size of inventory and

percentage of inventory to total current assets

Inventories

Total Current Assets

Percentage Of

(Rupees In

(Rupees In

Inventories To

Thousands)

Thousands)

Current Assets

2008

2729115

13244835

21

2009

3862111

18784924

21

2010

3790460

25584830

15

Year

Size of inventories shows below 50% portion of current assets consists of

inventories. Inventory, in general has decreased, which is a good sign of
inventory management because they are holding less inventory with them and
reducing the warehousing.

Raw Material Inventory

Raw materials constitute a very small proportion of inventories. It
includes direct material used in the manufacture of a product. The purpose of
holding raw material is to ensure uninterrupted production. The amount of raw
materials to be kept by a firm depends on various factors such as speed with

89

which raw materials are to be ordered and procured and uncertainty in the
supply of these raw materials.

TABLE 6:

The size of raw material to the total

inventories has been shown below:

Raw Material

Inventories

% Of Raw

(Rupees in

(Rupees in

Materials to

Thousands)

Thousands)

Inventories

2008

917243

2729115

34

2009

2413018

3862111

63

2010

1644357

3790460

43

Year

During the year 2008, raw material is reported to be 917243 whereas in 2009,
use of raw material increased by 63% i.e. 2413018 it shows that during this
particular year requirement of raw material is more, that may be a reason of
increased production. But during the year 2010 production has dropped again
and the requirement of raw material has decreased and became 43%.
Work In Progress Inventory

90

Work-in-progress includes partly finished goods and materials held

between manufacturing stages. It can also be stated that those raw materials
which are used in production process but are not finally converted into final
product are work-in progress.

TABLE 7:

Size of WIP to the total inventories has

been shown below:

Work in Progress
Year

(Rupees in
Thousands)

% of Work
Inventories (Rupees

in Progress

in Thousands)

to
Inventories

2008

1811872

2729115

67

2009

1449093

3862111

37

2010

2146103

3790460

57

Interpretation:During the year 2008, work-in-progress is reported to be 1811872 whereas in

2009, work-in-progress decreased by 37% i.e. 1449093. It shows that during
this particular year production process is increased. But during the year 2010

91

production has dropped again and work-in-progress has increased and became
57%.

WORKING CAPITAL ANALYSIS

As we know working capital is the life blood and the centre of a business.
Adequate amount of working capital is very much essential for the smooth
running of the business. And the most important part is the efficient
management of working capital in right time. The liquidity position of the
firm is totally effected by the management of working capital. So, a study of
changes in the uses and sources of working capital is necessary to evaluate
the efficiency with which the working capital is employed in a business.
This involves the need of working capital analysis.
The analysis of working capital can be conducted through a number of
devices, such as:
1.

Ratio analysis.

2.

Fund flow analysis.

3.

Budgeting.

1.

RATIO ANALYSIS

A ratio is a simple arithmetical expression one number to another. The

technique of ratio analysis can be employed for measuring short-term
liquidity or working capital position of a firm. The following ratios can be
calculated for these purposes:
92

1. Current ratio.
2. Quick ratio
3. Absolute liquid ratio
4. Inventory turnover.
5. Receivables turnover.
6. Payable turnover ratio.
7. Working capital turnover ratio.
8. Working capital leverage
9. Ratio of current liabilities to tangible net worth.

2.

FUND FLOW ANALYSIS

Fund flow analysis is a technical device designated to the study the source from
which additional funds were derived and the use to which these sources were
put. The fund flow analysis consists of:

a.

Preparing schedule of changes of working capital

b.

Statement of sources and application of funds.

It is an effective management tool to study the changes in financial position

(working capital) business enterprise between beginning and ending of the
financial dates.

3.

WORKING CAPITAL BUDGET

93

A budget is a financial and / or quantitative expression of business plans and

polices to be pursued in the future period time. Working capital budget as a part
of the total budge ting process of a business is prepared estimating future long
term and short term working capital needs and sources to finance them, and
then comparing the budgeted figures with actual performance for calculating
the variances, if any, so that corrective actions may be taken in future. He
objective working capital budget is to ensure availability of funds as and
needed, and to ensure effective utilization of these resources. The successful
implementation of working capital budget involves the preparing of separate
budget for each element of working capital, such as, cash, inventories and
receivables etc.

ANALYSIS OF SHORT TERM FINANCIAL POSITION OR

TEST OF LIQUIDITY
The short term creditors of a company such as suppliers of goods of credit and
commercial banks short-term loans are primarily interested to know the ability
of a firm to meet its obligations in time. The short term obligations of a firm
can be met in time only when it is having sufficient liquid assets. So to with the
confidence of investors, creditors, the smooth functioning of the firm and the
efficient use of fixed assets the liquid position of the firm must be strong. But a
very high degree of liquidity of the firm being tied up in current assets.
Therefore, it is important proper balance in regard to the liquidity of the firm.
Two types of ratios can be calculated for measuring short-term financial
position or short-term solvency position of the firm.
A.

Liquidity ratios.

B.

Current assets movements ratios.

A) LIQUIDITY RATIOS
Liquidity refers to the ability of a firm to meet its current obligations as
and when these become due. The short-term obligations are met by
realizing amounts from current, floating or circulating assts. The current
assets should either be liquid or near about liquidity. These should be

94

convertible in cash for paying obligations of short-term nature. The

sufficiency or insufficiency of current assets should be assessed by
comparing them with short-term liabilities. If current assets can pay off
the current liabilities then the liquidity position is satisfactory. On the
other hand, if the current liabilities cannot be met out of the current
assets then the liquidity position is bad. To measure the liquidity of a
firm, the following ratios can be calculated:
1.

CURRENT RATIO

2.

QUICK RATIO

3.

ABSOLUTE LIQUID RATIO

1. CURRENT RATIO
Current Ratio, also known as working capital ratio is a measure of
general liquidity and its most widely used to make the analysis of
short-term financial position or liquidity of a firm. It is defined as the
relation between current assets and current liabilities. Thus,

CURRENT RATIO = CURRENT ASSETS/ CURRENT

LIABILITES

The two components of this ratio are:

1)

CURRENT ASSETS

2)

CURRENT LIABILITES

95

Current assets include cash, marketable securities, bill receivables,

sundry debtors, inventories and work-in-progresses. Current liabilities
include outstanding expenses, bill payable, dividend payable etc.
A relatively high current ratio is an indication that the firm is liquid
and has the ability to pay its current obligations in time. On the hand a
low current ratio represents that the liquidity position of the firm is
not good and the firm shall not be able to pay its current liabilities in
time. A ratio equal or near to the rule of thumb of 2:1 i.e. current
assets double the current liabilities is considered to be satisfactory.

CALCULATION OF CURRENT RATIO

(Rupees in crore)
e.g.

Year

2007

2008

2009

Current Assets

81.29

83.12

13,6.57

Current Liabilities

27.42

20.58

33.48

Current Ratio

2.96:1

4.03:1

4.08:1

Interpretation:As we know that ideal current ratio for any firm is 2:1. If we see the
current ratio of the company for last three years it has increased from
2006 to 2008. The current ratio of company is more than the ideal
ratio. This depicts that companys liquidity position is sound. Its
current assets are more than its current liabilities.

96

2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio.
Quick ratio may be defined as the relationship between quick/liquid
assets and current or liquid liabilities. An asset is said to be liquid if it
can be converted into cash with a short period without loss of value. It
measures the firms capacity to pay off current obligations
immediately.

QUICK RATIO
LIABILITES

= QUICK

ASSETS/

CURRENT

Where Quick Assets are:

1)

Marketable Securities

2)

Cash in hand and Cash at bank.

3)

Debtors.

A high ratio is an indication that the firm is liquid and has the ability
to meet its current liabilities in time and on the other hand a low quick
ratio represents that the firms liquidity position is not good.
As a rule of thumb ratio of 1:1 is considered satisfactory. It is
generally thought that if quick assets are equal to the current liabilities
then the concern may be able to meet its short-term obligations.
However, a firm having high quick ratio may not have a satisfactory
liquidity position if it has slow paying debtors. On the other hand, a
firm having a low liquidity position if it has fast moving inventories.

CALCULATION OF QUICK RATIO

97

e.g.

(Rupees in Crore)

Year

2007

2008

2009

Quick Assets

44.14

47.43

61.55

Current Liabilities

27.42

20.58

33.48

Quick Ratio

1.6 : 1

2.3 : 1

1.8 : 1

Interpretation :
A quick ratio is an indication that the firm is liquid and has the ability
to meet its current liabilities in time. The ideal quick ratio is 1:1.
Companys quick ratio is more than ideal ratio. This shows company
has no liquidity problem.

3. ABSOLUTE LIQUID RATIO

Although receivables, debtors and bills receivable are generally more
liquid than inventories, yet there may be doubts regarding their
realization into cash immediately or in time. So absolute liquid ratio
should be calculated together with current ratio and acid test ratio so
as to exclude even receivables from the current assets and find out the
absolute liquid assets. Absolute Liquid Assets includes :

98

ABSOLUTE LIQUID RATIO =ABSOLUTE LIQUID

ASSETS/ CURRENT LIABILITES

ABSOLUTE LIQUID ASSETS = CASH & BANK

BALANCES.
e.g.

(Rupees in Crore)

Year

2007

2008

2009

Absolute Liquid Assets

4.69

1.79

5.06

Current Liabilities

27.42

20.58

33.48

Absolute Liquid Ratio

.17 : 1

.09 : 1

.15 : 1

Interpretation :
These ratio shows that company carries a small amount of cash. But
there is nothing to be worried about the lack of cash because company
has reserve, borrowing power & long term investment. In India, firms
have credit limits sanctioned from banks and can easily draw cash.

B) CURRENT ASSETS MOVEMENT RATIOS

99

Funds are invested in various assets in business to make sales

and earn profits. The efficiency with which assets are managed
directly affects the volume of sales. The better the management of
assets, large is the amount of sales and profits. Current assets
movement ratios measure the efficiency with which a firm manages
its resources. These ratios are called turnover ratios because they
indicate the speed with which assets are converted or turned over into
sales. Depending upon the purpose, a number of turnover ratios can
be calculated. These are :
1.

Inventory Turnover Ratio

2.

Debtors Turnover Ratio

3.

Creditors Turnover Ratio

4.

Working Capital Turnover Ratio

The current ratio and quick ratio give misleading results if current
assets include high amount of debtors due to slow credit collections and
moreover if the assets include high amount of slow moving inventories.
As both the ratios ignore the movement of current assets, it is important
to calculate the turnover ratio.
1.

INVENTORY TURNOVER OR STOCK TURNOVER

RATIO :
Every firm has to maintain a certain amount of inventory of
finished goods so as to meet the requirements of the business.
But the level of inventory should neither be too high nor too
low. Because it is harmful to hold more inventory as some
amount of capital is blocked in it and some cost is involved in it.
It will therefore be advisable to dispose the inventory as soon as
possible.

INVENTORY TURNOVER RATIO = COST OF GOOD

SOLD/ AVERAGE INVENTORY
Inventory turnover ratio measures the speed with which the stock is
converted into sales. Usually a high inventory ratio indicates an
efficient management of inventory because more frequently the stocks
100

are sold ; the lesser amount of money is required to finance the

inventory. Where as low inventory turnover ratio indicates the
inefficient management of inventory. A low inventory turnover
implies over investment in inventories, dull business, poor quality of
goods, stock accumulations and slow moving goods and low profits as
compared to total investment.

AVERAGE
STOCK = OPENING
CLOSING STOCK

STOCK

(Rupees in Crore)

Year

2007

2008

2009

Cost of Goods sold

110.6

103.2

96.8

Average Stock

73.59

36.42

55.35

Inventory Turnover Ratio

1.5 times

2.8 times

1.75 times

Interpretation :
These ratio shows how rapidly the inventory is turning into receivable
through sales. In 2007 the company has high inventory turnover ratio
but in 2008 it has reduced to 1.75 times. This shows that the
companys inventory management technique is less efficient as
compare to last year.
2.

INVENTORY CONVERSION PERIOD:

INVENTORY CONVERSION PERIOD = 365 (net working days)

INVENTORY TURNOVER RATIO
e.g.
101

Year

2007

2008

2009

Days

365

365

365

Inventory Turnover Ratio

1.5

2.8

1.8

Inventory Conversion Period

243 days

130 days

202 days

Interpretation :
Inventory conversion period shows that how many days inventories
takes to convert from raw material to finished goods. In the company
inventory conversion period is decreasing. This shows the efficiency
of management to convert the inventory into cash.

3.

DEBTORS TURNOVER RATIO :

A concern may sell its goods on cash as well as on credit to
increase its sales and a liberal credit policy may result in tying up
substantial funds of a firm in the form of trade debtors. Trade debtors
are expected to be converted into cash within a short period and are
included in current assets. So liquidity position of a concern also
depends upon the quality of trade debtors. Two types of ratio can be
calculated to evaluate the quality of debtors.
a)

Debtors Turnover Ratio

102

b)

Average Collection Period

DEBTORS TURNOVER RATIO = TOTAL SALES

(CREDIT)/ AVERAGE DEBTORS

Debtors velocity indicates the number of times the debtors are

turned over during a year. Generally higher the value of debtors
turnover ratio the more efficient is the management of debtors/sales or
more liquid are the debtors. Whereas a low debtors turnover ratio
indicates poor management of debtors/sales and less liquid debtors.
This ratio should be compared with ratios of other firms doing the
same business and a trend may be found to make a better
interpretation of the ratio.

AVERAGE
DEBTOR+CLOSING DEBTOR

DEBTORS= OPENING

e.g.

Year

20067

2008

2009

Sales

166.0

151.5

169.5

Average Debtors

17.33

18.19

22.50

Debtor Turnover Ratio

9.6 times

8.3 times

7.5 times

103

Interpretation :
This ratio indicates the speed with which debtors are being converted
or turnover into sales. The higher the values or turnover into sales.
The higher the values of debtors turnover, the more efficient is the
management of credit. But in the company the debtor turnover ratio is
decreasing year to year. This shows that company is not utilizing its
debtors efficiency. Now their credit policy become liberal as compare
to previous year.

4.

AVERAGE COLLECTION PERIOD :

Average Collection Period =

Debtors Turnover Ratio

No. of Working Days/

The average collection period ratio represents the average

number of days for which a firm has to wait before its receivables are
converted into cash. It measures the quality of debtors. Generally,
shorter the average collection period the better is the quality of

104

debtors as a short collection period implies quick payment by debtors

and vice-versa.

Average Collection Period =

Days)/ Debtors Turnover Ratio

365 (Net Working

Year

2007

2008

2009

Days

365

365

365

Debtor Turnover Ratio

9.6

8.3

7.5

Average Collection Period

38 days

44 days

49 days

Interpretation :
The average collection period measures the quality of debtors
and it helps in analyzing the efficiency of collection efforts. It also
helps to analysis the credit policy adopted by company. In the firm
average collection period increasing year to year. It shows that the
firm has Liberal Credit policy. These changes in policy are due to
competitors credit policy.

105

5.

WORKING CAPITAL TURNOVER RATIO :

Working capital turnover ratio indicates the velocity of
utilization of net working capital. This ratio indicates the
number of times the working capital is turned over in the
course of the year. This ratio measures the efficiency with
which the working capital is used by the firm. A higher ratio
indicates efficient utilization of working capital and a low
ratio indicates otherwise. But a very high working capital
turnover is not a good situation for any firm.

Working Capital Turnover Ratio = Cost of Sales/

Net Working Capital
Working Capital Turnover
Capital

= Sales/ Networking

e.g.

Year

2007

2008

2009

Sales

166.0

151.5

169.5

Networking Capital

53.87

62.52

103.09

Working Capital Turnover

3.08

2.4

1.64

Interpretation :
This ratio indicates low much net working capital requires for
sales. In 2008, the reciprocal of this ratio (1/1.64 = .609) shows that
for sales of Rs. 1 the company requires 60 paisa as working capital.

106

Thus this ratio is helpful to forecast the working capital requirement

on the basis of sale.

INVENTORIES
(Rs. in Crores)

Year

2006-2007

2007-2008

2008-2009

Inventories

37.15

35.69

75.01

Interpretation :
Inventories is a major part of current assets. If any company wants to
manage its working capital efficiency, it has to manage its inventories
efficiently. The graph shows that inventory in 2005-2006 is 45%, in
2006-2007 is 43% and in 2007-2008 is 54% of their current assets.
The company should try to reduce the inventory up to 10% or 20% of
current assets.

CASH BANK BALANCE :

(Rs. in Crores)

Year

2006-2007

2007-2008

2008-2009

Cash Bank Balance

4.69

1.79

5.05

107

Interpretation :
Cash is basic input or component of working capital. Cash is needed
to keep the business running on a continuous basis. So the
organization should have sufficient cash to meet various
requirements. The above graph is indicate that in 2006 the cash is
4.69 crores but in 2007 it has decrease to 1.79. The result of that it
disturb the firms manufacturing operations. In 2008, it is increased
upto approx. 5.1% cash balance. So in 2008, the company has no
problem for meeting its requirement as compare to 2007.

DEBTORS :
(Rs. in Crores)

Year

2006-2007

2007-2008

2008-2009

Debtors

17.33

19.05

25.94

Interpretation :
Debtors constitute a substantial portion of total current assets. In India
it constitute one third of current assets. The above graph is depict that
there is increase in debtors. It represents an extension of credit to
customers. The reason for increasing credit is competition and
company liberal credit policy.

108

CURRENT ASSETS :
(Rs. in Crores)

Year

2006-2007

2007-2008

2008-2009

Current Assets

81.29

83.15

136.57

Interpretation :
This graph shows that there is 64% increase in current assets in 2008.
This increase is arise because there is approx. 50% increase in
inventories. Increase in current assets shows the liquidity soundness
of company.

CURRENT LIABILITY :
(Rs. in Crores)

Year

2006-2007

2007-2008

2008-2009

Current Liability

27.42

20.58

33.48

109

Interpretation :
Current liabilities shows company short term debts pay to outsiders.
In 2008 the current liabilities of the company increased. But still
increase in current assets are more than its current liabilities.

NET WOKRING CAPITAL :

(Rs. in Crores)

Year

2006-2007

2007-2008

2008-2009

Net Working Capital

53.87

62.53

103.09

Interpretation :
Working capital is required to finance day to day operations of a firm.
There should be an optimum level of working capital. It should not be
too less or not too excess. In the company there is increase in working
capital. The increase in working capital arises because the company
has expanded its business.

110

DEBTOR ANALYSIS (Accounts Receivable)

Debtor is an important part of working capital and fall under current
assets. Debtors are persons and/or other entities that owe to an enterprise an
amount for receiving goods and services on credit. Debtors will arise only
when credit sales is made. The basic aim is to provide facility to customers to
allow them a reasonable time in which they can pay for goods purchased by
them.

Debtors of COCA-COLA Ltd Bareilly contains two types of debtors:

Trade debtors

Sundry debtors

2008

2009

9512145

11974763

365784

-85320

9877929

11889443

2010
Debtors
Trade debtors
14894633
Sundry debtors
1099724
15994357

Interpretation:
Increase in debtors in any organization increases the risk of bad debts.
From the above data we can see that the debtors amount is continuously
increasing in the organization from 2008 to 2010 which is not a good sign for
the company. If debtors increase, the money can be invested in many
investment plans.
111

CREDITOR ANALYSIS (Accounts Payable)

Creditor is also an important part of working capital and fall under
current liabilities. Creditors are persons and/or other entities that have to be
paid by an enterprise for receiving goods and services on credit. Creditor will
arise only when purchase is made.
Creditors of COCA-COLA Ltd Bareilly contains two types of debtors:

Trade creditors

Other creditors

2008

2009

6635880

11358441

2901220

4046500

9537100

15404941

2010
Creditors
Trade creditors
15520028
Other creditors
4800792
20320820

Interpretation:

112

To maintain a good reputation of organization in market the amount of

creditors should never be very high. On the basis of the data provided we can
see that the creditors show an increasing trend which hinders the goodwill of
the company.

PROVISIONS ANALYSIS
Components under provisions of COCA-COLA Ltd. Bareilly are:

After sales service

LD/penalties

Year

2008

2009

173367

280957

2010
Provisions
After sales service
412391

113

LD/Penalties

93217

248601

266584

529558

439821
852212

Interpretation:
Our theories say that increase in provisions is beneficial for employees
and public. Analyzing the given data we can see that the trend of provisions is
increasing which is a good sign for companys growth.

4.4 CALCULATIONS & ANALYSIS OF RATIOS

(1) LIQUIDITY RATIO:
Current Asset
Current Liability

(a) Current ratio =

2008
=
=

1878.49
1540.49
1.22:1

2009
=
=

2875.88
2141.97
1.34:1

2010
=

3574.03
2570.09

114

1.39:1

b) Liquid / Quick Ratio (QR):

QR =

Quick Assets
Current Liabilities

2008
=1773.87
1540.49
=1.15:1
2009
=2496.83
2141.97
=1.17:1
2010
=3093.19
2570.09
=1.20:1

(2) ACTIVITY TURNOVER RATIO:

a) Capital turnover ratio =

Net Sales
Capital Employed

2008
=

2641.21/1155.50

2.29 times

2009
=

3566.90/1634.20

2.18 times

2010
=

4020.00/1898.07

2.12 times

115

b) Fixed asset turnover ratio = Net sales/ Net Fixed Assets

2008
=

2641.21/677.02

3.90

2009
=

3566.90/838.39

4.25

2010
=

4020.00/871.54

c) Working capital turnover ratio =

Net sales
Net Working capital

Net Working Capital = Current assets Current liabilities

2008
=

2641.21/508.46

5.20 times

2009
=

3566.90/733.91

4.86 times

2010
=

4020.00/1007.75

3.99 times

d) Total asset turnover ratio = Net Sales/Total assets

2008
=

2641.21/2845.86
116

0.93

2009
=
=

3566.90/3776.17
0.95

2010
=

4020.00/4468.15

0.90

PROFITABLITY RATIO:
a) Return on total asset = Earnings before interest and tax
Total assets
2008
=

376.83/2845.86 100

13.24%

357.66/3776.17 100

9.47%

100

2009

2010
=

347.12/4468.15 100

7.77%

b) Return on capital employed = Earnings before interest and tax/Capital

employed100
2008
=
=

376.83/1155.50100
32.61%

2009

117

=
=

357.66/1634.20100
21.89%

=
=

347.12/1898.07100
18.29%

2010

1. WORKING CAPITAL RATIOS:

Turnover Ratios:
Receivables (Sales/Avg. Receivables): 227
=3097500/Avg. of [22,97,000 & 4,26,780]
Inventory (COGS/Avg. Inventory): 4.98
=153540000/Avg. of [23887000 & 37736000]
Payables (Purchases/Avg. Payables): 6.2

118

=183232300/avg. of [38718000 & 20480000]

Days Outstanding (365/Turnover Ratios)
Days Sales Outstanding (DSO) 365/227 + 2days
Days Inventory Outstanding (DIO) 365/4.98 +73 days
Days Payable Outstanding (DPO) 365/6.2 - 57 days
Cash Conversion Cycle = 16 days
Here is a graphic summary of BBPLs cash conversion cycle for 2008.
On average, working capital spent 16 days in BBPLs operating cycle:

Traditional analysis of working capital is defensive; it asks, "Can the

company meet its short-term cash obligations?" But working capital
accounts also tell you about the operational efficiency of the company.
The length of the cash conversion cycle (DSO+DIO-DPO) tells you how
much working capital is tied up in ongoing operations. And trends in
each of the days-outstanding numbers may foretell improvements or
declines in the health of the business.

a) STOCK / INVENTORY TURNOVER RATIO (ITR):

Inventory Turnover Ratio = Cost Of Goods Sold / Average Inventory

2008
= 1714.14/329.56
= 5.20 times
2009
= 3266.07/382.63
= 8.54 times

119

2010
= 3545.86/429.94
= 8.25 times

b) INVENTORY CONVERSION PERIOD:

Inventory Conversion Period= 365 / ITR

2008
= 365/5.20
= 71 days
2009
= 365/8.54
= 43 days
2010
= 365/8.25
= 45 days

c) RECEIVABLES / DEBTORS TURNOVER RATIO (DTR):

Debtors Turnover Ratio = Total Sales / Debtors

2008
= 26412143/11889443
= 2.22 times
2009
= 35658766/15994357
120

= 2.23 times
2010
= 35658766/15994357
= 2.23 times

d) Average / Debt Collection Period (Debtors Velocity):

DEBTORS VELOCITY = 365/DTR

2008
= 365/2.22
= 164 days
2009
= 365/2.23
= 164 days
2010
= 365/2.23
= 164 days

e) PAYABLES / CREDITORS TURNOVER RATIO (CTR):

Creditors Turnover Ratio = Purchases / Creditors
2008
= 17141373/15404941
= 1.11 times
2009
= 24925936/20320820

121

= 1.23 times
2010
= 24925936/20320820
= 1.23 times

f) Average / Debt Payment Period (Creditors Velocity):

2008
= 365/1.11
= 329 days
2009
= 365/1.23
= 297 days
2010
= 365/1.23
= 297 days

2. WORKING CAPITAL RATIO (WCR):

WCR = Cost Of Goods Sold / Working Capital

2008

122

=17141373/5084584
=3.37

2009
=24925936/7339118
=3.40

2010
=24925936/7339118
=3.40

123

Valuation of the Company:

Dividend Yield: 2.76% / 2.75% expected
Payout Ratio: 34.78%
5-Year Dividend Growth: 9.26%
Market Capitalization: 156.08 Billion
Cash and Short Term Investments: 12.27 Billion

124

Long-Term Debt: 12.68 Billion

Cash flow from Operations: 9.5 Billion
CAPEX: 2.2 Billion

125

All pricing measures decreased over the past ten years. Price to earnings
fell by 55%, price to book ratio slipped in total 53%, price to sales
ratio decreased 28% and price to cash flow ratio is finally 36% lower
than 10 years before.

Long-Term Fundamentals and Dividends:

126

The company had a strong track record. Sales of Coca-Cola rose 100%
over the past decade. Earnings before taxes and interest (EBIT) increased
by 151% and net income finally grew in total 196%. Due to share
buybacks, earnings per share rose 216%.

127

Coca-Cola paid dividends since 1893. The company raised dividends for
48 consecutive years. The next Ex-Div. Date is June 13, 2011. Payments
will be received on July 01, 2011. The next dividend is the second
quarter dividend at the same rate ($0.47).

128

INTERPRETATION

As we know that the current ratio of any company should revolve

around 2:1 and from the above table we can see that the BBPLs
current ratio is too much above the standard. This means that the price
of companys current asset is 6 times of the price of its current
liabilities which means that the company can easily meets its current
liabilities from its current assets.
Now we compare of the companys position according to the liquidity
ratio. As we know the standard of the liquid ratio is 1:1. In case of the
company it is quiet lower than standards but in line with the industry
that come to 0.3 on annual basis.
Cash conversion cycle indicate that company is able to generate the cash
back in about 16 days from the day of deployment which is better than
that of industry due to efficient collection channel.

129

CHAPTE
R
5
130

131

FINDINGS
The major findings as revealed by the above statement showing the
difference of values from the previous year are as follows:

Total net inventory of the company have increased by 55% in the year
2009 and by 22% in the year 2010. This shows that the liquidity of
company is getting blocked due to increase in inventory.
Total net debtors have increased by 88% in the year 2009 and by 68%
in the year 2010. The amount of debtors is continuously increasing in
the organization from 2008 to 2010 which is not a good sign for the
company.
The total current assets of the company have increased by 72% in the
year 2009 and by 48% in the year 2010.
Trade creditors have increased by 73% in the year 2009 and by 21% in
the year 2010.
Total other creditors of the company have increased by 41% in the year
2009 and by just 5% in the year 2010.
The total current liabilities of the company have increased by 74% in
the year 2009 and by 32% in the year 2010.
The difference in the working capital of the company between the year
2008 and 2009 is 308745 which reveals that it has increased by 68% in
the year 2009.

132

 The difference in the working capital of the company between the year
2009 and 2010 is 599007 which reveals that it has increased by 79% in
the year 2010.

Suggestions
No report is considered to be completed without the recommendation and
suggestions which is an integral part of it. It is also been said that the
report is prepare to see the lacking of the subject and putting the
suggestion so that the company can apply this in order to get rid of it.
This report has also some suggestion for Coca-Cola to make its
product effective. They are as follows:

Coca-Cola should create

awareness among its distributor to
deliver the products on time.

Coca-Cola should focus on all kind of promos activity i.e.

electronic media, print media and other type of promo activity.

In market they should also focus on making consumers

satisfaction by providing the required flavors on time.

In case of making the retailers more satisfied they should offer

some discounts and schemes to retailers, so that they are
encouraged to sell more and more products.

It should give healthy benefits to its marketing employees so

that they can dedicate more and more towards their work.

133

Conclusion
Brindavan Beverages Pvt Limited is using best possible tools
for efficient and effective management of its working capital. Company
has adopted excellent system for appraisal of selling agents so as to
collect receivables in time and avoid bad debt losses. Suppliers of raw
material and primary packing material are appraised by company on
annual basis from the list of suppliers approved from Coca Cola India P
Limited (quality approval), these suppliers are limited in numbers so they
enjoy monopolistic terms of payments at the time of season due to
which company has to provide huge advances for timely procurement of
material thereby blocking huge working capital as advance to suppliers.
Company should try to negotiate with suppliers and Coca Cola India
Limited to break this cartel so as to deploy their working capital more
effectively.
After completing my project on FINANCIAL ANALYSIS AND
WORKING CAPITAL MANAGEMENT in BBPL, I have learnt how to
manage working capital in efficient manner. This project helps me in
understanding the daily requirement of such a big manufacturing firm in
FMCG business.
Every analysis gives some conclusions; here also, I draw some
conclusion by the analyzing the collected data, which I had considered
in evaluating the survey. They are as follows:

It is found that, most of the retailers says that they orders less
than expected due to several reasons like that of the delay in
delivery and non-availability of products.

134

The other reasons as per the retailers view is that the time of
delivery as they says the time of delivery of the product is not
suitable to them as many times when the sales comes for
delivery during the odd hours when they are not at the shop to
receive the product and pay the amount to them.

To some extent, respondents says that there are other reasons for
them to buy less products, which may be like that of they need
a few offers or schemes, delivery process and many others
factors which they did not disclosed.

As per the opinions of the respondents, which includes the

retailers most of them says that the consumers mainly demands
more the brands like Thumbs up, sprite, mazza than the likes of
fanta and limca, so they says that they demand more these
products more than the likes of fanta and limca.

Most of the respondent shares the same view that the distributor
should enhance its distribution channel.

It can also be seen that the retailers mainly orders the 200ml
and 2.0L PET bottles more than the likes of 300ml and can.

135

BIBLOGRAPHY
Books:
Marketing Management:
Business Research Method:
Financial Management:

Philip Kotler
William G. Zikmund
I. M. Pandey

Journals:
Banerjee, Bhabathosh,(1979) Working Capital & Turnover Ratios &
Cash Management. The Management Accountant , January 1979,pp. 2122.
Chadda R.S.(1964) Inventory Management In India , Allied Publishers
Bombay ,1964
Bails, Ashley, (2003), New Zealand business, Auckland, December
2003, pp 64

Internet:

www.coca-cola.com
www.financeindia.org
www.icfai.org

136

ANNEXURE
Coca-Cola Company
Consolidated Balance Sheet - January 31, 2010
Current Assets

Dec. 31, 2010

Dec. 31, 2009

$1,819,000,000

$1,611,000,000

$73,000,000

$201,000,000

Receivables

$1,757,000,000

$1,798,000,000

Inventories

$1,066,000,000

$1,076,000,000

Pre-Paid Expenses

$1,905,000,000

$1,794,000,000

Total Current Assets

$6,620,000,000

$6,480,000,000

Long Term Assets

$8,129,000,000

$8,916,000,000

Property, Plant, & Equipment

$4,168,000,000

$4,267,000,000

Goodwill

$1,917,000,000

$1,960,000,000

$20,834,000,000

21,623,000,000

$9,300,000,000

$4,483,000,000

$21,000,000

$5,373,000,000

$9,321,000,000

$9,856,000,000

Long-Term Debt

$835,000,000

$854,000,000

Other Liabilities

$1,004,000,000

$902,000,000

$358,000,000

$498,000,000

$11,518,000,000

$12,110,000,000

$870,000,000

$867,000,000

Cash & Equivalents

Short Term Investments

Total Assets
Current Liabilities
Accounts Payable
Short Term Debt
Total Current Liabilities
Long-Term Liabilities

Deferred Long Term Liability Charges

Total Liabilities
Shareholders' Equity
Common Stock
137

Retained Earnings
Treasury Stock

$21,265,000,000

$20,773,000,000

($13,293,000,000) ($13,160,000,000)

Capital Surplus
Other Stockholder Equity
Total Stockholder Equity

138

$3,196,000,000

$2,584,000,000

($2,722,000,000)

($1,551,000,000)

$9,316,000,000

$9,513,000,000