A

SUMMER TRAINING PROJECT REPORT

ON

“WORKING CAPITAL MANAGEMENT”

AT
SARASWATI SUGAR MILL LIMITED

Submitted in partial fulfillment of the requirement

For the award of degree
Of
MASTER’S OF BUSINESS ADMINISTRATION
SESSION (2009-2011)
Under the guidance of
Faculty guides Miss SUKHWINDER ARORA.
Industry guide Mr ARUN GOEL

SUBMITTED TO: - SUBMITTED BY:-

LOVELY PROFESSIONAL
UNIVERSITY: GAURAV GERA

Acknowledgement
I have to thank LOVELY PROFESSIONAL UNIVERSITY for giving me an opportunity to
undertake my project work and for giving me knowledge in the field of finance during my
course.

I express my sincere and humble gratitude to Mr. ARUN GOEL for being my project guide and
educating me to make this project a great success.

I would like to thank Ms. SUKHWINDER ARORA, for her valuable guidance and support in
completion of project at the saraswati sugar mill Ltd. I would express my sincere thanks to all the
staff members of saraswati sugar mill Ltd, without their support, this project would not have
been a success.

Last but not the least I would like to thank those person whose encouragement and ideas
enriched my project.

Mr GAURAV GERA.

PREFACE
This project report is the result of my 8 weeks of on job summer training internship which is an
integrated part of the MBA course which the student has to perform and it aims at providing a
first hand experience of the industry to the students. This practical experience helps the student
to view the real business world closely, which in turn widely influences their conceptions and
perceptions about the corporate world.

In order to make students competent, all the students are required to take a real time project work
under summer training in the MBA curriculum. Project work also helps to understand but
practicality goes on in the corporate world and correlate the theoretical concepts better which
remains undiscovered in the classrooms.

I was really fortunate for getting an opportunity to prescribe my summer training in a reputed,
well-established company like SSM. I have made discussion with my training guide and he
assigned me the project “working capital management” which is an integral part of SSM and it
requires a lot of extensive study to gather the information. It provided me a great deal of
exposure and I found the practical work totally different from theoretical.

ABSTRACT
The management had to depend upon certain relevant information for taking various strategic
decisions. The information is made useful by its analysis and interpretation. My project was
related to “Analysis of Working Capital Management of SSM Ltd.”.

This project report is the outcome of my eight-week project in SSM Ltd. My attempt is aimed to
analyze the various aspects of working capital management of SSM Ltd.

By adopting various calculation and analysis and then making interpretation with the solution of
specific problem I put my efforts on giving appropriate suggestion to the company. To this
context I adopted various methods and techniques like Trend analysis by using statistical tool,
estimation of working capital, analyzing of operating cycle and use of various ratio to put an
exact picture of company.

The report also consists of qualitative and quantitative analysis of Working Capital Management
of SSM Ltd. In the course of my study, I found that the organization faces the problem of
liquidity.

OBJECTIVES OF THE STUDY

  To study the Working capital of company

 To analyze how the day to day operations take place

 To study the short-term solvency of Company

 To study the working capital process in SSM

 To compare the performance of working capital with previous year

2. Literature Review
Many researchers have studied working capital from different views and in different
environments. The following ones were very interesting and useful for our research: (Eljelly,
2004) elucidated that efficient liquidity management involves planning and controlling current
assets and current liabilities in such a manner that eliminates the risk of inability to meet due
short-term obligations and avoids excessive investment in these assets. The relation between
profitability and liquidity was examined, as measured by current ratio and cash gap (cash
conversion cycle) on a sample of joint stock companies in Saudi Arabia using correlation and
regression analysis. The study found that the cash conversion cycle was of more importance as a
measure of liquidity than the current ratio that affects profitability. The size variable was found
to have significant effect on profitability at the industry level. The results were stable and had
important implications for liquidity management in various Saudi companies. First, it was clear
that there was a negative relationship between profitability and liquidity indicators such as
current ratio and cash gap in the Saudi sample examined. Second, the study also revealed that
there was great variation among industries with respect to the significant measure of liquidity.
(Deloof, 2003) discussed that most firms had a large amount of cash invested in working capital.
It can therefore be expected that the way in which working capital is managed will have a
significant impact on profitability of those firms. Using correlation and regression tests he found
a significant negative relationship between gross operating income and the number of days
accounts receivable, inventories and accounts payable of Belgian firms. On basis of these results
he suggested that managers could create value for their shareholders by reducing the number of
days’ accounts receivable and inventories to a reasonable minimum. The negative relationship
between accounts payable and profitability is consistent with the view that less profitable firms
wait longer to pay their bills. (Ghosh and Maji, 2003) in this paper made an attempt to examine
the efficiency of working capital management of the Indian cement companies during 1992 –
1993 to 2001 – 2002. For measuring the efficiency of working capital management,
performance, utilization, and overall efficiency indices were calculated instead of using some
common working capital management ratios. Setting industry norms as target-efficiency levels
of the individual firms, this paper also tested the speed of achieving that target level of efficiency
by an individual firm during the period of study. Findings of the study indicated that the Indian
Cement Industry as a whole did not perform remarkably well during this period. (Shin and
Soenen, 1998) highlighted that efficient Working Capital Management (WCM) was very
important for creating value for the shareholders. The way working capital was managed had a
significant impact on both profitability and liquidity. The relationship between the length of Net
Trading Cycle, corporate profitability and risk adjusted stock return was examined using
correlation and regression analysis, by industry and capital intensity. They found a strong
negative relationship between lengths of the firm’s nettrading Cycle and its profitability. In
addition, shorter net trade cycles were associated with higher risk adjusted stock returns. (Smith
and Begemann 1997) emphasized that those who promoted working capital theory shared that
profitability and liquidity comprised the salient goals of working capital management. The
problem arose because the maximization of the firm's returns could seriously threaten its
liquidity, and the pursuit of liquidity had a tendency to dilute returns. This article evaluated the
association between traditional and alternative working capital measures and return on
investment (ROI), specifically in industrial firms listed on the Johannesburg Stock Exchange
(JSE). The problem under investigation was to establish whether the more recently developed
alternative working capital concepts showed improved association with return on investment to
that of traditional working capital ratios or not. Results indicated that there were no significant
differences amongst the years with respect to the independent variables. The results of their
stepwise regression corroborated that total current liabilities divided by funds flow accounted for
most of the variability in Return on Investment (ROI). The statistical test results showed that a
traditional working capital leverage ratio, current liabilities divided by funds flow, displayed the
greatest associations with return on investment. Wellknown liquidity concepts such as the
current and quick ratios registered insignificant associations whilst only one of the newer
working capital concepts, the comprehensive liquidity index, indicated significant associations
with return on investment. All the above studies provide us a solid base and give us idea
regarding working capital management and its components. They also give us the results and
conclusions of those researches already conducted on the same area for different countries and
environment from different aspects. On basis of these researches done in different countries, we
have developed our own methodology for research.

HISTORY OF THE SARASWATI SUGAR MILLS

When the Factory was established there was a shortage of Cane in the area around the Factory
and Cane had to be transported by rail from far off places like Punjab and U.P. The Management
of the Factory had a conviction that if sincere effort was made, the area of Yamuna nagar could
be developed for Sugarcane cultivation. In its first crushing season, SSM crushed only 1.23 lac
quintal of Sugarcane in one crushing season, which is the highest crush ever for any single Sugar
factory in India. Due to dogged efforts of the Management in development of the Agriculture
resource, there has been a sharp increase in the Cane production in the command area of SSM.
To keep pace with the increased availability of Cane, The Management also kept on increasing
the crushing capacity of this plant with a view to crush the entire cane available in the area in the
normal sugar season of Nov. to May. In 1933, When the factory was established, the crushing
capacity of the Factory was 400TCD and the present crushing capacity of the factory is 13000
TCD. It shows the progress made by the Factory over the years.

CORPORATE PROFILE

The Saraswati Industrial Syndicate Limited (SIS), as a company was registered and promoted on
23rd January, 1933.SIS, with a view to develop sugarcane cultivation in the area and manufacture
Sugar, established Saraswati Sugar Mills at Abdullapur (now known as Yamuna nagar) in 1933.

SIS diversified in to Engineering goods manufacturing activities in 1946, with the establishment
of Indian sugar & General Engineering Corporation (ISGEC). ISGEC is a heavy engineering unit
of the Company manufacturing equipments like Presure Vessels, Heats Exchange (for Refineries
& Petro Chemical), hydraulic & Mechanical Presses and Complete Sugar Plants. This
Engineering unit has a name as manufacture of sophisticated Engineering Equipment’s not only
in India but also abroad.
In 1960, ISGEC collaborated with John Thomson, U.K to from a joint company by the name of
ISGEC John Thomson (IJT). At present IJT office is situated at Noida and is an EPC unit which
engineers, procure and Commission a wide range of Boilers and associated Equipment’s.

SIS further diversified in to Steel Foundry business when it acquired a Steel Foundry by the
name of U.P. Steel. This Foundry has made a name for itself as manufacturer of Steel Casting.
They are exporting Steel Casting in a big way specially the hydro Turbine Casting to Canada.

The Saraswati Sugar Mills was demerged from Saraswati Industrial Syndicate Ltd. From
1st December 2003 and became a separate Company by the name Saraswati Sugar mills
Limited.

LOCATION OF SARASWATI SUGAR MILLS

SSM, Yamuna nagar is located on the Saharanpur- Kurukshetra Road. It is well connected
both by Rail and Road.

The Yamuna nagar is approximately 200 km North of New Delhi, 50 km. from Kurukshetra
and 32 km. from Saharanpur. The name of the Railway station is Jagadhri, which is hardly
half a km. from the Factory.

TECHNICAL UPGRADE OF THE FACTORY

 In addition to expanding the capacity of the Factory from time to time, the Management
has always been to adopt latest technologies to keep pace with the changing times. More
so the Management has also been adopting modern Management practices.

With regard to the equipment machinery we have a harmonious blend of old and new
machinery. Some pieces of the equipment were installed way back in 1933 and are still
working very well in tandem with the latest equipment. At the mills steam engine drives
are working and so also the most modern piece of equipment like Hydraulic Drives.
Energy saving devices has been installed to minimize the energy consumption per unit of
Sugar produced.

During the year 1999, The Saraswati Sugar mills changed the process of manufacturing
of Sugar from Double Carbonation Double Sulphitation. The new process is not only
environment friendly but also cost effective. Its solid waste i.e. Press Mud is used as
manure in the agriculture fields.

ACHIEVEMENTS

Over the last 6 years the performance of our Sugar Mills has been very good both in terms of
working of the factory and Cane Management. The following figures speak for them selves and
give insight into the tremendous technological improvement made by the Factory.

Season Cane Crushed Cane Crushed Recovery No. Sugar bags

In the Season per day (Qtls) % of (Qtls.)

 (Lac Qtls)

2003-04 185.34 21139 10.99 2036911

2004-05 162.66 119609 10.68 1750646

2005-06 158.76 102426 10.15 1617911

2006-07 219.05 122375 10.63 2330044

2007-08 174.29 119375 10.63 1859801

2008-09 68.37 71968 09.97 697470

SARASWATI SUGAR MILLS LIMITED

It was first unit being established in 1933. It introduced massive modernization program that
leads to increase in the capacity from 400 to 13000 tons cane crushed per day.

It is one of leading manufacturing sugar company in India.

 SOME DETAILS ABOUT SUGAR MILLS IN INDIA

There are 551 Sugar Mills in India in which 15 mills are located in Haryana, 3 mills are in
Private sector and 12 are in cooperative sector. Saraswati Sugar Mill Ltd is in private sector is
the biggest sugar mill in the India.

 GROUP TURNOVER SSM LTD:-

Turnover has increased manifold over the last five years.

Year Amount in Rs. Crores

2003-04 376

2004-05 361

2005.6 300

2006-07 319
 2007-08 315

ORGANISATIONAL SET UP

Sh. Ranjit Puri is the Chairman of the Company and Mr. Aditya Puri is the Managing
Director who is responsible for running the affairs of the Saraswati Sugar Mill Ltd. The
hierarchy level of technical staff in SSM is as follow.

 Chief Operating Officer

 Advisor

 Vice president

 General Manager

 Deputy General Manager

 Asstt. General Manager

 Senior Manager

 Manager

 Deputy Manager

 Asstt. Manager

 Senior Engineer/Senior Manufacturing Chemist

 Engineer/ Manufacturing Chemist

 Asstt. Engineer

 Supervisor

 Worker
 ORGANISATION OF SSM

 Cane Department

 Engineering Department

 Sugar Sale Department

 Purchase Department

 Finance And Accounts Department

 Comment Service Department

 Administration Department

 Training Department +
SSM IS COMMITTED TO ACHIEVE THEIR OBJECTIVE THROUGH

 Continual improvement

 Training of employees

 Increase in green cover inside and around the plant

This environment policy shall be communicated to all the employees and made available on
request to all the interested parties and public.

Beside all this SSM has always been very conscious about its efforts in the field of cane
development by implementing various cane development schemes for the qualitative and
quantitative development of sugar cane.

SSM- AN ISO 14001 COMPANY

Lloyds recognized the environment management system of international level and granted ISO-
14001 certification to SSM on 15th April 2001.They also have most efficient air pollution control
equipment to lower down impact of pollution’s to the ambient air with the implementation of
various environmental management system there is tremendous saving in resources like water
and energy, elimination of waste and above all providing an environmental congenial to health
and efficiency of workman.
 ATTENDANCE CARD SWAPPING & TIMINGS

To inculcate habit of self discipline, all employees are required to swap the Attendance
card in swapping machine three times a day. There are different timing for General and
Technical Staff. The timing also varies during season and off- season.

A grace of 10 minutes in time is allowed. If a person is late by say 11 minutes or more he

will be considered late by 11 minutes or more as the case may be. If the accumulated ‘late time’
is more than 2 hour in a month then the incumbent is required to take half a day leave.

MOTIVATIONAL ACTIVITIES IN SSM

To motivate employees and encourage their involvement for creation of positive work culture;
in-house competition are organized form time to time. Some important activities in this regard
are:

 Fire services week and slogan competition.

 Zero break down week.

 Organizing health camps.

 Greeting Cards on Birthdays of employee.

 Motivating eligible employees for sterilization.

 Honoring employees for quality Circle & QITs

 Baby shows.
  Computer Training of children of the employees.

 Painting Competition & Environment Awareness Competition.

TOTAL QUALITY MANAGEMENT IN SSM

In any competitive economy, continuous cost reduction and quality improvements are
essential for survival of an organization. TQM is a process which involves every person of the
organization and inculcates the habit of working together as a team, to bring about improvement
in working. Paying attention to minor details, doing things right the first time and practicing
good human relations are the hallmarks of TQM. TQM is the sincerity, respect and passion one
shows to deliver the best in the job he does. Total quality is an attitude. It is a way of life. We
have taken up some significant initiatives for involvement of people to generate motivating work
culture through development and growth process towards Total Quality.

IMPLEMENTATION OF ‘5S’

‘5S’ is a Japanese concept. It stands for five Japanese words:

 Seri (Sorting out)

 Seiton (Systematic arrangement)

 Seiko (Spic and span)

 Seiketsu (Standardizing)

 Shitsuke( Self discipline)

It is a simple practice of human life translated in to a scientific approach to accomplish specific
objectives.’5S’is being implemented successfully in SSM.

KAIZEN

The ‘Kaizen’ philosophy is based on the fact that our life-be it our working life, our social life,
our home life-deserve to be constantly improved. Kaizen simply means, ‘on going improvement
involving everyone in the organization’. Kaizen was launched in SSM in Feb, 2002. Central
steering committee and 20 nos zonal committees were constituted. Workers and staff are
required to submit Kaizens every month. Award winning Kaizens are selected and Kaizens of the
month declared. Kaizenees are honored during prize Distribution functions on Kaizens.
Photographs of Kaizenees are displayed at conspicuous place in the Factory.

SUGGESTION SCHEME

In order to activate the latent potential of employees, the suggestion scheme was
launched in SSM on September 2002. The purpose of the suggestion scheme is to motivate
employees to present any ideas they may have in which the Factory can be operated more
effectively and efficiently. The employees in the category ‘D’ and above are eligible to put
forward their Suggestions. Every month, the theme on which ‘Suggestion’ are invited is notified.
Suggestion Boxes have been installed in the Factory for employees to put in their suggestions.
Participation in suggestion scheme continues to be very encouraging various suggestion received
form the Supervisory staff.

QUALITY CIRCLES

Quality circles are effective back-up force for any Industry. Concept of quality circle was
introduced in SSM in May, 1999. So far 8 Nos. quality circles have worked successfully in SSM.
They have found solution to very intricate problems. Quality Circles are useful forums for
creative ideas. Moreover, these are useful channels of effective communication between
workmen and Management.

QUALITY IMPROVEMENT TEAMS(QIT)

These are cross-functional teams. Problems to be solved are given to QITs by the Management.
The members of the team do brain storming and work synergistically to come out with the
solution of the problem. Moreover, QITs have helped the management to generate considerable
savings.

OPEN DOOR POLICY

Involvement & commitment of employees, free & fair communication amongst different level of
employees is an important aspect of having positive work culture. General open session with
staff & workmen are held in which each person is encouraged to express his views.

QUALITY CONTROL DEPARTMENT

The check the quality of inputs and also outputs, the Quality Control Department was
established in SSM January, 1999. This Department has greatly helped not only to improve the
Quality of the bought outs but also the Sugar, we produce.

NIGHT DUTY SUPERVISION

The concept of Night duty supervision is through MBWA (Management by wandering around).
This concept was introduced in December, 1998. The objective was to develop the human
Resource by providing them exposure to the activities not directly related to their areas of
operations. Night duty officers maintain close interaction with the workmen by visiting their
work- sites and listen to their problems. They over-see various services and prepare a night duty
report which is submitted to Executive director. Immediate corrective action is taken on the
recommendations of Night Duty Officers.
 TRAINING AND DEVELOPMENTAL ACTIVITIES

The Training and Management Development activities of SSM form a part of the continuous
process in interacting the organization needs with the needs of individuals for growth and
development. Training activities are oriented towards workmen, supervisory & technical staff
and other categories of employees. The emphasis in the programmes designed for employees is
on imparting the technical/trade skills in addition to some basic essential management concepts.
The objective of the training is to orient the employees to the activities of the organization and to
provide opportunities to them to improve their on job performance. The Training department is
responsible for designing Training Programmes after identifying the training needs of the
employees and the needs of the organization. There has been tremendous improvement in work
culture through training activities as mentioned here under:

 Improved Technological Skills.

 Developing the feeling of ownership.

 Cost reduction.

 Improvement in work culture.

 Control on operational procedures.

  Improved Communication and human relation skills.

 Quality Control.

 Positive attitude.

 Continuous improvement in work culture through ‘Kaizen’ and ‘5S’.

 Committed work-force.

 Reduction in Breakdown of machinery.

 Total Productive Management.

ENVIRONMENT, QUALITY MANAGEMENT SYSTEMS AND

OCCUPATIONAL HEALTH AND SAFETY MANAGEMENT SYSTEM AT
SSM

It is known fact that the Sugar is a polluting Industry and as a responsible Corporate Citizens the
Management decided to improve the environmental performance. Consequently it was decided to
design and implement Environment Management System (EMS) as per ISO-14001. With the
implementation of various EMS, there is a tremendous saving in critical inputs like water and
energy, elimination of waste and above all providing as environment which is congenial to the
health and efficiency of workmen.

It is matter of pride for us that after sustained efforts of around two years, Lloyds Register of
Quality Assurance (a world renowned certifying Agency) recognized our Environmental
Management System and granted us ISO-14001 certification.

Thus the Saraswati Sugar Mills has become the only Sugar factory in India t have acquired this
destinction.

It will not be out of place to mention here that SSM has a modern Effluent Treatment Plant to
handle the effluents generated during manufacturing of Sugar. We have also most efficient Air
Pollution Control Equipment t bring down the impact of pollutants to the ambient air.

Saraswati Sugar Mills has put in place systems on quality management and acquired ISO-9000.
In addition, we have implemented Occupational Health & Safety Management System by virtue
of which we have 18001certification.

OTHER IMPORTANT INFORMATION

Technical Library:

There is a well stocked Library with books And periodicals of technical & general nature
including reference books. It operates only during office hours. The officers may avail
Library facilities immediately after joining and can get the books issued in their names after
getting membership of the Library. Information regarding books/ periodicals and Magazines
in Library is available on internet.

RECREATION CLUB

In order to encourage employees to refresh mentally and physically, we have a staff Club for
supervisors & officers. The Saraswati Staff Club provides recreation facilities like Carrom,
Cards, Chess, Table Tennis, Gymnasium and Lawn Tennis, Badminton, Swimming pool.
Reading room facilities are available in the Club premises. Club is open from 1800 hours:
2300 hours on all the week days and from 0900 hours to 2300 hours on Sundays/Holidays.
Tea and snacks etc. are available against cash payment.

COMMUNICATION FACILITIES

We have a digital EPABX. This exchange can connect up to 300 connections with additional
facilities for call transfer, call splitting, conferencing etc. For local calls, ‘0’ dialing facility is
also available.

FIRE FIGHTING ALARMS

Wailing type Fire alarm is sounded for 2 minutes in case of Fire. After the fire has been
brought under control, a straight clear alarm is sounded for one minute. In case of mock
drills, a Fire situation shall be simulated.

DISPENSARY

There is a Dispensary under the charge of a qualified Doctor in the colony. It is open for 24
hours.

GUEST HOUSE
 We have a Guest House in the colony premises for Visitors and Guests. Meals can be had by
Officers in the Guest House against payment.

IMPORTANT INDUSTRIES IN THE CITY:-

 Ballarpur Industries Limited

Bharat Starch & Chemical Limited

Jamuna Auto Industries

Yamuna Gases & Chemical Limited

Oriental Engineering Works

Chanderpurwork, Kay Iron Works

Railway Workshop

Haryana Distillery

IMPORTANT HOSPITAL
Civil Hospital
 o ESI Hospital

o Waryam Singh Hospital

o Gaba Hospital

o Sachdeva Hospital

o R.K. Gupta Hospital

OBJECTIVES OF THE COMPANY

The company strives of the accomplishment of the following objectives through the building up
of an able and motivated work force:

GROWTH

To ensure a steady growth in business so as to contribute towards industrial growth of the State
and fulfill its social obligations.

IMPROVEMENT IN QUALITY

This is the fundamental objective of the Company. To further improved the quality of Sugar, the

Board is considering to convert to entire capacity to Defection Phophoflation process.

PROFITABILITY

To provide a reasonable and adequate return on Capital Employed. Optimum Capital Utilization
and productivity and generating adequate internal resources to finance the Company’s growth.

CONTINUITY

To invest in human resource development sustained research development, strive for excellence
in management and other long-range activities.

SSM’s PRODUCTS

The factory is engaged in the production of Sugar. It has started producing Sugar in the year
1934 dated 19th January. It is the only product, which the factory is intended to manufacture.
Beside this main product two types of by products are also produced by the factory i.e. Molasses,
Baggage and Press mud.

SUGAR

Sugar is the only product, which the SSM is producing. Present installed Capacity of mill is
13000 TCD and the Company is operating at 55.36%(2008-09). As the company’s raw material
is seasonal so the production is also seasonal i.e. Sugar is manufactured in the months of
November to May. Although the production is seasonal, yet the sales are made throughout the
year. Sugar is sold in two parts one as levy and other is free. Levy sugar is purchased by the
Govt. Has reduced it to 10%. The price for levy sugar is also fixed by the Govt. and this price is
even less than the cost of manufacturing the sugar. The other type of sugar is free sugar the
company can sell in the open market. The price for this sugar depends upon the market forces but
quantity of sales is fixed by the Govt. every month. Sugar recovery in season 2008-09 is 9.97%.

BAGGAGE
It is a bye-product of the company, which is a residual matter of cane, remained after crushing
the cane. Some part of it is kept inside the factory for producing steam and remaining is sold
outside the factory at its own desirous. This is used in papermaking. Credit for the basses is
given on the basis of market rate in respect of quantity generated.

MOLASSES

This is the second by product of the factory. After crushing the cane, the juice is clarified and
filtered. The filtered juice which can’t be used in making the sugar is MOLASSES like the sales
of sugar, molasses are also sold in two part before few year. Levy and free. But in present
molasses sold as free. Molasses recovery is 4.73 % free molasses pre sold by the company in the
open market at market prices. Molasses is used in wine making.

PRESS MUD

It is third by-product o sugar. Press mud consists chemical and sulpher, carbonation and other
relevant chemicals used for cleaning cane juice. The press mud is very much useful in the fields
as manure. Its second use is as fuel, when it is dried, since, it contains sulpher, which is very
inflammable.

SSM’s STRATEGY

1. SSM’s Remote sensing Technology for cane management:

It is the first company in the country to use this technology. This is a technique used for the
development for cane and increased the production of cane. SSM has started in house satellite
technology and GIS (Geological information sources) application to manage the information on
natural resources to make better agricultural planning. Keeping this philosophy in mind SSM has
been working on the following aspect since 1996.
  Accurate area estimation of sugar cane with 60% accuracy.

 Yield estimation

 Identifying dominate varieties of sugarcane

 Healthy environment of sugarcane at aggregate level

2. To Change the process manufacturing Sugar:

As the session 1998-99 threatened to be a bad season because of increased price of sugar cane
poor sugar prices and also because of heavy imports and the company has to suffer the losses. In
order to meet the solution Board decide to convert the process of juice clarification into double
carbonation, double sulphitation process to double sulphitation process. This process is used by
95% sugar mill of India. In the earlier process both lime stone and sulpher were used to clarify
the juice but from this season only the sulpher is being used a very few quantity of limestone has
been used. The reason for changing the process as follows:

 High cost of clarification involved in the earlier process.

 Difficulty in getting the limestone due to shortage.

 Difficulty in dispatching of press mud involved in the earlier process.

Due to change the process of manufacturing sugar the factory’s cost has come down definitely.
 CUSTOMERS FOR SUGAR

As the factory sells the sugar in two parts i.e. Levy and Free .The customer for the levy sugar is
Government itself and for free sugar the customers are recommended by the factory’s agents.
They recommended the name of dealer and if the factory thinks it beneficial, then it sells the
sugar to that dealer.

Before January. Before After January From April

2000 January 2001 2001 to march 2005 onwards
2005
Government Share 40% 30% 15% 10%
Private Share 60% 70% 85% 90%

HURDLES IN THE GRWOTH OF SUGAR INDUSTRIES

 Sugar Price Policy.

 Duel Control on Sugar Sale.

 Political Interference in Determination of Sugarcane Price.

 Prevailing sugarcane (Supply & Purchase) Act and Rules require modification and
amendments.

 Lack of act & rules for maintaining plant quarantine standard for sugarcane and other
agricultural crops at command area level.

 Power of reservation of command area lies with the government, which of ten marks
modification
 In SSM CAPITAL STRUCTURE

By Capital structure we mean combination of debt and equity that leads to the maximum value of
the firm. As SSM is a subsidiary of the Company “SIS” so having no capital of its own. In place
of Capital it has investment of Head Office and the Capital of SIS can be studied as follows :

AUTHORIZED CAPITAL OF SSM

The present authorized capital of company is 709.99 lacs shares of Rs. 10/- each. Presents there
are no preference shares in the capital of the company.

SHARE HOLDING PATTERN OF SSM

The paid up capital of the company is Rs. 709.99 lacs comprising of 70,99,900 shares of Rs. 10/-
each with Saraswati Industrial Syndicate Limited, Yamuna Nagar.

CONSORTIUM FINANCE

SSM has entered into consortium arrangement because of its large requirement of fund non-fund
based limits and hence reduced its dependence of any one leading institution.

Consortium finance is based on the philosophy of sharing risks and gains by the banks by
providing together the credit requirements of any large borrower, that is Rs 50 crore and above.
Need for sharing risks arises because of credit squeeze experienced by Indian Capital Market &
also because Co’s like to broaden their service base.

TERM LOANS

Term loans comprise of various secured loans (backed by hypothecation of certain assets) and
unsecured loans taken from banks and various other institution. The current debt of the factory is
:
SECURED LOANS

Loans and advances from banks As on 30.9.2008 (Rs. in Lacs)

Against stock stores and spares

 Term Loan from Corporation 13306.22

Bank

 Term Loan from SDF 649.20

 Term loan against payment of NIL

excise duty

3097.27
Total 17052.69

UNSECURED LOANS

Loans and advances from banks As on 30.9.2008 (Rs. in Lacs)

 SDF Loan 19.76

 Head Office Account 404.09

 Fixed Deposits 1347.70

Total 1771.55
 Research Methodology

The methodology that was followed includes both:

 Primary Data Collection

 Secondary Data Collection

Primary data collection included an in-depth study based on working capital, management of
working capital, sources of finance for current assets and working capital and factors that affect
working capital. A detailed study was undertaken about SSM, its working capital, its services,
with the help of DGM (finance) .

Secondary data collection included the data collected from its Annual report year ended
September 30, 2008 and various documents and files related to study.

Information Requirement:

Since my objective was to analyze the working capital policies, working capital management of
the company and to reduce down their problems and finding the solutions with respect to the
working capital management of the company. So, I required the annual report of the company
and its working capital data to analyze the position of the company and correlate the theoretical
and practical aspects of working capital management, to analyze the efficiency of the
management in managing the working capital and to find out what are the problems that the
company is facing. So, the company provided me the required information. Then relevant
calculations and analysis were done.

Research Methodology:
The methodology adopted for the project was divided into two types of analysis: Qualitative and
Quantitative

 Qualitative analysis required studying the business profile of the company, its nature, its
functioning, the hierarchy and the functioning of the management of the company, the
performance of the company in last few years and what policy they adopt and studying
what role the working capital plays in a manufacturing concern.

 Quantitative analysis required analyzing the current assets and the current liabilities of
the company, the statement of working capital changes, performing the analysis for
estimating the working capital requirement, analyzing the operating cycle, analyzing the
Working Capital Ratios to reveal the financial position and soundness of the business and
give a good basis for quantitative analysis of financial problems and use of modern
working tools to show the trend of working capital for upcoming year with adopting trend
analysis.

Introduction

Working Capital:
“Working Capital includes the current assets and current liabilities areas of the balance sheet.
Working Capital can be called by its alternative name - "Net Current Assets”.

Working Capital Management is the process of planning and controlling the level and mix of
current assets of the firm as well as financing these assets. It may be regarded as a life blood of a
business; its effective provision can do much to ensure the success of a business, while its
efficient management may lead not only to loss of profits but loss to ultimate downfall in a going
concern. Analysis of working capital is of major importance to internal and external analysis
because it is closely related to the current day-to-day operations.

Working Capital is the name given to the "short-term" area of the balance sheet. Working Capital
includes four balance sheet items:

 Stock - stocks of raw materials, partly completed production and finished goods
awaiting sale.

 Debtors - amounts owed TO the company, mainly from customers in respect of sales
made on credit.

 Creditors - amounts owed BY the company, mainly to suppliers of raw materials,

services (electricity, water, telephone, rent, etc.) but also, possibly, unpaid tax
demands, unpaid dividends and other items.

 Cash - bank balances, cash holdings and short-term investments.

Some of the decisions taken in working capital management are:

 An adequate supply of raw materials.

 Cash to meet the operational payments.

 The ability to grant credit to customers.

  Investment in various current assets.

 Appropriate sources of fund to finance current assets.

 Proportion of long term and short term funds to finance current assets.

Cash Cycle:

As working capital moves from one process to another, it changes from one asset to another i.e.,
from cash to inventories and then to receivables and then back to cash. This movement is
represented by cash cycle as below:

Figure: Cash Cycle

Objective of Working Capital Management:

Two fold objective of working capital management

a) Maintenance of working capital, and

b) Availability of ample funds at the times of need.

Uses of Working Capital:

The typical uses of working capital are as follows:

 Adjusted net loss from operations

 Purchase of non-current assets:

 Repayment of long-term debt (debentures or bonds) and short-term debt (bank

borrowing)

 Redemption of redeemable preference shares .

 Payment of cash dividend.

Advantages of adequate working capital:

 Increase in debt capacity and goodwill.

 Increase in production efficiency

 Exploitation of favorable opportunities.

 Meeting contingencies and adverse changes

 Available cash discount:

 Solvency and efficiency of fixed assets

 Attractive Dividend to Shareholders

Disadvantage of inadequate working capital:

 Loss of goodwill and creditworthiness

 Firm can’t make use of favorable opportunities

  Adverse effects of credit opportunities

 Operational inefficiencies

 Effects on financial capacity

 Non-achievement of Profit Target

Dangers of Redundant working capital:

 Low rate of return on capital

 Decline in Capital and Efficiency

 Loss of Goodwill and Confidence

 Evils of Over-Capitalization

 Destruction of Turnover Ratio

Company must have adequate working capital pursuant to its requirements. It should neither be
excessive nor inadequate. Both situations are dangerous. While inadequate working capital
adversely affects the business operations and profitability, excessive working capital remains idle
and earns no profits for the company. So company must assure its working capital is adequate
for its operations.

Theoretical Framework of Working Capital Management

Many profitable companies fail each year because their management teams fail to manage the
area of working capital. The term working capital is closely related to the term funds and has two
meaning. It is used to mean current assets minus current liabilities. In simple words it is the
investment needed for carrying out day-to-day operations of the business smoothly. Working
capital is just like the heart of the business. If it becomes weak, the business can hardly prosper
and survive. It is an index of the solvency of a concern. Working capital management thus
throws a challenge and should be a welcome opportunity for a financial manger that is ready to
play an important role in organization.

Sources of Working Capital:

The company can choose to finance its current assets by long-term or short-term sources, or a
combination of them.

A) Long term Permanent Working Sources of Capital: Long-term sources of

permanent working capital include equity and preference shares, retained earnings, debentures
and other long-term debts from public deposits and financial institutions. Financing through
long-term means provides stability, reduces risk of payment, and increases liquidity of the
business concern.

Various types of long-term sources of working capital are as follows:

 Issue of shares

 Retained Earnings

 Issue of Debentures

 Long term debts

 Other sources

B) Short-term Temporary Working Source of Capital: Temporary working capital

is required to meet the day-to-day business expenditures. The variable working capital would
finance from short-term sources of funds, and only for the period needed. It has the benefit of
low cost and establishes closer relationships with bankers.

Some of the sources of temporary working capital are given below:

 Commercial Banks: In the form of short-term loans, cash credit, and overdraft and
through discounting the bills of exchanges.

 Public Deposits

 Various Credits: Trade credit, Business credit papers and customer credit are other
sources of short-term working capital. Credit from suppliers, advances from
customers, bills of exchanges, promissory notes, etc helps to raise temporary working
capital.

 Reserves and other funds

Sources of Additional Working Capital:

 Existing cash reserves

 Profits (when you secure it as cash)

 Payables (credit from suppliers)

 New equity or loans from shareholders

 Bank overdrafts or lines of credit

 Long-term loans

Various tools to measure & analyses working capital of a firm:

  Fund Flow Analysis: This technique helps to analysis the variation in working
capital contents between two balance sheet dates. Fund flow analysis shows how
much funds have been obtained from different sources to finance working capital and
how they have been utilized. Due to need as well as importance of fund flow analysis
finance managers of almost all the organizations use it to make sound financial
decisions.

 Working Capital Flows: Information regarding the financing and investment activities of an
enterprise and the changes in the financial position for the period of time is essential for financial
statement, used by owners as well as creditors for making business decisions.

Further, this technique can be used only by the internal administration in its control of
working capital. Moreover, some important and significant question remains
unanswered, such as whether the capital is being used most efficiently and whether
the current financial position of the firm has improved.

Working Capital Flows

Working capital flows
Opening Changes in
Balance of Closing Balance of
Working Capital
Working
capital Working
Capital

SOURCES OF
WORKING CAPITAL USES OF WORKING
CAPITAL
Operations of the
business Redemption of long
Issue of long-term debt term debt
Sale of fixed Investments
investments Acquisition of fixed
Sale of long-term assets
investments Payment of dividend
 Objective of Study

This project was undertaken to analyze the working capital policies, working capital
management of the company and to reduce down their problems and finding the solutions with
respect to the working capital management of the company.

The objective of the study is to provide the solutions for reducing down the duration of the
operating cycle, to analyze the working capital position of the company and the liquidity
position, finding out the problems that the company is facing in managing the working capital
and showing trend of particular ratios and at same suggesting them to solve their problems.

 To study the working capital concept.

 To see how the day-to-day operations of the company takes place.

 To study the working capital management process in SSM Ltd.

 To see whether the company is prepared with enough working capital to face any
kind of contingencies.

 To compare the performance of W/C for a particular year with previous years.

 To assess Liquidity position, Long term solvency, operational efficiency, and overall
profitability of SSM.

 Providing suggestions to solve the problems of the company.

 MANAGEMENT OF WORKING CAPITAL

Working Capital Management refers to the administration of all aspects of current assets namely
Cash Marketable Securities, Debtors, Stocks, finished goods & Inventories and Current
Liabilities.

Finance Manager should have knowledge of the source of working capital funds as well as
investment avenues where ideal funds may be temporarily invested. It must be seen that right
source are tapped to finance current assets and that the current liabilities are paid in time. The
goal of Working Capital Management is to manage the firm current assets and current liabilities
in such a way that a satisfactory level of Working Capital is maintained, as without it firm is
likely to be come insolvent or even bankrupt.

Hence Working Capital Management has two objectives which are likely to go in opposite
direction i.e.

(i) Liquidity

(ii) Profitability

Liquidity :

Liquidity means ability to settle the bills on due dates. This is possible only if you have adequate
funds.

Profitability : The Current resources be so managed that they contribute to overall corporate

profitability to the maximum possible extent. This is possible only if the Company does not keep

its current assets like Cash idle.

 WORKING CAPITAL MANAGEMENT IN SSM

Any firm and SSM is no exception, faces an unavoidable need to manage its working capital
well. And in SSM it is being done with expertise. For managing working capital in the Company,
it prepares various statements some daily, some monthly and also a few annually. Some of these
are sent to the Head Office for the purpose of sending it to the Bank so that the bank may grant
the credit limit after considering these statements. Some statements sent to Head Office are kept
by the Head Office itself for keeping a record of the funds in the company and if there is
shortage of funds then the Head Office make arrangements for the funds and if there is any
surplus then Head Office transfers these funds to any of its other Units which is in need of funds.
Some statements are also such which are maintained by the Unit for keeping with itself for the
purpose of its own record. The Head Office may also demand these statements for seeing into the
matters of the Unit. The Factory prepares the following type of statements :-

1. FORM C-I & FORM C-II

2. BANK STOCK STATEMENTS

3. CASH FLOW STATEMENT

4. BANK AVAILABILITY REPORT

FORM C-I & FORM C-II

Form C-I and C-II are prepared for the purpose of renewal and enhancement of bank limits.
This is prepared by the Factory whenever demanded by the Head Office and give information for
the whole year C-I gives the position of the Company in the previous year and based on actual
figures. Form C-II shows the requirements of the Company for the next year and based on both
actual and estimated figures . This form gives general information about the stock of the
company [ i.e. opening stock, production, releases and then closing stock] various receipt during
every month (From sales, loans and other receipts) various payment and in the end a summary
giving information about the opening and closing balance of cash and cash credit at the end of
every month.

A Form C-II is also prepared by the factory showing position of the factory after every month.
This form is sent to the bank so that the bank can see the actual position of the factory against the
project one after every month. The form gives information of all the receipts and payments of the
factory during that month.

BANK STOCK STATEMENTS

Under this two type of statements are prepared. Both are sent to the Bank Obtaining CC Limits
these are:

 Daily Bank Stock Statement of sugar

 Monthly Stores Statement

1.Daily Bank Stock Statement

This is a statement which is sent to the bank daily. The information included in this statement is
about the opening balance of sugar, addition if any, sugar issued and thereafter balances at the
end of the day. Balances are shown for both of sugar separately i.e. for levy and free. Generally
this statement also gives information about the debtors of the company but as the bank doesn’t
grant credit to the SSM against its sundry debtors so the information about the debtors of the
company is excluded from this statement.

The importance of stock statement is that it helps banker to have knowledge about the stock of
the company. The cash credit limit sanctioned by the bank is secured though hypothecation of
stock. Hence current details of the stock are the major requirements of bank. The Drawing power
(DP) of the company is font homed through the detailed information of stocks. Bank fixed the
credit limit for the company every month. So the DP limit is also arrived at the end of the every
month.
HOW THE DP (DRAWING POWER) LIMIT IS ARRIVED AT ?

Drawing power is sum of total of stock at the end of each month. Stock includes raw material,
semi-finished goods and finished goods. After keeping the required ‘MARGINS’ which is 10%
in case of levy sugar and 15% in case of free sugar, Drawing power is arrived at which
ultimately determines the limit the company can use. The margin is kept by the bank for the part
of stock that could turn to be obsolete or useless. It is on the discretion of the bank as they may
grant the credit limit less than the drawing power.

CASH FLOW STATEMENT

A projected cash flow statement is also prepared by the factory for every month to see whether
the company will have sufficient cash to meet requirements at the end of every month after
availing cash credit limit from the bank. And if there is any deficit at the end of the month
intimation of this is given to the Head Office to make some alternate arrangements. Usually
projected cash flow statement is prepared for 6 months. But if Head Office asks for preparing a
projected cash flow statement for more period then it is prepared accordingly. For managing cash
more efficiently a comparative cash flow statement is also prepared by the company showing
caparison of actual cash position with estimated cash position. Reason is traced for any
difference of actual balance from the estimated balance. This statement is prepared for each and
every month in the first week of next month and is for the internal use of the factory. But the
head office may also be demand this vary statement as per its requirement.

BANK AVAILABILITY REPORT

A Bank availability report is also prepared by the factory on daily basis to see the balance in
credit limit granted by bank which the company can avail. It gives information about the drawing
power of the company sanctioned cash credit limit less limit transferred to head office amount
drawn by the company out of available net drawing power. And at the end the banks from which
the company avails the limit. These banks are State Bank of Patiala, Oriental Bank of
Commerce, Corporation Bank and other banks i.e. state bank of travancore. This statement is
prepared for the purpose so that there is a check on the bank credit limit i.e. how much fund the
company can take from the bank in case of need of fund.

SOURCES OF FINANCE FOR CURRENT ASSETS AND

WORKING CAPITAL

A firm has a choice among three sources of financing current assets or working capital:

 Long Term Financing

• Short Term Financing

• Spontaneous Financing

Long term financing is done through shares, debentures, preference shares, retained
earnings and long-term debt from financial institutions.

Funds available for a period of one year or less are called short-term finance. In India, Short-
term funds are used to finance WC. These sources include short-term bank loans, commercial
papers, factoring receivables and public deposits.

Spontaneous financing refers to the automatic sources for short-term funds arising in the
normal course of business. The major sources of such financing are trade credit and outstanding
expenses. The real choice of financing current assets is between short term versus long term
financing. Various finance for Working Capital are given below:

 Trade Credit

 Accrued Expenses &Deferred Income

 Public Deposits

 Bank Finance

 Commercial Paper
 Trade Credits

Trade credit is an informal arrangement and is a spontaneous source of financing working

capital.

Supplier firm send goods to buy firm on credit, which means, buying firm don't pay cash
immediately for the purchases made on the buyer's balance sheet, it appears as sundry creditors
or accounts payable. When the buyer sign a bill or negotiable instrument to obtain trade credit, it
appears on the buyer balance sheet as bills payable. The benefit of trade credit is that when the
company knows that the drainage of cash has been deferred to for some time, the amount of cash
equal to purchase value of material can be utilized in earning some returns by investing in short
term securities or be crediting the same to its credit /overdraft account there by reducing the
incidence of interest.

Accrued expenses and deferred income :

Accrued expenses represents a liability that a firm has to pay for the services, it has already
received. They represents spontaneous, interest free services of financing e.g. wages and salaries,
taxes and interest. Deferred income represents funds by the firm for goods and services, which it
has to supply in future e.g. advance payment made by the customer.

Public deposits

Mobilization of funds from general public specially the middle and upper middle class people,
by offering reasonably attractive rate of return is another important source of financing working
capital. The Rate of interest can't exceed 15% and it is compared on a quarterly basis. Public
deposits are governed by the regulation of public under the companies (Acceptance of Deposits)
Amendments rules 1978.

• A company can't raise funds for more than 10% of its paid up share capital from Public
deposits.

• Government companies can accept deposits up to 35% of their paid up share capital and free
reserves.
• The maximum maturity period allowed for public deposits is three years, while the
minimum permitted maturity period is six months.

• A company inviting deposits from the public is required to issue an advertisement about the
main details of the company and the same has to be filed to Registrar Of Companies (ROC)
before publishing it in the Newspaper and magazines.

Bank Finance : Banks are the main institutional sources of working capital. A bank considers
a firm's sales and production plans and hence determines its working capital requirement. The
amount approved by the bank for the firm's working capital is called the credit limit . But
financial accommodation or credit limit 100% of the value of the goods would not be granted by
the banks and they would fix a margin on the value of security, which must be provided by the
borrower and the amount will be financed by the bank.

 Overdraft : In this the customer is permitted to overdraw up to a prefixed limit. Interest is

charged on amount overdrawn. Overdraft amount operates against security in the form of
pledge of shares and security or LIC policies.

 Cash Credits: In cash credits, the customer is charged interest only on the amount actually
utilized from the prefixed limit. The security offered by the customer is in the nature of
hypothecation of inventory and account receivables.

 Discounting of Bills : The bills raised on the buyer of the company's goods are discounted
(Full amount of the bill discount charged by the bank) by bank. This facility helps the
company in realizing funds fast without waiting for credit period to get over.

 Letter of credit : Bankers open latter of credits (L/C) in favor of supplier for raw
materials. L/C contains a written undertaking given by the bank on behalf of the purchaser to
the seller to make payment of a stated amount on presentation of stipulated documents and
fulfillment of all the terms and conditions incorporated therein.
 Bank guarantees: Bankers issue specific guarantee business transactions between various
parties including government agencies. The Guarantees may broadly be divided into two
categories:

• Financial Guarantee discharge, financial obligation to the customers

• Performance Guarantee for the performance of a contract by customers

 Working Capital Loans : A borrower some times require accommodation in excess of

sanctioned credit limit. The borrower is required to pay higher rate of interest of additional
credit.

FUND BASED LIMITS

These are credit facilities given by banks where actual banks funds are involved. Fund based
limits are given against hypothecation and pledge.

FINANCING WORKING CAPITAL IN SSM

SSM is financing its working capital requirements mainly from Banks. Beside banks the other
sources for working capital finance at SSM are trade creditor and security need from the dealer.

WORKING CAPITAL LIMITS SANCTIONED BY BANKS

SSM has availed working capital limits by borrowing from number of Banks because of:

 Large size of borrowing

 To have a degree of flexibility in its operation with different Banks.

It has been using consortium financing to take care of its entire needs.

CONSORTIUM FINANCE

It is based on the philosophy of sharing risks and gains. Its main features are:

 A formal consortium has to be compulsorily constituted in case the find based Working
Capital limits are Rs.50 Crore or more.

 The number of participating banks is a consortium should be limited to four, five or six at the
most. All banks forming consortium must evolve a common form of credit appraisal to be
obtained from the borrower.

 SSM has entered into consortium banking arrangements as follows:

Name of the Bank consortium %age share in the arrangement

State Bank of Patiala 56.52

Oriental Bank of Commerce 15.44

State Bank of Travancore

3.41
Punjab National Bank
2.89
Corporation Bank
21.74
 %age Share in the arrangements

State Bank of Patiala

Oriental bank of Commerce
State Bank of Travancore
Punjab National Bank
Corporation Bank

FACTORY RECEIVABLES

Factoring is a “Continuing” arrangement between a financial intermediary called a “Factor” and

“Seller” of goods and services. It is another important source of financing working capital but in
India this concept is new and has yet to establish its root. The factor performs the following
service in respect of the Account Receivables arising from the sale of such goods or services.

1. Purchase all account receivables of the seller for immediate cash

2. Administrators the sales ledger of the seller collects the accounts receivable.

3. Assume the losses, which may arise from bad debts.

4. Provide relevant advisory service to seller.

The main point is to be noted down in factoring is that the factory handles all the receivable
arising out of the credit sales of the seller. Company and not just some specific bill which is
mainly done in bill discounting agreement.

NON-FUND BASE LIMITS

These are the credit facilities given by the banks where actual bank fund are not involved e.g.
letter of guarantee. Presently SSM is availing these facilities only from State Bank of Patiala.

Fund base limit and non fund based limit of Bank consortium are as follows.

Fund Based (Pledge) Limit DP(After Margin) Outstanding On

Sanctioned 30.9.2008

Credit Cash 22800 15568 13306

Fund based Limit DP(After Margin) Outstanding as on

30.9.08
(hypothecation)

Cash Credit 200 338 0.15

Non fund Based(Bank 500 Nil 404.30

guarantee)

Other than Bank finance company is also using the following sources to finance its working
capital:-

TRADE CREDIT

SSM enjoys a reasonable amount of goodwill in the market. This enables the company to get
credit for longer duration and hence postpone immediate cash outflow. The trade creditors of the
company outstanding as on 30 Sept. 2008, were amounted to Rs. 2396.00 lacs.

SECURITY FROM THE DEALERS

An SSM sells its sugar through the dealer, it receives some amount from the dealers as security.
This security also serves as a source of working capital finance.

RATIO ANALYSIS OF THE “SSM”

 INVENTORY TURNOVER RATIO = Sales/Average Inventory

This ratio measures how fast the inventory is moving the rim and generating sales. It also shows
the efficiency of inventory management. Higher the ratio the more efficient the management of
inventories and vice versa:

Particulars 2005-06 2006-07 2007-08 2008-09

Inventory 7005.10 8852.68 13001.12 14371.04

Sales 38067.88 31681.73 33728.47 32647.36

40000
35000
30000
25000 Series1
20000
Series2
15000
Series3
10000
5000
0
Particulars 2005-06 2006-07 2007-08 2008-09

INVENTORY TURNOVER

YEAR RATIO
2004-05 3.58
2005-06 5.43
2006-07 3.58
2007-08 2.59
2008-09 2.27

4 RATIO

3
YEAR
2

0
1 2 3 4 5 6

Interpretation:this ratio is indicating that inventory management is not consistent as it is

fluctuating every year.so co.needs to maintain a sound inventory management system.

DEBTOR TURNOVER RATIO = Sales/Average Debtor

This ratio shows how many times receivable turnover accounts during the year converted into
cash. Higher turnover ratio shows the greater efficiency of credit management.

Particulars 2005-06 2006-07 2007-08 2008-09

Debtors 543.32 852 947.93 1761.80

Sales 38067.88 31681.73 33728.47 32647.36

DEBTORS TURNOVER RATIO

YEAR RATIO
2004-05 23.09
2005-06 70.07
2006-07 37.19
2007-08 35.58
2008-09 18.53

RATIO

80
70
60
50
40 RATIO
30
20
10
0
2004-05 2005-06 2006-07 2007-08 2008-09

Interpretation: debtors turnover ratio of sum is also weak. Every year this ratio is falling down
whereas a higher ratio is considered to be ideal.

AVERAGE COLLECTION PERIOD = 365/Accounts receivable turnover

Average collection period shows the number of days worth of credit sales i.e. locked in debtor.
An average collection period which is shorter than the credit period allowed by firm needs to be
interpreted or excessive conservation in credit granting and average collection period more than
the period allowed means inefficient credit management and excessive amount being locked in
debtors. At SSM average collection period for years are as follows:

YEAR RATIO
2004-05 2 days
2005-06 4 days
2006-07 5days
2007-08 5days
2008-09 5days
So we see that the Company’s average collection period is very low. This is because of the
reason that company sells its sugar either to ovt. or through Agents. So very few days are given
to them for Credit. This is very good for the company.

 CURRENT RATIO = Current Assets/Current Liabilities

Current ratio measures the ability of the firm to meet its current liabilities. It shows the short-
term liquidity and solvency of the firm. A higher ratio shows the solvency of the firm but too
much high ratio may be due to the excessive level of debtors and receivables.

Particulars 2005-06 2006-07 2007-08 2008-09

Current Assets 12215.90 11715.94 15589.74 19773.22
Current Liabilities 4331.45 6324.32 4043.94 4844.53

 CURRENT RATIO

YEAR RATIO
2004-05 2.76
2005-06 2.82
2006-07 1.86
2007-08 3.86
2008-09 4.08
 RATIO

4.5
4
3.5
3
2.5
RATIO
2
1.5
1
0.5
0
2004-05 2005-06 2006-07 2007-08 2008-09

interpretation:current ratio of sum is sound every year.

 QUICK RATIO = (cash & Bank + Debtor + Mkt. Securities) / Current

Liabilities

This ratio shows the liquid or near liquid assets to meet the current liabilities of the company.
Inventories are shored from the calculation of quick ratio as they cannot be easily converted into
cash to meet the current liabilities.

Particulars 2005-06 2006-07 2007-08 2008-09

Cash & Bank +Loan 5210.81 2863.26 2588.63 5402.18

& advances
Current Liabilities 4331.45 6324.32 4043.94 4844.53

QUICK RATIO

YEAR RATIO
 2005-06 1.20
2006-07 0.45
2007-08 0.64
2008-09 1.12
Interpretation: the ideal quick ratio is 1:1.During few years this ratio has not been sound but

currently it is acceptable.

SWOT ANALYSIS

Swat analysis is very important for every project. It represents the all strengths weakness faced
by the company.

STRENGTH

 COMPANY POSITION:- This SSM is at a very good position in the

market. It supplies sugar in so many cities of north and south India.

 QUALITY:- Quality is really very fine, produce satisfaction to the

customer.

 CO-OPERATION:- Whole staff and sales member are all very co-

operative.
  EQUIPMENTS:- Mill has now adopt new technology and advanced

machines and tools.

WEAKNESS

A weakness is that in inventory management some time there are problems

which shows the weakness.

 Transportation Problem

 Problem in placing an order

 Company does not provide much credit to its buyers.

OPPORTUNITIES

 It always considers the need and demand of customer and make

product according to their requirement.

 As well as in inventory control there is well management for

maintenance.

THREATS TO SSM

 Strikes by cane suppliers

 Low quality production

  Hurdles in supplying inventory for production.

LIMITATION OF THE STUDY

Every study has some limitations. Inspite of the hurdles, the training period was a good time for
learning experience but there were certain limitations that every researcher has to face during the
research period. I too had to face certain such limitations:

 Shortage of time: Period of six weeks is not sufficient to even study the basic routine
activities of the organisation

 Lack of expertise, being a fresher

 Difficulty in analyzing data, being a fresher.

 Lack of attention, support from the executives of the concerned organization.

 CONCLUSION

Government of India has taken a step towards further liberalization by delicensing the sugar
industry, the second largest agro processing industry in the country. The largest move seeks to
abolish to entry barriers to the industry and reduce the minimum distance between the location of
two sugar factories from a radius of 25 km.To15 km. All new units setup after the announcement
of the decision to delicense the industry will not be eligible for incentives like exemption from
meeting the levy requirements. The de-licensing would thus simplify the procedure for putting
up new units. Although de-licensing is a step towards liberalization, this is not particularly
relevant for the growth of the industry at this point of time, as there is evidence of excess
capacity and licences issued being implements tardily.

The levy system puts a heavy burden on the Sugar Mills. The Sugar Mills are required to sell
10%of their production to the government as levy sugar for public distribution system at less
than production cost. This puts a heavy burden on the mills and distorts their operating
environment. The losses incurred on levy sugar are naturally sought to be recovered from Non-
Levy sugar consequently increasing the price of Free Sale Sugar. Announcement of free sale
sugar quota also influences the market. Thus the Sugar Mills have little control over the factory
and that affect their profitability. Thus abolition of levy System is the primary issue for a Sugar
Factory, which has also been suggested by Mahajan committee for improving the viability of
Sugar Mills. Decontrolled of Sugar Will help in augmentory sugar production and make sugar
exports more competitive in line, against actual production cost of sugar. India has the potential
to export about two million tones of sugar in regular after meet in the domestic needs.

Bibliography

Working Capital Management V.K. Bhalla

Financial Management I.M. Panday

Annual Report Saraswati Sugar Mills

Limited, Yamuna Nagar

Documents and Files Saraswati Sugar Mills

Limited, Yamuna Nagar

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