Working Capital Management in the Sugar Industry

WORKING CAPITAL
SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED
CHAPTER -1
1.1 Introduction to Study
Working capital may be regarded as life blood of a business. A study of working capital is of major importance to internal and external analysis because of its close relationship with the current day-to-day operations of a business. As pointed out by Raipl Kennedy and Steward M. C.Muller, the inadequancy or mis- management is the leading cause of business which are used in, or related to current operations, and represented at any one time by the operating cycle of such items as against receivables,inventories of rawmaterials,stores, work-in-process and finished goods, merchandise, notes or bills receivable and cash. The assets of this type are relatively temporary in nature. In accounting Working capital is the difference between the inflow and outflow of funds. In other words, it is a net cash inflow. It is defined as the excess of current asset over current liabilities and provisions . In other words, it is net current assets or net working capital this definition of working capital is qualitative in character. Net working capital represents that part of the current assets which are financed with long term fund. Working capital represents the total of all current assets. In other words, it is Gross working capital.It is also known as circulating capital or current capital, for current assets are rotating in their nature. Wher current liabilities and provisions exceed assets, the difference is referred to as negative working capital. This situation does not generally exist in a business firm because this is generally a situation of crisis. Working capital is often reffered to as circulating capital The use of term circulating capital instead of working capital indicates that is flow is circular in nature.At the beginning business venture, cash is provided by owners and lenders A part of this cash is invested in tool , machinery, furniture,equipment , building and other forms of fixed assets which are not to be sold through out the year during the normal course of business. The remaining capital is used as working capital to meet the current requirements of a business enterprise such as the purchase of services, raw materials or merchandise.. Success of a firm largely depends on how effectively and efficiently it utilizes the available resources. In the modern business world it is not only important to carry out the business of the firm effectively and efficiently but the firm should also focus on working capital
VIJAYANAGAR COLLEGE,HOSPET
Page No. 1
B.B.M. FINAL YEAR
WORKING CAPITAL
management. Sugarcane being the most abundant cane in the world, its usage in many forms has been found since many year. So the first step of extracting sugar from its cane plays a role. For extracting sugarcane, working capital requirement is the most important aspect. Its operational is to manage the current assets and current liabilities in such a way that a satisfactory level of working capital is maintained.
1.2 Statement of the problem

Short term survival is a pre-requisite for long-term success; efficient management of current assets is the since the short term survival. Working capital management is concerned with the management of current assets. It is important and integral part of financial management. The analysis of working capital has two basic ingredients namely 1. An overview of working capital as a whole & 2. Efficient management of the individual current assets such as cash, debtors & stock. Hence, the intended study of working capital analysis of SPSC&L will examine the current practice in working capital of analysis in sugarcane industry and to evaluate the performance in this regard.
1.3Objectives
The study on working capital analysis of SPSC&L has set the following objectives 1. To analyze the amount of working capital. 2. To identify the major factors which cause fluctuations in working capital.
3. To study the various concepts of working capital of SPSC&L. 4. To assess the efficiency of working capital management of SPSC&L . 5. To suggest the measures to maintain an optimum level of working capital.
Page No. 2
B.B.M. FINAL YEAR
WORKING CAPITAL
6. To study the needs to invest funds in current assets.
1.4 Scope of the study

The scope here refers to the area that has been considered for the studies. In this study the attempt is made to know working capital analysis bring followed by SPSC&L. the study is also made to understand the various current assets and current liabilities of the company. The study mainly depends upon the schedules, balance sheet, profit & loss account, value added statement, 10 years performance statement of the company. 1. The modern economy is money based economy. The rapid industrial growth requires a hairy volume of investment to suit the mega order of the production. It is in the form of capital for the future growth. 2. After the private sector companies including the multinational have captured the globalization of the majority of the market share, be it the electronics sector, banking or any other sector, which has been opened up. Also, most of these public sector are facing the treat of closing down and reduction of their man power considerably therefore one has to analyze the cause for effecting such changes and the need for analyzing the working capital analysis in one of these companies is felt.
1.5 Limitations
1. Due to time constraint, is not possible to study in detail the finance operations of SPSC&L. 2. This is an academic effort and will be limited by cost.
Page No. 3
B.B.M. FINAL YEAR
WORKING CAPITAL
3 . Implementation of the suggestions made depends on the company policy and practically involved.
1.6Methodology Adopted
1. Source of data To compile the information both primary and secondary data have been collected this project is done using the financial data directly drawn from companys annual reports, other books of accounts maintained by the company. Companys news, magazines and industrial manuals. The primary data is collected from interaction with the employees of the corporation. 2. Sampling design The published accounts and annual reports of national sugar development are primarily the basis for the purpose of study. The period covered under study of 3 years i.e. 200607-08, the techniques used to analyze the financial performance of SPSC&L is trend analysis and ratio analysis reveals the picture about the effectiveness of its operation and its management.
Page No. 4
B.B.M. FINAL YEAR
WORKING CAPITAL
CHAPTER-2
2.Company profile.
2.1A. Introduction to sugar industry
The sugar industry occupies a prominent place among the organized industries in India. Sugar Industry has a second next to cotton, textile industries. It has total capital investment of over Rs. 1,500 crores. It provides employment to nearly 25 lakh workers directly, the sugar industries contributed to the revenue of central and state government a sum of Rs. 400 crores in the form of taxes. In recent year, it has emerged as the largest foreign exchange earner. India produces white sugar, Khandasari, and Jaggery. The sugar cane is being grown in about 2.5 lakh acres. The crop can be grown in all type of soil but higher yields can be obtained in rich weet drained and medium dip soil. Sugar cane,which is a raw material for sugar, perishable and weight loosing natured product.
2.1.A.i. Growth of the sugar industry.

India is the original home of the sugar cane and it has a flourishing sugar industry in the ancient times. But the modern sugar manufacturing industries were established in Bihar. But the real development of industry took place only after in the year of 1932 when protection was given to this industry against foreign competition within a short period of 2 or 3 years. The number of sugar mills is 32 in 1931-32 and increased to 137 in 1935-36. In recent year there are about 453 sugar industries working throughout the company. Among them 134 are in private sector, 252 in co-operative sector and remaining 67 are in public sector. In Karnataka state there are about 54, 30 are in private sector, 22 are in co-operative sector and remaining 2 are in public sector. Type of sectors Co-Operative Private sector Public sector
In India 252 134 67 Page No. 5
In Karnataka 22 30 2
B.B.M. FINAL YEAR
WORKING CAPITAL
Total
453
54
2.1.A.ii New Guidelines to Sugar Industry

In year of 1st July 1990, the government of India issued new guidelines for licensing to start new sugar factories. The licensing policy has been made liberal to boost production of sugar. Hence it is a raw material oriented industry. The concentration of sugar cane is found in the areas of Maharastra and part of North Karnataka. The sugar industries are one of the highly regulated industries. The development of this industry is thus very closely linked with the policy measures adopted by the government from time to time.
2.1.A.iii. Main Problems of Sugar Industry

Sugar industries in India Suffering inadequate supply of sugar cane. Sugar industry was initially unevenly distributed in the country. It has the high cost of production. The crushing season is very short. It runs for nearly 190 to 200 days in a year. By product of sugar industry like biogases, molasses, press mud etc are not properly utilized. Recovery of sugar juice from sugar cane is very low.
2.1.B. Introduction to SPSCL

Shri prabhulingeshwar sugar and chemical Ltd, is a public limited company incorporated on 29-05-1995 under the Companys Act, 1956. With a view to strengthen the infrastructural facilities in respect of power by using non conventional energy sources to generate 17.5 MW of power it is established in 1998 at Siddapur, Tq: Jamakhandi and Dist: Bagalkot in Karnataka State. The company got LOI from government of India to
Page No. 6
B.B.M. FINAL YEAR
WORKING CAPITAL
establish Sugar Plant of 2500 TCD on 28-05-1996. Shri Jagadeesh.S.Gudagunti laid the foundation stone for the plant then the governor of Karnataka State under the Presence of Late K.Patil a famous Co-Operative leader who was one of the Chief promoters for getting license and completing all legal formalities, and members present were Shri.Dr. Baburao Mudabi (DC) and other delegates who participated in promoting the industry. SPSCL has a being privileged to e a leader in producing sugar and power for agriculture and power sector. SPSCL has played a key role in meeting the countries demand and objective of the organization. This industry has exported sugar to Nigeria, Srilanka, Yemen and Canada etc. Sugar is also supplied to many other states withing the country such as Andhra Pradesh, Maharastra , Tamil Nadu, Goa, Gujarat, Keral and Madhya Pradesh.
2.1.B.i. Awards and Achievements

The south Indian sugar cane and sugar technologist association Chennai, awarded SVP Memorial for awards excellence in technical as the best performing sugar factory 2002-2003 in Karnataka. Institute of Economic studies has awarded as Udyog Rattan Award to Shri. Jagadeesh.S.Gudagunti. CMD of SPSCL established modern factories including engineering units, sugar plant having 2500 TCD, 17.5 MW Co-Generation power plants, Siddapur and land development, rural development, development of industries and economic development of region are the main motto of the chief promoter.
International gold star millennium awards from Indo Nepal friendship and economic co-operation from excellence in promoting Global international by Honerable Shri Suvash Chandra nembug speaker of legislative parliament Nepal on 07 february 2007 in Karnataka .
Vanijya Ratan award from Karnataka chamber of commerce and industrials Hubli.
Page No. 7
B.B.M. FINAL YEAR
WORKING CAPITAL
Best performance sugar factory in South India given by SISSTA at Hyderabad.
2.1.B.ii. Board of directors

1. Shri Jagadeesh S Gudagunti 2. Shri Rajendrakumar Gudagunti : Chairman and Managing Director : Executive Director
3. Shri G K Sangameshwar (IAS Retd) 4. Shri R.V.Bhuttappa (zonal manager)
: Nominee Director of IREDA New Delhi : Nomince Director, KSIIDC
5. Shri Deval. A. Desai 6. Shri M Manohar A.G.M,IDBI Bangalore
: Director. : Nominee Director IDBI.
7. Shri G D Bhadrannavar 8. Shri Nagappa G Sanadi
: Director. : Director.
9. Shri Sateesh G Gudagunti 10. Shir Sudheer S Gudagunti
: Director. : Director.
2.1.B.iii.Overview of SPSC&L.
Page No. 8
B.B.M. FINAL YEAR
WORKING CAPITAL
1. Name of company 2. Location
: Shri Prabhulingeshwar Sugars and Chemicals Ltd. : Shri Prabhulingeshwar Sugars and Chemicals Ltd, Siddapur-587101,Tq:Jamakandi,Dist:Bagalkot, State;KARNATAKA. Email: prabhusugars@gmail.com : SUKRUT Building 1st floor, Opp K.c.Park main Gate, P.B. road Dharwad-580008. KARNATAKA
3. Registered Office
4. Registration No 5. Registration date 6. Year of establishment 7. Constitution 8. Financial Institution of the Company
: 17861 : 25th may 1995 : 28 may 1996 : Registered under companies Act of 1956. : 1. IREDA-New Delhi 2. IDBI-Bangalore 3. KSIIDC-Bangalore : 6500 T.C.D : 17.5MW : 150 cores : Production of sugar and generation of power by products
9. Crushing Capacity 10.Co-Generation 11. Project cost 12. Activity undertaken like molasses, pressmud 13.Type of unit 14.Main raw material
: Large scale agriculture base Manufacturing unit : Sugar Cane Page No. 9
B.B.M. FINAL YEAR
WORKING CAPITAL
15.Constitution 16.Labor Employed 17. Land 18.Bankers of the Co.
: Private sector : 570 : 200 acres : Bijapur DCC Bank, Bijapur.Bank of India, Dharwar Bagalkot DCC Bank Bagalkot. Corporation Bank Dharwar Bank of Maharastra Dharwad. Syndicate Bank, Dharwar K.S.C. Apex Bank Babgalore. : Sugar is the main product. There are 3 types of sugar 1. M(very big granuals) 2. S-1(Big granuals) 3. S-2(Smalls granuals) Generation of Power : There are three types of By products Molasses Pressmud
19.Products
20.By Products
2.1.D. Executive summary

The Report is regarding of business establishment. The study is to formulate effective study with respect to the product, promotion and expansion. The study can be considered to explore the variables affecting the business behavior. The study has an insight in understanding the various attributes of product as well as other factor which influences business behavior and effective formulation of marketing strategy with respect production, promotion and expansion. The study of Sugar industry was insight by my guide at the organization to understand the business behavior, which limited to the taluka of Jamahandi. The study throws light on some important findings, which are sources of primary information of the company. SPS&CL uses
Page No. 10
B.B.M. FINAL YEAR
WORKING CAPITAL
sophisiticated technology such as computer, electronic mass media, automatic machines, Cogenerations, computerized switching, etc. The company not only aims at improving socio-economic status of rural farmers engaged in sugar production but also has a multiplier on the village economy. To conclude, I agree that the study has been experience to me which highlighted all theoretical concepts of my study. The suggestion may be helpful to SPS&CL to overcome problems they are facing.
2.2 Departmental study
2.2.A. Share section
The share section is one of the important section because more than half of the capital is collected form the public. In this factory the share are classified as bellows. Equity shares Preference shares The person who wants to become member as to follow the procedure/ rules. He has to fill the appropriate application given by the share section and deposit the cash in account section. The directors approve the application, then only he is treated as share holder of company. If share holders wants to transfers his shares he has to transfers them self as per rules. For the identification of its members, the factory issues share certificate and identity cards to such share holders.
Page No. 11
B.B.M. FINAL YEAR
WORKING CAPITAL
2.2.B. Purchase section

Part I- Purchase, objectives, functions, and responsibilities. i. Functions and responsibilities of purchase department. i.a. Objectives. To maintain uninterrupted flow of materials to support the
development schedules. To procure materials economically at a cost consistent with the quality and service required. However, generally all purchases may be attempted at the lowest cost. To develop and maintain good buyer-seller relationship. To promote source development. To maintain good reputation and credibility in the market by fair dealings and prompt payments. i.b. Functions: The main functions of the Purchase Department are defined as follows: Procurement of stores through indigenous and foreign sources as required in accordance with the rules in force. Checking of requisitions/purchase indents. Selection of suppliers for issue of enquiries. Issuing enquiries/tenders and obtaining quotations.
Page No. 12
B.B.M. FINAL YEAR
WORKING CAPITAL
Analyzing quotations and bids etc., and preparation of comparative statement (quotation charts). Consultation with the Indenter for selection and approval of quotations Negotiating with parties for discounts Checking legal conditions of finalization of order Issue of Purchase Orders. Follow-up of purchase orders for delivery in due time Verification and passing of suppliers bills to see that payments are made promptly. Correspondence and dealing with suppliers, carriers etc., regarding shortages, rejections etc., reported by the Stores Department. Maintenance of purchase records. Maintenance of progressive expenditure statement, sub-head wise. Maintenance of vendor performance records/data. 1 Arrangement for Insurance Surveys, as and when necessary. 1.2.17 Clearance of foreign consignments. Keeping various Departments/Divisions informed of the progress of their indents in case of delay in obtaining supplies. Serving as an information center on the materials knowledge i.e. their prices, source of supply, specification and other allied matters. Development of reliable and alternate sources of supply. It shall be particularly ensured: (a) use. (b) that all the materials requisitioned are duly ordered from the right source after full enquiries on most competitive price taking into benefits etc. account the trade discounts and tax the specification required is bought. that all purchase are made against properly authorized requisitions, and valid sanctions, showing the correct and detailed end-
(c ) that the right quantity of the goods consistent with the quality and
Page No. 13
B.B.M. FINAL YEAR
WORKING CAPITAL
(d) that the deliveries of all goods are received within the stipulated period. (e) that claims due to shortages or any other discrepancies are settled promptly. (f) that cordial and harmonious relations with all sections/divisions are maintained for museum/center. While receiving the planned requirement of the indenters, it should be prevailed upon the Indenters to certify clearly that the quantities indicated are definitely required for the project and specify the period within which the quantities indented will be consumed. It is the duty of the purchase section to check purchase indents against needs and suggest modification of quantities wherever necessary. becoming an efficient service unit in the
ii. Economy measures to reduce expenditure on purchase or stores. The following measures to effect economy in expenditure on purchase of stores shall be observed by all departments
All departments should forecast and plan their requirements well in advance based on actual work; and project requirements should be realistically estimated to eliminate the risk of wastage or surplus materials of one project may after the project work is completed as the avoided. Indentors should not inflate their demands. They should draw their minimum requirements for the work in hand and for one years stock pile/hoard should be avoided. The Page No. 14
B.B.M. FINAL YEAR
not be used in another. Over-indenting shall, therefore, be scrupulously
consumption. The tendency to

WORKING CAPITAL
Heads of the Divisions/Projects/Sections should
personally
scrutinize
the items and the quantity for the actual requirements. All annual indents for replacement of bins or for major project work involving an estimated cost over Rs.20,000/= shall be subject to Committee and shall be processed scrutiny by the Stores and Purchase after their clearance. Stock levels (maximum and minimum) for all repetitive items shall be fixed on consumption accordingly for procurement. Local/cash purchases shall be reduced to the barest minimum. iii .Various stages and processing time for indigenous purchase. Following are the various stages in the procurement of stores from indigenous sources along with optimum processing time: Indent/requisition for purchase of stores from Division/Projects/Stores Officer Notice inviting tenders/enquiries 1 to 3 days Opening of tenders/quotations 7 to 14 days Scrutiny of tenders/quotations and tabulation of 1 to 3 days comparative statement thereof Placement of order 1 to 2 days Delivery time Passing and payment of bills *Note: Minimum time for getting a material in store is 15 days from the receipt of indent in purchase section. It may take longer time if the indent is
basis
with
the
approval shall
of be
Heads
of
Divisions/Projects/ Sections. Annual
indents
prepared
Page No. 15
B.B.M. FINAL YEAR
WORKING CAPITAL
a long one with many items and/or if delivery time taken by supplier is long. the number of the possible sources is less than seven the enquiries shall be mailed to all the known firms in the line. At least seven days but preferably 14 days should be given to the suppliers to submit their offers, which may be reduced in case of Emergent Tenders. For indents involving an estimated value below Rs.500/- purchase may be made after comparing rates over phone or by market survey and recording on vouchers that the price is reasonable.
iii. Comparative statement. Comparative Statement (Quotation chart) should be compiled for all accepted offers, indicating net price of uniform units, i.e. after taking out the element of discount, if any, brand make offered, details of all levies like excise duty, sales tax, surcharge, delivery charge etc., delivery schedule, terms of supply payment guarantee and other relevant particulars. Comparative statement will be compiled in form P-6. The comparative statement shall first be checked by Stores & Purchase Officer and then placed before the Indenting Officer. (b) All purchase proposals must be sanctioned by the appropriate the order or making the cash purchase. Exmeans.
authority before placing
post-facto sanctions shall be avoided by all
v. Signing or purchase orders. All Purchase Orders will be signed our Chairman & Managing Director: prefix Copies of purchase order shall be endorsed to:
Page No. 16
B.B.M. FINAL YEAR
WORKING CAPITAL
i) Stores ii) Indentor iii) Finance vi. Escalation of price. No escalation of price is normally admissible after opening the tender or after placing the order. For cases, where escalation is apparently justified because of statutory levies after opening of tender or placement of order, the matter must be resubmitted to CMD Sir..
vii. Follow up of purchase order. Purchase Section will be responsible to ensure that Purchase Orders are regularly followed up and materials ordered are supplied by parties concerned within the stipulated delivery period. Orders follow-up letters will be regularly issued to pursue suppliers to supply materials as per delivery schedule. When the delivery date have expired, the firm should be asked to indicate the revised date by which they expect to supply. The extension in deliveries may be granted subject to penalties in the contract, if any.
viii. Passing and payment of bills. Since prompt payment of the amount due to the suppliers builds the credit worthiness of company, all concerned viz. the Purchase, Stores, shall ensure that the payment of Accounts Department and the Indenter
all bills are arranged as expeditiously as possible. Before passing bills for the supply of stores, it shall be ensured:
Page No. 17
B.B.M. FINAL YEAR
WORKING CAPITAL
i) That the sanction of the competent authority to the expenditure exists. ii) That stock entry and inspection certificate has been recorded on the body of the bill by the Stores Officer. On receiving the materials in store and even before receiving the suppliers bill, the Store Supervisor/Keeper shall immediately inform the indentor, over phone, of the arrival of materials in store. The indentor shall promptly inspect materials or arrange inspection by a Competent Officer and give a certificate on the reverse of the bill (in triplicate) in the following manner: For purchase of stores Certified that stores have been examined by me and found acceptable in accordance with the quality, quantity and specifications ordered for. ix. Inspecting Officer In case some materials are found defective, it shall be recorded in the inspection certificate. The Store Supervisor/Keeper mail and shall ask immediately for prompt by the contact the party over phone or through
replacement, after which he shall again arrange
inspection
indenter. If the replacement is expected to take time, the Store Supervisor/Keeper shall give stock entry certificate for the portion of order received in good condition and pass on the bill to the Purchase Section for part payment, if so recommended by the indentor.
2.2.C. Store section
Stores section is also important section in the administrative department. All type of material is kept in this section. Which are required for the factory smooth running. Store keeper is the in
Page No. 18
B.B.M. FINAL YEAR
WORKING CAPITAL
charge of this department. The main work of this section is providing the materials to the required department.
Stores in charge Assistant store keeper Sr. Clerks Clarks Clerks General workers Daily laborers
Those stores section maintains some books like a. Material Inward Register. b. Bin Card. c. Daily issued Register. d. Monthly issued Register. It is also one of the section under administration department, there are total of 12 employees working in this section.
HSD Pump Clerk Issue Boys
PROCEDURE HAVE WORKING AT PRESENT

Page No. 19
B.B.M. FINAL YEAR
WORKING CAPITAL
STORES :
Handling of materials: First they receive the stores purchase indents from concerned section heads for requisition to purchase item needed for the crushing or off-season work. Then only they forward the purchase indents. After receiving the materials from suppliers they seek the quality approval of the same materials. After getting the approval materials by adapting FIFO method. They issue the materials to the workers of the factory on loan and returnable basis on daily loan or personal loan.
STORE ACCOUNT:
After receiving the materials from suppliers quantity will be verified. The details of the materials will be entered into Inward register memo will be sent to the concerned department for getting quality approval. They keep bin cards for each different items receipt from the suppliers with details.
DIESEL BANK:
They issue diesel or petrol to the party against indents brought by the parties and issued is entered in the daily issue register.
TOOL ROOM:
Tool room is personnel issue the materials to the workers on temporary loan and retainable basis entering in the register. They issues diesel or petrol to the party against indents brought by the parties and issued is entered in the daily issue register.
LIST OF THE REGISTERS:

1. Transport register.
Page No. 20
B.B.M. FINAL YEAR
WORKING CAPITAL
2. Approval memo book. 3. Bin card files. 4. Purchase border. 5. Stores purchase indent etc.
2.2.D.Time office section.
Time office is one of the important section in administration department there are total four employees are working in this department.
Time Office Incharge Time Keeper Clerks

Functions:
Showing the absenteeism report to the H O D. To the receive the attendance card form the workers To put attendance of the workers in the muster role It arrange the duty to workers maintains working bell It maintains wage and salary register book Routine works in time office Recording the attendance of all the employees in the Pms Page No. 21
B.B.M. FINAL YEAR
WORKING CAPITAL
muster roll. Shift wise mutual entries in Pms soft ware. Preparation of all employees shift wise absent report & present report to submitted to concered shift engineer & shift chemist. Shift wise employees leave & compensatory off balance entries in leave application. Leave entries in the pms soft ware. Compensatory off entries to pms soft ware. Employees shift wise work done entries in the work done register. Verification of outgoing gate passes in the pms soft ware. Every week preparation of absenteeism report sending to all concerned Employees out stationed on duty slip entries in the pms soft ware. Employees attendance sheet & monthly salary sheet send to accounts department for disbursement of salary.
department heads.
Types of leave
There are three types of leaves 1. Casual leave. 2. Sick leave. 3. Privilege leave / Earned leave. 4. National leaves. 5. 1. Casual Leave: Casual leave employees must have worked (actually) in the previous year. The employees when they are newly appointed, relaxation is made in this rule. After 6 months of service of such employee, based on the attendance in the previous 6 months service, causal leaves in proportionate to it, will be credited to his account.
Page No. 22
B.B.M. FINAL YEAR
WORKING CAPITAL
2. Sick Leave: Sick leave employees must have worked (actually) in the previous year will be allowed all the employees expect the causal workers, on the production of certificate issued by the Medical Practioner not below the rank of Assistant Surgeon.
3. Privilege Leave: Privilege leave employees must have worked (actually) for 240 days in the previous year for 20 days of work one day consider. 4. National Leaves: The industry can give the leave for national holidays. 4 day of national holidays should be
given to the employees such as Independent day, Republic day, Gandhi Jayanti and etc,.
SHIFT TIMINGS
General shift First shift Second shift Third shift 08.30 Am To 05.30 Pm 04.00 Am To 12.00 Pm 12.00 Pm To 08.00 Pm 08.00 Pm To 04.00 Am
2.2.E. Cane development department.
Page No. 23
B.B.M. FINAL YEAR
WORKING CAPITAL
Cane Department is one of the important Department. It is the back bone of the factory. Cane Department officials play important role i.e. arrange to supply raw materials as per requirement of the factory
Staff Pattern
Sl. No 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.
Designation Deputy General Manager(Cane) Manger (Cane procurement and cane Development) Office Manager (Cane) Sr. Cane Officer Cane Officer Assistant Cane Officer Circle Incharges Clearks Field Assistants Field Supervisor Agri Supervisor Computer Operator Page No. 24
No of Employee :01 : 02 : 01 : 02 : 04 : 05 : 02 : 10 : 45 : 02 : 01 :01

B.B.M. FINAL YEAR
WORKING CAPITAL
13. 14. 15. 16.
Circle Runners Office boys Assistant Cane Yard Supervisor Clerk cum Computer operators Total
:11 :02 :01 :19 : 109
Cane department activities

. Cane Department officials will attend following works as per the directions of the departmental heads. 1. Cane Survey : Cane Department has made 20 cane supply zones for smooth communication. In each zone one circle officer and Field Assistants will attend cane survey and other related works. In cane survey activities, visiting individual cane plots and collecting the information like name of the farmer, village, survey No., cane area, cane variety, date of plantation, type of crop, source of irrigation etc. 2. Cane maturity survey : After growth of 10-11 months cane crop Cane Department official take maturity survey to know maturity and recovery trend of the cane varieties. After completion of maturity survey, date of plantation wise, brixwise, maturity calendar is to be prepared for issual of cane cutting orders to the farmers. 3. Harvesting and transport arrangement for cane supply to the factory : As per the directions of the management and cane supply quota of each circle
Page No. 25
B.B.M. FINAL YEAR
WORKING CAPITAL
concerned circle officials are booking cane harvesting gangs and cane transporters for supply cane to the factory as per daily quota. 4. Issue of cane cutting orders : On the basis of the maturity calendar, date of plantation or brix recovery basis cane utting orders are issued.
5. Cane quality control : As per the cane cutting orders farmers are supplying cane to the factory. If low age cane, full of trash, dead canes, water shoots supplied to the factory then quality control staff will observe, if found low quality they will bring to the notice of Cane Department for further action.
Cane development activities

Under the cane development activities our development staff is advising to farmers on following subjects. Selection of high sugared cane varieties of 9-10 month with pest and disease free material for plantation. Method of plantation. Advice low cost technology in cane cultivation. Ratoon management. Micro nutrients management. Use of wormy compost.
Page No. 26
B.B.M. FINAL YEAR
WORKING CAPITAL
Potash and Urea spray during summer season Soil testing to know, the contents and parameters. Inter cropping with sugarcane crop. Pest and disease control etc
Fertilizer application as per recommended doses. Water management etc .
Cane varieties grown in this area are

01. COC - 671 02. CO- 94012 03. CO 91010 04. CO 86032 05. CO 8011
Functions of clerks and computer operators.

After the receipt of cane to the factory, the staff issues the token No. and do the grass weighment then issue the net weighment slip to the farmers and the detailed weighment records are forwarding the concerned departments for prior information and for cane billing and payment purposes
2.2.F.Accounts section Finance:

Page No. 27
B.B.M. FINAL YEAR
WORKING CAPITAL
Accounts and finance is the heart of company. The company has availed the term loans from banks and financial institution to complete the project and the company was able to get working capital finance to the extent of Rs. 27.61 crores. The bankers of the company have extended their fullest co-operation in sanctioning and realizing working capital requirement, with enable our company to make payment of cane bills, harvesters bills and transporters bills. Generally in sugar industry there is two sections in Accounts department and transactions carried out in routine business which are: 1. General Accounts Department. 2. Cane Accounts Department. General Accounts Department In General accounts section maintaining the books of Accounts and necessary registers and records. The main day-to-day transactions are receipts and payments, sales accounting, purchase accounting, direct expenses, internal audit work and rectifications. Receipts include sales of sugar, molasses and other etc. payments include contractors payments, statutory payments, sundry creditors payments and Bank remittances etc. On the basis of Internal Audit, rectification is conducted every fortnight. Drafting of financial statement (fortnight/ monthly) for know the financial position of the company. Reconciliation of Bank current Accounts, Loan Accounts, Sundry Debtors and Sundry Creditors and also make the arrangements for filling of fortnightly/monthly reports/forms/information to Govt. Departments, Tax authorities and Bankers. Further maintenance of all vouchers after accounting in serially/identifiable manner for helpful to take information and statutory audit works, etc. The main Books of Accounts and Registers maintained in this section are: a. Cash b. Bank Books c. Fixed deposit register d. Journal register e. Sales register f. Purchase register g. Creditors and Debtors register h. Debit Note & Credit Note register i. Fixed register j. Costing records k. Voucher General Account department is supervised by manager (F&A) and all other subordinate staffs are reported to him, total assistant staff is 9 Nos, members (F&A) is directly reported to the Chief Executive and General Manager (F&A).
Page No. 28
B.B.M. FINAL YEAR
WORKING CAPITAL
Cane Account Department Cane Account department is also part of general account it is only separated for controlling the accounting and maintenance of raw materials procurement with agriculture department. Total finance is controlled and disbured in General Accounts only. Cane accounts department maintains records, registers and accounting the cane procurement related transactions i.e. Sugarcane Purchase-Harvesting- Transportation, Advances for cane suppliersharvesters-transporters and cane procurement other expenses through subsidiary book keeping. Sugar cane bills, harvesting bills and transportation bills are prepared based on weigh bridge data and remittance to parties accounts by fortnightly basis. The registers maintained in this department are a. Cane suppliers register b. Harvesters payment register c. Transporters payment register d. Advances registers of sugarcane suppliers, harvesters and transporters. Cane Account department is supervised by manager (Cane Accounts) and all other subordinate staffs are reported to him, total assistant staff is 10 Nos, members (Cane Accounts) is directly reported to the Chief Executive and General Manager (F&A/ Manager F&A).
2.2.G. Production department
The Manufacturing process consists of following steps. a) Crushing b) Clarification c) Evaporation & Crystallization d) Centrifugation & packing. a) Crushing
Page No. 29
B.B.M. FINAL YEAR
WORKING CAPITAL
The sugarcane is harvested in the field by cutting the stalks, stripping of leaves and removing the top joints. Cane is weighed on the platform weigh bridge and is loaded into cane carrier. The cane is cut into small pieces in a fibrizer and passes through a through a series of roller mills for extraction of Juice, this operation is called milling with compound maceration. The Juice is screened to remove bagasse and taken to process. b) Clarification of Juice The mixed juice obtained is weighed on an automatic weighing scale. Juice heating is carried out at a temperature of 650 C 700 C in raw Juice heaters. This Juice is transferred to continuous sulphitation tank. Here, proportionate quantity of milk of lime and sulphur dioxide is mixed with juice at a controlled pH. After sulphitation, Juice is again heated up to 100 0 C to 1020 C in sulphur juice heaters and transferred to Dorr clarifier for setting. The mud is settled after 2 to 3 hours of retention and clear juice is taken from the top. The mud mixed with fine bagacillo is filtered in Oliver vacuum filter the filtrate juice is again mixed with weighed rew juice and filter cake or press mud can be used as manute is sold to farmers. c) Evaporation & Crystallization The clear juice from the clarifier is passed through heat exchangers and then evaporated in multiple effect evaporatiors. Here, juice gets converted into syrup. The syrup is again sulphited in continuous sulphitaion and sent to pan section for pan bolling. Sugar is manufactured in the vacuum pans by further concentration of syrup. The syrup boiled in the vacuum pan is called massecuite. The massecuite after completion of boiling in the vacuum pan is transferred in to crystallizers. d) Centrifugation and packing The massecuite is fed to the centrifugal machines (baskets) for separation of sugar crystals from mother liquor (molasses). During the process, water is sprayed on the surface of sugar, separated molasses is reboiled and after third boiling the molasses is sent out and stored in steel tanks as final molasses. The sugar separated from centrifugal machine is dropped in
Page No. 30
B.B.M. FINAL YEAR
WORKING CAPITAL
hopper. It is dried by passing hot and cold air. Further it is graded in graders, bagged and marked as per Indian Sugar Standards.
2.2.H. Sales section

This section shows its important when the question of sales comes because this section takes care of sale of sugar produced and also of By products like biogases, molasses, press mud and power. These products are used by factory itself like molasses and press mud is used in Distillery / Ethanol production and biogases is used in production of power. And power is sold to KPTCL. A sale of sugar is control by the Government. Government put some rules and regulations on sale of sugar. Sale of sugar is takes place in 3 categories, there are, a) Free sale b) Levy sale c) Export PROCEDURE FOR SALE According to Government regulation of Organization undertakes selling activities in three methods. Free sale : Free sale is done within the country. Here company will invite tenders from different buyers at a 10 days notice. The sugar is sold to that buyer who quotes or bids highest price. Tenders are called periodically. If the rate is not satisfactory the tender will be cancelled. In free sale sugar is being done to bulk purchaser on the bases of tenders, these bulk purchaser then sell the purchased sugar to retailers. Levy Sale:
Page No. 31
B.B.M. FINAL YEAR
WORKING CAPITAL
It is done within the state of Karnataka and being sold to the Government of Karnataka on levy bases. The Government then distributes the same to the public through public distribution outlets at predetermined, reasonable price. Export : Sugar is sold outside the country on the contract bases. According to the rules and regulation of the contract it will be done.
MARKETING :
The marketing department is also comes under sales section. The factory does not have separate marketing department but the sales section controls it. INTRODUCTION ABOUT MARKETING: The term marketing has been derived from the word market is generally understood has a place or geographical area where buyers and sellers meet and enter into transactions involving transfer of ownership of goods, services and securities. Marketing is a social and managerial process by which individual and group obtain what they need and want through creating, offering and exchanging the products of values with others. FEATURES OF MARKETING *. It is consumer oriented. *. It starts and ends with consumer. *. Marketing is a system. *. It is continue process. *. It is guiding element of business.
Page No. 32
B.B.M. FINAL YEAR
WORKING CAPITAL
DISTRIBUTION CHANNELS It is a channel of distribution group of individuals and organization that direct the flow of product from producers to customers. The main function of this demand is to find out appropriate ways through which goods are made available to the market. There are many marketing channels. 1. Vertical marketing system. 2. Horizontal marketing system. 3. Multi channel marketing system
In the last type of channel there are other distribution channels like Direct marketing Channel : Manufacture Consumer
1. Level marketing channel Manufacturer 2. Level marketing channel Manufacturer 3. Level marketing channel Manufacturer Whole seller Jobber Retailer Consumer Whole seller retailer Consumer Retailer Consumer
PRICING THE PRODUCT Today pricing policy places a very important role in any company in achieving the market objectives. There 6 steps helpful to setting the price of the products.
Page No. 33
B.B.M. FINAL YEAR
WORKING CAPITAL
Setting the price Pricing is a problem when a firm has to set a price for the first time. This happens when the firm develops or acquires new products, when it introduces its regular product in to a new distribution channel and when it regularly enters bids on new contract work. The fallowing is the 6 steps, procedure for setting price. 1. Selecting the pricing objectives The industry first has to decide what it wants to accomplish with the particular product. We examine major business objectives that industry can pursue through its pricing, namely
a. Survival. b. Current profit maximization. c. Market share leadership. d. Product quality leadership. 2. Determining demand. Each price that the company might charge will lead to a different level of demand and therefore have a different effect on its marketing objectives. The relation between the price charge and the resulting demand level is captured in the familiar demand schedule. 3. Estimating costs The industry wants to charge a price that covers all of its costs of producing, distributing and selling the product, including fair returns for its efforts and risk. According to this the industry can estimate the cost. 4.Analyzing competitors price and offers.
Page No. 34
B.B.M. FINAL YEAR
WORKING CAPITAL
The industry needs to learn the price and quality of each competitors offers. This can be done in several ways. The industry can send out comparison shoppers to price and compare competitors offers. 5.Selecting a pricing method. Give the demand schedule, the cost function and competitors prices, the company is now ready to select a price. The pricing method will then hopefully lead to a specific price. There are so many pricing methods. Ex : cost + pricing, Break even analysis, going rate pricing etc.
6.Selecting the final price. The purpose of the previous methods is to narrow the price range from which to select the final price. In selecting the final price, the industry must bring in some additional consideration Psychological pricing, Company pricing policies.
2.2.I. Civil section.

Civil engineering section is one of the important sections of the administration department of the company. The main function of this section is constructing buildings, roads, materials works and maintenance of pipelines in the factory premises that are connected to the factory only. Assistant Engineer
Page No. 35
B.B.M. FINAL YEAR
WORKING CAPITAL
Supervisor 1 Contractors Functions
Supervisor 2 Contractors
Supervisor 3 Contractors
1. Pipeline Maintenance: Factory requires 50 lakhs ltrs water per day. And it will lift 35 lakhs per day means 6000 TCD water and remaining water will be supplied to agriculture land. It has 15 bore wells. New project of the factory 22 Km water pipeline from KRISHNA RIVER near HIPPARAGI to supply 50 lakhs liters per day. 2. Civil Foundation and Buildings: The main work of this section is constructing the building and roads. Here they build the quarters for factory workers and officers and also construct the Internal and External roads. Type of Quarters 1. C-Type Quarters: Total are 12 in numbers for VIP and OFFICERS. 2. B-Type Quarters: Total are 32 in numbers for Asst. Eng. And Sup. Eng. 3. E-Type Quarters: Total are 40 in numbers for Engineers. 4. F-Type Quarters: Total are 76 in numbers for Engineers. 5. Labors Quarters: Total are 120 in numbers for Labors.
Page No. 36
B.B.M. FINAL YEAR
WORKING CAPITAL
CHAPTER-3
Profile of the research work design
Theoretical frame work of Working capital
Working capital management is concerned with the problem that arises in attempting to manage the current assets and current liabilities and inter relationship that exists between them. The term current assets refers to those assets which in the ordinary course of the business can be, or will be, converted into cash with in one year without undergoing a diminution in value and without disturbing operation of the firm. Current liabilities are those liabilities, which are intended at their inception, to be paid in the ordinary course of business, with in a year out of current assets or ending concern. On aspect of working capital is the trade of between profitability and liquidity. There in conflict between profitability and liquidity. If a firm does not have adequate working capital, if it does not invest sufficient funds in current assets, it may become illiquid and consequently may not have ability to meet its current obligations and thus invite the risk of bankruptcy.
Meaning:
Page No. 37
B.B.M. FINAL YEAR
WORKING CAPITAL
The term working capital required for day to day working in a business concern, such as, for purchasing sugarcane of meeting day to day expenditure on salaries, wages, rent etc. there is disagreement among various finance authorities as to the exact meaning the term working capital. The management of short assets and short-run sources of finance is described as working capital management. Working capital management is concerned with the problems that arises in attempting to manage the current asset, current liabilities and inter relationship that exact between them the current asset refers to assets which can be converted into with in year, current liabilities refers to the claims of outsiders which are expected to mature for payment with in year. Concept and definition of working capital There are two concept of working capital they are 1. Gross working capital 2. Net working capital 1. Gross working capital: It means the total current asset. The term gross working capital simply called as working capital refers to the firms investment in current asset. Current asset, which can be converted into, cash with in a year (or operating cycle & includes cash, short term securities, debtors, bills receivables & stock) 2. Net working capital: The net working capital may be defined as follows, Net working capital is difference between current asset and current liabilities. In other words net working capital is defined as It is the portion of current assets which is financial with long term fund. According to principal board of the American institute of certificated public ale ants U.S.A has defined working capital as follows Working capital is some times called net working capital is represented by the excess of current assets over current Liabilities and identifies the relatively liquid portion of total enterprise capital which constitute of margin of buffer for maturing obligations with in the ordinary operating cycle of business
Page No. 38
B.B.M. FINAL YEAR
WORKING CAPITAL
Objectives of working capital : There some objectives they are To establish sound and consistent assets management polices covering fixed as well as current assets. An effective utilization of working capital results in maximization of productivity and profits. To increase profitability and solvency. A proper management of working capital synchronizes the cash receipts and cash outlays, unit may function with minimum cash reserve. Need for working capital : A need for working capital in the form of current assets to deal with the problems arising out of the lack of immediate realization of cash against goods sold therefore sufficient working capital is necessary to sustain sales activity.Technically this is referred to as the operating or cash cycle. Assessment of working capital The assessment of correct amount of working capital is extremely important for any industry. Any over estimation of the requirement resulting in blockage of scare funds in idle assets is both Adrian of profitability as also a reflection on the management of the industry.
Components of working capital : There are some assets are liabilities are included in the working capital. They are. 1. Inventory including: a) Sugar Cane. b) Work-in-process. c) Finished goods d) Stores and spares.
Page No. 39
B.B.M. FINAL YEAR
WORKING CAPITAL
2.Debtors, which includes: a) Bills receivables. b) Sundry debtors. 3. Cash and bank balance. 4. Advance to supplies of Sugar Cane. These components in aggregate represents gross working capital and to arrive at the net working capital, sundry creditors, advances from customers and outstanding expenses have to be deducted from the gross capital. Types of working capital : There are basically two types of working capital. They are 1. Perment working capital : To carry on business a certain minimum level of working capital is necessary on a continuous and uninterrupted basis . For all practical purposes the requirements has to be met permanently as with other fixed assets. 2.Temporary / fluctuating or variable working capital : The portion of working capital is needed to meet fluctuation in demand consequently upon changes in production and sales as result of seasonal changes.
Changes in working capital : Working capital may be changed in the following circumstances. 1. Changes in sales and operating expenses : The changes in sales and operating expense may be either in the form of increase or decrease, an increase in the volume of sales is bound to be accompanied by higher
Page No. 40
B.B.M. FINAL YEAR
WORKING CAPITAL
level of cash, inventory and receivables. The decline in sales has exactly the opposite effect a decline in the need for working capital. A change in the operating expenses rises or falls as a similar effect on the levels of working capital. 2. Policy changes : The management because of policy changes in initiates the second measure cause of changes in the level of working capital. There is wide choice in the matter of current policy. The term current assets policy may be defined as the relationship between current assets and sales volume. A firm following a conservative policy in this respect having a high level of current assets policy and vice-versa. in relation to sales may deliberately opt for a less conservative
3.
Technological changes : Technological change can be cause significant changes in the level of working
capital. If a new process emerges as a result of technological development, which shortens the operating, cycle.
Determinants of working capital : There are certain determinants of working capital they are, 1. General nature of business : The working capital requirements of an enterprise are basically related to the conduct of business, enterprise fall into same broad category depending on the nature of their business. For instance public utility have certain future, which have bearing on their working capital needs.
Page No. 41
B.B.M. FINAL YEAR
WORKING CAPITAL
2. Production cycle : Another factor, which has bearing on the quantum of working capital, is the production cycle. The term production or manufacturing cycle refers to the time involved in the manufacturing of goods, it covers time span between the procurement of raw material and the completion of the manufacturing process leading to the production of finished. 3. Business cycle : The working capital requirements are also determine by the nature of the business cycle, business fluctuations lead to cyclical and seasonal change which in turn cause a shift in the working capital position particularly for temporary working capital requirements. 4. Production policy : The quantum of working capital is also determined by production policy. In case of certain times of business the demand for products is seasonal that is they are purchased during certain months of the year. 5.Credit policy : The credit policy relating to sales and purchases also affects the working capital. The credit policy influences the requirements working capital in two ways. First one, through credit time granted by the firm to its customers. Secondly, the credit term available to the firm from its creditors. 6. Growth and expansion: As a company grows it is logical to expect that a larger amount of working capital is required. It is of course difficult to determine precisely the relationship between the growth in the volume of business of a company and the increase in the working capital.
Page No. 42
B.B.M. FINAL YEAR
WORKING CAPITAL
7. Vagaries in the availability of raw material: The availability or other vise certain sugar cane continuous basis without interruption would some times effect the requirements of working capital. There may be some cane, which cannot be procured easily either because of their sources, are few or they are irregular. 8. Profit Level: The level of profit earned differ from industry to industry, in general the nature of the products hold on market, quality of management would by and large determine the profit earned by a firm. Levels of taxes: The first appropriation out of profits is payment or provision for taxes. The amount of taxes to be paid is determined by the prevailing tax regulation. Dividend Policy: Another appropriates of profits, which has bearing on working capital is dividend payment. The payment of dividend consumes cash resources and there by, affects working capital. Depreciation Policy: Depreciation policy also exerts on influence on the quantum of working capital. The effect of depreciation policy in working capital is therefore in direct. 9. Price Level Changes: Changes in the price level also affects the requirement of working capital and rising prices necessitates the use of more funds for maintaining an existing levels of activity. 10. Operating Efficiency: It is also important determinants of the management can contribute to a sound working capital position through operating efficiency. Although the management can not control the rise in prices. It can ensure the efficient utilization of resources by elimination waste, improving co-ordination of a fuller utilization of existing resources and so on.
Page No. 43
B.B.M. FINAL YEAR
WORKING CAPITAL
FORMAT FOR DETERMINATION OF WORKING CAPITAL Sl.No 1. a. b. PARTICULARS Estimation of current assets Minimum desired cash and bank balance Inventories : Raw materials Work in process Finished goods Debtors Total current Assets ( A ) Estimation of Current Liabilities Creditors Wages Over heads Total current Liabilities ( B ) Net working Capital ( A B ) Add. Margin for contingencies Net Working Capital AMOUNT AMOUNT xxxxx Xxxxx Xxxxx Xxxxx xxxxx Xxxxx Xxxxx Xxxxx xxxxx Xxxxx Xxxxx xxxxx
c. 2. a. b. c. 3.
CASH MANAGEMENT.
Cash management is one of the at least in working capital management apart form the fact that it is the most liquid assets. Cash is the common denomination to which all current assets can be reduced because the other major liquid assets thats that is receivable and inventory get eventually converted in to cash. This underlines the signification of cash management . MOTIVES FOR HOLDING CASH. 1. Transaction motive: This Motive refers to the holding of cash to meet routine cash requirements to finance the transaction which a firm carries and in the ordinary course of business. 2. Precautionary motive: The cash balance held in reserve for such random and unforced fluctuations in cash flows are called as Precautionary balance.
Page No. 44
B.B.M. FINAL YEAR
WORKING CAPITAL
3. Speculative Motive: It refers to the desire of a firm to take advantage of opportunity which present then self at unexpected movements and which are typically outside the normal course of business. 4. Compensating Motive: The compensating balance are also required some loan agreements between bank and industry during period when the supply of credit is restricted and interest rate are rising bank requiring a borrower to maintain the minimum balance. This is to presumably to compensate the bank. OBJCETIVES. To meet the cash disbursement needs that is payment schedule. To minimize funds committed to cash balance. FACTORS DETERMINING CASH NEEDS. 1. Synchronization of cash flows : The need for maintaining cash balance arises from the non Synchronization of the in flows an out flows of cash if the receipt and payment of cash perfectly co-inside or balance each other their would be no need for cash balance. 2. Short costs : Short costs are also factors which determined need of cash that may be short falling of cash to the industry in some times. 3. Excess cash balance cost : The cost of having excessively large cash balance is known as the Excess cash balance cost. 5. Procurement and management : These are the cost associated with establishing and operating cash management staff and activities. They are generally fixed and mainly accounted for the salary storage handling of security and so on.
6. Uncertainty and cash management : The impact of uncertainty on cash management strategy is also relevant as cash flow can not be predicted with complete accuracy.
Page No. 45
B.B.M. FINAL YEAR
WORKING CAPITAL
CHAPTER- 4
INTRODUCTION
Ratio analysis.
Accounting ratios are relationship expressed in mathematical terms between figures, which are connected with each other in some manner. Obviously, no purpose will be served by comparing two sets of figure which are not at all connected with each other. More over absolute figure are also unfit for comparison. Accounting ratios should preferably be used to signify the various figure in relation to others and to indicate the areas of strength and weakness the firm and divisions selected for inter firm comparison should have uniform accounting policies regarding valuation of inventories, deprecation, provision for gratuity etc, in the absence of such similarities, the accounting ratios used for comparison will not give proper result. Accounting ratios usually do not take into account the effect of inflation. The ratios calculated may greatly be distorted on account of inflation, are adjusted before making any comparison.
Page No. 46
B.B.M. FINAL YEAR
WORKING CAPITAL
Importance of ratios:
Useful in Financial Position of the Company. Useful in Simplifying in Accounting Figures. Useful in Assessing the Operational Efficiency. Useful in Forecasting Purposes. Useful in Locating the Week Spot of the Business. Useful in Comparison of Performances.
Limitation of ratios:
False result if based on in correct accounting data. No idea of probable happening in future. Variations in accounting methods. Price level changes. Only one method of analysis. No common standards. Different meaning assigned to the same term. Ignores qualitative factors. No use if ratios are worked out for in significant and unrelated figures. The ratios can be classified into the following categories: 1.Profitability Ratios. 2.Turn Over Ratios. 3.Financial Ratios. 4.Solvency Ratios. Ratio Analysis
Page No. 47
B.B.M. FINAL YEAR
WORKING CAPITAL
Liquidity Ratio Current Ratio Quick Acid Ratio Absolute Ratio
Profitability Ratio
Activity Ratio Inventory Turnover Ratios Debtors Turnover Ratio Assets Turnover Ratio Total Assets Turnover Ratios Fixed Assets Turnover Ratio Current Assets Turnover Ratio Working Capital Turnover Ratio
Gross Profit Margin
Net Profit Margin
Expense Ratio
Returns on Investments (ROI)
Gross Profit Ratio
Operating Profit Ratio Net Profit Ratio
Cost of goods sold ratios Operating expenses ratios Operating ratio
Introduction on Working capital.

Data Interpretation on working capital is carried at Shri Prabhulingeshwar Sugars and chemical Ltd, at siddapur, Tq: Jamakhandi and Dist:Bagalkot in Karnataka state. In this chapter working capital has been used as a tool to analyze the financial statements and compared its performance over a period of three years. Different ration analysis is performed at SPSCL is shown below. For result analysis SPSS and MS Excel software packages are used.
CALCULATION
OF
WORKING
CAPITAL
ACCORDING
TO
THE
PRESENTED FORMAT.
SL NO 2007 1. Current Assets a)Cash and Bank balance b)Inventories 5,05,94,714 Page No. 48 2008 2,87,82,547 2009 2,66,41,162 Particulars Amount Amount Amount
B.B.M. FINAL YEAR
WORKING CAPITAL
i. Raw materials ii. Work in progress iii. Finished good c)Debtors Total Current Assets (A) 2 Current Liabilities a)Creditors b)Wages c)Over heads Total Current Liabilities(B) 3 Net Working Capital(A-B) ADD: Margin of contingencies (15%) Total Net Working Capital
6,56,58,101 1,05,11,909 42,11,84,740 5,93,60,371 60,73,09,835 33,51,82,749 3,95,55,677 2,65,39,630 40,12,78,056 20,60,31,779 3,09,04,767 23,69,36,546
7,28,09,470 1,24,18,352 74,31,27,284 9,85,68,736 95,56,52,389 77,80,16,694 4,77,72,106 2,64,42,539 85,22,31,339 10,34,21,050 1,55,13,158 11,89,34,208
8,41,48,765 NIL 766,66,02,729 2,50,05,253 90,23,97,909 68,49,50,230 6,36,44,064 2,06,55,776 76,92,50,070 13,31,47,839 1,99,72,176 15,31,20,015
Liquidity Ratios Liquidity means the ability of a concern to meets its current obligations as and when these become due. Thus the liquidity ratios indicate the ability of a concern to meets its shortterm obligation.
4.1Current Ratio:
Current Ratio is defined as the relationship between current assets and current liabilities. Current assets consists of debtors, bills receivable, inventory, cash in hand, cash at bank, prepaid expenses and short term investments. Current liabilities include creditors bills payable advance received, bank overdraft, outstanding liabilities. The current ratio measures the short term solvency of a firm is its ability to meet short term obligation within one year.
Current Assets Current Ratio = Current Liabilities
Page No. 49
B.B.M. FINAL YEAR
WORKING CAPITAL
TABEL 4.1: Current Assets and Current Liabilities and Current Ration
Figure 4.1 Graph of Current Ratio 2.1 1.8 1.5 Years Particulars Current Assets Current Liabilities Current Ratio 2007 70,29,79,982 35,48,97,496 1.98:1 2007 2008 106,97,63,019 62,27,27,966 1.72:1 2008 2009 1.2 110,39,20,130 82,24,92,786 1.34:1 2009 0.9 0.6 0.3 0
1.98 1.72 1.34
Inference An Ideal Current Ration is 2:1 indicates for every one rupee of current liabilities, current assets of double rupee are available. Short term solvency of a firm is that its ability to meet short-term obligation within one year. Higher ratio indication of slack management practices. Poor ratio indicates danger signals to management.
Page No. 50
B.B.M. FINAL YEAR
WORKING CAPITAL
From the graph and bar chat it is found that ratio is satisfactory during 2007, 2008 and 2009. The ratio is some what high during 2007 and low during 2009
Activity Ratios Activity Ratio measures how the firm is managing its assets. These are also referred as Turnover Ratios because they show how quickly the assets are being converted in to sales. It is very difficult to make a general statement in this regard. High turnover ratios are generally associated with good asset management and low turnover ratios are generally associated with bad asset management. These ratios are also called efficiency ratios or assets utilization ratios. Depending upon various types of assets, there are various types of activity ratios. 1. Inventory Turnover Ratios 2. Debtors Turnover Ratios 3. Assets Turnover Ratios Total assets turnover ratio Fixed assets turnover ratio Current assets turnover ratio Working capital turnover ratio
4.2 .Inventory Turnover Ratios

This ratio indicates how efficiently the firm is managing its inventory. This ratio roughly indicates how many times per year the inventory is replaced.
Net Sales Inventory Turnover Ratio = Average Inventory
Opening +Closing Inventory Average Inventory = 2 TABEL 4.2 Opening inventory, Closing inventory Turnover Ratio
Page No. 51
B.B.M. FINAL YEAR
WORKING CAPITAL
Years Particulars Opening Inventory Closing Inventory Average Inventory Net Sales Inventory Turn Over Ratio
2007 71,96,07,215 49,73,54,750 60,84,80,983 151,21,43,66 8 2.4851
2008 49,73,54,750 82,3,55,106 66,28,54,928 140,20,67,10 8 2.115
2009 82,83,55,106 85,07,57,494 83,95,300 183,61,81,577 2.187
Figure 4.2 Graph of Inventory Turn Over Ratio 3 2.4851 2.115 2.187 2 1.5 1 0.5 0 2007 2008 2009 2.5
Inventory Conversion period

Days in a year Inventory Conversion period = Inventory Turnover Ratio
TABEL 4.3 Inventory Conversion period Years Particulars Inventory Turn Over Ratio Days in years Inventory conversion period 2007 2.4851 365 147 2008 2.115 365 172 2009 2.187 365 167
Page No. 52
B.B.M. FINAL YEAR
WORKING CAPITAL
Figure 4.3 Graph of Inventory Conversion Period
172 167 147
250 200 150 100 50 0
2007 Inference
2008
2009
Inventory Turnover ratio signifies the liquidity of the inventory. A high ratio implies good inventory management, a low ratio results in blocking of funds in inventory. The reference value of this ratio is 9. From analysis it is found that the Inventory turn over ratio is increasing order from 2004 to 2008 except slight fall during 2008, which indicates the better inventory management. There is no blocking of funds in inventory because maximum conversion period is 225. 4.4. Debtors Turnover Ratio Debtors Turnover Ratio indicates the relationship between credit sales and average debtors for particular period. It shows how quickly receivable or debtors are converted into cash. On other words the debtor turnover ratio is a test of the liquidity of the debtors of a firm. The higher the turnover ratio and the shorter the average collection period, the better is the trade credit management and the better is the liquidity of debtors, as short collection period and high turnover ratio imply prompt payment on the part of debtors. On the other hand, low turnover ratio and long collection period reflect delayed payments by debtors. In general therefore, short collection period is preferable. Net Credit Sales Debtors Turnover Ratio = Average Trade Debtors
Page No. 53
B.B.M. FINAL YEAR
WORKING CAPITAL
Assuming that the total sales as credit sales Opening Debtors + Closing Debtors Average Trade Debtors = 2 TABEL 4.4 Opening Debtors, Closing Debtors and Debtor Turnover Ratio
Figure 4.4 Graph of Debtor Turn Over Ratio 30 25 20 2009 9,85,68,736 2,50,05,253 6,17,86,995 183,61,81,577 29.7179 15 10 5 0 2007 2008 2009
29.7179 15.054 6 2007 14,15,27,553 5,93,60,371 10,04,43,962 151,21,43,66 8 15.05446 17.755 2008 6 5,93,60,371 9,85,68,736 7,89,64,554 140,20,67,10 8 17.7556
Years Particulars Opening Debtors Closing Debtors Average Debtors Net Credit Sales Debtors Turnover Ratio
4.5Average Collection Period

Days in a year Average Collection Period = Debtors Turnover Ratio
TABE 4.5 Debtor Turnover Ratio and Average Collection Period

Page No. 54
B.B.M. FINAL YEAR
WORKING CAPITAL
Figure 4.5 Graph of Average Collection Period 40 Years Particulars Debtors Turnover Ratio Days in a Year Average Collection period 2007 24 15.0546 365 24 2007 2008 17.7556 21 365 21 2008 2009 29.7179 365 13 2009 35 30 25 20 15 10 5 0
13
Inference The ratio indicates the speed with which debtors/account receivable are being collected. The higher the turnover ratio and the shorter the average collection period, better is the trade credit management and better is the liquidity of debtors and imply prompt payment on the part of debtors. A low turnover ratio and long collection period reflects delayed payments by debtors and inefficient management of debtors/sales. In general short collection period and high turnover is preferable. From analysis it is found that, there is increase in debtors turnover ratio and decreasing collection period from 2006 to 2008, which implies better trade management of debtors/sales at SPSCL. Assets Turnover Ratio This ratio is also known as the investment turnover ratio. It is based on the relationship between the cost of goods sold and assets investments of a firm. A reference to this was made while
Page No. 55
B.B.M. FINAL YEAR
WORKING CAPITAL
working out the overall profitability of a firm as reflected in its earning power. Depending upon the different concepts of assets employed, there are many variants of this ratio.
4.6 Total assets turnover ratio

The total assets turn over ratio is the ratio of cost of goods sold to average total assets.
Cost of goods sold Total Assets Turnover Ratio = Average Total Assets
TABEL 4.6 Cost of goods sold and Total Assets Turnover Ratio
Years Particulars CGS Average Total fixed assets Total assets Turnover
2007 1,26,84,33,12 9 194,45,69,173 0.652
2008 95,13,99,430 248,25,23,335 0.383
2009 148,20,32,517 262,54,44,676 0.564
Figure 4.6 Graph of Total Turnover Ratio
Page No. 56
B.B.M. FINAL YEAR
WORKING CAPITAL
0.652 0.383
0.564
0.6 0.5 0.4 0.3 0.2 0.1 0
2007
2008
2009
4.7. Fixed Assets turnover ratio Fixed asste turn over ratio is the ratio of Cost of goods sold to Average fixed assets.
Cost of goods sold Fixed Assets turnover Ratio = Average Fixed Assets
TABEL 4.7 Cost of goods sold and Fixed Assets Turnover Ratio Years Particulars CGS Average Fixed Fixed Assets Turnover 2007 1,26,84,33,12 9 1,13,85,84,72 0 1.114 2008 95,13,99,430 1,31,08,14,76 4 0.726 2009 148,20,32,517 144,87,93,609 1.022
Figure 4.7 Graph of Fixed Assets Turn Over Ratio
Page No. 57
B.B.M. FINAL YEAR
WORKING CAPITAL
1.114 0.726
1.022
1.2 1 0.8 0.6 0.4 0.2 0
2007
2008
2009
4.8 Current Assets turnover ratio Assets are used to generate sales. Therefore a firm should manage its assets efficiently to maximize the sales. The relationship between sales and current assets is called current assets. The ratio indicates how many net sales are made for every rupee of investment in current assets. Cost of goods sold Current Assets turnover Ratio = Average current Assets 4.8 Cost of goods sold and current Assets Turnover Ratio
Years Particulars Net Sales Current assets Current assets Turnover Ratio
2007 151,21,43,668 70,29,79,982 2.1510
2008 140,20,67,108 106,97,63,019 1.3106
2009 183,61,81,577 110,39,20,130 1.6633
Page No. 58
B.B.M. FINAL YEAR
WORKING CAPITAL
Figure 4.8 Graph of Current Assets Turn Over Ratio
2.151 1.3106 106633
2.5 2 1.5 1 0.5 0
2007
2008
2009
4.9 Working capital turnover ratio

The working capital turnover ratio indicates the number of times the working capital is turned over in the course of year.
Net Sales Working Capital Turnover Ratio = Average Working Capital
TABLE 4.9 Current Assets and Working Capital Years Particulars Net Sales Current Assets Current Liabilities Working Capital Average Working Capital Working Capital Turnover Ratio 2007 151,21,43,66 8 70,29,79,982 35,48,97,496 34,80,82,486 50,86,64,350 2.97 2008 140,20,67,10 8 106,97,63,01 9 62,27,27,966 44,70,35,053 39,75,58,770 3.53 2009 183,61,81,577 110,39,20,130 82,24,92,786 28,14,27,344 36,42,31,199 5.04
Page No. 59
B.B.M. FINAL YEAR
WORKING CAPITAL
Figure 4.9 Graph of Working Capital Ratio 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
5.04 2.97 2.97
2007 Inference
2008
2009
The assets turnover ratio measures the efficiency of a firm in managing and utilizing the assets. Higher turnover ratio, efficient is the management utilization of the assets while low turnover are indicative of under utilization of available resources and presence of idle capacity. In operational terms, it implies that firm can expand its activity level without requiring additional capital investment.
4.10 Cash turn over ratio: Analysis of Cash Management

Page No. 60
B.B.M. FINAL YEAR
WORKING CAPITAL
Cash is the important assets for the operation of the busines. Cash is the basic input needed to keep the business running on a continuous basis. It is also the ultimate output expected to relish by selling the service of products manufactured by the firm. Cash and Net annual Sales Cash for the purpose means cash in hand, at bank and readily available investments or securities
Cash turn over ratio=
Net Sales Cash
TABLE 4.10 Net sales, Cash and Cash turn over ratio.
Years Net Sales Cash Ratio
2007 151,21,43,668 5,05,94,714 29.88
2008 140,20,67,108 2,87,28,547 48.80
2009 183,61,81,577 2,66,41,162 68.92
4.10 Graph of Cash turn over ratio
68.92 60 48.80 29.88
80 70 50 40 30 20 10 0
2007
2008
2009
Page No. 61
B.B.M. FINAL YEAR
WORKING CAPITAL
Interferance: This ratio indicates the extant to which cash resources are efficiently utilised by the company it is also help ful in determining the liquidity of a concern. The cash turn over ratio is not stable, some time it is very high and some time it is very low but according to the ratio it is increasing i.e in 2007 it is 29.88, in 2008 it is 48.80, and in 2009 it is 68.92.
CHAPTER-5
FINDING, SUGGESTIONS AND CONCLUSION. FINDINGS: 1. There is great fluctuation in the amount of working capital due to differences in the following items namely Sundry creditors, inventories, debtors etc. 2. It has adequa te or optimum working capital due to increase in current assets and decrease in current liabilities. 3. According to study and analysis of working capital in SPS&CL I found that amount of working capital in SPS&CL is optimum. 4. According to my analysis I found that there is great amount of fluctuation in the working capital. The main causes for this fluctuation are differences in amount of sundry creditors, inventories and debtors. 5. According to study and analysis of working capital in SPS&CL, I found that there is no balanced adequate cash management by considering the magnitude of sales and volume of collection and banking arrangements. 6. According my study I think SPS&CL should make debts realized at the earliest, as it is evident form receivable management of company of working capital is locked up in debtors. 7. According to study and analysis of working capital in SPS&CL, I found that there is no need to invest further funds in current assets as it is a good inventory management company the ratio ranges between 8% to 11% 8. According my studies it is found that the working capital turnover ratio is decreasing due to lack of proper management of turnover and working capital.
Page No. 62
B.B.M. FINAL YEAR
WORKING CAPITAL
9. It is evident from the studies that there is a change in working capital due to changes in sales, policies, technology used and operating expenses of SPS&CLtd. Suggestions 1. Company should install an improved plants and efficient machines in order to reduce the cost of production. Similarly management has to invest in R&D activities to produce good quality and high yield sugar canes. Greater emphasis is given to farmer by providing guidance and services. 2. Number crushing period has to be increased by purchasing high quality of sugar cane. So that power can be generated for longer period of the year, which is addition to the income. 3. In order to decrease the expenditure, raw material has to be purchased from the nearest places of the company. This can be achieved by motivating and guiding farmers for growing sugar cane around the places. 4. Company should install energy efficient motors; a proper maintenances and servicing to machines so that intermittent stoppages are avoided and there by steam and electrical energy is saved. In turn manufacturing expenses is decreased. 5. Long-term solvency of the company has to be improved by limiting amount invested by outsiders to the amount invested by the owner of the company. This can be achieved by purchasing the shares gradually. 6. Company should try to improve the working conditions by constructing modern offices and providing other facilities like incentives and awards for the outstanding achievements of the staff. It indirectly helps the company for achieving higher efficiency. Reporting system in the company has to be improve because, it will the management proper decision and frame good qualities. 7. To enhance shareholders and stakeholders value. It is necessary to have transparency in accountability for all financial and non financial matters of company should implement the code of corporate governance. Conclusion The analysis of Current Assets and Current Liabilities is very much required for an organization or business enterprises and is known as working capital. To know the optimum level of Working Capital we make use of various tools and techniques called as schedule to changes in Working Capital and ratio analysis.
Page No. 63
B.B.M. FINAL YEAR
WORKING CAPITAL
By studying the working capital analysis of SPSCL, I came to know that there is a optimum level of working capital maintained and hence can be called as good. In all the years there is an increase in Working Capital, which shows that they are making effective utilization of funds and cash available. The company doesnt suffer from losses, which means that they are able to mange the company properly and there is optimum Working Capital to meet unexpected liabilities. It is concluded that the Working Capital analysis of SPSCL is up to the mark as Current Assets exceed Current Liabilities. At last I would like to conclude that the company is earning good and also has best reputation in the Indian economy.
Page No. 64
B.B.M. FINAL YEAR
WORKING CAPITAL
Page No. 65
B.B.M. FINAL YEAR

Working Capital Management in the Sugar Industry

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Working Capital Management in the Sugar Industry

Uploaded by

Copyright:

Available Formats

WORKING CAPITAL

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

1.2 Statement of the problem

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

6. To study the needs to invest funds in current assets.

1.4 Scope of the study

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

2.1.A.i. Growth of the sugar industry.

In India 252 134 67 Page No. 5

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

2.1.A.ii New Guidelines to Sugar Industry

2.1.A.iii. Main Problems of Sugar Industry

2.1.B. Introduction to SPSCL

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

2.1.B.i. Awards and Achievements

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

Best performance sugar factory in South India given by SISSTA at Hyderabad.

2.1.B.ii. Board of directors

3. Shri G K Sangameshwar (IAS Retd) 4. Shri R.V.Bhuttappa (zonal manager)

: Nominee Director of IREDA New Delhi : Nomince Director, KSIIDC

5. Shri Deval. A. Desai 6. Shri M Manohar A.G.M,IDBI Bangalore

: Director. : Nominee Director IDBI.

7. Shri G D Bhadrannavar 8. Shri Nagappa G Sanadi

9. Shri Sateesh G Gudagunti 10. Shir Sudheer S Gudagunti

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

1. Name of company 2. Location

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

15.Constitution 16.Labor Employed 17. Land 18.Bankers of the Co.

2.1.D. Executive summary

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

2.2 Departmental study

2.2.A. Share section

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

2.2.B. Purchase section

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

not be used in another. Over-indenting shall, therefore, be scrupulously

consumption. The tendency to

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

Heads of the Divisions/Projects/Sections should

Divisions/Projects/ Sections. Annual

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

authority before placing

post-facto sanctions shall be avoided by all

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED

B.B.M. FINAL YEAR

SHRI PRABHU LINGESHWAR SUGARS & CHEMICALS LIMITED