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Capital required for a business can be classified under two main categories via, y Fixed capital y Working capital Every business needs funds for two purposes for its establishment and to carry out its day to day operations. Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture, etc. Investments in these assets represent that part of firms capital which is blocked on permanent or fixed basis and is called fixed capital. Funds are also needed for short term purposes for the purposes of raw material, payment of wages and other day to day expenses etc. These funds are known as working capital. In simple words, working capital refers to that part of the firms capital which is required for financing short term or current assets such as cash, marketable securities, debtors & inventories. Funds, thus, invested in current assets keep revolving fast and are being constantly converted in to cash and this cash flow out again in exchange for other current assets. Hence, it is also known as revolving or circulating capital or short term capital.
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o Temporary investment of surplus fund o Prepaid expenses o Accrued incomes o Marketable securities
In narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over liability, or, say:
Net working capital can be positive or negative. When the current assets exceeds the current liabilities are more than the current assets. Current liabilities are those liabilities, which are intended to be paid in the ordinary
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Accrued or outstanding expenses Short term loans, advances and deposits Dividend payable Bank overdraft Provision for taxation, if it does not amt. to app. Of profit Bills payable Sundry creditors
The gross working capital concept is financial or going concern concept where as net working capital is accounting concepts have their own merits.
The gross concept is sometimes preferred to the concept working capital for the following reasons:
y It enables the enterprise to provide correct amount of working capital at the correct time. y Every management is more interested in total current assets with which it has to operate then the source from where it is made available.
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1. It is qualitative concept, which indicates the firms ability to meet its operating expenses. 2. It indicates the margin of production available to the short term creditors. 3. It is an indicator of the financial soundness of enterprises. 4. It suggests the need of financing a part of working capital requirement out of the permanent sources of funds.
On the basis of concept working capital can be classified as gross working capital and net working capital. On the basis of time, working capital may be classified as:
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Permanent or fixed working capital is minimum amount which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw material, work in process, finished goods and cash balance. This minimum level of current assets is called permanent or fixed working capital as this part of working is permanently blocked in current assets. As the business grow the requirements of working capital also increases due to increase in current assets.
Temporary or variable working capital is the amount of working capital which is required to meet the seasonal demand and some special exigencies. Variable working capital can further be classified as seasonal working capital and special working capital. The capital required to meet the seasonal needs of the enterprise is called seasonal working capital. Special working capital is that part of working capital which is required to meet special exigencies such as launching of extensive marketing for conducting research, etc.
Temporary working capital differs from permanent working capital in the sense that is required for short periods and cannot be permanently employed gainfully in the business.
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A STUDY ON WORKING CAPITAL MANAGEMENT IN KERAFED LTD RESEARCH METHODOLOGY Research Design
A research work will be successful, only with a sound research design. The research design for the purpose of the study is analytical in nature. The major purpose of analytical research is to analyze the state affaires as it exists at present. Analytical research includes survey and in depth plan calls for gathering primary and secondary data.
Nature of Data
Information for this work has been collected from previous records viz profit and loss and balance sheet of the past five years. Both primary and secondary data have been used for the study.
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Presentation of Data
Tables and charts are used to present the data.
Limitations
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Two major classes of coconut palm are typically reorganised on the basis of stature tall and dwarf. The ones most commonly planted for commercial are the tall varieties,which are slow to meture and first flower six to ten years after planting. They produse medium to ten years after planting. They produce medium to large size nuts and have life span of sixty to seventy years. The dwarf variety may have orginated mutation of tall types. The dwarf variety may grow to a height of 250to 35 and begin flowers after three years when they are only about three feet tall. Their life span is only about 30years. India is the largest third coconut producing country in the world. Country Indonesia Philippians India Brazil Srilanka Thailand Mexico Vietnam Malaysia
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Production 16300000 14500000 9500000 3303830 1950000 1500000 959000 940000 710000
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Coconut Oil
Coconut oil makes up about 20% of all vegetable oil used in the world. Copra, the dried kernel is the chief commercial product from coconut which is mainly used for oil extraction. Coconut oil is made from fully dried copra having maximum moisture content at 6% for extraction of oil from copra The common method still prevailing in our country is done through by using rotary chucks. But the efficient system of extraction of oil is by the use of expellers. Coconut oil is an important cooking medium in southern parts of the country especially in Kerala state. Besides the oil has varied industrial application. It is used in manufacture of toilet soaps, laundry soaps, surface active detergent, hair tonics, cosmetics etc.It is used throughout the country as hair oil as it helps growth of hair. its massage oil it has cooling effect on the body. Owing to these qualities coconut oil has potential market in the country. Since the price of coconut oil in the international market is very much lower than the domestic price. The quality and attractiveness of consumers packs are important factor to complicate in the world market. While the demand for coconut oil for cooking purpose is elastic. It as hair oil is inelastic. Coconut oil is marketed in bulk as well as in packs ranging from sachets containing 5ml to 15kg tins. The branded coconut oil in small packs is mainly marketed as hair and body oils. There Aare several brands known for their superior grade oil which has export market throughout the world.india has unbeatable quality advantage in this sector. Refined coconut
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Applications
y cooking Coconut oil is widely used in cooking, the refined oil is one of most commonly used. y Manufacturing:Coconut oil is used in volume quantities for making soap & cosmetics Hydrogenated coconut oil is used in non-creamers and snack food Fractionated coconut oil is used in manufacture of essences, massage oil & Cosmetics Coconut oil is an important component of many industrial lubricant for example in the cold rolling of steel strip y Cosmetics and skin treatments:Coconut oil is an excellent moistures and softener. Coconut oil is used for styling hair, cooling or smoothening the head, using as a fuel. y Traditional use:Coconut oil is used in oil lamps y In diesel engines:-
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Nutritional/Medicinal
Easy digestibility and absorbability Idle energy source in baby food Contains vitamin E Composed mainly for short &medium chain fatty acid which have desirable qualities and functions. Does not contain cholesterol
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Copra
Copra is the dried meat, or karnel, of the coconut. Copra making can be defined as systematic process through which the fresh meat coconut 50 to 55% moisture is dried in sun or other source to bring down the moisture content to 5 to 6% only. Eleven to twelve month old nut reutilized for copra making to option the optimum output of the better quality copra. The nuts are first husked to remove the fiber cotter layer of the husk. The husked nuts are then split in to half and water is drained off. These splinted nuts are then kept for half an hour with the open side turned down to ensure that the entire water is drained off. If this is not done, some moisture will be retained which will in turn leads to deterioration of copra. The half or cops ready for drying which should invariably start with in 4 hours after breaking. Two types of copra namely milling and edible are made in India. Milling copra is used to extract oil while edible grade of copra is consumed as a dry fruit and used for religious purpose. Milling copra is generally manufactured by adopting sun drying and artificial means substantial Modern hot air drier resulting in the availability of superior quality copra which is required for the manufacture of best grade coconut oil. A good number of farmers co-operative societies are also involved in the manufacture and marketing a of milling copra. Milling copra is available in different grades of edible copra are available in the market according to the size and color etc. Quality of copra is determined based on moisture content and extent of interior type of copra Interior types of copra are generally:-
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Coconut Cake
Coconut cake is the residue left after the extraction of oil from copra which is mainly used as a cattle feed. Coconut cakes contain 4-5% oil which is extracted by solvent extraction process. This oil is generally used for industrial purpose and de-oiled cake is used to make mixed cattle feed. These few such units in the country especially in Kerala
NAFED
National Agricultural co-operative marketing federation, which was organized in 1958, represents the entire marketing structure at the national level. It was established with the object of the members in agricultural and other commodities
There main Objective are To make arrangements for the supply of agricultural requirement of its members.
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History
KERAFED was constituted by the Government of Kerala in 1987 with the confide object of arranging to procure the produce of coconut farmers to regulate marketing operation of the product to retrieve the segment of price crunch they were confronting at large. A production unit relating to the sector was brought into operation in 1991 to crush and market copra procured from the farmers at remuneration price to relive the section of price crunch and also to cater the edible oil requirement of the society by maintain high quality standards.
Company Profile
Kerala kerakashaka sahakarana federation Ltd. (KERAFED) was registered under the cooperative societys act 1987, withassistance of European Economic Community. National cooperative development cooperation and the government of Kerala. KERAFED is apex cooperative federation of coconut farmers in Kerala and is the largest producer of coconut oil in India. The federation started commercial production in 1993. The head office of KERAFED is located in Thiruvananthapuram. KERAFED coconut oil complex at
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SL.NO Members of the federation 1. 2. 3. Government of Kerala Kerala state co-operative agriculture Kerala state co-operative agriculture development bank Ltd. 4. 5. 6. District co-operative bank Ltd. Primary co-operative bank agriculture Primary agriculture co-operative bank credit society
Numbers 1 1 1
Total
To reduce edible oil import To provide an impulse effect ion internal production To develop the agricultural potential of Kerala state To strengthen the cooperative movement To secure the marketing of coconut of coconut and its byproduct, There by assuring income price to growers To establish and manage infrastructure facilitys for production and supply at input and process manufacturing and marketing of product and by product of coconut palm
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Coconut farmers deposit their product with respective primary agricultural co operative societies and collect the copra at the rate prevailing in the market on that particular day. Primary agricultural co-operative society on their part checks the quality of copra and in terms the kerafed about the procurement details. T he respective mobile team officer visit the society and collect the same after checking the quality transaction details. This is transferred to the plant for processing.
Objectives Of Kerafed:-
To reduce edible oil imports. To provide an impulse effect on internal production of coconut. To develop the agricultural potential of Kerala state To strengthen the co-operative movement. To secure the marketing of coconut and its by products, there by assuring economic price to the growers. To establish and manage infra structural for production and supply of input and processing manufacturing and marketing of products and by products of coconut palm To undertake research and development activities on production ,[processing and marketing,
Thus to increase the income of 29 lakh farmers families and create employments opportunities is the industrial sector. For effectively and efficiently carry may out the administrative and operational practices on a day to day basis, the stage is divided into three region consist of the region ,the northern region and centre region .the southern consist of the revenue districts.Thiruvanathapuram, kollam, pathanamthitta and alappuzha, the northern region consist of malapuram, Kozhikode, wayanad, kannur and kasargode district and the central region of kottayam,, idukki,ernakulam, thrissur,palakkad districts. 300 primary agricultural credit co-operative societies in each region are members of the federation to undertake production, procurement,
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a) The number of conversion of cash, and b) The length of time required to complete each stage. Both these aspects help in determining working capital requirements of a concern.
Operating cycle is a continuous process. However, the number of stages in an operating cycle of a concern depends on the nature of its business. Thus the operating cycle in a manufacturing concern involves the following stages Operating cycle of a Manufacturing Concern.
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1. 2. 3. 4. 5.
Purchase of raw materials and warehousing. Work-in-process (manufacturing activities). Warehousing of finished goods before sale. Sales activities Debtors
The numbers of stages of operating cycle involved in a trading concern are as follows:
Debtors (3)
Cash
Sales (2)
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a. The tradeoff between risk and profitability and b. The costs of alternative combinations of short term and long term sources. Moreover, on the basis of risk, profitability and cost, a firm should have different working capital financing policies. But an ideal policy should be such which is least costly, least risky and most profitable. However, as the ideal policy cannot be practiced in real market situations, the task of management is to strike a happy balance among these three variables, viz., risks, profitability and cost. For this purpose, the following guidelines are available: (a) The firm can use only long-term finance. It is the most costly in terms of interest rates and most conservative policy in terms of certainty of availability of funds. (b) The firm can use only short-term finance. It is the least costly in the short-run, the most profitable and most risky of available of funds. A choice of suitable financing strategy between these two extremes is influenced by the following factors: i) The Approval of creditors and capital Market: This approval is reflected in the actual ratios of the two sources in financial statement of firms in industry, in general.
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Ratio Analysis: Ratio analysis is the most popular technique of working capital analysis. It can be used for measuring short-term liquidity or the working capital position of a concern. Some commonly used ratios for this purpose are as follows:
a. Current ratio b. Acid test ratio c. Absolute liquid ratio d. Inventory turnover ratio e. Receivables turnover ratio f. Payables turnover ratio g. Working capital turnover ratio h. Working capital turnover ratio i. Working capital leverage j. Ratio of current liabilities to tangible net worth
Funds Flow Analysis: It is a technique designated to study the sources from which additional funds derived and the uses to which these funds are being put. It is an effective management tool to study changes in working capital between the two points of time, along with events causing such changes. The funds flow analysis consists of: (a) preparing schedule of changes in working capital and (b) statement of sources and application of fund.
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