Beruflich Dokumente
Kultur Dokumente
In partial fulfillment of the requirement for the award of the degree of MASTERS OF BUSINESS ADMINISTRATION (SESSION 2011-2013)
ACKNOWLEDGEMENT
This is to acknowledge with sincere thanks for the assistance, guidance and support that I have received during the Summer Training. I place on record my deep sense of gratitude to Working Capital of VITA MILK PLANT SIRSA. for giving me an opportunity to pursue my Summer Training. My very special thanks to (Mr. SITARAM SONI) and Mr. Rakesh Sir head of the Finance department and very thankful to Mr. Amit Aggarwal head of marketing department for his valuable guidance & leadership in completion of six weeks training period Working Capital of SIRSA.. for his constant advice and support. VITA MILK PLANT
I am highly grateful to my project incharge Mr.Sita ram soni for providing me every possible help in my first step into professionalism and propelling me in the right direction for the success of my project.
We are also thankful to other officers and staff of personal department for their cooperation.
AJAY AGGARWAL
PREFACE
This department is intended for the experience gained by me during Summer Training in Vita Milk Plant, Sirsa.
While making this project I became familiar with the financial terms that are usually used in a company and the different functions that a Finance Manager has to perform. I have learnt how to manage Working capital. How to take decisions regarding working capital in an organization.
I have also gained confidence to interact with different persons working at reputed positions during the summer training, in preparing the project report I have tried my level best effort to make it reliable, compact and accurate organization.
Ajay Aggarwal
CONTENTS
1. Aknowledgement 2. Preface 3. Company Profile 4. History 5. Research Methodology 5.1. Objectives 5.2. Data Collection 5.3. Working Capital Management 5.4. Determinants of Working Capital 5.5. Ratio Analysis 6. Suggestions 7. Conclusion Biblography
Name Phone Smt 0172-2585507 Chandravati Sh Devender 0172Singh 2586826,2585159 Sh Pradeep Kasni 0172-2583050
HARYANA is one of the most progressive states of Republic of India. In the domain of dairy development it is well known for its productive milch cattle particularly the 'Murrah' Buffaloes and Haryana Cows. The economy of the state is predominantly based on agriculture. People rear and breed cattle as a subsidiary occupation. Milk production in the State was estimated around 135.18 lacs liters per day during 2008-2009.
6 The essence of various programmes launched in the State has been to adopt the Anand pattern of Milk Co-operatives. Under this system, all the functions of dairying like milk procurement, processing and marketing are controlled by the Milk Producers themselves. It has three tier system comprising milk Producers Societies at the village level, Milk Producers Co-operative Union at the district level and the state Milk Federation as an apex body at the State level. The Haryana Dairy Development Co-operative Federation Ltd. registered under Haryana Co-operative Societies Act Came into existence on April 1, 1977. Its authorized share capital is Rs.2000 lacs. It was established with the primary aim to promote economic interests of the milk producers of Haryana particularly those belonging to weaker sections of the village community by procuring and processing milk into milk products and marketing thereof by itself or through its unions. In furtherance of the above objects, the Federation undertakes a number of activities such as establishment of milk plants, marketing of VITA BRAND milk products of the Milk Unions. Its turnover during 2008-09 was to the tune of Rs.395.00 crores. It also extends technical guidance to the Unions in all spheres of personnel, technical, marketing and financial management as well as makes them quality conscious, through use of modern methods of laboratory testing of various products.
Sr. No. 1. 2. 3. 4. 5.
The Primary Milk Society is the foundation of the Cooperative structure. The efficiency of the movement solely lies in the strength of these Societies. Primary Milk Societies are organised at the rate of one society per village. The purpose of such a society is to promote the economic interests of its members by improving quality, and increasing quantity of milk production per buffalo or cow and to provide necessary guidance and assistance to its members and supply milk to the Milk Unions. These societies also supply cattle feed etc. to their members with a view to enhaning milk production. The Managing Committee of the Society comprises members elected by those members. who are eligible to participate and vote in the General Body Meeting.
99- 00- 01- 02- 03- 04- 05- 06- 07- 0800 01 02 03 04 05 06 07 08 09 1521 1709 2037 2499 2707 2810 2985 3366 3550 4206
MANGO DRINK
TABLE BUTTER
GHEE (AGMARK)
10
MILK
PANEER
JALJEERA
10
11
KHEER
MILK CAKE
BURFI
TINNED RASGULLA
11
12
JALEB
SOAN PAPDI
DHODA
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13
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1. DELHI Sales Office Delhi, C-55 New Moti Nagar. Milan Cinema Road, New Delhi. INDIA 2. CALCUTTA Sales Office Calcutta, E-1 Chiterlekha Apartment 15- Baluganj Park Road, Calcutta, INDIA (91)-033-2240 1678 (91)-033-229 9138 (91)-011-2546 5025 (91)-011-2546 7681
3. CHANDIGARH Sales Depot, Chandigarh Amar Building Sector 17-A, Chandigarh, INDIA (91)-0172-270 3427
4. HIMACHAL PRADESH Sales Depot Parwanoo, Sector 2, Kasauli Road, Parwanoo, Himachal Pradesh, INDIA (91)-017292-232 654
5. HARYANA 5a. Sales Depot, Ambala C/o Milk Plant, Ambala, Haryana, INDIA (91)-0171-254 0622
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5b. Sales Depot, Ballabgarh C/o Milk Plant, Ballabgarh, Haryana, INDIA 5c. Sales Depot, Jind C/o Milk Plant, Jind, Haryana, INDIA
(91)-01681-226 310
5d. Sales Depot, Rohtak C/o Milk Plant, Rohtak, Haryana, INDIA (91)-01262-277 360
5e. Sales Depot, Gurgaon Opposite Civil Hospital,Gurgaon Haryana, INDIA (91)-0124-222 2284
5f. Sales Depot, Sirsa C/o Milk Plant, Sirsa Haryana, INDIA (91)-01666-245 059
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There are four cities where chilling have been placed, that are Rohtak, Jind, Ambala, Kurukshetra.
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INTRODUCTION:Haryana Dairy Development federation Corporation (HDDFC) has been established under Haryana Society Act on 1st April 1977. Its authorized financial part capital 2000 lakhs. The main aim of HDDFC is to develop the economic position of milk productor. Its associates societies purchase the milk by payment of good cost of milk. Milk and milk products are sold in Vita brand packets. During 2008-09 there is turnover of Rupees 395.45 crores of milk & milk made products. Dairy federations give the technical suggestion to its association & guide them to able produce the quality.
PROCESS:Milk societies are working in three phases (A) (B) (C) At village level, village societies. At District level, District dairy federation. At State level, Haryana society federation.
In Haryana there are six Dairy Development Federation Corporation, Hissar Jind , Rohtak , Bhalabgarh , Kurukshetra Karnal , Ambala and Sirsa. And every Federation is linked with village dairy development societies.
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18 Every Dairy Federation and Dairy Societies is a unit itself. This is having its own Directorate. The divisional Directorate elects its President. The village level society collects the milk from milk producer and sale it to Dairy Federation.
WOMEN DAIRY FEDERATION:In all over state there are constituted 438 women milk societies. These societies are purely managed by the women/ladies.
MILK PLANT:At present there are five milk plants in Haryana Corporation. The milk processing capability of which are 4.70 lakhs everyday.
Products
1970- 71 liquid milk, powder, ghee, cheese, Jaljeera, mango drink, curd 1973 -74 liquid milk, cheese, curd, lassi, Milk cake, SFM (sweet milk) 1976-77 powder, ghee, liquid milk, curd, Table butter
Ambala Rohtak
70.0 100.0
Bhalabgarh Sirsa
1979-80
100.0 100.0
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(2.2) OTHER FACILITIES TO MILK PRODUCTOR:Milk productor are being given cattle feed Vita mineral mixture, good seeds of forage, medicine for animals on minimum rates. Beside this Artificial Insemination Center are also being run by Seeman bank, so that good variety of milk producer animals can be predicted. Seeman Bank is also giving technical knowledge to peoples those having animals.
IMPROVEMENT IN QUALITY:It is necessary to have good quality milk to produce good quality product, so that milk is being purchase by the corporation societies directly from the milk productor and the corporation societies sent the milk to chilling center and at milk plants to minimum time, so that quality of milk be maintain. Neat and clean milk canes are being used. The products are made of as per instruction of Berue of Indian Standard and Aggmark and then sale in markets. To maintain the quality there established a laboratory at chilling center and plants. So that the quality of product being maintain at No.1. Milk plants, Rohtak, Bhalabgarh and Ambala have I.S.O 9002 and I.S15000 certificates.
(2.3) NEW OPPORTUNITIES:To achieve the aim the training is being given to all level. Whether he is worker, society secretary Board member of society & federation or milk productor itself. This training is given at good institutes like N.D.D.B, Irma, Hipa etc.The training to the Societies made by ladies is being given by Seeman Bank of Federation.
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YEAR
AVERAGE INCREASE IN COST OF MILK /lt (Rs) 10.70 10.96 10.55 11.09 13.05 13.01
WEB SITE FACILITY:Haryana Dairy Development has started a web site to benefit the peoples, the code of which is http/w.w/vtindia.com. Under which we are receiving international letter.
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Milk Federations Milk plants Chilling Center Co. societies Milk collection (Lakh liter) Pick milk collection (Lakh liter) Average milk collection in a day (lakh lt) No. of putting milk Average cost of milk
4.42
5.26
6.23
6.35
5.85
2.52
2.77
3.39
3.71
3.30
66747 10.7
71885 10.96
94632 10.55
94672 11.09
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SANJAY SETIA
C.E.O
Executive assistance
H R manager
Accounts manager
Workers
Workers
Workers
Workers
Workers
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OBJECTIVES
(1) TO provide an analytical overview of Working Capital Management at the Vita Milk Plant.
(2) TO study & analysis various financial data over a period of 2 years
DATA COLLECTION
Data is collected by secondary method.
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The ratios calculated & analyzed have been broadly divided under four parameters a) b) c) d) structure. Ratio to analyze the liquidity position. Profitability ratios. Ratio to calculate the efficiency of working capital management. Ratios to analyze the structural health of the divisions working capital
2.
To study the financing of working capital, its components and other short term sources of financing.
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Management and control of working capital is important for any kind and size of an organization because working capital makes the long-term assets operative. Number of instances is there, where many firms met with failure due to inefficient management of working capital. Amount of working capital must be in accordance with size of business. Excessive levels of current assets can result in a firm realizing a substandard return on investment. However, firm with too few current assets can result in difficulties in smooth operations. There are two concepts of working capital:
1.
Gross working capital is a financial concept. It refers to the firms investment in current assets. Current assets are assets, which can be converted into cash within an accounting year and include cash, debtors, bills receivables, loans and advances, inventories, prepaid expenses etc. Current assets have short life span and these are swiftly transformed into other assets form. Cash is used to buy raw material, raw material is converted into finished goods, finished goods are converted into receivables and finally, receivables are converted into cash. Hence, working capital is also called circulating or revolving capital and its cycle is shown as shown on the following page:
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26
Cash
Suppliers
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27
CURRENT ASSETS
Closing Stock
Stock in Trade Debtors Cash & Bank Balance Loan & Advances Deposits Total
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28
30000000
279136225.16
20000000
13224924.63 11533786.52
Closing Stock Stock in Trade Debtors Cash & Bank Balance Loan & Advances Deposits
10000000
6618167.62 3176553.58 1245016
Gross Working Capital = Current Assets Therefore, Gross working Capital of Vita = 314,934,673.51
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2.
It is an accounting concept. It is the difference between current assets and current liabilities. Current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors, bills payable, outstanding expenses, short term loans, bank overdraft, provisions etc.
Current Assets
RS.LACS
Current Liabilities
RS.LACS
Closing Stock
13224924.63
Creditors
48741897.29
Stock in Trade
279136225.16
Securities
6926477.48
Debtors
3176553.58
Duties&Taxes
3250982.50
Cash &Bank
6618167.62
Other Liabilities
11551478.74
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30
Loan Advances
11533786.52
Deposits
1245016.00
Total
314,934,673.51
Total
70,470,836.01
30000000
297136225.16
20000000
279136225.16 11533786.52
10000000
6618167.62 3176553.58
currentassets
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31
297136225.16
11551478.74
10000000
0
6926477.48 3250982.5
current liabilities
Net working capital is = Current Assets - Current Liabilities Therefore, Net Working Capital Of the Vita= 244,463,837.50Lacs The need for current assets is felt constantly. But the magnitude of current assets needed is not always same; it decreases and increases over time. However, there is always a minimum level of current assets, which is continuously required by a firm to carry on its business operations. The minimum level of current assets is referred to as permanent or fixed working capital. Depending upon changes in production and sales the need for working capital, over and above permanent working capital, will fluctuate for example, extra inventory of finished goods has to be maintained to support the peak periods of sales. The extra working capital, needed to support the charging production and sales activities is called variable or temporary working capital. Both kinds of working capital permanent and temporary are necessary to facilitate production and sale through
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32 the operating cycle, but temporary working capital is created by the firm to meet liquidity requirement that will lost temporarily.
The need of working capital arises due to time gap between production and realization of cash from sales. There is an operating cycle involved in the sales and realization of cash. Thus it is needed for following purposes: For the purchase of raw materials, components and spares. To pay wages and salaries. To incur day to day expense and overhead cost. To meet the selling costs. To provide credit facilities to customers. To maintain the inventories.
1.
Working capital requirement of a firm are basically influenced by nature of its business. Trading and financial firms have a very small investment in fixed assets, but require a large sum of money to be invested in working capital. In contrast, public utilities have a very limited need of working capital because they provide services on cash basis. Hence no funds will be tied up in debtors and stocks. Working capital needs of most manufacturing concerns fall between two extremes. The size of business also has an important impact on its working capital needs. Size may be measured in terms of scale of operations. A big firm will need more working capital than a small firm will.
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33 The size of the Vita is large.. It has undertaken expansion projects which call for increase in requirements of working capital.
2.
Manufacturing cycle
The manufacturing cycle comprises of purchase and use of raw materials and the production of finished goods. Longer the manufacturing cycle, larger will be the firms working capital requirements. Since Vita is a fully integrated plant with using Milk raw material and producing ghee,Butter, Lassi,Kheer,Dahi its manufacturing cycle is Short.
3.
Sales growth
The working capital need of a firm increases as the sale grows. It is difficult to precisely determine the relationship between the volume of sales and working capital needs. As sales grow, the firm needs to invest more in inventories and debtors. These needs become very frequent and fast when sales grow continuously.
The Plant sales are growing in the past few years which require increased need of working capital. It has increase 8.74% in 2008-2009from 2007-2008i.e. Rs. 955624380.97 lacs from Rs. 872172299.27lacs.
4.
Generally, rising prices will require a firm to maintain higher amount of working capital. However, companies, which can immediately revise their product prices with rising price 33
34 levels, will not face a severe working capital problem. Effect of rising prices will be different for different companies. Some will face no working capital problem, while working capital problems of other may be aggravated.
The operating efficiency of a firm relates to the optimum utilization of resources at minimum cost. Better utilization of resources improves profitability and thus helps in releasing the pressure on working capital. Firms differ in their capacity to generate profit from business operations. Some firms enjoy a dominant position due to quality product or good marketing management or monopoly in the market and earn a high profit margin and vice-versa can be there.
Since Vita is operating at about 90% capacity utilization, it has been able to reduce its unutilised capacity and thereby increasing its production which reduces its operating cycle.
6.
Market condition
The degree of competition prevailing in the market place has an important bearing on working capital needs. When competition is keen, a large inventory of finished goods is required to promptly meet the needs of customers. Also lenient terms of credit are to be given to attract the customers.
Since Vita sells its Products both cash basis & credit bases, the debtors collection period is very minimal.
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35 7. Production policy
In certain industries the demand is subject to wide fluctuations due to seasonal variations. The requirements of working capital, in such cases, depend upon the production policy. The production could be kept either steady by accumulating inventories during slack periods with a view to meet high demand during the peak season or the production could be curtailed during the slack season and increased during peak season. If the policy is to keep production steady by
Working capital, in general practice, refers to the excess of current assets over current liabilities. Management of working capital therefore, is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the inter relationship that exists between them. In other words, it refers to all aspects of administration of both current assets and current liabilities. The basic goal of working capital management is to manage the current assets and current liabilities of a firm in such a way that a satisfactory level of working capital is maintained, i.e., it is neither inadequate nor excessive. This is so because both inadequate as well as excessive working capital positions are bad for any business. Inadequacy of working capital may lead a firm to insolvency and excessive working capital implies idle funds, which earn no profits for the business. Working capital management policies of a firm have a great effect on its profitability, liquidity and structural health of the organization.
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profitability, risk and liquidity. Dimension II is concerned with the decisions regarding the composition and level
of current assets. Dimension III is concerned with the decisions about the composition and level of
current liabilities.
There is a definite inverse relationship between the degree of risk and profitability. A conservative management prefers to minimize risk by maintaining a higher level of current assets while a liberal management assumes greater risk by reducing working capital. However, the goal of the management should be to establish a suitable trade off between profitability and risk.
1. 2.
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37 Fixed working capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. Every firm has to maintain a minimum level of raw materials, work-in-progress, finished goods etc. This minimum level of current assets is called fixed working capital. It can be regular and reserve.
It is the minimum amount of working capital required to ensure circulation of current assets.
It is the excess amount over the requirement for regular working capital, which may be provided for contingencies that may arise at unstated periods such as strikes, rise in price etc.
It is the amount of working capital, which is required to meet the seasonal demands and special exigencies.
Seasonal Working Capital: It is the capital required to meet the seasonal needs of the enterprise. .
It is required to meet special exigencies such as launching of extensive marketing campaigns for conducting research etc.
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Variable
Fixed
The figure shows that fixed working capital is stable or fixed over time while the variable working capital fluctuates.
In Vita permanent working capital is fixed while the variable or seasonal working capital is applicable.
I OPERATING CYCLE
Operating cycle is the time duration required to convert sales, after the conversion of resources, into cash. Cash inflows are not certain because sales & collection which give rise to cash inflows are difficult to forecast accurately. Cash outflows, on other hand are relatively certain. The firm is, therefore, required to invest in current assets for smooth, uninterrupted functioning. It needs to maintain liquidity to purchase raw materials & pay expenses such as wages & taxes as there is hardly a matching between cash inflows and cash outflows.
Cash is hold to meet any future exigencies. Stocks of raw material and work-inprogress are kept to ensure smooth production and to guard against non-availability of raw material and other components. The firm holds stock of finished goods to meet the demand of customers on continuous basis and sudden demand from some
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39 customers. Thus, a firm makes adequate investment in inventories, for smooth, uninterrupted production and sale.
In order to understand the length of time which reports are committed to various components of working capital, operating cycle analysis has been done. The operating cycle of a firm begins with the acquisition of raw material and ends with the collection of receivable. There are four aspects of operating cycle, which involves commitment of resources, a material stage, and accounts finished stage.
1. COMMON SIZE STATEMENT OF THE UNIT Particulars 2008-09 %age 2007-08 %age
Current Assets Closing stock Stock in trade Debtors Cash&Bankbalance 13224924.63 279136225.16 3176553.58 6618167.62 4.20 88.64 1.00 2.10 14449720.70 219806352.35 13252051.64 11341653.11 5.43 82.72 4.98 4.26
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40
Loans&Advances
11533786.52
3.66
5600506.98
2.17
1245016.00 314,934,673.51
.40 100
1245016.00 265,695,300.78
0.46 100
2.
Particulars
2008-09
2007-08
Icrease/Decrease
Current Assets Closing stock Stock in trade Debtors 13224924.63 279136225.16 3176553.58 14449720.70 219806352.35 13252051.64 (1224796.07) 59329872.81 (10075498.06)
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Cash&Bankbalance Loans&Advances
6618167.62 11533786.52
11341653.11 5600506.98
(4723485.49) 5433279.54
1245016.00 314,934,673.51
1245016.00 265,695,300.78
0 49239372.73
3. WORKING CAPITAL
205324465.4
244,463,837.50
60000
50000
41
40000 2008 2009
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It is clear from the above graph that net working capital of Vita is increasing in year 2009 is comparison to the year 2008.
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RATIO ANALYSIS
A ratio is an arithmetical relationship between two figures. Financial ratio analysis is a study of ratios between various items or group of items in financial statement, turnover ratios have been used for analysis. Ratio analysis is the powerful tool of financial analysis of accounting data. The relationship of the figures should be meaningful. Financial analysis & ratio is used as an index or yardstick for measuring performance of the firm.
Working capital is that part of total capital which is important in current assets, to get better insights about the working capital position of the Vita, it is better to utilize ratio analysis. To analyze the working capital position I shall here interpret the following ratios of Vita for two consecutive financial years 2008-09 and 200708.
1.
2.
Activity Ratios
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1.
LIQUIDITY RATIOS: The liquidity aspect is essential for both the creditors as
well as management of a business enterprise. These ratios are used to judge a firms ability to meet short term obligations. From them much insight can be obtained to present cash solvency of the firm and its ability to remain solvent in the event of adversities. We wish to compare short-term obligations with the short-term sources available to meet these obligations.
a)
Current ratio: - The current ratio is very popular financial ratio measure as the
ability of the firm to meet current liabilities. Current assets are converted into cash for the payment of current liabilities. Apparently higher the current ratio the greater the short term solvency, Current ratio of Vita can be shown as under: Current Assets_ _ Current Liabilities
(Rs Lacs) Particulars Current assets Current Liabilities Current ratio 2008-09 314,934,673.51 70,470,836.01 4.46 2007-08 265,695,300.78 60,368,735.40 4.40
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A current ratio of 2:1 is generally considered satisfactory. The current ratio of the unit is much above the recommended and it ensures the payment of dues in time. b) Quick ratio: - Although current ratio is a valuable indicator of liquidity yet it may
lead to misleading conclusion, in case of inventories forms a major component of current assets, the quick ratio is a fairly stringent measure of liquidity. It is based on those current assets which are the highly liquid or which are easily converted into cash. Inventories and prepaid expenses are excluded from this category, because these are the best liquid component of and has the ability to pay its current liabilities in time when these are due, the ratio may be expressed as:-
Table showing the Quick ratio (Rs.) Particulars Quick assets Current Liabilities Quick ratio 2008-09 301,709,748.88 70,470,836.01 4.28 2007-08 251,245,580.08 60,368,735.40 4.16
The standard for quick ratio is 1:1. The ratio of the company is more than standards considerably.
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45 1. ACTIVITY RATIOS: The funds of creditors and owner are invested in various
kinds of assets to generate sales and profits. Activity ratios measure how efficiently the firm employs the assets. These ratios arebased on the relationship between the level of activity, represented by sales and level of various assets. The important turnover ratios are:
a)
Current assets turnover ratio: The idea of the current assets turnover is to
ascertain the contribution of the current assets to sales. The relationship indicates efficiency or otherwise of the utilization of current assets to attain the maximum sales. It is a relative measure as it is compared with previous year. Lower ratio tells us that the company is employing more current assets for a given level of sales and vice-versa, the ratio may be expressed as:-
Table showing current assets turnover ratio (Rs.) Particulars Sales Current assets Turnover ratio 2008-09 955,624,380.97 314,934,673.51 3.03 2007-08 872,172,299.27 265,695,300.78 3.28
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46 Thus current assets are contributing 3.03 times to sales in 2008-09 as compared to 3.28 in 2007-08.,
velocity of the utilization of working capital. A higher ratio indicates the effective utilization of working capital and a low ratio indicates otherwise, the ratio may be expressed as:-
In the JSL, working capital turnover ratio can be made through following table: -
Table showing working capital (Rs.) Particulars Sales Net working capital Working capital turnover ratio 2008-09 955,624,380.97 244,463,837.50 3.90 2007-08 872,172,299.27 205,326,565.38 4.24
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47 The above table shows that the net working capital turnover ratio of the unit is decreasing which means no better utilization of funds by the company this year than the previous year.
2.
After a firm has decided upon the level of working capital to be maintained it has to decide the mode of financing. Financing of working capital:
a)
Sale Realisation
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48 b) c) d) e) Bank credit Trade credit Current provision of non bank short term borrowings Long term sources comprising equity capital and long term borrowings
1.
Vita should finance all its requirement of working capital through short
term sources of finance as they are cheaper than the long term sources. It is financing a part of its working capital from long term sources of finance as it is clear from the fixed assets to total long term fund ratio.
2.
A.B.C.
analysis, V.E.D. analysis etc. this inventory system can make the inventory
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49 management more result oriented. Since, inventory covers the major potion of VITA current assets, it should be given prime attention.
3. The company should do proper Cost-to-Benefit analysis before purchasing the raw material i.e. scraps for following months in light of its storage cost, current prices, estimated future prices, further demand etc. along with the opportunity cost of holding such inventory.
4.
The
surplus
fund
of
the
unit
should
be
invested
in
some
short
marketable securities, rather than providing it to its overseas subsidiary free of cost, to improve profitability along with liquidity. 5. The company should reduce its Reduction in debtors cycle and finished good Cycle.
VITA has opted for a moderate overall working capital policy. This suggests that it is risk averse. It wants a reasonable profit with a reasonable amount of risk. If it goes in for an aggressive policy the profits generated could be high but accompanied with the high level of profits will come high level of risk, which they feel is not appropriate. Since with this policy the profits being generated are substantially high a change in the working capital policy is not called for.
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Since VITA produces only on orders therefore the inventory requirements for the following months can be accurately forecasted. Since, the raw material, it should be stored for following months by analyzing the benefit of storing it, the storage cost associated with it, scrap prices, its availability and also further requirements of the company as per its orders. Every month if forecast is made accordingly and order is placed, it would help in bringing down the time required in the raw material storage period. Company doing well by efficiently employing funding of creditors.
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