`

INTRODUCTION
Working capital management involves the relationship between a
firms short-term assets and its short-term liabilities. The goal of working capital management
is to ensure that a firm is able to continue its operations and that it has sufficient ability to
satisfy both maturing short-term debt and upcoming operational expenses. The management
of working capital involves managing inventories, accounts receivable and payable, and cash.

Working capital typically means the firms holdings of current, or short-term, assets
such as cash, receivables, inventory and marketable securities. These items are referred to as
circulating assets because of their cyclical nature. In a retail establishment, cash is initially
employed to purchase inventory, which is in turn sold on credit and results in accounts
receivables. Once the receivables are collected, they become cash-part of which is reinvested
in additional inventory and part going to profit or cash throw-off.

The need for working capital to run the day to day business activities cannot be
overemphasized. We will hardly find a business firm which does not require any amount of
working capital. Indeed, firms differ in their requirements of the working capital.

There are two concepts of working capitalgross and net.

Gross working capital refers to the firms investment in current assets. Current assets
are the assets which can be converted into cash within an accounting year an include cash,
Short-term securities, debtors, bills receivable and stock.
Net working capital refers to 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, and outstanding
expenses.

Working Capital is the capital that allows businesses to operate on a day-to-day

basis. Depending on the nature and the time period for which the working capital is held in
business, it can be classified as:
1

CAPITAL:

CAPITAL

WORKING CAPITAL

FIXED CAPITAL

GROSS
WORKING
CAPITAL

NET WORKING
CAPITAL

OPTIMUM
WORKING
CAPITAL

CONTINGENT
WORKING
CAPITAL

NEED FOR THE STUDY:

The need of Working Capital cant be over emphasized every businesses needs some
amount of working capital arises due to the time gap between production and realization of
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cash from sales. There is time gap in purchases of raw material and production. Production,
sales and realization of cash thus, working capital needed for the following purposes.
For the purchase of the raw materials, components and spares.
To pay wages and salaries.
To incur day to day expenses and overhead costs such as fuel, power and office
expenses etc.
To meet the setting cost as packing, advertising, etc.
To provide credit facilities to the customers.
To maintain the inventories of raw material, work in progress, stores and spares and
finished stock.
Adequate working capital enables a concern to face businesses in emergencies such as
depression, because during such period, generally there is such pressure on working
capital.
Adequacy of working capital creates environment of confidence high morale and
creates overall efficiency in business.
Sufficient working capital enables a business concern to make prompt payments and
hence helps in creating and maintaining goodwill.
Adequate working capital helps in maintaining solvency position of the business by
providing uninterrupted flow of production.

SCOPE OF THE STUDY:

The study is of significant help to the following groups.
The study provides an insight into the various aspects of working capital management

Studies of this type are also useful to competitors to make necessary steps to improve
working capital management
Hence the company can make necessary changes in the policy relating to it.
Studies of this type are also useful to policy makers to make necessary changes in the
policies retaining to the working capital management in SANGAM DAIRY

The scope of my study constitutes to be one of the interesting and key areas
of working capital management. The study concentrates of the financial status or affairs of
the company and the management of working capital in the company which involves the
study of operating cycle and ratios of different periods and their comparison over the last five
years.

OBJECTIVES OF THE STUDY:

Primary objective:
A study on working capital management in SANGAM DAIRY at
VADLAMUDI
Secondary objectives:
To find out the liquidity position of the company
To find out the determents of working capital in the company
To know asset the working capital prices
To find out the sources of working capital finance
To examine the core management
Bills receivable management
Inventory management
To measure the operational efficiency of SANGAM DAIRY.
To determine the profitability trends of SANGAM DAIRY
To asses the components of the working capital management and determine the
fluctuations caused due to them.

METHODOLOGY
Case study method been adopted for carrying out the study. For carrying out the
project primary data and secondary data has been used. The collection of data has been done
through them principle sources.
(1)

Primary Data

(2)

Secondary Data

(1) Primary Data:

It is the information collected directly from accountants, account officers and
financial departments, personal interaction and observation.
(2) Secondary Data
Secondary data is the data which is already published in economic and commercial
journals.
The data is collected from:
Annual reports.
Audit reports.
Different books.
Companys website

LIMITATIONS OF THE STUDY:

Every study is conducted under certain limitations. The limitations for this study are
as follows.
The whole study was conducted with in a short span of 45 days. I was sincere in my
efforts in gathering the maximum possible information and utilizing it for study.
It was not possible to get the lent percent correct information. The research was made
according to the information available from related departments and through annual
reports published.
The study is based on the information provided by the company.
Working capitals are calculated on the basis of 5 years financial statements.

INDUSTRY PROFILE
INTRODUCTION:
The popular adage nothing succeeds like success is applicable to the dairy
development in India. If the country witnessed the green revolution leading to self-reliance
in food grains in the sixties and the seventies, the decades of the eighties and the nineties
witnessed the white revolution. Indian total milk production is ranked first in the world
followed by the United States. Initially dairying was largely an unorganized activity. By and
large land holding farmers kept cattle mainly for bullock production. Milk was essentially a
byproduct. The surplus after domestic consumption was either converted into conventional
products mainly ghee and sold to middle men who cater to the needs of the market.
As India enters an era of economic reforms, agriculture, particularly the livestock
sector, is positioned to be a major growth area. The fact that dairying could play a more
constructive role in promoting rural welfare and reducing poverty is increasingly being
recognized. For example, milk production alone involves more than 70 million producers,
each raising one or two cows/buffaloes. Cow dung is an important input as organic fertilizer
for crop production and is also widely used as fuel in rural areas. Cattle also serve as an
insurance cover for the poor households, being sold during times of distress
There was an increasing demand for milk from the urban areas. There arose a need
for the farmers to increase the production of milk. Since the demand in the urban scenario is
rapidly increasing so do the farmers generate the supply? Further the new dairy plant capacity
approved under the Milk and Milk products order (MMPO) has exceeded 100 million l/p/d.
The new capacity would surpass the projected rural marketable surplus of milk by about 40
percent by 2005.
EVOLUTION:
The origin of dairy farms under public management dates back to 1886 when
the department of Defense established a few dairy farms in that year to supply milk and milk
products to the British troops. The next step was initiated during the First World War
In 1914, the Department of Defense on the advice of the Board of Agriculture
advised the Government in 1916, to appoint imperial dairy expert. The next important step
was the decision to conduct a census of livestock. The Board of Agriculture carried out the
livestock census in 1919 as a preparatory action for planned dairy development. In 1920, the
imperial expert recommended to the Government for the establishment of a training center to
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meet the manpower requirements for managing the Defiance Dairy Farms. By this time there
were three dairy farms and until 1923 the British Governments approach towards dairying
was confined to milk requirements of the military only. After 1923, diploma course in dairy
were started at Bangalore.
Dr. N.C. Wright, Director, Dairy Research institute, Scotland who was invited
to India in 1936 for reviewing the progress of dairying in the country has made two
recommendations: 1. Industry needs have to be solved by developing own technology and technologists in the
country.
2. India is country of villages, of which most inhabitants are small, marginal farmers and
landless laborers. Development should be promoted only on co-operative lines.
In 1937, the Lucknow Milk producers co-operative Union limited was
established paving the way for the organization of such union in districts and state.
In 1945, the Famine enquiry commission in its report emphasized the need for
developing fodder supply for increasing milk production and recommended the adoption of
mixed farming with a place for fodder and crop rotation. As a sequel to this, under the
Greater Bombay Milk Scheme, milk was procured from Kaira district, Gujarat by the private
dairy. That gave way to the idea of creating an institutional structure for dairying on cooperative lines.
THE ROOT CAUSE:
In the forties one firm Polsons dominated the dairy industry. Established by
rather enterprising gentlemen who discovered in Kaira district, of what was then Bombay
presidency, produced a good deal of milk. He established a creamery and for a while the
name polsons was synonymous with butt-much as Amul is today.
One of Paulsons businesses is to supply milk to Bombay. As Karia district was
an abundant source of the commodity, Polson was chosen to procure it from there. He in turn,
entered into an arrangement with a number of contractors who actually went to the villages
and collected the milk. Everyone was happy. Bombay relieved reasonably good quality milk
and Polson made a handsome profit. The contractors too manage to earn large margins by
over quoting the farmers. It was only the poor farmers who were unhappy for it. They
invested in the animal feed and fodder and they put in their labor; yet, it was they who
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received the smallest share of the Bombay consumers rupee. The arrangement benefited
everyone but them.
THE FIRST STEPS FORMATION OF KARIA UNION
Realizing that something needed to be done about the unequal balance of
wealth, they turned to Sardar Vallabhai Patel for advice. Sardar Patel knew that their only
chance of earning a decent income was when they themselves gain control over the resources
they created. He also knew that the co-operatives offered them the nest chance of gaining that
control. So he advised them to stop selling milk to Polson and form a co-operative milk
producers union (AMUL) was born in 1946
The co-operative then passed through some very difficult times and eventually
become a model of co-operative dairying throughout the world.
The AMUL co-operative was started by a handful of members initially handling only
250lt milk a day. Over the years, this union has grown from strength to strength and today
AMUL handles over 80,000 it of milk per day. There are 91 village Milk cooperative
societies. In 1988-89 the turnovers were 1,700 million and its assets were Rs.200 millions.
The focus of the union was on production by the masses, not mass production. By the
early sixties, the modest experiment in Kaira had not only become a success, people began to
recognize it as such. Farmers from all parts of Gujarat came to learn it. They went back to
their own districts and started their own cooperatives. The result-together, the district milk
producers unions of Gujarat own the Gujarat co-operative Milk marketing federation which
markets the milk and milk products manufactured by its owners. Last year the federations
turnover was over Rs1700 cores making it the largest in the food industry? Besides the dairy
plant, the AMUL owns cattle feed plant producing over 400 tons of balanced cattle feed a
day. It manufactures a wide range of products, including milk power, butter, cheese,
chocolates and malted beverages.
ESTABLISHMENT OF NATIONAL DAIRY DEVELOPMENT BOARD (NDDB):
The Government of India had established the National Dairy Development Board
(NDDB), an autonomous body headquartered at Anands Co-operative in India. In order to
develop dairy in India, NDDB drew plans for operation flood.
THE NEXT ACHIEVEMENT: OPERATION FLOOD
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In the late sixties, the board drew up a project called Operation Flood (OF) meant
to create a flood of milk in Indias villages with funds mobilized from foreign donations.
Producers co-operatives, which sought to link dairy development with milk marketing, were
central plank of this project. The Operation Flood, which started in 1970, concludes its third
phase in 1996 and has to its credit these significant results:

The enormous urban market stimulus has led to sustained

Production increases, raising per capita availability of milk to early 200 grams per
day.

The dependence on commercial imports of milk solids are alone away with.

Modernization and expansion of the dairy industry and its infrastructure,

activating milk grid.

Marketing expanded to supply hygienic and fair priced milk to some 300 million
consumers in 550 cities and towns.

A nationwide network of multi-tier producers co-operative, democratic in

structure and professionally managed, has come into existence. Millions of small
producers participate in an economic enterprise and improve the quality of their
life and environment.

Dairy equipment manufacturer has expanded to meet most of the industrys needs.

OPERATION FLOOD:
A recent World Bank audit shows that of the Rs.200 crores bit invested in Operation
Flood 2, the net return into the rural economy has been a whopping Rs.24, 000 crores per
year over a period of ten years, or a total of Rs.40, 000 crores in all. No other major
development program has matched this input-output ratio. Operation Flood, launched in
1970, has been instrumental in helping the farmers mould their own development. Thus
helping reach milk consumers in 700 towns and cities though a National Milk Grid It also
helped eradicate the need for middlemen thereby reducing the seasonal price variations As a
result of the co-operative structure the whole exercise of production and distribution of milk
products has become economically viable for farmers to undertake on their own. In this
manner the farmer himself can enjoy the fruits of his own labor, instead of surrendering a
majority of the profit to corrupt middlemen.
THREE PHASES OF DEVELOPMENT
The scheme sought to establish milk produces co-operatives in the villages and
make modern technology available to them. The broad objectives are to increase milk
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productions (a flood of milk) augment rural incomes and transfer to milk producers the
profits of milk producers the profits of milk, marketing which are hitherto enjoyed by wellto-do-middlemen.
PHASE1:
Phase 1 of Operation Flood was financed by the sale within India of skimmed
milk powder and butter oil gifted by the EC countries via the world food program. As
founder-chairman of the National Dairy Development Board (NDDB) of India Dr. Kurien
finalized the plans and negotiated the details of EEC assistance.

He looked after the

administration of the scheme as found-chairman of the erstwhile Indian Dairy Co-operation,

the project authority for Operation Flood. During its first phase, the project aimed at linking
Indias 18 best milk sheds with the milk markets of the four metropolitan cities of Delhi,
Mumbai, Calcutta and Madras.
PHASE2:
Phase 2 of the project, implemented during 1981-85 raised this to some 136 milk
sheds linked to over 290 urban markets. The seed capital rose from the sale of WFP/EEC gift
products and World Bank loan had created, by end 1985, a self-sustaining system of 43,000
villages co-operatives covering 4.25 million milk producers. Milk powder production went
up from 22,000 tons in the pre project year to 1, 40,000 tons in 1989, thanks to dairies set up
und Operation Flood. The EEV gifts thus helped to promote self-reliance. Direct marketing of
milk by producers co-operatives resulting inn the transfer of profits from milk contracts
increased by several million liters per day.
PHASE3:
Phase 3 of Operation Flood (1985-1996) enabled dairy co-operatives to rapidly
build to the basic up the basic infrastructure required to procure and market more and more
milk daily. Facilities were created by the co-operatives to provide better veterinary first-aid
health care services to their producers members.
ACHIEVEMENTS UNDER OPERATION FLOOD:
The main objective of Operation Flood was achieved by vertical integration of
milk procurement, processing and marketing through a three-tier co-operative structure by
organizing 60,280 village co-operative societies (VCS) in 173 milk shed having 6.61 million
farmers by September 1989. Not only that, there are today, 1230 rural milk processing plants
of 13.9 MLPE (million liters per day) capacities.
The milk production has increased from 20.74 million tons in 1969-70 to 4807
million tons in 1988-89 while consumption capacity increased from 107 Kg/ days in 168
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Kg/day. The increase in milk production was 6.6 per annum without altering the basic landholding structure, farming system and ownership of cattle.
The infrastructure build to link producers directly with the urban consumers had helped
to transfer 75% of the consumption price to the producer which was the main incentive to
increase milk production. Payments received by the farmers rose from Rs.1.75 billion during
1980-81 to over Rs.8 billion by 1988-89
The milk grid was developed to link good milk producing areas with the four
metropolitan city milk plants by rail milk tankers and road milk tankers. Today milk is
transported from one part of the country to another by rail tankers.
With increase in local production of milk powder and butte, the import of
commodities has been significantly reduced. The import accounted for 60% of the milk
throughout the mid fifties. While it had dropped to 6% by the mid-eighties
There is no more rationing and quota card system, for the purchase of milk for
consumers convenience. UHT tanned shelf milk was introduced in the mid-eighties which
are slowly gained in Popularity. .
Project was based on a sound and successful model of the Anand dairy co-operative.
The efficient handling of the gifted commodity was the land mark of success of Operation
Flood.
DEVELOPMENT OF DAIRY IN NINTIES:
The momentum gained in the dairy through co-operatives during the last 20 years will
now take India into nineties as major dairying country of the world. The countrys milk
production in the early sixties which was about 20 million tons has touched a record of 56
million tons. It is likely to reach about 80 million tons by 2000 AD. India which one time was
dependant on other countries for products such as milk powder, table butter and cheese has
now become self sufficient. It has even started exporting some of them in small quantities
simultaneously efforts are made to expand milk procurement, processing and marketing to
meet the growing demand for milk products.
DAIRY CO-OPERATIVES:
In our country, the co-operative movement owes its development to the initiative of
the Government. It is only during 1950s that Tamil Nadu, Gujarat and Uttar Pradesh took
some important steps in organizing Dairy Co-operative sector, provided a model for the milk
producers. Co-operatives in Gujarat and other states provided guidance and policy direction.
State level federations of Dairy Co-operatives have been formed in different states.
13

The entire institutional network of the co-operatives comprises of 22 Federations, 173 unions,
75 thousand Dairy Co-operative societies and over 7 million farmers. Members during 198990 collected an average 10 million it of milk in a day and paid about 1200 crores of rupees in
a year.
MAIN AIM OF DAIRY INDUSTRY IN CO-OPERATIVE SECTOR

Formation of co-operative units of milk producers in every

village.

To improve cattle wealth of goods breed which are imported for

milk production?

To avoid contaminated diseases buy using proper medicines

and injunctions.

Providing the availability of good breed seeds so as to improve

the cattle feed.

Industry mobile hospitals to provide free medical facilities to

cattle of the dairy and avoid diseases.
So from the above aims of the co-operative unions, it is crystal clear that the co-

operative sector would be instrumental in increasing the milk production.

To put the above programmers to action in our district with the co-operation of
National Dairy Development Board, a Three-Tier programmed was started in 1980. In
relation to it 198 milk producers co-operative unions have been set up at village level.
THE THREE-TIER SYSTEM:
The Three-Tier system consists of:
1. Primary Dairy Co-operative societies at village level
2. Co-operative Unions district level.
3. Federation at state level.
MILK SHEDS/UNIONS:
Operation flood programmer has been identified into milk sheds/unions.
NO
1
2
3

MILK SHEDS/UNIONS
Visakha
Godavari
Krishna

DISTRICTS
Srikakulam, Vizianagaram, Vizag
East and West Godavari
Krishna
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4
5
6
7
8
9

Guntur-Prakasam
Chittor
Kuddapha
Kurnool
Nalgonda-Ranga reddy
Medak-Nizamabad

Guntur-Prakasam
Chittor
Kuddapaha
Kurnool
Nalgonda-rang reddy
Medak-Nizamabad

COOPERATIVE MARKETING:
Cooperative dairy societies have played a major role in the marketing of milk in India.
Major quantity of milk is produced in the rural area while the profitable market for milk and
milk products is largely in urban areas. However the quantity of milk available for sale for an
individual farmer is very less. It becomes difficult for them to send such a small quantity to
urban markets on their own. They face a number of problems such as inadequate transport
facilities and absence of proper marketing. Therefore the role played by the dairy
Cooperatives in building.
Addition to the arrangement of sale of milk, the dairy cooperative are also expected to
provide veterinary aids, supply cattle needs and arrange for the supply of credit for related
purpose.
LOAN TO MEMBERS:
The milk cooperatives cannot extend loans to the farmers directly. Instead they can offer
guarantee to the amount borrowed by the farmer. It was observed that from small size
societies about 7 members received loans amounting to Rs.42, 000. The loan was mainly
offered for the purpose of purchase of cross-breed cows. In
Medium, purpose of purchase of cross-breed cows and 29 members
Got the loan worth Rs.7, 50,000 for purchase of buffaloes

GAINS TO THE MEMBERS:

The co-operative society provides loans, fertilizers, and fodder, seeds, breeding and
veterinary facilities to augment the milk production. At present there are 238 dairy plants in
India comprising of public co-operatives and private sectors.
Co-operative milk societies are organizations of producers and the not only arrange
marketing of surplus milk but also supplement the income of the producers, who are

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generally agriculturists, mainly in rural areas. These societies also help the consumers to
have pure and unadulterated milk at reasonable price.
Co-operative marketing may be defined as a co-operative association formed to
perform one or more of the marketing functions relating to the marketing association or an
agricultural co-operative marketing society, need not necessarily perform all the marketing
functions.

Normally these functions include services such as selling agents, supply of

accurate market information, standardization storage, assembling, packing and processing

services.
The primary objective of the co-operative is to maximize the income of its members
as much as possible. To achieve this primer
Objective co-operative marketing aims at obtaining higher prices for the producers
and minimizing the costs of marketing.
To obtain higher prices for its members a co-operative marketing society tries to
achieve the following:
1. Development of orderly marketing.
2. Adoption of better selling methods.
3. Improvement of quality.
4. Elimination of trade abuses.
5. Improved bargaining position for the members as sellers.
6. Improvement of standardization and grading.
CREDIT SUPPLY AND TECHNOLOGY MISSION FOR DAIRY DEVELOPMENT:
The national co-operative development co-operation has been providing financing
assistant to dairy co-operatives for organizing medium and small size dairy processing plant
and milk filling centers. The co-operation has sanctioned a total loan for dairy units.
In addition small farmers development agency (SFDA), marginal farmers and
agricultural labor agency (MFLA), INTEGRATED RURAL DEVELOPMESNT SCHEMES
(IRDS) and integrated tribunal development agency b have their own tasks of providing
incentives of dairy.
NATIONAL MILK GRID:
In the seventies the national milk grid was a distant dream. But the next decade saw
it taking shape.

The benefits from such an arrangement are for both consumers and

producers.
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The development of national milk grid mainly took place for solving the problems of
the producers. The producers form high milk producing districts not only suffered loss
because there were no tankers for the extra quantity of milk available during the flush season
were lower than those paid during the les/a season. The gird solves the problem of the
producers.
From the consumers side also this Grid is useful. In 1951 there were 20,900 towns
and in 1971 this number has risen to 62,360. During this period the urban population has
increased from 62.4 million to 109.1 million, a growth of 74.8% there was demand for milk
from the urban consumer and they also had the necessary purchasing power.
The demand was felt in the four metropolitan cities of India i.e., Bombay, Calcutta,
Madras and Delhi which have a combined population of around 16 million (1971). City milk
traders brought the milk by bus, trains and vans. But they could not maintain adequate
supply of milk with a growing demand from urban consumers. The grid brought more supply
of milk to the consumer. The grid brought more supply of milk to the consumer throughout
the year at rational prices.
In order to increase the milk supply and to prevent migration of cattle to the cities Plans
were drawn to establish.

Cattle colonies, but this city cattle colony project was not

successful. Later, five-year plans were drawn to increase milk production. Between 1950
and 1970 the total investment was around 11,400 million.
SWOT ANALYSIS OF INDIAN DAIRY INDUSTRY
STRENGHS:

Demand profile: Absolutely optimistic.

Margins: Quite reasonable, even on packed liquid milk.

Flexibility of product mix: Tremendous. With balancing equipment, you can keep on
adding to your product line.

Availability of raw material Abundant, presently, more than 80 % of milk produced is

flowing into the unorganized sector, which requires proper canalization

Technical manpower: Professionally-trained, technical human resource pool, built

over last 30 years.

WEAKNESS:

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Perish ability: pasteurization has overcome this weakness partially. UHT gives milk
long life. Surely, many new processes will follow to improve milk quality and extend
its shelf life.

Lack of control over yield: Theoretically, there is little control over milk yield.
However, increased awareness of developments like embryo transplant, artificial
insemination and properly managed animal husbandry practices, coupled with higher
income to rural milk producers should automatically lead to improvement in milk
yield.

Logistics of procurement: Woes of bad roads and inadequate transportation facility

make milk procurement problematic. But with the overall economic improvement in
India, these problems would also get solved.

Problematic distribution: yes, all is not well with distribution. But then if ice creams
can be sold virtually at every nook and corner, why cant we sell other dairy products
too? Moreover, it is only a matter of time before we see the emergence of a cold chain
linking the producer to the refrigerator at the consumers home!

Competition: With so many new comers entering this industry, competition is

becoming tougher day by day. But then competition has to be faced as a ground
reality. The market is large enough for many to carve out their niche.

OPPORTUNITIES:
Failure is never final and success never ending. Dr. Kurien bears out this
statement perfectly. He entered the industry when there were only threats. He met failure
head on, and now he clearly is an example of never ending success! If dairy entrepreneurs
are looking for opportunities in India, the following areas must be tapped:
Value addition: There is a phenomenal a cope for innovations in products like
shrikhand, ice creams, pabeer, khao, flavored milk, dairy sweets, etc. this will lead to greater
presence and flexibility in the market place along with opportunities in the field of brand
building.

Addition of cultured products like yogurt and cheese lend further strength both in
terms of utilization of resources and presence in the market place.

A lateral view opens up opportunities in milk proteins through casein, castigates and
other dietary proteins, further opening up export opportunities.
18

Yet another aspect can be the addition of infant foods, geriatric foods and nutritional.
Export potential: Efforts to exploit export potential are already on. Amul is

exporting to Bangladesh, Sri Lanka, Nigeria, and the Middle East. Following the new GATT
tread, opportunities will increase tremendously .for the expertly of agric-products in general
and dairy products in particular.

THREATS:
Milk vendors, the un-organized sector: Today milk vendors are occupying the pride
of place in the industry. Organized dissemination of information about the harm that they are
doing to producers and consumers should see a steady decline in their importance.
The study of this SWOT, analysis shows that the strengths and opportunities far
outweigh weakness and threats.

Strengths and opportunities are fundamental and

weakness and threats are transitory. Any investment idea can do will only when you have
three essential ingredients: entrepreneurship (the ability to take risks), innovative approach
(in product lines and marking) and values (of quality/ethics). The Indian dairy industry,
following deli censing, has been attracting a large number of entrepreneurs. Their success in
dairying depends on factors such as an efficient yet economical procurement network,
hygienic and cost-effective processing facilities and innovativeness in the market place. All
that needs to be done is: to innovate, convert products into commercially exploitable ideas.
All the time keep reminding yourself: Benjamin Franklin discovered electricity, but it was the
man who invented the meter that really made the money!
DAIRY DEVELOPMENT IN ANDHRA PRADESH
During industry programs were primarily initiated with the help of United Nations
International Childrens Emergency Fund and Agricultural Organization and freedom from
Hunger campaign organization of U.K. these organizations helped a lot in the establishment
of dairy units at Hyderabad and Vijayawada in 1967 and 1969 respectively, which led to
pioneer dairy development in Andhra Pradesh.
With the implementation of operation flood II program in Andhra Pradesh, the tempo
of dairy development has gained momentum, providing a new thrust for the eradication of
poverty and unemployment in rural areas and brought greater awakening and confidence

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among milk producers to manage their own affairs through dairy co-operatives in Andhra
Pradesh.
MILK POTENTIAL:
Andhra Pradesh has excellent potential for milk production with progressive farmers
who are more receptive to the new technology and scientific practices. The estimated milk
production is 40lakh its per day. Today a strong wave of white revolution is sweeping
creating a new hope of eliminating socio-economic balance. Andhra Pradesh is poised to be
the dairy land of India playing an importance role in National Milk Grid.
GENESIS OF ANDHRA PRADESH DAIRY INDUSTRY
Planning for organized dairy industry in Andhra Pradesh was conceived in 1956 and a
pilot milk supply scheme was started in 1960-61 as preclude for an integrated milk project at
Hyderabad and Vijayawada. UNICEF provided dairy equipment worth Rs.1crore. The main
objective is linking up and supplying surplus milk from the producing area to the consuming
area.
Andhra Pradesh Dairy Development Corporation was formed on 24 th February, 1974
as a stage government undertaking for the mission of industrializing rural dairying.
Extensive information was developed to produce milk from every nook and corner of the
state and to tap the untapped milk sector within the main objective of generating employment
and opportunities to rural people. It paved a way providing employment to nearly 15,000
employees and organizes as many as 87 dairy units including 7 milk product factories, 13
district dairies, and 22 chilling centers.
More than 3.5 million producers get Rs.20crores per annum for supplying milk of
which 69% of total beneficiaries belong to small and marginal farmers, agricultural labor and
other working section of rural community. Every day 8.2 lakh its of milk is collected. Every
tenth liter of milk produced in the country comes from Andhra Pradesh.
MAIN AIM OF SETTING UP OF DAIRY INDUSTRY IN ANDHRA PRADESH:
The majority of area in Guntur district in our state is having agriculture as the main
source of livelihood. Dairy industry occupies second place in the earning the livelihood, next
only to agriculture. Dairy industry now has stepped into the cooperative sector to help the
small and backward farmers by making them as partners. This fact is also lucidly explained
by the then government of Andhra Pradesh.

20

COMPANY PROFILE
SANGAM DAIRY
BRIEF HISTORY:
Under the operation flood I programs, Guntur district was selected to develop dairy
activities on annual patterns keeping in view the three-tier system of village dairy cooperative
society at the village level, managed by the elected representatives of milk producers, a cooperative union Ltd., was registered under A.P.

Co-operative societies act 1964 with

registration no: 83DD dated 23/02/1997 with 81 affiliated Milk producers cooperative
societies. Later the Union has converted into AP Mutually Aided co-operative society Act
1995 with a registration number: AMC/GNT/DCI/97/28 DT 1-2-1997. It is the first union
Registered Under model act in India.
ORGANIZATION SET-UP OF SANGAM DAIRY
--- Senior manager (procurement & Inputs manager)
--- Senior manager (senior accounts officer)
---Senior manager (dairy engineer)
--- Senior manager (production manager)
Managing Director

--- Other managers

--- Labors welfare officer
--- Manager for materials
--- Quality control manager
--- Marketing manager

Source:

Sangam Dairy, Vadlamudi.

FARMERS CONTRIBUTION
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Milk producers of Krishna, Guntur and west Godavari district have generously
donated for the purchase of 34.46 acres of land at the cost of Rs.15lahs before initiating this
project, during 1973-74. Further 53 acres of land was purchased for the location of technical
inputs and staff quarters.

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ANAND PATTERN
The Anand Pattern advocated an integrated approach to the dairy development under
Co-operative sector by providing necessary technical inputs for the raid progress of Dairy
Industry. In this pattern the real involvement of producers are to be seen, where the village
Dairy cooperative societies as well as the district union are managed by the producers
themselves. The producers have got a say in determining the price of commodity they
produce. This idea is really a fantastic approach and a boon to the farmers. The new outlook
in Anand pattern is to provide incentive (inputs) to the farmers to increase the production,
maintaining good cattle by improved practices of breeding, feeding and management through
farmers induction programmed which is also part of Anand pattern. Viability of the village
Dairy Co-operative societies will also be taken care in this pattern.
OPERATION FLOOD PROGRAMM
OPERATION FLOOD-I:
Dairy plant handling capacity of 1.5 lakh liters of milk per day, besides facilities to
manufacture 12 months tons of skimmed milk powder, 8 tons of button, 2 tons of Ghee and
casein from milk, was established with a cost of Rs. 2.88 crore.
Facilities to provide technical inputs like free veterinary aid: cattle insurance and
artificial insemination were provided. Fodder development and cattle feed on a no profit; no
loss basis was created with an expenditure of 1.2 crores.
OPERATION FLOOD-II:
Under Of-II, the dairy processing capacity had been increased from 1.5 to 2.5 lakh
per day with an expenditure or Rs 3.6 crores.
OPERATION FLOOD-III:
Crores of rupees were allotted to the milk shed for the expansion and improvement of
the dairy plant Chilling centers and technical input activities.
All the above finance is 70% loan 30% grant. In addition to this our government
gave an amount of Rs. 81 lakhs towards the construction of quarters, technical inputs
building, which is treated as share capital of the government. The total value of assets of this
dairy as on today is Rs. 21.6 crores.
ASEPTIC PACKAGING STATION:
Popularly known as tetra-pack milk this was established at the Dairy with a cost
of Rs. 2.5 crores. With this, milk can be packed in a special type of laminated paper bags,
which can preserve milk for months at room temperature.
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ASCEPTIC PACKAGING STATION: SANGAM DAIRY
VADLAMUDI
Aseptic milk or sterilized long shelf life milk is a unique way of milk preservation,
where the milk is packed in disposable and laminated paper cartoons with 3 months shelf life.
The essential features of this pack are to provide milk packed as a grocery item, to store it for
future usage, which offers convenience to the consumer.
Aspect milk packing station was established initially during the year 1986 with an
established cost of Rs.2.5 crores. The station is very well equipped to pack milk for future
usage.
The packs with 15 days shelf life earlier have been replaced with machinery to
pack milk with 3 months shelf life. The existing capacity is 50,000 Lt/day. After overcoming
the initial setbacks with regards to market identification, etc., now the products are making a
smooth sailing in the cities like Hyderabad, Vizag coal belt areas of Bhadrachalam,
Khammam and Kothagudem, etc. there are plan for future market expansion in Calcutta and
Bangalore cities.
Aseptic station to pack novel milk products like sterilized cream, double milk with
high fact and high solids, products with no fat depending upon the need of the consumers is
being planned. The given table gives brief details of the milk packed in 500 ml. packs from
1986-1999 year (in lack packs)
PACKETS IN 500 ML DURING 2001-2008
Production of tetra

Revenue generated

YEAR

Packet milk

(In Rs.laksh)

2002

(Lack packets)
63

526

2003

58

459

2004

65

441

2005

68

479

2006

61

461

2007

71

493

2008

78

530

2009

75

510

SOURCE: Sangam dairy annual reports.

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The unit is projecting a capacity of 15% utilization and making a steady progress towards
more efficiency and profitability.
MILK MARKETING:
The union is meeting the fluid mill requirements in Guntur town and other towns in
Guntur District. On an average, they sell 40,000 liters per day with in Guntur District. They
are also marketing tetra pack milk in Guntur district, Vizag, Calcutta, madras.
NATIONAL MILK GRID:
Sangam dairy is supplying milk to mother dairy, Calcutta through milk tankers since
1980 and is also supplying condensed whole milk to mother dairy, Calcutta since 1989
through rail milk tankers.
MILK PRODUCTS:
Sangam dairy manufactures table butter, white butter, and Ghee skimmed milk
powder and vijaya spray.

The details of milk procurement, milk sales and products

manufacture with various capacities of the plant are enclose d here with.
EXISTING CAPACITIES:
Milk handling capacity:
Milk powder capacity (two powder
plants, L&T make stain co):
Table butter (4 packing machine /
CBMM and butter chip lets machine):
Ghee:
Storage of butter in deep freeze:
Boilers sections:
Refrigeration:
Milk chilling centers:
M.C.C. Narsaraopet:
M.C.C. Gurazala:
M.C.C. vinukonda:
M.C.C. Bhattiprolu:
Cattle fed:
Aseptic packing:
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OBJECTIVES
01. Artificial insemination services.
02. Animal health.
03. Fodder development programs.
04. Fodder shed multiplication programs.
05. Sylvia pasture scheme.
06. Distribution of chaff cutters.
07. Enrichment of paddy straw with urea.
08. Cattle feed.
09. By-pass proteins feed.
10. Distribution of mineral nature on subsidiary basis.
11. Cattle insurance.
12. Aid to society buildings.
13. Cross breed heifers subsidiary scheme.
14. Distribution of cross bred cows.
15. Training programs.
PRODUCTS OF SANGAM DAIRY:
Essentially the union procures milk from various collection centers located in Guntur
and Prakasam districts. The procured milk will be processed in the dairy and then converted
into different products apart from fluid milk.

The union is meeting the fluid milk

requirements in Guntur town and other towns in Guntur district on an average they sell
40,000 liter per day with in Guntur district.
Under the national milk grid, the milk has been supplied to Mother dairy in Calcutta
through rail milk tankers since 1980.
The milk products of dairy are as follows
Milk butter.
White butter.
Ghee
Skimmed milk powder.
Doodh peda.
Shakthi milk
Table butter.
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Whole milk.
Basundhi.
Khala Khanda.
BY PRODUCT SECTION
By products section of Sangam Dairy consists of the following products.
1. Butter and ghee section
2. Power section
Frozen products section
Each of the above section are administered and under the control of
dairy manager.
PRODUCTS OF SANGAM DAIRY:
Essentially the union procures milk from various collection centers located in Guntur
and Prakasam districts. The procured milk will be processed in the dairy and then converted
into different products apart from fluid milk.

The union is meeting the fluid milk

requirements in Guntur town and other towns in Guntur district on an average they sell
40,000 liter per day with in Guntur district.
Under the national milk grid, the milk has been supplied to Mother dairy in Calcutta
through rail milk tankers since 1980.
The milk products of dairy are as follows

Milk butter.

White butter.

Ghee

Skimmed milk powder.

Doodh peda.

Shakthi milk

Table butter.

Whole milk.

Basundhi.

Khala Khanda.

27

28

BY PRODUCT SECTION
By products section of Sangam Dairy consists of the following products.
1. Butter and ghee section
2. Power section
Frozen products section
Each of the above section are administered and under the control of
dairy manager.
Physical Flow of Milk in Sangam Dairy
Producer

Village level coop, Societies

Procurement transport

Sangam Dairy
29

Transport Vehicles (Distribution)

Commission Agent

Consumer

WORKING CAPITAL MANAGEMENT

INTRODUCTION:
Though working capital of vital significance to an undertaking in several ways, the
management of which did not receive adequate attention until recently the literature of
finance concentrated more on the infrequent episodic events mergers and liquidation
neglecting completely the management of working capital. Even now, the management of
fixed assets is getting precedence over the working capital.
It has been observed by shall and Haley that managing current assets requires more
attention than managing plant and equipment expenditure. Mismanagement of current assets
can be costly. Too large an investment in current assets means tying up capital that can be
used productively elsewhere. On the other hand, too little investment can also be expensive.
For example, insufficient inventory may result in loss of sales as the goods that a
customer wants to buy may not be available. The finance manager will be forced to spend a
large percentage of his time in managing current assets. It is because these assets vary quickly
and a lack of attention paid to them may result in appreciably lower profits for the firm.
Working capital Definitions:
30

The following are the some of the definitions given for working capital by experts in
the area of finance.
The sum of the current assets is the working capital of a business.- J.S.Mil.
Any acquisition of funds which increases the current assets, increased working
capital, for they are one and the same.-Bonneville and Dewey
Working capital has ordinarily been defined as the excess of current assets over
current liabilities.-C.W.Gerstenberg.

THE NEED FOR WORKING CAPITAL

The Working Capital is necessary to run the day-to-day business activities. It is very
difficult to find a business firm, which does not require any amount of working capital.
However, firms differ in their requirements of the working capital. Companies aim at
maximizing the wealth of shareholders. In their efforts to maximize shareholders wealth,
they should earn sufficient return from their operations. Earning a steady amount of profit
requires successful sales activity. The firm has to invest enough funds in current assets for the
efficient sales activity. Sales do not convert into cash immediately. There is always an
operating cycle involved in the conversion of sales into cash.
The organization may be faced with an uncertainty regarding availability of sufficient
quantity of critical inputs in future and reasonable price. This may necessitate the holding of
inventory i.e., current asset. To ensure that each of current assets is efficiently managed to
ensure overall liquidity of the unit and same time not keeping too high level of any one of
them working capital Management is must.
Nature of working capital management:
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Working capital management 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. The term of current assets refer to those assets which in the ordinary course of
business can be or will be converted into cash within one year without disrupting the
operating of the firm.
The major current assets are cash marketable securities. Account receivable and
inventory. The goal of working capital management is to manage the firms current assets and
liabilities in such a way that a satisfactory level of working capital is maintained. The current
assets should be large enough to cover its current liabilities in order to ensure a reasonable
margin of safety. Each of the current assets must be managed efficiently in order to maintain
the liquidity of the firm while not keeping too high a level of any one of them.

Each of the short term sources of financing must be continuous managed to ensure that they
are obtained and used in the best possible way .The interaction between the current assets and
current liabilities, is there fore, the main theme of the theory of working capital management.
Concept of working capital:
Working Capital Management involves the relationship between a firm short term
assets and its short term liabilities. The goal of working capital management is to ensure
that a firm is able it continue its operations and that is has sufficient ability to satisfy both
maturing short term debt and upcoming operational expenses. The management of working
capital involves managing inventories, account receivable and payable and cash to pay
current liabilities as they fall due. This implies a clearly designed risk policy to determine the
required liquidity level.
TYPES OF WORKING CAPITAL
Working Capital may be classified in two ways.
On the basis of Concept
On the basis of time
On the basis of Concept Working Capital
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1. Gross Working Capital
2. Net Working Capital
Based on time, Working Capital can be classified into
1. Permanent Working Capital
2. Temporary Working Capital
On the basis of Concept:
Gross working capital:
The gross working capital also known as current capital or circulating capital is
represented by the sum total of all current assets of the enterprise. Current assets are the
assets which are meant to be converted into cash within a year or an operating cycle. Stock of
raw materials, stock of semi-finished goods, stock of finished goods, trade debtors, bills
receivable, prepaid expenses, cash at bank and cash at hand.

Net working capital:

On the other hand, the term net working capital refers to the difference between
current assets and current liabilities. Both the net and the gross concepts of working capital
have their own uses. The choice of a particular concept obviously depends upon the purpose
in view.
If the objective is to measure the size and extent to which current assets are being
used to optimize productivity of the concern, the gross concept is more useful. If, on the other
hand, the objective lies in evaluating the liquidity position of an undertaking, the concept of
net working capital becomes pertinent and preferable.
On the basis of time:
Working Capital can be classified into
Permanent Working Capital
Temporary Working Capital
Permanent Working Capital:
Permanent or fixed Working Capital is the minimum amount, which is required to
ensure effective utilization of fixed facilities and for maintaining the circulation of current

33

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assets. There is always a minimum level of current assets, which is continuously required by
the enterprise to carryout its normal business operations.
For example, every firm has to maintain a minimum level of raw materials, work-inprogress, finished goods and cash balance. This minimum level of current assets is called
fixed Working Capital.
Temporary Working Capital:
Any amount over and above the permanent level of working capital is temporary,
fluctuating, or variable working capital. This portion of the required working capital is
needed to meet fluctuations in demand, Consequent upon the change in production and sales
as a result of seasonal changes.
Temporary working capital can be further classified as:
Seasonal working capital:
Most of the enterprises have to provide additional working capital to meet the
seasonable and special needs. The capital required to meet the seasonal needs of the
enterprise is called Seasonal Working Capital.
Special working capital:
Special working capital is that part of the working capital which is required to meet
special exigencies such as launching of extensive marketing campaigns for conducting
research etc.
Structure of working capital:
For a proper appreciation of the problems of working capital management, a
closer look at the individual items of working capital is essential. The components of current
assets and current liabilities, which are constituents of working capital, are shown in the
following table.

1.
2.
3.
4.
5.
6.

Current Assets
Cash in Hand
Cash at Bank
Bills Receivable
Stock
Prepaid Expenses
Accrued income

1.
2.
3.
4.
5.
6.
34

Current liabilities
Bills Payable
Sundry Creditors
Accrued Expenses
Short Term Loans
Dividends Payable
Bank over Draft

`
7.

Short-Term Investment

8.

Working in progress

9.

Finished goods

10.

Stores and spares

11.

Advances to suppliers

7.

Provisions for Taxes

Working capital management:

Working capital management is concerned with all decisions and acts that influence
the size effectiveness of working capital. According to Gilman, the goal of working capital
management is to manage each of the firms current assets and current liabilities in such a
way that an acceptable level of net working capital is maintained.
It is concerned with the determination of appropriate levels of current assets and their
efficient use, as well as the choice of the financing mix for raising the current resources.
Adequacy of working capital:
Adequacy of working capital implies that should neither be excessive nor inadequate of
the firms requirements. Excessive working capital means that the firm has funds which earn
no profit for the firm.

Inadequate working capital means the company does not have

sufficient funds for carrying out its operations, which ultimately result in production
interruptions and decreasing the profitability.
Working capital should be adequate for smooth running of the operations and
uninterrupted flow of production. It will maintain credit-worthiness in the market and meet
all the current obligations including the payment of dividends to shareholders. It enables the
firm to avail cash discounts by making prompt payments.
Inadequate working capital:
Both the inadequate and excessive working capital is dangerous. If the working
capital is inadequate, the production will suffer. Credit worthiness in the market will be
affected because of lack of liquidity. Low liquidity and low production may lead to low
profitability which in turn affects the liquidity.
Dangers of Inadequate working capital:
The following are the dangers of inadequate working capital
Loss of goodwill and creditworthiness
Firm cannot avail the favorable opportunities
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Adverse effect on credit opportunities
Operational inefficiency
Low rate of return on fixed assets
Increase in business risks
Adverse effect on the morale of business executives.

Excessive working capital:

If the working capital is excessive, excessive inventory is the main target. It results in
the operational inefficiency leading to low profitability. Ralph Kennedy and Mc Muller
observed that the availability of excessive working capital may lead to carelessness about
costs and, therefore, leads to inefficiency of operations.
Dangers of excessive working capital:
It is not only inadequacy of working capital which is dangerous but also excessive working
capital leads to many problems, which are given below:
Low rate of return on capital
Decline in capital and efficiency
Loss of goodwill and confidence
Misapplication of funds
Evils of over-capitalization
Inefficient management
Optimum level of working capital:

36

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Thus, every finance manager has to work out the optimum level of working capital in
order to avoid the dangers of inadequate and excessive working capital. Thus, both the
situations of inadequate and redundant working capital are dangerous.
Objectives of Working Capital:
The need for working capital cannot be over emphasized. Every business need some
amount of working capital. The need for working capital arises due to the gap between
production and realization of cash from sales it requires.
For the purpose of materials, components and spares.
To pay wages and Salaries.
To incur day-to-day expenses and overheads such as full, prior, and office expenses
etc.
To meet the selling costs as packing, advertising etc.
To provide Credit facilities to the customers.
To maintain the inventories of raw materials, work in progress, stares and spores and
finished stock.
Aspects of working capital:
The aspects of management of working capital are:
Determining the requirements of working capital
Financing the requirements; and
Efficient utilization of working capital.
Determination of the requirements of working capital:
Efficient management of working capital involves careful determination of working capital
requirements and formulation of plans for meeting them. A large number of factors influence
the working capital needs of firms. The most important of these are:
The nature and size of business
Manufacturing cycle
Business fluctuations
Production policy
Credit policy
Credit availability
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Growth and expansion activities
Profit margin and profit appropriation
Price level changes
Financing of working capital:
A working capital forecast is prepared to determine the amount of working capital
required to finance particular level of business operations. The exercise involves complicated
calculations embracing every aspect of business activity. The items usually taken into
consideration while preparing a working capital forecast are: -Costs to be incurred on material; wages and overhead expenses. The budgetary
approach to determine the working capital requirements involves preparation of cash budget
which is an integral part of the overall budgetary process in any firm.
The information required for each of the items in the cash budget has to be assembled
from various functional budgets and supporting schedules. Cash budget may be prepared for
any frequency depending upon the efficiency of the information system used in the firm and
the relevance of the frequency.

Efficient utilization of working capital:

All the components of working capital viz., cash, debtors, inventory and inventories, are to be
managed efficiently. There should not be excess or shortage of investment in any of these
components.
Organizational set-up:
Normally a separate organizational set-up for management of working capital in business
enterprise may not exist. It is generally invested with the financial executive who looks after
all the aspects of financial management of the enterprise.
He is concerned with the funds forecasting laying down suitable policies and
procedures;
Monitoring the levels of cash, receivables and inventory;
Deciding about the financial mix for working capital
Expenditure control by fixing limits to expenditure
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Working capital control, review and preplanning
Formulation of guidelines for working capital expenditures
Obtaining bank finance and other funds to meet the working capital requirements.
Importance of working capital management:
The management of working capital is one of the key areas of financial decision
making. It is significant because the management must see that an excessive investment in
current assets should be minimized as it leads to low profitability. At the same time it should
protect the company from the problems of stock-outs and risk.
The management of fixed assets will be impossible without maintaining proper level
of current assets. Current assets will also determine the liquidity position of the company. The
importance of working capital can be understood from the following points.
Time devoted to working capital decisions:
The financial manager will mdevote their largest time for working capital financing,
control of current assets, management of liquidity etc. In view of this, it can be said that
effective working capital decisions are also significant for successful management of the
companys affairs.

Investment in current assets:

Characteristically, current assets present more than sixty percent of the total assets of
many firms, because they represent a large investment in the various components of current
assets.
Further, the investment trends tend to be relatively volatile. Hence, the financial
manager has to show special attention for them
Importance to small firms:
The management of working capital is particularly important to small firms, because
for a small firm it may be possible to minimize its investment in fixed assets but it cannot
avoid an investment in cash, receivables, and inventors.
Therefore, current assets are particularly significant for the financial managers of
small firms. Small companies have relatively limited access to long-term capital market, they
39

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have to depend heavily on trade credit and short-term loans form banks, both of which affect
the net working capital.
Relationship between sales growth and current assets:
The relationship between growth in sales and increase in current asset investment are
very close and direct. An increase in sales will accompany a similar rate of immediate
increase in additional inventories and cash balance. All such needs must be financed.
Determinants of working capital:
There are no set rules or formula to determine the working capital requirements of a firm. A
large number of factors influence the size of investment in working capital these include:1.

Nature of the business: The working capital requirements of a firm are basically

influenced by the nature of its business. Firms engaged in trading and financing activities
make very heavy investment in current assets as compared to the investment in fixed assets,
whereas in the case of rail and road transport and other public utility services, steel,
aluminum, automobile industries, working capital forms a relatively low proportion of total
assets.
2.

Operating cycle: The operating cycle implies the stages or processes through which

the raw materials are processed to get the final product. If the process is lengthy and takes
long time to get the finished products, the requirements of working capital will be much
larger than that of a unit which has a relatively low operating cycle. The shortest
manufacturing process will minimize the investment in the form of work-inprogress.

40

3.

Seasonal elements: The requirement of working capital to a company is influenced by

the demand for the product. If the firms product is seasonal demand-oriented not only the
amount of working capital fluctuates from one season to the other, but also the composition
of working capital changes over the time.
During the season, cash and bank balances are converted into inventory. The working capital
level will increase and cash balances may reduce.

41

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Growth and expansion of business:
The working capital requirements of the firm will increase as it grows in terms of sales
or fixed assets. Current assets are closely related with that of sales. The requirements of
working capital for a growing firm will be more.
A growing company has to maintain proper balance between fixed and current assets
in order to sustain its growing production and sales. This will in turn increase the investment
in current assets to support the increased scale of operations.
Firms credit policy
The credit policy of the firm affects working capital by influencing the debtor
balances. The credit terms of a company may also depend upon the industry credit norms.
If a company follows a liberal credit policy, with out following the norms of credit, it will
result in more credit sales, increased book debts and increased investment in working capital.
Turnover of current assets:
Turnover of current assets refers to the speed at which the components of current
assets can be converted into cash.
The greater the turnover is, greater will be the cash flow and lesser will be the level of
working capital. If the turnover is low, the company can witness heavy piling up of various
components of current assets and increased level of working capital.
Availability of credit:
The level of working capital of a company also depends upon the credit facility
available to it. The firm will need less working capital, if liberal credit terms are available.
The availability of credit facility from commercial banks also influences working capital
needs of the firm. Generally, if a firm gets credit facility easily, on favorable conditions, it can
operate with less working capital than a firm without such facility.
Dividend policy:
Dividends are paid to shareholders of the company out of the profits. The payment
of dividends results in cash outflow.
Further, a desire to maintain an established dividend policy may affect the company
by reducing the cash balances. It will cause changes in the level of working capital. Often,
changes in working capital also bring an adjustment in the dividend policy. Shortage of
working capital therefore, acts as a powerful reason for reducing or skipping a cash dividend.

42

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Taxation:
Taxation is a short-term liability payable in cash. Advance payment of tax may have
to be paid on the basis of anticipated profits. Tax is the first appropriation out of profits.
Higher the tax, greater is the strain on the working capital of the company.
Government regulations and restrictions
Regulations and restrictions by the government and reserve bank of India through such
controls, as credit control, import regulations, influence the working capital of companies.For
instance, the Tendon committee has prescribed norms for holding inventory and debtors
which the company is nit expected to exceed.
Principles of the working Capital:
With regard to management of working capital, three propositions will be there. These
propositions are also termed as the principles involving risk that serve as the basis of working
capital theory.
Investment risk and return:
If working capital is varied relative to fixed asset investment, the amount of risk that a
firm assumes is also varied and the opportunity for gain or loss is increased.
This principle assumes that a definite relation exists between the degree of risk that a
firm assumes and the rate of return. The more the risk assumed, the greater is the opportunity
for gain or loss.
The opportunity for gain is increased by choosing an appropriate asset and liability
structure. The firms return on investment will be greater when there are a low proportion of
current assets to total assets and a high proportion of current liabilities to total liabilities.
Contribution to net worth:
Capital should be invested in each component of working capital as long as the
equity position of the firm increases. This principle is based on the concept that each rupee
invested in fixed or working capital should contribute to the net worth of the firm.

43

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Flow of funds:
The greater the disparity between the maturities of a firms short-term debt
instruments and its flow of internally generated funds, it is not possible to closely synchronies
the schedule of expected net cash flows and payments on debt will depend upon the risk
preferences of management. The shorter the maturity schedule of debt in relation to expected
net cash flows, the less the risk of inability to pay the debt.
However, financing is likely to be costlier under longer maturity schedule thus cutting
into profits. Profits can be maximized by making every effort to tie debt maturities with the
cash inflows of internally generated funds, since in such a case, there will be no need to hold
low yielding liquid assets, nor to have more long-term financing then is absolutely necessary.
Maximization of shareholders wealth:
On the whole, management has to determine the liquidity of the firm on the basis of
the information about risk and opportunity costs of holding liquidity. The degree of liquidity
desirable is a function of the probability of insolvency at various levels of liquidity, the
opportunity cost of maintaining those levels, and the cost of bankruptcy.
The behavior of the management should be influenced not only by the risk and the
opportunity costs associated with various levels of liquidity, but also by the cost of
bankruptcy. The management must behave in a manner consistent with maximization of
shareholders wealth.
Techniques of working capital management:
There are several techniques of control as regards working capital management.
Some of the important techniques are ratio analysis, systems approaches applied in the case
of material management, PERT as applied in the case of operating cycle analysis,
mathematical models as applied in determining economic order quantities; safety stocks and
order points; Discriminate analysis, and decision three approaches as applied in credit
granting and collection decisions; discriminate analysis and simulation; and linear
programming techniques as applied in cash management decisions; cash flow and funds flow
analysis

44

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Concerned as it is with the determination of appropriate levels of current assets and
their efficient use, as well as the choice of the financing mix for raising current resources,
working capital management deals with decisions, acts and procedures relating to the use and
the method of financing each current assets and determining its optimal level. The important
components of working capital management, therefore, are inventory management,
receivables management and cash management.
A variety of factors influence the working capital needs of firms. All factors are of
different importance. Further the importance of the factors change for a firm over time. So,
an analysis of the relevant factors should be made in order to determine the total investment
in working capital. The following is the description of the factors, which largely influence
the working capital requirements of the companies.
Nature and Size of the Business
Business fluctuations
Growth of the firm
Manufacturing cycle
Seasonal fluctuations
Credit policy
Production policy
Operational efficiency
Price changes
Technology
Sources of Working Capital:
There are two types of financing sources. They are:
a)

Long term
Financing which have a maturity period for long term, such as shares, debentures,

preference shares, and retained earnings, loans for financial institutions, public deposits etc.
b)

Short term
Financing which are to be repaid in short span like one year, bank overdraft, commercial

papers, and factoring receivables etc.

45

Short term financing refers to borrowing funds or raising credit for a maximum of
1 year period i.e., the debt is payable within a year at the most. Whereas, the Long term
financing refers to the borrowing of funds or raising credit for one year or more. The finance
manager has to mix funds from these two sources optimally to ensure profitability and
liquidity. The mixing of finances from long term and short term should be such that the
firm not faces either short of funds or idle funds. Thus, the financing of working capital
should not result in either idle or shortage of cash funds.

A choice can be made between

these two sources in the following ways or approaches.

Approaches of Working Capital
Depending on the mix of short and long-term financing, the approach followed by any
company fall under these three categories
Matching Approach
Conservative Approach
Aggressive Approach
a)

Matching approach or Hedging approach:

In matching approach, long-term sources of finance are used to finance permanent

working capital. Temporary working capital can be financed from the short-term funds. The
rationale of matching approach is that the maturity of source of funds should match the nature
of assets to be financed.
b)

Conservative approach:
According to this approach, most of the requirements of funds should be met from

long-term sources. Short term sources should be used only for emergency requirements.
Under a conservative plan, a firm finances all its permanent current assets and part of the
temporary current assets with long term sources. Conservative approach is less risky but
more costly as compared to matching approach. In other words, it is low profit low risk
approach.
c)

Aggressive approach:
In the aggressive policy, firm uses more short-term sources of financing than

warranted by the matching plan i.e., the firm finances apart of its permanent current assets
with short term financing. On the other hand more use of short-term financing makes the
more risky but less costlier.
46

47

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Financing of working capital:
The sources of finance for working capital can be classified as under:
1. Short-term sources.
Sundry creditors
Bank overdraft
Advance payments receive
2. Long term sources
Redeemable debentures.
Redeemable preference shares & Public deposits.
3. Permanent sources
Share capital.
Irredeemable debentures.
Plough back of profits.
Permanent and variable working capital:
In the similar way, the working capital requirements of the concern can be divided
into two portions Permanent portion and
Variable portion.
Permanent working capital:
The total fund requirements (both on fixed capital and working capital) increases
with increased production over a period of time. A portion of the working capital remains the
same throughout. In other words, there is a limit below which the current assets do not fall.
This portion is the permanent working capital. This minimum level or lowest level of
current assets that a company should hold it, is known as the hard core or fixed working
capital. The Deejay committee and the Tendon committee have referred to the permanent
working capital as the core current assets
Fluctuating working capital:
There is a variable portion of current assets, over and above the permanent assets. It
varies with production plans, seasonality etc. This portion, also known as the fluctuating or
temporary working capital.

It can be estimated in advance. The variable portion of

working capital can be financed by short-term funds.

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The general principle is that the fixed asset and the permanent portion of the working
capital should be financed by capital and reserves, long term debt and
permanent portion of the current liabilities.
Financing of working capital
The committee recommended that the core portion of current assets should be
financed by the company out of equity or by raising long term debt. But till recently,
companies continued to rely on commercial banks as the major suppliers of working capital.
By utilizing the long-term funds for permanent working capital,

the company ensures

stability. The loan need not be repaid at frequent intervals. The repayment over a period can
be planned depending on the surplus generated. The liquidity of the concern is increased.

STATEMENT SHOWING THE CHANGES IN WORKING CAPITAL (YEAR-WISE)

49

PARTICULARS
CURRENT ASSESTS
INVENTORIES
BOOK- DEBTS
CASH /BANK BALANCES
LOANS & ADVANCES
TOTAL CURRENT ASSETS (A)
CURRENT LIABILITIES
ADVANCES
FROM
CUSTOMERS
SUNDRY CREDITORS
OTHER LIABILITEIS
PROVISIONS
TOTAL CURRENT LIABILITIES
(B)
NET WORKING CAPITAL
(A-B)
DECREASING WORKING
CAPITAL
TOTAL

Previous

Current

Year
XXX
XXX
XXX
XXX
XXX
XXX
XXX

Year
XXX
XXX
XXX
XXX
XXX
XXX
XXX

XXX

INCREASE DECREASE
XXX
XXX
XXX
XXX
XXX
XXX
XXX

XXX
XXX
XXX
XXX
XXX
XXX
XXX

XXX

XXX

XXX

XXX
XXX
XXX

XXX
XXX
XXX

XXX
XXX
XXX

XXX
XXX
XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

XXX

CASH MANAGEMENT:
Effective management of working capital involves management of its components
viz., cash, debtors, and stock.

Out of all these current assets, cash assumes specific

identification, because the operations of business result in the conversion of cash into rawmaterials. Cash is the most liquid asset that a business firm possesses.
It includes money and such instruments as money orders, and bank drafts. Cash in the
enterprise maybe compared to the blood in the human body. Even though firms differ in
terms of nature of business, capital structure, and risk and so on, they have in common the
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basic mechanism involving conversion of funds into saleable products and back into cash.
But cash balance in its own form will not yield any return

Functions of Cash Management:

Management
The following are the functions of cash after of any business concern irrespective of
its size, nature, volume of business, age etc. The same can also be said that management of
receipts and payments.
Forecasting cash needs.
Expediting cash collections.
Disbursing cash to meet firms obligations.
Gainful investment of surplus cash.
Importance of Cash Management:
Management
Cash is unique resource and not comparable with any other component of current
asset. If excess cash is held, it will not generate profits since cash is sterile. It will not be
productive directly as in the case of other assets. Inventory bought excess will be useful even
after sometime, without loss of value and many a time value of inventories tend to increase
due to inflation. Hence idle cash will not generate profit but causes loss of interest.
Further, cash shortage causes irreparable loss to the management, since firms loose
not only profitable business opportunities but also good will when they fail to clear the bills
timely to cash shortage.

Motives of Holding Cash:

Cash
Famous economist, Keynes said that businessmen hold cash for 3 motives, which are as
follows.
Transaction motive.
Speculation motive.
Precautionary motive
Transaction motive:
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Cash manager is expected to arrange appropriate amount of cash in right time to pay
for a right purpose. In fact, the cash receipts will never synchronize with cash obligations to
pay for.
Hence to meet the expenses timely, a firm has to hold optimum amount of cash and
keep the firm comfortable in its cash transactions. Larger the business transactions more the
amount of cash balance to be maintained and vice versa.

Precautionary motive:
Firms at times need cash without prior notice. They need cash under emergency
conditions such as break down of machines, fire, theft, accidents etc, failing which they have
to pay heavy penalties. In such cases, cash rich companies can with stand rather than nil less
cash complaints.
The causalities, accidents, theft, machinery break down etc., in organizations
generally demand cash immediately. To meet the said eventualities, the firms have to
maintain cash balances. This cash balance is called precautionary cash balance. Hence they
have to raise funds in very short notice or some times spontaneously also. At that time only
cash rich companies credit worthy will be able to survive under hectic conditions cited above.
Speculative motive:
Of course, not all firms do business with speculative motives. Occasionally, every
business firm comes across speculative conditions such as sudden and heavy fluctuations in
prices of raw materials and rates or interest leading to rise in market for goods.
Hence, there is sudden rise in demand for goods, which warrants availability of cash
in very short notice. Thus the speculative conditions give chance to rise profitable
opportunities. Firms, having ability to generate cash in Short notice will take advantage of
these speculative conditions of business opportun
Factors affecting cash management:
management
The amount of cash requirement of a business firm depends upon the following
factors, which are discussed as under.

Credit Position:

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Firms having goodwill in the market do not require cash balance much. They get
services and goods on credit as they re pay the bills timely out of the sales proceeds and
such firms need not maintain heavy cash balances.
Nature of market:
It has great influence on cash requirement, in certain markets one has to buy on cash,
since credit facility is not available. In some of the UN organized sectors and small
businesses where bank loans are not extended, their firms have to arrange their own cash.
Inventory levels:
Higher the inventory levels a firm follows more the cash required. Lower the
inventory level, less lowly the cash balances to be needed. Thus, inventory level certainly
influences the cash requirements of the business.
Technology:
The firms, which are, followed manual methods need more cash by week ends to pay
for wages. Where as the firms whose business activities are more technologies based required
less amount of cash for the above said purposes.
Efficiency in using cash:
Cash balance depends upon the efficiency in using cash. Professional managements
maintain optimum cash balance and discharge cash obligations.
Benefits of adequate cash maintenance:
maintenance
The following are the benefits to a business firm who maintains adequate cash:
Cash Discount:
Firms can enjoy cash discounts and get goods/services at considerable prices if they
make down payments. This will increase profits and credibility. Occasionally, creditors may
also extend cash discounts for people who pay in advance or with in stipulated period.

Large scale buying

If firms buy raw materials in large quantities, they can get at low prices, which will
increase the overall profitability of the firms. The firms with cash balances will be able to
order bulk purchases to get them at lower prices.
Liquidity:
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Firms, regular in payments of bills and taxes will be respected by the suppliers and co
operate by way of supplying required quantity of goods at lower prices. The suppliers can
also ensure supply of goods in times of scarcity.
Profitability:
Firms, which bargain at the turn of purchasing inputs and services, will get production
at low cost. This will enhance profit margin of the firms, which in turn will enhance its
profitability.
Better bargain:
Firm with adequate cash can bargain and obtain inputs at reasonably low price and
reduce cost of production.
Techniques involved in Cash Management:
Management
A management cash flow involves vigilant and efficient practices on the part of
financial manager. Then only it becomes possible sound cash management. The financial
manager should see that there should not be a deviation between projected cash flows and
actual cash flows.
In order to achieve this, cash management efficiency will have to be improved
through a proper control of cash collection and disbursement. The two objectives in
managing the cash flows.
To accelerate cash collections as much as possible.
To de accularate or delay cash disbursements as much as possible
1) Accelerating Cash Collections:
A company can reduce its requirements for cash balances, if it is able to speed up its
cash collections. An efficient financial manager can reduce the firms deposit float by
speeding up the mailing processing and collection times. Finance manager may use the
technique of decentralized collections or lock box system in order to accelerate cash
collections.

2) Lock box System:

In a lock box system, the company establishes a number of collection centers for its
customers and remittances. At each center, the company hires a post office box and instructs
customers to mail their remittances to the box. The local bank is given with the authority to

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pick up the cheques directly from the lock box and deposit the cheques in firms account. The
bank prepares a detailed statement of cheques picked up and submits it to the company.

3) Controlling Disbursements:
The control of disbursement can also help the firm in conserving cash and so reducing
the financial requirements. The firms objective in collecting cash is to speed up collections
as much as possible. Whereas the objective of disbursements is to slow down the cash
outflows as much as possible. Disbursements (cash outflows) arise due to trade credit. The
firm should make the payments using the credit terms to the fullest extent. There is no
advantage in paying them sooner than agreed upon. But delaying payments as much as
possible, the company makes maximum use of trade credit as a source of funds. Often it is
interest free source of funds.

Optimum Cash Balance:

Balance
Cash balance cannot be too high or low. If the cash balances are lower then the
required level, then it will create problem. The higher level of cash balance will ensure
liquidity, but the firm has to sacrifice profits, as excess cash will not yield returns. Thus, the
cash manager of a firm has to trade off between higher and lower levels of cash balance and
reach out optimum level of cash.
The optimum cash balance can be decided considering two types of costs involved in
it. They are:
Transaction costs:
Company has to maintain certain cash balance to meet transaction costs. If such
balance is lesser, firm has to borrow higher amounts from outside and consequently incurs
higher interest charges. Hence, such interest charges are higher when cash balance is lesser,
and lower when cash balance is more.

Opportunity costs:
Opportunity cost is the revenue forgone by the company when cash balance is more.
Because simply cash at bank does not yield any return. Such cost is higher when cash balance
is more and lower when cash balance is lesser.
55

Significance:
Cash management is concerned with minimizing unproductive cash balances,
investing temporarily excess cash advantageously, and to making the best possible
arrangements for meeting planned and unexpected demands on the firms cash.
It involves managing of cash flows in-and-out of the firm. Cash flows within the
firm, and cash balances held by the firm at a point of time. Cash management must be
thought of in terms of the overall liquidity needs of the firm.
Specifically its current assets and liabilities. In order to reduce the influence of
uncertainties with regard to cash needs and to ensure adequate liquidity, firms shall have the
need for protective liquidity.
The efforts involved for this purpose usually take the form of:
Explicit identification of the kinds of contingencies against which protection is
desirable.
Assessment of the probabilities or odds that each of these will develop within a given
period in future, such as 5 years.
Assessment of the probabilities that developments creating cash drains will occur at
the same time.
Assessment of the likely amount of cash drain that will result of each of the
contingencies develops.
An important policy decision regarding cash management is: what should be the optimum
amount of cash balance to be held? In determining such a balance, the management needs to
consider the joint impact of the follows:
The philosophy of the management regarding liquidity and risk of insolvency.
The expected cash inflows and outflows based on the cash budget forecast
encompassing long-range and short-range cash needs.
The size of sales in relation to fixed asset investment.
The degree of deviation between the expected and actual net cash flows.
The maturity structure of the firms liabilities.
The firms ability to borrow at short notice in the event of an emergency.
The status of the firms receivables and inventory.
The credit position of the firm.
The nature of business.
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Efficient planning and control of cash.
Objectives of cash management:
Cash management must aim to reduce the required level of cash but minimize the
risk of being unable to discharge claims against the company as they arise.
If the firm holds too small a cash balance, its liquidity position becomes weak;
although the overall profitability will be high, the risk of technical insolvency will increase.
On the other hand, if the firm maintains too much of cash balance, it will have a sound
liquidity position and less risk. But its overall profitability will be reduced.
Therefore, the firm should maintain an optimum cash balance, which is neither small
nor large. It is that balance where the liquidity and profitability goals meet and there is a trade
off between risk and return.
When cash reaches an upper limit, marketable securities are converted into cash. The
level of marketable securities should also include resources which are saved to meet large
expenses.
Another consideration that affects the level of marketable securities is the firms
banking relationships. If these are good, it means that the securities balance can be reduced.
There are various collections and disbursement methods which exercise a joint impact
on the over all efficiency of cash management. These methods speed up the mailing time of
payments from customers to the firm; reduce the time during which payments received by the
firm remain uncollected and speed up the movement of funds to disbursement banks.
Methods of cash control:
The methods which accelerate the collection process are concentration banking, lockbox system, special handling of remittances which involves personal picking up of these
cheques or the use of air-mail or special delivery, initiating controls to accelerate the deposit
and collecting of those small cheques up inter-bank transfers of cash and transfers between
various divisions of the company, closing of unnecessary bank accounts which create
unnecessary pockets of idle funds.
The objective of control of disbursements is to slow them down and yet ensure that
they are made in time. Establishing a minimum level of cash balance depends in part, upon
the compensating balance requirements of banks.
57

In exercising such control, the firm should give consideration to such aspects as quick
shifting of funds to the disbursing bank accounts, preventing excessive balances being built
up in a particular bank, establishing well defined operating procedures for disbursement,
eliminating or minimizing the loss of cash discounts on accounts payable due to clerical
inefficiencies and the timing of payment. Some of the methods of delaying disbursements
are:
Use of drafts instead of cheques, playing the float, maintaining a separate account for
pay roll disbursements in order to minimize cash balance in that account by predicting when
the pay cheques are likely to be presented for collection.

INVENTORY MANAGEMENT
The term inventory comprises raw material, work-in-progress, finished goods and
stores and spares. Inventories represent a significant portion of assets in the case of most of
the manufacturing firms and require substantial investments.
Inventory management is concerned with the determination of optimum level of
investment for each component of inventory and the inventory as a whole, the efficient use of
the components, and the operation of an effective control and review mechanism.
Characteristics of inventory:
inventory
1. Stock out problem:
If adequate stocks are not maintained, the firm faces stock out problem risks for not
maintaining adequate stocks. If raw materials are not adequate, production schedules suffer
and interrupted production will not ensure regular supply of goods whereby firm looses its
market.
If production activities are stopped due to irregular supply of raw materials and other
inputs, cost of production will be high since fixed costs per unit will be more.

2. Lead time:
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It is the time taken from the initiation of order till the arrival of goods. Lead-time may
vary from one day to many days. It depends upon the availability of item, distance,
transportation, etc. The time gap can be reduced through proper inventory planning.

3. Quantity Discounts:
If goods are produced on large-scale, producers will enjoy economies of scale. These
economies or savings occur where fixed costs are distributed over large production;
ultimately cost of production per unit will be lower. Some times production will extend to
customers by giving quantity discounts. This is peculiar characteristic associated with inputs
mainly raw materials and other consumables.

Motives of Holding Inventories:

Inventories
In a country like India inventories are necessarily to be held. The motives for holding
inventories are 3 types such as:
Transaction motive.
Precautionary motive.
Speculation motive.
a)

Transaction motive:
To ensure continuous business transactions raw material are held. without adequate

inventories it is hardly possible to imagine continuity of production. If enough raw materials

are not held, production activities cannot be carried out regularly. If for any reason production
is stopped for want of raw materials the staff, depreciation, rent etc., will cause severe loss to
the firm.

b)

Precautionary motive:
Some times accidents, machine break down, lay off, strikes, etc occur without prior

notice under which situation, production should not suffer. Hence inventories are necessarily
to be carried out for smooth going of production and sales even in adverse times.
c)

Speculation motive:
Changes in technology, market conditions, and cause sudden rise or fall in prices of

supplies. To cope with changing conditions businessman carries inventories. Price

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fluctuations affect demand and supply aspects of goods, which will in turn affect production
and sales activities. To avoid such odd situations inventory holding is appropriate.

Significance:
In inventory decisions, management has to take into consideration factors like
inventory carrying costs, ordering costs, costs of stock-outs, the rate of return on investment,
and the cost of capital. In the case of running enterprises, the decision is concerned, also with
additional investments in order to estimate and compare additional costs and additional
returns and the net effect on the maximization of the value of the firm.
While the technique of marginal analysis is found suitable in taking such decisions,
the classification of costs into fixed, variable and relevant, is considered as essential. The
decision to invest further, in inventory should be based on considerations of trade off between
the resulting savings associated with excess investment and the total cost of holding added
inventory.
Factors of influencing inventory:
Levels of inventory holding are also influenced by the operational flexibility it offers
to the firm. A lower inventory level gives less flexibility while a higher inventory level gives
greater flexibility. In evaluating the level of inventories, management must therefore, balance
the benefits of economics of production, purchasing and increased production demand against
the cost of carrying the additional inventory.
Other things remaining constant, the greater the efficiency with which the firm
manages inventory, the lower the required investment and the greater the owners wealth. An
important step in inventory management is determination of investment in each component of
inventory, viz., raw material, work-in-process, finished goods and stores and spares. Some
important factors which influence the levels of each component are stated hereunder.

1. Raw material inventory:

The volume of safety stocks needed to protect against material shortages that
interrupt production.
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Considerations of economy in purchase.
The outlook for future movements in the price of materials.
Anticipated volume of usage and consumption.
The efficiency of procurement and inventory control functions.
The operating costs of carrying the stocks.
The costs and availability of funds for investment in inventory.
Storage capacity.
Recomponent cycle.
Indigenous or foreign source.
The lead time of supply.
Formalities for importing.
2. Work-in-process inventory:
The length of the complete production process.
Technological considerations influencing process time.
Management policies affecting the length of process time.
Length of production runs.
Actions that speed up the production process,
Managements skill in production scheduling and control.
Sales expectations.
Level of sales and new orders.
Price levels of raw materials used, wages and other items that enter into
production costs and the values added in production.
Customer requirements
Usual period of ageing.

3. Finished goods inventory:

The policy of the management to gear the production to meet the firm orders
in hand.
The policy to produce for anticipated orders and stock-keeping.
Goods required for the purpose of minimum and safety stocks.
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Sales policies of the firm.
Need for maintaining stability in production.
Price fluctuations for the product.
Durability, spoilage, and obsolescence.
Distribution system.
Ability to fill orders without delay.
Storage capacity.
Availability of raw material on seasonal basis, while customers demand spread
throughout the year.
4. Stores and spares inventory:
Nature of the product to be manufactured and its lead time of manufacture.
State of technology involved.
Consumption patterns.
Lead time of supply.
Indigenous or foreign sources.
Minimum and safety stocks and ordering quantities.
Objectives of inventory management:
Turning to the practical aspects of inventory management, the first step is to define its
objectives. Some of these are;
To assure continuity of operations in the most efficient manner possible , so that the
enterprise may reach its overall objectives.
To achieve a balance between economics of holding large inventories and of holding
small inventories.
To minimize direct and indirect costs associated with holding inventories.
Some of the important inventory policies relates to;
Procurement of raw materials and spares.
Size of minimum, optimum, and maximum stocks;
Safety stocks, order quantities, order levels and anticipation stocks.
Waste, scarp, spoilage, and defectives;
Policies relating to alternative use; and
Policies relating to order filling.
62

Role of finance manager:

Inventory management having become a separate function by itself, there should be a
separate organization for it. The finance executive should therefore exercise an overall
supervision and control over inventory management. The finance executives role in
inventory management may be stated as follows;
By understanding the implications of changing inventory policies and positions, he
has to anticipate changes in the need for funds.
Where finances are a limited factor, he has to help directly in shaping inventory
policies that are consistent with the realities of the firms financial position.
He has to help in the formulation of inventory policies designed to speed up turnover
and maximize return on investment.
Inventory control:
Inventory control is usually concerned with minimizing the total cost of the inventory.
Inventory control is the application of the general theory of material control to inventories. In
UK, the term often used is stock control. The efficiency of inventory control affects the
flexibility of the firm. They are;
The economic order quantity which enables determination of optimum size of order to
place, on the basis of demand or usage of the inventory.
The technique of safety stocks to overcome problems of uncertainty.
The order point formula which tells us the optimum point at which to reorder a
particular item of inventory.
Techniques of inventory control:
The finance managers should aim at an optimum level of inventory on the basis the tradeoff between cost and benefit, to maximize the owners wealth. As observed above, in this
section some simple production-oriented methods of inventory control to indicate a board
framework for managing inventories efficiency in format with the goal of wealthmaximization. The major problem that arises comprise the heart of inventory control are;
The classification problem to determine the type of control required,
The order quantity problem,
The order point problem, and Safety stocks

63

Fixation of stock levels:

Inventory control demands the maintenance of every item of material at a low level
but at the same time making it available when needed. These twin objectives could be
realized only through proper planning of inventory levels. With out proper planning, the firm
may be compelled to incur losses in the form of either overstocking or under stocking.
The store-keeper and stock manager or purchase manager

therefore fixes the

maximum and minimum levels for important stores items on a regular basis. The various
stock levels that are usually considered are;
1.Maximum level:
This is the level beyond which stock should not be maintained. In technical terms, it is
the sum total of the minimum quantity and the economic order quantity. If stock levels go
beyond this level, overstocking results in eating away capital, space and the energies of the
store-keeper.
The losses arising from depreciation in value, obsolescence, careless and reckless
handlings of materials also pose additional dangers. The maximum level is fixed after a
careful consideration of; the availability of capital, space available in stores, rate of
consumption, delivery time to obtain fresh stock, price fluctuations, cost of holding the
inventories, seasonal nature of supply, fashion changes, changes in governmental policies,
reorder level and economic order quantity.
Max. Stock level = (Reorder level + Reorder quantity)
(Minimum consumption x Minimum reordering period)
2.

Minimum level: (safety or buffer stock):

This is the level below which the stock of an item should not fall. This is essentially a

safety stock and hence, it is not normally touched. If the stock of an item goes below this
level, there is every possibility of production being held up for want of materials.
Consequently, the minimum level is fixed to avoid the danger of production
dislocations due to the non-availability of materials. This level is decided on the basis of rate
of consumption, the lead time, the availability of substitutes and reorder level.
Minimum stock level = Reorder level (Average rate of
Consumption x Average lead time)
Or
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Minimum stock level =Reorder level (Normal consumption x
Normal reorders period or average delivery time).
3.

Reorder level: (ordering level) :

This is the point at which the store-keeper should initiate purchase requisition for

fresh supply. This is normally the point lying between the maximum and minimum levels. It
is fixed in such a way that the difference between the minimum level and the reorder level is
sufficient to meet the production requirements till fresh stocks arrive. Basically two factors;
maximum consumption and lead time determine the reorder level.
Reorder level = Maximum consumption x Maximum reorder period
Or
= Minimum level + consumption during the time required to get fresh supply.
Or
= Safety stock +consumption during lead time.
4.

Danger level: This is the level below which the stock should never be allowed to fall

under normal circumstances. It is slightly less than the minimum level. When the materials
reach danger level, the store-keeper should make special efforts to get fresh supplies, so that
production is not held up for want of material
Danger level = Average rate of consumption x Urgent supply time.
Economic order quantity:
It is the quantity of material which can be reasonably ordered at a time and purchased
most economically. It is the quantity which is most favorable to order when fresh supplies are
needed. Reorder quantity, it should be remembered, is such that when it is added to the
minimum stock it does not exceed the maximum stock level. EOQ is fixed after taking the
following costs into consideration
Ordering cost:
This is the cost of placing an order and securing the supplies. It depends on the
number of orders placed and the number of items ordered each time. Whenever orders

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increase in number and fewer quantities are purchased on each order, the ordering cost would
begin to rise.
Annual ordering cost = D/Q x S.
Where D = demand for item
Q = units to be purchased on each order
S= cost for order.

Carrying Costs:
Warehousing, insurance, wastage, loss due to theft, deterioration, etc. are called
inventory-carrying costs. These costs are more, as the level of stock is higher. These costs are
also known as holding cost.
Storage Costs:
Costs pertaining to warehousing of goods or inventory are generally called as storage
costs. Example: rent, lighting, insurance, checking.
Obsolescence Costs:
When goods are stored more quantity than demand for it, the quality deteriorates and
models will become outdated. At times they have to be sold at heavy discounts since the
quality of goods is poor and design or models are outda
Set up costs:
Normally production is made regularly any item for few days/ weeks. Whenever order
is placed for different items the producer changes the regular processing and shift to new
process to make it suitable to new order placed. Thus, when processing is shifted, the firm
66

`
incurs costs of design, loss of clerical time consumption, components, and spares etc. All
these constitute set up costs.

ACCOUNTS RECEIVEBLES / CREDIT MANAGEMENT:

Sales cannot be done for cash alone and Trade credit is inevitable in the modern
business society, which is the basis of accounts receivables. Credit is also allowed by many as
a sales technique to maximize the sales and profit. Trade credit acts as bridge between
producers, as funds will be tied up. Hence, accounts receivables management is also a vital
aspect of working capital management.
In cash sales risk is zero whereas in credit sales risk is high. As the seller receives
payment later for transfer of goods effected today. In the credit business, it is not only the
uncertainty element but also depreciated value of the when served in the later date i.e., a
rupee received today is stronger than expected to receive tomorrow.

Objective:
Objective
The Objective of receivables management is to promote sales and profits until that
point is reached where the return on investment is further funding of receivables is less than
the cost of funds raised to finance that additional credit.
Protecting its current sales from the competitors.
Expanding sales by attracting potential customers.
Obtaining more sales from existing customers.
Costs:
Costs
The major categories of costs associated with the extension of credit and accounts
receivables are:
Collection Costs:
These costs are administration cost incurred in collecting the receivables from the
customers to whom credit sales have been made.

67

DATA ANALYSIS AND INTERPRETATION

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2009-2010

Table 4.1
Particulars
Current Assets

31-3-2009

31-3-2010

Increase

Decrease

Inventory

97322995

86199005

11123990

Sundry Debtors

35033437

39271109

4237672

Interest Accrued

66173

125970

59797

Cash Balance

39008

26307

12701

Bank Balance

286484

226411

60073

Loans and Advances

6142028

11491883

5349855

Deposits

3527619

5012998

1485379

Total(A)

142417744

142353683

Sundry creditors

18095533

11152152

3056619

Other liabilities

1894414

2054872

160458

996594

28113

6550

7450

900

Proposed dividend

891219

107189

180673

Advanced received

4568599

5178624

160025

26452909

29493103

115964835

112860580

3104255

3104255

115964835

115964835

15205439

15205439

Current liabilities

Interest accrued but not due

Unclaimed dividend

Total(B)
Working Capital(A-B)
Changes

in

Net Working

Capital(increase/decrease)
Total

968481

Interpretation:
It is found from the above graph that the networking capital for 2010-11 is
1151964835 and for 2010-11 is 112860580. It is also found that the networking capital
68

`
position is decreasing in 2009-10 because in decreasing current liabilities such as sundry
creditors, other liabilities, unclimbed dividend, advanced received etc.
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2010-2011

Table 4.2
Particulars
Current Assets

31-3-2010

31-3-2011

Increase

Decrease

Inventory

86199005

79050427

7148578

Sundry Debtors

39271109

31239881

8031228

Interest Accrued

125970

212202

Cash Balance

26307

22418

Bank Balance

226411

3486773

11491883

6338008

Deposits

5012998

5016198

Total(A)

142353683

125365907

Sundry creditors

11152152

19554522

Other liabilities

2054872

2404549

28113

7450

13210

5760

Proposed dividend

1071892

1080957

9065

Advanced received

5178624

1782140

29493103

24835378

112860580

100530529

12330051

112860580

112860580

Loans and Advances

86232
3889
3260362
5153875
3200

Current liabilities

Interest accrued but not due

Unclaimed dividend

Total(B)
Working Capital(A-B)
Changes

in

Net Working

Capital(increase/decrease)
Total

1597630
349677
28113

3396484

12330051
20702072 20702072

Interpretation:
It is found from the above graph that the networking capital for 2009-10 is 112860580
and for 2010-11 is 100530529. It is also found that the networking capital position is
69

`
decreasing in 2009-10 to 2010-11 because in decreasing current liabilities such as sundry
creditors, other liabilities ,unclimbed dividend, advanced received etc.
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2011-2012

Table 4.3
Particulars
Current Assets

31-3-2011

31-3-2012

Increase

Decrease

Inventory

79050427

81981006

2930579

Sundry Debtors

31239881

54191956

22595075

Interest Accrued

212202

217719

5517

Cash Balance

22418

167615

145197

Bank Balance

3486773

928052

2558721

Loans and Advances

6338008

3985639

2352369

Deposits

5016198

5242474

Total(A)

125365907

146714461

Sundry creditors

19554522

20783973

Other liabilities

2404549

1734719

13210

48070

34860

Proposed dividend

1080957

1386391

305434

Advances received

1782140

2582996

800856

24835378

26536149

100530529

120178312

19647783

19647783

120178312

120178312

26929474

26929474

226276

Current liabilities

Interest accrued but not due

Unclaimed dividend

Total(B)
Working Capital(A-B)
Changes

in

Net

Working

Capital(increase/decrease)
Total

1229451
669830
-

Interpretation:
It is found from the above graph that the networking capital for 2009-10 is 100530529
and for 2010-11 is 120178312. It is also found that the networking capital position is

70

`
increasing in 2010-11 because in increasing current liabilities such as sundry creditors, other
liabilities, unclimbed dividend, advanced received etc.
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2012-2013

Table 4.4
Particulars
Current Assets

31-3-2012

31-3-2013

Increase

Decrease

Inventory

81981006

105820864

23839858

Sundry Debtors

54191956

85053587

30861631

Interest Accrued

217719

223190

5471

Cash Balance

167615

441492

273877

Bank Balance

928052

251133

Loans and Advances

3985639

10724169

6738530

Deposits

5242474

6034414

791940

Total(A)

146714461

208548849

Sundry creditors

20783973

29885920

Other liabilities

1734719

1697558

37161

48070

66485

18415

Proposed dividend

1386391

1848421

462130

Advanced received

2582996

3089152

506156

26536149

36587636

120178312

171961213

51782901

51782901

171961213

171961213

62548468

62548468

676919

Current liabilities

Interest accrued but not due

Unclaimed dividend

Total(B)
Working Capital(A-B)
Changes

in

Net

Working

Capital(increase/decrease)
Total

1901947

Interpretation:
It is found from the above graph that the networking capital for 2011-12 is 120178312
and for 2012-13 is 171961213. It is also found that the networking capital position is

71

`
increasing in 2012-13 because in increasing current liabilities such as sundry creditors, other
liabilities ,unclimbed dividend, advanced received etc.
SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2013-2014
Table 4.5
Particulars

31-3-2013

31-3-2014

Increase

Decrease

Current Assets
Inventory

105820864

173679692

Sundry Debtors

85053587

46158454

Interest Accrued

223190

234791

11601

Cash Balance

441492

745621

304129

Bank Balance

251133

3130269

2879136

10724169

25060948

14336779

Deposits

6034414

6141804

107390

Total(A)

208548849

255151579

Sundry creditors

29885920

17720782

Other liabilities

1697558

2285591

66485

96885

Proposed dividend

1848521

924261

924260

Advances received

3089152

2220479

868673

36587636

23247998

171961213

231903581

59942368

- 59942368

231903581

231903581

99455934 99455934

Loans and Advances

67858828
38895133

Current liabilities

Interest accrued but not due

Unclaimed dividend

Total(B)
Working Capital(A-B)
Changes

in

Net Working

Capital(increase/decrease)
Total

12965138
588033
-

30400

Interpretation:
It is found from the above graph that the networking capital for 2012-13 is 171961213
and for 2013-14 is 231903581. It is also found that the networking capital position is
increasing in 2013-14 because in increasing current liabilities such as sundry creditors, other
liabilities ,unclimbed dividend, advanced received etc.
72

PITAL TURNOVER RATIO:

Working capital of a concern in directly related to sales. The current assets like debtors, bill
receivables, cash, stock etc., charge with the increase or decrease in sales. Working capital
turnover relation indicates the velocity of the utilization of net working capital, which is
different between current assets and current liabilities. This ratio measures the efficiently with
the working capital is being used by a firm. A higher ratio indicates efficient utilization of
working capital and a low ratio indicates otherwise. This can be calculated as below.
Sales
working capital Turnover Ratio =
Working Capital
WORKING CAPITAL TURNOVER RATIO OF SANGAM DAIRY DURING 2009-14

Table 4.7
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Sales
51,84,67,430
54,63,50,198
69,44,57,939
72,91,38,804
642638301

Working
Capital
112860580
100530529
120178312
171961213
231903581

73

Ratio
4.59
5.43
5.78
4.24
2.77

Graph 4.7

Interpretation:
Net working capital is measure of liquidity, with the higher amount of sales indicates
a very good liquidity position of the firm and vice-versa working capital turnover ratio
measure the efficiency of the firm in managing and utilizing its current assets.
We can draw the analysis from above chart that the company highest working capital
turnover ratio is 5.78 times in the year 2011-12 and lowest ratio is 2.77 in the year 2013-14. It
means company generates a sale of Rs.5.78 for one rupee investment in net current assets
after that it decreased to Rs.2.77 only.

74

2) CURRENT RATIO:
It measures the relationship between current assets and current liabilities. This can be
calculated with the help of the following formula.
Current Assets
Current Ratio=
Current Liabilities

CURRENT RATO OF SANGAM DAIRY DURING 2009-14

Table 4.8
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Current

Current Assets
14,23,53,683
12,53,65,907
14,67,14,461
20,85,48,849
255131579

Liabilities
2,94,93,103
2,48,35,378
2,65,36,149
3,65,87,636
23247998

Graph 4.8

75

Ratio
4.82
5.04
5.02
5.69
10.97

Interpretation:
The current ratio of a firm measures its short term solvency. Generally a current ratio
of 2:1 is said to satisfactory i.e., every rupee of current liabilities should be backed by 2 rupee
of current assets. The liquidity position of the firm suffered in the years 2008 and 2009 as it
was below the standard norm. In the year 2011 and 2012 it has been revised and increased in
the year 2013 it is satisfactory.

76

3. LIQUIDITY RATIO:
It means the relationship between the liquidity assets and current liabilities this can be
computed with the help of the following formula.
Liquid Assets
Liquidity Ratio =
Current Liabilities

5.3 Liquidity ratio of SANGAM DAIRY During 2009-14

Table 4.9
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Liquid Assets
56154678
46315480
64733455
102727985
81471887

Current
Liabilities
29493103
24835378
26536149
36587636
23247998

77

Ratio
1.90
1.86
2.44
2.88
3.50

Graph 4.9

Interpretation:
The term liquid assets or quick assets refer to current assets which can be converted
into each immediately or at a short notice without diminution of value. The standard norm of
quick ratio is 1:1 from the above table it is standard norm 1:1. This shows that the company
has been maintaining high stocks. Therefore the situation is not satisfactory but in the year
2011-11 and 2012-13 there has been increasing in the ratio 2.88 and 3.50 which can be
further improved.

78

4. CASH RATIO:
Since cash is the most liquid assets, a financial analyst may examine cash ratio and its
equivalent of cash; therefore they may be included in the computation of cash ratio.
Cash
Cash Ratio =

Current Liabilities

CASH RATIO OF SANGAM DAIRY DURING 2009-14

Table 4.10
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Current

Cash
26307
22418
167615
441492
745621

Liabilities
29493103
24835378
26536149
36587636
23247998

Graph 4.10
79

Ratio
8.92
9.03
6.32
2.01
3.03

Interpretation:
Cash is only one constituent asset and it is a part of networking capital the cash is
high in the year 2009-2010 it increase to 9.03 in the year on average cash forms less than 1%
of the current assets so the company has to increase cash balance to meet current obligations
as and when they become due.

80

5) INVENTORY RATIO:
It measures the relationship between the sales and Average inventory, this can be
computed with the help of the following formula.
Sales
Inventory ratio=
Average Inventory

Inventory ratio of SANGAM DAIRY During 2009-14

Table 4.11
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Sales
51,84,67,430
54,63,50,198
69,44,57,939
72,91,38,804
642638301

Average
inventory
86199005
79050427
81981006
105820864
67858828

Graph 4.11

81

Ratio
6.01
6.91
8.47
6.89
9.47

Interpretation:
It is found from the above diagram that the inventory ratio for 2009-10 is 6.01 and for
the 2013-14 is 9.47, it is also found that the inventory ratio is in increasing trend in the
period of study because increased sales then automatically increase in inventory then viceversa .

1) DEBTORS TURNOVER RATIO:82

It measures the relationship between the Credit sales and Average debtors, this can be
computed with the help of the following formula.
Credit sales
Debtors Turnover ratio=
Average Debtors

DEBTORS TURNOVER RATIO OF SANGAM DAIRY

DURING 2009-14

Table 4.12
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Sales

Sundry Debtors

51,84,67,430
54,63,50,198
69,44,57,939
72,91,38,804
642638301

39771109
31239881
54191956
85053587
46158454

Graph 4.12

83

Ratio
13.20
17.49
12.81
8.57
13.92

Interpretation:
The debtors turnover ratios observed from the above table shows fluctuations. It has
been highest in the 2009-2010 at 17.49 times and thereafter has been declining and reached
13.92 times in 2013-14. Because the average debtors will change year by year.

7) CREDITORS TURNOVER RATIO:

84

It measures the relationship between the Average Creditors and Purchase per day; this can be
computed with the help of the following formula.
Average Creditors
Creditors Turnover Ratio =
Purchases per Day

CREDITORS TURNOVER RATIO OF SANGAM DAIRY DURING 200914

Table 4.13
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Average

Purchases

Creditors
day
1809533
21152152
20783973
29885920
17720782

Graph 4.13

85

Per Payment

10979736
26486821
10361901
12815831
11732844

Period (Days)
1.65
0.80
2.01
2.33
1.51

Interpretation:
It can be observed from the above table that creditors turnover is normally high during
2012-13 because of the low creditors. It indicates that the company has been purchasing more
of the stock for cash. The company should try to make avail of the credit facility offered by
the suppliers.

86

8) FIXED ASSETS RATIO:

It measures the relationship between the Sales and Fixed Asset, this can be computed with the
help of the following formula.
Sales
Fixed Asset Turnover Ratio =
Fixed Assets

Fixed Assets ratio of SANGAM DAIRY during 2009-14

Table 4.14
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Sales
51,84,67,430
54,63,50,198
69,44,57,939
72,91,38,804
642638301

Fixed Assets
6,54,45,118
6,52,20,427
6,58,54,756
7,66,55,204
74234856

87

Ratio
7.92
8.38
10.55
9.51
8.66

Graph: 4.14

Interpretation:
It can be observed from the above table sales to10.55, fixed assets normally high
during 2011-2012 it indicates that the company has been fixed assets there 2013-2014 and
the 8.66 declining.

88

9) CASH TO CURRENT ASSET RATIO:

It measures the relationship between the Cash and Current assets, this can be
computed with the help of the following formula.
Cash
Cash to Current Asset Ratio=
Current Assets

CASH TO CURRENT ASSETS RATIO OF SANGAM DAIRY DURING 2009-14

Table 4.15
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Cash

Current Assets
26307
22418
167615
441492
745621

14,23,53,683
12,53,65,907
14,67,14,461
20,85,48,849
255131579

89

Ratio
1.85
1.79
1.14
2.12
2.92

Graph 4.15

Interpretation:
It can be observed from the above table Cash to Current Ratio normally high during
2012-2013 the value is 2.12 ,it indicates that the company has been fixed assets there 20132014 are increased to 2.92.

90

10) Cash to Fixed Assets Ratio:

It measures the relationship between the Cash and Fixed assets; this can be computed
with the help of the following formula.
Cash
Cash to Current Asset Ratio=
Fixed Assets

CASH TO FIXED ASSETS RATIO OF SANGAM DAIRY DURING

2009-14

Table 4.16
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Cash

Fixed Assets
26307
22418
167615
441492
745621

6,54,45,118
6,52,20,427
6,58,54,756
7,66,55,204
74234856

Graph 4.16
91

Ratio
4.02
3.44
2.55
5.76
2.01

Interpretation:
It can be observed from the above table Cash to Fixed Assets normally decrease
during 2009-2010, it indicates that the company has been Fixed assets there 2012-2013 and
the 2.01 declining.

FINDINGS:

92

`
In all the years, current assets are more than current liabilities. In these, ratio years is
satisfactory.
The current ratio was fluctuating through out the study period. It is not appreciable.

The inventory turnover ratio is not satisfactory as the ratio is decreasing year by year
and inventory period is slightly increased.

The quick ratio of the SANGAM DAIRY is sufficient as the quick assets are More
than current liabilities. The quick ratio of SANGAM DAIRY is satisfactory.

Working capital turnover of SANGAM DAIRY is slightly decreased in the year 200910 and in 2010-11, working capital turnover ratio increased. In the year 2009-10 and
2011-12 decreased.

But the overall performance is good, since the risk and hard work by all the staff of
company yielded very good results and reputation all over the state.

93

SUGGESTIONS:
It is suggested that the company should concentrate on the management of current
assets and current liabilities more effectively.
The total currents assets were continuously decreasing and adversely. The current
liabilities were increasing continuously; take necessary steps to maintain the ratio.
Inventory should be reduced maximum possible extent by following procedures like
just in time import substitution. As far as possible, the raw material should be
bought as and when necessary.
The inventory levels are nearly 60%-65% of the total current assets. It is not
achievable to any organization to maintain that level of inventories management
should concentrate on effective.
The investment in loans and advances should be minimized to the possible extent.
It is found that expenditure on major assets are showing increasing trends .it is there
fore suggested to introduce cost control system ,and this is possible by purchasing
bulk of material.
Since the company has a very good brand name, and it has wide infrastructure in
importing raw material, it should encash these strengths in doing more of trading
activities .
The company needs to get and continue current ratio of the firm in order to acquire
the standard norms of current ratio in 2:1.

94

CONCLUSIONS
The structure of the current asserts had been study at and found that the current
asserts position is satisfactory during the period. The company has all the facilities of
achieving full capacity utilization as achieved in previous year. But due to working capital
constraints the company is under utilizing its capacity and is forced to go for trading to
improve the profitability to achieve better result, management as to take necessary steps in
future like. Decrease the purchase price .decrease day to day operating expenses. maintaining
inventory level .maintaining adequate cash for operation

SANGAM DAIRY BALANCE SHEET AS ON 31ST MARCH 2009-10

LIABILITIES

SCHEDULE

Share Capital
Reserves & Surplus
Secured Loans
Un Secured Loans
Current Liabilities &
Provisions
Deferred Tax Liability/
(Asset)

As at 31-3-2009

A
B
C
D

Rupees
7900000
60693157
95689916
18965412

Rupees
7900000
68228241
78558221
22138137

26452909

29493103

649804

1418949

210344198

207799651

F
G

67932604
850

65445118
850

142417744

142353683

210351198

207799651

P(5)

TOTAL
ASSETS
Fixed Assists
Investments
Current Assets Loans &
Advances
TOTAL

As at 31-3-2010

95

SANGAM DAIRY BALANCE SHEET AS ON 31ST MARCH 2010-11

31-3-2010
As at 31-3-2011
SANGAM DAIRY BALANCE SHEETAs
ASatON
31ST MARCH
2011-12
LIABILITIES

SCHEDULE

ASSETS
Fixed Assists
Investments
Current Assets Loans &

F
G

76655204
850

74234856
850

208548849

255131579

285204903

329367285

Rupees
Rupees
Share Capital
A
7900000
7900000
LIABILITIES
SCHEDULE
As
atON
31-3-2011
As at 31-3-2012
SANGAM
DAIRY
BALANCE
SHEET
AS
31ST
MARCH
2012-13
Reserves & Surplus
B
68223241
76877359
Rupees
Rupees
Secured Loans
C
78558221
56481947
Share
Capital
A
7900000
7900000
Un
Secured Loans
D
22136137
22230886
LIABILITIES
SCHEDULE
As at 31-3-2012
As at 31-3-2013
Reserves
& Surplus
B
76877359
87912406
Current
Liabilities
&
E
29423103
24835378
Rupees
Rupees
Secured Loans
C
56481947
70731166
Provisions
Capital
A
7900000
7900000
UnShare
Secured
Loans
D
22230886
17175185
Deferred
Tax&Liability/
Reserves
Surplus
B
87912406
103017208
Current Liabilities &
E
24835378
26566149
P(5)
1418949
2261614
Secured Loans
C
70731166
115536386
(Asset)
Provisions
Un SecuredDAIRY
Loans
D
17175185
18842570
SANGAM
31ST MARCH 2013-14
Deferred Tax Liability/ BALANCE
P(5) SHEET AS ON2261614
2357161
Current Liabilities &
E
26536149
36587636
TOTAL
207729651
190587184
(Asset)
Provisions
LIABILITIES
SCHEDULE
As at 31-3-2013
As at 31-3-2014
Deferred Tax Liability/
P(5)
2351161
3321103
190587184
212570067
ASSETS
Rupees
Rupees
TOTAL
(Asset)Share
Fixed Capital
Assists
F
65445118
65220427
A
7900000
7900000
Investments
G
850
850
Reserves & Surplus
B
103017208
108572603
212570067
285204903
ASSETS
Current
Assets
Loans &
Secured
Loans
C
115536386
132313738
TOTAL
H
142353683
125365907
Fixed
Assists
F
65220427
65854756
Un Secured
Loans
D
18842570
53421796
Advances
Investments
G
850
850
Current Liabilities &
E
36587636
23247998
CurrentASSETS
Assets Loans &
H
125365907
146714461
Provisions
Fixed
Assists
F
65854756
76655204
TOTAL
207799651
190587184
Advances
Deferred
Tax
Liability/
P(5)
3321103
3911150
Investments
G
850
850
190587184
212570067
Current
Assets
Loans
&
H
146714461
208548849
(Asset)
TOTAL
Advances
285204903
329367285
212570067
285204903
TOTAL
TOTAL

Advances
TOTAL

BIBLIOGRAPHY
96

Financial Management

Khan & Jain

Financial Management

I.M.Pandy

Financial Management

Prasana Chandra

Theory & practice

Ravi M.Kishore

Financial Management

S.N.Maheswar

97