SUMMER TRAINING

REPORT
ON
SALES
&
Working Capital Management

Submitted in partial fulfillment of the requirement for

the award of the degree’s

Master's of Business
Administration
Kurukshetra University,Kurukshetra
(Haryana)
(2009-2011)

UNDER THE GUIDANCE OF: SUBMITTED BY:

MISS GARIMA GOUTAM MR. PUNEET ARYA

R.N College of Engg. & Technology

(Panipat)
1
 CANDIDATE’S DECLARATION

I hereby certify that the work which is being presented in the project report entitled “Working

Capital Management of “L. S. M. Co. Ltd. IQBALPUR” in the partial fulfillment of the

requirements for the award of degree of “MASTER’S OF BUSINESS ADMINISTRATION” in

“Finance” submitted to R.N College of Engg. & Technology, Panipat, is record of my own work

carried out for a period of Eight weeks carried in Iqbalpur under the supervision of “Mr. Umesh

Sharma”(Accounts Manager) & “Mr. Rajesh Bhasin”(Asst. Accounts Manager) and Under the

guidance of “Ms. Garima Goutam, R.N.C.E.T , Panipat.

Date:-…………….. Puneet Arya

This is to certify that the above statement made by the candidate is correct to the best of our
knowledge.
This is his original work. Works of other intellectuals have been duly acknowledged.

2
 ACKNOWLEDGEMENT

A journey is easier when we travel together. Interdependence is certainly more important than
independent. I would like to take this opportunity to express my gratitude towards all those people who
have helped me either directly or indirectly in the successful completion of my project.
First of all, I would like to express my immense thanks to my project guide. A vote of thanks goes to
my teacher MS. Garima Goutam (H.O.D) R.N College of Engg. & Technology, Panipat
Kurukshetra Technical University, Haryana for showing keen interest in the project & guiding me
for time to time.

I wish to acknowledge my deep sense of gratitude towards Mr. M.M. Sharma (Vice President/
Chartered Accountant) & Mr. Umesh Sharma (Astt .Accounts manager) LAKSHMI SUGAR
MILLS CO. LTD. IQBALPUR for giving me an opportunity to work in this esteemed organization
and for the help they provided wherever needed.

I am also grateful to my all staff members of company for their individually guidance and willing
cooperation throughout my project.

Puneet Arya
M.B.A

CONTENT
Sr. No. Topic Page
No.

1. EXECUTIVE SUMMARY 5

2. COMPANY HISTORY 7

3. COMPANY HISTORY 10

4. WORKING CAPITAL MANAGEMENT 27

• INTRODUCTION
• TYPES
• THE NEED
• COMPONENTS & SOURCES
• IMPORTANCE
• FACTOR AFFECTING WORKING CAPITAL
• OPERATING CYCLE
5. 42
PRODUCT PROFILE
6. 47
RESEARCH METHODOLOGY
• RESEARCH DESINE
• SAMPLING DESIGNE
• DATA COLLECTION
1. PRIMARY DATA
2. SECONDARY DATA

7. SIGNIFICANCE OF THE STUDY 50

8. FINDINGS & DATA ANALYSIS 52

9. LIMITATIONS 59

10. CONCLUSION 61

11. BIBLOGRAPHY 63

4
5
 EXECUTIVE SUMMARY

As per the wide range of management requirements about the financial status of the unit, this project
report is prepared by taking wide range of objective.

The project was carried out to know the working capital management which is affecting the
profitability of the firm to achieve these four years balance sheet taking into consideration and
different ratios are derived.

In addition to knowledge this project report provides the financial position of the unit for the current
financial year for various areas. It is also tells about the various policies and accounting standard
adopted by the firm.

6
7
BRIEF HISTORY OF THE COMPANY

INTRODUCTION

Lakshmi sugar mills co. ltd, having its unit 7 registered offices at Iqbalpur,
Distt. Haridwar (UK) & head office at 704, Siddhartha building, 96, Nehru place, New Delhi,
was incorporated on 16th September 1940 and the company was awarded certificate for
commencement of business on 20th September 1940. The company started cane crushing
operation at Hamira, in the erstwhile kapurthala state in 1942 and continued its operation there
till 1952. as a result of partition of the country, the area under cane cultivation decreased
considerably in Hamira and therefore the company shifted its site to the present location at
Iqbalpur in district Haridwar- Uttaranchal in 1953.

Initially the unit had an installed capacity of approximately 1600 TCD, while shifting
the unit its capacity was marginally expanded to 1800 TCD. Later, it expanded to 2500 TCD in
1987 and subsequently to 3000 TCD in 1990-91. The company adopted double carbonation
double sulphitation process till 1992-93 seasons. It switched over to the double sulphitation
process in 1993-94 season and expanded plant capacity of 3500 TCD from the 1997-98 seasons
onwards, thereby effecting considerable saving in the cost of production. In season 2005-06,
company has expanded its installed capacity from 3500 TCD to 4500 TCD i.e. by more than
25% of existing installed capacity.

PROMOTERS/MANAGEMENT

The company is being totally managed by its board of directors

consisting chairperson-cum-managing director Mrs. Anjali Birla Sawhney (Promoter-
Director) Miss. Shreya Sawhney, (Promoter- Director) and two other professional directors.
Earlier the company was chaired by its main promoter Mr. Pawan c. sawhney who unfortunate
went to his heavenly abode on 13.01.2002.

After said demise of her husband Mr. Pawan c. sawhney, Mrs. Anjali Birla sawhney took over
the control of company’s whole affairs with the complete support of professionals. Mrs. Anjali
Birla sawhney is having experience of industries as she is born & belongs to very eminent
industrial house i.e. Birla group. She & her daughter Miss. Shreya sawhney are possessing the
qualities and knowledge of sugar industry as both belongs to the renowned sugar industrialist
families were associated with her husband and father-in-law being the famed sugar industrialist
for last more than 30 years.

8
Both the promoter directors are well capable of controlling & managing complete affairs of
Sugar Company. Other two directors Mr. Mohan.P.Patel & Sh. M.M. Sharma is also
possessing experience of more than 15 years in sugar industry and are professionally qualified
being chartered accountants.

Further the company is being managed through other qualified professionals also who
are directly reporting to Chairperson and Directors of the company. The technical managerial
team consists of Vice President (O), General Manager (E), General Manager (P), Manager (P),
Accounts, Cane & Administrative departments are managed by Manager (A/cs), General
Manager (cane), and Factory Manager respectively who are also well qualified & experienced
in their own field.

With the above team of qualified & experienced management, chairperson is carrying
the affairs of the company on the progressive path & better performance from year to year
basis.

9
 COMPANY PROFILE

PERSENT SITUATION

The factory is suitably located with respect to availability of raw

material (sugar cane), water, electricity, unskilled, skilled and professional men-power etc. the
plant is located in one of the good cane growing area in the state of Uttaranchal.. The factory is
located 6 kms from state highway leading to Dehradun which is well connected by road.
Iqbalpur railway station is 1 kms from factory. Nearest broad gauge major railway station is
situated at Roorkee which is about 12 kms from the factory. The major cities near the vicinity
are Dehradun, Hardwar, and Saharanpur at a distance of about 50 to 70 kms and Delhi at a
distance of about 165 kms from the factory.

The neighboring sugar factories and the competitors in the present market are:-

 R.B.N.S. Sugar mill Laksar, Distt. Haridwar

 Uttam Sugar mill co. Ltd, Distt. Haridwar

 Triveni Sugar mill, Deoband, Distt. Saharanpur

 Daya sugar mill, Distt. Saharanpur

The factory has continued to augment its performance, through various addition and
modifications in plant and equipment.

The layout of plant and machinery is satisfactory. However, sufficient space can be made
available for future technology Up-gradation and expansion of the factory through re-
arrangement. Further Ethanol plant, Distillery ect. Can also be installed based on the sufficient
land owned by company at iqbalpur. In the year 2005-06 Company expanded its installed
capacity from 3500 TCD to 4500 TCD to get higher profits and financial health. With this
expansion, company is getting excise duty exemption as per Notification No.50/2003 Dated
10.06.2003 of the Central Government.

At present the company is having installed capacity of 4500 TCD and is able to utilize its
installed capacity @ 98% to 110%.

11
 ORGANIZATION CHART OF L.S.M. Co. Ltd.

Chairperson

Director

Vice President (Corp) Vice President (Operations)

General Manager (Engg.) General Manager (Prod) General Manager (Cane)

Asstt.Gen. Manager (Cane)

Mgr. Purchase Dy. Mgr. Godown Manager (Prod) Senior Manager (Cane)
(A/cs) Mgr. Sale Officer

Addl.C.E. (Elect.) Cane Manager

Accounts A.F.M. Time Office Store Dy. C.E. Dy. C.C. Office Staff

Sr.Mfg. Mfg. Lab I/c.

Tech. Staff Chemist Chemist

Chemical staff

12
 DEPARTMENTS OF THE COMPANY

PURCHASE DEPARTMENT

Books maintained by Purchase Department:-

I. INDENT FILE.

II. QUATATION FILE & COMPARATIVE STATEMENT

III. PURCHASE ORDER.

ORGANISATION STRUCTURE OF PURCHASE DEPT

Manager Purchase

Purchase Incharge

Assistant purchase officer

Purchase Clerk

13
FLOW CHART OF PURCHASE DEPARTMENT

INDENT IS RECEIVED FROM CONSUME DEP.

(WHICH IS NOUMBER BY STORE)

ENQUIRY LETTER IS GENERATED

QUOTATIONS RECEIVED FROM PARTIES

COMPARATIVE CHART IS GENERATED

PURCHASE COMMITTEE DISCUSSES COMPARATIVE CHART

PURCHASE COMMITTEE CONSISTS OF
I. V.P. CORPORATE
II. V.P. OPERATIONS
III. MANAGER PURCHASE
IV. HEAD OF CONCERNED DEPT.

ORDER IS PLACED AND PURCHASE ORDER IS GENERATED

PURCHERS ORDER IS SIGNED BY:-
I. SENIOR PURCHASE OFFICER
II. CHIEF CHEMIST
III. HEAD OF DEPT.
IV. V.P. OPERATION
V. V.P. CORPORATE

PURCHASE BILLS ARE PASSED BY STORE AND ENTERED IN

COMPUTER

THESE ENTRIES ARE CHECKED IN ACCOUNT DEPT.

14
STORE DEPARTMENT

BOOKS MAINTAINED BY STORE DEPARTMENT:-

I. GOODS INWARD REGISTER,

II. GIN THROUGH COMPUTER
III. OUT WORD REGISTER (REPAIR)
IV. INWARD REGISTER (REPAIR)
V. LOAN LEDGER
VI. ISSUE DAY BOOK
VII. ITEMWISE LEDGER (RECEIPT, ISSUE & CLOSING)

ORGANIZATION STRUCTURE (STORE)

Store Officer

Assistant Store Officer

Accountant, (Store Clerk)

Issue Clerk Issue Clerk Issue Clerk Issue Clerk

(Seasonal) (Temporary) (Temporary) (Seasonal)

15
STOCK FLOW CHART (STORE)

Requirement (Indent) received from consumer department

Indent is made by Shift Engineer & authorized by head Engineer

3 Copies:- (i) Purchase Department

(ii) Store Department
(iii) Shift Engineer

Examine the status of stock (whether stock is NIL or NOT)

Indent is numbered by store department

Indent is sent to purchase department

Receipt procedure

Bill is entered in inward book maintained at gate

Physical verification of goods

Quantity verification by store
Quantity verification by engineer

Recorded in store inward register

Feeded in computer (arrival sheet is signed by store keeper)

G.I.N. is generated (it is verified by dept. head engineer)

GIN signed by:

(i) Receiver dept. head (ii) quantity verified (iii) quantity verified
(Store) (Head Eng.)

16
CANE DEPARTMENT ORGANIZATION CHART OF
CANE DEPARTMANT

V.P. (Operations)

A.G.M. (Cane)

Cane Manager cane Manager Cane Manager

(Cane Development) (Out center) (Gate inward)

Weighing clerk Supervisor Supervisor

Supervisor

Workers Workers Workers

Workers

17
CANE PURCHASE FLOW CHART
Cane Planted by Farmers

Planted cane verified by Survey made either by mill or council or both

Indenting (a process of cane demand by mill)

Indent received by society & issue requision slips to farmer for

Supply cane to their supply point

Growers brings cane

Out Centers Mill Gate

(Cane purchased & this cane (cane purchase at gate)
is send to mill by transport )

finally received cane crushed

cane price payment processed

(payment by society)

Bank advice (payment credit in a/c of cane suppliers)

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SALE DEPARTMENT
SUGAR:-

I. DEDELEVIERY ORDER (D.O.) RECEIVED FROM SALE OFFICE MZN.

II. D.O. FROM FACTORY SALE OFFICE TO GODOWN.
III. PERSONAL LEDGER ACCOUNT (P.L.A.)

10% LEVY

90% FREE

EXCISE DUTY FREE:- (BASIC 34/- ADDL. 37/- & CESS 14/- EDU. CESS 2% ON
EXCISE)

EXCISE DUTY LEVY:- (BASIC 17/- ADDL. 21/- & CESS 14/- EDU. CESS 2% ON
EXCISE)

ENTRY TAX 2% ON SALES VALUE WITH EXCISE

IV. DRAFT RECEIVED REGISTER

V. R.G. 23A PART I & II 9QUANTITY & VALUE OF EXCISE) FOR PROCESS

VI. R.G. 23C PART I 7 II (QUANTITY &VALUE OF EXCISE) FOR CAPITAL

GOODS.

VII. PERFORMA II FOR DIRECTORATE MONTHLY

VIII. WEEKLY REPORT & TELEGRAM

IX. ER1 MONTHALY FOR CENTRAL EXCISE

X. WEEKLY REPORT THROUGH E. MAIL TO CENTRAL EXCISE

XI. SALES DAY BOOK

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BAGASSE:-

i. ORDER FOR SALE PRICE

ii. INVOICE

iii. TRADE TAX 4% ON SALE VALUE

iv. MANI SAMITI 2% SALE VALUE

v. CESS ON MANDI SAMITI 0.50% SALE VALUE

vi. SALES DAY BOOK

PRESS MUD:-

i. ORDER FOR SALE PRICE

ii. FLAT RATE NO ANY TAX

iii. SALES DAY BOOK

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MOLASSES:-

i. ORDER FOR SALE PRICE

ii. R.G.1 FOR CENTRAL EXCISE
10% COUNTRYLIQUOR
20% EXPORT
70% CHEMICALS

iii. M.F. 5 FOR STATE EXCISE PART I

iv. M.F. 5 FOR STATE EXCISE PART II
v. PERSONAL LEDGER ACCOUNT (P.L.A.)
vi. ADMN. CHARGES REGISTER STATE EXCISE TAX
8/- PER QLT. IN STATE
20/- PER QLT. OUT STATE

vii. DAILY DESPATCH REGISTER (STATE EXCISE)

viii. M.F. 4 GATE PASS RETURN FEGISTER
ix. CUSTOMERS REGISTER
x. STOCK REGISTER
xi. MOLASSES STORAGE FUND REGISTER
RS. 1.50 BELOW PER QLT. STORAGE CAPACITY ON SALES
RS. 0.50 PER QLT. ON REQUIRED CAPACITY ON SALES

xii. TRADE TAX 4% ON SALES VALUE

xiii. EXCISE 75/- PER QLT. & 2%/- EDUCATION CESS ON EXCISE DUTY
xiv. ERI MONTHLY FOR CENTRAL EXCISE
xv. FORTNIGHTLY STATEMENT SHEERA PRAPETRAK ONLY STATE EXCISE D.
DUN
xvi. M.F. 1 FOR CURRENT YEAR PRODUVTION & DESPATCHES
xvii. M.F. 2 FOR PREVIOUS YEAR PRODUCTION & DESPATCHES
xviii. M.F. 7 FOR STOCK & DIP
xix. SALES DAY BOOK

21
ORGANIZATION STRUCTURE OF SALES
DEPARTMENT

Deputy Manager Sales

Sales officer

Sales clerk

Trainee

SALES PROCEDUER OF SUGAR

Sales agent

Price fixed as per relevant M.R.P.

Order given to Muzaffarnagar sales office

D.O. sent to Iqbalpur Office

D.O. and payment received in Iqbalpur office

D.O. sent to Godown

Goods loaded & invoice prepared as per D.D.

Goods Dispatched

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GODOWN DEPARTMENT

i. SUGAR R.G.1

ii. INVOICE

iii. PURCHASE TAX (P.L.A. GATE PASS 1& R.G.1)

iv. PURCHASE TAX REGISTER FOR KHANDSARI DEPTT.

v. PURCHASE TAX DEPOSIT OF AMT. & CLEARANCE THR FORM 20

vi. R.G. 9 FOR FUNNY BAGS STOCK

vii. PURCHASE TAX RATE RS. 20.50 PER BAG ON BEFORE SALE

viii. STACKING CARD GODOWN & GRADE WISE

ix. PERSONAL REGISTER GODOWN & GRADE WISE

x. PURCHASE TAX RETUTN MONTHLY

PURCHASE TAX DUE ON PURCHADE ON CANE &DEPOSIT BEFORE

SALE OF SUGAR BAGS DAILY BASIS

23
ACCOUNT DEPARTMENT

i. PREPARATION OF VOUCHERS (CASH, BANK, JOURNAL&

PURCHASE

ii. CASH BOOK

iii. DAY BOOK (BANK, JOURNAL & PURCHASE)

iv. GENERAL LEDGER

v. SUB LEDGER (CUSTOMERS, SUGAR, SUPPLIERS,

CONTRACTORS ADV. TO EMP. & OTHERS CANE
TRANSPORTERS ETC.

vi. TRIAL BALANCE

vii. CASH FLOW ACTUAL (C-II)

viii. CASH FLOW FROJECTED (C-II)

ix. PROFITABILITY

x. COST RECORDS (COST AUDIT)

xi. STOCK AUDIT (PNB)

xii. TAX AUDIT

xiii. TDS RETURN

xiv. SALES TAX RETURN

xv. EXCISE AUDIT (PREVENTIVE)

xvi. PROFIT 7 LOSS AND BALANCE SHEET

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 TIME – OFFICE DEPARTMENT

Books Maintained By Time- Office Department

I. Attendance Register
a) General Attendance register
b) Shift wise Attendance Register

II. Leave Record book

a) Temporary & Seasonal
b) Permanent

III. Salary Sheets

IV. Gratuity

V. Bonus Calculation & Payment Sheets

VI. Leave Encashment Records

VII. Special Wages (over time)

VIII. Service Records

25
ORGANISATIONAL CHART OF TIME-OFFICE

HEAD OF DEPARTMENT

SENIOR TIME KEEPER

TIME KEEPER

TIME OFFICE TIME OFFICE TIME

OFFICE
CLERK (1) CLERK (2) CLERK (3)

26
27
 WORKING CAPTIAL MANAGEMENT

INTRODUCTION

Every business needs founds for two purposes – for its establishment
and to carry out its day-to-day operations. Long-term funds are required to create production
facilities through purchases of fixed assets such as plant, land, building etc. investment in these
assets represents that part of firm’s capital which is blocked on fixed basis and is called fixed
capital. Funds are also needed for short-term purposes for the purchases of row materials payment
of wages and other day-to-day exp. These funds are known as working capital. Working capital
may be regarded as life blood of a business. Its affective provision can do much to ensure the
success of a business, while its inefficient management can lead not only to loss of profit but also
lead to the ultimate downfall of a concern. Hence, working capital management if carried out
effectively, efficiently and consistently, will assure the heath of an organization.

Working capital in general practice, refer to the excess of current assets over current liabilities.

Working capital = current assets – current liabilities

Management of working capital therefore, is concerned with the problems that arise in attempting
to manage the current assets, the current liabilities and the inter- relationships that exists between
them in other words, it refers to all aspects of administration of both current assets and current
liabilities.

For the proper understanding of working capital, it is necessary to understand the various concept
of working capital. The main concept of working capital is as follows:

1. QUANTITATIVE CONCEPT

2. QUALITATIVE CONCEPT

28
 1. Quantitative concept:-

This is also known as “gross working capital concept “ according to

this concept working capital is the total of all the current assets. This view places more emphasis on
quantitative aspect of working capital rather then its qualitative aspect. The argument given in
support of this view is that as all the current assets assist in the conduct of business operations, it
does not make any difference whether they are financed by long term funds of by current or shot-
term liabilities.

2. Qualitative concepts :-

This concept gives more emphasis on the qualitative aspect rather

than the quantitative aspect of working capital. This is also known as “Net working capital
concepts. According to this concept the excess of the current assets over current liabilities are
equal; it indicate absence of working capital in the business. On the other hand, if the amount of
current liabilities exceeds the amount of current assets, such a situation is known as deficit of
working capital. This situation does not generally exist in a business firm because this is generally a
situation of crisis. This concept is known as qualitative concept because it show the liquidity
position of the business and also indicate the extent to which the working capital has financed
through ling-term funds.

The net working capital concept, however, is also important for the following reasons:

1. It is a qualitative concept which indicates the firm ability to meets its operating exp. And short-
term liabilities.

2. It indicates the margin of protection available to the short-term creditors, i.e., the excess of
current assets over current liabilities.

3. It is an indicator of the financial sound ness of an enterprise.

4. It suggests the need for financing a part of the working capital requirements out of permanent
sources of funds.

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 TYPES OF WORKING CAPITAL

Working capital can be classified on the following two basis:-

1. On the basis of concepts

2. On the basis of necessities

1. On the Basis of Concepts:-

On the basis of concepts working capital can be of two types:

(a). Gross Working Capital:-

Gross working capital is the amount of funds invested in the various

components of current assets.

(b). Net Working Capital:-

The working capital is the difference between current assets and

current liabilities the concepts of net working capital enables a firm to determine how much amount
is left for operational requirements. This is more acceptable connotation of the term working
capital.

30
2. On the Basis of Necessities:-

Working Capital can be divided into two categories on the basis

of necessities:

(a). Fixed Working Capital:-

This refers to that minimum amount of investment in all current assets

which is required at all times to carry out minimum level of business activities. It represent the
current assets required on a continuing basis over the entire year. For example; every firm has to
maintain a minimum level of raw materials, work in process, finished goods and cash balance. This
minimum level of current assets is called permanent or fixed working capital as this part of capital
is permanently blocked in current assets.

This amount varies from year to year, depending upon the growth of company and
the stage of the business cycle in which it operates. Permanent working capital is needed
permanently for the business and, therefore, it should be finance out of long-term funds.

FIXED WORKING CAPITAL

Amount

The amount of current assets required to meet a

Firm’s long- term minimum need

Permanent current assets

TIME

31
(b) Temporary or Seasonal Working Capital:-

The amount of such working capital keeps on

fluctuation from time to time on the basis of business activities. For example, extra inventory has to
be maintained to support sales during peak sales period. Similarly, receivables also increase and
must be financed during the period of high scale. It is that part of working capital which varies with
variation in the volume of business operation. It rises during busy or brisk seasons and goes down
during slack season. It can therefore, be called seasonal working capital also.

Suppliers of temporary working capital can expect its

return during off season when it is not required by the firm. Hence, temporary working capital is
generally financed from short-term sources of finance such as bank credit.

TEMPORARY WORKING CAPITAL

Temporary current assets

Amount

Permanent current assets

TIME

32
 APPROACHES

The objective of Working capital management is to maintain the optimum balance of each of the
working capital components. This includes making sure that funds are held as cash in bank deposits
for as long as and in the largest amount possible, thereby maximizing the interest earned. However,
such cash may more appropriately be “invested” in other assets or in reducing other liabilities.

Working capital management takes place on two levels:-

1. Ratio analysis can be used to monitor overall trends in working capital and to identify areas
requiring closer management.

2. The individual components of working capital can be effectively managed by using various
techniques and strategies.

When considering these techniques and strategies, departments need to recognize that each
department has a unique mix of working capital components. The emphasis that needs to be placed
on each component varies according to department. For example, some departments have
significant inventory levels; others have little if any inventory.

Furthermore, working capital management is not an end in itself. It is an integral part of

department’s overall management. The needs of efficient working capital management must be
considered in relation to other aspects of the department’s financial and non financial performance.

33
 THE NEED 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 time gap
between production and realization of cash from sales. There is an operating cycle involved in the
sales and realization of cash. There are time gaps in purchase of raw material and production;
production and sales; and sales and realization of cash.

Thus working capital is needed for the following purposes:

1. For the purpose of raw material, components and spares.

2. To pay wages and salaries.

3. To incur day-to-day expenses and over head cost such as fuel, power and office expenses etc.

4. To meet the selling cost as packing, advertising etc.

5. To provided credit facilities to the customers.

6. To maintain the inventories of raw material, work in progress, stores and spares and finished
stock.

34
 COMPONENTS AND SOURCES OF
WORKING CAPITAL

COMPONENTS

There are two components of working capital:-

1. Current Assets

2. Current liabilities

1. CURRENT ASSETS:-

Current assets are those assets which can be converted into cash in the
normal course of business within a short period-say a maximum of one year. They are also called
floating or circulating assets because they cannot be put to constant use. They are meant for resale
or produced for the purpose of sale i.e. converting them into cash.

The list of current assets comprises of:-

a) Cash in hand and bank balances.

b) Bills receivables.
c) Sundry debtors.
d) Short terms loans and advances.
e) Inventories of stock:

• Raw material
• Work in progress
• Stores and Spares
• Finished goods

f) Temporary investment of surplus funds.

g) Prepaid expenses.
h) Accrued income.

35
 2. CURRENT LIABILITIES:-

Current liabilities are those liabilities which are intended to be paid

in the ordinary course of business within a short period of normally one accounting year out of the
current assets or the income of the business.

Examples of current liabilities are:-

a) Bills payable
b) Sundry creditors
c) Outstanding expenses
d) Short term loans, advances and deposits
e) Dividend payables
f) Bank overdraft
g) Provision for taxation

SOURCES

A firm can arrange Working capital from the following two sources:-

1. LONG TERM SOURCES:-

The sources of long term financing can be broadly classified into the
following two categories:

a) Owned Sources:- Owned sources includes

• Issue of shares
• Retained Earnings
• Reserves

b) Borrowed Sources:- It mainly includes the issue of debenture or long term loans.

36
2. SHORT TERM SOURCES:-

For financing the working capital requirements short term sources

can be classified into the following two broad categories:

a) Internal Sources:-

• Depreciation provision
• Outstanding liabilities
• Provision for taxation

b) External Sources:-

• Trade credit
• Bank credit
• Short term loans from financial institutional
• Public deposit
• Advance from customer

37
 IMPORTANCE OF WORKING
CAPITAL

 Adequate working capital helps in maintaining solvency of the business by providing

uninterrupted flow of production.

 Sufficient working capital enables a business concerns to make prompt payments and hence
helps in creating and maintaining goodwill.

 A concern having adequate working capital, high solvency and good credit standing can
arrange loans from banks and other financial institution on easy and favorable terms.

 Sufficient working capital ensures regular supply of raw materials and continuous
production.

 Working capital helps in regular payment of salaries, wages and other day to day
commitments.

 Working capital can exploit favorable market condition such as purchasing its requirements
in bulk when the prices are lower and by holding its inventories for higher price.

 Working capital helps to face the business crisis.

 It also helps in giving quick and regular return to the investors.

 It also creates an environment of security, confidence, and high morale and creates overall
efficiency in a business.

38
 FACTORS AFFECTING WORKING
CAPITAL

There is no set of universally applicable rules to ascertain working capital needs of a business
organization. Since, it varies from firm to firm, industry to industry and even in the different
seasons of the same firm. Therefore, a large number of factors influence the requirements of
working capital.

The factors are as under:-

1. Nature and size of business: -

The requirement of working capital of a firm is widely related to

the nature and size of the business unit. In the case of manufacturing concern which sells its
product on credit basis and has a long operating cycle, need s a large amount of working capital.
Moreover the size of the firm is also an important factor. Because a smaller firm needs smaller
amount of working capital on the basis of its production activities and vice-versa in the opposite
case.

2. Length of production cycle: -

The time taken to convert raw materials into finished product is

known as the production cycle. The level of working capital depends upon the production cycle.
Longer the production cycle, more will be the need for working funds in order to finance current
assets during the prolonged manufacturing cycle. On the other hands, if the production cycle is
shorter, the requirements of working capital will also be less.

3. Seasonal operation: -

If a firm is operating in goods and services having seasonal fluctuation

in demand, then the working capital requirement will also fluctuate with every change. If the
operations are smooth and even throughout the year then working capital requirement will be
constant and will not be affected by the seasonal factors.

4. Market competitiveness: -

In view of the competitive conditions prevailing in the market, the firm

may have to offer liberal credit terms to the customers relating in higher debtors. Even larger
inventories may be maintained to serve an order as and when received; the customer may go to
some other supplier. Thus, the working capital tends to be high as a result of greater investment in
inventories and receivables. A monopolistic firm may not require large working capital.
 39

5. Credit policy: -

The totally of terms and conditions on which goods are sold and purchased. A
firm has to interact with two types of credit policies at a time:

(a) The credit policy of the supplier of raw materials, goods etc.

(b) The credit policy relating to the credit which it extends to its customers.

In both the cases, however, the firm while deciding its credit policy has to take care of the credit
policy of the market. The working capital requirement of this firm will be lower than that of a firm
which is purchasing cash but has to sell on credit basis.

6. Supply condition: -

The time taken by a supplier of raw materials, goods etc. after placing an
order, also determines the working capital requirement. If goods are received as soon as or in a
short period after placing an order, then the purchaser will not like to maintain a high level of
inventory of that goods. Otherwise, larger inventories should be kept.

7. Growth and diversification of business:-

Growth and diversification of business call for larger

volume of working fund. The need for increased working capital does not follow the growth of
business but precedes it. Working capital need is in fact assessed in advance in reference to the
business plan.

8. Banking relations: -

A good bank-customer relationship is a pre-requisite of a successful working

capital management policy. Commercial banks these days normally finance the working capital
gap. Credit authorization scheme has also been liberalized after 1986. Thus customers receive an
assured bank finance which minimizes the need for making over investment assets.

9. Price level changes: -

Changes in the price level also affect the working capital requirements.
Generally, the rising will require the firm to maintain larger amount of working capital as more
funds will be require the firm to maintain the same current assets. The effect of rising prices may
not be affected firms. Some firms may be affected much while some others may not be affected at
all by the rise in prices.
 40

OPERATING CYCLE OF WORKING

CAPITAL

A new concept which is gaining more and more importance in recent years is the
‘operating cycle concept’ of working capital. The operating cycle refers to the average time
elapses between the acquisition of raw materials and the final cash realization. In other word an
operating cycle is the time-lag between purchase of raw material or other inventory items and their
conversion into cash. In this way each cycle begins with a cash-outflow and after a time lag end
with a cash-inflow.

The shorter is the time-leg between the outflow and inflow of cash, the larger will be the
number of operating cycles and greater will be the volume of total business turnover with minimum
of investment of funds in current assets in an operating period.

In case of manufacturing company, the operating cycle is the length of time necessary
to complete the following events:

I. Conversion of cash in to raw materials;

II. Conversion of raw materials into work-in-process;
III. Conversion of work-in-process into finished goods;
IV. Conversion of finished goods into accounts receivable; and
V. Conversion of accounts receivable into cash.

ACCOUNTS
RECEIVABLE

CASH FINISHED
GOODS

RAW WORK-IN
MATERIALS PROCESS
41

42
 PRODUCT PROFILE
1. SUGAR :-

Sugar is a carbohydrate that occurs naturally in every fruit and vegetable. It

is a major product of photosynthesis, the process by which plants transform the sun's
energy into food. Sugar occurs in greatest quantities in sugarcane from which it is
separated for commercial use.

The natural sugar stored in the cane stalk is separated from rest of the plant material
through a process known as refining.

For sugarcane, the process of refining is carried out in following steps:

 Pressing of sugarcane to extract the juice.

 Boiling the juice until it begins to thicken and sugar begins to crystallize.

 Spinning the crystals in a centrifuge to remove the syrup, producing raw sugar.

 Shipping the raw sugar to a refinery where it is washed and filtered to remove
remaining non-sugar ingredients and color.

 Crystallizing, drying and packaging the refined sugar.

Sugar Production is Divided into Three Categories:-

1. M – 31 ( medium size)
2. S - 31 ( small size )
3. L – 31 ( large size )
 43

STOCK MAINTAINED BY COMPANY:-

10% FOR LEVY SALE

TOTAL PRODUCTION OF SUGAR

90% FOR FREE SALE

LEVY SUGAR:-
It stands for the quota for government which is maintained by the
Company. This is 10% of total production and the levy is maintained
for Defense supply and for government quota by which the product is Distributed to those peoples
who comes under the category of below Poverty line.

FREE SUGAR:-
It stands for the quota for company which is sold freely by the company
in market. This is 90% of total production.

2. BAGASSES :-

It is a residue from cane which is obtained after the extraction of juice. It is

used as a fuel in boil generation of steam. Surplus bagasse, if any, is sold off.

3. PRESS MUD :-

This is obtained in the clarification process of juice due to change in mfg.

process system. Now it has sold for use as fertilizer and fuel purpose.
 44

4. MOLASSES :-

It is obtained when further crystallization of sugar is not possible from the

syrup. It is a controlled and free sale commodity and control share is sold to
the allottees as per state government order and free sale to be sold in open
market.

45
 PROCESS OF MANUFACTURE

The plant uses double sulphitation process for manufacturing of white sugar.

The juice extracted in mills is heated up to 70 degree C. in juice heaters and sent to sulphitors,
where milk of lime (calcium hydroxide) is added and sulphur-di-oxide gas was passed.

Final pH is maintained 7.0 some non sugar are observed in the precipitates formed due to the
reaction of lime and sulphur-di-oxide gas. This precipitated juice heated up to 102-105 degree C.
and then sent to Dorr clarifier for settling. The settled concentrated mud is sent to filter station
where it is filtered through vacuum filters. The precipitated impurities are removed as filter cake
and the filtered juice is against sent for process.

The decanted juice heated up to 105 degree C. and then sent to evaporators and concentrated up to
60-65 degree Bx. The concentrated juice is now called syrup is again sulphited to pH 5.2 to 5.4 and
sent to pan station for further concentration and crystallization of sugar.

The crystallized sugar mass obtained in pan is known as massecuite which is sent to crystallizer for
cooling & further crystallization. The mesquite is then passed through centrifugal for separation of
sugar and molasses. The sugar is bagged after cooling and grading while the molasses are boiled
for further extraction of sugar in it. The final molasses, from which further extraction of sugar is
not feasible, is sent to storage tank.

The By-Products are:-

1. Bagasses 2. Press Mud 3. Molasses

46
 47

RESEARCH METHODOLOGY
All study is based upon primary as well as secondary data. Therefore, information has been
collected frpm various magazine, journal, website, and bulletin, trainee of last year student
etc.

Research Design
The formidable problem that follows the task of defining the research problem is the
preparation of the design of the research project, populary known as the “research design”.
Decision regarding what, when, how much, by what means concerning an inquiry or a
research study constitute a research design.

Data Collection
Collection of data is the critical point in the research process. There are two basic methods of
the data collection.

• Primary method
• Secondary method

In primary method I have used

• Questionnaire
• Interview method
• Telephone interview

In secondary data

• Magazine
• Internet
• journal
 48

Sampling Design

Sampling unit
• Individual exporter

Sampling size

• L 31 (Large size)
• M 31 (medium size)
• S 31 (Small size)

49
 OBJECTIVE OF THE STUDY

This research project covers the most important aspects or features of the functioning of the
SALES & FINANCE ACCOUNTS DEPARTMENT of the LAKSHMI SUGAR
MILLS CO.LTD.

This part includes both, an analytical as well as an academic study that involves an analysis
of the working capital management policies of the organization- L.S.M Co. Ltd.

The main objectives of this study are:-

1) To understand the working capital management policies of the organization.

2) To understand the importance of working capital.

3) To analyze the liquidity position of the organization.

4) To analyze the short term financing policies and patterns, which affects the working
capital of the organization.

5) To study the factors that affects the sales & working capital management at L.S.M Co.
Ltd.

6) To find out the profitability and operational efficiency of the organization.

7) To analyze the data and information of the previous years to know the actual position of
funds, investment and liabilities of the organization.

8) To identify some broad policy measures to improve the working capital position of the
organization.

9) To estimate the working capital requirements of the organization in the near future.

51
52
 FINDINGS & DATA ANALYSIS

Yearly production of L.S.M Co. Ltd.

Products 2006-07 2007-08 2008- 2009-

09 10
Sugar (free) 345464 581115 620109 48211
5
Sugar (levy) 29290 64167 68901 53040
Molasses 185322 330163 347576 27300
3
Bagasse 227218 335035 375722 32319
3
Press Mud 274229 282027 311523 26320
9

700000
600000
500000
400000 2006-07
300000
200000 2007-08
100000
0 2008-09
2009-10
)

ud
s
ee

vy

ss
se

M
( le
(fr

ga
as

s
r

Ba
r

ol

es
ga

ga

Pr
Su

Su

 From the above data we study that in year 2008-09 the production of main product and their
by products are more in camparision to the other years the main resion behind this is that in
the following year the availability of raw materil is hight and regarding this the company
having long crushing period
 53

Yearly products sales price of L.S.M Co. Ltd.

Products 2006- 2007- 2008- 2009-

07 08 09 10
Sugar (free) 1541. 1874. 1635. 1448.
1 62 77 62
Sugar (levy) 1275. 1305. 1314. 1314.
82 87 63 68
Molasses 362.8 256.8 291.4 282.11
2 4
Bagasse 89.49 60.64 51.3 51.3
Pressmud 7.89 10.08 16.95 18.57

2000
1500
1000 2006-07
500 2007-08
0 2008-09
2009-10
)

ud
s
ee

vy

ss
se

sm
( le
( fr

ga
as

es
r

Ba
r

ol
ga

ga

Pr
Su

Su

 We study frome the above data that price of main product in the year 2007-08 is hight this is
becouse of low production in the year 2006-07 due to this low production the supply didn’t
full fill the demand of product in the market which causes rising price of the product
 54

Yearly sales of L.S.M. Co. Ltd.

Products 2006- 2007- 2008- 2009-

07 08 09 10
Sugar (free) 40416 50503 40352 54690
5 0 8 4
Sugar(levy) 9568 73504 67189 38321
Molasses 15732 32451 35754 23729
3 7 1 4
Bagasse 22721 33503 37572 32319
8 5 2 3
Press Mud 27422 28202 31152 26320
9 7 3 9

600000
500000
400000
300000 2006-07
200000
2007-08
100000
0 2008-09
2009-10
)

ud
s
vy
ee

ss
se

M
(le
(fr

ga
as

s
r
r

Ba
ga

ol

es
ga

M
Su

Pr
Su

 From the above data we finds that in the year 2009-10 the sale of main product is hight in
camparision to other years. This is becouse the production of the sugar in the year 2007-08
is more and the avialability or supply is hight in the market that’s why price for the product
goes downward in the year 2009-10.
 55

Capital structure of L.S.M. Co. Ltd.

Sources Amount
Share capital (Promoter
contr.) 432.9
Loan from Finance Institution 2119.5
Loan from S.D.F. 1695.6
  From the data we understand about the capital structure of the company. This data shows
that the 50% of the total capital is borrowed form the financial institutions and only 10% is
invested by the promoters of the company this shows that company maintains their goodwill
in the market and better financial position.

56

Current Assets and Current Liabilities of L.S.M Co.Ltd.

ITEMS 2006- 2007- 2008- 2009-

07 08 09 10
Current Assets (A) 5354. 7181. 11079. 12148.
16 04 12 88
Current Liabilities (B) 982.5 1208. 1335.1 3697.6
07 9 3

14000
12000
10000 Current Assets (A)
8000
6000 Current Liabilities
4000 (B)
2000
0
2006- 2007- 2008- 2009-
07 08 09 10

From the study of Current Assets and liabilities we understand that company is growing year by
year. There was a rapid growth in current assets in the year 2008-09.But the liabilities of the
company also increases in the year 2009-10.
 57

Yearly Changes in Working Capital of L.S.M Co. Ltd.

ITEMS 2006- 2007- 2008- 2009-

07 08 09 10
working capital (A-B) 4371. 5972. 9743. 8451.
66 97 93 25

working capital (A-B)

12000
10000
8000 working capital (A-
6000
4000 B)
2000
0
2006- 2007- 2008- 2009-
07 08 09 10

 From the study of above data we finds that in the year 2008-09 there was a maximum
availability of working capital but due to the payment of liabilities or the increase in the
liabilities in the year 2009-10 the company’s working capital goes downwards in the year
2009-10.
58
59
 LIMITATIONS

 The purchase price of raw material and selling price of finished goods are declared by the
state and central government of the country.

 Limited area for the purchase of raw material. This area for raw material also given under
the guide lines of the government.

 The presence of competitors is high where the area for collecting the raw material is limited.

 Illegal competitors (kholous, crashers) are also effects the performance of the company.
And against them government cannot take any action.

 Company also maintains the government quota of products (sugar, molasses) against which
government didn’t give the actual price for that, only little amount amount was given to the
company.

 Company also affected by the political factors and by the government policies.

60
61
 CONCLUSION

During the time of training I found most of the factors are against the company but still the
company works efficiently and effectively. In this field the government plays an important role to
control the sale of the products and purchase of raw material.

The following conclusion can be drawn from the project that I have completed:-

 The company bears the low amount against the supply of government quota.

 For the better production company needs the raw material in huge amount, so for this
company encourages the farmers and giving the knowledge for new techniques of farming.

 Company also provides the new verities of sugarcane and fertilizers which are used in the
farming at sufficient price.

 I also study that company borrowed 50% of total capital invested from the financial
institutions which shows that company having a good strategy for the upliftment of the
company.

 Over all the company depends upon the environmental and political factors.

62
63
 BIBLIOGRAPH

BOOKS:

 Working Capital Management by “J.D. Agrawal”

 Strategic Finance by “Dr. S.M. Tariq Zaffer”

 Working Capital management by “Mehta”

INTERNET:
WEB – SITE

 http://www.indian sugar industries.com/

 http://www.google.com/

64