NEED FOR THE STUDY Vijaya diary is big manufacturing unit with varying milk based products are

being produced. The requirement of capital for each department is very high in an organization like Vijaya Diary. Therefore, I have under taken my study in this organization to understand the requirement of capital and its effective allocation of resources in working capital management. Some important points are taken into consideration. To study the adequacy of working capital in this organization. The duration of the work-in-progress state depends on length of the manufacturing cycle, consistency in capacity utilization in different stages and efficient co-ordination of various inputs. The duration of raw material stage depends on the regularity of supply, transactions time, degree of perishable ability, price fluctuations and economic of bulk purchases. Having this detailed study on working capital management, identify the shortage of working capital and suggest improving the working capital management in the company.

OBJECTIVES OF THE STUDY

Primary objectives: To study the adequacy of working capital in the organization. Secondary Objectives: To study the various elements of the working capital namely inventory, receivables, cash. To know the Liquidity position of the firm. To know how to implement cash management techniques in Vijaya Dairy Ltd., To ascertain various problems faced in working capital management. To give appropriate suggestions for the better performance of the company if necessary.

IMPORTANCE OF THE STUDY

The Researcher that the study on working capital management in KRISHNA DISTRICT MILK PRODUCERS MUTUALLY AIDED CO-

OPERATIVE UNION LTD.,

of paramount important since

it assumes

attention from the strategy makers and researches. It is no exaggeration to say that the working capital management has been regarded as one of the critical success factors, which determines success of the company.
Importance of working capital management and its contribution to the

growth and development of business firms had aroused a keen interest in me to select this topic for project study. On going through the statistics pertaining to working capital of the above said company. It gives me immense pleasure to carry out systematic and formal study about working capital management; in a said company. Since the presently study purports to throw alight on in depth analysis and interpretation of the data gathered from primary and secondary sources, the study will serve useful purpose by bringing all the aspects relating to working capital so that lot of data may be enhanced for further studies in this area.
It is hearting to note that the working capital has assumed much

importance in all types of organizations. Despite availability of may topics available for research purpose I preferred this topic because of the fact the this deserves special preference than other topics. Formal and systematic analysis which leads to suggestions are bound to contribute to enhancement of financial performance of the above said company as on inadequacies can be rectified through this suggestions

given by me. It is hoped that my suggestions may be considered by the company.

METHODOLOGY OF THE STUDY

All the data required for completion of the study has been collected from both primary and secondary sources. Primary Sources of Data: The primary sources of data required for the study was collected by the personal interaction with employees of the Vijaya Dairy, in the area of Finance, Production and administration department. The secondary data was collected from the Companys Annual Reports Accounting Reports Departmental Manuals Text books and journals relating to financial management

LIMITATIONS OF THE STUDY

Any study is having its own advantages and certain disadvantages. Among such, few of the limitations are expressed below such as; The reliability of the study depends upon the information furnished by the officials. Due to time constraints, it is difficult to go into details of the whole organization. The study is purely base in the form of company report of Vijaya Dairy Ltd., Vijayawada. The present study is restricted to lonely for a period of 6 years from 2001-02 to 2006-07.

INDUSTRY PROFILE
Industry Scenario:

Dairying has been of life in India since the ancient Vedic times. The modern dairy industry took roots in 1950 with the sale of bottled milk in Bombay from Array milk colony. The first large scale milk products factory was started in 1945 at Anand a Co-operative venture, with the assistance of UNICEF, for the production of milk powder, table butter and ghee. These products were making from the buffalo milk. The worlds largest development program over undertaken, the operation flood undertook and gigantic task of upgrading and modernizing with production, procurement, processing and marketing with the assistance provided by the World Bank and other external agencies, designed and implemented by the National Dairy Development Board (NDDB) and the Indian Dairy Corporation. The project was launched in July, 1970. Its basic concept compromises the establishment of co-operative structure on Anand Pattern.

DAIRY INDUSTRY IN INDIA

India has the world's largest cattle and buffalo population adapted to tropical elimate and poor nutrition and environment. According to Livestock census 1982, India's bovine population was 191 million cattle and 69 million buffaloes. The forecast for 2000 AD is 204 million cattle and 78
6

million buffaloes. Milk production gives employment to 70 million dairy farmers. In term of total production India ranks 2nd to USA with a production of 71 million tons in 1997-1998. The production of various dairy products in 2002, 428 (OOO'metric tones). APDDCF was formed in October 1981 to implement operation floodII program through involvement of producers in organizing milk production procurement, processing and it will low due to rapid population growth. It was 178 grams/day in 1990. There was only an increase of 50 grams per day from 1980 to 1990. It is expected that milk availability will reach 213 gram/capita/day by 2000 A.D as against 300 grams, the optimum recommended by the health scientists. Today India ranks first in milk production in the world. Dairy development in India: India has the world's largest cattle buffalo population adopted to tropical climate and poor nutrition and environment. According to Livestock census 1982, India's bovine population was 191 million and 69 million buffaloes. The forecast for 2000A.D is 204 million cattle and 78 million buffaloes. Dairy development in India received a fillip after independence when industrialization and awakening warranted the establishment of organized milk collection, processing, distribution of milk to cater the needs of the expanded urban population. Planned development of dairying was first taken up in the First five year plan (1951-56). The main deterrent factor for milk production was inadequacy of suitable marketing structure in the rural areas. Milk was being marketed in the form of ghee which did not provide
7

sufficient income to the farmers to take up the dairying. In most of the states, larges dairies have been established with direct milk between rural areas. Milk was being marketed in the form of ghee, which did not provide sufficient income to the farmers to take up the dairying. In most of the states, large dairies have been established with direct milk between rural producers and urban milk treatment units. Some of the dairy units also established a chain of mill collection and chilling centers in the rural areas to afford necessary facilities for handling milk in large volume and for long distance transport with out spoilage. These processing centers have had a stimulating effect on the dairy industry in the country. India has world's largest cattle population. However, per capital cattle population is very less compared to developed nations. Dairy farming is regarded as a subsidiary occupation in India. Now, it has become an important agro business. First, dairy farm is established by military at Alahabad, in 1889. British troops got milk supplies from that farm. It also organized cross breeding with European cattle breeds.

India is a country of village where farmers have small land holdings. They had been practicing intensive cropping. As a result, production increases, but not commensurate to the inputs. Thus the input-output ratio started getting balanced. The need for finds was felt more and more to buy inputs. Moneylenders borrow money at very high interest rates. They exploited the farmers who were poor. As a result, a large number of farmers in Pune and Ahmednagar open hostilities, against moneylenders in 1879. Subsequently land improvement act, 1883 and agriculture act, 1884 were passed to advanced loans at reasonable rates of interest to farmers. The

government realized that the cooperative credit society act was essential. But, enacted act had following shortcomings. 1. Only 5 credit societies are registered. 2. Classification of the societies into urban and rural was scientific. 3. It was selected regarding distribution of profit. Thus another act named "The Co-operative Societies Act 1912" was enacted. The act tool care of credit unions under the supervision of central bank. The co-operative unions remained control subject. In the year 1919, Cooperative Societies became a state subject and fell with in the scope of Provision legislature. Each province started formulation of their requirements. After Intendance, the cooperative movement made rapid studies and government adopted the policy of promoting of cooperative movement for establishing economic welfare in the country. The cooperative sector was given an important place in the new economy and acted as a balance between private sector and pubic sector. It becomes necessary that co-operative legislation must keep pace with the progress of movement and there should be uniformity of cooperative Society Act (1956) was amended 19 times to suit the changing circumstances. Hence the Government of India appointed a Committee in 1956 to review co-operative acts in different states and prepared a model bill. In 1960 pilot milk supply scheme was started in the state for the dairy development. Its initial capacity was 100 litres a day in the time of starting. Now its daily collection increated to 11 lakhs litres per day. It is also working as alien between milk producers of the towns by providing reasonable price to the producers to maintain stable market.

10

OPERATION FLOOD-1 : Operation Flood-1 also referred to as white revolution in a gigantic project profounder by Government of India for developing Diary Industry in the country. The Operation Flood-2 originally meant to be completed in 1975 for its completion at total cost of about Rs.116 Crores. The Operation Flood-2 was wholly financed by setting in India free metric tones of bottle oil donated out of the surpluses of European Economic Community.

ANAND PATTERN-1 :Under the Operation Flood-1 the program for increasing milk production was taken up in ice hinterlands of various breading tracks on Anand Pattern and loudly proclaimed with a trample. The Co-operative were started originally in 18 of Indian milk shed districts and later on mine more milk shed areas were added to make a total of 27 in 10 states of the country viz., Maharashtra, Tamilnadu, Andhra Pradesh, West Bengal, Bihar, Haryana, Punjab, Uttar Pradesh and Rajasthan. Those dairy co-operatives are based on the model known as Anand Pattern of dairy co-operative. Under Anand pattern concept rural cooperative infrastructure was to be built in the village, the milk producers were and keep their animals. In each participating village, the milk producers were to form their own village dairy co-operative. Thus Anand pattern dairy co-operative union organizes mobile veterinary and artificial insemination counters.

11

In the sphere of co-operativisation the No. of Anand Pattern organized societies under operation flood was 63121 on April 1st 1991 as age INST 60753 a year ago indicate one that years as many as 2368 new dairy co-operatives were formed.

OPERATION FLOOD 2: The Operation Flood-2 which was started in July 1978 is scheduled to be completed in 1985 at a cost of 483 crores. A humble attempt has been made in it sufficient appraisal of the achievements made in some sufficient field during Operation flood-1. These achievements if as all made particularly the Anand pattern dairy co-operative unions are to serve now bedrock of operation flood. Their unions are to act to the starting. Nucleuses for co-operative cluster federation. The main instrument for this gigantic project Operation flood-2. The average nucleus cluster federation would six district unions registered and unregistered.

The Indian Dairy co-operative, National possible are not required to indicate the basis on which the State wise allocations were made in operation flood-2 up to end of the 11,1979 Gujarat State alone got the lions hsares of 1666. 70,00,000 five state Haryana, Bihar, Rajasthan and Andhra Pradesh put together the total disbursement in their case was 1732 lakhs only. This trend is going to be maintained in Operation Flood-2.

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OPERATION FLOOD-3 : The Indian Dairy Industry is growing rapidly and may become a string competitor to World Dairy Powder. The milk sector in the second largest contribution to the agricultural economy in terms of produce phenomenal growth is a result of national airy development board through the Operation Flood programs. Operation Flood-2 now in its closing phase only consolidated the procurement affords to boost production. The projection for milk output for 200 AD is nearly 90 tones at on 5% growth rate. It is now 5-8% dairy factories established under operation flood, which cover 170 milk sheds can handle 14.3 millions liters milk dairy. They have a milk drying capacity of about 696 tones per day. The rapid growth in milk production did way with import of milk powder except for a (26400 tones) during the brought years.

13

NATIONAL DAIRY DEVELOPMENT BOARD: At the time of industrialization at cattle feed factory at Knjari in October1964 the late Sri LALBAHADUR SASTRY, the Prime Minister of India paid unscheduled visit producers co-operative societies and stated there overnight. He was impressed by the social economic changes brought milk co-operatives in Krishna District and desired to have a National level organization to milk producers co-operative societies replicate anansin other part of the Country. Thus the National Dairy Development Board was sent up under the empowerment of Ministry of Agriculture and Irrigation, Govt. of India in September1965 under the Society Registration Act.1860 and the Bombay Trust Act.1950. The President of India nominates the Board of Directors including Chairman, Secretary, National Dairy Development Board in the chief of the organization.

14

DAIRY INDUSTRY IN ANDHRA PRADESH

The program dairy industry was mooted with commendable help of the United National International Childrens Emergency Fund, Food and Agriculture Organization and Freedom from Hunger Company campaign Organization of the U.K... These Organizations insisted a lot of the establishment of the dairy units at Hydria and Vijayawada in 1967 and 1969 respectively, which led to pioneer dairy development program in Andhra Pradesh Later to set cooling and chilling centres have been setup to feed these two gigantic units. The Government of Andhra Pradesh started dairy development corporation to interest of milk producers and ensuring adequate supply of fresh milk at reasonable price to the urban consumers as A.P.D.D.C., come into the existence on 2nd April 1974. A.P.D.D.C. , providing employment to nearly 20 employees and organism easy many as 87 dairy units including seven milk factories, 13 district dairies, 22 chilling centres, 18 cooling centre and 15 mini cooling centers. In addition to that the private units have been contributing their little mite in the development of dairy industry M/s. Hindustan milk foods that has started a malted milk product factory in Rajahmundry. Further to enhance working efficiency and to increase the turnover, the government has constituted on autonomous diary development Corporation on the recommendation measure the dairy industry improving towards massive milk productions and milk collections.

15

A.P. DAIRY DEVELOPMENT CO-OPERATIVE FEDERATION (A.P.D.D.C.F.):

A.P.D.D.C.F. was formed in October, 1981 to implement Operation Flood-2 program through active involvement of producers in organization milk production, procurements, processing and marketing on three-tier. Co-operative structure as per the national government of India. The three-tier system consists of primary dairy co-operatives societies 13 village level, co-operative unions at district level and federation at state level.

OPERATION FLOOD :
In our state operation flood was divided in three types Anand Level.

1. 2. 3.

Village level District level State level

D.C.S. M.P.C.V. A.P.D.D.C.F.

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MAJOR DAIRY PRODUCT MANUFACTURERS IN INDIA AND THEIR BRANDS ARE EXPLAINED COMPANY BRANDS Milk-Maid NESTLE Ceralac Lactogen, Milo and everyday MILD FOODS LTD SMITUKLINE BEECHEM LTD GUJARATH COOPERATIVE MARKET FEDERATION LTD CARDBURY BRITANNIA Bournvita Milk Man Butter, Ghee and Other Milk products Infant Milk food Flavored Milk, Ghee, Milk Powder, Biscuits and Ghee Milk Food MAJOR PRODUCTS Sweetened Condensed Milk Powder, Malted Food, Milk powder and dairy whitener, Ghee and Ice cream Ghee and Ice cream Malted milk food, Ghee Butter and Other baby foods

OPERATION FLOOD PROGRAMME :

17

Indian Dairy Development Corporation own the responsibility of implementations of operation flood programs, which provides money assistance put 70% towards loans and 30% as subsidy. National Dairy Development Corporation selected district of the State for implementation of operation fold. It divided the districts into en milk collecting mandals.

DISTRICT SELECTED UNDER OPERATION:

District Krishna Srikakulam Vijayanagaram Visakapatnam East Godavari West Godavari Chitoor Kurnool Cuddapah Nalgonda Rangareddy Medak Milk sheds / unions Krishna Vizag Vizag Vizag Godavari Godavari Chitoor Kurnool Cuddapah Nalgonda Rangareddy Medak

COMPANY PROFILE

18

ORGANIZATION & HISTORY: Organized dairying in Krishna commenced in 1965 with integrated milk project assisted by UNICEF. A milk conversation plant first of its kind in South India was commenced in April1969. The organization of dairy industry took basic changes beginning with husbandry department; It was integrated with project (1960), Dairy Development (1991), A.P. Dairy Development Co-operation (1974), A.P. Dairy Development Co-operative Federation (1981). Krishna District Milk producers Co-operative Union got registered in 1983 district have 450 organized dairy co-operative societies with 67,000 members producers. There are 340 producers association centers. COMPANYS MISSION: Farmers prosperity through technical innovations and customer orientation with specific focus on quality and cost. COMPANYS VISION : Dairying in the district to be the major instrument of strengthening rural economy & making available safe milk and milk product

SAILENT FEATURES :
19

 Daily average milk procurement : 1,63,794 lts. Turnover of business has reached to 200 crores. Daily milk sales average reached to 1,60,000 lts. Obtained ISO 9001:20 00, 14000 and H.A.C.C.P. certification. Earning profits and distributing bonus to its members. Paying Rs. 68 crores per year to farmer as cost of milk procured from them. Strengthened the rural economy by avoiding middlemen and making available safe milk and milk products to the customer. Provided self employment to the rural women. COMPANY PRIDE : First powder plant established in South India. Largest democratic functionary in the District serving the farming community. Having more than Rs. 1000 crores grass root level production base. Providing direct and indirect employment to people. First dairy to introduce five varieties of liquid milk. First dairy to introduce liquid ice cream in tetra brick pack. First dairy co-operative to introduce curd in cups in South India. First dairy to introduce butter milk and lassies in tetra brick pack. Annual turnover more than Rs. 121 crores with a continuous growth rate. First dairy to introduce Basundi in cups and milk cake. Distribution network with 27 milk distribution routes.

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MILK DISTRIBUTION CENTERS:

Town Vijayawada Machilipatnam Gudivada Total

No. of Selling Booths Sales (in liters) 400 25 15 440

Daily 70,000 3,000 2,500 75,500

SALES CENTERS Vijayawada: RT.C bus stand, Super Bazar, Railway Station, Milk Products factory, Vastralatha, Vijaya Dairy Parlor (near Alankar theatre) Benz circle, Sathyanarayanapuram, Machavaram, Patamata, etc.,

CAPACITIES Milk Ghee Butter Milk Powder Refrigeration Capacity Steam Generation Milk Packing Chilling Processing 1, 50,000 liters per day 5 tonnes per day 7 tonnes per day 4 tonnes per day 1.5 tonnes per day 13 tonnes per 1 prt 1, 25,000 packets per day 1,50,000 liters per day 1, 50,000 liters per day

21

TRANSPORT There are about 25 vehicles in transport organization, milk products factory, Vijayawada. ==> Road Tankers 4 tanks of 13,000 liters capacity 4 tanks of 1,000 liters capacity

==> 3 distribution vehicles for sales ==> 6 inspection vehicles ==> 1 cash van In addition to these 25 vehicles, some vehicles are taken hire from private transporters for distribution of milk. The milk feed to chilling centers and far off places like Visakhapatnam, Nellore, and Chit or is being transported by the road tankers. It is also transported to all metropolitan cities of Delhi, Mumbai, Calcutta and Chennai through the insulated tankers.

RESEARCH AND DEVELOPMENT The Indian Council of Agricultural Research has started a research scheme during the period 1970-70 to undertake research on milk products. Under this scheme soft cheese, butter, milk powder curd, dooth peda, ice cream mix, butter etc. are, manufactured.

22

MILK PROCUREMENT: Milk is being procured twice a day from about 830 villages in the district organized through 29 routes and 6 chilling centers besides getting raw milk directly to the factory from certain villages in a radius of 50 KM around Vijayawada. Among 480 centers, about 431 are registered societies and under Anand Pattern. MILK PRODUCT FACTORY VIJAYAWADA DATA SPECIFICATION: Area occupied by the factory Value of factory building Money given by UNICEF Machinery Investment on equipment -600 lakhs ---27.3 Acres. 400 lakhs 53 Lakhs

Buildings:
Opened on Workers Date of formation of union Date of transfer of management Of the union Annual turnover -----11-04-1969 1538 06-07-1983 08-02-1985 60 crores.

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INFRASTRUCTURE AND FACILITIES :Milk products factory Vijayawada is located on 27.3 acres of land which houses of dairy plant, Aseptic packing station, Administration office, effluent treatment plant, Electrical sub. Station and residential quarters. Following are the facilities available in Milk Products Factory, Vijayawada and its field centers.

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FIELD: Sl.No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Name of the Centre MCC pamarru MCC Veeranki lock MCC Gudlavalleru MCC Hanuman junction MCC Chillakallu MCC Tiruvuru Unit Lts. / Day Lts. / Day Lts. / Day Lts. / Day Lts. / Day Lts. / Day TOTAL No. computerized milk collection and Capacity 50,000 18,000 18,000 18,000 12,000 12,000 1,28,000 25

testing centers No. of Bulk coolers operating (planned to 6 establish ten more) DCS having electronic milk testers No. of A.I centers No. of V.F.A. Centers No. of DCS organized No. of MPAs Exclusive women DCSs Farmer members Women members No. of Milk routes No. of DCS having its own buildings. 450 56 240 630 320 103 1,86,689 23,347 35 400

A. Milk Products Factory Vijayawada :

Sl.No. 1 2 3 4

Name of the Facility Milk Processing Milk drying Ghee Manufacturing Butter manufacturing

Unit Lakhs lts/day MTs/ Day MTs/Day MTs/Day

Capacity 2.5 22.0 18.0 22.0

25

5 6 7 8

UHT Milk packing Milk packing Godown space Butter cold store

Lts./day Lts./day MTs MTs

45,000 2,00,000 3,000 500

CATTLE FEED: Sl.No. 1 2 Name of the Plant FMP Buddavaram FMP Gudlavalleru Unit MTs / Day MTs/day Capacity 30.0 18.0

NEED FOR EXPANSION With the introduction of the baby food, the milk handling capacity has been educed to about 80 to 85 thousand liters of milk in view of the sugar content added in manufacture of the baby food. Therefore it is proposed to expand the present plant by adding additional buildings in the existing vacant area adjacent to the transport section. This will enable the factory to handle 1.5 lakh liters per day. MANAGEMENT:

26

1. Management of the company shall consist of Board of Directors, Chairman and Managing Director. 2. The chairman and Managing Director. 3. Nominee of the Government of Andhra Pradesh if the Government of Andhra Pradesh is a member. 4. Chairman of the Board of Directors shall preside over general meeting. In case of this absence the meeting shall be conducted by a chairman from amongst the members present. 5. The general body shall be called once a financial year with in greater ending on 31 December. This shall be "Annual General Meeting". 6. A special general body meeting may be called at any time by a majority vote of Board of Directors and shall be called within on month at least 1/5 of the members of federation or by the registrar of cooperative societies

27

PROVISION UNDER ACT:

1. Subject to such resolution as the general body may from time to time pass. The execution management of the union shall consist of not more than 17 members as detailed below. a. 2 elected representative of affiliated 30 societies. b. 3 Government nominees. c. Registrar of cooperative societies or his nominee. 2. Director of Animal Husbandry or his nominee. 3. Managing Director, A.P dairy development corporationor his nominee. a. One to be adopted by the board from the experts in milk business. b. Nominee of financing agency. c. As soon as the election of the members of the board over, they shall meet and elect a chairman and vice-chairman who will hold office for one year. The election of chairman and vice-chairman is to be held, in the same manner every year immediately after the general body meeting in which the remaining vacancies of directors filled up.

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BOARD OF DIRECTORS: The board consists of the fallowing. Chairman of the affiliated union enrolled as members. Registrars of the cooperative societies. One nominee of the financing agency. Managing director of the federation. 3 nominees of the State Government representing interest of dairy development. Any member nominated to the board may at any time resign from his office by sending a latter to Government and such resignation shall come into effect from the date on which it is accepted by the Government.

The Government shall nominate the chairman of that board from time to time. The secretary of the Government dealing with dairy development shall be the vice-chairman of the board, except managing director and chairman of the federation shall be honorary. Managing Director: The Managing director shall be appointed by the Government from time to time upon such terms and conditions as the Government thinks fit and the Government extends such terms as it may due necessary and expedite

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ORGANIZATIONAL STRUCTURE: Staff position:Managing Director Deputy Director Senior Accounts Officer Dairy Managers. Asst. Dairy Engineers. Quality Control Officers. Asst. Dairy Manager Fodded Development Officers Junior Engineers Technical Staff Transport Finance Administration Field Staff Others (Non-technical) TOTAL 1 2 1 6 2 1 15 1 4 58 30 20 70 55 304 570

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ORGANIZATION CHART

General Body

Board of management

Managing Director

Production

PM

Finance Personal

QC

Stores

MIS

APS

MILK PROCESSING AND PRODUCTION : Dairy Manager (I/c Production) is heading the production division supported by four dairy managers, 11 Asst. Dairy Managers and
31

other production staff engaged in milk reception, milk processing, Butter making, Ghee making, powder making bi-product its manufacturing and finished goods section. Production operations begin with milk reception at the dairy dock and continued round the clock. FINANCE: Senior Accounts Officer is heading the finance who is assisted by four Asst. Accountant Superintendent and Finance staff. The union has started its operations independently from 08-02-1985 onwards after taking the fixed assets from the State Federation at their book values as on that date. SHARE CAPITAL : Authorized share capital Rs. 500 lakhs. The unions paid up share capital at present are Rs. 106.24 lakhs and Rs. 31.87 lakhs are share suspense waiting for conversion. LONG TERM LOANS : The National Dairy Development Board has provided loans to the union under O.F.2/3 program for capital projects in the union total Rs. 707.20 lakhs was financed for various projects to the union under 70:30 loans cum grant basis.

WORKING CAPITAL MANAGEMENT THEORETICAL CONCEPTS

Financial Management

32

Financial management refers to that part of management activity that is concerned with planning and controlling of firms financial activities it deals with finding out various sources of finance for raising funds for the firm it is applicable to every type of organization irrespective of its size kind of nature. Meaning of financial management From the various definition of the term business finance given it can be concluded that the term business finance mainly involves rising of funds and their effective utilization keeping in view the overall objectives of the firm the management makes use of various financial techniques devices etc., for administering the financial affairs of the most effective and efficient way. According to Soloman financial mangement is concerned with the efficient use of an important economic resource namely capital funds . However the most acceptable definition of financial management as given S.C Kuchhal is that financial management deals with procurement of funds and their effective utilization in the business. The objectives provide a framework for optimum financial decisions making in other words that are concerned with designing a method of operating the internal investment and financing of a firm.

There are 2 widely discussed approaches in financing literature Which as fallows

33

 Profit Maximization Wealth maximization Profit Maximization According to this approach action those increase profits should be undertaken and those which decrease profits should be avoided in specific operational terms as applicable to financial management. The profit maximization criteria implies that investment financing and dividend policy decision of a firm should be oriented to maximization of profits. Wealth Maximization This is also known as value maximization or net present worth maximization in current academic literature value maximization is almost universal accepted as an appropriate operational decision as it removes the technical limitation which characteristics the earlier profit.

Function of financial management Acquiring sufficient funds

34

To Asses the financial needs of an enterprises and then finding out suitable sources of financial and raising them commensurate with needs of business. Proper utilization of funds Funds should be utilized in the most optimum ay so that the maximum benefits are derived from them. Increasing profitability The planning and control of finance function aims at increasing profitability of a concern. Maximization concern value To the maximize the value of the firm by raising the request finance by the selecting the appropriate sources of finance.

Scope of the Financial Management Investment decision

35

The investment decision relates to the selection of assets in which funds will be invested by the firm the assets that can be acquired fall in to 2 groups Long-term assets Sort term assets Long term assets is popular known in financial literature as capital budgeting. While short-term assets is known as Working Capital management. Capital Budgeting It is probably the most important financial decision of firm it relates to the select in of an assets or investments proposal or a course of action whose benefits are likely to be available in future over the lifetime of the project. Working capital It is related with the management of current assets it is an important and integral part of financial management as short term survival is a root for long term success.

Financing decision

36

The second major decision in financial management is the financing decision the investment decision is broadly concerned with assets combination or the composition of the assets of the firm. Dividend policy decision The third major decision of financial management is the decision relating to the dividend policy the dividend should be analyzed in relation to the financial firm. Two alternatives are available in dealing with the profits of a firm they can either be distributed as dividends or they can be retained in business.

Some Important Definitions:

37

Working Capital means current assets Mean,Malott,Baker The sum of the current assets is the Working Capital of a business J.S.Mill Any acquisition of funds which increase the current assets increase working capital also for they are one and the same. Bonnevile Working Capital refers to a firm investment in short term assets, cash, short term, securities, Account Receivable and Inventories. Weston & Righam It has ordinary been defined as the excess of current assets over current liabilities. Gerstenberg

38

Meaning of Working Capital

Capital required for the business is divided into two aspects Fixed capital Working Capital Fixed capital: It is the amount of money required to maintain the fixed assets of the concern Working Capital: The amount of money required to meet the day-to-day transactions of the business is termed as Working Capital.

39

Concepts of Working Capital

The concepts of Working Capital are Gross Working Capital Net Working Capital

Gross Working Capital:

It refers to the firms investment in the current assets. Current assets are the assets, which can be easily converted into cash within one accounting year. The gross Working Capital focuses attention on two aspects of current assets management 1. 2. The way to optimize the investment in current assets. The opportunity to finance the current assets.

Net Working Capital:

It is the excess of current assets over the current liabilities. Current liabilities are those claims of outsiders, which are expressed to mature for payment within one accounting year. Net Working Capital can be positive or negative. A positive Net Working Capital indicates the excess of current assets over the current liabilities. A negative Net Working Capital is a qualitative concept and indicates the liquidity position of the firm. It suggests the extent to which the Working Capital may be financed by permanent sources of funds.

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Approaches of Working Capital Depending on the mix of short and long-term financing, the approach followed by any company fall under these three categoriesMatching Approach Conservation Approach Aggressive Approach Matching Approach: It refers to the adoption of a financial plan, which matches the expected life of the assets with the expected life of the source of funds raised to finance assets. In this approach the long-term financing is used to finance the fixed assets and permanent current assets. The short-term financing will be used if the firm has the need of only fixed current assets. Conservative Approach: In this approach the financing of permanent assets and a part of temporary current assets the idle amount of long-term financing can be invested in the tradable securities and conserve liquidity. Aggressive Approach: In this approach the short-term financing is used more to finance a part of its permanent current asserts. Sometimes in a more aggressive way the short-term financing is used for financing the fixed assets.

41

Sources of Working Capital: The sources of finance for Working Capital are of two types. They are permanent and temporary sources of Working Capital. The Working Capital investments in minimum level of current assets are permanent Working Capital. The Working Capital required to meet the seasonal contingencies is called temporary (or) variable Working Capital. The fixed proportion of Working Capital should be generally financed from the fixed capital sources while the temporary (or) variable Working Capital requirements of a concern from the short term sources of finance. Permanent Sources of Working Capital: The permanent Working Capital sources of finance are done for having a uninterrupted finance for a long period. There are five important sources of permanent Working Capital. They are: Shares Debentures Public Deposits. Ploughing back of profits. Loans from financial institution. Shares: Generally, a company should raise the maximum amount of Working Capital by the issue of shares. The preferences carry a preferential right in respect of the divided at a fixed rate. Equity shares do not have such obligation. A company should not issue different shares according to the companies act.
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Debentures: Debenture is an instrument issued by the company acknowledging its debt to the holder. A fixed rate of interests is paid on the debentures secured or paid in prior to the unsecured debenture holders. The company enjoys tax benefits. Public Deposits: They are the fixed deposits accepted by the business directly from the public. It has both advantages and dangers. The R.B.I has also down certain limits on the non-banking concerns. Ploughing Back of Profits: It is an internal source of finance and reinvestment of the surplus earnings of the business. It is the cheapest and cost-free sources of finance. Excessive resort to ploughing back of profits leads to over capitalization and speculation. Loans and Financial Institutions: Financial Institutions like Commercial Banks, IFCI, LIC provide short-term, medium-term, long term source of finance suitable to meet the demand of Working Capital. A fixed rate of interest is charged against such loans and is paid by way of installments.

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Temporary Sources of Working Capital: Indigenous Bankers. Trade Credits Installment Credits Advances Accounts Receivable Credits. Accrued Expenses Deferred Expenses Commercial Paper Indigenous Bankers: These are the private moneylenders who charge high rate of interest for the loan given by them. These Bankers are more prior to the establishment of the commercial banks. Now we can fine a few. Trade Credit: It is the credit extended by the suppliers of goods in the normal course of business. The credit worthiness of a firm and the confidence of its suppliers are the main basis of securing trade credit. There are some advantages such as convenient method of finance, flexibility as the credit increases. Installment Credit: In this method, the assets are purchased and the possession of goods is taken immediately but the payments are made in installments over a predetermined period of time.

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Advances: Firms having ling production cycle take advances from their customers and agents against their orders. This acts as a cheap source of finance and minimizes their investment in Working Capital. Accounts Receivable Credit: It is the services offered to manage the financing of debts arising out of the credit sales. This service is now available in India only on recourse basis. It has certain limitations such as the cost of factoring is high perception of financial weakness about the firm availing these services. Accrued Expenses: These are the expenses, which have incurred but not yet pain. It varies with the change in the level of the activity of the firm. The frequency and magnitude of accruals is beyond the control of the management. Deferred Incomes: These are the funds of incomes received by the firm for which it has to supply goods in future. These funds increase the liquidity of a firm and constitute an important source of short-term finance. Commercial paper: It is unsecured promissory notes issued by the firm to raise short-term funds. The maturity period of a commercial paper ranges from 91 to 180 days. The draw back is that can be redeemed only after the maturity date. The Working Capital management or short-term financial

management is concerned with decisions relating to current assets and

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current liabilities. The key difference between long-term financial management and short-term financial management is in terms of timing of cash. Long term financial decisions (like buying capital equipment or issuing debentures) involve cash flow an extended period of time (5 to 15 years or more) short-term financial decisions typically involve cash flows within a year or within the operation cycle of the firm. The Working Capital Management is a significant facet of the financial management. It is important stems from two reasons.

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Principles of Working Capital Management: In examining the management of current assets (i.e. Working Capital management), certain principles have to be borne in the mind. These principles are the answers that are to be sought to the following questions. The need of invests funds in the current assets. Amount of funds to be invested in each type of current assets. The required proportions of the long-term and short-term funds to finance current assets. The appropriate sources of funds needed to finance the current assets. Constituent of Current Assets and Current Liabilities

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CURRENT ASSETS Inventories Raw material and components Work in progress Finished Goods Others Trade debtors Loans and advances Investments Cash and Bank Balances

CURRENT LIABILITIES Sundry Creditors Trade advances Borrowings Commercial Banks Others Provisions

Short life Span and Swift Transformation: In management of Working Capital, two characteristics of current assets must be borne in mind. Short life span Shift Transformation into other assets form.

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Current assets have a short life span. Cash balances are held idle for a week or two, accounts receivable may have a life span of 30 to 60 days, and inventories may be held for 30 to 100 days. The life span of current assets depends upon the time required in the activities of procurement, production, sales and collection and the degree of synchronization among them. The nature of current assets is that they are swiftly transformed into other assets form. Cash is used for acquiring raw material. Raw materials are transformed into finished goods, finished are generally sold on credit are converted into accounts receivable finally accounts receivable, on realization, generate cash. The swift transaction of current assets and the short life span of the components of Working Capital can be seen in the current assets cycle. However, this short life span and swift transformation has certain implications.

Decisions relating to Working Capital management are repetitive and frequent. The difference between profits and present value is insignificant. The close interaction among Working Capital components implies that efficient management of one component cannot be undertaken without simultaneous consideration of other components.

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CURRENT ASSETS CYCLE

Finished Work-in- progress Account Receivable Raw Material

Cash/Ban k OPERATION CYCLE AND CASH CYCLE:

Suppliers

Investment in Working Capital is influenced by four key events in the production and sales cycle of the company. Purchase of raw material Payment of raw materials Sale of finished goods Collection of cash for sales.

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These keys events affect the cash flows. The firm begins with the purchase of raw material, which is pain for after a delay, which is paid for after delay and which represents the accounts payable period. Customers pay their bills sometime after the sales the period that elapses between the date of sales and the date of collection of receivables is the accounts payable period (debit period) OPERATION CYCLE The time that elapses between the purchase of raw material and the collection of cash for sales is referred as operating cycle. The operating cycle is the sum of the inventory period and the accounts receivable period. The behavior of the overall operating cycle and its individual components of a firm are monitored through time series analysis and cross section analysis. In time series analysis the duration of the operating cycle and its individual components is compared over a period of time for the same firm. In the cross section analysis the duration so the operation cycle and its individual components is compared with that of firms of a comparable nature.

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Operating Cycle Raw Materials

Cash Work in Progress

Debtors

Finished Goods

Sales The operating cycle of the firm begins with acquisition of raw materials and ends with the collection of receivable. It may be divided into four stages. Raw material and stores stage. Work in progress stage. Finished goods inventory stage. Debtors collection stage.

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Use of Operating Cycle: The operating cycle is helpful to the company in two ways: It helps in forecasting Working Capital requirements. Control of Working Capital can be done efficiently by the use of operating cycle. Determination of the Length of Operating Cycle: The length of the operating cycle of a manufacturing firm is the sum of: Inventory conversion period. Book debts conversion period. Inventory Conversion Period: It is the total time needed for producing and selling the product. It includes the raw material conversion period. Work-in-progress, conversion period and the finished goods conversion period. Book Debts Conversion Period: The book debts conversion period is the time required to collect outstanding amount from the customers. The total of inventory conversion period and book debts conversion period is the gross operating cycle. The difference between the gross operating cycle and the payable deferral period is net operating cycle.

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Cash Cycle: Cash cycle is the length between the payment for raw material purchases and collection of cash for sales. Cash cycle is equal to the operating cycle less the accounts payable period. It also represents time interval over which additional funds, called Working Capital should be obtained in order to carry out the company operations. If depreciation is excluded from expenses in computation of operating cycle, the net operating cycle also represents cast conversion cycle.

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CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK DURING THE PERIOD 2001-02
(Rs in lakhs)

Working Capital Management

Particulars A. Current Assets 1. Inventory 2.Cash & Bank balances 3. Receivables 4. Subsidiary receivables Loans & Advances 1. Advances to employees 2. Advances for purchases 3. Prepaid expenses Total Current Assets B. Current Liabilities 1. For milk purchase 2. For expenses Sundry Creditors a. Sundry Creditors b. Security Deposits Total Current Liabilities Networking CapitalIncrease/decrease working capital TOTAL 919.27 919.27 12.82 52.72 21.19 2,243.13 299.27 478.68 436.72 109.19.25 1,323.86 919.27 13.00 46.88 19.19 2,067.37 428.60 480.04 239.44 120.25 1,268.33 799.04 120.23 120.33 554.60 554.60 0.18 5.84 2.71 1,183.66 227.09 744.94 1,136.13 78.55 773.62 28.68 47.53 148.54 Year 2000-01 2001-02 WC Increase Decrease

129.33 1.36 197.28 22.01

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CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK DURING THE PERIOD 2002-03
(Rs in lakhs)

Working Capital Management

Particulars A. Current Assets 1. Inventory 2.Cash & Bank balances 3. Receivables 4. Subsidiary receivables Loans & Advances 1. Advances to employees 2. Advances for purchases 3. Prepaid expenses Total Current Assets B. Current Liabilities 1. For milk purchase 2. For expenses Sundry Creditors a. Sundry Creditors b. Security Deposits Total Current Liabilities Networking CapitalIncrease/decrease working capital TOTAL 1,150.80 1,150.80 652.88 13.00 46.88 19.19 2,067.37 428.60 480.04 239.44 120.25 1,268.33 799.04 351.76 351.76 652.88 13.21 67.01 10.81 2,590.83 307.56 705.43 284.78 142.26 1,440.03 1,150.80 0.21 20.21 8.38 1,136.13 78.55 773.62 1,224.84 439.13 835.75 88.71 360.58 62.13 Year 2001-02 2002-03 WC Increase Decrease

121.04 225.39 45.34 22.01

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CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK DURING THE PERIOD 2003-04
(Rs in lakhs)

Working Capital Management

Particulars A. Current Assets 1. Inventory 2.Cash & Bank balances 3. Receivables 4. Subsidiary receivables Loans & Advances 1. Advances to employees 2. Advances for purchases 3. Prepaid expenses Total Current Assets B. Current Liabilities 1. For milk purchase 2. For expenses Sundry Creditors a. Sundry Creditors b. Security Deposits Total Current Liabilities Networking CapitalIncrease/decrease working capital TOTAL 1,150.80 1,150.80 13.21 67.01 10.81 2,590.83 307.56 705.43 284.78 142.26 1,440.03 1,150.80 12.06 107.85 18.13 2,314.15 374.89 555.29 272.22 167.04 1,369.23 944.92 205.88 205.88 416.66 416.66 150.14 12.56 24.56 40.76 7.32 1.15 1,224.84 439.13 835.75 1,125.61 336.75 713.75 99.23 102.38 122.00 Year 2002-03 2003-04 WC Increase Decrease

67.12

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CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK DURING THE PERIOD 2004-05
(Rs in lakhs)

Working Capital Management

Particulars A. Current Assets 1. Inventory 2.Cash & Bank balances 3. Receivables 4. Subsidiary receivables Loans & Advances 1. Advances to employees 2. Advances for purchases 3. Prepaid expenses Total Current Assets B. Current Liabilities 1. For milk purchase 2. For expenses Sundry Creditors a. Sundry Creditors b. Security Deposits Total Current Liabilities Networking CapitalIncrease/decrease working capital TOTAL 945.55 945.55 12.06 107.85 18.13 2314.15 374.68 555.29 272.22 167.04 1,369.23 944.92 0.63 4.37 265.87 265.87 16.78 60.68 12.78 2,400.55 405.93 610.46 222.02 216.59 1,455.00 945.55 4.72 47.17 5.35 1,125.61 336.75 713.75 1,065.57 543.33 701.41 206.58 12.34 60.04 Year 2003-04 2004-05 WC Increase Decrease

31.25 55.17 0.00 50.20 49.55

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CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK DURING THE PERIOD 2005-06
(Rs in lakhs)

Working Capital Management

Particulars A. Current Assets 1. Inventory 2.Cash & Bank balances 3. Receivables 4. Subsidiary receivables Loans & Advances 1. Advances to employees 2. Advances for purchases 3. Prepaid expenses Total Current Assets B. Current Liabilities 1. For milk purchase 2. For expenses Sundry Creditors a. Sundry Creditors b. Security Deposits Total Current Liabilities Networking CapitalIncrease/decrease working capital TOTAL 960.37 960.37 411.83 16.78 60.68 12.78 2,400.55 405.93 610.46 222.02 216.59 1,455.00 945.55 14.82 14.83 411.83 11.01 48.23 10.64 2,777.70 460.62 809.65 313.57 233.49 1,817.33 960.37 5.77 12.45 2.14 54.69 199.19 1,065.57 543.33 701.41 1,422.27 578.46 687.09 376.70 35.13 14.34 Year 2004-05 2005-06 Increase WC Decrease

91.55 16.95

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CHANGES IN WORKING CAPITAL POSITION IN THE VIJAYA MILK DURING THE PERIOD 2006-07
(Rs in lakhs)

Working Capital Management

Particulars A. Current Assets 1. Inventory 2.Cash & Bank balances 3. Receivables 4. Subsidiary receivables Loans & Advances 1. Advances to employees 2. Advances for purchases 3. Prepaid expenses Total Current Assets B. Current Liabilities 1. For milk purchase 2. For expenses Sundry Creditors a. Sundry Creditors b. Security Deposits Total Current Liabilities Networking CapitalIncrease/decrease working capital TOTAL 1,157.51 1,157.51 674.18 11.01 48.23 10.64 2,777.70 460.62 809.65 313.57 233.49 1,817.33 960.37 197.14 197.14 477.04 8.82 41.38 14.08 2,947.41 439.43 828.08 251.38 271.01 1,789.90 1,157.51 3.44 2.19 6.85 1,422.27 578.46 687.09 1,297.30 1,165.82 420.01 587.36 267.08 144.97 Year 2005-06 2006-07 Increase WC Decrease

21.19 18.43 62.19 37.52

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4.1 STATEMENT OF CHANGES IN WORKING CAPITAL (RS. IN LAKHS) Year 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 Current Assets 2,067.37 2,590.83 2,314.15 2,400.55 2,777.70 2,947.41 Current Liabilitie s 1,268.33 1,440.03 1,369.23 1,455.00 1,817.33 1,789.90 Networking Capital 799.04 1,150.80 944.92 945.92 960.37 1,157.51 Increase --351.76 --0.63 14.82 197.14 Decrease 120.23 --205.88 -------

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FLUCTUATIONS IN WORKING CAPITAL: FINDINGS: Net working capital in 2001-02 was Rs. lakhs 799.04 and it increased to Rs. lakhs 1150.85 in 2002-03. In 2002-03 net working capital is Rs. lakhs 1150.80 and it decreased to Rs. lakhs 944.92 in 2003-04. In 2004-05 net working capital is Rs. lakhs 945.55 and it increased. And in 2006-07 net working capital is increased to Rs. lakhs 1157.51 The change in net working capital is alternative increase and decrease.

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4.2 Working Capital Turnover Ratio Working Capital Turnover Ratio indicated the velocity of the utilization of net working capital. Working Capital Turnover Ratio= Sales/Working Capital (RS. IN LAKHS) Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Sales 11,388.74 11,782.55 11,985.11 11,204.29 14,352.23 16,374.46 Working Capital 799.04 1,150.80 944.92 945.55 960.55 1,157.51 Ratio 14.25 10.24 12.68 14.03 14.94 14.15

FINDINGS: The Working Capital Ratio was 14.25 in the year 2001-02 and it is decreased from 10.24 in 2002-03. The Working Capital Turnover Ratio has again increased to 2003-04 to 2006-07. That is 12.68, 14.03, 14.94 and 14.15 respectively. The highest Working Capital Turnover Ratio was quoted in 2005-06 that is 14.94.

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WORKING CAPITAL TURNOVER RATIO:

Wo rkin g C ap ital T u rno ve r Ratio

16 14 12 10 8 6 4 2 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

INTERPRETATION:
Working Capital Turnover Ratio indicates the velocity of the

utilization Of Net Working Capital. The working capital Turn over Ratio is satisfactory if it arises and it is dissatisfactory if it decreases. Coming to the A.P dairy the Working Capital Ratio is decreased in 2007 which is 14.15 when compared to the year 2006 which is 14.94. This is a bad sign. Problem: There is no effective increase in sales.

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Reason: There is no possible inventory holding. Solution: Maintaining of continuous work in process. Advantages: It increases sales to meet the demand. Disadvantages: huge amount required for storage facilities. Best solution: To increase sales funds has to be utilized properly.

4.3 CURRENT RATIO Current Ratio may be defined as the relationship between current assets and current liabilities. This ratio, also known as working capital ratio, is a measure of general liquidity and is most widely used to make the analysis of a short-term financial position or liquidity of a firm. Current Ratio = Current Assets/Current Liabilities (RS.IN LAKHS)

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Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Current Assets 2,067.37 2,590.83 2,314.15 2,400.55 2,777.70 2,947.41

Current Liabilities 1,268.33 1,440.03 1,369.23 1,455.00 1,817.33 1,789.30

Ratio 1.63 1.83 1.69 1.64 1.53 1.65

FINDINGS: The Current ratio in KDMPMACU Ltd., shown on table. The current assets increased year after year from Rs. 206.37 to 294.41 in 2007. The Current ratio varied between 1.63 to 1.65 times. It increased in 2002-03 to 1.83 times. The current ratio in the year 2004-05 is 1.64 times. The current ratio was decreased in the year 2005-06 is 1.53 times and increased in 2006-07 is 1.65 times. The company is not maintaining up to the standard norm of 2:1 in all the years.

CURRENT RATIO:
Current Ratio
1.9 1.85 1.8 1.75 1.7 1.65 1.6 1.55 1.5 1.45 1.4 1.35 2001-02 2002-03 2003-04 2004-05

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2005-06

2006-07

INTERPRETATION: Current Ratio is mostly widely used to make the analysis of short term financial position of a firm. If the current ratio is maintained in the standard norm of 2:1 it is considered as satisfactory. Coming to the A.P dairy the current ratio is increased from 1.53 in 2006 to 1.65 in 2007.
Hence current assets are increased and current liabilities are decreased

compared from last year to current year. so that the ratio is satisfactory This is a Good sign. 4.4 INVENTORY TURNOVER RATIO Inventory turnover ratio also known as stock velocity is normally calculated as sales/average inventory or cost of goods sold/average inventory. It would indicate whether inventory has been efficiently used or not. The purpose is to see whether only the required minimum funds have been locked up in inventory. Inventory turnover Ratio indicates the number of times the stock has been turned over during the period and evaluated the efficiency with which a firm is able to manage its inventory.

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Inventory turnover ratio = Sales / Inventory. (RS. IN LAKHS) Ratio 10.02 9.46 10.64 12.45 9.95 12.62

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Sales 11,388.74 11,782.55 11,985.11 13,204.29 14,352.23 16,374.46

Inventory 1,136.13 1,224.84 1,125.61 1,060.57 1,442.27 1,297.30

FINDINGS: The relationship between inventory and sales revenue is presented in the table. The inventory turnover increased from 10.02 times to 12.62 times and it recorded highest in 2006-07 at 12.62 times. Hence it can be conclude that inventory turnover ratio is near to the satisfactory level in KDMPMACU Ltd.

INVENTORY TURNOVER RATIO:

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Inventory Turnover Ratio

14 12 10 8 6 4 2 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

INTERPRETATION: It indicates the number of times the stock has been sold during period. If the inventory is in standard norm of 2:1 is satisfactory. Coming to the A.P dairy inventory turn over ratio is increased from 9.95 in 2006 to 12.62 times in 2007.
Hence it can be concluded that Inventory turn over ratio near to the

satisfactory level in the dairy. This is a good sign.

4.5 RECEIVABLES TURNOVER RATIO

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Receivables Turnover Ratio=Total Sales/ Receivables (RS. IN LAKHS) Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Total sales 11,388.74 11,782.55 11,985.11 13,204.29 14,352.23 16,374.46 Receivables 733.62 835.75 713.75 701.41 687.09 442.01 Ratio 14.72 14.09 16.79 18.82 20.88 37.04

FINDINGS: The total sales in the year 2001-02 were Rs. Lakhs 11,388.74 has increased to Rs. Lakhs 16,374.46 in 2006-07. There was year after year growth in total sales. Where the receivables have an alternative increase and decrease and the receivables was highest recorded in 2002-03 Rs. Lakhs 835.75. The ratio in the year 2001-02 was 14.72 and decreased from 14.09 in 2002-03 and the ratio increased during the period of 2003-04 to 2006-07 that is 16.79, 18.82, 20.88 and 37.04 respectively.

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RECEIVABLES TURNOVER RATIO:

Receivables Turnover Ratio

40 35 30 25 20 15 10 5 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

INTERPRETATION: Debtors turn over ratio measures how quickly the accounts recivables are being collected. In the case as short collection period and high turn over ratio imply prompt payment on the part of debtors is satisfactory. Coming to the A.P dairy the debtors turn over ratio increased from last year which is 20.88 compared to current year 37.04.in this firm drs turn over ratio is satisfactory.

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This is a good sign.

4.6 QUICK RATIO Quick ratio, Also known as Acid Test or Liquid Ratio, is a more rigorous test of liquidity than the current ratio. The term liquidity refers to the ability of a firm to pay its short-term obligations as and when they become due. The two determinants of current ratio, as a measure of liquidity, are current assets and current liabilities. Current assets include inventories and prepaid expenses which are not easily convertible into cash within a short period. Quick ratio may be defined as the relationship between quick/liquid assets and current or liquid liabilities. An asset is said to be liquid if it can be converted into cash within a short period without loss of value. Quick ratio= Quick Assets / Current Liabilities (RS. IN LAKHS) Current Liabilities Ratio 1,268.33 1,440.03 1,369.23 1,455.00 1,817.33 1,789.90 0.73 0.95 0.86 0.91 0.73 0.76

Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 FINDINGS:

Quick Assets 931.24 1,365.99 1,188.54 1,334.98 1,335.43 1,358.72

The table discloses the quick ratio of KDMPMACU Ltd. The quick assets increased from Rs. Lakhs 931.24 in 2001-02 to 1358.72 in 2006-07. The current liabilities increased from Rs. Lakhs 1268.33 to 1789.90

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 The quick ratio increased from 0.73 times in 2001-02 to 0.76 times in 2006-07 it is conduced that the quick ratio is not satisfactory as it is not maintaining the standard norm of 1:1.

QUICK RATIO:

Quick Ratio
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

INTERPRETATION: Quick ratio is a relationship between quick/liquid assets and current/liquid liabilities. If the quick ratio is maintained in the standard norm of 1:1 is considered as satisfactory. Coming to A.P dairy the quick ratio is increased from last year which is 0.73 compared to current year 0.76.
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 Although it is not in the standard norm of 1:1, the ratio is increased compared to the last year. The current assts are increased and current liabilities are decreased. This is a good sign.

FLUCTUATIONS IN WORKING CAPITAL

400 350 300 250 200 150 100 50 0 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

INTERPRETATION: In A.P dairy the Net Working Capital increased from last year which is 14.82 to the current year 197.14. Hence this firm utilizes its funds efficiently. This is a Good sign.

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FINDINGS In fact, project report can not be made comprehensive, unless it is accompanied by findings of the study, since the findings are the bedrock of any formal study, I threw a light on making keen observation regarding the way working capital is managed in a said company . in addition, I deem it necessary, to present the following findings in a bid to make this report realistic.

The Net Working Capital is good. But the companys working capital

turn over ratio shows the utilization of Working Capital is not satisfactory. Companys average collection period of debtors is satisfactory in 2006-07 compared to the other years.
The liquidity position of the company is satisfactory, Even though the

companys current ratio does not equal to the standard norm.

It is found that, the inventory ratio varied between 10.02times in 2001-

2002 and 12.62 times in 2006-07. As a whole the inventory turnover ratio is maintained satisfactorily. The current assets as a percentage of total assets are significantly high in this organization and constitute nearly 50% of total assets.

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 The quick ratio is very low at the beginning of the years. But later it is registered at higher rate in this organization.

SUGGESTIONS As part of my research plan, it became mandatory for me to offer following suggestions. As these suggestions are based on objective analysis of data through systematic approach, they can help the company in removing the short comings if any. It is suggested that, the fluctuations existed in the Net working capital must be controlled by properly maintaining the ratio of current assets and current liabilities.
It is advised that, the comfortable Quick ratio is 1:1 where as it is

very low in the organization. Therefore, the company needs to raise its quick assets first to overcome the existing problem in order to meet the requirements. It is suggested that, properly maintaining the inventory turn over ratio is also very good symbol for the organization. Therefore, it is advised to maintain the same and it should try to increasing the same year by year. It is observed that the receivables turn over ratio is high in the company. Therefore, it shoes the turn for the sales position of the company.

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 Current ratio is increased from last year compared to current year. If the sales orders increase the liquidity position of the company also improve.

BIBLIOGRAPHY
Books: Financial Management Financial Management Financial Management (Theory & Practice) Financial Accounting KHAN & JAIN I.M. PANDY PRASANNA CHANDRA S.P.JAIN & K.L. NARANG

Booklets and other Publications on the progress of KDMPMACUL. Journals: Annual Audit Reports of Vijaya Diary. Web Sites: www.indiandiary.com www.vijayadairy.com

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