“Working capital means the part of the total assets of the business that change
from one form to another form in the ordinary course of business operations.”
In a perfect world, there would be no necessity for current assets and liabilities
production would not vary with the quantity produced. Borrowing and lending rates
shall be same. Capital, labour, and product market shall be perfectly competitive and
would reflect all available information, thus in such an environment, there would be
no advantage for investing in short term assets. However the world we live is not
demand, market price, quality and availability of own products and those of suppliers.
There are transaction costs for purchasing or selling goods or securities. Information
is costly to obtain and is not equally distributed. There are spreads between the
borrowings and lending rates for investments and financings of equal risks.
future at reasonable price. This may necessitate the holding of inventory, current
assets. Similarly an organization may be faced with an uncertainty regarding the level
of its future cash flows and insufficient amount of cash may incur substantial costs.
This may necessitate the holding of reserve of short term marketable securities, again
a short term capital asset. In corporate financial management, the term Working
capital management” (net) represents the excess of current assets over current
liabilities.
1
1.2. NEED OF THE STUDY
environment.
capital.
To suggest the possible measures for the improvement of working capital and
2
1.3. OBJECTIVES OF THE STUDY:
Primary Objectives:
mills LTD.
Secondary Objectives:
To study the optimum level of current assets and current Liabilities used by
the Company.
concern.
3
1.4. SCOPE OF THE STUDY
The study is conducted at cheyyar Co-Operative sutar mills Ltd for 3 months
The study of working capital is based on the tools like ratio analysis, working
and all the information is available within the company itself in the form of
records.
The industry and competitors analysis were not considered while preparing the
project.
4
3.5. LIMITATIONS:
The project has completed with annual report i.e., secondary date. There were
The project is based on five year annual reports of the company. It is difficult
The informations are confined only with Cheyyar Co-Operative sugar mill.
The economic and government policies etc., may affect the industry after the
The findings and suggestions of the study are based only on secondary data.
The study will be only a provisional one based on the data collected from the
5
1.6. SUGAR INDUSTRY PROFILE
Originally, people chewed the cane raw to extract its sweetness. Indians
discovered how to crystallize sugar during the Gupta dynasty, around AD 350.
Sugarcane was originally from tropical South Asia and Southeast Asia. Different
species likely originated in different locations with sugar barberi originating in India
and sugar edule and sugar officinarum coming from New Guinea.
techniques of sugar production from India and the refined and transformed them into
a large-scale industry. Arabs set up the first large scale sugar mills, refineries,
The 1390s saw the development of a better press, which doubled the juice
obtained from the cane. This permitted economic expansion of sugar plantations to
Andalucia and to the Algarve. The 1420s saw sugar production extended to Canary
The Portuguese took sugar to Brazil. Hans Staden, published in 1555, writes
that by 1540 Santa Catarina Island had 800 sugar mills built before 1550 in the New
World created an unprecedented demand for cast iron gears, levers, axles and other
technological skills needed for a nascent industrial revolution in the early 17th century.
After 1625 the Dutch carried sugarcane from South America to the Caribbean
6
The years 1625 to 1750 saw sugar become worth its weight in gold. With the
European colonization of the Americas, the Caribbean became the world’s largest
source of sugar.
These Islands could supply sugarcane using slave labor and produce sugar at
prices vastly lower than those of cane sugar imported from the Ease.
During the eighteenth century, sugar became enormously popular and the
consumers of the former luxury product. At first most sugar in Britain went into tea,
commonly sold sugar in solid cones and consumers required a sugar nip, a pliers-like
Beginning in the late 18th century, the production of sugar became increasingly
mechanized. The steam engine first powered a sugar mill in Jamaica in 1768, and
soon after, steam replaced direct firing as the source of process heat. During the same
century, Europeans began experimenting with sugar production from other crops.
Andreas Marggraf identified sucrose in beet root and his student Franz Achard
built a sugar beet processing factory in Silesia. However the beet-sugar industry really
took off during the Napoleonic Wars, when France and the continent were cut off
from Caribbean sugar. Today 30% of the world’s sugar is produced from beets.
Today, a large beet refinery producing around 1,500 tonnes of sugar a day
7
TOP TEN SUGAR PRODUCERS
Below are the leading sugar producers for 2009-10. These producers
accounted for nearly 80% of the global sugar total of 150 million tons in 2005-06.
Top producers that also export the highest percentage of their sugar production
are Australia (76%), Brazil (59%), Thailand (52%) and the European Union (37%). In
contrast, India and Mexico each export just over 5% while China, U.S. and Russia do
Brazil and Thailand ship more white sugar onto world trade markets while the
WTO forces the European Union to cut it s sugar exports by over 80%.
Three quarters of the world’s sugar is made from sugar cane in tropical zones
located in the southern hemisphere. Leading sugar cane producers are Brazil, India,
8
The remainder is processed from sugar beets grown in temperate zones of the
northern hemisphere. France, Germany, U.S., Russia Ukraine and Turkey produce the
trade markets. Currently, 70% the world’s sugar is consumed in the country where
Global sugar consumption rises by about 2% per year, and has increased 17%
from 128 million tons in year 2000 to 150 million in 2006. The highest sugar
consumption per capita is found in Brazil (59 kilograms of sugar per year), Mexico
9
INTERNATIONAL SUGAR TRADE
exports by almost 30% due to larger sugar cane crops. Although India has increased
its sugar production by 12%, the Indian government banned sugar exports until April
The European Union failed to meet its responsibilities under the Uruguay
now restricts the European Union’s subsidized exports of sugar to about 1.4 million
Brazil, Thailand and India are expected to mitigate any adverse effects on
Around 160K metric tons of sugar are produced every year, with the largest producers
in Brazil, India and the European Union.The primary driver of sugar prices is
manufacturers, to "dump" cheaply-priced sugar in the market, while the United States
government has tried to elevate prices within its borders by imposing import
restrictions. Since sugar is a good source for ethanol production, oil prices and the
demand for ethanol are also impact the international price of sugar; for example, in
the first half of 2008, sugar prices increased by more than 20% in response to rising
gasoline prices.
10
Production and Usage
Most commercial sugar is produced from two main sources: sugar beets and
sugarcane. Other minor commercial sources include the date palm, sorghum and the
sugar maple. Currently, 69% of the world's sugar is consumed in its country of
Brazil is the world's largest sugar producer, followed by India (which is the
world's largest consumer), the EU and China. In the 2007/08 season, Brazil produced
31.3 million tons, India produced 28.8 million tons, the EU produced 17.57 million
patterns. Brazil has seen much higher levels of rainfall than average, while India
In the U.S., sugar beets are grown year-round and account for 60% of total
sugar production, while sugar canes are grown perennially and account for 40% of US
total production. Both production processes yield the same sugar product. Sugar
production in the United States generates $10B in economic activity annually, and the
Sugar is used in food products to sweeten and add texture and color. On
corn syrup (HFCS) and 2 pounds of honey/syrup yearly. ] In total, Americans consume
10,000 tons of sugar every year. Sugar end products are raw cane sugar, wholesale
and retail refined sugar, cereal, candy, baed goods, and ethanol.
11
Pricing and Volume Trends
supply. While supply depleted from 2004 to 2006, it has resurged since then, which is
reflected in the general drop in prices. Within the past year, however, concerns
regarding high fuel prices (see below) have pushed prices higher.
The US is the second largest net sugar importer. Other key players in the
world sugar market are the European Union (EU), Brazil and India. The EU, like the
US, has implemented policies that artificially inflate sugar prices. Brazil, on the other
hand, heavily subsidizes its sugar farmers to support its sugar-ethanol program.
12
Between January 2009 and August 2009, the price of sugar nearly doubled due
to poor harvests in India and Brazil. Indian yields were threatened as key sugar
growing regions were threatened by dry spells, causing India to become a net sugar
expand operations, a particularly wet season in Brazil slowed harvests and reduced
outputs. USDA officials have stated that production of sugar beet and cane in the US
will negate the drop in foreign supply; however, food manufacturers remain fearful
Total
Region Year Total Imports Total Exports Total Use
Production
North America 2007/2008 13374 4019 938 16324
2008/2009 12136 4455 1132 16690
2009/2010 12498 4360 913 16166
South America 2007/2008 39,117 1,488 20,959 18,568
2008/2009 39,576 1,605 23,255 19,088
2009/2010 43,830 1,393 26,052 19,218
Asia 2007/2008 69,097 13,731 16,153 63,574
2008/2009 52,724 15,740 10,879 64,914
2009/2010 54,906 19,383 11,161 64,916
13
India is the largest producer of sugar in the world. In terms of sugarcane
production, India and Brazil are almost equally placed. In Brazil, out of the total cane
available for crushing, 45% goes for sugar production and 55% for the production of
ethanol directly from sugarcane juice. This gives the sugar industry in Brazil an
additional flexibility to adjust its sugar production keeping in view the sugar price in
The annual projected growth rate in the area under sugarcane at 1.5% per
annum has doubled during the last five years. This is because it is considered to be an
assured cash crop with good returns to the farmers vis-a-vis other competing crops.
India is currently passing through a glut situation with closing stocks at the end of the
year of over 100 lakh tons since 1999-2000. Correspondingly, molasses production
has also increased. Of course, there are also other agro routes available to produce
ethanol.
500 million liters. The current availability of molasses and alcohol would be adequate
to meet this requirement after fully meeting the requirement of the chemical industry
India is the world’s largest sugar producer and consumer. The Indian sugar
and distribution of sugar mills, and on the pricing of sugar. Earlier, the Indian
government had discouraged the setting up of large sugar mills through its licensing
Sugar industry in India, which is the world's second largest producer of the
sweetner, is headed for a rough patch during the current sugar year ending September
14
30, 2009. Cane production is projected to decline. As cane farmers shift to growing
more lucrative crops, the acreage under cane could drop. Lower cane production
According to the food ministry, sugar production for the year ending
September 30, 2009 may shrink to 20 million tonnes against 26.4 mt in the previous
year. As a result, sugar export may fall to 2 mt from 4.6mt. Preliminary estimates by
the Indian Sugar Mills Association (ISMA) foresee an import of about 5 million
The expected shortage in the supply of cane and its high price, which is
determined by each cane producing state government under the state advised price
(SAP) regime, are likely to create difficulties for sugar manufacturers. The state
often announce higher SAPs than the minimum support prices (MSP) recommended
by the centre.
Higher cane prices generates higher incomes for cane growers (generous
voters for the ruling party) and encourage other farmers engaged in growing other
crops to switch over to cane. But at the same time, a high cane price directly poses a
threat to the profit margins of sugar producers. To overcome this, sugar mills are left
15
Sugar cane production 350 million tons
Indian States.
As to the statistics there were a total number of 571 sugar factories in India as
on March 31, 2005 compared to 138 during 1950-51. These 571 sugar mills produce a
total quantity of 19.2 million tones (MT). Sugar production in India increased from
16
Department of Agriculture and Co-operation, sugarcane production in 2004-05
SUGAR PRICING
designed through the consent of Commission for Agricultural Coast and Prices
(CACP) and respective state Governments. For the year 2004-05, the rate was fixed at
The following policy initiatives are taken to boost the Sugar industry:
Government declared the new policy on August 20, 1998 with regards to
licenses for new factories, which shows that there will be no sugar factory in a
radius of 15 km.
In the year 1982, the sugar development fund was set up with a view to avail
registered on 05.05.1988 under the Tamilnadu Co-operative Societies Act 1983 with
the object of manufacture of sugar from sugar cane and sale of sugar along with the
17
The Cheyyar Co-operative Sugar Mill is located at Anakkavour-
The area of operation of the Society shall confined to entire Cheyyar and
District. The total area of Factory and Quarters is 129.62 acres. The Mill started its
business on 15 .02.1991. The capacity of the Mill is 2500 TCD (Tones Can Day).
The main product of the Cheyyar Co-operative Society is sugar and the by-
products are sugar, Molasses, and power from begasse. This year the sugar mill
planned to produce Ethanol. Under non-conventional energy scheme, the Cheyyar Co-
operative Sugar Mill has established Co-Generation plant the first of its kind in Asia
by using the by using the baggasse as its raw material. The total project cost of the
The Mill has co-generation unit of 7.5MW capacity. Out of which 2.5MW is
being consumed for own use and 5MW is being exported to the Tamilnadu Electricity
The power exported to TNEB grid during 2008-09 is 43.72 lakhs units and
revenue earned from this export is Rs.134.96 lakhs. The Cheyyar Co-operative Sugar
Mill has been awarded for the best performance of Co-Generation plant at National
Since the period of inception of the mill, it has been running successfully for
the development of its member and farmers. The mill provides a lot of direct
The purchase of items is bases on the indents received from the needy
departments and finalizing the purchases through purchase committee meeting headed
18
over by the Chief Executive of the Mill after following all the purchase procedures
In general, there is a dual pricing policy for the Sugar cane. They are Statutory
Minimum Price (SMP) fixed by Central Government and State Advised Price (SAP)
The Cheyyar Co-operative sugar mill is adopting the policy of the S.A.Price of
Rs. 1150.40 per MT which is given at a regular interval of 14 days as per the Sugar
Cane Control Order of 1966. There are around 9000 members supplying the sugar
The mill bears the transport cost of the distance exceeding 10 Kms for
transporting cane from the fields. The commitment on these transport cost comes
The Sugar production in the year 2007-08 is 510020 quintal from the Cane
crushing of 533437 MT. The total turnover is around Rs.51.94 crores in the year
2007-08.
Food, Government of India, New Delhi. It is obligatory on the part of the mills to give
levy sugar from the production for distribution under Public Distribution system.
The mill is following two type of price for the sale of sugar. They are levy
price and free price. The government purchases the sugar at levy price for distribution
of sugar under public distribution system. At present the levy price is Rs.1335.40.
And the free price in based on tender quoted by the sugar purchasers. At present the
19
The mill has two sugar godowns with a capacity of stocking 360000 quintals
of sugar. And also has three steel tanks for storage of molasses with the total capacity
of 12000 MT.
In short, the Cheyyar Co-operative Sugar Mill has not only concentrated in
commercial activities and also devoting the activities for the upliftment of the society.
The object of the society shall be manufacture of white sugar from sugarcane and
the sale of the sugar so manufactured a long with the by products to the best
To pay for any property or right acquired by the society either in cash or fully or
The authorized share capital of the society shall be Rs.10 Crores divided into
The liability of the members for the debts of the society on its liquidation shall
20
TABLE SHOWING THE MEMBER AND SHARE CAPITAL
Rs. In lakhs
Land and site Development 33.97
Buildings 622.95
Plant and Machinery 1912.96
Miscellaneous Fixed Assets 116.37
2686.25
(Rs. In Lakhs)
2686.25
The mill has one primary school started on 31.10.1995 with a view to give
quality education to the children of the employees and growers. The school has
classes from LKG to 5th standard with a total strength of 287 students along with 9
teaching staff for the benefit of the children of growers and employees. They are
21
There are around ten departments working under the administrative
department. They are Establishment, Purchase, Sales, Stores, Sugar godown, Time
office, Security, Dispensary, Mills Primary school, Canteen etc., the staffing position
are as follows.
STAFFING POSITION
1 ADMINISTRATION 53 4 10
2 ACCOUNTS 19 0 2
3 CANE 80 5 3
4 ENGINEERING 63 105 36
5 MANUFACTURING 17 25 3
ACHIEVEMENTS
S.NO Awards and Prizes Description/Remarks
SUGAR
22
The main product of Sugar Industry is raw sugar. A typical raw cane sugar
contains sucrose (97.5%) reducing sugar (0.86%) other organic compound (0.46%)
crystalizable. The remaining sucrose goes into by product along with other sugars
BAGGASE
Baggase is the first by-product of cane sugar production. The fibrous residual
matter left out after extraction of sugar cane juice is known as Baggase. It contains
about 48.50% moisture, 48.0% fibre and 2.40% sugar and other minor constituents. It
has been mainly used as fuel in Boiler to raise steam. Nowadays it can be used for
paper production.
MOLASSES
the total quantity of cane crushed as well as quality which varies from region to
region. The increases in the percentage of sucrose in molasses greatly affect the final
quantity of sugar.
crystallization. It is the heavy viscous liquid from which no further sugar can be
BLACKSTRAP MOLASSES
nature. It must not contain less than 40% of total sugar as invert.
23
The components of molasses include:
WATER:
end-products in the factory contain 12-17 % water. The principal sugar present in the
molasses is sucrose, glucose and fructose the later two making up the major portion of
The alkaline degradation of sucrose leads not only to glucose and fructose but
also to Psicose and other carbohydrates. Molasses sometimes contain another non-
CO-GENERATION PROJECT
producing the steam from Boiler by using bagasse (Sugar Cane Residue) as the fuel.
Heat energy is converted into Electrical Energy through turbin for the mills own use
and surplus power exported to the Tamil Nadu Electricity Board Grid. Balance heat
24
MEANING OF WORKING CAPITAL:-
In simple words working capital means that which is issued to carry out the day
• Fixed capital
• Working capital
Every business needs funds for two purposes, for its establishment and to
carry on its day to day operations. Long term funds are required to create production
facilities through purchase of fixed assets such as plant and machinery, land, building,
furniture etc.
Investment in these assets represents that part of firm capital, which is blocked
on a permanent or fixed basis called fixed capital. Funds are also needed for short
term purposes i.e. for the purchase of raw material, payment of wages and other day
In other words, working capital refers to that firm’s Capital, which is required
for short – term assets or current assets. Funds thus invested in current assets keep
revolving last and being constantly converted into cash and this cash flow is again
converted into other current assts. Hence it is known as circulating or short – term
capital.
25
Gross Working Capital
assets so the total current assets of the firm are known as gross working capital.
It represents the difference between current assets and current liabilities. Net
working capital may be positive or negative. Positive net working capital is that when
current assets are more than current liabilities. But when current liabilities become
In brief we can say that working capital is too much necessary for the smooth
As the operating cycle is a continuous process so the need for working capital
also arises continuously. But the magnitude of current assets needed is not always
same; it increases and decreases over time. However there is always a minimum level
26
The extra working capital needed to support the changing production and sales
activities, is called variable or functioning or temporary working capital. This can be
shown in the following diagram:-
Amount of Working
Capital Temporary capital
Permanent Capital
Time
capital arises due to the time gap between production and realization of cash from
sales. So the working capital or investment in current assets becomes necessary need
OPERATING CYCLE
“Operating cycle is the time duration requires for converting sales into cash after
First of all a firm purchase Raw Material, then after some processing it is
converted into work–in–progress and after this further processing is done to convert
After the raw material is converted into finished goods, sales are made. Sales
are no always full cash sales; there are credit sales also. These credit sales after some
27
period are converted into cash. So the whole process takes the time. This time taken is
Raw Material
Work in
Progress
Cash Collection
from
Debtors Sales
Finished Goods
If the length of the operating cycle has short length period then less working
cycle.
28
2. Net operating cycle
Gross Operating cycle is the total time period from the conversion of Raw
Material into finished goods and finished goods into sales and then sales into cash.
As we provide period to debtors for the payments, our creditors also provide
period to us for payment to them. So this reduces our requirement of working capital.
This also affects the operating cycle. Operating cycle’s length reduces with so many
days as provided by the creditors to us. The difference between gross operating cycle
and period allowed by the creditors for payment is known as net operating cycle.
FOR FUTURE:-
some advances stock of Raw Material becomes necessary for company. In the similar
way due to sudden arise of demand of finished goods in future more finished goods
are kept in stock. For both reasons more working capital is required because funds
29
1. Nature and Size of Business:
The working capital of a firm basically depends upon nature of its business for
e.g. Public utility undertakings like electricity; water supply needs very less working
capital because offer only cash sales whereas trading & financial firms have a very
less investment in fixed assets but require a large sum of money invested in working
capital.
The size of business also determines working capital requirement and it may
be measured in terms of scale of operations. Greater the size of operation, larger will
2. Manufacturing Cycle:
Manufacturing cyclele starts with the purchase and use of Raw Material and
completes with the production of finished goods. If the manufacturing cycle will be
3. Seasonal variation:
In certain industries like VTM raw material is not available throughout the
year. They have to buy raw material in bulk during the season to ensure an
uninterrupted flow and process them during the year. Generally, during the busy
season, a firm requires large working capital than in the slack season.
4. Production Policy:
30
Production policy also determines the working capital level of a firm. If the
firm has steady production policy, it may require need of continuous working capital.
But if the firms adopt a fluctuating production policy means to produce more during
the lead demand season then the more working capital may require at that time but not
in other period during a financial year. So the different productions policy arises
The firm’s credit policy directly affects the working capital requirement. If the
firm has liberal credit policy, hence the more credit period will be provided to the
debtors so this will lead to more working capital requirement. With the liberal credit
6. Sales Growth:
Working capital requirement is directly related with sales growth. If the sales
are growing, more working capital will be needed due to arises need of more Raw
7. Business Cycle:
31
If the firm has enough earnings and it is not paying dividend then it will not be
in need of external borrowings. If firm wants to increase its earning power then more
working capital will be required also to pay more dividend more profits are needed
which give rise to more working capital. Company is paying 42% dividend to its
shareholder.
Changes in the price level also effects the working capital requirements.
Generally, the rising prices will require the firm to maintain larger amount of
working capital as more funds will be required to maintain the same current assets.
The inventory of raw material, spares and stores depends on the condition of
supply. If the supply is prompt the firm can manage with small inventory. However if
the supply is unpredictable then the firm to ensure continuity of production, should
acquire stocks as and when they are available and have to carry larger inventory on an
average.
facilities, time lag, etc,. also influence the requirement of working capital.
influence of these determinants on working capital may differ from firm to firm.
32
The management of working capital is concerned with two problems that arise
in attempting to manage the current assets, current liabilities and the inter relationship
that asserts between them. The basic goal of working capital management is to
manage current assets and current liabilities of a firm in such a way that a satisfactory
The length of time for which raw material are to remain in stores before they
The length of sales cycle during which finished goods are to be kept waiting
for sales.
33
DANGERS OF INADEQUATE WORKING CAPITAL
Loss of goodwill and creditworthiness
Operational inefficiencies
If the firm can forecast accurately the factors, which effect the working
uncertainty, the outlay on current assets should consist of base component meant to
meet normal requirement and a safety component meant to cope with unusual
the current assets policy of a firm. If the firm purchases a very conservative current
asset policy it would carry a high level of current assets in relation to sales. If a firm
adopts a moderate current assets policy it would carry moderate level of current assets
in relation to sales, finally is a firm follows a highly aggressive current assets policy,
34
DETERMINING A SHORT TERM AND LONG TERM FINANCING MIX
There are three approaches in this regard, which are discussed below:
HEDGING APPROACH
proper matching of expected life of asset with the duration of fund. Usually,
according to this approach long-term sources are used for financing permanent current
assets and fixed assets & short-term sources are used for financing temporary current
assets.
A
S Term financing
S
E Permanent current assets
T Long term financing
S
Fixed Assets
Time
35
CONSERVATIVE APPROACH
to short-term financing. Even some part of the temporary current comparison to long-
term sources of finance because long-term sources are less risky in comparison to
short-term sources.
Fixed Assets
Time
AGGRESSIVE APPROACH
In this approach there is more reliance on short term financing and even a part
Fixed Assets
Time
36
2.2. LITERATURE SURVEY
An Empirical Study
It is felt that there is the need to study the role of working capital management
company desires to take a greater risk for bigger profits and losses, it reduces the size
and profitability. In this paper an effort has been made to make an empirical study of
Indian Consumer Electronics Industry for assessing the impact of working capital
37
Working Capital Management: A Study on British American
Bangladesh Company Ltd. is highly satisfactory due to the positive cash inflows,
from Turkey
The aim of this study is to analyze the effect of working capital management
relationships between firm profitability and the components of cash conversion cycle
firms for the period of 1998- 2007 has been analyzed under a multiple regression
model.
inventory period and leverage affect firm profitability negatively; while growth (in
38
Working Capital Management, Growth and Performance of New Public
Companies
companies. The study also sheds light on the relationship of working capital with debt
Using a sample of initial public offerings (IPO's), the study finds a significant
performance. The study further finds that maintaining control (i.e. lower amounts)
over levels of cash and ecurities, inventory, fixed assets, and accounts payables
appears to be associated with higher operating performance, as well. We find that IPO
firms which are experiencing unusually high growth tend not to perform as well as
Further firms which are experiencing high growth tend to hold higher levels of
cash and securities, inventory, fixed assets, and accounts payables. These findings
tend to suggest that firms are willing to sacrifice performance (accept low or negative
operating returns) to increase their growth levels. The higher level of growth is also
associated with higher operating and financial risk. The findings of this study suggest
that perhaps IPO firms should stay more focused on their operating performance than
39
Working Capital and Financial Management Practices in the Small Firm Sector
Management at the University of Bradford, England. Very little research has been
conducted on the capital budgeting and working capital practices of small firms.
The purpose of this paper is to present the results of a preliminary study on the
In general, the results of the survey indicated that a relatively high proportion
of small firms in the sample claimed to use quantitative capital budgeting and
working capital techniques and to review various aspects of their companies' working
capital. In addition, the firms which claimed to use the more sophisticated discounted
cash flow capital budgeting techniques, or which had been active in terms of reducing
stock levels or the debtors' credit period, on average tended to be more active in
It is hoped that the issues raised will stimulate further theoretical and
research.
40
3.1. RESEARCH METHODOLOGY:
To recognize the various type of information which are necessary for the study
- Ratio Analysis
analyzed
research design involves collection and evaluation of data related to past events that
41
are used to describe causes, effects and trends that may explain present or future
events.
Audit reports
In order to extract meaningful information from the data collected the data
analysis is carried out. The data analysis can be conducted using analytical tools.
Ratio Analysis
Ratio Analysis:
which are connected with each other in some manner. Ratio analysis is the process of
identifying the financial strength and weaknesses of the firm by properly establishing
relationship between the items of the balance sheet and profit and loss account.
42
Schedule of Changes in Working Capital:
the net change (increase or decrease) in working capital over period of time. An
Hypothesis:
include a prediction. A hypothesis should not be confused with a theory. Theories are
general explanations based on a large amount of data. For example, the theory of
evolution applies to all living things and is based on wide range of observations.
A company balance sheet and income statement that displays all items
as percentages of a common base figure. This type of financial statement can be used
to allow for easy analysis between companies or between time periods of a company.
common size balance sheet values are listed as a percentage of total assets. Knowing
size balance sheet much easier. If you want to know if a company is thriving, the
43
common size balance sheet makes for easy analysis when comparing one company to
another.
Correlation:
The correlation is one of the most common and most useful statistics. A correlation is
a single number that describes the degree of relationship between two variables.
This ratio is also called velocity of finished goods inventory. Inventory forms
inherent conflict between the finance and marketing functions. The former tries to
reduce the stock level (so as to reduce the cost), while the latter tries to stock more
and more, so as to meet all demand. This ratio also draws attention to the lack of
44
4.1. CHART SHOWING FINISHED GOODS INVENTORY TURNOVER
RATIO:
F i n i sh e d g o o d s i n v e n to r y tu r n o v e r r a ti o
2 .50 0
2 .00 0
1 .50 0
F in is h e d g o o d s
Values
in ve n t o ry t u rn o ve r
1 .00 0 ra t io
0 .50 0
0 .00 0
2 0 0 4 -0 25 0 0 5 -0 26 0 0 6 -0 72 0 0 7 -0 28 0 0 8 -0 9
Y e a rs
INTERPRETATION:
45
Finished goods inventory turnover ratio is very low in all the five
years. It shows the overstocking of finished goods. So, cheyyar sugar mill should try
This ratio is also called velocity of debtors. Debtors often form a signifi cant
portion of the current assets. This ratio reflects the changes in the level of debtors due
to changes in the level of sales. A decline in this ratio could be due to the failure of
Credit Sales
Debtors Turnover Ratio = ------------------------------
Trade Debtors
Debtors Debtors
Trade
Year Credit sales turnover collection
Debtors
ratio period
2004-05 520576746 5071565 102.646 3.556
2005-06 409920400 1173552 349.299 1.045
2006-07 743339794 21627267 34.370 10.620
2007-08 519405425 7464340 69.585 5.245
2008-09 1045611684 1580407 661.609 0.552
46
4.2. CHART SHOWING DEBTORS TURNOVER RATIO
D e b to rs tu rn o ve r ra tio
7 0 0 .0 0 0
6 0 0 .0 0 0
5 0 0 .0 0 0
4 0 0 .0 0 0 D ebtors
values
turnover ratio
3 0 0 .0 0 0
2 0 0 .0 0 0
1 0 0 .0 0 0
0 .0 0 0
2 0 0 4 -0 52 0 0 5 -0 62 0 0 6 -0 72 0 0 7 -0 82 0 0 8 -0 9
Y e ars
INTERPRETATION:
The debtors collection period is very less in the years. It shows Cheyyar sugar
mill collect its debt within 10 days. The credit period allowed to its customers is very
less. This low collection period is very helpful to the mill for the use of funds in the
47
3. CREDITORS TURNOVER RATIO:
This ratio reflects the purchase and payment policy of the firm; its
market standing; and the cash flow position. Lower the ratio, higher is the dependence
on creditors. It is similar to Debtor’ Turnover Ratio. It indicates the speed with which
Credit Purchase
Creditors Turnover Ratio = -----------------------------------
Trade Creditors
Creditors Creditors
Credit Trade
Year turnover payment
purchases creditors
ratio period
48
4.3. CHART SHOWING CREDITORS TURNOVER RATIO:
C re d ito rs tu r n o v e r ra tio
14.000
12.000
10.000
C re d ito rs
8.000 t u rn o ve r ra tio
values
6.000
4.000
2.000
0.000
2 0 0 4 -0 52 0 0 5 -0 62 0 0 6 -0 72 0 0 7 -0 82 0 0 8 -0 9
Y e a rs
INTERPRETATION:
This ratio is very high in first two years. But it is reduced in next three years.
So, the dependence on creditors is reduced. It shows the ability of Cheyyar sugar mill
49
4. MARKET COMMAND RATIO:
This ratio measures the command of the enterprise in both the supply and sales
even with zero net working capital, without endangering the liquidity of the business.
50
M a r k e t c o m m a n d R a ti o
7 0 .0 0 0
6 0 .0 0 0
5 0 .0 0 0
4 0 .0 0 0 M a rk e t
Values
c o m m a n d R a t io
3 0 .0 0 0
2 0 .0 0 0
1 0 .0 0 0
0 .0 0 0
2 0 0 4 - 0 25 0 0 5 - 0 26 0 0 6 - 0 27 0 0 7 - 0 28 0 0 8 - 0 9
Y e ars
INTERPRETATION:
The market command ratio should be minimum three to operate in a zero net
working capital. In this case the market command ratio of cheyyar sugar mill is above
3 in all the years. It is very high, because the creditors turnover ratio is very low than
51
This ratio is primarily used for monitoring the performance of autonomous
divisions of an enterprise. Often minimum and maximum values of the ratio are
Trade Debtors
Working Capital Performance Ratio= ---------------------------------
Trade Creditors
working capital
Years Trade Debtors Trade Creditors Performance
Ratio
52
w o r k in g c a p ita l P e r fo r m a n c e R a t io
0.50 0
0.45 0
0.40 0
0.35 0
0.30 0
w o rk in g c a p it a l
0.25 0
Values
P e rfo rm a n c e R a t io
0.20 0
0.15 0
0.10 0
0.05 0
0.00 0
2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 8 -0 9
Y e a rs
INTERPRETATION:
This ratio indicates the mode of financing of debtors. It is used more to control
may be asked to self finance its current operations, meaning thereby that the ratio
should be at least 1.
53
This ratio focuses on the cash holding policy of the firm. A decline in this ratio
indicates higher levels of idle cash. In India, due to the existence of the cash credit
management are not encountered. This ratio should normally be very high in Indian
enterprises.
54
C a sh T u r n o v e r R a ti o
1 2 0 .0 0 0
1 0 0 .0 0 0
8 0 .0 0 0
C a s h T u rn o ve r
6 0 .0 0 0 R a t io
Values
4 0 .0 0 0
2 0 .0 0 0
0 .0 0 0
2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 8 -0 9
Y e a rs
INTERPRETATION:
The cash turn over ratio of sugar mill is very high in first year. But it is
declining in the following years. It shows the higher level of idle cash. So, the
management should spend idle cash for financing of day to day expenses, and also for
55
This ratio relates sales expansion with the net working capital base of the
enterprise. A low ratio indicates that the enterprise is engaged in overtrading. On the
contrary, a high value of this ratio indicates under trading, which results from under
56
O ve r tr a d in g r a tio
0 .5 0 0
0 .4 5 0
0 .4 0 0
0 .3 5 0
0 .3 0 0
O ve rt ra d in g
0 .2 5 0 ra t io
Values
0 .2 0 0
0 .1 5 0
0 .1 0 0
0 .0 5 0
0 .0 0 0
2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 8 -0 9
Ye a rs
INTERPRETATION
Overtrading ratio is very low in all the five years. It shows the increase in
credit sales. That is lower ratio indicates the overtrading. It shows the under utilisation
of capacity of capital.
57
This ratio, also called the short term debt equity ratio, is widely used by firms
current liabilities, which could be dangerous if it is not backed by a high asset margin
ratio.
Current Liabilities
Credit Strength Ratio = -----------------------------------
Net Worth
Credit Strength
Year Current Liabilities Net worth
ratio
58
4.8. CHART SHOWING CREDIT STRENGTH RATIO:
C r e d i t S t r e n g t h r a ti o
1 .4 0 0
1 .2 0 0
1 .0 0 0
0 .8 0 0
C r e d it S t re n g t h
Values
0 .6 0 0 ra t io
0 .4 0 0
0 .2 0 0
0 .0 0 0
2 0 0 4 -0 5 2 0 0 5 - 0 6 2 0 0 6 - 0 7 2 0 0 7 -0 8 2 0 0 8 -0 9
Y e a rs
INTERPRETATION
The credit strength ratio is good in first four years. In fifth year it is opposite.
Current liability should not go beyond the net worth value. It show the over
dependence on creditors.
59
4.9. CURRENT RATIO:
The current ratio is measure of the firm’s short-term solvency. It indicates the
availability of current assets in rupees for every one rupee of current liability.
A ratio of greater than one means that the firm has more current assts than
Current Assets
Current Ratio = ---------------------------
Current Liabilities
60
4.9. CHART SHOWING CURRENT RATIO:
C u r r e n t R a t io
3 .5 0 0
3 .0 0 0
2 .5 0 0
2 .0 0 0
C u rre n t
Values
R a t io
1 .5 0 0
1 .0 0 0
0 .5 0 0
0 .0 0 0
2 0 0 4 -0 5 2 0 0 5 -0 6 2 0 0 6 -0 7 2 0 0 7 -0 8 2 0 0 8 -0 9
Ye a rs
INTERPRETATION:
The standard current ratio should be 2:1. first three years and fifth year the
current ratio of the sugar mill is in good positon .The current ratio of the firm is more
than 1 in all the years. In 2008 the ratio is very less compared to other years, this is
because of the ethanol project of the sugar mill. Ethanol project increased the value of
current liabilities.
61
This ratio is also termed as ‘acid test ratio’ or ‘liquidity ratio’. This ratio is
ascertained by comparing the liquid assets (i.e., assets which are immediately
Liquid Assets
Quick Ratio = --------------------------
Current liabilities
62
L iq u id R a t io
0 .4 0 0
0 .3 5 0
0 .3 0 0
0 .2 5 0
0 .2 0 0 Q u ic k
Ratio
R a t io
0 .1 5 0
0 .1 0 0
0 .0 5 0
0 .0 0 0
2 0 0 4 - 0250 0 5 - 0 26 0 0 6 - 0 27 0 0 7 - 0280 0 8 - 0 9
y e a rs
INTERPRETATION
The above chart shows the liquidity position of the company. The liquidity of
the company is very less in all the years. The liquid ratio in 2008 is 0.073. It is very
less compared to other years. The liquid asset out of current assets is very less because
63
11. WORKING CAPITAL TURNOVER RATIO
This is also known as Working Capital Leverage Ratio. This ratio indicates
whether or not working capital has been effectively utilized in making sales.
In case a company can achieve higher volume of sales with relatively small
company.
Net Sales
Working Capital Turnover Ratio = -------------------------------
Working Capital
64
4.11. CHART SHOWING WORKING CAPITAL TURNOVER RATIO:
W C T u r n o v e r R a tio
3.5
2.5
W C Tu rn o ve r
Values
2
R a t io
1.5
0.5
0
2 0 0 4 -0 25 0 0 5 -0 62 0 0 6 -0 27 0 0 7 -0 82 0 0 8 -0 9
Ye a rs
INTERPRETATION
The Working Capital Turnover ratio is very good condition in the year 2007,
2008 and 2009. This condition shows the management efficiency in effective
utilization of working capital in making sales. But it is totally it is low in 2005 and
2006. This is because of decrease in sales and increase in cash and bank balance.
65
4.12. Net profit Ratio
Net profit is obtained when operating expenses, interest and taxes are
Net profit ratio establishes the relationship between net profit and sales and
product.
66
4.12. CHART SHOWING THE NET PROFIT RATIO
N e t P ro fit R a tio
12
10
N P ra tio
values
6
(% )
0
2 0 0 4 -0 52 0 0 5 -0 62 0 0 6 -0 72 0 0 7 -0 82 0 0 8 -0 9
year
INFERENCE
The net profit is 10.98 in the year 2005. But it is reduced to 9.46% and 9.56%
in the years 2004 and 2006 respectively. In the years 2007 and 2008 there is no net
profit because the company faced the loss in these two years. This loss is because of
67
4.13. TABLE SHOWING THE INCREASE AND DECREASE IN WOKING
CAPITAL
Increase in Decrease in
years working capital working working
capital capital
2005 TO 2009
working capital
300000000
250000000
working capital
200000000
working
150000000 capital
100000000
50000000
0
2004-05 2005-06 2006-07 2007-08 2008-09
Years
INTERPRETATION:
The working capital of the sugar mill is very high in the year 2009. But it is
very low in the year 2007-08. It is due to increase in creditors and decrease in debtors
68
4.14. SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2004-05.
Particulars 2004 2005 Increase Decrease
Current Assets:
Inventories 386106580 327194061 - 58912519
Sundry Debtors. 5704167 5071565 - 632602
Cash and Bank balance 778899 669847 - 109052
Loans and Advances 18024686 20222673 2197987 -
Current Liabilities:
14728317
-
Creditors 315102261 167819091 1
Provisions 3988508 5132774 - 1144266
INTERPRETATION:
The above table shows result of increase in working capital. The working
decrease in creditors
2005-06.
Particulars 2005 2006 Increase Decrease
Current Assets:
Inventories 327194061 410412375 83218314 -
Sundry Debtors. 5071565 1173552 - 3898013
69
Cash and Bank balance 669847 37120037 36450190 -
Loans and Advances 20222673 22328592 2105919 -
Current Liabilities:
Creditors 167819091 192688188 - 24869097
Provisions 5132774 4995654 137120 -
INTERPRETATION:
The above table shows result of increase in working capital. The working
capital is mainly due to increase in inventory and cash and bank balance.
2006-07
Particulars 2006 2007 Increase Decrease
Current Assets:
Inventories 410412375 360793479 - 49618896
Sundry Debtors. 1173552 21627267 20453715 -
Cash and Bank balance 37120037 18824880 - 18295157
Loans and Advances 22328592 28160492 5831900 -
Current Liabilities:
Creditors 192688188 189262755 3425433 -
Provisions 4995654 4698215 297439 -
70
Total Current Liabilities (B) 197683842 193960970
Net Working Capital (A-B) 273350714 235445147 30008487 67914053
Decrease in Working Capital - 37905566 37905566 -
273350714 273350714 67914053 67914053
INTERPRETATION:
The above table shows result of decrease in working capital. The working
capital is mainly due to decrease in inventory and cash and bank balance
Current Assets:
30725756
-
Inventories 360793479 668051047 8
Sundry Debtors. 21627267 7464340 - 14162927
Cash and Bank balance 18824880 5376747 - 13448133
Loans and Advances 28160492 27980122 - 180370
Current Liabilities:
Creditors 189262755 558347938 - 369085183
Provisions 4698215 4621122 77093 -
INTERPRETATION:
71
The above table shows result of decrease in working capital. The working
2008-09
Particulars 2008 2009 Increase Decrease
Current Assets:
Inventories 668051047 476478923 - 191572124
Sundry Debtors. 7464340 1580407 - 5883933
Cash and Bank balance 5376747 17145217 11768470 -
Loans and Advances 27980122 25782610 - 2197512
Current Liabilities:
32099822
-
Creditors 558347938 237349711 7
Provisions 4621122 4588011 33111 -
INTERPRETATION:
The above table shows result of increase in working capital. The working
capital is due to decrease in creditors and increase in cash and bank balance.
4.19. COMMON SIZE BALANCE SHEET FOR THE YEAR 2005 AND 2006
72
Particulars 2005 % 2006 %
SHARE HOLDERS FUND
Share Capital 166187000 33.19 166461600 29.93
Share Deposit 3786418 0.76 7469304 1.34
Reserves & Surplus 289535656 57.82 289585172 52.07
Total Share Holders Fund (A) 459509074 91.77 463516076 83.35
Loan Funds:
Secured Loan 35397000 7.07 41711500 7.50
Unsecured Loan 5826802 1.16 50893235 9.15
Total Loan Funds (B) 41223802 8.23 92604735 16.65
Total Liabilities (A+B) 500732876 100.00 556120810 100.00
Fixed Assets:
Gross Block 367253261 73.34 374635248 67.37
Less:Accumulated Depreciation 304029119 60.72 310249104 55.75
Net Block 63224142 12.63 64386144 11.58
Capital Work in Progress 696865 0.14 696865 0.13
Total Fixed Assets (A) 63921007 12.76 65083009 11.70
Investments & Deposits (B) 941935 0.19 1302799 0.23
Current Assets:
Inventories 327194061 65.34 410412375 73.80
Debtors 5071565 1.01 1173552 0.21
Cash and Bank balance 669847 0.13 37120037 6.67
Loans and Advances 20222673 4.04 22328592 4.02
Total Current Assets 353158146 70.53 471034556 84.70
Less: current Liabilities & Provisions 172951865 34.54 197683842 35.55
Net Current Assets (C ) 180206280 36.00 273350714 49.15
Profit & Loss Account (D) -255663654 51.06 -216384288 38.91
500732875
Total Assets (A+B+C+D) 6 100.00 556120810 100.00
4.20. COMMOM-SIZE BALANCE SHEET FOR THE YEAR 2007 AND 2008
Particulars 2007 % 2008 %
SHARE HOLDERS FUND
Share Capital 170466600 30.72 173332000 30.91
Share Deposit 10967496 1.98 14938191 2.66
Reserves & Surplus 289606912 52.19 289606912 51.65
Total Share Holders Fund (A) 471041008 84.89 477877103 85.23
Loan Funds:
Secured Loan 4240500 0.76 3469500 0.62
Unsecured Loan 79616100 14.35 79327200 14.51
Total Loan Funds (B) 83856600 15.11 82796700 14.77
Total Liabilities (A+B) 554897608 100.00 560673803 100.00
Fixed Assets:
73
Gross Block 386747724 69.70 395810623 70.60
Less:Accumulated Depreciation 316386045 57.02 322852607 57.58
Net Block 70361679 12.68 72958015 13.01
Capital Work in Progress 696865 0.13 696865 0.12
Total Fixed Assets (A) 71058544 12.81 73654880 13.13
Investments & Deposits (B) 1443808 0.26 1365581 0.24
Current Assets:
Inventories 360793479 65.02 668051047 119.15
Debtors 21627267 3.90 7464340 1.33
Cash and Bank balance 18824880 3.39 5376747 1.00
Loans and Advances 28160492 5.07 27980122 4.99
Total Current Assets 429406118 77.38 708872256 126.73
Less: current Liabilities & Provisions 193960970 34.95 562969060 100.40
Net Current Assets (C ) 235445147 42.43 145903196 26.03
Profit & Loss Account (D) -246950109 44.50 -339750147 60.6
Total Assets (A+B+C+D) 554897608 100.00 560673803 100.00
Loan Funds:
Secured Loan 6679500 10.67
Unsecured Loan 77640800 12.41
Total Loan Funds (B) 144435300 23.08
Total Liabilities (A+B) 625775411 100
Fixed Assets:
Gross Block 401500935 64.16
Less:Accumulated Depreciation 328557408 52.51
Net Block 72943527 11.66
Capital Work in Progress 1189884 0.19
Total Fixed Assets (A) 74133410 11.85
Investments & Deposits (B) 10490108 1.68
Current Assets:
Inventories 476478923 76.14
Debtors 1580407 0.25
Cash and Bank balance 17145217 2.74
Loans and Advances 25782610 4.12
Total Current Assets 520987157 83.25
Less: current Liabilities & Provisions 241937722 38.66
Net Current Assets (C ) 279049435 44.59
74
Profit & Loss Account (D) 261899856 41.85
Total Assets (A+B+C+D) 625775411 100.00
Loan Funds:
Secured Loan 7.07 7.5 0.76 0.62 10.67
Unsecured Loan 1.16 9.15 14.35 14.51 12.41
Total Loan Funds (B) 8.23 16.65 15.11 14.77 23.08
Total Liabilities (A+B) 100.00 100.00 100.00 100.00 100.00.
Fixed Assets:
Gross Block 73.34 67.37 69.7 70.6 64.16
Less: Accumulated Depreciation 60.72 55.75 57.02 57.58 52.51
Net Block 12.63 11.58 12.68 13.01 11.66
Capital Work in Progress 0.14 0.13 0.13 0.12 0.19
Total Fixed Assets (A) 12.76 11.7 12.81 13.13 11.85
Investments & Deposits (B) 0.19 0.23 0.26 0.24 1.68
Current Assets:
Inventories 65.34 73.8 65.02 119.15 76.14
Debtors 1.01 0.21 3.90 1.33 0.25
Cash and Bank balance 0.13 6.67 3.39 1.00 2.74
Loans and Advances 4.04 4.02 5.07 4.99 4.12
Total Current Assets 70.53 84.7 77.38 126.73 83.25
Less: current Liabilities & Provisions 34.54 35.55 34.95 100.4 38.66
Net Current Assets (C ) 36.00 49.15 42.43 26.03 44.59
Profit & Loss Account (D) 51.06 38.91 44.50 60.60 41.85
Total Assets (A+B+C+D) 100.00 100.00 100.00 100.00 100.00
INTERPRETATION
Total share holder fund decreased from 91.77% to 76%. It shows the decrease
in share of growers. Loan fund increased from 8.23% to 23.08. This wide increase in
There is no wide fluctuation in total fixed assets. Profit and loss account is in
declining position. It shows the company is started to earn profit. The closing
75
inventory is very high in the year 2008 compared with other four years. This is
Debtors are very low in the year 2009. This is because of the company is
reducing the credit sales. And it allows only short credit period to his customers.
Current liability of the company is very high in the year 2008. it is due to
INCOME
52057674
Sales 6 100.00 409920400 100.00
Other Income 7287989 1.40 6766100 1.65
Non-trading Income 884207 0.17 765226 0.19
Release of Reserve & Provisions 76680 0.01 229520 0.06
Total 52882562 101.58 417681246 101.90
76
2
EXPENSES
27346303
Raw Material 4 52.53 327976257 80.01
Power, Fuel & Lubricants 4369910 0.84 4420108 1.08
Water Charges 546024 0.1 524768 0.13
Process Materials 2686665 0.52 3907930 0.95
Packing Expenses 9591132 1.84 11850404 2.89
Other Manufacturing Expenses 1122487 0.22 1399315 0.34
Salary and Wages 40374812 7.76 44567248 10.87
Repaire and Maintenance 7792850 1.50 15367600 3.75
Administrative Salaries 10462880 2.00 10564645 2.58
Administrative Overheads 8241885 1.58 9277780 2.26
Interest and Finance Charges 7508602 1.44 2110476 0.51
Excise Duty 34193287 6.57 24304352 5.95
Selling & Distribution Expenses 507492 0.10 335632 0.01
Depreciation 6351026 1.22 6419486 1.57
Reserve and Provision 1158880 0.22 90049 0.02
Increase / Decrease in Stock 63255164 12.15 -84714167 -20.67
47162613
Total Expenses 0 90.59 378401883 92.31
PROFIT (+) / LOSS(-) 57199494 10.99 39279365 9.58
INCOME
74333979 100.0
Sales 4 0 519405425 100.00
Other Income 8626049 1.16 12845798 2.47
Non-trading Income 995119 0.13 390325 0.08
Release of Reserve & Provisions 312278 0.04 87164 0.02
75327324 101.3
Total 0 3 532728712 102.57
EXPENSES
54377488
Raw Material 7 73.15 717273373 138.1
Power, Fuel & Lubricants 5409740 0.73 5690396 1.1
Water Charges 660868 0.09 765645 0.15
Process Materials 6157975 0.83 10159195 1.96
Packing Expenses 19693010 2.65 24311172 4.68
77
Other Manufacturing Expenses 1455160 0.2 3054961 0.59
Salary and Wages 55255443 7.43 58609763 11.28
Repaire and Maintenance 15865632 2.13 18871248 3.63
Administrative Salaries 12922314 1.74 13213053 2.54
Administrative Overheads 10950888 1.47 11085917 2.13
Interest and Finance Charges 9294832 1.25 25602561 4.93
Excise Duty 46406933 6.24 35087556 6.76
Selling & Distribution Expenses 981677 0.13 2094461 0.4
Depreciation 6303108 0.85 6466563 1.24
Reserve and Provision 8399 0.001 10071 0.001
Increase / Decrease in Stock 48698195 6.55 -306767185 -59.06
78383906 105.4
Total Expenses 1 3 625528750 120.43
PROFIT (+) / LOSS(-) -30565821 -4.11 -92800038 -17.87
Particulars 2009 %
INCOME
Sales 1045611684 100.00
Other Income 13394547 1.28
Non-trading Income 68899 0.007
Release of Reserve & Provisions 179953 0.02
Total 1059255083 101.3
EXPENSES
Raw Material 569528222 54.47
Power, Fuel & Lubricants 4956775 0.47
Water Charges 634534 0.06
Process Materials 10070805 0.96
Packing Expenses 17730207 1.70
Other Manufacturing Expenses 2803731 0.27
Salary and Wages 61484251 5.88
Repaire and Maintenance 20882729 2.00
Administrative Salaries 14674530 1.40
Administrative Overheads 8749164 0.84
Interest and Finance Charges 22767564 2.18
Excise Duty 49122490 4.69
Selling & Distribution Expenses 2557145 0.24
Depreciation 5704950 0.55
Reserve and Provision 146692 0.01
Increase / Decrease in Stock 189589003 18.13
Total Expenses 981404792 93.85
78
PROFIT (+) / LOSS(-) 77850291 7.45
INCOME
Sales 100.00 100.00 100.00 100.00 100.00
Other Income 1.40 1.65 1.16 2.47 1.28
Non-trading Income 0.17 0.19 0.13 0.08 0.007
Release of Reserve & Provisions 0.01 0.06 0.04 0.02 0.02
Total 101.58 101.90 101.33 102.57 101.30
EXPENSES
Raw Material 52.53 80.01 73.15 138.10 54.47
Power, Fuel & Lubricants 0.84 1.08 0.73 1.10 0.47
Water Charges 0.10 0.13 0.09 0.15 0.06
Process Materials 0.52 0.95 0.83 1.96 0.96
Packing Expenses 1.84 2.89 2.65 4.68 1.70
Other Manufacturing Expenses 0.22 0.34 0.20 0.59 0.27
Salary and Wages 7.76 10.87 7.43 11.28 5.88
Repaire and Maintenance 1.50 3.75 2.13 3.63 2.00
Administrative Salaries 2.00 2.58 1.74 2.54 1.40
Administrative Overheads 1.58 2.26 1.47 2.13 0.84
Interest and Finance Charges 1.44 0.51 1.25 4.93 2.18
Excise Duty 6.57 5.95 6.24 6.76 4.69
Selling & Distribution Expenses 0.10 0.01 0.13 0.40 0.24
Depreciation 1.22 1.57 0.85 1.24 0.55
Reserve and Provision 0.22 0.02 0.001 0.001 0.01
Increase / Decrease in Stock 12.15 -20.67 6.55 -59.06 18.13
Total Expenses 90.59 92.31 105.43 120.43 93.85
PROFIT (+) / LOSS(-) 10.99 9.58 -4.11 -17.87 7.45
INTERPRETATION
There is no wide fluctuation in gross profit. But the net profit is fluctuating
year to year. In 2007 and 2008 the company was facing loss. It is due to over
79
Packing expenses and salary and wages is also very high in the year 2008.
Cost of raw material is the main reason for this two year loss. In 2009 the company is
started to earn profit by reduction in cost of raw material and other manufacturing and
operating expenses.
HYPOTHESIS SETTINGS
Hypothesis settings for analyse the relationship between sales and net profit.
1. Null Hypothesis:
80
2. Alternative Hypothesis:
The following table shows the Shows the sales and profit of sugar mill for the
_ _
x1 x2 x1-x1 x2-x2 (x1-x1)2 (x2-x2)2
∑X1 = 323.89
∑X2 = 5.096
_
∑ (X1-X1)2 = 2566.13
∑ (X2-X2)2 = 199.02
81
∑ (X1-X1)2 + ∑ (X2-X2)2
SX1X2 = -------------------------------------------------------------------
n1 + n2 - 2
2566.13 + 199.02
= ----------------------------
5+5–2
2765.15
= ----------------
8
= 345.644
64.778 – 1.019
t = ----------------------------
_________________
√ 138.258(1/5 + 1/5)
63.759
= ---------------------
11.758
= 5.422
INFERENCE
Calculate statistical t value is greater than the critical value (5.422 > 2.306).
So, I reject null hypothesis and accept alternative hypothesis. I concluded that there is
Hypothesis setting for analyse the relationship between profitability and working
capital.
1. Null Hypothesis:
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2. Alternative Hypothesis:
The following table shows the Shows the net profit ratio and working capital
_ _ _ _
x1 x2 x1-x1 x2-x2 (x1-x1)2 (x2-x2)2
∑X1 = 28.01
∑X2 = 14.84
_
∑ (X1-X1)2 = 110.92
_
∑ (X2-X2)2 = 3.2
∑ (X1-X1)2 + ∑ (X2-X2)2
83
SX1X2 = -------------------------------------------------------------------
n1 + n2 - 2
110.92 + 3.20
= ----------------------------
5+5–2
114.12
= ----------------
8
= 14.265
5.6 – 2.97
t = ----------------------------
_________________
√ 14.265(1/5 + 1/5)
2.63
= ---------------------
2.389
= 1.101
INFERENCE
Calculated statistical t value is less than the critical value (1.101<2.306). So, I
accept null hypothesis and reject alternative hypothesis. I concluded that there is no
CORRELATION COEFFICIENT:
The following table shows the Shows the sales and profit of sugar mill for the
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Sales(Rs.in crore) X: 52.06 40.99 74.33 51.94 104.56
X Y XY X2 Y2
∑X = 323.89
∑Y = 5.10
∑ XY = 563.57
∑X2 = 323547.28
∑Y2 = 204.22
85
√ 5(23547.28) - (323.89) 2 * 5(204.22) – (5.10) 2
2817.85 – 1651.84
= ----------------------------------------------------
_____________________________________
√ (117736.40- 104904.73) * (1021.10 – 26.01)
1166.01
= --------------------------------
___________________
√ 12831.67 * 995.09
1166.01
= --------------------
____________
√ 12768666.5
1166.01
= --------------
3573.33
= 0.326
INFERENCE
The calculated r value is less than the critical value. So, I accept null
hypothesis and reject alternative hypothesis. I concluded that the correlation is not
statistically significant.
CORRELATION COEFFICIENT:
The following table shows the Shows the profitability and working capital
86
Net Profit (X): 10.98 9.58 -0.04 -0.18 7.45
X Y XY X2 Y2
∑X = 27.79
∑Y = 14.84
∑ XY = 73.07
∑X2 = 267.87
∑Y2 = 47.24
87
= -----------------------------------------------------
_____________________________________
√ 5(267.871) - (27.79) 2 * 5(47.237) – (14.84) 2
365.34 – 412.40
= ----------------------------------------------------
___________________________________
√ (1339.355 – 772.28) * (236.185 – 220.226)
- 47.06
= ------------------------
_______________
√ 567.075 * 15.959
- 47.06
= --------------
________
√9049.949
- 47.06
= --------------
95.13
= - 0.495
INFERENCE:
The calculated r value is less than the critical value. So, I accept null
hypothesis and reject alternative hypothesis. I concluded that the correlation is not
statistically significant.
5.1. FINDINGS
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Debtors turnover ratio is 102.646 in the year 2005. But it is totally opposite in
The market command ratio is fluctuation. In 2005, the ratio is 17.939. But in
the last year it is 57.446. In 2007 it is verys low compared to other four years.
The cash turnover ratio is not constant. In 2005, the ratio is 106.819 but in the
year 2006 it is 2.58. It shows wide variation in the cash operating expenses.
Overtrading ratio is very low in all the five years. There is no wide fluctuation
in this ratio.
The standard current ratio is 2:1. In this case the current ratio is above 2 in the
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Working capital turnover ratio is very low in the year 2006 i.e., the ratio is 1.5.
The net profit ratio is very high in the first two years. But in the next two years
there was no profit, the company was facing loss. In 2009 again the company
In the year 2004 the working capital was Rs.9152562 but it is increased to
88682719
In the year 2005 the working capital was Rs.180206280 but it is increased to
Rs. 273350714 in the year 2006. The net increase in working capital is Rs.
93144433.
capital was Rs. 273350714 but in 2007 the working capital was Rs.
235445147
In the year 2007 the working capital was Rs.235445147 but it was decreased
to Rs.145903196 in the year 2008. The net decrease in working capital is Rs.
89541952.
In 2009 the company was started to increase its working capital. The net
90
In 2007 and 2008 the company was facing loss, but in 2009 the company was
The total expense of the sugar mill is 93.85% in the year 2009. It is low
Investments and deposits of the Sugar mill is increased in the year 2009. It is
The overall performance of the company in the year 2009-10 is good than
previous two years, because in the previous two years the company was facing
5.2. SUGGESTIONS
91
Management should make the proper use of inventory control
techniques like fixation of minimum, maximum and ordering levels for all the
The company should also adopt proper control on finished goods and
other inverntory. Due to competition, prices are market driven and for earning
more margin company should give the more concentration on cost reduction
The company should reduce the cash operating expenses. The higher
goods sold is increasing year by year. So, the management should take
The company can increase the profit by reducing its overall expenses
5.3. CONCLUSION
92
By conducting the study about working capital management it is found out
that the working capital management of Cheyyar Co-Operative Sugar Mill is good.
The overall financial position of the mill is in satisfactory level. Cheyyar sugar mill
has sufficient funds to meet its current obligation every time which is due to efficient
This conclusion was drawn out by keeping in view the profitability and
solvency position of the sugar mill based on the authenticated and audited report of
The non-financial performance of the sugar mill has been impressive in terms
hand the percentage of recovery of sugar from sugarcane is very low. It implies the
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BIBLIOGRAPHY
1. I.M. Pandey, Financial Management (Vikas Publishing House Pvt. Ltd., New
Delhi).
3. T.S. Reddy & Hari Prasad Reddy, Financial and management Accounting
Delhi).
Websites:
1. www.google.com
2. www.Yahoo.com
3. www.cheyyarcosugars.net.in.
4. www.scribd.com
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