Financial Management
Financial management is concerned with the managerial decisions, which result in the acquisitions and financing of long term and short term credits for the firm. As such it deals with such situations that require selection of specific assets and liabilities as well as the problem size and growth of an enterprise. The analysis of these decisions is based on the expected inflows and outflows of funds and their effects upon managerial objectives. Social financial management is essential in both profit and non-profit organizations. The financial management helps in monitoring the effective employment of funds in fixed asset and in Working capital. The financial manager estimates the total assets of financial requirements and position of the company. The Maintenance of assets and maximization of profitability of the firm are the main objectives of the financial management. Besides the basic objectives, the other objectives of financial management are 1. Ensuring a fair return to shareholders. 2. Building up reserves or growth and expansion. 3. Ensuring maximum operational efficiency by efficient and effective utilization of finance. 4. Ensuring financial discipline in the organization.
Capital required for a business can be classified under two main categories Viz., Fixed capital Working capital
Every business needs funds for two purposes for its establishment and to carry its day-today operations. Long-term funds are required to create production facilities through purchase of fixed assets and such capital, which is blocked on a permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw materials, payment of wages and other day-to-day expenses, etc these funds are known as working capital. In simple words, working capital refers to that part of the firms capital, which is required for short-term, or current assets such assets cash, marketable securities, debtors, and inventories. Funds thus, invested in current assets keep revolving fast and are being constantly converted into cash and these cash flows out again in exchange for other current assets. Hence it is also known as revolving or circulating capital or short-term capital.
Capital requirement in gur making is very less, when compared to the capital requirement for a sugar plant of the same capacity. Currently around one- third of Indias sweetener production of 26 million tons is the form of these products. While, the production of sugar has fluctuated between 17-21 million tons. Around 4 million hectares of land is under sugar cultivation in India. The production of sugarcane in the recent years has fluctuated between 230-300 million tons. The Indian sugar industry is the second largest agro-processing industry in the country. India is the largest consumer and second largest producer of sugar in the world next to Brazil. Sugar as commodity is currently faced with a peculiar situation of huge inventories, plunging prices, unpaid dues to cane farmers and mills suffering losses. The sugar production fluctuates over the years; displaying a distinct cyclic trend typically Indian sugar industry follows a five-year cyclic pattern. Imports and exports are resorted to when there is mismatch in domestic sugar production. India had been an export of sugar till 2002-03. However, the country has started importing sugar in 2003-04. Typically, the quantity imported or exported in 1-2 million tons, depending on the excess/shortage situation. The Indian sugar prices are largely governed by the releases of sugar made by the government. Lower the release higher the price. The sugar economy in India is highly regulated, starting from sugarcane to the use of end-product sugar. It has been a demand for liberalization of the sugar economy. Efficient futures trading and subsequent price discovery would be the first in this regard. These are three major grades of sugar traded in India S 30, M 30 and L 30. These are classified based on the size of granules. There are certain problems faced by the sugar producing countries in the world including India. Where there will be some difference in different regions, common problems faced by sugar producing industries can be thrashed out if the representative from these different regions is met on a common platform. Whether it is a matter of marketing, exports, government subsidies or transport problems all have a commonality of features in themselves.
Sugar industry is the single largest contribute or to the central government as well as state government by way of paying excise duty, income tax, sales tax, purchase tax etc., by the sugar industry. It also earns large amount of foreign currency by way of sugar exports to other countries. Sugarcane is one of the most important cash crops in India. Sugar industry is seasonal industry. The duration of season varying widely form area-to-area depending upon the availability of sugarcane. Large number of workers is a seasonal employment skilled and semi-skilled worker. These workers are paid retirement allowance while unskilled are not paid. The potential of employment in sugar industry is depending upon the quality of sugarcane, which is highly perishable in nature and susceptible to diseases, pests and climate conditions. This is not a product to be transported over a long distance. The quality of sugarcane is determined by its sucrose contents very from area to area depending upon the climatic conditions. Irrigational facilities and cane development activities. The yield of cane per acre also varies form area to area and also variety wise. Sugar industry is one of the industries located entirely on rural areas. It is highly regulated industry in fixing the price of sugarcane and in marketing the finished product and it is one of the heavy taxed industries in the country. The government collects tax from sugarcane by way of purchase tax, sales tax, excise duty etc
Global scenario;No sugar or khandasari is produced on a commercial scale globally. Sugar is the sweetener used worldwide. Sugar is a carbohydrate named as source that occurs naturally in every fruit and vegetable. Globally sugarcane and sugar beet are the major source of sugar is used as sweetening agent in various household as well as industrial preparations. The global production of sugar, in the recent years has been observed to be fluctuating between 130-140 million tons. Major producers of sugar in the world are Brazil, India, and China, USA. Thailand, Mexico, Australia, Cuba and Pakistan, which together account for 72% of world production. Brazil, India and EU-15 are third of followed by China, Thailand and USA. Each year around 40 million tons of raw sugar is traded on the world market. Brazil is the world leading sugar exporter with 25% of world exports (12-14million tons), followed by the EU-15 with 15% (6 million tons) and Thailand with 5 million tons. The other major exporters are Australia and Cuba, with annual exports of 3 to 4 million tons. 5
The Russian federation (5-6 million tons), Indonesia (1.5-2 million tons), EU-15 (1.5-2 million tons), Japan (1-1.5 million tons), Korea (1-1.5 million tons), USA (1-1.5 million tons) is the major global importers. Brazil sets the trend for world sugar prices. The Brazilian price is dependent on the situation in the fuel sector since a major portion of its sugar production goes for ethanol production, which is used as fuel in the country. Important world sugar market New York (NYBOT), largest sugar futures market.
The Kovur Co-operative Sugar Factory is located at pothireddy palem village, Nellore. The area occupied by the factory is exactly 122 acres of land. The government acquired the land. The reason for the setting up the factory at that particular place was ideal available of raw materials and other up infrastructure facilities the other reasons are the incentives offered by the government for setting up of the plant in the backward area.
Irrigation Sources
The factory located on the back of the Penna River. The Penna water is diverted to kanigiri tank and the survepalli tank. The kanigiri tank is the principle source of irrigation for a variety of crops in the Kovur tank (which the factory located).
Labor
The labor available in the season in the required number. They are from the surroundings 110 villages.
Transportation
The main Nellore station is about 4km, from the factory in connected by a road the G.N.T Road (meaning about 2km) that constitute the Chennai-Calcutta Highway and also to ChennaiBombay National Highway.
Cultivated Area
110 villages and 24 hamlets under 13 mandals cover the area of operation of the factory. The surroundings of the factory consist of 907 of cane-cultivates land and with in the radius of 2030km.
The Directorate A.P appoints the other 4 officers. Present there is no elected loard District collector/personal in charge of the factory.
Construction of Godown
The factory is utilizing more than the installed capacity and producing excess quantitative of sugar. At present a factory is having 3 go downs which can store about 1, 50,000 quintals of sugar. The factory is providing quintals of sugar in excess. It is being stored in private at a much cost (8 to 10 Lakhs).
Facilities Being Extended to the Cane Growers: Seed are supplied to cane growers on loan basis. Fertilizers are being supplied to cane growers on lone basis with an interest rate of 12.4% They indicates are being supplied to cane growers at 1/3 rd of their price through Development Corporation
Crushing Performance
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They have spent about 16000 corers over the last 3 years for modernization and expansion now they could crush up to 2500 TCD.
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ORGANISATION CHART
BOARD OF DIRECTORS
MANAGING DIRECTOR
ADMINISTRATIVE OFFICER
Chief Engineer
Chief Chemist
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ORGANISATION CHART
BOARD OF DIRECTORS
MANAGING DIRECTOR
ADMINISTRATIVE OFFICER
Chief Engineer
Chief Chemist
General Accountant
Stores Accountant
Cane Accountant
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Definitions and Concepts of Working Capital:Working capital management usually is considered to involve the administration of current assets namely cash and marketable securities, receivables and inventories and the administration of current liabilities - James C. Van Horne Working capital is the excess of current assets over current liabilities -J. S. Mill Working capital refers to the firms investment in the short term assets like cash, account receivable and inventories - Western and Brigham.
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Significance of Working Capital:The significance of working capital are explained under the following heads namely, 1. Necessary Liquidity 2. Maximization of profits 3. Smooth Functioning 4. Increasing Firms value 1. Necessary Liquidity The operating cycle that it takes certain time from spending money on raw materials to its realization through the sales of finished goods. Therefore an enterprise needs necessary cash or liquidity to meet its obligations during the intervening i.e., operating cycle. This is made possible by working capital. 2. Maximization of profits According to cardinal principle of financial management the maximization of profits depends upon the proper balance between fixed capital and working capital. Working capital management strikes this balance between the two by properly synchronizing cash inflows and cash outflows. 3. Smooth Functioning The significance of working capital is even more for small-scale enterprises as it seems asset ensures the timely purchases of inputs even at competitive prices and payment to the factors of production. 4. Increasing Firms value Since working capital strikes proper balance between assets and liabilities it results in increase in the market value of enterprise.
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Factors Determining the Working Capital :There are some of the important determinants of working capital namely, 1. Sales 2. Nature of business 3. Length of operating cycle. 4. Terms of credit 5. Seasonal variations 6. Turnover of inventories 7. Demand conditions. 1. Sales Among the various factors size of sales is one of the important factors in the determining the amount of working capital. In order to increase sales volume the enterprise has to maintain its currents assets. In the course of period, the enterprise becomes in the position to keep the study ratio of its current assets annual sales. As a result the turnover ratio, i.e. current assets to turnover increases, reducing the length of operating cycle. Thus, less the operating cycle period less will be requirements for working capital and vice versa. 2. Nature of Business The requirement of working capital also varies among the enterprise depending upon the nature of the business. For instance trading companies required more working capital than manufacturing companies. This is because of that the trading business requires large quantities of goods to be held in stock and also carry large amount of working capital than manufacturing concerns. In both of these types of business, the value of current assets 80% to 90% of the values of Total assets. 3. Length of operating cycle The length of operating cycle can be defined as the time taken for the conversion of the funds to loan. So longer the operating cycle time the more working capital required.
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4. Term of credit Another important factor that determines the amount of working capital requirements relates to the terms of credit allowed to the customers. Then the requirements of Working capital will naturally be more if the credit period is longer and credit facilities are extend to all customers, no matter reliable or non-reliable they are. This is because there will be longer Balances or debtors and that too for a reliable longer period which will obviously demand for more capital. 5. Seasonal variations The seasonal enterprise i.e. the enterprise whose operations pick up seasonally may require more working capital to meet their increased operations during the Particular season. 6. Turnover of inventories If inventories are large in size but turnover is slow, the small-scale enterprise will need more working capital and the contrary is inventory is small but their turnover is quick, the Enterprise will need a small amount of working capital. 7. Demand conditions Most firms experience seasonal and cyclical fluctuations in demand for their productions and services. These business variations affect the working capital requirements, especially the temporary requirements of the firm.
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Sources of Working Capital:The two segments of working capital regular or fixed or permanent and variable are financed by the long term and the short-tem sources of funds respectively. The main sources of Long-term funds are shares, debentures, and short-term loans, retained earnings etc. The sources of short-term funds used for financing variable part of working capital mainly include the following: 1. Loans from commercial banks 2. Public deposits 3. Trade credit 4. Factoring 5. Discounting bills of exchange 6. Bank over draft 7. Cash credit 8. Accrual account 1. Loans from Commercial Banks Small-scale industries can raise loan from the commercial banks with or without security. This method of financing does not require any legal formally except that of creating a mortgage on the Assets. Loan can be paid in lump sum or it parts. The short-term loans can also obtain from Banks on the personal security of the directors of a company. Such loans are callers clean and advances it is considered as one of the cheaper source of financing working capital requirements. 2. Public Deposits Often companies find it easy and consentient to raise short-term funds by inviting the Shareholders, employees and general public to deposit their savings with the company. It is a Simple method of raising funds from the public for which the company has only to advertise and inform the public that it is authorized by the companies Act to accept the deposits. The companies can raise the public deposit subject to a maximum of 25% of their paid up capital free reserves.
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3. Trade Credit
Just as the companies sell all its goods on credit, they also buy the raw materials, components and other goods on credit form their suppliers. Thus outstanding amounts payable to the suppliers i.e., trade creditors for credit purchases are regarded as sources of finance. Generally suppliers grant the credit to their claims for a period of 3 to 6 months. 4. Factoring Factoring is a financial service designed to help firms in managing their books debts and receivables in a better manner. The book debts and receivables are assigned to a bank called factor and cash is realized in advance from the bank. For rendering these services, the fee or commission charged is usually a percentage of the sale of the book debts and receivable factored. This method of raising short-term capital is known as factoring. The factoring is very helpful financial service to both the suppliers companies and purchasing company 5. Discounting Bills of Exchange The buyer of goods generally draws when goods are sold on credit bills of exchanged for acceptance. The bills are generally drawn for the period of 3 to 6 months. In practice the writer of the bills instead of holding the bill till the date of maturity prefers to discount them with commercial banks on the payment of a charge known as discount. If a bill is dishonored on maturity, the bank returns the dishonored bill to the company who then becomes liable to pay the amount to the bank. 6. Bank overdraft Overdraft is a facility extended by the banks to their current account holders for a short term generally for a week. A current account holder is allowed to withdrawn from its current Deposit account up to a certain limit over the balance with the bank the interest is charged only on the amount actually overdrawn.
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7. Advances from Customers One way of raising funds for short-term requirement is to demand for advance from ones own customers. Examples of advances from the customers are advances at the time of booking of car a telephone connection flat etc. This has become an increasingly popular pays source of shortterm finance among the companies. 8. Accrual Accounts Generally there is a certain amount of time gap between incomes is earned and is actually received or expenditure becomes due and its actually paid. Salaries, wages and taxes are become at the end of the month but they are usually paid in the first week of the next month this source of raising the fund does not involve any cost.
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Operating Cycle
The times require to complete the sequence of events in the case of manufacturing firm is called operating cycle.
Debtor
Sales
Cash
Finished Product
Raw materials
Work-in progress
The operating cycle consist of 3 phases. 1st phase cash gets converted into inventory. This includes purchase of raw material, conversion of product. 2nd phase the stock is converted into receivables if credit sales are made. 3rd phase the conversion of receivable into cash after certain period. raw material into work-in-process and working in program to finished
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Accounts receivables
Cash
Stock of finished goods Operation cycle of non-manufacturing firm The operating cycle refers to the length of time necessary to complete the following cycle of events.
Current Assets 1. Cash 2. Bank balance 3. Short term investment 4. Bills receivable 5. Trade debtors 6. Short term loans & advances 7. Inventories 8. Prepaid payments
Current Liabilities 1. Bank over draft 2. Bills payable 3. Trade creditors 4. Provision for taxation 5. Proposed dividends 6. Unclaimed dividends 7.Advance payments 8. Outstanding expenses
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CASH MANAGEMENT
Cash is common purchasing power or medium of exchange. As such, it forms the most important component of working capital. The term cash with reference to cash management is used in two senses, in narrow sense it is used broadly to cover cash and generally accepted equivalent of cash such as cheques, draft and demand deposits in banks. The broader views of cash also induce near cash assets, such as marketable securities and time deposits in banks. The main characteristics of this deposits that they can be really sold and convert into cash in short term. They also provide short-term investment outlet for excess and are also useful for meeting planned outflow of funds. We employ the term cash management in the broader sense. Irrespective of the form in which it is held, a distinguishing feature of cash as assets is that it was no earning power. Companies have to always maintain the cash balance to fulfill the dally requirement of expenses. There are four primary motives for maintain the cash as follow
Transaction Motive
The requirement of cash balances to meet routine cash needs is called Transaction motive. A firm enters into a variety of transactions to accomplish its objectives like payments purchases, wages, operating expenses, interest, tax, dividends, similarly inflow of cash from sales, returs on outside investments. These receipts and payments constitute a continuous two-way of cash. But since they do not perfectly synchronize, a minimum cash balance is necessary to uphold the operations for the firm if cash payments exceed receipts. Always a major part of transaction balances is held in cash, a part may be held in the form of marketable securities whose maturity confirms to the timing of anticipated payments of certain items, such as taxation, dividend etc. 23
Precautionary Motive
Cash flows are somewhat unpredictable, with the degree of predictability varying among firms and industries. Unexpected cash needs at short notice may also be the result of following: 1. Uncontrollable circumstances such as strike and natural calamities. 2. Unexpected delay in collection of trade dues. 3. Cancellation of some order for goods due unsatisfactory quality. 4. Increase in cost of raw material, rise in wages, etc. The higher the predictability of firms cash flows, the lower will be the necessity of holding this balance and vice versa. The need for holding the precautionary cash balance is also influenced by the firms capacity to have short-term borrowed funds and also to convert short-term marketable securities into cash.
Speculative motive
Speculative cash balances may be defined as cash balances that are held to enable the firm to take advantages of any bargain purchases that might arise. While the precautionary motive is defensive in nature, the speculative motive is aggressive in approach. However, as with precautionary balances, firms today are more likely to rely on reserve borrowing power and on marketable securities portfolios than on actual cash holdings for speculative purposes. The speculative motive helps to take advantage of following 1. An opportunity to purchase raw materials at a reduced price on payment of immediate cash 2. A chance to speculate on interest rate movements by buying securities when interest rates are expected to decline.
Compensative Motive
Banks provide services like clearance of cheque, supply of credit information, transfer of funds. While for some of their services, banks charge a commission. Usually clients are required to maintain a minimum balance of cash at the bank. Since the firms for transaction purposes cannot be utilized this balance, the banks themselves can use the amount to earn a return equal to the cost of services. Such balances are compensating balance.
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INVENTORY MANAGEMENT
Inventory management involves the control of assets being produced for the purposes of sale in the normal courses of the companys operation. Inventories include raw material, work-inprocess and finished good inventory. The main goal of effective inventory management is to minimize the total costs direct and indirect that is associated with holding inventories. How ever the importance of inventory management to the company depends upon the extent of investment in inventory.
Meaning
The term inventory refers to the stock file of the product which a firm is offering for sale and the components that male the product.
Nature of Inventories
Inventories are stock of the product a company is manufacturing for sale and components that make up the product. The various forms in which inventories exist in a manufacturing company. 1. Raw materials Raw materials are basic inputs that are converted into finished product. Raw materials inventories are those units which have been purchased and stored for future productions. 2. Work-in-process Work in process inventories are semi-manufactured products. They represent products that need more work before they become finished products for sale. 3. Finished goods Finished goods inventories are those completely manufactured products, which are ready for sale.
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Stocks of raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth maturing operation. Thus inventories serve as a link between the production and consumption of goods. A firm also maintains a fourth kind of inventory or stores and spares. This category includes those products which are accessories to the main products produced for the purpose of sale. Ex: bolts, nuts, clamps, screws etc.
Purpose of Inventories
The purpose of holding inventories is to allow the firm to separate the processes of purchasing, manufacturing and marketing of its primary products. The goal is to achieve efficiencies in areas where costs are involved and to achieve sales at competitive prices in the market place. The main purposes are 1. Avoiding losses of sales 2. Gaining quantity discount 3. Reducing order cost 4. Achieving efficient production. Avoid losses of sales Purchasing Gain Quantity discounts Firms holding Inventories Producing Reduce Order Costs Selling
Purpose of inventory
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Inventory Control
A firm needs an inventory control system to effectively manage its inventory. Inventory control is concerned with the acquisition storage, handling and use of inventories so as to ensure the availability of inventory when ever needed provide adequate cushion for contingency and derive maximum economy and minimize wastage and losses. R. K. Ghosh and G. S. Gupta,
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RATIOS
Current Ratio:Current ratio measures the firms short-term solvency of indicates the availability of current assets in rupees for every one of current liability. A ratio greater than its standard means that the firm has more current assets the current liability Current Assets Current Ratio = Current Liability
Liquidity Ratio:Liquidity ratio indicate that a relationship between quick or liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately of reasonable soon without a loose of values. Quick (or) Liquid Assets Liquidity Ratio = Current liabilities Liquid or Quick Assets = Current Assets (Inventory + Prepaid Expenses)
Absolute Liquid Ratio:Since cash is most liquid asset a financial analysis may examine the ratio of cash and its equivalent to current liabilities, trade investment on marketable secularity is equivalent to cash.
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RESEARCH METHODOLOGY
3.1 STATEMENT OF THE PROBLEM
Working capital management is very significant aspect in the management of finance of any organization. By checking the level of working capital one can easily identify and profitability position of the firm and the decision regarding. 1. The level of working, which can be determined, by the level of current assets and current liabilities 2. Financing of current assets and current liabilities are of at most importance and significant in the financial management of the business because it not only shows the financial efficiency of business but also it credit worthiness, which has gained importance in these days of credit squeeze. This fact has been justified by many industries, which have failed frequently due to faulty management of working capital. It is this view that a case study has been made on working capital management in Kovur Cooperative Sugar Factory.
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The present study aims at the following Highlighting the necessity of current assets and current liabilities. Explain the need for holding cash. Highlight the need for and a nature of inventory.
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1. Primary data
The primary data relating to Kovur Cooperative Sugar Factory were to be collected through discussions with concerned officers and staff in the Finance Department of the company.
2. Secondary data
The data relating to Kovur Cooperative Sugar Factory Ltd has been collected through secondary sources viz., published annual Reports of the company during the years 20042009.
Research Instrument
Annual reports of The Kovur Co-operative Sugar Ltd., from 2005-2010.
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Inventories Cash & Bank Balance Loans & advances Other current assets
TOTAL (A) CURRENT LIABILITIES (B)
8,770,403 4,28,327
91,98,730
5,194 14,26,91,553
14,26,96,747
5,194 14,85,83,721
14,85,88,915
58,92,168
58,92,168
10,01,31,864 10,01,31,864
91,98,730 6,94,54,765
7,86,53,495
7,86,53,495 7,86,53,495
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2006
Analysis
As the above statement reveals the decrease of Working capital about 6,94,54,765/-. The above figures is due to the decrease of current assets about 91,98,730/- and also increase of current liabilities of about 58,92,168/-.
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Inventories Cash & Bank Balance Loans & advances Other current assets
TOTAL (A) CURRENT LIABILITIES (B)
10,67,675
10,67,675
3,06,77,099 18,55,14,939
216192038
10,67,675 18,55,14,939
18,65,82,614
18,65,82,614
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2006-2007
Analysis
As the above statement reveals the increase of Working capital about 18,55,14,939/-. The above figure is due to the increase of current assets about 18,65,82,614 /-.
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Inventories Cash & Bank Balance Loans & advances Other current assets
TOTAL CURRENT LIABILITIES (B)
16,95,164 16,95,164
5,194 14,85,83,72 1
14,85,88,915 21,61,92,038 21,61,92,038
5,194 20,49,38,891
20,49,44,085 7,87,26,294 13,74,65,746 21,61,92,038
5,63,55,170
5,63,55,170 13,91,60,908 13,91,60,908
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2007-2008
Analysis
As the above statement reveals the decrease of Working capital about 13,74,65,746/-. The above figures is due to the decrease of current assets about 16,95,164 /- and also increase of current liabilities of about 5,63,55,170 /-.
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Inventories Cash & Bank Balance Loans & advances Other current assets
TOTAL (A) CURRENT LIABILITIES (B)
4,73,443 4,73,443
5,194 20,49,38,89 1
20,49,44,085
5,194 22,68,22,000
22,68,27,194
2,18,83,109
2,18,83,109
7,87,26,294 3,82,62,046
11,69,88,340
11,69,88,340 11,69,88,340
6,06,18,598 6,06,18,598
2,18,83,109 3,82,62,046
6,06,18,598
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2008-2009
Analysis
As the above statement reveals the increase of Working capital about 3,82,62,046/-. The above figures is due to the increase of current assets about 6,06,18,598/- and also decrease of current liabilities of about 2,18,83,109/-.
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Inventories Cash & Bank Balance Loans & advances Other current assets
TOTAL (A) CURRENT LIABILITIES (B)
26,24,98,327
26,24,98,327
11,69,88,340 -
7,20,66,261 4,49,22,079
89,72,586 4,49,22,079
5,38,94,665
5,38,94,665
TOTAL
11,69,88,340
11,69,88,340
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2009-2010
Analysis
As the above statement reveals the decrease of Working capital about 4,49,22,079/-. The above figures is due to the decrease of current assets about 89,72,586/- and also increase of current liabilities of about 26,24,98,327 /-
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Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2010
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Graph: 4.1
25 20 15 10 5 0
2005-2006
NETWORKING CAPITAL
2006-2007
2009-2010
Interpretation
From the above graph the networking capital is 9,42,92,675 in 2006; and increasing as 21,61,92,308 in 2007 and 21,61,92,308 in 2008;and decreasing as 11,69,88,340 in 2009 and 11,69,88,340 in 2010.The increasing is due to the increase in current assets and decreasing is due to decrease in current assets.
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CASH MANAGEMENT IN K.C.S.F LTD Cash is the prime component in the current assets position of adequate amount of cash is assigned of the liquidity position of the company. Higher the cash higher the liquidity. The average cash and bank balances position of Kovur Cooperative Sugar Factory is given in the following table. Table: 4.2 AVERAGE CASH AND BANK BALANCES YEARS 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 CASH &BANK BALANCE 50933769 51678617 44398839 36409056 36457642 NET WORKING CAPITAL 94292675 216192308 216192308 116988340 116988340 CASH TO NETWORKING CAPITAL RATIO 0.54 0.23 0.20 0.31 0.31
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2010
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Graph: 4.2
0.6 0.5 0.4 0.3 0.2 0.1 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Interpretation From the above graph the size of the cash & bank balances are 0.54% in the year 2005-06,0.23% in the year 2006-07,0.20 % in the year 2007-08,0.31% in the year 2008-09,0.31% in the year 200910. This ratio indicates the proportion of cash and bank balance. It is assumed that the level of cash balance decides the liquidity, profitability aspects of the company. The lower the cash to networking capital the greater may be the profitability of the concern and vice-versa. If any company holds too low cash and bank balances in the relation to net working capital, it implies the
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ability of firm to meet day-to-day requirement of cash. Practice of holding cash balance in relation to net working capital indicates good cash management in sales.
PERCENTAGE OF CASH &BANK BALANCES TO CURRENT ASSETS The percentage of the cash and balances will reveal the proportion of highly liquid assets in the total current assets the higher the percentage the greater the liquidity. The details presented in the following table. Table: 4.3 CASH & BANK BALANCES AS A % OF CURRENT ASSETS PARTICULARS Cash & Bank Balance Current Assets Net Working Capital % of cash to current assets % of cash to working capital 2005-2006 50068,843 172966014 94292675 28.94 53.1 2006-2007 53288392 364780953 216192308 14.60 24.64 2007-2008 35509287 283670379 216192308 12.51 16.42 2008-2009 37308826 343815534 116988340 10.85 31.89 2009-2010 35606459 325143282 116988340 10.95 30.43
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2010
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Graph: 4.3
35 Percentage of cash to current assets 30 25 20 15 10 5 0 2005-2006 2006-2007 2007-2008 year 2008-2009 2009-2010
Interpretation From the above graph it was observed that the percentage of current assets in 2005-06 is 28.94%; in 2006-07 is 14.60%; in 2007-08 is 12.51%; in 2008-09 is 10.85%; in 2009-10 is 10.95% and percentage of cash to working capital is 2005-06 is 53.1%; in 2006-07 is 24.64%; in 2007-08 is 16.42%; in 2008-09 is 31.89%; in 2009-10 is 30.43%.There is a gradual decrease in cash to current assets for the period i.e., 2005-2009 because the difference in the ratio of increasing current assets is high when compare to cash, and some what increased in the year 2009-2010.
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PERCENTAGE OF INVENTORY TO TOTALCURRENT ASSETS Table: 4.4 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 INVENTORY 39559545 214837348 150372555 209040270 183127292 TOTAL CURRENT % OF INVENTORY TO ASSETS 325358346 263581011 457091114 375507098 444624838 TOTAL CURRENTASSETS 12.15 81.50 32.89 55.66 41.18
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2010
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Graph: 4.4
Interpretation
The total inventory as a percentage of the total current assets as 12.15% in the year 2005-06 it has increased as 81.50 % in 2006-07 and decreased in the year 2007-08 as 32.89%, then increased as 55.66% in 2008-09,and decreased in the year 2009-10 as 41.18%
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Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2010.
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Graph: 4.5
3 Inventory turn over ratio 2.5 2 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 Year 2008-2009 2009-2010
Interpretation Inventory Turnover ratio measures the velocity and the efficiency of the company in selling its products. In the year 2005-06 it was 1.09 %; and decreased to 0.58 % in the year 200607; increased to1.66 % in the year 2007-08; increased to 2.76 % in the year 2008-09; decreased to1.75% in the year 2009-10. So the firm was not efficient in management of inventory.
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SHOWING HOLDING PERIOD OF INVENTORY Table: 4.6 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 INVENTORY TURN OVER RATIO 4.15 0.69 4.05 4.74 3.75 NUMBER OF DAYS 360 360 360 360 360 NUMBER OF DAYS FOR INVENTORY 87 522 89 76 96
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2010
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Graph 4.6
600 500 400 Days 300 200 100 0 2005-2006 2006-2007 2007-2008 Ye ar 2008-2009 2009-2010
Interpretation From the graph in the year 2005-2006 the holding period was 87 days, 522 days in 2006 07, 89 days in 2007-2008, 76 days in 2008-2009, 96 days in 2009-2010. The above graph shows the inventory holding period from the year 2005 to 2010. The inventory was sold with in 76 days in the year 2008-2009 it is less period when compared to other years.
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CURRENT RATIO Table: 4.7 YEAR 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 CURRENT ASSETS 242828611 172966014 364780953 283670379 343815534 CURRENT LIABILITIES 142696747 148588915 148588915 204944085 226827194 RATIO 1.70 1.16 2.45 1.38 1.51
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2010
Graph: 4.7 54
3 2.5 Current Ratio 2 1.5 1 0.5 0 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Year
Interpretation The above graph shows the current ratio of the firm in the year2005-06 is 1.70;in the year 2006-2007 is 1.16;in the year 2007-2008 is 2.45;in the year2008-2009 is 1.38; in the year 20092010 is 1.51. Since the ratio is less than its standard except in the year 2007-08, the shot term financial position of the company is unsatisfactory in all the years except 2007-08.
Source
Published annul reports of The Kovur Co-operative Sugar Factory Ltd., 2005-2010
Graph: 4.8
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1.6 1.4 1.2 Liquid ratio 1 0.8 0.6 0.4 0.2 0 2005-2006 2006-2007 2007-2008 Year 2008-2009 2009-2010
Interpretation From the above graph it can be observed that the liquid ratio in the year 2005-2006 is 1.38;in the year 2006-2007 is 0.30;in the year 2007-2008 is 1.41; in the year 2008-2009 is 0.34; in the year 2009-2010 is 0.69.Since the liquid ratio is 1.38% in 2005-2006,and 1.41% in 20072008,which are greater than the standard ratio (1:1), it maintain sufficient amount of liquid assets so the performance is satisfactory in those two years and it was unsatisfactory in the remaining years
ABSOLUTE LIQUID RATIO Table: 4.9 YEARS CASH & BANK CURRENT RATIO 57
Source
Published annul reports of The Kovur Co-operative Sugar Ltd., 2005-2010.
Graph: 4. 9
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0.4 0.35 Absolute liquid ratio 0.3 0.25 0.2 0.15 0.1 0.05 0 2005-2006 2006-2007 2007-2008 Year 2008-2009 2009-2010
Interpretation From the above graph it can be observed that the absolute liquid ratio in the year 20052006 is 0.35;in the year 2006-2007 is 0.36;in the year 2007-2008 is 0.23; in the year 2008-2009 is 0.18; in the year 2009-2010 is 0.15.The average ratio during the period of study is 0.25.In the all the years absolute liquid ratio is lower than the acceptable standard ratio (0.5:1), which indicates that the firm has not maintaining sufficient level cash to meet its day-to-day obligations.
5.1 FINDINGS
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The net decrease in working capital during the year 2005-2006 is Rs: 6,94,54,765 The net increase in working capital during the year 2006-2007 is Rs: 18,55,14,939 The net decrease in working capital during the year 2007-2008 is Rs: 13,74,65,794 The net increase in working capital during the year 2008-2009 is Rs: 3,82,62,046 The net decrease in working capital during the year 2009-2010 is Rs: 4,49,22,079 The networking capital is 9,42,92,675 in 2006; and increasing as 21,61,92,308 in 2007 and 21,61,92,308 in 2008; and decreasing as 11,69,88,340 in 2009 and 11,69,88,340 in 2010.The increasing is due to the increase in current assets and decreasing is due to decrease in current assets.
The size of the cash & bank balances are 0.54% in the year 2005-06,0.23% in the year
2006-07,0.20 % in the year 2007-08,0.31% in the year 2008-09,0.31% in the year 2009-10.
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In the year 2005-2006 the holding period was 87 days, 522 days in 2006 2007, 89 days in 2007-2008, 76 days in 2008-2009, 96 days in 2009-2010. The inventory was sold with in 76 days in the year 2008-2009 it is less period when compared to other years.
The current ratio in the year2005-06 is 1.70; in the year 2006-2007 is 1.16;in the year 2007-2008 is 2.45;in the year2008-2009 is 1.38; in the year 2009-2010 is 1.51. Since the ratio is less than its standard except in the year 2007-08, the shot term financial position is unsatisfactory in all the years except 2007-08.
The liquid ratio in the year 2005-2006 is 1.38; in the year 2006-2007 is 0.30;in theyear2007-2008 is 1.41; in the year 2008-2009 is 0.34; in the year 2009-2010 is 0.69. The liquid ratio was less than standard ratio in all the years; therefore liquidity position is unsatisfactory.
In the all the years absolute liquid ratio (0.25) is lower than the acceptable standard ratio
(0.5:1), which indicates that the firm has not maintaining sufficient level cash to meet its day-to-day obligation.
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5.2 SUGGESTIONS
The firm should take measures to increase the current assets double the current liabilities to
increase current ratio to make them equal to the standard ratio inorder to improve the working capital. It is suggested to make investment in inventories and to improve the performance in inventory management. The firm facing main problem about raw material so management should offer best prices and seed capital to farmers to increase the raw material.
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5.3 CONCLUSION
The study reviewed the Working Capital position and short-term financial strength of the Kovur Cooperative Sugar Factory Limited. It was found that the level of current assets like cash and bank balances and inventory are less in working capital due to step fall in the sales, and more investment on fixed assests. For improving working capital management and shortterm financial strength, they can invest and utilize the short-term assets.
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BIBILOGRAPHY
Financial Management. Theory & Practice Prasanna Chandra Tata Mc Grawhill 1977 Financial Management I.M.Pandey Vikas Publications 1999. Management Accounting Practice-R.K.Sharma, Seshi K.Gupta Financial Management Decision Making Jon Hampton practice Hall India 1992 Annual Reports and Accounts of Vijaya Dairy, Nellore. Web site: www.google.com.
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