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WORKING  CAPITAL MANAGEMENT
IN
SUDHA AGRO OIL AND CHEMICAL INDUSTRIES LIMITED
SAMALKOT
A project report submitted to Jawaharlal Nehru university Kakinada  in
Partial fulfillment of the award of award of the degree of
MASTER OF BUSINESS ADMINISTRATION
BY
GANGA RAMA VASU CHINTA
(Regd. No. 09MR1E0012)
Under the esteemed guidance of
Mr.M.v. srinivas rao (MBA)
MBA programme
P.G. DEPARTMENT OF MANAGEMENT STUDIES
SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENGINEERING& TECHNOLOGY , MANAGEMENT STUDIES
(AFFLIATED TO JNTU)
KAKINADA
ACKNOWLEDGEMENT
               I am greatly indebted to many people for mailing the present study possible and I shall be failing in my duty if  I don’t acknowledge
the help and guidance extended  to me by each of them.
        I am the student  to Mr .M.V.SRINIVASRAO, head  of   management       department, SRI VATSAVAI  KRISHNAM  RAJU  COLLEGE OF  ENG IN-EERING  & MANAGEMENT  STUDIES , gollakoderu   for  his  kind  co- operation extended to pursue the project work in sudha agro oil & chemical limited ,samalkot
        I take this  opportunity  to  express  my  deep sense of gratitude  to Mr. Rajendra   lecturer of krishnam  raju  college  of post  graduate studies, gollakoderu, for his valuable guidance in sharing his knowledge and expertise was a pillar of support in bringing this project in such an elegant form.
             I am especially  thankful  to S. MEERA  executive  in  FINANCE DEPARTMENT for accepting  to  be  for  my  representing  for  doing project  in SUDHA AGRO OIL &CHEMECAL  INDUSTRIES  LTD
                And I want to convey my humble regards to all of my family members and friends who have contributed their co-operation and helped me in completing this report   DECLARATION<br />I  here  declare  that the project report entitled “WORKING  CAPITAL  <br />MANAGEMENT” have  been  completed   successfully  and   this  project<br />report   submitted  towards    the  partial  fulfillment  of  the requirement<br /> the  award   of    the   degree  of    “MASTER  OF BUSINESS ADMINIST-<br />RATION”  in specialization  finance .  This   report   has  not   been  sub<br />-mitted  to any  other  university   or  institution  for  award  of   degree<br />Station:<br />Date:                                                      <br />                                                                                        Ganga rama vasu .chinta<br />                                                                                          {Regd no:09MR1E0012}<br />CERTIFICATE<br />This  is certify  that  the  project   titled “A  STUDY  ON  WORKING<br /> CAPITAL  MANAGEMENT “IN SUDHA AGRO AND CHEMICAL<br />INDUSTRIES  LIMITEDT ,SAMALKOT ,  being     submitted   by<br />GANGA  RAMA  VASU . CHINTA   in   partial fulfillment  of   the <br />award  of  m.b.a. degree  to  the P.G  OF  MANAGEMENT  STUDIES ,<br />SRI  VATSAVAI  KRISHNAM  RAJU  COLLEGE  OF  ENGINEERING<br /> &TECHNOLOGY , GOLLAKODERU . Is  a  record  of  bonafied work<br /> Carried  out  by  him   under  my  guidance  and  supervision    <br />                                                                Project guide <br />                                        P.G  department of management  studies <br />                                                 S v k r college   gollakoderu <br />. PREFACE<br />The present study is conducted with objectives of identified the WORKING CAPITAL MANAGEMENT  from the five years balance sheets provided by the SUDHA AGRO OIL AND CHEMICAL INDUSTRIES LIMITED.<br />,[object Object]
The second chapter discuss the need of the study, the methodology used and limitation thereof.
The third chapter deals with the organization profile in detailed.
The forth chapter deals with the literature review of the study.
The fifth chapter deals with analysis and interpretation.
The sixth chapter findings, suggestions, conclusions and Bibliography regarding the study with the help of last five years balance sheets.CONTENTS<br />CHAPTER-1             INTRODUCTION TO WORKING CAPITAL              MANAGEMENT<br />,[object Object]
Methodology
Objective of study
Significant of the study
Limitations of the studyCHAPTER-2             INDUSTRY PROFILE COMPANY PROFILE<br />CHAPTER-3             THEORETICAL FRAME WORK OF WORKING CAPITAL<br />CHAPTER-4              ANALYSIS AND INTREPRETATION<br />CHAPTER-5              FINIDING&SUGGESTIONS  <br />                                   REFERENCES & BIBLIOGRAPHY<br />CHAPTER-1<br />,[object Object]
NATURE OF WORKING CAPITAL MANAGEMENT.
OBJECTIVE OF THE STUDY.
SIGNIFICANCE OF THE STUDY.
METHODOLOGY.
LIMITATIONS OF THE STUDY.INTRODUCTION<br />Working capital management is significant in financial management. It  plays  a  vital role in  keeping  the wheel   of   the business  running. Every business requires  capital ,without  it can’t be promoted. Investment  decisions is concerned with investment  in current assets and fixed assets .working capital plays a key role in  a business enterprise just as the role of heart  in human body . it acts  as  grease to  run the wheels  of fixed assets .its effective provision  can  ensure  the   success of  business while  its  inefficient management   can  lead  not  only  to loss  but  also  to the  ultimate downfall of  what otherwise might  be considered  as a promising concern . Efficiency  of a  business  enterprise  depends largely on its  ability  to its working capital .working  capital  management is one of  the  important  facts of affirms  overall  financial  management<br /> For  increasing  shareholder’s  wealth  a  firm has to analyze  the effect of fixed assets and current assets on its return and risk.working capital management  of current  assets . the management of current   assets on the basis of the following points:<br />1. current assets are for short period while fixed assets are for more than one year<br />2. The large holding  of current assets ,especially cash,  strengthens liquidity position but also reduce overall  profitability ,and to  maintain an optimal  level of liquidity  and profitability , risk return trade off is involved  holding current assets<br />3. Only current assets can be adjusted with sales fluctuating in the short run. thus the firm has greater degree of flexibility in managing current assets. The management of current assets help affirm in building a good market  reputation regarding its business and economic conditions.<br />Now first let us discuss the paradigms of working capital management.<br />CONCEPT OF WORKING CAPITAL:<br />The concept of working capital includes current assets and current liabilities both. There are two of working capital of working  capital they are gross and net working  capital.<br />1.Gross working capital: Gross  working capital refers to the firm’s investment in current assets .current assets are the assets, which can be converted into cash within an accounting year or operating cycle. It includes cash, short term securities ,debtors (account receivables or book debts),bills receivables and stock (inventory).<br />2.Net working capital: net working  capital refers to the difference between current assets and liabilities are those claims of outsiders, which are expected to mature for payment within an accounting year. It  includes creditor’s or accounts payables bills payable and outstanding expenses. Net working copulate can be positive or negative. A positive working capital will arise when current assets exceed current liabilities and vice versa.<br />NATURE OF WORKING CAPITAL <br />             Working capital management is concerned with the problems that arise<br /> in attempting to manage the current assets ,the current liabilities and the<br /> inter relationship that exists between them. The term current refers to those<br /> assets which in the ordinary course of business can be ,or will be converted <br />into cash within one year   without undergoing a diminution in value and <br />without disrupting the operation of the firm. the major current assets are<br /> cash, marketable securities, accounts receivables and inventory. current <br />liabilities are those liabilities, which are intended  at their inception ,to be paid<br /> in the ordinary course of business, within a year  out of the current or the <br />earning of the concern .The  basic current  liabilities are accounts payable <br />,bills payable ,bank overdrafts and outstanding expense. The goal of working<br /> management is to manage the firms assets and liabilities in such a way that a<br /> satisfactory level of working capital is maintain. This is because if the firms<br /> cannot maintain a satisfactory level of working capital ,it is likely to become <br />insolvent and may even be forced into bankruptcy. The current assets should<br /> be  large enough to cover its current liabilities in order to ensure a reasonable<br /> margin of safety. Each of the short term source of financing must be <br />continuously  managed to ensure that they are obtained and used in the way.<br /> Interaction between current liabilities is ,therefore  the main theme of the of<br /> management of working capital.<br />METHODOLOGY<br />For the purpose of the study necessary information has been collected <br />through primary and secondary sources.<br />PRIMARY DATA:<br />DEFINATION<br />The primary data are those which are collected a fresh and for the first time, <br />and thus happened to be original in character . primary data include the <br />information collected from the officials and existing company through <br />discussions<br />SECONDARY  DATA :<br />DEFINITION<br />The secondary data ,on the other hand are those which have already been<br /> collected by some one else and which have already been passed though the<br /> stastical process.<br />The secondary data include the information from the company annual reports<br /> which include financial statement like balance sheet and income statements <br />and such other information from text books of financial management ,journals<br />  and magazine has also been collected.<br />  <br />OBJECTIVES OF THE STUDY<br />Working capital  is the most widely used and powerful technique of financial<br /> analysis .The main objective of the present study is to know the financial<br /> condition of the company.<br />,[object Object]
To interpret the financial position of company of is appropriate (or) not.
To asses the long term financial viability of company .to know whether the management  is constantly concerned about the over all profitability of the company (or) not.
To provide reliable financial information about economic resources and obligation of a business enterprise.
To provide reliable financial information those add ,it’s in estimating the potential of the enterprise.
To disclose to the extent possible other information related to the financial statements  users. NEED OF THE STUDY<br />During the post –liberalization are the worlds assail as economic india’s scenario has shown a great progress and is growing with increased phase this has necessitated the complex and efficient ways of management .thinking practically the main concern is of the influence of external environment on business providing  a modern dimension to business to management .they find solution for many problems in the aspect of financial analysis .financial establishes inter relationship that exists among. The different items appeared in the financial statements, which  are effectively helpful  to describe the company should monitor key indication of operating performance and where possible must compare, itself with the competitors in the industry.<br />                                               A systematic financial analysis of accounting figure helps to analysis the probable caused relationship among different items after analyzing scrutinizing the past result which helps the management to prepare budgets ,to formulate company policy and to prepare future plan of action. It focuses  on company’s  relative performance in sales growth margins and assets management .It is a simple tool where by a company can make its internal audit to evaluate internal strengths and weakness of the part of the strategic planning.<br /> <br />LIMITATIONS OF THE STUDY <br />The study  conducted and done is analytical ,subject to the following limitations<br />1)The study is mainly carried out based on the secondary data provided in the financial statements .<br />2)this study is based on the historical data and information provided in the annual reports therefore it may not be a future indicator .<br />3)There may be some fractional differences in the calculated ratios.<br /> As the study was for short span of 8 weeks and due to lack of time other areas  could not be well focused.<br />CHAPTER -2<br />,[object Object]
COMPANY PROFILEINDUSTRY  PROFILE<br />Oils have come to play vital role in the economy of our country .These oils not only for human diet but also provide essential raw materials for industries  products like soaps, paints ,varnishes  and lubricants .there are many  reasons for ever growth demand for oils.<br />        The main reason is due to various factors  such as increase in population, rapid industrialization of the country and improved standard of living with the recent liberalization of licensing and trade control  policies of the government ,there is going to be further increase in the demand for oils human consumption and industries purpose now a days india has been facing the problem of shortage and raises in the price of oils. It is the burning problem   from the 20 years . the situation is due to the production of major oil seeds ground nut, mustered ,sesame, sun flower ,soybean and linseed & caster seed.<br />              The presently available sources of oil in india can be divided as follows.<br />1. perennial oil seed plant like coconut and palm.<br />2.Annual oil seed like groundnut , rapeseed, sesame, Niger, sunflower, soybean caster and linseed are non –edible types.<br />3.minor oil seeds, like sal, neem, karanja, kusum, maharaj etc.<br />4.oils obtained through technological process such as extraction from rice bran, cotton seeds.<br />            We are at present tapping about 25% to 30% of the available potential for production in all the above sources .All these various oil seeds  have  different  yields  of oil per unit area, depending   in their oil content and yields of  oil seeds per unit area. The following table gives the average yields of oils per unit area for various  oil seeds.B?<br />AVERAGE YIELDS OF OIL PER UNIT AREA TABLE<br />Oil seeds                    Average oil Palm3200-3500Coconut1900-2000Niger175-200Castor200-225Sesam300-325Mustard350-375Linseed400-450Ground nut600-625<br />             In India most of the production comes from rainfall areas, and hence there are wide fluctuation in production owing to monsoons –progress in the evaluation and introduction of high yielding hybrid varieties are poor when compared to rice and cotton etc. owing to these factors ,yield projector is very low.<br />                 In these circumstances oil seeds production has to be stepped up and self efficiency should be achieved as early  as possible hence our goal is to achieve self sufficiency in the production of the oils with in the shortest possible span of time.<br />ROLE OF CO-OPERATIVE SECTOR:-<br />                 Co- operator is assisted by N.C.D.C and N.D.D.B having oil seed producer as their members have been supporting co-operative endeavour in integrated development, storage and marketing. the approach adopted b then is comprehensive enough to associated oil seed growers co-operated at the gross root level with oil seed producers as the participants and beneficiaries it is important that the formers  who are actually engaged in production of oil seeds are associated with any strategies adopted for segment action  oil seeds through co –operatives .there action involvement would entire then to give further inputs for production of oils.<br />IMPORTANCE  THE RODUCT<br />            Non trading oil an lay an important part an important part in the achievement of oil self-sufficient in our country cotton seed has already established it self as an important oil source .rice bran is fast catching up with cotton seed. rice bran is fast catching up seed rice bran has great potential in the future. the minor oil seeds of free origin are slowly gaining importance mainly because of their low cost. If the policy makers can encourage at even force to the industries to exploit the vast qualities of minor seeds the edible in wild as non –edible industries)oil demand can e satisfactory.<br />OIL FROM BY PRODUCTS OF OTHER INDUSTRIES:-<br />                     There are several by –products of various agro –based industries which and can be utilized to obtain oil either industries or edible purpose cotton seed, grossed nut cake rice bran are presently the important sources<br />ABOUT THE PRODUCT RICE BRAN OIL:-<br />            The spectra of scarcity if oils has been hunting our national economy in deferent every since the beginning of seventies lastly since 1977 huge be ports of oils have become a necessity to arrest the raise in price and met the demand and supply gap by spending huge foreign exchange to crude oil.<br />            The crisis has become the more serious on account of standard in the production of traditional oil seeds mainly ground nut and mustard on one hand and ineffective utilization of the vast of resources of oil which can available by taping rice bran and minor oil seed of origin and not adopting a concrete national policy has made the crisis serious.<br />              In fact the rice bran oil can argument substantial quality of oil in the country like many Asain countries including Japan Herman’s  thus land where  rice bran oil came to stay as a cooking medium and also for industrial purpose.<br />State wise processing capacity of rice bran oil in india <br />21STATEDAILY PRODUCTION(MT)ANNUAL PRODUCTION(MT)Andhra Pradesh742522,27,500Assam11033,000Delhi309000Gujarat17405,22,000Haryana1685                                            5,05,000Karnataka20506,15,000Kerala4701,41,000Madhya Pradesh26908,07,000Maharastra17155,14,500Orissa 14042,000Punjab25807,74,000Rajasthan26802,04,000Tamilnadu13303,99,000Uttar Pradesh2932879,600West Bengal7202,16,000Pondicherry15045,000<br />A conference organized by the solvent extract association of india on 1977 on rice bran oil of the significant trails taken up by or industrial organization on the fields of oil since a slightest hike in import price crude oils brings a marked change in Indian in markets especially of oils.<br />Solvent extraction industry in india:-<br />                  Solvent extraction is pre –dominantly on agricultural on agricultural based industry .in solvent extracting the oil contents in various  agricultural products .that is rice bran ,soya bean , sal seed –decorticated oil cakes etc, is extracted without changing the other properties of the input material .in view of the agricultural depend this industry occupies a significant place in india economy , the overall installed capacity of the industry in india 22,66,10,000 MTS per year and the total no of solvent interaction plant in india 42%.<br />             <br />                    The following is the state wise advent extraction plant and their processing capacity<br />STATE NO.OF SOLVENTDAILY PROCESSING CAPACITY(MTS)ANNUAL PROCESSING CAPACITY(MTS)Andhra Pradesh5710,61031,83,000Assam115045,000Delhi14513,500Gujarat5511,64534,93,500Haryana 202,29066,87,000Karnataka67502,25,000Madhya Pradesh6727,47582,42,500Maharastra6011,80335,41,500Orissa533099,000Punjab223,51010,53,000Rajasthan277,12521,37,500Tamilnadu212,6607,98,000Uttar Pradesh264,00012,00,000West Bengal121,0603,18,000Pondicherry                            120060,000TOTAL42188,7002,66,10,000<br />23STATE WISE SOLVENT EXTRACTION PLANTS IN INDIA:-<br />In view of the growing demand for oils and for cattle feed ,the importance of the solvent extraction industry is very significant and it plays a very import role in Indian economy .the present growth rate of industry is around 5%.<br />            The inflation rate of general goods is above 20%.it is surprised that in case of oils the inflation is above 30%.there is still a danger in as government has no other growth expert to resort to fix the inflationary to be standard price in order to fill reservoir of resources to meet the budget.<br />             Many learned and eminent industries ,technologist and manufactures about manufactures about modernization of rice bran .processing to producer quality with low concern by installing stabilizers of three or four varieties and to extract oil with 10%to15%suitable for industries purpose  by refining scope of exploitation of complete bran available in Indian for production of bran oil , problem formed by rice mills ,solvent extraction industries types of stabilizer to install to control T.T.A .rice bran is problem in refining the bran oil like maxell eimming dewoding neutralization bleaching and deodorization and physical refining etc.<br />        In view of the growing demand for oils and for cattle feed, the importance of the solvent extraction industry is very significant and it plays a very import role in Indian company .the present growth rate of industry is around 5%.<br />            Previously the oils obtained by solvent extraction are used in the manufacture of soaps ,detergents but with the recount development in technology and solvent extraction plants are able to produce edible grade oils . which the fit for refining in order produce refined cooling grade oils ,which is a source commodity in India .thus this industry has major role to pay in India’s oil trade.<br />The activities of the industry are monitored by the solvent extractors moderation of India, located at Mumbai .<br />COMPANY PROFILE<br />HISTORY OF THE COMPANY:-<br />            SUDHA AGRO OIL AND CHEMICAL LIMITED , Sri  E .Rajarao, who has vast experience in the same  line ,prompted an existing profit making company. The company was incorporated on 7th December 1981 as a private limited company and became limited company on 13th august 1988. Initially the promoters brought Rs53.55lakhs as equity capital out of 750lakhs were sudscribed by apde subsequently 5000 shares in the yaer 1987 and 2500 shares in the year 1992 were brought back by promoters. <br />          In the year 1993-94 the company issued a bonus shares of 42,840 shares of rs.100 paid up at the ratio of 5:4 out of reserves of Rs 104-58 lakhs available with the company . the equity capital was increased to Rs 177.61 lakhs by subscribing 26,775 shares at per and 54.445 shares at premium of Rs 50 per share of Rs 500 paid up.<br />            In the year 1996-97 the equity capital was further increased to 225 lakhs by subscribing 47,390 shares at per by the existing promoters . thus the equity capital of the company stood at Rs 11.361lakhs as on 31st march ,1997. <br />               The company paid 10% dividend on equity in the first year itself and is continuously paying dividend for the eight years.<br />PROMOTORS OF THE COMPANY:-<br />The chief promoters of the company is sri E. Rajarao, B.A  . who was  earlier associated with the promotion of Gowthami solvent oil ltd .as an executive director ,he has aged above 60 years of experience in the oil and fats business.<br />BOARD OF DIRECTORS<br />,[object Object]
Sri  E. RAMAKRISHNA                      -          JOINT MANAGING DIRECTOR
Sri E.  SUDHAKAR ,MS USA             -          EXECUTIVE DIRECTOR
Sri  V. BALA MOHAN DAS                -          NOMINEE OF IREDA
Sri  G.M.K. MOHAN                          -          DIRECTOR
Sri M. VENKANNA                            -         DIRECTOR        ..................................................................................................<br />AUDITORS:-<br />             M. BRAHMAYYA& CO.<br />             Charted accounts<br />              3-16c-40,8th  road<br />              Gazette officers colony<br />              Shanti  nagar,<br />              Kakinada.<br />BANKERS :-<br />            STATE BANK OF INDIA<br />            Commercial branch <br />            KAKINADA<br />FACTORY & REGD. OFFICE :-<br />            19-1-422, G . Ragampeta,                                                                                                                                                                                                                                      <br />            Post box no .9,<br />             Samalkot - 533440<br />            East Godavari district<br />            Andhra Pradesh<br />MANAGEMENT<br />            The following financial executives who have good amount of experience in the oils and chemicals field further assist the managing director and executive director<br />,[object Object]
PRODUCTION FACILITIES:-
      The  company initially started with 150 TPD rice bran solvent extraction plant in 1982 and subsequently expended its acids ,glycerin and oxygen . The particulars of the various plants installed in the company’s existing premises given below.
NAME OF THE PLANTINSTALL                   ED  TPDCAPACITYTPADATE OF COMMENCEMENT OF PRODUCTION Solvent extraction plant 15045,000May 1983Hydrogenation plant5015,000May 1986Chemical refinery4012,000Feb 1994Fatty acids plant 4012,000Sep 1994Glycerin2600April 1996Physical refinery206,000June 1996Oxygen booting16675,00,000Feb 1997Power plant41,800Dec 2000
 The company had started the solvent the extraction plant on its own fill in 1989-90 and it ran this on job work basis with minimum quality guarantee to ITC limited and Essar Gujarath limited from September 1990 .due to shifting of job work processing the operating capacity of the plant of the plant came down from 84%to 66% . now this plants running on its own.
   The company has entered a processing agreement for its hydrogenation plan with Colgate Pamolive (1)ltd. the process a minimum quality of 2,400 Mt. per year and the agreement is renewable every year. Colgate Palmolive (1) ltd also  supplied electrolysis equipment on hire purchase basis for the period of three years commencing from year 1995 november.EXPANSION SCHEME EXECUTED:-<br />           Company commanded its 150 TPD solvent extraction plan in may 1986 at a cost of 134 lakh and the project was partly financed by APSFC and APIDC by sanctioning a term loan of 30 lakhs repaid in scheduled time .In may 1986 it commenced a 30 PTW hydrogenation. Plant to harden commercial rice bran oil for soap at a cost of 66 lakhs. APIDC party financed this project by sanctioning the term loan of 39.64 lakhs. This loan was also repaid in the scheduled time . in 1986  the company took a term loan of Rs 5.80 lakhs from APTS for purchasing a generator .in 1992 they took a term loan of Rs 19.60 lakhs from APIDC for purchase of a boiler .these two term also repaid in time. In 1993 company added seed prepatory system at a cost of Rs 16.20 lakhs as its own funds.<br />,[object Object]
                The company is banking with state bank of india. Peddapuram branch since inception and it presently enjoying working capital fund based limit of Rs 50 lakhs. The company is maintaining good financial relation with different finance institutions. Which are extending loan facility. The repayment of loans is made in time.
        Dealing with financial institution and banks as on 31st august, 1997 is given in the following table.
PERFORMANCE:-
          The company is regular in both earning the profit and declaring the dividend to its share holder. The turnover in 1992-93 and 1995-96 were low due to reason that unit under took job works  for ITC limited and Essar Gujarat limited. The turn over started increasing from 1996-97 on words due to diversification of the activities in a phased manner. The company could not show a net profit in 1998-99 as it changed the method of depreciation from straight line method to written down value method. Due to availability of surplus in profit and loss account the company declared dividend of 15% on its equity on proportionate basis.
 RAW MATERIALS:-
            The main raw material of this unit is rice bran oil. The unit requires a quality of 150 Mt .of rice oil per day and 100 Mt of rice bran oil per day. The company is located in the center of east Godavari district surrounded by huge number of rice mills. Since the company is 15 years old it established a strong net work for procurement of rice bran. The required rice bran is produced through urgently brokers who collect rice bran from mills at the price indicated by the company depending on the marketing fluctuation. The company has 30 bran agents in Godavari district, srikakulam and southern Orissa.
             Out of the 100Mt of rice bran oil around 15tones per day available from  the solvent extraction plant of the company.
             The chemical such as nickel catalyst caustic soda, sulphuric acid, phosphoric acid bleaching earth etc . Are available in the required capacities to run the plan at envisaged capacities .
THE RAW MATERIALS:-
PRODUCTION PROFILE
              The raw material for solvent extraction for is rice bran . there are two verities of rice bran.
Raw rice bran.
Boiled rice bran.
                 The oil content is raw rice bran is 16% and increase as boiled rice bran is 19% the purchase price of rice bran fixed on the basis of oil content
               According if oil content is less than 16% the price will be reduced proportionately and if oil content is more than 16% a premium will be paid proportionately similarly in the case of boiled rice bran rebate of premium is considered on the basis of 19% oil content .
                The bran is usually produced through agents appointed by company or directly from the rice mills . the bran after is tested in the laboratory for its content and  FFA (free fatty acids) . based on this laboratory results the payment will be mode.
                    In the case of boiled bran the F.F.A content in it will be around 4% to 7% if it is processed with in 3 days from the day of production by the rice mills. By F.F.A content in rice bran increased to maximum 60% if they are stored beyond 10 days . the advantage of low F.F oil
(I.e. 4%  to 5%) is that it can be used for manufactures of refined rice bran oil.       The sweet water obtain at the splitting tower contain glycerine heating process in the glycerine refine unit refines the crude glycerine. The refines glycerine of 90% purity is the stored in drums for sale.<br />Refinery plant flow chart<br />Description <br />The commercial grade rice bran oils taken an autoclave. Hydrogen and nickel catalysis are then put into autoclave and then stirred. In the process oil absorbs the hydrogen gas. The hydrogenated oil then bleached to remove color and other impurities the oil is then cooled to temperature 80°c. The cooled oil is then filter and  the final oil is stored for sale.<br />The soap stock ( fatty acids obtain from the neutralization process is treated with sulfuric acid and then washed ). The oil thus obtain is called as acid and is stored for sale or for further use in the fatty acid plant.<br />Solcant extraction plant flow chart<br /> <br />Fatty plant flow chart<br />The commercial grade rice bran oil is taken into an auto calve. Hydrogen and nickel catalysis are then put into autoclave and then stirred. In the process oil absorbs the hydrogen gas. The hydrogenated then bleached to remove color and other impurities. The oil is then cooled to temperature of 80° C. the cooled oil is then filtered and the final oil is stored for sale.  <br />Hydrogenation plant flow chart<br />The commercial grade rice bran oil is taken into an auto calve. Hydrogen and nickel catalysis are then put into autoclave and then stirred. In the process oil absorbs the hydrogen gas. The hydrogenated then bleached to remove color and other impurities. The oil is then cooled to temperature of 80°C. the cooled oil is then filtered and the final oil is stored for sale.  <br />DESCRIPTION:-<br />,[object Object]
                  The de-oiled bran . Which still contains traces of hexane, is run through direct to aster to recover the hexane . The de-oiled bran (DOB) which is free from hexane is bagged for sale.
                   The hexane recovered by condensation process is recalculated for use in the extraction bed.
Chapter-3
THEORETICAL FRAME
WORK OF WORKING CAPITALWORKING CAPITAL MANAGEMANT THEORY <br />MEANING AND DEFINATION: <br />        A part from investment in fixed assets , every enterprise has to arrange for adequate funds for meeting day (operations) expenses to kept it a concern. So originally speaking working capital refers to the flow funds , necessary for working of enterprise however these is no agreement among the financial experts regarding the meaning of working capital. They define working capital in the following ways.<br />ACCORDING TO MEAD MALLOT:<br />                        “Working capital means current assets”.<br />ACCORDING TO WESTON AND BRIGHAM:<br />             “working capital refers to a firm investment in short term assets, cash, short term securities, accounts receivable and inventories”.<br />CONCEPT OF WORKING CAPITAL:-<br />            There are 2 concepts of working capital : gross and net.<br />             The term gross working capital also referred to as a working capital, means the total current assets.<br />             The term net working capital can be defined in 2 ways.  <br />,[object Object]
 Alternate definition of net working capital is that portion of current assets which is financed with long term funds.The task of the financial manager in managing working capital efficiency is to ensure sufficient liquidity in the  operation of the enterprise. The liquidity of a business firm is measured by its ability to satisfy short term obligations as they become due. The three basics measure of a firm’s overall liquidity are <br />,[object Object]
The net working capital
The current ratio  In brief , they are useful in inter firm comparison of liquidity . net working capital as a measure of liquidity, is not very useful for comparing the performance of different firms, but it is quite useful for internal control. The net working capital helps in comparing the same firm over time.  <br />NEED FOR WORKING CAPITAL:-<br />             In order earn sufficient profits, a firm has to depend on its sales activities apart from others. We know that sales are not analysis converted into cash immediately. i.e, there is a time lack between the sale of a product and the realization of cash so, an adequate amount of working capital is required by a firm in the form of different current assets for its activities to continue un interrupted and to tackle the problem that may arise because of the time lay. Practically this happens simply owing to the “operating cycle”(or) “ cash cycle”, involves the following steps.<br />,[object Object]
Conversion of inventory into receivables.
Conversion of receivables into cash.NATURE OF WORKING CAPITAL:-   <br />The term working capital refers to current assets which may be defined as<br />,[object Object]
Those which are required to meet day operations.This fixed assets as well as current assets, both required investment of funds. So, the management of working capital and of fixed assets, appearently seen to involve same type of consideration but it is not so. The management of capital involves different concepts and methodology than the techniques used in fixed assets management. The reason for this different is obvious. The very basics of fixed assets decision process (i.e the capital budgeting ) and the working capital decision process are different. The fixed assets involve long period perspective and therefore, the concept of time value of money is applied where as in working capital the time horizon is limited, in general, to one year only and the time value of money concept is not considered. The fixed assets the long term profitability of the while the current assets affect the short term liquidity position. Managing current assets may require more attention than managing fixed assets. The financial manager must.<br />           Therefore continuously monitor the assets to ensure that the desire levels are being maintained. Since the amount of money invested in current assets can change rapidly. So does the financing required. Mis management of  current assets can be costly. Too large an investment in current means tying up funds that can be productively used else where (or it means added interest cost if the firm has borrowed funds to finance the investment in current assets). Excess investment may also expose the firm to undue risk eg. In case, the inventory cannot be sold or the receivable cannot be collected.<br />      On the other hand, too little investment also can be expensive for ex:- insufficient inventory may mean that sales are lost as the goods which a customer wants are not available. The results is that financial managers spend a large chunk of their time managing the current assets because level of these assets changes quickly and a lack of attention paid to them may result in appreciably lower profits for firm. So, in the working capital management, a financial manager is faced with a decisions involving some consideration as follows:<br />,[object Object]
What should be the level of individual current assets?
What should be the relative proportion of different sources to financial the working capital requirements?       Thus the working capital management may be defined as the management of firm’s sources and uses of working capital in order to maximize the wealth of the share holders. The proper working capital management requires both the medium term planning (say up to 3 years) and the immediate to changes arising due to fluctuation in operating levels of the firm.<br /> THE OPERTING CYCLE AND THE WORKING CAPITAL NEEDS:-<br />          The working capital requirement of a firm depends, to a great extent up on the operating cycle of the firm. The operating cycle may defined as the duration from the procurement of goods or raw materials and ending with sales realization. The length and nature of the operating cycle may differ from one firm to another depending up or the size and nature of the firm.<br />           In a treading concern there is a serious of activities starting from procurement of goods ending with realization of sales revenue. Similarly in case manufacturing concern . This serious start form procurement of raw material and ending with the sales realization of finished foods. In both the cases however there is a time gap between the happening of the first event and the happening of last event . this time gap is called operating cycle. Thus the operating cycle of a firm consists of time required for the completion of chronological sequence of some or all of the following.<br />,[object Object]
Conversion of raw material in the work in progress.
Conversion of work in progress in to finished goods.
Sales of finished goods. (cash or credit).
Conversion of receivable into cash.                     The firm is after required to extend credit facilities to customers. The finished goods must be kept in store to take care of the orders and minimum cash balance must be maintained. It must also have minimum of raw material to have smooth and uninterrupted production process. So in order to have a proper and smooth running of the business activities, the firm must make investment in all these current assets. This requirement of funds depend up on the operating cycle period of the fiem and also denoted as the working capital needs of the firm.<br />OPERATING CYCLE PERIOD:-<br />              The length or time duration of the operating cycle of any firm can be defined as the sum of it’s inventory conversion period and the receivable conversion period.<br />(1)INVENTORY  CONVERSION PERIOD:-<br />            It is the time required for the conversion of raw material in to finished goods sales. In a manufacturing concern the ICP is consisting of raw materials conversion period(RMCP), work in progress conversion period (WPCP), and the finished goods conversion period (FGCP). The RMCP refers to the period for which the raw material is generally kept in store before is issued to the production department. The WPCP refers to the period for which the raw material remain in the production process before it is taken out as a finished unit. The FGCP refers to the period for which finished units remain in stores before being sold to the customers.<br />,[object Object],        It is the time required to convert the credit sales in to cash realization. It refers to the period between the occurrence of credit sales and collection of debtors.<br />        The total of ICP and RCP is also known as total operating cycle period (TOCP). The firm might be getting some credit facilities from the supplier of raw material wag earners etc. this period for which the payment it these parties are deferred or delayed is known as deferral period. The net operating cycle of a firm is arrived at by deducting the deferral period from total operating cycle period. Thus<br />                NOC   =            TOCP-D     =   ICP+RCP- DP.<br />OPERATING CYCLE<br />The duration of time required for completing the following sequencies of events in case of manufacturing firm s called the operating cycle.<br />,[object Object]
Convertion of raw material into work in progress.
Conversion of work inprogress into finished goods.
Conversion of finished goods into debtors & bills receivable through sale.
Conversion of debtors & bills receivable into cash.         CASH<br />ACCOUNTS RECIEVABLERAW MATERIAL<br />FINISHED  GOODSWORK IN PROGRESS<br />The duration of the operating cycle for the purpose of estimating working capital requirement is equalant to the sum of duration of each of these tables less the credit period allowed by the suppliers of the firm.<br />TYPES OF WORKING CAPITAL<br />,[object Object],       The net working capital is the different between current assets and current liabilities. The concept of net working capital enables a firm to determine how much amount is left for operational requirements.<br />,[object Object],Gross working capital is the amount of funds invested in the various components of current assets.<br />,[object Object],                     Permanent working capital is the minimum amount of current assets which is needed to conduct a business even during the dullest season of the year. The amount varies from year to year depending up on the growth of the company and stage of business cycle in which it operates. It is the amount of funds required to produce goods and services which are necessary to satisfy demand at a particular point.<br />,[object Object],                     It is represents the additional assets which are required at different times during the operating year additional inventory, extra cash etc., seasonal working capital is the additional amount of current assets particularly cash, receivables and inventory which is required during the more active business seasons of the year.<br />,[object Object],         The balance sheet working capital is one which calculated from the items appearing in the balance sheet. Gross working capital which is represented by the excess of current assets, and net working capital which is represented by the excess of current assets over current liabilities are examples of balance sheet working capital.<br />,[object Object],              Cash working capital is one which is calculated from the appearing in the profit and loss account. It shows the real flow of money or value at a particular time and is considered to be the most realistic approach in working capital management. It is the basis of the operating cycle concept which has assumed a great importance in financial management in recent years. The reason is the working capital indicates the adequacy of the cash flow. Which is an essential pre-requisite of a business.<br />,[object Object],            Numbers working capital emerges when current liabilities exceed current assets. Such a situation is not absolutely theoretical, and occurs when a firm is nearing a crisis of some magnitude. <br />49 DETERMINANTS OF WORKING CAPITAL:-<br />            Numbers of rules are formulated to determine the working capital requirement of the firm. a large  number of factors influence the working capital needs of the firm. All these factors have different importance, also the importance of the factor change for a firm over time. Therefore analysis of the relevant factor should be made in order to determine the total investment in working capital requirements of the firm.<br />,[object Object]
Seasonality of operation
Production policy

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working capital management project

  • 1.
  • 2. WORKING CAPITAL MANAGEMENT
  • 3. IN
  • 4. SUDHA AGRO OIL AND CHEMICAL INDUSTRIES LIMITED
  • 6. A project report submitted to Jawaharlal Nehru university Kakinada in
  • 7. Partial fulfillment of the award of award of the degree of
  • 8. MASTER OF BUSINESS ADMINISTRATION
  • 9. BY
  • 12. Under the esteemed guidance of
  • 15. P.G. DEPARTMENT OF MANAGEMENT STUDIES
  • 16. SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENGINEERING& TECHNOLOGY , MANAGEMENT STUDIES
  • 20. I am greatly indebted to many people for mailing the present study possible and I shall be failing in my duty if I don’t acknowledge
  • 21. the help and guidance extended to me by each of them.
  • 22. I am the student to Mr .M.V.SRINIVASRAO, head of management department, SRI VATSAVAI KRISHNAM RAJU COLLEGE OF ENG IN-EERING & MANAGEMENT STUDIES , gollakoderu for his kind co- operation extended to pursue the project work in sudha agro oil & chemical limited ,samalkot
  • 23. I take this opportunity to express my deep sense of gratitude to Mr. Rajendra lecturer of krishnam raju college of post graduate studies, gollakoderu, for his valuable guidance in sharing his knowledge and expertise was a pillar of support in bringing this project in such an elegant form.
  • 24. I am especially thankful to S. MEERA executive in FINANCE DEPARTMENT for accepting to be for my representing for doing project in SUDHA AGRO OIL &CHEMECAL INDUSTRIES LTD
  • 25.
  • 26. The second chapter discuss the need of the study, the methodology used and limitation thereof.
  • 27. The third chapter deals with the organization profile in detailed.
  • 28. The forth chapter deals with the literature review of the study.
  • 29. The fifth chapter deals with analysis and interpretation.
  • 30.
  • 34.
  • 35. NATURE OF WORKING CAPITAL MANAGEMENT.
  • 39.
  • 40. To interpret the financial position of company of is appropriate (or) not.
  • 41. To asses the long term financial viability of company .to know whether the management is constantly concerned about the over all profitability of the company (or) not.
  • 42. To provide reliable financial information about economic resources and obligation of a business enterprise.
  • 43. To provide reliable financial information those add ,it’s in estimating the potential of the enterprise.
  • 44.
  • 45.
  • 46. Sri E. RAMAKRISHNA - JOINT MANAGING DIRECTOR
  • 47. Sri E. SUDHAKAR ,MS USA - EXECUTIVE DIRECTOR
  • 48. Sri V. BALA MOHAN DAS - NOMINEE OF IREDA
  • 49. Sri G.M.K. MOHAN - DIRECTOR
  • 50.
  • 52.
  • 53. The company initially started with 150 TPD rice bran solvent extraction plant in 1982 and subsequently expended its acids ,glycerin and oxygen . The particulars of the various plants installed in the company’s existing premises given below.
  • 54. NAME OF THE PLANTINSTALL ED TPDCAPACITYTPADATE OF COMMENCEMENT OF PRODUCTION Solvent extraction plant 15045,000May 1983Hydrogenation plant5015,000May 1986Chemical refinery4012,000Feb 1994Fatty acids plant 4012,000Sep 1994Glycerin2600April 1996Physical refinery206,000June 1996Oxygen booting16675,00,000Feb 1997Power plant41,800Dec 2000
  • 55.
  • 56. The company had started the solvent the extraction plant on its own fill in 1989-90 and it ran this on job work basis with minimum quality guarantee to ITC limited and Essar Gujarath limited from September 1990 .due to shifting of job work processing the operating capacity of the plant of the plant came down from 84%to 66% . now this plants running on its own.
  • 57.
  • 58. The company is banking with state bank of india. Peddapuram branch since inception and it presently enjoying working capital fund based limit of Rs 50 lakhs. The company is maintaining good financial relation with different finance institutions. Which are extending loan facility. The repayment of loans is made in time.
  • 59. Dealing with financial institution and banks as on 31st august, 1997 is given in the following table.
  • 61. The company is regular in both earning the profit and declaring the dividend to its share holder. The turnover in 1992-93 and 1995-96 were low due to reason that unit under took job works for ITC limited and Essar Gujarat limited. The turn over started increasing from 1996-97 on words due to diversification of the activities in a phased manner. The company could not show a net profit in 1998-99 as it changed the method of depreciation from straight line method to written down value method. Due to availability of surplus in profit and loss account the company declared dividend of 15% on its equity on proportionate basis.
  • 63. The main raw material of this unit is rice bran oil. The unit requires a quality of 150 Mt .of rice oil per day and 100 Mt of rice bran oil per day. The company is located in the center of east Godavari district surrounded by huge number of rice mills. Since the company is 15 years old it established a strong net work for procurement of rice bran. The required rice bran is produced through urgently brokers who collect rice bran from mills at the price indicated by the company depending on the marketing fluctuation. The company has 30 bran agents in Godavari district, srikakulam and southern Orissa.
  • 64. Out of the 100Mt of rice bran oil around 15tones per day available from the solvent extraction plant of the company.
  • 65. The chemical such as nickel catalyst caustic soda, sulphuric acid, phosphoric acid bleaching earth etc . Are available in the required capacities to run the plan at envisaged capacities .
  • 68. The raw material for solvent extraction for is rice bran . there are two verities of rice bran.
  • 71. The oil content is raw rice bran is 16% and increase as boiled rice bran is 19% the purchase price of rice bran fixed on the basis of oil content
  • 72.
  • 73. According if oil content is less than 16% the price will be reduced proportionately and if oil content is more than 16% a premium will be paid proportionately similarly in the case of boiled rice bran rebate of premium is considered on the basis of 19% oil content .
  • 74. The bran is usually produced through agents appointed by company or directly from the rice mills . the bran after is tested in the laboratory for its content and FFA (free fatty acids) . based on this laboratory results the payment will be mode.
  • 75.
  • 76. In the case of boiled bran the F.F.A content in it will be around 4% to 7% if it is processed with in 3 days from the day of production by the rice mills. By F.F.A content in rice bran increased to maximum 60% if they are stored beyond 10 days . the advantage of low F.F oil
  • 77.
  • 78. The de-oiled bran . Which still contains traces of hexane, is run through direct to aster to recover the hexane . The de-oiled bran (DOB) which is free from hexane is bagged for sale.
  • 79. The hexane recovered by condensation process is recalculated for use in the extraction bed.
  • 82.
  • 83.
  • 84. The net working capital
  • 85.
  • 86. Conversion of inventory into receivables.
  • 87.
  • 88.
  • 89. What should be the level of individual current assets?
  • 90.
  • 91. Conversion of raw material in the work in progress.
  • 92. Conversion of work in progress in to finished goods.
  • 93. Sales of finished goods. (cash or credit).
  • 94.
  • 95. Convertion of raw material into work in progress.
  • 96. Conversion of work inprogress into finished goods.
  • 97. Conversion of finished goods into debtors & bills receivable through sale.
  • 98.
  • 106.
  • 107.
  • 108. If the adopts a moderate current assets policy it would carry a moderate level of current assets in relation to assets.
  • 109.
  • 110.
  • 112.
  • 113. Working capital advances by commercial bank.
  • 116. Short term loans from financial institutions .
  • 117. Rights debentures for working capital.
  • 118.
  • 119. The bankers should finance only the genuine production needs of the borrower. The borrower should maintain the reasonable levels of the investor and receivable. He should hold just enough to carry on his targets production. Efficient management of resources should, therefore, be ensured to eliminate slow moving and flabby inventories.
  • 120.
  • 121. The banks while assessing the credit requirements from borrowers should fix separate limits where as feasible.
  • 122. As far as possible the borrowers should be discouraged for approaching the bank frequently limitation in excess of sanction limits.
  • 123.
  • 124.
  • 126.
  • 127. CHANGES IN WORKING CAPITAL.
  • 128.
  • 131.
  • 132. Regular payment of the interest they leverage ratio are calculated to measure the financial rest and firms abilities of using debt.
  • 133.
  • 134.
  • 135.
  • 136. The comparison is rendered difficult because of differences in situations of two companies or of one company over years.
  • 137. The price level changes make the interpretation of ratios invalid. the differences in the definitions of items in the balance sheet and the profit & loss statement make the interpretation of ratios difficult.
  • 138. The ratios calculated at a point of time or less informative and defective as they suffer from short term changes.
  • 139. Difference in accounting policies and accounting period make the accounting data of firms non comparable as also the accounting ratios.
  • 140. It is very difficult to generalize weather a particular ratio is good or bad.
  • 141.
  • 142.
  • 143. yearCost of goods soldAverage stockRatio2005-062939547.745.362006-073955.185567.112007-085207.77047.392008-097034.891023.216.882009-101812.891101.721.64
  • 144. Inventory turn over ratio= cost of goods sold
  • 145. Average stock
  • 147. The ratio indicates the efficiency of the firm in selling its product it is calculated by dividing the cost of goods sold with average inventory.
  • 148. For sudha agro chemicals limited ,the efficiency is decreasing .in the year of 2006-08.it is 7.39 ,which is highest recorded. After that it went on decreasing to lowest of 1.64 in 2009-10. It shows that is no proper control over the inventory by the management
  • 149. HOLDING PERIOD RETURN:
  • 151. ITR
  • 152. YearNumber of days in Number of days in yearInventory turnover ratioHolding period return2005-063655.3668.092006-073657.1151.332007-083657.3949.392008-093656.8853.052009-103651.31222.56
  • 154. The ratio indicates the speed with which the stock or inventory gets converted in to cash i.e., sales the lower the period , the better liquidity of the inventory.
  • 155. Sudha agro chemicals limited showed a holding period return of nearly Sudha agro chemicals limited showed a holding period return of nearly 37 days in the year of 2005-06 , which is very better compare to other years then it is gradually increased to 98days in 2009-10 which means the liquidity of inventory is not better.
  • 156. C) Statement showing changes in stock at the end of the year
  • 157. yearOpening stock Closing stock Increase/decrease2005-06623.3970783.612006-07707991.05284.062007-08991.05141141420.352008-091411.411164.56246.852009-101164.561316.70152.13
  • 159.
  • 160. The above statement showing about the details of stock at the opening of the year at the closing .in the year of 2005-06 there is decrease in the end of the of the year.
  • 161. 3.RECEIVABLE MANAGEMENT .
  • 162.
  • 164.
  • 165. DTR= sales
  • 166. Average debtor
  • 168.
  • 170. Book debts are expected to be converted in to cash over a short period and therefore are included in current assets .the liquidity position of the firm depends on the quality of a great extent.
  • 171. The ratio indicated the number of items on an average that the turn over takes place each year .generally the ratio the more efficient is the management of credit .
  • 172. Sudha agro limited ,maintain a good ratio of 33.52 in the year 2008-09 it was decreased to 13.93 in the year of 2005-06 ,which not good compared to all the previous years.
  • 174. ACP = 365
  • 175. Debtor turnover ratio
  • 178. The ratio indicates the period in which debt can be recovered. From the above table in the year 2005-06are 26.25 which is good, where it was decreased in the year 2008-09 ,which is not good.
  • 181.
  • 182. In this gross working capital of the firm, a major part is occupied by inventory and sundry debtors.
  • 183. The current ratio is maintained by the company is 2:1; the company exceed minimum current ratio at all the years statement.
  • 184. The quick asset ratio minimally maintained by the company are 1:1 , the company was satisfy this position up to 2010.
  • 185. The absolute liquid ratio is not satisfied position fluctuations are take place it is high and some at the years 2007 to 2008.
  • 186. Inventory turn ratio is well in satisfied position it is high at 2007-08. It is very poor at the current year of the study that is 1.64.
  • 187. In the debtor turn over ratio is also at well satisfied position it is highly obtain at the year of 2008-09. The current position is less than that of previous year that is 26.94.
  • 188. Average collection period high is at the 2006 and is poor at 2009.
  • 189. In order to achieve to the goals of the organization as whole and achievement of performance appraisal technique is very useful .
  • 190.
  • 191. The company spends reasonable amount on inventory so that it should be followed.
  • 192. The current ratio is maintained at a satisfied level. So that company peruses this much of current assets to meet the objective of the firm.
  • 193. Company is maintaining high quick assets to overcome current liabilities for better results.
  • 194. For better results company has to maintain cash inflows to overcome current liabilities of the firm.
  • 195. To gain good profits company has to improve the sales through inventory management.
  • 196. The company b should try to reduce external liabilities, having pay high EPS & DPS.
  • 197. The company should make arrangement of receivables and cash. <br />CONCLUSION<br />Working capital management analysis is an in depth analysis .,overages the entire financial management the with refers to integrated. The SUDHAAGRO OIL AND CHEMICALS is company, which give preference to the common mans privilege. Hence ,it is on integrated approach