report on working capital management

Chapter-1 Introduction of the Study (i) (ii) (iii (iii)) (iv (iv)

Objective of the study Signicance of the study Met Methodo hodolo logy gy to be used sed Li Liitat itatio ion n of the stud tudy

INSTITUTE OF ADVANCED MANAGEMENT AND RESEARCH GHAZIABAD [Page 1]

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Introduction of the study

The The project project underta undertaken ken is on “WORKI “WORKING NG CAPIT CAPITA AL MANAGE MANAGEMEN MENT T IN Tiu! "udha #air$ Mu%a&&arpur' Mu%a&&arpur' It descri(e a(out ho) ho) the copan$ ana*es its )orkin* Capita! and the +arious steps that re,uired in the ana*eent o& )orkin* capita!' Cash is the !i&e!ine o& a copan$' I& the !i&e!ine deteriorates- so does does the the cop copan$ an$.s .s a(i!i a(i!it$ t$ to &und &und opera operati tion on-- rein rein+e +est st and and eet eet capi capita ta!! re,uireent and pa$ents'

The Workin* Capita! Mana*eent re&ers to the ana*eent o& )orkin* capita!or precise precise!$ !$ to the ana*e ana*een entt o& current current assets' assets' A &ir.s &ir.s )orkin )orkin* * capita! capita! consists o& its in+est in current assets- )hich in&!uence short ter assets / cash and (ank (a!ance- in+entories- recei+a(!e and arketa(!e securities'

The The )orki )orkin* n* capita! capita! is an iport iportant ant $ardst $ardstick ick to easure easure the copan$ copan$.s .s operationa! and &inancia! e&&icienc$' e&&icie nc$' An$ copan$ shou!d ha+e a ri*ht aount o& cash and !ines !ines o& credit &or (usiness (usiness needs at a!! ties' This project project descri(e descri(e ho) the ana*eent o& )orkin* capita! takes p!ace at Tiu! "udha #air$ Mu%a&&arpur'















(i) Objective Of The Study The The o(je o(ject cti+ i+ee o& this this proj projec ectt )ere )ere ain ain!$ !$ to stud stud$ $ in+e in+ent ntor or$ $- cash cash re,uireent at Tiu! Tiu! "udha #air$ Mu%a&&arpur (ut there are soe ore and the$ are 01 

To &ind &ind out out a!! the the cop copon onen ents ts )hic )hich h are are cons consid idere ered d )hi! )hi!ee



ca!cu!atin* )orkin* capita! in the copan$ ' To &ind out the pro(!e are )hich a&&ect the credi(i!it$ o& )orkin*



capita!' 2o) this )orkin* capita! )ork is done is the strikin* &eature o&



$ topic' To sho) sho) the !i&e!in !i&e!inee (et)ee (et)een n an or*ani or*anisati sation on and its )orkin )orkin* *



strate*$' The ain purpose o& the stud$ is to render a (etter understandin understandin* *



o& the concept “Working Capital Management” To understand the p!annin* and ana*eent o& )orkin* capita! at



Tiu! "udha #air$ #air $ Mu%a&&arpur' To easure the &inancia! soundness o& the copan$ ($ )orkin*



capita!' To su**est )a$s &or (etter ana*eent and contro! o& )orkin* capita! at the concern'

















Throu*h this project )e )ou!d stud$ the +arious ethods o& the



)orkin* capita! ana*eent' The project )i!! (e a !earnin* o& p!annin* and &inancin* )orkin*



capita!' The project )ou!d a!so (e an e&&ecti+e too! &or credit po!icies o& the



copanies' This )i!! sho) di&&erent ethods o& ho!din* in+entor$ and dea!in*



)ith cash and recei+a(!es' This )i!! sho) the !i,uidit$ position o& the copan$ and a!so ho) do the$ aintain a particu!ar !i,uidit$ position'

(iii) Methodology used















need to ha+e a c!ear idea o& )hat is )orkin* capita!- ho) it is ana*ed in Tiu! Tiu! "udha #air$ Mu%a&&arpur- )hat are the di&&erent )a$s )a$s in )hic )hich h the the &ina &inanc ncin in* * o& )ork )orkin in* * capi capita! ta! is done done in the the 

copan$' The ana*eent o& )orkin* capita! in+o!+es ana*in* in+entoriesaccount recei+a(!e and pa$a(!e and cash' There&ore one a!so needs to ha+e ha+e a soun sound d kno) kno)!e !ed* d*ee a(ou a(outt cash cash ana ana*e *ee ent nt-- in+e in+ent ntor ories ies



ana*eent and recei+a(!es ana*eent' Then coes the &inancin* )orkin* capita! re,uireent- i'e' ho) the )orkin* )orkin* capita! capita! is &inanced&inanced- )hat are the +arious +arious source source throu*h throu*h



)hich it done' And- in the end- su**estion and recoendation on )a$s &or (etter ana*eent and contro! o& )orkin* capita! are pro+ided'

(iv) Limitation of The Study In the cop!etion o& the stud$ a$ di&&icu!ties had to con&ront )hich are *i+en (e!o)' 

The a+ai!a(i!it$ a+ai!a(i!it$ o& the tie tie )as ain enou*h enou*h to co+er the +ast depot depot topic such as )orkin* capita!' "o it is +er$ di&&icu!t to arri+e at an$



conc!usion a(so!ute!$' Lack o& printed ateria! on this topic'















As Tiu! "udha #air$ Mu%a&&arpur #oes not )ant to ra+ed its secrec$ so *atheration o& data &ro the )as +er$ di&&icu!t'

















Chapter -!

Introduction of the Organisation (i) (ii) (iii) (iv)

"rief #istory Copany $ $rrole %ecord &chieveent Operating 'i 'ivision

Introduction of the organisation

















#air$ techno!o*$ has (een de&ined as the (ranch o& dair$ science- )hich dea!s )ith the processin* o& i!k and the anu&acture o& i!k products on an industria! sca!e' In de+e!oped dair$in* countries such as 8"A )here as the rura! area )ere identi&ies &or i!k production- the ur(an centres )here se!ected &or the !ocation o& i!k processin* p!ants and products anu&acturin* &actories' &ac tories' These p!ants and &actories & actories their rapid!$ e3panded and odernised )ith ipro+ed achiner$ and e,uipents to secure secure the +ariou +ariouss ad+ant ad+anta*e a*ess o& !ar*e !ar*e sca!e sca!e produc productio tion' n' India India has hi*hes hi*hestt !i+estock popu!ation in the )or!d )ith 9:; o& (u&&a!os and 7:; o& )or!ds catt!e popu!ation' Most o& these are ar e i!k co)s and i!k (u&&a!os- India.s dair$ industries is considered as one o& the ost success&u!!$ de+e!oped industr$ &ro the post independence period' #air$ industr$ is doinated ($ the cooperati+e sector - a(out <:; o& the insta!!ed processin* capacit$ is in the cooperati+e sector'

#air$ cooperati+e account &or the ajor share o& processed !i,uid i!k arketed in India' India' Mi!k is processed processed and arketed arketed ($ 64: i!k producer.s producer.s cooperati+e cooperati+e unionunion)hich &ederate into 69 state cooperati+e i!k arketin* &ederations' Proinent state in producin* dair$ product are= 8ttar Pradesh- Punja(- 2ar$ana- RajasthanGujara Gujaratt- Maharas Maharashtr htraa- Andhr Andhraa Prades Pradeshh- Tai! ai! NaduNadu- and Karnat Karnataka' aka' In IndiaIndiadair$in* has (een practised as a rura! cotta*e industr$ since the reote past' The hi*h cost o& Mi!k production- pro(!e o& sanitation etc'- restricted the practice= and *radua!!$ the &ai!$ co) in the cit$ )as e!iinated and cit$ catt!e )ere a!! sent (ack to the Rura! areas'

The Indian dair$ industr$ has ade rapid pro*ress since independence' A !ar*e

















on !i+estock &arin*' India is endo)ed )ith rich &!ora B &auna B continues to (e +ita! +ita! a+enue a+enue &or ep!o$ ep!o$en entt and incoe incoe *enerat *eneration ion-- especia especia!!$ !!$ in rura! rura! areas' areas' India- )hich is <<; o& econoica!!$ acti+e popu!ation- en*a*ed in a*ricu!ture dri+es dri+es 56; o& Gross Gross #oesti #oesticc Produc Productt G#PD G#PD &ro &ro a*ricu a*ricu!tu !ture' re' The share share o& !i+estock product is estiated at 76; o& tota! a*ricu!ture sector'

SUDH DI!" I# I#DI A ne) or*anisation “ihar "tate co1operati+e i!k producer &ederation !iitedF cae into e3istence to ip!eent the project and the actua! &ie!d )ork )as taken up

















?' "tor "toree keep keepin in* * sec sectio tion' n' 9' Mark Market etin in* * sec secti tion on <' Adi Adini nistr strat ati+ i+ee secti section on''

(i) $rief History The Tirhut #u*dh 8tpadak "ahkari "an*h Ltd' )as re*istered under the ihar and Orissa state Cooperati+e societ$ Act- 6>59 in the $ear 6>>' Jora!!$ kno)n as Mu%a&&arpur #air$' Is the !ar*est i!k union in the eastern part o& India and Industria!!$ depri+ed re*ion- 6? th Hanuar$ 6>>6 )as the da$ )hen

















As per the !i+estock Census 7::5 Anne3 :5D- the i!k popu!ation ania! o& the i!k shed is around 66 !akhs consistin* o& soe :'> !akh !oca! co)sa(out ?'49 !akh cross (red co)s and soe 9'?9 !akh (u&&a!oes'

A*ricu!ture is the ainsta$ &or the ajorit$ o& the popu!ation in the i!k shed areaarea- )ith )ith dair$i dair$in* n* (ein* (ein* a su(sid su(sidiar$ iar$ occupatio occupation n &or a!! a!! and ar*ina! ar*ina! &arers' The i!k shed has a tota! nu(er 646 inha(ited +i!!a*es- thus it has co+ered on!$ a(out 6>; o& the +i!!a*es in the i!k shed area' The tota! #C" or*anised ($ union are 646: and o& these 6:75 are &unctiona!- )hich &ors <:; o& the or*anised societies'

The tota! i!k production in the i!k shed is estiated (ased on I"" sur+e$ 7::1:>!D at 79':4L k* P# )ith arketa(!e surp!us o& a(out 6<'5L k* P#' #urin #urin* * 7:: 7::1: 1:>>- unio union. n.ss i!k i!k proc procur ure een entt )as )as ?9'> ?9'>T T k* P# )hic )hich h is appro3iate!$ 7'9 o& arketa(!e surp!us' The i!k trade in the i!k shed is doinated ($ sa!! dairies in the unor*anised sector- se!!in* unprocessed !oose i!k'

InfrastructureThe i!k union has a rated capacit$ o& 6 LL Pd and 6: MT# po)der p!ant )hich is (ein* present!$ operated at ?; capacit$ uti!i%ation' The union has 4 chi! chi!!i !in* n* cent centre re at "ita "itaarh arhii 7:: 7:::: :: LP#D LP#D-- "heo "heoha harr ?:: ?::: : LP#D LP#D-- West Chaparan ?::: LP#D B East Chaparan 7:::: LP#D- "i)an ?::: LP#D-



















Parameters

2010-11 2010-11

2011-12 2011-12

2012-13

2013-14

2014-15

#C" Or*anised #C" &unctiona! Jarer e(er Woen e(er Pourer e(er Mi!k procureent "ocieties ::: K* P#D Other unions ::: K*

>5? 4?9 ?7749 44>4 77:

66:> 5? ?<>6: ?<4 5::6:

657? 96 975>9 >645 7>6>9

69:: ?9 <4:99 66<69 599?9

646: 6:75 46

44'44

4'?5

95'<4

?9'>

?'4

1

1

1

1

1

7:<7'4< ?745'<

6:9'<7 46<>'>9

9:'<9 <9:'56

77<'94 <5<7'79

1 59?'65

P#D Catt!e &eed so!d MTD $pass Je Jeed "a "a!e M MTD

The union se!!s !i,uid i!k in three +ariants +i%' "tandard i!k and Toned i!k and Ju!! Crea i!k in Mu%a&&arpur- "itaarhi- ettiah- "i)an- Motihari- and Gopa!*anj' The ajor copetitors in the or*ani%ed sector is Raj dair$ )ho ha+e a share o& 6::: LP#' #etai!s o& a+era*e i!k and i!k product is as under 0

Parameters

Li,uid Mi!k TLP#D in

2010-11 2010-11

2011-12 2011-12

2012-13

2013-14

2014-15

95 7:

99 >4

<7 6>

45 7

5 75



















pro&it@!oss "hare capita!

6??'6?

69:'9?

69?'96

694'4

)o,r&e" &op- Compan- Pro'ile

The union union has a+ai!ed &inancia! &inancia! assistance assistance o& Rs <:'7< <:'7< Lakh and Rs >:'6< >:'6< Lakh as !oan under OJ1II and OJ1III respecti+e!$ &ro N## and Rs' 6<4'<: Lakh )as re!eased as *rant under OJ1II@III' The union has re&unded !oan taken &ro N##'

$oard of Union&' The union has an e!ected (oard consistin* 6: e!ected &arers representati+es inc!udin* one !ad$ director- t)o noinees o& the state *o+ernent and &our o&&i o&&ici cia! a! noi noine nees es one one each each &ro &ro RC"RC"- N## N##-- Mi!k Mi!k1J 1Jed eder erat atio ion n and and Mana*in* #irector o& the unionD' The !ist and pro&i!e o& the e!ected (oard e(ers is &urnished in'

)once )o ncern rns& s&'' 6' The The copetito copetitors rs in the unor* unor*ani anised sed sector sector in the area ha+e ha+e stepped stepped in and started doin* i!k procureent' The !o$a!t$ o& the i!k producers durin* the &!ush and !ean season in i!k procureent is the issue o& concern'

694'4



















techno! techno!o*$ o*$ a+ai!a( a+ai!a(!e !e to rura! rura! produc producers@ ers@ ep!o$ ep!o$ee@ ee@ custo custoers@ ers@ supp!i supp!iers@ ers@ dea!er@ retai!er@ a!! one associates direct or indirect and so &urther ipro+e their socio1hea!th' The union has (een con&erred )ith “Nationa! Industries E3ce!!ence A)ardF ($ )or!d econoic process societ$ WEP"D Ne) #e!hi &or its contri(ution in "aan purashkar ($ Indian econoic econoic de+e!opent and research association IE#RAD Ne) #e!hi &or its si*ni&icant contri(ution to)ards socio1econoic *ro)th o& rura! India ($ pro+idin* rura! ep!o$ent' The ipact o& Tirhut #u*dh 8tpadak "hakari "an*h Liited- Mu%a&&arpur #air$- ihar- esta(!ished in the the re*io re*ionn- resu resu!te !ted d “Prid “Pridee o& Indi IndiaF aF a)ar a)ardd- Inte Interna rnati tion ona! a! Go!d Go!d "tar "tar Mi!!enniu A)ardA)ard- Kohinoor A)ard A)ard con&erred con&err ed to its ana*in* #irector'

Fig.2.2:- Milk Flow Process

Mi!k Jrae i!!a*e Mi!k Co1op "oc' Co!!ection centreD



















Consuer

STT+M+#T O( %!O$L+M Jina Jinanc ncia ia!! in&o in&or rati ation on pro+ pro+id ided ed in &inan &inancia cia!! state stateen entt is use&u use&u!! in (usi (usine ness ss decisions' 2o)e+er- it ust (e noted that &inancia! stateent are eans not to an end in these!+es' Thus the use o& &inancia! stateents in decision akin* is not a!)a$s eas$ o)in* to the &o!!o)in* pro(!es0 6' In +ie) o& the su suari ari%e %ed d natu nature re o& the in&o in&or rati ation on cont contai aine ned d in &inanc &inancia! ia! stateents- the$ need to (e ana!$%ed and interpreted ($ ean o& &inancia! ratios to ena(!e ena(!e ana*e ana*eent ent and stakeh stakeho!d o!ders ers underst understand and the the and ake ake )e!!1 )e!!1



















(inancial analysis Intro!ction Jinancia! ana*eent is the part o& the ana*eria! acti+it$- )hich is concerned

)ith p!annin*- and contro!!in* o& the &ir.s &inancia! resources' It is an app!ied (ranch o& *enera! ana*eent it has to p!an to or*anise and contro! the &inance o& the enterprise' Chie& duties o& &inancia! ana*eent are p!annin* and contro! o& corporate &inance' Jinancia! Jinancia! ana*eent ana*eent is ca!!ed upon to take three ajor decisions +i%' In+estent decision- Jinancia! decision- and Indi+idua! decision' Jinancia! ana*eent in+o!+es the ip!eentation o& these three decisions it is an inte*r inte*ra! a! part part o& o+era! o+era!!! ana*e ana*een entt rather rather than than ere!$ ere!$ a sta&& sta&& acti+it$ acti+it$ concerned )ith &und raisin* operations )ithout sound ana*eent o& &inancia! resources- (usiness cannot achie+e its o(jecti+e and a$ occur hea+$ !osses' Thus &inancia! ana*eent in char*e o& e&&icient p!annin* and contro! o& the c$c!e o& &!o) o& &unds in&!o) and out&!o) o& &unds' Fig 5.1:- "tr!ct!re o# Finance Management





















and scope o& account process are ana*eent o& &inancia! resources o& the union accurate and tie!$ pa$ent to societies and supp!ies- aintain proper (ook o& the union and ad+ise "udha dair$.s ana*eent o& the per&orance o& the union (ased on accountin*- records- &inance process inc!udes the accountin* &unctions o& pa$a(!es- Recei+a(!es- Cash Mana*eent- Asset Mana*eent- and Genera! Accountin* B Reportin* &unctions inc!udin* inc !udin* ud*etin*' It a!so co+ers Costin* acti+ities per&ored at "udha dair$' The audit ud*etin* and costin* process are per&ored ($ the interna! audit departent in c!oseness )ith account departent'

Financial Planning

A &ir needs to ana*e its resource e&&ecti+e!$ and e&&icient!$ to achie+e its





















(ud*et head description in a &or' "udha dair$ )ants to track and ip!eent (ud*etar$ contro!s )hi!e akin* e3penditure' "udha dair$ has !iited e3ercise to)ards a!!otent and structurin* o& cost codesu( code and purpose code accordin* operation c!assi&ic ation' As sa!es are ore or !ess re*u!ated- a ore s$ste orientation is adhered to in dra&tin* cost (ud*et' The code a!!ocation practice is on to a!!ot the codes (ased on direct direc t cost and to the su( di+ision or acti+it$ the codes are (oth a!! a!!otted to process and product' In case o& stores stock trans&er is (ooked to stock !ed*er code and su(se,uent issues and consuption are (ooked to cc@sc@pc' In case o& &inance and accounts- situation is di&&erent in cash )here the ta!!$ accounts and (ud*et code are soe and in circustance )here the$ are di&&erent' In case )here the$ are di&&erent the (ud*et accountin* s$ste codes are input a*ainst each account





















e3penditure is a!so *i+en ($ the account departent' The departent pro+ide the (ud*et a&ter appro+a! &ro the departenta! head' The LA departent in consu!tation )ith the respecti+e departent akes soe a!teration to the (ud*et aount' The LA departent than copi!es and conso!idate the departent (ud*et into "udha dair$ dair $ (ud*et- )hich is then resets to the ana*in* directorthe M# can re+ise the (ud*et (e&ore appro+in* it- to (e presented to the (oard' The (oard recoend s the (ud*et in the AGM "eekin* its appro+a!'

&osting ctivities

In "udha "udha dair$ it is done on $ear!$ $ear!$ (asis (asis &or the &inancia &inancia!! $ear' This This is too !iited to the product *roup costin*' As the +a!ue o& asset is not &ina!!$ kno)n production )ise process- depreciation is a+oided &or a!! a!!ocation to the product





















capita! o& the dair$ is 7-::-::: shares o& Rs' 6:: each and the capita! is Rs' 7::-::-:::'

)*are Capital Amo,nt (In R1.+ Table 5.!"# 1*are &apital

7!#!$

6ear )*are &a &apital

)agar 5977797777

),/*a /air$797797777

7!$#7!8 )agar 57777777

),/*a /air$7777777

I,'$P$',, I,'$P$',,I% I%

"hare capita! is the aount contri(uted ($ shareho!ders to)ards the copan$.s





















Jro the a(o+e ta(!e )e can kno) the actua! trend o& the reser+e res er+e and surp!us o& the copan$ &ir' For "agar air/"# air/"# Copare )ith (ase $ear indicates that the reser+e copan$

*radua!!$ increasin* )hich sho)s the stron* &inancia! position o& the copan$' Cop Copan$ an$.s .s reser reser+e +e and and surp surp!u !uss has has incr increas easee ($ 5<7' 5<7'94 94cr cr'' a&te a&terr one one $ear $ear copan$ is ana*in* )e!! )ith this source thus re!$ !ess on other &inancia! sources sources !ike share capita! and and !oans' We We easi!$ decided decided that that the "a*ar dair$ ana*eent +er$ )e!! in the &inance &actor- so that the$ ha+e +er$ *ood &inancia! position' For "!a air/"# air/"#

In the a(o+e a!ance sheet )e c!ear!$ see that "a*ar

reser+e and surp!us are increase hi*h!$ (ut the$ shou!d aintain consistent in a!! $ear' "o )e an$ coparison (et)een the t)o dair$ )e c!ear!$ decide that























%or ),/*a ),/*a 0air- "# in the a(o+e ta(!e )e c!ear!$ ention that ana*eent

shou!d *i+e !oans and ad+ances in e+er$ $ear and that )as increase in e+er$ $ear'

&" *  &' Amo,nt (in R1.+























Chapter -

 Theoretical Theoretical aspect of ,or-ing ,or-ing )apital )apital























Workin* capita! represents the position o& current assets &inanced ) it i t h ! on on * t er er  d e( e( t a nd nd e ,u ,u it it $' $' A n $ & ir i r  ) it it h c ur ur re r e nt nt r at at io io *reater than one has positi+e )orkin* capita!' Jor a *i+en !e+e! o& current curre nt !ia( !ia(i!itie i!itiess- the *rater the )ork )orkin* in* capita! o& the &ir- the ! ar a r *e *e r i s i ts t s c ur ur re r e nt nt r at at io i o ' L on on * t er er  d e( e( t a *r *r ee ee e e nt n t o &t &t en en contains pro+ision re,uirin* the &ir to aintain !e+e! o& )orkin*























pro*ress- &inished *oods- account recei+a(!es' In this tie *ap the or*anisation need additiona! aount o& capita! to run the or*anisation sooth!$' This capita! is kno)n as )orkin* capita!' It p!a$s a +ita! ro!e in keepin* the )hee!s o& the (usiness enterprise runnin*' Lack o& e&&icient e&&icient and e&&ecti+e uti!isation o& )orkin* capita! !eads to earn !o) rate o& return on capita! ep!o$ed'























iiD iiD

The The secon second d ipo iporta rtant nt o(j o(ject ecti+ i+iti ities es o& o& )ork )orkin in* * capi capita! ta! ana ana*e *ee ent nt is that the copan$ shou!d a!)a$s (e in a position to eet its current assets a+ai!a(!e )ith the &ir' ut aintain e3cess &unds i&

iii iiiDD

)orkin* capita! eans !ookin* o& &unds )ithout return' The The &ir &ir shou! shou!d d ana* ana*ee its curr curren entt asset assetss in such such a )a$ )a$ that that the the ar*ina! return on in+estent in these assets is not !ess than the cost o& capita! ep!o$ed'



































































































































































































































































































































































































report on working capital management

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