SYNOPSIS A STUDY ON WORKING CAPITAL MANAGEMENT

With Reference by SRI VIJAYA VISHAKA MILK PRODUCERS COMPANY LTD., VISAKHAPATNAM
A Project Report submitted in partial fulfillment of the

requirement for the award of the degree of

ADMINISTRATION by Andhra University

MASTER OF BUSINESS

Submitted by

I.SURESH KUMAR H.T.No.110282802054

Under the guidance of Smt. G.GRACE, M.B.A. Assistant Professor

DEPARTMENT OF MANAGEMENT STUDIES

Dr. C.S. RAO P.G. CENTRE SRI Y.N. COLLEGE
Accredited by NAAC with A Grade ( 3.40 - CGPA ) (Affiliated to Andhra University, Visakhapatnam) NARSAPUR 534 275, W.G. Dist., A.P. 2010 2012

PROJECT SYNOPSIS
Name: I. SURESH KUMAR Batch: 2010-2012 Regd.No: 110282802054

Project Company: Sri Vijaya Vishaka Milk Producers Co Ltd. Project Place: Visakhapatnam Project Duration: 8 WEEKS Project Title: WORKING CAPITAL MANAGEMENT

G. GRACE Assistant professor Dept. of Management of Studies

Dr.R.PARDHA SARADHI Associate professor (Head of the Dept) Dept. of Management Studies

THEORETICAL FRAME WORK OF WORKING CAPITAL

Traditionally the term working capital is defined in two ways, viz, gross working capital and net working capital. Gross working capital is equal to the total of all current assets (including Loans and advance') of a company. Net working capital is defined as the difference between gross working capital and current liabilities (including 'provisions'). Sometimes networking capital is also referred to as net 'net current assets'. Since both gross working capital and net working capital viewed in either sense denotes the position of current assets (or net current assets) as at the end of a company's accounting year. An important characteristic of current assets is conventionally considered to be their convertibility into cash within a single accounting year unlike fixed assets which provide the 'production capacity' for the manufacture of finished goods for sale. Current liabilities arise in the context of and hence are derived from current assets. Consequently, a lot of emphasis is traditionally placed on the current asset (which are valued on a conservative principle' of account) via-a-vis current liabilities. As a rule of thumb, the value of 2:1 for the ratio of current assets to current liabilities (popular know as current ratio) is considered to be satisfactory by the short-term creditors, the underlying logic being that a company can face the unlikely situation of meeting all of its current liabilities by liquidating its current assets even at half of their recorded value without any financial embarrassment Working capital can be viewed as the amount of the normal business operations of a company ranging from the procurement of raw materials, converting the same into finished products for sale and realizing cash along with profit from the accounts receivables that arise from the sale of finished goods on credit.

From the above definition, the need for working capital by a typical manufacturing and selling company becomes self-evident. In order to meet the production plans of a company some quantity of raw materials has to be maintained on the form of inventory as there will usually be a time lag from the moment of placing an order for raw materials with suppliers till the same are received by the company. Absence of adequate raw materials inventory may result in stoppage of production for want of raw materials.

The quantum of raw material inventory to be maintained by a company depends internally, on the availability of raw materials in case they are not indigenously available, the existence or otherwise of curbs by the government on imported raw materials, the lease time (the time gap between placing an order and receiving the supply of raw materials) for the procurement of raw materials, availability of bulk purchase discount offered by suppliers and inflationary pressure on the process of raw materials. Once the raw materials are put into the production process, the company has to incur manufacturing overheads. The nature of process technology adopted by the company is important in determining the time taken for converting raw materials into finished goods. Consequently, the company may have some amount of finished goods and the balance in the form of party finished Goods denoted by the term work in process.

The quantum of finished goods inventory a company carries is basically determined by the degree of accuracy on forecasting the sales demand, the ability to meet sudden and unforeseen spurts in the demand considered in conjunction with the production policy and the amenability of the product to become perishable in a relatively short period off time (as in the case of cigarettes and certain types of pharmaceuticals). The amount of finished goods inventory held by a company should normally provide its sales executives reasonable elbowroom for negotiating and clinching deals with new customers.

Unless a company enjoys special advantage over its competitors, it may have to honor the practices followed by the industry to which it belongs in the sale of finished goods. When a company gives credit period to its customers from the data of sale, the amount of sales value will become accounts receivable or sundry debtors, which get converted into cash only after the expiry of credit period. Further, a company usually maintains at all times some amount of liquid cash either on hand or at bank towards meeting cash payments arising out of transactions as also for providing adequate cushion towards meeting unanticipated demand for cash such as, for example, availing cash discount on purchases suddenly, introduced by the suppliers, before the generation of cash takes place in the normal course of business. One more point needs to be considered at this stage. Just as the company extends credit to its customers, in many instances it can receive credit from its suppliers of materials. Consequently, the drain on cash resources of the company can be delayed till the expiry of credit period. Until such time the amount will become 'Account Payable' of the company and as such provides a spontaneous source of credit. From this discussion it is evident how important a role working capital plays in supporting the normal business operations of a typical manufacturing and trading company.

OBJECTIVES OF THE STUDY

1. To study the financial performance of Sri Vijaya Visakha Milk Producers Company Ltd. 2. To analyse the changes in Working Capital. 3. To study the liquidity position of it by computing liquidity ratios. 4. To learn about the procedural aspects of working

management of Sri Vijaya Visakha Milk Producers Company Ltd. 5. To know about current assets (cash, receivables and inventory) the Sri Vijaya Visakha Milk Producers Company Ltd.

To examine the problems & prospects in management of working capital in Sri Vijaya Visakha Milk Producers Company Ltd., and offer suitable suggestions, if any.

METHODOLOGY
The data required for the study has been collected from both primary and secondary sources.

1.1 Primary Sources: Primary sources of data are obtained through direct discussions and interview of the officials in the finance department like managers and Staff. The information is collected term in consultations with officials in various departments of the organization.

1.2 Secondary Sources: Secondary sources of data are obtained from company's annual reports; administrative reports have also been referred for a better view of the finance and reporting. Text books and journals and internet web sites have been also refered for gathering information regarding company and industry.

FRAME WORK OF THE STUDY

CHAPTER 1: Deals with an introduction to working capital management. CHAPTER 2: Presents the Profile of Dairy Industry. CHAPTER 3: Covers the profile of Sri Vijaya Visakha Dairy. CHAPTER 4: Gives an analysis of working capital Management in Sri Vijaya Visakha Dairy. CHAPTER5: Presents the summary, findings & Suggestions.

PROFILE OF SRI VIJAYA VISAKHA DAIRY

Primarily this organization was registered under AP Co-op Societies Act 1964 as The Marginal Farmers and Agricultural Labour Co-op Milk Supply Society No. 376 MC, Visakhapatnam on 16.02.1973 as was in the same status from 16.02.1973 to 02.09.1980 Later, it was elevated as a District Federating Milk Union and was registered as The Visakhapatnam Milk Producers Co-op Union Ltd No 376 MC, Visakhapatnam on 03.09.1980 under AP Co-op Societies Act 1964 and was in the same status from 03.09.1980 to 10.11.1983 Later, it was elevated as a multi District Milk Federation Unit for Srikakulam, Vizianagaram and Visakhapatnam districts and was registered as Sri Vijaya Visakha Districts Milk producers Union Ltd No.376 MC, Visakhapatnam on 11.11.1983 under the AP Co-op Societies Act 1964 and was in the same status from 11.11.1983 to 07.07.1999.

Later after enactment of Andhra Pradesh Mutually Aided Cooperative Societies Act, 1995, Government of Andhra Pradesh encouraged all Co-operatives to get converted into Mutually Aided Cooperative Societies and accordingly our Dairy was converted and registered as Sri Vijaya Visakha District Mutually Aided Co-operative Union Ltd. No AMC/VSP/DCO/1999 (Visakha Co-op Dairy) on 08.07.1999 and it was in the same status from 08.08.1999 to 05.01.2006. This co-op Dairy extended its business activities to other states viz. West Bengal, Orissa, Bihar, Chattisgarh.

Later, the Government of India enacted Producers Companies Act 2002 as per chapter IX A of companies Act 1956 and enacted a provision under Section 581-J-(5) for registration as Producers Company to those co-operatives whose activities are extended to other states either directly or indirectly.

Since our Visakha Co-op Dairy has been on active business lines with other States Viz. West Bengal, Orissa, Bihar, Chattisgarh. Our Cooperative Diary was registered as Sri Vijaya Visakha Districts Milk producers Company Ltd No. 4878/05-2006 on 06.01.2006 by Registrar of Companies, Andhra Pradesh, Hyderabad. Under Section 581-M of Producers Companies Act (Companies Act 1956) all fiscal and other concessions licenses, benefits, privileges and exemptions granted to the cooperative societies is connected with affairs and business of the Co-op societies under any law for the time being in force shall be deemed to have granted to Producers Company. Thus, it is a New Generic Co-operative Organization and all its privileges admissible to the Co-operative Societies carried on. The operational areas of the union comprise of five districts viz., Srikakulam, Vijayanagaram, Visakhapatnam, East Godavari and West Godavari of Andhra Pradesh. Visakha Dairy has a total manpower about 910. The union is also providing indirect employment to another 500 personnel in the Dairy. The present, visakha Dairy has a capacity of processing 5,00,000 liters of milk per day, 13 Mt. of drying (milk powder) and 12 Mt. of Ghee manufacturing capacity per day. Visakha Dairy manufactures various varieties of milk products like milk in puches, white Butter, Ghee, Skimmed milk powder, Curd Spiced Butter milk, Lassi, Indigenous milk products like Parmer, Doodhpeda, Burfi, Milk cake and Long life. Visakha Dairy has an advanced milk processing and packing technology in Tetra Brick, fine packages with a capacity of 100000 liters per a day. Visakha Dairy is committed to provide hygienic and nutritious milk and milk products to satisfy customer and to improve the number of milk producers. The milk lasts its longvits for 1month &3 months without adding any preservation.

FINDINGS

> The current asset increased from 50.93 crores in 2005-06 to 105.4 crores in 2009-10. > The current liabilities of company increased from 17.22 crores in200506 to 54.72 crores in 2009-10.

> From the analysis the current ratios is within the standard norm of 2:1 during the period of study denoting satisfactory liquidity position of the firm. > It is observed that the quick ratio of the firm in above the standard norm of 1:1 i.e., 1:49 in 2009-10. > The cash balance increased from 6.37 crores in 2005-06 to 16.26 crores in 2009-10 it constituted 16% of the current assets in 2009-10. > The company is maintaining a very high debtors turnover ratio due to strict credit policy denoting efficient debtors/receivables management. > The stock or inventory turnover ratio increased from 9.89 in 2005-06 to 16.55 indicating efficient inventory management. > The working capital increased from 33.68 crores in 2005-06 to 50.88 crores in 2009-10 this indicates the smooth functioning of the organization.

SUGGESTIONS
> The liquidity is quite good, hence it is advisable to divert its cash in other investments

> Necessary steps are be taken in keeping inventory under control

> New and innovative techniques of sales are to be introduced in order to improve sales revenue.

> A new policy in promoting its sale or bi-products is to be adopted.

> The company has to maintain adequate cash balances to meet its current obligations.

> Inventory handling system should be effective so as to optimize the investment in inventories to the maximum extent since inventories are occupying maximum amount of the working capital.