project

Working capital study CAICO ltd.

1. INTRODUCTION

The Canning Industries Cochin Ltd, was floated at Thrissur in March 1947 with an authorised

capital of Rs. 5 Lakhs .Today CAICO is a well-known popular brand with a diverse product range that

includes Canned fruits and vegetables, Canned and frozen Sea foods, Beverages, Jams, Pickles, Sauces

etc. In the course of its career CAICO has won many laurels for itself including the first Prize for

Canned fruits at the national competition conducted by the food department, Government of India and

the 1982 State Award for outstanding export performance.

CAICO has proudly served the nation these years. It has provided more than 500 jobs and earns

substantial foreign exchange annually. CAICO has always been pledged to the good of the nation and

people everywhere.

SCMS-COCHIN 1 2010-2012


2. PROFILE OF THE ENTERPRISE

The Canning Industries Cochin Ltd is established in March 1947. Mr. O.T.Vareed

had exported the pineapple in various places in India like Mumbai, Chennai etc. Later

these exports began to decline due to long distance and perishability of pineapples. Then

Mr.Vareed along with Mr. M.I.David thought about canning of pineapples. The canning

of products will help the firm to protect the products from damaging. After, initial trails

at "otees orchards and nurseries", the caning industries Cochin Ltd was floated at Thrissur,

in March 1947 with an authorized capital of 5lakhs.

The initial years were hard and the company had to struggle for its working capital. In

1950, the company was given on a five year lease to a well-known Bombay based concern.

This was however, an excellent opportunity to gain practical experience. And at the end of the

lease period, canning industries decided to take on the responsibility of producing and marketing

its own canned products under the brand name "CAICO". Soon the company was able to

establish it brand image in the market and is registered as approved supplier to the Indian Army.

Indian army followed a centralized purchasing system for purchasing the food, which was

given to the soldiers in the border of the country. This would help CAICO to be a good

supplier to the Indian army in the form of canned fruits and vegetables.

By the late 1960, when the company had earned substantial profits and doubled

its capital base, it entered the fisheries filed with a factory at Cochin. A third factory with the

capacity to handle both fruits and sea foods was set up at Mangalore. Since then the

company had grown further, increasing its turnover considerably. Today CAICO is a well-

known and popular brand with a diverse product range that includes canned fruits and

vegetables, canned and frozen sea food, Beverages, jams, Pickles, sauces, etc.



In the course of its career CAICO has won many laurels for itself including

the first prize for canned Fruits at the national competition conducted by the food Department

Government of India and the 1982 State Award for outstanding export performance in the

processed food industry. CAICO Chief executive Rev. M.I. David has been awarded has

been awarded the Ksheshalkar Memorial Gold Medal for his contribution to the food

preservation industry. In 1981 - 82, the CAICO has won the certificate of the small scale

industries in Kerala.

CAICO has proudly served the nation these years. It has provided more than 500

jobs and earns substantial foreign exchange annually. CAICO has always been pledged to the

good of the nation and people everywhere. At that time, some marketing experts said that, the

canning industries Cochin Ltd. does not sell its products directly but it markets quick sales

under the famous trade mark "CAICO".

COMPANY AT A GLANCE

Name CAICO

Registered Office Caico, The Canning Industries Cochin

Ltd, Valarkavu, Thrissur, Kerala.

E-mail [email protected]

Incorporation 25th March 1947

Capital 24 lakhs

EMPLOYEE DETAILS

Office staffs: 12 (4 of them are females)

Workers: 47 (45 of them are females)



HEAD OFFICE AND BRANCHES

THE CANNING INDUSTRIES COCHIN LTD, has its registered office in

Valarkavu, with in 5Kms radius from Thrissur town. The Head Office has a factory adjacent to

it, which produce canned fruits and vegetable products. The company has two branches,

one at Cochin and another at Mangalore. This branch is engaged in producing frozen marine

products.

MANAGEMENT AND ADMINISTRATION

The company is managed by the Board of Directors, Mr. P.D Jose, being the

chairman of the company. Mr. P.T Thomas, Manager of the company is looking after the day

today affairs of the company and also providing and helping hand to the chairman in

formulating and implementing various decision of Board of directors. The company has

production, finance, marketing department and which is headed by the respective departmental

manager.

BOARD OF DIRECTORS

1. Sri. P.D. JOSE, B.A B.L

(CHAIRMAN)

Advocate

East Fort, Thrissur-5.

2. Sri. P.V DAVIS, B.A

Parappilly House

East Fort, Thrissur-5

3. Dr. M.K AELIAS

Valiaveedu

College Road, Thrissur-1

4. Sri. CHIRIANKANDATH

PALU JOSE

Pipe Line Road

Mylipadam, Thrissur -20

5. Sri. JIJU EMMATTY

Emmatty House, College Road,

Thrissur- 20

6. Sri. JOY GEORGE

Chiriyankandath House,

Mylipadam House, Thrissur –

20.

7. Sri. A.J. PAVOO

Anchery House,



Mission Quarters, Thrissur -5

BANKERS

CANARA BANK

SOUTH INDIAN BANK

AUDITORS

M/S. ABRAHAM & JOSE

Chartered Accountants

Thrissur

LEGAL ADVISORS

1. Mr. Sivi Jose, B.A., LL.B

Advocate

Poothokaran house, East Fort,

Thrissur

2. Mr. Regi Davis, B.A., LL.B.

Advocate

Parappilly House, East Fort,

Thrissur

3. Mr. Jacob O. Raphel

Advocate

Latin Church Road, Thrissur

MAIN PRODUCTS OF CAICO

A product is the fundamental feature that determines the firm’s success or

failure. It is medium through which the firm attains consumer’s satisfaction and profit

maximization.

CAICO Ltd occupies a prominent Position catering to the needs of the lower

class and middle class people, who occupy a part of the total population in Kerala.



The product range of the company consist of Jams, pickles, sauces, squashes,

Mango pulp, Mango bar and soft drinks and sea foods.

PRODUCTS OFFERED


PRODUCT RANGE UNIT PACKING

SQUASH Pineapple

Orange crush

Mango

Limejuice cordial

700ml & 500ml

700ml

700ml

700ml CRUSH Grape 500ml

SAUCES Tomato sauce

Tomato Ketchup

Chilli sauce

Soya bean sauce

lKg,500g,200g

200g

200g, 700g

200g, 700g PICKLES Tender Mango

Mango

Lime

500g, 300g, 150g

500g, 300g, I50g ,100g

500g, 300g, 150g JAM Pineapple

Mixed fruit jam

4kg, lkg,500g,200g,100g

4kg, lkg,500g,200g,100g

4kg, lkg,500g,200g,100g SOFT DRINK

CONCENTRATE

Pineapple

Orange

200ml

200ml

SOFTDRINKS Mango 300 ml

MANGO BAR 50g, 100g

SEA FOODS


3. ORGANISATION CHART


Board of Directors

SalesManager

FinanceManager

ProductionManager

General Manager

Branch Manager

Worker

Branch Manager

Sales Man

Assistant Sales Manager

Branch Manager

Team

Office Staff

Operator cum junior

Accountant

Technologist

Supervisor


4. FINANCE DEPARTMENT AND FUNCTIONS OF FINANCE

MANAGER

The financial and accounting functions are performed by the finance and accounts departments.

It determines sources, quantity and form of funds together with efficient management of funds.

Some important functions of finance manager are these;

1. Estimation of capital requirements: A finance manager has to make estimation with regards

to capital requirements of the company. This will depend upon expected costs and profits and

future programmes and policies of a concern. Estimations have to be made in an adequate

manner which increases earning capacity of enterprise.

2. Determination of capital composition: Once the estimation have been made, the capital

structure have to be decided. This involves short- term and long- term debt equity analysis.

This will depend upon the proportion of equity capital a company is possessing and additional

funds which have to be raised from outside parties.

3. Choice of sources of funds: For additional funds to be procured, a company has many choices

like-

a. Issue of shares and debentures

b. Loans to be taken from banks and financial institutions

c. Public deposits to be drawn like in form of bonds.



Choice of factor will depend on relative merits and demerits of each source and period of

financing.

4. Investment of funds: The finance manager has to decide to allocate funds into profitable

ventures so that there is safety on investment and regular returns is possible.

5. Disposal of surplus: The net profits decision have to be made by the finance manager. This

can be done in two ways:

a. Dividend declaration - It includes identifying the rate of dividends and other benefits

like bonus.

b. Retained profits - The volume has to be decided which will depend upon expansional,

innovational, diversification plans of the company.

6. Management of cash: Finance manager has to make decisions with regards to cash

management. Cash is required for many purposes like payment of wages and salaries, payment

of electricity and water bills, payment to creditors, meeting current liabilities, maintainance of

enough stock, purchase of raw materials, etc.

7. Financial controls: The finance manager has not only to plan, procure and utilize the funds

but he also has to exercise control over finances. This can be done through many techniques

like ratio analysis, financial forecasting, cost and profit control, etc.



5. SOURCES OF FUNDS

Being a public limited company, the canning industries Cochin Ltd, has its capital structure.

CAPITAL STUCTURE OF CAICO

SOURCES Rs

Equity Share Capital 24,00,000

Retained Earning 30,00,000

Secure Loan from Canara Bank 38,264

TOTAL 54,38,264

The authorized share capital of the company is Rs.60, 00,000 divided into 2, 00,000

equity share of Rs.30 each with a power to increase or reduce the capital in accordance with

the provisions of the Companies Act, 1956. Issued and subscribed capital is Rs.24, 00, 000

i.e. 80,000 equity share of Rs.30 each.



6. WORKING CAPITAL

WORKING CAPITAL MANAGEMENT:

Working Capital Management refers to the planning, execution and control of investment in

and financing of working capital. Working capital management is concerned with the problems that

arise in attempting to manage the current assets, the current liabilities and the inter-relationships that

exist between them. The basic ingredients of the theory of working capital management may be said to

include its definition, need, optimum level of current assets, the trade-off between profitability and

risk associated with a firm's level of current assets and current liabilities, financing-mix strategies and

so on.

AIMS OF WORKING CAPITAL MANAGEMENT:

1. The goal of working capital management is to manage the firm’s current assets and current

liabilities in such a way that a satisfactory level of working capital is maintained, to meet the

short-term obligations as and when they arise.

2. A significant objective of working capital management is to ensure short-term liquidity and

to see that profitability is not affected by the way current assets and current liabilities are

managed.



3. The main theme of working capital management is the interaction between the current

assets and the current liabilities and arrives at the optimum level of both. The optimum

level thus arrived must have provision for contingencies.

4. Trade-off between Profitability and Risk: The level of a firm’s Net working capital has a

bearing on its profitability as well as risk. The term profitability used in this context is

measured by profits after expenses. The term risk is defined as the probability that a firm will

become technically insolvent so that it will not be able to meet its obligations when they

become due for payment. The risk of becoming technically insolvent is measured using Net

Working Capital. The greater the net working capital, the more liquid the firm is and therefore

the less likelihood of it becoming technically insolvent. The relationship between liquidity,

net working capital and risk is such that if either net working capital or liquidity

increases, the firm's risk decreases.

5. Trade-off: If a firm wants to increase its profits, it must also increase its risk. Inversely, if it

decreases risk, its profitability too tends to decrease. The trade-off between these variables is

that regardless of how the firm increases its profitability through the manipulation of working

capital, the consequence is a corresponding increase in risk as measured by the level of Net

working capital.

6. Apart from the profitability – risk – trade-off, another important ingredient of the theory of

working capital management is determining the financing mix. Financing mix refers to the

proportion of current assets that would be financed by current liabilities and by long-term

resources.

PERMANENT & TEMPORARY WORKING CAPITAL

There are 2 kinds of working capital. These are



i. Permanent Working capital and

ii. Temporary Working capital.



1. PERMANENT WORKING CAPITAL

Permanent working capital refers to the minimum amount of all current assets that is required

at all times to ensure a minimum level of uninterrupted business operations. Some minimum

amount of raw materials, work-in-progress, bank balance, finished goods etc., a business has to

carry all the time irrespective of the level of manufacturing or marketing operations. This level

of working capital is referred to as core working capital or core current assets. But the level of

core current assets is not a constant sum at all the times. For a growing business the permanent

working capital will be rising, for a declining business it will be decreasing and for a stable

business it will almost remain the same with few variations. So, permanent working capital is

perennially needed one though not fixed in volume. This part of the working capital being a

permanent investment needs to be financed through long-term funds.

2. TEMPORARY WORKING CAPITAL

The temporary or varying working capital varies with the volume of operations. It fluctuates

with the scale of operations. This is the additional working capital required from time to time

over and above the permanent or fixed working capital. During seasons, more production/sales

take place resulting in larger working capital needs. The reverse is true during off-seasons. As

seasons vary, temporary working capital requirement moves up and down. Temporary working

capital can be financed through short term funds like current liabilities. When the level of

temporary working capital moves up, the business might use short-term funds and when the

level for temporary working capital recedes, the business may retire its short-term loans.

Both permanent and temporary working capitals are necessary to facilitate the sales and production

process through operating cycle.



DETERMINANTS OF WORKING CAPITAL

The level of working capital is influenced by many factors. They are:

1. NATURE OF BUSINESS

This is one of the main factors. Usually in trading businesses the working capital needs are

higher as most of their investment is concentrated in stock or inventory. Manufacturing

businesses also need a good amount of working capital to meet their production requirements.

Whereas, those companies that sell services and not goods, on a cash basis require least

working capital because there is no requirement on their part to maintain heavy inventories.

2. SIZE OF BUSINESS

Size of business is another influencing factor. As size increases, the working capital

requirement is also more and vice versa.

3. CREDIT TERMS / CREDIT POLICY

Credit terms greatly influence working capital needs. If terms are:

i. buy on credit and sell by cash, working capital is lower

ii. buy on credit and sell on credit, working capital is medium

iii. buy on cash and sell on cash, working capital is medium

iv. buy on cash and sell on credit, working capital is higher.



Prevailing trade practices and changing economic condition do generally exert greater

influence on the credit policy of concern.

a. A liberal credit policy if adopted more trade debtors would result and when the same is

tightened, size of debtors gets slim.

b. Credit periods also influence the size and composition of working capital. When

longer credit period is allowed to debtors as against the one extended to the firm by its

creditors, more working capital is needed and vice versa.

c. Collection policy is another influencing factor. A stringent collection policy might not

only deter away some credit customers, but also force the existing customers to be

prompt in settling dues resulting in lower level of working capital. The opposite holds

well with a liberal collection policy.

d. Collection procedure also influences the working capital needs. A decentralized

collection of dues from customers and centralized payments to suppliers shall reduce

the size of working capital. Centralized collections and centralized payments would

lead to moderate level of working capital. But with centralized collections and

decentralized payments, the working capital need would be the highest.

8. SEASONALITY



a. Seasonality of Production

Agriculture and food processing and preservation industries have a seasonal

production. During seasons, when production activities are in their peak, working

capital need is high.

b. Seasonality in supply of raw materials

This also affects the size of working capital. Industries that use raw materials which are

available during seasons only, have to buy and stock those raw materials. They cannot

afford to buy these items in a phased way, since either supplies would get reduced or

prices would be higher. Also, from the point of view of quality of raw materials, it pays

to buy in bulk during the seasons. Hence the high level of working capital needed when

season exists for raw materials.

c. Seasonality of demand for finished goods

In case of products like umbrella, rain-coats and other seasonal items, the demand is

high during peak seasons. But the production of these items has to be continuous

throughout the year to meet the high demand during peak seasons. Thus, working

capital requirement would be higher.

9. TRADE CYCLE

Trade cycle refers to the periodic turns in business opportunities from extremely peak levels,

via a slackening to extremely tough levels and from there, via a recovery phase to peak levels,

thus completing a business cycle. There are 4 phases of trade cycle.



a. Boom Period – more business, more production, more working capital.

b. Depression period – less business, less production, less working capital.

c. Recession period – slackening business, stock pile-up, more working capital.

d. Recovery period – recouping business, stock speedily converts to sales, less working

capital.

10. INFLATION

Under inflationary conditions generally working capital increases, since with rising prices

demand reduces resulting in stock pile-up and consequent increase in working capital.

11. PRODUCTION CYCLE

The time lapse between feeding of raw material into the machine and obtaining the finished

goods out from the machine is what is described as the length of manufacturing process. It is

otherwise known as conversion time. Longer this time period, higher is the volume and value

of work-in-progress and hence higher the requirement of working capital and vice versa.

12. SYSTEM OF PRODUCTION PROCESS

If capital intensive, high-technology automated system is adopted for production, more

investment in fixed assets and less investment in current assets are involved. Also, the

conversion time is likely to be lower, resulting in further drop in the level of working capital.

On the other hand, if labor intensive technology is adopted, less investment in fixed assets and

more investment in current assets which would lead to higher requirement of working capital.

13. GROWTH AND EXPANSION PLANS

Growth and expansion industries need more working capital than those that are static.



Apart from the above factors, dividend policy, depreciation policy, price level changes, operating

efficiency and government regulations also influence the level and the size of working capital.



OPERATING CYCLE

Working capital is also known as revolving capital and a circular path of

conversion/reconversion takes place. This revolution of cycle is called as the operating cycle. Let us

consider an example to better understand operating cycle. A person starts a business with an initial

investment. With credit extended by expense creditors, he starts production process. Goods of varying

levels of finish results, and thus called as work-in-progress. Once complete processing is done, it is

called as finished goods. Until these goods are sold, they remain in stock. Sales may be for cash and/or

credit basis. The business person needs to wait a little to realize cash from credit customers. The

realized cash is used to pay creditors. But he needs to maintain cash balance for day-to-day operations

as well as for meeting sudden spurt in payment obligations accompanied by sluggish cash collections

from debtors. Thus a revolution or cycle from cash to raw materials to Work-in-Progress, to finished

goods, to debtors, and back to cash takes place. This revolution is called as operating cycle.

Thus, we can say that the term operating cycle, otherwise called as cash cycle refers to the length of

time necessary to complete the following cycle of events:

1. Conversion of cash into inventory

2. Conversion of inventory into debtors

3. Conversion of debtors into cash



Stage 1: Cash to Inventory – In this stage, cash first gets converted into raw materials, then work-in-

progress and then finished goods in a typical manufacturing concern. As regards non-manufacturing

concerns, when the goods are purchased, cash gets converted into inventory.

Stage 2: Inventory to Debtors – The inventory thus produced or purchased, gets converted into

debtors or receivables upon credit sales.

Stage 3: The debtors or accounts receivables get in turn converted back into cash when they make

payment.

LENGTH OF OPERATING CYCLE

When raw materials remain in store pending issue for production for a less duration, when raw

materials gets converted into WIP in a short duration, when finished goods remain in warehouse

pending for sales for a short duration only, and when cash realizations out of sales are made quickly

and finally when payment to creditors is made slowly, the operating cycle would be smaller and

consequently the working capital will also be reasonable. Thus shorter duration of operating cycle

indicates an efficient working capital management.



7. ESTIMATION OF WORKING CAPITAL

The most appropriate method of calculating the working capital needs of a firm is the concept

of operating cycle. However, a number of other methods may be used to determine working

capital needs in practice.

Current assets holding period: To estimate working capital requirements on the basis of

average holding period of current assets and relating them to costs based o the

company’s experience in previous years

Ratio of sales: To estimate working capital as a ratio of sales on the assumption that

current assets change with sales.

Ratio of fixed investment: To estimate working capital requirements as a percentage of

fixed investment.

Items Amount

Raw materials:Opening stock 26,07,952

Purchases 68,77,731Closing stock 33,91,405

60,94,278Direct expenses: 66,16,862Finished goods:

Opening stock 8,93,711Closing stock 10,60,755

16,70,44Operating expenses: 51,96,863Debtors: 13,23,667Creditors: 7,85,697Sales: 1,02,51,235



CALCULATING OPERATING CYCLE

(Values are taken from the above table and attached annual report)

R = Average stock of raw materials and stores /Average raw materials and stores consumption per day

= (2999678.5 /6094278)*360 = 177 days

F = Average finished stock inventory / Average cost of goods sold per day

= (977233/12544096)*360 = 28 days

D = Average debtors / Average Credit Sales per day

= (13,23,667/1,02,51,235)*360 = 47 days

C = Average trade Creditors / Average Credit Purchases per day

= (785697/6877731)*360 =41 days

OPERATING CYCLE PERIOD= R+F+D-C = 177 +28 +47 -41

= 211 days

Number of operating cycles in an year = 360/211 =1.7

AMOUNT OF WORKING CAPITAL REQUIRED = TOTAL OPERATION COST /NO: OF

OPERATING CYCLES = 51,96,863/1.7

= Rs 30,39,101.17

Since this is a food industry, the raw materials may not be available throughout the year.

Different products are made at different time of the year and hence the raw materials are bought at



some time and products are sold at a different period of time. So, the operating cycle or realisation

period is quite lengthy. CAICO keeps apart enough money for the working capital requirements.

8. FINDINGS AND SUGGESTIONS

Most of customers had recognized that the price charged is reasonable.

Variety of flavour of CAICO products is frequently available in market.

Taste is given priority than price while going of purchasing materials.

The raw material of CAICO depends of season.

The modern equipment is necessary for increasing the overall productivity of the concern.

Though investment in different fields is not that easy, the concern can of course compensate

the short coming of the current line of business. Thus the loss of rising due to non-

utilization of plant facilities at OFF season can be managed to an extent.

Use of more powerful and modern equipment can reduce wastage of materials in

transportation of material form one machine to another. It will reduce the production time

and efforts. This will increase the overall productivity of the concern.

They are buying the fruits and vegetables and converting them into pulps by themselves.

This is a tedious task and it makes the operating cycle longer. If they are buying pulp

directly from vendors and could preserve them for the whole year, it reduces the cost of

production and reduces the operating cycle.

Setting up units in places where raw materials are available in plenty and converting them into

pulps there it can reduce the cost of production to a great extent.



9. CONCLUSION

As per the modern management concept production is one of the most pillars in the

process of building an affective and successful business organization with continuous

growth. The study was done to study the working of CAICO Ltd. The study helped us to

understand the CAICO products and it gives a good knowledge about how company

operates.

In this era of globalization and liberalization the key word to be kept in mind is "The best

and only best will survive". Giving good quality products will help, but only to as extend. The

firm must also communicate regarding their products and Services. This is where we feel

CAICO lack competence. The quality of products is excellent, but whether competitors go for

extensive advertisement giving importance to various media, CAICO says back. So if the

company wants to attract their customers, it should develop better advertisement strategies.

Also they are buying the fruits and vegetables and converting them into pulps by themselves.

This is a tedious task and it makes the operating cycle longer. If they are buying pulp directly

from vendors and could preserve them for the whole year, it reduces the cost of production and

reduces the operating cycle.



10. BIBLIOGRAPHY

I.M PANDEY, Financial management, New Delhi: Vikas publishing house pvt ltd,

tenth edition

Annual report of CAICO ltd 2010.

http://www.caico.in/index.html

http://www.tutorsonnet.com/homework_help/working_capital_management/

operating_cycle_assignment_help_online_tutoring.htm

http://www.ehow.com/how_7443861_calculate-operating-cycle.html



11. APPENDICES


project

Documents

today caico

career caico

working capital study

canned products

caico chief executive

canning of products

caning industries cochin

administrationthe company