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A STUDY ON

WORKING CAPITAL MANAGEMENT

With reference to

PARRY S SUGAR INDUSTRIES LIMITED,

SANKILI

A project report submitted to JNTU kakinada, in partial fulfillment for the award ofthe degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted by

CH.SANYASI RAO

(Regd. No. 12331E0025)

Under the guidance of

Mr.P.V.S.SIVA KUMAR

M.B.A,M.phil,NET,(Ph.d) Assistant professor

SCHOOL OF MANAGEMENT STUDIES

M.V.G.R. COLLEGE OF ENGINEERING

(Approved by AICTE, New Delhi,and permanetly affiliated to JNTU,kakinada)

Accredited by NBA,NAAC with A G rade of UGC,

Chintalavalasa,VIZIANAGARAM-535005,A.P

2012-2014


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(DECLARATION)I hereby declare that the project titled WORKING CAPITAL

MANAGEMENT with reference to PARRYS SUGAR INDUSTRIES

LTD.(Formerly GMR Industries Ltd) Sugar division, Sankili is original and has been

carried out by me towards partial fulfillment for the award of the degree in

MASTER OF BUSINESS ADMINISTRATION submitted to the Andhra

University. The findings of the report are based on the information collected by me

during this study.

Date:

Place: (CH.SANYASI RAO)


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ACKNOWLEDGEMENT

I take this opportunity to express my grateful thanks to all those who have

Contributed towards this work and without whom these works have not taken its

Present shape. I would like to thank Mr. SRINIBAS PANDA finance manager, for

Giving me a golden opportunity for doing the dissertation work as per the

specialization area.

I express my sincere gratitude to my project guide and other employees of

PARRYS SUGAR INDUSTRIES LTD, who extended their cooperation and timely

support and providing necessary data for early completion of my project work.

I am thankful to my beloved professor & HOD Dr.K.S.S Rama Raju, and other

Faculty members for their constant support, help, encouragement, co-operation

and valuable suggestions throughout the progress of the report.

I would also like to extend my thanks to Mr. P.V.S. SIVA KUMAR, Assistant

professor who always helped in the true sense to solve my queries and always

guided me at each step during the dissertation period for the successfulcompletion of my project.

I am highly indebted to the staff of our central library from where I have drawn

more material in relation to my project work.

Finally, a special thanks to my family members and friends for their constant

support, without which I would not have been able to complete my report.


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TABLE OF CONTENTS

Page No

CHAPTER 1: INTRODUCTION 7-19

Sugar Industry in India Need for the Study Objectives of the Study Methodology Limitations of the Study Frame work of the Study

CHAPTER 2: INDUSTRY PROFILE 20-46

World sugar production Indian sugar industry-Analysis and No. of sugar factories in India Sugar industry cycle Major reasons for low productivity

Indian Govt. on sugar industry Andhrapradesh sugar industry

CHAPTER 3: COMPANY PROFILE 47-61

Profile of Pa rry s industries Mission and Objectives Financial structure

Technological Achievements Major awards Future Plans


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CHAPTER 4: THEORITICAL ASPECTS OF WORKING

CAPITAL MANAGEMENT 62-88

Meaning of Working Capital Management Nature of Working Capital Management Need of Working Capital Management Objectives of Working Capital Management Importance of Working Capital Management Kinds of Working Capital Management Management of Working Capital Management Statement of Working Capital Management

Factors of Working Capital Management Financial Analysis Ratio Analysis

CHAPTER 5: FINANCIAL ANALYSIS OF PARRY S INDUSTRIES 89-103

Analysis and Interpretation from Company

Balance sheets from 2008-2013

CHAPTER 6: SUMMARY AND SUGGESTIONS 104-109

Summary Findings Suggestions References


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PREFACE

Working capital management is the process of planning and controlling the level

and mixing of the current assets of the firm as well as financing these specially

working capital management requires financial manager to decide what quantities of

cash other liquid assets, account receivables and inventories the firm will hold at any

point of time.

In addition to financial manager must decide how the current assets are financed.

Finally choices include the mix of current as well as long term liabilities.

The term working capital refers to the amount of capital which is readily available

to an organization. That is working capital is the difference between resources in cash

or readily convertible into cash ( current assets ) and organizational commitments for

which will soon be required ( current liabilities). Current assets are resources, which

are in cash or will soon be converted into cash in the ordinary course of business .

Current liabilities are commitments, which will soon require cash settlement in the

ordinary course of business.

The goal of working capital management is to manage the current assets and

current liabilities of the firm in such a way that satisfactory level of working capital is

maintained. Working capital is the difference between in the flow and out flow of

funds. Working capital is also known as revolving or circulating or short term capital.

The investment in inventories constitutes the most significant of current assets or

working capital in most of the undertakings. Thus, it is very essential to have proper

control and management of inventories. The purpose of inventory management is toensure availability of materials in sufficient quantity as and required and to minimize

investment in inventory.


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CHAPTER I

INTRODUCTION


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INTRODUCTION

Finance is an integral part of modern economic life and occupies an important place in all economic activities. Finance is the science of money and life blood of

industrial system. Financial management is that managerial activity, which is

concerned with the planning and controlling of the firm s financial resources.

Financial management in its infancy dealt with financing of corporate enterprises. Its

evolution may be dividends into two broad phases the traditional phase and the

modern phase. Its scope was treated in the narrow sense of procurement of funds by

corporate enterprises to meet their financing needs because of its central emphasis on

the procurement of funds.

The finance functions of rising and using money through has a significant

effect on other functions, yet it needs no necessarily limit or constraint the general

running of the business. A company in a right financial position, will of course, give

more weight to financial considerations, and devices its marketing and production

strategies in the light of the financial constraint on the other hand management of a

company which has a regular supply of funds will be more flexible in formulating its

production and marketing policies. In fact, financial policies will be devised to fit

production and marketing decisions of a firm in practice.

The basic for financial planning and decisions making is financial information.

Financial information is needed to predict, compare and evaluate the firm s earning

ability; it is also required to an enterprise to find out the actual performance.

Management should be particularly interested in knowing financial strength of

the firm to make their best use and to be able to spot out financial weakness of the


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firm to take suitable corrective actions thus financial analysis is the starting point of

making plans before using any forecasting & planning procedure.

Financial analysis is the process of identifying the finance strength &

weakness of the firm by properly establishing relationship between the items of the

balance sheet and profit and loss account. The study on ration analysis of PARRYS

focuses on identifying the strength and weaknesses of financial position as well as its

financial performance for the year 2005-2006 to 2009-2010. This study also analyzes

the profitability and liquidity position of the company.

Ratio analysis is one of the techniques of financial analysis where ratios are

used as a yardstick for evaluating the financial condition and performance of a firm.

Analysis and interpretation of various accounting ratios gives a skilled and

experienced analyst, a better understanding of the financial conditions and

performance of the firm.

Ratios are relationships expressed in mathematical figures which are

connected with each other in some manner. The ratio analysis is one of the most

powerful tools of financial analysis. It is used as a device to analyze and interpret the

financial health of enterprise.

The study on the ratio analysis in the organization help in assessing corporateexcellence judging credit worthiness and it also helps in determining the financial

performance of the company for this purpose data are collected for the period of 5

years, various ratios are used in the study to find out the liquidity and profitability

position of the organization.


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SUGAR INDUSTRY IN INDIA

The following paragraphs provide a basic overview of the industry,especially its size and health (growth) as it relates to the potential fobagasse-based

cogeneration. For a more detailed discussion of the sugar sector, the reader is referred

to the ESMAP study.

India is the largest and sugarcane producer in the world. Sugar

output in 1989- 90 was 10.8 million tonnes. Projected output is expected to

increase to 13.4 million tones by 1994-95, sufficient to keep pace with a 5%

annual growth rate in sugar consumptive

The total requirement of cane by sugar factories at a 10% rate of

recovery (sugarre covered from cane) will be 131 million tonnes in 1994-95.

These estimates are some what optimistic, since sugar output has grown on

average by 3.5% over the period from 1977-87. The country imports a small

amount of sugar to meet demand (40,000tonnes in 1987-88).

The figures cited assume that the sugar factories have access to 50%of

the total cane production. In India, about 60% of the cane produced goes into

makingrefined (centrifugal) sugar, while the remaining 40% is used by the small-

scale industry to produce gur and khandsari -- traditional forms of sugar made from an

open pan process at atmospheric pressure.

In 1989-90, the country produced 222,628,000 tonnes of sugar

cane from 3,405,000 hectares under cultivation or 65,383 kg/hectare. The northern

state of Uttar Pradesh is theleading producer of cane, accounting for over 97 million

tonnes or 44.6% of the total .Maharashtra and Tamil Nadu are


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the second and third ranking sugarcane producers, with34,008,000 tonnes or 13.5% of

total and 21,918,000 tonnes or 11.2% of total, respectively. Bagasse, the fibrous

residue of the sugarcane used for raising steam in boilers, accounts for approximately

30% of the cane weight.

Sugar mills are privately owned, publicly owned, and owned by

cooperatives. Of the 491licensed sugar factories, 288 are in the cooperative sector,

accounting for 59% of the factories installed and 62.4% of the national output of

sugar. Most of the remaining millsare in private hands.

The size of sugar mills in India is small by international standards.

Average mill size is under 2,000 tons crushed per day. Since 1987, however, a

minimum 2,500 TCD standardhas been imposed for new mills, and incentives have

been created to encourage expansion to up to 5,000 TCD.

Estimates of the potential for cogeneration from the sugar

industry vary widely. The ESMAP study on Maharashtra identified 13 mills with a

current or expanding capacity of 3,500 TCD. This study estimated the potential of

these mills to export cumulatively either87 MW or 102 MW, depending on whether

four of the mills opt for bagass emaximization or electricity maximization

configurations.


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NEED FOR THE STUDY

Management should be interested in knowing the financial strengths of thefirm to make their best use and to be able to spot out the financial weaknesses

of firm to take suitable corrective actions.

Users of the financial statements can get better insight about the financial

strength and weakness of the firm if they properly analyze the information

reported in the statements.

The future plans of the firm should be laid down in the view of the firm s

financial strengths and weaknesses.

Thus, financial analysis is the starting point for making plans, before using any

sophisticated forecasting and planning procedures. Understanding the past a

prerequisite for anticipating the future. The natures of the analysis were

differing depending on the purpose of the analyst.

Ratio analysis is a powerful tool of financial analysis. In financial analysis, aratio is used as a benchmark for evaluating the financial position and

performance of a firm.


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Ratios help to summarize large quantities of financial data and help to make

qualitative judgment about the firm s financial position. It is used as a device

to analyze and interpret the financial health of enterprise.

The study on ratio analysis in the organization helps in determining the

financial performance of the company for this purpose data are collected for

the period of 5 years. Various ratios are used in the study to find out the

liquidity & profitability of the organization.


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OBJECTIVES OF THE STUDY

Study of the working capital management is important because unless theworking capital is managed effectively, monitored efficiently planed properly and

reviewed periodically at regular intervals to remove bottlenecks if any the company

can not earn profits and increase its turnover. With this primary objective of the study,

the following further objectives are framed for a depth analysis.

The project was designed keeping in view the following objectives

To studies the working capital management of PARRYS industries

Ltd.

To evaluate the financial performance of PARRYS industries Ltd by

computing various ratio's.

To study the optimum level of current assets and current liabilities of

the company.

To analyze the profitability and liquidity position of PARRYS

industries Ltd.

To identify the strengths and weaknesses of the organization by

properly establishing relationship between items of the balance sheet

and profit and loss account.

To offer suggestions to management for the improvement of

organizations financial performance.


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SCOPE AND LIMITATION OF THE STUDY

The scope of the study is identified after and during the study is conducted. The study

of working capital is based on tool like Ratio Analysis Further the study is based on

last 5 years Annual Reports of PARRYS Industries Ltd. And even factors like

competitor s analysis, industry analysis were not considered while preparing this

project.

Limitations of the study

Following limitations were encountered while preparing this project:

1) Limited data:-

This project has completed with annual reports; it just constitutes one part of data

collection i.e. secondary. There were limitations for primary data collection because

of confidentiality.

2) Limited period:-

This project is based on five year annual reports. Conclusions and recommendations

are based on such limited data. The trend of last five year may or may not reflect the

real working capital position of the company

3) Limited area:-

Also it was difficult to collect the data regarding the competitors and their financial

information. Industry figures were also difficult to get.

The scope of the study of the financial analysis is limited to the areas of ratios

analysis.

Another limitation of the study is data collected has some hurdles due to large

size of the organization.

The limitation of the financial tools applies for the study.


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FRAME WORK OF THE STUDY

1)

Chapter One deals with Introduction, Need, Objectives, Methodology andLimitations of the study and frame work.

2) Chapter Two deals with the profile of Sugar Industries in India.

3) Chapter Three deals with organizational profile PARRY S Industries Ltd,

Sugar Division, Sankili.

4) Chapter Four deals with theoretical aspects of Working Capital Management -

Meaning, Nature, Objectives and Importance. And also Ratio Analysis -

Meaning and types of ratio analysis, objectives, Essentials of ratio analysis.

5) Chapter Five deals with Analysis and interpretation of the Financial Data.

Different years of the company s consolidated abstract Income & Expenditure

accounts, revised estimates for Five years.

6) Chapter Six comprises of summary and suggestions. In this chapter some of

the improvements and suggestions are given on the study of ratio analysis of

the company.


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WORLD SUGAR PRODUCTION

Country wise sugar production:


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SUGAR INDUSTRIES IN INDIA


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Production (1961-2012), Source: ISMA


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INDIAN SUGAR INDUSTRY- ANALYSIS

Indian sugar industry has entered the strongest up cycle (lowest stock to use

ratio) in the history of 50 years after witnessing supply glut in previous two sugar

seasons in a row (SS 2006-08). In SS2006-07, sugar production reached all-time high

of 28.3 mn tonnes, registering a growth of 46.6% on year by year basis and it declined

marginally by 7.1% to 26.3 mn tonnes in SS2007-08. Sugar production reached an all-

time low of 14.7 mn tonnes during SS2008-09 due to sharp fall in the sugarcane

acreage. However, sugar consumption continued to grow at a steady pace.


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Growth of per capita income by 6.5-7.5% p.a. which are more profitable.

Sugar Prices over last 5 years the lack of intervention from government is having

potential to push sugar prices to new high in Indian markets. The market will remain

well above Rs.2000/qtl during the sugar year 2009-10.

5. Government Policies and Interventions Statutory Minimum Price (SMP) and

State Administered Price (SAP) As sugar falls under essential commodities, it is

being regulated by the state government in coordination with the Center. For the

season 2009-10, the regime is under tremendous pressure for declaring SMP as this

crop has fallen from surplus to deficit category. Subsidies The Govt. has giventransportation subsidy to sugar exporters in order to release excess stocks piled up at

millers end, but this has ended last September.

Huge Capex - During 2004-05 (Mulayam Singh) government had flooded sops

for inviting investments in UP which have seen overwhelming response. The state

was able to garner around Rs 30,000 crores in form of various investments. The sugarmillers have also undergone huge debt lead expansion\n based on the investment slabs

dictated by regime. It is these debts only which the millers are still tackling. Levy

sugar The govt. is planning to increase levy quota (for BPL under PDS) from

current 10% to 20-25% due to concern of increasing sugar price.

6. Integrated Sugar Manufacturing Model 100 Kgs of Sugarcane gives approx. 10kgs of Sugar, 5-6 Kgs of Molasses, 33 Kgs of Bagasse and around 4 Kgs of Press

mud. 100 Kgs of Molasses gives approx. 22-25 litres of Alcohol 100 Kgs of Bagasse

can generate approx. 35 units of Power.


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7. Indian Sugar Industry Five Forces Analysis

A. New entrants Medium Incentives given by the Govt. been withdrawn and newsugar units are required to comply with levy quota regulations from 1 st year of

operations.

B. Competitors

C. High Bargaining power of Buyers

D. Bargaining power of Suppliers High With around 500 units engaged in production of Govt. influences distribution, As Govt. announces the purchase sugar,

Industry is highly purchase price of levy sugar price (SMP), it protects the

fragmented and the free sale quota releases interest of the sugar cane farmers for

sugar

E. Threat of Substitutes Low Alternate sweeteners to sugar are gur and

khandsari, whose use is declining.

8. Indian Sugar Industry SWOT Analysis

STRENGTHS & WEAKNESSES

Higher End Product Prices :-Sugar is the main product of Fall in derivatives - The

fall in prices of derivatives like sugar mills, which is most likely to fetch record pricesthis ethanol, baggase, waste or manure etc. will also have year. The mills that are able

to secure cane supply will be the adverse impact on almost all the companies. Biggest

beneficiaries.


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In recent past the mills have Currency risk : - Most of the companies which have

exposure undergone capacity expansion, which will increase their in form of overseas

loans, imports etc. will be vulnerable to processing capacity leading to higher

productivity. The forex losses in advent of rupee depreciation.

Favorable policy: - Like any other industry, sugar companies too have liquidity

crunch which can be meet through Sugar Development Fund of the Government of

India under special case schemes.

OPPORTUNITIES & THREATS

Seasonality: - Sugar follows 3-5 years cycle,

Which is Low Cane availability: - Limited or non-availability of cane function of

prices. We have already witnessed the bearish will eventually lead to early closure of

mills. Phase following excess supply.

Now the situation is of lower Unfavorable policy:- The call for change in policy

will now production and higher consumption, which calls for higher be via inflation

route only, since for securing supplies remuneration to the farmers for attracting

higher government has already relaxed norms for imports, which acreage coverage

under sugarcane. Are acceptable at zero duty.

Crude oil revival: - The revival in crude oil prices will throw.

Higher debt: - The fund was raising capabilities of most of the industry into limelight

again. The derivative products of existing companies in this sector are under serious

threat cane would be in demand and supply constraints are amid ongoing tight

liquidity. Clearly visible to push prices higher.

Alternate Crops: - Alternate crops to sugarcane are more profitable.


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SUGAR INDUSTRY CYCLE

Like any other agricultural product, cane production follows a cycle. Thisimpacts the sugar industry which has a typical of 3-5 year cycle. Higher sugarcane

production results in a fall in sugar prices and non-payment of dues to farmers. This

compels the farmers to switch to other crops causing a shortage, which in turn results

in increase in sugarcane prices and extraordinary profit. Taking into account the

higher prices for cane, the farmers switch back to sugarcane, which completes the

cycle.


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SUGAR PRODUCTION IN STATES

The following table shows level of sugar production (In Lakh Tonnes) in Indian

States:

State 2008-09 2009-10 2010-11

Uttar Pradesh 58.74 46.08 50.32

Maharashtra 61.64 31.99 22.29

Karnataka 17.98 11.57 13

Tamil Nadu 17.04 11.9 9.84

Andhra Pradesh 11.88 8.81 9.75

Gujarat 12.38 10.77 8.32


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The sugar production in the states largely depends upon monsoon. From 1998

- 05 good monsoon resulted a larger production of sugar in the country.

Cane Area, Yield, Sugar Production and Sugar Recovery Percent

Year Area

000 ha.

Yield

ton/ha.

Production of

sugarcane

(000 ton)

Recovery

%

No. of factories in

operation

1999-00 4220 70.90 299324 10.20 423

2000-01 4316 68.60 295956 10.48 436

2001-02 4430 67.40 297208 10.27 434

2002-02 4361 64.60 281575 10.36 453

2003-04 2995 59.1 236176 N.A. N.A.

It can be noted from the above table that though the recovery percentage has

remained stable during the last 5 years, the yield of sugarcane during the same period

has reduced from 70 T/ha in the year 1999-00 to 59.1 T/ha in the year 2003-04. The

low yield of sugarcane is a matter of great concern to the industry. Cane development

activity with specific target is necessary to achieve improvements both in yield andquality of sugarcane.


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MAJOR REASONS FOR LOW PRODUCTIVITY

Recently there has been a major reduction in area under sugarcanecultivation and its yield mainly due to drought in almost the whole of tropical and

sub-tropical regions. The effect of drought, delayed payment of cane price and low

sugar prices in the recent past have led to fall in sugarcane production and closure of

some sugar mills.

The incidence of woolly aphid as a new pest on sugarcane came to light in

August 2002 in Belgaum district and moved swiftly to Bhadra canal areas and

Cauvery basin in southern Karnataka. The incidence and alarming rate of spread and

severity has created panic among the cane growers in Cauvery basin who have

already suffered substantial losses due to drought during the previous years.

The following interventions on the various issues are required for the purpose:

1. Sugarcane Variety

Various experiments conducted under All India Coordinated Research Project

(AICRP) has shown that the newly developed varieties are suitable to be grown under

specific climatic conditions. Therefore only the recommended varieties are to be

cultivated suitable to the regions.

Bihar records the lowest sugar recovery % cane as compared to other major

sugar producing States of the country. Against an all India average recovery of

10.36% in 2002- 03, Bihar s recovery was only 9%, some factories have even

recorded recovery as low as 7.0 8.23%. This is against an average recovery of

10.93% which was achieved by the Bihar factories in 1942-43.


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noted that the Lok Sabha Standing Committee on Civil Supplies and Public

Distribution (1995-96) have recommended a direct link between the factories and the

farmers. In U.P. most of the sugar factories have already computerized the following

operation:

Preparation of cane supply calendars

Issuance of supply tickets to the farmers

Making cane price payment through the banks

Maintenance of grower-wise records etc.

The above functions were previously being done by the cane societies.

Therefore the Committee observed that the factories in UP should enter into a direct

contract with the growers like in other States and execute tri-partite agreement with

banks and farmers for procurement of sugarcane to facilitate use of Kisan Credit

Cards and availability of soft loans to farmers.

5. Taxes on Sugarcane

The stakeholders expressed concern on the impact of the incidence of various

taxes including purchase tax on the profitability of the industry in the various States.

The quantum of taxes on sugarcane affects the capacity of the sugar mills to pay cane

price. It was suggested that if these taxes could be uniform throughout the country,

level playing field could be established. The Committee felt that it was not possible

to achieve uniformity as these taxes are in the purview of the respective States.

An alternate suggestion, namely that these taxes might be credited against

VAT, which is to be brought into operation from April 01, 2005 was discussed. It

was brought to the notice of the committee that some States are not agreeable to the

crediting of such taxes against VAT and in any case, matters of this kind are to be

finalized by the Empowered Committee of State Finance Ministers.


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6. Infrastructure

The Committee after discussions with the representatives of industry and stake

holders of major sugar producing States observed that infrastructure required for

sugarcane cultivation and transportation is poor in many parts of the country.

Sugar industry in many States need better infrastructure like good irrigation

facilities, availability of power, properly maintained road for transportation of

sugarcane from field to sugar mills etc. The sugarcane cultivation in many parts of

the country suffer from flood and water logging. The causes for the frequent flooding

in Bihar is due to release of excessive water from Nepal. In states like Maharashtra

and Karnataka sugarcane growers require basic facilities for irrigation, power etc.Inadequate Infrastructure has adversely affected the yield and quality of sugarcane.

The Committee therefore felt that the State governments should pay special

attention to provide and maintain necessary infrastructure like irrigation, power, roads

and drainage etc. for sugarcane cultivation and transportation.

7. Alternate Usages

Vacuum pan sugar factories are bound to produce plantation white sugar

only. Some presentations made before the Committee suggested that this restriction

could be lifted and sugar factories might be left free to produce other sweeteners like

gur and khandsari, if they wished.

The Committee discussed the idea of allowing sugar mills to manufacturesweeteners other than sugar if required. The Committee noted that the use of

sugarcane for manufacturing products other than white sugar should be commercially

and legally examined.


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INDIAN GOVERNMENT ON SUGAR INDUSTRY

The following policy initiatives are taken to boost the Sugar industry :

Government declared the new policy on August 20, 1998 with regards to

licenses for new factories, which shows that there will be no sugar factory in a

radius of 15 km.

Setting up of Indian Institute of Sugar Technology at Kanpur is meant for

improving efficiency in the industry.

In the year 1982, the sugar development fund was set up with a view to avail

loans for modernization of the industry.

Sugar has historically been classified as an essential commodity and has been

regulated across the value chain. The heavy regulations in the sector artificially

impact the demand-supply forces resulting in market imbalance.

Sensing this problem, since 1993 the regulations have been progressively

eased. The key regulatory milestones include de-licensing of the industry in 1998 and

the removal of control on storage and distribution in 2002.


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However, policy still plays an important role in the industry.

Legislation

Sugarcane

procurement

- Concept of Command Area which binds Cane farmers and Sugar

mills to sell and buy from each.

- Sugar mills have to purchase all the Cane sold to them, even if it

exceeds their requirement.

- In case of capacity expansions at existing Sugar mills, there is

uncertainty regarding allocation of additional Area based on the

expanded capacity.

Sugarcane

pricing

- Government administered Statutory Minimum Price (SMP) which

acts as a floor.

- States like UP, Haryana and Punjab fix a higher price for cane,

called the State Advised Price (SAP). . Historically, the SAP has

been as high as 20-30% above SMP.

Sugar sales

- Government mandates 10% of sugar to be sold as levy quota sugar

at prices much lower than the market.

- The government also specifies monthly release quotas for free sale

sugar.

Capacity and

Production

- Sugar producers are not allowed to own cane fields in India.

- New sugar mills cannot be set up within 15 km of existing units.

Exports &

Imports

- Imports of both raw and white sugar attract a basic duty of 60%

and a countervailing duty of Rs. 910 per ton.

- In periods of sugar shortage, under the Advanced License Scheme

(ALS), license holders can import raw sugar without paying any

duty, subject to the condition that they re-export white sugar within

a fixed period.

Others - Restriction on Cogen PLF, currently only in AP.


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About Andhra Pradesh Sugar Industry

Andhra Pradesh (AP) abounds in maximum number of private sector sugar

companies in India along with Tamil Nadu and Karnataka. In the year 1933-34,vacuum process was adopted for sugar manufacturing in the state. Previously, the

state government was planning to support Cooperative sector as against other sectors.

However, with passing time, a considerable change in the policy was noticed. Letters

of Intent (L.O.I.) were given to the deserving entrepreneurs including 20 LOIs to the

private sector companies.

This gradually resulted in major benefits

for the state government as well as for India as a

whole. Today, Andhra Pradesh sugar industry

ranks 3rd in terms of recovery and 5th in terms

of cane crushing. As per production capacity is

concerned, Andhra Pradesh stands at the

position 5 in India.

The agricultural laborers who do sugarcane harvesting and cultivation are

employed in the sugar industry in Andhra Pradesh. Today, the unprecedented growth

of this industry in the state has led to the consolidation of village resources and has

facilitated communication, employment and transport system here.


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Types of Sugar Industry in Andhra Pradesh

Andhra Pradesh sugar industry can be classified into two parts such as

organized sector including sugar mills and unorganized sector includingmanufacturers of gur (jaggery) and khandsari. The unorganized sector is often

referred to as the rural industry. The rural industry plays major role in the level of

production.

ANDHRA PRADESH TOTAL SUGAR INDUSTRIES

Factory Name Village Nearest City

Empee Sugars & Chemicals Ltd. NAYUDUPET

Ganpati Sugar Industries Ltd., Fasalwadi / Kulbugoor Sangareddy

Gayatri Sugars LimitedADLOOR

YELLAREDDYKamareddy

PARRY S SUGAR INDUSTIRES

LTD

(GMR Industries Limited)

Sankili, Regidi Andhra Pradesh

GSR Sugars Limited MAAGI Nizamabad

K.C.P. Sugar & Industries

Corporation LtdVuyyuru

K.C.P. Sugar & IndustriesCorporation Ltd

LAKSHMIPURAM

Kakatiya Cement Sugar & Industries

LtdP E R U V A N C H A Khammam

KBD Sugars & Distilleries Ltd MudipapanapalliP U N G A N U R -

517 247


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The Andhra Sugars Ltd- Unit -I TANUKU Tanuku

The Andhra Sugars Ltd. - Unit -III BHIMADOLE Bhimadole

The Andhra Sugars Ltd., - Unit -II TADUVAI Taduvai

The Chittoor Co-Operative Sugars

LtdChittoor

The Chodavaram Co-op Sugars Ltd GOVADA Chodavaram

The Cuddapah Co-op Sugars Ltd Doulathapuram Cuddapah

The Etikoppaka Co-op Agri & IndlSociety Ltd

Etikoppaka Etikoppaka

The Jeypore Sugar Co.Ltd CHAGALLU Chagallu

The Kovur Co-op Sugar Factory Ltd POTHIREDDIPURAM Kovur

The Nannapaneni Venkat rao Coop

Sugars LtdJAMPANI JAMPANI

The Nizamabad Co-op Sugar Factory

LtdSARANGAPUR Nizamabad

The Thandava Co-op.Sugars Ltd PAYAKARAOPETA Thandava

Trident Sugars Limited MADHUNAGAR Zaheerabad


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In Andhra Pradesh there are 34 sugar factories of which are under co

operative sector (including the new mills constructed in Tenali, Gurajala, Kurnool,

Hanuman Junction, Kovvur and Nandyala) 8 are under the public sector and private

sector. Presently 39 factories are participated in sugar cane crushing.

Sugar industry continues to play a dominant role in the economy of other

states as sugarcane is one of the important commercial crops. The installed capacity of

the 42 sugar factories in the state is 54000 tones of cane crushing per day (TCD).

During 1986-87 season the sugar factories in the state crushed 56 lakh tones of

sugarcane with an average recovery of 9.43% about 5028 lakh tones sugar was

produced by these factories.

Directorate of Sugar and Commissionerate of Cane in Andhra Pradesh

Belonging to Industries and Commerce Department, the Directorate of Sugar

and Commissionerate of Cane has been vested with the power to guide and deal with

the sugar factories in Andhra Pradesh. It is the responsibility of the department toencourage sugarcane farmers and to help this developing industry contribute

effectively towards Gross State Domestic Product (GSDP). The department also takes

care of the technological advancements of the industry.


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CHAPTER - III

COMPANY PROFILE

PROFILE OF PARRY S INDUSTRIES
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INTRODUCTION:

EID Parry (India) Ltd is one of the largest business groups in the country. The

company is engaged in the manufacture and marketing of a wide-range of products

that includes Sugar, Bio-Pesticides and Neutraceuticals. The company made their

presence felt across the globe by developing and nurturing tie-ups with various

organizations such as Sugarcane Research Institute in Australia, Sugar Processing

Research Institute in Louisiana, Tate and Lyle International in UK and Mitr Phol

Sugar Corporation Ltd in Thailand.

EID Parry (India) Ltd is a pioneer in the manufacture of plantation white

sugar from sugarcane. The British trader, Thomas Parry established the House of

Parry in the year 1788. Parry set up the first Sugar Factory in 1842 at Nellikuppam in

Tamilnadu. In the year 1952, the company factory at Ranipet launched 'Parry ware',

their gleaming vitreous sanitary ware collection that makes bathrooms decorative. In

the year 1975, the company was converted into an Indian company.

1788 On July 17, Thomas Parr y , one of the first

British traders to see the future that existed in India's rural

areas reached India and established his business on piece

goods and banking.


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The company became the member of the Murugappa group in the year 1981.

In November 1992, the company acquired the sugar unit at Pugalur in Tamilnadu. The

electronics division of Murugappa Electronics merged with the company with effect

from April 1991. In December 1995, they acquired the pesticides business of Bharat

Pulverising Mills and in March 1996, the wall tiles project of the company at Karaikal

commenced their production.

During the year 1998-99, the seeds division of the company was sold as an

undertaking to Parry Monsanto Seeds Pvt Ltd, in which Monsanto India Ltd holds

51% and the company holds 49% of the equity. The company along with

Santhanalakshmi Investments Ltd acquired 95.96% of the paid up capital of Cauvery

Sugars and Chemicals Ltd.

In April 1999, the magnetic Media Unit at Mysore has been sold as a going

concern to Meltrack India Pvt Ltd. During the year 1999-2000, the company acquired

Johnson Pedder Ltd with sanitary ware unit at Dewas in Madhya Pradesh. Thus, the

company became a wholly owned subsidiary company. The company increased their

capacity at Pugaur plant to 4000 TCD. In March 2000, they commissioned 2500 TCD

green field plant at Pudukottai.

Coromandel Fertilizers Ltd and Santhanalakshmi Investment Pvt Ltd became

the subsidiary of the company with effect from December 14, 2001 and January 31,

2002. Also, Parry America Inc commenced their operation from January 2002. TheFarm Inputs Division of the company was de-merged and transferred to Coromandel

Fertilisers Ltd with effect from April 1, 2003.


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The company approved to sale 47% equity holding in Parryware Roca Private

Ltd to Roca Bathroom Investments SP, an affiliate of Roca Sanitario SA, Spain for a

conideration of Euro 11,11,49,111. In November 2008, the company acquired 48%

stake in a leading US Nutraceuticals company. The Company proposes to set up

Green Field Distilleries at Pudukottai and Sivaganga entailing an overall investment

of about Rs. 165 crores. Also there are in the process of setting up a Sugar refinery in

Food Processing Special Economic Zone of Parry Infrastructure Company Pvt Ltd at

Vakalapudi, Kakinada rural mandal, Kakinada.

SUGAR DIVISION:

Nellikuppam has been recognized as a Zero-waste plant with a strict

adherence to quality and high productivity. They have been the recipients of several

awards and certifications with the course of time. Some of the most significant

achievements by the company are:

ISO 14001 certification in Pudukottai & Nellikuppam

The recipients of the Green Tech Award on Safety

Instrumental in organizing a SHE event at the Murugappa Group level

EID Parry has 5 plants in the country situated at Nellikuppam in Cuddalore

district, Pugalur in Karur district, Pudukottai in Pudukottai district, Pettavaithallai in

Trichy district and Puducherry. The combined crushing capacity of all the five plants

is 15800 (TCD) Metric Tonnes of cane per day.


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The Pudukottai unit of E.I.D. Parry bears testimony to the phenomenal

instinct, the company has, of honing onto potential possibilities and turning them into

resounding successes. The Pudukottai site had continuously been rejected as a

prospective site for building a factory. After several futile attempts to lure companies

into building their units, the Government of India approached Parrys requesting them

to start a venture at Pudukottai.

Although there was a lot of speculation and skepticism about the venture,

Parrys took on the project with their usual indomitable will and enthusiasm

determined to achieve at least a modicum of success. Currently, the Pudukottai

factory is one of the largest revenue generators of the organization clearly

accentuating the determination and hard work invested in it by the employees and

management of Parrys.

NEW PLANTS IN ANDHRA PRADESH:

Indian sugar producer E.I.D Parry is renaming GMR Industries Ltd as Parrys

Sugar Industries Ltd after acquiring a majority stake in the company. Early this year,

E.I.D Parry struck a deal to acquire 51% in GMR Industries from its promoter GMR

Holdings that marked the exit of GMR group from the sugar business. Rothschild was

the sole financial advisor to GMR Group on the transaction.

Thereafter E.I.D made an open offer and as of end September owns 65%stake. GMR Holdings continues to hold 22% in the loss-making small-sized sugar

firm.

The deal was in line with GMR group's overall strategy to divest non-core

assets and focus on infrastructure and energy businesses in the future.


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GMR Industries, which reported a net loss of Rs 30 crore for the quarter

ended September 30, currently operates three fully-integrated sugar complexes in

Andhra Pradesh and Karnataka with a combined installed crushing capacity of 11,000

TCD (tonne crushing capacity per day), 46 MW of co-generation and 95 KLPD (kilo

litre per day) of distillery.

Net loss of the company was Rs 30 crore for the July-September quarter as

against a loss of Rs 18.3 crore during the same period of 2009-10, the filing added.

Net sales of the company during the second quarter jumped to Rs 19.89 crore,

slightly up from Rs 16.65 crore reported last year for the same quarter.

Shares of the company were traded today at Rs 147 apiece on the BSE, up

0.38 per cent from the previous close.

The company also holds a license to set up and operate an integrated sugar

complex of 3,500 TCD sugar mill at Raibagh in Karnataka. It also owns land and

license to set up another plant in Andhra Pradesh.

Sugar is a cyclical industry and is one of the heavily regulated. The industry

that follows a four year business cycle saw prices peaking out in January this year and

has retracted sharply since then with almost a third decline in price.


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EID PARRY Launches Branded Sugar

18 November 2004 marks yet another milestone in the 216 year old history o

E.I.D Parry. The day marks the first-ever launch of branded refined sugar by a South

Indian company. The day marks the launch of Parry's pure refined sugar.

Sugar making in E.I.D Parry's history dates back to 1842. It was then that the

company pioneered the production of sugar by establishing the country's first sugar

factory at Nellikuppam. This factory also holds the distinction of being the first ever

integrated sugar complex in India.

Today, like in the past, the company continues to set standards in the sugar

industry. Parry's sugar has been initially launched in Tamil Nadu in one-kg refill

packs and pet bottles. Every grain of Parry's pure refined sugar is a product of a

superior refining process and is processed hygienically from first grade cane.

In addition, Parry's pure refined sugar has a longer shelf life of over 18 months

and is absolutely pure and free of all impurities.

Over the last two months since its launch, the brand has received good

response. Not just from consumers but also from the channel members. Over the next

few months the company also plans to expand its availability across the country. The

success of Parry's pure refined sugar marks just the first step in E.I.D Parry's forayinto this business. The company's ambitious plans for the future include sugar variants

such as, brown sugar, a range of flavored sugar apart from sachets, cubes, etc.


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Financial structure:

The original cost of the project was Rs. 75 crores. The project was appraised by

industrial finance corporation of India (IFCI) for evaluating and the availability.

The project founding was as given below:

a) authorized capital : 75 crores

b) Issued and subscribed: 60,46,00,000.

c) Opening capital: 59,29,00,000

1997

The sugar factory with an installed capacity of 2500 TCD is commissioned.

1997

An intensive cane development programme is launched. From the initial availability

of 70,000 Metric Tonnes (MT) of cane in 1997, the availability is enhanced to more

than 600,000 plus MTs by 2004.

1999

Another Co-generation plant of 2.3 MW is added to the existing facility.

2001

A full-fledged 16 MW cogeneration facility is installed by August.

2002

Crushing capacity is further enhanced to 3125 TCD through modernization

schemes.


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BOARD OF DIRECTORS:

The board of directors of the company has an optimum combination of executives and

non executive directors. The board consists of eight members, of whom 4 directors

are independent and 5 directors are non executive. Mr. K. V. K. Seshavataram is

non executive chairman.

NAME OF THE DIRECTOR DESIGNATION CATEGORY

Mr. S. Sandilya

Mr. D. Kumaraswamy

Mr. V. Ravichandran

Mr. N.Srinivasan

Mr. K. Balasubramanian

Mr. K. Ramadoss

Chairman

Managing Director

Director

Director

Director

Director

Independent & Non Executive

Promoter & Executive

Promoter & Non Executive

Independent & Non - Executive



BOARD MEETINGS:

Normally, the board meetings are held at least once in a quarter to review and discuss

the operating results and other items of the agenda. In addition, the Board Meetingsare held whenever required. The maximum time gap between any two meetings is not

more than three calendar months. Generally, the Board Meetings are held at the

Corporate Office of the company at Hyderabad. During the financial years the board

met 27 times.


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PARRY S (GMR) Products and Technological Achievements

The company mainly producing two grades of superior quality sugar, namely

M - 30 and S - 30 through the adoption of the latest technology.

Several innovative Energy Conservation Measures have been adopted to bring

down the energy consumption levels. Steam consumption has been reduced

from 35% to 32%, the lowest steam consumption figure in the Sugar industry.

As a part of Total Quality Management, the Group has introduced Quality

Circle concept for the first time in the Sugar Industry of Andhra Pradesh

through voluntary participation of the employees.

The plant is the first in the Sugar industry of Andhra Pradesh to receive the

ISO 9001-2000 certificate

The Sankili plant is the first fully fledged co-generation plant in Andhra

Pradesh, with an installed capacity of 16 MW.

The plant has 100% DCS controls generating power for both in-house

consumption and export to the grid.

The plant is the first in Andhra Pradesh to undertake full-fledged cane trash

procurement and utilization as fuel in the boilers.

The plant also has the most modern distillery of 45 KLPD capacity with

Molecular Sieve Dehydration system to produce best quality Ethanol and

Rectified Spirit.

Management's commitment towards environmental protection is exhibited

through a massive investment of Rs. 6.50 crores on Effluent Treatment Unit,

incorporating Reverse Osmosis Technology for the first time in Andhra

Pradesh. The plant has also installed an Anaerobic Digester and RCC bio

compost yards to achieve `zero' discharge of effluents. The plant has been recognized by the Pollution Control Authorities as being a

model Effluent Treatment Factory. The Pollution Control Board has also rated

it as a benchmark plant for other distilleries to emulate.


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Major Awards

Received SISSTA Awards for 'The Best Cane Development Factory' for the

year 2002-03.

Received the S.V. Parthasarathy Memorial Award from SISSTA for 'The Best

Performance Sugar Factory' for the year 2003-04.

PARRYS (GMR) Sankili Sugar plant s, Sr. Manager (Cane) was awarded the

Best Cane Development Officer by the Regional Agricultural Research

Station, Anakapalli for the year 2002.

'Best Organization' Award for supporting Quality Circle Movement by the

Quality Circle Forum India, Hyderabad Chapter.

The plant's Quality Circles received Excellent Awards at Regional and

National Level Competitions.

First Sugar Factory in Andhra Pradesh to be accredited with 'ISO 9001:2000'

in the year 2003.

Future plans

Addition of Extra Neutral Alcohol (E.N.A) facility in the distillery to produce

45 KLPD ENA.

Additional facility for production of Refined Sugar.

Full Plant Automation.

Milk Chilling Plant for the benefit of the farmers.

Bio-fertilizer Plant.

Implementation of Total Quality Management through various initiatives in the

next few years for achieving Business Excellence. Some initiatives include

International Organization for Standardization (ISO) 14000, Safety, Health,

Environment (SHE) and Occupational Health & Safety Assessment Series (OHSAS),

5 S and KAIZEN.


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CHAPTER IV

THEORITICAL ASPECTS OFWORKING CAPITAL

MANAGEMENT


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MEANING OF WORKING CAPITAL MANAGEMENT

Working capital is that part of company s capital which is used for purchasing

raw material and involve in sundry debtors. We all know that current assets are very

important for proper working of fixed assets.

Suppose, if you have invested your money to purchase machines of company

and if you have not any more money to buy raw material, then your machinery will no

use for any production without raw material.

From this example, you can understand that working capital is very useful for

operating any business organization. We can also take one more liquid item of current

assets that is cash . If you have not cash in hand, then you cannot pay for different

expenses of company, and at that time, your many business works may delay for not

paying certain expenses.

If we define working capital in very simple form, then we can say that

working capital is the excess of current assets over current liabilities.

According to Guttmann & Dougall - Excess of current assets over current

liabilities.

According to Shubin working capital is the amount of funds necessary to cover the

cost of operating the enterprise.
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NATURE OF WORKING CAPITAL MANAGEMENT

The working capital refers to current assets which may be defined as

(i) Those which are convertible into cash or equivalents with in a

period of one year and

(ii) Those which are required to meet day to day operations.

The fixed assets as well as the current assets, both required investment of

funds. So, the management of working capital and of fixed assets, apparently seem to

involve same type of considerations but it is not so. The management of working

capital different concepts and methodology then the technique used in fixed assets

management. The very basic of fixed assets decision process 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 in order to discount the future cash flows; whereas in

working capital the time horizon is limited to one year only and the time value of

money concept is not considered. The fixed assets affect the long term profitability of

the firm while the current assts affect the short term liquidity position. The fixed

assets decisions are irreversible and affect the growth of the firm, whereas the

working capital decisions can be changed and modified without many implications.


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Managing current assets may require more attention than managing fixed

assets. The financial manager cannot simply decide the level of the current assets and

stop there. The level of investment in each of the current assets varies from day to

day, and the financial manager must therefore, continuously monitor these assets to

ensure that the desired levels are being maintained.

Since, the amount of money invested in current assets can change rapidly, so

does the financing required. Mismanagement of current assets can be costly. Too

large an investment may also expose the firm to undue risk.

The working capital management may be defined as the management of firms

sources and uses of working capital in order to maximize the wealth of the share

holders. The proper working capital management required both the medium term

planning and also the immediate adaptations to changes arising due to fluctuations in

operating levels of the firm.


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NEED OF WORKING CAPITAL MANAGEMENT

The need for working capital cannot be over emphasized. Every businessneeds some amount of working capital. The need of working capital arises due to the

time gap between production and realization of cash from sales.

There is an operating cycle involved in the sales and the realizations of cash.

There are time gaps in purchase of raw materials and production; production and

sales; and sales and realization of cash. Thus, working capital is needed for the

following purposes:

a) For the purchase of raw materials, components and spares.

b) To pay wages and salaries.

c) To incur day to day expenses and overhead costs such as fuel,

power and office expenses etc.,

d) To meet the selling costs as packing, advertising etc.,

e) To provide credit facilities to the customers.

f) To maintain the inventories of raw materials, work in progress,

stores and spares and finished stock.


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IMPORTANCE AND ADVANTAGES OF WORKING CAPITAL

MANAGEMENT

Working capital is the life blood and nerve centre of a business. Working

capital is very essential to maintain the smooth running of a business. No business can

run successfully without an adequate amount of working capital.

The main advantages of maintaining adequate amount of working capital are as

follows:

A) Solvency of the business:

Adequate working capital helps in maintaining solvency of the business to be

providing uninterrupted flow of production.

B) Goodwill :

Sufficient working capital enables a business concern to make prompt payments

and hence helps in creating and maintaining goodwill.

C) Easy loans:

A concern having adequate working capital, high solvency and good credit

standing can arrange loans from banks and others on easy and favorable terms.


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D) Cash discounts:

Adequate working capital also enables a concern to avail cash discounts on the

purchases and hence it reduces costs.

E) Regular supply of raw materials:

Sufficient working capital ensures regular supply of raw materials and

continuous production.

F) Ability to face crisis:

Adequate working capital enables a concern to face business crisis in

emergencies such as depression because during such periods, generally, there

is much pressure on working capital.

G) Quick and regular return on investments:

Every investor wants a quick and regular return on his investments.

Sufficiency of working capital enables a concern to pay quick and regular

dividends to its investors as there may not be much pressure to plough back

profits. This gains the confidence of its investors and creates a favorable

market to raise additional funds in the future.


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KINDS OF WORKING CAPITAL MANAGEMENT

The working capital is mainly four types:

1. Gross working capital

Total or gross working capital is that working capital which is used for all the

current assets. Total value of current assets will equal to gross working capital.

2. Net Working Capital

Net working capital is the excess of current assets over current liabilities.

Net Working Capital = Total Current Assets Total Current Liabilities

This amount shows that if we deduct total current liabilities from total current

assets, then balance amount can be used for repayment of long term debts at any

time.

3. Permanent Working Capital

Permanent working capital is that amount of capital which must be in

cash or current assets for continuing the activities of business.

4. Temporary Working Capital

Sometime, it may possible that we have to pay fixed liabilities, at that time we need

working capital which is more than permanent working capital, then this excess

amount will be temporary working capital. In normal working of busine ss, we don t

need such capital.
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Each component of working capital (namely inventory, receivables and

payables) has two dimensions ........TIME ......... and MONEY. When it comes to

managing working capital TIME IS MONEY . If you can get money to move faster

around the cycle (e.g. collect monies due from debtors more quickly) or reduce the

amount of money tied up (e.g. reduce inventory levels relative to sales), the business

will generate more cash or it will need to borrow less money to fund working capital.

As a consequence, you could reduce the cost of bank interest or you'll have additional

free money available to support additional sales growth or investment. Similarly, if

you can negotiate improved terms with suppliers e.g. get longer credit or an increased

credit limit, you effectively create free finance to help fund future sales.

I f you ....... Then ......

Collect receivables (debtors)

faster

You release cash

from the cycle

Collect receivables (debtors)

slower

Your receivables

soak up cash

Get better credit (in terms ofduration or amount) from

suppliers

You increase yourcash resources

Shift inventory (stocks) faster You free up cash

Move inventory (stocks) slower You consume more

cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers,

plant, vehicles etc. If you do pay cash, remember that this is now longer available for

working capital. Therefore, if cash is tight, consider other ways of financing capital

investment - loans, equity, leasing etc.


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SOURCES OF ADDITIONAL WORKING CAPITAL

Sources of additional working capital include the following:

Existing cash reserves

Profits (when you secure it as cash !)

Payables (credit from suppliers)

New equity or loans from shareholders

Bank overdrafts or lines of credit

Long-term loans

If you have insufficient working capital and try to increase sales, you can easily over-

stretch the financial resources of the business. This is called overtrading. Early

warning signs include:

Pressure on existing cash

Exceptional cash generating activities e.g. offering high discounts for early

cash payment

Bank overdraft exceeds authorized limit

Seeking greater overdrafts or lines of credit

Part-paying suppliers or other creditors

Paying bills in cash to secure additional supplies

Management pre-occupation with surviving rather than managing

Frequent short-term emergency requests to the bank (to help pay wages,

pending receipt of a cheque).


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MANAGEMENT OF WORKING CAPITAL IN INDIA

Indian corporate seems to have adequate and satisfactory level of working

capital as reflected in their liquidity ratios. The foreign controlled companies

are placed in a better position relative to the domestic companies.

There are wide inter industry variations in the liquidity ratio of the corporate

enterprises. With the exception of sugar, all other industry groups have sage

and satisfactory liquidity position.

The majority of Indian companies maintain relatively lower cash\bank

balances. Marketable securities are yet to emerge as a popular means of cashmanagement. The excess cash is deployed to retire short term debt\in short

term bank deposits.

In spite of the notable decline over the years, inventory constitutes a sizeable

part of the total current assets of the Indian corporate. The most important

objective of inventory management in India is avoid loss of production \sales .

The popular control techniques are ABC, FSN and SDE and inventory

turnover ratio and comparison with competitors are widely used to assess the

performance of inventory management.

Account payable and short term loans\ advances are the major components

of current liabilities.

Debtors/receivables also constitute a significant component of current assets.

Growth in sales is the most important objective of credit policy and the

open credit with approval if exceeds a specified limit is the most favored

policy. It is common prac tice to prepare ageing schedule of debtor s to

assess the financial health of the customers before granting credit and

monitoring purposes. To speed up collections, the corporate offer cash

discount. The majority of the companies also charge penal interest.

STATEMENT OF WORKING CAPITAL


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Particulars Amount (Rs) Amount (Rs)

A. Estimation of Current Assets:

i) Raw materials

ii) Work in process

Raw materials(full cost) xxx

Direct labor(to the extent of

Completed stage) xxx

Overheads (to the extent of

Completed stage) xxx

iii) Finished goods inventory

iv) Debtors

v) Cash balance required

xxx

xxx

xxx

xxx

xxx xxxx

Total Current Assets xxxx

B. Estimation of current liabilities:

i) Creditors

ii) Expenses

Overheads xxx

Labor xxx

xxx

xxx

xxx

Total current liabilities xxx

C. Working Capital (A B)

Add, contingency (Percentage on Working Capital)

xxx

xx

D. Working Capital Required xxxx


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FACTORS INFLUENCING WORKING CAPITAL MANAGEMENT

The working capital needs of a firm are influenced by numerous factors. The

important ones are:

1. Nature of business

2. Seasonality of operations

3. Production conditions

4. Market conditions

5. Conditions of supply

Nature of business: The working capital requirement of a firm is closely related tothe nature of its business. A service firm, like an electricity undertaking or a transport

corporation, which has a short operating cycle and which sells predominantly on cash

basis, has a modest working capital requirement. On the other hand, a manufacturing

concern like a machine tools unit, which has a long operating cycle and which sells

largely on credit, has a very substantial working capital requirement.

Seasonality of Operations: Firms which have marketed seasonally in their operations

usually have highly fluctuating working capital requirements. To illustrate, consider a

firm manufacturing ceiling fans. The sale of ceiling fans reaches a peak during the

summer months and drops sharply during the winter period. The working capital need

of such a firm is likely to increase considerably in summer months and decrease

significantly during the winter months. Electric bulbs, tubes and CFL lamps have

fairly even sales round the year, tends to have stable working capital needs.

Production Policy: A firm marketed by pronounced seasonal fluctuations in its salesmay pursue a production policy which may reduce the sharp variations in working

capital requirements. For example, a manufacturer of ceiling fans may maintain a

steady production throughout the year rather than intensify the production activity

during the peak business season. Such a production policy may dampen the

fluctuations in working capital requirements.


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FINANCIAL ANALYSIS

Financial analysis is the process of identifying the finance strengths and

weakness of the firm by properly establishing relationship between the items of the

balance sheet and the profit and loss account.

The study on ratio analysis in PARRY S Industries Ltd., help in assessing

corporate excellence judging credit worthiness and it also helps in determining the

financial performance of the company of this purpose date are collected for the period

of 5 years. Various ratios are used in the study to find out the liquidity position of

PARRYS limited.

The organization has to submit its true picture of financial position to the

potential lender of money and to the upcoming partners for that it wanted to have the

first utilize of the analysis to rectify the problem of any. The process of identifying the

finance strengths and weakness of the firm by properly establishing relationship

between the items of the balance sheet and the profit and loss account.

Financial analysis can be undertaken by management of the firm or by parties

outside of the firm viz. owners, creditors, investors, and other to form judgment about

the operating performance and financial position of the firm. Users of the financial

statements can get insight about the financial strength and weakness of the firm if they

properly analyze the information reported in the statements. Management should be

interested in knowing the financial strengths of the firm to make their best use and

able to spot out the financial weakness of firm to take suitable corrective action.


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For example, trade cre ditors are interested in the firm s ability to their claims over a

period of time. The will guide the preference to the evaluation of the firm s liquidity

position. The suppliers of long term debt are concerned with the firm s profitability

over time, its ability to generate cash to be able to pay interest and repay principal and

relationship between the various sources of funds. Investors, who have invested their

money in the firm s shares, are more confidence in those firms that show steady

growth in earnings. It is helpful in assessing corporate excellence, judging

creditworthiness, forecasting, redirecting bank, market risk.

Objectives of the financial statement analysis:

The following are the main objectives of the analysis of the financial statements.

1. To estimate the earning capacity of the firm.

2. To gauge the financial position and financial performance of the firm.

3. To determine the long term liquidity of the funds as well as solvency.

4. To decide about the future prospects of the firm.

Types of financial analysis:

The analysis of financial statements consist of a study of a relationship and trends to

determine whether or not the financial position of the concerned and its operating

efficiency have been satisfactory. In process of this analysis various tools of methods

or devices are used to the financial analysis for this purpose as follows.

1. Comparative Statements2. Common Size Statements

3. Trend Analysis

4. Funds Flow Analysis

5. Ratio Analysis


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1. COMPARATIVE STATEMENTS:

The preparation of comparative financial and operating statements is an important

device of horizontal financial analysis. Financial data becomes more meaningful

when compared with similar data for previous period or a number of prior periods.

Statements prepared in a firm that reflect financial data for two or more periods are

known as comparative statements. Annual data can be compared with similar data for

prior years. Such statements are very helpful in measuring the effects of the conduct

of a business during a period under consideration. Comparative statements can be

prepared for both types of financial statements balance sheet as well as present a

review of operating activities of the assets and liabilities change in the financial

position during the period under consideration.

2. COMMON SIZE STATEMENTS:

Comparative statements that give only the vertical percentage of ratio for

financial data without given rupee values are known as common size statements.

They are also known as 100% statements. For example, if the balance sheet items

are expressed as the ratio of each sheet to total assets and ratio of each liability, it

will be called a common size of balance sheet. Thus a common size statement

shows the relation of each component to the whole. It is useful in the vertical

financial analysis and comparison of two business enterprise at a certain data.


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RATIO ANALYSIS

Introduction

Ratio analysis is the powerful tool of financial statements analysis. A ratio is

defined as the indicated quotient of two mathematical expressions and as the

relationship between two or more things. The absolute figures reported in the

financial statement do not provide meaningful understanding of the performance and

financial position of the firm. Ratio helps to summaries large quantities of financial

data and to make qualitative judgment of the firm s financial performance

Role of ratio analysis

Ratio analysis helps to appraise the firms in the term of their profitability and

efficiency of performance, either individually or in relation to other firms in same

industry. Ratio analysis is one of the best possible techniques available to

management to impart the basic functions like planning and control. As future is

closely related to the immediately past, ratio calculated on the basis historical

financial data may be of good assistance to predict the future.

E.g. On the basis of inventory turnover ratio or debtor s turnover ratio in the

past, the level of inventory and debtors can be easily ascertained for any given amount

of sales. Similarly, the ratio analysis may be able to locate the point out the various

arias which need the management attention in order to improve the situation. E.g.Current ratio which shows a constant decline trend may be indicate the need for

further introduction of long term finance in order to increase the liquidity position. As

the ratio analysis is concerned with all the aspect of the firm s financial analysis

liquidity, solvency, activity, profitability and overall performance, it enables the

interested persons to know the financial and operational characteristics of an

organization and take suitable decisions.


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Limitations of ratio analysis

1. The basic limitation of ratio analysis is that it may be difficult to find a basis for

making the comparison

2. Normally, the ratios are calculated on the basis of historical financial statements.

An organization for the purpose of decision making may need the hint regarding the

future happiness rather than those in the past. The external analyst has to depend upon

the past which may not necessary to reflect financial position and performance in

future.

3. The technique of ratio analysis may prove inadequate in some situations if there is

differs in opinion regarding the interpretation of certain ratio.

4. As the ratio calculates on the basis of financial statements, the basic limitation

which is applicable to the financial statement is equally applicable In case of

technique of ratio analysis also i.e. only facts which can be expressed in financial

terms are considered by the ratio analysis.

5. The technique of ratio analysis has certain limitations of use in the sense that it only

highlights the strong or problem arias; it does not provide any solution to rectify the

problem arias.


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Classification of working capital ratio

Working capital ratio means ratios which are related with the working capital

management e.g. current assets, current liabilities, liquidity, profitability and risk

turnoff etc. these ratio are classified as follows

1. Efficiency ratio

The ratios compounded under this group indicate the efficiency of the

organization to use the various kinds of assets by converting them the form of sale.

This ratio also called as activity ratio or assets management ratio. As the assets

basically categorized as fixed assets and current assets and the current assets further

classified according to individual components of current assets viz. investment and

receivables or debtors or as net current assets, the important of efficiency ratio as

follow

1. Working capital turnover ratio

2. Inventory turnover ratio

3. Receivable turnover ratio

4. Current assets turnover ratio5. Liquidity ratio

The ratios compounded under this group indicate the short term position of the

organization and also indicate the efficiency with which the working capital is being

used. The most important ratio under this group is follows

1. Current ratio

2. Quick ratio

3. Absolute liquid ratio


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1) Working capital turnover ratio

It signifies that for an amount of sales, a relative amount of working capital is

needed. If any increase in sales contemplated working capital should be adequate and

thus this ratio helps management to maintain the adequate level of working capital.

The ratio measures the efficiency with which the working capital is being used by a

firm. It may thus compute net working capital turnover by dividing sales by working

capital.

Sales

Working capital turnover ratio = Net working capital

2) Inventory turnover ratio

Inventory turnover ratio indicates the efficiency of the firm in producing and

selling its products. It is calculated by dividing the cost of goods sold by averageinventory:

Cost of goods sold

Inventory TOR =

Average inventory

3) Receivable turnover ratio

The derivation of this ratio is made in following way

Gross sales

Receivable turnover ratio =

Average account receivables

Gross sales are inclusive of excise duty and scrap sales because both may

enter in to receivables by credit sales. Average receivable calculate by opening plus


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i) Current ratio

The current is calculated by dividing current assets by current liabilities:

Current assets

Current ratio =

Current liabilities

Current assets include cash and those assets which can be converted in to cash

within a year, such marketable securities, debtors and inventories. All obligations

within a year are include in current liabilities. Current liabilities include creditors,

bills payable accrued expenses, short term bank loan income tax liabilities and long

term debt maturing in the current year. Current ratio indicates the availability of

current assets in rupees for every rupee of current liability.

ii) Quick ratio

Quick ratios establish the relationship between quick or liquid assets and

liabilities. An asset is liquid if it can be converting in to cash immediately or

reasonably soon without a loss of value. Cash is the most liquid asset .other assets

which are consider to be relatively liquid and include in quick assets are debtors and

bills receivable and marketable securities. Inventories are considered as less liquid.

Inventory normally required some time for realizing into cash. Their value also be

tendency to fluctuate. The quick ratio is found out by dividing quick assets by current

liabilities.

Current asset Inventory

Quick ratio =

Current liabilities


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iii) Absolute liquid ratio

`Even though debtors and bills receivables are considered as more liquid then

inventories, it cannot be converted in to cash immediately or in time. Therefore while

calculation of absolute liquid ratio only the absolute liquid assets as like cash in hand

cash at bank, short term marketable securities are taken in to consideration to measure

the ability of the company in meeting short term financial obligation. It calculates byabsolute assets dividing by current liabilities.

Absolute liquid assets

Absolute liquid ratio =

Current liabilities


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Interpretation:

During the five years period the Working Capital position of PARRYS

industries limited decreased. The networking capital has decreased from Rs.

109,43,04,871 to Rs. 36,96,89,471 during the years 2007 to 2011. That means losses

are increased. Because there is Decreasing Current Assets, and Increasing CurrentLiabilities. Cash balance and debtors has decreased noticeably by the end of the

period. Other liabilities had increased by the end of the period.

0100000000200000000300000000400000000500000000600000000700000000800000000

900000000

working capital statement for periodof five years

working capital statementfor period of five years


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0

50000000

100000000

150000000

200000000

250000000

300000000

350000000

current assets current liabilities

Series1


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GRAPHICAL PRESENTATION OF WORKING CAPITAL

CURRENT RATIO:

Current assets

Current Ratio =

Current liabilities

STATEMENT OF CURRENT RATIO

PARTICULARS 2008-09 2009-10 2010-11 2011-12 2012-13

Current Assets 32,30,92,683 38,46,48,006 70,59,93,446 72,83,87,556 137,093,051

2

Current Liabilities 26,72,00,457 21,44,31,002 33,63,03,975 40,51,94,794 584,685,906.

79

Current Ratio 1.20:1 1.79:1 2.10:1 1.79:1 2.34:1

Graphical presentation of Current Ratio

0

0.5

1

1.5

2

2.5

2008-09 2009-10 2010-11 2011-12 2012-13

CURRENT RATIO


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Interpretation:

Current Ratio is a measure of general liquidity and is most widely used to

make the analysis to pay its current obligations in time as and when they became due.

The low current ratio represents that the low liquidity position of the firm is not good

generally, the current ratio of 2:1 or more is considered satisfactory. In the year 2005-

06 only the current ratio was 2.58:1 in this year only the prescribed industry standard,

remaining years the current ratio below the 2:1 position. So the industry current ratio

is not satisfactory.

STATEMENT SHOWING ON COMPONENTS OF CURRENT ASSETS

PARTICULARS 2008-09 2009-10 2010-11 2011-12 2012-13

Components of Current

Assets

Cash and Bank balances

Sundry Debtors

51,60,793

5,14,01,414

52,95,896

13,76,18,767

72,39,762

55,64,41,299

1,79,58,930

project modifying

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