Introduction Working capital, also known as net working capital or NWC, is a financial metric which represents operating liquidity

available to a business. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital. It is calculated as current assets minus current liabilities. If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit. Working Capital = Current Assets Current Liabilities A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash. Meaning of Working Capital: In simple words, working capital refers to that part of the firms capital which is required for financing short term or current assets such as, cash, marketable securities, debtors, and inventories or in other words the working capital is the excess of current assets over current liabilities. Definition of Working Capital: Working Capital refers to that part of the firms capital, which is required for financing shortterm or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.

Importance of Working Capital Management: Working capital management includes a number of aspects that make it especially important for the financial health of the firm. Surveys indicate that the largest portion of the financial manager time is devoted to the day-to-day operations of the firm, which fall under the heading o working capital management. On the basis of Concept, we can divide our working capital into two parts:

Concept Concept of working capital includes meaning of working capital and its nature. Working capital is the investment in current assets. Without this investment, we can not operate our fixed assets properly. For getting good profits from fixed assets, we need to buy some current assets or pay some expenses or invest our money in current assets. For example, we keep some of cash which is the one of major part of working capital. At any time, our machines may need repair. Repair is revenue expense but without cash, we can not repair our machines and without machines, our production may delay. Like this, we need inventory or to invest in debtors and other short term securities. Gross Working Capital In this concept of working capital, we study gross working capital. We do not deduct current liabilities in this concept but we use current liabilities as source of fund. Suppose, if we buy goods on credit, it means our save our cash and we can use this as working capital for paying other expenses. Net Working Capital Under this concept we use net working capital. For this, we first deduct all our current liabilities from our current assets. Excess of current assets over current liabilities will be current assets. We have to maintain minimum level of working capital in our business for operation of business activities. This concept is also used for preparation of balance sheet. In the vertical form of balance sheet, we show excess of current assets over current liabilities. Operating Cycle Concept of Working Capital In this concept of working capital, we make the operating cycle. In this cycle, we calculate inventory conversion period. To know this, we can estimate when we need cash for buying our inventory. We also calculate debtor or receivable conversion period. To know this, we can estimate when we receive cash from our debtors. If inventory conversion period is less than debtor conversion period, we have to manage other sources for buying our inventories. If we buy good on credit, we also take care creditors' conversion period.

Need For the Study Capital required for a business can be classified under two main categories viz. Fixed capital Working capital

Every business needs funds for two purposes For its establishment. To carry out its day-to-day operations.

Long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land and building, furniture etc. Investment in these assets represents that part of firms capital which is blocked on a permanent or fixed basis and is called fixed capital. Funds are also needed for short-term purpose for the purchase of raw materials, payment of wages and other day-to-day expenses etc. These funds are known as working capital.

Objectives of the Study

To evaluate the performance of working capital in Andhra Pradesh Cooperative Oilseeds Growers Federation Ltd., over the last five years.

To examine the efficiency in the utilization of finance which the firm manager utilized its assets.

To evaluate the profitability position of Andhra Pradesh Cooperative Oilseeds Growers Federation Ltd., with reference to working capital.

Scope of the Study

Only the working capital has been taking to measure the financial performance.

The study confines to the working capital at Andhra Pradesh Cooperative Oilseeds Growers Federation Ltd., Hyderabad,only

This study can not reflect the Overall Industrys working capital

Research Methodology: For the purpose of the study necessary information has been collected through primary and secondary sources. Primary Data: The primary data are those which are collected a fresh and for the first time and thus happened to be original in character. Primary data include the information collected from the officials and existing company through discussions. Secondary Data: The secondary data, on the other hand are those which have already been collected by someone else and which have already been passed though the statically process. The secondary data include the information from the company annual reports which include financial statement like balance sheet and income statement and such other information from text books of financial management, journals and magazine also been collected. Techniques: Current Ratio:

The objective of computing this ratio is to measure the ability of the firm to meet its short term liability. Current Ratio = Current Assets/Current Liabilities Quick Ratio: The main purpose of this ratio is to measure the ability of the firm to pay its current liabilities. Stock and prepaid expenses are not taken into accounts as these may not converted into cash in a very short period. Quick Ratio = Quick Assets/Current Liabilities

Quick Assets = Current Assets-(Inventory+ Prepaid Expenses)Cash Ratio (Super Quick Ratio): Cash Ratio = Cash &Bank balances/Current Liabilities Working Capital Turnover Ratio: This ratio measures the efficiency at which the Working capital is being used by a firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates the working capital is not properly utilized. Working Capital = Current Assets - Current Liabilities

Limitations

The analysis made on the basis of secondary data. The availability of data is only in pertaining to four years. The project duration i.e. 45 days is also a constraint to give realistic interpretations. This analysis has done based on the information provided by the organization. If any mistakes published in this reports, the same information has taken into consideration.

10

Review of Literature

The current study contributes to the literature by examining impact of working capital management on the operating performance and growth of new public companies. The study also sheds light on the relationship of working capital with debt level, firm risk, and industry. Using a sample of initial public offerings (IPO's), the study finds a significant positive association between higher levels of accounts receivable and operating performance. The study further finds that maintaining control (i.e. lower amounts) over levels of cash and securities, inventory, fixed assets, and accounts payables appears to be associated with higher operating performance, as well. We find that IPO firms which are experiencing unusually high growth tend not to perform as well as those with low to moderate growth. Further firms

11

which are experiencing high growth tend to hold higher levels of cash and securities, inventory, fixed assets, and accounts payables. These findings tend to suggest that firms are willing to sacrifice performance (accept low or negative operating returns) to increase their growth levels. The higher level of growth is also associated with higher operating and financial risk. The findings of this study suggest that perhaps IPO firms should stay more focused on their operating performance than on maintaining high growth levels. Working capital policy refers to the firm's policies regarding 1) target levels for each category of current operating assets and liabilities, and 2) how current assets will be financed. Generally good working capital policy (i.e. under conditions of certainty) is considered to be one in which holdings of cash, securities, inventories, fixed assets, and accounts payables are minimized. The level of accounts receivables should be used as a means of stimulating sales and other income. Previous literature on working capital management has found a negative association, overall, between level of working capital and operating performance as measured by operating returns and operating margins (Peterson and Rajan, 1997). Under conditions of certainty (i.e. sales, costs, lead times, payment periods, and so on, are known), firms have little reason to hold more working capital than a minimum level. Larger amounts would increase the level of operating assets, increase the need for external funding, resulting in lower return on assets and a lower return on equity, without any increase in profit.

12

However the picture changes when uncertainty (i.e. uncertain growth) is introduced (Brigham and Houston, 2000). Larger amounts of cash, securities, accounts receivables, marketable securities, inventories, and fixed assets will be needed to support increased sales Required levels will be based on expected sales levels and expected order lead times. Additional holdings may be needed to enable the firm to deal with departures from the expected values. Further, firms will also attempt to increase their accounts payable balances as a means of financing increased levels of current operating assets. Firms which are in high growth stages will face the challenge of maintaining the necessary level of operating assets to support subsequent growth, while at the same time attempting to maintain adequate performance indicators. This study focuses on understanding how IPO companies manage their working capital and other balance sheet items to support subsequent growth. This study supports the existing literature on working capital and contributes to the existing literature by examining a sample of firms (i.e. recent IPO firms) which have a wider range of growth levels than non-IPO firms. Our study examines the impact of working capital management on the operating performance and growth of new public companies. The study also examines these relationships under three categories of growth (i.e. negative growth, moderate growth, and high growth). The study also examines other selected firm characteristics in light of working capital management: firm operating and financial risk, amount of debt, firm size, and industry.

13

Industry Profile Food Management The main objectives of food management are procurement of food grains from farmers at remunerative prices, distribution of food grains to consumers, particularly the vulnerable sections of society at affordable prices and maintenance of food buffers for food security and price stability. The instruments used are MSP and Central issue price (CIP). The nodal agency which undertakes procurement, distribution, and storage of food grains is the Food Corporation of India (FCI). Procurement at MSP is openended, while distribution is governed by the scale of allocation and its off take by the beneficiaries. The off take of food grains is primarily under the targeted public distribution system (TPDS) and other welfare schemes of the Government of India. Procurement and Off take of Food grains 8.77 During rabi marketing season (RMS) 2010- 11, 22.52 million tonnes of wheat was procured against 25.38 million tonnes in RMS 2009-10. In kharif marketing season (KMS) 2009-10, the total procurement of rice was 31.46 million tonnes against 33.69 million tonnes in KMS 2008-09. Procurement of coarse grains in 2009-10 stood at 4.07 thousand tonnes compared to 13.75 thousand tonnes in 2008- 09. Procurement of foodgrains in States like Punjab, Haryana, Uttar Pradesh, Madhya Pradesh, Andhra Pradesh, and Chhattisgarh is higher than in other States. In fact, Punjab and Haryana make the maximum procurement. Increased MSP along with various other steps taken by the Government has resulted in higher levels of procurement of foodgrains. This has paved the way for comfortable levels of food stocks to meet the TPDS needs and buffer stocks norms. Offtake of wheat and rice from the Central pool for the TPDS and other welfare schemes) has gone up in the last many years.

14

Decentralized Procurement Scheme 8.78 A number of States have opted for implementation of the Decentralized Procurement Scheme (DCP) introduced in 1997, under which foodgrains are procured and distributed by the State Governments themselves. Under this scheme, the designated States procure, store and issue foodgrains under the TPDS and welfare schemes of the Government of India. The difference between the economic cost fixed for the State and the CIP is passed on to the State Government as subsidy. The decentralized system of procurement has the objectives of covering more farmers under MSP operations, improving efficiency of the PDS, providing foodgrains varieties more suited to local tastes and reducing transportation costs. As on 22 December 2010, a total of ` 9376 crore of food subsidy has been released to various States under DCP operations in 2010-11. States under DCP operations have shown a healthy trend of increase in procurement of rice (94.9 lakh tonnes in KMS 2006- 07 to 119.5 lakh tonnes in 2009-10). In KMS 2008- 09 and 2009-10, the rice procurement by DCP states was 135.4 and 119.5 lakh tonnes respectively. In the case of wheat, however, the procurement in DCP States, particularly Uttar Pradesh and Madhya Pradesh was rather low in RMS 2006-07 and 2007- 08 primarily due to aggressive purchases by private companies on expectation of higher market prices, lower rates of taxes and levies than Punjab and Haryana and proximity to markets in southern and eastern States of the country. However, there was record procurement of wheat in RMS 2008-09 and 2009-10. Under the decentralized system of procurement, the procurement of wheat has increased from 0.5 lakh tonnes in 2006-07 to 60.7 lakh tonnes in 2009-10. In 2010-11, the wheat procurement in DCP states has gone down primarily due to Uttar Pradesh withdrawing from the DCP scheme.

15

Buffer Stock 8.79 The stock position of foodgrains in the Central pool as on 1 October, 2010 is 46.2 million tonnes comprising 18.4 million tonnes of rice and 27.8 million tonnes of wheat. This is adequate for meeting the requirements under the TPDS and welfare schemes during the current financial year Table Buffer Stock Norms and Actual Stocks (Lakh Tonne) Wheat Rice Minimum Minimum Actual As on Buffer Buffer Stock Norms Norms January, 2008 82 77.12 118 April 40 58.03 122 July* 201 249.12 98 October 140 220.25 52 January, 2009* 112 182.12 138 April 70 134.29 142 July 201 329.22 118 October 140 284.57 72 January, 2010 112 230.92 138 April 70 161.25 142 July 201 335.84 118 October 140 277.77 72 8.16

Actual Stock 114.75 138.35 112.49 78.63 175.76 216.04 196.16 153.49 243.53 267.13 242.66 184.44

Total Minimum Buffer Norms 200 162 299 192 250 212 319 212 250 212 319 212

Actual Stock 191.87 196.38 361.61 298.88 357.88 350.33 525.38 438.06 474.45 428.38 578.50 462.21

16

Economic Cost of Foodgrains to the FCI 8.80 The economic cost of foodgrains consists of three components, namely MSP (and bonus if applicable) as the price paid to the farmers, procurement incidentals, and the cost of distribution. The economic cost for both wheat and rice witnessed a significant increase during the last few years due to increase in MSPs and proportionate increase in the incidentals Table Economic cost of Rice and Wheat (`/Quintal) Year Rice Procurement Incidentals* Distribution Cost Economic Cost ** Wheat Procurement Incidentals Distribution 2002-03 2004-05 2006-07 2007-08 2008-09 2009-10 2010-11 (RE) 295.03 208.40 (BE) 316.81 254.51 8.17

61.67 157.72

58.48 256.51

193.66 289.58

214.91 297.82

252.58 263.81

1165.03 1303.59 1391.18 1549.86 1732.48 1873.58 2043.14

137.63

182.74 222.80

180.15 269.36

164.02 244.43

193.62 230.27

219.22 216.06

224.99 248.89

145.51 Cost Economic Cost 884.00

1019.01 1177.78 1311.75 1384.42 1457.30 1543.93

17

Food Subsidy 8.81 Provision of minimum nutritional support to the poor through subsidized foodgrains and ensuing price stability in different States are the twin objectives of the food security system. In fulfilling its obligation towards distributive justice, the Government incurs food subsidy. While the economic cost of wheat and rice has continuously gone up, the issue price has been kept unchanged since 1 July 2002. The Government, therefore, continues to provide large and growing amounts of subsidy on foodgrains for distribution under the TPDS, other nutrition-based welfare schemes, and open market operations. The food subsidy bill has increased substantially in the past few years (Table 8.18). Table Quantum of Food Subsidies Released by Government Food Subsidy Annual Year (` Crore) (Per cent) 1999-00 9200.00 5.75 2000-01 12010.00 30.54 2001-02 17494.00 45.66 2002-03 24176.45 38.20 2003-04 25160.00 4.07 2004-05 25746.45 2.33 2005-06 23071.00 -10.39 2006-07 23827.59 3.28 2007-08 31259.68 31.19 2008-09 43668.08 39.69 2009-10 58242.45 33.37 2010-11* 51196.97 8.18 Growth

18

Edible Oils 8.87 The production of oilseeds (kharif 2010-11) and net availability of edible oils from all domestic sources (primary) are estimated at 172.74 lakh tonnes and 35.19 lakh tonnes respectively. In order to increase the availability and control price of edible oils, the Government has reduced custom duties on crude and refined edible oils to 'nil' and 7.5 per cent respectively since April 2008. It has been decided that this duty structure will continue till September 2011. Export of all major edible oils from the country has been banned since March 2008 up to September, 2011 (except coconut oil through Cochin Port and certain oils from minor forest produce and edible oils in branded consumer packs of up to 5 kg, with a ceiling of 10,000 tonnes per year). The Government launched a scheme for 'Distribution of Subsidized Edible Oils' in 2008-09 to provide relief to consumers from rising prices of edible oils. Under this Scheme, imported edible oil was distributed through State Governments/UTs at the rate of 1 litre per ration card per month. The Scheme continued in 2009-10 with a subsidy of ` 15 per kg on imported oil up to 10 lakh tonnes and has been extended till 31 March 31 2011. Crop Production 8.5 For five consecutive years, from 2004-05 2008-09, foodgrains production recorded an increasing trend. However, it declined to 218.11 million tonnes in 2009-10 due to severe drought conditions in various parts of the country. Normal monsoon in the subsequent year, 2010-11, helped the country reach a significantly higher level of 244.78 million tonnes of foodgrains production. As per the second Advance Estimates, production of foodgrains during 2011-12 is estimated at an all time record level of 250.42 million tonnes which is a significant achievement mainly due to increase in the production of rice and wheat .

19

Company Profile Brief Note on Core Functions of A.P. Cooperative Oilseeds Growers Federation (apoilfed) Hyderabad. Introduction: Andhra Pradesh was one of the seven states considered for implementation of Vegetable Oils Project by National Dairy Development Board. The objective of the Project was to bring about enhancement of production of Oilseeds so as to lessen the gap between demand and supply of edible oils. Andhra Pradesh Cooperative Oilseeds Growers' Federation was registered under the Cooperative Societies Act, 1964 and started its operations during the year 1983. Initially the Federation adopted two tier structure ie., State Level Federation and Village level Growers' Cooperative Societies for implementation of the Project. In the first phase, Federation covered six districts in the State ie., Mahabubnagar, Nalgonda, Khammam, Krishna, Guntur and Prakasam. In the second phase five more districts were covered which include Kurnool, Cuddapah, Ananthapur, Chittoor and Nellore. The entire project was funded by NDDB for promoting primary societies, extension programmers and establishment of processing units. During the year 1992-93 the Federation adopted 3 tier structure on the directions of NDDB. Under this structure, two Regional Unions were formed and the Village level Oilseeds Cooperative Societies were affiliated to the Unions and the Unions were in turn affiliated to the Federation. Later on these Unions were liquidated due to huge accumulated losses. Presently, the Federation is undertaking the following activities. Oil Palm Development: After realizing the importance of Oilpalm, which is most productive Oilseeds Crop yielding about 4 MT Oil / Ha as against 0.75 to 1.5 MTs of Oil/Ha by other conventional Oil seed crop, APOILFED in the year 1991 took a pioneering step in the State of A.P. by establishing Nurseries and a first pilot palm oil mill of 1 TPH capacity during 1992 to inspire the farming community to take up oilpalm cultivation in large scale. The undaunted efforts of

20

APOILFED with the support of CSIR & TMOP, New Delhi has led to great success and today Andhra Pradesh is at the First place in Oilpalm cultivation in the country. Initially APOILFED was allotted only 8 mandals in the districts of West Godavari, East Godavari and Khammam. Later in appreciation of service rendered by APOILFED to the farming community, Govt. of A.P. has allotted 10 mandals in Khammam district during the year 1996 and further 6 mandals in Khammam district were allotted to APOILFED during the year 2008. APOILFED so far has developed 11449 ha. of area under Oilpalm cultivation in its area of operation. Since the oil mill at Pedavegi in West Godavari was the only mill in the State of A.P. till 1996, the entire oilpalm FFB produced in the State was processed at Pedavegi mill. The palm oil mill was initially of 1 MT / Hr. capacity in the year 1992 was expanded to 2 MT/Hr. in the year 1994 and finally to 4 MT/Hr. during the year 1995 in quick succession to meet the processing capacity demand.So far APOILFED has processed a quantity of 3,24,000 MTs of FFB and has processed a quantity of 46,264 MTs in the year 2009-10. APOILFED which is committed to the development of Oilpalm in the State of A.P. has established its second palm oilmill of 5 TPH expandable to 10 TPH capacity at Ashwaraopet, Khammam dist., during 2006 and successfully commissioned during March2007 with good results. The plant has already processed about 90000 MTs of FFB so far since inception. The same plant is up graded 10 TPH capacity at a cost of Rs.1.40 Crores and commissioned in September2008. The total cost incurred for the above project including upgradation is of Rs. 9.36 Crores. Further, keeping in view of FFB arrivals in the coming years and also since the present Pedavegi plant is inefficient, APOILFED is established a Modern Palm Oil Mill of 10 TPH expandable to 20 TPH capacity with captive power generation unit at Pedavegi with a project outlay of Rs.19.68 Crores for which the Govt. of A.P. has accorded permission for establishment of the plant with the funds from the internal accruals of the Federation.

21

Procurement & Distribution of Oil Seeds: As the Nodal Agency of NAFED, APOILFED procures the following oilseeds from the farmers by paying remunerative prices under Minimum Support Price. Groundnut, Sunflower, Safflower Syabean & Copra. APOILFED is supplying quality seeds of different oil seed crops (Certified &

Labelled Seeds) of Groundnut and Soybean to the farmers under the Govt.seed supply plan to a tune of 4,00,000 Qtls. every year. During Kharif 2009 and Rabi 2009-2010 APOILFED has distributed 3,14,550 qtls. (Table-4) of G.N.seed to the farmers under Govt.seed subsidy programme. APOILFED also distributed Certified seeds of cereals and oilseeds to other State Seeds Corporation like Rajasthan State Seeds Corporation (RSSC) & Haryana State Seeds Development Corporation (HSDC). We have procured the following under Minimum Support Price Operation. 2006-07 Qty(Qtls) 2007-08 Qty(Qtls) 2008-09 Qty(Qtls) 2009-10 Qty(Qtls) (Upto Safflower Soyabean Sunflower Copra 910.22 72.72 75.00 156496.50 33747.00 Feb2010) 12959.00 22132.00

The Federation has initiated Seeds Multiplication Programme for groundnut and soyabean by procuring breeder seeds from the Agricultural university

22

Groundnut Seed Procurement & Distribution during the years from 1996-97 to 2009-10 YEAR 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 31455 Total Qty. In MTs 1162 2747 16150 28879 56851 25738 15198 23712 30588 11180 36796 44327 44649

23

Sale of Edible Oils: The APOILFED launched marketing of the following refined edible oils in consumer packs in the year 1984-85 under the Brand name VIJAYA. The following 7 edible oils are distributed through out the State. Groundnut Oil Sunflower Oil Palmolien Ricebran Coconut Gingelly Soyabean Oil Oil Oil Oil Oil The sales have

A large distribution net work has been established all over the State.

improved from initial 200 MTs per year to nearly 34700 MTs during 2003-2004. Likewise the turnover has increased from just Rs.5.00 Crores per annum to Rs.154.13 Crores per annum in 2002-03. During the year 2002.2003, Federation shifted to cash sales instead of credit sales from 2003 Sept. onwards and we are maintaining the same turn over of 32,500 to 34,000 MTs per annum. For the year 2008-09, the Federation sold 37819 MTs and the year 2009-10 upto Feb. 2010 sold 36000 MTs. of edible oils The Federation is regularly supplying edible oils to the major Rythu Bazars, Gruhamitra counters and Social Welfare Hostels, and for Mid-day Meal scheme all over the State. For these supplies, a differential market price of an average Rs. 6 to 7/- per litre less than the open market is provided by the Federation. Premium quality at reasonable rate has helped VIJAYA to make its mark in the edible oils market and also stabilize the oil prices in the open market.

24

Theoretical Framework Financial Statements Introduction: The basis for financial planning, analysis and decision-making is the financial information. Financial information is needed to project, compare and evaluate the firms earning ability. It is also required to aid in economic decision-making investment and financial decisionmaking. The financial information of an enterprise is contained in the financial statements or accounting reports. Three basic financial statements of great significance to owners, management and investors are balance sheet, profit and loss account and cash flow statement. Balance Sheet: Balance sheet is the most significant financial statement. It indicates the financial condition or the state of affairs of a business at a particular moment of time. More specially, balance sheet contains information about resources and obligations of a business entity and about its owners interest in the business at a particular point of time. Thus, the balance sheet communicates information about assets, liabilities and owners equity for a business firm as on a specific date. It provides a snapshot of the financial position of the firm at the close of the firms accounting period. Assets are valuable economic resources owned by the firm. They embody future benefits and are measured in monetary terms. Assets represent: (a) stored purchasing power (e.g., cash), (b) money claims (e.g., receivables stock) and (c) tangible and intangible items that can be sold or used in business to generate earning. Tangible items that include land, building, plant, equipment or stocks of materials and finished goods and all such other items do not have any physical existence, but they have value to a firm. They include patents, copyrights, trade name or goodwill.

25

Assets are classified as: (1) current assets and (2) fixed (long term) assets. Current assets sometimes called liquid assets are those of a firm which are either held in the form of cash with in the accounting period are of one-year duration. Current assets include cash, tradable (marketable) securities, and debtors (accounts receivables) and stock of raw material, work-in process and finished goods. Fixed assets are long-term in nature; they are held for periods longer than the accounting period. They include tangible fixed assets like land, building, machinery, equipment, Intangible fixed assets represent the firms rights and include patents, furniture etc.

copyrights franchises, trademarks, trade names and goodwill. Firms obligations are called liabilities. Liabilities represent debts payable in future by the firm to its lenders and creditors. They represent economic obligations to pay cash or pay cash or to provide goods services in some future period. Examples of liabilities are creditors, bills payable, wages, salaries payable, taxes payable, bonds, debentures, borrowings from banks and financial institutions, public deposits etc Liabilities are of two types: (1) current liabilities; and (2) long-term (fixed) Current liabilities are debts payable within an accounting period. Current assets are

converted into cash to pay current liabilities. Long-term liabilities are the obligations or debts payable in a period of time greater than the accounting period. Long-term liabilities include debentures, bonds, and secured long-term loans from financial institutions.The financial interest of the owners are called owners equity or simplyEquity. The owners interest is residual in nature, reflecting the excess of the firms assets over its liabilities. As liabilities are the claims of outside parties, equity represents owners equity has two parts (a) paid-up share capital and (b) reserves and surplus. Paid-up share capital is the amount of funds directly contributed by the shareholders through purchase of shares. Reserves and surplus or obtained earning are undistributed profits. Paid up share capital and reserves and surplus together are called net worth.

26

Importance of Financial Statements The information given in the financial statement is very useful to a given below:

number of parties as

Owners: Owners provide funds for the operation of business and they want to know whether their funds are being properly utilized or not. The financial statement prepared from time to time to satisfy their curiosity.

Creditors: Creditors (i.e. suppliers of goods and services on credit, bankers and other lenders of money) want to know the financial position of a concern before giving loans or granting credit. The financial statements help them in judging such positions.

Investors: Prospective investors, who want to invest money in a firm, would like to make an analysis of the financial statements of that firm to know how safe proposed investment would be.

Employees: Employees are interested in the financial position of a concern they serve, particularly when payment of bonus depends upon the size of the profit earned. They would like to know that the bonus being paid to them is correct; so they became interested in the preparation of correct profit and loss account.

Government: Central and State Governments are interest in the financial statements because they reflect the earnings for a particular period for purpose of taxation. Moreover, these financial statements are used for compiling statistics concerning business which in turn, help in compiling national accounts.

Research Scholars: The financial statements being a mirror of the financial position of a financial position of a firm are of immense value to the research scholars who wants to make a study into financial operations of a particular firm.

Consumers: Consumers are interested in the establishment of good accounting control so that cost of production may be reduced with the resultant of the prices of goods they buy.

27

Managers: Management is the art of getting things done through others. This requires that the subordinates are doing work properly. Financial statements are an aid in this respect because they serve manager in appraising the performance of the subordinates by comparing the actual results with the standards established and identifying the deviations, if any and taking remedial measures to remove deviations. Techniques and Tools of Analysis and Interpretation: The following techniques can be used in connection with analysis and interpretation of financial statements: Comparative financial statements (or Analysis). Common measurement statements (or Analysis). Trend percentages (or Analysis). Funds flow statements (or Analysis). Net working capital (or Analysis). Cash flow statements. Ratio Analysis.

28

Working Capital Working capital management involves the relationship between a firm's short-term assets and its short-term liabilities. The goal of working capital management is to ensure that a firm is able to continue its operations and that it has sufficient ability to satisfy both maturing shortterm debt and upcoming operational expenses. The management of working capital involves managing inventories, accounts receivable and payable and cash to pay current liabilities as they fall due. This implies a clearly designed risk policy to determine the required liquidity level. Why Firms Hold Cash The finance profession recognizes the three primary reasons offered by economist John Maynard Keynes to explain why firms hold cash. The three reasons are for the purpose of speculation, for the purpose of precaution, and for the purpose of making transactions. All three of these reasons stem from the need for companies to possess liquidity. Speculation Precaution

Transaction Speculation:
Economist Keynes described this reason for holding cash as creating the ability for a firm to take advantage of special opportunities that if acted upon quickly will favour the firm. An example of this would be purchasing extra inventory at a discount that is greater than the carrying costs of holding the inventory.

Precaution:
Holding cash as a precaution serves as an emergency fund for a firm. If expected cash inflows are not received as expected cash held on a precautionary basis could be used to satisfy short-term obligations that the cash inflow may have been bench marked for.

29

 Transaction:
Firms are in existence to create products or provide services. The providing of services and creating of products results in the need for cash inflows and outflows. Firms hold cash in order to satisfy the cash inflow and cash outflow needs that they have. Concepts of Working Capital: There are two concepts of working capital: Gross Working Capital. Net Working Capital.

In the broad sense, the term working capital refers to the gross working capital and represents the amount of funds invested in current assets. Current assets are those assets, which in the ordinary course of business can be converted into cash within a short period of normally one accounting year. In a narrow sense, the term working capital refers to the net working capital. Net working capital is the excess of current assets over current liabilities.

Working Capital = Current Assets - Current

Liabilities

Net working capital may be positive or negative. When the current assets exceed the current liabilities, the working capital is positive and the negative working capital results when the current liabilities are more than the current assets. Current liabilities are those liabilities which are intend to be paid in the ordinary course of business within a short period or normally one accounting year out of the current assets or the income of the business. The gross working capital concept is financial or going concern concept whereas net working capital is an accounting concept of working capital. These two concepts of working capital are not exclusive; rather both have their own merits.

30

Gross concept is very suitable to the company form of organization where there is divorce between ownership, management and control. The net concept of working capital may be suitable only for proprietary form of organizations such as sole-trader or partnership firms. However, it may be made clear that as per the general practice net working capital is referred to simply as working capital. Types of Working Capital: Working Capital may be classified in two ways: On the basis of concept. On the basis of time. Gross working capital. Net working capital. Permanent or fixed working capital. Temporary or variable working capital.

On the basis of concept, working capital

Based on time, working capital can be further classified into

Permanent Working Capital: Permanent or fixed working capital is the minimum amount, which is required to ensure effective utilization of fixed facilities and for maintaining the circulation of current assets. There is always a minimum Level of current assets, which is continuously required by the enterprise to carry out its normal business operations. For example, every firm has to maintain a minimum level of raw materials, work-in-process, finished goods and cash balance. This minimum level of current assets is called fixed working capital. Temporary Working Captial: Any amount over and above the permanent level of working capital is temporary, fluctuating or variable working capital. This portion of the required working capital is needed to meet fluctuations in demand consequent upon changes in production and sales as a result of seasonal changes.

31

Working Capital Cycle: Cash flows in a cycle into, around and out of a business. It is the business's lifeblood and every manager's primary task is to help keep it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire.The faster a business expands the more cash it will need for working capital and investment. The cheapest and best sources of cash exist as working capital right within business. Good management of working capital will generate cash will help improve profits and reduce risks. Bear in mind that the cost of providing credit customers and holding stocks can represent a substantial proportion of a firm's total profits. There are two elements in the business cycle that absorb cash - inventory (stocks and payables (your creditors) and equity and loans. work-

in-progress) and receivables (debtors owing you money). The main sources of cash are

32

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. Consequently, 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 find future sales. Current and Non-Current Assets To understand flow of funds, it is essential to classify various accounts and balance sheet items into current and non current categories. Current accounts can either be current assets or current liabilities. Current assets are those assets which in the ordinary course of business can be or will be converted into cash in a short period of normally one accounting year. Current liabilities which are intended to be paid in the ordinary courses of business with in a short period of normally one accounting year out of the current assets or the income of the business.

33

The Following Is List of Current Working Capital Accounts List of current or working capital accounts Current liabilities Current assets 1. Bills payable. 1. Cash in hand. 2. Sundry payable. 3. Accrued (or) outstanding expenses. 4. Dividends payable. 5. Bank over drafts. 6. Short 7 8 9 term loans advances & 7 deposits. Provision against current assets. Provision for taxation, if it does not amount to Appropriation of profit. Proposed dividend (may be a current (or)non current Liabilities). 8 9 creditors (or) account 2. Cash at bank. 3. Bills Receivable. 4. Short tern (or) Account Receivable. 5. Short term loans & Advances. 6. Temporary investment. Inventories or stock such as a) Raw material. b) Working process c) Stores and pares. d) Finished goods. Prepaid expenses. Accord income. (or) Marketable

Statement of schedule of changes in working capital Working capital means the excess of current assets over current liabilities. Statement of changes in working capital is prepared to show the changes in the working capital between the two balance sheet dates. This statement is prepared with the help of current assets & current liabilities derived from the 2 balances.

34

Determinants of Working Capital: Nature or character of business

The working capital requirement of a firm basically upon the nature of its business. Public utility undertakings like electricity, water and railway need very limited working capital because they offer cash sales only and supply services.

Size of business, Scale of operations

The working capital requirements of a concern are directly influenced by the size of its business which may be measured in terms of scale of operations. Greater the size of business units, generally larger will be the requirements of working capital. Production policy In certain industries the wide fluctuations may be due to seasonal variations. The requirements of working capital in such a case depend upon the production policy. Seasonal variations

In certain industries the raw material may not be available throughout the year. They have to buy raw materials in bulk during the season to ensure an uninterrupted flow of production. Working capital cycle

In a manufacturing concern the working capital starts with the purchase of raw materials and ends with realization of cash from the sales of finished products. The speed with which the working capital completes one cycle determines the requirements of working capital. Longer the period of cycle larger is the requirement of working capital. Credit policy

The credit policy of a concern in its dealings with debtors and creditors considerably influence the requirements of working capital. A concern that purchases its requirements on credit and sells its products on cash requires less amount of working capital.

35

Rate of growth of Business

The working capital requirements of a concern increases with the growth and expansion of its business activities. Although, it is difficult to determine the relationship between the growth in the volume of business and working capital of a business, yet it may be concluded.

Earning capacity and dividend policy

Some firms have more earning capacity than other due to quality of their products, monopoly conditions etc. such firms with high earning capacity may generate cash profits from operations and contribute to their working capital. The dividend policy of a concern also influences the requirements of its working capital. Price level changes

Changes in the price level also affect the working capital requirements. Generally, the rising prices will require the firm to maintain large amount of working capital as more funds will be required to maintain the same current assets. The effect of rising prices may be different for different firms. Some firms may be affected much while some others may not be affected at all by the rise in prices. Other factors

Certain other factors such as operating efficiency, management ability, irregularities of supply, import policy, asset structure, importance of labor, banking facilities, etc, also influence the requirements of working capital.

36

Management of Cash Cash management is one of the key areas of working capital management. Cash, the most liquid asset is of vital importance to the daily operations of business firms. Firms need cash to meet the needs of daily transactions, to take advantage of unexpected investment opportunities. While cash serves these functions, it is an idle resource with an opportunity cost. The liquidity provided by the holding cash is at the expense of profits that could from alternative investment opportunities. Hence the firm should plan and control cash carefully. Cash management deals with the following Cash Inflows and Out flows Cash flows within the firm Cash balances held by a firm at a point of time

Cash management need strategies to deal with following various facts of cash Investment of Surplus Funds: There are sometimes, surplus funds with the companies, which are required after sometime. These funds can be employed in liquid and risk free securities to earn some income. There are number of avenues where these funds can be invested. Unit 1964 scheme Ready forwards Investment in Marketable securities Bald financing Negotiable certificate of deposit

37

Advantages of Adequate Working Capital Working capital is the lifeblood and nerve center of business. Just as circulation of blood is essential in the human body for maintaining life, 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: Solvency of the business: Adequate working capital helps in maintaining solvency of the business by providing uninterrupted flow of production. Goodwill: sufficient working capital enables a business concern to make prompt payments and hence helps in creating and maintaining goodwill. Easy loans: A concern hacking adequate working capital, high solvency and good credit standing can arrange loans from banks and others on easy and favorable terms. Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on the purchases and hence it reduces costs. Regular payment of salaries, wages and other day-to-day commitments company which has ample working capital can make regular payment of salaries, wages and other day-to-day commitments which raises the morale of its employees, increases their efficiency, reduces wastages and costs and enhances production and profits. Regular supply of raw materials: Sufficient working capital ensures regular supply of raw materials and continuous production. Ability to face Crisis: Adequate working capital enables a concern to face business crisis in emergencies such as Ability to face Crisis.

38

Disadvantages of Excessive Working Capital Every business concern should have adequate working capital to run its business operations. It should have neither redundant or excessive working capital nor inadequate nor shortage of working capital. Both excessive as well as short working capital positions are bad for any business.

Excessive working capital means idle funds which earn no profits for the
and hence the business cannot earn a proper rate of return on its investments.

business

When there is redundant working capital, it may lead to unnecessary purchasing and accumulation of inventories causing more chances of theft, waste and losses.

Excessive working capital implies excessive debtors and defective credit Policy, which may cause higher incidence of bad debts.

It may result into overall inefficiency in the organization. When there is an excessive working capital relation with the banks and other financial institutions may not be maintained.

Due to low rate of return on investments the value of shares may also fall.

39

Statement of schedule of changes in working capital

Particulars Current assets: Cash in hand Cash at bank Bills receivable Sundry debtors Temporary Investment Stock Prepaid expenses Accrued incomes Total current assets(A) Current liabilities: Bills payable Sundry creditors Outstanding expenses Bank overdraft Short advantages Dividend payable Provision for taxation

Previous year

Current year

Effect on working capital Increase Decrease

xxx xxx xxx xxx Xxx Xxx Xxx Xxx Xxx xxx

Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx Xxx xxx

Xxx Xxx Xxx Xxx Xxx Xxx Xxx

xxx Xxx xxx Xxx xxx xxx Xxx xxx Xxx

Total current lia. xxx (B) W.C (A-B) Xxx

40

Ratio Analysis Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of ratio to interpret the financial statement so that the strengths and weaknesses of a firm as well as its historical performance and current financial condition can be determined. Types of Ratios Ratios can be classified, for the purpose of exposition, into four broad groups: Liquidity ratios Capital structure/leverage ratios Profitability ratios Activity ratios

Liquidity ratios: The liquidity ratios measure the ability of a firm of to meet its short-term obligations and reflect the short-term financial strength / solvency of a firm. The ratios, which indicate the liquidity of a firm, are: Current Ratio Acid Test/Quick Ratio Cash Ratio

Current Ratios: The current ratio indicates the firms ability to pay its current liabilities. The Ratio should be 2:1, but depending on each industry own peculiar problems, the ratio may vary between 1.5: 1 to 3:1. Current Assets Current Ratio = Current Liabilities

41

The higher the current ratio, the larger the amount of rupees available per rupee of current liability, the more the firms ability to meet current obligations and greater the safety of funds of short-term creditors. Thus current ratio, in a way, is a measure of margin of safety to the creditors. Cash Ratio or Absolute Liquid Ratio: The cash ratio is the ratio of cash and bank balance to the current liabilities. This ratio is the most rigorous and conservative test of a firms liquidity position. Conventionally, a ratio of 0.5:1 i.e., for every rupee of current liability there should be 50 paise of cash and bank balance, which is considered satisfactory. Current Assets Cash Ratio = Current Liabilities

Leverage Ratios: The long-term creditors would judge the soundness of the firm on the basis of the long-term financial strength measured in terms of its ability to pay the interest regularly as well as repay the installment of the principal on due dates or in one lumps at the time of maturity. The long-term solvency of the firm can be examined by using leverage of capital structure ratios.There are two aspects of the long-term solvency of the firm: Ability to repay the principal when due, and Regular payment of interest.

Accordingly there are two types of ratios: Borrowed Funds And Owners Capital Coverage Ratios

42

Ratios, which are based on the relationship between, borrowed funds and owners capital. They include Debts-equity ratio Debts-assets ratio Equity assets ratio

Debt Equity Ratio: Debt-equity ratio is the ratio between the borrowed funds and owners capital

Total Debt Debt Equity ratio = __________________________________ Share holders equity The D/E ratio is, thus, the ratio of total outside liabilities to owners total funds. In other words, it is the ratio of the amount invested by outsiders to the amount invested by owners of the business. Debt to Capital Ratio The relationship between creditors funds and owners capital can also be expressed in terms of another leverage ratio. The debt to capital ratio. Here the outsiders liability are related to the total capitalization of the firm and not merely to the shareholders equity.

Long term debt Debt to capital ratio = _______________________ Share holders equity Conventionally, a ratio of 1:2 is considered satisfactory.

43

Equity Assets Ratio: Another variant of debt equity ratio is to relate the owners proprietors funds with total assets. This is called proprietary ratio. The ratio indicates the proportion of total assets financed by owners.

Proprietors funds Equity assets ratio = ____________________________ Permanents capital

The second type of ratios, popularly know as coverage ratios includes Interest coverage ratio, Total fixed charges coverage ratio.

Interest Coverage Ratio It is also known as time-interest-earned ratio. The ratio measures the debt surveying capacity of the term insofar as fixed interest on long term loan is concerned. It is determined by dividing the operating profits or earnings before interest and taxes (EBIT) by the fixed interest charges on loans. Total Coverage Ratio While the interest coverage ratio considers the fixed obligation of a firm to the respective suppliers of funds i.e., creditors and preference shareholders, the total coverage ratio has wider scope and rakes into account all the fixed obligations of a firm i.e., interest on loan, lease payments, preference dividends. Total Coverage = EBIT+ Lease payment + Lease payments + (Preference dividend + Installment of principal) ______________________________________________________ (1-t)

44

Turnover Ratio: Another way of examining the liquidity is to determine how quickly certain current assets are converted into cash. The ratios to measure these are referred to as turn over ratio. Relevant turnover Ratios are. Inventory turnover ratio Debtors turnover ratio Working capital turnover ratio Current assets turnover ratio

Inventory Turnover Ratio It is computed by dividing the cost of goods sold by the average inventory. Cost of goods sold Inventory turn over ratio = _______________________ Average inventory

This ratio indicates how fast inventory is sold. A high ratio is good from the viewpoint liquidity and vice versa. A low ratio would signify that inventory does not sell fast and stays on the shelf or in the warehouse for a long time. Profitability Ratios: Profitability ratios are calculated to measure the profitability of the firm and its operating efficiency. Profitability ratios can be determined on the basis of either sales or investments. The profitability ratios in relation to sales are: Profit Margin Ratio (Gross & Net) Expenses ratio or Operating Ratio.

45

The profitability ratios in relation to investments are: Return on assets. Return on capital employed.

Gross Profit Margin: This ratio expresses the relation between gross profit and sales. It indicates the degree to which the selling price of goods per unit may decline without resulting in losses form operations to the firm. However, the gross profit ratio should not be higher or lower but adequate to cover operating expenses, fixed charges, dividends and reserves. A high ratio of gross sales is a sign of good management.

Gross profit Gross profit margin = ______________________ Net sales Net Profit Margin This ratio indicates net margin earned on a sale of Rs.100, this ratio indicates the management efficiency.

Net operating profit x 100 Net profit margin = ______________________________ Net sales Expenses Ratio Expenses in operating ratio are computed by dividing expenses by sales. The term expenses includes cost of goods sold, administrative expenses, selling and distribution expenses but it is a exclusive of financial expenses like interest. Taxes, dividends and extraordinary losses due to theft of goods destroyed by fire and so on. The different variants of expense ratios are.

46

Cost of goods sold x 100 Cost of goods sold ratio = ___________________________ Net sales

Operating Cost Operating expenses ratio = _________________________ Net sales It expresses the relationship between expenses incurred for running the business, and the resultant net sales. Operating cost Cost of goods office and administration expenses selling and distribution expenses. Return on Capital Exployed Ratio (Roce) or Return on Investment Ratio (Roi): This ratio reveals the earning capacity of the capital employed in the business. It is calculated as Profit before interest and tax Return on investment = __________________________________ Capital employed

47

Data Analysis and interpretation Statement of Changing In Working Capital For The Year 2007-2008 Of AP Oilseeds Federation Ltd. Table: 1

Particulars

2007-08

2006-07

EFFECT ON Working Capital Increase 961.95 Decrease 4.42 229.02 248.04 22.36

Current Assets:Cash & bank Miscellaneous deposits Sundry Debtors Staff advances Loans & advances Prepaid expenses Total current Assets (A) Current liabilities & Provisions:Current liabilities Other current liabilities Total current liabilities (B) Working Capital (A-B) Increase in W.C Total Source: Annual company reports.

1701.37 33.15 4122.99 294.56 404.5 91.86 6648.43

739.41 37.57 4352.02 46.52 426.87 91.86 5694.25

1172.92 2049.51 3222.43 3426 3426

1127.26 1950.6 3077.86 2327.23 1098.77 3426

45.66 98.91

1098.77 1354.57 1354.77

48

49

Interpretation: From the above table showing decrease in working capital in the year 2008-09 is due to increase in current liabilities even though there is an increase in current assets, the percentage increased in current liabilities is high. That working capital helps in taking strategic decisions in operational areas.

Statement Of Changing In Working Capital For The Year 2008-2009

50

Source: Annual company reports Interpretation: From the above table showing decrease in working capital in the year 2009-10 is due to increase in current liabilities even though there is an increase in current assets, the percentage increased in current liabilities is high. That working capital helps in taking strategic decisions in operational areas.

51

Statement Of Changing In Working Capital For The Year 2010-2011 Of AP Oilseeds Federation Ltd. Table: 4 Particulars 2010-11 2009-10 Effect on workingcpaital Increase Current Assets:Cash & bank Miscellaneous deposits Sundry Debtors Staff advances Loans & advances Advance income tax Prepaid expenses Total current Assets (A) 456.92 39.92 2494.82 494.31 421.57 554.76 293.59 4755.89 1756.93 34.59 1351.34 975.8 416.57 76.35 67.08 4678.66 1300.01 5.33 1143.48 481.49 5 478.41 226.51 decrease

Current

liabilities

& 2425.37 52.92 2478.29 2277.6 2277.6 3503.62 57.50 3561.12 1117.54 1160.06 2277.6 2941.56 1160.06 2941.56 1078.25 4.5

Provisions:Current liabilities Other current liabilities Total current liabilities(B) Working capital(A-B) Increase in w.c Total

Source: Annual company reports

Interpretation

From the above table showing increase in working capital in the year 2010-11is due to decrease in current liabilities even though there is an decrease in current assets, the

52

percentage decreased in current liabilities is high. That working capital helps in taking strategic decisions in operational areas.

Changes in Statement of Working Capital for 2006-2011(Lakhs) Table: 5 Year Current Current Working capital Changes in W.C

53

assets

liabilities

Increase

Decrease

2007-08

6648.43

3222.43

3426

-------------

1098.77

2008-09

11889.52

7041.71

4847.81

------------

1421.81

1223.03 2009-10 4784.15 3561.12 2277.6 2010-11 4755.89 2478.29 ------------1054.7 3624.78 -------------

Source: Annual company reports Graph: 1

Interpretation:

54

In the year 2007-08 working capital was maintained good where in the year 2010-11 in has decreased and from the year 2007-08 to 2010-11 there is a fluctuating in working capital which is not a good sign to the company. The fluctuating in working capital is due to the fluctuating in current liabilities with current assets. Hence the company has to maintain the proper working capital to meet its current operations by increasing the current assets.

Growth factor for Cash & Bank Table: 6

55

1701.37 934.30 1756.93 456.92 Source: Annual company reports

Graph: 2

Years 2007-08 2008-09 2009-10 2010-11

Cash & bank

Growth factor 130.09 -45 88 -74

Interpretation:

The cash and bank balances of AP Oil Fed are fluctuating. The above graph shows the level of cash and bank balance changes from year to year. Though there is a increase in cash and bank balances in the year 2007-08 & 2009-10 hence, there was less flow of cash in these years which leads to low profits to organization. When there is high flow of cash in the financial year will leads to high profits. As sales of any company increases cash & bank balance of the respective company also increases and vice versa Growth factor for Sundry Debtors: Table: 7
Years Sundry debtors Growth factor

56

4122.99 3514.19 1351.34 2494.82 Source: Annual company reports

Graph:3

2007-08 2008-09 2009-10 2010-11

-5.26 -14.77 -61.55 84.62

Interpretation: The Sundry Debtors of AP Oil Fed is fluctuating. The above graph shows the level of Sundry Debtors changes from year to year. There is a continuous decrease in Sundry Debtors in the year 2007-08, 2008-09 & 2009-10 hence, there is less expected sales in these years which leads to less turnover which leads to low profits to organization. When there is high flow of sundry debtors in the financial year 2010-11 leads to more sales with high turnover and high profits. Therefore though there is high sales money is blocked out in the form of credit which is to be minimized

Growth factor for Current Assets Table: 8

Years Total Current Growth factor 57

assets

6648.43 11889.52 4784.15 4755.89 Source: Annual company reports

Graph: 4

2007-08 2008-09 2009-10 2010-11

16.75 78.83 -59.76 -0.59

Interpretation: The current assets are a very important and a major part of the assets estimation. The above graph shows the level of current assets from the year 2007-11.In the year of 2008-09 it was nearly 80% which means all working capital contents are in good postion and in 2009-10 it was -60% which means all working capital contents are in not good position . Hence with this we can say that the decrease in assets will give a negative impact on working capital. So we can affirmatively comment that the financial position of the company has been fluctuating.

Growth factor for Current liabilities

58

Table: 9
Years 2007-08 2008-09 2009-10 2010-11 Graph: 5 Total Current Liabilities Growth factor 4.69 118.52 -49.42 -30.41

3222.43 7041.71 3561.12

2478.29

Source: Annual company reports

Interpretation: The current liabilities and provisions are a very important and a major part of the liabilities estimation. The above graph shows the level of current liabilities from the year 2007-08 to 2010-11. In the year of 2008-09 it was nearly 100% and in 2009-10 it was -49.24% with continuous decrease in liabilities. Hence with this we can say that the increase in Liabilities will give a negative impact on working capital. So we can affirmatively comment that the financial position of the company has been good

Growth factor for Loans & Advances

59

Table: 10 404.50 946.88 528.21 421.57 Source: Annual company reports

Graph : 6 Year 2007-08 2008-09 2009-10 2010-11 Loans & advances Growth factor -5.24 134.08 -44.21 -20.18

Interpretation: The loans & advances of AP Oil Fed are fluctuating. The above graph shows the level of loans & advances changes from year to year. There is a decrease in loans & advances in 2007-08, 2009-10 & 2010-11 which lead good financial position of the company. Now in the year 2008-09 company raises loans from banks and other financial institutions therefore it leads to increase in the debts to the company which is to be minimized.

Current ratio:

Current ratio= current assets/current liabilities

60

Table: 11 Year Current assets Current liabilities 3222.43 7041.71 3561.12 2478.29 Current ratio 2.06 1.69 1.34 1.92

2007-08 6648.43 2008-09 11889.52 2009-10 4784.15 2010-11 4755.89 Source: Annual company reports Graph: 7

Interpretation: It indicates the amount of current assets available for each current liability. Higher the ratio, greater the margin of safety for creditors and vice-versa. However, too high/too low ratio calls for further investigation since the too high ratio may indicate the presence of idle funds and too low ratio may indicate the over trading/under capitalization. Traditionally, a current ratio of 2:1 considered to be a satisfactory ratio. This ratio is high in 2007-08 after this ratio is slowly decreasing than previous year below 2:1 ratio and which shows its high solvent position and striking a balance in the maintains the adequate inventory, efficiency in debt collection and making proper Investments by keeping adequate cash and bank balance

Cash Ratio:

Cash ratio= Cash & Bank balances / Current liabilities

61

Table: 12 Year Cash& bank balances Current Liabilities 3222.43 7041.71 3561.12 2478.29 Cash ratio 0.53 0.13 0.49 0.18

2007-08 1701.37 2008-09 934.30 2009-10 1756.93 2010-11 456.92 Source: Annual company reports Graph: 8

Interpretation: Cash ratio indicates whether the firm has sufficient cash balances to meet its current liabilities or not. The firm has 0.53% of cash ratio in 2007-08 and decreased to 0.18% in 2010-11 which is very low. In order to maintain sufficient cash balance the firm has to maintain control over its credit sales (Debtors) and making payments to the suppliers. Over the period of study revealed there is no sufficient cash balance to meet it current liabilities. So the company has to control proper credit sales and make payments to creditors in time

Working capital:

Working Capital=Current assets-current liabilities

62

Table: 13 Year Current assets Current liabilities 3222.43 7041.71 3561.12 2478.29 Working capital 3426 4847.81 1223.03 2277.6

2007-08 6648.43 2008-09 11889.52 2009-10 4784.15 2010-11 4755.89 Source: Annual company reports Graph: 9

Interpretation: This ratio is particularly valuable in determining business's ability to meet current liabilities.Here regarding company the working capital is fluctuating.

63

Working Capital Turnover Ratio:Working capital turnover ratio= sales/ Working capital Table: 14 Year 2007-08 2008-09 2009-10 2010-11 Sales 45257.5 44304.73 36629.3 44127.1 Working capital 3426 4847.81 1223.03 2277.6 Working Captial Turnover Ratio 13.21 9.14 29.95 19.37

Source: Annual company reports Graph: 10

Interpretation: A high WCTR may also indicate that the business requires additional funds to support its financial structure, top-heavy with fixed investments. It is widely fluctuating year over year. The WCTR studies velocity utilization of the firm during a year. This ratio is calculated by comparing the net sales to the net working capital. The high the WCTR ratio, the lower is the investment in the WC and higher would be the Profitability. A high WCTR ratio references the better utilization of the firm

64

Findings

In the 2008-09 the current assets are heavely increased compared to the year 2007-08. By comparing the past 4 years it as known that the working capital is flucuated. In the year 2007-08 the cash and bank balances is high and in 2008-09, 2009-10 the cash and bank balance is negative.

The sundry debtors of the company is less in 3 out of four years except in the year 2010-11 all are in negative.

Current assets of the ap oil fed is high in the year 2008-09. Current liabilities of the company is low in three years except in the year 2008-09. Loans and advances of the company is low and in 2008-09 it is high. By the past 4 years study it has known that the current ratio of the ap oil fed is satisfactory.

The working capital turnover ratio is fluctuating year by year.

65

Suggestions

The company has to take the measures in order to control the current liabilities.

A long term plan has to be made to a long term plan to come out of the fluctuations.

The company has to recover the bad debts to recover the current assets from the fluctuations.

Current liabilities are always showing the negative side, its a good indication to the company and it should maintain the same.

By the past 4 years study it has known that the current ratio of the ap oil fed is satisfactory,it needs to improve the current assets to run the company in the profits.

The company has to make strict management on the working capital area to control it by the fluctation.

66

Bibliography

Dr.S.N.Maheswari and Dr.S.K.Maheshwari 2009: Financial Accounting, Vikas Publishers, New Delhi 7/e

I.M.Pandey 2007: Financial Management, Vikas Publishers, New Delhi,9/e M.Y.Khan and P.K.Jain 2009: Financial Management ,McGraw-Hill,2/e

Website:

www.accountingcoach.com www.apoilfed.com www.indiastudy.com www.oppapers.com

67