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CHAPTER I

INTRODUCTION
The function of any business organization includes finance, marketing, personnel and production. These four functions are interlinked and cumulatively. They lay greater stress on management for its successful endeavor. Among the four Finance Function has a dominant role. Through the ages it has been said that finance is the life and blood of business it is the most primary function that starts laying its influences from the very beginning of the entrepreneurial ideal its presence is felt in every bit of organizational functioning. One use of accounting information is decision making about a firm by outsiders. Creditors and investors. The decision-making is done with the help of finance analysis. The finance analysis the main tools is ratio analysis. Fund flow and cash flows statements are prepared. The ratios are analyzed to prepared and to know the liquidity position, longterm solvency operating efficiency and over all profitability. The finance analysis prepared through balance sheets and profit and loss accounts. These statements are prepared to know the changes in working capital positions. Technique of ratio funds flow and cash flow statements are used to analyze and interpret the balance sheet and profit and loss account. The funds flows statement provides an analysis of changes in the firms working position. Funds from operation is calculated by adjusting the figure of net profit for Non funds items such as depreciation dividend etc. cash flow statement is prepared to analyze changes in the firms cash from operation changes in current assets and current liabilities are also adjusted in net profit.

INDUSTRY PROFILE
Introduction :
Milk is the food, which contains Vitamins, Proteins, rate and carbohydrates. Every human being consumers milk at one time or the other world health organization suggests that the infants should be fed compulsorily with mother milk. Because it provides all the necessary fats, proteins, etc. which is essential for the growth of the baby. If other milk is not available they suggest animal milk. This shows what major role milk is playing in our daily life. India is the second highly, Populated country and is about to occupy the first position in India. The major source of income is Agriculture. Dairying is a part of Agriculture dairying is one of the best instruments for bringing up the socio-economic development of the country. Developing country like India rural people depend on agriculture. Income like farming, dairying etc. The India dairy is expected to retain its indigence character for a long time because of consumer tastes for articles of food so far delicacies are concerned.

Dairy Development :
In India has been most spectacular in recent years, while chef-contributing factor to this achievement is the Anand pattern of dairy cooperatives. No less creditable has been a concerned effort of the national dairy development and Indian dairy development. These two institutional have been responsible for dairy development in India since 1970. Dairying is considered as a whole when it contains elements like production procurement and marketing. Karina District Co-operative milk producers union limited adopted the integrated approach this integrated approach.

In dairying is proved to be successful with Amul and latter this integrated approach is came to be known as Anand pattern of dairy cooperatives.

AN OVER VIEW OF MILK INDUSTRY


The dairy sector in the India has shown remarkable development in the past decade and India has now become one of the largest producers of milk and valueadded milk products in the world. The dairy sector has developed through cooperatives in many parts of the State. During 1997 98, the State has 60 milk processing plants with an aggregate processing capacity of 5.8 million liters per day. In addition to these proceeding plants, 123 Government and 33 co-operative milk chilling centers operate in the state. With the increase in milk production. Maharashtra now regularly exports milk to neighboring states. It has also initiated a free school feeding, scheme, benefitting more than three million school children from over 19,000 schools all over the state. The prosperity of any land from time immemorial has been measured in terms of milk and honey. Great history establishes that India was a land milk and honey before foreign invasion. After the break-up of salute union India has become the second largest milk producer in the work, next the USA.

INDIAN MILK INDUSTRY :


Dairy is a place where the process of milk and milk products is done and technology refers to the application of scientific knowledge for practical purpose.

MILK INDUSTRY IN INDIA :


More than, 2,445 million people economically active in agriculture in the world, probably 2/3 or even more of them are wholly or partly dependent on livestock farming. India is endowed with rich flora & fauna & continues to be vital avenue for employment and income generation, especially in rural areas. India which

has 66% of economically active population engaged in agriculture derives 31% of Gross Domestic Product GDP from agriculture. The share of livestock product is estimated at 21% of total agricultural sector. Indian dairy sector has come a long way from post independence of acute milk shortage and dependent milk demand. According to published reports, Indias milk production in 1905-51 was as low as 17 millions tones. Today, the country has emerged as the second largest milk producer in the world. According to currently, there are over 275 dairy plants and 83 milk product factories in the co-operative, public and private sectors. The growing affluence of middle class has been consumers waiting to upgrade their living standards. This provides the dairy industry and opportunity to expand the dairy products market, in addition to the distribution of branded liquid milk. The tremendous potential of the dairy industry was given a major fillip with, finance minister. Dr. Manmohan Singhs move to diligence the milk industry. The deliquescing of the industry will enable a massive inflow of private investment. This would automatically argument and strengthen existing organized sector and would ensure available of better quality milk and its products to a lager cross section of the population. Organized handling or milk would also lead to proper procurement measure, which would in turn be beneficial to farmers. Entire process of development in milk production enhancement is to be brought organizations owned and managed by farmers themselves. Out country, which has a population of over than 800 millions and almost every individual consuming milk in one way or the other, has a vast potential for daily industry with is major contribution coming from agriculture India has also a vast potential to produce milk.

Maximum stimulation of milk production will be needed where such production is economically viable. The developing countries have a large potential demand for milk and dairy products. At present, milk consumption is confined to middle and high income groups the income elasticity of the demand for milk and its products is high.

MILK PRODUCTION IN INDIA ALL WORLD :


India is the largest animal milk producing country in the world followed by USA. It is estimated that the milk production would cross 50 millions tones by the end of 1995 and target to 65 millions tones by 2000 AD. It is interesting to note that countries like Australia, North American and South American producing cow milk only while the remaining countries. Europe, Africa and Asia producing both cow and buffalo milk. The production in the total milk production of buffalo milk constitutes a meager in the total milk production in the world. Indias milk output largely constitutes buffalo, cow and goat milk. Buffalo milk is the major source of milk production in India. Thus is may be presumed that the climate conditions are suitable for the growth of buffalo when compared to cows. The buffalo milk is the backbone of commercial dairying, which comprised 52% of the total milk production. The cow milk occupies the next position with 45% and the remaining 3% are of goat milk.

Milk production trends :


In India live stock accounts for 26% of the agricultural GDP. This sector provides milk, eggs, meat, wool, hides and skin, dung, bones, hooves and draught power. Its value was estimated to be Rs.600.78 billion. Export and related area earnings from livestock were Rs.1.925 billion. Switching towards the milk production. India achieved the distinction of highest milk producer in the world in the year 1999. The per capita availability was 202 g/day, which is much less than the required consumption of 220 g/capita/day. Except Punjab, Haryana, and Himachal Pradesh, all other states are deficient in per capita milk production.

Setting milk production to triple :


Indias dairy sector is poised to triple production in the next 10 years, taking advantages of the expanding potential for export to Europe and the West. Where withdrawal of support and subsidy has led to a drop in milk production India also had the lowest cost of production per liter in the world, at 27 cents compared with the USs 63 centers, and Japans $ 2.8 Dollars.

Productions trends in Milk :


The production trend for milk, the basic raw material of the worlds dairy industry is perhaps unique amongst agricultural commodities it changes little (by 1 or 2 percent) from year to year. The production trend for milk, the basic raw material of the worlds dairy industry is perhaps unique amongst agricultural commodities it changes little (by 1 or

2 percent) from year to year. There are a number of reasons for this. Firstly, most milk production (65 percent) is concentrated in the developed countries. Here, output in many countries is limited by production restraints. The above trends re expected to result in a shifting the balance of milk production away from the developed countries to the developing countries. By the year 2005, developing countries are anticipated to account for over 40% of world milk production, a share that could be expected to grow further during the course of production towards the developing countries will also imply the increased importance of milk other from cow? In the total picture of the worlds production.

Need for quality of milk production :


India has attained the first rank in milk production in the world. The first five countries in the world production maximum milk are India, USA, Russia, Germany and France. India produced 13.1 percent of the total milk produced in the world. Last year produced 750 lack tones of milk valued at about Rs.75,000 crores. Due to liberalization of Indian economy, milk is being imported from other countries. To maintain our first position in milk production, India will have face healthy competition from other countries. For this, producing largest quantity is now sufficient, but the quality of milk and other factors also need to be borne in mind, the operation flood programmed will have to be supported by quality improvement and quality maintenance. The cost of milk production in India is the lowest (21$ per 100 liters), followed by Denmark. Interestingly, both India and Denmark do not produce subsidy for milk production while in other countries subsidies are given in one form or the other.

Considering low cost of milk production and increasing production, multinational companies have planned to expand their activities. Recently, some big milk producers have obtained quality standards certificates. By this way they can market their products which can be exported to the foreign countries. According to the National Dairy Development Board (NDDB) milk production is increasing at one percent per annum in the world, while it is increasing at 4% in India. Per capita per day consumption of milk has increased to 212 gm. In the coming 10 years, the shares of co-operatives in the distribution of milk in municipal corporation area and other cities will be 60 percent and 50 percent respectively. It has decided to increase milk production three times (21 Crores) in the coming 10 years. It is felt that the milk producers should get remunerative price for their milk. Except, the Government of Maharashtra, no other state fixes minimum prices for milk.

ROLE OF DAIRYING :
Milk and milk products play a vital role in the countries agricultural economy. Milk has second rank among all the agricultural produce in India dairying provides a source of income to millions of farmers. It creates livelihood to about 75% of the population in the country. Majority of them are low income group of rural areas. The office of dairying and agriculture is characterized by mutual influence. Dairying enables the small farms to generate working capital to procure the needed output of agriculture viz. Seeds, Fertilizers etc. Thus, the impact of dairying on agriculture is note worthy. The role and prevalence of milk animals contribute not only to the dairying industry but also to agriculture by way of providing manure, feed wastages animal labour days etc. thus, the success of dairying industry depends on the farmers maintenance of milk animals.

PROGRESS MADE UNDER FIVE YEAR PLANS :


The dairy units all over India under Five years plan were taken up with duel object of increasing the national level of milk consumption and ensuring and ensuring better returns to the primary milk producers. The main aim was to produce more and better milk at cheaper prices. Dairying remained unimportance in the pre-independence India. With inception of planned economy it was realized that promotion of dairying would not only contribute to the national health building but also create substantial employment and income opportunities. Particularly a tremendous progress was made in dairy industries under planning era such as Dairying acquired a national level recognition and a concept of planned approach of overall development was introduced at all levels in the government structure. Organized marketing of milk and milk products started getting the attention by the private, public and co-operative sector. The multinational raw milk products introduced for the common consumer. An innovation to overcome economic hurdles of marketing brought for the formulation of toned milk. The concept of the need for intensive cattle development was driven Home. India made progress in developing its own cadre of trained technical Personnel.

CHAPTER II

NEED FOR THE STUDY


In financial management, balance sheet and income statements cannot give proper information about the financial position of that particular organization whether public sector or private sector. Because in this study to determine the brief study of the cash outflows and inflows and to give proper design on financed, we must need the statement of changes in financial positions. In this project statements of funds flow and cash flow statements and ratios are covered. It is necessary identify the financial strengths and weakness of the Sri Vijaya Visakha Milk producers company Ltd. by establishing relationship between different items if reference it would serve the interest of the Government, creditors investors, employees, customers etc. The study would assist the interest group to get a clarification about the financial position of the Sri Vijaya Visakha Milk Producers Company Ltd.

Importance of Milk :
Milk as well as known is a mixture of a variety of nutrients. Milk is a polysaccharide constitute of our food. Milk on digestion gives glucose and lactose. We all known that out body does eventually stop growing outwardly, but our bones and tissues dons. They are constantly being renewed in fact bone are alive and theyneed constant supplied of calcium and other nutrients in order to be strong. As IDE from ca, milk provides at least the other important nutrients all performing different and important functions. As part of a well balanced diet milk and other milk products are important throughout our life.

As we grow into adulthood, we tend to consume less and less of milk in todays market place. Where there is a be wildering array of milk products. There is a milk product for almost every one once consuming cows milk, infants under 1 year should stock to whole milk for growth and energy needs. Milk Beverage (1 cup = 802=250 ml) Whole Milk 2% 1% Skim B Milk Chocolate partly skimmed 6 (2%) 7 Dry Skin, instant (25 grams) Trace 91 5 189

Sl.No. 1 2 3 4 5

Fat (in grams) 9 5 3 Trace 2

Total Calories 157 120 108 91 105

SCOPE :
Management and our are they related to firms other actnortres working capital management if concern with it problem the raise in attempting the manage the current assets. The current liabilities on the inter relationship between the tows. The producing manufacturers and sold to won profits. Thus, the most important activities of business firm. Which include working capital management are cash marketable securities a/c, receivable inventory control a/c, payable etc. which generates returns on invested capital and compression of assets and liabilities profits and loss of past and present year.

SIGNIFICANCE OF STUDY :
The only principle people follow in these days is look not back, no, not even if you see the dearest and nearest cry. Look not back, but forward. Making it true, they have travelled their way into a competitive world were each and everyone only concentrate on success and nothing but success, their goal, ambition. Industries are large scale and small scale, depending on the investment, input on it. Therefore careful pre-planning is required for proper establishment of these industries, which requires huge funds, and in utilization of these funds. Hence, working capital management is that part of management which makes study on working capital in the organizations. A study on it gives an idea about the working progress of the organization. In brief working capital can be explained as those funds, which are required for day-to-day operations of the firm. In short it can be said the working capital is the basic necessity of any organization. It is that amount without which the functioning of any industry becomes blind. The further development of such organization is difficult.

Study of working capital management in Visakha Dairy gives out the exact idea of working capital because it is an organization with huge production and which also requires huge funds to meet its day-to-day expenses. It is an organization with continuous production (i.e.) procuring storing and distribution. The products or derivatives of this organization play an important role in dayto-day life or every individual since it enhances the convenience. A huge Working Capital is required to meet its expenses. This made me study the working capital requirement of the organization.

OBJECTIVES :
Working capital is the most widely used and powerful technique of financial analysis, the main objective of the present study is to know the financial condition of the company. 1. To analyze the working capital position in Visakha Dairy for the fast five year. 2. To study Working Capital Management in it. 3. To study on the contents of working capital means a study on all the items of current assets and current liabilities. 4. To analyze the working capital procedures and policies in Visakha Dairy Vizag. 5. To study the functioning process of Visakha Dairy. 6. To study above how working capital is financed in the Visakha Dairy. 7. To interpret the finance Position of Visakha Dairy is appropriate (or) not. 8. To analyze the financial situation in Visakha Dairy before and after decontrol.

METHODOLOGY
Methodology includes the different methods or means through which the data is collected. This methodology plays an important role in preparation or study of the project because it includes the collection of data, which is the root cause of the project. Hence, the main sources through which the data had been collected is through Primary and Secondary sources. Primary Data : Collection of data through Primary source includes the information or data given by the executives of the organization directly (i.e.) the co-operation and assistance given by the organization and also my personal experience. Secondary Data : Secondary source includes the information gathered through previous financial records, statements of Visakha Dairy and financial journals and books.

LIMITATIONS
The financial position is reflecting in the annual reports of the company related to the day of the Accounting and is not relevant for the remaining part of the year.

This study is done from the scope of an outside analysis and naturally the material available for analysis is limited compare to ours in company analysis without such limitations.

Another limitations is that the time for the study is only 2 months and is confirmed Visakha Dairy.

Also data about the Industry average is not available for the comparison.

CHAPTER III

ORGANISATION PROFILE
SRI VIJAYA VISAKHA MILK PRODUCERS COMPANY LTD.

Introduction :
The milk shed of Sri Vijaya Visakha Milk producers company limited (Visakha Dairy), Visakhapatnam is comprising of three districts Srikakulam, Vizianagaram and Visakhapatnam. These three districts are situated in the northeastern part of the coastal area of Andhra Pradesh state and considered to be backward for Agriculture and industrial development.

The Srikakulam district is declared as the back ward district for the Industrial development and the government has sanctioned subsidy and also sales tax exemption for five years for the date of starting of an industry. The perennial source of was for irrigation through rivers and river lets is also very much limited in Visakhapatnam and Vizianagaram Districts. Therefore, the rural farmers mostly belonging to small and marginal categories have necessarily to depend on some other source of income for their livelihood.

AN OVER VIEW OF SRI VIJAYA VISAKHA MILK PRODUCERS COMPANY LTD.

INTRODUCTION :
The history of India reveals the fact that milk plays a very vital role in life of people and the development of culture. This dairy industry started since the time of Lord Krishna, which could make much modification and exists as dairy industry. In the past the people of a particular sect called Yadavas had this occupation of rearing / breeding the cattle and get milk and its by-products. The modified version of this is the dairy industry that exists today. People thus accepted dairy as their occupation. In order to encourage them Government of India had taken certain necessary steps. The main intention of the Government is the upliftment of backward people by granting loans and also solves the unemployment. Taking advantage of these schemes a new and a large number of dairy farms have come to existence. A group of people from a village from society and represent the dairy. This has made their standard of living easier. Sri Vijaya Visakha Milk Producers Company Ltd. is one among them. This is a fast growing organization meeting all its customers requirements and successful in satisfying them. Since its working operations are vague its working capital requirements also very high. Working capital is the amount required to meet day-to-day operation at the organization. An absence of these makes the functioning of the organization blind. A proper study on working capital management results in prevention of mismanagement and misutilisation of funds. It also help in functioning of organization in the preplanned way of achieving all its goals and objectives. ex. A good plan of working capital also results of the organization.

ESTABLISHMENT OF VISAKHA DAIRY : State Government of Andhra Pradesh started the Anand Pattern for Dairy development through Operation Flood programme in which this Dairy had joined and became its member in 1981. Sri Vijaya Visakha District Milk Producers Co-operative Union Limited (Sri Vijaya Visakha Milk Producers Company Ltd.) was registered under Co-operatives societies Act 1964 in 1973 and it was re-registered under the Mutually aided co-operative societies Act 1955 in the name of Sri Vijaya Visakha District Milk Producers mutually aided Co-operative Union Limited (Visakha CoOperative Dairy) in 1999. The present new Dairy was constructed with an initial capacity of 50,000 Ltrs. Per day with a loan of Rs.98.50 lakhs from National Co-operative Development Corporation (NCDC), which completed and Commissioned during the year 1977. The present dairy was started as a small society with a group of Milk suppliers in the year 1977. Later on due to its continuous profits it was undertaken by State Government of Andhra Pradesh, which brought many changes. A union comprising of

Visakhapatnam, Vizianagaram and Srikakulam was formed under the name Sri Vijaya Visakha Milk Producers Limited during the year 198182. It affiliated to Andhra Pradesh Dairy Development Co-operation Federation Limited

(A.P.D.D.C.F.).

Origin and Growth of the Organization :


The Government after considering dairying is one of the best instruments for bringing socio economic development in the rural areas has started a dairy with an handling capacity of 10,000 liters per day in 1966. Dairying not only creates subsidiary occupation to the rural farmer by rating responsible market price for his produce at his doorstep by also meets. The demand of the urban consumers for the supply of hygienic quality milk at reasonable price after observing the success of the small dairy. The present new dairy was constructed with an initial capacity of 50,000 liters per day taking loan Rs.98.30 lakhs 1.37 crores. From national cooperative development corporation, this completed and commissioned during the year 1977. This dairy was registered under cooperative societies act in 1973. At the stage the area of operation was limited to Visakhapatnam district only. The farmers took lot of interest in dairying after realizing it as the subsidiary occupation as it is giving them regular income for their livelihood with the result more and smaller and marginal farmers land agricultural laborers joined in this stream for increasing their economy at the village level utilizing the infrastructure available at their door steps. When the AP state has adopted Anand Pattern for dairy development through (of) operation flood programme this cooperative dairy has also joined in the line in 1981 and become a member of the AP dairy development Co-operative Federation Limited at apex level. At this stage the union comprising of the districts Vizianagaram, Srikakulam, Vizianagaram and Visakhapatnam was formed under the name of Sri Vijaya District Cooperative Milk Producers Union Limited during the year 1981 82. The union is

converted to mutually Aided Cooperative Act 95 from 08-07-1999 and its name also changed as Sri Vijaya Visakha Milk Producers Company Limited. The production and procurement started increasing year by year with more participation of rural farmers the production capacity of Sri Vijaya Visakha Milk Producers Company Ltd. increased time as follows.

1986 87

50,000 lts

to

1,00,000 lts.

Per day

1989 90

10,00,000 lts

to

1,50,000 lts.

Per day

1991 92

1,50,000 lts

to

2,00,000 lts.

Per day

2000 01

2,00,000 lts.

to

3,00,000 lts.

Per day

2002 03

3,00,000 lts

to

5,00,000 lts.

Per day

2003 04

5,00,000 lts.

to

6,00,000 lts.

Per day

2004 05

6,00,000 lts.

to

7,00,000 lts.

Per day

The Plant Installed Capacities : Present Handling Capacity (lts/Per day) 6,00,000 50,000 30,000 20,000 20,000 20,000 6,000 1,000

S.No.

Unit Name Sri Vijaya Visakha Milk Producers Company Ltd. MCC Narsipatnam MCC Ramabhadrapuram MCC Srikakulam MCC Vizianagaram MCC Tuni MCC Tekkali MCC Seethampet

Peak Handling Hr. Per day 7,00,000 4,13,111 23,090 16,200 25,896 15,388 800

1 2 3 4 5 6 7 8

PROFILE OF VISAKHA DAIRY : The milk shed of Sri Vijaya Visakha Milk Producers Company Limited, Visakhapatnam comprises of three districts Srikakulam, Vizianagaram and Visakhapatnam. These three districts are situated in the northeastern part of the coastal area of Andhra Pradesh State and considered to be backward for Agricultural and Industrial Development. The perennial source of water for irrigation through rivers and river lets is also very much limited especially in Visakhapatnam and Vizianagaram Districts. Therefore, the rural farmers mostly belonging to small and marginal categories have necessarily to depend on some other source of income for the livelihood. The government after considering dairying is one of the best instrument for bringing socioeconomic development in the rural areas has started a dairy with an handling capacity of 10,000 liters per day in 1996.

Dairying not only creates subsidiary occupation to the rural farmer by creating reasonable market price for his produce at his doorstep but also meets the demand of the urban consumers for the supply of hygienic quality at reasonable price. After observing the success of the small dairy, the present new dairy was constructed with an initial capacity of 50,000 liters per day taking loan Rs.89.50 lakhs from National Cooperative Development Corporation, which completed and commissioned during the year 1977. This dairy was registered under cooperative societys act 1973. At the initial stage, the area of operation was limited to Visakhapatnam district only. The farmers took lot of interest in dairying after realizing it as the subsidiary occupation as it is giving them regular income for their livelihood. With the result, more and more small and marginal farmers and agricultural labour joined in the stream for increasing their economy at village level utilizing the infrastructure available at their doorsteps. When the A.P. State has adopted Anand Pattern for dairy development through operation (or) programme this co-operative dairy has also joined in the line 1981 and become a member of A.P. level. At the state, union comprising of Districts Viz., Srikakulam, Vizianagaram and Visakhapatnam was formed under the name of Sri Vijaya Visakha Milk Producers Company Limited during the year 1981 1982. The union is converted to mutually aided cooperative act 1995 from 08-07-1999 and its name also changed as Sri Vijaya Visakha Co -operative Milk Producers Mutually Aided Co-operative Union Limited.

LOCATION : The selected unit Sri Vijaya Visakha Milk Producers Company Limited, Visakhapatnam is situated at Akkireddypalem. It is on the National Highway of Howrah to Madras. It is surrounded by number of village where people habituated in dairying the selected unit is ideal in all respects either in procurement of milk or distributed milk. Milk Procurement : The union is procuring milk through a network of 848 primary milk producers cooperatives and 1258 unregistered centers in the 3 districts of Visakhapatnam, Vizianagaram and Srikakulam. He average daily procurement of this union during 2003 04 is 3,19,450-00 liters per day and during 2004 05 up to June is 6,90,266 liters per day and as on date of present procurement is 3,20,000 liters per day. The peak quantity touched during the year 2002 2003 is 4.20 liters per day. The payment for the milk procured is made once in fortnight based on the fat and SNF contents of the milk transported to dairy and its units through a network of 54 milk routes in three districts. 1) Technical Input activities : The Visakha union is not only Procuring, processing and marketing the milk which collected from various inputs to the producers to improve their cattle wealth and also to improve socio-economic living standards through increase in milk production.

The following inputs are provided to milk producers : Animal Health care Artificial Insemination Feed and fodder activity Premixed cattle feed is being supplied at the rate of Rs.4.00 / Kg. 1 Distribution of fodder minikits on 50% subsidy etc. Extension activities Film shows Pamphlets and Charts Distribution Cattle insure scheme Statement showing the Details of Different Activities of Visakha Union as on June 2004 : 1 2 3 4 5 6 7 8 9 10 11 12 13 14 No. of Societies No. of Women Societies No. of MPACS No. of Milk Chilling Centers No. of feed mixing plants Union training centers No. of Bulk cooling centers No. of milk collection routes No. of veterinary fist aids centers No. of emerging veterinary routes No. of producers in Societies No. of women members No. of animals vaccinated (Triovac) No. of cattles insured 848 67 1258 6 1 1 47 50 592 19 1,68,782 312 10,000 13,980

2) Training Center : The union has its own regional training center near Hanumanthawaka with boarding and lodging facilities and is imparting for the society personnel in the following fields. 40 Days A1 Programme 20 Days A1 Programme 10 Days Veterinary first aid training 30 Days paid secretaries training etc.

Bulk Cooling Centers : With a view to stand stiff in global competition, Visakha union on the quality front installed 47 bulk milk cooling centers covering procurement of 1,55,680 during. The year 2003 04 and as on date 1,60,300 liters of quality milk is being received and in unique feature of this union. OBJECTIVES : There is time saving for the farmers in supply of milk to their respective village milk collection centers both AM PM. The quality of milk will be maintained by restricting the transit me. The weithment and testing of milk will be done in the presence of the representatives who bring milk to the bulk cooling points. The expenditure involved in transport of milk both times will be reduced by 50% by collecting milk once in a day through milk tankers.

3) Marketing : At present we have total no. of 2172 milk booths, out of which 450 outlets are selling milk and milk products round the clock. We are supplying milk and milk products in the three districts of north coastal Andhra Viz., Srikakulam, Vizianagaram, Visakhapatnam, Kakinada, Rajahmundry and Tuni in East Godavari District. We are distributing milk through 36 routes for a wider coverage and accessibility of the public. We have been doing many of sales promotion activities with innovative ideas for development of milk market. 1) Promotional Activities i. ii. iii. iv. v. Hoardings Glow Sign boards Wall Painting Banners, Carry bags Press add etc.

2) Consumer education programmed 3) Training to field staff to upgrade the skills. I. Milk Products are being sold through distributors : At present we have total no. of 2172 milk booths, out of which 450 outlets are selling milk and milk products round the clock. We are supplying milk and milk products in the three districts of north coastal Andhra Viz., Srikakulam, Vizianagaram, Visakhapatnam, Kakinada, Rajahmundry and Tuni in East Godavari District.

VETERINARY HEALTH CARE : 346 veterinary first aid centers are functioning in the union. These centers are started where there are no A.H. Departmental Institutions. One of the employees of dairy co-operative society is trained in veterinary firs aid that is attending to this work. The union is presently handling 14 emergency routes in Visakhapatnam District with different mandals in their districts of cater the emergency veterinary needs of the milk producers of motorcycle. The medicine is supplied on free of cost. SOCIETY BUILDING CONSTRUCTED SO FAR : Visakhapatnam District Vizianagaram District Srikakulam District 275 68 20 363 TRAINING CENTERS : This union has its own regional training center near Hanumanthwaka with boarding and lodging facilities and is imparting for the society personnel. FOODER FORM : In the training premises a Fodder Farm is established both for demonstration to the trainees and seed multiplication. The following fodder grasses are growth in the farm. 1. CO-1 2. NB-21 3. Para 4. Gunia

During the year 1997 98 fodder slips to cover an area of 130 acres were produce and distributed to the milk producers free of cost.

EDUCATION PROGRAMMES : 1. Member education programme. 2. Women education programme. 3. Paid secretaries organization programme. 4. P & T organization and motivation programme etc. Through Visakha Dairy Training center, which is situated at Mudasarlova, Visakhapatnam, which has got all facilities for intensive training, programme. TECHNICAL INPUT PROGRAMMES : 1. Veterinary first aid centers and emergency routes 2. Artificial insemination and distribution of breeding bulls. 3. Distribution of feed and fodder at subsidized rates. 4. Extension activities like film shows, cattle shows and distribution of certain vacancies are 50% cost. WELFARE ACTIVITY FOR MILK PRODUCERS & EMPLOYEES : This union has constituted a Trust by name milk producers and Employees educational, Health & Medical Welfare facilities to the milk producers, dairy employees and their children. It is not our of place to mention that this a unique enterprise embarked upon by his entire state. LIFE INSURANCE SCHEME TO THE MILK PRODUCERS : Life Insurance Scheme and Accidental policy were covered by to nearly 1.00 lack farmers in this union.

MILK MARKETING : To cater the needs of the consumers in Visakhapatnam city and also in the important towns of Anakapalli, Paderu, Araku, Narsipatnam, Vizinagaram, Srikakulam, Tuni and Kakinada Milk is being supplied in sachets as indicated hereunder. VISAKHA DAIRY BRANCHES : Visakhapatnam District : 1. Distribution Routes 2. Parlors 3. Milk Sales Points Vizianagaram District : 1. Distribution Routes 2. Parlors 3. Milk Sales Points Srikakulam District : 1. Distribution Routes 2. Parlors 3. Milk Sales Points East Godavari District : 1. Parlors 2. Milk Sales Points 30 815 4 40 120 7 18 130 38 400 1500

The present milk sales in the Union in 3,12,000 lts. per day. The following types of milk are being sold.

Table No. 2.1 Quality 2,00,000 30,000 10,000 60,000 Type of Milk Tones Milk Whole Milk S.T. Milk H.T. Milk Quality Standard Fat 3%, SNF 8.5% Fat 6%, SNF 9% Fat 4%, SNF 9% Fat 3%, SNF 8.5% Rate of Liters Rs.16/Rs.22/Rs.18/Rs.16/-

ORGANISATION STRUCTURE OF VISAKHA CO-OPERATIVE DAIRY : Sri Vijaya dairy is the first of its kinds in A.P. established in the co-operative sector. This dairy is set up in the Ananda Pattern. In this setup the milk producers from co-operative societies are at the village level. These societies are managed by the elected representation. The president of each of the co-operative union elected the director. There are nominated director also the board comprising chairman of the board. Thus, this dairy is established on a three cover systems. The three-cover system means village dairy co-operative society at the village level managed by the managed representative of producers. A co-operative federation union at district level managed by the village representatives. Dairy co-operative societies and a co-operative federation at the state leve, which is apex body. In the year 1971, dairy co-operative normally launched a plant in Visakha with a handling capacity of 6000 liters per day. The board management of union comprising 12 elected board of directors from the village dairy co-operative society and 5 ex office board of directors comprising of one representation from AP Dairy development co-operative

federation. Director of Animal Husbandry, Register of Co-operative Societies representative of financing agency and dairy expert. After a big spell of one and half year the management of the dairy was hundred over to the Visakha district milk producers co-operative union limited by the government of A.P. The general management is responsible for implementation of policies and decisions, which are taken by the board of directors. Board of directors elect the chairman for every 3 years and be taken the important decisions regarding the management of Sri Vijaya Visakha Dairy under the General Manager. There are three deputy General Managers for 1. Finance & Accounts 2. Procurement & Input and 3. Plant & Production Under deputy general manager, one account manager and five assistant managers are working under the deputy general manager procurement and input, one sub veterinary officer and 5 managers are there to look after the procurement fodder, co-operative artificial and inseminating and training center. Activities respectively under the deputy general manager (plan and production) one assistant dairy engineer, one dairy manager, cattle feed plant manager. Coverage Junior Engineer is working in each and every department; senior assistant and junior assistants are employed for electrical activities. DATA BASE : The data required for this study is collected from both primary and secondary sources. The statistical statement relating to financial structure of the solicited unit

consents of secondary sources of information. Such information is collected from various annual reports, records of the unit. PERIOD OF STUDY :

The period is so taken for their present study from 2000 01 to 2005 2006 (6 years).

CHAPTER IV

THEROTICAL FRAME WORK (WORKING CAPITAL MANAGEMENT)


Establishment of any industry requires funds, which are invested in acquisition of assets and in meeting out its liabilities. Assets and Liabilities of a company can be classified on the basis of duration into : Assets Liabilities liabilities. Assets are nothing but possessions owned by the firm, which are capable of being expressed in monetary terms, whether tangible (like land and building, stock, etc.,) or intangible (goodwill, patents, copyrights etc.). The company for generating future benefits uses these. Fixed assets are those assets, which are permanent in nature and are held for use in business activities and not for sale. Examples of fixed assets are land, building, machinery, long-term investment etc. Current assets on the other hand are those liquid assets of the company, which are either held in the form of cash or can be easily converted into cash within one accounting period, usually a year. Examples of current assets are cash, short-term investments, sundry debtors or accounts receivable, stock, loans and advances etc. Liabilities are economic obligations of the company to pay cash or provide goods or services to outsiders including shareholders. Liabilities may be long-term or current. Long-term or current. Long-term liabilities are those, which are repayable over a period greater than the accounting period like, share capital, debentures, longterm loans etc. Current liabilities on the other hand have to be paid within the accounting period like sundry creditors or accounts payable, bills payable, outstanding expenses, short-term loans etc. : : Fixed Assets and Current Assets Long term liabilities and Short term liabilities or Current

The management of fixed assets and current assets differs in 3 important ways : In managing fixed assets the time factor is very important. That is why discounting and compounding play a very important role in any Capital budgeting decision. But, because the time frame of current assets is only one accounting period, the time value of money is less significant in the management of current assets. The liquidity position of a firm is dependent on the investment in current assets, the more, the better, whereas the role of fixed assets as far as liquidity is concerned is negligible. Any short run, immediate need of the company whether it be need for cash or adjustments to fluctuations in sales can be made only through adjusting the levels of the various components of the current assets. This calls for efficient management of current assets, which form part of management of working capital. Working capital is the amount of capital required for the smooth and uninterrupted functioning of the normal business operations of a company ranging from the procurement of raw materials, converting the same into finished products for sale and realizing cash along with profile from the accounts receivables that arise from the sale of finished goods on credit. Therefore, working capital is the difference between current assets and current liabilities. It is required to meet daily obligations of a company. In other words, it is the basic necessity of any company. It involves not only managing the different components of current assets, but also managing the current liabilities, or to be more precise, the financing aspect of current assets.

STATIC VIEW OF WORKING CAPITAL : Traditionally (he term working capital is defined in two ways, viz. gross working capital and net working capital. Gross working capital is equal to the total of all current assets (including loans and advances) of a company. Net working capital is defined as the difference between gross working capital and current liabilities (including provisions) Sometimes net working capital is also referred to as net current assents. Since both gross working capital and net working capital are obtained from the data contained in the balance sheet, working capital viewed in either sense denotes the position of current assets (or net current assets) as at the end of a companys accounting year. An important characteristic of current assets is conventionally considered to be their convertibility into cash within a single accounting year unlike fixed assets which provide the production capacity for the manufacture of finished goods for sale. Current liabilities arise in the context of and hence are derived from current assets. Conventionally current liabilities are of short-term nature and come up for payment within a single accounting year. Consequently, a lot of emphasis is traditionally placed on the current assets (which are valued on a conservative principle1 of accounting) via-a-vis current liabilities. As a rule of thumb, the value of 2:1 for the ratio of current assets to current liabilities (popularly known as current ratio) is considered to be satisfactory by the short-term creditors, the underlying logic being that a company can face the unlikely situation of meeting all of its current liabilities by liquidating its current asset even at half of their recorded value without any financial embarrassment.

DYNAIMIC VIEW OF WORKING CAPITAL : In the light of shortcomings of the traditional view of working capital there is a need for evolving a more expressive definition that highlights the importance of working capital to a company. Working capital can be viewed as the amount of the normal business operations of a company ranging from the procurement of raw materials, converting the same into finished products for sale and realizing cash along with profit form the accounts receivable that arise from the sale of finished goods on credit. From the above definition, the need for working capital by a typical manufacturing and selling company becomes self-evident. In order to meet the production plans of a company some quantity of raw materials has to be maintained in the form of inventory as there will usually be a time lag from the moment of placing an order for raw materials with suppliers till the same are received by the company. Absence of adequate raw materials inventory may result in stoppage of production for want of raw materials. The quantum of raw material inventory to be maintained by a company depends, internal, on the availability of raw materials in case they are not indigenously available, the existence or otherwise of curbs by the government on imported raw materials, the lead time (the time gap between placing an order and receiving the supply of raw materials) for the procurement of raw materials, availability of bulk purchases discounts offered by suppliers and inflationary pressure on the price of raw materials.

Once the raw materials are put into the production process, the company has to incur manufacturing expenses like wages and salaries, fuel and other manufacturing overheads. The nature of process technology adopted by the company is an important in determining the time taken for converting raw materials into finished goods, consequently. The company may have some amount of finished goods and the balance in the form of partly finished goods denoted by the term work in process. Thus, work-in process inventory, which a company carries, becomes an inevitable concomitant of the production process. The quantum of finished goods inventory a company carries is basically determined by the degree of accuracy in forecasting sale demand, the ability to meet sudden and unforeseen spurts in the demand considered in conjunction with the production policy and the amenability of the product to become perishable in a relatively short period off time (as in the case of cigarettes and certain types of Pharmaceuticals). The amount of finished goods inventory held by a company should normally provide its sales executives reasonable elbowroom for negotiating and clinching deals with new customers. Unless a company enjoys special advantage over its competitors, it may have to honor the practices followed by the industry to which it belongs in the sale of finished goods. By and large in a competitive market, finished goods re sold on a credit basis. When a company gives accredit period to its customers from the date of consummation of sale, the amount of sales value will become accounts receivable or sundry debtors, which get converted into cash only after the expiry of credit period.

Further, a company usually maintain at all times some amount of liquid cash either on hand or at bank towards meeting cash payments arising out of transactions as also for providing adequate cushion towards meeting unanticipated demand for cash such as, for example, availing cash discount on purchases suddenly, introduced by the suppliers, before the generation of cash takes place in the normal course of business. One more point needs to be considered at this stage. Just as the company extends credit to its customers, in many instances it can receive credit to its customers, in many instances it can receive credit from its suppliers of materials. Consequently, the drain on cash resources of the company can be delayed till the expiry of credit period. Until such time the amount will become Accounts Payable of the company and as such provides a spontaneous source of credit. From this discussion it is evident how important a role working capital plays in supporting the normal business operations of a typical manufacturing and trading company.

CURRENT ASSETS AND CURRENT LIABILITIES :


CURRENT ASSETS : Current assets, sometimes called liquid assets, are those resources of a firm which are either held in the form of cash or expected to be converted in cash within the accounting period or the operating cycle of the business. The accounting period is of one-year duration. These assets includes : Cash : It is the most liquid current asset. It is the current purchasing power in the hands of firm and can be used for the purposes of acquiring resources or paying obligations. Cash includes actual money in hand and cash deposits in bank account. Marketable securities : They are the temporary or short-term investments in shares, debentures, bonds and other securities. These are readily marketable and can be converted into cash within the accounting period. A firm usually invests in them when it has temporary surplus cash. Accounts receivable : They are the amounts due from debtors (customers) to whom goods or services have been sold on credit. These are generally realizable in cash within the accounting period. The firm may not realize all accounts receivable. Some may remain uncollected and are called bad debts. An estimate or provision is made for such debts and are separated from goods debts.

Bills receivable : These represent the promises made in writing by the debtors to pay definite sums of money after some specified period of time. Bills are written by the firm and become effective when accepted by the debtors. These are discounted with bank and are converted to cash immediately. Stock (or) Inventory : This includes raw materials, work-in-process and finished goods in case of manufacturing firms. This is maintained for smooth production and serving customers on a continuing basis. They are carried in the balance sheet at the original or market cost, which ever is less, they are the least liquid current asset. Prepaid expenses and accrued incomes : They are the expenses of future period paid in advance. Examples of these are prepaid insurance, prepaid rent, taxes paid in advance. They are current assets because their benefits will be received within the accounting period. Accrued incomes are the benefits, which the firm has earned, but not yet received. They include accrued dividends, accrued commission or accrued interest. Loans and Advances : They include dues from employees or associates advances, advances for current supplies and advances against acquisition of capital assets. Except for the advance payment for current supplies, it is not proper to include loans and advances in current assets.

CURRENT LIABILITIES : They are debts payable within an accounting period. Current assets are converted to cash to pay current liabilities. Some times new current liabilities may be incurred to liquidate the existing ones. These are mainly classified as : Sundry Creditors (or) Accounts Payable : They represent the current liabilities towards suppliers whom the firm has purchased raw materials on credit. Bills payable : They are the promises made in writing by the firm to make payment of a specified sum toe creditors at some specified date. Bills are written by creditors over the firm and become bills payable once the firm accepts them. They have a life of less than a year. Bank Borrowings : Commercial banks advance short-term credits to firms for purchasing their current assets. They may also provide for financing fixed assets. Such loans will be grouped under long-term liabilities. In India, both long and short-term borrowing is included under loan funds. Provisions : They include provision for taxes or provision for dividends. Every business has to pay taxes on its income. Usually, it takes some time to finalize the amount of tax with the tax authorities. Therefore, the amount of tax is estimated and shown as provision for taxes.

Outstanding Expenses : The firm may owe payments to its employees and others at the end of the accounting period for the services received in the current year. These are payable within a year short period. Examples are wages payable, rent payable, or commission payable. Income received in advance : A firm can sometimes receive income for goods or services to be supplied in future. As goods or services have to be provided within the accounting period, they are treated under current liabilities. Deposits from Public : A firm for financing its current assets raises these. These are raised for a duration of one year through three years. CONCEPTUAL EXPOSITION : The concept of working capital has been a matter of greater controversy among the financial wizards. Broadly speaking, these re divided into a) Gross working capital and (b) Net working capital. Gross working capital deals with the problems of managing individual current assets in day-to-day operations. Current assets are the assets that can be converted into cash within an accounting year and these include cash, debtors, stock (inventory), bills receivables, marketable securities etc. Thus, the gross concept is in the nature of a quantitative definition that focuses attention on the levels of current assets for a given activity.

Net working capital refers to the difference between current assets and current liabilities. Current liabilities are those claims of outsiders that are expected to mature of payments within an accounting year and include creditors, bills payable and outstanding expenses. This net working capital can be either positive or negative. A positive net working capital will arise when current assets exceeds current liabilities and a negative working capital when current liabilities are in excess to current assets. Thus, the Net concept is a qualitative definition, which focuses attention on the character of the sources from which the funds have been procured to support that portion of current assets which is in excess of current liabilities. OBJECTIVES : Working capital Management is concerned with all the aspects of managing current assets and current liabilities. The significant objectives, which require attention of financial executives, are : a) Managing Investment in Current Assets : Determination of appropriate level of investment in current assets is the first and foremost responsibility of working capital manager. Although, the amount of investment in any current assets ordinarily varies from day-to-day, the average amount or level over a period of time can be used in determining the fluctuating and permanent investment in current assets. Besides, the level of investment, the type of current assets to be held is equally important decision variables. The result is that there is a very large number of alternative levels of investment in each type of current asset. Therefore, in principle current asset investment is a problem of evaluating large number or mutually exclusive investment opportunities.

a) Financing of Working Capital : Another important dimension of working capital management is determining the mix of finance for working capital, which may be a combination of spontaneous, short-term and long-term sources. Spontaneous sources of financing consist or trade credit and other account payable that arise spontaneously in the firms day-to-day operations. b) Inter-relatedness : The financial manager cannot simply decide that the investment in inventory, for example, will be so much and stop there,. The desired level of inventory is, itself, an changing quantity. For example, the desired level of inventory for a period when its sales are very high would not be the same as the desired level for a period when its sales are very low. Further, no decision regarding inventory and sales could be made without considering the implications for accounts receivables. Moreover, any business decision that results in increased sales and collection for the firm that or I likely to mean that lower average cash balance will be needed a new cash management system will be desirable. Thus, all current assets decisions are inter related. POLICIES : It is clear that the transmission of cash to raw materials, this to work-in-progress then to finished goods and to cash, and all this is a cyclical process. The firms working capital is compared of two components. 1) Permanent Working capital : The minimum level of investment in current assets regularly employed in business is called Fixed or Permanent working capital. They represent the amount of cash, receivable and inventory maintained as minimum to carry on operations at any time.

2) Variable working capital : The extra working capital needed to support the changing business activities is called Variable or Fluctuating working capital. Additional cash, inventory and receivables may be needed to pay for increased supplies or to support peak selling periods finance after a period of high sales. LIMITATIONS : Working capital considers the purpose of current assets as providing adequate cover for current liabilities. This definition suffers from many limitations as stated below : First, the amount of working capital, viewed in either sense, is obtained from the data contained in the balance sheet, which merely includes the financial position of company as on specific date and is therefore, static in nature. Secondly, the balance sheet of a company is prepared and presented in the annual report in accordance with the Schedule VI requirements of the Indian Companies Act. As a result the amount of net working capital obtained by subtracting current liabilities from current assets presented in the balance sheet falls to reflect the true amount of net working capital. BALANCED WORKING CAPITAL POSITION : The firm should maintain a sound working capital position. It should have adequate working capital to run its business operation. Both excessive as well as inadequate working capital positions are dangerous from the firms point of view. Excessive working capital means idle funds which earn no profits for the firm. Paucity of working capital not only impairs the firms profitability but also results in production interruptions and inefficiencies.

The dangers of excessive working capital are as follows : It results in unnecessary accumulation of Inventories. Thus, chances of inventory mishandling, waste, theft and loses increases. It is an indication of defective credit policy and slack collection period. Consequently, higher incidence of bad debts results, which adversely affects profits. Excessive working capital makes management co placement, which degenerates into managerial inefficiency. Tendencies of accumulating inventories tend to make speculative profits grow. This may to make dividends policy liberal and difficult to cope with in future when the firms is unable to make speculative profits. Inadequate working capital also results in dangers : It stagnates growth. It becomes difficult for the firm to undertake profitable projects for non-availability of working capital funds. It becomes difficult to implement operating plans to achieve the firms profit target. Operating inefficiencies creep in when it becomes difficult even to meet day-today commitments. Fixed assets are not efficiently utilized for the lack of working capital funds. Thus, the firms profitability would deteriorate. Paucity of working capital render the firm unable to avail attractive credit opportunities etc. The firm loses its reputation when it is not in position to honor its short term obligations.

GOALS OF WORKING CAPITAL POLICIES : The firms policy for managing its working capital should be designed to achieve three goals; 1) Adequate liquidity : If a firm lacks sufficient cash to pay its bills when due, it will experience continuing problems. The most important goal is to achieve adequate liquidity for the conduct of day-today operations. 2) Minimization of risk : In selecting its sources of financing payables and other short-term liabilities may involve relatively low costs. The firm must ensure that these near current assets on hand to pay them. The matching of assets and liabilities among current accounts is task of minimizing the risk of being unable to pay bills and other obligations. 3) Contribute to maximizing firms value : The firm holds working capital for the same purpose as it holds any other assets, that is, to maximize the present value of common stock and value of the firm. It should not hold idle current assets any more than it should have idle fixed assets. The investment of excess cash, minimizing of inventories, speedy collection of receivables, and elimination of unnecessary and costly short-term financing all contribute to maximizing the value of the firm. FACTORS : A large number of factors affect the working capital of firms. The following are the few factors, which generally, affect the working capital of firms:

1) Nature of business : Working capital requirements of a firm are basically influenced by the nature of its business. Trading and financial firms have a very small investment is fixed assets, but require a large sum of money to be invested in working capital. Retail stores, for examples, must carry large stock of a variety of goods to satisfy varied and continuous demands of their customers. 2) Nature of raw materials used : The nature of major raw material used in the manufacture of finished goods will greatly influence the quantum of raw material inventory. For example, if the raw material is an agricultural product whose availability is pronouncedly seasonal in character the proportion of raw material inventory to total current assets will be quite high. For example, tobacco is the major raw material for cigarette industry whose availability is seasonal in nature and also the tobacco produced requires a reasonably long curing period. Consequently, the percentage of raw material inventory to total current assets will be quite high compared to other items. 3) Seasonal and cyclical factors : Most firms experience seasonal fluctuations in the demand for their products and services. These variations in sales affect the level of working capital. Similarly, the overall economy undergoes business and financial cycles. In a recession, a firms sales may temporarily decline, thus reducing the need for inventories and the level of receivables. In a period of high interest rates, customers may be slow in paying their bills, a fact that will cause an increase in receivables.

4) Process technology used : Technological developments, particularly related to the production process, can have sharp impacts on the need for working capital. If the firm purchases new equipment that processes raw materials at a faster rate than previously, the permanent need for inventory may be changed. If the faster processing requires more raw materials for efficient production runs, the permanent inventory will increase. If the machine can useless expensive raw materials, the inventory needs may be reduced. 5) Policies of the firm : Many of the firms policies affect the levels of permanent and variable working capital. If the firm changes its credit policy from 30 to net 60, additional funds may be permanently tied up in receivables. If it changes production policies, inventory requirements may be permanently or temporarily affected. If it changes it safely level of cash on hand, permanent working capital may increase or decrease. If the level of cash is linked to the level of sales, variable working capital may be affected. 6) Degree of competition in the market : When the degree of competition in the market for finished goods in an industry is high, then companies belonging to the industry may have to resort to an increased credit policy to its customers, partially lowering credits standards and similar other practices to push their products. These practices are likely to result in a high proportion of accounts receivable. Similarly, in a competitive market when the demand for finished product is seasonal the manufacturing company may have to report to increased credit period, special incentives, etc. for achieving off-season sales. All this will result in an accumulation of accounts receivable.

7) Paving habit of customers : It is a well recognized fact that Government departments and to some extent public sector units are more rule-bound resulting in delayed payments to organizations that have sold products or rendered services to them. Consequently, the organization whose customers happened to be Government departments will have an accumulation of accounts receivable. OPERATING CYCLE APPROACH TO WORKING CAPITAL MANAGEMENT : The normal business operations of manufacturing and trading company start with cash, go through the successive segments of the operating cycle, viz., raw material storage period, conversion period, finished goods storage period and average collection period before getting back cash along with profit. The total duration of all the segments mentioned above is known as Gross operating cycle period. This can also be shown in a diagrammatic form:

Finished Goods

Sundry Debtors or Accounts Receivable

Work-in Process

Selling and Distribution General Administration and Financial Costs Wages, Salaries and Manufacturing Costs Raw Materials, Components Stores etc.

Cash

Sundry Creditors or Accounts Payable

The above picture depicts the inter-dependence among the components of working Capital. For this purpose the company has to make payments towards wages, salaries and other manufacturing costs. Payments to suppliers have to be made on purchase in the case of cash purchases

On the expiry of credit period in the case of credit purchases. Further, the company has to meet other operating costs such as selling and distribution costs, general, administrative costs and non-operating costs described as financial costs (interest on borrowed capital). In case the company sells its finished goods on a cash basis it will receive cash along with profit with least delay. When it sells goods on credit basis, it will pass through one more stage, viz., accounts receivable and gets back cash along with profit on the expiry of credit period. Once again the cash will be used for the purchase of materials and / or payments to suppliers and the whole cycle termed as working capital or operating cycle repeats itself. The process indicates the dependence of each stage or component of working capital on its previous stage or component. In case the company is placed in an advantageous position of being able to sell its products for cash then the segment of average collection period will disappear from the gross operating cycle period and to that extent the total duration of the cycle gets reduced. In case advance payments are to be made for procuring materials, the operating cycle period increase. The purchase of raw materials, components etc., are usually made on a credit basis, thereby giving rise to the spontaneous current liability, viz. accounts payable. When the average payment period of the company to its suppliers is deducted from the gross operating cycle period the resultant period is called net operating cycle period or simply operating cycle period. It become obvious that the shorter the duration of operating cycle period, the faster will be the transformation of current assets into cash. The operating cycle approach is quite useful both in controlling and forecasting working capital. It can also be that operating cycle approach proves quite useful as a technique for exercising control-overworking capital.

CHAPTER V

ANALYSIS
WORKING CAPITAL MANAGEMENT IN SRI VIJAYA VISAKHA MILK PRODUCERS COMPANY LIMITED
Working capital is the amount of capital required for the smooth and uninterrupted functioning of the normal business operation of a company. This is the difference between current assets and current liabilities. These current assets must always be in excess to current liabilities which results in positive working capital, which is good, sign to the organization. This must also be not in excess, which results in this management. Hence, an optimum level of working capital is to be maintained. From all the 5 years statements of working capital or Visakha Dairy it can be noticed that the working capital during 2004 is very high. It represents a high liquidity position and also an overall increase in current assets it is also noticed that there is an increase in Working Capitals from year to year. This is indication for the smooth functioning of this organization. It also represents an increase in Production process, which increases the sales. The more the production undergone, the more will be its expenses an a result in high volume of sales which simultaneously results in Profitability of the organization. Even though is had incurred loss during 2002 2006. It was successful in overcoming by the assets it had. It was able to meet out all its obligations without declaring insolvent. From all above it can be concluded that is an organization with high Working Capital and high liquidity. It can also be said that it is successful in maintaining sufficient Current Assets to compensate its Current Liabilities. At last it can be said that this is a fast growing, profit-oriented organization occupying its own position in the market.

CRITERIA FOR EVALUATION OF WORKING CAPITAL MANAGEMENT First, when working capital is viewed as the difference between current assets and current liabilities the basic objective of working capital appears to be one of the providing adequate cover to meet the current obligations of a company as and when they become due. This approach lays greater emphasis on liquidity aspect of working capital. Secondly, when working capital is looked upon as the amount held in different forms of current assets to provide adequate support to the smooth function of the normal business operations of a company the objective becomes one of deciding on the trade-off between liquidity and profitability. While developing suitable criteria for the evaluation of working capital Management we shall bear in mind both approaches to working capital. The following criteria may be adopted for evaluating the working capital management of company: Liquidity : By and large the current assets of company are considered to be more liquid than fixed assets. Even among the current assets, some items are considered to be much more liquid than others. In a descending order of liquidity the current asset items can be stated as cash and bank balances. Marketable securities, sundry debtors, raw material inventory, finished goods inventory and work-in-process inventory. But, of these items, inventories are considered to be less liquid as they have to pass through the different stages of the operating cycle before becoming accounts receivable and eventually back to cash. The ultimate test of liquidity is the ability of company to meet its current obligations.

Availability of Cash : Even the most profitable companies may have faced at some time or the other problems of cash shortage. In seasonal industries it is much more common to pass through bouts of cash shortage while in other cases it can happen because of mismatching of cash inflows and cash outflows. As a result companies keep some minimum cash balance. It should be noted that the large the proportion of current assets be noted that the larger the proportion of current assets held in the form of cash and bank balance, the liquidity position of the company improves but at the cost of sacrificing profitability as idle cash fetches no return. However, the great uncertainty surrounding future cash flows, lack of synchronization between cash inflows and cash outflows, the liquidity mix in terms of cash and bank balances and marketable securities, the attitude of management towards risk are some of the important factors that are likely to influence the proportion of cash in the total current assets of a company. Inventory Turnover : Any type of inventory will represent the amount of cash locked up and the amount of carrying costs. Too high a level of inventory and too low a level of inventory are not conducive to the financial health of a company as the former can create problems of liquidity while the later can affect profitability due to stoppage of work of raw goods in the inventory in adequate quantity. Credit Extended to Customers : In a competitive market environment, the output of a company is usually sold on credit basis, Credit sales has got many dimensions. Indiscriminate sale of output without reckoning with the credit standards may result in higher volume of sales, larger amount of cash locked up in the receivables and higher incidence of bad debt losses. By flowing high credit standards, the companys sales volume may get adversely affected. It is therefore, necessary to ensure whether reasonable credit is provided to customers as part of the evaluation of working capital management.

Credit obtained from Suppliers : Just as a company extends credit to its customers it would also obtain credit from its suppliers in most cases. Working capital management should provide adequate flexibility to the purchase department so that they can shop around and obtain better terms for procurement of supplies. Further, regular payment habit on the part of the company can instill confidence in the minds of the suppliers. This can be quantified by the average payment period. Ratios : The liquidity position of the organization can also be found by using these ratios. These are mainly attributable to the simplicity in calculation and indication of the direction in which further probing is necessary. Therefore, the ratios are : CURRENT RATIO : Current ratio is the ratio of current assets to current liabilities, which can be represented as : Current Ratio = _____Current Assets____ Current Liabilities

A firm having this ratio in 2:1 is said to be perfectly good A high ration indicates that the firm is having more idle cash and a low ratio indicates inadequacy of cash. The following table explains the current ratio of Visakha Dairy during past 5 years. Year 2003 2004 2005 2006 2007 2008 2009 Current Assets (Rs. In Crores) 50.93 67.45 70.41 82.81 94.21 Current Liabilities (Rs. In Crores) 17.22 29.92 35.65 39.73 54.52 Ratio 2.96:1 2.25:1 1.97:1 2.08:1 1.72:1

INTERPRITATION
From the above table, it is clear that the liquidity position of this organization is good and also high. It had tried to maintain a constancy of 2.25:1 during all these five years, Even though it was high during 2002. The current ratios has decrease to 0.71 in year 2004 and it has decreased to 0.28 in year 2005 and it has increased to 0.11 in the year 2006. It had regained it original position. It is also clear that the current assets percent in it are high compensating all current liabilities. There was a gradual increase in current assets. It can also be concluded that the current assets percent in this organization is high. Hence, it can be said the organization is able to meet its day-to-day operations.

QUICK (OR) ACID TEST RATIO : This is the ratio of Quick assets to Current Liabilities, which gives out the exact liquidity position of the organization. Quick asstes are obtained after deducting inventory from current asset. This is represented as follows : Quick Ratio = ____Quick Assets___ Current Liabilities

An increase in ratio indicates the mis management of the organization and decrease in the ratio indicates inability to meet its payments. The following table explains the quick ratio of Visakha Dairy during 2002 2006. Calculation of Quick Ratio of Visakha Dairy from 2002 2003 to 2006 2007 (Rs. In lakhs) Quick Ratio 1.32 0.93 0.79 1.41 0.89

Year 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009

Quick Assets 228366949 278961955 284025399 559412139 489945671

Current Liabilities 172252176 299224234 356559009 397947312 545287880

(Note : Quick Assets = Current Assets Inventory)

INTERPRITATION : The above table gives out a brief idea about the liquidity position of Visakha Dairy. The liquidity position in this organization is very high when compared to the standard ratio. It is noticed that the ratio is always in a one and half proportion to the required ratio. This indicated that the organization is successful in meeting out all its payment. An Increase in the quick assets represents the liquidity (i.e.) the liquid assets are more in number. There was an gradual increase in liquidity or liquid assets till 2004 and then started declining. When compared to the liquidity position of 2003 there is drastic change in the liquidity position of 2006. Even through there is decline in the quick ratio; the liquidity position of the organization is still high.

DEBTORS TURNOVER RATIO : A ratio between sales to Debtors indicates the total receivables of the organization that there are to be received in that particular year. It is represented in the form: Debtors Turnover Ratio = ___Net Credit Sales__ Average Debtors ______ 365 Days_____ Debtors Turnover Ratio

Debtors Collection period =

A high ratio indicated that the organization is good in its credit policy and able to collect its receivables. A low ratio indicates the inefficient credit policy followed by the organization. The following table explains the debtors turnover ratio of Visakha Dairy during 2007-2009. Calculation of Debtors Turnover Ratio of Visakha Dairy from 2002-03 to 2008-09. Debtors Turnover Ratio 41.81 51.25 84.53 113.60 126.76

Year 2002-2003 2003-204 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Net Credit Sales 1860957536 2133009195 2342416798 2772216305 3129321555

Average Debtors 44510397 41616852 27708921 24403586 24686936

INTERPRITATION The debtors turnover ratio has decreased to 1.75 in the year 2003, 26.05 in increase the year 2004 and it has increased to 45.25 in year 2005 and 7.84 in decrease the year 2006. It is clear from the above table that the credit policy followed by this organization is very good. There is continuity in an increase of this ratio. It makes us clear that the sales (i.e.) cash as well as the credit of this organization are good and also the efforts in collection of receivables. Even though there was increase in Debtors in 2004 it had failed in collection efforts, hence the ratio is low. It is not that same in 2006 the organization had proved once again that it is good in its credit policy by achieving a high ratio.

AVERAGE COLLECTION PERIOD The second type of ratio of measuring the liquidity of a firms debtors is the average collection period. This ratio is fact interrelated with the dependent upon, the receivables turnover ratio. Average collection period = ____No. of days in year__ Debtors turnover Ratio

Calculation of Average collection period of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002 03 to 2008 09 Debtors Turnover Ratio 41.81 51.25 84.53 113.60 126.76 Average Collection Period 9 7 4 3 3

Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

No. of Days 365 366 365 365 365 365

STOCK/INVENTORY TURNOVER RATIO : It is a ratio between sales to inventory, which indicates the efficiency of the organization in producing, and selling its products. Inventory Turnover Ratio = Cost of Goods Sold____ Average Inventory Cost of Goods Sold = Net Sales Gross Profit

This ratio must not be too high or too low, but the according to the demand. If the ratio is low it indicates inefficiency of the organization and high indicates mis-management. The following table explains the inventory turnover ratio of Visakha Dairy during 2002 - 2009.

WORKING CAPITAL TURNOVER RATIO: Working capital turnover ratio indicates the velocity of the utilization of net working. This ratio indicates the number if times the working capital is turned over in the course of a year. This ratio measures the efficiency with which the working capital being used by a firm. A higher ratio indicates efficient utilization of working capital and a low ratio indicates otherwise. Working Capital Turnover Ratio = __Cost of Good Sold___ Net Working Capital Calculation of Working capital Turnover Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-2003 to 2007-2009. Working Capital Turnover Ratio 5.73 6.14 7.24 6.47 7.88

Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Net Sales 1860957536 2133009195 2342416798 2711554438 3129321555

Net Working Capital 324608221 347284530 323513255 418460489 396895431

CREDITORS TURNOVER RATION: Creditors turnover ratio indicates the velocity of Credit collection of firm. In simple it indicates the number of times average Creditors are turned over during a year. Generally, the higher the value of Creditors turnover the more efficient is the management of Creditors / Sales or more liquid the Creditors. Similarly, low Creditors turnover implies inefficient management of Creditors / rates and less liquid Creditors.

CREDITORS TURNOVER RATION

= ____ NET CREDIT PURCHASE___ AVERAGE CREDITORS

AVERAGE CREDITORS

= ____OPENING CREDITORS + CLOSING CREDITORS 2

Calculation of Creditors Turnover Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2007-09. Creditors Turnover Ratio 1.48 1.66 0.15 0.35 0.23

Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009

Net Credit Purchase 85310517.24 111564280 95275023 11177314 29949607

Average Creditors 579673.54 6956448.89 60532276 70986872 4996983

CASH RATIO The cash ratio is computed by dividing cash by current liabilities. Here, cash means cash, marketable securities. Current liabilities consist of account payable, short-term notes payable, current matures of long term debt, accrued income taxes and other accrued expenses. Since cash is the most liquid asset, this ratio shows the liquidity position of the company. Trade investment of marketable securities are equivalent of the cash, therefore, theory may be included in the computation of the cash ratio. CASH RATIO = __CASH AND BANK BALANCE__ CURRENT LIABILITIES Calculation of Cash Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2008-09. Cash and Bank Balance 63665169 77342614 61230579 126180149 148049623 Current Liabilities 1722521176 299224234 356559009 97947312 545287880 Cash Ratio 0.37 0.25 0.17 0.31 0.27

Year 2002-03 2003-04 2004-05 2005-06 2006-2007 2007-08 2008-09

DEBT EQUITY RATIO : The debt equity ratio shows the relative contributions of creditors and owners. The numerator of this ratio consists of all debt, short-term as well as long-term and the denominator consists of net worth plus preference capital plus deferred tax liability. The Debt Equity Ratio is an important tool of financial analysis to appraise the financial structure of the firm. Debt equity ratio is the measure of relative claim of creditors and owners point of view of the firm. The debt equity ratio can be calculated in several ways. Whatever method is employed the ratio shows the extent to which the debts finance is used in the business high ratio shows higher claim of creditors over assets of the firm than those of owner and it is an unfavorable position for rising funds. A low debt equity ratio is considered favorable from the firms point of view. DEBT EQUITY RATIO = __DEBT___ EQUITY Calculation of Debt Equity Ratio of Sri Vijaya Visakha Dairy Milk Producers Company Ltd. from 2002-03 to 2007-09 Years 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Debt 258343283 313888301 283328209 400811910 362008209 Equity 288410530 302025602 311412440 340641469 371231474 Ratio 0.89 1.03 0.91 1.17 0.97

DEBT ASSET RATIO : The debt asset ratio measures the extents to which borrowed funds support the firms assets. The numerator of this ratio includes all debt, short -term as well as long-term, and the denominator of this ratio is the total of all assets (the balance sheet total)

DEBT ASSET RATIO

____DEBT__ ASSETS

Calculation of Debt Asset Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2007-09. Years 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Debt 258343283 313888301 283328209 40811910 362008209 Asset 719005989 915138137 951299658 1139400692 1278527562 Ratio 0.35 0.34 0.29 0.35 0.28

NET PROFIT RATIO : The ratio shows the earning left for shareholders (both equity and preference) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing, and tax management. Jointly considered, the gross and net profit margin ratios provide a valuable understanding of the cost and profit structure of the firm and enable the analyst to identify the sources of business efficiency / inefficiency.

NET PROFIT RATIO

___NET PROFIT__ NET SALES

Calculation of Net Profit Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2008-09 Ratio 0.04 0.08 0.09 0.05 0.09

Years 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Net Profit / Loss 718704 1689794 2105075 1454555 2846881

Net Sales 1860957536 2133009195 2342416798 27722146305 3129321555

OPERATING RATIO : Operating profit ratio is calculated by dividing operating profit by sales. The operating profit ratio varying between 13% to 20% during the study period, the higher the operating profit, the better is this ratio helps in determining the efficiency with which affairs of the business are being managed. An investor has to judge the adequacy (or) otherwise of this ratio by taking in to account the cost of capital, the return in the industry as a whole and market condition such as norms (or) depression period. No norms can be laid down. However, constant increase in the above ratio year after year is a define indication of improving condition of the business. Thus, this ratio is an effective measure to check the profitability of business. Operating Ratio = COST OF GOODS SOLD + OPERATING EXPENSES NET SALES Cost of Goods Sold = Net Sales Gross Profit Operating Expenses = Administrative Expenses + Selling & Distribution Expenses Calculation of Operating Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2008-09 Cost of Goods Sold + Operating expenses 1763264980 2017404230 2242139685 2572788092 2992207127

Years 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Net Sales 1860957536 2133009195 2342416798 2711554438 3129321555

Percentage 0.94 0.94 0.95 0.94 0.95

PROPRIETARY RARIO : Proprietary Ratio establishes the relationship between shareholders funds to total assets of the firm. The ratio of proprietors funds to total is an important ratio for determining long-term solvency of a firm. A higher Proprietary Ratio or the share of the shareholders in the total capital of the company, better in the long-term solvency position of the company. Proprietary Ratio = Shareholder Fund Total Assets Equity Total Assets = = Share Capital + Reserves and Net Current Assets Net Fixed Assets + Investments + Net Current Assets

Calculation of Proprietary Ratio of Sri Vijaya Visakha Milk Producers Company Ltd. from 2002-03 to 2008-09 Ratio 0.7 0.25 0.17 0.31 0.27

Years 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

Equity 63665169 77342614 61230579 126180149 148049623

Total Assets 172252176 299224234 356559009 39794712 545287880

Sri Vijaya Visakha Milk Producers Company Limited (Visakha Dairy)


VISKHAPATNAM MANUFACTURING AND TRADING ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2006 (Fig.in Rs.) Sch. INCOME
Sale of Milk Sale of Milk Products Sale of Cattle Feed Milk Powder Conversation Charges Increase /(decrease) in Stocks TOTAL EXPENDITURE : Consumption of milk and SMP Consumption of feed raw material Packaging Material Stores and Consumables Utilities Wages Repairs and Maintenance Freight Other Manufacturing Expenses Depreciation TOTAL GROSS PROFIT (Transferred to P & L Account) 21 22 23 7 18 19 20 17 1.828.549.705 96,566,478 146,328,567 37,251,326 74,506,359 43,796,261 9,093,342 88,215,606 10,387,144 18,358,144 2,350,053,757 361,500,682 1,628,553,923 48,046,166 99,327,950 32,497,167 60,598,220 36,732,690 5,035,209 55,007,561 38,994,679 38,994,679 2,01,4,983,905 331,303,790 15 16 2,172,378,580 515,185,568 84,652,157 5,893,796 (66,555,664) 2,711,554,438 1,824,830,068 464,133,624 52,388,982 3,270,897 1,064,124 2,345,687,695

For the year ended 31st March 2006

For the year ended 31st March 2005

Sri Vijaya Visakha Milk Producers Company Limited (Visakha Dairy)


VISKHAPATNAM BALANCE SHEET AS AT 31ST MARCH 2003 (Fig.in Rs.) Sch. Share Capital 96,536,800.00 Share Suspense Reserves & Surplus Grants & Subsidies Secured Loans Unsecured Loans 1 2 3 4 5 6 As at 31 March 2003 As at 31 March 2002

102,498,300.00 16,205,410.58 169,706,819.52 25,408,773.05 182,070,261.52 50,864,248.64 546,753,813.31 14,209,037.30 147,547,042.04 20,723,015.39 102,763,313.11 59,514,742.64 441,293,950.48 445,389,96.94

APPLICATIONOF FUNDS Gross Block Less : Depreciation Reserve 225,961,482.12 Net Block CURRENT ASSETS, LOANS & ADVANCES : Inventories Sundry Debtors Cash & Bank Balances Deposits Loans & Advances 9 10 11 12 13 8

497,124,911.77

279,504,369.25 4,525,050.00 2,525,050.00

183,069,659.81 49,487,728.39 63,665,169.09 115,214,052.70 85,423,786.72 496,860,396.71

133,610,743.17 39,533,064.65 20,451,865.72 79,644,408.48 108,264,310.60 381,504,392.59

Less : Current Liabilities & Provisions Current Liabilities Net Current Assets 14 172,252,175.92 324,608,220.79 546,753,813.31 162,163,973.93 219,340,418.66 441,293,950.48

Sri Vijaya Visakha Milk Producers Company Limited (Visakha Dairy)


VISKHAPATNAM BALANCE SHEET AS AT 31ST MARCH 2004 (Fig.in Rs.) Sch. LIABILITIES
Share Capital Share Suspense Reserves & Surplus 16,97,06,819 Grants and Subsidies 2,54,08,773 Secured Loans Unsecured Loans 1 2 3 4 5 6 10,86,86,800 1,81,07,804 17,52,30,998 2,70,38,838 27,07,00,240 1,61,49,223 61,59,13,903 ASSETS Gross Block Less : Depreciation Reserve Net Block Capital Work-in Progress Investments Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balances Deposits Loans and Advances Less : Current Liabilities & Provisions Current Liabilities Net Current Assets 14 29,92,24,234 34,72,84,530 61,59,13,903 17,22,52,176 32,46,08,220 54,67,53,813 9 10 11 12 13 20,49,58,316 3,37,45,975 7,73,42,614 16,78,73,366 16,25,88,493 18,30,69,660 4,94,87,728 6,36,65,169 11,52,14,052 8,54,23,787 8 7 56,59,15,723 32,80,38,220 23,78,77,503 2,62,26,820 45,25,050 45,25,050 49,71,24,912 27,95,04,369 21,76,20,543 18,20,70,262 5,08,64,248 54,67,53,813 10,24,98,300 1,62,05,411

As at 31st March 2003

As at 31st March 2002

Sri Vijaya Visakha Milk Producers Company Limited (Visakha Dairy)


VISKHAPATNAM BALANCE SHEET AS AT 31ST MARCH 2005 (Fig.in Rs.) Sch. LIABILITIES Share Capital Share Suspense Reserve & Surplus Grants and Subsidies Secured Loans Unsecured Loans 1 2 3 4 5 6 111,486,350 23,620,733 176,305,357 29,507,134 250,657,324 3,163,751 594,740,649 ASSETS Gross Block Less : Depreciation Reserve 7 615,066,806 376,802,723 238,264,080 30,938,264 8 2,025,050 565,915,723 328,038,220 237,877,503 26,226,820 4,525,050 108,686,800 18,107,804 175,230,998 27,038,838 270,700,240 16,149,223 615,913,903 As at 31st March 2005 As at 31st March 2004

Net Block Capital work in-Progress Investments

Current Assets, Loans & Advances Inventories Sundry Debtors Cash and Bank Balances Deposits Loans & Advances Less : Current Liabilities & Provisions Current Liabilities Net Current Assets

9 10 11 12 13

206,022,439 21,671,867 61,230,579 201,122,953 190,024,426 680,072,264

204,958,316 33,745,975 77,342,614 167,873,366 162,588,493 646,508,764 299,224,234 347,284,530 615,913,903

14

356,559,009 323,513,255 594,740,649

Sri Vijaya Visakha Milk Producers Company Limited (Visakha Dairy)


VISKHAPATNAM BALANCE SHEET AS AT 31ST MARCH 2006 (Fig.in Rs.) Sch. LIABILITIES Share Capital Share Application Money Reserves and Surplus Grants and Subsidies Secured Loans Unsecured Loans 1 2 3 4 5 6 As at 31st March 2006 118,449,500 26,402,219 195,789,750 12,490,974 388,320,936 741,453,379 ASSETS Gross Block Less : Accumulated Depreciation Net Block Capital Work in Progress Investments
Current Assets, Loans & Advances

As at 31st March 2005 111,486,350 23,620,733 176,305,356 29,507,134 250,657,324 3,163,751 594,740,648

7(a) 8

643,813,103 392,342,782 251,470,321 69,497,519 2,025,050

615,066,803 376,802,723 238,264,080 30,938,264 2,025,050

Inventories Sundry Debtors Cash and Bank Balances Deposits Loans and Advances Misc. Expenditure (Asset)
Less : Current Liabilities & Provision

9 10 11 12 13 13(a)

139,466,777 27,135,305 126,180,149 406,096,685 116,183,700 1,345,186 816,407,802

206,022,439 21,671,667 61,230,579 201,122,953 190,025,426 680,072,264

Current Liabilities Net Current Assets

14

397,347,312 418,460,489 741,453,379

356,513,255 323,513,255 594,740,648

Sri Vijaya Visakha Milk Producers Company Limited (Visakha Dairy)


VISKHAPATNAM PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2006 (Fig.in Rs.) Sch. For the year ended 31st March 2006 For the year ended 31st March 2004

INCOME
Gross Profit from Mfg. & Teaching Account Other Income Interest Received Profit on Sale machinery Total 24 25 361,500,682 9,753,704 21,544,193 341,077 393,139,655 33,303,790 6,602,796 23,990,755 879,258 362,776,599

EXPENDITURE Personal Expenditure Administrative Expenses Interest and Finance Charges Interest on Share Capital Selling and Distribution Expenses Repairs and Maintenance Depreciation Total 29 30 7 26 27 28 131,177,314 224,804,736 17,156,863 1,182,475 199,929,600 6,537,614 10,846,301 389,634,903 96,130,924 22,538,404 13,447,678 1,114,779 204,361,475 10,782,300 11,338,351 359,714,111

PROFIT BEFORE TAX Less : Provision for Income Tax Less : FBT Less : Deferred Tax Profit After Tax (Transferred to Balance Sheet) Notes on accounts 31

3,504,752 1,179,700 633,964 236,534 1,454,555

3,062,488

2,105,075

Sri Vijaya Visakha Milk Producers Company Limited (Visakha Dairy)


VISKHAPATNAM CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MARCH 2006 (Fig.in Rs.)
PARTICULARS Rs.
CASH FLOW FROM OPEREATING ACTIVITIES

2005-06 Rs.

2004-05 Rs. 2,105,074 Rs.

Net Profit after tax Adjustment for Depreciation Interest Interest Received Dividend Received OPERATING PROFIT BEFFORE WORKING CAPITAL CHANGES Adjustment for Inventories Trade and Other receivables Trade Payables CASH GENERATED FROM OPERATIONS BEFORE ADVANCE TAX PAID
NET CASH GENERATED FROM OPERATIONS

1,454,555 29,204,445 17,156,863


(21,544,193)

50,333,030 13,447,876
(23,990,755)

26,271,670

41,895,227

66,555,662
(139,508,267)

41,388,303 (5.292.632) 1,566,637 (3,725,995)

(1,064,123) (50,419,354) 57,334,775 47,746,534 1,807,933 49,554,467

CASH FLOW FROM ACTIVITIES Purchase of Fixed Assets Investments Interest Received

INVESTMENT (67,305,555 21,544,193


(45,761,362)

(55,431,051) 2,500,000 23,990,755


(28,940,296)

CASH FLOW FROM FINANCING ACTIVITIES Receipts from equity share capital Raise in Reserves and Surplus Adjustment in depreciation provision Raise in Grants Borrowing from Banks & other (Net) Interest Paid Net Increasing cash & cash equivalents Opening balance as at 1st April 2005 Closing Balance as at 31st March 2006

9,744,636 18,029,839 (13,664,386) (17,016,160) 134,499,861 (17,156,863)


114,436,927

8,312,479 (1,030,716) 2,468,296 (33,028,388) (13,447,878) 64,949,569 61,230,579 126,180,149


(36,726,207) (16,112,036)

77,342,615 61,230,579

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2003

Particulars Current Assets

2002

2003

Increase in Working Capital

Decrease in Working Capital

Investment on Deposits Sundry Debtors Interest receivable Advance to Staff Due from others Loans and Advances Current Assets Stock Stock of Stores and spares Cash and Bank balances Total Current Liabilities Working Capital Increase capital in Working

82194458.45 393533064.65 46793779.00 42459263.16 2277129.70 15679330.86

115214052.00 49487728.00 85423787.00

33019593.55 9954663.35 69744456.14 76554868.06 43213303.28 1029807.88 46793779.00 42459263.16 2277129.70

1029807.88 106514791.94 183069660.00 27095951.23 20451865.7 63665169.00 384029442.59 496860396.00 197206294.48 172252176.00 186823148.11 324608220.00 137785071.89 324608220.00 324608220.00

249541002.86

137785071.89 257441002.86 257441002.86

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2004

Particulars Current Assets Inventory Debtors Deposits Loans and Advances Cash and Bank Total Current Liabilities Total Working Capital Increase Capital in Working

2003

2004

Increase in Working Capital

Decrease in Working Capital

183069660.00 49487728.00 115214052.00 85423787.00 63665169.00 496860396.00 172252176.00 172252176.00 324608220.00 22676310.00 347284530.00

204958316.00 33745975.00 16787336.00 162588493.00 77342614.00 646508764.00 299224234.00 299224234.00 347284530.00

21888656.00 15741753.00 52659314.00 77164706.00 13677445.00

126972058.00

22676310.00 347284530.00 165390121.00 165390121.00

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2005

Particulars Current Assets Inventory Debtors Deposits Loans and Advances Cash and Bank Total Current Liabilities Total Working Capital Increase Capital in Working

2004

2005

Increase in Working Capital

Decrease in Working Capital

204958316.00 33745975.00 16787336.00 162588493.00 77342614.00 646508764.00 299224234.00 299224234.00 347284530.00

206022439.00 21671867.00 201122953.00 680072264.00 61230579.00 680072264.00 356559009.00 356559009.00 323513255.00 23771275.00

1064123.00 12074108.00 332449587.00

27435933.00

161122035.00

57334775.00

23771275.00 85520918.00 85520918.00

347284530.00

347284530.00

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2006

Particulars Current Assets Inventory Debtors Deposits Loans and Advances Cash and Bank Total Current Liabilities Total Working Capital Increase Capital in Working

2005

2006

Increase in Working Capital

Decrease in Working Capital

206022439.00 21671867.00 201122953.00 680072264.00 61230579.00 680072264.00 356559009.00 356559009.00 323513255.00 93602115.00 417115370.00

139466777.00 27135305.00 406096685.00 116183766.00 126180149.00 815062682.00 397947312.00 397947312.00 417115370.00

5463438.00 204973732.00 64949570.00

66555655.00 -

563888498.00 -

41388303.00

417115370.00

STATEMENT OF CHANGES IN WORKING CAPITAL FOR THE YEAR ENDED 31ST MARCH 2007

Particulars Current Assets Inventory Debtors Deposits Loans and Advances Cash and Bank Total Current Liabilities Total Working Capital Increase Capital in Working

2006

2007

Increase in Working Capital

Decrease in Working Capital

139466777.00 27135305.00 406096685.00 116183766.00 126180149.00 815062682.00 397947312.00 397947312.00 417115370.00

305789378.00 22238567.00 318461760.00 146448263.00 148049623.00 940987591.00 545287880.00 545287880.00 395699711.00 21415659.00

166322601.00 30264497.00 21869474.00 4896738.00 87634925.00 -

21415659.00 239872331.00 23987231.00

417115370.00

417115370.00

CHAPTER VI

FINDINGS
It is observed that Sri Visakha Dairy is a fastest developing organization, which is able to withstand all its competitors in the market and run successfully. This was a small organization with very few societies during its establishment but at present it had developed to such an extent that is has many number of branches also planning to start few more. It is observed that Sales, which increases the profitability of the organization, had increased tremendously This indicates the efficiency of the organization in following all its policies and achieving it goals. Due to it continuous profits it is able to install a new plant of its own for deriving milk power from the excess milk it procures. The amount that is collect from sales is generally deposited in banks after meeting out all its payments and expenses a part of it is remained as cash to meet out any further requirement and the other part is deposited in banks as deposits. From all the above it is clear that the particular organization is following a milk production of working capital all its current liabilities are compensated with its current assets. The liquidity position is also high which concludes that this is a profit market organization.

SUGGESTIONS
The liquidity position is quite good; hence it is advisable to divert its cash in other investments.

Necessary steps are being taken in keeping inventory under control .

New and innovative technique of sales are to be introduced in order to improve them.

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

CONCLUSION
The success of any organization depends mainly how well it can forecast the environmental changes. The company can attain its objective only when its predicts the opportunities and converting them in to profitable activities. Otherwise it would not have become such a very big milk company. The networking capital position of the company was high increased from the year 2002-2006, the VISAKHA DAIRY liquidity position is good. The average collection period of the company is high not only opening. This is the brief summary in the entire dissertation work in VISAKHA DAIRY Visakhapatnam with a special performs to its milk products.

BIBLOGRAPHY

Financial Management

I.M. Pandey

Financial Management (Theory and Problems) M.Y. Khan and Jain

Financial Management (Theory and Practice) Prasanna Chandra

Financial Management (Principles and Problems) R. M. Sri Vastava