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1.

1 INTRODUCTION
An enterprise whether industrial, trading in other acquires two types of assets
to run its business. They are fixed assets, which are necessary for carrying the
production/business.it is the current assets which are generally referred to as working
capital.
In managing fixed assets the time factor is very important discounting and
thats why discounting and compounding play a very important role in any capital
budgeting decision. But the time frame of current assets is only one accounting of
period the time value of money is significant in the management of current assets.
Any short run immediate need of the company whether that is need for cash or
adjustments to fluctuations in sales can be made only through adjusting the levels of
the various components of the current assests.this calls for efficient management of
current assets, which form part of working capital.
Working capital management involves not only managing the component of
current assets but also the managing the current liabilities. A set-financing pattern is
evolved to meet the requirement of a unit for acquisition of fixed assets and current
assets. Fixed assets are to be financed by owned funds and long term liabilities raised
by a unit while current assets are partly financed by current liabilities and other short
term loans arranged by the unit from the bank.
Working capital management involves not only managing the different
components of current assets but also managing current liabilities, or to be more
precise, the financing aspect of current assets.it is therefore appropriate to provide
brief description of current assets and liabilities. The total current asset with firm is
gross working capital whereas net working with the unit is calculated as follows.
in the chapters on Planning an SSI Unit and Business Plan, a discussion
was made on the fixed capital and the working capital. Every business
needs investment to procure fixed assets, which remain in use for a longer
period. Money invested in these assets is called Long term Funds or Fixed
Capital. Business also needs funds for short-term purposes to finance current
operations. Investment in short term assets like cash, inventories, debtors etc.,
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is called Short-term Funds or Working Capital. The Working Capital can


be categorised, as funds needed for carrying out day-to-day operations of the
business smoothly. The management of the working capital is equally important
as the management of long-term financial investment.
Every running business needs working capital. Even a business which is
fully equipped with all types of fixed assets required is bound to collapse
without (i) adequate supply of raw materials for processing; (ii) cash to pay
for wages, power and other costs; (iii) creating a stock of finished goods to
feed the market demand regularly; and, (iv) the ability to grant credit to its
customers. All these require working capital. Working capital is thus like the
lifeblood of a business. The business will not be able to carry on day-to-day
activities without the availability of adequate working capital. The diagram
shown on the next page clarifies it:
Working capital cycle involves conversions and rotation of various constituents/
components of the working capital. Initially cash is converted into
raw materials.
Subsequently, with the usage of fixed assets resulting in value additions, the
raw materials get converted into work in process and then into finished goods.
When sold on credit, the finished goods assume the form of debtors who give
the business cash on due date. Thus cash assumes its original form again at
the end of one such working capital cycle but in the course it passes through
various other forms of current assets too. This is how various components of
current assets keep on changing their forms due to value addition. As a result,
NET WORKING CAPITAL=CURRENT ASSETS-CURRENT LIABILITIES

1.2 NEED FOR THE STUDY


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Working capital refers to current assets of the company that are changed in the
ordinary course of business and one firm to another, for instance from cash to
inventories, inventories to receivables into cash.
It refers to the firms investment in current assets.current assets area the assets which
can be converted into cash with in the accounting year and include cash, short term
securities,debtors,bills receivables and stock.
when current assets exceed. Current liabilities, the working capital is positives.
Working capital is needed for financing current assets.
When ever the requirement of working capital funds arise due to in creasing level of
business actively arrangement s should be made quickly to rises the finance.
In case of some surplus funds are there in the organization.it should not be allowed to
remain idle should be invested short-term securities.therefore,the need of working
capital requirement cannot be over emphasized.
The need for working capital to run the day-to-day business activities would be felt
essential.
However, firm differ in their requirement of working capital.
1. The study has great significance and provides benefits to various parties whom
directly or indirectly interact with the company.
2. It is beneficial to management of the company by providing crystal clear picture
regarding important aspects like liquidity, leverage, activity and profitability.
3. The study is also beneficial to employees and offers motivation by showing how
actively they are contributing for companys growth.
4. The investors who are interested in investing in the companys shares will also get
benefited by going through the study and can easily take a decision whether to invest
or not to invest in the companys shares.

1.3 OBJECTIVES OF THE STUDY


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TO analyses the working capital management strategies of SIMHAGIRI


PAPER MILLS.

To study the entire working capital cycle of the firm.

To find out the working capital policies and procedures of the firm.

To analyses the companys receiveable, cash, inventory techniques.

To examine the cash management policies through liquidity ratios.

To study the liquidity position through cash inflows, outflows of the company.

1.4 METHODOLOGY OF THE STUDY


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For the preparation of a project the collection of data is very essential. There
are two broad methods, from which date is to be collected. They are primary data and
secondary data.
Primary data:
This is collected through discussions and by interviewing the personnel
concerned with in the company.
Secondary data:
This information is collected mainly from published information Viz.,annual
reports,journals,books,magazine,internet available on the subject.

Annual reports of the company

Magazines

Journal

Internet

Period of study:
For the purpose of the project work we have considered two years from
2008S-1

1.5 LIMITATIONS OF THE STUDY


5

The study based on company analysis

The study based on two year consecutive years from 2008-2010.

The study is only for one month period of time

The is related with varies aspects of working capital current assets and
liabilities

The information collected from primary and secondary data.

The calculation may be done in varies analysis through some selected ratios.

2.1 INDUSTRY PROFILE


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OVER VIEW OF THE PAPER INDUSTRY IN INDIA


The paper a pulp industry has an important role to play in the India economy.
The overall paper consumption India is about 5 million tons. The increasing demand
for paper puts pressure on supply of materials and the need to develop and expand
sustainable use of wood. At the same time competition in global pulp and paper
markets is intensify in India pulp and paper industry consist of around 500 paper
mills, mainly small and medium size companies with production capacities ranging
from less than. 100tpa to over 150,000 TPA. There is a growing need for
modernization an introduction of energy efficient

and clean technologies of

enhancing competitiveness and productivity. The paper manufacturing process has


several stages which is explained diagrammatically here under the entire paper
manufacturing process can be broadly classified into two distinct operations- pulp
making. Is the hearth of any integrated paper mill and is the most energy and resource
intensive operations. An integrated paper units product quality as well as yield is
largely dependent on the efficiently of its pulping operations.
GLOBAL PAPE INSUSTEY:
Industry structure: the global industry is configured for volume driven
operations with distinct pulp manufactured and paper makes. Europe and canda
dominate the pulping industry while north America western Europe and parts of Asia
dominate paper manufacture in. the global paper consumption in FY 2008 was
approximately 825 mn tons. Writing & printing segment accounted for 32% of the
global paper consumption while packaging, tissue and sanitary and newsprint
accounted for 5%, 6% and 12% respectively.
DOMESTIC INDSUSTRY:
Industry ware 82% resulting production of 5.1 tpa in FY 20 a. as per the Indian
paper manufactures association; the Indian paper ix expected to reports a 5-10%
improvement in production and sales during the coming years. This growing seaman
is not expected to be met by a corresponding rise in capacity due to high capital costs
and environmental constraints. As the domestic paper industry has low duty protection
levels, the domestic prices have been in line with international prices. This has
resulted in reduced import of paper. This is now mainly7 confined to west paper pulp
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especially coated and specially paper. Thus. While international pricing does impact
domestic pricing there by impacting profitability but the paper imports constitutes less
than 10% of total paper & paper board supply.
RECENT SCENARIO & OUTLOOK:
After a prolonged down cycle, the domestic paper industry started to firm up
in the lst year. At the same. At the some time in the past. 6-9 months has witnessed
sharp rise in operating costs as inputs like causes tic soda and chlorine have risen
about 40- per cent over the past year, while wood prices have risen about 40 per cent
over the past year, while wood prices have risen approximately 30 per cent over the
past 6-8 months.
STUDY AND GROWTH OF PAPER INDUSTRY:
At the turn of current century, there were only for units in operation whose
combine annual out was 20,000 tones. Attracted by high profits under the protective
tariff umbrella, many new paper mills were setup at the beginning of the first plan in
1950 the production crossed the one lakhs ton mark. The output of paper excluding
news print recoded a study growth of the second plan onwards and reached 19.4 laksh
tones in the 1990. Imports at 20,000 tones. Accounted for les than one percent of
domestic consumption.
Year

Paper & board installed

News print production

production company
1960-61

3.4

0.4

1970-71

7.5

0.4

1980-81

11

11.0

0.3

1990-91

30

20.7

2.7

There are now over 325 units with a total installed capacity of 33 laksh tones
while production excluding news print is about 21 lakhs tones. Capacity utilization
however, came down from a high 99 percent in 19970 to 62 percent in 1990 or the
installed capacity merrily 46 percent (15.17 lakhs tones) is form 33 large integrated
paper mills each with a capacity of 20,000 tones and more) while the balance is
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accounted for by agro resident based and waste paper based small mills.

SICKNESS IN SMAL PAPER UNITS:


Form the very beginning the small units have suffered from various constraints
they did no have chemical recovery plants. Did not provide for disposal of effluents.
They had installed second and machinery imported form else where and they made
use of unconventional raw materials. As a result in small paper units found it difficult
to pate efficiency to maintain quality of paper or produce at a low cost. At the same
time the large paper units had many technical advantages because of better equipment.
Accordingly, the small units have not been able to complete with large paper units.
And of them fell sick. The sickness in the small scale paper sector. Is due to

High cost of investment and low rate of realization

Highly competitive market

Continuous cost sectionals, but with stagnant price of paper board

Heavy interest burden towards financial instauration and banks

Non availability of materials. And increase in electricity and water charges

Non availability of materials. And increase inelasticity and water charges

Non availability of coal in the required quantity of quality

Cluster of mills in particular regions, resulting in problems of procurement of


limited raw materials in that region.

PRODUCT:
The most basic marketing mix tools are PRODUCT, which stands for the
firms tangible offer to the market. Including the product quality, design. Features
branding and packaging.
According to PHILIP KOTLER defines product as follows.
A product is any tying that can be offered to a market for attention.
Acquisition use or consumption and that might satisfy a want. Or need it include
physical objectives serious. Persons, places, organizations and ideas.
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Products are destined for use by ultimate consumer or households and in such
form that they can be used without further commercial processing. Industrial products
are defined to be sold primarily for use in producing other goods or rendering
services.
CONSUMER GOODS CLASSIFICATION:
Consumers buy a vest number of goods we can classify these goods on the
basis of consumers shopping habits like Convenience goods. Goods that are customer
usually purchases frequently, immediately and with the minimum of efforts in
comparison and buying examples includes tobacco products, soaps, news paper and
dugs,etc. Shopping goods. Goods that are customer in the process of selection and
purchases characteristically compares on such bases as suitability, quality, prices and
style example included furniture, clothing and major appliances. etc..Specialty goods.
Goods with unique characteristics and for brand identifications for which a significant
group of buyers are habitually wiling to make a special purchasing efforts. Example
includes specific band and types of fancy. Cars, stereos, photographic equipment etc.
Unsought goods. Good that the consumer does not know about or know about but
does not normally think of buying new product, such as micro events, food
processors, are unsought goods until the consumer is made aware of them through
advertising digital player. LIC & encyclopedia.
INUSTIRAL GOODS CLASSIFICATION:
Industrial goods can be classified in terms of how they enter the production
process and the relative coastlines like Material and parts Goods that enter the
manufactures product completely. They fall into two classes; raw materials and
manufactured materials and pats. Raw materials Ra material fall into two major
classes; firm products example wheat. Number crude. Petroleum, iron ore etc.) Firm
product is supplied by many products, which turn them over to marketing
intermediaries. Who provide assembly grading, storage, transpiration and selling
services? Their commodity character results in relatively little advertising and
promotion activity with some exceptions there are fewer and larges producers. Who
often market them directly to industrials user. Because the users depend on those
materials. Long- term. Supply contracts are common price and deliver reliability are
major factors influencing the selection of suppliers.
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Manufacturing material and parts:


Manufactured material and parts are exemplified by component material (Legion,
cement , wires and component part (eg; small mothers, tries, castings.) component
materials usually fabricated further for example big iron is made into steel, and earn
martial usually fabricated further for example big iron is ad into steel, and earn in
woven into cloth. Component parts enter the finished product completely with no
forth change in fore as when small mothers. Are put into vacuum cleans and tiers are
put

on automobiles most manufacture materials and parts are sold directly to

industrial users price and services are the major marketing considerations and
branding and advert singing tend to be less important.
Capital items:
Goods that are enter the finished product. They include tow groups installation and
accessory equipment Installations consists of building eg. Factories and offices and
fixed equipment generations. Dell press computes. Elevators) installations are major
purchases they are usually broth directly from the produces. With the typical sales
preceded by long negotiation period. The process uses a top notch sales force. Which
after includes sales engineers advertising ins much less importation personal selling
Accessory equipment portable factor equipment do no become part of the finished
product. They simply help in the production process. All cause middle even beaus the
market is geographically depressed. The buyers. Are numerous and the orders are
small quality. Features price and service and major inconsideration in vendor
selection.
The sales force tends to be more important than advertising although the letter
be use effectively Suppliers and services Items that do not enter the finished product
at al suppliers are of two kinds operating suppliers (e.g. ; lubricates. Coal. Typing
Paper. Pencils etc.) And maintenance and repair items (eg; PAINT NAILS.
BRTOOMS ETC.,) supplier is the equivalent of convenience goods in the industrial
field. As they are usually purchases with a minimum effort on a straight rebury basis.
They are normally9 marketed through intermediaries because of the grate number of
customers, their geographical and the low unit value of these goods, business services
include maintenance and repair services (Eg; Window cleaning, type rewriter rapiers)
and business advisory services.
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The Indian Paper Industry is a booming industry and is expected to grow in


the years to come. The usage of paper cannot be ignored and this awareness is bound
to bring about changes in the paper industry for the better. It is a well known fact that
the use of plastic is being objected to these days. The reason being, there are few
plastics which do not possess the property of being degradable, as such, use of plastic
is being discouraged. Excessive use of non degradable plastics upsets the ecological
equilibrium.
What keeps the Indian Paper industry rolling?
In order to keep the Indian Paper industry rolling, the foremost thing which must be
kept in mind is the availability of the raw materials. Every possible effort is to be
made to take India at par with the other paper industries of the world. Application of
paper is varied and one cannot think of a life without paper. The raw materials need to
be of good quality. There should be enough modernized techniques to carry out
production. Reducing costs should be accompanied by low cost of production.
Policies should be implemented to bring about optimum production.
Softwood producing wood fibers make up the main raw material in the manufacturing
process worldwide. China and India are excluded from this category. The reason
being wood products availability is meager. Instead, straw, bagasse which are
obtained as residues from the agriculture industry are used for the production of paper.
Indian paper industry uses used paper for the manufacturing of paper after recycling.
It has been estimated that around 40% of paper used is recycled.
Role of forests in the Indian paper Industry:
Wood timber forms the major raw material in the Indian paper industry. Therefore,
forests determine the extent to which the Indian paper industry can flourish.
Introduction On Paper Industry
The new millennium is going to be the millennium of the knowledge. So demand for
paper would go on increasing in times to come. In view of paper industry's strategic
role for the society and also for the overall industrial growth it is necessary that the
paper industry performs well.
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Government has completely delicensed the paper industry with effect from17th July,
1997. The entrepreneurs are now required to file an Industrial Entrepreneur
Memorandum with the Secretariat for Industrial Assistance for setting up a new paper
mill or substantial expansion of the existing mill in permissible locations.
The Paper industry is a priority sector for foreign collaboration and foreign equity
participation upto 100% receives automatic approval by Reserve Bank of India.
Several fiscal incentives have also been provided to the paper industry, particularly to
those mills which are based on non-conventional raw material.
Capacity, Production, Raw material and Import
There are, at present, about 515 units engaged in the manufacture of paper and
paperboards and newsprint in India. The country is almost self-sufficient in
manufacture of most varieties of paper and paperboards. Import, however, is confined
only to certain specialty papers. To meet part of its raw material needs the industry
has to rely on imported wood pulp and waste paper. Production of paper &
paperboard during the year 2002-03(upto December, 2002) is 24.52 lakhs tonnes. At
present about 60.8 per cent of the total production is based on non-wood raw material
and 39.2 per cent based on wood.
Performance of the industry has been constrained due to high cost of production
caused by inadequate availability and high cost of raw materials, power cost and
concentration of mills in one particular area.
Several policy measures have been initiated in recent years to remove the bottlenecks
of availability of raw materials and infrastructure development. To bridge the gap of
short supply of raw materials, duty on pulp and waste paper and wood logs/chips have
been reduced. The capacity utilization of the industry is low at 60%. About 194 paper
mills, particularly small mills, are sick and /or lying closed. Several policy measures
have been initiated in recent years.
Imports of paper and paper products was growing over the years. However, it has
increased during 2001-02 after a fall in 2000-01. About 1,40,000 tonnes of paper was
exported in 2000-01 mainly to the neighboring countries.
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India's per capita consumption of paper is around 4.00 kg, which is one of the lowest
in the world. With the expected increase in literacy rate and growth of the economy,
an increase in the per capita consumption of paper is expected
Outlook
The demand for upstream market of paper products, like, tissue paper, tea bags, filter
paper, light weight online coated paper, medical grade coated paper, etc., is growing
up. These developments are expected to give fillip to the industry.
Indian paper industry needs the following for being globally more competitive.
Sustained availability of good quality of raw materials (forest based) and bulk
import of waste paper to supplement the availability of raw materials.

Adequate modernization of the manufacturing assests.

Improvement of the infrastructure.

Quality improvements and reduction in cost of production

Import policy conducive for import of material, equipment, instruments, raw


materials & technologies which are bearing of the quality and environment.

Based on the recommendations made in the Report and in consultant with the industry
Associations, action plans are being finalized in consultation with other
Ministries/Departments concerned. The Main Action Points proposed are as under:
Infrastructure
Improvements of key ports, roads and railways and communication facilities which
will help the entire industrial sector including pulp & paper.
Raw Material
(i) For Wood Based industry

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Revision of forest policy so that plantation can be raised by industry/Cooperatives of


farmers/State Government. Degraded forest land to be made available to the industry
for raising plantations.
(ii) For Waste Paper based Industry
Import of waste paper at minimum import duty. Introduction of Eco labeling system
where in products made from recycled fiber are rated higher than the products made
from virgin fiber. Introduction of modern and effective collection and grading system.
(iii) For Agro Based Industry
Funds to be made available for technology up gradation for handling & processing of
agro residue fiber, in small & medium scale industries.
Government Policies
Accelerated depreciation to partially mitigate high capital intensity. Allow duty free
imports of new & second hand machinery/equipment for Technology Up gradation.
Energy Policy
Better availability & quality of coal. More uniform Energy Policy by States.

2.2 COMPANY PROFILE

Paper industry in India is the 15th largest paper industry in the world. It
provides employment to nearly 1.5 million people and contributes Rs 25 billion to the
government's kitty. The government regards the paper industry as one of the 35 high
priority industries of the country.

In 1951, there were 17 paper mills, and today there are about 515 units
engaged in the manufacture of paper and paperboards and newsprint in India. The
pulp & paper industries in India have been categorized into large-scale and small15

scale. Those paper industries, which have capacity above 24,000 tonnes per annum,
are designated as large-scale paper industries. India is self-sufficient in manufacture
of most varieties of paper and paperboards. Import is confined only to certain
specialty papers. To meet part of its raw material needs the industry has to rely on
imported wood pulp and waste paper.

Growth of paper industry in India has been constrained due to high cost of
production caused by inadequate availability and high cost of raw materials, power
cost and concentration of mills in one particular area. Government has taken several
policy measures to remove the bottlenecks of availability of raw materials and
infrastructure development. For example, to overcome short supply of raw materials,
duty on pulp and waste paper and wood logs/chips has been reduced
SIMHAGIRI paper mills is established in 2008 in Bobbili Vijanagaram dist
A private ltd company by name and style of m/s SIMHAGIRI paper mills (P) ltd is
constitute to take up the project for manufacture of Kraft paper and other paper
products. The company had obtained registration certificate from the registrar of
companies A.P Hyderabad. The registration no of the company is 44270.

The company consists of the following proposed directors.

Sri .R.G.P.K.Ranga Rao

:Chairman

Sri B.Nageswar Rao

:Managing Director

Sri B.Ramachanda Rao

:Executive Director

Sri G.Satyannarayan Raju

: Executive Director

Sri P.Satyanarayana Murthy

:Director

In Private company minimum share holders are Two


In Private company maximum share holders are Fifty

16

In Private Company members want to be change or sell his, its will be take a

permission from other share holders.


In Private company minimum directors are Two
Every Private company have a word Pvt At the end of the title
Above 65 years persons also appointed as a Director
It can be issued Equity, Preference shares with in the members
It can not be issued Equity, preference Shares to the public
NO limitation of directors remuneration.
Accounts should be checked by C.A.

View of organization:-

Company.

Employees

Customers

Company: - Each company includes 3 stages

Top level management


Middle level management
Low level management
A strong company image can increase consumers confidence in its
products. Company followed strategic planning. In planning point of view decision
making is very important. It is a must for every business organisation. Finally
strategic is including decision making. In a firm decisions taken top level
management. Top level management is total responsible of planning and decision of
plant (company). Middle level mgt. is received decisions from. Top level mgt. Low
level mgt. is followed and implemented in the organizing.
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Employees:- Employees are absolutely essential for the smooth running of business.
Employees unity and mutual understandings is also very important in every
organising. If all employees working (or) perform is well and proper way. Achieve the
goals of the organization. It will be failure to create. Internal - problems in the
organization.
Customers:- Company point of view customer is the boss Generally consumer
have a wide range of product choice. He always an opportunity to make a purchase
decision. Brand purchase decision and payment decision.
Decision process in the organizing:

Identifying the problem

Understanding the problem

Identifying alternatives

Analyzing all alternatives

After analyzing understanding alternatives

Select the best alternatives

Implement the selected alternatives

Role of company:Finance

HR

Product
Marketing
ion

Finance :- Finance management is concern with planning and controlling of firms


financial resources.

Finance management going to determine the growth rate of a firm and the rise
of a firm.

Finance management determine the comparison of firm assets and liabilities


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Finance management determine firm investment

Finance management determine firm Allocation of funds to different sectors.

Finance management determine firm risk.

Finance management determine firm present.

Position (profit or loss)

Human resource management:The objectives of H.R.M is to analysis recruitment, training and development
of manpower of manpower. It is involved in each and every activity. In the organising.
The major activities of H.R.M

Organisation Design
Human resources utilising planning
Job analysis
work analysis
Information passing system in the organising
Staffing recruiting
Maintain all employees in a proper way.
Maintain good relations between employees
Conducting employees meeting for feedback purpose.
finding the attitude employees

Production:- Firm creates manufacturing capacities for the production of goods and
services. Some services provided to customers. They sell their goods or services to
earn products. They rises funds to assure manufacturing & other facilities.
Production means. Inputs transfer to services. It includes.

inputs Raw material

Financial Resources

Human Resources

Production operation management:-

Engineering &
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Manpower

maintenance planning

Quantity planning

planning

Financial

Production

Marketing

Investment

Planning

Planning

Planning

Material

Distribution

Quality

Planning

Planning

Planning

Determine:

Establish target
Checking performance
Utilization of resources
Right Quantity, Quality at night time

Objectives of production:

Reduce the cost


Minimise Wastage
Low investment, large production
Balanced Utilisation of resources
Customer satisfaction

Style of Output Process:In puts

Land Labour capital


organization

Out put

Conversion
process
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Services, Customer
goods

Feedback of production:

Inventory levels checking process


Labour efficiency checking process
Quality checking process
Analyses finance statements

Marketing:- Marketing is a social process where by Individuals and groups obtain


what they need and want through creating, offering and freely exchanging the goods.
And services of value with other. Totally it focuses on needs of the buyer. The process
of identifying the need and wants of the customer satisfaction then that will enhance
the value of both customer & company. It holds that the key to achieve organisation
objectives. The company to be more effect and efficient then it on sales and
competition. To create more value of its products. Selling concept is one of the part in
marketing. In selling point of view we followed strong brand, strong distribution
network and high quality products.
Customer as the controlling function:- customer have more choice of purchase of
product, and he have more information and more alternatives, regarding the product.
Customer decision is highly influence the organisation sales. His decision is influence
the organisation all functions.

Production

Marketing

Customers
HR

Financial

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Marketing Mix

Product
Direct, indirect selling

Features of product

Advertising

colour, size, packing, brand

Publicity

Style, Quality, Quantity

Promotion

Place
High price

convenient place

Low price

Inconvenient place

Market price

Potential place

Competition price
Price
Product:- The product can be define of its Tangible such as weight, dimensions and
materials. The survival of may organisation depends on their developing and
marketing success full a product. The product have good Features and maintain, good
colour, size, packing, style, Quality and Quantity, fits a market. These are all elements
influence the sales of product
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Price:- The pricing decision is the critical one in services too as this component of
the marketing mix. Price determine the revenue of the firm.
The cot of access to the market and local competition.
The final step is to decide.
The pricing will be decided by these elements.
The pricing decided depend upon production cost.
The pricing decided depend upon competitor price.
The pricing decided depend upon market price.
Sometimes price will be very high and very low. This time sales will be fluxgates.
Some times customers got a benefit like discount on purchase this time price will be
favour of customer.
Place: In marketing mix point of view place means distribution and selling point.
This stage decided potential, convenience, inconvenience places for selling goods.
The distribution of products to convenience place sales will be increase, in
convenience place sales will be reduced. Selling point of view place is important.
Promotion:- Promotion means sales promotion to give advertising, publicity, is also
one of the sales promotion Activity, direct marketing and in direct marketing is highly
influence the promotion of product.
Plant resources approx value

pulp mill machine

70 lakhs

Wire

35 lakhs

Press

16 lakhs

Pre dryer

35 lakhs

Port Dryer

07 lakhs

pop reel dryer

04 lakhs

M.G.

35 lakhs
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Rewinder

14 lakhs

Motors

100 lakhs

Boiler Machine

50 lakhs

Other Electrical equipment

34 lakhs
_____________

Total

400 lakhs
_____________

Total Value of Equipment

400 lakhs

Civil works

200 lakhs

Other estimation

200 lakhs

Total

800 lakhs

Total cost of machines

400 lakhs

400 lakhs

Total cost of other equipment

Total life time of machines 20 to 25 years

Every year maintain reserve for machines is 20,00,000/-

For the production purpose list of materials

waste paper

per ton

6500 to 7500/-

paper cones

per ton

14,500/-

Aluminum sulphate Ferric chemical -

Fortified Rosin chemical

E.T. sludge

200 to 600/-

Sodium silicate liquid

7,500/-

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2,500/23,000/-

Dry strength enhancer chemical

Husk

sodium sulphate

45,000/-

Cole, salt

10,000/-

Power

Per ton price for all products

25

56,000/-

2000/-

1250 to 1300/-

Cost estimation of per ton price


Particulars:-

Requirement of

Cost of material

Total

Raw material

cost

Waste paper

= 1200 kg

7 =

8400

Aluminum sulphate ferric

2.50 =

80

chemical

Fortified Rosin chemical

5 kg

23

115

Dry strength

4 kg

X 56

224

E.T. sludge

20 kg

0.60

12

Sodium silicate

3 kg

7.50

22.50

Power - 1200/-

1200

1200

Husk

885 kg

1770

sodium sulphate

2 kg

90

32 kg

45

11,913

Maintenance expenses

Machinery

Labour (workers) 136

other maintenance 100

110

=
Total

26

346
12,259

Cost estimation of per shift (20 tons)

Waste paper

Aluminum sulphate
o Chemical

2400 kg

7=

1,68,000

640 kg

2.50 =

1,600

Fortified Rosin Chemical =

100 kg

23

2300

Dry Strength

80 kg

56

4480

E.T. Sludge

400 kg

0.60

246

Sodium silicate

60 kg

7.50

450

Power

20

1200

24,000

Husk

17700 kg

35,410

Sodium sulphate

40 kg

45

1,800
2.38,270

Maintenance expenses

Machinery

274

workers

2310

other maintenance

1700

= 4281
2,42,554

Cost estimation of perday (60 tons)

Waste paper

72000 kg

7 =

5,04,000

Aluminium sulphate ferric = 1920 kg

X 2.50 =

4,800

Fortified Rosin Chemical=

300 kg

23

6,900

Dry Strength

240 kg

56

13,440

E.T. Sludge

1200 kg

0.60

720

Sodium silicate

180 kg

7.50 =

1,350

Power

60 kg

1200 =

72,000

Husk

53,100 kg

1. Sodium sulphate

120 kg

2 = 1,06,200
45

5,400
7,14,,810

27

Maintenance expenses

machinery

5480

workers (100x70)

7000

other maintenance

5000

17,480

7,32,290
Cost estimation of Per Year (60 tons)

Waste paper

Aluminium sulphate ferric

= 2,62,80,000 kg

X 7

18,39,60,000

Chemical

7,00,800 kg

X 2.50 =

17,52,000

Fortified Rosin Chemical

1,09,500 kg

23 =

25,18,500

Dry Strength

87,600 kg

56

49,05,600

E.T. Sludge

4,38,000 kg

X 0.60 =

2,62,800

Sodium silicate

65,700 kg

X 7.50 =

4,92,750

Power

21900 kg

X 1200 =

2,19,00,000

Husk

X 2

3,87,63,000

Sodium sulphate

19,71,000

1,93,81,500 kg
43,800 kg

45

25,65,25,650
Maintenance expenses

machinery

20,00,000

workers (100x70)

30,00,000

other maintenance -

18,25,000

= 68,25,000
26,33,50,650

Sales management
Sales management is a key function in much kind of enterprises. From the
company view point there are three general objectives of sales management.

Sales volume
28

contribution of profit

continuing growth
Top level management has the final responsibility, because it is accountable

for the success or failure of the entire enterprise, ultimately too top level management
is accountable for supplying a ever - increasing volume of socially responsible
products. Those final buyers want at satisfactory prices. Sales management appraisal
of market opportunities targets are set for sales volume, gross margin and net profit in
units of product. Sales management Includes, personal selling also. It do the entire
selling job and service existing account that is to maintain contacts with present
customers, take orders and search, out and obtain new customer. Personnel selling are
short term and adjusted from one promotional period to another distribution. Channels
also aim at supporting personal selling endeavors of enterprise.
Personal selling includes:

Sales presentation

Sales meetings

Sales programs

Sales samples

Sales Fairs trade shows

Direct selling:Direct marketing through various advertising media that interact directly. With
consumers. Under certain market and product condition selling directly to retailers in
reasonable alternative. It helps to large scale traders.
It includes:

Catalogue

Mailing

Tele marketing

Electronic Display

Fax -mail

E - Mail
29

Voice - Mail

T.V. shopping

Indirect selling:The other option open to manufactures is selling his product with the help of
middlemen. Witch is popularly known as indirect selling. There are four alternative
channels of indirect selling.

Manufacturer - Retailers - Ultimate consumer

Manufacturer - Distributor - Retailer - Consumer

Manufacturer - Agent - distributor - Retailer - consumer

Manufacturer - Distributor consumer

If the size of market is small, it will be worth while Togo for direct marketing.
In case of larger market on the other hand we may have many channels.

Customer Relation
Customer relation is more important in every organization.
Customer relation also known as relationship marketing begins with understanding
the needs and behavior of the customer. Hence getting feedback of product such as
Quality, Quantity, Size, Colour, Packing, Style from the customer is essential. For the
supplier to as certain how his products and services. The market helps to finding the
customer needs and his likes, product or dislike product also. Customer relation help
full to maintain long-term. Business and it helpful to increase our customers.

30

3 THEORETICAL FRAMEWORK
Working capital management involves the relationship between a firms short
tears assets and its short-term liabilities. The goal of working capital is to ensure that
a firm is able to continue its satisfy boit maturing short-term debt and pcoming
operationally expenses. The management of working capital involves managing
inventories,accountis receivable and payable and cash . to pay current liabilities as
they fall due. This implies a clearly designed risk policy to determine the required
liquidity level.
CONCEPT OF WORKING CAPITAL:
There two concept of working capital :

Gross working capital


Net woking capital

In the broad senses, the term working capital refers to the gross working
capital and represents the amount of funds invested in current assets. Current assets
are those assets which in the ordinary course of business can be converted into cash
within a short period of time, normally one accounting year.
In a narrow sense, the term woking capital refers to the net or the working
capital. Net working capital is the excess of current assets over current liabilities.
Working capital = current assets - current liabilities
Net working capital may be positive or negative. When the current assets
exceed the current liabilities, the working capital is positive and the negative working
capital results when the current liabilities are more than the current assets. Current
liabilities are those liabilities which are intend to be paid in the ordinary course of
business within a short period or normally one accounting year out of the current
assets or the income of the business.

31

The gross working capital concept is financial or going concern concept


whereas net working capital is an accounting concept of working capital .these two
concepts of working capital are not exclusivies;rather both have their own merits.
Gross concept is very suitable to the company from of organization where
there is divorce between ownership,management and control. The net concept of
working capital may be suitable only for proprietary from of organizations such as
sole-trade or partnership firms. However, it may be made clear that as per the
general practices net working capital is referred to simply as working capital .

Type of working capital:


Working capital may be classified in two primary ways, one on basis of concept
and other on the basis of time .

1.on the basis of concept, working capital can be further classified into
o a.gross working capital
o b.net working capital

2.on the basis of time, working capital can be further classified into
o a.permanent or fixed workin capital
o

temporary or variable working capital

perment working capital:


perment of fixed working capital is the minimum a mount, which is required
to ensure effective utilization of fixed facilities and for maintaining the circulation of
current assets, there is always a minimum level of current assets, which is
continuously required by the enterprise to carry out its normal business operations.
These minimum level of current assets is fixed working capital

32

Temporary working capital:


any amount over and above the permanent of working capital is temporary,
fluctuating or variable working capital.thise portion of the required working capital is
needed to meet the fluctuations in demand consequent upon changes in production
and sale as result of seasonal changes.
Objectives:
The basic objective of working capital is to provide adequate support for the
smooth functioning of the normal business operations of a company. The objective of
working capital management is to balance the liquidity and profitability criteria while
taking into consideration the attitude of management towards risk and the constraints
imposed by banking sector.
Working capital can be viewed as the amount of capital required for the
smooth and uninterrupted functioning of the normal business operations of a company
ranging from procurement of raw material converting the same into finished goods for
sale and relishing cash along with profit the accounts receivables that arise from the
sale of finished goods on credit.
Significance of working capital:
Working capital be regarded as lifeblood of a business. Its effective provision
can do much to ensure the success of a business while its inefficient management
can lead not only to loss of profits but also to the ultimate downfall of what otherwise
might be considered as a promising concern.
A study of working capital is of major importance to internal and external analysis
because of its close relationship with the current day to day operations of a business.
Determinants of working capital:
A large number of factors influence working capital needs to the firms. The
following is the description of factors,which generally influence the working capital
requirements of firms.

33

Nature and size of business:


Working capital needs of the most manufacturing concern fall between two
extreme requirements of trading firms and public utilities. Such concerns have to
make adequate investment in current assets depending upon the total assets structure
and other variables .a firm with larger scale of operations will need more working
capital than a small firm.
Nature of raw material used:
The nature of major raw material used in the manufacture of finished goods
will greatly influence the quantum of raw material inventory.
Manufacturing cycle:
The manufacturing cycle comprises of the purchase and use of raw materials
and the product of finished goods. Longer the manufacturing cycle ,larger the firm
working capital requirements.
Production policy:
The production policies are different for different firms depending on
circumstances of individual firms and their working capital requirements keep
changing with production policies.
Nature of finished goods:
Sale growth:
The working capital needs of the firm increases as its sales grow.so proper
planning should be done by the growing firms.
Demand conditions:
Most firms experience seasonal and cyclical fluctuations in the demaoptimum
nd for their products and service. These business variations affect the working capital
requirements specially the temporary working capital requirements of firm.

Price level changes:


34

Generally rising prices will require a firm, maintain

higher amount of

working capital.
Operating efficiency and performance:
The operating efficiency of the firm relates to the optimum utilization of
resources at minimum costs. The contribution towards working capital would be
affected by the way in which profits are appropriated and operating efficiency of the
firm is well operated by the firm.
Firms credit policy:
The credit policy of the firm affects working by influencing the level of bool
debts. A high collection period will mean tie up of funds in book debts. Stock
collection proceedings can increase the changes of bad debts.
Availability of credit:
A firm will need less working capital if liberal credit terms are available to it.
The available credit from banks also influence the working capital needs of the firm.
Permanent and variable working capital:
These are always a minimum level of assets, which is continuously maintained
by the firm to carry on business operations. This minimum levels of current assets.

Indicated the liquidity position of the firm.

Suggests the extent of to which working capital needs may be financed by


permanent sources of funds.

Production Cycle
Another factor which has a bearing on the quantum of working capital is the
production cycle. The term production or manufacturing cycle refers to the time
involved in the manufacture of goods.

It covers the time span between the

procurement of raw materials and the completion of the manufacturing process


leading to the production of finished goods. Funds have to be necessarily tied up
during the process of manufacture, necessitating embanked working capital. In other
words, there is some time gap before raw materials become finished goods. To
35

sustain such activities the need for working capital is obvious. The longer the time
span (i.e. the production cycle), the larger will be the tied up funds and, therefore, the
larger is the working capital needed and vice-versa. There are enterprises which, due
to the nature of business, have a short operating cycle. A distillery, which has an
ageing process, has generally to make a relatively heavy investment in inventory. The
other extreme is provided by a bakery. The bakeries sell their products at short
intervals and have a very high inventory turnover. The investment in inventory and,
consequently, working capital is not very large.
Further, even within the same group of industries, the operating cycle may be
different due to technological considerations. For economy in working capital, that
process should be selected which has a shorter manufacturing process.

Having

selected a particular process of manufacture, steps should be taken to ensure that the
cycle is completed in the expected time. This underlines the need for effective
organisation and coordination at all levels of the enterprise. Appropriate policies
concerning terms of credit for raw materials and other supplies can help in reducing
working capital requirement. Often, companies manufacturing heavy machinery and
equipment minimize the investment in inventory or working capital by requiring
advance payment from customers as work proceeds against orders. Thus, a part of the
financial burden relating to the manufacturing cycle time is passed on to other.
Business Cycle
The working capital requirements are also determined by the nature of the
business cycle. Business fluctuations lead to cyclical and seasonal changes which, in
turn, cause a shift in the working capital position, particularly for temporary working
capital requirements. The variations in business conditions may be in two directions
(i) upward phase when boom conditions prevail, and (ii) downswing phase when the
economic activity is marked by a decline. During the upswing of business activity,
the need for working capital is likely to grow to cover the lag between increased sales
and receipt of cash as well as to finance purchases of additional material to cater to
the expansion of the level of activity. Additional funds may be required to invest in
plant and machinery to meet the increased demand. The downswing phase of the
business cycle has exactly an opposite effect on the level of working capital
requirement. The decline in the economy is associated with a fall in the volume of
36

sales which, in turn, leads to a fall in the level of inventories and book debts. The
need for working capital in recessionary conditions is bound to decline. In brief,
business fluctuations influence the size of working capital mainly through the effect
on inventories. The response of inventory to business cycles is mild or violent
according to nature of the business cycle.
Growth and Expansion
As a company grows, it is logical to expect that a larger amount of working
capital is required. It is, of course, difficult to determine precisely the relationship
between the growth in the volume of business of a company and the increase in its
working capital. The composition of working capital in a growing company and the
increase in its working capital. The composition of working capital in a growing
company also shifts with economic circumstances and corporate practices. Other
things being equal, growth industries require more working capital than those that are
static. The critical fact, however, is that the need for increased working capital funds
does not follow the growth in business activities but precedes it. Advance planning of
working capital is, therefore a continuing necessity for a growing concern. Or else,
the company may have substantial earnings but little cash.
Vagaries in the Availability of Raw Material
The availability or otherwise of certain raw materials on a continuous basis
without interruption would sometimes affect the requirement of working capital.
There may be some materials which cannot be procured easily either because of their
sources are few or they are irregular. To sustain smooth production, therefore, the
firm might be compelled to purchase and stock them far in excessof genuine
production needs. This will result in an excessive inventory of such materials. The
procurement of some essential raw materials is difficult because of their sporadic
supply. This happens very often with raw materials which are in short supply and are
controlled to ensreequitable distribution. The buyer has in such cases very limited
options as to the quantum and timing of procurement. If may so happen that a bulk
consignment may be available but the firm may be short of funds, while when surplus
funds are available the commodities may be in short supply.

This element of

uncertainty would lead to a relatively high level of working capital. Finally, some raw
materials may be available only during certain seasons. They would have to be
37

necessarily obtained, when available, to provide for a period when supplies are lean.
This will cause seasonal fluctuations in working capital requirements.
Profit Level
The level of profits earned differ from enterprise to enterprise. In general, the
nature of the product, hold on the market, quality of management and monopoly
power would by and large determine the profit earned by a firm. A priori, it can be
generalised that a firm dealing ina high quality product, having a good marketing
arrangement and enjoying monopoly power in the market, is likely to earn high profits
and vice-versa. Higher profit margin would improve the prospects of generating more
internal funds thereby contributing to the working capital pool. The net profit is a
source of working capital to the extent that it has been earned in cash. The cash profit
can be found by adjusting non-cash items such as depreciation, outstanding expenses
and losses written off, in the net profit. But, in practice, the net cash inflows from
operations cannot be considered as cash available for use at the end of cash cycle.
Even as the companys operations are in progress, cash is used for augmenting stock,
book debts and fixed assets. It must, therefore, be seen that cash generation has been
used for furthering the interest of the enterprise. It is in this context that elaborate
planning and projections of expected activities and the resulting cash inflows on a
day-to-day, week-to-week and month-to-month basis assume importance because
steps can then be taken to deal with surplus and deficit cash.
The availability of internal funds for working capital requirements is
determined not merely by the profit margin but also by the manner of appropriating
profits. The availability of such funds would depend upon the profit appropriations
for taxation, dividend, reserves and depreciations.

Level of Taxes
The first appropriation out of profits is payment or provision for tax. The amount of
taxes to be paid is determined by the prevailing tax regulations. The management has
no discretion in this respect. Very often, taxes have to be paid in advance on the basis
of the profit of the preceding year. Tax liability is, in a sense, short-term liability
38

payable in cash. An adequate provision for tax payments is, therefore, an important
aspect of working capital planning. If tax liability increases, it leads to an increase in
the requirement of working capital and vice-versa management has no discretion in
regard to the payment of taxes, in some cases non payment may invite penal action.
There is, however, wide scope to reduce the tax liability through proper tax planning.
The service of tax experts can be availed of to take advantage of the various
concessions and incentives through avoidance as opposed to evasion of taxes. Tax
planning can, therefore, be said to be an integral part of working capital planning.
Dividend Policy
Another appropriation of profits which has a bearing on working capital is
dividend payment. The payment of dividend consumes cash resources and thereby,
affects working capital to that extent. Conversely, if the firm does not pay dividend
but retains the profits, working capital increases.

In planning working capital

requirements, therefore, a basic question to be decided is whether profits will be


retained or paid out to shareholders. In theory, a firm should retain profits to preserve
cash resources and, at the same time, it must pay dividends to satisfy the expectations
of investors. When profits are relatively small, the choice is between retention and
payment. The choice must be made after taking into account all the relevant factors.
There are wide variations in industry practices as regards the interrelationship
between working capital requirements and dividend payment.

In some cases,

shortage of working capital has been a powerful reason for reducing or even skipping
dividends in cash. There are occasions, on the other hand, when dividend payments
are continued in spite of inadequate earnings in a particular year because of sound
liquidity. Sometimes, the dilemma is resolved by the payment of bonus shares. This
enables the payment of dividend without draining away the cash resources and, thus,
without reducing working capital. Dividend policy, is thus, a significant element in
determining the level of working capital in an organization.
Depreciation Policy
Depreciation policy also exerts an influence on the quantum of working
capital. Depreciation charges do not involve any cash outflows.
depreciation policy on working capital is, therefore, indirect.
39

The effect of

In the first place,

depreciation affects the tax liability and retention of profits. Depreciation is allowable
expenditure in calculating net profits. Enhanced rates of depreciation lower the
profits and, therefore, the tax liability and, thus, more cash profits.

Higher

depreciation also means lower disposable profits and therefore, a smaller dividend
payment. Thus, cash is preserved. In the second place, the selection of the method of
depreciation has important financial implications. If current capital expenditure falls
short of the depreciation provision, the working capital position is strengthened and
there may be no need for short-term borrowing. If, on the other hand, the current
capital expenditure exceeds the depreciation provision, either outside borrowing will
have to be resorted to or a restriction on dividend payment coupled with retention of
profits will have to be adopted to prevent the working capital position from being
adversely affected. It is in these ways that depreciation policy is relevant to the
planning of working capital.

Computation Of Working Capital


The two components of working capital (WC) are current assets (CA) and
current liabilities (CL). They have a bearing on the cash operating cycle. In order to
calculate the working capital needs, what is required is the holding period of various
types of inventories, the credit collection period and the credit payment period.
Working capital also depends on the budgeted level of activity in terms of
production/sales.

The calculation of WC is based on the assumption that the

production/sales is carried on evenly throughout the year and all costs accrue
similarly. As the working capital requirements are related to the cost excluding
depreciation and not to the sale price, WC is computed with reference to cash cost.
The cash cost approach is comprehensive and superior to the operating cycle approach
based on holding period of debtors and inventories and payment period of creditors.
Some problems have been solved, however, using the operating cycle approach also.
The steps involved in estimating the different items of CA and CL are as
follows:
Estimation of Current Assets

40

Raw Materials Inventory: The investment in raw materials inventory is estimated on


the basis of Equation 27.1
Budgeted
Production

Cost
x

(in units)

of

raw

material(s)

per

Average inventory
holding

unit

period

(27.1)

(months/days)
12months/365 days

Work-in-process (W/P) Inventory: The relevant costs to determine work-in-process


inventory are the proportionate share of cost of raw materials and conversion costs
(labour and manufacturing overhead costs excluding depreciation). In case, full unit
of raw material is required in the beginning, the unit cost of work in process would be
higher, that is, cost of full unit + 50 per cent of conversion cost, compared to the raw
material requirement throughout the production cycle, W/P is normally equivalent to
50 per cent of total cost of production. Symbolically
Budgeted
Production (in

Estimated workx

units)

in-process

cost

Average
x

per unit

time

span of work-in-

(27.2)

progress
inventory
(months/days)
12months/365 days

Finished Goods Inventory: Working capital required to finance the finished goods
inventory is given by factors summed up in Eq.27.3
Budgeted Production
(in units)

Cost of goods produced


x

per

unit

(excluding

Average inventory
x

depreciation)

holding

period

(27.3)

(months/days)

12months/365 days

Debtors: The WC tied up in debtors should be estimated in relation to total cost price
(excluding depreciation) Symbolically.
41

Budgeted

credit

Cost of sales per


x

sales (in units)

unit

excluding

Average
x

collection

depreciation

debt
period

(27.4)

(monthly/days)
12months/365 days

Cash and Bank Balances: Apart from WC needs for financing inventories and debtors,
firms also find it useful to have some minimum cash balances with them. It is
difficult to lay down the exact procedure of determining such an amount. This would
primarily be based on the motives for borrowing sources in times of need and past
experience and so on.
Estimation of Current Liabilities
The working capital needs of business firms are lower to the that extent such needs
are met through the current liabilities (other than bank credit) arising in the oridinary
course of business. The important current liabilities (CL) in this context are, tradecreditors, wages and overheads.

Trade Creditors
Budgeted

yearly

production

(in

Raw material cost per


x

Credit
x

unit

units)

period

allowed by creditors

(27.5)

(monthly /days)
12 months/365 days

Note: Proportional adjustment should be made to cash purchases of raw materials.


Direct Wages
Budgeted years
production (in

Direct labour cost per


x

Average time-lag in
x

unit

units)

payment of wages
(monthls/days)

12months/365 days
42

(27.6)

The average credit period for the payment of wages approximates to a half-a-month in
the case of monthly wage payment. The first days monthly wages are paid on the 30 th
day of the month, extending credit for 29days, the second days wages are, again, paid
on the 30th extending credit for 28 days, and so on.

Average credit period

approximates to half-a-month.
Overheads (Other Than Depreciation and Amortisation)
Budgeted

years

production

(in

Over head cost per


x

Average time-lag in
x

unit

units)

payment of overheads

(27.3)

(months/days)
12months/365 days

The amount of overheads may be separately calculated for different types of


overheads. In the case of selling overheads the relevant, would be sales volume
instead of production volume. The computation of working capital is summarised in
format 27.1
(I)

(II)

(III)
(IV)

Estimation of Current Asset


(a) Minimum desired cash and bank balances
(b) Inventories
Raw material
Work-in-process
Finished Goods
(c) Debtors
Total Current Assets
Estimation of Current Liabilities:
(a) Creditors
(b) Wages
(c) Overheads
Total Current Liabilities
Net working Capital (I-II)
Add: Margin for contingency
Net working Capital Required

If payment is received in advance, the item would be listed in CL.


43

If advance payment is to be made to creditors, the item would appear under CA. The
same would be the treatment for advance payment of wages and overheads.
Management of Working Capital In India

Indian corporates seem to have adequate and satisfactory level of working


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

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


There are wide inter industry variations in the liquidity ratios of the corporate
enterprises. With the exception of sugar, all other industry groups have safe

and satisfactory liquidity position.


The majority of Indian companies maintains relatively lower cash/bank
balances. Marketable securities are yet to emerge as a popular means of cash
management. The excess cash is deployed to retire short-term debt/in short-

term bank deposits.


In spite of the notable decline over the years, inventory constitutes a sizeable
part of the total current assets of the Indian corporates. The most important
objective of inventory management in India is avoid loss of production/sales.
The popular control techniques are ABC, FSN and SDE and inventory
turnover ratio and comparison with competition are widely used to assess the

performance of inventory management.


Debtors/receivables also constitute a significant component of current assets,
growth in sales is the most important objective of credit policy and the open
credit with approval if exceeds a specified limit is the most favored policy. It
is common practice to prepare ageing schedule of debtors to assess the
financial health of the customers before granting credit and monitoring
purposes. To speed up collections, the corporates offer cash discount. The

majority of the companies also charge penal interest.


Accounts payable and short-term loans/advances are the major components of

current liabilities.
The length of the operating cycle is the most widely use method to determine
working capital need. The working capital financing policy is based on the
matching approach.

The majority of the companies have occasionally

experienced working capital shortage due mainly to excess inventory


accumulation and poor debt collection.
44

Operating cycle:

Operating cycle is the time duration required to converts sales, after the
conversion of resources into inventories into cash. The operating cycle of a
manufacturing company involves 3 phases.

A acquisition of resource such as raw material,labor,power and fuel etc.

Manufacture of the product which include conversation of raw material into


work-in-progress and then into finished goods.

Storage of finished goods awaiting sales.

Sale of products either for cash or on credit creates book debts for collection .

All these steps put together from an operating cycle, which can be represented as
under

Realization

Cash

Raw material
Stores and

45

Semi finished
goods

Bills receivable

Sales

Finished goods
sundry

The intervening period required for completion these entire process is the operating
cycle. the operating cycle may thus be defined as the intervening period from the
time the goods or services enter the business till their religion in cash.
The study of these operating cycle is obviously very important, as the actual
requirement of the nit may be limited to the funds required to complete an operating
cycle.
Operating cycle formulate:
The length of the operating cycle of a manufacturing firm is the sum of
inventory conversion period and debtors conversion period.
The inventory conversion period is the total time needed for producing and
selling the product. The debtors conversion period is the time required to collect the
outstanding amount from the customers. The total of inventory conversion period and
debtors conversion period is referred to as gross operating cycle
a. Raw Material conversion period
Raw Material inventory 360

Raw material consumed

b.working-in-process conversion period


work-in-process inventory 360
46

Cost of production
c. finished goods conversion period
finished goods inventory 360
Cost of goods sold
d. debtors conversion period
debtors 360
Credit sales
e. payables deferral period
creditors 360
Credit purchases
f. Net operating cycle =Gross Operating Cycle- Payables

INVENTORY MANAGEMENT
Inventories are the stock of the product of a company, raw material and components
that make up the product. Inventories constitute the most significant part of current
assets
Need for holding inventories
The question of managing inventories arises only when the company holds
inventories. Maintain inventers involves tying up of funds and incidence of storage
and handling costs . if it is expensive to mention inventories ,way do companies hold
inventers? There are motives for holding inventers, they are same like in cash it is
transaction, precautionary and speculative
Objective of inventory management:

47

The basic objective of inventory management is to mention an adequate level of


inventory of the smooth production and sales operations mentioning both excessive
and inadequate level of inventories dangerous.
The manger dangers of over investments are

Locking up of business funds and consequent lass of profile.

Excessive carrying costs

The risk of liquidity

Types of Inventory
Inventers are stocks of the product of a company, manufactured for sale and compotes
that makeup the product
Inventers can be classified in to four categories namely:

Raw materials

Work-in-progress

Finished goods

Suppliers

Techniques of inventory management


For an efficient inventory management the following techniques are used.

Determination of economic order quantity

Determination of optimum production quantity

Determination of reorder level

ABC analysis

Inventory turnover

Ageing schedule of inventory


48

MANAGEMENT OF ACCOUNTS RECEIVABLES


These are the amount to be received from sundry debtors for goods should on
credit babies
They include book debts and bills receivables.
Trade credit arises when a firm sells it products or services on credit and doesnt
receive cash immediately. It is an essential marketing tool acting as a bridge for the
move net of goods through production and distribution stages to customers finally
RECEIVABLES MANAGEMENT
The basic goal of the receivable management of a firm is to maximize the
value of the value by striking a balance among liquidity, safely and profitability.
Credit is granted to boost up the sales and its cost the firm in granting such a credit
several cost are allocated with extension and collection of such a credit.
They are:

Cost of investigation to ascertain the credit worthless of parties

Cost of collecting receivables

Cost of delinquency

Opportunity costs

Establishing option credit policy:


The firms investment in accounts receivables depends on
The volume of credit sales
The collection period
Daily credit sales average collection period
The volume of credit sales is function of percentage of credit sales to total sales.
The percentage of credit sales to total sales is mostly influenced by the nature of
49

business and industry norms. The credit policy is used to refer the combination of
their decision variables.

1.credit standards

2.credit terms

collection efforts

Credit terms are meant decide the type of customers to whom goods could be sold
on credit. If a firm has more slow-paying customers, investment in account receivable
increase customers will also expose the firm to higher risk of default credit items
especially the derivation of credit and terms of payment .investment in account in
account receivable will be high if customers are allowed time period extended for
making payments collection efforts determine the actual collection period..
The working capital analysis done by the following

through a statement

ratio analysis

operating cycle

manufacturing cycle

price level changes

demand condition

production policy

business cycle

credit policy

availability of credit

sales growth

50

profit level

dividend policy

growth and expunctions

depreciation policy

4 DATA ANALYSIS & INTERPRETATION

ANALYSIS OF WORKING CAPITAL IN SIMHAGIRI PAPER MILLS


Working capital plays the most important role in managing any business.it
refers to the part of firms capital .capital is required for financing short term or
current assets such ,marketable securities, debts and inventories. Working capital is
life blood of a business. The management of working capital in a business is carried
on in these areas.

CASH MANAGEMENT IN SIMHAGIRI PAPER MILLS:


Cash management means usage of cash in several ways. Usage of cash
includes expenses and commission and the amount spent by the company for running
into profits. Cash management in SIMHAGIRI PAPER MILLS is done by preparing
a cash budget availing the information from the pay order books, which will in turn
help to provides the facility of electronic fund transfer. The cash management in
SIMHAGIRI PAPER MILLS provides the facility of electronic fund transfer and
other day-to-day payments

51

Statement of changes in working capital during the period


Table Number 4.1
2010-2011
particulars

(Rs.in Lakhs)

2010

2011

Increase

10386000

14200000

3814000

Deposits

215100

1102000

886900

Duties & taxes

1420000

3620000

2200000

Loans &

13230000

15840000

2610000

25251100

34762000

9510900

2971000

3613000

642000

Decrease

Assets & loans


& advances
Cash & bank
balances

advances
Total current
assets
Less: current
liabilities
Increasing

10152900

working
capital
Total

22280100

31149000

Interpretation:
52

10152900

10152900

During the period 2010-2011 there was an increase in the working capital of the
company

Statement of changes in working capital during the period


Table Number 4.2
2010-2011
Particulars

(Rs.in Lakhs)

2010

2011

Increase

Decrease

Rs

Rs

Rs

Rs

Cash&bankbalances

14200000

2630000

----

11570000

Deposits

1102000

2720000

1618000

----

Loans advances

19400000

11500000

----

7900000

Stock in trade

0.00

6800000

6800000

----

Total current assets

34702000

23650000

8418000

----

3613000

8315000

Current assets&
loans advances

Less: current
liabilities
Provisions
Decrease working

4702000
2,26,000

capital
Total current

31089000

15335000

17062000

17062000

liabilities

Interpretations:
During the period of 2009-2010there was a decrease in the working
capital of the company.

53

Table Number 4.3


Statement of changes in working capital of simhagiri paper (Rs in lakhs)

Year

Currentassests(Rs) Currentliabilities(Rs) Workingcapital(Rs)

Changes in
working capital

31-3-2009

25251100

2971000

22280100

2971000

31-3-2010

3470200

361300

3114900

10152900

31-3-2011

23650000

8315000

15335000

-226000

Average

17457100

3882433

16910000

4299300

Interpretation
Table 4.3 explains the segment of changes in working capital for the 2009,2010,2011 The
working capital in the 2009 at the end of the statement 2009 was an 29.71.010, but same
was 226000 negative as an 31st march 2011 this due to increase

RATIO OF WORKING CAPITAL IN SIMAHAGRI PAPER MILL


LIQUIDITY RATIO:
54

Current ratio:
The current ratio is a measure of firms short/term solvency. It indicates the
availability of current assets in rupees for current liability.
Current Assets
Current Ration=

--------------------------------current liabilities

Current ratio in SIMAHAGIRI PAPER MILL


Table Number 4.4
(Rs.in lakhs)
Year

Current assets

Current

Ratio

(Rs)

liabilities(Rs)

2009-2010

34762000

3613000

9.62

2010-2011

23650000

8315000

2.84

Average

29206000

5964000

6.23

Interpretation:
In the table 4.4 explain the Current Ratio of 2:1 is considered satisfactory.
This rule is based on logic that in a worse situation , even it the value of current assets
becomes half, the firm will be able to meet its obligation. The current ratio represents
a margin of safety for creditors. It measures only total rupees worth of current assets
and current liabilities and does not measure the quality of assets and current liabilities
and does not measure the quality of assets. However , it is measure of the firms
liquidity.
Stock Turnover Ratio:
This ratio indicates the efficiency of the firm in producing and selling its
product. The average of opening and closing balances of inventory. In a
manufacturing company, inventory of finished goods is used to calculate this ratio.
55

Cost of Goods Sold


Stock Turnover Ratio= ---------------------------------Average Inventory
Table Number 4.5
Stock turnover Ratio SIMAHAGIRI Paper mills
(Rs in Lakhs)
Year

Cost of

Opening

Closing

Average

Ratio

goods sold

inventory

inventory

Inventory

(Rs)

(Rs)

(Rs.)

2010-2011

----

----

----

----

2012-2013

431572319

-----

6800753.30

3400376.65

126.9

Average

431572319

----

680075330

3400376.65

126.9

Interpretation:
In the table 4.5 Explain the statement of changes in stock turnover ratio for
the 2010,2011 2012,2013. The turnover ratio 2010 -2011 was nil because of no stock.
In 2012 and 2013 was 126.9 as on 31 march 2013

Stock conversion period:


Stock conversion period shows the average time for clearing the stock through
sales .the formula is to divided the No. of days in a year with the stock turnover ratio.

365
56

Stock conversion period = ------------------------------------Stock Turnover Ratio

Stock conversion period in simhsgiri paper mill


Table Number 4.6
(Rs.in lakhs)
Year

Days

Stock Turnover

Stock conversion

Ratio

Period

2010-2011

365

------

-----

2012-2013

365

126.9

28

Average

365

126.9

28.6

Interpretation:
Table 4.6 explain the stock conversion period the changes in ,
2010,2011,2012,2013 In the 2010 was nil because of no stock . In 2012and2013 is
increased to 28 the stock conversation period as 31.march.2013

Average Collection Period:


Average Collection Period tells us how and in what time the debtors are
collected. The Debtors Turnover Ratio tells about how many time the debtor are to
that of sales. These two are reciprocities at each other.
365
Average Collection Period = ----------------------------------Debtors Turnover Ratio
57

Table Number 4.7


Average Collection Period in Simhagiri paper mill
(Rs.in lakhs)

Year

Days

Debtors Turnover

Average Collection

Ratio

Period (Days)

2010-2011

365

-----

------

2012-2013

365

19746564.3

0.000

Average

365

19746564.3

0.000

Interpretation:
Table 4.7 explain the average collection period of ,2010,2011,2012,2013.in
2010 it was nil because of no stock. In 2013 there is no increase in the average
collection period the average credit period of debtors was not influence in this
company because there is no collection period.
Working Capital turnover Ratio:
A firm may also like to relate net current assets to sales.Net current assets are
thing but the difference between current assets and current liabilies. The result of this
ratio indicates how many times the working capital has rotated for generating the
sales.

sales
Working Capital Turnover Ratio = ----------------------------------Net Current Assets
58

Table Number 4.8


Working Capital Turnover Ratio in simhagiri paper mill
(Rs.in lakhs)
Year

Sales (Rs.)

Current

Current

Net Current

Assets

Liabilities

Assets(Rs.)

(Rs.)

(Rs.)

Ration

2011-2012

-----

34762000

3613000

31157054.82

----

2012-2013

45491777.00

23650000

8315000

23253536.12

1.98

Average

45491777.00

18563500

5964000

16741203.97

1.98

Interpretation:
Table 4.8 explains the working capital turnover ratio in years , 2011, 2012. In
the ratio was nil. in 2012- 2013 increase 1.98.it shows an improvement in this year.

5.1 SUMMARY
The present study is categorized into five chapters
Chapters one deals with introduction, need objective, methodology ,limitations of the
study
Introduction
An enterprise whether industrial, trading in other acquires two types of assets to run
its business. They are fixed assets, which are necessary for carrying the
production/business.it is the current assets which are generally referred to as working
capital.
In managing fixed assets the time factor is very important discounting and
thats why discounting and compounding play a very important role in any capital
59

budgeting decision. But the time frame of current assets is only one accounting of
period the time value of money is significant in the management of current assets.
Any short run immediate need of the company whether that is need for cash or
adjustments to fluctuations in sales can be made only through adjusting the levels of
the various components of the current assests.this calls for efficient management of
current assets, which form part of working capital.

An enterprise whether industrial, trading in other acquires two types of assets


to run its business. They are fixed assets, which are generally referred for carrying the
production/business. It is current assets which are generally referred to as working
capital.
Chapter two deals with industry, company profile
Industry profile
The paper a pulp industry has an important role to play in the Indian economy.
The overall paper consumption India is about five million tones. The increasing
demand for puts pressure on supply of materials and the need t develop and expand
sustainable use of wood. Paper industry in India is the 15th largest paper industry in
the world. It provides employment to nearly 1.5 million people and contributes Rs 25
billion to the government's kitty. The government regards the paper industry as one of
the 35 high priority industries of the country.
Company profile
In 1951, there were 17 paper mills, and today there are about 515 units
engaged in the manufacture of paper and paperboards and newsprint in India. The
pulp & paper industries in India have been categorized into large-scale and smallscale. Those paper industries, which have capacity above 24,000 tonnes per annum,
are designated as large-scale paper industries. India is self-sufficient in manufacture
of most varieties of paper and paperboards. Import is confined only to certain
specialty papers. To meet part of its raw material needs the industry has to rely on
imported wood pulp and waste paper.

60

Chapter three deals with theoretical framework


Working capital management involves the relationship between a firms short
terms assets and its short-term liabilities. The goal of working capital is to ensure that
a firm is able to continue its satisfy boit maturing short-term debt and upcoming
operation all expenses, the management of working capital involves managing
inventories, account receivable and payable and cash.to pay current liabilities as they
fall due. This implies a Cleary designed rise policy to determine the required liquidity
level.
Chapter four deals with data analysis and interpretation
Current ratio, stock turnover ratio, stock conversion period, working capital
Working capital plays the most important role in managing any business.it refers to
the part of firms capital .capital is required for financing short term or current assets
such ,marketable securities, debts and inventories. Working capital is life blood of a
business. The management of working capital in a business is carried on in these
areas.

CASH MANAGEMENT IN SIMHAGIRI PAPER MILLS:


Cash management means usage of cash in several ways. Usage of cash
includes expenses and commission and the amount spent by the company for running
into profits. Cash management in SIMHAGIRI PAPER MILLS is done by preparing
a cash budget availing the information from the pay order books, which will in turn
help to provides the facility of electronic fund transfer. The cash management in
SIMHAGIRI PAPER MILLS provides the facility of electronic fund transfer and
other day-to-day payments
turnover ratio

Chapter five deals with summary, finings, suggestions, bibliography,


annexure.

Schedule of changes in working capital showed increases in

working capital from 2008-2009.


61

The current ratio reveals that the company can meet its short term obligation
at any given point of time. Though the ratio 2:1 is considered satisfactory, the
survey revels that the companys current ratio is above the standard.

Even though it is a small organisation it is taking many welfare facilities for


their workers. It is also increase the expenses.

It is suggested that the company must improve the net working capital ratio
because this ratio is negative. It tries to improve their net working capital ratio.

5.2 FINDINGS

Schedule of changes in working capital showed increases in working capital


from 2008-2009.

The current ratio reveals that the company can meet its short term obligation
at any given point of time. Though the ratio 2:1 is considered satisfactory, the
survey revels that the companys current ratio is above the standard.

The inventory turnover ratio indicates that conversion of inventory into cash is
very through the study. an increasing trend

Company is always maintaining high liquidity to meet daily operations. And


also maintaining good cash management. The excess in banks always
converted into fixed deposits
62

Net profit margin is in negative from this will the company financial position
in worst condition.

Cash ratio showed decreasing balance between the periods 2010 working
capital of the company showed an decreasing balance.

5.3 SUGGESTIONS

Even though it is a small organisation it is taking many welfare facilities


for their workers. It is also increase the expenses.

It is suggested that the company must improve the net working capital
ratio because this ratio is negative. It tries to improve their net working
capital ratio.

Working capital turnover ratio should be high.

Increase

this ratio

simhagiri paper mill has reduce its net working capital.net working capital
can be reduced when inventory level is to minimum.

Inventory turnover ratio indicates the efficiency of the firm in producing


and selling its products.

63

As simhagiri paper mill this ratio is gradually increasing.in 2009 nil


whereas in 2010,it was 126.9.

In order to increase this ratio, sales should be increased. To increase the


sales company has to concentrate in capturing the foreign markets.

This is possible as they are linked with multi-nationals and reputed


business houses.

5.4 GLOSSARY

Gross Working capital:


It is also known as current capital.
Net Working capital:
It refers to the difference between current assets and current liabilities.
Permanent working Capital:
The minimum level of current assets is referred to as permanent or fixed or longterm working capital.
Temporary Working capital:
The extra working capital, needed to support the changing production and sale
actives is called the temporary working capital or short-term working capital.
Operating cycle:
64

Operating cycle is the time duration required to sales after the conversion of
resource onto inventories into cash.

CONCLUSION

Though the working capital is increasing year by year and the ideal cash is also
increasing.

The company has to exercise a lot of proper control and proper system of working
capital management to manage such cash and inventory in a profitable way.

For this purpose the company may consider the above suggestions for effective
management of working capital.

A proper working capital management system definitely helps to achieve the


objectives of the company and for its continuous improvement.

65

5.5 ANNEXURE
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
31-MARCH-2010
Particulars

schedule

Year ended
31-3-2010

Year ended
31-3-2011

Sales

45491777.00

0.00

Miscellaneous receipts

151363.00

0.00

Closing stock

6800753.30

0.00

52443893.30

0.00

INCOME

LESS:EXPENDITURE

0.00

Stock-in trade

0.00

0.00

Purchase of raw material

39430675.00

0.00

Manufacturing expenses

6430532.00

0.00

Payment & benefit to employees

3484639.00

0.00

66

Administrative expenses

642615.00

0.00

Marketing & selling expence

779522.00

0.00

Financial expenses

3154267.19

0.00

Miscellaneous expenses

709351.20

0.00

Depreciation

6625577.40

0.00

Deferred tax

1766104.00

0.00

Net profit carried to Appropriation A/c

-10579389.49

0.00

PROFIT AND LOSS


APPROPRIATION A/c

52443893.30

To Net Loss

-10579389.49

0.00

By Net Loss carried to Balance Sheet

-10579389.49

0.00

BALANCE SHEET AS ON 31ST MARCH,2010


Account Head

Sch.no.

As 31-3-2010

As 31-3-2011

44854951.00

0.00

(a) Secured loans

86743968.19

63454466.00

(b) Unsecured loans

330000.00

5800569.00

1766104.00

0.00

133695023.19

106662135.00

1.SOURCES OF FUNDS
SHAREHOLDERS
FUNDS
(a) CAPITAL
(B) RESERVES AND
SURPLUS LONE
FUNDS

(c) Deferred Tax


Liability
TOTAL
2.APPLICATION OF
FUNDS:
67

FIXED ASSETS:
(a) GROSS BLOCK

95042921.18

39852601.00

(b) Less: depreciation

6625577.40

0.00

(c) Net Block

88417343.78

39852601.00

11202301.00

21541850.00

99619644.78

61394451.00

(d) Capital Work in

11202301.00

progress
TOTAL
INVESTMENTS

CURRENT
ASSETS,LOANS
ADVANCES

0.00

0.00

AND

CASH
ACCOUNTS

131230.00

766266.00

BANK
ACCOUNTS

2506735.82

13432084.82

DEPOSITS

2723586.00

1101485.00

STOCK
TRADE

IN

6800753.30

0.00

SUNDRY

7887105.00

0.00

11519210.00

19470263.00

31568620.12

34770098.82

(e)
DEBTORS

(d)
LOANS&ADVANCES
TOTAL
LESS:CURRENT
9
LIABILITIES
AND
PROVISIONS
(a)
CURRENT
LIABILTIES
NET
ASSETS
Miscellaneous
Expenditure

8315084.00

CURRENT
10

68

3613044.00
23253536.12

31157054.82

242452.80

14110629.18

Profit & loss A/c


TOTAL

10579389.49

0.00

133695023.19

106662135.00

BALANCE SHEET AS AT 31ST MARCH, 2011


Particulars

Schedule AS at 31.3.2011

AS at 31.3.2011

No.
SOURCES OF FUNDS:
SHARE HOLDERS FUNDS
SHARE CAPITAL
AUTHERISED
CAPITAL

SHARE 1.

ISSUED,SUBSCRIBED&PAIDUP

37500000.00

37500000.00

37407100.00

100000.00

share Application Money


LOANS FUNDS:

2801500.00
2.

Secured Lone

63454466.00

Unsecured Loans

5800569.00

38391663.00
---

106662135.00

66506663.00

61394451.00

37701589.00

CASH & BANK BALANCE

14198350.00

10386944.00

DEPOSITS

1101485.00

215100.00

DUTIES & TAXES

3628178.00

1428494.00

LOANS & ADVANCES

15842085.00

13233850.00

APPLICTION OF FUNDS:

FIXED ASSESTS
CURRENT ASSES & LOANS &
ADVANCES:
CURRENT ASSETS

69

LESS: CURRENT LIABILITIES & 3


PROVISIONS

3613044.00

2971731.00

31157054.82

22292657.00

Preliminary expenditures

303066.00

297950.00

Pre-operative expenses

13807563.18

6214467.00

NOTES ON ACCOUNTS

106662135.00

66506663.00

MISCELLANEOUS
EXPENDITURE

70

BIBLIOGRAPHY
Chandra Prasanna (2007) financial management-theory and practice. 7th
Edition , New Delhi, Tata Mc Graw-Hill.
Pandey. I M (2010) P.K. financial management, 10th edition, vikas
publishing house pvt.ltd.
Khan M.Y. Jain. P.K.( financial management-text, prob. Lems and cases, 4th
Edition, New Delhi, Tata Mc Graw-Hill

Websites
www.google.com
www.simhagiri.com

71