A SUMMER TRAINING REPORT

ON

“Ratio Analysis & Working Capital

Structure in Haldiram's”

TO BE SUBMITTED TO Dr. APJ ABDUL KALAM TECHNICAL UNIVERSITY,

LUCKNOW IN THE PARTIAL FULFILLMENT OF THE
REQUIREMENT FOR THE DEGREE OF
MASTER OF BUSINESS ADMINISTRATION

Batch (2017-2019)

Submitted To: Submitted By

Ms. KALPANA YADAV PANKAJ KUMAR
Assistant Professor MBA 3rd SEMESTER
ROLL NO.1726370066

VIDYA SCHOOL OF BUSINESS

BAGHPAT ROAD, MEERUT
 ACKNOWLEDGEMENT

When I embarked this project, it appeared to me an onerous work. Slowly

as I progressed, I did realize that I was not alone after all!! There were friends and
well wishers, who with their magnanimous and generous help and support made it
a relative easier affair.

I wish to express my gratitude to all that concerned persons who have

extended their kind help, guidance and suggestions without which it could not
have been possible for me to complete this project report.

I am deeply indebted to my guide to Ms. Kalpana Yadav Assistant

Professor, VSB Meerut. for not only his valuable and enlightened guidance but
also for the freedom he rendered to me during this project work. I would also like
to thanks All Faculty for helping me to carry my project smoothly.

My heart goes out to my parents who bear with all types of troubles I caused them
with smile during the entire study period and beyond.

PANKAJ KUMAR
MBA 3rd SEMESTER
ROLL NO.1726370066

2
 STUDENT DECLARATION

I, PANKAJ KUMAR, student of MBA 3rd semester of VSB, hereby declared that the

research report on “Ratio Analysis & Working Capital Structure in Haldiram's”

submitted to Ms. Kalpana Yadav Assistant Professor, VSB Meerut. is an original and

authenticated work done by me. I further declare that it has Submitted to Dr. APJ Abdul

Kalam Technical University, Lucknow & not been submitted elsewhere by any other

person in any of the University for the Award of any degree or diploma.

PANKAJ KUMAR

Roll No.1726370066

MBA – III SEM

3
 EXECUTIVE SUMMARY

Working capital management or simply the management of capital invested in

current assets is the focus of my study. My topic is to study working capital
management of HALDIRAM SNACKS PVT.LTD.

Working capital is the fund invested by a firm in current assets. Now in a cut
throat competitive era where each firm competes with each other to increase their
production and sales, holding of sufficient current assets have become mandatory
as current assets include inventories and raw materials which are required for
smooth production runs. Holding of sufficient current assets will ensure smooth
and un interrupted production but at the same time, it will consume a lot of
working capital. Here creeps the importance and need of efficient working capital
management.

Haldiram's Food International Limited today, is recognized as a Star Export

House, by the Directorate General of Foreign Trade, a department working under
the Ministry of Commerce, Government of India.

Haldiram's has its roots established in 1937 in the form of a small retail Sweet
&Namkeen shop in Bikaner, Rajasthan, a small but significant town in the Thar
Desert. ShriShivkisanAgrawal, the founder of Haldiram's always cherished the
dream of building an empire, manufacture traditional sweets / namkeens, leave a
mark on every occasion and get close to the heart of the common man.

Haldiram, the brand name that is always associated with quality product and
service. It took more than six decades to become the leading manufacturer of
Indian savory snacks. The savory snacks industry has been immensely through all
these years to form an industry of about $425 millions. And the market potential
for this industry is estimated to be around $ 1 billion. The savory snacks market is

4
divided into organized sector and an unorganized sector. Currently, about 45 % of
the market is being served by the organizes sector and the balance 55% is served
by the unorganized sector. Presently the company has 20% market share of the
organized sector. This project deals with analyses of various operations performed
by human resource personnel at Haldiram’s ltd.

Working capital management aims at managing capital assets at optimum level,

the level at which it will aid smooth running of production and also it will involve
investment of nominal working capital in capital assets.

It includes all the procedures and policies followed at this company related to
human resource operations. The various operations include: Recruitment, job
analysis, competency mapping, gap analysis, and skill matrix. In recruitment I
have analyzed the process of recruitment followed at Haldiram’s starting with job
requirement, job analysis , searching the candidate through job portals, references
or campus, then interview and final selection. I have also studied the criteria to
map the competencies of various personnel and job as well .

This dream was realized with shifting of its base to Nagpur in 1970. For the first
time people heard of a factory that was operating to manufacture Sweets
&Namkeens. A model plant of its times was set up at:-Haldiram's House; 880,
Small Factory Area, Wardhaman Nagar, Nagpur. In a very shot span 'Haldiram'
developed into a brand and became an inseparable part of every occasion.
This was followed by a chain of retail outlets & showrooms. The product lines
were expanded to match the taste of various segments of the society. Sweets and
namkeens were presented in more durable and commercially viable packaging.
This fetched a overwhelming response and in 1997, Haldiram's forayed into milk
and milk product industry with products such as Khowa, Ghee & Butter Milk, the
manufacture of Extruded foods such as vermicelli and 3-D Snacks.

5
TECHNOLOGY AT WORK

Employing State-of-the-art technology, Haldiram's started producing high quality,

ready-to-eat snacks, savories & Sweets. From sourcing raw materials to their
conversion into finished products, every process confirms to the International
norms (HACCP) of Quality & Safety. Human touch is avoided to ensure superior
hygiene. Every care is taken to ensure that our products retain Freshness and
Flavour.

Apart from exclusive and innovative recipes, exotic presentation and high quality
products 'Variety' is the key reason behind Haldiram's popularity. Be it Sweets or
Namkeens, the Haldiram's touch makes it more tastier while the hi-tech machinery
ensures that the packaging is done in a attractive way maintaining international
standards of hygiene.

THE BRAND THAT HAS EARNED TRUST

Today, Haldiram's with its Branch Offices in commercial capitals like Mumbai,
Bangalore & Chennai, owes its success to the relentless efforts of our founder
Chairman Mr. Shivkisan Agrawal, a visionary, dynamic leader and a
SUCCESSFUL ENTREPRENEUR. No wonder, today, Haldiram's Nagpur is one
of the leading players in the snack food industry and a proud recipient of the
'International Food Award'. Haldiram's has carved its way to the top despite stiff
competition from the global food giants and is earning valuable foreign Exchange
for our country.

They have been branded as "The No. 1 brand" in the ready-to-eat Snack Food
category and as India's Most Trusted Brand, in 2003.

6
INTERNATIONAL MEMBERSHIPS

SNACK FOOD ASSOCIATION (SFA), VIRGINIA, (USA)

EUROPEAN SNACK ASSOCIATION (ESA), LONDON (UK)
INTERNATIONAL ASSOCIATION OF AMUSEMENT PARK
ATTRACTIONS, ALEXANDRIA, UA (USA)

Then I studied how to do measure and analyze the gap between what is desired and
what the actual performance is at the end. At last I was told how to prepare the
skill matrix for various positions and jobs.

For my study I have mainly gathered information by interacting with executives

and employees of HALDIRAM SNACKS PVT.LTD.

7
 TABLE OF CONTENTS

1 - CHAPTER-1
 Company Profile 12

2 - CHAPTER-2

 Introduction 18

3 - CHAPTER-3
 Financial Highlights 39
4 - CHAPTER-4
 Working Capital 46
 Working Capital Definition
 Working Capital Cycle
 Working Capital Management

5 - CHAPTER-5
 Management of Inventory 68

6- CHAPTER-6
 Cash Flow Management 80
7- CHAPTER-7
 Conclusion & Recommendation 91
8- QUESTIONNAIRE 96

9- BIBLIOGRAPHY 100

8
 CHAPTER-1

COMPANY
PROFILE

9
“Haldiram Snacks Pvt. Ltd. Is committed to supply naMkeens, milk and non-milk

sweets, and ready to eat snacks, which are safe for consumption by all class of customers.

These shall be processed at our state of art plant with automatic and latest machinery with

least possible chances of direct contact with working staff thereof avoiding chances of

contamination and infection.

Our workers will be medically examined periodically and only medically fit workers shall

be allowed to enter the processing area. Necessary training to maintain the level of food

safety and HACCP to international standards shall be provided to the personnel.

To maintain the personnel hygiene standards we undertake to provide clean

uniform to our workers and adequate disinfecting material for the plant hygiene”

1. Haldiram’s Profile

Over a period spanning six and a half decades, the

Haldiram's Group (Haldiram's) had emerged as a

household name for ready-to-eat snack foods in

India. It had come a long way since its relatively

humble beginning in 1937 as a small time sweet

shop in Bikaner, in the Rajasthan state of India. In Haldiram’s at Bikaner in 1937

FY 2007-08, the turnover of the Haldiram's was Rs. 6 billion. The group had presence not

only in India but in several countries all over the world. Till the early 1990s, Haldiram's

comprised of three units, one each in Kolkata, Nagpur and NewDelhi .

Haldiram's had many 'firsts' to its credit. It was the first company in India to brand

'namkeens'. The group also pioneered new ways of packaging nankeens. Its packaging

techniques increased the shelf life of namkeens from less than a week to more than six

10
months. It was also one of the first companies in India to open a restaurant in New Delhi

offering traditional Indian snack food items such as "panipuri,""chatpapri," and so on,

which catered to the needs of hygiene conscious non-resident Indians and other foreign

customers.

After 1st shop in Bikaner in 1937, the company opened its first unit in Old Delhi

(ChandaniChok) in 1982, giving quality snacks and sweets to taste and quality lover

populace of great Delhi. Growth story doesn’t stop at Delhi. Company started exporting

its especially hygienically packed Sweets such as Rasgulla, Gulabjambun, SoanPapdi,

Rasbhari and Namkeens such as Navrattan, AlooBhujia, Plain Bhujia, Chips, Whoopies,

Takatak, KhattaMitha in Superstores of USA. The list of Superstores includes Tesco,

Sommerfield, Spinneys and Carrefour.

However, some analysts felt that Haldiram's still had to overcome some hurdles.

The company faced tough competition not only from sweets and snack food vendors in

the unorganized market but also from domestic and international competitors like SM

Foods, Bakeman's Industries Ltd, Frito Lay India Ltd.(Frito Lay), Bikanervala and

Britannia Industries Ltd.

Moreover, the group had to overcome internal problems as well. In the early

1990s, because of the conflict within the Agarwals family, Haldiram's witnessed an

informal split between its three units as they started operating separately offering similar

products and sharing the same brand name. In 1999, after a court verdict these units

started operating as three different companies with clearly defined territories.

11
 Company’s Business Activities

Namkeens

Snacks

Sweets
Existing Business
Papad

Syrups

Ready-to-eats

Frozen Foods

Fast Foods

Kiosk based outlets

New Business
Ready to eats

Packed Juices

Cookies

12
  Distribution Channel of the company

Production Unit

Direct Sale Institutional Sales#

C & F Agents*

Distributors

Wholesalers Retailers at Institutes

Retailers

Consumer

Note: #  Institutional sale includes sales to Indian Railways, Metro Stations,

Government Canteens, CSDs, Hospitals, Cinema Halls, Chain Stores,
Airports, Hotels, Beer bars & Clubs, Amusement Parks, Colleges and Schools
*  Consignees and Forwarding Agents (Superstockists)

13
  Product

Haldiram's offered a wide range of products to its customers. The

product range included Namkeens, Sweets, Sharbats, and Bakery

items, Dairy Products, Papad and Ice-creams. However, nankeens

remained the main focus area for the group contributing close to

60% of its total revenues.

By specializing in the manufacturing of nankeens, the

company seemed to have created a niche market. While the

Nagpur unit manufactured 110 different varieties of

nankeens, the Kolkata unit manufactured 57 and the Delhi

unit 91. The raw materials used to prepare nankeens were of best quality and were

sourced from all over India.

Haldiram's sought to customize its products to suit the

tastes and preferences of customers from different parts

of India. It launched products, which catered to the

tastes of people belonging to specific regions. For example, it launched

'Murukkus,' a South Indian snack; ‘Gujarati Mix’ for Gujarati taste lovers;

‘Kashmiri Mix’ for Kashmiri people. Similarly, Haldiram's launched 'Bhelpuri,'

keeping in mind customers residing in western India. These measures helped

Haldiram's compete effectively in a market that was flooded with a variety of

snack items in different shapes, sizes and flavors.

14
  Pricing

Haldiram's offered its products at competitive

prices in order to penetrate the huge unorganized

market of nankeens and sweets. The company's

pricing strategy took into consideration the price

conscious nature of consumers in India.

Haldiram's launched nankeens in small packets of

30 grams, priced as low as Rs.5. The company

also launched nankeens in five different packs with prices varying according to

their weights. (Refer Table 3).

Table 3: Price Range of 'Namkeens' Offered By Haldiram's

PACK WEIGHT PRICE (in Rs)

26 - 30 gm 5

8 5 g m 1 0

180 gm - 250 gm 1 8 - 3 5

400 gm - 500 gm 4 0 - 7 0

1 k g 9 5 - 2 0 0

(Source: ICMR)

The prices also varied on the basis of the type of nankeens and the raw materials used to

manufacture it. The cost of metalized packing also had an impact on the price, especially

in the case of snack foods. The company revised the prices of its products upwards only

15
when there was a steep increase in the raw material costs or additional taxes were

imposed.

 Place

Haldiram’s developed a strong distribution network to ensure the widest possible reach

for its products in India as well as overseas. From the manufacturing unit, the company's

finished goods were passed on to carrying and forwarding (C&F) agents. C&F agents

passed on the products to distributors, who shipped them to retail outlets. While the Delhi

unit of Haldiram's had 25 C&F agents and 700 distributors in India, the Nagpur unit had

25 C&F agents and 375 distributors.

Haldiram's also had 35 sole distributors

in the international market. The Delhi

and Nagpur units together catered to 0.6

million retail outlets in India. C&F

agents received a commission of around

5%, while distributors earned margins

ranging from 8% to 10%. The retail

outlets earned margins ranging from 16% to 30%. At the retail outlet level, margins

varied according to the weight of packs sold.

Retailers earned more margins ranging from 25% to 30% by selling 30 gm pouches

(priced at Rs.5) compared to the packs of higher weights. Apart from the exclusive

showrooms owned by Haldiram's, the company offered its products through retail outlets

such as supermarkets, sweet shops, provision stores, bakeries and ice cream parlors. The

16
products were also available in public places such as railway stations and bus stations that

accounted for a sizeable amount of its sales.

Haldiram's products enjoyed phenomenal goodwill and stockiest competed with each

other to stock its products. Moreover, sweet shops and bakeries stocked Haldiram's

products despite the fact that the company's products were competing with their own

products.

Haldiram's also offered its products through the Internet. The company tied up with

indiatimes.com, a website owned by the Times of India group to sell its products over the

Internet. Haldiram's products could be ordered through a host of other websites in India

and abroad. Giftstoindia.com, giftssmashhits.com, tohfatoindia.com and

channelindia.com enabled people residing abroad to send Haldiram's gift packs to

specified locations in India.

Region-specific websites enabled people to send gifts to specified regions. These include

indiamart.com (Delhi and surrounding areas), mumbaiflowersgifts.com (Mumbai), and

chennaiflowersgifts.com (Chennai and other parts of Tamilnadu). These websites

competed on issues such as delivery time, which varied between 48 hrs to one week,

delivery charges (some websites offered free delivery of products) and value added

services (like sending personal messages along with the gift packs).

 Promotion

Haldiram's product promotion had been low key until competition intensified in the snack

foods market. The company tied with ‘Profile Advertising’ for promoting its products.

Consequently, attractive posters, brochures and mailers were designed to enhance the

17
visibility of the Haldiram's brand. Different varieties of posters were designed to appeal

to the masses.

The punch line for Haldiram's products was, ‘Always in good taste.’ Advertisements

depicting the entire range of Haldiram's sweets and namkeens were published in the print

media (magazines and newspapers). These advertisements had captions such as ‘millions

Of tongues can't go wrong,’ ‘what are you waiting for, Diwali?’ and ‘Keeping your taste

buds on their toes’.

'To increase the visibility of the Haldiram's brand, the company placed its hoardings in

high traffic areas such as train stations, Delhi metro stations and bus stations. For those

customers who wanted to know more about Haldiram's products, special brochures were

designed which described the products and gave information about the ingredients used to

make it. Mailers were also sent to loyal customers and important corporate clients as a

token of appreciation for their patronage.

Packaging was an important aspect of Haldiram's product promotion. Since nankeens

were impulse purchase items, attractive packaging in different colors influenced

purchases. Haldiram's used the latest technology (food items were packed in nitrogen

filled pouches) to increase the shelf life of its products. While the normal shelf life of

similar products was under a week, the shelf life of Haldiram's products was about six

months. The company projected the shelf life of its products as its unique selling

proposition. Posters highlighting the shelf life of its products carried the caption ‘six

months on the shelf and six seconds in your mouth.’ During festival season, Haldiram's

products were sold in attractive looking special gift packs.

18
The showrooms and retail outlets of Haldiram's gave importance to point of purchase

(POP) displays. Haldiram's snacks were displayed on special racks, usually outside retail

outlets. The showrooms had sign boards displaying mouth-watering delicacies with

captions such as ‘Chinese Delight,’ ‘Simply South,’ ‘The King of all Chats’. Posters

containing a brief account of the history of Haldiram's, along with pictures of its products,

were also on display at these showrooms.

Haldiram's restaurants in Delhi also used innovative ways to attract customers. The

restaurant located at Mathura road had special play area for children. To cater to NRIs

and foreign tourists, who hesitated to consume snack foods sold by the roadside vendors

since it was not prepared in a hygienic manner, the Haldiram's restaurant located in South

Delhi used specially purified water to make snack foods including PaniPuri and Chat

Papri. These promotional strategies helped Haldiram'sto compete effectively with local

restaurant chains such as Nathus, Bikanervala and Agarwals and with western fast food

chains such as McDonald's and Pizza Hut.

 Positioning

The above initiatives helped Haldiram's to uniquely position its brand. Haldiram's also

gained an edge over its competitors by minimizing promotion costs. Appreciating the

company's efforts at building brand, an analyst said, “Haldiram’s once was just another

sweet maker but it has moved into trained brands first by improving the product quality

and packaging.”

Through its clever products and brilliant distribution it had moved into the star category

of brands.Haldiram's earned recognition both in India and abroad.

19
 2. Analysis of Primary Survey

Gender
100

Male
Female

80

60
Percent

40

20

0
Fresh Food Semi-processed Food
Packed food Ready-to-eat Food
What type of product do you like?

 Type of Products Liked

Out of 100 % (64 numbers) respondents, 65 % of female prefers Fresh Foods which is not

a category where Haldiram’s has its products. Haldiram’s is in two categories of food

articles: packed food and ready-to-eat food. 28 % and 20 % of male respondents like to

have packed foods, respectively.

20
  Most Preferred Brands (Namkeen/Chips/Sweets)

50

40
Percent

30

20

10

Haldiram Bingo Lays Uncle Chips

Please rate the brands based on your liking. (Most Like - 5,
Least Like - 1)

45 % of 64 respondents preferred lays as their favorite brands in Snacks category; while

rest of 55 % respondents were equally divided among Haldiram, Bingo and Uncle Chips.

It is clear that respondent’s preference is affected by effective advertising tools such as

TV, Hoardings and Banners; and of course quality of product.

21
  Preferred Sweets Brand

Please rate quality of Sweets brand wise on 1-5 scale:

(5 - Most Preferred, 1- Least Preferred)

Sweets Brands Frequency Percent Cumulative Percent

N a t h u 3 4 . 7 4 . 7

Bikano 1 6 2 1 . 9 2 6 . 6

Haldiram 3 3 5 1 . 5 7 8 . 1

Agarwal 8 1 2 . 5 9 0 . 6

Evergreen 6 9 . 4 1 0 0 . 0

T o t a l 6 4 100.0

Out of 64 respondents, almost half of the respondents like Haldiram’s sweets such as

SoanPapdi and Rasgulla. On second number, there in Bikano from the house of

Bikanervala.

There is concern for Nathu which placed bottom rank in the tally, taking only 3

respondents in its favour out of 64.

22
  Age Group and Preferred Sweets (Brand wise)

Age Group
14

16-20 years
21-30 years
12 31-40 years
Above 41 years

10
Count

0
Nathu Bikano Haldiram Agarwal Evergreen
Please rate quality of Sweets brand wise on
1-5 scale: (5 - Most Preferred, 1- Least
Preferred)

For Haldiram’s, potential liker for its sweets products comes from age group 21 – 30

years. On second place, there are two age groups 16 – 20 years and 31 – 40 years who

love Haldiram’s sweets for its quality.

23
  Beverage and Pack Size of Namkeen

With which
100
beverage do you
take Haldiram's
namkeen? (You can
choose more than
one option.)
80

Tea/Coffee
Cold Drinks
Hard Drinks

60
Percent

40

20

0
26-35 gm 65-70 gm 200-250 gm 400-500 gm
Which pack size of Namkeen/Chips is
preferred by you?

70 % of Hard Drinkers prefer 200 – 250 gm of pack size of namkeen greatly; while 60 %

of Cold Drinkers also prefers 200 – 250 gm namkeen. Tea taker gave mix response when

question asked about which pack size they prefer.

24
 3. The Road Ahead

The competition in the ready-to-eat snack foods market in India was intensifying. Frito

Lay India Ltd. (Frito Lay), one of Haldiram's major competitors, was expanding its

market share. Instead of directly competing with the market leader Haldiram's, the

company launched innovative products in the market and backed them with heavy

publicity. Frito Lay's product range consisted of a mixture of traditional Indian and

western flavors which appealed to younger and older generations. Its products included

LeherNamkeens, LeherKurkure (snack sticks), Lays (flavored Chips), Cheetos (snack

balls), Uncle Chips and Nutyumz (nut snacks). Frito-Lay was the first company to launch

small 35 gm packs nankeens priced at Rs. 5 and also the first company in the organized

sector to launch AlooBhujia.

Another competitor, SM Foods, introduced a range of innovative products. The company

launched India's first non-wafer chips in 1988. SM offered products under two main

brands - Peppy and Piknik. Under Peppy, it had sub brands such as Cheese Balls, Ringos,

Hi Protein Crispies, Potato Rackets, Hearts, Veggie Treat, Mixtures and Minerette. Under

Piknik, it had Protein Pin, Junior and Corn Puffs.

25
 SWOT ANALYSIS

STRENGTH
1. The product has excellent brand awareness & a high quality image.
2. Good and attractive packing.
3. Good image position.
4. Good taste.
5. Good variety.
6. High Market share.
7. Availability of brand almost on all the outlets.

WEAKNESS

1. Consumer proximity to retail outlet.

2. Sale pushing of other brands.
3. Schemes given to retailer are not enough.
4. Less profit of margin of Haldiram product from other brand.
5. Less advertisement.

OPPORTUNITY

1. By providing proper schemes Haldiram can increase its supply.

2. By providing more profit marginHaldiram can increase its supply.

THREAT

1. Competition from Lehar, Bikano, and Crax.

2. Competition from other brands.
3. Sale pushing.

26
In their own words:-

“We at Haldiram were very keen to come to London to see for ourselves why it is such a

special place to Indians who now call it home. And we wanted to service that community

with a taste of their homeland – our range of snacks and sweets. A memory, if you like.

“So the key was to establish a presence here.

“We were very impressed with the help that Think London gave us on setting up

business in London. Their wealth of expertise, the way they could present a huge array of

statistics about populations and our target market – it all pointed to London as the best

launchpad for us.

“Especially because of the city’s great connectivity, proximity to Heathrow for

logistics, availability of skilled workforce and target customers and, crucially, a homely

atmosphere for our workers – all make London the perfect place for us.

“Think London made the whole process seamless. They advised us on our

business plan, helped us sort premises, gave us time whenever we needed it and told us

who to talk to on things like tax and employment. All for free!

“What we had dreamed of was an easy process. What we got was exactly that.”

PankajAgarwal,

(Managing Director Haldiram)

27
 CHAPTER-2

INTRODUCTION

28
 ABOUT THE COMPANY

SNACKS FOOD & NAMKEEN INDUSTRY:-

The snacks food and namkeen industry sector in India has remained in the root of

traditionalism in unorganized sector for centuries, because of nature of the business.

It was after the development of modern packing methods and invasion of the

multinationals that this sector started to grow with introduction of modern technology and

hygienic ways of preparation and packing.

As far as the India snacks food sector is concerned, we can safely say the house of

Haldiram is the only brand, which has little competition in its field and is also giving

tough competition to the multinationals in the western fast food sector.

PROMOTERS

 Mr. ManohalLalAgarwal (Chairman)

 Mr. AnandAgarwal(MD)
 Mr. AshishAgarwal (Executive Director

"HALDIRAM" – a name associated with discerning consumers for sweets and nankeens

for the past six decades in India and abroad. It made its modest start in the beginning of

way back in 1941 in Bikaner in the State of Rajasthan. The brand name "HALDIRAM

BHUJIAWALA" was introduced during pre-partition era-1941 and never looked back

and ventured first major step in this direction by opening up a shop in 1983 in

ChandniChowk, the main hub of commercial centre in Delhi. The prime focus was to

serve sweets and namkeens amongst direct consumers and the trade.

29
BACKGROUND OF PROMOTERS & PROGRESS IN THE TRADE

The first shop opened in ChandaniChowk, Delhi in 1983 serving sweets and namkeen

under the name HaldiramBhujiawala by two brothers ManoharLalAgarwal and Madhu

Sudan Agarwal. The house of Haldiram was using modern technology and packing

facilities. Under the leadership and dynamism of Mr. ManohalLalAgarwal and with his

nature of looking ahead of times, the group has decided to go for upgraded technology in

the field of production through highly sophisticated plant and machinery. A new company

Haldiram Marketing Ltd came into existence. The company went into production in April

1992. The company Haldiram Marketing Private Ltd, is today one of the most sought

after fast food centre in Delhi.

Mr. Manohal Lal Agarwal also sensed the change in the taste and preferences of

the Indian consumers and their inclination towards traditional Indian fast food centre and

thus opened Haldiram fast food joint at Mathura road in April 1995. Its success can be

judged by the fact that though it is not very centrally located even then it is always

flooded with consumers relishing the preparation, many of them even come from far of

places. Within a period of three years it has undoubtedly became one of the largest fast

food selling centres in Delhi.

In 1997, company Haldiram Manufacturing Pvt Ltd was established to manufacture all

types of nankeens.

The group has opened the outlet under the brand name of Haldiram located on the

main ring road, Lajpat Nagar, New Delhi. The outlet opened in March 99 and is

performing exceedingly well and has surely surpassed the expectations of the promoters.

30
Encouraged by the tremendous response of consumers, "HALDIRAM" decided to go in

for up-gradation in technology, packing, production etc. with the installation of plant and

machinery of the order of best available state-of-the-art technology and sophistication.

Through dint of hard work, complete dedication, uncompromising quality, -

"HALDIRAM" became a part of each family and no house left without having product of

"HALDIRAM"

31
 Strategy

Haldiram Group of companies do not spend too much on advertisement like its

competitors like Pepsi and others in the market who spend a lot on advertisement, even

then it has been able to garner its share through a network of consignee agents spread all

over northern India. These agents then in turn market the products to a chain of

distributors and retailers. The company at present has a network of consignee agents and

approximately two hundred distributors across northern India, catering to thousand of

retail outlets. HALDIRAM’S havea strong network of sales personnel who are also

supplying their products regularly to government organizations like super bazaar etc.

The packing of nankeens is mostly done through imported sophisticated machines.

The company has developed all techniques in house and has no technical tie up with any

other company. The Haldiram`snamkeen and sweets are packed with hygiene and

freshness. A wide range of tangy savories, guaranteed to tickle the palate.

After capturing the indigenous market the group has also spread its wings in the

international market. Haldiram has already been approved and acclaimed by million’s of

people thought the world, this fact was formally recognized when the company bagged

the following awards: -

 International Award for Food and Brewages from Trade Leaders Club in

Barcelona, Spain in 1994.

 The Kashalkar Memorial Award presented by All India Food Preservers

Association in 1996

 Hind RatanAward.97 given by NRI Welfare Society of India

 Brand Equity Award, 98 of the PHD Chamber of Commerce & Industries

presented by honorable Ex. finance minister Mr. YashwantSinha.

32
 National Award for Outstanding Contribution 1999 from the Fie Foundation,

Maharashtra

Today,

 Haldirams have 4 showrooms located at Mathura Road, Lajpat Nagar,

Chandni Chowk, Gurgaon and Manufacturing unit in Noida.

 Haldiram does not have any policy of franchisees and that all the showrooms are

Owned and Maintained by the Company.

 The company has 25 C&F agents and more than 700 Distributors in the

domestic market (INDIA) and 25 Sole Distributors, more than 35 Buyers in the

international market.

 Company is exporting their products in more than 40 Countries including Nepal,

Sri Lanka, Middle East, Far East, U.S.A., U.K., Germany, Australia, Japan, Italy

to name a few.

MISSION:-

“Our perpetual consistent quality, best packing strategy, vast market coverage and the

number of years of experience have given us a cutting edge vis-à-vis our competitors. Our

natural ilk to improve our performance and quality with each passing year has taken us

way ahead of our nearest competitor. The people at Haldiram are very sensitive and

customer friendly about the complaints, which infect is a rare occurrence from the

customers and dealers.”

33
 CHAPTER-3

FINANCIAL
HIGHLIGHTS

34
 Balance Sheet As at 31st March, 2016
(Amount in Rs.)

P A R T I C U L A R SCHEDULE CURRENT YEAR PREVIOUS YEAR

SOURCES OF FUND SHAREHHOLDERS FUNDS

S h a r e c a p i t a l
R E V E R S E S & S U R P L U S 1 110,000,000 110,000,000
L O A N F U N D S 2 279,252,397 226,372,466
S e c u r e d l o a n s 541,331,653 254,345,398
U n s e c u r e d l o a n s 3 180,330,038 116,711,777
DEFERRED TAX LIABILITY 4 19,280,389 26,770,654

1,130,194,477 732,200,295
APPLICATION OF FUNDS
F I X E D A S S E T S 5
G r o s s b l o c k 948,021,032 822,760,834
L e s s : D e p r e c a t i o n 239,698,163 165,005,003
-------------------- --------------------
708,322,868 657,755,831
N e t B l o c k 301,663,394 52,879,823
Capital Work in Progress
I N V E S T M E N T S 6 2,164,704 2 , 1 6 4 , 7 0 4
CURRENT ASSETS, LOANS& ADVANCES 7
I n v e n t o r y 129,551,762 9 1,855,55 3
S u n d r y D e b t o r s 16,080,722 9 , 3 6 8 , 2 0 0
C a s h & B a n k B a l a n c e s 74,190,357 4 2,045,08 3
L o a n s a n d A d v a n c e s 101,307,353 4 5,761,63 8

321,130,194 189,030,474

Less: CURRENT LIABILITIES & PROVISIONS 8 207,772,770 175,108,089

N E T C U R E N T A S E E T S 113,357,424 13,922,385
M IS C E L L A N E O U S E X P E N D I T U R E
(to the extent not written off or adjusted)
Deferred Revenue Expenditure 4,499,522 5 , 1 2 9 , 8 2 2
Preliminary Expenses 1 7 6 , 5 6 4 3 2 7 , 7 3 0
Amalgamation Expenses 3 0 , 0 0 0 4 0 , 0 0 0
-------------------- --------------------
1,130,194,477 732,200,295

35
 Profit & Loss A/c for the year ended on 31st March, 2016

P A R T I C U L A R SCHEDULE CURRENT YEAR PREVIOUS YEAR

I N C O M E
S a l e s 1,623,623,72 0 1,167, 413,879
L e s s : E x c i s e D u t y 3,025,640 2,950,567
1,620,598,08 0 1,164,463,312

O t h e r I n c o m e 10,286,752 3,088,458
Profit on Sale of fixed assets 9 2 4 7 , 3 5 7 12,567,706
Increase/(Decrease) in Finished stock 6 , 6 6 8 , 3 0 1 (1,067,707)

1,357,800,49 0 1,179,051,769
E X P E N D I T U R E

M a n u f a c t u r i n g E x p . 1 0 837,772,543 530,786,516
Administrative, Selling, and Other Exp. 1 1 599,662,388 489,483,395
Interest & Other Financial Charge s 1 2 36,495,262 20,347,944
Loss on Sale of Fixed Assets 2 7 6 , 4 3 4 9 0 0 , 2 4 4
Deferred Revenue Exp. Written of f 6 3 0 , 3 0 0 6 3 0 , 3 0 0
A ma l g a ma t i o n E xp . W / O 1 0 , 0 0 0 1 0 , 0 0 0
P r e l i m i n a r y E x p . W / O 1 5 1 , 1 6 6 1 5 1 , 1 6 6

1,474,98,093 1,042,309,565
Profit before Dep. & Tax 162,802,397 136,742,204
L e s s : D e p . 75,996,899 58,090,499
P r o f i t f o r t h e y e a r 86,805,498 78,651,706
Less: Provision for current tax 39,730,161 28,317,807
L ess: Provi s i on f or FB T 1,645,568 1,209,928
Less: Provision for Wealth Tax 4 0 , 1 0 3 6 , 8 0 7
Add: Provision for Deferred Tax(Reversed) 2,600,240
Less: Provision for Deferred Tax (7,490,266)

36
Profit for the year after Tax 52,879,932 51,717,404
Profit brought forward from previous year 119,816,846 68,099,442
Pr o f i t c a r r i e d o v e r t o B a l a n c e S h e e t 172,696,77 7 119,816,846

(Amount in Rs.)

37
 Cash flow statement for the year ended 31st March, 2016
(Amount in Rs.)
PARTICULAR For the year ended For the year ended
31.03.2016 31.03.2015

Cash flow from operating Activitie s

N e t p r o f i t b e f o r e t a x 8,68,05,49 8 7,86,51,706
A d j u s t m e n t f o r
D i v i d e n d r e c e i v e d 2 , 2 7 5 ( 3 , 5 0 0 )
D e p r e c i a t i o n 7,59,96,89 9 5,80,90,499
P r e l i m i n a r y e x p e n s e s W / O 1 , 5 1 , 1 6 6 1 , 5 1 , 1 6 6
Deferred Revenue Exp. W/O 6 , 3 0 , 3 0 0 6 , 3 0 , 3 0 0
A m a l g a m a t i o n E x p . W / O 1 0 , 0 0 0 1 0 , 0 0 0
I n t e r e s t p a i d 3,64,95,26 2 2,03,47,944
Loss on sale of Fixed Assets 2 , 7 6 , 4 3 4 9 , 0 0 , 2 4 4
I n t e r e s t R e c e i v e d (1 9,0 0, 37 2 ) (22,98,931)
Provision for Contingency 1,68,08,15 5 1,40,91,688
Provision for doubtful Advance ---------------- ---------------
I n c o m e t a x P a i d 4,41,48,95 8 (2,54,07,468)
P r o f i t o n s a l e o f a s s e t ( 2 , 4 7 , 3 5 7 ) (1,25,67,706)
Operating profit before working capital 17,08,74,752 13,25,95,941
C h a n g e A d j u s t e d f o r :
I n v e n t o r i e s (3,76,96,209) (71,30,779)
T r a d e R e c e i v a b l e (6 7,1 2, 52 1 ) 7 5 , 4 4 , 3 4 8
L o a n & A d v a n c e (1,13,96,757) 1,13,61,998
T r a d e P a y a b l e (3,23,35,575) 2,67,34,857
Cash Generated From operation 8,27,33,69 0 17,11,06,365
Cash for investing Activities
Purchases of fixed assets (37,78,25,875) (19,43,08,466)
D i v i d e n d R e c e i v e d 2 , 2 7 5 3 , 5 0 0
S a l e s o f f i x e d a s s e t s 2 4 , 4 9 , 2 9 1 1,46,06,955
I n t e r e s t R e c e i v e d 1 9 , 0 0 , 3 7 2 2 2 , 9 8 , 9 3 1
Exchange Fluctuation Charges -------------- -------------
Cash used in investment activity (37,34,73,937) (17,73,99,080)
Cash from Finance Activities
I n t e r e s t P a i d (3,64,95,262) (2,03,47,944)
Increase/Decrease in share Application Money -------------- -------------
S h a r e C a p i t a l -------------- 3,10,16,680
I n c r e a s e i n S e c u r e d L o n e 29,3762,522 (1,18,61,597)
S h a r e P r e m i u m -------------- 4,65,25,020
Increase/Decrease in Unsecured Loan 6,56,18,26 1 (2,34,88,765)
Increase in deferred revenue -------------- ( 2 , 4 0 , 1 6 1 )
Cash used in Financing activity 32,28,85,521 2,16,03,233
Net increase in cash and cash equi v 3,21,45,27 4 1,53,10,520
O p e n i n g B a l a n c e 4,20,45,08 3 2,67,34,563
C l o s i n g B a l a n c e 7,41,90,35 7 4,20,45,083

38
Schedule ‘1’

SHARE CAPITAL

(Amount in Rs.)
P A R T I C U L A R CURRENT YEAR PREVIOUS YEAR

AUTHORISED CAPITAL

15000000Equity shares of Rs. 10/-each 150,000,000 150,000,000

150,000,000 150,000,000

Issued, Subscribed & Paid up Capital

11,000,000 ( Pre year 11000,000 )

Full paid up Equity Share of Rs. 10/- each

(Out of which 374662 Equity share of Rs.10/- each allot ed to the shareholder of Competent Indexpo Ltd Persuant to scheme of amalgamation)
110,000,000 110,000,000

------------------- ---------------------
110,000,000 110,000,000

39
Schedule ‘2’

RESERVES & SURPLUS

(Amount in Rs.)
P A R T I C U L A R C UR R ENT YEA R PREVIOUS YEAR

C a p i t a l s u b s i d y 5 , 0 0 0 , 0 0 0 5 , 0 0 0 , 0 0 0

S h a r e P r e m i u m

O p e n i n g B a l a n c e 101,555,620 55,0 30, 30 0

… … … … … . 4 6 , 5 2 5 , 0 2 0
Addition during the year
-------------------------- -------------------------
101,555,620 101,555,620

Profit & Loss Account 1 7 2 , 6 9 6 , 7 7 7 1 1 9 , 8 16 , 8 4 6

279,252,39 7 226,372,466

40
CHAPTER-3
WORKING
CAPITAL

41
 Definition
Working capital management is concerned with the management of current assets. It is

important part of financial management as short-term survival is a prerequisite long-term

success.

In the word of Shubin, “Working capital is the amount of funds necessary to cover the

cost of operating the enterprise,”

On the other word circulating capital means current assets of a company that

are change in ordinary course of business from one from to another, as for example, from

case to inventories, inventories to receivables, receivable to cash.

The importance of working capital management:

 Regulate supply of raw material.

 Cash discount.

 Regulate payment of salaries, wages &other day to day commitment.

 In cries Goodwill.

 Ability to face crisis.

 Quick & regular return on investment.

 Easy loans.

42
Concept of Working Capital:-
There are two concepts of working capital -

1. Gross working capital

2. Net working capital

Gross Working Capital:-

Gross working capital refers to the firm’s investment in current assets.

Current assets are assets, which can be converted into cash within an accounting year.

The main components of current assets are cash, debtors, marketable securities and stock.

The gross working capital concept focuses attention on two aspects of current asset

management.

A. Optimum investment in current assets.

B. Financing of current assets.

The Ratios of Current Assets and Fixed Assets of Different Industries are as follow:-

Current Assets % Fixed Assets % Industries

1 0 - 2 0 8 0 - 9 0 H o t e l s a n d R e s t a u r an t s

2 0 - 3 0 7 0 - 8 0 Elec. Generation and Distribution

3 0 - 4 0 6 0 - 7 0 Aluminium Shipping

4 0 - 5 0 5 0 - 6 0 Iron and Steel Basic Industries

5 0 - 6 0 4 0 - 5 0 T e a P l a n t a t i o n

6 0 - 7 0 3 0 - 4 0 Cotton Textiles and Sugar

7 0 - 8 0 2 0 - 3 0 Edibl e Oi l and Tobacc o

8 0 - 9 0 1 0 - 2 0 Trading and Construction etc.

43
The consideration of level of investment in current asset should be to avoid two danger

points: excessive and inadequate investment in current assets. Investment in current assets

should be just adequate, not more nor less to the needs of business firm. Excessive

investment in current assets should be avoided as its Impairs firm’s profitability. On the

other hand inadequate amount of working capital can threaten solvency of the firm.

Another aspect of gross working capital points to the need of arranging funds to finance

current assets. Whenever a need for working capital arises, financing arrangements

should be made quickly. Similarly surplus arising shall be invested in short-term

securities.

Net Working Capital:-

Net working capital refers to the difference between current assets and current liabilities.

Current liabilities are those claims of outsiders, which are expected to mature for payment

within an accounting year. Current liabilities include creditors, bills payable and

outstanding expense. Net working capital can be positive or negative.

Net working capital is a qualitative concept. It indicate the liquidity position of the firm

and suggests the Extend to which working capital needs may be financed by permanent

source of funds such as shares, debentures, long term debts etc. It covers the question of

judicial mix of long and short-term funds for financing current assets.

In order to protect their interest, short-term creditors like a company to maintain a

positive N.W.C. conventionally the ratio of C.A. and C.L. is 2:1. A negative N.W.C

means a negative liquidity, which may prove to be harmful to company, reputation. It

poses a threat on the company’s solvency and makes it unsafe and unsound.

44
Trade-Off between profitability and risk:-

In evaluating the firm’s working capital position’ an important consideration is the trade-

off between profitability and risk. In other words’ the level of N.W.C has a bearing on

profitability as well as risk.

The term profitability used in this context is measured by profit after expenses.

The term risk is defined as the profitability that a firm will become technically insolvent

so that it will not be able to meet its obligation when they become due for payment.

It is assured that greater the amount of N.W.C, the less risk prone the firm is, or

greater the N.W.C the more liquid is the firm and therefore the less likely it is to become

technically insolvent. Conversely lower level of N.W.C and liquidity are associated with

increasing level of risk.

A firm must have adequate W.C. It should neither be excessive nor inadequate.

Excessive W.C means the firm has idle funds, which earn no profit for the firm. This

situation decreases both risk and profitability of the firm. Inadequate W.C. means the firm

does not have sufficient fund for running its operations, which ultimately results in

production interruptions, and lowering down the profitability.

Lower level of WC increase the risk but have the potentiality of increasing the

profitability also.

The above principle based on following assumptions:-

1. There is direct relationship between profitability and risk

2. Current assets are less profitable than fixed assets.

3. Short-term funds are less expensive than long-term funds.

45
Effect of level of C.A\c on the profitability risk trade off:

The effect of level of C.A\c on profitability risk and trade off can be shown using the ratio

of C.A\c to T.A\c This ratio indicates the percentages of T.A\c that are in forms of C.A\c

An increase in the ratio will lead to decline in profitability because C.A\c is less profitable

than FAs. It would also increase risk of technical insolvency because increase in C.A\c

assuming no change in C.Lwill increase N.W.C. Conversely a decrease in ratio will result

in increase in profitability as well as risk.

Effect of Level of CL on risk profitability trade-off:

The effect of C.L can be demonstrated by using the ratio of C.L to Task this portion of

short term financing which is less expensive as compared to long term financing. This

will, therefore, be a decline in cost and corresponding rise in profitability.

The increased ratio will also increase risk because assuming no change in C.A this would

decrease in N.W.C.

The consequence of decrease in the ratio is exactly opposite to the result of an increase.

That is it will lead to decrease in profitability as well as risk.

Need for Working Capital:-

The basic objective of financial management is to maximize shareholder’s wealth. For

this it is necessary to generate sufficient profits. The extent to it, which the profit can be,

earn, largely depend on the magnitude of sales. However sales do not convert into cash

instantly. There is invariable the time gap between the sale of goods and receipt of cash.

46
There is, therefore, a need for working capital in the form of C/A to deal with the problem

arising. Out of the lack of immediate realization of cash again goods sold. Therefore,

sufficient W.C.Is necessary to sustain sales activity.

The operating cycle can be said to be at the heart of the need for WC. The

continuing flow from cash to suppliers, to inventory, to account receivables and back into

cash is known as operating cycle.

The operating cycle of a manufacturing Company involves three phases:

 Acquisition of resources – such as raw materials, labor, power and fuel etc.

 Manufacturing of product – Which includes conversion of raw material into

WIP into finished goods?

 Sale of the product – either on cash or on credit. Credit sales create account

receivable for collection.

This phase affect cash flows, which most of the time are neither synchronized nor certain.

They are not synchronized because cash out flows

Usually occur before cash inflows. Cash inflows are uncertain because sales &

collections are difficult to forecast. Cash outflows, on the other hand are relatively

certain. The firm is therefore required to invest in CAs for smooth uninterrupted

functioning. Firs need to keep cash or invest in liquid securities so that they will be able

to meet obligations when they become due. Similarly the firm must have adequate

inventory to provide a cushion again out of stock. For being competitive the firms must

sell goods on credit, which necessitates holding of accounts receivables.

47
 PURCHASEPAYMENTCREDIT SALECOLLECTION

(RMCP+WIPCP+FGCP) RECEIVABLE

(Inventory Conversion)

Period Conversion Period

Payables Net Operating Cycles

Gross Operating Cycles

The following Figure illustrates the determination of length of Operating cycles:-

Types of Working Capital:

There are two types of working capital visa:

(a) Permanent working capital

(b) Temporary working capital.

48
Permanent Working Capital:-

The O.C .creates the needs for C.A, however the need does not come to an end after the

cycle is completed. It continues to exist and therefore the need for C.A is felt

continuously. But the magnitude of C.A is not constant but fluctuating.

However there is always a minimum level of C.As, which is continuously required

by the firm to carry on its business operations. The minimum level of C.As is referred to

as permanent or fixed W.C. It is permanent in the same way as the firm’s FAs are.

The following are the characteristics of permanent working capital:-

1. Amount of permanent working capital remains in the business is one form or the

other. The suppliers of such W.C. should not accept its return during the lifetime of

the firm.

2. It grows with the size of the firm.

Permanent W.C. is permanently needed for the business and therefore, it should be

financed out of long term funds.

Temporary Working Capital:-

The amount of temporary working capital keeps on fluctuating on time to time on the

basis of business activities. In other words it represents the additional current assets

required at different time during the operating year. For example, extra inventory of

finished goods will have to be maintained to support the peak period of sales and

investment in receivable may also increase during such period. On the other hand

investment in raw material, WIP and finished goods will fall if the market is in depression

period.

49
The amount over and above permanent working capital is temporarily variable or

fluctuating. The position of the required WC is needed to meet fluctuation in demand

consequent upon changes in production and sales, as a result of seasonal changes.

Suppliers of total WC can expect its return during off-seasons when the firm does not

require it. Hence total WC is generally financed from short-term sources of finance such

as bank credit etc.

Temporary Assets
Amm.

Of

W.C

Permanent Assets

Time

Temporary working capital

50
 Permanent and Temporary Working Capital (WC) of a

Stable Firm:-

It is shown in the above diagram that permanent WC is stable while temporary WC is

fluctuating and increasing and decreasing in accordance with seasonal demands.

In the case of an expanding firm the permanent WC line may not be horizontal.

This is because the demand for permanent CA might be increasing (or decreasing) to

support a rising level of activities. In that case line should be raising one as follows:

Both kind of WC are necessary to facilitate the sales process through the operating

cycle. Temporary WC is created to meet liquidity requirement that are of purely transient

nature.

Amount
Of
WC
Temporary WC

Permanent WC

Time

Permanent and Temporary W.C. of a Raising Firm

51
Components of Working Capital:-

There are two basic components of Working Capital

(a) Current assets

(b) Current liabilities.

Effective management of working capital calls for effective management of these

components. Current assets management includes management of cash, inventories,

account receivables etc. And current liabilities management includes creditor’s

management etc.

52
 WORKING CAPITAL CYCLE

Cash flows in a cycle into, around and out of a business. It is the business's life

blood and every manager's primary task is to help keep it flowing and to use the

cash flow to generate profits. If a business is operating profitably, then it should, in

theory, generate cash surpluses. If it doesn't generate surpluses, the business will

eventually run out of cash and expire.

The faster a business expands the more cash it will need for working capital

and investment. The cheapest and best sources of cash exist as working capital

right within business. Good management of working capital will generate cash will

help improve profits and reduce risks. Bear in mind that the cost of providing

credit to customers and holding stocks can represent a substantial proportion of a

firm's total profits.

There are two elements in the business cycle that absorb cash - Inventory (stocks

and work-in-progress) and Receivables (debtors owing you money). The main

sources of cash are Payables (your creditors) and Equity and Loans.

53
Each component of working capital (namely inventory, receivables and payables)

has two dimensions........ TIME ......... and MONEY. When it comes to managing

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

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

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

business will generate more cash or it will need to borrow less money to fund

working capital. As a consequence, you could reduce the cost of bank interest or

you'll have additional free money.

54
Available to support additional sales growth or investment. Similarly, if you can

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

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

I f y o u . . . . . . .T h e n . . . . . .

You release cash from the cycle
Collect receivables (debtors) faster

Your receivables soak up cash
Collect receivables (debtors) slower

You increase your cash resources
Get better credit (in terms of duration or amount) from suppliers

You free up cash
Shift inventory (stocks) faster

You consume more cash
Move inventory (stocks) slower

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

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

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

capital investment - loans, equity, leasing etc. Similarly, if you pay dividends or

increase drawings, these are cash outflows and, like water flowing downs a plug

hole, they remove liquidity from the business.

“More businesses fail for lack of cash than for want of profit”

55
 Sources of Additional Working Capital

Sources of additional working capital include the following:

 Existing cash reserves

 Profits (when you secure it as cash!)

 Payables (credit from suppliers)

 New equity or loans from shareholders

 Bank overdrafts or lines of credit

 Long-term loans

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

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

signs include:

 Pressure on existing cash

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

payment

 Bank overdraft exceeds authorized limit

 Seeking greater overdrafts or lines of credit

 Part-paying suppliers or other creditors

 Paying bills in cash to secure additional supplies

 Management pre-occupation with surviving rather than managing

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

receipt of a cheques).

56
 Comparative Working Capital Statement of

HaldiramPvt.Ltd

As per Financial Statement of Company up to 31 March 2016

P a r t i c u l a r s Schedules 31-03-16 31-03-15 31-03-14

A) Current Assets
Current Investment ------------ ------------- --------------

I n v e n t o r y 129,551,762 91,855,533 84,724,774

S u n d r y D e b t o r s 16,080,722 9,368,200 16,912,548

Cash & Bank Balance 74,190,357 42,045,083 26,734,563

Other current assets -------------- ------------- --------------

Loans & Advances 101,307,353 45,761,638 34,974,571

T o t a l O f C . A . 321,130,194 189,030,474 163,318,217

B) Current Liabilities
L i a b i l i t i e s 84,319,556 111,488,311 166,570,772

P r o v i s i o n 123,453,216 63,619,585 22,747,445

T o t a l o f C . L . 207,772,770 175,108,089 189,318,217

Increase/Decrease in WC 113,357,424 13,922,385 (25,971,761)

57
 Working Capital Management

Efficient management of working capital is extremely important to any

organization. Holding too much working capital is inefficient, holding too little is

dangerous to the organization’s survival.

Working capital is the everyday term for what accountants call net current

assets. The working capital figure is the total of current assets minus the total of

current liabilities. The main current assets are stock, debtors and cash. The current

liabilities are creditors and accrued expenses. The key factor in the word "Current"

is that they are expected to turn into cash, or be paid from cash, within twelve

months. As a general rule the organization wants as little money tied up in working

capital as possible. However, there are always trade-off. The most obvious

problem is running out of cash so you cannot pay the wages, or being unable to

provide a service because you have run out of a vital resource: for example, a

meals service being unable to produce the required number of meals because they

did not have enough foodstuffs in stock.

Each of the areas of working capital has different problems and these are

discussed separately in the following sections:

 Stock control

 Debtor control

58
  Cash flow management guidelines

 Creditor control

In order to assess whether you have a "safe" amount of working capital there are

two important calculations you can make:

 The Current Ratio

The Current Ratio is the relationship between the total current assets and the total

current liabilities. Generally speaking a service organization should have about

£1.25 current assets for every £1 of current liabilities. If there are significant

trading operations such as shops or mail order selling then the.

Ratio should be closer to £2 of current assets for every £1 of current liabilities.

 The Quick Ratio or "Acid Test"

The Quick Ratio is the relationship between the total of debtors and cash compared

with current liabilities. Generally the debtors and cash together should

approximately equal the current liabilities.

59
  Stock control

Stock control is particularly important where: The organization is involved in

quasi-commercial trading, such as running shops or mail-order businesses

 There are stocks crucial to the operation of the organization - for example,

dressings in a care home.

Not all organizations have significant stocks. If your organization has only about a

hundred pounds tied up in stationery, for example, then it is not cost effective to

have complicated procedures to manage your stock.

The Problems:-

If too much stock is held, the organization wastes money through a variety of

factors:

 Money is tied up in stock when it could be put to better use.

 There are superfluous warehousing and storage costs.

 Stock may deteriorate.

 There is a potentially greater risk of theft.

On the other hand, too little stock can lead to stock- outs which can:

 Halt activity

 Lose income

60
  Cause discomfort or distress to clients

However, finding the correct level of stock for any one particular item is complex.

This is because there are many influencing factors including the anticipated

demand for the items and the cost-efficient use of the organization’s resources.

The aim is to find the right balance.

The solution:-
The first place to start is to look at your income forecast. This will give you an

indication of your demand and how much stock you will need to meet it. If you do

not currently forecast income in any detail then an analysis of past demand can

help. Go back through your figures for the last two or three years to see if you can

identify any demand patterns.

Your analysis need not cover the whole of your stock needs. A large

proportion of your stock value is likely to be tied up in a small proportion of the

total items. This is sometimes called the 80:20 rules: it is likely that 80% of the

value is contained in 20% of the items. Concentrate your management time on

these.

When determining your stock levels you will also need to look at lead

times. Lead-time is the time it takes from ordering a product to the point at which

it is received. Something which can be obtained within a few hours is much less of

a problem than something which has to be imported and can take up to a month to

arrive. The major difficulty is deciding how much of the demand you want to

61
keep in stock at any one moment. Should you have sufficient to meet one week's

needs? One month? Three months?

The factors to consider when deciding how much to hold include:

 Purchasing Costs

It may be possible to reduce the cost of purchases by placing a large order: this

will reduce average unit delivery costs and may result in being given quantity

discounts. However, it is not worth having to carry five years supplies in order to

get a 1% discount.

 Essential Supplies

There may be some items of stock that it is absolutely vital not to run out of. A

good supply of these must be kept.

 Stock Holding Costs

Here you have to consider costs of insuring, warehousing, and any bank interest

paid or foregone as a result of holding that amount of stock.

 Nature of the Organization

A cake shop or a florist attached to a hospice will require minimum stocks,

perhaps sufficient only to cover one day's sales. However, a charity selling goods

made by the disabled in developing countries will need much higher levels.

62
CHAPTER-4

MANANGEMENT
OF
INVENTORY

63
Management of Inventory

The term inventory refers to the stock of the products a firm is offering for sale and

the components that make up the product. That is, inventory is composed of assets

that will be sold in future in the normal course of business operations. These assets

are i) Raw materials, ii) Work-in-progress and iii) Finished goods. The views

concerning the appropriate level of inventory would differ among the different

functional areas.

Objectives:

Efficient management of inventory should ultimately result in the

maximization of owners’ wealth. The inventory should be turned over as quickly

as possible, avoiding stock-outs that might result in closing down the production

line or lead to a loss of sales. It implies that while the management should try to

pursue the financial objectives of turning inventory as quickly as possible, it

should at the same time ensure sufficient inventories to satisfy production and sale

demand, that is, these two conflicting requirements have to be reconciled.

Alternatively, we can say that the objective of inventory management is to

minimize investment is inventory and also to meet a demand for the product by

efficiently organizing the production and sales operation. That is to say, an

optimum level of inventory should be determined on the basis of the trade-off

between costs and benefits associated with the level of inventory.

64
COST OF HOLDING INVENTORY:

The objective of inventory management is to minimize costs. The costs

associated with the inventory fall into two basic categories: i) ordering costs, and

ii) carrying costs. These costs are an important element of the optimal level of

inventory decisions and are described as under:

 Ordering costs; these are the costs associated with the acquisition or

ordering of inventory. It is the fixed cost of placing and receiving an inventory

order. Included in the ordering costs are costs involved in one i)preparing a

purchase order or requisition form and ii) receiving, inspecting and recording of

the goods received to ensure both quality and quantity. These are generally fixed

irrespective of the amount of order. Hence, such costs can be minimized by

placing fewer orders for a larger amount. However, acquisition of large quantity

would increase the costs associated with the maintenance of the inventory, that is,

carrying costs.

 Carrying costs: these costs are the variable costs per unit of holding an

item in inventory for a specified time period. These costs can be divided into two

categories. i) those that arise due to

 storing of inventory: the main components of this category of costs are a)

the storage costs, insurance, maintenance of the building b) insurance of

inventories against fire and theft, c) deterioration in inventory because of pilferage,

65
fire, technical obsolescence, d) serving costs such as labor for handling, ii)

opportunity costs: this consists of expenses in raising funds. If funds were not

blocked up in inventory, they would have earned a return. This is the opportunity

cost of funds.

The sum of ordering and carrying costs represents the total cost of inventory.

Benefits of holding inventory:

The secondary element in the optimum inventory decision deals with the

benefits associated with holding inventory. The major benefits of holding

inventory is that they enable firms in the short run to produce at a rate greater than

purchase of raw materials and vice-versa, or sell at rate greater than production and

vice-versa.

Inventory Management Techniques:

Many sophisticated mathematical techniques are available to handle

inventory management problems.

 Classification System: A B C System;

The ABC system is a widely used classification technique to identify various items

of inventory for the purposes of inventory control. This technique is based on the

assumption that firm should not exercise the same degree of control on all items of

inventory. It should rather keep a more rigorous control on items that are most

costly and or slowest turning, while items that are less expensive should be given a

less control. Hence, ABC system is an inventory management technique that

66
divides inventory into three categories of descending importance based on rupee

investment in each. The items included in group A involve the largest investment.

Therefore, inventory control should be most rigorous and intensive and the most

sophisticated inventory control, techniques should be applied to these items. The C

group items consist of items of inventory which involve relatively small

investments, although the number of items is fairly large. These items deserve

minimum attention. The group B stands mid-way. It deserves less attention than a

but more than C. It can be controlled by employing less sophisticated techniques.

The task of inventory management is to classify all the inventory items into one

of these groups/categories.

 Order quantity problem: EOQ model;

Economic order quantity model is the inventory management technique

for determining items optimum order quantity which is the one that minimizes the

total of its ordering and carrying costs. It balances fixed ordering cost against

variable ordering costs. It is also known as economic lot size. Mathematically it

can be calculated by the following equation:

EOQ = √2AO

√C

Where A= Annual usage in units

B= Ordering Cost

C= Carrying Cost

67
Setting of various stock levels:

 Minimum level; It indicates the lowest figure of inventory balance, which

must be maintained in hand at all times so that there is no stoppages of production

due to non-availability of inventory. The main considerations for fixation of

minimum level of inventory are as follows:

1. Information about maximum consumption period and maximum delivery

period in respect of each item to determine its re-order level.

2. Average rate of consumption for each inventory.

3. Average delivery period for each item.

The formula for calculation is as under:

Minimum level of inventory = Re-order level – (Average rate of consumption

x Average time of inventory delivery)

 Maximum Level: It indicates the maximum figure of inventory quantity

held in stock at any time. The important considerations which should govern the

fixation of maximum levels of inventory are as follows:

1. The information about its re-order level since it itself depends upon its

maximum rate of consumption and maximum delivery period.

2. Knowledge about minimum consumption and minimum delivery period for

each inventory should also be known.

3. The figure of EOQ.

68
4. Availability of funds, storage space, nature of items and their price per unit

are also important for the fixation of maximum level.

The formula for calculation is as under:

Maximum level of inventory = Re-order level + re-order quantity - (Minimum

consumption x Minimum re-order period)

 Re-order Level: This level lies between the maximum and minimum

levels in such a way that before the material ordered is received into the stores,

there is sufficient quantity on hand to cover both normal and abnormal

consumption situations. In other words, it is the level at which fresh order should

be placed for replenishment of the stock.

The formula for calculation is as under:

Re-order level of inventory = Maximum re-order period x Maximum usage

OR Minimum Level + (Average Rate of consumption x Average Time to

obtain fresh supplies)

 Danger Level: It is the level at which normal issues of the raw material

inventory are stopped and only emergency issues are made.

The formula for calculation is as under:

69
Danger level of inventory = Average consumption x Lead time for emergency

purchases

Continuous stock verification: The checking of physical inventory is an

essential feature of every sound system of material control. Such a checking may

be periodic or continuous.

 Debtor control: invoicing and collection

Commercial organizations normally give credit to their customers in order to

encourage sales. In the case of charities it is less likely that you are encouraging

additional sales by giving credit and more likely that your clients will want credit

and will wish to dictate the terms on which they will pay. Therefore, for voluntary

organizations, management is more about dealing with credit than deciding on a

control policy.’ It is better to have cash in your bank account than in your

customers'!

 If you get the money in quickly you can use it for other purposes, which

will advance the organization’s objectives.

 Giving credit costs money, even if it is only a small amount of interest

foregone. If you have an overdraft, the costs rise sharply.

 If a large client demands an unreasonable amount of credit you may have to

simply walk away from the contract. You cannot afford to risk running out

of cash.

70
  If stage payments are delayed, you may perhaps have to say, for example,

that you will be unable to complete the contract; this may help with

negotiations.

So what should you be aiming for in terms of the credit you offer? The key

objective should be to try and shorten the period each year rather than lengthen it.

So, for example, if you agree with your client’s 30 days and you collect in this,

you are doing very well!

A general rule of thumb is agreed time plus 33%. You need to improve your

collection procedures as soon as it slips towards this point.

Handling Receivables (Debtors)

Cash flow can be significantly enhanced if the amounts owing to a business are

collected faster. Every business needs to know.... who owes them money.... how

much is owed.... how long it is owing.... for what it is owed.

“Late payments erode profits and can lead to bad debts”

Slow payment has a crippling effect on business; in particular on small businesses

whom can least afford it. If you don't manage debtors, they will begin to

manage your business as you will gradually lose control due to reduced cash flow

and, of course, you could experience an increased incidence of bad debt. The

following measures will help manage your debtors:

71
Have the right mental attitude to the control of credit and make sure that it gets the

priority it deserves.

1. Establish clear credit practices as a matter of company policy.

2. Make sure that these practices are clearly understood by staff, suppliers and

customers.

3. Be professional when accepting new accounts, and especially larger ones.

4. Check out each customer thoroughly before you offer credit. Use credit

agencies, bank references, industry sources etc.

5. Establish credit limits for each customer... and stick to them.

6. Continuously review these limits when you suspect tough times are coming

or if operating in a volatile sector.

7. Keep very close to your larger customers.

8. Invoice promptly and clearly.

9. Consider charging penalties on overdue accounts.

10. Consider accepting credit /debit cards as a payment option.

11. Monitor your debtor balances and ageing schedules, and don't let any debts

get too large or too old.

Recognize that the longer someone owes you, the greater the chance you will

never get paid. If the average age of your debtors is getting longer, or is already

very long, you may need to look for the following possible defects:

72
  Weak credit judgment

 Poor collection procedures

 Lax enforcement of credit terms

 Slow issue of invoices or statements

 Errors in invoices or statements

 Customer dissatisfaction.

Debtors due over 90 days (unless within agreed credit terms) should generally

demand immediate attention. Look for the warning signs of a future bad debt. For

Example: -

 Longer credit terms taken with approval, particularly for smaller orders

 Use of post-dated checks by debtors who normally settle within agreed

terms

 Evidence of customers switching to additional suppliers for the same goods

 New customers who are reluctant to give credit references

 Receiving part payments from debtors.

“Profits only come from paid sales”

The act of collecting money is one, which most people dislike for many reasons

and therefore put on the long finger because they convince themselves there is

something more urgent or important that demands their attention now. There is

73
nothing more important than getting paid for your product or service. A

customer who does not pay is not a customer.

Here are a few ideas that may help you in collecting money from debtors:

 Develop appropriate procedures for handling late payments.

 Track and pursue late payers.

 Get external help if your own efforts fail.

 Don't feel guilty asking for money.... It’s yours and you are entitled to it.

 Make that call now. And keep asking until you get some satisfaction.

 In difficult circumstances, take what you can now and agree terms for the

remainder. It lessens the problem.

 When asking for your money, be hard on the issue - but soft on theperson.

Don't give the debtor any excuses for not paying.

 Make it your objective is to get the money - not to score points or get even.

74
CHAPTER-5

CASH FLOW
MANAGEMENT

75
Cash flow management is about achieving maximum effectiveness of cash receipts

and payments.

Motives of holding cash:-

A distinguishing features of cash as an asset is that it does not earn any substantial

return for the business. Even though firm hold cash for following motives:

1. Transaction Motive –

This refers to the holding of cash to meet routine cash requirement to

finance. The transactions, which a firm carries on in the ordinary course of

business.

2. Precautionary motive –

This implies the needs to hold cash to meet unpredictable obligations. Thus

it provides a cushion against unpredictable contingencies such as strike,

sharp increase in raw materials in prices. If a firm can borrow at short

notice to pay them unforeseen contingency, it will need to maintain

relatively small balances and vice-versa.

3. Speculative Motives – It refers to the desire of a firm to take advantage of

opportunities which present themselves at unexpected movements and

which are typically outside the normal course of business.

4. Compensatory motive –Bank provides certain services to their clients free

of charge. They, therefore, usually require client to keep minimum cash balance

76
with them, which helps them to earn interest and thus compensate them for the free

service so provided.

Objective of Cash Management:-

There are two basic objectives of Cash Management,

(a) To meet the cash disbursement needs as per the payment schedule

(b) To minimize the amount locked up as cash balances.

These are conflicting and mutually contradictory and the task of cash management

is to reconcile them.

(a) Meeting cash disbursement:

This is the first basic objective of cash management. According to this, the firm

should have sufficient cash to meet the various requirement of the firm at different

time period. Cash has been described as “Oil to lubricate the ever turning

wheels of business, without it the process grinds to a stop”.

(b)Minimizing funds locked up as cash balances:

This is the second basic objective of cash management. In this process the finance

Manager is confronted with two conflicting aspects. A higher cash balance ensures

power savings with all its advantages. But this will result in a large balance of cash

remaining idle. Low level of cash balance may result in failure of the firm to meet

the payment schedule. The Finance Manager should, therefore, try to have an

optimum cash balance.

The aim is to strike a balance between:

77
  Putting money to work for the charity so it returns a satisfactory yield

from deposit accounts or short-term investments

 Ensuring cash is available when needed to pay the day-to-day running

expenses of the organization, and also the fairly predictable "lump-sum"

amounts - replacement of computing equipment, for example.

Managing your cash balances is the most important part of working capital

management. If an organization runs out of cash resources it will have to stop

operating immediately. There may not even be the money to pay the salaries at the

end of the month, and the banks might have started dishonoring cheque.

Furthermore, the trustees or directors could stand charged with wrongful or

fraudulent trading, which could entail personal liability or even imprisonment.

 Financial difficulties: how to recognize and avoid

Here are a few guidelines to help you manage your cash flow more effectively:

 Collect money from debtors as quickly as possible, whilst exercising tact.

 Centralize payments and streamline procedures for different functional

areas such as accounts payable and payroll, by using (for example) BACS

payment methods. This is quicker, more secure and cheaper than cheque.

 Develop close partnerships with customers and suppliers to negotiate

mutuallybeneficial payment policies.

78
  Consolidate banking relationships by choosing banks that can offer

customized cash management services: for example, handling appeal

monies. You will get advice from banking experts and save on bank

charges.

 Develop accurate cash flow forecasting techniques and models that are

linked to budgets and strategic plans.

 Conduct regular reviews of the cash situation to ensure that the cash

balances are approximately the same as in the budget, and analyze any

significant variations from budget.

 Ensure appropriate use of current technology: for example, telephone and

Internet banking, as these are quicker and cheaper.

 Ensure that investing, borrowing, payment and other financial transactions

are properly authorized so as to avoid any improper use of the

organization's cash.

If the organization has too much liquidity in the long term, it may well be invested

in fairly low return areas, such as bank deposit accounts. Long-term surplus cash

should be invested in making the organization grow. You might, perhaps, be able

to fund additional resources to help you fund-raise. Alternatively, you might be

able to develop an additional area of expertise.

79
Cash Flow Forecasts (also called Cash Budgets)

Cash flow forecasts are a powerful management tool to help identify future deficits

or surpluses in liquidity. They can help you spot cash problems and opportunities.

You should normally forecast your cash flow at least monthly and in a year in

advance. You should also make sure the trustees have copies.

Model cash flow forecast:-

The cash flow statement represents movements in cash held at the bank.

Creating a cash flow forecast

Gets your staff to contribute their ideas derived from their own forecasts. For

example, in a care home, the person responsible for ordering dressings will know

what they expect to order each month and what the costs will be. These can then

be combined into the master cash budget. It is important that your staff accept the

need for this, as otherwise the budget will bear little resemblance to reality.

Using a cash flow forecast

Once the budget has been completed it is important to check it against the actual
figures regularly and find out why any variances are occurring. If this is not done
the figures can drift further and further from the plan. Also, there is a risk that the
current year's budget will be used as a basis for the following year, resulting in
even more inaccuracy.

80
 Once you can see the pattern over the year you can start to work on smoothing

out any crises in cash flow. For example, Fixed Asset purchases:

 Could these be postponed for a few months?

 Paid for by installments?

 Leased instead?

Does the cash position mean you simply cannot fund a new contract you were

negotiating for? If so, can you negotiate for more advance or staged payments?

At the very least, you will now have a picture to present to your bank

manager. However, although it is vital to keep a close eye on the cash position, if

it is a daily battle to survive then the whole operation of the organization may need

to be reviewed.

 Creditor control

Creditor control is managing your relationship with organizations or people you

owe money to, such as suppliers. It forms part of working capital management.

It is, unfortunately the area over which not-for profit organizations have least

control. If you are dealing with an industrial giant or a big local authority, they

generally dictate the terms of trade.

However, there are steps you can take to improve your position:

 Try to negotiate as long a period of payment as possible at the beginning of

the relationship.

81
  Pay by the due date, but not before - remember this is free credit.

 When you have established yourself as a reliable payer, try to renegotiate

for better terms.

 Bring problems to your supplier's attention promptly and courteously. Give

them enough time to remedy the situation before you refuse to pay.

 Don't try to delay a £2,000 payment on the grounds of a £20 complaint.

 Monitoring creditor control

The ratio to watch here is the average number of day’s credit you take from

your suppliers. Take too little and you may be paying extra costs like bank

overdraft interest and charges unnecessarily. Take too much and you risk your

suppliers demanding cash on delivery - or worse, cash with order. Try to keep the

figure the same each year, or cautiously increase it.

“Remember, a good supplier is someone who will work with you to enhance

the future viability and profitability of your company”

82
 Key Ratios of Working Capital

These are some Ratios to Calculate the Capital Utilization. With the help of these

Ratios we can easily calculate the Current Economic Situation and thus it is

helpful in “WORKING CAPITAL MANAGEMENT”.

R a t i o Formulae R e s u l t I n t e r p r e t a t i o n
L I Q U I D I T Y R A T I O S
=321130194/
Total Current Assets/ 2 0 7 7 7 2 7 7 0
Current Ratio Cur ent Assets are as ets that you can readily turn in to cash or wil do so within 12 months in the course of busines . Cur ent Liabil ties are amount you are due to pay within the coming 12 months. So in the Cur ent Situation, 1.53 times means that you should be able to lay your hands on Rs.1.54 for every Rs.1.0 you owe. Les than 1 time e.g. 0.75 means
Total Current Liabilities =1.54
T i m e s

=191578432/ Similar to the Cur ent Ratio but takes ac ount of the fact hat it may take time to convert inventory into cash. There Company is in the Situation of Pay their Debts 0.92 times for every 1.0 Rs. It is the Good Sign of Company.
(Total Current Assets - Inventory)/
Quick Ratio 207772770
Total Current Liabilities
=0.92 ti me s

=306584558/
In the Cash Ratio we calculate the cash availabil ty in respect of paying Debts. In this ratio we take only Cash Balance and Bank Balance in calculating the Cash availabil ty in the firm. Here in the Haldiram Cur ent Cash Ratio is 1.56 which very Beneficial for the company. It means that Company has 1.56 times more cash availabil ty to Rede med their Loa
(Cash & Bank Balance +Current Investment)/ 2 0 7 7 7 2 7 7 0
Cash Ratio
Current Liabilities
=1.56 ti me s

L E V E R A G E S R A T I O S
D e b t s / 11 00 0 00 00/
Debts-Equity Ratio
E q u i t y 721,661,691
In the Debts-Equity Ratio we calculate the Owner’s money in respect of company’s debts.

In the Debts-Assets Ratios we calculate the Ratios between Debts and Total Assets and Check the Total Assets value in respect of Debts.
Debts-Assets Ratio 1,130,194,477/1.3125
Total Assets/debt ratio

T U R N O V E R R A T I O S
Inventory or Stock Turnover Cost of Goods Sold/
( i n d a y s ) Average Inventory

83
 The Company may need to break this down into produ

One or more large or slow debts can drag out the average days. Effective debtor management will minimize the days.
Receivables Ratio N e t S a l e s / 1,623,623,720/16,080,722
( i n d a y s ) Average Debtors = 1 0 0 . 9 4

N e t S a l e s / =1620598080/708322868 Fixed Assets Turnover Ratios shows that the Company can handle their Net Fixed Assets by the Net sales. Here this ratio is 2. 28 days, which is very good for the company.
Fixed Assets Turnover Ratio
Average Net Fixed Assets = 2 . 2 8 d a y s

19920086 /
Total Sales / This Ratios Shows that total Assets of the company can be handle by the Total Sales. In the Current time this ratio is 1.09 days
Total Assets Turnover Ratio 18327744
Average Total Assets
=1.09 days

1620598080/ 113,357,424
Working Capital turnover Ratio Net sales/ Working capital This ratio shows that utilization of working capital is being effectively. The higher the ratio the better it is.
= 16.88 times

Other working capital measures include the following:

 Bad debts expressed as a percentage of sales.

 Cost of bank loans, lines of credit, invoice discounting etc.
 Debtor concentration - degree of dependency on a limited number of
customers.

Once ratios have been established for your business, it is important to track them

over time and to compare them with ratios for other comparable businesses or

industry sectors.

When planning the development of a business, it is critical that the impact

of working capital be fully assessed when making cash flow forecasts. Our

financial planning software packages - Exl-Plan and Cash flow Plan - can

84
facilitate this task as they provide for the setting of targets for receivables,

payables and inventory.

85
 CHAPTER-7
FINDING
&
CONCLUSION

86
 Findings of the Study

 Out of 100 % (64 numbers) respondents, 65 % of female prefers Fresh

Foods which is not a category where Haldiram’s has its products. Haldiram’s is in

two categories of food articles: packed food and ready-to-eat food. 28 % and 20 %

of male respondents like to have packed foods, respectively.

 For Haldiram’s, potential liker for its sweets products comes from age

group 21 – 30 years. On second place, there are two age groups 16 – 20 years and

31 – 40 years who love Haldiram’s sweets for its quality.

 70 % of Hard Drinkers prefer 200 – 250 gm of pack size of namkeen

greatly; while 60 % of Cold Drinkers also prefers 200 – 250 gm namkeen. Tea

taker gave mix response when question asked about which pack size they prefer.

 Out of 64 respondents, almost half of the respondents like Haldiram’s

sweets such as Soan Papdi and Rasgulla. On second number, there in Bikano from

the house of Bikanervala. There is concern for Nathu which placed bottom rank in

the tally, taking only 3 respondents in its favour out of 64.

 45 % of 64 respondents preferred lays as their favorite brands in Snacks

category; while rest of 55 % respondents were equally divided among Haldiram,

Bingo and Uncle Chips. It is clear that respondent’s preference is affected by

effective advertising tools such as TV, Hoardings and Banners; and of course

quality of product.

 The rapid expanse in availability (distribution channel)the intensive

promotional support in sweets and namkeen categories and overall vibrance in

terms of pricing and packaging has undoubtedly aided this sector.

87
 Indians have become fervent consumers of brand snack foods or

‘Namkeens’. In the fiscal year 2005-06, the market for branded packaged

‘Namkeens’ has grown by a whopping 34 %.

 Organized sweets market is the new emerging category in FMCG basket

with 11.6 % in terms of value growth in fiscal year 2005-06. While the underlying

factor driving sales remains ‘commodity branding’ with manufacturers packaging

and branding this product which has traditionally been purchased loose, other

sociological factors are also at play.

 Retailers earned more margins ranging from 25% to 30% by selling. Apart

from the exclusive showrooms owned by Haldiram's, the company offered its

products through retail outlets such as supermarkets, sweet shops, provision

stores, bakeries and ice cream parlors. The products were also available in public

places such as railway stations and bus stations that accounted for a sizeable

amount of its sales.

 As the Indian market is booming, foreign companies are increasingly

looking at tapping this market. Foreign investments will definitely the Indian food

and beverage (F&B) market, at the same time quality of products will also

increase. As more and more investment takes place in entail sector, the entire

supply chain will benefit as the quality of food will improve.

88
 CONCLUSION

The basic goal of working capital management is to manage the current

assets & current liabilities of a firm in such way that a satisfactory level of

working capital is maintained, i.e., It is neither inadequate nor excessive.

This is so because both inadequate as well as excessive working capital

positions are bad for any business. Inadequate of working capital may lead

the firm to insolvency &excessive working capital implies idle funds which

earn no profits for a Business.

1. By studying last 3 year performance of the company. We say that

working capital of the company is increment.

2. The operational performance of the company is contineuseley rising

because of the in cries in sales of the company product.

1. The data equity ratio of the company is increasing as company. Is now

paying its debt. Due to which the company liquidity reaction is falling.

2. There is high awareness level for different Haldiram’s Products amongst

the retailers.

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3. Market share of Haldiramnamkeen is more than double of its

competitors.

4. From the data its quite clear that while promoting any brand the forecast

considerations are good demand & margins followed by regular supply

and next comes brand names.

5. Margins are revealed by retailers are highest for local brand followed by

Lehar, Bikano, and Haldiram’s in that order.

6. Brand awareness for Haldiram’s product is very high.

7. There is significantly high brand loyalty for Haldiram’s products amongst

the consumers.

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SUGGESTIONS
&
RECOMMENDATIONS

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 SUGGESTIONS & RECOMMENDATION

Loans & Advances

Special efforts should be made to analyze loans & advances, which are between

35% to 56% of current assets. This can be classified between production /

operation relation related and non-production / operation related. No production

related cases might be financed from other sources like debenture etc. and treated

separately.

Cash & Bank

This is the most liquid element in current asset and target shall be fixed most

cautiously. Too high a figure of 20% of total current assets of Haldiram Pvt. Ltd.

In 2005-06 as against 11.5% of TCS may be apparently too good to look at, but

this may be lead to wastage of cash .This amount only use of payment so fallow

the creditor payment strategy.

Ratios

The company should try to improve its current situation. The ratios, which are

taken in this research to evaluate the company’s position, are Current ratio, Quick

ratio and Activity ratio. These ratios show the actual position of the company. The

Quick ratio is declining since 2006-07 till now. There is a drastic declining in the

working capital turnover ratio. This ratio goes to –be position in current year

compared to previous. The Debts collection period is 359 days for Exporters. This

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shows the poor collection policy. The current ratio is 1.02 in 2005-06, which is not

up to the ideal ratio. This shows that the current assets are equal to the current

liabilities. Not satisfactory.

Inventory

Inventory should be reviewed constantly to identify show / dead / obsolete item

and then disposed until 2005-06 level is again achieved.

Optimum level should be revised periodically, keeping in view,

Distance of suppliers, production lead time of supplier, transport problem if any

and reliability of suppliers. This will help to avoid obsolesce and dead inventory.

Debtors

A study may be conducted if required by experts to pinpoint reason behind

Haldiram Pvt. Ltd. high correction period of 95 days in 2004-05 against 50 days

of TCS It is due to quality of products, quality of customer, the segment of

customers marketing effort, distribution pattern or other reasons.

Creditors

Though high payout days may be apparently beneficial for the company. It has it

very heavy long term cost like high interest cost, bad credit ratings and shyness of

good quality / standard suppliers.

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BIBLIOGRAPHY

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Reference Books

1. Financial Management, Khan and Jain, 2003, 6th Edition.

2. Ratio Analysis, S.K Bhattacharya, 1995, 8th Edition.

3. ICAI’s Module.

Referred Sites

1. www.google.com

2. www.answers.com

3. www.yahoo.com

4. www.amazon.com

5. www.haldiram.com

Other Materials

1. Balance Sheet of Haldiram’spvt.Ltd. As on 31.03.2016.

2. Balance Sheet of Haldiram’spvt.Ltd. As on 31.03.2015.

3. Profit and Loss A/c for the year ending 31.03.2016.

4. Profit and Loss A/c for the year ending 31.03.2015.

5. Annual Report of Haldiram’s year 2016.

6. Annual Report of Haldiram’s. Year 2015.

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