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CHAPTER I
1.5 Methodology
1.1 INTRODUCTION
India ranks second in the world in the production of sugar. In their order of
importance the three countries are Brazil, India and China. A sugar factory occupies an
important place among the organized factories in India. Sugar factory, one of the major
matter of fact, sugar factory has facilitated and accelerated the pace of rural
industrialization. The annual turnover of this factory is 25,000 crore. The Governments
both central and state receive annually 2500 crore as excise duty, purchase tax, and cess
from this factory. More than 4.50 crore farmers are engaged in sugarcane cultivation
and about 5 lakh rural people in India get direct and indirect employment in the factory.
The sugar factory has brought socio–economic changes in rural India by facilitating
Sugar factory in Tamilnadu plays a vital role in the economic development of the
state, particularly promoting the rural economy by providing large scale direct and
cultivation, harvesting, transport and other services. Tamilnadu is one of the major sugar
sugar annually, which is about ten per cent of the total production of sugar in the country.
Tamilnadu comes under low recovery zone with recovery hovering around nine per cent.
Agro processing units including sugar units are equally plagued by the problem of
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sickness. The sugar factory is beset with a number of problems like shortage of
advised price, high cost of production and so on. A good financial analysis will help to
identify the strengths and weaknesses of a company and facilitates a more informed
management decision. And also it will be able to identify and correct the performance
problems before they have a major impact in the business. As such, the study is expected
to help the corporate management, the financiers, the investors and the government at
large, to take appropriate decisions. The study has academic relevance too in so far as
new theoretical and practical knowledge would be added to the existing stock of
knowledge undoubtedly. The present study will act as a masterpiece on the subject for
further research and development. Therefore, to cover the gaps in the earlier studies, the
present study is undertaken to give an insight into the performance of selected private
companies of Tamilnadu sugar factory. It would also enable shareholders, investors and
investment analyst to identify the determinants of corporate performance. There are many
studies conducted at macro level to deal with the entire economy. Such studies pertain to
a sector or a factory and very few studies are conducted at micro level. But the financial
performance of selected private sector sugar factories in Tamilnadu has received only
scant attention and therefore in this study the researcher makes an attempt to analyze the
where sugar prices are influenced by economic considerations, in India they are
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influenced by political considerations. The factory is still subjected to the monthly release
mechanism for sugar sales that is determined and declared by government of India. Sugar
Cane prices are increased every year by the central government and even more by each of
the state governments in the form of Statutory Minimum Price and State Advised Price
respectively. Sugar price, on the other hand, does not increase in the same proportion
every year. Consequently, margins are squeezed and the limited are not able to make
enough money, not even to recover their conversion costs. When factories are cash
strapped, they take delivery of sugar cane but postpone payments to farmers forcing them
into a debt trap with very little incentive to grow cane. Farmers may sell the cane to
manufacturers of other cane products like Jaggery or Molasses. Frequent switching also
lowers recovery rates and consequently India has the lowest recovery rate amongst major
sugar producers. World recovery rates are thirteen to fourteen per cent while Indian
producers can recover at best ten to twelve per cent. Most of the sugar Factories in India
utilise only fifty per cent of its production capacity. Low capacity utilisation and
inadequacy of raw material led to the closure of sugar factories in India. Indian sugar
production is much lower than the installed capacity because of shortage of raw
materials. These problems left India’s private sector sugar factory in the large.
The Dharani Sugars also incurred heavy losses. But it tends to nourish for itself.
Hence, it is impracticable for the Dharani Sugars units to shrink their cost of production
fighting in the Sugar markets. This results in the sugar factory being the drainer of
economic growth and India is keen to use it as a level of accelerated growth in the
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country. Therefore, the present study is undertaken to analyse the growth, production,
sales trend, profitability, financial structure, working capital performance and assessment
of financial health of the Factory and to suggest remedial measures to solve the problems
2. To identify the significant financial ratios which influence the working capital
Limited.
6. To analyze the relationship between profit and working capital of the Factory.
The present study is confined to and highlights the working capital performance
of the Dharani Sugar Limited in Tirunelveli District through facts and figures of
strength and opinion of the members staff of the finance department of sugar factory. The
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present study has also identified the nature of relationship between the various aspects of
1.5 METHODOLOGY
The present study is mainly based on secondary data. The data required for the
purpose of the study were collected from Dharani Sugar Limited. The data have also been
taken from annual reports, journals, and newspapers, magazines and general discussion
with the company. For the Dharani Sugar Limited, the information required is available
The period for this study is covered by ten years from 2005-06 to 2014-15. The
data for this period have been collected from Dharani Sugar Limited Vasudevanallur. The
financial year runs from 1st April to 31st March every year.
To analyse the working capital performance of Dharani Sugar Limited, the ratio
analysis has been used. The following ratios have been applied for the purpose this study:
For the purpose of analyzing the working capital of Dharani Sugar Limited,
Working capital cycle has been computed. The working capital cycle can be assessed as
under:
WCC = R + W + F + D -C
Where,
R – Raw materials
W– Work in progress
F– Finished stock
The ratio analysis has been used to analyze the behavioural pattern of investment
aspect of working capital and its impact on profitability. A linear trend equation is fitted
Dharani Sugar Limited, the researcher has used the trend analysis.
To identify the significant financial ratios, factor analysis has been used for the
study.
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It is the long-term funds supplied by the creditors and owners of the firm.
1.8.4 Co-generation
over and above the sugar plant’s requirement which is fed to the electricity grid.
Assets are convertible into cash within a year known as current assets.
In this study, current assets include cash and bank balance, inventories, sundry
Liabilities are payable within a period of one year termed as Current liabilities
that include amounts due to the members of the current liabilities staff, workers, farmers
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supplying sugarcane, provision for gratuity, bad and doubtful debts, cash credit, and short
term loans.
The amount due to outsiders i.e. other than the shareholders will be called as
Assets are acquired only for carrying on business and not for sale, such as
buildings, rest sheds, canteen buildings, wells and water supply arrangements, plant and
Net sales minus the cost of goods sold before considering general expenses,
The amount due to the preference and equity shareholders like share capital and
reserves.
1.8.11 Inventory
product and also goods in the process of manufacture and finished goods ready for
delivery to customers.
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The acquired funds that are repayable after one year are known as long-term
funds.
The financial gain achieved by a firm over a period from a particular activity,
which is measured after allowing all expenses incurred during the period.
sugarcane crushed during the months of December, January, February and March during
1.8.17 Productivity
percent.
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The relationship between the quantity of sugar obtained and the quantity of
The minimum price fixed each year by the Central Government for the sugarcane
It consists of twelve months from October to September. But for the purpose of
this study, the number of working days namely 172 at the rate of 22 hours per day has
Those assets which can be seen and felt are Tangible assets.
Accounting year, up to 1987, signifies the year commencing from 1st October and
ending with 30th September and since 1987, it means year starting on 1st April ending
Total owned funds include share capital, reserves and surplus and retained
earnings.
of the study cannot be generalized for all sugar factories in Tamilnadu. Further the
present study is entirely based on the financial statements prepared by the Dharani Sugar
Limited. The research study is based on secondary data for 10 years from 2005-06 to
2014-15.
Factory with Special Reference to Dharani Sugar Limited at Vasudevanallur” has been
Chapter I
The First Chapter deals with the introduction, statement of the problem, Need for
Chapter II
The second chapter reviews the earlier studies relating to working capital
Chapter III
The third chapter discusses the growth of sugar factoires in India and Tamilnadu.
Chapter IV
The fourth chapter analyses the working capital performance of Dharani Sugar
limited.
Chapter V
The fifth chapter deals with the behavioural pattern of investment aspect of
working capital.
Chapter VI
The sixth chapter throws light on the behavioural pattern of working capital and
Chapter VII
The seventh chapter presents the summary of the findings along with