marteen patel 09mba32 (project word file)

A

A

PROJECT REPORT

ON

WORKING CAPITAL MANAGEMENT

UNDERTAKEN AT:

Sayan vibhag shakari khand Udyog Mandli Ltd.

SUBMITTED BY:MARTEEN PATEL(09MBA32)

GUIDED BY:

MR. MANISH PATHAK

MBA PROGRAMME

YEAR-2009-2011

SHRIMAD RAJCHANDRA INSTITUTE OFMANAGEMENT AND COMPUTER APPLICATIONACKNOWLEDGEMENT

I am grateful to the management of Sayan vibhag shakari khand Udyog Mandli Ltd.for giving me this opportunity to complete the project successfully.

I am sincerely thankful to the managing director of Sayan vibhag shakari khand Udyog Mandli Ltd. Bipinkumar I. Patel for his kind guidance and co-operation. Without his guidance, it would have been a hard task to complete this project work successfully.

I acknowledge and offer thanks to assistant account of Sayan vibhag Shakari Khand Udyog Mandli Ltd. Rajubhai M. Patel for his sustained interest, valuable guidance and giving and opportunity to do the project.

I am also thankful to Mr. Manish Pathak for giving me this opportunity to gain my practical knowledge. I am very much grateful to him for his precious guidance, which he has given me to complete my project work successfully.

DECLARATION

The project entitled Working Capital Management is submitted to shrimad Rajchandra Institute of Management & Computer Application, Surat. I have completed the project under the guidance of Mr. Manish Pathak (Faculty Member of SRIMCA College).

The project assignment study is result of my findings and research in the subject and it is original in nature.

Marteenpatel

(09mba32)

Executive Summary

The number one reason most people look at a Balance sheet is to find out a company's working capital (or "current") position. It reveals more about the financial condition of a business than almost any other calculation. It tells you what would be left if a company raised all of its short term resources, and used them to pay off its short term liabilities. The more working capital, the less financial strain a company experiences. By studying a company's position, you can clearly see if it has the resources necessary to expand internally or if it will have to turn to a bank and take on debt.

This research is basically focused on the operating cycle, working capital ratios, working capital leverage, methods of working capital requirement, at this company. All these are more important to the company. It will provide the company situation and which type of action they will take for manage it. Also this study focused on in which area they focus for improving the growth of the company.Working Capital Managementprovide you with the right tools and capabilities to optimize working capital and unlock the true value of your financial supply chain.

Research Objective:

The main objectives of study aimed as:

To get the information about the financial position, performance and cash flow of Sayan Sahakari khand Udyog Mandli LtdThe Secondary objective :

Calculate and analyze Operating cycle of the company.

To generat enough cash and cash equivalents. How we Using the Methods for estimating working capital requirements.

To estimates and analyze Working capital ratios of the company.

RESEARCH DESIGN:

Basically there are 3 types of Research Design.

1. Exploratory Research Design.

2. Descriptive Research Design.

3. Causal Research Design.

The research design for this study is Descriptive Research Design.

To choose this Descriptive research in Working Capital Management is that descriptive research has been used to define the characteristics of the phenomena and to clearly define it.

DATA SOURCES:

The information is collected from secondary data during the project. The Sources of secondary data are Financial Statement, Cash flow, Internet, Books Etc.TABLE OF CONTENTS

SR. NO.TopicPAGE NO.

01About the Company1

02About the Topic & Literature Review5

03RESEARCH METHODOLOGY

3.1 Objectives

3.2limitations

3.3 Benefits10

04Data Analysis & Interpretation13

05FINDINGS 40

06RECOMMENDATIONS41

BIBLIOGRAPHY42

Chapter 1

-

About The Company

ABOUT THE COMPANY

This society is registered under the Gujarat Cooperative Societies Act 1961, on 20th November 1972 and its Registration Number is S - 27. The Number of Shareholders is 11,406.

This factory is situated at village: Sayan, Tal. Olpad, Dist. Surat. The area of operation covers 207 villages of Olpad, Choryasi, Kamrej, Mandavi & Mangrol talukas. The total Capital Investment of the factory is Rs. 61 Crores and the Annual Turn-over is Rs. 150 Crores. The area has rich black cotton soil and cotton was the most established stable crop of the area, gradually cotton disappeared and Sugarcane crop come into existence.

The Central Government has approved a license No. CIL - 465 in 1976 for establishment of a 1,250 TCD Sugar Plant. Initially the plant and machinery had been supplied by the Indian Sugar & General Engineering Corporation, Yamunagar (Haryana). The project was carried out in 1978-79 with a crushing figure of 1,28,397 tones cane and a recovery of 9.46%.

In 1984 the plant was expanded 1,250 TCD to 2,000 TCD. Then in 1987 it was expanded up to 3,500 TCD. Lastly it was expanded in 1992 with a crushing capacity of 5,000 TCD. We manufacture Sugar through Double Sulphitation Process and to reach the International standard of Sugar we installed Syrup Clarification System in our factory.

When the factory was started in 1978-79 the average yield per acre was hardly 21 tones and today it is 35 tones.

Products

SUGAR

The sugar which is a Carbo-hydrate is obtained from sugar cane and is known as Cane Sugar. It contains 99.50% sucrose. Actually cane sugar is chemically known as Sucrose which is disaccharide. It is soluble in water. Sucrose is dextrorotatory on hydrolysis which is chemically known as inversion, it yield a mixture of Glucose and Fructose. Glucose and Fructose both are monosaccharide and are levorotatory. Sugar is essential part of human diet hence it comes under essential commodity. This sugar when heated to 180C yield amorphous brown syrupy substance called caramel which is used as a colorant in food products and drinks. The sugar is having multiple uses. It can be used as a row material in fermentation industry to produce Ethyl Alcohol, Butyl Alcohol, Glycerin and Citric Acid.BAGASSE

Bagasse is the residue obtained from crushing cane in the mills. It contains about 50% moisture and 2% sugar and the balance is fiber. It is also very commonly used as fuel in boilers in the Sugar Factory. Bagasse is used as a row material for the production of Cellulose, Furfural, Paper, Particle board, Cattle feed etc.

MOLASSES

Molasses which is also known as black strap molasses or treacle is a dark brown viscous liquid obtained as a by-product in processing Cane Sugar. It contains nearly 45% uncrystallized, fermentable Sugar & some Sucrose. It is a valued by-product of foreign liquor, as a table syrup and food flavourant, Ethyl Alcohol, Acetic Acid, Citric Acid, Glycerin and Yeast. It is also used as food for farm animals and in the manufacture of several processed tobaccos. It is not economical to crystallized the sugar from molasses.

RECTIFIED SPIRIT (RS)

It is manufactured by Formation & Distillation of molasses,

As per IS: 323-1959 specification.

(i) Sp. Gravity 0.8171 at 15.6C.

(ii) Percent by volume 94.68 at 15.6C.

It is used for manufacturing of Acetic Acid, Acetone, Oxalic Asid Absolute Alcohol & other various chemicals.

ABSOLUTE ALCOHOL (ETHANOL)

It is manufactured by Azeotropic Distillation of Rectified Spirit as per IS :321-1964 specification.

(i) Sp. Gravity 0.7961 at 15.6C.

(ii) Ethanol content 99.8 percent by volume at 15.6C.

It is used as Fuel in Automobile and also in Pharmaceutical Industries.

Future planning:

We are seriously thinking about implementation of COGENERATION PROJECT and FEASIBILITY REPORT has already been prepared.

We are also planning for CONSUMER PACKED SUGAR in 250,500, 1kg, 2kg and 5kg packing.

Chapter 2

-

About the Topic

&

Literature Review

About The TopicWorking Capital : ( NEED FOR THE STUDY)

The number one reason most people look at a balance sheet is to find out a company's working capital (or "current") position. It reveals more about the financial condition of a business than almost any other calculation. It tells you what would be left if a company raised all of its short term resources, and used them to pay off its short term liabilities. The more working capital, the less financial strain a company experiences. By studying a company's position, you can clearly see if it has the resources necessary to expand internally or if it will have to turn to a bank and take on debt.

Working capital, being the lifeblood of any organization has a broad spectrum of importance in running the short term objectives such as cash management on one hand and decisions pertaining to foreign exchange activities on the other.

Working capital on the balance sheet is the difference between current assets and current liabilities. The reason working capital is so important is because it lets you know the resources management has on hand to pay day-to-day bills and conduct operations. Some companies, such as Wal-Mart or other restaurants, can actually have negative working capital.

Operating a business with a balance in capital management is essential to every business whether small or large. A constant vigil over how much money comes in and how much money goes out, as well how much money is tucked away must be maintained. A business could find itself at a production standstill or even bankruptcy because of a lack of cash. A vital tool in an effective capital working policy is cash budgeting. A cash budget is a way to monitor a businesses cash inflows and outflows, which in turn assist in predicting a company's ability to pay debt, expenses and can be used in planning short-term credit needs. The company is in a constant state of worry in regards to paying off the loan without borrowing any more money

working capital cycle: The diagram below illustrates the working capital cycle for a manufacturing firm

The upper portion of the diagram above shows in a simplified form the chain of events in a manufacturing firm. Each of the boxes in the upper part of the diagram can be seen as a tank through which funds flow. These tanks, which are concerned with day-to-day activities, have funds constantly flowing into and out of them.

Calculating Working Capital:

Working Capital is the easiest of all the balance sheet calculations. Here's the formula.

Current Assets - Current Liabilities = Working Capital

One of the main advantages of looking at the working capital position is being able to foresee any financial difficulties that may arise. Even a business that has billions of dollars in fixed assets will quickly find itself in bankruptcy court if it can't pay its monthly bills. Under the best circumstances, poor working capital leads to financial pressure on a company, increased borrowing, and late payments to creditor - all of which result in a lower credit rating. A lower credit rating means banks charge a higher interest rate, which can cost a corporation a lot of money over time.

The Working Capital is also known as Circulating Capital & Floating Capital

As From my company(Sayan khand udyog) They make working capital for continues production for that they have a lot of raw materials, Finished good, worker salary etc for that necessary of money its call working capital.

Literature ReviewEfficient liquidity management involves planning and controlling current assets and current liabilities in such a manner that eliminates the risk of inability to meet due short-term obligations and avoids excessive investment in these assets. The relation between profitability and liquidity was examined, as measured by current ratio and cash gap (cash conversion cycle) on a sample of joint stock companies in Saudi Arabia using correlation and regression analysis. The study found that the cash conversion cycle was of more importance as a measure of liquidity than the current ratio that affects profitability. The size variable was found to have significant effect on profitability at the industry level (Eljelly, 2004)

Most firms had a large amount of cash invested in working capital. It can therefore be expected that the way in which working capital is managed will have a significant impact on profitability of those firms. Using correlation and regression tests he found a significant negative relationship between gross operating income and the number of days accounts receivable, inventories and accounts payable of Belgian firms. On basis of these results he suggested that managers could create value for their shareholders by reducing the number of days accounts receivable and inventories to a reasonable minimum. The negative relationship between accounts payable and profitability is consistent with the view that less profitable firms wait longer to pay their bills. (Deloof, 2003)

Working capital management, performance, utilization, and overall efficiency indices were calculated instead of using some common working capital management ratios. Setting industry norms as target-efficiency levels of the individual firms, this paper also tested the speed of achieving that target level of efficiency by an individual firm during the period of study. (Ghosh and Maji, 2003)

Working Capital Managementprovide you with the right tools and capabilities to optimize working capital and unlock the true value of your financial supply chain

.REFERED RESEARCH ARTICLES & JOURNALS: - Reference Sites: http://www.bizresearchpapers.com/Paper%2019.pdf http://www.bizresearchpapers.com/Kesseven.pdf http://www.eurojournals.com/irjfe_32_12.pdf http://www.ariba.com/pdf/solutions/WorkingCapitalMgmtDatasheet.pdf http://www.bim.edu/pdf/lead_article/kanna.pdf

Chapter 3

-

RESEARCH METHODOLOGY

Objective of study:The main objectives of study aimed as: To get the information about the financial position, working capital health, performance of Sayan Sahakari khand Udyog Mandli LtdThe Secondary objective :

Calculate and analyze Operating cycle of the company.

To generat enough cash and cash equivalents. How we Using the Methods for estimating working capital requirements.

To estimates and analyze Working capital ratios of the company.

RESEARCH METHODOLOGY:RESEARCH DESIGN:

Basically there are 3 types of Research Design.

4. Exploratory Research Design.

5. Descriptive Research Design.

6. Causal Research Design.

The research design for this study is Descriptive Research Design.

To choose this Descriptive research in Working Capital Management is that descriptive research has been used to define the characteristics of the phenomena and to clearly define it.

DATA SOURCES:

1. primary data

2. Secondary data

The information is collected from secondary data during the project. The Sources of secondary data are Financial Statement, Cash flow, Internet, Books Etc.

Time period:-

The time period that has been used is of 2004-05 to 2008-09.

Limitations of the study:-

This study is limited to Five years.

This study limited to one company.

The data of this study has been taken from the company annual reports only

Benefits of the study:-

Company manages their working capital requirements.

Also manage their operating cycle.

Objectives of working capital management:

The basic objectives of working capital management are as follows:

By optimizing the investment in current assets and by reducing the level of current liabilities, the company can reduced the locking up of funds in working capital thereby; it can improve the return on capital employed in the business.

The second important objective of working capital management is that the company should always be in a position to meet its current obligations which should properly be supported by the current assets available with the firm. But maintaining excess funds in working capital means locking of funds without return.

The firm should manage its current assets in such a way that the marginal return on investment in these assets is not less than the cost of capital employed to finance the current assets.

Chapter 4

-

DATA ANALYSIS

& INTERPRETATION

Data Analysis :

Operating cycle concept:

A new concept which is gaining more and more important in recent years is the operating cycle concept of working capital. The operating cycle refers to the average time elapses between the acquisition of raw materials and final cash realization.

Cash is used to buy raw material and other stores, so cash is converted into raw materials and stores inventory. Then the raw materials and stores are issued to the production department. Wages are paid and other expenses are incurred in the process and work-in-process comes into existence. Work-in-process becomes finished goods. Finished goods are sold to customers on credit. In the course of time, these customer pay cash for the goods purchased by them. Cash is retrieved and the cycle is completed.

Thus operating cycle consist four stages:

The raw materials and stores inventory stage

The work in progress stage

The finished goods inventory stage

The receivable stage

Calculation of Net operating cycle:-(a) Raw Material Conversion Period=

Average value of raw material stock 365

Average consumption of raw material(b) Work-in-progress conversion period =

Average work-in-progress 365

Average cost of goods sold

(c) Finished goods conversion period =

Average stock of finished goods 365

Average cost of goods sold

(d) Book debts conversion period =

Average value of receivables 365

Average value of sales

(e) Payment deferral period =

Average level of creditors 365

Average purchase of raw material

For: - 2008-09

RMCP = 480072.60 365 = 179 Days

978919.00

WIPCP = 29294200 365 = 4 days

2797117677

FGCP = 1780875787 365 = 232 days

2797117677

DCP = 262596083 365 = 39 days

2438938285

PDP = 1610752600 365 = 256 days

2296966648Gross operating cycle = RMCP + WIPCP + FGCP + BDCP

= 179 + 4 + 232 + 39

= 454

Net operating cycle = RMCP + WIPCP + FGCP + BDCP PDP

= 179+ 4 + 232 + 39 256

= 198

For: - 2007-08

RMCP = 717761.92 365 = 229 Days 1144031

WIPCP = 33019800 365 = 7 days

1915292474

FGCP = 1455440558 365 = 277 days

1915292474

DCP = 298660656 365 = 62 days

1753453795

PDP = 862881412 365 = 230 days


= 229 + 7 + 277 + 62

= 575


= 229 + 7 + 277 + 62 230

= 345

For: - 2006-07

RMCP = 765456.03 365 = 229 Days

1220050

WIPCP = 30945600 365 = 7 days

1590715230

FGCP = 1087095575 365 = 249 days

1590715230

DCP = 209700417 365 = 54 days

1410902362

PDP = 711624188 365 = 229 days


= 229 + 7 + 249 + 54

= 539


= 229 + 7 + 249 + 54 229

= 310For: - 2005-06

RMCP = 525656.24 365 = 184 Days

1042742.00

WIPCP = 20614700.00 365 = 4 days

1976201317

FGCP = 1444530793 365 = 267 days

1976201317

DCP = 189330540 365 = 38 days

1822335367

PDP = 1229460744 365 = 278 days


= 184 + 4 + 267 + 38

= 493


=184 + 4 + 267 + 38 278

= 215

For: - 2004-05

RMCP = 212633.09 365 = 118 Days

657721.00

WIPCP = 14604070.00 365 = 4 days

1419145192

FGCP = 1150743072 365 = 296 days

1419145192

DCP = 171597551 365 = 50 days

1262783964

PDP = 482556373 365 = 163 days


= 118 + 4 + 296 + 500

= 468


=118 + 4 + 296 + 50 163

= 305

Operating cycle table:-

YearRMCPWIPCPFGCPDCPPDPGross operating cycleNet operating cycle

2008-09179423239256454198

2007-08229727762230575345

2006-07229724954229539310

2005-06184426738278493215

2004-05118429650163468305

Graph:-

Interpretation:-

Here, the company raw material conversion period and finished goods conversion period is very long because this is a Sugar industry and it will required long raw material conversion period and finished goods. In work in progress conversion period conversion period is short compare all other conversion periods. Also the debtors conversion period is short and payment deferral period long in all year that good sign for the company.

The net operating cycle is very short in year 2008-09 and it will better for the company. But in all other years this will very long. They will not more focusing on debtors conversion period as well as the payment deferral period. For this reason the company can face this problem. In the year 2008-09 the company can reduce the conversion period its good for the future also.

Working capital ratios:

Working capital ratios indicate the ability of a business concern in meeting its current obligations as well as its efficiency in managing the current assets for generation of sales. These ratios are applied to evaluate the efficiency with which the firm manages and utilizes its current assets. The following three categories of ratios are used for efficient management of working capital:

(1) Efficiency ratios (2) Liquidity ratios (3) Structural health ratios

(1). Efficiency ratios

(a) Working capital to sales ratio = sales/working capital

This ratio is computed by dividing sales by working capital. This ratio helps to measure the efficiency of net working capital. It signifies that for an amount of sales, a relative amount of working capital is needed. If any increase in sales is contemplated, working capital should be adequate and thus, this ratio helps management to maintain the adequate level of working capital.

YearSalesWorking capitalsales/working capital

2008-0924389382856703899573.64

2007-0817534537956468247372.71

2006-0714109023625531517362.55

2005-0618223353675693559583.20

2004-0512627839645483610372.30

Graph:-

Interpretation:-

From the above table we can say that the sale to working capital is quite high in the recent year. These indicate the company has sufficient net working capital. The ratio is more or less increase during the last five years that is the good sign for the company.

(b) Inventory turnover ratio = sales/inventory

This ratio indicates the effectiveness and efficiency of the inventory management. The ratio shows how speedily the inventory is turned into accounts receivable through sales. The higher the ratio, the more efficiently the inventory is said to be managed vice versa.

YearSalesInventorysales/inventory

2008-09243893828517808757871.37

2007-08175345379514554405581.20

2006-07141090236210870955751.30

2005-06182233536714445307931.26

2004-05126278396411507430721.10

Graph:-

Interpretation:-

Here, we have high inventory turnover ratio. At initial stage it was not high, but then much improvement and the recent year is high ratio its good sign for the company.

(c) Current assets turnover ratio = sales/current assets

This ratio indicates the efficiency with which current assets turn into sales. A higher ratio implies by and large a more efficient use of funds. Thus, a high turnover rate indicates reduced lock-up of funds in current assets. An analysis of this ratio over a period of time reflects working capital management of a firm.

YearSalesCurrent assetsSales/current assets

2008-09243893828524495080041.00

2007-08175345379520178045140.87

2006-07141090236213601307781.04

2005-06182233536718597524380.98

2004-2005126278396413405792950.94

Graph:-

Interpretation:-

Here, we show that this ratio is not high in every year but 2008-2009 & 2006-07 ratio is high and this is good for the company. Company will increase their sales because they good current assets compare to sales.

(2) Liquidity ratio

(a) Current ratio = current assets, loans & advances/current liabilities & provisions

This ratio indicates the extent of the soundness of the current financial position of an undertaking and the degree of safety provided to the creditors. The higher current ratio, the larger amount of rupee available per rupee of current liability, the more the firms ability to meet current obligations and the greater safety of funds of short term creditors. Current assets are those assets which can be converted into cash within a year. Current liabilities and provisions are those liabilities that are payable within a year.

YearCurrent assets, loans &advancesCurrent liabilities & provisionscurrent assets, loans & advances/current liabilities & provisions

2008-09244950800417791180471.38

2007-08201780451413709797771.47

2006-0713601307788069790421.69

2005-06185975243812903964801.44

2004-200513405792957922182581.69

Graph:-

Interpretation:-

The ideal current ratio is 2:1. It indicates that current assets double the current liabilities are considered to be satisfactory. Here, low value of current ratio. At initial stage it is near to 2:1 but then after it will more decrease. It is not good for the company.

(b) Quick ratio = current assets, loans & advances inventories/current liabilities & provisions

Quick ratio is a more refined tool to measure the liquidity of an organization. It is a better test of financial strength than the current ratio, because it excludes very slow moving inventories and the items of current assets which cannot be converted into cash easily. This ratio shows the extent of cushion of protection provided from the quick assets to the current creditors. A quick ratio of 1:1 is usually considered satisfactory through it is again a rule of thumb only.

YearCurrent assets, loans & advancesInventory

Current assets, loans & advances inventoryCurrent liabilities & provisionsQuick ratio

2008-092449508004178087578766863221717791180470.38

2007-082017804514145544055856236395613709797770.41

2006-07136013077810870955752730352038069790420.34

2005-061859752438144453079341522164512903964800.32

2004-05 134057929511507430721898362237922182580.24

Graph:-

Interpretation:-

High quick ratio is an indication that the company has relatively better position to meet his current obligations in time. Here, high value of quick ratio that the company has good liquidity position.

(3) Structural health ratios

(a) Current assets to net assets = total net assets/current assetsThis ratio explains the relationship between current assets and total investment in assets. A business enterprise should use its current assets effectively and economically because it is out of the management of these assets that profits accrue.

YearTotal net assetsCurrent assetstotal net assets/current assets

2008-09322211502224495080041.32

2007-08274356750020178045141.36

2006-07208549480213601307781.53

2005-06256998263118597524381.38

2004-2005207382507513405792951.55

Graph:-

Interpretation:-

Here, we see that they have total net assets is more compare to the current assets. At initial stage the company has low total net assets as well as current assets but then after it will more increases. It will help them to effectively use their current assets.

(b) Debtors collection period (in days) = debtors/sales 365

Debtors collection period, this measures how long its takes to collects amount from debtors. The actual collection period can be compared with the stated credit terms of the company. If it is longer than those terms, then this indicates some insufficiency in the procedures for collecting debts.

YearDebtorsSalesdebtors/salesDebtors/sales 365

2008-0926259608324389382850.1140.15

2007-0829866065617534537950.1762.17

2006-0720970041714109023620.1554.25

2005-0618933054018223353670.1037.92

2004-0517159755112627839640.1449.60

Graph:-

Interpretation:-

From the above chart we can say that debtor collection period is law in every year. In the recent year the collection period is very law is good sign for the company.

(c) Creditors payment period (in days) = creditors/purchases 365

The measurement of the creditor payment period shows the average time taken to pay for goods and services purchased by the company. In general the longer the credit period achieved the better, because delays in payment mean that the operation of the company are being financed interest free by suppliers funds.

YearCreditorspurchasescreditors/purchasescreditors/purchases

365

2008-09161075260022969666480.70255.96

2007-0886288141213667146640.63230.44

2006-0771162418811332275890.63229.21

2005-06122946074416166080430.76278.00

2004-0548255637310774560250.45163.47

Graph:-

Interpretation:-

Here we can say that the credit payment period is quite high in the recent year. That indicate good image of company. The period is more or less increase during the last five year that good sign for the the company.

Working capital leverage:One of the important objectives of working capital management is by maintaining the optimum levels of investment in current assets and by reducing the levels of current liabilities, the company can minimize the investment in working capital thereby improvement in return on capital employed is achieved.

The term working capital leverage refers to the impact of level of working capital on companys profitability. The working capital management should improve the productivity of investment in current assets and ultimately it will increase the return on capital employed. Higher levels of investment in current assets than is actually required mean increase in the cost of interest charges on the short term loans and working capital financed raised from banks etc. and will result in lower return on capital employed and vice versa. Working capital leverage means the responsiveness of ROCE for changes in current assets. It is measured by applying the following formula:

Working capital leverage = Current assets/total assets - change in current assets

Where, total assets = net fixed assets +current assets

YearCurrent assetsTotal assetsChange in current assetsWorking capital leverage

2008-09244950800432221150224317034900.88

2007-08201780451427435675006576737360.97

2006-07136013077820854948024996216600.86

2005-06185975243825699826315191731430.91

2004-200513405792952073825075__

Interpretation:-

Here, we see that the ratio is high in last five years that is not good for the company so they can try to reduce it. The main reason is that they have more current assets.

Methods for estimating working capital requirement:

There are three methods for estimating the working capital requirements of a firm; (1) percentage of sales method (2) regression analysis method

(1) Percentage of sales method:-

It is a traditional and simple method of determining the level of working capital and its components. In this method, working capital is determined on the basis of past experience. If, over the years, the relationship between sales and working capital is found to be stable, then this relationship may be taken as a base for determining the working capital for future.

Item2007-08

(Actual)2008-09

(Estimates)

Sales

Current assets:

Inventories

Receivables

Cash and bank

Total (A)

Current liabilities(b):

Working capital (A)-(B)1753453795

1455440558

298660656

263703300

2017804514

1370979777

64682473724389382852024421577.89

415417224.12

366793853.39

2806632655.4

1906942216.33

899690439.07

Item2008-09

(Actual)2009-10

(Estimates)

Sales

Current assets:

Inventories

Receivables

Cash and bank

Total (A)

Current liabilities (b):

Working capital (A)-(B)24389382851780875787

262596083

406036134

2449508004

1779118047

6703899573100000000

2263573036.51

333771404.655

516090145.913

3113434587.07

2261338870.11

852095716.96

Interpretation:-

Here, we see that in year 2007-08 is actual and in 2008-09 estimates requirements of working capital is calculated but in 2008-09 they have actual working capital is less compare to the estimates requirement.

Using this method we will easily find out the next year requirement of working capital.

(2) Regression analysis method:-

It is a useful statistical technique applied for forecasting working capital requirements. It helps in making working capital requirement projections after establishing the average relationship between sales and working capital and its in the past years. The method of least squares is used in this regards.

The relationship between sales(X) and working capital(Y) is given by the equation: Y = a +bX

The value of a and b is obtained by the solution of simultaneous liner equations given below:

y = na + bx

xy = ax + bx2

; Where a= fixed component

b= variable components

x= sales

y= inventory(CA)

n= number of observations.

Calculation:

The sales and current assets figures (Rs. in Crore).

YearSalesCurrent assets

2008-09243244

2007-08175201

2006-07141136

2005-06182185

2004-05126134

Estimates the working capital requirements for the year 2009-10, if the anticipated sale is Rs. 310 Crore.

YearSales(x)Current assets(y)xyX2

2008-092432445929259049

2007-081752013517530625

2006-071411361917619881

2005-061821853367033124

2004-051261341688415876

N=5x=867y=900xy=164197x2=158555

y = na + bx

900=5a + 867b (1)

xy = ax + bx2164197 = 867a + 158555b. (2)

Solving equations (1) and (2), we get

a = 8.33

b = 0.99

The relationship between sales and current assets can now be expressed as follows:

Y = a +bX

Y = 8.33 + 0.99(310)

Y = Rs. 315.23 Crore

Interpretation:-

We also find out the working capital requirement using this method. Here, we find the estimates requirement of working capital for the year 2009-10. It will get the working capital requirement for next year.

MethodsActual working capitalEstimates working capital

(1) Percentage of sales method 646824737.00 (2007-08)899690439.07 (2008-09)

(2) Regression analysis method 646824737.00 (2007-08)306820000.00(2008-09)

(1) Percentage of sales method670389957.00 (2008-09)852095716.96 (2009-10)

(2) Regression analysis method670389957.00 (2008-09)315230000.00 (2009-10)

Conclusion:-

From these two methods we select that which one is better. Here percentage sales method give the requirement of working capital is 852.09 crore and the regression analysis method give the working capital requirement is 315.23 crore.

Therefore we can say that the percentage sales method is better for find out the estimated working capital requirement compare to regression analysis method.

Chapter 5

-Finding

FINDINGS

In operating cycle in 2004-05 is 305 and in 2008-09 is 198 means the company has improvement in operating cycle.

Current ratio standard from 2:1, Current ratio has declined from 1.69:1 in 2004-05 to 1.38:1 in 2008-09 but this is not good they can more improvement on it.

Debtor Conversion period in 2004-05 is 50 and 2008-09 is 40 its good sign for the company.

Credit Conversion period in 2004-05 is 163 and 2008-09 is 256 means very high is good sign for the company.

From working capital leverage in 2008-09 is 0.88 is very low means company can minimize the investment in working capital. It affects the Return on Capital Employed and increase the profitability of the company.

From methods of working capital requirement; actual & estimates working requirement has large difference. I have found that working capital in 2009-10 is 85,20,95,716.96 by Percentage of sales method.

Chapter 6

-RECOMMENDATIONS

RECOMENDATION

Company have to use percentage sales method for the estimate Working capital requirement because its gives better estimation compare to Regression analysis method. The current assets of Sayan sugar is very low as compare to its current liabilities so company should focus on increasing the current assets so that they can pay short term liabilities effectively I have found the interest of creditors is very high so company can should take the steps to control the interest expenses.BIBLIOGRAPHY

Annual report of the company

Book :Pandey I M Financial Management Ninth Edition, Indian Institute of Management, Ahmedabad pp-517-555

Shukla Anita Working capital management RBSA Publishers, Jaipur.

Kishor Ravi M., Financial Management Third Edition, New Delhi Taxman Allied Services (P) Ltd.

Website :

www.sayansugar.com

Raw material inventory

Work in process

Cash

Finished goods

Accounts Receivables

marteen patel 09mba32 (project word file)

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