CHAPTER-1

INTRODUCTION

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 CHAPTER-1
INTRODUCTION

1.1 GENERAL INTRODUCTION

Working capital refers to the management of short term assets. It involves
planning and controlling the level and mix of a firms current assets as well as the pattern
of their financing. It is alternatively referred to as current assets management. Working
capital management is essentially concerned with managing the liquidity position of
the business , and entails two related problems managing the firm’s use of liabilities.
Working capital plays on important role in the day to the day activities of
business enterprises. If refers to the investment made by firms in current assets .
Working capital is the capital required for maintenance of day to day business
operation . The present competitive market calls for proper and efficient
management may force the firm to business operation. Long term funds are
required to create production facility through purchases of fixed assets. Such as
plant and machinery, Land and building, Furniture etc.
Working capital alternatively referred to as current or circulating capital is the
investment made by firms in their current assets. Current assets are those assets
which can be converted into cash within an accounting year which include cash
,short term securities, debtors, bills receivables and stock. Current liabilities are those
claims of outsiders which are expected to mature for payment within an
accounting year which include creditors, bills payable and outstanding expenses.
Working capital is a financial metric of operating liquidity which describes
the amount of cash tied up in operation and defines the short term conditions
of a company. A positive working capital position is required for continuous
running of a company’s operations, i.e., to pay short term debt obligations and to
cover operational expenses. A company with a negative working capital balance is
unable to cover its short term liabilities with its current assets.
Management of working capital is concerned with the problem that arises in
attempting to manage the current assets and current liabilities. The basic goal of
working capital management is to manage the current assets and current liabilities
of a firm in such a way that a satisfactory level of working capital should be
idle. Working capital management has three dimensional in nature are

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  It is concerned with the formulation of policies with regard to
profitability, liquidity and risk.
 It is concerned with the decision about the composition and level
of current assets.
 It is concerned with the decisions about the composition and level
of current liabilities.

CONCEPT OF WORKING CAPITAL:

Generally, there are two concepts of working capital i.e., Gross working
capital and Net working capital.

i. Gross Working Capital:

Gross working capital refers to all the current assets and represents the
amount of funds invested in current assets. Current assets are those assets which
can be converted into cash in hand, cash in bank, inventory, prepaid expenses,
bills receivables etc.

ii. Net Working Capital:

Net working capital is the excess of current assets and current liabilities is
called net working capital.
Net Working Capital = current assets- current liabilities

CLASSIFICATION OF WORKING CAPITAL

Working capital can be classified into the following types;
a) Permanent or fixed working capital:
Permanent or fixed working capital is minimum amount which is required
to ensure effective utilization of fixed facilities and for maintaining the circulation
of current assets . Every firm has to maintain a minimum level of raw material
,work-in-process ,finished good and cash balance. This minimum level of current
assets is called permanent or fixed working capital as this part of working is
permanently blocked in current assets. This amount varies from year to year,
depending up to the growth of a company. As the business grows the
requirements of working capital also increase due to increase in current assets.

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 b) Temporary or variable working capital:
Temporary or variable working capital represents additional current assets
required during the operation of the year. It is the extra working capital need to
support the changing production and sales activities of the firm . An excess of
working capital over the permanent working capital is called temporary working
capital. It is required to meet the seasonal demand and contingencies. Temporary
working capital is fluctuating, sometimes decreasing and sometimes increasing.
Generally, temporary working capital is financed from short term source of
finance.

NEED AND IMPORTANCE OF WORKING CAPITAL:

Working capital is very essential to maintain smooth running of a business
. working capital is the life blood and nerve center of business. No business can
run successfully without an adequate amount of working capital. The main
advantage or importance of working capital is as follows
1. Solvency of the business:
Adequate working capital helps in maintaining the solvency of the
business by providing uninterrupted of production
2. Good will
Sufficient amount of working capital enables a firm to make prompt
payments and makes and maintain the good will.
3. Easy loans:
Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.
4. Cash Discounts:
Adequate working capital also enables a concern to avail cash discounts on
the purchases and hence reduces cost.
5. Regular Supply of Raw Material:
Sufficient working capital ensures regular supply of raw material and
continuous production.
6. Smooth business operation:
Working capital is really a life blood of any business organization which
maintains the firm in well condition. Any day to day financial requirements

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can be met without any shortage of funds. All expenses and current liabilities are
paid on time.
7. High Morale:
Adequate working capital brings an environment of securities, confidence,
morale which results in overall efficiency of a business.
8. Ability to face crisis:
Adequate working capital enables a firm to face business crisis in
emergencies such as depression.

FACTORS DETERMINING WORKING CAPITAL REQUIREMENT

Some of the important factors which determine the working capital
requirements of business enterprises are given below
 Nature of character of business.
The requirement of working is very limited in public utility undertaking
such as electricity, water supply and railway because they offer cash sale only
and supply services not products, and no funds are tied up in inventories and
receivable. On the other hand the trading and financial firms required less
investment in fixed assets but have invest large amount of working capital along
with fixed investments.
 Size of business or scale of operations.
The working capital requirements of a concern are directly influenced by
the size of the business which may be measured in terms of operations. Greater
the size of a business unit, generally large will be requirements of working
capital. In some cases even a smaller concern may need more working capital due
to high overhead charges, inefficient use of available resources and other economic
disadvantages of small size.
 Production policy.
The production could not be kept either steady by accumulating inventories
during slack periods with in a view to meet high demand during the peak season
or the production could be curtailed during the slack season and increased during
the peak season. If the policy is to keep production steady by accumulating
inventories it will require higher working capital.

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  Manufacturing process or length of production cycle.
The longer the manufacturing times the raw materials and other supply have
to be carried for longer in the process with progressive increment of labor and
service costs before the final product is obtained. So working capital is directly
proportional to the length of the manufacturing process.
 Working capital cycle.
Manufacturing concern, the working capital cycle starts with the In
purchase of raw materials and end with the realization of cash from the sale of
finished products. This cycle involves purchase of raw materials and stores, its
conversation of finished goods to work in progress with progressive increment of
labor and service costs, conversion of finished stock into sales, debtors and
receivables and ultimately realization of cash and this cycle continues again from
cash to purchase of raw materials and so on.
 Rate of stock turnover.
There is an inverse co-relationship between the question of working capital
and the velocity or speed with which the sales are affected. A firm having a high
rate of stock turnover will needs lower amount of working capital as compared to
a firm having a low rate of turnover.
 Season Variation
In certain industries raw materials is not available throughout the year.
They have to buy raw materials in bulk during the season to ensure an
uninterrupted flow and process them during the entire year. A huge amount is
thus, blocked in the form of material inventories during such, season, which give
rise to rise to more working capital requirements.
 Credit policy
The credit policy of the concern in its dealing with debtors and creditors
influence considerably the requirement of working capital. A concern that
purchases its requirements on credit and sells its products or services on cash
requires lesser amount of working capital. On the other hand a concern buying its
requirements for cash and allowing credit to its customers, shall need larger
amount of working capital as very huge amount of funds are bound to be tied up
in debtors or bills receivable
 Business cycle

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 In period of boom ,when the business is prosperous, there is need for large
amount of working capital due to rise in sales, rise in prices , optimistic expansion
of business, etc. On the contrary in time of depression, the business contracts ,
sales decline, difficulties are faced in collection from debtor and the firm may
have a large amount of working capital.
 Rate of growth of business
The working capital requirements of a concern increase with the growth
and expansion of its business activities. Although, it is difficult to determine the
relationship between the growth in the volume of the business and the growth in
the volume of business and the growth in the working capital of a business , yet
it may be concluded that for normal rate of the expansion in the volume of the
business.
 Earning capacity and dividend policy
Some firms have more capacity than other due to quality of their products,
monopoly conditions, etc. Such firms may cash profits from operation and
contribute to their working capital. The dividend policy also affects the requirement
of working capital. A firm maintaining a steady high rate of cash
divided irrespective of its profits needs working capital than the firm that
retains larger part of its profits and does not pay so high rate of cash dividend.
 Price level changes:
Changes in the price level also affect the working capital requirements.
Generally the raising price will require the firm to maintain large amount of
working capital as more funds will be require to maintain the same current assets.
The effect of rising price may be different or different firms. Some firms may be
affected much some others may not be affected at all by the rise in the price.

WORKING CAPITAL FINANCING POLICIES

The working capital financing policy may have a significant impact on the
profitability and liquidity position of the firm. The mix of short term and long term
sources of working capital financing varies in each approach and consequently. he
impact of cash of the three approaches on the profitability and liquidity position
of the business also varies. The policies of working capital financing can be
categorized as;

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  Matching Approach
This is the conventional approach to financing. As per this approach, the
duration of requirement of funds should be matched with duration of the sources
of financing . While the fixed asset and permanent current assets must be
financed by long-term sources of finance, the temporary current asset alone
should be financed by short-term sources of funds. This approach follows the
middle path of working capital financing
 Conservative Approach
This approach favors maximum on long-term sources of financing. A firms
following this approach would finance not only its fixed assets and its permanent
working capital from long-term finance its temporary working capital requirements
from long-term sources. The conservative approach is termed as low profitability
and high liquidity approach to working capital financing
 Aggressive Approach
Aggressive approach to working capital financing favor maximum reliance
on short-term sources for working capital financing. The working capital financing
policy of a firm is said to be aggressive if it finance a part of its permanent
working capital requirements from short-term sources. This is a high profitability
and low liquidity approach to working capital financing.

TOOLS FOR WORKING CAPITAL MANAGEMENT ANALYSIS:

Ratio analysis
Trend analysis
1) Ratio analysis
Ratios are calculated based on the financial statement like profit and loss
account and balance sheet. The ratios are
a) Liquidity ratios
b) Profitability ratios
a) Liquidity ratios
Liquidity ratios are calculated to measure the firm’s ability to meet its
current obligations. The solvency position is indicated by the liquidity ratios. The
solvency position is very critical for the firm.

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 b) Profitability ratios
A majority of the discussion in the financial performance revolves around
the concept of profit maximization and wealth maximization. Profits are always
essential. But it would not be appropriate to go ahead with the discussion of
profit maximization until the concept of profit is properly understood.
2) Trend analysis:
Trend analysis indicates the direction of changes. The trend analysis is
advocated to be studies in light of the following to factors;
 The rate of fixed expansion or secular trend in the growth in the
business and
 The general price level.
Any increases in sale statement may be because of two reasons, one may
be the increases in volume of business and another is the variation in the prices
of the goods or services. For trend analysis, the uses of index number is generally
advocated. The procedure followed is to assign the number hundred to the items
of each base year and to calculate the percentage changes in each item of the
other years in relation to the base year. This is known as Trend Percentage
Method.

EXCESS OR INADEQUATE WORKING CAPITAL:

Every business concern should have adequate amount of working capital to run
its business operation. It should have neither redundant nor excess working capital nor
inadequate nor shortages of working capital. Both excess as well as short working capital
positions are bad for any business.
Disadvantages of excess working capital:
Excessive working capital means an ideal fund which earns no profit for the
firm and business cannot earn the required rate of return on its investment
 Redundant working capital leads to unnecessary purchancing and
accumulation of inventories.
 Excessive working capital implies excessive debtors and defective
credit policy which causes higher incidence of bad debts.
 It may reduce the overall efficiency of the business.

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  Due to lower rate of return on investments, the values of shares
may also fall.
 The redundant working capital gives rise to speculative transactions.
Disadvantage of inadequate working capital:
Every business need some amount of working capital. The need for working
capital arise due to the time gap between purchases of the materials and
production ; production and sales; and realization of cash. thus working capital is
needed for the following purposes:
 To pay wages and salaries.
 To provide credit facilities to the customers.
 To meet the selling cost of packing, advertising etc.
 To maintain the inventories of the raw material, work-in- progress,
stores and spares and finished stock.
By the studying the working capital in a business, one has to study the
business under varying circumstances such as a new concern requires as loat of
funds to meet its initial requirements such as promotion and formation etc. . These
expenses are called preliminary expenses and are capitalized. The amount needed
for working capital depends upon the sizes of the company and ambitions of its
promoters. Greater the sizes of the business unit , generally larger can be
requirements of the working capital. The requirements of the working capital goes
on increasing with the growth and expensing of the business till it gain maturity
the amount of working capital required is called normal working capital.

ISSUE IN WORKING CAPITAL MANAGEMENT:

There are many aspects of working capital management which includes
 Time
Working capital management requires much of the time. Time is devoted
to working capital problem, it is necessary to manage working capital in the best
possible way to get the maximum benefits
 Investment
Working capital represents a larger portion of the total investment in
assets. Actions should be taken to curtail unnecessary in current assets.
 Critically

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 Working capital management has great significance for all firms but it is
very critical for small firms. Investment in current asset represents a very
significant portion of the total investment in assets .A small firms may not have
much investments in fixed assets, but it has to inverts in current assets.
 Growth
The need for working capital is directly related to the firm’s growth. There
is a relationship between the firms growth and its working capital needs . As the
sale grow, the firm‘s need to invest more in inventories and debtors. These
needs become very frequent and fast when the sales grow continuously .
Continuous growth in the sales may also require additional investments in fixed
assets.
All precautions should be taken for the efficient and effective management
of working capital. To decide the levels and financing of current assets, the risk-
return implication must be evaluated

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1.2. INDUSTRY PROFILE: DIARY INDUSTRY
Industry is one of the major constituents of the comprehensive term
‘Business’ which may be defined as the regular or current production or purchase
and sale of goods under taken with the main object of earning profit and
acquiring wealth through the satisfaction of human wants, and in the terms of
Economics, business may be described as a programmed of inputs( investment)
and out put (return) aiming at the maximization of out put with lowest input .
Industry as a part of business activity is concerned with the raising, producing,
processing or fabricating products or services which may be used either by the
final consumers or by other industrial units for further production.
A diary industry depend on milk. Milk is raw materials for diary product.
Milk is the ‘nature’s perfect food’ for all ages . It has almost all the vital
nutrients needed for growth and well being of the human body. Milk is the
richest sources of calcium and essential amino acids which is good for bone
formation. It is particularly beneficial for people recovering from sickness, children
sport person, aged ones women etc.

HISTORY
The Kerala Co-operative Milk Marketing federation (KCMMK) or
Milma was registered as a co-operative society in 1980 with its head office in
Thiruvananthapuram. It was brought under the operation od programmer of the
National Diary Development Board . In 1983, it took over the production and
milk marketing facilities under the Kerala Livestock and Milk Marketing Board .
The board was later renamed to Kerala Livestock Development Board . The credit
for this large goes to Kerala Co-operate milk marketing federation and its three
Regional Co-operative Milk procedures Unions, for the creation of a procurement
and marketing network, introduction of quality products, customer friendly
policies, modern managent and most important of all the integrated co-operative
participation by the famers. Kerala Co-operative Milk Marketing Federation is a
testimony to the success of co-operative development in the hands of the people
themselves.

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DIARY SECTORS IN INDIA
India has been development the dairy industry plays an important role in
the social-economic. The word ‘Dairy’ was derived from the Middle English
word, ‘dearie’ meaning female servant. The dairy industry in India is instrumental
by providing cheap nutritional food to the vast population of India and also
generate huge employment opportunities for the people in rural places. The
departmental of animal Husbandry, Dairying and Fisheries which falls under the
Central Ministry of Agriculture, is responsible for all the matters relating to diary
development in the country. This department provides advice to the state
government and union Territories in formulating programs and policies for diary
development. It also looks after all the matters relating to production and
presentation of livestock farms.
Dairy activities have traditionally been integral to India’s rural economy. The
country is the world’s largest producer of diary products and also their largest
consumer. Almost its entire produce is consumed in the domestic market and the
country is neither an importer nor an exporter, except in a marginal sense.
Despite being the world’s largest producer, the diary sector is by an large in the
primitive stage of development and modernization.
Though India may boast of one of the world’s largest cattle population, the
average output of an Indian cow is significantly lower compared to its American
counterpart . More over, the sector is plagued with various other impediments like
shortage of fodder, its poor quality, dismal transportation facilities and poorly
developed cold chain infrastructure. As a result, the supply side lacks in elasticity
that is expected of it. On the demand side, the situation is buoyant with the
sustained growth of the Indian economy and a consequent rise in the purchasing
power during the last two decades, more and more people today are able to
afford milk and various other diary products.
In this trend is expected to continue with the sector experiencing a robust
growth in demand in the short and medium run. If the impediments in the way
of growth and development are left unaddressed, India is likely to face a various
supply demand mismatch and its may gradually turn into a substantial importer of
milk and milk products.
Fortunately, the government and other stakeholders seem to be alive to the
situation and efforts to increase milk production have been intensified. Transformation in
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the sector are being induced by factors like newfound interest on the part of the
organized sector, new markets, easy credit facilities, diary friendly policies by the
government, etc. Diary now evolving from just an agrarian way of life to a
professionally managed industry the Indian diary industry
India is not only the largest producer of milk but also the largest
consumer of milk. The policy approach should be to create growth path for the
diary industry. Currently, milk constitutes 15 per cent of the average house holds
expenditure on food. However, with increasing urbanization and growing GDP,
income rises are leading to fall in share of food as percentage of total
expenditure.
There are challenges to diary in India, mostly in the forms of rapid
urbanization, low interest of younger generation in diary farming and increasing
real estate price that leads to loss of farm lands. Due to these factors, some
diary regions may come under pressure. The preventive measures would be to
implement changes in diary production to make farming system more competitive.
In addition, there is a need to develop infrastructure to enhance production,
followed by investment at farm level and improving feeding methods. More
importantly, Government could consider giving relaxation in tax on famer’s
income from milk to encourage him to invest in dairy.
The study provides a detailed evalution of the diary market landscape in
kerala, covering the current, historical and future trends for milk production, milk
production by cattle , milk procurement price etc . The report also offers SWOT,
value chain and procurement price, etc. .The report also offers SWOT, value chain
and porter’s Five Forces analysis of Kerala diary market along with market
segmentation by product type and an analysis of the competitive landscape . The
study based on both desk research and multiple waves of qualities primary
research . This report is a must read for entrepreneurs, investors , research’s,
consultants, business strategists, and aii those who have any kind of stake or are
planning to foray into the Kerala diary market in any manner.
Our latest report , titled “Diary Industry in Kerala: Market size, Growth,
Prices, Segments, Cooperatives, Private diaries,Procutment and distribution”, offers
an in-depth analysis of the Kerala diary market. In 2016, The milk production in
Kerala reached a volume of 3.5 Billion Liters, growing at a CAGR of 5.6%
during 2010-2016. The state currently represents the twelfth largest diary market
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in India. The milk production in Kerala mainly consist of cow milk and buffalo
milk. The report’s analysis concludes that cow milk dominates the total milk
dominates the total milk production, accounting for around 98% of the total
share. Accounting to the report, the Kerala diary market is further expected to
grow at a cigar of around 6% during 2017-2021, reaching a volume of 4.6
Billion Liters in 2021.

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1.3. COMPANY PROFILE
KERALA STATE DAIRY CO-OPERATIVE SOCIETY Ltd
Diary co-operative sector has made remarkable progress in Kerala. Different
types co-operatives societies are organized and they are now operating in all
areas of human activity. Banking, agriculture, industry, dairying etc are some of
the fields where co-operatives are operating successfully in Kerala. Even in the
fields of education, public health and transport, co-operatives play a significant
role in Kerala.
In the field of diary, co-operative have made remarkable progress in
Kerala during the last decade. The first diary co-operative in Kerala was the
Palakkad co-operative Milk Supply Union Ltd, which was registered in 1949.
After the formation of this society, a number of diary co-operatives were formed
in different parts of Kerala. By 1962 there were 50 diary co-operative in Kerala.
The diary development activities have grown at a faster rate in western
region than other regions. The diary cooperative sector in state has benefited by
government of India schemes.

HISTORY OF THE ORGANIZATION:

The Kerala Co-operative Milk Marketing federation (KCMMK) or
Milma was registered as a co-operative society in 1980 with its head office in
Thiruvananthapuram. It was brought under the operation od programmer of the
National Diary Development Board . In 1983, it took over the production and
milk marketing facilities under the Kerala Livestock and Milk Marketing board
participation by the famers.
Kerala Co-operative Milk Marketing The board was later renamed to
Kerala Livestock Development Board . The credit for this large goes to Kerala
Co-operate milk marketing federation and its three Regional Co-operative Milk
procedures Unions, for the creation of a procurement and marketing network,
introduction of quality products, customer friendly policies, modern management
and most important of all the integrated co-operative Federation is a testimony to
the success of co-operative development in the hands of the people themselves.
Thiruvananthapuram diary is the first organization to get the ISO 9001:2000
certificate in Kerala . Moreover the Thiruvananthapuram diary is the largest diary
in the state . The annual turnover is 362.62 cores. Now the management is taking
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serious measures to increase its market shares and progressive steps to face
completion, which is increasing day by day.

VISION:
“To ensure prosperity through Milk –be it for the producers or the
customers”

MISION:
‘Your health is our concern’

OBJECTIVE
 For the purchases of raw materials , components and spares.
 To pay wages and salaries.
 To meet the selling costs as packing, advertising etc.
 To provide credit facilities to the customers.
 To maintain the inventories of raw materials, working in progress,
stores and spares and finished stock.
 To incur day to day expense and overhead costs such as fuel,
power and office expenses etc.
 To assume any responsibility or functions when asked to do so, on
behalf of government towards the advancement of dairying.
 To practice and promote a high standard objectivity, scientific
expertise and technical proficiency.
 To have a standardized trade norms and business ethics across the
companies.
 To provide assured year round market and stable price to the diary
farmers for their produce.

PRODUCTION SYSTEM
The production system of diary industry provide the three different system
namely;
 Rural smaller dairying
 Agropatoral dairying

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  Landless Peri-urban dairying
 Rural smaller dairying:
Dairying is often part of mixed farming system in which manure is used
for cash crop production. Diary animals are fed on grass, crop residues and
cultivated fodder . Supplementary feeding is practiced only when feasible.
 Agropatoral dairying:
These system are land-based and milk is often the important subsistence
item. Diary production is generally associated with cropping, but nomadic
pastoralists practice tittle or no agriculture and roam the land in search of grazing
grounds and water.
 Landless Per-urban dairying
This is a purely market- oriented production system located within and
close to the boundaries of cities. Peri-urban dairy produ cers benefit from their
closeness to markets, but their production is based on purchased inputs and may
encounter problem of feed supply and waste disposal.

GOVERNMENT BODIES OF MILMA

An efficient organization is essentially for the success of a business enterprise.
The defining of duties and fixing responsibilities of all employees in the organization is
essential. An effective organization system ensures proper supervision and control.
Organization is the mechanism which determines the relationship of various persons.
With the help a well-defined management is able to perform the functions of direction,
coronation and control. An ill-defined organization plan will not enable the management
to make an effective exhibition of its managerial talents to release business goals. An
organizational study was conducted in Milma, Trivandrum diary to known the real
functioning of an organization.

BOARD OF DIRECTORS
The farmer members of the Board are elected for a five-year term from among
the Presidents of the affiliated village level Anand Pattern Co-op. Societies. The very
fact that a majority of the Board members are elected farmers ensures that the business
policies of the Union are always governed with the interests of dairy farmers foremost in
mind. In addition, the fact that the assets of the Union including dairy plants, chilling

18
plants and the expertise and experience of its human resources are under the control of
the farmer dominated board, ensures that the instruments of development are firmly in
the hands of the beneficiary farmers. Thus MRCMPU Ltd. is at the same time, both a
business enterprise as well as a development institution, and is owned by a large body of
farmers spread throughout the rural hinterland of North Kerala.

PRODUCT PROFILE
Milma is engaged in the production and marketing of all dairy items. There is
vast variety of products in Milma. Basically there are pasteurized milk, sterilized
flavored skimmed milk items Pasteurized milk produce vitamin A enriched milk comes
in these varieties, sterilized flavored skimmed milk produce sweetened with cane sugar
and flavored with cardamom
1. Pasteurized milk items
 Fat free milk
 Double toned milk
 Toned milk
 Rich plus milk
 Standardized milk
 Conveniently packed milk

2. Sterilized flavored skimmed milk

 Lassi
 Ghee
 Butter
 Ice cream
 Cream roll
 Peda
 Milma sip ups
 Curd
 Sambharam

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DEPARTMENTAL PROFILE
FINANCE AND ACCOUNTS DEPARTMENT
It is centralized department situated in the dairy and headed by assistant financial
manager. The departmental deal with finanacial ad accounting activities of the dairy.
Financial manager has the supreme authority of the finance. He is responsible for the
financial matter as well as border of directors. There is a deputy finance manager to
assist financial manager duties. The main function of financial manager is to make
decision regarding utilization of funds. The major sources of finance are from
government and from members societies in the form of shares Depreciation is
calculating on the bases of diminishing balance method application of standard costing
principals are only limited. There is no formal cost volume profit analysis in the
organization. Budget is preparing early and it is being prepare for each and every item
and finally a master is also prepared by finance manager in the cooperation with
managing director.

FUNCTION OF FINANCE DEPARTMENT:

 Accessing the financial position
 Supervision of all financial accounts
 Watching to bank operators
 Proposal of utilization of funds
 Preparing budgets
 Preparing profit and loss account and balance sheet
 Preparing of yearly reports
SOURCES OF FINANCE
 Share capital from member
 Share capital contribution from the government
 Fees from members
 Borrowing from financial institutions
 Grands and loans from government

ADMINISTRATION DEPARTMENT
Administration department is a head by administration officer. There are two
deputy administration officers too assist him and there is an assistant, two senior

20
superintendent, some junior superintendent and clerks for the successful running of the
department.
All staff of the organization come under this department. This department deals
with matters related to salary, wages, bonus and allowances of organizations. The major
drawbacks of this departments is that adequate persons are not available and it affects
smooth running all department and the entire organization. This department maintains
employees profile, education records and carrier profile and payroll data

FUNCTIONS OF ADMINISTRATION DEPARTMENT:

 Controlling person in the organization
 Access the vaccines in the organization
 Overall administration of the organization
 Providing training the works
 Directing the human resource of the organization
 Analyzing performance with coordination of the other department
 Fixing of salary and wages
 Promotion of employees and work
 Demotion and employees of work
 Direct, supervise and control depot managers and regional managers
 Providing incentives and bonus to workers and employees

MARKETING DEPARTMENT
Marketing managers is the head of the department. Three deputy marketing
managers appointed for assisting him. One deputy marketing manager deals with general
aspects of marketing of product and services and other dealing with production and
technical aspects. Role of marketing manager is to implements the jobs allocated him by
the top executive

FUNCTIONS
 Market analysis
 New product development
 Giving intent
 Procurement of products by Milma

21
  Distribution of goods
 Sales promotion work
 Implementation of product package scheme
 Implementation of demand oriented production program

PROBLEM OF MARKETING DEPARTMENT

 Low price
The product of Milma are meant for all class of customers, but the price is
affordable by low class customers
 Lack of marketing research
Milma is not adopting any marketing research. Scarcity of staff is the main
reason for not conducting marketing research
 Effective advertisement
The advertisement is viral throughout public
 Service
MILMA is giving no proper training to the sales people have direct contact with
customer. This affects the overall sales.

22
1.4. REVIEW OF LITERATURE:

 According to Horne (2000) working capital management is the

Administration of current asset in the name of cash, marketable securities
,receivables inventories.
 According to Block and Hirst (1992) working capital management
involves the financing and management of the current asset of the firm.
 According to Weston to Brigham “Working capital to a firms
investments in short term asset , cash short term securities, accounts receivables
and inventories.
 Batra Gurdeep Singh (1999) gives an overview of working capital
and its determination. According to the author the management can use ratio
analysis of working capital as a means of checking upon the efficiency of
working capital is being used in the enterprises.
 According to Ganesan (2007) selected telecommunition equipment
industry to study the effectiveness of working capital management. The study
included for his research paper annual financial statement of 349
telecommunication equipment companies covering the period 2001 to 2007. The
statistical used to include the correlation, regression analysis and analysis of
variance (ANOVA).
 According to Steven.A.Lifind , There may be a slow trend where
firms are switching their focus from the uncertainty of the profit and loss
statement to the balance sheet. Cooperation for placing an emphasis on the
strength of their balance sheet, specifically looking at cash the corresponding
liquidity.
 According to Vanhorne (1969) Working capital management as an
area largely lacking in theoretical perspective , attempted to develop a frame work
in items of probabilistic cash budget for evaluating decisions concerning the
level of liquid asset and the maturity composition of debt involving risk return
trade-off.
 According to Saswstachatterjee (2010) focused on the importance of
the fixed and current asset in the successful running of any organization. It
impacts on the profitability liquidity. There have been a phenomenon observed in

23
the business that most of the companies increase the margin for the profits and
losses because this act shrinks the size of working capital relative to sales.
 According to Lambrix and Singhvi (1979) adopting the working
capital cycle approach to the working capital management also suggested that
investment in working capital could be optimized and cash flow should be
improved by reducing the time frame of the physical flow from receipt of raw
material to shipment of finished goods.
 According to Sagan (1955) perhaps the first theoretical paper on the
theory for working capital management, emphasized the need for management of
working capital accounts and warned that it could vitally affect the health of the
company .He realized the need to build up a theory of working capital
management. They discussed mainly the role and function of money manager
inefficient working capital management.
 According to Mohammad Neab and Noriza (2010) The relationship
between Working Capital Management ( WCM) and performance of firms. For their
analysis they chose the Malaysian listed companies. They administrated the
perspective of market valuation and profitability.

24
 CHAPTER-11
RESEARCH METHODOLOGH

25
 CHAPTER-11
RESEARCH METHODOLOGY
Research methodology is a systematic way to solve problems. It is a
science of studying how research to be carried out. Essentially, the procedures by
which researches go about their work of describing, explaining and predicating
phenomena are called research methodology.

2.1. TITLE OF THE STUDY:

The title of the project is “ A Study on the Working Capital Management at
Milma Trivandrum Diary ” .

2.2. NEED FOR THE STUDY:

The term working capital has several meaning in business and economic
development finance in accounting and financial statements analysis, working
capital is defined as the short term or current asset and current liabilities and in
an indicator of the firm’s ability to meet its short term financial obligations.
Effective working capital management consist applying the methods which remove
the risk and lack of ability in playing short t term commitment in these assets in
the other side planning and controlling current asset and current liability.

2.3. OBJECTIVE OF THE STUDY:

 To analyze the liquidity position of the company.
 To analyze the profitability position of the company.
 To find out the changes in net working capital position of the company.
 To forecast the future working capital requirement of the company.
 To give suggestion based on findings.

2.4. RESEARCH DESIGN:

Analytical research design has been used in this study. In the analytical
research the researcher has the facts or information that are ready available. I
have used profit and loss account, balance sheet and other information provided
by the company and analyze these to make a critical evaluation of the material.

26
2.5. SOURCES OF DATA:
The sources of data in this study is secondary data;
Secondary data:
The secondary data are those already been collected by someone else and
which have been passed through statistical process. Secondary data are collected
from journals, magazines, internet, company records and annual reports. Annual
reports consist of two parts;
 Profit and loss account
 Balance sheet

2.6. TOOLS FOR ANALYSIS:

1) Ratio Analysis:
Ratio analysis is one of the most powerful tools of financial statements. It
is a technique of analysis and interpretation of financial statements.
Liquidity Ratio
Liquidity ratios are calculated to measure the firm’s ability to meet its
current obligations. The solvency position is indicated by the liquidity ratios
Current Ratio
 Liquid Ratio
 Absolute Liquid Ratio

Profitability Ratio
A majority of the discussion in the financial performance revolves around
the concept of profit maximization and wealth maximization.
 Gross profit Ratio
 Net profit Ratio
 Operating profit Ratio .

Schedule of changes in working capital

A statement of working capital is prepared to depict the changes in
working capital. Working capital refers to the excess of current assets over current
liabilities
Increase in current asset =Increase in net working capital
Decrease in current asset =Decrease in net working capital
27
 Increase in current liabilities =Decrease in net working capital
Decrease in current liabilities =Increase in net working capital

Trend Analysis
The trend analysis indicate the direction of changes. The trend analysis is
advocated to be studies in light of the following two factors;
 The rate of fixed expansion or secular trend in the gowth of the
business and
 The general price level.

2.7. PERIOD OF THE STUDY

This period of study is five months. The data were collected, analyzed
and interpreted during the period.

2.8. LIMITATIONS OF THE STUDY

 The analysis of this study is mainly based on the secondary data.
 The study is based on the historical data. So it may be not
reflecting the future.
 The data taken for the analysis is five years. The reliability and
interpretation depends on the information supplied in the form annual reports and
records

28
 CHAPTER –III
DATA ANALYSIS AND
INTERPRETATION

29
 CHAPTER –III

DATA ANALYSIS AND INTERPRETATION

Data analysis and interpretation is the process of assigning meaning to the

collected information determine the conclusion, significance and implications and the
findings. Researchers often find data analysis the most enjoyable part of carrying out in a
research study. Since after all the hardwork and waiting they get a chance to find out the
answers. So analyzing the data and interpretation the result are the “reward” for the
work of collecting the data

3.1 Ratio Analysis

Ratio analysis is one of the most powerful tools of analysis of financial
statements. It aims at making use of quantitative information for decision making. Ratio
analysis is a method of analyzing data to determine the overall financial strength and
weakness of firm

Ratio analysis is the analysis of financial statements with the help of ratio the
relation between two financial data it includes comparison and interpretation of these
ratio and their use for future projection It is the process of establishing and
interpreting various ratios for helping in making various decisions. Ratio analysis
is a method of analyzing data to determine the over all financial strength and
weakness of a firm.

A ratio is the relationship between two financial data. In financial analysis

ratio is used as the basis for evaluating the financial position and performance of
a firm. Ratio analysis is an important and widely used tool for financial
statement.

30
3.1.1 Liquidity Ratio:
The liquidity ratio measures the ability of a firm to meets its short term obligation
and reflect the financial strength or solvency of the firm . The position is very critical
for the firm. It is often indicated by the Indian industry that it has sample sources
available for the long term finance, but very limited sources are available for the
short term finance or to meet working capital requirement.
A) Current Ratio:
Current ratio is the most common ratio for measuring liquidity . It represents the
ratio of current asset and current liabilities the current ratio of firm measures its short
term solvency. Current asset are those , the amount of which can be realized with in a
period of one year . It includes cash at bank, bill receivable, sundry debtors , cash in
hand , prepaid expenses, short term investments, etc. Current liabilities are those amount
which are payable with in the period of one year. Current liabilities are creditors, bill
payable , bank overdraft, outstanding expenses, income tax payable, proposed dividend.
Ideal Norm=2:1

Current ratio = Current asset

Current liabilities

TABLE3.1
TABLE SHOWING CURRENT RATIO FOR THE YEAR ENDING 2012-2016

Year Current Asset Current liability Ratio

2011-2012 96712561.01 48566741.06 1.99
2012-2013 149533533.6 71083561.63 2.10
2013-2014 223155702.7 899868441 2.47
2014-2015 251353956.3 26153706.28 9.61
2015-2016 198432372.6 49340984.74 4.02
Source: Financial statement of Milma in profit and loss and balance sheet

Interpretation:
The current ratio reveals the ability of a company to meets its current
obligation. As per the concentration rule current ratio is 2:1 or more consideration
satisfactory. From the analysis it was found that during the year 2013-2014, 2014-
2015, 2015-2016 of Milam is good as it 2.10,2.47,9.61, and 4.02 respectively. But
during 2012-2013 the current ratio was 1.99 which is below the standard rate.

31
 FIGURE 3.1

FIGURE SHOWING CURRENT RATIO FOR THE YEAR 2011 TO 2016

12

10 9.61

4.02
4

2.47
1.99 2.10
2

0
2012 2013 2014 2015 2016

32
B) Liquid Ratio/ Quick Ratio:
Quick ratio is also called as acid test ratio or liquidity ratio. It is the relationship
between quick assets to current liabilities. It is determined by dividing “quick asset
/current liabilities” The term quick asset refers to current asset which can be converted
into cash immediately. It comprise all current asset expect stock and prepaid expenses.

Ideal Norm = 1:1

Quick ratio = liquid asset

Current liabilities
Liquid Asset = Current Asset -Stock and prepaid

TABLE 3.2
TABLE SHOWING QUICK RATIO FOR THE YEAR 2012 TO 2016

Year Liquid Asset Current liability Ratio

2012 26771958.51 48566741.06 0.55

2013 50407239.05 71083561.63 0.70

2014 9402976.34 899886841.41 0.10

2015 114476677.6 26153706.28 4.37

2016 45592447 49340984.74 0.92

Source: Financial statement Milma in TVM

Interpretation:

Quick ratio established a relation between quick asset and current

liabilities. Generally, a quick ratio of 1:1 is considered satisfactory as a firm can
easily meets all its current liabilities . The quick ratio of the firm is 0.55,0.70,
0.10, 4.37 and in 2016 it is decrease to 0.92 which means the company has
liquid amount to meet the current liabilities.

33
 FIGURE 3.2

FIGURE SHOWING QUICK RATIO FOR THE YEAR 2012 TO 2016

4.5 4.37

3.5

2.5

1.5

0.92
1
0.70
0.55
0.5
0.10
0
2012 2013 2014 2015 2016

34
C) Absolute Liquid Ratio/Cash Position Ratio:
This ratio is obtained by dividing cash and marketable security by current
liabilities. It is also known as cash position ratio. These assets are normally cash, bank
and marketable securities.

Ideal Norm =0.75:1

Absolute Liquidity Ratio = Absolute Liquid Asset
Current Liabilities
Absolute Liquid Assets = Cash +Bank+ Marketable securities

TABLE 3.3
TABLE SHOWING ABSOLUTE LIQUID RATIO FOR THE YEAR 2012 TO
2016

Year Absolute Liquid asset Current Liabilities Ratio

2012 14684458.17 48566741.06 0.30

2013 6945826.77 71083561.63 0.09

2014 36484440.68 89986841.41 0.40

2015 38702284.17 26153706.28 1.47

2016 8079420.99 49340984.74 0.16

Source: Financial statement Milma in TVM

Interpretation:
An absolute liquid ratio of 0.75:1 is considered as satisfaction as a firms
liquidity position can easily pay debtors . The absolute liquidity is less than the
satisfactory level . In 2012&2013 it was 0.30, 2013& 2014 it was 0.09,
2014&2015 it was 0.40, 2015&2016 it was 1.47. It may increase in 2016 it may
decrease 0.16

35
 FIGURE 3.3

FIGURE SHOWING ABSOLUTE LIQUID RATIO FOR THE YEAR 2012 TO

2016

1.6
1.47

1.4

1.2

0.8

0.6

0.40
0.4
0.3

0.2 0.16
0.09

0
2012 2013 2014 2015 2016

36
3.1.2 Probability Ratio:
A business firm is basically a profit earning organization. The income statements
of the firm show the profit earned by the firm during the accounting period. Profits are
always essential. But it would not be appropriate to go ahead with the discussion
of profit maximization until the concept of profit is properly understood.

A) Gross Profit Ratio:

The gross profit ratio plays an important role in two management areas. This ratio
expresses the relationship between gross profit and sales.

Gross Profit Ratio = Gross Profit x100

Net Sales
TABLE NO: 3.4
TABLE SHOWING GROSS PROFIT RATIO FOR THE YEAR 2012 TO 2016

Year Gross profit Sales Ratio

2012 381730202.4 2077405152.50 18.37

2013 506519570.3 2455276833.23 20.62

2014 555055203.5 2715812818.80 20.43

2015 497495616.9 2919643462.90 17.03

2016 531111142 2964174968.43 17.9

Source: Financial statement Milma in TVM

Interpretation:
The gross profit ratio indicates the extent to which may used for in 2012-
2013 it was 18.37, 2013-2014 it may be 20.62 in 2014-2015 20.43 it may be
decrease is 2015&2016 to is be 17.03&17.9

37
 FIGURE 3.4

FIGURE SHOWING GROSS RATIO FOR THE YEAR 2012 TO 2016

25

20.62 20.43
20
18.37
17.9
17.03

15

10

0
2012 2013 2014 2015 2016

Series 1

38
B) Net Profit Ratio:
This ratio is also called the Net Profit to sales as Net Profit Margin Ratio. It is
determined by dividing the net income after tax to the net sales for the period and
measures the profit per rupees of sales.

Net Profit Ratio = Net Profit x 100

Net sales

TABLE 3.5
TABLE SHOWING NET PROFIT RATIO FOR THE YEAR 2012 TO 2016

Year Net profit Sales Ratio

2012 70056733.26 2077405152.50 3.37

2013 50968796.11 2455276833.23 2.07

2014 110494893.54 2715812818.80 4.06

2015 64964904.66 2919643462.90 2.22

2016 101948941.77 2964174968.43 3.43

Source: Financial statement Milma in TVM

Interpretation:
Net profit is used to measure the firms profitability and also indicates the
firm’s capacity to face adverse economic conditions. Here the firm’s in
increasing net loss for the year 2012 to 2015 in the ratio of 3.37, 2.07, 4.06, 2.22
respectively . Then in the year of 2016 the firms is earning net profit 3.43.

39
 FIGURE 3.5

FIGURE SHOWING NET PROFIT RATIO FOR THE YEAR 2012 TO 2016

4.5
4.06
4
3.37 3.43
3.5

2.5 2.22
2.07
2

1.5

0.5

0
2012 2013 2014 2015 2016

40
C) Operating Profit Ratio:
Operating ratio is an indication of the proportion that the cost of sales bears to
sales. Cost of sales include largest cost of goods sold as well as other operating expenses.
It is calculated by dividing the total operating cost by net sales. Total operating expenses
include all costs like administration, selling and distribution expenses etc.

Operating Profit Ratio = Operating profit x100

Net Sales

TABLE 3.6
TABLE SHOWING OPERATING PROFIT RATIO FOR THE YEAR 2012 TO
2016

Year Operating profit Sales Ratio

2012 1850329359 2077405152.50 1.69

2013 2150637997 2455276833.23 87.59

2014 2343961179 2715812818.80 86.30

2015 2647335436 2919643462.90 90.67

2016 2650586070 2964174968.43 89.42

Source: Financial statement Milma in TVM

Interpretation:
The operating profit ratio shows an operating efficiency of a firm . In
2013 it may be increased in 87.59, 2014 it was decreased in 86.30. In 2015 it
may be increase in 90.67 and in 2016 it may be decrease in 89.42.

41
 FIGURE 3.6

FIGURE SHOWING OPERATING PROFIT RATIO FOR THE YEAR 2012 TO

2016

100
90.67 89.42
90 87.59 86.30

80

70

60

50

40

30

20

10
1.69
0
2012 2013 2014 2015 2016

42
3.2. SCHEDULE OF CHANGES IN WORKING CAPITAL
This schedule is prepared with the help of only current asset and current
liabilities. A working capital is prepared only from accounts appearing in the balance
sheet A statement of working capital is prepared to depict the changes in working capital.

3.2.1. Scheduled of changes in working capital for the year 2012 to 2013
The schedule of changes in working capital for the year 2012 to 2013 is
calculated and shown below.
TABLE NO: 3.7
SCHEDULED OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2012
TO 2013

Particulars 2012 2013 Increase Decrease

Current
Assets

Cash and Bank 14684458.17 6945826.77 7738631.4

Debtors 12087500.34 43461412.28 31373911.94

Closing Stock 13145136.23 10298527.13 2846609.1

Total 39917094.74 60705766.18 20788671.44

Current
liability

creditors 48566741.06 71083561.63 22516820.57

Total 48566741.06 71083561.63

Working
capital 86499646.32 10377795.45
(A-B)

Net Increase in
1728149.13 1728149.13
working capital

Total 10377795.45 10377795.45

Source: Computed Data

Interpretation:

43
 In 2012-2013 the current assets items like cash bank, closing stock, is
increased and debtors are decreased. Current liabilities like creditors are decreased.
This shows a increase in net working capital of Rs 178149.13 cores. This a
favorable net working capital position for the organization .

44
3.2.2. Scheduled of changes in working capital for the year 2013 to 2014
The schedule of changes in working capital for the year 2013 to 2014 is
calculated and shown below.

TABLE NO: 3.8

SCHEDULED OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2013
TO 2014

Particular 2013 2014 Increase Decrease

Current Assets

Cash and Bank 6945826.77 57545322.72 3297386.09

Debtors 43461412.28 3648440.68 14083910.44

Closing stock 10298527.13 15544348.27 5245821.14

Total 60705766.18 76738111.67 16032345.49

Current liability

Creditors 71083561.63 89986841.41 18903279.78

Total 71083561.63 89986841.41

Working
10377795.45 13248729.74
Capital(A-B)

Net increase in
2870934.29 2870934.29
working capital

Total 13248729.74 13248729.74

Source: Computed Data

Interpretation:
In 2013-2014 the current asset items like cash bank is increased and
debtors, closing stock is decreased . Current liabilities like creditors were decreased.
This shows a increase in net working capital of Rs 2870934.29 cores . This a
favorable net working capital position for the organization

45
3.2.3. Scheduled of changes in working capital for the year 2014 to 2015
The schedule of changes in working capital for the year 2014 to 2015 is
calculated and shown below.

TABLE NO: 3.9

SCHEDULED OF CHANGES IN WORKING CAPITAL FOR THE YEAR 2014
TO 2015

Particular 2014 2015 Increase Decrease

Current Assets

Cash and Bank 36484440.68 38702284.17 2217843.49

Debtors 57545322.72 75774393.33 18229070.67

Closing Stock 15544348.27 34271386.64 18727038.37

Total 109574111.7 148748064.2

Current liability

creditors 89986841.41 26153706.28 63833135.13

Total 89986841.41 26153706.28

Working capital
19587270.29 122594357.9
(A-B)

Net Increase in
103007087.6 103007087.6
Working Capital

Total 122594357..9 122594357.9

Source: Computed Data

Interpretation:
In 2014-2015 the current asset items like cash & bank , debtors , closing
stock is increased. This shows a net decrease in working capital of Rs
103007087.6 cores .This a favorable net working capital position for the
organization .

46
3.2.4. Scheduled of changes in working capital for the year 2015 to 2016
The schedule of changes in working capital for the year 2015to 2016 is calculated
and shown below.

TABLE NO: 3.10

SCHEDULED OF CHANGES IN WORKING CAPITAL FOR YEAR 2015-
2016

Particulars 2015 2016 Increase Decrease

Current Asset

Cash & Bank 38702284.17 8079420.99 30622863.18

Debtors 75774393.39 37513029.01 38261364.38

Closing Stock 34271386.64 20320543.16 13950483.48

Total 148748064.2 65912993.16

Current
Liability

Creditors 26153706.28 49340984.74 231887278.46

Total 26153706.28 49340984.74

Working
122594357.9 16572008.42
capital (A-B)

Net decrease in
106022349.5 106022349.5
capital

Total 122594357.9 122594357.9

Source: Computed Data

Interpretation:
In 2015-2016 the current asset items like cash & bank , debtors, closing stock
can be increased . current liabilities like creditors can be decreased. This shows a
net decreased in working capital of Rs 106022349.5 . This is favorable in net
working capital position for the organization .

47
3.3. TREND ANALYSIS
Trend analysis of time series or trend analysis is a statistical device which
can be used to understand, interpret and evaluate change in economic phenomena
over time with time hope of more correctly anticipating the course of future
events. Any increase in sales statement may because of two reasons, one may be
the increase in volume of business and another is variation in price of the goods
or services. For trend analysis, the use of index number hundred to the items of
each base year and to calculate percentage changes in each item of the other
years in relation to the base year. This is known as Trend Percentage Method.
The trend analysis indicates the direction of changes. The trend analysis is advocated to
be studies in light of the following two factors
 The rate of fixed expansion or secular trend in the growth of business.
 The general price level.
Any increase in sales statement may be because of two reasons, one may be the
increase in volume of business and another is the variation in prices of the goods
or service, For trend analysis, the use of index number is generally advocated .
The procedure followed is to assign the number hundred to items of each base
year and to calculate percentage changes in each items of the other year in
relation to the base year. This is known as trend percentage method
TABLE 3.11

TREND OF WORKING CAPITAL OF MILMA DURING THE YEAR 2013 TO

2017

Year Working capital X=t-2015 XY X²

2013 86496.32 -2 -172992.64 4
2014 10377795.45 -1 -1037795.45 1
2015 19587270.29 0 0 0
2016 16572008.42 1 122594357.91 1
2017 122594357.9 2 33144016.84 4

∑𝒚 ∑𝒙𝒚
Total ∑𝒙 = 𝟎 ∑ 𝒙² = 𝟏𝟎
= 𝟏𝟔𝟗𝟐𝟏𝟕𝟗𝟐𝟖. 𝟒 = 𝟏𝟓𝟒𝟓𝟐𝟕𝟓𝟖𝟔. 𝟕

Source: Computed Data

48
The straight-line trend is given using the equation:

Y=a+bx

a=∑y

b=∑xy

∑x²

a=169217928.4

a=33843585.68

b= 154527586.7

10

b=15452758.67

The equation of straight line trend is

Y=a+bx

Y=33843585.68+15452758.67x

The trend values are obtained by putting various values for x in the equation.

When x=2(in the year 2017)

Y=33843585.68+15452758.67(2)

Y=33843585.68+30905517.34

Y=64749103.02

When x=3(in the year 2018)

Y=33843585.68+15452758.67(3)

Y=33843585.68+46358276.01

Y=80201861.69

When x=4 (in the year 2019)

Y=33843585.68+15452758.67

Y=33843585.68+6181034.68

49
Y=95654620.36

When x=5(in the 2020)

Y=33843585.68+15452758.67(5)

Y=33843585.68+77263793.35

Y=111107379

Trend projection table of working capital for the year 2017, 2018 &2019

Year 2018 2019 2020

Working capital 64749103.02 95654620.36 111107379

Interpretation:

The trend for the working capital for the future year shows an increasing trend.

50
 CHAPTER-1V

FINDINGS, SUGGESTIONS AND CONCLUSION

51
 CHAPTER-1V
FINDINGS, SUGGESTIONS AND CONCLUSION
4.1. FINDINGS

 The current ratio shows a fluctuating trend .An ideal current ratio is
2:1 .The lowest current ratio was 1.99 in the year 2013 and the highest current
ratio was 9.61 in 2014 and in 2017 in the current ratio was 4.02 . It shows that
the liquidity position of the company is not satisfactory and also the company
does not have the ability to pay its current obligations in time.

 The standard norm fixed for quick ratio is 1:1. In 2015 the quick
ratio of the company is 0.10 and in 2016 it increased to 4.37. This shows the
company liquidity position is satisfactory.

 The standard norm of absolute liquid ratio is 0.75:1.In 2014 the

ratio was 0.09 and the highest absolute liquid ratio was 1.47 in 2016 and in
2015 it was 0.40. so the absolute liquid ratio of the company is not satisfactory.
This shows the company’s financial position is good.

 The gross profit ratio of MILMA was fluctuating over years. In

2013, the firms yield a gross profit of 18.37 and the highest gross profit ratio was
20.62 in 2014. Thus it is found that the gross profit is in the satisfactory level.

 The net profit ratio was fluctuating over years . In the year
2012,2013,2014,2015,2016. In 2014 the firm is earning a net profit ratio of 4.06.
Thus it is found that the net profit ratio is in the satisfactory level in the year
2015 and it indicates the firm is earning profit in the year 2015 .

 The operating profit ratio was fluctuating over years . In 2016 the
firms yields a highest operating profit ratio was 90.67 and the lowest operating
profit ratio was 1.69 in the year 2013. This shows the operating efficiency of the
company is decreased in the year 2013.

52
  working capital position of the company. While tracing it is found
that the net working capital decrease in 2014 and increased in 2012,2013,2015
and 2016.

 The trend for the year 2013-2017 shows an increasing trend in

working capital.

4.2. SUGGESTIONS
 The current ratio of the company for the last year is less than 2:1,
which shows that the liquidity position of the company is not satisfactory and it
also shows that the company is not having the ability to pay its current
obligations in time. The company can adopt various measures to increases the
current assets and decreases the current liabilities which will increase of current
ratio.
 It is less than 0.75:1. So the company can concentrate in increasing
cash and bank balance to improve absolute The absolute liquid ratio of the
company for the last five year liquidty position and financial position of the
company.
 The net profit ratio of MILMA was fluctuating over years. The
company is incurring net profit for the years 2012,2013,2015&2016 .In 2014 the
company net profit ratio of 4.06. The company wants to adopt various measures
to increase net profit by reducing the indirect expenses of the company.
 The operating profit ratio was fluctuating over years. In 2011 the
firm yields a lowerst operating profit ratio of 1.69. Thus it shows the operating
efficiency of the firm is not satisfactory. So the company can increase the
operating profit by way of reducing the office and administrative expenses in
future years.
 Schedule of changes in working capital traces the change of net
working capital position of the company. The company may use its current assets
in efficient manner in order to increase the net working capital for future working
capital requirements.

53
  The company is liberal or inefficient in its collection of debts. They
can adopt more sufficient methods and techniques should be adopted for its debt
collection.

4.3. CONCLUSION
Working capital plays an important role in the day to day activities of a
business enterprise. The working capital management intimately links the
functioning of every department in the business concern. If working capital is
mismanaged, it may affect the existence of the business itself . Working capital
refers to that part of firm’s capital which is required for financing short term or
current assets such as cash, marketable securities, debtors and inventories.
The management of working capital may have both negative and positive
impact of the firm’s profitability, which in turn, negative and positive impact on
the shareholders wealth. The working capital facilities not only the utilization of
capacities created by fixed capital, but also often account for a major portion of
total investment in business enterprises.
Working capital management is important part in firm financial management
decision. The ptimal of working capital management could be achieved by firm
that manage the tradeoffs between profitability and liquidity. The fficient
management of working capital plays a crucial role in the successful functioning
of a firm .
Working capital management policies of a firm has a great impact on its
profitability, liquidity and structural health of the organization. A firm is required
to maintain a balance between liquidity and profitability while conducting its day
to day operations. The presents study was under taken to examine various aspects
of working capital management which integrated internal, intermediate and
organization based financial and analytical measurements.

54
BIBLIOGRAPHY

55
 Bibliography

 Agarwal, N.K (2003) Management of working capital

 Publishers Pvt, Ltd, New Delhi
 Agarwal, N.P (1993) Analysis of Financial Statement, National
 Publishers House, New Delhi
 Anil kumar (2000): Working Capital Management of Munjal shows
 Management, Prentice Hall of India, Pvt ,Ltd, NewDelhi
 Cumen, Ward S (1987):Principles of Financial Management New york
 www.lendvo.com
 www.books.google.co.in
 www.marketinvoice.com

56
APPENDIX

57
 APPENDIX

BALANCESHEET AS AT 31.03.2011 TO 31.03.2012

Liabilities Amount

Share Capital 198000.00

Reserve & Surplus 101980423.97
Grants 21775633.91
Secured Loans 19932472.00
Sundry Creditors 48566741.06
Deposits 9752951.89
Current Accounts 1054171.67
Provisions 37338764.95
Inter Division Accounts -108813873.39
Excess of Income Over Expenditure 70056733.26

Total: 201842019.32
Assets
Fixed Assets 89593597.63
Investments 17719.00
Inventories 49000399.73
Sundry Debtors 12087500.34
Cash& Bank 14684458.17
Other Current Asset 20940202.77
Advances 13165323.50
Deposits 2352818.18

Total: 201842019.32

58
 BALANCESHEET AS AT 31.03.2012 TO 31.03.2013

Liabilities Amount

Share Capital 198000.00

Reserve&Surplus 172037157.23
Grants 21775633.91
Secured Loans 28706815.00
Sundry Creditors 71083561.63
Deposits 11435985.89
Current Accounts 809125.06
Provisions 45282736.86
Inter Division Accounts -137086284.29

Excess of Income over Expenditure 50968796.11

Total: 265211527.40
Assets

Fixed Assets 96924925.82

Investments 17719.00
Inventories 55780259.23
Sundary Debtors 43461412.28
Cash& Bank 6945826.77
Other Current Assets 43346035.27
Advances 16419294.50
Deposits 2316054.53

Total: 265211527.40

59
 BALANCESHEET AS AT 31.03.2013 TO 31.03.2014

Liabilities Amount

Share Capital 198000.00

Reserve&Surplus 223005953.34
Grants 21775633.91
Secured Loans 28558353.00
Sundry Creditors 89986841.41
Deposits 10125617.89
Current Accounts 567966.43
Provisions 50250098.49
Inter Division Accounts -170481007.23

Excess of Income over Expenditure 110494893.54

Total: 364482350.78
Assets

Fixed Assets 131037454.75

Investments 17719.00
Inventories 66544071.59
Sundary Debtors 57545322.72
Cash& Bank 36484440.68
Other Current Assets 62581867.72
Advances 7891812.42
Deposits 2379661.90

Total: 364482350.78

60
 BALANCESHEET AS AT 31.03.2014 TO 31.03.2015

Liabilities Amount

Share Capital 198000.00

Reserve Surplus 333873931.88
Grants 21775633.91
Secured Loans 46093696.00
Sundry Creditors 26153706.28
Deposits 10986231.89
Current Accounts 2341234.09
Provisions 54769731.32
Inter Division Accounts -164488662.60

Excess of Income over Expenditure 64964904.66

Total: 396668407.43
Assets

Fixed Assets 13924505.24

Investments 17719.00
Inventories 63647958.80
Sundary Debtors 75774393.39
Cash& Bank 38702284.17
Other Current Assets 73229319.92
Advances 7857016.02
Deposits 2515210.89

Total: 396668407.43

61
 BALANCESHEET AS AT 31.03.2015 TO 31.03.2016

Liabilities Amount

Share Capital 198000.00

Reserve&Surplus 398838836.54
Grants 21775633.91
Secured Loans 43104539.00
Sundry Creditors 49340984.74
Deposits 12013488.39
Current Accounts 2635250.94
Provisions 65190899.39
Inter Division Accounts -306102690.62

Excess of Income over Expenditure 101948941.77

Total: 388943884.60
Assets

Fixed Assets 184473975.95

Investments 17719.00
Inventories 74859675.63
Sundary Debtors 37213029.01
Cash& Bank 8079420.99
Other Current Assets 77980246.92
Advances 3261025.02
Deposits 2758790.64

Total: 388943884.06

62