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CHAPTER-1
GENERAL INFORMATION
1
COMPANY PROFILE
Name of Organization Gujarat Print Pack Publication Ltd.
Address Gujarat Print Pack Publication Ltd.
308/9 GIDC,
Phase – 2, Dediyasan,
Mehsana-384002
Phone: - (02762) 259714, 259614
Fax: - + 91-2762-254914
Email: [email protected]
Website: -www.gujprintpack.com
Classification Private Limited Company
Class of Industry Small Scale Industry
Establishment Establish in 1983
Exclusive in-charge Mr. O.P. Dhanpal
2
HISTORY
Gujarat Print Pack Publications (GP³) located in Gujarat is India’s leading package
design, printing, packaging and labeling company manufacturing broad range of labels,
corrugated boxes, stickers, printed cartons and providing package design solutions with
wide applications in food industry, beverages industry, cosmetic industry, and
pharmaceutical industry.
GP³ provides innovative package designing and printing solutions vital for corporate
identity. Due to innovative techniques, state of the art manufacturing facility, research &
development, and rigorous quality control measures we have developed an inherent
ability to manufacture a wide range of corrugated box, offset box, printed cartons, duplex
board cartons, multi-colored cartons, embossed cartons, foil stamped cartons, UV coated
cartons, sticker labels, clear sticker labels, card board boxes, holographic labels, thermal
pressure sensitive labels and package design and printing solutions.
Gujarat Print Pack Publications is India’s first printing, packaging, labeling and designing
company to receive ISO 9002 certification, which assure customers of highest quality
products at par with international standards. GP³’s range of printing and packaging
solutions is widely acclaimed for quality and consistency. We are committed to strive
constantly and innovating the entire range of printing, packaging and labeling solutions to
provide exciting and feasible solutions to customers.
Today, we live in a world where millions of products brands compete with one another
for consumer attention. Each product has its own Packaging, Printing & Labeling
requirement, which is sometimes satisfied by standard solutions and at other times,
demand innovations, customizes dissolutions.
GP3---Gujarat Print Pack Publications Limited the company that innovates to succeed.
3
OPINION
M.R.ASHISH PATEL (C.E.O)
Ashish Patel is the CEO of GP3. An innovative printing Technologist himself and
an innovative entrepreneur, he steers the day-to-day operations of the company with his
inspirational leadership and corporate acumen.
A team of professional in Management, Printing, Packaging &Labeling
technologies, Graphic Design, strategizing, conceptualizing, Marketing, etc. from the
second line of command. They are backed by experienced, skilled workmen on the floor.
Human Talent + Global Technology + Superlative Services = Positive Success
Recipe
GP3's expert action force creates micro-precise Packaging solutions for its
clientele. These are value-added further by high-quality graphic design & exclusive,
multifaceted Printing Services (offered as an additional, customized service, exclusively
to GP3's Packaging solutions clients).
Today, GP3 has total employee strength of 200, including 75 skilled Laborers.
And a recruitment drive is on, to meet rising requirements and new technology induction.
Over the years, the company has evolved a truly remarkable way of interactive
functioning, based on a shared vision of entrepreneurial excellence.
4
MISSION
To offer our customers optimal printing & packaging solutions, comparable in quantity
to the best in the world.
To identify & acquire the best technologies in the field, and to keep on par with the
changing global standards through continual technology & knowledge up gradation.
To achieve and maintain a minimum annual growth rate of 25 to 30%
To create & nurture a customer-centric corporate culture, where every business activity
is built around the core of customer satisfaction.
To build one of the industry’s most well-rounded and eminent talent pools, and nurture
it through select HRD methodologies and innovative employee empowerment
practices.
To continuously raise the bar.
To excel, in thought & action, in sum &parts, in each & every aspect of the company.
5
CHELLENGES
If the market place of the 21st century can be characterized by one word, it is: consumer-
driven.
Entertain the consumer. Enthuse the customer. Enthrall the consumer. Enliven the
consumer. Empower the consumer. Brand will have to compete for the consumer’s
attention and indulgence like never before.
This places a heavy responsibility on the shoulders of printing and packaging service
providers, because it is they who are the final link between the consumer & the brand.
They shape the visual connectivity between the two.
Competitive currents will soon turn printing & packaging into a UN usual blend of fine
art and precision technology.
6
ORGANISATION STRUCTURE
7
LIST OF CLIENTS
DirectorDirector
DirectorDirector
CEO CEO
GM Mgmt.GM Mgmt.Factory ManagerFactory Manager
Senior ManagerSenior Manager
CoordinatesCoordinates
Pre-Press Manager
Pre-Press Manager
Mgmt. ExeMgmt. Exe
Designer (Carton /
Corru. Box)
Designer (Carton /
Corru. Box)
Designer (Lables)
Designer (Lables)
H.O.D.H.O.D.
Production Manager
Production Manager
SupervisorSupervisor
WorkersWorkers
Collection in Charge
Collection in Charge
CashierCashier
ClarkeClarke
8
Vadilal Industries Ltd. Havmor Torrent Pharmaceuticals Ltd
Ajanta India Limited Orpat Industries
Godrej (India) Amlcon Parenterals (India) Limited Pharma Dancia
Ranbaxy Intas Pharmaceuticals Ltd Cadila Pharmaceuticals Limited
Laborate Pharmaceuticals India Ltd. Claris Lifesciences Limited Lincoln Pharmaceuticals Ltd
Medicamen Biotech Ltd. XS Laboratories Pvt. Ltd Cipla India Limited
Belco Pharma Limited Core Healthcare Limited Pioma Industries
9
Albatross Pharma Jyoti Capsules Bombay Tablet Mfg. Co. Ltd
Alembic Glass Industries Ltd. BASF India Limited Shashi Industries
Shree Gannath Stores Prince Care Rewa
Hindustan Antibiotics Ltd Softel Machines Ltd Indo Gulf Corporation Ltd
Bajaj Sevashram ltd Infar Gracure Pharmaceuticals Ltd
Meghmani Organics Limited Troikaa India limited Parenteral Drugs (India) Limited
Northern Minerals Limited Mat (India) Laboratories (P) Ltd Pee- Medica
Rikon Quartz March Parenterals (India) Ltd Adico Spares Pvt. Ltd
10
Nirma Industries Orgenon India Ltd. United Phosphorous Ltd
Indkus Drugs & Pharma Pvt. Ltd Entod Umiya Agroes
Alkem Ulticare Pesticides India H S Bhargava Pharmacy Pvt. Ltd
Sipra Remedies Pvt. LtdCadbury's
Casper
Nivea
11
CHAPTER-2
RESEARCH METHODOLOGY
INTRODUCTION
Working Capital:-
The life blood of company, as is evident, signified funds required for day-to-day
operations of the firm. The management of working capital assumes great importance
because shortage of working capital funds is perhaps the biggest possible cause of failure
of many units in recent times. There it is of great importance on the part of management
to pay particular attention to the planning and control for working capital. An attempt has
12
been made to make critical study of the various dimensions of the working capital
management of Gujarat print pack publication Ltd.,
These involve managing the relationship between a firm's short-term assets and its short-
term liabilities. The goal of Working capital management is to ensure that the firm is able
to continue its operations and that it has sufficient money flow to satisfy both maturing
short-term debt and upcoming operational expenses.
RESEARCH APPROACH
Qualitative and quantitative approaches
My report is a mixture of a quantitative and qualitative study. Quantitative research is
Objective; qualitative research is subjective.
DATA SOURCE
The secondary data were collected from the Balance Sheet & P&L Account, GPPPL
website, etc.
RESEARCH OBJECTIVE
The main objectives of my research on “management of working capital” of Gujarat
Print pack publication ltd.are:-
1) To study & evaluate the working capital management system of Gujarat Print
pack publication ltd.
13
2) To determine the adequate or optimum quantum of investment in working capital
of Gujarat Print pack publication ltd.
3) To determine the composition or structure of current assets.
4) To maintain a proper balance between liquidity & profitability.
5) To maintain a proper the policy or means of finance for current assets.
SCOPE OF WORK
Study was done on the basis of data available on net. The scope of the research is to
determine the Analysis of Gujarat Print Pack Publication Pvt. Ltd.
STUDY BASED ON LITERATURE
From available books, internet.
Basic Concept
Analysis Method.
14
CHAPTER-3
WORKING CAPITAL MANAGEMENT
INTRODUCTION TO WORKING CAPITAL
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's
ability to fund operations, reinvest and meet capital requirements and payments.
Understanding a company's cash flow health is essential to making investment decisions.
15
A good way to judge a company's cash flow prospects is to look at its working capital
management (WCM).
WHAT IS WORKING CAPITAL?
Working capital refers to the cash a business requires for day-to-day operations, or, more
specifically, for financing the conversion of raw materials into finished goods, which the
company sells for payment. Among the most important items of working capital are
levels of inventory, accounts receivable, and accounts payable. Analysts look at these
items for signs of a company's efficiency and financial strength.
MANAGEMENT OF WORKING CAPITAL
Working capital management is concerned with the problems that arise in attempting to
manage the current assets, current liabilities and the inter relationships between them. Its
16
operational goal is to manage the current assets and current liabilities in such a way that a
satisfactory level of working capital is maintained. The term working capital refers to the
net working capital i.e. current assets minus current liabilities with reference to the
management of working capital, net working capital represents that part of the current
assets which are financed with the long term funds.
The level of NWC has a bearing on the profitability as well as the risk in the sense of the
inability of the firm to meet obligations as and when they become due. Therefore, the
tradeoff between profitability and risk is an important element in the evaluation of the
level of NWC of the firm. In general, the higher the NWC the lower the risk, as also the
lower is the profitability and vice-versa. Thus, the NWC measures the degree of risk in
the management of working capital.
Apart from the profitability-risk trade-off, the determination of the finance mix is the
second ingredient of the theory of working capital management. The financing mix refers
to the proportion of current assets to be financed by current liabilities and long term
sources. One approach to determine the financing mix is hedging approach, acc. to which
long term funds should be used to finance the fixed portion of the current assets and the
purely temporary requirements should be met out of short term funds. This approach is
high profit, high risk financing mix. Acc. to the second approach, namely the
conservative approach, the estimate requirements of the current assets should be financed
from long term sources and the short term funds should be used only in emergency
situation.
The conservative approach is a low-profit, low risk combination. Neither of the two is
suitable for efficient working capital management. A trade off between these two
extremes provides a financing plan between these two approaches, and therefore, an
acceptable financing strategy from the view point of the management of working capital.
17
CONCEPTS OF WORKING CAPITAL
18
There are two concepts of working capital – gross and net.
GROSS WORKING CAPITAL: It refers to the firm’s Investment in
current assets which can be converted into cash within an accounting year(or
operating cycle) and include cash, short-term securities, debtors, (accounts
receivable or book debts) bills receivable and stock (inventory)
NET WORKING CAPITAL: It refers to the difference between Current
Assets & Current Liabilities. Current liabilities are those claims of outsiders
which are expected to mature for payment within an Accounting year and
include creditors (accounts payable) ,bills payable and outstanding expenses.
Net working capital can be positive or negative. A positive net working
capital will arise when Current Assets increase current liabilities. A negative
net working capital will occur when Current Liabilities are in excess of
Current Assets.
NATURE OF WORKING CAPITAL
19
EXCESSIVE AND INADEQUATE WORKING CAPITAL:
A business enterprise should maintain adequate working capital according to the needs of
its business of its business operations. The amount of working capital should neither be
excessive nor adequate. If the working capital is excess of its requirements it means idle
funds adding to the cost of capital is short of its requirements, it will result in production
interruptions and reduction of sales and, in turn, will affect the profitability of the
business adversely.
DEFECIENCIES OF EXCESSIVE WORKING CAPITAL
EXCESSIVE INVENTORY: Excessive working capital results in
unnecessary accumulation of large inventory. It increases the chances of misuse,
waste, theft etc.
EXCESSIVE DEBTORS: Excessive working capital will result in liberal
credit policy which, in turn, will result in higher amount tied up in debtors and
higher incidence of bad debts.
ADVERSE EFFECT ON PROFITABILITY: Excessive working capital
means idle funds in the business which adds to the cost of capital but earns no
profits for the firm. Hence it has a bad effect on profitability of the firm.
INEFFECIENCY OF MANAGEMENT: Management becomes careless
due to excessive resources at their command. It results in laxity of control on
expenses and cash resources.
DEFECIENCIES OF INADEQUATE WORKING CAPITAL
20
DIFFICULTY IN AVALIABILITY OF RAW-MATERIAL:
Inadequacy of working capital results in non-payment of creditors on time. As a
result the credit purchase of goods on favorable terms becomes increasingly
difficult. Also, the firm cannot avail the cash.
FULL UTILISATION OF FIXED ASSETS NOT POSSIBLE: Due to
the frequent interruption in supply of raw materials and paucity of stock, the firm
can’t make full utilization of its machines etc.
DIFFICULTY IN THE MAINTAINENCE OF MACHINERY: Due to
the shortage of working capital, machines are not cared and maintained properly
which results in the closure of production of on many occasions.
DECRAESE IN CREDIT RATING: Because of inadequacy of working
capital, firm is unable to pay its short term obligations on time. It decays the
firm’s relation with its bankers and it becomes difficult for the firm to borrow in
case of need.
ADVANTAGES OF ADEQUATE WORKING CAPITAL
21
AVAILIABILTY OF RAW MATERIAL REGULARLY: Adequacy of
working capital makes it possible for a firm to pay the suppliers of raw material in
time. As a result it will continue to receive regular supplies of raw materials and
thus there will be no disruption in production process.
FULL UTILISATION OF FIXED ASSETS: Adequacy of working capital
makes it possible for a firm to utilize its fixed assets fully and continuously. For
eg. , if there is inadequate stock of raw material, the machines will not be utilized
in full and their productivity will be reduced.
CASH DICOUNT: A firm having the adequate working capital can avail the
cash discount by purchasing the goods for cash or by making the payment before
the due date.
MEETING UNSEEN CONTINGENCIES: Adequacy of working capital
enables a company to meet the unseen contingencies successfully.
NEED OF WORKING CAPITAL
22
Along with the fixed capital almost every business requires working capital though the
extents of working capital requirements differ in different businesses. Working capital is
needed for running the day-to-day business activities. When a business is started,
working capital is needed for purchasing raw material. The raw material is then converted
into finished goods by incurring some additional costs on it. Now goods are sold. Sales
do not convert into cash instantly because there is invariably some credit sales. Thus,
there exists a time lag between sales of goods and receipt of cash. During this period,
expenses are to be incurred for continuing the business operations. For this purpose
working capital is needed. Therefore, sufficient working capital is needed which shall be
involved from the purchase of raw material to the realization of cash. The time period
which is required to convert raw material into finished goods and then into cash is known
as operating cycle or cash cycle. The need for working capital can also be explained with
the help of operating cycle. Operating cycle of a manufacturing concern involves five
phases:
(i) Conversion of cash into raw material.
(ii) Conversion of raw material into work-in-progress.
(iii) Conversion of work-in-progress into finished goods.
(iv) Conversion of finished goods into debtors by credit sales.
(v) Conversion of debtors into cash by realizing cash from them.
Thus, the operating cycle starts from cash and then again restarts from cash. Need for
working capital depends upon period of operating cycle. Greater the period more will be
the need of working capital. Period of operating cycle in a manufacturing concern is
greater than a period of operating cycle in a trading concern because in trading units cash
is directly converted into finished goods.
23
Operating cycle (nature of working
capital)
CASH
RAW MATERIAL
WORK-IN-PROGRESS
FINISHED GOODS
DEBTORS & BILLS RECEIVABLES
24
Because of the time involved in an operating cycle, there is a need of working capital in
the form of current assets. Firms have to keep adequate stock of raw-material to avoid
risk of non-availability of raw materials. Similarly, concerns must have adequate stock of
finished goods to meet the demand in market on continuous basis and to avoid
competition which necessitates the money tied up in debtors and bills receivables. In
addition to al these, concerns have to necessarily keep cash to pay the manufacturing
expenses etc. and to meet the contingencies.
25
PERMANENT AND TEMPORARY WORKING CAPITAL
Working capital in a business is needed because of operating cycle. But the need for
working capital does not come to an end after the cycle is completed. Since the operating
cycle is continuous process, there remains a need for continuous supply of working
capital. However, the amount of working capital required is not constant throughout the
year, but keeps fluctuating. On the basis of this concept, working capital is classified into
two types:
(a) Permanent working capital: the need for working capital or current assets
fluctuates from time to time. However, to carry on day-to-day operations of
the business without any obstacles, a certain minimum level of raw materials,
work-in-progress, finished goods and cash must be maintained on a
continuous basis. The amount needed to maintain current assets on this
minimum level is called permanent working capital or regular working
capital. The amount involved as permanent working capital has to be met
from long term sources of finance, e.g. Capital, debentures, long term loans
etc.
(b) Temporary working capital: any amount over and above
the permanent level of working capital is called is called temporary,
fluctuating or variable working capital. Due to seasonal changes level of
business activity is higher than normal during some months of the year and
therefore, additional working capital will be required along with the
permanent working capital it is so because during peak season demand rises
and more stock is to be maintained to meet the demand. Similarly, the amount
of debtors increases due to excessive sales. Additional working capital thus
needed is known as temporary working capital because once the season is
26
over; the additional demand will be no more. Need for temporary working
capital should be met from short term of finance, e.g. Short term loans etc. so
that it can be refunded when it is not required.
27
FACTORS AFFECTING WORKING CAPITAL
OR
DETERMINANTS OF WORKING CAPITAL
A firm should have neither too much nor too little working capital. The working capital
requirements are determined by a large number of factors but, in general, the following
factors influence the need of working capital needs of an enterprise:
1) NATURE OF THE BUSINESS: working capital requirements of an enterprise
are largely influenced by the nature of the business. For e.g. Public utilities such as
railways, transport, water and electricity etc. have very limited need of working
capital because they have to invest fairly large amount in fixed assets. Their working
capital need is minimal because they get immediate payment for their services and
do not have to maintain big inventories. On the other extreme are the trading and
financial enterprises which have to invest less amount in fixed assets and a large
amount in working capital. This is so because the nature of the business is such that
they have to maintain a sufficient amount of cash, inventories and debtors. Working
capital needs of most of the manufacturing enterprise fall between these two
extremes that is between public utilities and trading concerns.
2) SIZE OF THE BUSINESS: larger the size of business enterprise, greater would
be the need for working capital. The size of a business may be measured in terms of
scale of its business operation.
3) GROWTH AND EXPANSION: as business enterprise grows, it is logical
to expect that a larger amount of working capital will be required. Growing
Industries require more working capital than those that are static.
28
4) PRODUCTION CYCLE: production cycle means the time span between
The purchase of raw material and its conversion into finished goods. The longer
the production cycle the larger will be the need of working capital because the
funds will be tied up for longer period in work in progress.
5) BUSINESS FLUCTUATIONS: business fluctuations may be in the
direction of boom and depression. During boom period the firm will have to
operate at full capacity to meet the increased demand which in turn, leads to
increase in level of inventories and book debts. Hence, the need for working
capital in boom conditions is bound to increase. The depression phase of
business fluctuations has exactly an opposite effect on the level of working
capital requirement.
6) CREDIT POLICY RELATING TO SALES: if a firm adopts liberal
credit policy in respect of sales, the amount tied up in debtors will also be higher.
Obviously, higher book debts mean more working capital. On the other hand, if
the firms follow tight credit policy, the magnitude of working capital will
decrease.
7) CREDIT POLICY RELATING TO PURCHASE: if a firm purchases
more goods on credit, the requirement for working capital will be less. In other
words, if liberal credit terms are available from the suppliers of goods, the
requirement for working capital will be reduced and vice-versa.
8) AVAILABILITY OF RAW-MATERIAL: If the raw material required
by the firm is available easily on a continuous basis, there will be no need to
keep a large inventory of such materials and hence the requirement of working
capital will be less. On the other hand, if the supply of raw material is irregular,
the firm will be compelled to keep an excessive inventory of such material
29
which will result in high level of working capital.
9) AVAILABILITY OF CREDIT FROM BANKS: if the firm can get bank
credit facility in case of need, it will operate with less working capital. On the
other hand, if such facility is not available, it will have to keep large amount of
working capital.
10)VOLUME OF PROFIT: The net profit is a source of working capital to the
extent it has been earned in cash. Higher net profit would generate more internal
funds thereby contributing the working capital pool.
11) LEVEL OF TAXES: full amount of cash profit is not available for working
capital purposes. Taxes have to be paid out of profits. Higher the amount of taxes
less will be the profits available for working capital.
12) DIVIDEND POLICY: dividend policy is a significant element in
determining the level of working capital in an enterprise. The payment of
dividend reduces the cash and thereby, affects the working capital to that extent.
On the contrary, if the company does not pay dividend but retains the profit, more
would be the contribution of profits towards the working capital pool.
30
13) DEPRICIATION POLICY: although depreciation does not result in outflow
of cash, it affects the working capital indirectly. In the first place, since the
depreciation is allowable expenditure in calculating net profits, it affects the tax-
liability. In the second place, higher depreciation also means lower disposable
profits and, in turn, a lower dividend payment. Thus, outgo of cash is restricted to
that extent.
14) PRICE LEVEL CHANGES: A change in price level also affects the working
capital requirements. If the price level is rising, more funds will be required to
maintain the existing level of production
15) EFFECIENCY OF MANAGEMENT: efficiency of management is also a
significant factor to determine the level of working capital. Management can
reduce the need for working capital by the efficient utilization of resources. It can
accelerate the pace of cash cycle and thereby use the same amount working
capital again and again very quickly
31
CHAPTER-4
DATA ANALYSIS
&
INTERPRETATION
32
OPERATING CYCLE
The operating cycle is the average time between purchasing or acquiring
inventory and receiving cash proceeds form the sale of finished products. In the other
words, it is the time period, which elapses between the points at which cash is spent on
the production of a product, and the collection of cash from the customer. The time lag
between the purchase of raw materials and the sales of finished goods is known as the
inventory period. The operating cycle of a manufacturing company involves five phases.
1. Conversion of raw material.
2. Conversion of raw material in to work-in-progress.
3. Conversion of work in process in to finished goods.
4. Conversion of finished good in to receivable.
5. Conversion of receivable in to cash.
Operating Cycle:
R = (Raw Materials Conversion Period)
+ W = (Work-in-progress Conversion Period)
+ F = (Finished Good Conversion Period)
+ D = (Debtors Conversion Period)
- C = (Creditors Deferral Period)
33
Statement Showing Operating Cycle
Current assets:
(i) Raw material Conversion Period:
= Raw material inventory *360
Raw material consumption
Year 31st march 2008 31st march 2009 31st march 2010
= 1865650*360
85107155
= 16135184 *360
99306895
= 14365971 *360
113010444
Days = 78.92 = 58.49 = 45.76
34
INTERPRETATION:
As above, the conversion period of raw material is lower in 2010 as
compared to 2008 and 2009, this is beneficial for the company. Because
the raw material of receiving and sending time is proper for the company.
35
(ii) Work in progress Conversion Period:
= work in process *360
Cost of production
Year 31st march 2008 31st march 2009 31st march 2010
= - 109490 *360
115853537
= 6550340 *360
131203255
= -3424096 *360
161889683
Days = -0.34 = 17.97 = -7.61
INTERPRETATION:
As above, work in progress conversion period is higher in 2009
as compared to 2008 & 2010. So, the receiving for the production and
dispatch of time is proper compare to 2009 to 2010.it is better situation for the
company.
36
(iii) Finished goods Conversion period:
= finished good inventory *360
cost of good sold
INTERPRETATION:
As above, the stock of finished good is lower in 2010 as compared
to 2008 and 2009. So, it is difficult situation for the company. Because this
company not proper storage of the goods.
year 31st march 2008 31st march 2009 31st march 2010
= 19473946 *360
115853537
= 23502970 *360
131203255
= 18309661 *360
161889683
Days = 60.51 = 64.49 = 40.72
37
(iv) Debtors Collection period:
= debtors *360
Credit sales
INTERPRETATION:
As above, the debtors’ collection period is lower in 2009 as compared to
2008 & 2010. This situation is less risky in 2009 & 2010. So, the try to decrease
Debtors collection period because the collection from the out side immediately
Year 31st march 2008 31st march 2009 31st march 2010
= 58091527 *360
128968650
= 50214960 *360
144081782
= 61490396 *360
174791548
Days = 162.16 = 125.47 = 126.65
38
And invest to other side for the company.
Current liabilities:
(i) Creditors payment period:
= creditor *360
Credit purchase
Year 31st march 2008 31st march 2009 31st march 2010
= 57176879*360
91188740
= 46615657 *360
96785579
= 57654172 *360
111241231
Days = 225.73 = 173.39 = 186.58
INTERPRETATION:
As above, the creditors’ payment period is lower in 2009 as
compared to 2008 and 2010. So, that try to increase creditors’ payment
39
period because this situation risky for future investment planning for the
company.
WORKING CAPITAL =CURRENT ASSETS –CURRENT
LIABILITIES
Particular
Year
31st march 2008 31st march 2009 31st march 2010
a) Current asset
Stock of R.M 78.92 58.49 45.76
Work in process -3.40 17.97 -5.58
Stock of F.G 60.51 64.49 29.84
Debtors 162.16 125.47 126.65
Total current asset (a) 298.19 266.42 196.67
b) Current liabilities
Trade creditors 225.73 173.39 186.58
Total current liabilities (b) 225.73 173.39 186.58
Work in capital
management (a)-(b)
72.46 93.03 10.09
40
Operating Cycle Of The Company :
INTERPRETATION:
As above, working capital mgt lower in 2010 as compared to 2008
and 2009. Their is decrease in all the operating cycle except other receivable which are
higher in 2008 and 2009. Sound working capital management involves matching the
sources and uses of cash so that obligation comes due as assets mature into cash. In this
conversion cycle is respectively decrease. This indicates that conversion of raw material
into cash is good.
Year 31st march
2008
31st march
2009
31st march
2010
Days 72.46 93.03 10.09
41
CASH MANAGEMENT
Cash management refers to the practices and techniques designed to accelerate
and control collections, ensure promote deposits of receipts, improve control over
disbursement methods, and eliminate idle cash balances. The objective of cash
management is to “keep the investment in cash as low as possible while still operating the
firm’s activities efficiently and effectively”.
CASH CONVERSION CYCLE
Receivable collection period + Inventory conversion period – payment period
Receivable collection period =
Receivable x 360
Sales
YEAR RECEIVABLE SALES RECEIVABLE
COLLECTION PERIOD
2008 58091527 128968650 162.16
2009 50214960 144081782 125.47
2010 61490396 174791548 126.65
42
Inventory Conversion Period =
Inventory x 360
Cost of Good Sold
YEAR INVENTORY COST OF
GOOD SOLD
INVENTORY
CONVERSION PERIOD
2008 19473946 115853537 60.51
2009 23502970 131203255 64.49
2010 18309661 161889683 40.72
Payment Period =
Account Payable x 360
Cost of Good Sold
YEARACCOUNT
PAYABLE
COST OF GOOD
SOLD
PAYMENT
PERIOD
2008 57176879 115853537 177.67
2009 46615657 131203255 127.91
2010 57654172 161889683 128.21
43
Cash Conversion Cycle:-
YEAR
INVENTORY
CONVERSION
PERIOD (1)
RECEIVABLE
COLLECTION
PERIOD (2)
PAYMENT
PERIOD (3)
CASH
CONVERSION
CYCLE
(1) + (2) - (3) =
2008 60.51 162.16 177.67 45
2009 64.49 125.47 127.91 62.05
2010 40.72 126.65 128.21 39.16
Interpretation:-
The major objective of cash management is to shorten cash conversion cycle and
it should be accomplished without increasing cost or depressing sales. This condition is
good. Cash conversion cycle is decrease but not a respectively. Last year cycle is lower
then previous year. This indicates that company should try to increase conversion cycle
by selling good more quickly, speeding up collection & slowing down the payment.
44
INVENTORY MANAGEMENT
For many business firms, inventory is one of the visible and tangible of doing
business. Raw materials, work in process and finished goods all represent various form of
inventory. In simple words, inventory refers to stocks of good necessary to do business.
In fact, for a business firm, inventory is both an assets and a liability. Too much
inventory consumes physical space, causes of financial burden, and increasing the
possibility of damage, spoilage and loss. On the other hand, too little inventory disrupts
manufacturing operations, engenders chaos on the shop floor, poor customer service.
Inventory Turnover Ratio
Inventory turnover ratio indicates that efficiency of firm in producing and selling
its product. This ratio is percentage of inventory to the total sales.
Inventory Turnover Ratio
Total Sales
Inventory Investment
Holding Days of Inventory:-
360 days
Inventory Turnover Ratio
YEARTOTAL
SALESINVENTORY
INVENTORY
TURNOVER
RATIO
HOLDING DAYS
OF INVENTORY
2008 128968650 19473946 6.62 54.38
2009 144081782 23502970 6.13 58.73
2010 174791548 18309661 9.55 37.70
45
Interpretation:-
High turnover ratio & low holding days of inventory indicate good efficiency of
company in turnover his inventory. Inventory turnover ratio is increase & holding days of
inventory decrease from last year this indicate company has good efficiency of manage
the inventory.
46
MANAGEMENT OF RECEIVABLES
The accounts receivables are generated which are collected at a future date only
when the firm grants credit against an ordinary sale of goods or services without
receiving cash. Credit sale is an essential part of the present competitive economic
system. It is granted in order to increase the volume of sales. As such receivables which
are created out of credit sales are considered as a marketing tool for increasing sales. But
extension of credit involves cost of risk. Therefore, management should weigh the
benefits against cost. As such, the objective of receivables management is to promote
sales and profit until optimum point is reached.
CREDIT POLICY
A firm’s investment in accounts receivable depends on the volume of credit sales and the
collection period. There is one way in which the financial manager can affect the volume
of credit sales and collection period and consequently, investment in account receivables.
That is through the changes in credit policy. The term credit policy is used to refer to the
combination of three decision variables: (I)) Credit Standards, (ii) Credit Terms, and (iii)
Collection efforts, on which the financial manager has influence.
Credit Standards are criteria to decide the types of customers to whom goods could be
sold on credit. If a firm has more slow-paying customers, its investment in accounts
receivables will increase. The firm will also be exposed to higher risk of default.
Credit Terms specify duration of credit and terms of payment by customers. Investment
in account receivables will be high if customers are allowed extended time period for
making payments.
Collection Efforts determine the actual collection period. The lower the collection period,
the lower the investment in accounts receivable and vice versa.
47
DEBTOR COLLECTION PERIOD
It refers to the debtors converted into receivables. Debtor turnover ratio indicates
the number of times debtors turnover each year. Generally, the higher the value of
debtors’ turnover, the more efficient is the management of credit.
Total Sales
Debtors Turnover Ratio =
Debtors
360 days
Collection Period =
Debtors Turnover Ratio
YEAR SALES DEBTOR
S
DEBTORS
TURNOV
ER RATIO
COLLECTION
PERIOD
2008 128968650 58091527 2.22 162.16
2009 144081782 50214960 2.86 125.87
2010 174791548 61490396 2.84 126.76
48
DEBTOR TURNOVER RATIO
COLLECTION PERIOD
49
PROFITIBILITY ANALYSIS RATIO
Gross Profit Ratio
= Gross Profit *100
Net Sales
Year 31st march 2008 31st march 2009 31st march 2010
= 13115113 *100
127964889
= 12878527 *100
141975604
= 12901865 *100
170769972
Ratio (%) = 10.25 = 9.07 = 7.56
INTERPRETATION :
This ratio shows whether the profit obtained on the cost of production is
sufficient or not If must be enough to cover operating expenses. In this company
gross profit ratio is not satisfactory. Though the turnover increases year after year
but COGS increases more in comparison to it. If this ratio is higher the company’s
performance would be better.
Net Profit Ratio
50
= Net Profit *100
Net sales
Year 31st march 2008 31st march 2009 31st march 2010
= 1003761 *100
127964889
= 2106178 *100
141975604
= 4021576 *100
170769972
Ratio (%) =0.78 =1.48 =2.35
INTERPRETATION :
This ratio shows the overall profit of business. It indicates the portion of
revenue left to proprietors after all operating expenses were met. Net profit ratio increase
in year 2009, which indicates the strength of the company. It shows the profitable
position of the company.
51
Return on Equity Fund Ratio
= Net Profit *100
Equity Shareholders fund
Year 31st march 2008 31st march 2009 31st march 2010
= 1003761 *100
27024425
= 2106178 *100
29897103
= 4021576 *100
32286295
Ratio (%) = 3.71 = 7.04 = 12.46
INTERPRETATION :
This ratio indicates the level of profitability to the real owners of
business it also judges the efficiency of the firm in terms of its operations &
investments the higher the ratio the greater are the returns to the equity share
holders for bearing the risk of business. In this company there is no preference
capital so profit is available for only equity holders. Return on equity ratio increase
in 2010 compared to 2008 and 2009 which indicates the improved financial
condition of the company and its shareholders.
52
CHAPTER-5
TREND ANALYSIS
53
Trend Analysis
For carrying out the trend analysis, I have selected as the base year. All the
financial data of the year 2006-07 have been arbitrarily assigned the value of 100.The
values of other financial data is expressed in terms of these data as reference data. This
analysis is carried out in two phases as balance sheet analysis and profit and loss account
analysis.
Particular Year (%)31st march 2008 31st march 2009 31st march 2010
Net sales 100 111.71 121.31
Income 100 116.93 114.34
Expenditures 100 117.53 112.86
Profit before tax 100 92.11 191.77
Profit after tax 100 209.83 190.94
Sources of fund
a) shareholders fund 100 110.63 107.99
b) loan fund 100 101.06 96.32
Application fund
a) fixed assets 100 103.56 97.04
b) current assets, loan
&advance
100 91.14 114.33
current liabilities & provisions 100 84.36 126.22
Net current assets 100 105.45 94.28
54
1) Net sales
INTERPRETATION:
In above diagram Net Sales is increase continuously. Net Sales is
higher in 2010 as compared to 2008 & 2009. The change in Net Sales is profitable
for the Company. Because the net sales are related to sales of goods.
Year 31st march
2008
31st march
2009
31st march
2010
(%) 100 111.71 121.31
55
2) Level of Income
INTERPRETATION:
In the above diagram, the level of Income is highest in 2009. As
compared to 2009 the level of Income is lower in 2010. So it’s a very good effort
for the company. Because the level of income is mostly depend on the sales of
goods.
3) Expenditures
Year 31st march
2008
31st march
2009
31st march
2010
(%) 100 116.93 114.34
56
Year 31st march
2008
31st march
2009
31st march
2010
(%) 100 117.53 112.86
INTERPRETATION:
As above, expenditures are lower in 2008 as compared to 2009 and
2010. Situation in 2008 is more profitable because low expenditure increases the
profit. So, that try to decrease the level of expenditures because mostly effect on the
sales of goods.
4) Profit before Tax
57
Year 31st march
2008
31st march
2009
31st march
2010
(%) 100 92.11 191.77
INTERPRETATION:
As above, profit before tax in the trend analysis is lower in 2009 as
compared to 2008 and 2010.profit before tax is more in 2010 this is beneficial for
the company. Because the profit is rise also depend on the sales of goods. So it is
good sign for the company.
5) Profit after Tax
Year 31st march 31st march 31st march
58
2008 2009 2010
( %) 100 209.83 190.94
INTERPRETATION:
As above, profit after tax in the trend analysis lower in 2008 as
compared to 2009 and 2010. The situation in 2009 is better even after paying tax.
So, we can say that the taxes of government are less in 2009. This level of profit
also depends on the taxes. So, it is profitable for the company.
SOURCES OF FUND
6) Share holders Fund
59
Year 31st march
2008
31st march
2009
31st march
2010
(% ) 100 110.63 107.99
INTERPRETATION:
As above, share holders fund in the trend analysis is lower in 2008 as
compared to 2009 and 2010. The situation in 2009 is more beneficial for the
company. Because the good image is also depend on the selling of product in the
market. This situation very affected by the investors in this company
7) Loan Fund
Year 31st march
2008
31st march
2009
31st march
2010
( %) 100 101.06 96.3260
INTERPRETATION:
As above, loan fund in the trend analysis lower in 2010 as compared
to 2008 and 2009. Because in this graph decrease the loan fund for the better
opportunities in future planning investment so, it is profitable for the company.
APPLICATION OF FUND
8) Fixed Assets
Year 31st march
2008
31st march
2009
31st march
2010
(%) 100 103.56 97.04
61
INTERPRETATION:
As above, fixed assets in the trend analysis is lower in 2010 as
compared to 2008 and 2009. So this situation is mostly affected by maximum
use of sources of fund and requirement of the company. Because this situation
right side affected by the company.
9) Current Assets, Loan & advance
Year 31st march
2008
31st march
2009
31st march
2010
(%) 100 91.14 114.33
62
INTERPRETATION:
As above, current assets, loan & advance in the trend analysis
lower in 2009 as compared to 2008 and 2010.In this situation maintain ratio.
so it is very good efforts by the company.
10) Current Liabilities & Provision
Year 31st march
2008
31st march
2009
31st march
2010
(%) 100 84.36 126.22
63
INTERPRETATION:
As above, Current Liabilities & Provision is continuous rise of the
company. So, that the company is expanding its operations on a continuous
basis. However on the other hand a similar rise in the current assent is also
required.
11) Net Current Assets
Year 31st march
2008
31st march
2009
31st march
2010
(%) 100 105.45 94.28
64
INTERPRETATION:
As above, net current assets in the trend analysis lower in 2010as
compared to 2008 and 2009. This is very less beneficial for the company.
net current assets are also affected by the production and sales of goods.
65
CHAPTER-6
FINDING
Company having good management system in cash conversion cycle. In this
company situation condition is good. Cash conversion cycle is decrease but not a
respectively.
Inventory turn over ratio of companies is continuously improving from 2008, 2009,
2010 .they have taken many steps so, they can control the inventory. Which means
inventory is used in better way so it is good for the company.
66
Debtors of the company were high, they were increasing year , so more funds were
blocked in debtors, but now recovery is becoming faster.
In the gross profit ratio the data show that in 2008 it is at 10.25% and after it is
decrease this ratio is dissatisfaction for the company.
In the net profit ratio the data show that in 2008 it is at 0.78% and after it is increased
it show good performance of the management
In the return on equity ratio the data show that in 2008 it is at 3.71% but after it is
increase this ratio is favorable for the company.
67
CHAPTER-7
SUGGESTION
The financial position of the company is normal but it is required to be improved
from the point of view of profitability.
Company should stretch the credit period given by the suppliers.
Company should not rely on long term debts.
68
Inventory turnover ratio is increasing so; it’s not good for company. I.e. it is
suggested to company that it has to maintain the condition of inventory.
Company should try to increase volume based sales so as to stand in the
competition.
69
CHAPTER-8
CONCLUSION
I have studied and analyzed the Balance sheet of the company. For a period of three years
viz; 2008, 2009, 2010, working capital is most important part for finance department of
the company from the accounting data of the GPPPL. I can say a company is most
concern about the working capital.
To identify and locate the idle assets of the firm and dispose off the same at competitive
price in order to meet the present working capital needs of the company.
70
Value goodwill of the company and a certain percentage of the same may be sold off at
competitive price and it can be utilized to finance the working capital requirement.
To make periodic review of business strategy, against the behavior of the competitors and
rivals, adopted by the management and take up corrective measure on going process as
per the demand of the situations
To introduce the philosophy of responsibility accounting and each responsibility of the
respon centre head should be made accountable for cost control and profitability of the
responsibility centre concerned.
71
CHAPTER-9
ANNEXURE
ANNEXURE – A: PROFIT & LOSS A/C
(Amounts in ‘000
Particulars 2008 2009 2010
INCOME
Income From Operations 128968650 144081782 174791548
Other Income 1279 38127 912594
Increase in Inventories -109490 6550340 -3424096
128860439 15670249 172280046
72
EXPENDITURE
Raw-materials & other
Consumption85107155 99306895 113010444
Personal Related Expenses 7098015 10662132 13766085
Manufacturing & other exps 18385496 21226823 23875360
Interest and Finance charges 9858227 11228306 10403913
Depreciation 5346685 5422915 5810332
125795578 14847071 166866134
Profit Before Tax 3064861 2823178 5413912
Less: Provision for Income 315000 275000 812087
tax deferred Tax 1551100 567000 580249
LiabilitiesF.B.T 195000 150000 0
Add: MAT Credit 0 275000 0
NET PROFIT FOR THE
YEAR1003761 2106178 4021576
Add: Opening Balance B/F 11144176 11492294 13614972
Prior period adjustment- net -655643 16500 -390709
PROFIT AVAILABLE
FOR APPROPRIATION11492294 13614972 17245839
Balance Carried to
BALANCESHEET11492294 13614972 15504164
ANNEXURE –: BALANCE SHEET
(Amounts in ‘000)
Particulars 2008 2009 2010
SOURCES OF FUNDS
1. Shareholder Fund
Share Capital 14950000 14950000 14950000
73
Reserve & Surplus 12074425 14947103 17336295
Total 27024425 29897103 32286295
2. Loan Funds
Secured Loan 43085168 34278325 27835846
Unsecured Loan 32478114 39042586 38315202
Deferred Tax liability 10290400 10857400 11437649
Total 112878107 114075414 109874992
APPLICATION OF
FUNDS
1. Fixed Assets
Gross Block 104009745 112334547 115579061
Less : Depreciation 22548255 27971170 33715625
Net Block 81461490 84363377 81863436
Capital Work in
progress3240489 0 0
3. Current Assets, Loan
& Advances
Inventories 19473946 23502970 18309661
Sundry Debtors 58091527 50214960 61490396
Cash & Bank Balance 951548 769027 919749
Loan & Advances9076964 5348924 10559649
Total Current Assets,
Loan & Advances87593985 79835881 91279455
Less : Current Liabilities
provisions 59417857 50123844 63267899
Net Current Assets 28176128 29712037 28011556
Total Assets 112878107 114075414 109874992
74
75
CHAPTER-10
BIBLIOGRAPHY
During the development of project we use following BOOKS and WEB
SITES for the references:
BOOKS:
» I. M Pandey. “Financial mgt”, Ninth edition. By VIkas publication house
pvt ltd.
» Working Capital Management
- By Dhiraj Sharma
76
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