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A Summer Training Report

ON

Working Capital Management


CONDUCTED AT

PARLE BISCUITS PRIVATE LIMITED


Bahadurgarh

Submitted in partial fulfillment for the award of degree of

MASTER OF BUSINESS ADMINISTRATION


(SESSION 2005-2007)

SUBMITTED BY: BHUPENDER SINGH MBA 2ND YEAR

P.D.M.COLLEGE OF ENGINEERING,
SARAI AURANGABAD, BAHADURGARH APPROVED BY

MAHARISHI DAYANAND UNIVERSITY, ROHTAK

DECLARATION

I,

Roll No

Class

of the PDM College of

Engineering here by declared at the project entitled is an original work and the same has not been submitted to any other institute for the award of any other degree. The interim was presented to the supervisor on and the pre submission presentation was made on ____________. The feasible suggestions have been only incorporated in consultation with the supervisor.

Countersigned Signature of the Supervisor Forwarded By Director/Principal of the Institute Signature of the candidate

TABLE OF CONTENTS

ACKNOWLEDGMENT PREFACE INTRODUCTION * HISTORY OF COMPANY * PRODUCT PROFILE MANAGERIAL USEFULNESS OF STUDY CONCEPTS USED IN STUDY FOCUS OF THE PROBLEMS OBJECTIVES OF THE PROJECT SCOPE OF THE WORK RESEARCH METHODOLOGY * RESEARCH DESIGN * UNIVERSE AND SURVEY POPULATION * SAMPLE * SAMPLING METHOD * COLLECTION OF DATA DATA ANALYSIS FINDINGS RECOMMENDATION LIMITATIONS CONCLUSIONS BIBLIOGRAPHY 79 ANNEXURE 80

4 5 6 18 49 50 51 52 54 55

60 74 76 77 78

ACKLNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any task would be, but incomplete without mentioning the people who made it possible, whose constant guidance encouraging crowned my effort with success.

I would like to begin with a special note of gratitude and heartfelt thanks to Mr. S. S. SHIVRAIN, General Manager, who gave me the opportunity to complete my summer project at PARLE BISCUITS PRIVATE LIMITED Bhadurgarh, Haryana. I am extremely grateful to the Deputy Manager of Finance Department Mr. JAIDEEP BHALA for his constant encouragement and valuable suggestions throughout my summer training and project for his cooperation extended to me. I am extremely indebted to Mr. PAWAN TYAGI, Mrs. SANTOSH NARWAL, Mr. S.N. VERMA, Mr. AKHIL RASTOGI, Mr. VINOD, Mr. AJAY SINGAL, Mr. PARMINDER SINGH, Mr. VIJENDER SINGH, and Mr. MANOJ for sharing their valuable time, comments and encouraging suggestions which guided and inspired me throughout the preparation of the project. I express my special thanks to Mr. K.G. CHACKO (OFFICE MANAGER), Mr. RAJIV SINGH (I.T. MANAGER), Mr. VIJAY KUMAR THAKUR (I.T. ASSTT. MANAGER), Mr. JANAK SHEKHAWAT (HR &P), Mr. SANJAY GOEL, Mr. VIDYA DHAR KASWAN (PURCHASE OFFICERS) for giving me their valuable opinions time to time.

At last but not the least, I am very thankful to all the staff members of I.T. department also. 4

PREFACE

Practical work experience is the integral part of individual learning. An individual who is learning managerial concepts has to undergo this practical experience for being a future executive.

Master of Business Administration is a two-year programme that inserts management knowledge in an individual to make that individual completely professional for which practical experience is must.

Parle Biscuits Pvt. Ltd. is the market leader in biscuit industry. Bahadurgarh plant of PBPL offered me a project on Working Capital Management to understand the current position through dates provided by them.

HISTORY OF COMPANY
INTRODUCTION
A long time ago, when the British ruled India, a small factory was set up in the suburbs of MUMBAI city, to manufacture sweets and toffees. The year was 1929 and the market was dominated by famous international brands that were imported freely. Despite the odds and unequal competition, this company called Parle Products, survived and succeeded, by adhering to high quality and improvising from time to time.

A decade later, in 1939, Parle Products began manufacturing biscuits, in addition to sweets and toffees. Having already established a reputation for quality, the Parle brand name grew in strength with this diversification. Parle Glucose and Parle Monaco were the first brands of biscuits to be introduced, which later went on to become leading names for great taste and quality.

HOW PARLE FOUGHT TO MAKE BISCUITS AFFORDABLE TO ALL

Biscuits were very much a luxury food in INDIA, when Parle began production in 1939. Apart from Glucose and Monaco biscuits, Parle did offer a wide variety of brands.

However, during the Second World War, all domestic production was diverted to assist the Indian Soldiers in India and Far East. Apart from this, the shortage of wheat in those days, made Parle decide to concentrate on the more popular brands, so that people could enjoy the price benefits.

Thankfully today, theres no dearth of ingredients and the demand for more premium brands is on the rise. Thats why; we now have a wide range of biscuits mouthwatering confectioneries to offer.

THE QUALITY COMMITMENT


Parle Product Private Limited has 3 manufacturing plants 1) VILE PARLE in Mumbai (Maharashtra) 2) BHUJ (Gujarat) 3) BANGLORE (Karnataka)

Apart these plants Parle Product Pvt. Ltd. maintain 20 contract base manufacturing units in all over INDIA. These plants and CMUs produce sweets and confectionary products.

Parle Product Pvt. Ltd. has also a subsidiary company, which is Parle Biscuit Pvt. Ltd. This subsidiary company produces only biscuits. It also has 2 manufacturing plants

1) BAHADURGARH in Gurgaon (Haryana) 2) NEEMRANA in Alwar (Rajasthan)

Apart these two plants Parle Biscuit Pvt. Ltd. maintain 11 contract base manufacturing units on different locations, which produce only biscuits.

All these factories are located at strategic locations, so as to ensure a constant output & easy distribution. Each factory has state-of-the-art machinery with automatic printing & packaging facilities. All Parle products are manufactured under the most hygienic conditions. Great care is exercised in the selection & quality control of raw materials; packaging materials & rigid quality standard are ensured at every stage of the manufacturing process. Every batch of biscuits & confectioneries are thoroughly checked by expert staff, using the most modern equipment.

THE MARKETING STRENGTH

The extensive distribution network built over the years is a major strength for Parle Products. Parle biscuits and sweets are available to consumer even in the most remote places and in the smallest of villages with a population of just 500.

Parle Has nearly 1500 wholesalers catering to 4,25,000 retail outlets directly or indirectly. A two hundred strong dedicated field force services these wholesalers and retailers. Additionally there are 40 depots and C&F agents supplying goods to the wide distribution network.

The Parle marketing philosophy emphasizes catering to the masses. We constantly endeavor at designing products that provide nutrition & fun to the common man. Most Parle offerings are in the low & midrange price segments. This is based on our cultivated understanding of the Indian consumer psyche. The value for money positioning helps generate large sales volumes for the products.

Parle-G its first venture became an instant favorite amongst the masses, leading the glucose category with a huge market share of 65%. It topped charts worldwide by becoming the WORLDS LARGEST BISCUIT SELLING BRAND as revealed by the US-BASED BAKERY MANUFACTURES ASSOCIATION in 2002.

The turnover of Parle Product Pvt. Ltd. is 1500 crores and the turnover of Parle Biscuit Pvt. Ltd. is 750 crores.

THE CUSTOMER CONFIDENCE

The Parle name conjures up fond memories across the length and breadth of the country. After all, since 1929, the people of India have been growing up on Parle biscuits & sweets.

Today, the Parle brands have found their way into the hearts and homes of the people of all over India & abroad. Parle Biscuits & Confectioneries, continue to spread happiness & joy among people of all ages. The consumer is the focus of all the activities of Parle. Maximizing value to consumers and forging enduring customer relationships are the core endeavors at Parle.

Our efforts are driven towards maximizing customers satisfaction and this is in synergy with our quality pledge. Parle Products Limited will strive to provide consistently nutritious & quality food products to meet consumers satisfaction by using quality materials and by adopting appropriate processes. To facilitate the above we will strive to continuously train our employee and to provide them an open and participative environment.

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EMERGING TRENDS OF THE BRAND

Since its inception in the 30s Pale biscuits have prided itself in offering quality products that are affordable to the common man. The marketing mix has evolved with the times

THE PRODUCT

Parle biscuits have a range of variants in its product portfolio. The popular brands Parle-G, Krackjack, Monaco and its variants (zeera, onion and methi) are available in packets of various convenient sizes. New products like Hide & Seek are a foray into the premium segment.

THE PRICING STRATEGY

This biscuit major has not bothered to raise the price of its flagship brand Parle-G for the past 6-8 years and has always tried to provide its offerings at nearly 33% discount as compared to other competitive brands.

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THE PROMOTION POLICY

The consumer is the focus of all activities at Parle. Maximizing value to consumers and forging enduring customer relationships are the core endeavors at Parle. Parle-G My Dream Comes True Contest was one of its biggest promotional ventures (2.5 crores) which gave contestants a chance to fulfill their dreams. Discounts, gift offer schemes are other popular promotional offerings.

THE PLACE

A well-entrenched distribution system (the company covers 12-15 lacks outlets across the country) with 40 depots at strategic points all over the country. From the depots, the biscuits are sold to wholesalers and further to retailers.

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PARE BISCUTS PRIVATE LIMITED (BAHADURGARH)


Parle Biscuit Pvt. Ltd. is a subsidiary of Parle Product Pvt. Ltd. The manufacturing at Bahadurgarh unit started in 1982 for Parle-G with a single plant. It is planted in near about 16 acres of land.

Including General Manager 78 employees of Managerial and Officer class are working in this plant. Production is going on in this plant 24 hours in three shifts. Number of permanent workers of thrice shifts is 680 and around 400 workers are there on contract basis.

In 1990s Krackjack production began followed by Monaco and Nimkin. Average Production capacity of Bahadurgarh unit per month is-

1) Parle-G 2) Krackjack 3) Monaco

3500 Metric Tonnes 1600 Metric Tonnes 800 Metric Tonnes

The plant works in coordination with the Mumbai office, Neemrana (Rajasthan) Plant of PBPL, 11-contract base manufacturing units and 40 depots. But the accounts are finalized of Neemrana plant and 11 CMUS at Bahadurgarh Plant.

Location of the 11 CMUS is as follows-

5 at Kanpur 1 at Gorakhpur

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1 at Patna 1 at Faizabad 1 at Raipur 1 at Varanasi 1 at Ajmer

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DEPARTMENTS IN PLANT

FINANCE HR & PERSONNEL QUALITY ASSURANCE PRODUCTION & PRINTING EXCISE & DESPATCH ENGINEERING I.T. PURCHASE STORE

The organization follows a flat structure with less hierarchal levels. The heads of the different departments report to the General Manager through direct communication. The working atmosphere is not stressful with enough work-flexibility given to staff and managers.

The plant also has auditorium and viewing gallery, which is used during the visit of school children. A retail shop at the Plant provides Parle Products at M.R.P. rates.

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CREDIT POLICY OF PARLE BISCUITS PVT. LTD.

Before coming to the credit policy its necessary to be aware with the goods distribution policy of Parle Biscuits Pvt. Ltd.

For fulfilling the demand of its customers timely Parle Biscuits Pvt. Ltd. maintains 40 DEPOTS in all over INDIA. Finished goods are transferred from production plants to these depots. According to their transportation facilities customers of Parle Biscuits Pvt. Ltd. ask their demand of different products to depots. Then its the responsibility of these depots to fulfill the demand of customers of Parle Biscuits Pvt. Ltd.

Parle Biscuits Pvt. Ltd. doesnt has credit policy it deals in cash. For the collection of its payment PBPL deals with 5 banks which are as follows:

1) UTI 2) STANDARD CHARTERED 3) HDFC 4) BANK OF PUNJAB 5) CORPORATION BANK

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After collecting the amount of sold goods it is deposited by the depots in any of these bank. Parle Biscuits Pvt. Ltd. divided its customers in 4 categories-

1) Cheque Parties Cheque parties are those who send their blank cheques to Depots before
receiving the finished goods. Depots fill the selling amount of the consignment in those cheques and then these cheques are deposited by the depots in the account of PBPL in any of these 5 banks.

2) Demand Draft Parties In such cities where anyone of these 5 banks isnt there customers of
those come in this category.

Before receiving the finished goods customers send the draft of the consignment amount to production plants directly. Then consignment is sent to those customers by concerned depot.

3) Credit Parties Those parties to whom maximum 4 days credit facility is provided are called credit
parties. After 4 days these parties send cheque of consignment amount to depot. And then procedure just like first category is followed by depot.

4) Credit Demand Draft Parties - These are those parties to whom 4 days credit facility is
provided but they also dont have facility of any of those 5 banks in their city.

After 4 days just like the second category these parties send the draft of consignment amount directly to production plant.

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Product Profile

Over the years, Parle has grown to become a multi-million US Dollar company. Many of the Parle products, biscuits or confectionaries, are market leaders in their category and have won acclaim at the Monde Selection, since 1971. Today, Parle enjoys a 40% share of the total biscuits market and a 15% share of the total confectionary market in India. The Parle biscuits brands are:

1) 2) 3) 4) 5) 6) 7) 8) 9)

Hide & Seek Choc Cream Elaichi Cream Orange Cream Pineapple Cream Marie Choice Cheesling Jeffs Monaco

10) Nimkin 11) Sixer 12) Glucose 13) Krackjack 14) Parle-G

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The Parle toffees brands are: 1) 2) 3) 4) 5) 6) 7) 8) 9) Funtoosh Mango Bite Orange Candy Poppins Roll-A-Cola Tangy Candy Boo Pippermint Rose Mint

10) M Choco 11) Melody 12) Dairy Toffee 13) Lux Toffee 14) Mayfair Toffee 15) Kismi 16) Mahakismi 17) Smoothies 18) Cafechino 19) Chox Bar

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Introduction of Topic
WORKING CAPITAL AT A GLANCE

INTRODUCTION TYPES FEATURES DETERMINANTS COMPONENTS WORKING CAPITAL CYCLE

INTRODUCTION

A successful sales program is necessary for earning profits by any business enterprise. Sales dont convert into cash instantly. There is a time lag between the sale of goods and receipt of cash.

Therefore, there is a need for working capital in the form of current assets to deal with the problem arising out of the lack of immediate realization of cash against goods sold. Therefore sufficient working capital is necessary to sustain sales activity.

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FEATURES

1) Working capital is regarded as the excess of current assets over current liabilities.

2) Working capital indicates circular flow of funds in the day-to-day activities of business. Thats why it is also called circulating capital.

3) Working capital represents the minimum amount of investment in raw materials, work-in progress, finished goods, stores and spares, accounts receivables and cash balance.

TYPES

Working capital can be classified either on the basis of concept or on the basis periodicity of its requirement.

of

1) ON THE BASIS OF CONCEPT


On the basis of concept working capital is of 2 types.

A) Gross working capital - Gross working capital is represented by the total Current assets.

Gross working capital = Total current assets

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B) Net working capital - Net working capital is the excess of current assets over current liabilities.

Net working capital = Current assets Current liabilities

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2) ON THE BASIS OF REQUIREMENT


On the basis of requirement working capital is also of 2 types.

A) Permanent working capital - It is that amount of investment which

should always be there

in the fixes or minimum current assets like inventory, accounts receivables or cash balance etc. to carry out business smoothly. Such an amount cant be reduced if the firms wants to carry on business operations without interruption.

B) Variable working capital - The excess the amount of working capital over permanent
working capital is known as variable working capital. It may also be subdivided into two parts.

b) Seasonal working capital - Such capital is required to meet out the


demands of busy periods occurring at stated intervals.

seasonal

c) Special working capital - Such capital is required to meet out the extra-ordinary
needs for contingencies. Events like strike, fire, unexpected competition, rising price tendencies, or initiating a big advertisement campaign require such capital.

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DETERMINANTS
1) Nature of business The effect of the general nature of the business on working capital
requirements cant be exaggerated. Rail, roads and other public utility services have large fixes investment so they have the lower requirements of current assets. Industrial and manufacturing enterprises, on the other hand, generally require a large amount of working capital.

2)

Production policies if the production is evenly spread over the entire year, working capital
requirements are greater, because the inventories will be unnecessarily accumulated during of season period. But if the production schedule favours a varying production plan as per the seasonal requirements, working capital is required to a greater extent during a specified season only. The production policies are affected by so many factors availability of raw materials, labour, stocking facility etc & therefore, whatever the productions policies are, the firm has to arrange its working capital requirements accordingly.

3)

Proportion of the cost of raw materials to total cost - In those industries where cost of
proportion is a large proportion of total cost of the goods produced, requirements of working capital will be comparatively large.

4)

Length of period of manufacturing The time which elapses between the commencement
and end of the manufacturing process has an important bearing upon the requirements of working capital. The manufacturing cycle may be shorter for certain concerns & longer for others- it depends on the type of the product to be manufactured, work to be done through machine labour & hand labour, degree of rationalization of manufacturing procedures through times, motion & fatigue studies etc.

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5)

Terms of purchase - If suppliers allow continuous credit, payment can be postponed for some
time and can be made out of the sale proceeds of the goods produced. In such a case, the requirements of working capital will be reduced.

6)

Dynamic Attitudes As a company grows, it is logical to expect the large amount of working
capital will be required.

7) Business cycles Requirement of working capital also varies with the business. When the price
level is up due to boom conditions, the inflationary conditions create demand for more working capital. During depression also a heavy amount of working capital is needed due to the inventories being locked unsold and book debts uncollected.

8)

Requirement of cash - The working capital requirements of a company are also influenced by
the amount of cash required by it for various purposes. The greater the requirement of cash, the higher will be the working capital needs of the company.

9) Dividend policy of concern If the management follows a conservative dividend policy the
needs of working capital can be met with the retained earnings. The relationship between dividend policy and working capital is well established and mostly companies declare dividend after a careful study of their cash requirements.

10) Other Factors -

Other factors, which affect the requirement of working capital, are lack of co-

operation in production and distribution policies, transport and communication facilities, the fiscal and tariff policies of the government etc.

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COMPONENTS

Main components of working capital are as follows:

1) Cash Cash is the most liquid and important component of working capital. Holding cash involves
cash in the sense that the present worth of cash held for a year is less than the value of cash on today. During inflationary situations as exist today the cost of holding includes the deterioration in the value of the cash due to inflation. Cash, therefore, results in enhanced liquidity, but lower profitability. Despite in the cost involved it is pertinent to hold cash because it facilitates the attainment of some important motives.

2) Marketable Securities Though marketable securities provides a such lower yield that the
firms operation assets. They serve two useful functions. Firstly, they act as a substitute for cash, and secondly, are used as temporary investment. Where these securities are held in lieu of the cash balance, they act as a substitute for transactional or precautionary balances. Normally, these arent used as speculative balances, but only as a guard against the possible shortage of bank credit. Marketable securities (as temporary investment) may be held for one of the following reasons: Seasonal or cyclical operations To meet known financial requirements. Construction of an additional plant. Immediately after the sale of long-term securities.

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3) Account Receivable - Though accounts receivable are a vital investment of any business
organization, little analytical work as been done to determine credit policies. Maintaining account receivable has its cost implications in that the firms monetary resources are tied up. This is of greater significance in the inflationary economy, because of the depreciation in the value of money. Basically, this is a two-step account. When goods are shipped, inventories are reduced and accounts receivable is created. When payment is made, this account is reduced and the cash level increases. Accounts receivables are, therefore a function of the volume of credit sales and the average length of time between sales and collections.

4) Inventory Inventories represent a substantial amount of a firms current assets. Management of


inventories should be efficiently carried out so that this investment doesnt become too large, as it would result in blocked capital which could put to productive use elsewhere. On the other hand, having too small an inventory could result in loss of sale or loss of customer goodwill. An optimum level of inventory should therefore be maintained.

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WORKING CAPITAL CYCLE

Working capital cycle indicates the length of time between a firms paying for materials entering into stock and receiving the cash from sale of finished goods. In a manufacturing firm, the duration of time required to complete the sequence of events is called operating cycle.

In case of a manufacturing company, the operating cycle is the length of time necessary to complete the following cycle of events: 1) Conversion of cash into raw materials 2) Conversion of raw materials into work-in-progress 3) Conversion of work-in-progress into finished goods 4) Conversion of finished goods into accounts receivable 5) Conversion of accounts receivable into cash

The above operating cycle is repeated again & again over the period depending upon the nature of the business & type of product etc. the duration of the operating cycle for the purpose of estimating working capital is equal to the sum of duration allowed by the suppliers. Working capital cycle can be expressed as:

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R+W+F+D-C Where R=Raw Material Storage Period = Avg. Stock of Raw Material Avg. Cost of Production per day

W=Work in Progress Holding Period = Avg. Work in Progress Inventory Avg. Cost of Production per day

F=Finished Goods Storage Period

Avg. Stock of Finished Goods Avg. Cost of Goods Sold per day

D=Debtors Collection Period

Avg. Book Debts Avg. Credit Sales per day

C=Credit Period Availed

Avg. Trade Creditors Avg. Credit Purchases per day

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OPERATING CYCLE OF MANUFACTURING BUSINESS

REALIZATION

Accounts Receivables

SALES

Cash

Finished Goods

PURCHASES PRODUCTION

PRODUCTION PROCESS

Raw Materials
PROCESS

Work-in-Process

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METHOD OF ASSESMENT OF WORKING CAPITAL

Operating cycle

No. of days

Raw material =

916.53 114.84

7.9

Stock in Process =

10.12 114.84

.088

Finished goods =

1054.1 115.36

9.13

Debt collection period (Calculating in ratios)

4.22

_______________

Total length of Operating Cycle

21.34 Days 31

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SALES per month

67829.07 12

= 5652.422 Rs.

Total EXPENSES Per month

60450.77 12

= 5037.66 Rs.

WORKING CAPITAL REQUIRED = Total Length of X Operating Cycle

Monthly Expenses

__________________________________ 30

= 21.34 30

5037.66

= 3583.45Rs.

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Working Notes:

1. Raw Material (Mentioned in P&L Account) Opening Stock + Purchases Closing Stock

2003-04: Annual Consumption = 36047.27Rs

1 Months Consumption = 36047.27/12 = 3003.94Rs

2004-05: Annual Consumption = 38058.07Rs

1 Months Consumption

= 38058.07/12 = 3171.50 Rs.

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2. Stock In Process -Raw Material + Power + Labour + Repairs + Other Manufacturing Expenses + Depreciation + Opening Stock Closing Stock

2003-04: Cost of Production = 40125.5 Rs.

1Months Stock In Process = 40125.5/12 = 3343.81Rs.

2004-05 Cost of Production = 41315.08 Rs.

1MonthS Stock In Process = 41315.08/12 = 3442.92 Rs.

3. Finished Goods -Cost of Production + Opening Stock - Closing Stock 2003-04: Cost of Goods Sold = 40275.31Rs.

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1 Months Finished Goods = 40275.31/12 = 3356.27Rs.

2004-05: Cost of Goods Sold = 41529.54Rs.

1 Months Finished Goods = 41529.54/12 = 3460.85Rs.

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THEORTICAL MANAGEMANT

ASPECTS

OF

WORKING

CAPITAL

WORKING CAPITAL MANAGEMENT


NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature-

1) It is concerned with the formulation of policies with regard to profitability, liquidity and risk.

2) It is concerned with the decisions about the composition and level of current assets.

3) It is concerned with the decisions about the composition and level of current liabilities.

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Policies regarding to Profitability Liquidity and Risk

Composition of Level of Current Assets

Composition of Level of Current Liabilities

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DIMENSIONS OF WORKING CAPITAL

GOAL OF WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them.

The term current assets refer to those assets which is the ordinary course of business can be converted into cash within one year. Major current assets are cash, marketable securities, accounts receivable and inventory.

Current liabilities are those liabilities, which are intended, at their inception, to be paid in the ordinary course of business within a year, out of the current assets or earnings of the concern. Current liabilities are accounts payable, bills payable, bank overdraft, and outstanding expenses. Working capital is that portion of firms assets which is financed by long-term funds. Interaction between current assets and current liabilities is the main theme

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of the theory of working capital management.

Goal of working capital management is to manage the firms current assets and liabilities in such a way so that a satisfactory level of working capital is maintained.

The second important segment of working capital management is deciding the optimum level of investment in various current assets. There are three important current assets cash, accounts receivables and inventory

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INVENTORY MANMAGEMENT IN PARLE BISCUITS PVT. LTD.

For inventory management in Bahadurgarh plant of PBPL certain things are considered which are completely practical-

As market generally fluctuates so if there is any perception of the increment in the price level of any commodity in future then that particular commodity is stored.

All the materials of the mixture, which is used in making biscuits, can be stored maximum only for 3 days. Because store of plant is designed like this that more than 3 days storage cant be maintained in it.

Minimum levels of inventories are maintained in plant in wake of lead-time, govt. policies, and oneday safety stock for transportation problem.

Re-order levels of inventories are maintained in the plant in wake of per day consumption level of inventories and lead-time in days.

The position of inventory at the end of last two years is as follows-

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NAME OF THE COMMODITY

YEAR

AMOUNT (In Rs/-)

Stores and spares

2003-04 2004-05

82, 91,000 57, 29,000

Raw Materials

2003-04 2004-05

10, 21,52,000 8,11,54,000

Packing Material

2003-04 2004-05

5,82,08,000 7,08,06,000

Finished Goods

2003-04 2004.5

11,61,33,000 9,46,87,000

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CASH MANAGEMENT IN PARLE BISCUITS PVT. LTD.

Cash management in Parle Biscuits Pvt. Ltd. is as follows-

Average daily collection of the Parle Biscuits Pvt. Ltd. is 2 crores.

Salaries and Wages are distributed in Parle Biscuits Pvt. Ltd on monthly basis. 50,00,00075,00,000 salaries and wages are distributed in one month. Like this all other daily transactions are completed by daily collection.

In case of strike or any contingency supply of demand is completed by another plant of Parle Biscuits Pvt. Ltd. and by 11 CMUS. Supply doesnt disturb.

Authority for getting the benefit of any opportunity is given to Mumbai office of Parle Biscuits Pvt. Ltd. That decides the policy regarding to any market opportunity.

Parle Biscuits Pvt. Ltd. doesnt have any credit policy. It deals in cash. Thats why it doesnt has any cash problem. Distribution channel of Parle Biscuits Pvt. Ltd. is very short only depots are there as a middleman between plant & open market. Thats why there isnt any necessity of more cash. Biscuits come in FMCG product. So circulation of cash is smooth & fast.

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Production cycle is short. Thats why Parle Biscuits Pvt. Ltd has less demand of cash.

FUND FLOW ANALYSIS


The statement of change in financial position, prepared to determine only the sources and uses of working capital between dates of the two Balance Sheets is known as the Fund Flow Statement. Working Capital is defined as the difference between Current Assets and Current Liabilities. Working determines the liquidity of the firm. The Working Capital flow or fund arises when the net effect of transaction is to increase or decrease the amount of Working Capital. Normally, a firm will have some transactions that will change Net Working Capital and some that ill cause no change in Net Working Capital. The transaction will cause Net Change of Working Capital only when one of the accounts affected is a current account (Current Liability) and account is non-current account (Long-term Assets or Long term Liability).

The concepts of Working Capital may be summarized as follows:

The Net Working Capital increases or decreases when a transaction involves a current account and a non-current asset account.

The Net Working Capital remains unaffected when a transaction involves only Current accounts. The Net Working Capital remains unaffected when a transaction involves only non current accounts.

Now let us examine the Working Capital flow of Parle Biscuits Pvt. Ltd. through the statement of change in Working Capital.

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FINANCING OF WORKING CAPITAL


INTRODUCTION
A firm has to decide how it is to be financed. The need for financing arises mainly because the investment in Working Capital/Current Assets that is raw materials, work/stock-in-progress, finished goods and receivables typically fluctuates during the year.

The main sources of Working Capital financing are Trade Credit, Bank Credit, RBI framework/regulation of bank credit/finance/advances, Factoring, Commercial Papers and Internal Sources.

TRADE CREDIT

Trade Credit refers to the credit extended by the supplier of goods and services in the normal course of transaction/business/sale of the firm. According to trade practices, cash is not paid immediately for purchases but after an agreed period of time. Thus, deferral of payment (trade credit) represents a source of finance for credit purchases.

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BANK CREDIT
Bank Credit is the primary institutional source of Working Capital finance in India. In fact, it represents the most important source for financing of Current Assets.

Working Capital finance is provided by banks in five ways:

1) Cash Credits/Overdrafts 2) Loans 3) Purchase/Discount Bills 4) Letter of Credit 5) Working Capital term loans

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RESERVE BANK OF INDIA FRAMEWORK FOR /REGULATION OF BANK CREDIT

In order to secure alignment of Bank Credit with planning priorities and measures to direct Bank Credit to priority sectors and enforce a measure of financial discipline among industrial borrowers.

However, the basic character of Bank financing of Industry, namely over borrowing and domination of cash credit system did not materially alter.

COMMERCIAL PAPERS

Commercial Paper is a short-term unsecured negotiable instrument, consisting of usance promissory notes with a fixed maturity. It is issued on a discount on face value basis but it can also be issued in interest bearing form. A Commercial Paper when issued by a company directly to the investor is called a Direct Paper. The companies announce current rates of Commercial Papers of various maturities, and investors can select those maturities, which closely approximate their holding period. When Commercial Papers are issued by security dealers/dealers on behalf of their corporate customers, they are called Dealer Paper. They buy at a price less than the commission and sell at the highest possible level.

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FACTORING

Factoring provides resources to finance receivables as well as facilitates the collection of receivables. Although such services constitute a critical segment of the financial services scenario in the developed countries, they appeared in the Indian financial scene only in the early nineties as a result of RBI initiatives. There are two bank-sponsored organizations, which provide such services:

1) SBI Factors and Commercial Services Ltd.

2) Canarabank Factors Ltd.

The first private sector factoring company, Foremost Factors Ltd, started operations since the beginning of 1997.

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INTERNAL SOURCES

This is also another major source for financing of Working Capital. Internal Sources include profits, reserves etc.

FINANCING OF WORKING CAPITAL IN PARLE BISCUITS PVT. LTD.


In Parle Biscuits Pvt. Ltd financing of Working Capital is done through only internal sources. Profits and reserves of Parle Biscuits Pvt. Ltd. are enough to fulfill the demand of its Working Capital. Parle Biscuits Pvt. Ltd. doesnt use any other source apart internal for financing its Working Capital

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MANAGERIAL USEFULNESS OF STUDY

Today in the business line every man. want to know about his company financial condition. A working capital is a part of finance. The working capital are calculated by the current assets and current liabilities which are related to annual report of the company. With the help of working capital management we can calculated the liquidity position of the company. If the current assets are more than the current liabilities thus we can say that the liquidity position of the company is satisfactory, the usefulness of study is included the signification of the working capital. Working capital management is manage the operating process in the organization & company. All the businessmen want to know how much they have gained or lost during the year; how much capital is invested in the business at the end (if the year; how much amount, they are liable to pay and to whom they owe it; how much is owed to them and by whom etc. In order to attain such information, it is essential to keep a complete and systematic record of each and every business transaction entered into during the year. By keeping a complete and systematic record of every business dealing the businessman can know how much the amount of purchases is; how much is the amount of sales; what are his total expenses and what is the amount of profit earned or loss incurred during the year. Furthermore, he can ascertain the financial position of his business, such as, how much capital it has at the end for the year and how that capital stands invested in various assets; how much amount he has to take and from whom and how much amount he is liable to pay and to whom. Besides, the properly maintained accounts are helpful in the assessment of Income-tax and Sales

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CONCEPT USED IN STUDY

In this project I used working the ratio which are used for calculating for the financial conditions of Parle Biscuit Pvt. Ltd. I have used the ratio which are networking capital ratio, current ratio, average collection ratio and quick ratio. These ratio are very useful to understand the topic because we can calculate the working capital by the help of these ratio. I have used these ratio by the declaration of financial manager of Parle Biscuit Pvt. Ltd. These ratio are shows the liquidity position in the financial competition. Ratio help to summaries the large quantities of financial data and to make qualitative judgment about the firms financial performance. The project is developed keeping in mind the security of working capital of the company. That is possible with the help of ratio analysis.

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Focus of the Problem


The main purpose of study the account process is to find the main reason or decision which can improve the business of the company. The main purpose or focus of the problem is to know that which product should be used in the company and why and how can it be effective for the company? The main focus of the problem is to find out output of the economical business. Since a special reference has been made towards Parle Biscuits Pvt. Ltd. business has also become equally important and unless we know the methodology adopted by Parle Biscuits Pvt. Ltd. our study will not give the true picture. In nutshell, the focus of our study is find the amount consolidation of the entire group.

Our study is focused on to know about the amount consolidation of the entire group and the international financial market.

The study is also focused on satisfaction of the customer, job satisfaction level of the employees and the effectives handling of accounts with computer & related software.

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OBJECTIVE OF PROJECT

Right from the beginning and also in present scenario, Confectionary has carved for itself a strong place in the international market with around half of the global primary demand of confectionary products. This scenario likely to continue into the 21 st century. Now-a-days confectionary products are also a means to economic power. Most of the nations including developing countries like INDIA have placed adequate emphasis on self-reliance technology in confectionary industry.

There has been a rapid and manifold increase in the activities of Parle Biscuits Pvt. Ltd. since past. These have been directed towards achieving of self-sufficiency in biscuit industry. In order to meet out the rising demand of biscuits in the country co-coordinated and consolidated efforts are required in the direction of exploration. It is precisely in such a background, that the role of analysis of working capital and its various components, so as to manage them effectively, gets pronounced. The problems in managing Working Capital particularly in the context of the risk-return trade off associated to very little scientific and rational analysis. It is against this backdrop that the present study seeks to make an attempt to critically analyze the effectiveness of Working Capital Management of Parle Biscuits Pvt. Ltd. and offer suggestions for improvement wherever necessary.

1. Primary : To find out the operating and day to day financial functions
which reflects how the company operates its operating cycle and manage financial flow in day to day business activity.

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2. Secondary :
1. To know the functioning of the finance deppt. Of Parle Biscuits Pvt. Ltd. 2. To analyze the liquidity position of the organization 3. To examine profitability position of the management 4. To find out the weaknesses and to suggest various suggestions 5. To study the performance of the Parle Biscuits Pvt. Ltd. 6. To know about certain innovations made in organization as compared to past. 7. To prepare report on study thus conducted.

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Scope of the Work

Company has opportunities of tapping new markets by their products. Company is trying to expand its network in many countries. Societal effects, company has a good scope in the field of home loans and insurance sector. On one side it will be good for the society and on the other side it will be beneficial for the company , as the loans have good profits margins.

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RESEARCH METHODOLOGY

After knowing the job profile of every employee of finance department in Bahadurgarh plant of PBPL. I choose the project of Working Capital Management. I discussed the project with my instructor and coordinator Mr. JAIDEEP BHALA Deputy Manager of Finance Department.

He approved the project. After that a simple course of action has been followed for working on this project. All the data are gathered from the respective annual report of Parle Biscuits Pvt. Ltd. All the figures are taken from their balance sheet, profit & loss account of the respective years and other internal documents.

My instructor Mr. JAIDEEP BHALA in understanding the facts and figures provided a great help. Mr. BHALA made it possible for me to ask my queries from that person who can answer these best rather than anybody else in the company. Although is has been a difficult task but the availability of proper data and timely guidance given by Mr. BHALA made it a little simpler to complete this project. In a lucid way I can summarize the steps of Research Methodology as1)Collection 2)Organization 3) Presentation 4)Interpretation

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Research Design

The research design involves taking the decision on type of data sources from which the data is to collected and the contact methods. The research design selected by me was descriptive cum analytical as this the best suited to analyze the fact which already exist and choose the best one for welfare of the employees.

Survey Population

In Survey population we have to check all the employees working with us. According to that data we can take a decision toward them and can make a choice regarding them. By this survey we also came to know how they are surviving in real.

Sample

It is the process by which a part of population is selected to serve as reprentative of the population on which research is carried out. This the necessary buse sometimes the size of population makes it difficult to study each member of population. The sample is part of population which is selected by using sampling procedures. The sample represents the population.

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METHODS OF DATA COLLECTION

To deal with real life problems it is often found that data at hand are inadequate and hence it becomes necessary to collect data appropriate. As the project is on working capital information include was collected from the finance dept. for this purpose data collection was done through the primary as well as secondary data.

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1. Primary Data

Primary data is the data collected specially for the specific purpose, it can be collected through experiment or through survey. In a case of survey data can be collected by one or more of the following ways.

1)COMMUNICATION METHOD 2)OBSERVATION METHOD

All the data has been collected from the primary sources.

1. Communication

In Communication data we uses the mode of communication which we uses oftenly. By collecting the data from this method is the direct interaction. We can collect this data for further use also. Because this data can be used during comparison from last ones.

2. Observation

During the Data Collection first of all we have to see all the aspect related to data. From where we can get the input according to our project. As the data collection will be taken initially then we can get the best output.

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2. Secondary Data

Secondary data consists of information that already exists somewhere and was collected for another purpose which may not be the same.

Secondary Data used here

Various files Magazine and Books Performas and Websites

I have used secondary data in the completion of this summer training report.

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Data Analysis
ANALYSIS OF WORKING CAPITAL MANAGEMENT

In this chapter an analysis over the Working Capital of Parle Biscuits Pvt. Ltd. has been done. But before going further let us have a look on the current position of Working Capital.

The Working Capital of the last two years is as follows

(Amount in Lacs Rs/-) YEAR SALES INVESTMENTS WORKING % CAPITAL OF % OF

WORKING WORKING CAPITAL CAPITAL TO

2003-04 2004-05

68000 70000

33540.19 27390.76

6596.16 5294.01

TO SALES 9.70 7.56

INVETSMENTS 19.67 19.32

In year 2002-03 Working Capital of Parle Biscuits Pvt. Ltd. was 2500 lacs Rs/- while in the same period the sales was noticed 65,000 lacs Rs/- then % of Working Capital to sale was 3.84 but in the next year 2003-04 sales was 50,000 lacs Rs/- and Working Capital was 3,000 lacs Rs/-. So in year 2003-04 % of Working Capital to sales was 6.

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In year 2002-03 Investments were 20,000 lacs Rs/- so % of Working Capital to Investments was 12.5 and in year 2003-04 Investments were 15,000 lacs Rs/- so % of Working Capital to Investments was 20.

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CALCULATION OF WORKING CAPITAL

80000 70000 60000 50000 Amount 40000 30000 20000 10000 0

SALE 70000 68000

INVESTMENT 33540.19 27390.76 Working Capital 6596.16 5294.01

2003-04 2004-05

2 Years

Amount in Lacks

% OF WORKING CAPITAL TO SALES & INVESTMENTS


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25 20 15 10 5 0 1
Amount in Lacs
% of Working Capital to Sales 9.7 7.56

% of Working Capital to Investment 19.32 19.67

2003-04 2004-05

RATIO ANALYSIS

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It is a powerful tool of financial analysis. A ratio is defined as the indicated quotient of two mathematical expressions and as the relationship between two or more things. Ratio helps to summaries the large quantities of financial data and to make qualitative judgment about the firms financial performance. The point to note is that a ratio indicates a quantitative relationship, which can be turn, used to make a qualitative judgment.

Here are some of the calculated ratios of the financial year of Parle Biscuits Pvt. Ltd. All the ratios are calculated in Lacs Rs/- figures.

Net Working Capital Ratio


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Net Working Capital Capital Employed 2003-04 2004-05

Net Working Capital Net Assets or Capital employed

6596.16

5294.01 29340.48

35093.56 Ratio .22: 1 .15: 1

The difference between Current Assets and Current Liabilities excluding short-term borrowings is called Net Working Capital or Net Current Assets. The position of Net Working Capital in the year 2003-04 is better as compared with the year 2002-03. The important thing to say is that this organization has healthy Current Assets.

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Net Working Capital Ratio


0.25 0.2 0.15 0.1 0.05 0 2003-04 2004-05 Net Working Capital Ration 0.22 0.15 2003-04 2004-05 0.15 0.22

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Current Ratio

Current Assets Current Liabilities

2003.4

2004-05

Current Assets Current Liabilities Ratio

26686.68 20090.52 1.33: 1

28602.82 23308.81 1.23: 1

Current Assets include cash and those assets, which can be converted into cash within a year. All obligations maturing within a year are included in current liabilities.

As a conventional rule a current ratio 2: 1 or more is considered satisfactory. The current ratio doesnt represent margin of safety i.e. a cushion of protection for creditors.

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1.34 1.32 1.3 1.28 1.26 1.24 1.22 1.2 1.18 2003-04 2004-05 Current Ratio 1.33 1.23 2003-04 2004-05

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Average Collection Ratio

Debtors*360 Sales

2003-04

2004-05

Debtors*360 Sales Days

1217.16*360 68000 6.45

821.90*360 70,000 4.22

The average collection period shows the efficiency of debtors. It tells that Parle Biscuits Pvt. Ltd doesnt has credit policy and if is given then in rare cases.

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7 6 5 4 3 2 1 0 2003-04 2004-05 Average collection ratio 6.45 4.22 2003-04 2004-05

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Quick Ratio or Acid Test


Current Assets - Inventories Current Liabilities

2003.4 Current Assets Inventories 26686.68-2869.33= 23817.35 Current Liabilities Ratio 20090.52 1.18: 1

2004-05 28602.82 -2524.98= 26077.84 23308.81 1.12: 1

Generally a quick ratio of 1:1 is considered to represent a satisfactory position. But it cant be said tat a company having quick ratio of less than 1:1 isnt financially sound, Because it depends upon the nature of debtors. If the debtors are slow paying the quick ratio of more than 1:1 can become harmful. But if debtors are liquid like in this organization than even less than 1:1 can work out to be satisfactory. As debtors of this organization arent slow paying so that quick ratio is satisfactory.

The above made calculation of various ratios has told us about the various aspects of Working Capital of Parle Biscuits Pvt. Ltd. The system is well under control an effective but still in some areas a little more concentration to be needed.

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1.19 1.18 1.17 1.16 1.15 1.14 1.13 1.12 1.11 1.1 1.09 2003-04 2004-05 Quick Ratio 1.18 1.12 2003-04 2004-05

SCHEDULE OF CHANGE IN WORKING CAPITAL

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Particulars

2003-04

2004-05

Effect on Working capital


Increase Decrease

Current Assets
Inventories Debtors Cash Accured Income Total 270934 172716 153228 816122 1413000 297238 1111814 1409052 3948 289272 188725 168070 868345 1514412 357239 1151815 1509054 5358 18338 16009 14842 52223

Current Liabilities
C/L (Cr.) Provisions Total W.C (A-B) Pos. Inc. in W.C 60001 40001 101412 1410 100002

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The project is developed keeping in mind the security of Working Capital of the company. Means that no one can enter in the confidential data of the company and without permission the senior officer one cant enter in the main programme whether he is Manager, Employee or the Guest.

FINDINGS
It is very difficult to make the project or the analysis in such a way that can solve all the problems according to the requirements. In this project it is being tried to give more and more facilities but in a short period of training time, as much as possible has been done.

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1.In the year 2002-03 working capital of Parle Biscuit Pvt. Ltd. Was 2500 Lacks Rs/. While in the same period the sales was noticed 65,000 Lacks Rs/. Then % of working capital to sale was 3.84 but in the next year 2003-04 sales was 50,000 Lacks Rs/. And working capital was 3,000 Lacks Rs/. So in year 200304 % of working capital to sales was 6. 2.In the year 2002-03 investment were 20,000 Lacks Rs/. So % of working capital to investments was 12.5 and in year 2003-04 investment were 15,000 Lacks Rs/. So % of working capital to investments was 20. 3. The Position of Net Working Capital in the year 2003-04 is better as compared with the year 2002-03. The important thing to say is that this organization has healthy current assets. 4. As a Conventional rule a current ratio 2:1 or more is considered satisfactory the current ratio dont represent margin of safety i.e. a cushion of protection for creditors. 5. The average Collection period shows the efficiency of the debtors, it tells that Parle Biscuit Pvt. Ltd doesnt has credit policy and if is given then in rare cases. 6. It can not be said that a Company having a quick ratio of less than 1:1 isnt financially sound because it depends upon the nature of debtors. If the debtors are slow paying the quick ratio of more than 1:1 can become harmful. But if debtors are liquid like in this organization than even less than 1:1 can work out to be satisfactory.

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Recommendation
Total Current assets need to be increased. Total Liabilities of outsiders should be deceased. Net Profit need to be improved. Overall Management should be improved. Expenditure should be decreased. Organization has healthy current assets but it is need to more improved current assets and liquidity power. The organization is well under controlled and effective but still in some areas a little more concentration to be needed.

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Limitations of the Study The major limitations of my study are as under. Limited Time : Although the staff of Parle Company Pvt. Ltd. was very efficient and highly co-operative and devoted enough of their valuable time to us. But because of time constant. We were not able to devote as much time with their employees. Secrecy: Some of the information was kept confidential and was not disclosed to any person who so ever. Lack of Comparative Data : Due to non availability of other industries in the same line we were not able to compare the data of one organization with other one. Inspire of these difficulties we still put our best efforts to try to do the full justice subject matter and in completion of the report.

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Conclusions
Success is achieved by those who try where there is nothing to loose by trying a great deal to gain if successful, by all means try. W.Clement Stone

The study has its own importance in its own way. With the help of this study one can know about the struggle and success of Parle Biscuits Pvt. Ltd. Efforts, which is due to its efficient management.

The study will definitely increase the morale of each employee and by studying this managers come to know that what effective measures can be taken to maintain the effective use of working capital in the organization and thus to achieve goals of the organizations.

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BIBLIOGRAPHY Text Books


D.C.Sharma & K.G.Gupta M.Y.Khan & P.K.Jain Annual Reports 1) Parle Biscuits Pvt. Ltd. annual report 2001-02 2) Parle Biscuits Pvt. Ltd. annual report 2002-03 3) Parle Biscuits Pvt. Ltd. annual report 2003-04 Management Accounting Financial Management

ANNEXURE
Profit and Loss Account
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Particulars Sales Less: Cost of Goods Sold Opening Stock Add: Raw Material Consumed Packing Material Consumed Payment to an Provisions for employees Store and Spare Parts Consumed Power and Fuel Conversion Charges Rates and Taxes Less: Closing Stocks Gross Profit Less : Operating Expenses Selling and Distribution expenses Repair and Maintenance Advertisement and Sales/ Marketing Expenses Communication Expenses Cash Discount Traveling and Convince Expenses General and Administrative Expenses Rent Printing and Stationary

2003-04 5282907 137107 3067148 723740 171429 43975 120505 257928 68721 136933 829287 44499 187875 2103 20440 6312 4636 2276

2004-05 5505061 136933 3268256 666587 126067 40306 142037 305061 78051 105061 846824 40507 250507 2209 25061 7051 2051 2051

Insurance Legal and Professional Financial Expenses Depreciation Miscellaneous Operating Profit

3531 3642 103900 5488 327846

3033 4050 95061 6057 396336

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Add : Not Operating Income Income from Investment Other Incomes Less : Non Operating Expenses Net income before Tax Less : Tax@38.5% 426074 164038 564459 217317 87622 10606 146251 21872

Net Income

262036

347142

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Common Size Statement Profit and loss Account Particulars 2003-04 2004-05

Sales Less Cost of Good Sold Gross Profit Less : Operating Expenses Selling and Distribution Expenses General and Administration Expenses Financial Expenses Misc. Expenses Total Operating Expenses Operating Profit Total Income Less : Other Expenses Income Before Tax Less : Provision for Tax Income after Tax

100 84.3 15.7 7.15 .27 1.97 .10 9.5 6.21 1.86 8.07 3.11 4.96

100 84.62 15.38 6.14 .20 1.72 .11 8.18 7.2 3.05 10.25 3.95 6.3

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Balance Sheet
Particulars Liabilities Share Capital Reserves and Surplus Secured Loans Unsecured Loans Current Liabilities 2003-04 4950 1494788 and 297238 1111814 2908790 2003-04 556596 939194 Loans and 357239 1151815 3273856 2004-05 583761 1175683 2004-05 4950 1759852

Provisions a) Current Liabilities(Creditors) b) Provisions Contingent Liabilities Total Particulars Assets Fixed Assets Investment Current Assets,

Advances a) Current assets Stock Debtors Cash b) Loans and Advances Misc. Expenditure Profit and Loss A/c(Dr. Balance)

270934 172716 153228 816122

289272 188725 1680707 868345

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Total

2908790

3273856

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