A

PROJECT REPORT
ON
WORKING CAPITAL MANAGEMENT

UNDERTAKEN AT:
Sayan vibhag shakari khand Udyog Mandli Ltd.

SUBMITTED BY:
MARTEEN PATEL
(09MBA32)
GUIDED BY:
MR. MANISH PATHAK

MBA PROGRAMME
YEAR-2009-2011

SHRIMAD RAJCHANDRA INSTITUTE

OFMANAGEMENT AND COMPUTER APPLICATION
ACKNOWLEDGEMENT
I am grateful to the management of Sayan vibhag shakari khand Udyog
Mandli Ltd.for giving me this opportunity to complete the project
successfully.
I am sincerely thankful to the managing director of Sayan vibhag shakari
khand Udyog Mandli Ltd. Bipinkumar I. Patel for his kind guidance and
co-operation. Without his guidance, it would have been a hard task to
complete this project work successfully.
I acknowledge and offer thanks to assistant account of Sayan vibhag
Shakari Khand Udyog Mandli Ltd. Rajubhai M. Patel for his sustained
interest, valuable guidance and giving and opportunity to do the project.
I am also thankful to Mr. Manish Pathak for giving me this opportunity
to gain my practical knowledge. I am very much grateful to him for his
precious guidance, which he has given me to complete my project work
successfully.

DECLARATION
The project entitled Working Capital Management is
submitted

to

shrimad

Rajchandra

Institute

of

Management & Computer Application, Surat. I have

completed the project under the guidance of Mr.
Manish Pathak (Faculty Member of SRIMCA College).
The project assignment study is result of my findings
and research in the subject and it is original in nature.

Marteenpatel
(09mba32)
Executive Summary
The number one reason most people look at a Balance sheet is to find out
a company's working capital (or "current") position. It reveals more about
the financial condition of a business than almost any other calculation. It
tells you what would be left if a company raised all of its short term
resources, and used them to pay off its short term liabilities. The more
working capital, the less financial strain a company experiences. By
studying a company's position, you can clearly see if it has the resources

necessary to expand internally or if it will have to turn to a bank and

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

Research Objective:
The main objectives of study aimed as:

To get the information about the financial position, performance

and cash flow of Sayan Sahakari khand Udyog Mandli Ltd
The Secondary objective :

Calculate and analyze Operating cycle of the company.

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

To estimates and analyze Working capital ratios of the company.

RESEARCH DESIGN:
Basically there are 3 types of Research Design.
1. Exploratory Research Design.
2. Descriptive Research Design.
3. Causal Research Design.
The research design for this study is Descriptive Research
Design.
To choose this Descriptive research in Working Capital Management is
that descriptive research has been used to define the characteristics of
the phenomena and to clearly define it.
DATA SOURCES:
The information is collected from secondary data during the project. The
Sources of secondary data are Financial Statement, Cash flow, Internet,
Books Etc.

TABLE OF CONTENTS

Topic

SR.

PAGE NO.

NO.
01
02

03

About the Company

About

the

Topic

&

Literature

Review
RESEARCH METHODOLOGY

10

3.1 Objectives
3.2limitations
3.3 Benefits
04

Data Analysis & Interpretation

13

05

FINDINGS

40

06

RECOMMENDATIONS

41

BIBLIOGRAPHY

42

Chapter 1
About
The Company

ABOUT THE COMPANY

This society is registered under the Gujarat Cooperative Societies Act
1961, on 20th November 1972 and its Registration Number is S - 27. The
Number of Shareholders is 11,406.
This factory is situated at village: Sayan, Tal. Olpad, Dist. Surat. The area
of operation covers 207 villages of Olpad, Choryasi, Kamrej, Mandavi &
Mangrol talukas. The total Capital Investment of the factory is Rs. 61
Crores and the Annual Turn-over is Rs. 150 Crores. The area has rich
black cotton soil and cotton was the most established stable crop of the
area, gradually cotton disappeared and Sugarcane crop come into
existence.
The Central Government has approved a license No. CIL - 465 in 1976 for
establishment of a 1,250 TCD Sugar Plant. Initially the plant and
machinery

had

been

supplied

by

the

Indian

Sugar

&

General

Engineering Corporation, Yamunagar (Haryana). The project was carried

out in 1978-79 with a crushing figure of 1,28,397 tones cane and a
recovery of 9.46%.
In 1984 the plant was expanded 1,250 TCD to 2,000 TCD. Then in 1987
it was expanded up to 3,500 TCD. Lastly it was expanded in 1992 with a
crushing capacity of 5,000 TCD. We manufacture Sugar through Double

Sulphitation Process and to reach the International standard of Sugar we

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

Products
SUGAR
The sugar which is a Carbo-hydrate is obtained from sugar cane and is
known as Cane Sugar. It contains 99.50% sucrose. Actually cane sugar is
chemically known as Sucrose which is disaccharide. It is soluble in
water. Sucrose is dextrorotatory on hydrolysis which is chemically known
as inversion, it yield a mixture of Glucose and Fructose. Glucose and
Fructose both are monosaccharide and are levorotatory. Sugar is
essential part of human diet hence it comes under essential commodity.
This sugar when heated to 180C yield amorphous brown syrupy
substance called caramel which is used as a colorant in food products
and drinks. The sugar is having multiple uses. It can be used as a row
material in fermentation industry to produce Ethyl Alcohol, Butyl
Alcohol, Glycerin and Citric Acid.
BAGASSE
Bagasse is the residue obtained from crushing cane in the mills. It
contains about 50% moisture and 2% sugar and the balance is fiber. It is

also very commonly used as fuel in boilers in the Sugar Factory. Bagasse
is used as a row material for the production of Cellulose, Furfural, Paper,
Particle board, Cattle feed etc.
MOLASSES
Molasses which is also known as black strap molasses or treacle is a
dark brown viscous liquid obtained as a by-product in processing Cane
Sugar. It contains nearly 45% uncrystallized, fermentable Sugar & some
Sucrose. It is a valued by-product of foreign liquor, as a table syrup and
food flavourant, Ethyl Alcohol, Acetic Acid, Citric Acid, Glycerin and
Yeast. It is also used as food for farm animals and in the manufacture of
several processed tobaccos. It is not economical to crystallized the sugar
from molasses.
RECTIFIED SPIRIT (RS)
It is manufactured by Formation & Distillation of molasses,
As per IS: 323-1959 specification.
(i) Sp. Gravity 0.8171 at 15.6C.
(ii) Percent by volume 94.68 at 15.6C.
It is used for manufacturing of Acetic Acid, Acetone, Oxalic Asid Absolute
Alcohol & other various chemicals.
ABSOLUTE ALCOHOL (ETHANOL)

It is manufactured by Azeotropic Distillation of Rectified Spirit as per

IS :321-1964 specification.
(i) Sp. Gravity 0.7961 at 15.6C.
(ii) Ethanol content 99.8 percent by volume at 15.6C.
It is used as Fuel in Automobile and also in Pharmaceutical Industries.

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

We are also planning for CONSUMER PACKED SUGAR in 250,500, 1kg,

2kg and 5kg packing.

Chapter 2
-

About the Topic

&
Literature
Review
About The Topic
Working Capital : ( NEED FOR THE STUDY)
The number one reason most people look at a balance sheet is to find out
a company's working capital (or "current") position. It reveals more about
the financial condition of a business than almost any other calculation. It

tells you what would be left if a company raised all of its short term
resources, and used them to pay off its short term liabilities. The more
working capital, the less financial strain a company experiences. By
studying a company's position, you can clearly see if it has the resources
necessary to expand internally or if it will have to turn to a bank and
take on debt.
Working capital, being the lifeblood of any organization has a broad
spectrum of importance in running the short term objectives such as
cash management on one hand and decisions pertaining to foreign
exchange activities on the other.
Working capital on the balance sheet is the difference between current
assets and current liabilities. The reason working capital is so important
is because it lets you know the resources management has on hand to
pay day-to-day bills and conduct operations. Some companies, such as
Wal-Mart or other restaurants, can actually have negative working
capital.
Operating a business with a balance in capital management is essential
to every business whether small or large.

A constant vigil over how

much money comes in and how much money goes out, as well how much
money is tucked away must be maintained.

A business could find itself

at a production standstill or even bankruptcy because of a lack of cash.

A vital tool in an effective capital working policy is cash budgeting.

cash budget is a way to monitor a businesses cash inflows and outflows,

which in turn assist in predicting a company's ability to pay debt,
expenses and can be used in planning short-term credit needs. The

company is in a constant state of worry in regards to paying off the loan

without borrowing any more money
working capital cycle:
The

diagram

below

illustrates

the

working

capital

cycle

for

manufacturing firm

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

Working Capital is the easiest of all the balance sheet calculations. Here's
the formula.
Current Assets - Current Liabilities = Working Capital
One of the main advantages of looking at the working capital position is
being able to foresee any financial difficulties that may arise. Even a
business that has billions of dollars in fixed assets will quickly find itself
in bankruptcy court if it can't pay its monthly bills. Under the best
circumstances, poor working capital leads to financial pressure on a
company, increased borrowing, and late payments to creditor - all of
which result in a lower credit rating. A lower credit rating means banks
charge a higher interest rate, which can cost a corporation a lot of money
over time.
The Working Capital is also known as Circulating Capital &
Floating Capital
As From my company(Sayan khand udyog) They make working capital for
continues production for that they have a lot of raw materials, Finished
good, worker salary etc for that necessary of money its call working
capital.

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

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

the view that less profitable firms wait longer to pay their bills. (Deloof,
2003)

Working capital management, performance, utilization, and overall

efficiency indices were calculated instead of using some common working
capital management ratios. Setting industry norms as target-efficiency
levels of the individual firms, this paper also tested the speed of
achieving that target level of efficiency by an individual firm during the
period of study. (Ghosh and Maji, 2003)
Working Capital Managementprovide you with the right tools and
capabilities to optimize working capital and unlock the true value of your
financial supply chain
.REFERED RESEARCH ARTICLES & JOURNALS: Reference Sites:
http://www.bizresearchpapers.com/Paper%2019.pdf

http://www.bizresearchpapers.com/Kesseven.pdf

http://www.eurojournals.com/irjfe_32_12.pdf

http://www.ariba.com/pdf/solutions/WorkingCapitalMgmtD
atasheet.pdf

http://www.bim.edu/pdf/lead_article/kanna.pdf

Chapter 3
-

RESEARCH
METHODOLOGY

Objective of study:

The main objectives of study aimed as:

To get the information about the financial position, working capital
health, performance of Sayan Sahakari khand Udyog Mandli Ltd
The Secondary objective :

Calculate and analyze Operating cycle of the company.

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

To estimates and analyze Working capital ratios of the company.

RESEARCH METHODOLOGY:
RESEARCH DESIGN:
Basically there are 3 types of Research Design.
4. Exploratory Research Design.
5. Descriptive Research Design.
6. Causal Research Design.
The research design for this study is Descriptive Research
Design.
To choose this Descriptive research in Working Capital Management is
that descriptive research has been used to define the characteristics of
the phenomena and to clearly define it.
DATA SOURCES:
1. primary data
2. Secondary data

The information is collected from secondary data during the project. The
Sources of secondary data are Financial Statement, Cash flow, Internet,
Books Etc.
Time period:The time period that has been used is of 2004-05 to 2008-09.
Limitations of the study:

This study is limited to Five years.

This study limited to one company.

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

Benefits of the study:

Company manages their working capital requirements.

Also manage their operating cycle.

Objectives of working capital management:

The basic objectives of working capital management are as follows:

By optimizing the investment in current assets and by reducing the

level of current liabilities, the company can reduced the locking up
of funds in working capital thereby; it can improve the return on
capital employed in the business.

The second important objective of working capital management is

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

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

Chapter 4
DATA ANALYSIS

&
INTERPRETATION

Data Analysis :
Operating cycle concept:
A new concept which is gaining more and more important in recent years
is the operating cycle concept of working capital. The operating cycle
refers to the average time elapses between the acquisition of raw
materials and final cash realization.
Cash is used to buy raw material and other stores, so cash is converted
into raw materials and stores inventory. Then the raw materials and
stores are issued to the production department. Wages are paid and
other expenses are incurred in the process and work-in-process comes
into existence. Work-in-process becomes finished goods. Finished goods
are sold to customers on credit. In the course of time, these customer
pay cash for the goods purchased by them. Cash is retrieved and the
cycle is completed.

Thus operating cycle consist four stages:

-

The raw materials and stores inventory stage

The work in progress stage

The finished goods inventory stage

The receivable stage

Raw
material
inventory

Cash

Work in
process

Accounts
Receivables

Finished
goods

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

Average value of raw material stock

365

Average consumption of raw material

(b) Work-in-progress conversion period =

Average work-in-progress

365

Average cost of goods sold

(c) Finished goods conversion period =

Average stock of finished goods 365

Average cost of goods sold

(d) Book debts conversion period =

Average value of receivables 365

Average value of sales

(e) Payment deferral period =

Average level of creditors

Average purchase of raw material

365

For: - 2008-09

RMCP = 480072.60 365 = 179 Days

978919.00

WIPCP = 29294200 365 = 4 days

2797117677

FGCP = 1780875787 365 = 232 days

2797117677

DCP = 262596083 365 = 39 days

2438938285

PDP = 1610752600 365 = 256 days

2296966648

Gross operating cycle = RMCP + WIPCP + FGCP + BDCP

= 179 + 4 + 232 + 39
= 454
Net operating cycle = RMCP + WIPCP + FGCP + BDCP PDP

= 179+ 4 + 232 + 39 256

= 198

For: - 2007-08

RMCP = 717761.92 365 = 229 Days

1144031

WIPCP = 33019800 365 = 7 days

1915292474

FGCP = 1455440558 365 = 277 days

1915292474

DCP = 298660656 365 = 62 days

1753453795

PDP = 862881412 365 = 230 days

1366714664

Gross operating cycle = RMCP + WIPCP + FGCP + BDCP

= 229 + 7 + 277 + 62
= 575
Net operating cycle = RMCP + WIPCP + FGCP + BDCP PDP
= 229 + 7 + 277 + 62 230
= 345

For: - 2006-07

RMCP = 765456.03 365 = 229 Days

1220050

WIPCP = 30945600 365 = 7 days

1590715230

FGCP = 1087095575 365 = 249 days

1590715230

DCP = 209700417 365 = 54 days

1410902362

PDP = 711624188 365 = 229 days

1133227589

Gross operating cycle = RMCP + WIPCP + FGCP + BDCP

= 229 + 7 + 249 + 54
= 539
Net operating cycle = RMCP + WIPCP + FGCP + BDCP PDP
= 229 + 7 + 249 + 54 229
= 310

For: - 2005-06

RMCP = 525656.24 365 = 184 Days

1042742.00

WIPCP

20614700.00 365 = 4 days

1976201317

FGCP = 1444530793 365 = 267 days

1976201317

DCP = 189330540 365 = 38 days

1822335367

PDP = 1229460744 365 = 278 days

1616608043

Gross operating cycle = RMCP + WIPCP + FGCP + BDCP

= 184 + 4 + 267 + 38
= 493
Net operating cycle = RMCP + WIPCP + FGCP + BDCP PDP
=184 + 4 + 267 + 38 278
= 215

For: - 2004-05

RMCP = 212633.09 365 = 118 Days

657721.00

WIPCP

14604070.00 365 = 4 days

1419145192

FGCP = 1150743072 365 = 296 days

1419145192

DCP = 171597551 365 = 50 days

1262783964

PDP = 482556373 365 = 163 days

1077456025

Gross operating cycle = RMCP + WIPCP + FGCP + BDCP

= 118 + 4 + 296 + 500
= 468
Net operating cycle = RMCP + WIPCP + FGCP + BDCP PDP
=118 + 4 + 296 + 50 163
= 305

Operating cycle table:-

Year

RMCP

2008-09
2007-08
2006-07
2005-06
2004-05

179
229
229
184
118

Graph:-

WIPCP

4
7
7
4
4

FGCP

232
277
249
267
296

DCP

39
62
54
38
50

PDP

256
230
229
278
163

Gross

Net

operating

operating

cycle
454
575
539
493
468

cycle
198
345
310
215
305

Interpretation:Here, the company raw material conversion period and finished goods
conversion period is very long because this is a Sugar industry and it will
required long raw material conversion period and finished goods. In work
in progress conversion period conversion period is short compare all
other conversion periods. Also the debtors conversion period is short and
payment deferral period long in all year that good sign for the company.
The net operating cycle is very short in year 2008-09 and it will better for
the company. But in all other years this will very long. They will not more
focusing on debtors conversion period as well as the payment deferral
period. For this reason the company can face this problem. In the year
2008-09 the company can reduce the conversion period its good for the
future also.

Working capital ratios:

Working capital ratios indicate the ability of a business concern in
meeting its current obligations as well as its efficiency in managing the
current assets for generation of sales. These ratios are applied to evaluate
the efficiency with which the firm manages and utilizes its current
assets. The following three categories of ratios are used for efficient
management of working capital:
(1) Efficiency ratios (2) Liquidity ratios (3) Structural health ratios
(1). Efficiency ratios
(a) Working capital to sales ratio = sales/working capital
This ratio is computed by dividing sales by working capital. This ratio
helps to measure the efficiency of net working capital. It signifies that for
an amount of sales, a relative amount of working capital is needed. If any
increase in sales is contemplated, working capital should be adequate

and thus, this ratio helps management to maintain the adequate level of
working capital.
Year

Sales

Working capital

sales/working
capital

2008-09

2438938285

670389957

3.64

2007-08

1753453795

646824737

2.71

2006-07

1410902362

553151736

2.55

2005-06

1822335367

569355958

3.20

2004-05

1262783964

548361037

2.30

Graph:-

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

(b) Inventory turnover ratio = sales/inventory

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

Year
2008-09
2007-08
2006-07
2005-06
2004-05
Graph:-

Sales
2438938285
1753453795
1410902362
1822335367
1262783964

Inventory
1780875787
1455440558
1087095575
1444530793
1150743072

sales/inventory
1.37
1.20
1.30
1.26
1.10

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

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

This ratio indicates the efficiency with which current assets turn into
sales. A higher ratio implies by and large a more efficient use of funds.
Thus, a high turnover rate indicates reduced lock-up of funds in current
assets. An analysis of this ratio over a period of time reflects working
capital management of a firm.
Year
2008-09
2007-08
2006-07
2005-06
2004-2005
Graph:-

Sales
2438938285
1753453795
1410902362
1822335367
1262783964

Current assets
2449508004
2017804514
1360130778
1859752438
1340579295

Sales/current assets
1.00
0.87
1.04
0.98
0.94

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

(2) Liquidity ratio

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

Year

Current assets, Current

loans

liabilities

&advances

provisions

current

assets,

& loans
advances/current
liabilities

2008-09
2007-08
2006-07
2005-06
2004-2005

2449508004
2017804514
1360130778
1859752438
1340579295

1779118047
1370979777
806979042
1290396480
792218258

&

&

provisions
1.38
1.47
1.69
1.44
1.69

Graph:-

Interpretation:The ideal current ratio is 2:1. It indicates that current assets double the
current liabilities are considered to be satisfactory. Here, low value of

current ratio. At initial stage it is near to 2:1 but then after it will more
decrease. It is not good for the company.

(b) Quick ratio = current assets, loans & advances

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

Year

Current

Inventory

assets,
loans

Current
assets,

&

2008-09

advances
2449508004

2007-08
2006-07
2005-06
2004-05

2017804514
1360130778
1859752438
1340579295

Current
loans liabilities

Quick
& ratio

& advances provisions

1780875787

inventory
668632217

1779118047

0.38

1455440558
1087095575
1444530793
1150743072

562363956
273035203
415221645
189836223

1370979777
806979042
1290396480
792218258

0.41
0.34
0.32
0.24

Graph:-

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

(3) Structural health ratios

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

Total net assets

Current assets

total

net

assets/current
2008-09
2007-08

3222115022
2743567500

2449508004
2017804514

assets
1.32
1.36

2006-07
2005-06
2004-2005
Graph:-

2085494802
2569982631
2073825075

1360130778
1859752438
1340579295

1.53
1.38
1.55

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

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

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

Debtors

Sales

debtors/sales

Debtors/sales
365

2008-09
2007-08
2006-07
2005-06
2004-05

262596083
298660656
209700417
189330540
171597551

2438938285
1753453795
1410902362
1822335367
1262783964

0.11
0.17
0.15
0.10
0.14

40.15
62.17
54.25
37.92
49.60

Graph:-

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

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

The measurement of the creditor payment period shows the average time
taken to pay for goods and services purchased by the company. In
general the longer the credit period achieved the better, because delays in

payment mean that the operation of the company are being financed
interest free by suppliers funds.

Year

Creditors

2008-09
1610752600
2007-08
862881412
2006-07
711624188
2005-06
1229460744
2004-05
482556373
Graph:-

purchases
2296966648
1366714664
1133227589
1616608043
1077456025

creditors/purchases

creditors/purchases

0.70
0.63
0.63
0.76
0.45

365
255.96
230.44
229.21
278.00
163.47

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

Working capital leverage:

One of the important objectives of working capital management is by
maintaining the optimum levels of investment in current assets and by
reducing the levels of current liabilities, the company can minimize the
investment in working capital thereby improvement in return on capital
employed is achieved.
The term working capital leverage refers to the impact of level of working
capital on companys profitability. The working capital management
should improve the productivity of investment in current assets and
ultimately it will increase the return on capital employed. Higher levels of
investment in current assets than is actually required mean increase in
the cost of interest charges on the short term loans and working capital
financed raised from banks etc. and will result in lower return on capital
employed

and

vice

versa.

Working

capital

leverage

means

the

responsiveness of ROCE for changes in current assets. It is measured by

applying the following formula:
Working capital leverage = Current assets/total assets - change in
current assets
Where, total assets = net fixed assets +current assets
Year

Current assets

Total assets

Change

in Working

current assets capital

2008-09
2007-08
2006-07
2005-06
2004-2005

2449508004
2017804514
1360130778
1859752438
1340579295

3222115022
2743567500
2085494802
2569982631
2073825075

431703490
657673736
499621660
519173143
_

leverage
0.88
0.97
0.86
0.91
_

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

Methods for estimating working capital requirement:

There are three methods for estimating the working capital requirements
of a firm; (1) percentage of sales method (2) regression analysis method
(1) Percentage of sales method:It is a traditional and simple method of determining the level of working
capital and its components. In this method, working capital is
determined on the basis of past experience. If, over the years, the
relationship between sales and working capital is found to be stable, then
this relationship may be taken as a base for determining the working
capital for future.
Item

2007-08

2008-09

Sales

(Actual)
1753453795

(Estimates)
2438938285

Current assets:
Inventories

1455440558

2024421577.89

Receivables

298660656

415417224.12

Cash and bank

263703300

366793853.39

Total (A)

2017804514

2806632655.4

Current liabilities(b):

1370979777

1906942216.33

Working capital (A)- 646824737

899690439.07

(B)

Item

2008-09

2009-10

Sales

(Actual)
2438938285

(Estimates)
3100000000

Inventories

1780875787

2263573036.51

Receivables

262596083

333771404.655

Cash and bank

406036134

516090145.913

Total (A)

2449508004

3113434587.07

Current liabilities (b): 1779118047

2261338870.11

Working capital (A)- 670389957

852095716.96

Current assets:

(B)
Interpretation:-

Here, we see that in year 2007-08 is actual and in 2008-09 estimates

requirements of working capital is calculated but in 2008-09 they have
actual working capital is less compare to the estimates requirement.
Using this method we will easily find out the next year requirement of
working capital.
(2) Regression analysis method:It is a useful statistical technique applied for forecasting working capital
requirements. It helps in making working capital requirement projections
after establishing the average relationship between sales and working
capital and its in the past years. The method of least squares is used in
this regards.
The relationship between sales(X) and working capital(Y) is given by the
equation: Y = a +bX
The value of a and b is obtained by the solution of simultaneous liner
equations given below:
y = na + bx
xy = ax + bx2
; Where a= fixed component
b= variable components
x= sales
y= inventory(CA)
n= number of observations.
Calculation:
The sales and current assets figures (Rs. in Crore).
Year
2008-09
2007-08

Sales
243
175

Current assets
244
201

2006-07
141
136
2005-06
182
185
2004-05
126
134
Estimates the working capital requirements for the year 2009-10, if the
anticipated sale is Rs. 310 Crore.
Sales(x)

Current

xy

X2

2008-09

243

assets(y)
244

59292

59049

2007-08

175

201

35175

30625

2006-07

141

136

19176

19881

2005-06

182

185

33670

33124

2004-05

126

134

16884

15876

N=5

x=867

y=900

xy=164197

x2=158555

Year

y = na + bx
900=5a + 867b (1)
xy = ax + bx2
164197 = 867a + 158555b. (2)
Solving equations (1) and (2), we get
a = 8.33
b = 0.99
The relationship between sales and current assets can now be expressed
as follows:
Y = a +bX
Y = 8.33 + 0.99(310)
Y = Rs. 315.23 Crore
Interpretation:-

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

Methods
(1) Percentage of sales method
(2) Regression analysis method

Actual working capital

Estimates working capital

646824737.00 (2007-08)

899690439.07 (2008-09)

646824737.00 (2007-08)

306820000.00(2008-09)

(1) Percentage of sales method

670389957.00 (2008-09)

852095716.96 (2009-10)

(2) Regression analysis method

670389957.00 (2008-09)

315230000.00 (2009-10)

Conclusion:From these two methods we select that which one is better. Here
percentage sales method give the requirement of working capital is
852.09 crore and the regression analysis method give the working capital
requirement is 315.23 crore.
Therefore we can say that the percentage sales method is better for find
out the estimated working capital requirement compare to regression
analysis method.

Chapter 5
-

Finding

FINDINGS
In operating cycle in 2004-05 is 305 and in 2008-09 is 198 means
the company has improvement in operating cycle.
Current ratio standard from 2:1, Current ratio has declined from
1.69:1 in 2004-05 to 1.38:1 in 2008-09 but this is not good they
can more improvement on it.
Debtor Conversion period in 2004-05 is 50 and 2008-09 is 40 its
good sign for the company.
Credit Conversion period in 2004-05 is 163 and 2008-09 is 256
means very high is good sign for the company.

 From working capital leverage in 2008-09 is 0.88 is very low means

company can minimize the investment in working capital. It affects
the Return on Capital Employed and increase the profitability of
the company.
From methods of working capital requirement; actual & estimates
working requirement has large difference. I have found that
working capital in 2009-10 is 85,20,95,716.96 by Percentage of
sales method.

Chapter 6
-

RECOMMENDATIONS

RECOMENDATION

Company have to use percentage sales method for the estimate

Working capital requirement because its gives better estimation
compare to Regression analysis method.

The current assets of Sayan sugar is very low as compare to its

current liabilities so company should focus on increasing the
current assets so that they can pay short term liabilities effectively

I have found the interest of creditors is very high so company can

should take the steps to control the interest expenses.

BIBLIOGRAPHY
Annual report of the company

Book :

Pandey I M Financial Management Ninth Edition, Indian Institute

of Management, Ahmedabad pp-517-555
Shukla Anita Working capital management RBSA Publishers,
Jaipur.
Kishor Ravi M., Financial Management Third Edition, New Delhi
Taxman Allied Services (P) Ltd.

Website :
www.sayansugar.com