A STUDY ON

“WORKING CAPITAL MANAGEMENT”

With special reference to

TIRUMALA MILK PRODUCTS PVT.LTD,

A project report submitted to

JAWAHARLAL NEHRU TECHNOLOGY UNIVERSITY, KAKINADA

In partial fulfillment of the requirement for the award of the degree of
MASTER OF BUSINESS ADMINISTRATION
Submitted by

B.V.KRISHNA PRASAD
Regd. No.162W1E0009

Under the guidance of

Mr.T.VASANTHA RAO
Associate professor

DEPARTMENT OF MASTER OF BUSINESSADMINISTRATION

G.V.R&S COLLEGE OF ENGINEERING TECHNOLOGY
(AFFILIATED TO JAWAHARLAL NEHRU TECHNOLOGY UNIVERSITY, KAKINADA)
GANGINENI PURAM, NEAR BUDAMPADU, GUNTUR- 522013
(2016 – 2018)
COLLEGE CODE: 2W
G.V.R.&S COLLEGE OF ENGINEERING & TECHNOLOGY
(Affiliated to Jawaharlal Nehru Technology University, Kakinada)
Ganginenipuram, Near Budampadu, Guntur-522013

DEPARTMENT OF
MASTER OF BUSINESS ADMINISTRATION

CERTIFICATE

This is to certify that is a bonafide record of the Project work entitled

‘A STUDY ON WORKING CAPITAL MANAGEMENT ’ with special

reference to TIRUMALA MILK PRODUCTS PVT.LTD, carried out by

B.V.KRISHNA PRASAD (162W1E0009) during the academic year 2016-2018

in partial fulfillment of the requirements for the award of the degree of “MASTER

OF BUSINESS ADMINISTRATION’’ by JAWAHARLAL NEHRU TECHNOLOGICAL

UNIVERSITY, KAKINADA.

(Mr.T.VASANTHA RAO) (Mr.T.VASANTHA RAO)

(Project guide) H.O.D of M.B.A

External Examiner
 DECLARATION

I,B.V.KRISHNA PRASAD student of MBA in G.V.R&S College of

Engineering and Technology declare that the Project entitled ‘’A STUDY ON

WORKING CAPITAL MANAGEMENT’’ with special reference to

TIRUMALA MILK PRODUCTS PVT.LTD, has been prepared by me under the

guidance of Mr.T.VASANTHA RAO for the partial fulfillment of the

requirements for the award of degree in MASTER OF BUSINESS

ADMINISTRATION by JAWAHARLAL NEHRU TECHNOLOGICAL

UNIVERSITY, KAKINADA.

Further, I declare that this project report is the result of my own efforts and it has

been submitted to any university or organization for the award of any degree or

diploma.

Place: Guntur

Date: B.V.K.PRASAD

Reg.No162W1E0009
 ACKNOWLEDGMENT

I am extremely grateful to our chairman Dr.G.VenkateswaraRao andDirector

Dr.B.S.Srikanth Chowdaryfor providing me a platform to do my M.B.A program.

I am very thankful to Dr.P.Hari Krishna Prasad, Principal of G.V.R&S College of

Engineering and Technology, Guntur for providing me an opportunity to complete my project
work in TIRUMALA MILK PRODUCTS PVT.LTD,.

I wish to express my sincere thanks to Mr.T.VASANTHA RAO, Head of Department of

MASTER OF BUSINESS ADMINISTRATION, G.V.R&S College of Engineering and
Technology, Guntur for his encouragement in the completion of my project work.

My special thanks to my faculty Mr.T.VASANTHA RAO Project Guide in G.V.R&S College

of Engineering and Technology, Guntur for giving excellent guidance, valuable suggestions
and motivating me.

I am thankful to my faculty members Mr.K.Bala Karthik Reddy, Mr.M.Areeshbabu, who

helped me to complete my project successfully.

I am blissful to express my deep sense of gratitude to MR.R.Srinivasa Rao for is

splendid guidance and encouragement that inspired me to complete this project successfully and
then finally I thank to all employees in the company who extended their cooperation during my
work in TIRUMALA MILK PRODUCTS PVT.LTD,

I express my deep sense of gratitude to my Family members, and friends who helped me for
the completion of project work.

B.V.K.PRASAD
 CONTENTS

S. NO TITLE PAGE NO
INTRODUCTION
 OBJECTIVE OF THE STUDY
 NEED FOR THE STUDY
 SCOPE OF THE STUDY
CHAPTER - I 1-13
 RESEARCH METHODOLOGY
 LIMITATION OF THE STUDY

CHAPTER - II INDUSTRY PROFILE. 14-42

COMPANY PROFILE

CHAPTER - III THEORETICAL FRAME WORK 43-59

DATA ANALYSIS &

CHAPTER - IV INTERPRETATIONS
60-84

CHAPTER - VI FINDINGS 85

SUGGESTIONS 86

CONCLUSION 87

ANNEXURE ANNEXURE
BIBLIOGRAPHY
 CHAPTER-1

INTRODUCTION
 CHAPTER – II

INDUSTRY PROFILE
&
COMPANY PROFILE
 CHAPTER - III

THEORETICAL FRAME
WORK
 CHAPTER – IV

DATA ANALYSIS
&
INTERPRETATION
CHAPTER-V

FINDINGS
SUGGESTIONS
CONCLUSION
ANNEXURE
BIBLIOGRAPHY
 INTRODUCTION

Financial Management is that managerial activity which is concerned

with planning and controlling of the firm’s financial resources. The subject of
financial management is of immense interest to both academicians and practicing
managers. Financial management provides them with conceptual and analytical
insights to make those decisions skillfully.

Meaning of Financial Management:-

From the various definitions of the term business Finance given above, it
can be concluded that the term business finance mainly involves, rising of funds,
and their effective utilization keeping in view the over all objectives of the firm.

Definition:-
According to “Financial Management is concerned with efficient use of
important economic resources namely capital funds”.
“SOLOMAN”
According to him, “Financial Management is concerned with managerial
decision that results in the acquisition and financing of long term, short term
credits of the firm.
As such it deals with the situation that requires selection of specific
assets, the selection of specific liability as well as the problem of size and growth
of an enterprise. The analysis of these decisions is based on the expected inflows
and outflows of funds and their effects up on managerial objectives”

1
Objectives of financial management:-

a). To Reduce the Misuse of Funds:-

It is the objective of financial management to reduce the misuse of funds.
If I deposited it in bank, I can earn interest on saving account on daily basis. Like
me, company also misuses his funds in bad projects. We should learn from
objective of financial management and reduce the misuse of even one rupee.

b). To Maximize the Profit in Long Run: -

If a businessman invests his money and wants to earn high profit, it means,
it is taking high risk according to risk theory of financial management. This is not
objective of financial management, but to maximize the profit in long run is real
aim of financial management.

c)To Maximize the Wealth of Company:-

An investor only purchases shares, if he hopes that he will earn high profit
on it, otherwise, he can deposit his money in saving account of bank. So, it is the
objective of financial management to maximize the value of share. It can be
possible by following way.
To Increase Dividend per share
To Increase earning per share
To Analyze the value of share in market

d). To Fulfill the Social Responsibility: -

Company uses the natural resources and earns money and funds.

2
 Suppose Xyz Company started a plant in F place and use water, land and
machines, it earned 10 million dollars from that plant.

According to my view, Xyz Company takes his all natural resources from
society in the form of land, water, metal and minerals. God has made these things
for whole society not a particular Xyz company. If Xyz Company has used these
resources, then it is the duty of xyz Company to fulfill his responsibility toward
society. This is the main objective of financial management.

Scope of Finance:-
Firm creates manufacturing capacities for production of goods: some
provides services to customers. They sell their goods (or) services to earn profit.
They raise funds to acquire manufacturing and other facilities.
Thus the three most important activities of a business firm are:
 Production
 Marketing
 Finance
A firm secures whatever capital it needs and employees it (finance
activity) in activities which generate return on invested capital (production and
marketing activities).

GOALS OF FINANCIAL MANAGEMENT:-

Maximize the value of the firm to its equity share holders. This means that the
goals of the firm should be to maximize the market value of its equity shares
(which represent the value of the to its equity share holders).
 Maximization of profit.
 Maximization of earnings per share.
 Maximization of return on equity.

3
  Maximization of liquid assets in the firm.
 Ensuring maximum operational efficiency through planning, direction,
controlling of the utilization of the funds.
 Building up of adequate reserves for financing growth and expansion.
 Ensuring a fair return to the share holders on their investment.

The key challenges for the finance manager in India appear to be

in the following areas:-
o Investment planning
o Financial structure
o Treasure operations
o Foreign exchange
o Investor communication
o Management control

Techniques of analysis and interpretation:-

 Comparative financial statement

 Common size statement
 Trend percentage analysis
 Funds flow statement
 Cash flow statement
 Net working capital analysis
 Ratio analysis

4
Importance of financial management:-
The information given in the financial statement is very useful to a
number of parties as given below;
 Owners:-
The Owners provide funds for the operations of a business and they
want of know whether their funds are being properly utilized/not. The
financial statements prepared from time to time satisfy their curiosity.

 Creditors:-
Creditors want to know the financial position of a concern before giving
loans (or) granting credit. The financial statements help them in judging
such position.

 Investors:-
Prospective investors, who want to invest money in a firm, would like to
make an analysis of the financial statements of that firm to know how safe
proposed investment will be.

 Employees:-
Employees are interested in the financial position of a concern they
serve, particularly when payment of bonus depends upon the size of the profits
earned.
They correct so they become interested in the preparation of correct
profit and loss account.

 Government:-

5
 Central and State government are interested in the financial statement
because they reflect the earnings for a particular periods for purpose of
taxation.
Moreover, these financial statements are used for compiling statistics
concerning business which, in turn, help in compiling national accounts.

 Research Scholars:-
The financial statement being a minor of the financial position of a firm
is of immense value to the research scholar who wants to make a study into
financial operations of particular firm.

 Consumers:-
Consumers are interested in the establishment of goods accounting controls
so that cost of production may be reduced with the resultant reduction of the
prices of goods they buy.

 Managers:-
Management is the art of getting things done through others. This requires
that the subordinates are doing work properly. Financial statements are on aid
in this respect because they serve the manager is appraising the performance of
the subordinates.

6
Introduction to working capital:-
Working capital is the lifeblood and nerve center of a business. Just as
circulation of blood is essential in the human body for maintaining life, working
capital is very essential to maintain the smooth running of a business. No business
can run successfully without an adequate amount of working capital.

Meaning of working capital:-

Working capital refers to the funds invested in current assets i.e.
investment in stocks, sundry debtors, cash and other current assets. Current assets
are essential to use fixed assets profitably.
For example a machine cannot be used without raw material. Thus it is
obvious that certain amount of funds is always tied up in raw materials, work in
progress and finished goods. However, the business also enjoys credit facilities
from its suppliers who may supply raw materials on credit and the firm may not
pay all the expenses immediately.
Therefore, certain amount of funds is automatically available to finance
the current assets requirements. However the requirements for current assets are
usually greater than the amount of funds payable through current liabilities. In
other words, current assets are to be kept at a higher level than the current
liabilities.

Definition:-

According to Ralph Kennedy and Steward Mc Muller “a study of

working capital is of major importance to internal and external analysis because of
its close relationship with the current day to day operations of business”.

7
The need for working capital:-
Every business needs some amount of working capital. The need for
working capital arises due to the time gap between production and realization of
cash from sales.
The following are the needs of working capital:
 For the purpose of raw material
 To pay wages and salaries
 To incur day-to-day expenses and over-heads
 To meet the selling costs
 To provide credit facilities to the customers
 To maintain inventories of raw materials. Work-in-progress, stores,
spares and finished stock.

8
 OBJECTIVES OF THE STUDY

 To understand the working capital position of the Tirumala Milk

Products Pvt Ltd.
To know the companies financial
 Position.
 To examine the solvency position of Spinning Tirumala Milk
Products Pvt Ltd.
 The aim is to study the functionality of working capital management
in Tirumala Milk Products Pvt Ltd.
 The objective is to find the relevance of liquidity of current assets in
the company.
 The working capital to run the day-to-day business activities cannot
be over emphasized.
 The analyses the efficiency of working capital at Tirumala Milk
Products Pvt Ltd.
To improve the financial performance

9
 NEED OF THE STUDY

 This study gives the analysis in decision making process.

 This study gives information about growth of the organization

 This is useful to formulating the company plans and policies

 This study helps to assess company financial health and soundness of its
management.

10
 SCOPE OF THE STUDY

The project is as a reference guide or as sources information. It gives the

idea about the financial analysis of a firm.
 The main objective of the study was to the put into practical the theoretical
aspect of the study into real life work experience.
 The study aims to the liquidity position of the firm. Ratio analysis has been
used to analysis the financial position of the firm
 It deals with analysis an interpretation of data collected through the sources
primary and secondary data. Graphs and diagrams and tabulations method
is used to analyze and interpret the data collect.

11
 RESEARCH METHODOLOGY

Objectives:-
o To know the financial position of the Tirumala Milk Products Pvt Ltd.
o To know the profitability position of the Tirumala Milk Products Pvt Ltd.
o To know the leverage position of the Tirumala Milk Products Pvt Ltd.
o To know the comparison of performance of the Tirumala Milk Products Pvt
Ltd.
o To know the activity position of the Tirumala Milk Products Pvt Ltd.

The study has been conducted in the Tirumala Milk Products Pvt
Ltd. To examine ratio analysis in order to enquire into the issues like liquidity,
timelines and material management. The study has been undertaken in the
Accounting& Finance departments of the Tirumala Milk Products Pvt Ltd.

Primary Data:-
The primary data is collected by discussions with the functional managers,
officers, officers, staff and other members of the Tirumala Milk Products Pvt Ltd.

Secondary Data:-
The secondary data is obtained from the annual report and financial
statements that is balance sheet and Profit and Loss account, Annual reports,
Journals, and other informational publications of the Tirumala Milk Products Pvt
Ltd. And from the text books of financial management.

12
 LIMITATIONS OF THE STUDY
The study is subject to some limitations:

 Every study will have its own limitation's the present study is also carriers
out with the following limitations.
 The study is limited a set universe comprising of the five years samples.
 The controllable constraints are over looked.
 The study is purely based on the secondary data records available in the
company like balance sheets, profit and loss accounts and annual reports.
 All above captioned limitations of ratio analysis of Tirumala Milk Products
Pvt Ltd.

13
 INDUSTRY PROFILE
DAIRY INDUSTRY IN INDIA:
Being, second most populous country in the world. India as a
development nation has a great problem of providing adequate food both in terms
of quality and quantity to every one in the country. Milk and its products as the
most important source of nourishment, next only each and every as the most
important source of nourishment, next only each and every one in the country.
Thus dairying promises to be vitally significant pre-occupation of the farmers.
Besides organized dairying also creates substantial employment opportunities. In
addition to providing employment, dairy industry reduces the dependence of
people on agriculture. Taking into consideration the dependence of people on
agriculture. Taking into consideration the importance of dairying is necessary to
develop the daily to overcome the problem of employment income and nutrition in
India.
EVALUCATION OF ANAND TYPE DAIRY:
AMUL THE ANAND MILK UNION LIMITED: is the name of the
kaira district co-operative milk producers union limited, started with setting of two
milk cooperatives, one each at Gopalapur and madgar in December 1946. The
initiative for creating the milk producers co-operative had come from villagers of
kaira district whose milk until then was being bought by traders who sent it to
Bombay through milk contractors, prominent of which was Poison. Later the state
government entered into agreement with Poison to supply mild on regular basis to
the Bombay milk sceam Together Tribhuvan Das Patel and varghese kureing
steered the farmers of kaira through series of crises to become a world wide model
of a co-operative. The Kaira District producer's initiative of farmers continued to
develop with government financial assistance.
THE CO-OPERATIVES:

14
 The anand model of co-operative structure builds on a vertically integrated
single industry. Co-operative that links rural producers with instrument by
including enhancive milk production System and improved technology for
processing and marketing.
The anand model of co- operative structure was 3 tired. The structure is as
follows:

 The village milk producers co-operative society

 The district mild producers co-operative union.
 Various district unions which together form a co-operative milk marketing
federation.

ESTABLISHMENT OF ANAND TYPE CO-OPERATIVE IN

INDIA
In 1964, the Prime Minister 'Lalbahadur Sastri' visited Gujarat. During
this visit he was impressed with the village mild cp-operative societies and -
required Mr. Varghese Kurien, the General manager of Anand milk Union (Amul)
to extent the Anand type Milk co-operative to set up other parts of the country.
The prime minister wrote letters to the chief ministers of all state government
advising to talk the initiative to set up Anand type mild products co-operate
societies in their to set up Anand type mild products co-operative societies in their
respective states. The initiative led to the creation of National Dairy Development
Corporation (IDC) 'in 1970, with the intention of implementing operation flood,
which is essentially aimed at setting up of Anand type operation fold-1 was the
extent ion of Anand pattern Milk co-operatives in the hinter lands.

15
 The National Dairy Development Board and the Indian Dairy co-operative
drew up plans under operation flood-1 was initiated in 1970 and covered eighteen
mild sheds which comprised the rural hinter lands of the metropolitan cities.

Financial assistance from the word bank helped NDDB and IDC to
establish dairy industry in the state of Karnataka, Madhya Pradesh, Rajas tan
Having successfully achieved the major objectives of operation fold-1, the scheme
has been extended to cover 155 milk shed under operation flood-2.
OPERATION FLOOD
Aimed setting up a modern dairy to meet Indians rapidly increasing
need for mild and its products , the projects operation flood was conceived and
formulated by the NDDB during 4th plan period. The project was initialed in 1970.
The project initially scheduled for a period of 5 years, was subsequently extended
to 11 years. The project operation flood was terminated in 1981. based on the
operation validity of the Anand pattern NDDB has conceived& formulated the
project.
The main aim of the project was to create a flood of rurally produced
milk, assuring the farmers of remunerative price and ready market and the urban
consumer of whole some milk at stable and reasonable prices by linked the main
milk producing areas to main consuming centers in urban areas.
NATIONAL MILK GRID:
National milk grid has been setup to transport liquid milk from surplus
to deficit area with the help of 976 road and rail mild tankers having a capacity
rural producers in 59 milk shed to 126 urban centers providing them a national
grid, which aims to ever out seasonal fluctuations in production and price.
DAIRY INDUSTRY IN ANDHRA PRADESH
The programme of dairy industry was initially maintained with
commendable help of the united nations international children's emergency fund

16
and freedom from hunter campaign of U.K. These organizations contributed a lot
in the establishment of dairy units in Andhra Pradesh during the period 1967-
1969.
The milk producers have been faced with a lot of problems in the
process of production and marketing of milk namely improper transport facilities
poor technology, absence of organized system of processing marketing and
pricing. As a results the APDDC came into existence on 2nd April 1974.

CO-OPERATION FEDERATION:
To implement operation flood-2 programme through active
involvement of producers in organizing milk production milk production,
procurement processing and marketing on 'three-tier' co-operative structure as per
the national and marketing policy of government of India. Andhra Pradesh Dairy
Development co-operative federation was constituted in oct-1981.
With the implementation of operation flood-2 programme in Andhra
Pradesh, Dairy development has gained moments providing a trust to eradicate the
pro very, unemployment in rural areas, and brought awakening and confidence
amount producers to manage their own affairs through dairy co-operative of
Anand Pattern.
The operation fold launched in 1970 could raise the per capacity mild
consumption from 112 grams in 1970-71 to 235 grams in 1998-99 the world
average being 285 grams. But a large population in the country still doesn't get the
required of milk (500 grams in the per day). In the rural areas, it is.only 121 grams
a day.
The major milk producing states are Uttar Pradesh (18.3
percent)Punjab(10.2 percent), Rajas than(7.8 percent), Madhya Pradesh(7.6
percent) Maharashtra (7.4 present), Gujarat(7 percent), Andhra Pradesh (6.3
percent) and Haryana(5.3 percent).

17
 Of the total milk production 46 percent is consumed as liquid milk 28
percent as ghee, 8 percent as curd, 7 percent as butter, 7 percent as cheese/ khoya,
and 4 percent as milk powder, ice cream , and other products. These are presently
more than 70000 villages dairy cooperative federation into 170 districts milk
union , which in turn are affiliated to 22 states cooperative dairy federations. Most
of the villages co-operative are viable . Of course, the cooperatives deserve tax
incentives. Our country possesses one sixth of cattle population and one fifth of
buffalo population in the world . buffaloes contribute more than 60% of its total
milk production.
The dairy sector has high employment potential, particularly for small
and marginal farmers and land less agricultural laboureres. India exports milk and
milk productsmainly to Bangladesh, Nether lands, Philippines, the UAE , and
Srilanka.

The diary sector was de licensed in 1991. It is being regularized by

milk and milk products order (MMPO) introduced in 1992, giving priority to co-
operatives. And leaving the private sector in the lurch. India imported about 2675
tones of skimmed milk powder at lower price than the domestic price is a major
problem. Unrestricted import of skimmed milk powder depress the domestic price
of milk.
MILESTONES IN THE HISTORY OF DAIRY
 23-2-1977:Emrgence of dairy under 1964 cooperative act as Guntur dist
milk producers cooperative union
 30-8-1977:Inorganation of fedder balancing dairy by the chief minister
J.Vengalarao
 1-8-1978Management transport from APDDC to the cooperative union
 21-2-1981: Visit of doctor V.karion president of national dairy
development board
 9-4-1986:Visit of the chief minister N.T.Ramarao.

18
  l-2-1997:Co-operative dairy shifted to 1995 more act.
 24-2-1997:Honored excellence award and Vudyog Ratna award.
 27-8-1998:Honored by Gold S.tar award and Excellence award
 16-11-1998:Awarded by M.Viswanath reddy award
 2-3-2000established mineral water plant
 12-2-2002higher procurement per day (3,11,841 kg)
 2001-2002:highest milk procurement (762 lak)
 14-2-2003 :awarded with ISO9001 -2002 Certificate
 8-3-2003: Visit of state Governor Surjithsingh Barnala
 10-3-2003 :Honored HACCPCertificate
The popular adage “nothing succeeds like success” is applicable to the dairy
development in India. If the country witnessed the “green revolution” leading to
self-reliance in food grains in the sixties and the seventies, the decades of the
eighties and the nineties witnessed the “white revolution”. Indian total milk
production is ranked first in the world followed by the United States. Initially
dairying was largely an unorganized activity. By and large land holding farmers
kept cattle mainly for bullock production. Milk was essentially a byproduct. The
surplus after domestic consumption was either converted into conventional
products mainly ghee and sold to middle men who cater to the needs of the
market.
As India enters an era of economic reforms, agriculture, particularly the
livestock sector, is positioned to be a major growth area. The fact that dairying
could play a more constructive role in promoting rural welfare and reducing
poverty is increasingly being recognized. For example, milk production alone
involves more than 70 million producers, each raising one or two cows/buffaloes.
Cow dung is an important input as organic fertilizer for crop production and is
also widely used as fuel inn rural areas. Cattle also serve as an insurance cover for
the poor households, being sold during times of distress

19
 There was an increasing demand for milk from the urban areas. There arose
a need for the farmers to increase the production of milk. Since the demand in the
urban scenario is rapidly increasing so do the farmers generate the supply? Further
the new dairy plant capacity approved under the Milk and Milk products order
(MMPO) has exceeded 100 million l/p/d. The new capacity would surpass the
projected rural marketable surplus of milk by about 40 percent by 2005.
History:
The origin of dairy farms under public management dates back to
1886 when the department of Defense established a few dairy farms in that year to
supply milk and milk products to the British troops. The next step was initiated
during the First World War.
In 1914, the Department of Defense on the advice of the Board of
Agriculture advised the Government in 1916, to appoint imperial dairy expert. The
next important step was the decision to conduct a census of livestock. The Board
of Agriculture carried out the livestock census in 1919 as a preparatory action for
planned dairy development. In 1920, the imperial expert recommended to the
Government for the establishment of a training center to meet the manpower
requirements for managing the Defiance Dairy Farms. By this time there were
three dairy farms and until 1923 the British Government’s approach towards
dairying was confined to milk requirements of the military only. After 1923,
diploma course in dairy were started at Bangalore.
Dr. N.C. Wright, Director, Dairy Research institute, Scotland who was
invited to India in 1936 for reviewing the progress of dairying in the country has
made two recommendations: -

1. Industry needs have to be solved by developing own technology and

technologists in the country.

20
2. India is country of villages, of which most inhabitants are small, marginal
farmers and landless laborers. Development should be promoted only on co-
operative lines.
In 1937, the Lucknow Milk producer’s co-operative Union limited was
established paving the way for the organization of such union in districts and state.
In 1945, the Famine enquiry commission in its report emphasized the need
for developing fodder supply for increasing milk production and recommended the
adoption of mixed farming with a place for fodder and crop rotation. As a sequel
to this, under the Greater Bombay Milk Scheme, milk was procured from kaira
district, Gujarat by the private dairy. That gave way to the idea of creating an
institutional structure for dairying on co-operative lines.

Developments of industry:
NATIONAL DAIRY DEVELOPMENT BOARD (NDDB):
The Government of India had established the National Dairy Development
Board (NDDB), an autonomous body headquartered at Anand’s Co-operative in
India. In order to develop dairy in India, NDDN drew plans for ‘operation flood’.
OPERATION FLOOD:
In the late sixties, the board drew up a project called Operation Flood (OF)
– meant to crate a flood of milk in India’s villages with funds mobilized from
foreign donations. Producer’s co-operatives, which sought to link dairy
development with milk marketing, were central plank of this project. The
Operation Flood, which started in 1970, concludes its third phase in 1996 and has
to its credit these significant results:

1. The enormous urban market stimulus has led to sustained

2. Production increases, raising per capita availability of milk to early 200 grams
Per day.
3. The dependence on commercial imports of milk solids are alone away with.

21
4. Modernization and expansion of the dairy industry and its infrastructure,
Activating milk grid.
5. Marketing expanded to supply hygienic and fair priced milk to some 300
Million consumers in 550 cities and towns.
6. A nationwide network of multi-tier producer’s co-operative, democratic in
structure and professionally managed, has come into existence. Millions of small
producers participate in an economic enterprise and improve the quality of their
life and environment.
7. Dairy equipment manufacture has expanded to meet most of the industry’s
needs.
Three phases of development:
The scheme sought to establish milk produces co-operatives in the villages
and make modern technology available to them. The broad objectives are to
increase milk productions (“a flood of milk”) augment rural incomes and transfer
to milk producers the profits of milk producers the profits of milk, marketing
which are hitherto enjoyed by well-to-do-middlemen.
PHASE1:
Phase 1 of Operation Flood was financed by the sale within India of
skimmed milk powder and butter oil gifted by the EC countries via the world food
program. As founder-chairman of the National Dairy Development Board
(NDDB) of India Dr.Kurien finalized the plans and negotiated the details of EEC
assistance. He looked after the administration of the scheme as found-chairman of
the erstwhile Indian Dairy Co-operation, the project authority for Operation Flood.
During its first phase, the project aimed at linking India’s 18 best milk sheds with
the milk markets of the four metropolitan cities of Delhi, Mumbai, Calcutta and
Madras.
PHASE2:
Phase 2 of the project, implemented during 1981-85 raised this to some
136 milk sheds linked to over 290 urban markets. The seed capital rose from the

22
sale of WFP/EEC gift products and World Bank loan had created, by end 1985, a
self-sustaining system of 43,000 village’s co-operatives covering 4.25 million
milk producers. Milk powder production went up from 22,000 tons in the pre
project year to 1, 40,000 tons in 1989, thanks to dairies set up und Operation
Flood. The EEV gifts thus helped to promote self-reliance. Direct marketing of
milk by producer’s co-operatives resulting inn the transfer of profits from milk
contracts increased by several million liters per day.

PHASE3:
Phase 3 of Operation Flood (1985-1996) enabled dairy co-operatives to
rapidly build to the basic up the basic infrastructure required to procure and
market more and more milk daily. Facilities were created by the co-operatives to
provide better veterinary first-aid health care services to their producer’s members.
Development of dairy in nineties:
The momentum gained in the dairy through co-operatives during the last 20
years will now take India into nineties as major dairying country of the world.
The country’s milk production in the early sixties which was about 20 million tons
has touched a record of 56 million tons. It is likely to reach about 80 million tons
by 2000 AD. India which one time was dependant on other countries for products
such as milk powder, table butter and cheese has now become self sufficient. It has
even started exporting some of them in small quantities simultaneously efforts are
made to expand milk procurement, processing and marketing to meet the growing
demand for milk products.

23
MILK SHEDS/UNIONS:
Operation flood programmer has been identified into milk sheds/unions.

NO MILK SHEDS/UIONS DISTRICTS

1 Visakha Srikakulam, Vizianagaram, Vizag
2 Godavari East and West Godavari
3 Krishna Krishna
4 Guntur-Prakasam Guntur-Prakasam
5 Chittoor Chittoor
6 Cuddapha Cuddapah
7 Kurnool Kurnool
8 Nalgonda-Ranga reddy Nalgonda-rang reddy
9 Medak-Nizamabad Medak-Nizamabad
Growth of the industry:
Before the independence of India, in the first half of the 20th century
dairying in the country was largely unorganized. Fluid milk and its products were
generally not easily marketable commodities and there was no transport of these
products to far distances. Organized dairying, as well understood in the west
started in a small way when military dairy farms and creameries were established
towards the end of the 10th century to meet the demands of the armed forces and
their hospitals. Some private dairies, such as Kaveters and poisons' with
encouraged making pasteurized butter, primarily for the use of the British army.
As a result the imperial institute of animal Husbandry and dairying was
established in 1923 at Bangalore. There has been another major effort in the early
1940's where milk produced in rural areas of kaira district was collected in bulk
Pasteurized and transported by distributing in Bombay by " the Bombay milk
scheme" operated by the Bombay municipality. When India become independent
in 1947, one of the major milk schemes to be included the country was "the
Greater Bombay milk scheme (GBMS)".

24
 COMPANY PROFILE
Vision
“To produce and supply superior quality products with exceptional customer
service to eventually grow as market leader in diary industry.”

Mission

Tirumala Milk Products Pvt Ltd Products (P) LTD. will constantly strive to market
quality products at competitive prices, provide value to our business partners, all
the while delivering exceptional customer service with the highest regard for
business ethics.

HISTORY:

Tirumala Milk Products Pvt Ltd Products Private Limited is a professionally

managed company engaged in the manufacture of a wide range of Dairy Products
which include Milk in Sachets, Sweets, Flavored Milk, Curd in Cups and Sachets,
Milk Powder, Butter, Ghee and Butter Oil both in bulk as well as in consumer
packs..

Established in 1998, Tirumala Milk Products Pvt Ltd Products (P) Ltd. is one of
the fastest growing Private Sector Enterprises in India with a team of dedicated
professionals. The company has one of the most modern and versatile plants in the
Indian Dairy Industry with state-of-the-art technology. Tirumala Milk Products
Pvt Ltd Products (P) Ltd. products meet stringent quality control tests and cater to
the premium segment of the market for Dairy Products. Tirumala Milk Products
Pvt Ltd Products (P) Ltd. is presently implementing an expansion programme and
proposes to launch new products in the near future.

25
Presently our market presence is in Andhra Pradesh, Karnataka and Tamil Nadu.
We handle 7 Lakh liters of milk per day in our packing stations and dairy plant.

Which is the single largest plant in the state of Andhra Pradesh. Our Registered
Office is located at Narasarao Pet, Gutur Dist and Corporate Office is located at
Ameerpet, Hyderabad.

Tirumala Milk Products Pvt Ltd Products (P) Ltd. sells a rich, varied offering of
nutritious, tasty and healthy food products under well-known brand. Taste, health,
convenience, reliability and vitality for consumers are key characteristics.

Our milk comes from cattle herd that receive the best care along with healthy and
nutritious diet in the form of quality feed to ensure that they produce wholesome,
high-quality milk.

The major contributors to the success of Tirumala Milk Products Pvt Ltd
Products (P) Ltd. are: -

 Milk Procurement Network

 Superior sales and marketing prowess
 Strategic technological & infrastructural advantage
 Efficient human investments

We have the advantage of

 Procurement of Quality Buffalo and Cow milk through a strong network of

chilling centers spread across states of Andhra Pradesh, Tamil Nadu and
Karnataka.
 Strong roots in local markets and first-hand knowledge of the local culture.

26
 Business intelligence and technical expertise that is applied to serve our
consumers.
 Strong management focus

BOARD OF DIRECTORS :

Tirumala Milk Products Pvt Ltd Products (P) Ltd. has a seasoned Board of
Directors with a collective blend of visionary leadership, consumer marketing
expertise and technological prowess.

Our Board of Directors Are:

B.Brahma Naidu, Managing Director,

He is the Managing Director of Tirumala Milk Products Pvt Ltd Products Pvt.
Ltd., headquartered at Narasaraopet, Guntur District, Andhra Pradesh, India.

Mr. Naidu hails from a farming family and started his career at a young age of 18
year with a transport business, In 1992, when the Government of Andhra Pradesh
issued a G.O regarding establishment of dairies in private sector, he opened a Milk
Chilling unit in partnership with Mr.B.Nageswara Rao and Mr. Danda
Brahmandam who was working in co-operative dairy at Guntur and had very good
knowledge of procurement and technical knowledge in dairy field. Later based on

27
the market research and demand he planned to sell milk in packet under the brand
name of "THIRUMALA". Subsequently, a packing plant was established in the
year 1995 at Vellalcheruvu Village, Santhamagulur Mandal, Prakasam District.

Mr. Naidu scrutinizes every aspect of our day-to-day operations and develops
strategies for continuous improvement of quality and efficiency.

D.Brahmanandam, Joint Managing Director,

He is the Joint Managing Director of Tirumala Milk Products Pvt Ltd Products
Pvt. Ltd., and he is based at Anna Nagar Chennai.

Hailing from an agricultural family, Mr.Brahmanadam started his career at the age
of 21 Years.After completion of his education at Narasaraopet, worked in
Procurement Team of ‘The Guntur District Milk Producers Co-operative’. He
went on to show his leadership and foresight by co-founding Tirumala Milk
Products Pvt Ltd Products Pvt. Ltd. along with Mr. Bolla Brahma Naidu and Mr.
B.Nageswara Rao.

Mr. Brahmanadam's attention to excellence is shown by his dedication in making

Tirumala Milk Products Pvt Ltd a household name in Chennai and surrounding
areas. Under his able leadership and operational excellence, Tirumala started the
SMP & Products plant at Gudur, Nellore District and commenced export of SMP
& Butter.

28
B.Nageswara Rao, Director,

Mr. B. Nageswara Rao Director hails from Narasaraopet area of Guntur Dist, A.P
and is the co-promoter of Tirumala Milk Products Pvt Ltd Products Pvt. Ltd.

Mr. B. Nageswa Rao's career spans several decades in logistics. The entire
logistical strategy and operations is handled by him at Tirumala Milk Products Pvt
Ltd Products Pvt. Ltd. Since joining the company, Mr. Nageswara Rao has held
various roles overseeing the logistical strategies for new business opportunities
and responsibility for the company’s logistical infrastructure.

Mr. Nageswara Rao is now based out of Gudur in Nellore District and manages
the day-to-day operation of the company's largest unit and composite milk and
products plant there.

29
Dr. N.Venkata Rao, Director,

A graduate in Veterinary Sciences from College of Veterinary Sciences, Tirupati,

and Post Graduate Diploma holder in Rural Management from IRMA, Anand,
Dr.Venkata Rao has over 20 years of experience in this industry. He was
associated with the Guntur Dist, Milk producer’s co-operative union at Sangam in
milk procurement and milk processing departments.

Dr. Venkata Rao is responsible for setting the strategic objectives of the company
and the policy framework in terms of planning and implementation of milk
procurement strategies. Dr.Venkata Rao is now based out of Palamaneru, Chittoor
Dist and oversees the operations in Karnataka and Chittoor district of A.P. He is
also responsible for monitoring the performance of the Tirumala Curd, Milk and
other dairy products in Bangalore and nearby markets.

30
E.N.Rao, Executive Director,

A graduate in Veterinary Sciences from College of Veterinary Sciences, Tirupati,

and obtained Post Graduation in Management from I.I.M., Ahmadabad, Mr. E.N.
Rao has the appropriate range of proficiency, experience and skills to handle all
areas of operation.

He started off as an Executive Trainee in the Godrej Group and has 19 years of
rich experience. His vast experience in the dairy industry makes him a skilled hand
in ensuring that all appropriate policies and practices of the company will achieve
the business objectives. Mr. Rao has worked as a President at Heritage Foods (I)
Ltd, Hyderabad for 6 years and Director at Creamline Dairy Products, Hyderabad
for 5 years. He later joined the TMPPL board in Nov 2007 as Executive Director
based at corporate office, Hyderabad.

31
OUR COMMITMENTS:

Tirumala Milk Products Pvt Ltd Products (P) LTD. is committed:

1) To serve our customers with better products and higher quality services
than is available from any other dairy company at present.
2) To continue the tradition as a trusted dairy by managing sustainable,
profitable, and environmental practices both within our company and
our community.
3) To achieve longevity by adapting to our customers’ changing needs and
market trends.
4) To invest in the abilities, opportunities, and teamwork of our employees
thus igniting passion, commitment, and success.

5) To produce products of international quality with acceptance from

overseas clientele.

AREA OF OPERATION :

Tirumala distributes milk to various parts of Tamil Nadu, Andhra Pradesh, and
Karnataka. Gudur is the main source for delivering milk and milk products to
Chennai and other major parts of Tamil Nadu. The procurement and processing
section located at Pasupattur village of Chitoor district in Andhra Pradesh is the
source of milk, curd and products which are supplied in Bangalore and Mysore
Markets.

The packing station located at Vellacheruvu, 20 KM away from our Registered

Office and plant at Singavaram West Godavari District and Wadiyaram in Medak
District supplie milk curd and other products to major markets of Andhara Pradesh
which includes Hyderabad, Vijayawada, Guntur, Rajamandry, Kakinada, and
Karim Nagar.

32
Skim Milk Powder, Butter and Butter oil produced at Gudur plant are supplied to
major Industrial and Institutional customers located across India and Overseas.

CERTIFICATES AND AWARDS:

In recognition of its efforts and achievements in the dairy foods industry, and in
acknowledgment of all the challenges surmounted, Tirumala Milk Products Pvt
Ltd Products (P) Ltd. has won many awards and certificates.

More enduring than any public recognition for our contributions is the satisfaction
we enjoy by creating a superior product and giving back to our communities.

Tirumala Milk Products Pvt Ltd Products (P) Ltd. is an ISO 9001:2000 and an ISO
22000: 2005 Certified company. The dairy is following Quality Management
System and Food Safety Standards.

Apart from ISO certification, we have Certificate from SGS on SMP Analysis too.
Tirumala Milk Products Pvt Ltd Products (P) Ltd. has ISI Licence, Agmark
Licence and adhere to all other Statutory standards as per requirements.

FINANCIAL INFORMATION:

Tirumala Milk Products Pvt Ltd Products (P) Ltd. has always reiterated that our
added value businesses would continue to demonstrate attractive growth. Our
business strategy continues to make encouraging progress and is a key driver of
the operating profit.

Our strategy will continue to focus on growing our brands and added value
businesses. The strength of our competitive position gives confidence that we will

33
deliver attractive earnings growth and provides the opportunity for a greater
appreciation in Tirumala Dairy's value.

Before November 2007, both Tirumala Dairy Pvt Ltd and Tirumala Milk Products
Pvt Ltd Products Pvt Ltd were separate entities. After that they became one single
entity called Tirumala Milk Products Pvt Ltd Products (P) Ltd.

The following are the Turnover Information for both the companies:

In Crores
Sales
TMPPL TDPL TOTAL

1999-2000 ( 6 Months) 15.32 15.36 30.68

2000-2001 46.19 3.50 49.69

2001-2002 59.81 11.06 70.87

2002-2003 79.80 17.79 97.59

2003-2004 100.54 28.55 129.10

2004-2005 124.04 43.47 167.51

2005-2006 148.35 69.20 217.55

2006-2007 287.37 287.37

2007-2008 383.25 383.25

2008-2009 395.35 348.36

34
Legend
TMPPL: Tirumala Milk Products Pvt Ltd Products Private Ltd

TDPL: Tirumala Dairy Private Ltd

PRODUCTCS:
Tirumala Milk Products Pvt Ltd Products (P) Ltd. covers the entire spectrum of
dairy products sold in markets. The complete range of Tirumala Milk Products Pvt
Ltd Products (P) Ltd. are highly nutritious, healthy and bring you a world of
goodness.
Tirumala Milk Products Pvt Ltd Products (P) Ltd. pasteurizes and packages all
fresh dairy products in technologically superior and hygienic conditions to ensure
pure natural freshness.

Tirumala Milk Products Pvt Ltd Products (P) Ltd., Handles 6.5 Lakhs Liters of
Milk per day in all their packing Stations and main dairy plant which is the highest
in the state of Andhra Pradesh.

Tirumala Milk Products Pvt Ltd Products (P) Ltd. handles milk in the following
locations:-

Pacing Locations Handling Capacity per day

Gudur ( Main Plant ) 4.0 Lakh litres per day

Vellala Cheruvu 1.0 Lakh litres

Bhimadolu 1.0 Lakh litres

Palamaner 1.5 Lakh litres

35
Procurement of Milk

Tirumala Milk Products Pvt Ltd Products (P) Ltd. established 25 Chilling centers
in Andhra Pradesh and 8 chilling centers in Tamil nadu to procure both Cow &
Buffalo milk. Best quality milk is procured and chilled at chilling centers, to retain
freshness of milk. The strength of the Tirumala Milk Products Pvt Ltd Products
(P) Ltd. is to procure more than 6.0 lakh liters of milk directly from agents/farmers
using state-of-the-art machinery and professionally trained staff.

Production

 Tirumala Milk Products Pvt Ltd Products (P) Ltd. has its main dairy
plant at Kadivedu with handling capacity of 4.0 lakhs lts of milk per day
from various chilling centers and local units.
 Main plant processes 3.0 Lakhs Lts of milk per day in automatic sachet
filling machines for supply and distribution to Chennai, Tirupati,
Nellore, etc… in insulated puffs.
 There is continuous growth in sale of milk from 50000 ltrs to 350000 ltr
with in a span of one-decade.
 Tirumala Milk Products Pvt Ltd Products (P) Ltd. has its own supply
chain management, which is the key to timely distribution.
 At our Palamaner unit processes and supplies 1.00 lakh liters of milk
and 20000 liters of curd to Bangolore city.
 Our Vellalacheruvu & Bhimadolu packing stations processes and
supplies 2.0 lakh liters of milk to Hyderabad, Warangal, Vijayawada.
Elure, Guntur and Rajahmundry.
 Our Wadiyaram plant has capacity of 50000 Liters milk to cater to the
markets of Medak, Nizambad, Adilabad and Karim Nagar Districts of
A.P

36
Products

 The Main Plant has modern equipments to manufacture milk products

like Buttter, Ghee and Milk Powder.
 Butter is made from pure cow & buffalow fat under hygienically
processed through continues butter making machine with a capacity of 8
tones per day.
 Ghee is made from pure cow & buffalow butter under supervision of 30
years experienced dairy technologists to retain granulation, color and
aroma of ghee with a capacity of 8 tones per day.
 Milk powder is made from fresh cow & buffalow milk and the plant is
capable of producing all type of milk powders with a capacity of 15
tones per day.

 By-Products like Sterilized Flavoured Milk, Lassi, Khova, Milk Cake,

Mysore pak, Panner.
 Ice creams

FOOD SAFETY:

Ensuring the safety of dairy foods is a responsibility of the dairy industry, dairy
farmers and dairy processors. Milk and other dairy products are among the safest
and most highly regulated foods in the world.

We have established a rigorous and far-reaching food safety program that ensures
that the milk and dairy products you and your family enjoy remain pure and
wholesome.

37
We have well maintained laboratories in all plants. Technically qualified staff tests
the milk and milk products. Quality assurance programmes are implemented at
every stage to ensure quality of milk and milk products.

CAREERS:

Tirumala Milk Products Pvt Ltd Products (P) Ltd. is one of the leading dairy in
India. It is primarily known for its quality products and outstanding variety. We
are equipped with exceptional technology and skilled manpower. Our success
factor in the region is total customer satisfaction and modernization.

Attractive workplace

At Tirumala Milk Products Pvt Ltd Products (P) Ltd. our employees are an
important resource and we want to be among the top-attractive workplaces. Our
key tool is a close dialogue between our owners, our management and our
employees to ensure that both the company’s and our employees’ requirements are
covered in the best possible way.

High ambitions

It is no secret that we have high ambitions. Our objective is to be the leader at all
dairy product stages from product development, through production and sales. For
that we need top-motivated and engaged employees.

Excellent career opportunities

At Tirumala Milk Products Pvt Ltd Products (P) Ltd. we have created an
environment with almost unlimited career opportunities.

38
Responsible and committed employees

When recruiting employees we look for both personal as well as professional

qualifications. Our future colleagues must be able to identify themselves with our
normal run of the company and our development, and they must be committed to
take responsibility for making a difference. Equally important is their ability to
communicate and cooperate crisscross departments and frontiers. Therefore,
Tirumala Milk Products Pvt Ltd Products (P) Ltd.’ employees are characterized by
their pursue of lifelong learning and development.

Tirumala Milk Products Pvt Ltd Products (P) Ltd. is one of the preferred
companies to work with because we believe in:

 The power of Open Door Communication

 Providing fair treatment
 Giving Equal Opportunity to everyone
 Providing diversity through nature of work and people
 Opposing any form of harassment
 Encouraging a performance driven enterprise

39
MILK PACKETS:

THIRUMALA FCM MILK PACKET THIRUMALA GOLD MILK PACKET

THIRUMALA MILK WITH OUT CREAM THIRUMALA TONNED MILK

THIRUMALA GOLD WITH CREAM

40
MILK PRODUCTS

FLAVOURED MILK THIRUMALA GHEE THIRUMALA SWEETS

THIRUMALA BASUNDI THIRUMALA BUTTER GHEEE PACKETS

THIRUMALA PANNER THIRUMALA MILK POWER THIRUMALA BUTTER

41
PLANTS:

Plant: Vellalacheruvu Plant : Gudur

Plant : Bhimadolu

42
 THEORETICAL FRAMEWORK
Introduction:-
Every business needs funds for two purposes for its establishment and to carry
out its day to day operations. Working capital refers to that part of the firm’s capital,
which is required for financing short term or current assets such as cash, marketable
securities, debtors and inventories. Working capital is the amount of funds to cover the
cost of operating the enterprise.
The goal of working capital management is to manage the current assets and
current liabilities of the firm in such a way that a satisfactory level of working capital is
maintained. Working capital is the difference between the inflow and outflow of funds.
Working capital is also known as revolving or circulating or short term capital.

Meaning of working capital:-

Working capital refers to the funds invested in current assets i.e. investment in
stocks, sundry debtors, cash and other current assets. Current assets are essential to use
fixed assets profitably.
For example a machine cannot be used without raw material. Thus it is obvious
that certain amount of funds is always tied up in raw materials, work in progress and
finished goods. However, the business also enjoys credit facilities from its suppliers who
may supply raw materials on credit and the firm may not pay all the expenses
immediately. Therefore, certain amount of funds is automatically available to finance the
current assets requirements.
However the requirements for current assets are usually greater than the amount
of funds payable through current liabilities. In other words, current assets are to be kept at
a higher level than the current liabilities.
Definition:-

According to Ralph Kennedy and Steward Mc Muller “a study of working capital is of

major importance to internal and external analysis because of its close relationship with the
current day to day operations of business”.

43
List of current assets and current liabilities:-

Current Assets Current Liabilities

 Cash in hand Bills payable
 Cash at bank Sundry creditors
 Bills receivables Accrued expenses
 Sundry debtors Short term loans
 Stock Dividend payable
 Prepaid expenses Bank overdraft
 Accrued income Provision for taxes
 Short term investments

Significance:-

The importance of working capital is reflected in the fact that financial manager
spend a great deal of time in managing activities relating to current assets and current
liabilities as follows.
 Arranging short term financing.
 Negotiating favorable credit terms.
 Controlling the movements of cash.
 Administering accounts receivable.
 Monitoring investment in inventories.

Factors influencing working capital requirements:-

The working capital needs of the firm are influenced by numerous factors. The
important factors are:
 Nature of Business:-
Generally trading in financial companies needs to carry large amounts of
working capital where as public utilities need small amount. Manufacturing concerns
stand a between these two categories.

44
  Manufacturing Process:-
The longer the production cycle time, the larger is the inventory in form of
semi-finished goods. Hence higher working capital is needed.

 Terms of purchasing and sales:-

An organization making purchase on credit basis and sales on cash basis will
require relatively less working capital.

 Transportation bottle necks/conditions of supply:-

The inventory of raw material stores and spares depend on the condition of
supply. If the supply is prompt and adequate, the firm can manage with small inventory.
However, if supply were unpredictable and scantly, then the firm to ensure continuity of
production would have to acquire stocks as and when they are available and carry large
inventory on an average.

 Profit levels:-
A company carrying huge amount of profit can add to the working capital pool
a large quantum of funds. However, such companies should guard against the temptation
of expanding beyond necessity and increase in overhead. Generally it is seen that
companies with high profit level become easy in management of funds and usually
mismanagement by blocking funds excessively in stocks or debtors.

 Tax levels and Planning:-

Income Tax Laws provide for payment of advance tax in installments excise
and sales tax are payable at time of dispatch of goods from the factory premises and the
point of sales respectively. Any working capital management must make adequate and
finely provision for the same as all of them involve cash outlays
.
 Dividend policy and Retained Earnings:-
Dividend policy and retained earnings are directly related. There has to be
proper balance between the need to preserve cash resources and the obligation to satisfy

45
shareholders become the short-term liability, which has to be paid for in cash and thus
impact, should be recognized in the working capital budget.

 Depreciation Policy:-
The extent to which the depreciation provision in made during the course of
making financial statement has direct bearing on the dividend policy and retained
earnings. This so because higher quantum of depreciation would leave lesser profits
resulting in reduced retained earning and dividend.

 Price level changes in raw material and finished goods:-

Information has got a direct bearing on the working capital. It depends to a
large extent on the company’s ability to read to just its own prices to cover the increase in
the cost.

 Operating Efficiency of Company:-

Operating efficiency of a company plays a major role in working capital
management. An efficient company will have a shorter manufacturing period, long credit
terms available from suppliers and minimum customers credit outstanding. If this is
achieved then the quantum of working capital required will be naturally reduced.

Nature and size of the Business:-

 Manufacturing cycle
 Sales growth
 Demand condition
 Production policies
 Price level changes
 Firms credit policies
 Availability of credit
 Business fluctuations, growth and expansion activities.

46
Classification of working capital:-
Working capital may be classified into two ways.
 On the basis of Concept
 On basis of Time
Working capital may be classified in two ways.

(a) On the basis of concept:-

1. Gross Working Capital
2. Net Working Capital

(b) On the basis of time:-

1. Permanent or Fixed Working Capital
2. Regular Working Capital
3. Reserve Working Capital
4. Temporary or Variable Working Capital
5. Seasonal Working Capital
6. Special Working Capital

47
 Classification of Working Capital

WORKING CAPITAL

BASIS OF BASIS OF
CONCEPT TIME

Gross Net Permanent / Temporary /

Working Working Fixed Variable
Capital Capital Working Working
capital Capital

Regular Reserve Special

Working Working Seasonal Working
capital capital Working Capital
capital

(a) On the basis of concept:-

Gross Working Capital:-
Gross working capital simply called as working capital refers to the firm’s
investments in current assets. Current assets are the assets which can be converted into
cash within an accounting year (or operating cycle) include cash, short – term securities,
debtors, bills receivables and inventories Gross working capital concepts focus attention
on two aspects of current assets management.
 Optimum investment in current assets and
 Financing of current assets.

48
Net Working Capital:-
Net concept is also called as net working capital. It refers to the difference
between current assets and current liabilities.
Current assets are the assets which can be converted into cash within an
accounting year (or operating cycle) include cash, short – term securities, debtors, bills
receivables and inventories.
Current liabilities are those claims of outsiders that are expected to mature for
the payment within an accounting year. Net working capital being the difference between
current assets and current liabilities is a quantitative concept.
Gross working capital concept is financial or going concern concept. Where as
net working capital is accounting concept of capital. These two concepts of working
capital are not exclusive rather both have their own merits.
Net working capital concepts however are also important for the following
reasons.
 It is a qualitative concept, which indicates the firm ability to meet is
operation expenses and short term liabilities.
 It is an indicator of financial soundness of enterprises.
It may be said that both gross and net concepts of working capital are important
aspects of the working capital management. The net concept of working capital may be
suitable only for proprietary from of organization, such as sole trader or partnership firm.
But gross concept is very suitable to the company form of organization.

(b) On the basis of time:-

Permanent (or) Fixed working Capital:
Business activity does not an end after the realization of cash from customer for
a company, the process is continuous and hence the need for a regular supply of working
capital. To carry on business, certain minimum level of working capital is necessary on a
continuous and uninterrupted basis for all practical purpose, this requirement has to be
met permanently as with other fixed assets. This requirement is referred as a “permanent
of fixed working capital”.

49
Temporary (or) Variable working capital:
Any amount over and above the permanent level of working capital is known as
temporary, fluctuations or variable working capital. This type of working capital is
needed to meet fluctuations is demand upon changes in production and sales as result of
seasonal changes.

Temporary
Working
Capital

Permanent
Time

Variable working capital may be sub-divided into seasonal working capital and
special working capital. Seasonal working capital is required to meet the seasonal
demands of busy periods securing at started inventories on the other hand special
working capital is required to meet extraordinary need for contingencies.

50
Importance of adequacy of working capital:-
Working capital is the lifeblood and nerve center of a business. Just as
circulation of blood is essential in the human body for maintaining life, working capital is
very essential to maintain the smooth running of a business.
No business can run successfully without an adequate amount of working
capital. The main advantages of maintaining adequate amount of working capital are as
follows.
 Solvency of the Business:-
Adequate working capital helps on maintaining solvency of the business by
providing uninterrupted flow of production.
 Good will:-
Sufficient working capital enables a business concern to make prompt payments
and hence helps in creating and maintaining good will.
 Easy Loans:-
A concern having adequate working capital high solvency and good credit
standing can arrange loans from banks and others on easy favorable terms.
 Cash discounts:-
Adequate working capital also enables a firm to avail cash discounts on the
purchases and hence it reduces costs.
 Regular Supply of raw materials:-
Sufficient working capital ensures regular supply of raw materials and
continuous production.
 Regular payment of salaries, wages and other day-to-day commitments:-
A company which has enable working capital can make regular payments of
salaries, wages and other day-to-day commitments which raises the moral of its
employees, increases their efficiency reduces wastage and costs and enhances production
and profits.

51
  Quick and regular return on investment:-
Every investor wants a quick and regular return on his investments. Sufficient
working capital enables a concern to pay quick and regular dividends to its investors, as
they may not be much pressure to plough back profits.

The Need for Working Capital:-

Every business needs some amount of working capital. The need for working
capital arises due to the time gap between production and realization of cash from sales.
The following are the needs of working capital:
 For the purpose of raw material
 To pay wages and salaries
 To incur day-to-day expenses and over-heads
 To meet the selling costs
 To provide credit facilities to the customers
 To maintain inventories of raw materials. Work-in-progress, stores, spares
and finished stock.

Operating Cycle:-
Alternatively known as ‘working Capital Cycle’ of the working capital. Every
time sales do not convert into cash instantly there is invariably a time lag between the
sale of goods and the receipt of cash therefore, sufficient working capital is necessary
sustain sales activity.
This concept is based upon continuity of flow through business operations. This
flow of value is caused by different operational activities during a given period of time.
These operational activities of an organizational may comprise of.
The operating cycle (working capital cycle) consists of the following event
which continues throughout the life of business.

52
  Conversion of cash into raw-materials;
 Conversion of raw-materials into work-in-progress;
 Conversion of work-in-progress into finished stock;
 Conversion of finished stock into accounts receivables through sales; and
 Conversion of account receivables into cash.

The duration of the operating cycle for the purpose of estimating working
capital is equal to the sum of the durations of each of the above said events, less the credit
period allowed by the suppliers.

DEBTORS
SALES
CASH
OPERATING
FINISHED CYCLE RAW
GOODS MATERIALS

WORK-IN-PROGRESS

53
Statement of changes in working capital:-

Working capital means the excess of current assets over current liabilities.
Statement of changes in working capital is prepared to show the changes in the working
capital between the two balance sheet dates. This statement is prepared with the help of
current assets and current liabilities derived from the two balance sheets.
As, working capital= current assets- current liabilities
So
 An Increase in current assets increased working capital.
 An decrease in current assets decreases working capital.
 An Increase in current liabilities decreased working capital.
 A decrease in current liabilities increased working capital.

The changes in the amount of any current assets or current liabilities in the current
balance sheet as compared to that of the previous balance sheet either results in increase
or decrease in working capital. The difference is recorded for each individual current
assets and current liabilities. Incase a current asset in the current period is more than in
the previous period, the effect is an increase in working capital and it is recorded in the
increase column.

But if a current liability in the current period is more than in the previous period,
the effects is decrease in working capital and it is recorded in the decrease column or vice
versa. The total increase and the total decrease are compared and the difference shows the
net increase or net decrease in working capital. It is worth nothing that schedule of
changes in working capital is prepared only from current assets and current liabilities and
the other information is not of any use for preparing this statement.

54
Advantages of adequate Working Capital:-

Working capital is the life blood of the business. Just as circulation of blood is
essential in the human body for maintaining life, working capital is very essential to
maintain the business.
The main advantages of maintaining adequate amount of working capital are as
follows:

 Good solvency position in the business

 Goodwill, it is easy to get loans
 Cash discounts
 Regular supply of raw materials
 Regular payment of salaries, wages and other day to day commitments
 Exploitation of favorable market conditions
 Ability to face crisis
 Quick and regular return on investment
 High morale
 Every business concern should have adequate working capital to run its business
operations. It should not have either redundant/ excess or shortage of working
capital.

Disadvantages of excessive Working Capital:-

Excessive working capital means idle funds which earn no profit for the
business and hence the business cannot earn a proper rate of return on its investment.

 Where there is a redundant working capital, it may lead to unnecessary

purchasing and accumulation of inventories causing more chances of theft,
wastage and losses.

55
  Excessive working capital implies excessive debtors and defective credit
policy which may cause higher incidence of bad debts.
 It may result in overall inefficiency in the organization.
 When there is excessive working capital, relations with banks and other
financial institutions may not be maintained.
 Due to low rate of return on investments the value of shares may also fall.
 The redundant working capital gives rise to speculative transactions.

Theoretical frame work of Ratio Analysis:-

Ratio analysis is the process of determining and interpreting numerical
relationship based on financial statements. A ratio is a statistical yard stick that provides a
measure of the relationship can be expressed as a percentage on as quotient.
Ratio analysis is a powerful tool of financial analysis. In finance analysis ratio is
as a bench mark of a firm as well as its historical of ratio analysis lies in the fact that it
marks related information comparable.
A single figure by it self has no meaning but when expressed in terms of related
figure. It yields significant inferences.

Meaning:-
Ratio is a simple mathematical expression. It is a number expressed in terms of
another number expressed in terms of another number of expressing the quantitative
relationship between the two. Ratio analysis is the techniques of interpretation of
financial statement with the help of various meaningful ratios.

Definition:-
A ratio is a simple arithmetical expression of the relationship of one number of
another. It may be defined as the indicated quotient of two mathematical expressions.
According to Accountants hand book by Waxen, Kell and Bedford “A ratio is an
expression of the quantitative relationship between two numbers”.

56
Advantages of Ratio Analysis:-
The various advantages associated with ratio analysis are
 Ratio analysis helps to measure the profitability of the business by calculating
the various profitability ratios.
 Ratio analysis provides to workout the solvency.
 Ratio analysis help the outsiders just like creditors, share holders, bankers, to
know about the profitability and ability of the company.
 With the help of ratio analysis a company may have comparative study of its
performance to the previous years.
 Ratio analysis is very useful as they briefly summarize the result of detailed
and complicated computations.
 Ratio analysis helps to workout the operating efficiency of the company.
 Ratio analysis helps to workout the short-term financial position of the
company with the help of liquidity ratios.
 Ratio analysis helpful for forecasting purposes.

Limitations of Ratio Analysis:-

The following are the main limitations of accounting ratios.
 Limited comparability
 False results
 Effect of price level changes
 Qualitative factors are ignored.
 Costly technique
 Misleading results
 Absence of standard university Accepted Terminology.

57
Types of Ratios:-
Accounting ratios can be grouped into the following categories.
A) Liquidity Ratio
B) Activity Ratios
C) Solvency Ratios
D) Profitability Ratios
E) Leverage Ratios

A) Liquidity Ratio:-
The term liquidity refers to the ability of the company to meet its current
liabilities. Liquidity ratios assess capacity of the firm to repay its short term liabilities.
Thus liquidity ratios measure the firm’s ability to fulfill short term commitments out of
its liquid assets.
The important liquidity ratios are:
I. Current ratio
II. Quick ratio

B) Activity Ratios:-
Activity ratios measure the efficiency or effectiveness with which a firm
manages its resources. These ratios are also called turnover ratios because they indicate
the speed at which assets are converted or turned cover in sales. These ratios are
expressed as ‘times’ and should always be more than one.
Types: Some of the important activity ratios are:
I. Stock Turnover Ratio
II. Debtors Turnover Ratio
III. Creditors Turnover Ratio
IV. Working Capital Turnover Ratio

58
C) Solvency Ratios:-
The term ‘solvency’ refers to the ability of a concern to meet its long term
obligations. The long-term liability of a firm is towards debenture holders, financial
institutions providing medium and long term loans and other creditors selling goods on
credit. These ratios indicate firm’s ability to meet the fixed interest and its costs and
repayment schedules associated with its long term borrowings.
Types: The various types of solvency ratios are:
I. Debt-Equity Ratio
II. Proprietary Ratio

D) Profitability Ratios:-
The main aim of an enterprise is to earn profit which is necessary for the
survival and growth of the business enterprise. It is earned with the help of amount
invested in business. It is necessary to know hoe mush profit has been earned with the
help of the amount invested in the business. This is possible through profitability ratio.
These ratios examine the current operating performance and efficiency of the business
concern. These ratios are helpful for the management to take remedial measures if there
is a declining trend.
Types: The various important profitability ratios are:
I. Gross Profit Ratio
II. Net Profit Ratio
III. Operating Profit Ratio
IV. Return on investment Ratio

E) Leverage Ratios:-
Leverage ratios are otherwise known as capital structure ratio. The term
capital structure refers to the relationship between various long terms forms of financing
such as debentures (long-term), preference share capital and equity share capital
including reserves and surpluses.

59
 DATA ANALYSIS AND INTERPRETATION
ANALYSIS OF DATA: The analysis of past performance of the company in
terms of operational efficiency and financial soundness is carried out with the help of the
following tools of analysis.
 Working capital ratios.
 Statements showing changes in working capital.

60
 Table-4.1
Balance Sheet of Tirumala Milk Products Pvt Ltd as on 31-3-2012
Particulars 2011 2012
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000

Reserves &Surplus 13,51,67,525 13,02,70,036

→Loan funds
Secured loans 46,52,13,017 39,03,64,244
Unsecured loans 17,55,51,214 19,92,39,493
→Deferred tax liability 55,23,622 57,69,209

79,44,55,378 73,86,69,982
Application Funds
I. Fixed Assets
Gross 70,33,48,927 71,15,51,528
(Depreciation) 7,12,09,082 10,54,78,021
Net block 63,21,39,845 60,60,73,507
II. Investments 37,19,965 29,83,165
III. Current Assets, Loans& Advances
Inventories 17,22,56,321 18,79,34,012
Sundry Debtors 2,49,37,024 2,68,60,540
Cash &Bank balances 3,34,65,753 60,59,037
Other current assets 2,86,56,816 4,86,79,846
Loans & Advances 1,49,28,012 1,17,23,019
27,42,43,926 28,12,56,454
(-)Current Liabilities & Provisions 11,56,48,358 15,16,43,144
Net current assets 15,85,95,568 12,96,13,310
Total 79,44,55,378 73,86,69,982

61
 Table-4.2
Balance Sheet of Tirumala Milk Products Pvt Ltd as on 31-3-2013
Particulars 2012 2013
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000
Reserves &Surplus 13,02,70,036 15,11,36,957
→Loan funds
Secured loans 39,03,64,244 37,94,75,270
Unsecured loans 19,92,39,493 19,30,40,880
→Deferred tax liability 57,69,209 62,47,531

73,86,69,982 74,29,00,638
Application Funds
I Fixed Assets
Gross 71,15,51,528 72,61,14,635
(Depreciation) 10,54,78,021 14,50,33,137
Net block 60,60,73,507 58,10,81,498
Capital Work-in-progress 59,399 51,65,550
II Investments 29,83,165 29,83,165
III CurrentAssets,Loans&Advances
Inventories 18,79,34,012 23,98,80,075
Sundry Debtors 2,68,60,540 3,59,92,686
Cash &Bank balances 60,59,037 71,50,276
Other current assets 4,86,79,846 6,96,40,943
Loans & Advances 1,17,23,019 1,25,29,745
28,125,56,454 36,51,93,725
(-)Current Liabilities & Provisions 15,16,43,144 21,15,23,300
Net current assets 12,96,13,310 15,36,70,425

Total 73,86,69,982 74,29,00,638

62
 Table-4.3
Balance Sheet of Tirumala Milk Products Pvt Ltd on 31-3-2014
Particulars 2013 2014
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000
Reserves &Surplus 15,11,36,957 19,42,00,158
→Loan funds
Secured loans 37,94,75,270 47,86,82,475
Unsecured loans 19,30,40,880 8,15,95,729
→Deferred tax liability 62,47,531 55,23,988

74,29,00,638 77,30,02,348
Application Funds
I Fixed Assets
Gross 72,61,14,635 73,89,03,208
(Depreciation) 14,50,33,137 18,24,91,726
Net block 58,10,81,498 55,54,11,482
Capital Work-in-progress 51,65,550 18,55,829
II Investments 29,83,165 29,83,165
III CurrentAssets,Loans&Advances
Inventories 23,98,80,075 23,69,75,732
Sundry Debtors 3,59,92,686 3,62,58,591
Cash &Bank balances 71,50,276 1,39,98,934
Other current assets 6,96,40,943 9,36,87,132
Loans & Advances 1,25,29,745 1,08,64,119
36,51,93,725 39,17,84,538
(-)Current Liabilities & Provisions 21,15,23,300 18,00,32,666
Net current assets 15,36,70,425 21,17,51,872

Total 74,29,00,638 77,30,02,348

63
 Table-4.4
Balance Sheet of Tirumala Milk Products Pvt Ltd as on 31-3-2015
Particulars 2014 2015
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000
Reserves &Surplus 19,42,00,158 34,59,01,071
→Loan funds
Secured loans 47,86,82,475 42,91,26,132
Unsecured loans 8,15,95,729 8,33,86,203
→Deferred tax liability 55,23,988 4,21,51,888

77,30,02,348 91,35,65,294
Application Funds
I Fixed Assets
Gross 73,89,03,208 77,25,53,600
(Depreciation) 18,24,91,726 21,85,01,632
Net block 55,54,11,482 55,40,51,968
Capital Work-in-progress 18,55,829 15,50,361
II Investments 29,83,165 29,83,165
III CurrentAssets,Loans&Advances
Inventories 23,69,75,732 32,74,12,543
Sundry Debtors 3,62,58,591 2,23,61,498
Cash &Bank balances 1,39,98,934 7,38,91,461
Other current assets 9,36,87,132 15,15,68,707
Loans & Advances 1,08,64,119 1,39,66,691
39,17,84,538 58,92,00,900
(-)Current Liabilities & Provisions 18,00,32,666 23,42,21,100
Net current assets 21,17,51,872 35,49,79,800

Total 77,30,02,348 91,35,65,294

64
 Table-4.5
Balance Sheet of Tirumala Milk Products Pvt Ltd as on 31-3-2016
Particulars 2015 2016
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000
Reserves &Surplus 34,59,01,071 42,45,99,303
→Loan funds
Secured loans 42,91,26,132 60,06,91,795
Unsecured loans 8,33,86,203 5,17,37,891
→Deferred tax liability 4,21,51,888 4,69,84,472

91,35,65,294 1,13,70,13,461
Application Funds
I Fixed Assets
Gross 77,25,53,600 82,77,17,465
(Depreciation) 21,85,01,632 25,68,13,736
Net block 55,40,51,968 57,09,03,729
Capital Work-in-progress 15,50,361 -
II Investments 29,83,165 29,83,165
III CurrentAssets,Loans&Advances
Inventories 32,74,12,543 34,19,06,868
Sundry Debtors 2,23,61,498 8,30,13,168
Cash &Bank balances 7,38,91,461 15,60,07,572
Other current assets 15,15,68,707 21,98,55,601
Loans & Advances 1,39,66,691 1,62,18,264
58,92,00,900 81,70,01,823
(-)Current Liabilities & Provisions 23,42,21,100 25,38,75,256
Net current assets 35,49,79,800 56,31,26,567

Total 91,35,65,294 1,13,70,13,461

65
 Table-4.6
Schedules of changes in Working Capital of
Of Tirumala Milk Products Pvt Ltd as on 31 March 2010
Particulars 2009-2010 2010-2011 Increase in Decrease in
working Working
capital capital
A Current Assets
Inventories 17,22,56,321 18,79,34,012 1,56,77,691 -
Sundry debtors 2,49,37,024 2,68,60,540 19,23,516 -

Cash &bank 3,34,65,753 60,59,037 - 2,74,06,716

Other current assets 2,86,56,816 4,86,79,846 2,00,23,030 -
Loans &Advances 1,49,28,012 1,17,23,019 - 32,04,993
Total Current Assets 274243926 281256454 - -
B Current Liabilities
Current Liabilities & 31232753
provisions 108391431 139624184 4762033
7256927 12018960

Total Current Liabilities 115648358 151643144 - -

A- Working Capital 158595568 129613310 - -
B
Increase in Working capital 28982258 28982258
158595568 158595568 66606495 66606495

Interpretation:

The working capital at the end of the period (2011) is more than the working capital at
the beginning (2010) an amount of is represented by decrease in working capital.

66
 Table-4.7

Schedules of changes in Working Capital of

Tirumala Milk Products Pvt Ltd as on 31 March 2012

Particulars 2011-2012 2012-2013 Increase in Decrease in

Working Working
capital capital
A Current Assets
Inventories 18,79,34,012 23,98,80,075 5,19,46,063 -
Sundry debtors 2,68,60,540 3,59,92,686 91,32,146 -

Cash &bank 60,59,037 71,50,276 10,91,239 -

Other current assets 4,86,79,846 6,96,40,943 2,09,61,097 -
Loans &Advances 1,17,23,019 1,25,29,745 8,06,726 -
Total Current Assets 28,12,56,454 36,51,93,725
B Current Liabilities
Current Liabilities & 13,96,24,184 20,24,49,314 6,28,25,130
provisions 1,20,18,960 90,73,986 29,44,974
Total Current Liabilities 15,16,43,144 21,15,23,300
A- Working Capital 12,96,13,310 15,36,70,425 - -
B
Decrease in Working 24,05,71,150 - - 24,05,71,150-
capital
15,36,79,425 15,36,70,425 8,68,82,245 8,68,82,245

Interpretation:

The working capital at the end of the period (2013) is less than the working capital at the

beginning (2012) an amount of is represented by increase in working capital.

67
 Table-4.8
Schedules of changes in Working Capital of
Tirumala Milk Products Pvt Ltd as on 31 March 2013

Particulars 2012-2013 2013-2014 Increase in Decrease

Working in Working
capital capital
A Current Assets
Inventories 23,98,80,075 23,69,75,762 - 29,04,313
Sundry debtors 35992686 3,62,58,591 2,65,905 -
Cash &bank 71,50,276 1,39,98,934 68,48,658
Other current assets 6,96,40,943 9,36,87,132 2,40,46,189 -

Loans &Advances 1,25,29,745 1,08,064,119 - 16,65,626

Total Current Assets 365193725 365193725
B Current Liabilities
Current Liabilities & 202449315 15,84,52,146 4,39,97,169
provisions 9073986 2,15,80,520 1,25,06,534
Total Current Liabilities 21,15,23,300 18,00,32,666
A- Working Capital 15,36,70,425 21,17,51,872
B
Increase in Working capital 5,80,81,447 - - 5,80,81,447

21,17,51,872 21,17,51,872 7,51,57,921 7,51,57,921

Interpretation:-

The working capital at the end of the period (2014) is more than at the
beginning (2013) an amount of represented by increase in working capital.

68
 Table-4.9

Schedules of changes in Working Capital of

Tirumala Milk Products Pvt Ltd as on 31 March 2014

Particulars 2013-2014 2014-2015 Increase in Decrease in

Working Working
capital capital
A Current Assets
Inventories 23,69,75,762 32,74,12,543 9,0436,781 -
Sundry debtors 3,62,58,591 2,23,61,498 - -
Cash &bank 1,39,98,934 7,38,91,461 5,98,92,527 -
Other current assets 9,36,87,132 15,15,68,707 5,78,81,575 -
Loans &Advances 1,08,64,119 1,39,66,691 31,02,572 -
Total Current Assets 39,17,84,538 58,92,00,900
B Current Liabilities
Current Liabilities & 15,84,52,146 14,33,60,960 1,50,91,186 6,92,79,620
provisions 2,15,80,520 9,08,60,140 - -
Total Current Liabilities 180032666 23,42,21,100
A- Working Capital 21,17,51,872 35,49,79,900 - -
B
Increase in Working capital 14,32,27,928 - - 14,32,27,928
35,49,79,800 35,49,79,800 22,64,04,641 22,64,04,641

Interpretations:

The working capital at the end of the period (2015) is more than the working capital at
the beginning (2014) an amount of is represented by increase in working capital.

69
 Table-4.10
Schedules of changes in Working Capital of
Tirumala Milk Products Pvt Ltd as on 31 March 2015
Particulars 2014-2015 2015-2016 Increase in Decrease in
Working Working
capital capital
A Current Assets
Inventories 32,74,12,543 34,19,06,868 1,44,94,325 -
Sundry debtors 2,23,61,498 8,30,13,168 6,06,51,670 -
Cash &bank 7,3891,461 15,60,07,572 8,21,16,111 -
Other current assets 15,15,68,707 21,98,55,601 6,82,86,894 -
Loans &Advances 1,39,66,691 1,62,18,624 22,51,933 -
Total Current Assets 58,92,00,900 81,70,010,823
B Current Liabilities
Current Liabilities & 14,33,60,960 12,59,82,205 17,37,875 -
provisions 9,08,60,140 12,78,93,051 - 3,70,32,911
Total Current Liabilities 23,42,21,100 25,38,75,256
A- Working Capital 35,49,79,800 56,31,26,567 - -
B
Increase in Working capital 20,81,26,567 - - 20,81,46,767
56,31,26,567 56,31,26,567

Interpretation:-

The working capital at the end of the period (2014) is more than the working
capital at the beginning (2015) an amount of is represented by increase in working
capital.

70
 RATIO:
-

Current Ratio:-
The current ratio is calculated by current assets by current liabilities. Current
Assets include cash and those assets/ which are can be converted into, cash within a year
such as marketable securities, debtors and inventories.
Current liabilities are those liabilities which are expected to be paid with in a
year. It includes Bills payable, Sundry Creditors, and Outstanding Expenses.
Significance: -
The current ratio is a crude and quick measure of firm’s liquidity. Thus the
ideal current ratio of a company is 2:1 i.e. to repay current liabilities; there should be
twice current assets.
Formula:
Current Assets
Current Ratio =
Current Liabilities

Table-4.11
Current Ratio
Year Current Assets Current Liabilities Ratio
2011-2012 27,42,43,926 11,56,48,358 2.37
2012-2013 28,12,56,454 15,16,43,144 1.85
2013-2014 36,51,93,725 21,15,23,300 1.73
2014-2015 39,17,84,538 18,00,32,666 2.18
2015-2016 58,92,00,900 23,42,21,100 2.52

71
 Chart-4.11

2.52
2.5 2.37
2.18

2 1.85
1.73

1.5

0.5

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation:-

From the above table it is understood that Current Ratio of the company in the
year 2011-2012 was 2.37 and in the next year decreased to 1.85 during the year 2012-
2013 it is further decreased to 1.73 during the year 2013-2014 increased to 2.18 during
the year 2014-2015 it is increased to 3.21 during the year 2015-2016.

72
Quick asset ratio (or) Acid test ratio:-

I. Liquidity Ratios: -

Liquidity refers to the ability of the company to meet its current liabilities.
Liquidity ratios assess capacity of the firm to repay its short-term liabilities. Thus,
liquidity ratios measure the firm’s Ability to fulfill short-term commitments out of its
liquid assets.

Definition: -
Quick ratio is also known as Acid test or Liquid ratio. It is another ratio to test
the liability of the concern. This ratio establishes a relationship between quick assets and
current liabilities. The main purpose of this ratio is to measure the ability of the firm to
pay its currents liabilities. For the purpose of this ratio of calculating this ratio, stock
and prepaid expenses are not taken into account as these may not be converted into cash
in a very short period.
Significance: -
Quick ratio is measure of the instant debt paying capacity of the business
enterprise. It is
a measure of the extent to which liquid resources are immediately available to meet
current oblig action quick ratio of1: 1 is considered good/ favorable` for a company.

Quick Assets
Formula: Quick Ratio 
Current Liabilities

Quick Assets=Current Assets-(Stock + prepaid expenses)

Current Liabilities (or) Quick Liabilities=Current Liabilities-Bank Overdraft

73
 Table-4.12
Quick asset ratio

Year Liquid Assets Current Liabilities Ratio

2011-2012 9,33,22,442 15,16,43,144 0.62
2012-2013 12,53,13,650 21,15,23,300 0.59
2013-2014 15,48,08,776 18,00,32,666 0.88
2014-2015 26,17,88,357 23,42,21,100 1.12

2015-2016 47,5094,955 25,38,75,256 1.87

Chart4.12

2 1.87
1.8
1.6

1.4
1.2 1.12

1 0.88
0.8
0.62 0.59
0.6

0.4
0.2
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation:-

From the above table it is understood that Quick Ratio of the company in the year
2011-2012 was 0.62 and in the next year decreased to 0.59 during the year 2012-2013 it
is increase to the 0.86 during the year 2013-2014 but increased to 1.12 during the year
2014-2015 it is also increased to 1.87 during the year 2015-2016.

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Absolute Ratio:-

Definition:- Cash Ratio is calculated by dividing Cash and marketable securities by

Current Liabilities.

Significance:-
Trade Investment or marketable securities are equivalent of cash therefore they
may be including in computation of cash ratio.
Formula:
Cash Ratio = Absolute Assets / Current Liabilities
Absolute Assets=Cash in hand+ Bank balance+ Marketable secure

Table-4.13
Absolute Ratio

Year Absolute Assets Current Liabilities Ratios

2011-2012 60,59,037 15,16,43,144 0.04
2012-2013 71,50,276 21,15,23,300 0.03
2013-2014 1,39,98,934 18,00,32,666 0.07
2014-2015 7,38,91,461 23,42,21,100 0.32
2015-2016 15,60,07,572 25,38,75,256 0.39

75
 Chart-4.13

0.45
0.39
0.4

0.35 0.32
0.3

0.25

0.2

0.15

0.1 0.07
0.04 0.03
0.05

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation:-

From the above table it is understood that Absolute Ratio of the company in
the year 2011-2012 was 0.04 and in the next year decreased to 0.03 in the during the year
2012-2013 it is increased the 0.07 during the year 2013-2014 it is increased to 0.32
during the year 2014-2015 it is also increased to 0.39 during the year 2015-2016.

76
Debtor’s turnover ratio:
This ratio establishes a relationship between net credit sales and average account
Receivables i.e. average trade debtor and bills receivables. The objective of computing
this ratio is to determine the efficiency with which the trade debtors are managed.
Significance:-
Debtors Turnover Ratio is an indication of the speed with which a company
collects its debts. The higher the ratio, the better it is because it indicates that debts are
being collected quickly. In general, a high ratio indicates the shorter collection period,
which implies prompt payment by debtor and a low ratio, indicates a longer collection
period, which implies delayed payment for debtors.
Formula: Debtors turnover ratio a:
Debtors turnover ratio = Net Credit Sales / Average Debtors
(OR)
= Net Sales / Average Debtors
Where
Net Credit Sales=Total sales-cash sales
Average Debtors= Opening Debtors+ Closing Debtors
2

TABLE-4.14
Debtors Turnover Ratio

Years Net credit sales AverageTradeDebtors Ratio

2011-2012 9,66,95,127 1,34,30,270 7.19
2012-2013 25,57,62,587 1,79,96,343 14.2
2013-2014 25,79,93,866 1,81,29,296 14.23
2014-2015 28,06,78,564 1,11,80,749 25.10
2015-2016 58,86,55,944 4,15,06,584 14.18

77
 Chart-4.14

30

25.1
25

20

15 14.2 14.23 14.18

10
7.19

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation:-

From the above table it is understood that Debtors Turnover Ratio of the company in the
year 2011-2012 was 7.19 and in the next year increased to 14.21 during the year 2012-
2013 it is also increased to 14.23 during the year 2013-2014 it is decreased to 25.10
during the year 2014-2015 it is also decreased to 14.18 during the year 2015-2016.

78
Debt-Equity Ratio:-

It is also otherwise known as external to internal equity ratio. It is calculated to

know the relative claims of outsiders and the owners against the firm’s assets. This ratio
establishes the relationship between the outsider’s funds and the shareholders fund.

Significance:-
The purpose of debt equity ratio is to derive an idea of the amount of capital
supplied to the concern by the proprietors. This ratio is very useful to assess the
soundness of long term financial position of the firm. A low debt equity ratio implies the
use of more equity than debt.

Formula:

Debt – Equity Ratio = long-term Debt/ Share holder’s fund or Equity

Long-term Debt= Secured loans + Unsecured loans
Share holder’s Equity= Net worth
(OR)
Share holder’s fund= Equity share capital+ preference Share
Capital+ Reserves and Surplus+ Profit and loss a/c- fictitious Assets

Table-4.15
Debt-Equity Ratio

Year Long-Term Debt Shareholders Fund Ratio

2011-2012 59,53,72,946 14,32,70,036 4.15
2012-2013 57,87,63,681 16,41,36,957 3.52
2013-2014 56,58,02,192 20,72,00,158 2.73
2014-2015 55,46,64,223 35,89,01,071 1.55
2015-2016 69,94,14,158 43,75,99,303 1.60

79
 Chart-4.15

4.5
4.15
4
3.52
3.5

3 2.73
2.5

2
1.55 1.6
1.5

0.5

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation:-

From the above table it is understood that Debt-Equity Ratio of the company in the
year 2011-2012 was 4.15 and in the next year decreased to 3.52 during the year 2012-
2013 it is also decreased to 2.73 during the year 2013-2014 it is decreased to 1.55 during
the year 2014-2015 it is also decreased to1.60 during the year 2015-2016.

80
Fixed Assets Turnover Ratio:-

Fixed-asset turnover is the ratio of sales (on the profit and loss account) to the
value of fixed assets (on the balance sheet). It indicates how well the business is using its
fixed assets to generate sales.

Fixed asset turnover=Net sales/average net fixed assets

Generally speaking, the higher the ratio, the better, because a high ratio indicates the
business has less money tied up in fixed assets for each unit of currency of sales revenue.
A declining ratio may indicate that the business is over-invested in plant, equipment, or
other fixed assets.

Table-4.16

Fixed Asset Turnover Ratio

Year Sales Fixed Assets Ratio

2011-2012 9,66,95,127 60.60.73.507 0.16
2012-2013 25,57,62,587 58.62.47.049 0.44
2013-2014 25,79,93,866 55.72.67.311 0.46.
2014-2015 28,06,78,564 55.56.02.239 0.51
2015-2016 58,86,55,944 57,09,03,729 1.03

81
 Chart-4.16

1.2
1.03
1

0.8

0.6
0.51
0.44
0.4

0.2 0.16

0
0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation:

From the above table it is understood that Fixed Assets Turnover Ratio of the company in
the year 2011-2012 was 0.16 and in the next year increased to0.44 during the year 2012-
2013 it is also increased to 0.46 during the year 2013-2014 it is also increased to 0.51
during the year 2014-2015 it is also increased to 1.03 during the year 2015-2016.

82
Total Assets Turnover Ratio:-

Total Assets Turnover Ratio (TATR) is used to measure the firm's

ability to utilize its assets to generate sales. It is an indication to the firm's operation
efficiency. A lower ratio means inefficient utilization of assets.

Formula:-
Total Assets Turnover Ratio = Net Sales / Total Assets
or,
TATR = Net Sales / Average Total Net Assets

Table-4.17
Total Assets Turnover Ratio
Year Sales Total Assets Ratio
2011-2012 9,66,95,127 73,86,69,982 0.13
2012-2013 25,57,62,587 74,29,00,639 0.34
2013-2014 25,79,93,866 77,30,02,348 0.33
2014-2015 28,06,78,564 91,35,65,294 0.30
2015-2016 58,86,55,944 1,1370,13,46,461 0.51

83
 Chart-4.17

0.6
0.51
0.5

0.4
0.34 0.33
0.3
0.3

0.2
0.13
0.1

0
2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Interpretation:

From the above table it is understood that Total Assets Turnover Ratio of the
company in the year 2011-2012 was 0.13 and in the next year increased to 0.34 during
the year 2013-2014 it is decreased to 0.33 during the year 2012-2013 it is also decreased
to 0.30 during the year 2014-2015 it is also increased to 0.5 during the year 2015-2016.

84
 FINDINGS

 The working capital of the company is gradually increased from 2011-2014

but it suddenly decreased in 2015.

 The growth rate of quick ratio of the firm is not showing consistent increase
from the last four years.

 The current ratio of the company is inadequate for the last four years.

 The company is always maintaining high liquidity to meet daily operations.

And also maintaining good cash management. The excess cash in banks
always converted into fixed deposits.

 The stock turnover ratio is not consistent from 2011-15.

 The average collection period of debtors is 17 days.

85
 SUGGESTIONS

 The holding of raw material takes long period by the firm. so it is

suggestible to bring the raw material from nearby places, so that the firm
can deliver the order to the buyer within a short period.

 The company is maintaining the higher value of closing stock of finished

goods, which leads to lower inventory turnover ratio. It would be better to
the company to maintain low level of stock as at the year-end by initiating
more sales.

 In order to increase the sales company has to concentrate in capturing the

foreign markets.

 This is easily possible as they are linked with multi-nationals and reputed
business houses.

 They can enter into the foreign market by sending some samples of their
products. Once they are able to attract foreign customers they can utilize
their licensed capacity fully.

 The Company has to focus on reduction in manufacturing cost. Since the

cost structure of the company is more of fixed cost it is suggested to
perform a cost-benefit analysis in order to save its cost.

86
 CONCLUSION

The overall performance of Tirumala Milk Products Pvt Ltd from last
decade is outstanding. By observing net working capital ratio, it shows that the
liquid position of the company is strong. By comparing the working capital
turnover ratio, the conversion of the working capital into sales is good. So, the
efficiency in the management of the working capital is very high.
It suggested that the company has to maintain more number of assets
and should maintain the bank balances and suggested that the company has to
convert the working capital into sales very quickly which improves the efficiency
of the management of W.C. the company is that it should maintain current
standards of performance and continue its efforts to the growth and development
of Indian tobacco Industry, which ultimately benefits its employees, formers,
Government and others who are linked with this corporate giant today.

87
 ANNEXURE
Table-4.1
Balance Sheet of Tirumala Milk Products Pvt Ltd as on 31-3-2012
Particulars 2011 2012
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000

Reserves &Surplus 13,51,67,525 13,02,70,036

→Loan funds
Secured loans 46,52,13,017 39,03,64,244
Unsecured loans 17,55,51,214 19,92,39,493
→Deferred tax liability 55,23,622 57,69,209

79,44,55,378 73,86,69,982
Application Funds
IV. Fixed Assets
Gross 70,33,48,927 71,15,51,528
(Depreciation) 7,12,09,082 10,54,78,021
Net block 63,21,39,845 60,60,73,507
V. Investments 37,19,965 29,83,165
VI. Current Assets, Loans& Advances
Inventories 17,22,56,321 18,79,34,012
Sundry Debtors 2,49,37,024 2,68,60,540
Cash &Bank balances 3,34,65,753 60,59,037
Other current assets 2,86,56,816 4,86,79,846
Loans & Advances 1,49,28,012 1,17,23,019
27,42,43,926 28,12,56,454
(-)Current Liabilities & Provisions 11,56,48,358 15,16,43,144
Net current assets 15,85,95,568 12,96,13,310
Total 79,44,55,378 73,86,69,982

88
 Table-4.2
Balance Sheet of Tirumala Milk Products Pvt Ltd as on 31-3-2013
Particulars 2012 2013
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000
Reserves &Surplus 13,02,70,036 15,11,36,957
→Loan funds
Secured loans 39,03,64,244 37,94,75,270
Unsecured loans 19,92,39,493 19,30,40,880
→Deferred tax liability 57,69,209 62,47,531

73,86,69,982 74,29,00,638
Application Funds
IV Fixed Assets
Gross 71,15,51,528 72,61,14,635
(Depreciation) 10,54,78,021 14,50,33,137
Net block 60,60,73,507 58,10,81,498
Capital Work-in-progress 59,399 51,65,550
V Investments 29,83,165 29,83,165
VI CurrentAssets,Loans&Advances
Inventories 18,79,34,012 23,98,80,075
Sundry Debtors 2,68,60,540 3,59,92,686
Cash &Bank balances 60,59,037 71,50,276
Other current assets 4,86,79,846 6,96,40,943
Loans & Advances 1,17,23,019 1,25,29,745
28,125,56,454 36,51,93,725
(-)Current Liabilities & Provisions 15,16,43,144 21,15,23,300
Net current assets 12,96,13,310 15,36,70,425

Total 73,86,69,982 74,29,00,638

89
 Table-4.3
Balance Sheet of Tirumala Milk Products Pvt Ltd on 31-3-2014
Particulars 2013 2014
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000
Reserves &Surplus 15,11,36,957 19,42,00,158
→Loan funds
Secured loans 37,94,75,270 47,86,82,475
Unsecured loans 19,30,40,880 8,15,95,729
→Deferred tax liability 62,47,531 55,23,988

74,29,00,638 77,30,02,348
Application Funds
IV Fixed Assets
Gross 72,61,14,635 73,89,03,208
(Depreciation) 14,50,33,137 18,24,91,726
Net block 58,10,81,498 55,54,11,482
Capital Work-in-progress 51,65,550 18,55,829
V Investments 29,83,165 29,83,165
VI CurrentAssets,Loans&Advances
Inventories 23,98,80,075 23,69,75,732
Sundry Debtors 3,59,92,686 3,62,58,591
Cash &Bank balances 71,50,276 1,39,98,934
Other current assets 6,96,40,943 9,36,87,132
Loans & Advances 1,25,29,745 1,08,64,119
36,51,93,725 39,17,84,538
(-)Current Liabilities & Provisions 21,15,23,300 18,00,32,666
Net current assets 15,36,70,425 21,17,51,872

Total 74,29,00,638 77,30,02,348

90
 Table-4.4
Balance Sheet of Tirumala Milk Products Pvt Ltd as on 31-3-2015
Particulars 2014 2015
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000
Reserves &Surplus 19,42,00,158 34,59,01,071
→Loan funds
Secured loans 47,86,82,475 42,91,26,132
Unsecured loans 8,15,95,729 8,33,86,203
→Deferred tax liability 55,23,988 4,21,51,888

77,30,02,348 91,35,65,294
Application Funds
IV Fixed Assets
Gross 73,89,03,208 77,25,53,600
(Depreciation) 18,24,91,726 21,85,01,632
Net block 55,54,11,482 55,40,51,968
Capital Work-in-progress 18,55,829 15,50,361
V Investments 29,83,165 29,83,165
VI CurrentAssets,Loans&Advances
Inventories 23,69,75,732 32,74,12,543
Sundry Debtors 3,62,58,591 2,23,61,498
Cash &Bank balances 1,39,98,934 7,38,91,461
Other current assets 9,36,87,132 15,15,68,707
Loans & Advances 1,08,64,119 1,39,66,691
39,17,84,538 58,92,00,900
(-)Current Liabilities & Provisions 18,00,32,666 23,42,21,100
Net current assets 21,17,51,872 35,49,79,800

Total 77,30,02,348 91,35,65,294

91
 Table-4.5
Balance Sheet of Tirumala Milk Products Pvt Ltd as on 31-3-2016
Particulars 2015 2016
Sources of Funds
→ Share capital 1,30,00,000 1,30,00,000
Reserves &Surplus 34,59,01,071 42,45,99,303
→Loan funds
Secured loans 42,91,26,132 60,06,91,795
Unsecured loans 8,33,86,203 5,17,37,891
→Deferred tax liability 4,21,51,888 4,69,84,472

91,35,65,294 1,13,70,13,461
Application Funds
IV Fixed Assets
Gross 77,25,53,600 82,77,17,465
(Depreciation) 21,85,01,632 25,68,13,736
Net block 55,40,51,968 57,09,03,729
Capital Work-in-progress 15,50,361 -
V Investments 29,83,165 29,83,165
VI CurrentAssets,Loans&Advances
Inventories 32,74,12,543 34,19,06,868
Sundry Debtors 2,23,61,498 8,30,13,168
Cash &Bank balances 7,38,91,461 15,60,07,572
Other current assets 15,15,68,707 21,98,55,601
Loans & Advances 1,39,66,691 1,62,18,264
58,92,00,900 81,70,01,823
(-)Current Liabilities & Provisions 23,42,21,100 25,38,75,256
Net current assets 35,49,79,800 56,31,26,567

Total 91,35,65,294 1,13,70,13,461

92
BIBLIOGRAPHY

I.M.PANDEY FINANCIAL MANAGEMENT

Himalaya Publications
Eighth edition

M.Y.KHAN&P.K.JAIN FINANCIAL MANAGEMENT

Tata McGraw-hill Publication
Company Third Edition

R.K.SHARMA & SHASI K.GUPTHA FINANACIAL MANAGEMENT

Kalyani Publishers
Third Edition

WEBSITE:
www.India Economy Watch.Com
www.Google.Com
www.wikipedia.com

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