Lakshmi Narain College of Technology AND

Science, Bhopal

A SUMMER TRAINING REPORT

ON
WORKING CAPITAL MANAGEMENT IN
FOOD CORPORATION OF INDIA
Submitted for the partial Fulfillment of the requirement for the award of
degree in

MASTER OF BUSINESS ADMINISTRATION

From

Barkatullah University, Bhopal (M. P.)

(2009-2011)

Guided by: Submitted by:

Prof. SAURAV KADAM JAI SINGH

Lakshmi Narain College of Technology Science, Bhopal

(Affiliated to Barkatullah University, Bhopal & Recognized by AICTE
New Delhi)
 “STUDY

ON

WORKING CAPITAL MANAGEMENT OF

FOOD CORPORATION OF INDIA

(BHOPAL)”

A PROJECT REPORT TOWARDS PARTIAL FULFILMENT

FOR THE DEGREE

MBA

IN

FINANCE

Guided by: Submitted by:

Prof. SAURAV KADAM JAI SINGH

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2
 M.B.A (FIN)

BARKATULLA UNIVERSITY, BHOPAL (M.P) 2009-

20011

PREFACE

The underlying aim of the summer training in FCI is a sincere attempt to analyze its Working
Management by making use of different financial appraisal techniques. The data for the
studies were obtained from the published annual reports of the company.

Among all the problems of financial management, the problems of working capital
management have probably been recognized as the most crucial one. It is because of the fact
that working capital always helps a business concern to gain vitality and life strength. The
objective of this study is to critically evaluate working capital management as practiced in
FCI.

In this study, a sincere attempt has been made to analyze the working of FCI by making use
of different financial appraisal techniques like ratio analysis, trend analysis, common-size
analysis etc. The period of study was 3 year from 2005- 06 to 2007-08. The data for the
studies were obtained form the published annual reports of the company.

An effort has been made to appraise the overall financial performance and efficiency of
management, but the scope and depth of study remained limited due to the limiting factors of
time, and resources. However, it is expected that the study will provide useful information for
better and easier understanding of the financial results of the company.

This study has been divided into six chapters. The first chapter has been devoted to the
introduction and last to the summary of conclusion and suggestion. The second chapter
deals with the objectives. Third chapter takes care of introduction to financial analysis.
In addition to this fourth chapter deals with significance of working capital, whereas
fifth chapter deals with the analysis aspects of working capital. The main source of data
has been the annual reports of the company.

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 DECLARATION

. I am Jai Singh a student of M.B.A.III semester of LAKSHMI NARAIN

COLLEGE OF TECHNOLOGY AND SCIENCE BHOPAL (2010-2011), here by
declared that the following Project report on WORKING CAPITAL MANAGEMENT
in FOOD CORPORATION OF INDIA (RCI) at BHOPAL is an authentic work done by
me.

The project was undertaken as the part of course curriculum of MBA

Program, Barkatullah University Bhopal.

Date:-

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4
 CERTIFICATE

This is to certify that JAI SINGH has completed his project work on the subject
entitled WORKING CAPITAL MANAGEMENT IN FOOD CORPORATION OF
INDIA which is based on the research study undertaken by him.
The project report is completed by the candidate under my supervision. It is an
original, unaided research study completed under my supervision to meet the partial
requirement of the MBA (FT) degree of Barkatullah University, Bhopal.

DATE:-

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5
 LAKSHMI NARAIN COLLEGE OF TECHNOGY &
SCIENCE BHOPAL

CERTIFICATE

This is to certify that JAI SINGH has completed his project work on the subject
entitled WORKING CAPITAL MANAGEMENT IN FOOD CORPORATION OF
INDIA which is based on the research study undertaken by him.
The project report is completed by the candidate under my supervision. It is an
original, unaided research study completed under my supervision to meet the partial
requirement of the MBA (FT) degree of Barkatullah University, Bhopal.

DATE:-
PRINCIPAL
(LNCT&S BHOPAL)

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6
 LAKSHMI NARAIN COLLEGE OF TECHNOGY &
SCIENCE BHOPAL

CERTIFICATE

This is to certify that JAI SINGH has completed his project work on the subject
entitled WORKING CAPITAL MANAGEMENT IN FOOD CORPORATION OF
INDIA which is based on the research study undertaken by him.
The project report is completed by the candidate under my supervision. It is an
original, unaided research study completed under my supervision to meet the partial
requirement of the MBA (FT) degree of Barkatullah University, Bhopal.

DATE:-
Prof. SOURAVKADAM
LNCT BHOPAL

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7
 Acknowledgements

I got this opportunity to place on record my grateful thanks and sincere

gratitude to Mr. D.K.Shukla and All staff member of FCI Bhopal, who gave me valuable

advice and inputs for our study. I am highly obliged Head, Human Resource
Department for permitting me for Project training otherwise my study could not have
been completed if I had not been able to get the reference materials from the company and
proper support from them.

I am immensely grateful to Mr. SOURAV KADAM whose continued and

invaluable guidance can never be forgotten by me but for whom, this study could not have
present shape.

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 CONTENTS

1. Company profile:-

2. Objective of the project:-

3. Introduction to Financial analysis:-

4. Significance of the working capital:-

5. Analysis of working capital:-

6. Conclusion and suggestion:-

References

Glossary

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 TABLE OF CONTENTS

Acknowledgments

Preface

Abstract
Chapterisation
1. Introduction

1.1 Overview FCI………………………………………

1.2 Brief history…………………………………………….
1.3 Objectives…………………………………………………..
1.4 Organization structure………………………………

2. Objective of the project

2.1 Research Methodology…………………………………

2.2 Type of Research………………………………………….
2.3 Sample of Research……………………………………..

3. Introduction to financial analysis

3.1 Prelude………………………………………………………..
3.2 Concept of financial Statement………………….
3.3 Types of Financial Statement………………………..
3.4 Parties Interest………………………………………………
3.5 Financial Appraisal………………………………………….

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4. Significance of the working Capital

4.1 Introduction of working capital…………………….

4.2 Concept of working Capital…………………………….
4.3 Importance of working capital analysis……………..
4.4 Operating and cash conversion cycle…………………
4.5 Methods and ratios………………………………………………

5. Analysis of Working capital

5.1 Working capital analysis…………………………….

5.2 Working capital trend analysis…………………..
5.3 Ratio Analysis……………………………………………….

6. Conclusions and Recommendations

6.1 Profitability………………………………………………..
6.2 Working capital…………………………………………..

References

Glossary

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11
CHAPTER: - 1

INTRODUCTION
TO
THE FCI

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12
The Food Corporation of India was setup under the Food
Corporation Act 1964, in order to fulfill following
objectives of the Food Policy:
• Effective price support operations for safeguarding the interests of the farmers.

• Distribution of food grains throughout the country for public distribution system

• Maintaining satisfactory level of operational and buffer stocks of food grains to

ensure National Food Security

In its 45 years of service to the nation, FCI has played a

significant role in India's success in transforming the crisis
management oriented food security into a stable security
system. FCI's Objectives are:

• To provide farmers remunerative prices

• To make food grains available at reasonable prices, particularly to

vulnerable section of the society

• To maintain buffer stocks as measure of Food Security

• To intervene in market for price stabilization

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Board of Directors

Residence Residence
Sl.No Name Office Phone
Phone Address
Shri Siraj Hussain, Chairman &
Managing Director, Food
23414074 9818518384 A-70, Sector-61,
1 Corporation of India, Hqrs.,
23411839 0120-2586161 Noida (U.P.)
New Delhi. (w.e.f. 01.04.2010
till further order)

Shri Desh Deepak Verma Addl.

Secretary & Financial Adviser,
C-II/19, Tilak
2 M/o CAF&PD, Krishi Bhavan, 23384418 09414100002
Lane, Delhi.
New Delhi. (w.e.f. 26.04.2010
till further order)
Shri Rakesh Garg, Joint
secretary, M/o CAF&PD,
23381177 9999671271 C-II/36, Tilak
3 Krishi Bhavan, New Delhi.
23388302(FAX) 23389458 Lane, New Delhi
(w.e.f. 15.04.2010 till further
order)
Shri Mukesh Khullar, Joint
C-II/40, Satya
Secretary, Ministry of
2742836 FAX- 24106327 Marg, Chankya
4 Agriculture, Krishi Bhavan,
0172-742836 9968265387 Puri, New Delhi-
New Delhi. (w.e.f. 23.11.2006
110017
till further order)
Shri B.B. Pattanaik, Managing
Director, Central Warehousing
Corporation, Hauz Khas, New 26852826 House No. 3009,
5 Delhi. (w.e.f. 15.07.2008 for 5 26515160 9872872447 Sector-39D,
years or till date of 26967844(FAX) Chandigarh
superannuation which is
earlier)

Shri D.S. Grewal, Secretary

A-311, Chandgi
(Food), Govt. of Punjab, Mini
Ram Block,
Secretariat, Room No. 410, 4th 2742836 FAX- 26493932
6 Asian Village
Floor, Sector-9, Chandigarh. 0172- 742836 9818372724
New Delhi-
(w.e.f. 18.10.2010 for two
110049
years)

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Organizational Structure

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 FOOD CORPORATION OF INDIA
ZONAL OFFICE: WEST (M.P)

Quality control
Scientific Management

The Food Corporation of India has an extensive and scientific stock preservation system. An
on-going programme sees that both prophylactic and curative treatment is done timely and
adequately. Grain in storage is continuously scientifically graded, fumigated and aerated by
qualified trained and experienced personnel.

Food Corporation of India's testing laboratories spread across the country for effective
monitoring of quality of food grains providing quality assurance as per PFA leading
improved satisfaction level in producers (farmers) and customers (consumer).

The preservation of food grain starts, the minute it arrives in the godowns. The bags
themselves are kept on wooden crates/poly pallets to avoid moisture on contact with the
floor. Further till the bag are dispatched/issued, fumigation to prevent infestation etc. of
stocks is done on an average every 15 days with MALATHION and once in three months
with DELTAMETHRIN etc. on traces of infestation, curative treatment is done with all.

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QUALITY POLICY

FCI, as the country's nodal organization for

implementing the National Food Policy, is committed to
provide credible, customer focused services, for
efficient and effective food security management in the
country. Our focus shall be:

• Professional excellence in Management of food grain and other commodities

• Service quality and stake holder orientation
• Transparency and accountability in transactions
• Optimum utilization of resources
• Continual improvement of systems, processes and resources

QUALITY OBJECTIVES

Fulfillment of all the targets set as per Govt. of India

Food Policy from time to time.

• Monitoring of Quality in all major transactions, processes leading to improved

customer satisfaction level
• Accountability for efficiency, responsiveness, performance and minimization of all
losses & Wastes
• Need based up gradation of infrastructure and work environment
• Need based enhancement of available knowledge & skills.
• Transparency in decision making, effective communication leading to harmonious
employee relations
• Establishing, maintaining and improving ISO 9001:2000 based Quality Management
Systems covering all areas of activity.

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CHAPTER: 2

OBJECTIVES
OF
THE PROJECT

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18
 OBJECTIVES

CONCEPTUAL: - (financial techniques: working capital ratios)

To prepare a financial report after analysis and interpretation of finding from balance
sheet and profit and loss account by applying various mathematical and financial tools and
techniques.

FACTUAL :- ( analysis of facts (results) derived from the financial technique)

 Present earning capacity and profitability of FCI Ltd

 Short term liquidity and long term financing
 Financial stability of business
 Analyze of different ratio so to judge the availability and effective use of working
capital.

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 RESEARCH METHODOLOGY

• Research methodology is a systematically solve the research problem. It has many

dimension and research method constitute a part of the research methodology.
• Thus when we talk about the research methodology, we do not talk only research
methods but also consider the logic behind the method. we use in our context of our
research study, so that research results are capable of being evaluated either by the
researcher himself or by the others.
• To effectively carry out in research I would use the following research process,which
consist of series of action or steps.

RESEARCH COMPRISES FOLLOWING STEPS:-

1. Formulating the research problem.

2. Research design and sample design.

3. Analysis of data gathered.

4. Data analysis and caparison

.
5. Graphics and interpret.

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 1. FORMULATING THE RESEARCH PROBLEM

This is the first step under which the problem stated in general way and the ambiguities i.e.
understanding and rephrasing the problem thoroughly and rephrasing the same into
meaningful terms from an analysis point of view.

The research problem under the present project was to study data of various funds for this
research process was to be formulated and execution of which would result in desired data.

2. PREPARING THE RESEARCH DESIGN

The function of research design is to provide for the collection of relevant evidences with
minimum expenditure of efforts, time and money.

RESEARCH DESIGN

• Type of research

• Sample design

TYPE OF RESEARCH

• The type of research under present is an analytical research. In analytical research; we

use tact’s or information already available these to make a critical evaluation of the
material. Hence the same would be done

• In this project I had collected fact data and information.

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 SAMPLE DESIGN

A sample design is a definite plan determined before any data is actually collected for
obtaining a sample. Researcher must select a sample design, which should be reliable and
appropriate for his report.

3. OBSERVATIONAL DESIGN (COLLECTION OF DATA)

Observational design relates to the condition under which the observations are to be made.
observational design in respect to research. There are several ways of collecting data, which
differ considerably in context of money, time, cost and other resources at the disposal of the
researcher.

Data can be obtained two important sources:

• Primary data
• Secondary data

PRIMARY DATA

Primary data are the data that are collected afresh and for the first time.thus happens to be in
character. Primary data are collected by the following ways:-

a) Observation
b) Interview
c) Schedule
d) Questionnaire

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Secondary data

Secondary data are the data that are already collected and only analyzed by different sources
these sources are as follows:-

• Corporate magazine
• Manuals of various companies
• Books, journals, news papers
• Employment exchange

The secondary data would be collected from financial statement, journal of national
repute, books of national and international author as well as the annual report of the
company. In addition to this internet access will make the study more effective and
meaningful.

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 CHAPTER: - 3

INTRODUCTION
TO
FINANCIAL ANAYSIS

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24
 FINANCIAL ANALYSIS

PRELUDE:-

Financial accounting involves recording transaction and preparing Report and

financial statement that can be used by management owner, creditor, government agencies
and other to understand what is happening in the business or nonprofit organization.
“Accounting” is the process of identifying, measuring and communicating economic
information to permit informed judgment and decisions by users of the information.

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 CONCEPTS OF FINANCIAL STATEMENTS

Financial statement are major means employed by firm to present their financial situation to
stock holders creditors and the public a financial statement is a collection of data organized
accounting to logical and consistent accounting procedure. Its purpose is to convey an
understanding of some financial aspects of a business firm. The and product of financial
accounting is financial statement consisting of the balance sheet, profit and loss accounting
and statement changes in financial position.

Financial statements are major means employed by a firm to present their

financial situation to stock holders, creditors and the general public. Accounting reports on
the result of operation and the current status of a business enterprise by a financial statement.
The balance sheet and income and statement. Since the balance sheet and income statement
are of limited interest the annual report of the company are supplemented by a third statement
the change in financial position and by foot notes which explain and amplify the reported
numerical data.

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 TYPES OF FINANCIAL STATEMENTS

A) The Balance Sheet:-

The balance sheet is called a fundamental accounting report. It provides information

about the financial standing or position of affirm at given instant. The balance sheet can be
visualized, as a snapshot of the financial status of company is a valid for only one day the
reference day. The position of the firm on a preceding day is bound to be different.

“The balance sheet of a company indicates to management the financial status of a

company as on a given moment. From an analyst point of view a balance sheet is written
representation of the resources and liabilities of an individual partnership firm an association
of a corporation.”

The contents of balance sheet can be divided into three divisions

Assets:-

Assets are valuable resources owned by a business, which are acquired at a

measurable money cost these are economic resources of a firm which provide economic
benefits to the company.

Liabilities:-

Liabilities are claim of creditors against the enterprises arising out of past activities
that are to be satisfied by the disbursement of utilization of corporate resources. They are
economic obligation of the firm.

Owner’s Equity:-

The owner’s equity is the owner’s current investment in the assets of company. The
entire system of recording business transaction is based on accounting equation. The
accounting equation is an accounting formula expressing equivalence of the two expressions
of assets and liabilities.

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 ACCOUNTING EQUATION

ASSETS = LIABILITIES+OWNERS’EQUITY

OR

OWNERS EQUITY = ASSETS-LIABILITIES

OR

LIABILITIES = ASSET-OWNERS EQUITY

(B) The Income Statement:-

The balance sheet, as discussed above, is considered a very significant
statement from the view point of bankers, and other lenders, because it indicates the firm’s
financial position and strength, as measured by its recourses and obligations, however, editors
and financial analysis have recently started paying more attention to the firm’s capacity as a
measure of its financial strength. Its income statement reveals the firm’s capacity as a
measure of its financial strength. Its income statement reveals the earning potential of the
firm.

An income statement is a financial statement summarizing the result of a company’s income

(profit) making activities for a specific time period. It summarizes revenues and expenses in a
manner that discloses whether a company’s activates in a particular fiscal period have

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resulted in profit or a loss. The income statement is a scoreboard of the firm’s performance
during a particular period of time. “The profit and loss account is the condensed and
classified record of the gains losses posing change in the owner’s interest in the business for a
period of time.”

The income statement or the profit and loss account presents the summary of revenues,
expenses and net income (or net loss) of a firm for a period of time. Thus, it serves as
measure of the firm’s profit ability. It’s systematic array of the data of the revenues, revenues
deduction (expenses, revenues, revenue deductions, expenses, losses, taxes etc.) Net income
and distribution or assignment of the net income to creditors and property investors of a
particular period.

(C)STATEMENT OF CHANGE IN FINANCIAL POSITION

Until 1960, the income statement and the balance sheet constituted the major financial
statement. However, management traditionally made use of a wide variety of statement and
reports in apprising internal company performance. One popular report for management’s
internal use was called the statement of changes in final position. From such a report,
management could extract valuable information about where working capital and cash come
from and how they were used. If these past events could be projected in future, management
would have a useful tool for budgeting. Today, the statement of changes of financial position
represents third financial position represents a third financial statement.

PARTIES INTERESTED

According to the American institute of certified public accountants, financial

statement reflects, a combination a recorded facts, accounting convention and personal
judgments and the judgments and conventions applied, affect them materially.

Following are interested in financial statement:-

 Credit, suppliers and others are having business with the company.

 Debenture holders.

 Credit institutions and banks.

 Potential lenders and investors.

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 Trade unions and employees.

 Important customers wishing to make a long standing with the company.

 Economist and analyst.

 Members of parliament, the public committee in respect in government companies.

 Taxation authorities.

 Other departments dealing with the industry in which the company

engaged cooperative.

 The company law board

FINANCIAL APPRAISAL

A company’s financial statement are intended to summarize the results of its

operation and its ending financial condition. The information in the statement is studied and
related to other information by external users for several reasons. Current shareholders, for
example, are concerned about their invested income, as well as the company’s overall
profitability and stability. Some potential investors are invested in “solid” companies that are
companies whose financial statement indicate stable earnings and dividends with little growth
in operations. Other prefers companies whose financial statement indicate rend for rapid
growth in a company’s short run solvency, its ability to pay current obligation as they become
due. Long-term creditors are concerned about the safety of their interest; income and
company’s ability to continue earning cash flow to meet its financial commitments and these
are only few of the users, and uses of financial statements.

But the numerical data in the financial statement are quit calm. They cannot speak.
Analytical data are not ending in themselves, but they are meant to an end. Financial
appraisal is an attempt to determine the significance, and meaning of the financial statement
data so that forecast may be made of the prospects for future earnings, ability to pay interest,
debt maturities both current as well as long term profitability of a sound dividend policy.
Financial appraisal involves the assessment of firm’s past, present and anticipated future
financial condition.

Financial appraisal is a scientific evaluation if the profitability and financial strength

of a business concern. In fact financial appraisal and analysis of financial statement have
nearly the same meaning. Financial statement analysis is used for the purpose of financial
appraisal. Financial appraisal is the process of making a scientific proper, critical and
comparative evaluation of the profitability and financial health of given concern through the
application of financial statement analysis. Financial statement analysis is a preliminary step
towards the evaluation of result dawn by the analysis or management accountant. Appraisal

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or evaluation of such results is made thereafter. Financial appraisal begins where financial
analysis ends, and financial analysis starts where the summarization of financial data in the
form of profit and loss account and balance sheet ends, in the words of Kenney and
MacMillan, “financial statement analysis attempts to unveil the meaning and significance of
the items composed in profit and loss account and balance sheet so as to assist the
management in the formation of sound operating financial policies. The appraisal or analysis
of financial statement spotlights the significant facts and relationship concerning managerial
performance, corporate efficiency, financial strength or weakness and credit worthiness, that
would have otherwise been buries in the maze of details.”

The technique of financial appraisals frequently applied to the study of accounting

data with a view to determining continuity or discontinuity of the operating policies and
investment value of business. Everybody interested in the affairs of the company is interested
in finding answer to the following searching question:-

A. Does the company earn adequate profit?

B. Does the company process enough funds to meet its obligation as and
when they mature?

C. Is investment in the company safe?

Appraisal of financial statement alone can answer such queries. Its true that statement
analysis merely reveals what has taken place in the past, but past events given some
indication of what may be expected in future unless some drastic changes take place in
business it. Will continue to move in the same direction in the past.

Roy .A. Faulke is very correct to say “if a train is moving forward at a known rate of
speed, it is reasonable to assume that it will continue to move at approximately the same rate
unless some obstacle interrupts its progress abruptly or the motive power is increased or
decreased.” Similarly it is a reasonable to assume that unless some realistic change take
places in the places in the business, it will continue to move in the same general direction as
indicated by its comparative trends.

NEED OF FINANCIAL APPRAISAL

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 The need of financial appraisal varies accounting to type of users. For management it
servers as means of “self evaluation as it is like a report of its managerial skill and
competence a banker can judge the liquidity position a creditor can plan buying and selling of
hares of concern on the basis of safety of principal and its capital appearances as wanted by
the past record of earning. A debenture holder of a concern can ascertain whether income is
generates sufficient margin to pay the interest / answers to different question are provided by
financial appraisal.

By using this technique an economist can study the extent of “concentration of

economic power” and pitfalls in the financial policies pursued, while a planner can ascertain
if the patter of investment reveals the company’s position in relation to labor and its welfare,
legislation concerning licensing desirable in the socio economic interested may be based on
statement analysis.

CHAPTER: 4

SIGNIFICANCE
AND
ANALYSIS
OF
WORKING CAPITAL

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SIGNIFICANCE OF WORKING CAPITAL

Introduction:-

The management of current assets is similar to that of fixed assets in the sense that in
both case that a firm analyses their effects on its return and risk. The management of fixed
and current assets, however, differs in three important ways: first, in managing fixed assets,
time is a very important factor; consequently, discounting and compounding techniques play
a significant role in capital budgeting and a minor one in the management of current assets.
Second, the large holding of current assets, especially cash, strengthens the firm’s liquidity
position (and reduces riskiness), but also reduces the overall profitability. Thus a risk-return
trade off is involved in holding current assets. Third, levels of fixed as well as current assets
depend upon expected sales, but it is only current assets which can be adjusted with sales
fluctuations in the short run. Thus, the firm has a greater degree of flexibility in managing
currents.

CONCEPTS OF WORKING CAPITAL

 Gross working capital:-

Gross working capital refers to the firm’s investment in current assets are the assets
which can be converted into cash within an accounting year and include cash , short-term
securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory).

 Net Working Capital:-

It’s refers to the difference between current assets and current liabilities. Current
liabilities are those claims of outsiders which are expected to mature for payments within an
accounting year and include creditors (account payable) , bills payable ,and outstanding
expenses . Net Working Capital can be positive or negative. A positive net working capital
will arise when current assets exceed current liabilities .a negative net working capital occurs
when current liabilities are in excess of current assets.

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 PERMANENT WORKING CAPITAL:-

We know that the need of current assets arises because of the operating cycle. The
operating cycle is a continuous process and, there for, the need for current assets is felt
constantly. But the magnitude of current assets needed is not always the same; it increases
and decreases over time. However there is always a minimum level of current assets which is
continuously required by a firm to carry on its business operations. Permanent or fixed,
working capital is the minimum level of current assets. It is permanent in the same way as the
firm’s fixed assets are depending upon the changes in production and sales, the need for
working capital, over and above permanent working capital, will fluctuate. For example extra
inventory of finished goods will have to be minted to support the peak period of sale, and
investment in debtors (receivable) may also increase during such periods. On the other hand,
investment in raw material, work in process and finished goods will fall if the market is slack

Temporary or
fluctuating

Amount of Permanent
working
capital(Rs)

Time

 VARIABLE OR FLUCTUATING WORKING CAPITAL:-

Variable or fluctuating working capital the extra working capital needed to support the
changing production and sales activities of the firm. Both kinds of working capital –
permanent or fluctuating (temporary)-are necessary-to facilitate production and sales through
the operating cycle. But the firm to meet liquidity requirements that will last only temporary
working capital. In figure illustrates differences between permanent and temporary working
capital. It is shown that permanent working capital is stable over time, while temporary
working capital is fluctuating – sometimes increasing and sometimes decreasing. However,
the permanent working capital need not be horizontal if the firm’s requirement for permanent
capital is increasing (or decreasing) over a period

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FOCUSING ON MANAGEMENT OF CURRENT ASSETS

The gross working capital concept focuses attention on two aspects of current assets
management:

1. How to optimize investment in current assets

2. How should current assets be financed?

The consideration of the level of investment in current assets should avoid two danger
points- excessive or inadequate investment in current assets. Investment in current assets
should be just adequate to the needs of the business firm. Excessive investment in current
assets should be avoided because it impairs the firm’s profitability, as idle investment earns
nothing. On the other hand, inadequate amount of working capital can threaten solvency of
the firms because of its inability to meet its current obligations. It should be released that the
working capital needs of the firm may be fluctuating with changing business activity. This
may cause excess or shortage of working capital frequently. The management should be
prompt to initiate an action and correct imbalances.

Another aspect of the gross working capital point to the need of arranging funds to
finance current assets. Whenever a need for working capital funds arises due to the increasing
level of business activity or for any other reason. Financing arrangement should be made
quickly. Similarly, if suddenly, some surplus funds arise they should not be allowed to
remain idle, but should be invested in short- term securities. Thus, the financial manager
should have knowledge of the sources of working capital funds as well as investment avenues
where idle funds may be temporarily invested.

FOCUSING ON LIQUIDITY MANAGEMENT

Net working capital is a qualitative concept. it indicates the liquidity position of the
firm and suggests the extent to which working capital needs may be financed by permanent
sources of funds. Current assets should be sufficiently in excess of current liabilities to
constitute a margin or buffer for maturing obligations within the ordinary operating cycle of a
business. In order to protect their interests, short term creditors always like a company to
maintain current assets at a higher level than current liabilities. It is a conventional rule to
maintain the level of current assets twice the level of current liabilities. However, the quality
of current assets should be considered in determining the level of current assets vis – a – vis
current liabilities. A weak liquidity position poses a threat to the solvency of the company
and makes it unsafe and unsound. A negative working capital means a negative liquidity, and
may prove to be harmful for the company’s reputation excessive liquidity is also bad. it may
be due to mismanagement of current assets. There for, prompt and timely action should be
taken by management to improve and correct the imbalances in the liquidity position of the
firm.
Networking capital concept also covers the equation of judicious mix of long term
and short term funds for financing current assets. For every firm, there is a minimum amount
of net working capital which is permanent. Therefore, a portion of the working capital should
be financed with the permanent sources of funds such as equity share capital, debentures,
long term debt, performance share capital or retained earnings. Management must, therefore,

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decide the extent to which current assets should be financed with equity capital and/or
borrowed capital.
In summary, it may be emphasized that both gross and net concepts of working
capital are equally important for the efficient management of working capital. There is no
precise way to determine the exact amount of gross or net working capital for any firm. The
data and problems of each company should be analyzed to determine the amount of working
capital. There is no specific rule as to how current assets should be financed. It is not feasible
in practice to finance current assets by short – term sources only. Keeping in view the
constraints of the individual company, a judicious mix of long and short term finances should
be invested in current assets. Since current assets involve cost of funds, they should be put to
productive use.

OPERATING AND CASH CONVERSION CYCLE

The need for working capital to run the day-to-day business activities cannot be
overemphasized. We will hardily find a business firm which does not require any amount of
working capital. Indeed, firms differ in their requirement of the working capital.

We know that a firm should aim at maximizing the wealth of its shareholders. In its
Endeavour to do so, a firm should earn sufficient return from its operations. Earning a steady
amount of profit requires successful sells activities. The firm has to invest enough funds in
current assets for generating sales. Currents assets are needed because sales do not convert
into cash instantaneously. There is always an operating
cycle involved in the conversion of sales into case.

There is a difference between current and fixed assets in terms of their liquidity. A
firm requires many years to recover the initial investment in fixed assets such as plant and
machinery or land and building. On the contrary, investment in current assets such as
inventories and debtors [account receivable] is realized during the firm’s operating cycle that
is usually less than a year.

What is an operating cycle?

Operating cycle is the time duration required to convert sales, after the conversion of
resources into inventories, into cash. The operating cycle of a manufacturing company
involve three phases:

• Acquisition of resources such as raw material, labor, power and fuel etc.

• Manufacture of the product which includes conversion of raw Material into work-in-
progress into finished goods.

• Sales of the products either for cash or on credit. Credit sales Create account receivable for
collection.

These phases affect cash flows, which most of the time, are neither synchronized
because cash outflows usually occur before cash inflows. Cash inflows are not certain
because sales and collections which give rise to cash inflows are difficult to forecast

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accurately. Cash outflows, on the other hand, are relatively certain. The firm is, therefore,
required to invest in current assets for a smooth, uninterrupted functioning. It needs to
maintain liquidity to purchase raw materials and pay expenses such as wages and salaries,
other manufacturing, administrative and selling expenses and taxes are there is hardly a
matching between cash inflows and outflow. Cash is also held to meet to any future
exigencies. Stocks of raw material and work –in- process are kept to ensure smooth
production and to guard against non-availability of raw materials of other components. The
firms hold stock of finished goods to meet the demand of customers on continuous basis and
sudden demand from some customers. Debtors (Accounts Receivable) are created because
goods are sold on credit for marketing and competitive reasons.

Purchase payment credit sale collection

RMCP+WICP+FGCP

Inventory convention period receivable conversion price

gross operation cycle

payable net operating cycle

Thus, a firm makes adequate investment in inventories, and debtors, for Smooth,
uninterrupted production and sale.

How is the length of operating cycle determined?

The length operating cycle of a manufacturing firm is the sum of (i) inventory
conversion period (ICP) and (ii) debtors (Receivable) conversion period (DCP). The
inventory conversion period is the total time needed for producing and selling the product.
Typically, it includes: (a) raw material conversion period (rmcp), (b) work-in-process
conversion period (WIPCP), and (c) finished goods conversion period (FGCP). The debtors’
conversion period is the time required to collect the outstanding amount from the customers.
The total of inventory conversion period and debtors conversion period is referred to as gross
operating cycle (GOC).

In practice, a firm may acquire resources ( such as raw material) on credit and
temporarily postpone payment of certain expenses. Payables, which the firm can defer, are
spontaneous sources of capital to finance investment in current assets,. The creditors
(Payables) deferral period (CDP) is the length of time the firm is able to defer payments on
various resource purchases. The difference between (gross) operating cycle and payables
deferral period is net operating cycle (NOC). if depreciation is excluded from expenses in the
computation of operating cycle, the net operating cycle also represents the cash conversion
cycle(CCC).it is net time interval between cash collections sale of the product and cash
payments fore resources acquired by the firm. It also represents the time interval over which
additional funds, called working capital, should be obtained in order to carry out firm’s

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operations. The firm has to negotiate working capital from sources such as commercial
banks. The negotiated sources of working capital financing are called non-spontaneous
sources. If net operating cycle of a firm increases, it means further need for negotiated
working capital.

Let us illustrate the computation of the length of operating cycle. Consider the
statement of cost of sales for a firm given in below-

Statement of cost and sales

Item Actual 20X1 PROJECTED 20X2

1 purchase of raw material X1 X

2 opening of raw material inventory X2 …

3 closing raw material inventory X3 X

4 raw material consumed (1+2+3) X4 X

5 direct labour X5 X

6 depreciation X.. X.

7 Other mfg exp X.. X

8 total cost (4+5+6) … …

9 opening work in process inventory …. X

10 closing work in process inventory ….. X

11 cost of production …. X

12 Opening finished goods inventory …. X

13 closing finished goods inventory ….. X

14 cost of goods sold (11+12+13) …. X

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15 selling administrative and gen expenses ….. X

16 cost of sales ….. X

The firm data and sales are given below

Sales and debtors

Item Actual20X1 Projected 20X2

Sales (credit) X Y

Operating balance of debtors X Y

Closing balance of debtors ... ..

Opening balance of creditors ... ...

Closing balance of creditors X …

Gross operating cycle (GOC)

The firms gross operating cycle (GOC) can be determined inventory conversion
period (ICP) Plus debtors conversion period. Thus, GOC given as follows:

Inventory Debtors
GROSS Operating = +

Conversion period Conversion period

Inventory conversion Period

What determines the inventory conversion period? The inventory conversion (ICP) is
the sum of raw material conversion period (RMCP), Work-in-process conversion period
(WIPCP) and finished goods conversion period (FGCP):

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 ICP = RMCP + WIPCP+ FGCP

Raw material conversion period (RMCP):-

The raw material conversion period (RMCP) is the average time period taken to
convert material in to a work-in-process. RMCP depends (a) raw material consumption per
day.(b) raw material consumption per day is given by the number of years (say,360). The raw
material consumption period is obtained when raw material inventory is divided by raw
material consumption per day. Similar Calculations can be made for other inventories,
debtors and creditors. The Following formula can be used:

Raw material Raw material

Conversion = Inventory
Period
[Raw material
Consumption]/360

RMC RMC*360

RMCP = RMI +

360 RMC

Work-in-process conversion period (WIPCP):-

Work-in-process conversion period (WIPCP) is the average time taken to complete

the semi-finished or work-in-process. It is given by the following formula:

Work-in-process work in process

Conversion = inventory
Period [cost of production]/360

Finished goods conversion period (FGCP) is the average time taken to sell the finished
goods. FGCP can be calculated as follows:

Finished goods Finished goods

Conversion = inventory
Period
[Cost of goods sold]/360

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 CGI FGI*360
FGCP = FGI ÷ =
360 CGS

Debtors (receivable) conversion period (DCP)

Debtor’s conversion period (DCP) is the average time taken to convert debtors into
cash. DCP represent the average collection period. It is calculated as follows:

Debtors Debtor Debtors*360

Conversion =
Period (DCP)
Creditor sales/360 Creditor sales

Creditors (payables) deferral period (CDP)

Creditors (payables) deferral period (CDP) is the average time taken by the firm in
paying its suppliers (creditors). CDP is given as follows:

Creditors Creditors Credit*360

Deferral = = … (7)
Period
Credit purchases/360 Credit purchases

Cash Conversion or Net Operating Cycle

Net operating cycle (NOC) is the difference between gross operating cycle and
payables deferral period.

Gross Creditors
Net operating = Operating = deferral
Cycle Cycle period

NOC = GOC - CDP …… (8)

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 Net operating cycle is also referred to as cash conversion cycle. Some people argue
that depreciation and profit should be excluded in the computation of cash conversion cycle
since the firm’s concern is with cash flow associated with conversion at contrary view is that
a firm has to ultimately recover total costs should include depreciation, and even the profits.
Also, in using the above-mentioned formulae, average figures for the period may be used.

For example, Table shows detained calculations of the components of a firm’s operating
cycle. Table provides the summary of calculations.

During 20X1 the daily raw material consumption was Rs 12.1 lakh and the company held an
ending raw material inventory of Rs827 lakh. If we assume that this is the average inventory
held by the company, the raw material consumption the projected raw material conversion
period is 60 days. This has happened because both consumption (Rs 16.5 lakh per day) and
level of inventory (Rs 986 lakh) have increased, but the consumption rate has increased) by
36.4 percent). Thus, the raw material conversion period has declined by 8 days. Raw
materials are the result of daily raw material consumption and total raw material consumption
and total raw material consumption and total raw material consumption during a period given
the company’s production targets. Thus, raw material inventory is controlled through control
over purchases and production. We can similarly interpret other calculations in table below:-

Table:-Operating Cycle Calculation (Hypothetical Example)

(Rs. In lakh)

Item Actual19X1 Projected19X2

1 Raw Materials Conversion Period
(a) Raw material consumption 4,349 5,932
(b) Raw material consumption per day 12.1 16.5
(c) raw material inventory 827 986
(d) Raw material inventory holding days 68 d 60d

2 Work-in-process Conversion Period

(a)cost of production* 5,212 7,051
(b)cost of production per day 14.5 19.6
(c)work-in-process inventory 325 498
(d) Work-in-process inventory holding
days 22d 25d

3 Finished Goods Conversion Period

(a) Cost of goods sold* 5,003 6,582
(b) Cost of goods sold per day 13.9 18.3
(c) Finished goods inventory 526 995
(d)Finished goods inventory holding
days 38 d 54d

4 Collection period

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(a) Credit sales (at cost)** 6,087 8,006
(b) sales per day 16.9 22.2
(c) debtor 735 1,040
(d) debtors outstanding days 43 d 47d

5 Creditors Deferral Period

(a) Credit purchases 4,653 6,091
(b) purchase per day 12.9 16.9
(c) creditors 454 642
(d) Creditors outstanding day 35 d 38d

*Depreciation is including.
**All sales are assumed on credit.

Table: - Summary of Operating Cycle Calculations

(Number of Days)

Actual Projected
GROSS OPERATING CYCLE
1 Inventory Conversion Period
(i) Raw material 68 60
(ii) Work- in- process 22 25
(iii) Finished goods 38 54
128 139
2Debtors Conversion Period 43 47
3Gross operating cycle (1 + 2) 171 186
4Payment Deferral period 35 38
NET OPERAING CYCLE (3-4) 136 148

We note a significant change in the company’s policy for 20X2 with regard to finished
goods inventory. It is expected to increase to 54 days holding from 38 days in the previous
year. One reason could be a conscious policy decision to avoid stock out situations and carry
more finished goods inventory to expand sales. But this policy has a cost; the company, in the
absence of a significant increase in payables (creditors) deferral period, will have to negotiate
higher working capital funds, In the case of the firm in our example, its net operating cycle is
expected to increase from 136 days to 148 days How does a company manage its inventories,
debtors and suppliers’ credit? How can it reduce its operating cycle?

The operating cycle concept as shown in Figure relates to a manufacturing firm. Non-
manufacturing firms such as wholesalers and retailers will not have the manufacturing phase.
They will acquire stock of finished goods and convert them into debtors (receivable) and
debtors into cash. Further, service and financial enterprises will not have inventory of goods

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(cash will be their inventory). Their operating cycles will be the shortest. They need to
acquire cash, then lend (create debtors) and again convert lending into cash.

Analysis of working capital is an essential part of financial management. If there is an

adequate amount of working capital and it is utilized in the right manner, it is a great
achievement for the business. The excess of working capital causes financial stringency and
brings the business to a standstill.

Realizing the impotence of working capital in financial management the analysis of

working capital becomes an essential phenomenon. It facilitates the adequacy and
management of working capital. The management of working capital provides a careful
inquiry into its components so as to control the working capital and to conserve it properly. It
helps in determining the optimum level of working capital in the firm. The process of
measurement and analysis of working capital is performed on the basis of financial
statements of the business enterprise for past few years.

In the present study the analysis of working capital of FCI ltd. Has been made by two
techniques vis., trend analysis and ratio analysis.

WORKING CAPITAL TREND ANALYSIS

The working capital trend analysis represents a picture of variation in current assets,
current liabilities and working capital over a period of time. Such an analysis enables us to
study upward and downward trend in current liabilities and its effect on the working capital
position. The trend analysis is a tool of financial appraisal where the changes in the factors
are compared with the base year assuming the base year as 100.

In the present study a statement – showing trend of working capital as well as its
structure has been made. It is it scientific and important study because each component of
working capital has got the relationship of causes and effects.

Following table below shows the structure and trend of working capital of FCI Ltd. during
the period under review.

STRUCTURE AND TREND OF WORKING CAPITAL OF FCI

2005 TO2008

PERTICULAR 2005-2006 2006-2007 2007-2008

CURRENT ASSETS
CASH 322389.24 855819.51 836439.2
BANK 18632795.88 35936348.16 27218462.16
LOAN AND ADVANCES 71220809.88 84836477.65 77115112.92
DEBTORS 300805197.7 311027760.6 356580000.4

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STOCK 377580243.7 427327384.8 465048573.5
TOTAL (A) 768561436.4 859983790.7 926798588.2
CURRENT LIABILITIES
CURRENT LIABILITIES
AND PROVISIONS 526439722 512950750.7 442009648.8
TOTAL (B) 526439722 512950750.7 442009648.8
NET WORKING CAPITAL
(A-B) 242121714.4 347033040 484788939.4

STRUCTURE AND TREND OF WORKING CAPITAL OF FCI

RATIO ANALYSIS OF WORKING CAPITAL

Trend analysis shows the trend of current assets, current liabilities and working
capital only. It do not interpret the contribution of each item of working capital in the trend,
whereas, it can be done easily by ratio analysis. The ratio analysis of working capital can be
used by management as a means of checking upon the efficiency in working capital
management of the company. Following ratio haven used to analysis and interpret working
capital of FCI ltd.

 Current ratio

 Quick ratio

 Absolute ratio

 Stock or inventory ratio

 Working capital turnover ratio

CURRENTRATIO

Current ratio is one of the important ratios used in testing liquidity of a concern. This
is a good measure of the ability of company to maintain solvency over a short run. This is
computed by dividing the total current assets by the total current liabilities and is expressed
as:

The current assets of a firm represent those assets, which can be in the ordinary course
of business, converted into cash within one accounting year. The current liabilities are defines
as obligation maturing within a short period (usually one accounting year). Excess of current
assets over current liabilities is known as working capital and since these two (current assets
and current liabilities) are used in current ratio therefore, this ratio is also known as working
capital ratio.

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 With the help of this ratio the analyst can review the extent to which the company can
covert such liabilities with current assets. The current ratio gives the analyst a general picture
of the adequacy of the working capital of a company and ability of the company to meet its
day-to-day payment obligation. “it likewise measures the margin of safety provided for
paying current debts in the event of a reduction in the values of current assets.” The current
ratio is very useful as a measure of short terms debt prying ability but it is tricky to interpret
this ratio. Experts are of the view that the value of current assets should be at least double the
amount if current liabilities.

Walker and Bough have the same view when they ay “a good current ratio may mean
a good umbrella for creditors against the rainy days.”But to the management it reflects bad
financial planning or presence of idle assets or over capitalization”.

QUICK RATIO

The solvency of a company is batter indicated by quick Ratio. The fundamental of

this Ratio is to enable the financial management of a company to ascertain that would
happen. If current creditors press for immediate payment and either not Possible to push up
the sales of closing or it is sold, a heavy loss is likely to be suffered. This problem arises
because closing stock is two steps away from the cash and their price more or less uncertain
according to market demand.

The term quick assets include all current assets except inventories and prepaid
expenses. It shows the relationship of quick assets and current liabilities. The Ratio is
calculated as following:

Current Assets – Inventories

Quick Ratio =
Current Liabilities

It is an indicator of a company's short-term liquidity. The quick ratio measures a company's

ability to meet its short-term obligations with its most liquid assets. The higher the quick
ratio, the better the position of the company. It is also known as the "acid-test ratio" or the
"quick assets ratio".

QUICK RATIO OF FCI. DURING 2005 TO 2008

YEAR QUICK CURRENT

ASSETS LIABILITIES QUICK RATIO
(A) (B) (C) (B)/(C)
2005-2006 390981192.7 526439722 0.74

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2006-2007 432656405.9 512950750.7 0.84
2007-2008 461750014.7 442009648.8 1.04

INFERENCE:-

Although it is less idle ratio still it has increasing trend that shows dairy’s improving
condition of short term solvency of FCI.

Quick ratio for the year 2007-08 is above the ideal standard. It is 1.04:1, which indicates that
for every Re1 of current liability the company has Rs 1.04 of current assets, hence the
company is in sound position in terms of working capital position.

ABSOLUTE LIQUDITY RATIO

The absolute liquid ratio between absolute liquid assets and current liabilities is
calculated by dividing the liquid assets and current liabilities. Expressed in formula, the ratio
is:

Cash + Marketable Securities= Absolute Liquidity Ratio

Current Liabilities

The term liquid assets include cash bank balance and marketable securities, if current
liabilities are to pay at once, only balance of Cash and marketable securities will be utilized.
Therefore, to measure the absolute liquidity of a business, this ratio is calculated.

The idea behind the norm id that if all creditors for demand for payment, at least 50% of their
claim should be satisfied at once.
The table shown on the next page reflects the absolute liquidity ratio FCI Ltd.

ABSOLUTE LIQUIDITY RATIO OF FCI DURING 2005 TO 2008

YEAR

YEAR ABSOLUTE CURRENT ABSOLUTE

LIQUID ASSETS LIABILITIES RATIO
(A) (B) (C) (B)/(C)
2005-2006 18955185.12 526439722 0.04
2006-2007 36792167.67 512950750.7 0.07
2007-2008 28054901.36 442009648.8 0.06

INFERENCE

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 This ratio is very below from idle ratio. It is making insecure creditors claim but it is
getting increasing trend. It is needed to maintain this trend.

Ratios for all the above mentioned years right from 2005 up to 2008 are close to the
standard. For year 2007-08, the ratio is well above the standard, which indicates the healthy
picture of the company in terms of availability of working capital (quick assets) in order to
meet current liabilities.
WORKING CAPITAL TURNOVER

A measurement comparing the depletion of working capital to the generation of sales

over a given period. This provides some useful information as to how effectively a company
is using its working capital to generate sales
.
SALES
WORKING CAPITAL TURNOVER =
WORKING CAPITAL

A company uses working capital (current assets - current liabilities) to fund operations
and purchase inventory. These operations and inventory are then converted into sales revenue
for the company. The working capital turnover ratio is used to analyze the relationship
between the money used to fund operations and the sales generated from these operations. In
a general sense, the higher the working capital turnover, the better because it means that the
company is generating a lot of sales compared to the money it uses to fund the sales

WORKING CAPITAL RATIO OF FCI LTD. DURING 2005 TO 2008

YEAR NETSALES WORKING CAPITAL CURRENT RATIO

(A) (B) (C) (B)/(C)
2005-2006 3207510314 242121714.4 13.24
2006-2007 3747805031 347033040 10.8
2007-2008 4266143965 484788939.4 8.8

INFERENCE:

In spite of an increase in Net Working Capital, the Working capital turnover ratio of
FCI got reduced to 10.8 times in the year 2006- 2007, as compared to the year 2005-07.
Similarly, in the year 2007-08, the working capital turnover ratio further reduced to 8.8 times
as compared to 13.24 times in the year 2005-06. The reduction in working capital turnover
ratio is on account of massive growth in net working capital as compared to a slight growth in
the sales of the company.

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 CONCLUSION AND SUGGESTION

Financial analysis is analysis of financial statements of and enterprise.

Financial statement reorganized collection of data according to logical and
constituent accounting procedures. However financial statements in their
traditional from giving historical data and information are of little us to these
who use them to draw certain conclusion.

Financial appraisal is scientific evaluation of profitability and financial

strength of any business concern. Financial appraisal techniques include ration
analysis common size analysis trend analysis, fund flow analysis etc. these
techniques may be applied in the financial appraisal of any entity and FCI Ltd.
is no exception to it.

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 PROFITABILITY

The measurement of profitability is a tool of overall measurement of

efficiency an overall study profitability of FCI has been Dade in relation to sales
operating assets capital employed and its net worth.

By analysis the working result i.e. Profit and loss account of FCI. It was
found that the net profit before interest and tax of the FCI is showing increasing
trends. This is very good for FCI. The increase in the profits is nearly 24% more
than previous year the reason is good sales growth between years. For this
following suggestion should be considered.

• Proper cost control is required and cost control technique should be adopted
for it.

Operating expenses administration:- Expenses should be specially considered to

be reduced.

• Inventory is the biggest items of balance sheet that must have demanded a
large amount of maintaining cost. So, efficient inventory management should be
done. Inventory should be reduced extent that would help to recover blocking
money in inventory.

• The service staff should be given proper training and better environment for
work.

• Dairy has to pay large fix interest charged. Hence long term borrowing should
be reduced so that the earnings are satisfactorily earmarked with them.

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 WORKING CAPITAL

• In the year 2006-2007 the growth in working capital was 43.33%As compare
to the year 2005-2006 similarly working capital in the year 2007-2008 has
grown to 100.03% as compared to the working capital in the year 2005-2006.
The management should follow the same trend in near future too so to have
considerable appreciation in working capital every year.

• The Current Ratio for the year 2007-2008 has taken the Value of 2.01:1,
which is very satisfactory and as per the standard required (2:1).The current
ratio of 2.01:1 indicates, that for every Rs 1 of current liability the company Rs
2 of current assets, which indicates more liquidity and hence more amount of
working capital. The company needs to further enhance the value of ratio.

• Quick ratio for the year 2008-09 is above the ideal standard (1:1). It is
1.04:1, which indicates that for every Re1 of current liability the company has
Rs 1.04 of current assets, hence the company is in sound position in terms of
working capital position. It would be better for the company if in near future it
could further enhance the value of the ratio.

• Absolute quick ratio for the years right from 2005 up to 2008 are close to
the standard. For year 2007-08, the ratio is well above the standard (0.5:1),
which indicates the healthy picture of the company in terms of availability of
working capital (quick assets) in order to meet current liabilities. The same
position should be sustained in near future too.

• As compared to year 2005-2006, in the year 2006-07, the inventory turnover

increased to 8.19 times. Similarly, in the year 2007-08 it increased to 8.59
times, which indicates that the times taken in converting raw material into
finished product and finally selling it got reduced considerably and hence
indicates quick release of working capital. In near future it would be more
profitable for the company, if the value of ratio gets increased to 11- 14%.

• In spite of an increase in Net Working Capital, the Working capital turnover

ratio of FCI got reduced to 10.8 times in the year 2006- 2007, as compared to
the year 2005-07. Similarly, in the year 2007-08, the working capital turnover

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ratio further reduced to 8.8 times as compared to 13.24 times in the year 2005-
06. The reduction in working capital turnover ratio is on account of massive
growth in net working capital as compared to a slight growth in the sales of the
company. The value of ratio could be better in near future, if the growth in sales
matches with the growth in net working capital.
BIBLIOGRAPHY

 I.M.Pandey, (1978), financial management, Ninth addition, UBS Publication New Delhi.

 Van Horn, (2002), Financial Management and Policy, 12th edition, Publisher Dorling
Kindersley India ltd.

 Horne Wwachonicz, J.R.Bhaduri (2005), Fundamentals and Financial management, 12th

edition, Pearson publisher.

 MY Khan, P.K.Jain (1981), Financial Management, 5th edition, Publisher

McGraw Hill companies.

 Financial statement for the year ended 2007-08 as obtained from FCI

 Annual-Report 2006-07 of FCI

 Study module on financial management

 Financial dailies

 Economic Times

 Business Standard

 Business Magazines

 Business India

 Business World

 Internet Portals

 www.fciweb.nic.in

 www.wikipedia.com

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 GLOSSARY

HACCP: HACCP stands for Hazard Analysis and Critical Control Points.

HACCP is an industry-wide effort approved by the scientific community as well as

regulatory and industry practitioners. This effort is designed to focus specifically on food

safety, including food safety in retail establishments. HACCP, or the Hazard Analysis

Critical Control Point system, is a process control system that identifies where hazards might

occur in the food production process and puts into place stringent actions to take to prevent

the hazards from occurring. By strictly monitoring and controlling each step of the process,

there is less chance for hazards to occur. HACCP is important because it prioritizes and

controls potential hazards in food production. By controlling major food risks, such as

microbiological, chemical and physical contaminants, the industry can better assure

consumers that its products are as safe as good science and technology allows. By reducing

food borne hazards, public health protection is strengthened.

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