A

Summer Training Report

ON

Working Capital Management

CONDUCTED AT
PARLE BISCUITS PRIVATE LIMITED

Submitted in partial fulfillment for the

Award of degree of
MASTER OF BUSINESS ADMINISTRATION
(SESSION 2010-2012)

SUBMITTED BY: SUBMITTED TO:

ASHISH KUMAR DIRECTOR
MBA –2ND YEAR JECRC

JECRC School of Management

JAIPUR
APPROVED BY
RAJASTHAN TECHNICAL UNIVERSITY, KOTA

1
 DECLARATION

I, Roll No Class of the JECRC

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

Countersigned

Signature of the Supervisor

Forwarded By Signature of the candidate

Director/Principal of the Institute

2
 TABLE OF CONTENTS

 ACKNOWLEDGMENT 4

 PREFACE 5

 INTRODUCTION
* HISTORY OF COMPANY 6
* PRODUCT PROFILE 18

 MANAGERIAL USEFULNESS OF STUDY 49

 CONCEPTS USED IN STUDY 50

 FOCUS OF THE PROBLEMS 51

 OBJECTIVES OF THE PROJECT 52

 SCOPE OF THE WORK 54

 RESEARCH METHODOLOGY 55
* RESEARCH DESIGN
* COLLECTION OF DATA

 DATA ANALYSIS 60

 FINDINGS 74

 RECOMMENDATION 76

 LIMITATIONS 77

 CONCLUSIONS

 BIBLIOGRAPHY 79

ANNEXURE 80

3
 ACKLNOWLEDGEMENT

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

I would like to begin with a special note of gratitude and heartfelt thanks to Mr. Vijay k.
chauhan, chairman, who gave me the opportunity to complete my summer project at
PARLE BISCUITS PRIVATE LIMITED, NEEMRANA.

I am extremely grateful to the Deputy Manager of Finance Department Mr.

JAIDEEP BHALA for his constant encouragement and valuable suggestions
throughout my summer training and project for his cooperation extended to me.

I express my special thanks to Ms. LALITA (HR MANAGER), Mr. GIRISH

CHAND BHATI (Assistant HR manager) for giving me their valuable opinions time
to time.

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

4
 PREFACE

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

Master of Business Administration is a two-year programme that inserts management

knowledge in an individual to make that individual completely professional for which
practical experience is must.

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

5
 HISTORY OF COMPANY

INTRODUCTION

Parle-G or Parle Glucose biscuits, manufactured by Parle Products Pvt

Ltd, are one of the most popular biscuits in India. Parle-G is one of the oldest brand
names as well as the largest selling brand of biscuits in India. For decades, the product
was instantly recognized by its iconic white and yellow wax paper wrapper with the
depiction of a young girl on the front. Counterfeit companies have attempted to recreate
and sell lower quality products of similar names with virtually identical package
design.The company's slogan is G means Genius. The name, "Parle-G", is derived from
the name of the suburban rail station, Vile Parle which in turn is based on village Parle
in olden days (there is also area called Irle nearby where the Parle Agro production
factory is based).This popular biscuit is primarily eaten as a tea-time snack.

Parle-G is the largest selling biscuit in the world. It has 70% market share in India in the
glucose biscuit category followed by Britannia, Tiger (17-18%) and ITC's Sunfeast (8-
9%). The brand is estimated to be worth over Rs 2,000 crore (Rs 20 billion), and
contributes more than 50 per cent of the company's turnover (Parle Products is an
unlisted company and its executives are not comfortable disclosing exact numbers). Last
fiscal, Parle had sales of Rs 3,500 crore (Rs 35 billion). It also is popular across the
world and is starting to sell in Western Europe and USA.

6
7
AWARDS

Parle products have been shining with the golds and silvers consistently at the Monde
Selection ever since they were first entered in 1971. Monde Selection is an international
institute for assessing the quality of foods and is currently the oldest and most
representative organization in the field of selecting quality foods worldwide.

Almost all of our products are market leaders and as recognition of their quality,
have won us 111 gold, 26 silver and 4 bronze Monde Selection medals
since 1971.

8
HOW PARLE FOUGHT TO MAKE BISCUITS AFFORDABLE TO ALL

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

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

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

THE QUALITY COMMITMENT

Parle Product Private Limited has 3 manufacturing plants –

1) VILE PARLE in Mumbai (Maharashtra)
2) BHUJ (Gujarat)
3) BANGLORE (Karnataka)

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

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

9
1) BAHADURGARH in Gurgaon (Haryana)
2) NEEMRANA in Alwar (Rajasthan)

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

All these factories are located at strategic locations, so as to ensure a constant output &
easy distribution. Each factory has state-of-the-art machinery with automatic printing &
packaging facilities.

All Parle products are manufactured under the most hygienic conditions. Great care is
exercised in the selection & quality control of raw materials; packaging materials &
rigid quality standard are ensured at every stage of the manufacturing process. Every
batch of biscuits & confectioneries are thoroughly checked by expert staff, using the
most modern equipment.

THE MARKETING STRENGTH

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

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

10
The Parle marketing philosophy emphasizes catering to the masses.
We constantly endeavor at designing products that provide nutrition & fun to the
common man. Most Parle offerings are in the low & midrange price segments. This is
based on our cultivated understanding of the Indian consumer psyche. The value for
money positioning helps generate large sales volumes for the products.

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

THE CUSTOMER CONFIDENCE

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

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

Our efforts are driven towards maximizing customers’ satisfaction and this is in synergy
with our quality pledge. “Parle Products Limited will strive to provide consistently
nutritious & quality food products to meet consumers’ satisfaction by using quality

11
materials and by adopting appropriate processes. To facilitate the above we will strive to
continuously train our employee and to provide them an open and participative
environment. “

EMERGING TRENDS OF THE BRAND

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

THE PRODUCT

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

THE PRICING STRATEGY

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

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THE PROMOTION POLICY

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

THE PLACE

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

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 PARLE BISCUITS PRIVATE LIMITED (NEEMRANA)

Parle Biscuit Pvt. Ltd. is a subsidiary of Parle Product Pvt. Ltd.

The manufacturing at Neemrana unit started in 1982 for Parle-G with a single plant. It
is planted in near about 16 acres of land.

Including General Manager 78 employees of Managerial and Officer

class are working in this plant. Production is going on in this plant 24 hours in three
shifts. Number of permanent workers of thrice shifts is 680 and around 400 workers are
there on contract basis.

In 1990’s Krackjack production began followed by Monaco and Nimkin. Average

Production capacity of Neemrana unit per month is-

1) Parle-G 3500 Metric Tonnes

2) Krackjack 1600 Metric Tonnes
3) Monaco 800 MetricTonnes

The plant works in coordination with the Mumbai office, Neemrana (Rajasthan).

14
 DEPARTMENTS IN PLANT

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

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

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

15
Parle-G Making Process

MIXING:
This is a process where all ingredients are put together in right proportion for dough
formation. These ingredients are then fed into Mixers where mixing is done and dough
is prepared for molding .Major ingredients are flour, fat, sugar and others as per the
product one would like to have.

MOULDING:
In this section we laminate the dough into sheet which then passes down to gauge rollers
and sheet thickness achieved for cutting. Here we have a cutter or a molder as per the
variety where one gets the shape and sizes of biscuits.

BAKING:
This is the area where we pass these mounded wet biscuit into baking oven. The oven
temperature is 230°C. The biscuits are baked on desired temperature. The oven which
are use very effective.

COOLING:
These baked biscuits are then passed on to cooling conveyors for natural cooling prior
to packing .The temperatures are brought down to room temperatures.

PACKING:
These biscuit are then stacked and fed into packing machine for packing. Different
packing material are available for packing of these biscuit in different packs .slug packs,

16
pouch pack or family packs etc. These packs are then put into secondary packaging like
cartons to be transported to retailers.

EQUIPMENT USED FOR AUTOMATED BISCUIT MANUFACTURING

Mixers Laminators Gauge Rolls or Pre Sheeters Molder / Cutter Baking Oven Cooling
Conveyor Packing

Machines Material Handling Equipments Biscuit / Sugar Grinder Milk/Oil Sprays

Salt / Cashew
Sprinklers

INGREDIENTS USED

Flour , Fat , Sugar , Salt , Ammonium bicarbonate , Milk , Butter , Flavors ,

Emulsifiers , Invert syrups, Dough Improvers and many additives

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 CREDIT POLICY OF PARLE BISCUITS PVT. LTD.

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

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

Then it’s the responsibility of these depots to fulfill the demand of customers of Parle
Biscuits Pvt. Ltd.

Parle Biscuits Pvt. Ltd. doesn’t has credit policy it deals in cash. For the collection of
it’s payment PBPL deals with 5 banks which are as follows:

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

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

18
1) Cheque Parties – Cheque parties are those who send their blank cheques to Depots
before receiving the finished goods. Depots fill the selling amount of the
consignment in those cheques and then these cheques are deposited by the depots in
the account of PBPL in any of these 5 banks.

2) Demand Draft Parties – In such cities where anyone of these 5 banks isn’t there
customers of those come in this category. Before receiving the finished goods
customers send the draft of the consignment amount to production plants directly.
Then consignment is sent to those customers by concerned depot.

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

4) Credit Demand Draft Parties - These are those parties to whom 4 days credit
facility is provided but they also don’t have facility of any of those 5 banks in their
city. After 4 days just like the second category these parties send the draft of
consignment amount directly to production plant.

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 Product Profile

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

1) Hide & Seek

2) Choc Cream
3) Elaichi Cream
4) Orange Cream
5) Pineapple Cream
6) Marie Choice
7) Cheesling
8) Jeffs
9) Monaco
10)Nimkin
11)Sixer
12)Glucose
13)Krackjack
14)Parle-G
The Parle toffees brands are:
1) Funtoosh
2) Mango Bite

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3) Orange Candy
4) Poppins
5) Roll-A-Cola
6) Tangy Candy
7) Boo
8) Pippermint
9) Rose Mint
10)M Choco
11)Melody
12)Dairy Toffee
13)Lux Toffee
14)Mayfair Toffee
15)Kismi
16)Mahakismi
17)Smoothies
18)Cafechino
19)Chox Bar

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 INTRODUCTION OF TOPIC

WORKING CAPITAL AT A GLANCE

 INTRODUCTION

 TYPES

 FEATURES

 DETERMINANTS

 COMPONENTS

 WORKING CAPITAL CYCLE

INTRODUCTION

A successful sales program is necessary for earning profits by any business enterprise.

Sales don’t convert into cash instantly. There is a time lag between the sale of goods and

receipt of cash. Therefore, there is a need for working capital in the form of current

assets to deal with the problem arising out of the lack of immediate realization of cash

against goods sold. Therefore sufficient working capital is necessary to sustain sales

activity.

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FEATURES

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

2) Working capital indicates circular flow of funds in the day-to-day activities of

business. That’s why it is also called circulating capital.

3) Working capital represents the minimum amount of investment in raw materials,

work-in progress, finished goods, stores and spares, accounts receivables and cash
balance.

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

1) ON THE BASIS OF CONCEPT

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

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

Gross working capital = Total current assets

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

23
 Net working capital = Current assets – Current liabilities

2) ON THE BASIS OF REQUIREMENT

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

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

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

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

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

seasonal demands of busy periods occurring at stated intervals.

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

DETERMINANTS
1) Nature of business – The effect of the general nature of the business on working
capital requirements can’t be exaggerated. Rail, roads and other public utility
services have large fixes investment so they have the lower requirements of current

24
 assets. Industrial and manufacturing enterprises, on the other hand, generally
require a large amount of working capital.

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

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

4) Length of period of manufacturing – The time which elapses between the

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

25
 5) Terms of purchase - If suppliers allow continuous credit, payment can be
postponed for some time and can be made out of the sale proceeds of the goods
produced. In such a case, the requirements of working capital will be reduced.

6) Dynamic Attitudes – As a company grows, it is logical to expect the large

amount of working capital will be required.

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

8) Requirement of cash - The working capital requirements of a company are also

influenced by the amount of cash required by it for various purposes. The greater
the requirement of cash, the higher will be the working capital needs of the
company.
9) Dividend policy of concern – If the management follows a conservative dividend
policy the needs of working capital can be met with the retained earnings. The
relationship between dividend policy and working capital is well established and
mostly companies declare dividend after a careful study of their cash requirements.

10) Other Factors - Other factors, which affect the requirement of working capital, are
lack of co-operation in production and distribution policies, transport and
communication facilities, the fiscal and tariff policies of the government etc.

26
COMPONENTS

Main components of working capital are as follows:

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

2) Marketable Securities – Though marketable securities provides a such lower yield

that the firm’s operation assets. They serve two useful functions. Firstly, they act as
a substitute for cash, and secondly, are used as temporary investment. Where these
securities are held in lieu of the cash balance, they act as a substitute for
transactional or precautionary balances. Normally, these aren’t used as speculative
balances, but only as a guard against the possible shortage of bank credit.
Marketable securities (as temporary investment) may be held for one of the
following reasons:
 Seasonal or cyclical operations
 To meet known financial requirements. Construction of an additional plant.
 Immediately after the sale of long-term securities.

3) Account Receivable - Though accounts receivable are a vital investment of any

business organization, little analytical work as been done to determine credit

27
 policies. Maintaining account receivable has its cost implications in that the
firm’s monetary resources are tied up. This is of greater significance in the
inflationary economy, because of the depreciation in the value of money.
Basically, this is a two-step account. When goods are shipped, inventories are
reduced and accounts receivable is created. When payment is made, this account
is reduced and the cash level increases. Accounts receivables are, therefore a
function of the volume of credit sales and the average length of time between
sales and collections.

4) Inventory – Inventories represent a substantial amount of a firm’s current assets.

Management of inventories should be efficiently carried out so that this investment
doesn’t become too large, as it would result in blocked capital which could put to
productive use elsewhere. On the other hand, having too small an inventory could
result in loss of sale or loss of customer goodwill. An optimum level of inventory
should therefore be maintained.

WORKING CAPITAL CYCLE

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

In case of a manufacturing company, the operating cycle is the length of time necessary
to complete the following cycle of events: -
1) Conversion of cash into raw materials

28
 2) Conversion of raw materials into work-in-progress
3) Conversion of work-in-progress into finished goods
4) Conversion of finished goods into accounts receivable
5) Conversion of accounts receivable into cash

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

Working capital cycle can be expressed as:

R+W+F+D-C

Where R=Raw Material Storage Period = Avg. Stock of Raw Material

Avg. Cost of Production per day

W=Work in Progress Holding Period = Avg. Work in Progress Inventory

Avg. Cost of Production per day

F=Finished Goods Storage Period = Avg. Stock of Finished Goods

Avg. Cost of Goods Sold per day

D=Debtors Collection Period = Avg. Book Debts

29
 Avg. Credit Sales per day

C=Credit Period Availed = Avg. Trade Creditors

Avg. Credit Purchases per day

OPERATING CYCLE OF MANUFACTURING BUSINESS

REALIZATION Accounts SALES

Receivables

Cash Finished Goods

PURCHASES PRODUCTION

PROCESS

PRODUCTION

Raw Materials Work-in-Process

PROCESS

30
METHOD OF ASSESMENT OF WORKING CAPITAL

Operating cycle No. of days

Raw material = 916.53 = 7.9

114.84

Stock in Process = 10.12 = .088

114.84

Finished goods = 1054.1 = 9.13

115.36

Debt collection period = 4.22

(Calculating in ratios)
_______________

Total length of Operating Cycle = 21.34 Days

SALES per month 67829.07 = 5652.422 Rs.

12

31
Total EXPENSES 60450.77 = 5037.66 Rs.
Per month 12

WORKING CAPITAL REQUIRED = Total Length of X Monthly Expenses

Operating Cycle

__________________________________

30

= 21.34 X 5037.66

30

= 3583.45Rs.

Working Notes:

1. Raw Material – (Mentioned in P&L Account)

Opening Stock + Purchases – Closing Stock

2009-10:

Annual Consumption = 36047.27Rs

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1 Month’s Consumption = 36047.27/12 = 3003.94Rs

2010-11:

Annual Consumption = 38058.07Rs

1 Month’s Consumption = 38058.07/12 = 3171.50 Rs.

2. Stock In Process --

Raw Material + Power + Labour + Repairs

+ Other Manufacturing Expenses + Depreciation

+ Opening Stock – Closing Stock

2009-10:

Cost of Production = 40125.5 Rs.

1Month’s Stock In Process = 40125.5/12 = 3343.81Rs.

2010-11

Cost of Production = 41315.08 Rs.

1Month’S Stock In Process = 41315.08/12 = 3442.92 Rs.

33
3. Finished Goods --

Cost of Production + Opening Stock - Closing Stock

2009-10:

Cost of Goods Sold = 40275.31Rs.

1 Month’s Finished Goods = 40275.31/12 = 3356.27Rs.

2010-11:

Cost of Goods Sold = 41529.54Rs.

1 Month’s Finished Goods = 41529.54/12 = 3460.85Rs.

34
THEORTICAL ASPECTS OF WORKING CAPITAL MANAGEMENT

NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature-

1) It is concerned with the formulation of policies with regard to profitability, liquidity
and risk.
2) It is concerned with the decisions about the composition and level of current assets.
3) It is concerned with the decisions about the composition and level of current
liabilities.

Policies regarding to Profitability

Liquidity and Risk

35
Composition of Level
of Current Assets Composition of Level
of Current Liabilities

DIMENSIONS OF WORKING CAPITAL

GOAL OF WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problems that arise in

attempting to manage the current assets, the current liabilities and the interrelationship
that exists between them.

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

Current liabilities are those liabilities, which are intended, at their

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

36
Goal of working capital management is to manage the firm’s current assets and
liabilities in such a way so that a satisfactory level of working capital is maintained.

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

INVENTORY MANMAGEMENT IN PARLE BISCUITS PVT. LTD.

For inventory management in Neemrana plant of PBPL certain things are

considered which are completely practical-

 As market generally fluctuates so if there is any perception of the increment in the

price level of any commodity in future then that particular commodity is stored.

 All the materials of the mixture, which is used in making biscuits, can be stored
maximum only for 3 days. Because store of plant is designed like this that more
than 3 days storage can’t be maintained in it.

 Minimum levels of inventories are maintained in plant in wake of lead-time, govt.

policies, and one-day safety stock for transportation problem.

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

37
 The position of inventory at the end of last two years is as follows-

NAME OF THE COMMODITY YEAR AMOUNT (In Rs/-)

Stores and spares 2009-10 82, 91,000

2010-11 57, 29,000

Raw Materials 2009-10 10, 21,52,000

2010-11 8,11,54,000

Packing Material 2009-10 5,82,08,000

2010-11 7,08,06,000

Finished Goods 2009-10 11,61,33,000

2010-2011 9,46,87,000

38
CASH MANAGEMENT IN PARLE BISCUITS PVT. LTD.

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

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

 Salaries and Wages are distributed in Parle Biscuits Pvt. Ltd on monthly basis.
50,00,000-75,00,000 salaries and wages are distributed in one month. Like this all
other daily transactions are completed by daily collection.

 In case of strike or any contingency supply of demand is completed by another

plant of Parle Biscuits Pvt. Ltd. and by 11 CMU’S. Supply doesn’t disturb.

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

 Parle Biscuits Pvt. Ltd. doesn’t have any credit policy. It deals in cash. That’s why it
doesn’t has any cash problem.

39
  Distribution channel of Parle Biscuits Pvt. Ltd. is very short only depots are there as
a middleman between plant & open market. That’s why there isn’t any necessity of
more cash.

 Biscuits come in FMCG product. So circulation of cash is smooth & fast.

 Production cycle is short. That’s why Parle Biscuits Pvt. Ltd has less demand of
cash.
FINANCING OF WORKING CAPITAL

INTRODUCTION

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

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

TRADE CREDIT

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

40
BANK CREDIT

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

Working Capital finance is provided by banks in five ways:

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

RESERVE BANK OF INDIA FRAMEWORK FOR /REGULATION OF BANK

CREDIT

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

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

COMMERCIAL PAPERS

41
Commercial Paper is a short-term unsecured negotiable instrument, consisting of usance
promissory notes with a fixed maturity. It is issued on a discount on face value basis but
it can also be issued in interest bearing form. A Commercial Paper when issued by a
company directly to the investor is called a Direct Paper. The companies announce
current rates of Commercial Papers of various maturities, and investors can select those
maturities, which closely approximate their holding period. When Commercial Papers
are issued by security dealers/dealers on behalf of their corporate customers, they are
called Dealer Paper. They buy at a price less than the commission and sell at the highest
possible level.
FACTORING

Factoring provides resources to finance receivables as well as facilitates the collection

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

1) SBI Factors and Commercial Services Ltd.

2) Canarabank Factors Ltd.

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

INTERNAL SOURCES

42
This is also another major source for financing of Working Capital. Internal Sources
include profits, reserves etc.

FINANCING OF WORKING CAPITAL IN PARLE BISCUITS PVT. LTD.

In Parle Biscuits Pvt. Ltd financing of Working Capital is done through only internal
sources. Profits and reserves of Parle Biscuits Pvt. Ltd. are enough to fulfill the demand
of it’s Working Capital.
Parle Biscuits Pvt. Ltd. doesn’t use any other source apart internal for financing it’s
Working Capital.
MANAGERIAL USEFULNESS OF STUDY

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

43
are his total expenses and what is the amount of profit earned or loss incurred during the
year. Furthermore, he can ascertain the financial position of his business, such as, how
much capital it has at the end for the year and how that capital stands invested in various
assets; how much amount he has to take and from whom and how much amount he is
liable to pay and to whom. Besides, the properly maintained accounts are helpful in the
assessment of Income-tax and Sales

CONCEPT USED IN STUDY

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

Focus of the Problem

The main purpose of study the account process is to find the main reason or decision
which can improve the business of the company. The main purpose or focus of the

44
problem is to know that which product should be used in the company and why and how
can it be effective for the company?

The main focus of the problem is to find out output of the economical business. Since a
special reference has been made towards Parle Biscuits Pvt. Ltd. business has also
become equally important and unless we know the methodology adopted by Parle
Biscuits Pvt. Ltd. our study will not give the true picture. In nutshell, the focus of our
study is find the amount consolidation of the entire group.

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

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

OBJECTIVE OF PROJECT

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

1. Primary : To find out the operating and day to day financial

functions which reflects how the company operates its

45
 operating cycle and manage financial flow in day to day
business activity.

2. Secondary :
1. To know the functioning of the finance deppt. Of Parle
Biscuits Pvt. Ltd.
2. To analyze the liquidity position of the organization
3. To examine profitability position of the management.
4. To prepare report on study thus conducted.

RESEARCH METHODOLOGY

Research Design

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

METHODS OF DATA COLLECTION

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

46
1)Secondary Data
Secondary data consists of information that already exists somewhere and was collected
for another purpose which may not be the same.

Secondary Data used here

- Various files of accounts

- Magazine and Books
- Performa’s and Websites
- Annual financial reports of parle
I have used secondary data in the completion of this summer training report.
Tool and Techniques:-
1. Ratio analysis
2. Fund flow statement .
3. Operating cycle method

Data Analysis

ANALYSIS OF WORKING CAPITAL MANAGEMENT

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

The Working Capital of the last two years is as follows –

47
(Amount in ‘00s Rs/-)

YEAR SALES INVESTMENTS WORKING % OF

CAPITAL WORKING

CAPITAL TO

SALES
2009-10 5282907 939194 299640 5.67

2010-11 5505061 1175683 288828 5.24

In year 2009-10 Working Capital of Parle Biscuits Pvt. Ltd. was 299640

Rs/- while in the same period the sales was noticed 5282907 Rs/- then % of Working

Capital to sale was 5.67 but in the next year 2010-11 sales was 550506 Rs/- and

Working Capital was 288828 Rs/-. So in year 2010-11 % of Working Capital to sales

was 5.24.

48
CALCULATION OF WORKING CAPITAL

80000

70000 68000

60000

50000
Amount

40000

30000 27390.76

20000

10000
5294.01

0
1 2 3
Years

Amount in ‘00s

49
RATIO ANALYSIS

It is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of

two mathematical expressions” and as “the relationship between two or more things”.
Ratio helps to summaries the large quantities of financial data and to make qualitative
judgment about the firm’s financial performance. The point to note is that a ratio
indicates a quantitative relationship, which can be turn, used to make a qualitative
judgment.

Here are some of the calculated ratios of the financial year of Parle Biscuits Pvt. Ltd.
All the ratios are calculated in ‘00s Rs/- figures.

1)Net Working Capital Ratio

Net Working Capital

Capital Employed
2009-10 2010-11

Net Working Capital 299640 288828

Net Assets or Capital employed 1403616
1716615
Ratio .21: 1 .17: 1

50
 The difference between Current Assets and Current Liabilities excluding
short-term borrowings is called Net Working Capital or Net Current Assets. The position
of Net Working Capital in the year 2009-10 is better as compared with the year 2010-11.
The important thing to say is that this organization has healthy Current Assets.

Net Working Capital Ratio

0.25
0.22

0.2

0.15
0.15

0.1

0.05

51
2)Current Ratio:-

Current Assets
Current Liabilities

2009.10 2010-11

Current Assets 596878 646067

Current Liabilities 297238 357239
Ratio 2: 1 1.80: 1

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

As a conventional rule a current ratio 2: 1 or more is considered

satisfactory. The current ratio doesn’t represent margin of safety i.e. a “cushion” of
protection for creditors.

52
1.34

1.32

1.3

1.28

1.26

1.24

1.22

1.2

1.18

1.16
Current Ratio

53
3)Average Collection Ratio

Debtors*360
Sales

2009-10 2010-11

Debtors*360 172716*360 188725*360

Sales 5282907 5505061
Days 11.77 12.34

The average collection period shows the efficiency of debtors. It tells the
PBL doesn’t has credit policy & if is given then in rare case.

54
55
4)Quick Ratio or Acid Test

Current Assets - Inventories

Current Liabilities

2009-10 2010-11
Current Assets – Inventories 596878-270934 646067-289272

Current Liabilities 297238 357239

Ratio 1.09 : 1 .99 : 1

Generally a quick ratio of 1:1 is considered to represent a satisfactory position. But it

can’t be said tat a company having quick ratio of less than 1:1 isn’t financially sound,
Because it depends upon the nature of debtors. If the debtors are slow paying the quick
ratio of more than 1:1 can become harmful. But if debtors are liquid like in this
organization than even less than 1:1 can work out to be satisfactory.
As debtors of this organization aren’t slow paying so that quick ratio is satisfactory.

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

56
57
5)Gross Profit Margin

Gross Profit Margin = gross profit*100/sales

2009-10 2010-11

Gross profit 829287 846824

Sales 5282907 5505061
Ratio 15.70 15.38

Profit Margin of the firm has decreased from 15.70% to 15.38% which means that
margin of profit on sales has decreased.

6) Net Profit Margin

Net Profit Margin= PAT*100/Sales

2009-10 2010-11
PAT 262056 347142
Sales 5282907 5505061
Ratio 4.96 6.31

Profit Margin of the firm has increased from 4.96% to 6.31% which means that margin
of profit on sales has increased.

58
7)Asset Turnover Ratio

Net Asset turnover ratio= sales/net assets

2009-10 2010-11
Sales 5282907 5505061
Net Assets 1403616 1716615
Ratio 3.76 3.21

NATR has decreased from 3.76 to3.21 which means Parle is producing 3.76 times of
sales for one rupee of capital employed in net assets in 2009-10 to decreased a 3.21
times of sales for one rupee of capital employed in net assets in 2010-11.

59
 FUND FLOW ANALYSIS

The statement of change in financial position, prepared to determine only the sources
and uses of working capital between dates of the two Balance Sheets is known as the
Fund Flow Statement. Working Capital is defined as the difference between Current
Assets and Current Liabilities. Working determines the liquidity of the firm.

The Working Capital flow or fund arises when the net effect of transaction is to increase
or decrease the amount of Working Capital. Normally, a firm will have some
transactions that will change Net Working Capital and some that ill cause no change in
Net Working Capital. The transaction will cause Net Change of Working Capital only
when one of the accounts affected is a current account (Current Liability) and account is
non-current account (Long-term Assets or Long term Liability).

The concepts of Working Capital may be summarized as follows:

 The Net Working Capital increases or decreases when a transaction involves a

current account and a non-current asset account.
 The Net Working Capital remains unaffected when a transaction involves only
Current accounts.
 The Net Working Capital remains unaffected when a transaction involves only
non current accounts.
 Now let us examine the Working Capital flow of Parle Biscuits Pvt. Ltd. through
the statement of change in Working Capital.

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 SCHEDULE OF CHANGE IN WORKING CAPITAL

Particulars 2009-10 2010-11 Effect on Working capital

Increase Decrease
Current

Assets
Inventories 270934 289272 18338
Debtors 172716 188725 16009
Cash 153228 168070 14842
Accured Income 816122 868345 52223
Total 1413000 1514412
Current Liabilities
C/L (Cr.) 297238 357239 60001
Provisions 1111814 1151815 40001
Total 1409052 1509054
W.C (A-B) 3948 5358 101412 100002
Pos. Inc. in W.C 1410

The project is developed keeping in mind the security of Working Capital of the company.

Means that no one can enter in the confidential data of the company and without permission the senior

officer one can’t enter in the main programme whether he is Manager, Employee or the Guest.

61
FINDINGS

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

 In year 2009-10 Working Capital of Parle Biscuits Pvt. Ltd. was 299640 Rs/-

while in the same period the sales was noticed 5282907 Rs/- then % of Working

Capital to sale was 5.67 but in the next year 2010-11 sales was 550506 Rs/- and

Working Capital was 288828 Rs/-. So in year 2010-11 % of Working Capital to

sales was 5.24.

 The Position of Net Working Capital in the year 2009-10 is better as compared
with the year 2010-11. The important thing to say is that this organization has
healthy current assets.
 As a Conventional rule a current ratio 2:1 or more is considered satisfactory the
current ratio don’t represent margin of safety i.e. a “cushion” of protection for
creditors.
 The average Collection period shows the efficiency of the debtors, it tells that
Parle Biscuit Pvt. Ltd doesn’t has credit policy and if is given then in rare cases.
.

62
Recommendation

 Total Current assets need to be increased.

 Total Liabilities of outsiders should be decreased.
 Overall Management should be improved.
 Expenditure should be decreased.
 Organization has healthy current assets but it needs to improve its liquidity power.

63
 Limitations of the Study

The major limitations of my study are as under.

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

64
Conclusions

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

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

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

65
 =

BIBLIOGRAPHY

Text Books
D.C.Sharma & K.G.Gupta Management Accounting
M.Y.Khan & P.K.Jain Financial Management

Annual Reports
1) Parle Biscuits Pvt. Ltd. annual report 2009-10
2) Parle Biscuits Pvt. Ltd. annual report 2010-11

66
ANNEXURE

Profit and Loss Account

Particulars 2009-10 2010-11

(in ‘00s) (in ‘00s)

Sales 5282907 5505061
Less: Cost of Goods Sold
Opening Stock 137107 136933
Add: Raw Material Consumed 3067148 3268256
Packing Material Consumed 723740 666587
Payment to an Provisions for employees 171429 126067
Store and Spare Parts Consumed 43975 40306
Power and Fuel 120505 142037
Conversion Charges 257928 305061
Rates and Taxes 68721 78051
Less: Closing Stocks 136933 105061
Gross Profit 829287 846824
Less : Operating Expenses
Selling and Distribution expenses
Repair and Maintenance 44499 40507
Advertisement and Sales/ Marketing Expenses 187875 250507
Communication Expenses 2103 2209
Cash Discount 20440 25061
Traveling and Convince Expenses 6312 7051
General and Administrative Expenses
Rent 4636 2051
Printing and Stationary 2276 2051

Insurance 3531 3033

Legal and Professional 3642 4050

67
Financial Expenses
Depreciation 103900 95061
Miscellaneous 5488 6057
Operating Profit 327846 396336

Add : Not Operating Income

Income from Investment 87622 146251

Other Incomes 10606 21872

Less : Non Operating Expenses

Net income before Tax 426074 564459

Less : Tax@38.5% 164038 217317

Net Income 262036 347142

68
 Common Size Statement
Profit and loss Account

Particulars 2009-10 2010-11

Sales 100 100

Less Cost of Good Sold 84.3 84.62

Gross Profit 15.7 15.38

Less : Operating Expenses
Selling and Distribution Expenses 7.15 6.14
General and Administration Expenses .27 .20
Financial Expenses 1.97 1.72
Misc. Expenses .10 .11
Total Operating Expenses 9.5 8.18
Operating Profit 6.21 7.2
Total Income 1.86 3.05
Less : Other Expenses
Income Before Tax 8.07 10.25
Less : Provision for Tax 3.11 3.95
Income after Tax 4.96 6.3

Balance Sheet

Particulars 2009-10 2010-11

Liabilities
Share Capital 4950 4950
Reserves and Surplus 1494788 1759852
Secured Loans
Unsecured Loans
Current Liabilities and Provisions
a) Current Liabilities(Creditors) 297238 357239
b) Provisions 1111814 1151815

69
Contingent Liabilities
Total 2908790 3273856

Particulars 2009-10 2010-11

Assets
Fixed Assets 556596 583761
Investment 939194 1175683
Current Assets, Loans and Advances
a) Current assets
Stock 270934 289272
Debtors 172716 188725
Cash 153228 168070
b) Loans and Advances 816122 868345
Misc. Expenditure
Profit and Loss A/c(Dr. Balance)
Total 2908790 3273856

70