Sai Agro Industries

Working Capital Management
CHAPTER 1
 INTRODUCTION OF THE STUDY
Finance is regarded as the life blood of a business enterprise. This is because
money oriented economy finance is one of the basic foundations of all kinds of economic
activities. It is the master key which provides access to all the sources for being employed
in manufacturing and merchandising activities. It has rightly been said that business
needs money to make more money. However, it is properly managed. Hence, efficient
management of every business enterprise is closely linked with efficient management of
its finances. This can be termed as ‘Financial Management’.
Financial Management is concerned with the management decisions that results in
the acquisition and financing of Long term and short-term credits for the firm. As such it
deals with the situations that require selection of specific assets or combination of
liabilities as well as the problem of size and growth of an enterprise. The analysis of these
decisions is based on the expected inflows and outflows of funds and their effects upon
managerial objectives.
OBJECTIVES OF FINANCIAL MANAGEMENT
 Maintenance of adequate liquid assets
 Maximization of Profit
 Maximization of share holder’s wealth
SSMRV DEGREE COLLEGE, Bangalore 1

In modern world, concept of financial management changed due to technological
improvements, widened marketing operations, development of a strong corporate
structure, keen and healthy business competition, which made the management to make
optimum use of available financial resources for continued survival. Today, Financial
management involves four broad decision areas. They are:
Funds requirement decision:
This is the most important decision taken by the Finance manager. A careful
estimate has to be made about the total funds required by the enterprise taking
into Account both fixed and working capital requirements. This is done by
forecasting the physical activities of the enterprise.
Financing decision:
Provision of funds required at the proper time is one of the primary tasks of
the finance manager. Every business activity require funs and hence every
financial manager is confronted with this problem. He has to identify the sources
from which the funds can be raised, the amount that can be raised, the amount that
can be raised from each source and cost and other consequences involved. A
proper balance has to be kept between the fixed and non-fixed cost bearing
securities.
Investment Decision:
This comprises decisions relating to investment in both capital and current
assets. The finance manager has to evaluate different capital investment proposals

and select the best keeping in view the overall objective of the enterprise. This
would involve fixing the criteria for evaluating different investment proposals,
fixing priorities, committing funds for them etc.
The investment in current assets will depend on the credit and inventory
policies pursued by the enterprise. The credit policy is determined keeping in
view the need of growth in sales and the availability of finance. Similarly, the
inventory policy will be setup taking into account the requirement of production,
the market trend of the price of raw materials and the availability of funds.
Dividend Decision :
The establishment of dividend policy is another important function of finance
manager. The dividend decision involves the determination of the percentage of
profits earned by the enterprise, which is to be paid to its shareholders.
For any enterprise, it will have two types of capital requirement for its
operations.
1) Fixed Capital requirements
2) Working capital requirements
Fixed Capital:
Fixed capital is the funds required for the acquisition of those assets that are to be
used over and over for a long period. It is the capital which is meant for meeting the
permanent or long term needs of the business.

Management of Fixed Capital is concerned with the raising of required fixed
capital at minimum cost and its effective utilization.
Working Capital:
Working capital is the capital required for day to day operations of a business
enterprise particularly to complete the operating cycle.
 WORKING CAPITAL
1.2 Meaning / What is working Capital?
Working capital refers to that part of total capital which is available and used
for carrying out the regular business operations. Thus the capital required for purchasing
raw materials, payments of direct and indirect expenses for carrying out production,
investment in stocks and stores receivable and to be maintained in the form of cash is
generally know as working capital.
In other words the capital received for day to day expects for organization in
Working capital
For running an industry or a concern, two types of capital are required ,
viz
• Fixed Capital

• Working Capital
Every business needs funds for two purposes for its establishment and to carry out its
day-to-day operations.
• Long term funds
• Short term funds.
Ω Long term funds are required to create production facilities through purchase of
fixed assets such as plant and machinery, buildings, land, furniture etc. investment in
these assets represents that part of firm’s capital, which is blocked on a permanent or
fixed basis is called Fixed assets.
Ω Funds are also needed for short-term purposes for the purchases of raw materials,
payments of salaries, wages, power charges etc., and also for financing the interval
between the supply of goods and the receipts of payments thereafter. In other words
the working capital is the finance, required meeting the costs involved during the
operating cycle or the working capital cycle. Working capital refers to that part of the
firm’s capital which is required for financing short term or current assets such as
cash, marketable securities, debtors and inventories.
1.3 CONCEPTS OF WORKING CAPITAL:
The important concepts of working capital are:

 Gross Working capital refers to the firm’s investment in current assets, currents
assets are the assets which can be converted into cash within an accounting year [or
operating cycle] and include cash, short-term securities, debtors [accounts receivables
or book debts], bills receivables and stock [inventories]
 Net working capital refers to the difference between current assets and current
liabilities current liabilities are those claims of outsiders, which are expected to
mature for payment within an accounting year, and include creditors [accounts
payable], bills payable and outstanding expenses. Net Working capital can be
negative or positive. A positive Working capital arises will arises when the current
assets exceed the current liabilities and a negative working capital will arises when
current liabilities exceed current assets.
 Cash Working Capital refers to the one that is calculated form the terms appearing
in the profit and loss account. It shows the real flow of money or value at a particular
approach in working capital. It is the basic of the operation cycle concept. Which has
assumed a great in financial management in recent years. The reason is that the cash
working capital indicates the adequacy of the cash flow, which is an essential pre-
requisite of a business.
1.4 OPERATING CYCLE/WORKING CAPITAL CYCLE
This process involved in the utilization of working capital is a cyclic one. What
is at one stage a raw material, gets converted into goods in process in the next stage

and then into finished goods, then book debts and the cash and then back again into
the stage of raw material.
In respect of trading concerns, operating cycle represents the period involved
from the time the goods and services are purchased and the same are sold and
realized.
In the case of manufacturing concerns, it is the time involved in the purchasing
of raw materials, converting them into finished goods and the same are finally sold
and proceeds are realized.
Fig: Operating cycle/ Working capital cycle.
Cash
Receivable
Raw Materials/Stores
Expenses
Finished goods Stock in process
 The total working capital requirement for industrial units will depend upon the
blocking period of assets and the operating of the cycle.

 As the regards the operating cycle, the duration of each stage of process cycle is first
decided upon having regards to the function it is suppose to perform. The conversion
of raw materials into finished goods depends upon the technical requirements and
manufacturing facilities available similarly, the turnover of finished products and
their transformation into book debts, bills or cash could be related to factors like
delivery schedule, business customs and competition. Thus, the working capital cycle
of a manufacturing activity starts with the acquisition of raw materials and ends with
the realization of cash for finished goods.
 The cycle is long in some cases and short in others, depending upon the nature of
business. Cycle is fast in consumer goods industries and slow in capital goods
industries. Cycle is short in case of perishable such as food articles, beverages, fruits,
fish, etc. cycle is long in the case of tobacco, distilling, timber etc. seasonal industries
like manufacturers of umbrella, woolen fabrics, fan etc, require higher stocks in some
months and bare minimum, in remaining months.
 During the cycle funds are blocked in various stages of current assets viz., cash itself,
inventory [consisting of raw materials, stock in process, finished goods] and
receivables. These require finance. Finance involves costs. Quicker the cycle, more is
the turnover normally and longer the cycle, the less is the turnover. Stagnation in any
area affects turnover and profitability.

 Factors which affect working capital cycle are a) the concern’s efficiency b) the
concern’s policy, c) Inventory management d) technical process involved / adopted e)
trade practice f) government policy and economic conditions.
1.5 THE NEED OR OBJECTIVE OF WORKING CAPITAL
The objective of a firm is to earn sufficient returns from its operations for earning
a steady amount and profit there should be successful sales activity. The firm has to
invest enough funds in current assets for the success.
Every business needs some amount of working capital. The need of working
capital arises due to the time gap between production and realizations of cash from sales.
There are time gaps in purchase of raw materials and production; production and sales;
and sales and realization of cash.
Thus working capital is needed for the following reasons;
♦ For the purchase of raw materials, components and spares.
♦ To pay wages and salaries.
♦ To incur day to day expenses and overhead costs such as fuel, power and office
expenses etc.
♦ To meet the selling costs as packing, advertising etc.
♦ To provide credit facilities to the customers.

♦ To maintain the inventories of raw materials, work in progress stores and spares and
finishes stocks.
♦ To meet all incidental expenses related to production.
♦ To carry the finished goods till sales are made.
The funds would be needed to carry the receivables also as sales done to
convert into cash instantaneously.
1.6 WORKING CAPITAL MANAGEMENT
Working capital in general refers to the excess of current assets over
current liabilities. Management of working capital therefore is concerned with the
problems that arises in attempting to manage the current assets, the current liabilities and
the inter relationship between them.
The basic goal of working capital management is to manage the current assets and
current liabilities of a firm in such a way that a satisfactory level of working capital is
maintained, that is, it is neither inadequate nor excessive.
Management of working capital means the management of current assets, current
liabilities and Net working capital.
1.7 Current Liabilities:
Current liabilities are short-term liabilities, which are repayable within a year.
They are normally raised for meeting the working capital needs and to acquire current

assets. Current liabilities are the main source of finance for working capital and are
normally identified with the operating cycle of the business.
Current liabilities normally consists of:
 Industry borrowings for working capital
 Sundry creditors – Trade
 Other current liabilities and provisions
1.8 Current Assets:
Current assets are also called convertible assets, liquid assets or floating assets.
They change their form every now and then and ultimately are converted into cash.
Current assets in the form of finished goods are meant for sale and conversion in to cash
in a period not exceeding one year. They indicate short-term deployment of funds and
form gross working capital.
Current assets consist of:
 Cash
 Stock in trade consisting of raw materials, stock in process, finished goods, stores,
packing materials.
 Book debts, and
 Other loan and advances etc,

1.9 Working Capital Gap
This represents excess of current assets over current liabilities excluding
industry borrowings. A part of the current assets are financed by current liabilities [other
than industries borrowings]. The remaining portion of current assets, which requires
financing, is called as working capital gap. Industry do not grant advances to the full
extent of working capital gap. It is a well established rule that the borrower has to finance
a part [normally 25%] of working capital gap out of either capital or long term sources.
1.10 Net working capital
This represents excess of current assets over current liabilities [including
industries finances]. It is a liquid available surplus. This represents the margin or long
term sources provided by the borrower for financing a part of the current assets.
1.11 PRINCIPLE OF WORKING CAPITAL MANAGEMENT / POLICY
The following are the general principles of a sound working capital
management policy:
Principle of Risk Variation: Risk here refers to the inability of a firm to meet its
obligations as and when they become due for payment. Larger investment is current
assets with less dependence on short term borrowings increases liquidity reduces risk and
thereby decreases the opportunity for gain or loss. On the other hand less investment in

current assets with dependence on short term borrowings increases risk, reduces liquidity
and increases profitability. In other words, there is a definite direct relationship between
the degree of risk and profitability. A conservative management prefers to minimize risk
by maintaining a higher level of current assets or working capital while a liberal
management assumes greater risk by reducing working capital. However, the goal of the
management should be to establishment a suitable trade off between profitability and
risk.
Principle of cost of capital: The various sources of raising working capital finance
have different cost of capital and the degree of risk involved. Generally, higher risk,
lower is the cost, and lower, the risk higher the cost. A sound working capital should
always try to achieve a proper balance between these two.
Principle of Equity position: This principle is concerned with planning the total
investment in current assets. According to the principle, the amount of working capital
invested in each component should be adequately justified by a firm’s equity position.
Every rupee invested in the current assets should contribute to the net worth of the firm.
Principle of Maturity of Payment: This principle is concerned with planning the
sources of finance for working capital. According to this principle, every firm should
make effort to relate maturities of payment to its flow of internally generated funds.
Generally shorter the maturity schedule of current liabilities respect to expected cash
inflows, the greater the inability to meet its obligation in time.

CHAPTER 2
 METHODOLOGY
2.1Statement of the Problem
The study of working capital policy of sai Agro Industries is to find out the
structure of working capital trade between sales and also is one of the Primary reason for
industrial sickness.

This study of working capital management attempts to find out the trade and how
efficient system and to re-continued the remedial measures it needed.
2.2 Scope of the Study
Working capital forms a sizeable investment in every manufacturing industry. This study
times to cover the significance of working capital in a manufacturing industry. Which, is
specific to that study unit and not available to others. This study focus on the efficiency
of inventory management, receivable management and cash management. This study tries
to analysis operating cycle and how stores management receivables management & cash
management affect it.
2.3 Objective of the study
 To analyze the Balance Sheets and profit and loss accounts of Sai Agro Industries
a. To compare the methods of assessments of working capital of the Industry for
the past years with the help of ratio’s concerned with working capital and Turnover
 To identify liquidity position and profitability position of Sai Agro Industries
To find the collection time for loans and advance and turnover in terms.
2.4 Research Methodology
An Exploratory Research Design is used for the above mentioned objective. This
type of Research Design is identified as applicable for this study.
This particular study is a combination of both quantitative and qualitative aspects.

Plan for this study broadly included.
• A through review of literature available in this line a combination of both classical
text books and topical articles from different magazines to understand industrial
sector, operations of normal new and emerging activities.
• Inferences were drawn for almost every objective mentioned in the study and these
were included in analysis part of the project
• Finally a certain recommendation were drawn and presented to the industry by the
researcher. It is hoped in all good faith that these recommendations would be
beneficial to the sponsoring industry.
2.5 Data need and collection
This study makes extensive use of secondary data collection in forms of annual
reports and the industries working capital manual.
There was also use of primary data in the case of financing working capital
through paper work and discussion held with the concerned industrial officials from
various departments.
2.6 Data collection
The data collected for this research can be classified as follows:

∗ Nature:- The nature of the data collected was both qualitative and quantitative.
Considering the above plan, research plan for this study is essentially a combination of
qualitative and quantitative aspects.
∗ Primary:- This data was generated in the investigation according to the needs of the
problem in hand.
∗ Secondary:- This type of data can be defined as data collected by someone else for a
purpose other than solving the problem being investigated.
2.7 SOURCES OF DATA
 Secondary Sources
The secondary sources of data can be divided into mainly two parts:-
Internal - accounting section
- Finance section
- HRD department
- Miscellaneous records
External:- Information from published materials, for example, Annual Reports of SAI
AGRO INDUSTRIES, Sai Agro Industries working capital manual, Magazines etc.
 Primary Sources
The primary data was obtained through survey method ie., personal interview
method.

 RESEARCH MEASURING INSTRUMENTS:
Five year Balance sheet and profit and loss account stated in annual reports were
used for analysis. Working capital and concerned ratios were used as a tool of analysis.
Based upon this analysis of the industries financial position, performance was evaluated
and suggestions were made. Regarding financial of working capital, methods were
evaluated by extracting information from Balancesheet for five years, then best
alternative was chosen based on which the company’s position regarding financing of
working capital was known.
 SAMPLING
The entire unit, Sai Agro Industries is considered as a sample bearing no
connection with other units of the industries. Further emphasis has been given only to
assessment of working capital and ratios connected with it in finance department.
This sampling enabled the researcher to concentrate her attention upon a
relatively small number of people and hence, to devote more energy to ensure that the
information collected from them is accurate.
The researcher used a Non-probability sampling method, where no particular
method for selecting the units of the sample is adopted. The basis of selection was simply
opportunity, convenience and purpose.

 Review of Literature:
This included:
a) Annual report of Industry
b) Published text books
c) Financial management theory and practice by prasanna Chandra, Tata McGraw-
Hill Publishing 4th edition 1998.
d) Financial management by I.M Pandey, Vikas Publishing House private limited 8th
Edition.
e) Financial management and policy by James C.Van Horne, prentice hall of India
Ltd, New Delhi, 10th Edition
Other Standard Magazines and Newspapers include:
1. Economic Times
2. Business World
 ANALYSIS:
Use of different types of ratios for analysis purpose and drawings conclusions.
ϕ LIMITATIONS OF THE STUDY
 As there is no universally accepted formula for ratios linked with working capital
difference of opinion arises with different people.
 The methods given by the industry working capital Policies for financing working
capital is based on pure discussion had with concerned officers. Any changes made
by the industry regarding the methods will make these methods invalid.

Current assets & Current Liabilities can change quickly as their utilities changes in
seasonal business like Sai Agro (p) Ltd, So in such case liquidity Ratio from quarterly
or monthly financial data would be more appropriate. But due to non-availability of
such monthly data, yearly financial data has been collected. Thus, seasonality of this
business has not been considered
CHAPTER 3
 PROFILE OF THE SAI AGRO INDUSTRIES
3.1 INTRODUCTION
The Head office or the corporate office of any industries is the center for
formulating corporate objectives and policies and transmitting the same to the operational
units that is its branches for implementation. Hence, the structure employed in organizing
the Head office is vital and embodies certain concepts and principles it should be such
that it provides the mechanisms to cope with demands of growth, effective and efficient
administration. Any industries are subject to vicissitudes both internal and external. It
needs to undergo a constant process of changes in design, systems and structure to move
with the times.

The process of structuring, restricting and reviewing the organizational
framework is an ongoing process. This largely depends on the environmental changes,
growth in business and branch network, national economic objective. Government’s
policy directions and felt needs of the community. The model structures evolved from
time to time confine to the above factors and the two main guiding principles viz.,
 Principle of unity of objectives – where the structure facilitates the contribution by
individuals and groups in the attainment of institutional objectives.
 Principle of efficiency where the structure facilitates accomplishment of objectives by
people working with least cost, with individual and group satisfactions with clear-cut
lines of authority and allows appropriate participation at all levels.
3.2 Main Objectives of the Sai Agro Industries
The Main objects of the industries, as embodied in the memorandum and articles of
association of the industries are:
1. To purchase edible oils directly from Refineries and Repack the same in to
packing of different capacities and market the same to the consumers through
commission Agents/ stockists.
2. To engage in all types of sizing, dyeing and connected processing in the
Repacking of edible oil.

3. To manufacture prepare, buy, sell, supply, distribute, store, stock maintain and
handle, deal in and carry on industries in all kinds and varieties of raw material,
edible oils and all other related products.
3.3 Sai Agro Industries Judgment of all customs, Excise and Gold(control) Appellate
Tribunal [CEGAT]
Sai Agro Industries purchase edible vegetable oil from the open market. On the
oil purchased by them excise duty has been paid by the manufacturer. The Appellants
subject this oil to certain processes for the purposes of refining the oil. After refining the
oil, the Appellants sell the refined edible oil in the market. The appellants filed, on 1 st
September 1990 a classification list in respect of the refined oil sought to be cleared from
the factory. It was mentioned therein that since no manufacturing activity was involved,
no duty was payable on their clearances on 17th September, 1990 the superintendent of
Central Excise returned the classification list and called upon the Appellants to clear the
goods on payment of excise duty at the rate of Rs.100/- per Metric Ton and special excise
duty at 5% of the Basic excise duty. The appellants field civil write petition NO 3215 of
1990, in the Rajasthan high court contenting that since there was no manufacture excise
duty was not payable on 23rd October, 1980 Rajasthan High court passed an interim order
Permitting the Appellants to clear the refined oil from its factory subject to the Appellants
furnishing a solvent security at the rate of Rs.105 per Metric Ton. This interim order was
confirmed on 5th February 1992.

“When raw groundnut oil is converted in the refined oil, there is no doubt
processing, but this consists merely in removing from raw groundnut oil that constituent
part of the raw oil which is not really oil. The elements removed in the refining process
consist of free fatty acids, phosphotides and unsaponifiable matter. After the removal of
this non-oleic matter therefore, the oil continues to be groundnut oil and nothing more.
The matter removed from the raw groundnut oil not being oil cannot be used, after
separation, as oil or far any purpose far which oil could be used. In other words, the
processing consists in the non-oily content of the raw oil being separate and removed,
rendering the oily content of the oil 100 percent for this reason refined oil continues to be
groundnut oil within the meaning of rules 5(1)(K) and 18(2) not withstanding that such
oil does not possess the characteristic colour, or taste, odour etc of the raw groundnut oil”
The factory has made spectacular progress during years, its production has grown
in bottle volume and variety. While the inspiration for establishing the industry came
from Sir. M.Vishweshwaraiah, the man who actually established this industry was Sir
G.V.Murthy, the credit for evolving the progress for the products of Sai Agro Industries
should go entirely to Sir.G.V Murthy an enterprising & imaginative scientist in memory
of department in named after this immorted man.
“The promise for India’s Industries lies in recognizing the need for a substantial
increase in production of Repacking of Edible oils. Presently oils products fetch
relatively higher price that liquid oil and this has directly boosted the out put of value
added products. Further the indigenous oil preparation enjoy higher demand and better

prices than the western products. However, the importance of liquid milk and its
influence in the market cannot be underplayed since it meets a basic need.
Price the development of any activity a rational pricing policy is vital. This is
more so in case of daring where a positive price policy acts as a catalyst for growth by
motivating the farmer the argument oil production. In this, four key determining factors
are. The price farmers should receive for oil, the profitability of computing non-firm
enterprises, the input cost oil production and the price consumption response of the
market.
3.4 Promoters and directors
Managing Director : MR. Arun kumar
Whole time Director : Mr. Anand Kumar.A
Whole time Director : Mr. Murthy
Director : Mr. Imtiaaz
Director : Mr. Renukaanand
Executive Director : Mr. Ravikumar
Sales Manger : Mr. Madhukar
Partners[key person] : Mr. Bhaskar, T.Swamy
3.5 Auditors
Present Auditors of the Industry is Mr. Sanaulla

PRODUCT PROFILE OF SAI AGRO INDUSTRIES
Sai Agro Industries is manufacturing wide variety of products by using edible
oils, other consumables like plastics, pouches, containers, Tins Cartons etc. the main
products of the Industries are
• EDIBLE OIL
• BASMATHI RICE
• ATTA
• MAIDA
• RAVA
ϕ PRICING OF SAI AGRO INDUSTRIES
Specific guidelines are not given by the government. But is the Federation wants
to enhance the price, a proposal is put down to the Government stating the operational
overheads, raw material procurement prices and the required price to be levied to the
product. Then the Government gave the permission and in turn industries may increase or
decrease the price K the decision is taken the Board.
 PROMOTION OF SAI AGRO INDUSTRIES
Advertising:

Advertising is mainly done through hoarding and Tv 68 charges is collected on
Marketing Activities. All industries should share the expenditure. The federation collects
proportionate charges.
For example Basmati rice is repacked by Sai Agro Industries.K so the advertising
cost are borne by these industries. The indents placed for these industries are first
collected by General Manger. The Payment are also received the General Manager. Form
these payments the promotion amounts are deducted and the remaining are paid to the
industries. The duty of erecting the hoarding is given to the Regional Sales Managers.
They call for tenders and the hoarding are displayed in the main centers of the cities are
business areas.
Branding
Because the Marketing in centralized and the activity is carried by the Karnataka
federation, the entire products are marketed under the “Brand name of SURAJ”
 PACKING MATERIALS
For packing materials yearly tenders are called for and dispatch schedule is given,
packing materials should be according to ISI specification if the package materials
defective the whole lots is rejected.

NEW PRODUCT DECISIONS:
Production of New products like repacking of Mango Drink, juices, Mineral water
is being stated in Sai Agro Industry. The production of repacking of Mango Drink and
Mineral water was started during the current year.
 M/S SAI AGRO INDUSTRIES
PROJECT HIGHLIGHTS
1. Name of the Firm : M/s Sai Agro Industries
# 195, H.M.T Layout, Nalagadharanahalli
Main Road, Nagasandra post,
Bangalore -73.
2. Name of the Key person : Mr. Bhaskaran.T.Swamy [Partner]
over 20 year Business/Market experience,
3 years experience in running similar unit.
3. Nature of Business : Repacking of Edible oil [presently into sunflower
oil, groundnut oil and palm oil]
4. Brand Name : “SURAJ” Brand.
5. Market : Initially all over Karnataka with special emphasize
on Bangalore & other cities. Later on to be
expanded into other states.

6. Production Facilities : Industrial Gala admeasuring 2000 sqft at H.M.T
layout on rental basis plant and Machinery to be
acquired.
7. Business Process : Purchase Edible oils directly from Refineries and
repack the same into Packing of different capacities
and market the same to the consumers through
commission agents/ stockists.
8. Proposed No of Stockists : Super Stockists: 15 Nos &n 15 to 20 stockists under
each super stockists.
9. Selling terms with stockists Intial Deposit [interest free] of Rs 1 Lakhs from
each super stockist. Each super stockist shall be
paid commission @ 3% + transportation.
10. Financed by : Own Contribution 5 Lakhs
Terms Loan 19.5 Lakhs
Cash Credit 5 lakhs
Total 24 lakhs
11. materials required &
their availability : Main raw material being edible oils are easily
available from Refiners. Other consumables like
plastics, pouches, containers, tins, cartons etc can be

easily procured need based.
CHAPTER 4
 ANALYSIS AND INTERPRETATION OF WORKING
CAPTIAL IN SAI AGRO INDUSTRIES
There are several tools of analysis of the working capital of a concern. The important of
them are as follows:-
a) Working capital ratios
b) Statement of changes in working capital
 WORKING CAPITAL RATIOS:
Ratio analysis occupies a place of importance ratios are complied and studies for
profitability, assessment of the financial position, efficiency of working, strategy pursued
by the short term and long term solvency and liquidity

I would deal with some of the predominant ratios more relevantly applicable in
working capital management studies.
Ratios are relationships expressed in mathematical terms between figures which
are connected with each other in some manner. Obviously, no purpose will be served by
comparing two sets of figures which are not at all connected with each other. Moreover,
absolute figures are also unit for comparison.
Ratio can be expressed in two ways:
1. Times: when one value is divided by another, the unit used to express the quotient
is termed as “Time”
2. Percentage: If the quotient obtained is multiplied by 100, the unit of expression is
termed as ‘percentage’
“Ratio is a statistical yardstick that provides a measures of the
relationship between variables or figures”.
CLASSIFICATION OF RATIOS:
Ratios can be classified in to different categories depending upon the basis of
classification:
i) Profitability ratios
ii) Coverage ratios
iii) Turnover ratios
iv) Financial ratio’s : a) Liquidity ratios
b) Stability ratios

Accounting Ratios
Traditional Functional
P/L a/c Balance sheet Composite Profitability

Ratio ratio ratio
Coverage ratio
Turnover ratio
Financial ratio
(i) Stability
(ii) Liquidity
1.Current Ratio
The ratio is an indicator of the firm’s commitment to meet its short term
liabilities. An ideal current ratio is 2. the ratio of 2 is considered as a safe margin of
solvency due to that if the current assets are reduced to 1 instead of 2, then also the
creditors will be able to get their payment in full. A very high current ratio is also not
desirable since it means less efficiency use of funds
FORMULA
Current Asset
Current Ratio = ___________
Current Liabilities
Table -4.1 Amount in Rs
Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Current 19,55,679 24,08,649 30,99,532 40,79,482 54,16,882

Assets
Current 75,00,000 8,00,000 9,50,000 1,10,000 12,50,000
Liabilities
Ratio 2.61 3.01 3.26 3.71 4.33
Source : Annual reports of Sai Agro Industries
From the table 4.1 the current ratio was found to be higher than standard throughout the
study period 2:1 is considered as a standard ratio. Higher the ratio reflects excess
investment in current assets, which should be reduced in the coming periods. Because of
keeping more inventory and unable to collect debt in proper time so that their current
ratio is more. To reduce they have to collect their debts with in 30 days and also they
have to maintain minimum inventory in godawn.

2. Quick Ratio:
Quick ratio is also known as liquid ratio or Acid test. It is more rigorous test of liquidity
than the current ratio. The term liquidity refers to the ability of a firm to pay it short term
obligations as and when they become due inventories and prepaid expenses are excluded
from the current assets. The ideal liquid ratio is 1:1. Higher the ratiWORKING
CAPITAL RATIOS:

Ratio analysis occupies a place of importance ratios are complied and studies for
profitability, assessment of the financial position, efficiency of working, strategy pursued
by the short term and long term solvency and liquidity
I would deal with some of the predominant ratios more relevantly applicable in
working capital management studies.
Ratios are relationships expressed in mathematical terms between figures which
are connected with each other in some manner. Obviously, no purpose will be served by
comparing two sets of figures which are not at all connected with each other. Moreover,
absolute figures are also unit for comparison.
Ratio can be expressed in two ways:
3. Times: when one value is divided by another, the unit used to express the quotient
is termed as “Time”
4. Percentage: If the quotient obtained is multiplied by 100, the unit of expression is
termed as ‘percentage’
“Ratio is a statistical yardstick that provides a measures of the
relationship between variables or figures”.
CLASSIFICATION OF RATIOS:
Ratios can be classified in to different categories depending upon the basis of
classification:
v) Profitability ratios
vi) Coverage ratios

vii) Turnover ratios
viii) Financial ratio’s : a) Liquidity ratios
b) Stability ratios
Accounting Ratios
Traditional Functional
P/L a/c Balance sheet Composite Profitability

Ratio ratio ratio
Coverage ratio
Turnover ratio
Financial ratio
(i) Stability
(ii) Liquidity
1.Current Ratio
The ratio is an indicator of the firm’s commitment to meet its short term
liabilities. An ideal current ratio is 2. the ratio of 2 is considered as a safe margin of
solvency due to that if the current assets are reduced to 1 instead of 2, then also the
creditors will be able to get their payment in full. A very high current ratio is also not
desirable since it means less efficiency use of funds
FORMULA
Current Asset
Current Ratio = ___________

Current Liabilities
Table -4.1 Amount in Rs
Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Current 19,55,679 24,08,649 30,99,532 40,79,482 54,16,882
Assets
Current 75,00,000 8,00,000 9,50,000 1,10,000 12,50,000
Liabilities
Ratio 2.61 3.01 3.26 3.71 4.33
From the table 4.1 the current ratio was found to be higher than standard throughout the
study period 2:1 is considered as a standard ratio. Higher the ratio reflects excess
investment in current assets, which should be reduced in the coming periods. Because of
keeping more inventory and unable to collect debt in proper time so that their current
ratio is more. To reduce they have to collect their debts with in 30 days and also they
have to maintain minimum inventory in godawn.

3. Quick Ratio:
Quick ratio is also known as liquid ratio or Acid test. It is more rigorous test of liquidity
than the current ratio. The term liquidity refers to the ability of a firm to pay it short term
obligations as and when they become due inventories and prepaid expenses are excluded
from the current assets. The ideal liquid ratio is 1:1. Higher o indicates sound financial
position of the concern and lower the ratio indicates financial difficulties.

Formula
Quick Assets
Quick Ratio = --------------------
Quick Liabilities
Table 4.2
Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Quick 9,92,617 12,54,871 14,38,091 19,19,609 24,26,289
Assets
Quick 2,50,000 3,00,000 3,50,000 4,00,000 4,50,000
Liabilities
Ratio in 3.97 4.18 4.11 4.80 5.39
times
Sources: Annual reports of Sai Agro Industries
Table 4.2 shows there is increasing trend in quick ratio in the year 1999-2000 was
3.97 than it slowly raised to 5.39 in the year 2003.2004. The standard ratio of Quick
ratio is 1:1. It increased because they maintained more debts, more deposit and
advances. To reduce they have to collect their debt in proper time.

Ratio in times
6
5
4
3
2 Ratio in times
1
0
2,50,000 3,00,000 3,50,000 4,00,000 4,50,000
9,92,617 12,54,871 14,38,091 19,19,609 24,26,289
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
3. Fixed assets Turnover ratio:

This ratio indicates the extent to which the investments in fixed assets contribute towards
sales it compared with a previous period, it indicates whether the investment in fixed
assets has been judicious or not
Formula
Net Sales
FATR: = ---------- = times
Fixed assets [net]
Table 4.4
Years 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Net Sales 3,81,45,750 4,57,74,900 5,49,29,880 6,59,15,856 7,90,99,027
Fixed Assets 11,32,500 10,49,750 9,90,975 9,41,098 9,13,648
Fixed Assets 33.68 43.60 55.43 70.04 86.57
Turnover
ratio
Source: Annual report of Sai Agro Industries:
From the table 4.4 the above ratio was found to be constant increase in the fixed
assets turnover ratio & the figures of sales also increased. From the above table we can
see that this is constant increase from 1999-2000 till 2003.2004 year. The fixed assets
turnover ratio is very good.


4.Current assets ove
r total assets:
The formula given to find out the current assets over total asset is

Formula
Current assets
CA/.TA = ----------------- X 100
Total assets
Table 4.4 (2)
Years 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Current Assets 19,55,679 24,08,649 30,99,532 40,79,482 54,16,882
Total Assets 30,88,179 34,58,399 40,90,507 50,20,580 63,30,530
Current Assets/ 63.32 69.64 75.77 81.25 85.56
Total assets [%]
Source: Annual Reports of Sai Agro Industries
Table 4.4 the position of current asset to total asset has increased form 63.32% in
1999-2000 tp 85.56 in 2003-2004. this shows that the amount of current assets locked,
these by giving room for high element of risk care should be taken to see where the
division really requires such as high amount of current assets.

5.Working Capital Turnover Ratio:

This ratio indicates the efficient or inefficient utilization of the working capital
of an enterprise. There is no standard or ideal working capital turnover ratio. The higher
the working capital turnover ratio the greater is efficiency.
Formula
Net Sales
Working Capital turnover ration = -----------
Working capital
Table 4.5
Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Net Sales 38145750 45774900 54929880 65915856 79099027
Working 1205679 1608649 2149532 2979482 4166882
capital
Working
capital 31.63 28.45 25.55 22.12 18.98
Turnover
ratio
Table 4.5 Shows if high working capital turnover ratio means over trading & a very low
working capital turnover ratio means under trading. The variations in these ratio reveals
that there is an increase in sales from 1999-2000 to 2003-2004 and decrease in working
capital turnover ratio

C o lu m n S h o w in g W o r k in g C a p it a l
T u r n o v e r R a t io
35
30
25
W T O 21R05
10 S e rie s 1
5 S e rie s 2
0
Y e a 1r 9 9 92 -0 0 20 0- 0 12 -0 0 2 0- 0 3 -
2 0 0 02 0 0 21 0 0 2 0 0 23 0 0 4
YEAR S

MANAGEMENT OF CASH
Management of cash
Introduction: Cash is the most liquid of all the current assets, cash here
includes both cash on hand and at bank. It is the basic input needed to keep business
running on a continuing basis. It is also the ultimate output, expected to be realized by
selling the goods or services by an organization.
This larger cash and bank balance indicates high liquidity position of a
company. It must however be noted that cash lying in the coffers of a company or in a
current account of the bank fetches no returns to the company consequently the higher
liquidity position attained by holding a larger amount of cash will result in lower
profitability. While the same invested in the assets of a company will results in profits.
This provokes the finance manage to know well in advance why they needed money to be
including in its time aspects and facilitate himself with the efficient management of the
cash resources.
Meaning of cash: The term “cash” with reference to cash management is used in two
sense. In a narrow sense it includes coins, currency notes, cheques, bank drafts held by a
firm with it and the demand deposits held by it in banks. In a broader sense it also

includes “near – cash assets” such as marketable securities and time deposits with banks
such securities or deposits can immediately be sold or converted into cash if the
circumstances require. The term cash management is generally used for management of
both cash and near assets.
 Motives for Holding cash: A distinguish features of cash as an asset, irrespective of
the firm in which it is held, is that it does not earn any substantial return for the business.
In spite of this fact cash in held by the firm with the following motives.
1. Transaction motive: A firm enters into a variety of business transaction resulting
in both inflows and outflows of cash. At times the cash outflows may exceed the
cash inflows. In order to meet the business obligations in such situations, it is
necessary to maintain adequate cash balance. Thus, cash balance is kept by the
firms with the motive of meeting routine business payments.
2. Precautionary motive: A firm keeps cash balance to meet unexpected cash needs
arising out of unexpected contingencies such as floods, strikes, presentment of
bills for payment earlier than the expect date, unexpected slowing down of
collection of accounts receivable. Sharp increases in prices of raw materials, etc.
the more is the possibility of such contingencies, the more is the amount of cash
kept by the firm for meeting them.
3. Speculative motive: A firm also keeps cash balance to take advantage of
unexpected opportunities, typically outside the normal course of the business.
Such motive is, therefore, of purely a speculative nature.

4. Compensation motive: Banks provide certain services to the their clients free of
charge. They therefore usually require clients to keep a minimum cash balance
with them which helps them to earn interest and thus compensate them for the
free services so provided.
Objectives of cash management is Sai Agro Industries.
 To prepare the cash budgets incorporating the needs of various departments and
gets the approval for the same from the corporate office.
 To requisition the funds from corporate office in a planned way thereby stream
lining the demand on cash.
 To meet the cash disbursement need as per the payment schedule
 To collect the payment for the sales made through cheques and transfer the same
to corporate office account.
 To meet any emergency as and when the situation props up.
 Cash Budgeting in Sai Agro Industry

Cash budget as cash forecast is the most significant derive which the Sai Agro
Industry uses for efficient planning and controlling of cash uses.
The divisions takes sales budget as the back to prepare material budget which
in turn facilitates the preparation of expenditure budget while forecasting the expenditure
budget, the division takes direct material requirements, indirect material requirement ,
payment to subcontractors, payments to its employees, Also it extends to cover the
aspects like to sales tax and excise duty. This expenditure budget also gives tolerance
measures for future charges in government policies towards the aspects of business.
Taking into consideration the order book figures, the decision plans its receipts
also, receipts from debtors, export incentives advances received from customers are
included in forecasting the inflows.
 Management of Inflows:
The division emphasis on cash sales rather than credit sales. In co-operation
with the commercial department, the division insists on the advance from the non-
government customers to the extent of 10% to 80%. On the receipts of materials at the
customer end. Thus has accelerated the cash inflow for the division.
The division does not have to rule that it alone should collect the payment for
the sales. Infact, the corporate office co-ordinates the collection in such a way that the
nearest sai agro unit where the customer is placed collects on the behalf of this division
and deposits the same into corporate offices account on behalf of this division.

Thus the collection network of Sai Agro Industries is organized in such a way
so as to reduce default in collection arrangements and also minimizes the time lag
between the customer mailing the cheques in the prescribed form and the time when the
firm can make use of the funds.
The management of inflows is centralized in the sense that all the receipts of
any nature, have to be deposited immediately on their receipts in favour of the corporate
office account. These funds will be transferred to corporate office at Delhi through
telegraphic transfer by the division bankers.
To meet each and every obligation, the division requisitions the funds from the
corporate office. The corporate office provide the funds to this divisions based on the
requirements of the division and the collection which it has made on its sales.
 Management of Cash Outflows:
Control over the outflow of funds is important for a business firm as it can
obtain the maximum utilization of its funds when it can keep them working as long as
possible.
The division has its own cash and bank departments to facilitate the efficient
management of its out flows. The department is fully computerized and the voucher plays
on important role in the functioning of cash flows.

The department receives the bills for the purpose of payment to its supplies by
billing department billing department furnishes the vouchers in the form of admitted
liability voucher [Al Voucher] having admitted liability number the parties name, the
amount and the due date. Keeping in mind the due date the department prepares the
cheques in parties name and as a rule, it dispatches these cheques through registered post
to the parties address.
The payment to its employees, the department receives the salary bill from the
wages and administrative department, taking the employees choice for cash or cheque,
the payment is made.
The outflows with respect to sales tax, excise duty will be honored after it is
being certified by commercial department and materials management department
respectively. The division does not get any credit period for the above payment.
Cash to current Asset Ratio:
This ratio indicates the relationship between cash current assets. It is said that
cash in well financed company should not be less that 5 percent to 10 percent of current
assets. It helps to determine the minimum level of cash monthly control of cash and
historical records gives same indication of trends.
Formula
Cash

Cash to current asset = ------------ X 100

Current assets
Table 4.6
Years 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Cash 122914 216227 198719 296362 278392
Current 1955679 2408649 3099532 4079482 5416882
Asset
Ratio [in 6.2 8.9 6.4 7.2 8.8
times]
Source:AnnualReports of Sai Agro Industries.
Table 4.6 shows cash to current asset ratio. In the study period, the ratio was
found to be accepted standard of 5 percent to 10 percent. This leads to the influence that
the ratio was satisfactory because the cash balance was increase at a faster rate than the
growth of current assets. This reflects high risk high profitability of the industry at the
cost of high liquidity.

Management of Receivable
Trade credit is considered to be an important manufactures tool for blocking of
the firms funds. As such receivables, which are created out of credit sales constitute a
substantial portion of current assets in most of the business. The objective of receivables
management is to promote sales and profit until the optimum point is reached where the
return on investment in further funding of receivables is less than the cost of funds raised

to finance that additional credit. The customers from whom receivables or book debts
have to be collected in further are called debtors and represents the firms claim on asset.
Debtors Turnover Ratio:
Debtors turnover ratio indicates the velocity of debt collection of firm. In
simple words, it indicates the number of times average debtors or turned over during
year. The higher the value of debtors turnover the more efficient is the management of
debtors similarly, low debtors turnover implies inefficient management of debtors.
Formula
Debtors turnover ration = Net Credit Sales

-------------------
Average Trade Debtors
Average trade debtors = Opening debtors + Closing debtors

-----------------------------
2
Table 4.7

Years 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Net Sales 3,81,45,750 45774900 54929880 65915856 79099027
Average 794703 874174 1049009 1258810 1460572
trade debts
Ratio [in 48.00 52.36 52.36 52.36 54.15
times]
Source:- Annual Reports of Sai Agro Industries
Table 4.7 shows the debtors turnover ratio. During the study period the ratio was
high except 2005-2006. the higher ratio indicates the efficient management of debtors.

D e b to r tu r n o v e r R a tio
55
54
53
52
51
50
D T O R49
48
R a tio [in tim e s ]
47
46
45
44
1 9 9 9 -2 0 0 0 -2 0 0 1 -2 0 0 2 - 2 0 0 3 -
2000 2001 2002 2003 2004
YE A R S

Average Collection period:
It indicates the time taken to convert receivables into cash. A high average
collection period may reflect a liberal number of receivable being part due and some
being uncollected.
FORMULA:
No. of working days
Average collection period = ------------------------
Debtors turnover ratio
Number of working days = 360
Table 4.8
Year 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

No of 360 360 360 360 360
working
days
Debtors 48.00 52.36 52.36 52.36 54.17
turnover
ratio
Ratio [in 7.5 6.87 6.87 6.87 6.64
days]
Tabe- 4.8 shows the average time taken to convert receivable in to cash.
During the year 06-07 the ratio was higher compared to remaining years. It implies

inefficient collection performance. In the remaining years the collection period was
shorter. It implies quick payment by debtors.
C o lu m n S h o w in g A v g .c o lle c tio n P e r io d
7 .6
7 .4
7 .2
7
In d a y s
6 .8
6 .6 R a ti o [i n d a y s ]
6 .4
6 .2
1 9 9 9 -2 0 0 0 - 2 0 0 1 -2 0 0 2 - 2 0 0 3 -
2000 2001 2002 2003 2004
y e a rs

 Management of Inventory
Inventories constitute the most significant part of current assets of a large
majority companies in India. Inventories are approximately 60 percent of current assets
in public limited companies in India.
Inventory management plays a vital role in managing finance, profit planning
and the over all working of every business enterprises. Any organization unable to
manage inventory in an efficient manner at optimum level in the long run process. Every
business enterprises should, therefore, manage its inventory at a optimum level.
Nature of inventories
1. Raw materials
2. Work in progress
3. Finished goods

Need to hold inventories
There are three general motives for holding inventories
1. The transaction motives
2. The precautionary motives
3. The speculative motives.
Objective of Inventory Management
The firm is faced with problem of meeting two conflicting needs.
1. To maintain a large size of inventory for efficient and smooth production and
sales operations.
2. To maintain a minimum investment in inventories to maximize profitability.
Stock Turnover Ratio:
The stock turnover ratio reveals the number of times the stock in trade is turned
over in business during a particular period. High turnover indicates the quick turnover of
finished goods. It enables the firms judge the adequacy of current ratio. However, a
relatively high turnover ratio indicates a very low level of inventory and frequent stock
outs.

Formula:
Cost of Goods sold

Stock Turnover = ----------------------
Average inventory
No of working days
Average Stock turnover = --------------------
Stock turnover ratio
Collection period
Stock in the beginning + Stock in the hand
Average inventory = -------------------------------------------------
2
Table 4.9
Inventory Turnover Ratio
Cost of good Average

Year Ratio Avg STR
sold Inventory
2005-2006 3,51,51,750 9,63,062 36.49 9.86
2006-2007 4,21,12,908 10,58,420 39.75 9.05
2007-2008 5,05,35,490 14,07,610 35.90 10.03
2008-2009 6,06,42,588 19,10,658 31.73 11.34
2009-2010 7,27,71,105 25,75,233 28.25 12.74

Table 4.9 shows the inventory turnover ratio. The ratio was fluctuating during
the study period. When compare to 00-01 to 2003-2004. 2004-2005 stock turnover ratio
was low which reflects a slow turnover of finished goods. Industry have to increase its
inventory turnover ratio in future. The average collection period is good because the
industry is collecting with in two ways so there is no chance of bad debt.

Sundry Creditor to Inventory :
Inventory ratio reveals the extent to which inventories are procured through
credit purchase inventories here is said to include raw materials, stores, spare parts and
finished goods. This shows the extent to which inventories are obtained through credit

purchase and also explains the extent of inventory procured through cash purchase. If the
ratio is more than one it denote that the entire inventory is purchased on credit
FORMULA
Sundry Creditors
Sundry Creditors to inventory = -------------------
Inventory
Table 4.10
Years 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Sundry 2,50,000 3,00,000 3,50,000 4,00,000 4,50,000
Creditors
Inventory 9,63,062, 11,53,778 16,61,441 21,59,873 29,90,593
Ratio [in 0.25 0.26 0.21 0.18 0.15
times]
Table 4.10 represents the ratio of sundry creditors to average inventory. This ratio was
less than one in all years of the study period. It denotes that entire inventory was not
purchases in credit basis.

Ratio [in times]
0.3
0.25
0.2
0.15
0.1
0.05
0
9,63,062, 11,53,778 16,61,441 21,59,873 29,90,593
2,50,000 3,00,000 3,50,000 4,00,000 4,50,000
2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Ratio [in times]
Inventory to Net working Capital :
Inventory to working capital ratio indicates the relationship between
inventory and working capital. A reduction in inventory results in small percentage of

reduction in working capital and vice versa. A lower ratio indicates a sound working
capital position. The standard norm for this ratio is 1:1 preferably the inventory should be
lower than working capital
FORMULA
Inventory
Inventory to Net working capital = -------------------------- X 100
Net working Captial
Table 4.11
Years 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Inventory 9,63,062, 11,53,778 16,61,441 21,59,873 29,90,593
Net working 12,05,679 16,08,649 21,49,532 29,79,482 41,66,882
capital
Ratio 79 72 77 72 72
Table 4.11 shows that the ideal inventory to working capital ratio is 75%. But in Sai
Agro industries it started from 79% means over stocking, hence it is not good for the
industries. In the coming year it should maintained the 75% inventory to working capital,
so it is revealed that this shows good liquidity position.


FINDINGS
1. As per the current ratio and quick ratio the liquidity position of the organization is
very high because both the ratio ratio more than the standard ratio.
2. Evidence from the fixed assets turnover ratio utilization of fixed assets is good.i.e.
more than the standard.
3. As per the working capital ratio the organization is not utilizing the working
capital properly it indicates under trading.
4. As per the cash to current assets ratio the proportion of cash in current assets is
more than the standard that indicates company is not having idle cash, this is good
for organization.
5. As per the debtors turnover ratio and Average collection period it can be
concluded that the quality of debtors is suitable for credit management and also it
indicates this is a strict credit policy towards bills receivable.
6. As per inventory turnover ratio the ratios are more than the standard ratio i.e 8
times. This indicates that more sales are affected that is business is expanding
and as such this is effecting inventory management.

SUGGESTIONS
Sai Agro Industries is one of manufactures of Repacking of Edible oil. A study of
working capital management is of prime importance to internal and external analysis.
Hence the study is undertaken to analyze the working capital management of Sai Agro
Industries. This chapter has been designed to recapitulate the key findings of the study as
well as to make suitable suggestions if any to improve the working capital performance
of the industries.
Key Ratio’s
Management of cash ratio
Management of Receivable ratio
Management of Inventory ratio
Sai Agro Industries current ratio was found to be higher. Higher the ratio reflects
an excess investment in current assets. To reduce they have to collect their debts with
in 30 days and also they have to maintain minimum inventory.
Quick ratio is in increasing trend because they maintained more debts, more
deposit and advance, to reduce they have to called their debt in proper time.
Debt equity ratio and share holders funds are not properly leveraged because
outside liabilities is increasing gradually. Which may in future affect liquidity
position of the company. So management should control with a limited investment.

CONCLUSION
From the over all study of the Sai Agro Industry for the past 5 year on the working capital
management adopted by the industry. It is concluded that the industry is doing their best.
As the Standard ratio of current ratio is 2:1 but the industry is maintaining more
than the ideal ratio i.e., 4:33:1 in the year 2003-2004.
Quick ratio of the Sai Agro industries is not satisfactory because they maintained
more debts.
The long term solvency position of the industry is not sound since the debt equity
ratio and share holders find are not properly leveraged because outsiders funds is
more than share holders fund.
Fixed Turnover ratio is constant increases in ratio of Industry it seems to be good
Cash to current asset was satisfactory because the cash balance was increase at a
faster rate than the growth of current assets.
Debtors Turnover Ratio indicates the efficient management of debtors and
collection period was shorter. It implies quick payment by debtors.

Stock turnover ratio was low which reflects a slow turnover of finished goods.
Average collection period is good in the industry.
Inventory to Net working capital shows good liquidity position.
ANNEXURES
Summarized Balance Sheet
Particulars 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

Capital & Liabilities
Capital Account 2,50,000 2,50,000 2,50,000 2,50,000 2,50,000
Retained profit 1,88,179 6,08,399 11,90,507 20,70,580 33,30,530
Net worth 4,38,179 8,58,399 14,40,507 23,20,580 35,80,530
Loans & Advances

Stockists Deposits 15,00,000 15,00,000 15,00,000 15,00,000 15,00,000
Bank term loan 4,00,000 3,00,000 2,00,000 1,00,000 0
Cash credit 5,00,000 5,00,000 6,00,000 7,00,000 8,00,000
24,00,000 23,00,000 23,00,000 23,00,000 23,00,000
Creditors payable 2,50,000 3,00,000 3,50,000 4,00,000 4,50,000
Total liabilities 30,88,179 34,58,399 40,90,507 50,20,580 63,30,530
ASSETS
Fixed Assets
Gross Blocks 12,50,000 12,55,000 12,65,000 12,70,000 13,05,000
Less: depreciation 1,17,500 2,05,250 2,74.025 3,28,903 3,91,352
Net Block 11,32,500 10,49,750 9,90,975 9,41,098 9,13,648
Current Assets:

Stock & Inventory 9,63,062 11,53,778 16,61,441 21,59,873 29,90,593
Sundary Debtors 7,94,703 9,53,644 11,44,373 13,73,247 15,47,896

Deposits,Advances, 75,000 85,000 95,000 2,50,000 4,00,000
& others
Cash & Bank 1,22,914 2,16,227 1,98,719 2,96,362 4,78,392
Total Current assets: 19,55,679 24,08,649 30,99,532 40,79,482 54,16,882
Total Assets 30,88,179 34,58,399 40,90,507 50,20580 63,30,530
Comparative Statement of working capital for the year ended 2005-2006
and 2006-2007
Particulars 2005-2006 2006-2007 Increase in Decrease

W.Cap in
W.Cap
Current assets:
Stock and inventory 9,63,062 11,53,778 1,90,716
Sundry Drs 7,94,703 9,53,644 1,58,941
Deposits 75,000 85,000 10,000
Cash & Bank 1,22,914 2,16,227 93,313
Total Current assets [A] 19,55,679 24,08,649
Current Liabilities
Creditors payable 2,50,000 3,00,000 50,000
Total Current Liabilities [B] 2,50,000 3,00,000
Increase in Working capital 4,02,970

4,52,970 4,52.970
and 2007-2008

W.Cap in
W.Cap
Current assets:
Sundry Drs 9,53,644 11,44,373 1,90,729
Deposits 85,000 95,000 10,000

Cash & Bank 2,16,227 1,98,719 17,508
Current Liabilities
7,08,392 7,08,392

W.Cap in
W.Cap
Current assets:
Sundry Drs 11,44,373 13,73,247 2,28,874
Deposits 95,000 2,50,000 1,55,000

Cash & Bank 1,98,719 2,96,362 97,643
Current Liabilities
9,79,949 9,79,949
and 2003-2004

W.Cap in
W.Cap

Current assets:
Sundry Drs 13,73,247 15,47,896 1,74,649
Deposits 2,50,000 4,00,000 1,50,000
Cash & Bank 2,96,362 4,78,392 1,82,030
Current Liabilities
13,37,399
13,37,399 13,37,399

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Working Capital Management

 INTRODUCTION OF THE STUDY

Finance is regarded as the life blood of a business enterprise. This is because

management of every business enterprise is closely linked with efficient management of

its finances. This can be termed as ‘Financial Management’.

Financial Management is concerned with the management decisions that results in

OBJECTIVES OF FINANCIAL MANAGEMENT

 Maintenance of adequate liquid assets

 Maximization of share holder’s wealth

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In modern world, concept of financial management changed due to technological

improvements, widened marketing operations, development of a strong corporate

management involves four broad decision areas. They are:

Funds requirement decision:

forecasting the physical activities of the enterprise.

This comprises decisions relating to investment in both capital and current

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fixing priorities, committing funds for them etc.

policies pursued by the enterprise. The credit policy is determined keeping in

The establishment of dividend policy is another important function of finance

manager. The dividend decision involves the determination of the percentage of

profits earned by the enterprise, which is to be paid to its shareholders.

1) Fixed Capital requirements

2) Working capital requirements

permanent or long term needs of the business.

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Management of Fixed Capital is concerned with the raising of required fixed

capital at minimum cost and its effective utilization.

enterprise particularly to complete the operating cycle.

1.2 Meaning / What is working Capital?

generally know as working capital.

For running an industry or a concern, two types of capital are required ,

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• Long term funds

• Short term funds.

fixed basis is called Fixed assets.

cash, marketable securities, debtors and inventories.

1.3 CONCEPTS OF WORKING CAPITAL:

The important concepts of working capital are:

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or book debts], bills receivables and stock [inventories]

current liabilities exceed current assets.

1.4 OPERATING CYCLE/WORKING CAPITAL CYCLE

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the stage of raw material.

In respect of trading concerns, operating cycle represents the period involved

In the case of manufacturing concerns, it is the time involved in the purchasing

and proceeds are realized.

Fig: Operating cycle/ Working capital cycle.

Finished goods Stock in process

blocking period of assets and the operating of the cycle.

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manufacturing facilities available similarly, the turnover of finished products and

the realization of cash for finished goods.

months and bare minimum, in remaining months.

inventory [consisting of raw materials, stock in process, finished goods] and

area affects turnover and profitability.

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concern’s policy, c) Inventory management d) technical process involved / adopted e)

trade practice f) government policy and economic conditions.

1.5 THE NEED OR OBJECTIVE OF WORKING CAPITAL

invest enough funds in current assets for the success.