CHAPTER -I

1
 CHAPTER I
A SUDY ON WORKING CAPITAL MANAGEMENT OF SALEM DISTRICT

COOPERATIVE MILK PRODUCER UNION LTD, SALEM

INTRODUCTION ABOUT THE STUDY:

MEANING:

Financial analysis is the process of identifying the financial strength and weakness of the
firm by properly establishing relationships between the items of the balance sheet and profit and
loss account.

Management should be particularly interested in knowing the financial analysis of the firm to
make their best use and thereby they can spot out the weakness of the firm to take corrective
actions and keep things going on the right track. The future plans of the firm should be laid
according to the financial position of the firm. Thus financial analysis is the starting point of the
planning procedure.

For the purpose of financial analysis individual items are studied , their inter relationship
with other related figures are established, at times the data is rearranged to have better for the
financial analysis purpose.

Definition
A measure of a company’s operating liquidity expressed as current assets less current
liabilities. Companies with current liabilities that exceed current asset are operating with a
working capital deficiency which may prevent them from fulfilling short term obligations such as
accounts payables, operational expenses and current interest payments. Analysts track net
working capital over time in order to assess a company’s operational efficiency. Also called as
working capital.

Organization is a social unit which is deliberately constructed to seek specific goals. An

Organization comes into existence when there are a number of persons communication and
relationship to each other and willing to contribute towards a common endeavor. The main aim
of the organization study is to acquire the knowledge regarding functional as well as
management aspects of the organization. The study is mainly concentrated on the objective of
the company, covering the organization structure, the products, departments and their functions.

2
The Salem District Co-operative Milk Producer union (SDCMPU) is a government owned
company undertaken a pioneer in the field of milk product which is a bases for the day to day
consumption for all the people. SDCMPU is a co-operative milk producer union. “Aavin” is
trade mark of TamilNadu co-operative milk producer federation limited a TamilNadu based milk
producer union.

It procures milk, process it sells milk and milk product to consumers. Tamilnadu is one of the
leading state in India In milk production with about 14.5 million liters per day. “Aa” means cow
and paal means milk “pasuvinpaal” trademark given as “Aavin”. The objective of the union is to
carry out activities conductive to the economic development of agriculturists and laborers by
organizing effectively production ,processing and marketing of milk commodities.

OBJECTIVE OF THE STUDY:

 Profit maximization accompanied by sustainable growth and development

 To ensure wealth maximization
 To optimize investment in working capital
 To minimize cost of working capital financing
 To minimized the cost of capital
 To maximize ROI
 To optimize the level of working capital and minimized the cost of such funds

SCOPE OF STUDY:

 The Study under gone to analyze the financial position of the SALEM DISTRICT CO-
OPERATIVE MILK PRODUCERS UNION LIMITED.
 The study under taken to know about the maintance assets and current liabilities.
 The study under gone to provide few suggestions for improvement in financial position
of SALEM DISRICT CO-OPERATIVE MILK PRODUCERS UNION LIMITED.

NEED OF THE STADY:

 The success of any commercial enterprise depends on its financial performance.

 Financial analysis also helps to measure the operating efficiencies of all the key areas.
 SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS UNION LIMITED is a
listed company thereby financial analysis will bring out the potential for the investors.

3
  Measuring SALEM DISTRICT CO-OPERATIVE MILK PRODUCERS UNION
LIMITED. Financial performances will help to highlight how salem district co-operative
milk producers union ltd, is cost competitive.

TOOLS USED:

 Various ratio how been calculated to analyze the liquidity, profitability and activity
position of the firm.
 Trend analysis was also used to understand the current and future trend of working
capital and net profit.

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CHAPTER II

5
 CHAPTER -II

REVIEW OF LITERATURE

3.1 Studies on Working Capital Management in India and Abroad

3.2 Studies on components of Working Capital in India and Abroad

Working capital management is the key area of financial management and plays an important
role in any industry. A number of researchers have conducted research on the subject and its
various components. This Chapter is an overview of the research that has been carried out on the
subject. Some of the most relevant articles have been reviewed here as a part of my research
work.

As the title of the thesis broadly deals with working capital management of the selected
pharmaceutical units of Gujarat, the need arises to carry out literature review under two major
headings:

3.1Working Capital Management

3.2Components of Working Capital

3.1 Working Capital Management

It deals with all the aspects of working capital of which in depth study has been carried out as
discussed below.

1. Bhatt V. V. (1972) widely touches upon a method of appraising working capital finance
applications of large manufacturing concerns. It states that similar methods need to be
devised for other sectors such as agriculture, trade etc. The author is of the view that banks
while providing short-term finance, concentrate their attention on adequacy of security and
repayment capacity. On being satisfied with these two criteria they do not generally carry
out any detail appraisal of the working of the concerns.
2. Smith Keith V. (1973) believes that Research which concerns shorter range or working
capital decision making would appear to have been less productive. The inability of
financial managers to plan and control properly the current assets and current liabilities of

6
 their respective firms has been the probable cause of business failure in recent years.
Current assets collectively represent the single largest investment for many firms, while
current liabilities account for a major part of total financing in many instances. This paper
covers eight distinct approaches to working capital management. The first three - aggregate
guidelines, constraints set and cost balancing are partial models; two other approaches -
probability models and portfolio theory, emphasize future uncertainty and interdepencies
while the remaining three approaches - mathematical programming, multiple goals and
financial simulation have a wider systematic focus.
3. Chakraborthy S. K. (1974) tries to distinguish cash working capital v/s balance sheet
working capital. The analysis is based on the following dimensions: a)Working capital in
common parlance b) Operating cycle concept
b)Computation of operating cycle period in all the four cases. The purpose of the analysis
is to demonstrate operating cycle concepts based on published annual reports of the
firms.

4. Natarajan Sundar (1980) is of the opinion that working capital is important at both, the
national and the corporate level. Control on working capital at the national level is
exercised primarily through credit controls. The Tandon Study Group has provided a
comprehensive operational framework for the same. In operational terms, efficient working
capital consists of determining the optimum level of working capital, financing it
imaginatively and exercising control over it. He concludes that at the corporate level
investment in working capital is as important as investment in fixed assets. And especially
for a company which is not growing, survival will be possible only so long as it can match
increase in operational cost with improved operational efficiency, one of the most
important aspects of which is management of working capital.
5. Kaveri V. S. (1985) has based his writing on the RBI‟s studies on finances of large public
limited companies. This review of working capital finance refers to two points of time i.e.,
the accounting years ending in 1979 and 1983 and is based on the data as given in the
Reserve Bank of India on studies of these companies for the respective dates. He observes
that the Indian industry has by and large failed to change its pattern of working capital
financing in keeping with the norms suggested by the Chore Committee. While the position
of working capital management showed some investment between 1975-79 and 1979-83,

7
 industries have not succeeded in widening the base of long-term funds to the desired extent.
The author concludes with the observation that despite giving sufficient time to the
industries to readjust the capital structure so as to shift from the first method to the second
method, progress achieved towards this end fell short of what was desired under the second
method of working capital finance.
6. Bhattacharyya Hrishikes (1987) tries to develop a comprehensive theory and tool of
working capital management from the system‟s point of view. According to this study,
capital is often used to refer to capital goods consisting of a great variety of things, namely,
machines of various kinds, plants, houses, tools, raw materials and goods-in-process. A
finance manager of a firm looks for these things on the assets side of the balance sheet. For
capital he turns his attention to the other side of the balance sheet and never commits a
mistake. His purpose is to balance the two sides in such a way that net worth of the firm
increases without increasing the riskiness of the business. This balancing is financing, i.e.,
financing the assets of the firm by generating streams of liabilities continuously to match
with the dynamism of the former. The study is an improvement of the concept of Park and
Gladson who were not able to capture the entire techno financial operating structure of a
firm.
7. Rao K.V. and Rao Chinta (1991) observe the strong and weak points of conventional
techniques of working capital analysis. The result has been obviously mixed while some of
the conventional techniques which could comprehend the working capital behavior well;
others failed in doing the job properly. The authors have attempted to evaluate the
efficiency of working capital management with the help of conventional techniques i.e.,
ratio analysis. The article concludes prodding future scholars to search for a comprehensive
and decisive yardstick in evaluating the working capital efficiency.
8. Hamlin Alan P. and Heath field David F. (1991) opine that working capital is necessary
input to the production process and yet is ignored in most economic models of production.
The implications of modeling the time dimension of production, and hence, the working
capital requirements of firms are explored, with the particular stress placed on the
competitive advantage gained by firms that retained flexibility in the time structure of their
production. In this article they have attempted to explore only this most basic role of time

8
 in the production process and so focus is on the implications of explicitly recognizing the
need for working capital.
9. Zaman M. (1991) studies the working capital management practices of Public Sector Jute
Enterprises in Bangladesh which have been found tobe seriously affected. This has been
attributed to several factors like low demand for jute goods and serious competition in the
international market, insufficient inventory management policy, poor collection policy and
inefficient cash policy. The author has formulated a long term flexible and operational
working capital management model. In conclusion he has suggested the model which
would certainly help improve the working capital management practices of the jute
industry in particular and other public enterprises as well in Bangladesh.
10. Fazzari Steven M. and Petersen Bruce C. (1993) throws light on new tests for finance
constraints on investment by emphasising the often neglected role of working capital as
both a use and a source of funds. The authors believe that working capital is also a source
of liquidity that should be used to smooth fixed investment relative to cash-flow shocks if
firms face finance constraints. They have found that working capital investment is
“excessively sensitive” to cashflow fluctuations. Besides, when working capital investment
is included in a fixed-investment regression as a use or source of funds, it has a negative
coefficient. They conclude that controlling for the smoothing role of working capital results
in a much larger estimate of the long-run impact of finance constraints than reported in
other studies.
11. Hossain Saiyed Zabid and Akon Md. Habibur Rahman (1997) emphasise the basic
objective of working capital management i.e., to arrange the needed working capital funds
at the right time, at right cost and from right source with a view to achieving a trade-off
between liquidity and profitability. The analysis reveals that BTMC had followed an
aggressive working capital financing policy taking the risk of liquidity. There was
uninterrupted increasing trend in negative net working capital throughout the period of the
study which suggested that BTMC had exploited the entire short-term sources available to
it without considering the actual needs.
12. Ahmed Habib (1998) points out that when the interest rate is included; money loses its
predictive power on output. The study explicates this finding by using a rational
expectations model where production decisions of firm required debt finance working

9
 capital. Working capital is an important factor and its cost, the rate of interest, affects the
supply of goods by firms. Monetary policy shocks, thus, affect the interest rate and the
supply side, and as a result price and output produced by firms. The model indicates that
this can cause the predictive power of monetary shocks on output to diminish when the
interest rate is used in empirical analysis. The model also alludes to the effects of monetary
policy on the price level through the supply side (cost push) factors.
13. Prof. Mallick Amit and Sur Debasish (1998) attempt to make an empirical study of AFT
Industries Ltd, a tea producing company in Assam for assessing the impact of working
capital on its profitability during the period 1986-87 to 199596. The author has explored
the co-relation between ROI and several ratios relating to working capital management. On
the whole, this study of the corelation between the selected ratios in the area of working
capital management and profitability of the company revealed both negative and positive
effects. Moreover, the WCL of the company recorded a fluctuating trend during the period
under study.
14. Hossain, Syed Zabid (1999) throws light on the various aspects of working capital position.
He has evaluated working capital and its components through the use of ratio analysis. For
each aspect of analysis certain ratios are computed and then results are compared with the
standard ratio or industry average.
15. Singaravel, P. (1999) focuses on the interdependency among working capital, liquidity and
profitability, of which sufficiency of liquidity comes in the first preference followed by
sufficiency of working capital and profitability. The article is an in-depth analysis of
liquidity and its interrelationship with working capital and profitability. As the working
capital, liquidity and profitability are in triangular position, none is dispensable at the
satisfaction of the other. Excess of stock-in-trade over bank over-draft and excess of liquid
assets over current liabilities other than bank over-draft generate working capital for the
business. Alternatively working capital requirements are made for long-term funds which
affect the profitability.
16. Garg Pawan Kumar (1999) focuses on the study of working capital trend and liquidity
analysis in the selected public sector enterprises of Haryana. The study suggests forecasting
of working capital requirement confined mainly to various components of working capital.
After considering the facts the author realized the need for proper assessment and

10
 forecasting of working capital in the public sector undertaking. For this purpose, he has
suggested the analysis of production schedule, sales trend, labour cost etc., should be taken
into consideration. He further suggested the need for better management of components of
working capital.
17. Batra G. S. and Sharma A. K. (1999) analyze the working capital position of Goetze (I)
Ltd. with the help of various ratios. They are of the view that the working capital position
in the company is quite satisfactory although they have suggested a few measures for
further improvement in management of working capital, like necessity of greater attention
in the inventory control; active sales department, speedy dispatch of orders and reduction
of dependency on trade creditors.
18. Batra Gurdeep Singh (1999) gives an overview of working capital and its determinants.
According to the author working capital management involves deciding upon the amount
and composition of current assets and how to finance them. He emphasizes on the hedging
approach to finance current assets. He also adds that a management can use ratio analysis
of working capital as a means of checking upon the efficiency with which working capital
is being used in the enterprises.
19. Bansal S. P. (1999) observes that due to the conservative policy of the corporation i )
Short-term creditors position regarding their claim is threatened due to lack of funds, ii )
The company was not following uniform policy regarding the collection of debtors, and
iii ) Inefficiency on the part of the management causes over investment in inventories. As a
result a serious situation arose due to shortage of working capital. The author warns the
corporation that if it did not plan its cash needs properly, it would be lead to bankruptcy.
20. Bansal S. P. (1999) opines that working capital management refers to the management of
current assets and current liabilities for maintaining the optimum levels of various
components and increasing the profitability of an enterprise. The author has insisted on
application of various techniques for management of working capital and its three main
components cash, receivables and inventories.
21. Pathania Kulwant Singh (1999) advocates for the bank to concentrate to maximize
profitability and make optimum utilization of cash resources available, while at the same
time taking care to economize cash holding without impairing the overall liquidity
requirements of the bank. For strengthening the financial base of the bank, permanent

11
 working capital should be financed by equity capital or other long-term sources, whereas
temporary working capital should generally be financed by short-term sources. The author
is satisfied with the working capital management of the bank, but sees scope for further
improvement.
22. Chalam G. V. and Manohar Babu B. V. (1999) observe that liquidity performance is very
low as compared to the ideal norms. It is suggested that for managing working capital
effectively the operating and other required budgets should be prepared by the respective
levels of the management on short-term as well as long-term basis. It is further suggested
that these are the people concerned who can really influence the process of production
activity to such an extent that there should be optimum utilization of the investment in
working capital.
23. Rao Govinda D. (1999) believes that changes in quantum of working capital are
ascertained and analyzed. The author has attempted to find out the causes of the changes in
the size of working capital in the sample companies during the period under study. He
found several causes of changes in working capital, mainly (a) sources of funds and (b)
applications of funds. In the end, the changes in working capital are analyzed with the help
of the changes in working capital and funds flow statement.
24. Garg Pawan Kumar (1999) suggests that working capital should be financed with both the
sources – long-term as well as short-term sources of funds. He further suggests that
permanent working capital should be obtained with the help of long-term sources of
finance while variable/ fluctuating working capital should be collected through short-term
sources of finance. Efficient utilization of working capital enhances operating efficiency as
well as income of the units.
25. Singh O. N. (1999) discusses the credit needs of farmers / agriculture sector and then
emphasizes on the need for having a system of working capital finance in agriculture on the
lines of the industry and commerce finance, of course with some changes. He advocates a
system which is equally equipped and appropriate to meet the needs of both the farmers as
well as the bankers. His basic purpose is to strengthen the capital base of the farmers.
26. Rao Govinda D. and Rao P. M. (1999) believes that management of working capital is a
continuous process requiring proper monitoring and studying of the relationship of all

12
 variables with constant, and drawing inferences. This provides proper direction to the
managers.
27. Jain P. K. and Yadav Surendra S. (2001) study the corporate practices related to
management of working capital in India, Singapore and Thailand. In this paper the authors
have tried to understand the working capital management and current assets and current
liabilities, and their inter-relationship. Further the authors have shown an aggregative
analysis of current assets and current liabilities in terms of major liquidity ratios. It also
states working capital position in terms of these ratios pertaining to various industries.
From the paper one can infer that the available data in respect of the sample companies
from the three countries confirm the wide inter-industry variations in liquidity ratios.
Towards the end, the authors suggest that serious consideration needs to be given by the
respective governments as well as industry groups in these three countries in order to take
corrective measures to take care of and rectify the areas of concern.
28. Deloof Marc. (2003) presents a picture of how working capital management affects the
profitability of Belgium firms. The writer has made use of empirical analysis for the sample
firms. It was observed that most of the firms have a large amount of cash invested in
working capital. It can, therefore, be deduced that the way in which working capital is
managed will have a significant impact on the profitability of the firms.
29. Howorth Carole and Westhead Paul (2003) have tried to find out the working capital
management routines of a large random sample of small companies in the UK.
Considerable variability in the take-up of eleven working capital management routines was
detected. Principal components analysis and cluster analysis confirmed the identification of
four distinct “types” of companies with regard to the patents of working capital
management. While the first three „types‟ of companies focused upon cash management,
stock or debtors routines respectively, the fourth „type‟ was less likely to take-up any
working capital management routines. The objective of the study is to encourage additional
research rather than to provide an exhaustive overview of all the factors associated with the
take-up of working capital management routines by small companies. The results suggest
that small companies focus only on areas of working capital management where they
expect to improve marginal returns.

13
30. Sarawat B. P. and Agrawal R. S. (2004) have tried to evaluate working capital position of
Nepal cement industry.
The study has the following major objectives:
1. To find the trend and tendency of working capital
2. To analyse and evaluate working capital management
3. To suggest an effective way for management of working capital.
The study attributes the losses or low level of profits of the public enterprises in Nepal to
ineffective and inefficient utilization of working capital. The failure of an enterprise is due
to shortage of working capital.

31. Filbeck Greg and Krueger Thomas M. (2005) base their study on the ratings of working
capital management published in CFO magazines. The findings of the study provides
insight into working capital performance and working capital management, which is
explained by macro economic factors, interest rates, competition, etc., and their impact on
working capital management. The article further studies the impact of working capital
management on stock prices.
32. Meszek Wieslaw and Polewski Marcin (2006) examine the profiles of selected construction
companies from the viewpoint of working capital formation and their management
strategies applied to working capital. The analysis is based on the financial ratios. The
authors conclude with the observation that complex working capital management requires
controlling methodology to be developed. A specific character of the construction industry,
including operational factors and market requirements make working capital management a
task exceeding the financial sphere, as it embraces the issues of organization of investment
processes, the organization of production processes and logistics.
33. Chowdhury Anup and Amin Md. Muntasir (2007) examine the working capital
management practice in pharmaceutical companies listed in Dhaka Stock Exchange.
Among all the problems of financial management, the problems of working capital
management have been recognized as the most crucial one. It is because of the fact that
working capital always helps a business concern to gain vitality and life strength.
The objective of the study is to critically evaluate the working capital management
practices in the selected firms of the pharmaceutical industry. To achieve this goal, the
study also examines the policies and practices of cash management and evaluates the
principles, procedures and techniques of inventory management, receivables management

14
 and payable management. From the analysis, the authors conclude that the pharmaceutical
firms operated in Bangladesh efficiently deal with their liquidity preferences and
investment criteria. And this is due to the competitive nature of this industry.

34. Jain P. K. and Yadav Surendra S. (2007) study the different facets of working capital
management. The issues addressed include relationship between CAs and CLs, the
financing of working capital, and ways of dealing with excess or shortage of working
capital. The study is based on an analysis of a thirteen year period data from 1991 to 2003
covering 137 public sector enterprises. In a nutshell, it is reasonable to contend that the
sample PSEs (Public Sector Enterprises) are faced with long duration of net working
capital cycle (time necessary to complete the following three events: 1.Conversion of cash
into inventory
2. Conversion of inventory into debtors and
3. Conversion of debtors into cash less credit available from creditors) necessitating
substantial working capital to be carried by them, eventually affecting their profitability
in adverse manner.
35. Thappa Sankar (2007) focuses on the importance of proper working capital management of
Sun Pharmaceutical Company. The paper throws light on the concepts of working capital,
working capital policy, components of working capital and factors affecting working
capital in the Sun Pharma Industries Ltd during the last five years, and identifies certain
factors which are responsible for the improvement of working capital of the company. The
article concludes with a warning to the Company that if satisfactory level of working
capital is not maintained, the company would become bankrupt.
36. Ganesan Vedavinayagam (2007) studies the impact of working capital management on
profitability through ANOVA test where the financial statements of 349 telecom units or
enterprises are analyzed. The relationship between working capital management efficiency
and profitability and the impact of working capital management on the same has been
tested. At the end of the study the author has minutely observed that the working capital
management efficiency in telecommunication industry is poor. And he suggests that the
telecommunication industry should improve working capital management efficiency.
37. Appuhami Ranjith B. A. (2008) investigates the impact of firms‟ capital expenditure on
their working capital management. The data used in this article

15
 was collected from listed companies in the Thailand Stock Exchange. In this work the
writer has used Shulman and Cox‟s (1985) net liquidity balance and working capital
requirement as a proxy for working capital measurement and developed multiple regression
models. At the end it is derived that the firms‟ capital expenditure has a significant impact
on working capital management, and that the firms operating cash flow which was
recognized as a control variable, has a significant relationship with working capital
management.

38. Samiloglu F. and Demirgunes K. (2008) intend to analyse the effect of working capital
management on firm‟s profitability. To consider statistically significant relationship
between the firm‟s profitability and the components of cash conversion cycle at length, a
sample consisting of Istanbul Stock Exchange (ISE) listed manufacturing firms for the
period from 1989 to 2007 has been analysed under a multiple regression model. Empirical
findings of the study show that accounts receivable period, inventory period and leverage
affect firm‟s profitability negatively, while growth (in sales) affects firm‟s profitability
positively.
39. Virani Varsha (2008) has conducted a comparative analysis of CADILA healthcare with
the following objectives: 1.To evaluate the financial performance
2. To examine the profitability trend
3. To ascertain the assets utilization pattern and evaluate liquidity position of the
company.
The author has used two sophisticated analytical tools for the analysis i.e. ratio analysis
and correlation analysis. The correlation between various ratios is depicted in the study. It
is observed that in most of the cases, correlation coefficient is near to 1. Hence, it can be
said that there is a high degree of positive and negative correlation between most of the
ratios.

40. Ramudu Janaki P. and Rao Durga S. (2008) attempt to analyze both concept and research
based studies. Working capital may be regarded as the lifeblood of any business unit. Its
effective management can do much more to the success of the business while its ineffective
management will undoubtedly lead to failure of the business. It is in this context that the
management of working capital assumes paramount importance. In the present scenario of
competition, the business does not have any other option than reducing the cost of its
operations in order to survive and continue to be financially healthy. It is in this connection
effective management of working capital forms an absolute part of cost reduction. As it is

16
 quite vivid and evident in many researches in any manufacturing unit, barring knowledge
industry, the proportion of raw material in total cost of the product will be the highest and
hence, if the organization wants to minimize the cost of production it has to tackle the cost
of raw material first. So the authors have tried to analyze both the concept and research
based studies on working capital management in a business unit.
41. Dinesh M. (2008) explicates the concepts of working capital, the different challenges being
faced by the business firms in managing working capital and the strategies to be adopted
for its prudent management. The author concludes with the view that most of the
businesses failed not for want of profit but for lack of cash. The fast growth in production
and sales may cause the business to utilize all of the financial resources seeking growth and
making assets such as inventories, accounts receivable and other assets as more illiquid.
42. Narender Vunyale, Menon Shrijit and Shwetha V. (2008) examine the determinants of
working capital management in cement industry in India. In this article, net liquid balance
and working capital requirements were used by the authors as measures of investing
working capital management of the industry. The factors like size, business indicator, firm
performance, growth of the firm, debt-equity ratio and operating cash flow are taken into
consideration. Overall, the paper concludes with the observation that only size of firm
affects both net liquid balance and working capital ratio in a company‟s working capital
management. The results suggest that there is a lack of consistent evidence of the factors
influencing working capital management in the cement industry.
43. Dr.Khatik S. K. and Jain Rashmi (2009) state that the management of working capital is
one of the most important and key resources of an organization for its day-to-day
operations. Working capital can be taken as funding resources for routine activities of
business. It is the most vital and important part of fund management and profitability for
business. The writer has analyzed the working capital position of MPSEB (Madhya
Pradesh State Electricity Board) by ratio analysis technique and it was found that the
position of current ratio, quick ratio, acid-test ratio, working capital ratio, inventory
turnover ratio are not up to the standard benchmark.
44. Sen Mehmet and Oruc Eda (2009) want to determine the relationship between efficiency
level of firms being traded in Istanbul Stock Exchange (ISE) in working capital
management and their return on total assets. In this article they have made an attempt to

17
 explain the relationship between different indicators relating to efficiency in working
capital management and their return on total assets through two models.
The study concludes with the observation that according to the results in terms of both, all
the firms involved in the study and sectors, there is a significant negative relationship
between cash conversion cycle, net working capital level, current ratio, accounts receivable
period, inventory period and returns on total assets.

45. Ramachandran Azhagaiah and Janakiraman Muralidharan (2009) have attempted to

analyze the relationship between working capital management efficiency (WCME) and
earnings before interest and taxes (EBIT) of the paper industry in India during 1997-98 to
2005-06. To measure the working capital management efficiency three index values i.e.,
performance index, utilization index and efficiency index, and EBIT have been used for all
the firms over the period of the study. At the end of the study it was noted that Indian paper
firms performed remarkably well during the period. Industry overall efficiency index was
>1 in 3 out of 9 years for the study period. Though some of the sample units had
successfully improved efficiency during the three years, the existence of a very high degree
of inconsistency in this matter clearly points out the need for adopting sound WCM
(working capital management) policy in these firms.
46. Baig Viqar Ali (2009) aims at reporting comparative findings of a survey of working
capital management practices of selected agribusiness firms from diary co-operatives,
private and MNC diary firms as a part of the research thesis completed in July 2008.
Besides, an attempt has been made to know the effect of the ownership, government
regulations, managerial empowerment and cultural factor on the working capital decision
making.
47. Uyar Ali (2009) examines the relationship of cash conversion cycle with firm size and
profitability of the corporations listed in the Istanbul Stock Exchange (ISE) for the year
2007. The following are the objectives of the study:
1. To set industry benchmarks for cash conversion cycle (CCC) of merchandising and
manufacturing companies,
2. To examine the relationship between the length of the CCC and the size of the firms,
and
3. To study the length of the CCC and profitability.

18
 4. It was observed that the retail/wholesale industry showed shorter CCC than the
manufacturing industries.
Another important finding of the study was that the textile industry had the longest CCC,
which explains the liquidity problems in the industry. Moreover, the findings indicated a
significant negative correlation between the length of CCC and the firm size, in terms of
both net sales and total assets. Lastly, the significant negative correlation between the
length of CCC and profitability is another important finding of the study.

48. Bhunia Amalendu (2010) shows how Indian Pharmaceutical Industry has played a key role
in promoting and sustaining development in the vital field of medicines. Financial analysis
often assesses a firm‟s production and productivity performance, profitability performance,
liquidity performance, working capital performance, fixed assets performance, fund flow
performance and social performance. The study concludes with the observation that the
financial performance of the selected pharmaceuticals‟ liquidity position was strong in case
of KAPL and RDPL, thereby reflecting the ability of companies to pay short term
obligations on due dates. Long-term solvency in case of KAPL and RDPL in all the years
shows that companies relied more on external funds in terms of long-term borrowings,
thereby providing a lower degree of protection to the creditors. Debtors turnover ratio of
RDPL needs to be improved as the solvency of the firm depends upon the sales income
generated from the use of various assets.
49. Singh Swaran and Dr Bansal S. K. (2010) has carried out a study of the structure of
working capital, the management of inventory, accounts receivable, accounts payable and
cash. The authors have used the data from the published annual reports of IFFCO and
KRIBHCO starting from the year 1999-00 to 2006-07. The main objective of the present
study is to examine and evaluate the working capital management in IFFCO and
KRIBHCO. The analysis has been done with the help of various ratios to derive
conclusions. It may be concluded that as far as management of working capital is
concerned, IFFCO was performing better than KRIBHCO.
50. Arunkumar O. N. and Jayakumar S. (2010) explain how working capital is considered to be
the lifeblood and controlling nerve centre of the business. Profitability and solvency are
two vital aspects of working capital management. The survival and growth of the company
depends upon the ability to meet profitability and solvency. Here the authors have
concentrated on the analysis of liquidity and solvency position of the major Public Sector

19
 Electrical Industries in Kerala such as Kerala Electrical and Allied Engineering Company
Ltd (KEL) and Transformers and Electrical Kerala Ltd (TELK) for the financial years
1997-98 to 2007-08 and 1997-98 to 2005-06 respectively. In conclusion the authors have
made a few important observations with regard to the companies. Both the companies show
a trend of very low level of solvency position. The liquidity position of the companies is
below the normal value. KEL has a lower level of net profit compared to TELK for the
stated period. In comparison with
KEL, the sensitivity of changes in the level of current assets is high in case of TELK.

51. Gill Amarjit, Biger Nahum and Mathur Neil (2010) examine the relationship between
working capital management and profitability. For the study, 88 American firms listed on
New York Stock Exchange for a period of three years from 2005 to 2007 were selected as a
sample. They found statistically significant relationship between the cash conversion cycle
and profitability, measured through gross operating profits. It also showed that managers
could create profits for their companies by handling correctly the cash conversion cycle and
by keeping accounts receivable at an optimal level. The study concludes with the
observation that profitability can be enhanced if firms manage their working capital in a
more efficient way.
52. Mohamad Nor Edi Azhar Binti and Saad Noriza Binti Mohd, (2010) attempt to bridge the
gap in the related literature by offering empirical evidence about working capital
management and its effects on the performance of Malaysian listed companies from the
perspective of market valuation and profitability. The objective of the study is to examine
the effects of working capital components. The authors have made an in depth empirical
research on the association between working capital management and the firm‟s
performance. On the basis of the findings, it can be concluded that working capital
components and performance in Malaysia disclose both positive and negative association.
The
study reveals that out of the five components selected for the study, CATAR shows
positive significant relationships with Tobin Q, ROA and ROIC. On the other hand, three
components CCC, CACLR and CLTAR illustrate negative significant relations with Tobin
Q, ROA and ROIC. DR is negatively significant with ROA only but significant with ROIC,
while positively significant with Tobin Q.

20
53. Rosenbluth Frances (2010) makes a close study of the role that networks can play in
boosting women's representation in the personal, professional and political arenas. It has
been found that women lag behind men in their access to professional networks. At the end
of the study the author concludes with the observation that gender equality will remain out
of reach until women and men have a statistically equal shot at being productive, which at
the top of the career ladder invariably includes the difficult-to-quantify but real value of
network power.
54. Rahman Mohammad M. (2011) focuses on the co-relation between working capital and
profitability. An effective working capital management has a positive impact on
profitability of firms. From the study it is seen that in the textile industry profitability and
working capital management position are found to be up to the mark.
55. Haq Ikram Ul, Sohail Muhammad, Zaman Khalid and Alam Zaheer, (2011) examine the
relationship between working capital management and profitability by using data of 14
companies in the Cement Industry in the Khyber Pakhtonkhuwa Province (KPK) (2004-
09).
The main purpose of the study was to find out whether financial ratios affect the
performance of the firms in the special context of the cement industry in Pakistan. For the
purpose of analyzing the data, the techniques of co-relation, co-efficient and multiple
regression analysis were used. We can deduce from the result that there is a moderate
relationship between working capital management and the firm‟s profitability.

56. Dr Arbab Ahmed and Dr Matarneh Bashar (2011) are of the view that the registration
technique is a very useful statistical technique of working capital forecasting. In the sphere
of working capital management, it helps in making projection after establishing the average
relationship in the past between sales
and working capital, and its various components. The analysis can be done with the help of
graphic portrayals or mathematical formula.

57. Sunday Kehinde James (2011) focuses on effective working capital management within
small and medium scale enterprises (SMEs). Most of the SMEs have little regard for their
working capital position and they don‟t even have standard credit policy. They havevery
weak financial position, and rely on credit facility to finance their operations. This credit
facility is available from accounts payable most of the time. In conclusion the authors
recommend that for SMEs to survive within the Nigeria economy they must design a

21
 standard credit policy and ensure good financial report and control system. Besides, they
must give adequate cognizance to the management of working capital. All this requires
systematic planning for the management of working capital to ensure continuity, growth
and solvency.
58. Ahmadi Mosa, Saie Iraj and Garajafary Maryam (2012) examine the relationship between
working capital management and profitability in 33 companies of food industry group
member at Tehran stock Exchange for the period from 2006 to 2011, and the effects of
various variables of working capital management including average accounts collection
cycle, inventory turnover, medium term debt payment and the cash conversion cycle on
operational net profit of the companies. The findings of the research proved that managers
can create a positive value for stock holders by decreasing collection cycle, debt payment
period, inventory turnover, and cash conversion cycle to the lowest possible level.
59. Dr Kaddumi Thair A. and Dr Ramadan Imad Z. (2012) assess the effect of working capital
management on the profitability in a sample of 49 Jordanian Industrial corporations listed
at Amman Stock Exchange (2005 to 2009). And using two alternative measures of
profitability as proxy for the performance and five proxies for the working capital
management, estimation of 20 models panel data cross- sectional time series have been
tested employing two regression models- the fixed effects model and the ordinary least
model. The findings of the study were found to be significantly consistent with the view of
the traditional working capital theory.
60. Quayyaum Sayeda Tahmina (2012) tries to investigate if there is any relationship between
working capital management and profitability in manufacturing corporations. For this study
corporations enlisted with the Dhaka Stock Exchange were selected covering the period
between 2005 and 2009. The purpose of the study is to examine whether there is
statistically significant relationship between the profitability and working capital
management and also help to explain the necessity of firms optimizing the level of working
capital management efficiency and in that way management taking productive actions to
maximize their profitability. It is proved that except for food industry all other selected
industries have a significant level of relationship between profitability indices and various
working capital components. This paper also shows that the significant level of relationship
varies from industry to industry.

22
61. Singh D. P. (2012) presents the relationship between the working capital management and
profitability in the IT and Telecom industry in India. The purpose of the study is to
investigate the relation between components of working capital ratios and profitability. To
attain the above objective the author theories the relationship between different components
of working capital management and profitability. The study shows that the telecom
industry is operating below average so far as working capital management is concerned.
The profitability was 40% when compared with the all India all manufacturing average. In
the IT and the Telecom industry, working capital turnover, current ratio, sales to total asset
ratio were positively related to profitability. However, days inventory was negatively
related to profitability.
62. Banos-Caballero Sonia, Garcia-Teruel Pedro J. and Martinez-Solano Pedro (2012) present
the relationship between working capital management and profitability for Spanish small
and medium size enterprises (SMEs) by controlling for unobservable heterogeneity and
possible endogeneity. For the purpose of this study, standard working capital ratios were
used to measure the effectiveness of working capital in the selected firms. This paper offers
new evidence on the relationship between working capital management and profitability by
controlling for unobservable heterogeneity and possible endogeneity and, unlike previous
studies, given the competing hypotheses of effect of an increase in working capital on
firm‟s profitability, it analyses a possible quadratic relation between these variables. At the
end it has been observed that most SMEs do not care about their working capital position,
most have only little regard for their working capital position and most do not even
have standard credit policy. Many do not care about their financial position, they only run
business, and they mostly focus on cash receipt and what their bank account position is.

63. Ramadu Janaki P. and Parasuraman N. R. (2012) focus on the growth and sales compared
with the changes in profitability and in working capital of Indian Pharmaceutical Industries.
The study revealed that the growth rate in profits was disproportional to the sales and
working capital components like inventory and debtors. The study ends with the view that
there was no rationale or relationship between the sales growth and other components like
net working capital, inventory turnover and debtors turnover. Further, it can be deduced
that growth rate in sales need not reflect the growth rate in profitability and inventory

23
 turnover, and debtors turnover also need not exercise any impact on profitability of the
firms.
64. Matarneh, Bashar (2012) is about small scale industries and its important role in the Indian
economy. This paper analyses the problem of working capital management of Small Scale
Industries (SSI) in Rajasthan for a period of five years. As we know the small scale
industries have to decide about the sources of funds which can be availed to make
investment in the current assets. From the study, it has been found that the working capital
management is to decide the pattern of financing of the current assets, whichis one of the
biggest problems of working capital management. The problem of working capital
management of small scale industries is not new, it prevails all over India. The SSI units
have low capital base where investment on fixed assets is found to be less. Without the help
of government support and cooperation from financial institutions, it was found to be very
difficult to solve the problem of working capital management of SSIs of Rajasthan in
particular and of India in general.
65. Akino Olayinka Olufisayo (2012) carries out a detailed study of the determinants of
working capital requirements – both internal and external of 66 firms in Nigeria. The study
covers the period from 1997 to 2007. On the basis of the results it was found that sales
growth, firm‟s operating cycle, economic activity, size and permanentworking capital are
the firms‟ specificcharacteristics that positively drive working capital policy. Leverage,
however, is inversely related to working capital requirements. The results conclude that
traditional valuation methods used to quantify the efficiency of corporate working capital
policy may be suspect as increased investments in operating working capital may be
necessitated by increase in business uncertainties.
66. Bagchi B. and Khamrul B. (2012) investigate the relationship between working capital
management and the companies‟ profitability, and identify the variables that most affect
profitability. It is also an empirical study where the authors have investigated the effect of
working capital management on the companies‟ profitability by using a sample of Indian
FMCG companies. The study concludes with the observation that both CCC and debt used
by the firm are negatively associated with the companies‟ profitability. This result can be
further strengthened if the companies manage their working capital in more efficient ways
which will ultimately increase their profitability.

24
67. Chandra Bihas, Chouhan Vineet and Goswami Shubham Chandra Bihas, (2012),
analyse the trends and profitability vis-à-vis working capital of some selected information
technology organizations in India. The author concludes with the observation that the
increased requirement of working capital in IT companies is significantly established. He
further observes that there exists a positive relationship between working capital and
profitability of all the selected companies, with the exception of Patni Computer Systems.
The positive direction of relationship indicates that increase in working capital leads to
increase in profitability.
68. Manjhi Rakesh Kumar and Kulkarni S. R. (2012) carry out a study of the working capital
structure and liquidity analysis of Gujarat Textiles Manufacturing Industry. The following
are the objectives of the study:
1. To analyze working capital structure of Gujarat Textiles Manufacturing Industry
2. To analyze the liquidity position of the Industry
3. To analyze the working capital turnover position of the Industry.
It was found that the variation between current assets turnover and working capital turnover
was quite high across the industry. The study concludes with the observation that Arvind Ltd.
and Shri Dinesh mills Ltd. achieved lower sales over their working capital and current assets
as compared to the other companies. However, the sample companies had good current ratio,
which also implies their sound liquidity position.

69. Chandra H. and Selvaraj A. (2012) analyses the working capital management of selected
Steel Companies in India for the period from 2000-01 to 2009-10. To measure the effective
utilization of working capital, operating cycle and cash conversion cycle were used.
Besides, to measure the determinants of cash conversion cycle, the Kieschnick model was
used. The study concludes with the observation that the size of a company plays a vital role
in determining the efficiency of its working capital management. The working capital ratios
across the small, medium and large sized steel companies have played a vital role in
determining the working capital management of the selected Indian steel companies.
70. Dr Panigrahi Ashok Kumar (2012) studies the relationship between working capital
management and profitability of ACC Cement Company, the leading cement manufacturer
of the country for assessing the impact of working capital management on profitability
during the period 1999-2000 to 2009-10. The study is based on secondary data. The main
objective of the study was to find whether the working capital management affects the

25
 performance of the firm. It can be deduced that there is a moderate relationship between
working capital management and the firm‟s profitability.
71. Scholleova Hana (2012) highlights the impact of economic crisis in the economy at the
micro economic level. The crisis that began in 2007 as a financial crisis has naturally
grown into an economic one. The article is elaborated as one of the outputs of researching
project new theory of economy and organizations‟ management and their adaptation
processes registered at MSMT of the Czech Republic under registration number MSM
6138439905. The paper concludes with the view that the companies that survived during
the recession have optimized the assets and increased the efficiency of financing through
active management.
72. Bei Zhao and Wijewardana W. P. (2012) examine the working capital policy (WCP)
practices in Srilankan context. They utilize multiple regression analysis (MRA) to
empirically formulate the industries best practices limit and measure firm efficiency as the
detachment from that limit. The objective of the study was to pursue additional research
rather than to reveal all the factors associated with WCP in the Srilankan context. The
authors believe that the resource constraint may be a major barrier to utilization of working
capital MCM by firms. Firms
may invest resources into managing a particular area of working capital where they are
performing badly because the returns from controlling the problem area are perceived to be
high. If the direction of working capital management (WCM) is not understood, the
investment of more resource into an area leads to worse performance.

73. Nakamura Palombini Nathalle Vicente and Nakamura Wilson Toshiro (2012) focus on the
key factors of working capital management by exploring the internal variables of a number
of companies. 2976 Brazilian Public Companies data from 2001 to 2008 were used for the
study. And it was found that debt level, size in growth rate could affect the working capital
management of the companies. The study aimed at contributing to the understanding of the
short term financial decisions by investigating the key factors of working capital
management. At the end of the study, it was found that companies with a high level of
working capital were consistent with previous studies (CHIOU, CHENG and WU, 2006;
NAZIR and AFZA, 2008). These findings corroborate the Pecking Order Theory and
suggest that as companies increase their financial leverage, they tend to assume a more

26
 restrictive policy in working capital management in order to prevent capital consumption in
accounts receivable and inventory and to avoid issuing new bonds and shares.
74. Song Zhen, Liu Duan and Chen Shou (2012) study the two aspects - turnover capacity and
liquidity, and have analyzed the effects of working capital on engineering product market
completion performance in the manufacture industry. The study discovers that enterprise
working capital turnover ability has positive effect on product market competition
performance while enterprise working capital liquidity has a negative relationship with
market competition performance. But according to regression equation to predict the
competition effects of working capital, exists larger error because the actual impact of
working capital on competition performance may be non-linear so the authors have used B
P Neural Network Model to predict the competition performance and the results show that
the overall prediction effect is good.
75. Ding Sai, Guariglia Alessandra and Knight John (2012) have used a panel of over 1,16,000
Chinese firms of different ownership types over the period 2000 to 2007 to analyze the
linkages between investment in fixed and working capital and financing constraints. It was
observed that those firms characterized by high working capital, display high sensitivities
of investment in working capital to cash flow and low sensitivities of investment in fixed
capital to cash flow. Further the authors constructed and analyzed firm level FKS and WKS
measures and it was found that despite severe external financing constraints, those firms
with low FKS and high WKS exhibited the highest fixed investment rates. It is thereby
concluded that an active management of working capital may help firms to alleviate the
effects of financing constraints on fixed investment.
76. Ray Sarbapriya (2012) studies the relationship between liquidity and profitability in the
manufacturing industry. The writer has taken as a sample 311 manufacturing firms for a
period of 14 years, and studied the effect of different variables of working capital
management. In this study strong adverse relationship between measures of working capital
management and corporate profitability have been observed. In the end insignificant
negative relationship between firm size and its net operating profit ratio was detected.
77. Joshi Lalitkumar and Ghosh Sudipta (2012) study the working capital performance of Cipla
Ltd during the period 2004-05 to 2008-09. Financial ratios have been applied in measuring
the working capital performance, and statistical as well as econometric techniques have

27
 been used. It was observed that the selected ratios show satisfactory performance, and
significant negative relationship between liquidity and profitability is found to exist.
78. Kushalappa S.and Kunder Sharmila (2012) closely study the relationship between working
capital management policies and profitability of the thirteen listed manufacturing firms in
Ghana. At the end of the study, a significantly negative relationship between profitability
and accounts receivable days is found to exist. Profitability is significantly positively
influenced by the firm‟s cash conversion cycle (CCC), current assets ratio and current asset
turnover. It is also suggested that managers can create value for the shareholders by
creating incentives to reduce their accounts receivable to 30 days.
79. Samson Adediran A, Mary Josiah, Yemisi Bosun-Fakunle and Erekpitan Imuzeze O (2012)
hope to empirically investigate the impact of working capital management on the
profitability of a sample of 30 SME‟s of Nigeria during 2009. In conclusion the writer
points out that, managers can create value by reducing their firm‟s number of day‟s
accounts receivable and inventories. At
the same time the firm‟s profitability could also be improved by reducing the cash
conversion cycle.

80. Turan M. S., Bamal Sucheta, Vashist Babita and Turan Nidhi (2013) attempt to examine
the relationship between working capital management and profitability by making an inter
sector comparison of two manufacturing industries i.e. Chemical industries and
Pharmaceutical industries. 50 companies from each sector based on market capitalization
and listed on BSE and 500 indices were selected for the research for the period from 2002
to 2011. At the end of the analysis it was concluded that in spite of similar nature of both
the industries in the manufacturing sector, working capital management variables affect
profitability indicesmore strongly in the chemical industry than in the pharmaceutical
industry. It was also observed that both the industries have a significant relationship
between profitability and working capital management variables. Besides, working capital
management variables affect more strongly the profitability indices of chemical industry
than those of pharmaceutical industry.
81. Kaur Harsh V. and Singh Sukhdev (2013) analyse empirically BSE 200 manufacturing
companies spread over 19 industries for the period 2000 to 2010. The study explores scope
to increase the efficiency and profitability of 145 companies by improving the parameters

28
 of analysis. The study tests the relationship between the working capital score and
profitability measured by income to current assets and income to average total assets. This
article concentrates on cash conversion efficiency and planning the operating cycle days.
At the end, the study emphasizes that efficient management of working capital significantly
affects profitability.
82. Singh Moirangthem B. and Singh Tejmani N. (2013) emphasize on the efficient
management of working capital. According to them it means proper management of
various components of working capital due to which adequate amount of working capital
and liquidity is maintained in the larger interest of successful running of an enterprise.
At the end he offers the following suggestions:
1. The industry should try to maintain proper level of net working capital by trying to
control the growth rate of current assets as compared to current liabilities to some
extent
2. The industry should also try to maintain balance between liquidity and profitability
position by improving current ratio and quick ratio.
83. Akoto Richard K., Vitor Dadson A. and Angmor Peter L. (2013) closely study the
relationship between working capital management policies and profitability of the thirteen
listed manufacturing firms in Ghana. At the end of the study, a significantly negative
relationship between profitability and accounts receivable days is found to exist.
Profitability is significantly positively influenced by the firm‟s cash conversion cycle
(CCC), current assets ratio and current asset turnover. It is also suggested that managers
can create value for the shareholders by creating incentives to reduce their accounts
receivable to 30 days.
84. Joseph Jisha (2014) closely examines the study of working capital management in Ashok
Leyland and points out that the liquidity and profitability position of the company is not
satisfactory, and needed to be strengthened in order to be able to meet its obligations in
time.
85. Madhavi K. (2014)makes an empirical study of the co-relation between liquidity position
and profitability of the paper mills in Andhra Pradesh. It has been observed thatinefficient
working capital management makes a negative impact on profitability and liquidity
position of the paper mills.

29
86. Gurumurthy N. and Reddy Jayachandra K. (2014) have conducted a study on the working
capital management of four pharmaceutical companies APSPDCL, APEPDCL, APNPDCL
and APCPDCL and have come to the conclusion that the existing system of working
capital management was not up to the mark and needed to be improved.

3.2 Components of Working Capital

It deals with all the major areas of working capital management, i.e. management of cash and
bank, management of receivables and management of inventory which have been discussed
below:

3.2.1 Cash and Bank Management

1. Ansari M. N. A. and Keyvani S. M A. (1995) examine the efficiency and effectiveness of

liquidity management in Indian Petrochemicals Corporation
Ltd. (IPCL). The study has been conducted with the aid of an analysis of both
the absolute amount of net working capital and the liquidity ratios for a period from 1983-
84 to 1993-94. The liquidity position of the unit under the study has also been compared
with that of the chemicals and petrochemicals industry in India. The study concluded that
IPCL had increasingly followed a tight control over the working capital. It was also
observed that liquidity ratios in IPCL fell below their standard norms and also their
industry averages. Further, IPCL‟s liquidity was marked with frequent fluctuations, while
the same in the case of the industry remained constant throughout the period of the study.

2. Datta Tanmoy (1995) describes various thoughts on management of liquidity. The major
objective indicators of the problem of liquidity always remain in the background,
obtainable only through inquiry from various internal and external sources. The author
concludes with the observation that while revisiting along the foregoing winding path of
liquidity, it can be reminded, as a passing remark, that managing of liquidity, more
specifically of illiquidity, is a labyrinthine process and, therefore, deserves a contingency
approach. The underlying idea is that there cannot be one best way to do anything.
Everything is contingent upon the situational factors, internal (controllable) and external
(non-controllable).
3. Laitinen Ekkki K. and Laitinen Teija (1998) aim to evaluate the information contained in
inventory cash management models to predict failure. The management model was
presented both in a static and dynamic form. The study concludes with the observations
30
 that although the static cash management model provides important information for failure
prediction in the first year prior to bankruptcy, this information is not incremental over
traditional financial variables. The dynamic model clearly outperformed the static model in
failure prediction. The estimate for the scale elasticity of cash in the dynamic model
provided information which had incremental value over the traditional financial variables.
This information also remarkably increased the classification accuracy based on traditional
financial variables in the first year before bankruptcy.
4. Hyderabad R. L. (1999) focuses on current assets financing policies. He further states that a
proper evaluation of the assets - liquidity and financial structure liquidity is „quiet essence‟
for sound working capital. The author firmly believes that the considerations of working
capital investment and financing are very crucial and should be given due significance by
the management for framing the overall working capital policy.
5. Coughenour Jay F. and Deli Daniel N., (2002) closely examine the influence of NYSE
specialist firm organizational form on the nature of liquidity provision. A comparison is
made between closely held firms whose specialists provide liquidity with their own capital
and widely held firms whose specialists provide liquidity with diffusely owned capital. The
authors further argue that specialists using their own capital have a greater incentive and
ability to reduce adverse selection cost, but face a greater cost of capital.
6. Patra Santimoy (2005) analyses the impact of liquidity on profitability considering the case
of Tata Iron and Steel Company Ltd liquidity and profitability are two important
dimensions in determining the soundness of an enterprise. The paper has covered the
following objectives:
1. To examine the impact of liquidity on profitability between ROI and each of the
selected ratios
2. To assess the joint effect of the above ratios upon the profitability. The study of the
impact of liquidity ratios on profitability showed both positive and negative association.
The hypothesis that there is an adverse effect of liquidity on profitability is true in case
of TISCO Ltd. Now regarding profitability of the company under the study, though
there is no standard norm of profitability which depends upon the management policy
of the company, still it appears to be too little.

31
7. Bhunia Amalendu (2007) analyses the working capital management of public sector iron
and steel enterprises. The level of working capital is found to be lower.Liquidity position
was poor and the management of inventory and accounts receivable was found to be
inefficient. It has been suggested that steps should be taken for the improvement of the
same.
8. Das P. K. (2008) has shown that the overall liquidity position of Ranbaxy Laboratories Ltd
was satisfactory. Although the behavior pattern of the different indices indicate the sound
liquidity management of the company, the author offers suggestions to improve certain
factors like reduction in current assets through maintaining its optimum level, prompt
recovery of debts through the preparation of periodical reports of the overdue, maintaining
a definite proportion among the various components of working capital on the basis of past
experience and strengthening the cash position to reducing the level of investment in
inventory and collecting what is outstanding properly.
9. Ghosh Sudipta (2008) makes an attempt to analyze the liquidity management of TISCO
Ltd., one of the leading Iron and Steel manufacturing companies in India for the period
from 1996-97 to 2000-2001.
Basically this paper examines the following main objectives:
1. To examine the liquidity position of the company on the basis of liquidity ratios
2. To measure the closeness of association between liquidity and profitability
3. To offer some suggestions for improvement in the efficiency of liquidity management
of the company.
The analysis sums up with the observation that in case of debtors to current assets ratio,
cash and bank to current assets ratio, and loans and advances and other current assets ratio,
a high value indicates relatively favorable position. On the other hand, a low inventory to
current assets ratio shows a more favorable position.

10. Bhunia Amalendu (2010) has made an attempt to study the liquidity position of the private
sector steel companies in India. Working capital determining the short-term liquidity
position and short-term solvency of the firm and at the same time proper plan of
profitability is also required for the business enterprises.
11. Tibor Tarnoczi and Veronika Fenyves (2012) have attempted to show the relationship
between liquidity and corporate risk. According to them the consequence of the economic

32
 crisis and the excess of the external financing resources were narrowed significantly and
lenders became more cautious. The authors conclude with the view that working capital
management almost always shows the ability of a firm to earn profit. The more the firm is
capable to handle working capital, prosperity is ensured. On the other hand neglect in doing
so would be dangerous for the survival of the firm. Managerial decision-making is needed
for accurate ratios that describe the current situation of the firm and they are also suitable
for forecasting.
12. Sasikala D. (2012) has conducted an empirical study of Dr. Reddy‟s liquidity management
and trade-off between liquidity, risk and profitability. The author concludes with the
observations that the investment in current assets was much higher and the debtors‟
contribution was the highest in the gross working capital. Besides, negative association
between liquidity and profitability was found.
13. Manjhi Rakeshkumar and Kulkarni S. R. (2012) focus on working capital structure and
liquidity of Gujarat Textile Manufacturing Industry (GTMI). From the study, it was
observed that of all the current assets across the industry, inventories formed the highest
percentage, followed by loans and advances and trade receivables; whereas cash and bank
balance formed a very negligible part. In conclusion it was found that Arvind Ltd. and Shri
Dinesh Mills Ltd. achieved lower sales over their working capital and current assets as
compared to the other companies. However, the sample companies had good current ratios,
which also imply sound liquidity position of the sample companies.
14. Reddy Viswanatha C. (2012) attempts to study the association between liquidity,
profitability and risk factor. A study of liquidity, profitability and their association with
risk, assessing the financial position (financial distress / bankruptcy) is very much
necessary to evaluate the financial strength of a company. A firm in financial distress may
face bankruptcy or liquidation leading to delay in meeting its liabilities. The results indicate
that the liquidity and solvency position of the company have been satisfactory. Further the
analysis reveals that the company was not suffering from financial distress and there are
indications of turnaround activities already undertaken by the company.
15. Cetorelli Nicola and Goldberg Linda S. (2012) study the liquidity management of US
global banks - internal capital markets in the great recession. The recent crisis highlighted
the importance of globally active banks in linking markets. One channel for this linkage is

33
 through how these banks manage liquidity across their entire banking organization.
Marginally significant effects for the core investment interaction were found. The
coefficient on shock, is positive (although not significant), and consistent with internal
funding flows toward the parent organization. However, and interestingly, the fixed effect
specification generates coefficients smaller in magnitude than with the basic OLS.

3.2.2 Receivables Management

1. Milan Shehzad L. and Smith Clifford W. (1992) develop and test hypothesis that explains
the choice of accounts receivable management policies. The test focuses on both cross
sectional expansions of policy choice determinants as well
as incentives to establish captives. The authors find that the size, concentration and credit
standing of the firm‟s traded debts and commercial papers are each important in explaining
the use of factoring, accounts receivable, secured debt, captive finance subsidiaries and
general corporate credit. They also offered evidence that captive formation allows more
flexible financial contracting. But they found no evidence that captive formation
expropriates bondholder wealth.

2. Hossain Syed Zabid (1996) attempts to analyze receivables management in public sector
TIB. The study covers all the 40 Textile units working under the
BTMC.
In this article the writer has found that it is the most neglected area in the public sector
Textile Industry of Bangladesh. According to the author there is hardly any study in this
area, and it is an attempt to fill this gap. As the tool of analysis various ratios are calculated.
The paper concludes with these observations: Receivables management has been found to
be in a poor shape in BTMC and the turnover of accounts receivable was very high, while
the turnover of total receivables was low and unsatisfactory. The opposite of this was true
in the case of average collection period.

3. Asselbergh Greet (1999) studies the organizational behavior in managing accounts

receivable. It is based on the recent surge of interest and trade credit management from
both academics and practitioners emphasizing the rather permanent character of this short
term but continuously renewed investment, and their strategic potential due to the existence
of financial, tax-based, operating, transactions and pricing motives. This paper is a close
study of sources of such a strategic value and for determinants of its risk. At the end of the
study it is proved that organizing accounts receivables management is actually driven by

34
 two different factors. First, the strategic value of accounts receivable management merits
more careful attention. Indeed, both pricing and transaction motives seem to be valuable
reasons to extend longer credit terms, although no evidence is found for the operating,
finance and tax-based motives. Second, an efficient design of both planning and portfolio
structuring might relieve the moral hazard created by extending trade credit. Thus the
efficiency of accounts receivable management cannot be judged by relying solely on the
traditional DSO-rate anymore.
4. Shukla Hitesh (2007) analyzes the formation of the receivables in selected units and
assesses the effectiveness of receivables management in these units. This industry has
gained significant drive after liberalization. As this industry is capital intensive and has
several players who are listed companies, it is worth asking if these companies are
efficiently managing their receivables. The study reveals that the level of receivables to
current assets ratio of the industry was found to be 55 %. It shows that high amount of
current assets was blocked in receivables. While looking at the receivables to total assets in
this industry it was found to be 39 %. While the data of receivables turnover of the industry
was about 3.4 times. The study divulges that the level of investment in receivables as a
percentage of sales was 3.37 only. Average collection period of the industry was higher
than the prescribed norms of the Tandon Committee.

3.2.3 Inventory Management

1. Lingaraj B. P., Balasubramanian, R. and Krishnamurthy T. V. (1983) focus their study on

an inventory management system and material information system which were developed
for an aircraft plant in India. The authors have included an inventory classification scheme
based on value and importance, and a vendor rating system.
In conclusion the authors have cited several intangible benefits from the new system. It was
also observed that the new system resulted in reduction of inventory by 10% and overall
delivery time by 3 months for the year.

2. Banday Shabir Hassan (1996) tries to explain how Maruti Ltd started to manufacture the
first high quality, low cost and fuel efficient car in India, and how the company was in
search of a foreign partner whosoever be willing to accept Maruti Udyog Ltd. requirements
in terms of product mix, technology transfer, equity participation and others. The paper

35
 also discusses at length ABC classification, determination of inventory norms and
inventory control of inventory management. Besides gearing up the control over the
inventory, the company should take cognizance of certain points as suggested by the
researcher.
3. Sikidar Sujit (1996) focuses on the nature and significance of some sophisticated tools of
inventory control. The article also examines the inventory management practices of some
Indian companies. The main objective of this paper is to ascertain the impact of time lag
involved between the placing of an order and receipt of inventory so that it becomes
available just in time. At the end of the study the author finds that the internal control
system of JIT has not been found satisfactory over the companies under the study. But on
the other hand, the maintenance of cost records and valuation of inventory was done
properly as per Generally Accepted Accounting Principles (GAAP) and followed
consistency over the years.
4. Jain Arvind and Jain Nisha (1997) study the importance of inventory management in
scooter manufacturing companies in India. The main objective of this paper is to examine
the position of inventory control techniques in scooter manufacturing companies in India.
And to suggest tools and techniques for overcoming the present problems in inventory
management. At the end of the study the authors suggest that if the units make an honest
effort to implement the techniques as suggested by them, present problems in inventory
management can certainly be overcome.
5. Luciano Elisa and Peccati Lorenzo (1999) make a detailed study of the use of adjusted
present value techniques in a problem of inventory management, the temporary sale price
problem, in the presence of equity or debt financing. While traditional net present value
approaches produced results very similar to those of the average cost approach, their
consideration of capital structure of the firm opens the way to theoretically and numerically
different inventory policies. The authors intend to discuss some financial implications of
inventory management. At the end of the study the writers observe that the optimum
conditions that they obtain depend on the financial variables characterizing the problem. A
fundamental role is played by the two interest rates ρ and δ which are, respectively, the
opportunity cost of equity and the cost of debt. The second one was neglected by the NPV
approach, while it enters their approach through the APV.

36
6. Sharma M R (1999) emphasizes on the application of certain inventory control techniques
for optimizing investment in inventories without adversely affecting the smooth
functioning of production and sales. In conclusion he stresses upon the need for further
improvement in inventory management systems in the enterprises. This would lead to the
industry becoming profit making.
7. Aravanan S. (1999) focuses on the methods and techniques of inventory management and
control. On the basis of the analysis, he has observed that inventory is that component of
working capital that is not at all properly managed.
He opines that compared to general inventory control techniques, selective inventory
control methods have a better role to play. He has keenly observed that of all the selective
inventory control techniques, ABC analysis with its several advantages is the most widely
used.

8. Aravanan S. (1999) focuses on a good inventory control system which has several
advantages. Overall it deals with theft of materials and persuades the people to handle the
material carefully as a result of which losses are minimized.
9. Anitha H. S. (1999) emphasizes on the role of the finance manager to frame appropriate
policies with regard to working capital management in respect of its various components,
like cash, receivables and inventory. This would be highly beneficial to the profitability,
liquidity and structural health of the organisation.
10. Pramanik Alok Kumar and Roa Mohana P. (1999) focus on the role of different operational
research techniques in the inventory control functions. According to them the major
operational research techniques developed and applied so far to the business decision-
making and control are linear programming, game theory, decision theory, etc.
11. Parmar S. J. (2003) has made an earnest attempt to evaluate the performance with respect
to inventory management of two selected units GSFC and GNFC. He has used various
ratios as a tool of analysis. From the study it is concluded that the overall performance
regarding inventory management at GNFC was better in terms of efficient utilization of
inventories whereas GSFC was not able to do so during the study period. GSFC maintained
a larger amount of idle funds throughout the study period through the investment in
inventories in relation to total current assets as compared to GNFC. The analysis of

37
 inventory management of selected units showed that the overall performance of GNFC was
encouraging while that of GSFC was not alarming.
12. Santhanam S. P. (2008) discusses how to value inventories and present this in the financial
statements. Inventories normally constitute a significant portion of the total assets,
particularly in case of manufacturing and trading entities as well as the service renderings
entities. Valuation of inventories, therefore, assumes special importance. A primary issue in
accounting for inventories is the determination of the value at which inventories are carried
in the financial statements.
13. Singh Pradeep (2008) attempts to evaluate the effect of the size of inventory and the impact
on working capital through inventory ratios, working capital ratios, trends, computation of
inventory and working capital and liquidity ranking.
At the end of the study the researcher observed that the size of the inventory directly affects
working capital and its management. Size of the inventory and working capital of Indian
Farmers Fertilizer Cooperative Ltd (IFFCO) is properly managed and controlled compared
to National Fertilizer Ltd (NFL)

14. Shrotriya Vikas (2008) discusses some aspects of effective inventory management.
Organizations maintain inventories to achieve effectiveness in business operations. Though
the quantum of inventories depends on the nature of business, these engage sizable portion
of the organization‟s total current assets. These two reasons compel the organization to
manage inventories effectively and efficiently.
15. Sieke Margarita Protopappa and Seifert Ralf W. (2010) discuss at length the benefits of
equally considering both operational and financial aspects in decision making for the
physical and financial supply chain. They develop a mathematical model that determines
the optimal purchasing under working capital restrictions and payment delays. They
analyze the trade-off between the most commonly used financial and operational
measurements, such as service level, return on investment, profit margin and inventory
level. Their results demonstrate the significance of payment delays. Increases/decreases in
the upstream/downstream payment delays favor the system‟s operations by decreasing
operational costs. Besides increases in the working capital employed in the system decrease
the total operational cost, increase the total financial cost and lower the return on working
capital investment.

38
16. Tanwar S. K. and Shah C. K. (2012) have made an in-depth study of the inventory
management of selected companies in India. In order to project a clear picture of the
profitability of the industry as a whole, the analysis of profitability of individual firm would
be helpful. In conclusion the author is of the opinion that the profitability analysis today is
of paramount significance in the context of overall performance of the business concern. In
the analytical frame work constructed for this purpose, the analyst should have both
microscopic and macroscopic views of profitability.

39
40
 CHAPTER -III

RESEARCH METHODOLOGY

3.4 SURVEY OF THE EXISTING LITERATURE :-

Working capital management is a very important component of corporate finance because it

directly affects the liquidity and profitability of the company. It deals with current assets
and current liabilities. Working capital management is important due to many reasons. For
one thing, the current assets of a typical manufacturing firm accounts for over half of its
total assets. For a distribution company, they account for even more. Excessive levels of
current assets can easily result in a firm‟s realizing a substandard return on investment.
However firms with too few current assets may incur shortages and difficulties in
maintaining smooth operations (Horne and Wachowicz, 2000). Efficient working capital
management involves planning and controlling current assets and current liabilities in a
manner that eliminates the risk of inability to meet due short term obligations on the one
hand and avoid excessive investment in these assets on the other hand (Eljelly, 2004). Many
surveys have indicated that managers spend considerable time on day-to-day problems that
involve working capital decisions. One reason for this is that current assets are short-lived
investments that are continually being converted into other asset types (Rao1989). With
regard to current liabilities, the firm is responsible for paying these obligations on a timely
basis. Liquidity for the ongoing firm is not reliant on the liquidation value of its assets, but
rather on the operating cash flows generated by those assets (Soenen, 1993). Taken
together, decisions on the level of different working capital components become frequent,
repetitive, and time consuming. Working Capital Management is a very sensitive area in the
field of financial management (Joshi, 1994). It involves the decision of the amount and
composition of current assets and the financing of these assets. Current assets include all
those assets that in the normal course of business return to the form of cash within a short
period of time, ordinarily within a year and such temporary investment as may be readily
converted into cash upon need. The Working Capital

Management of a firm in part affects its profitability.

The ultimate objective of any firm is to maximize the profit. But, preserving liquidity of the
firm is an important objective too. The problem is that increasing profits at the cost of
liquidity can bring serious problems to the firm. Therefore, there must be a tradeoff between

41
these two objectives of the firms. One objective should not be at cost of the other because
both have their importance. If we do not care about profit, we cannot survive for a longer
period. On the other hand, if we do not care about liquidity, we may face the problem of
insolvency or bankruptcy. For these reasons working capital management should be given
proper consideration and will ultimately affect the profitability of the firm.

Firms may have an optimal level of working capital that maximizes their value. Large
inventory and a generous trade credit policy may lead to high sales. Larger inventory
reduces the risk of a stock-out. Trade credit may stimulate sales because it allows customers
to assess product quality before paying (Long, Maltiz and Ravid, 1993, and Deloof and
Jegers, 1996). Another component of working capital is accounts payable. Delaying
payments to suppliers allows a firm to assess the quality of bought products, and can be an
inexpensive and flexible source of financing for the firm. On the other hand, late payment
of invoices can be very costly if the firm is offered a discount for early payment. A popular
measure of working capital management (WCM) is the cash conversion cycle, i.e. the time
lag between the expenditure for the purchases of raw materials and the collection of sales of
finished goods. The longer this time lag, the larger the investment in working capital
(Deloof 2003). A longer cash conversion cycle might increase profitability because it leads
to higher sales. However, corporate profitability might also decrease with the cash
conversion cycle, if the costs of higher investment in working capital rise faster than the
benefits of holding more inventories and/or granting more trade credit to customers.

For this study, researcher has reviewed various publications to get the proper understanding.
Working capital structure is developing concept that why some studies conducted in context
with the performance through value added reporting to the cement industries. The
researcher has studied those works which are as follows:

(1) The most important pioneering books were written by PODDAR in 1962 and
1966 respectively, in which an attempt has been made to enumerate all the historical facts
regarding various aspects of the industries. Some institutions like C.M.A. association of
trade and industries, tariff commission, commerce research bureau, economics times,
national productivity council etc. have made attempts to study the general problems in
historical perspectives.

(2) INDIAN ASSOCIATION OF TRADE AND INDUSTRIES published a book

analyzing the financial trend and productivity in the private sector of the industries
between1937 and 1964, in 1964. This study was based on the annual reports of 19
companies which accounts for 90% of the total production. The consolidated balance sheet
and profit & loss account of these companies were taken for financial analysis as the base.

42
This study compared various factors of productivity and profitability with those of other
important cement producing countries like U.S.A., U.K., Japan and Belgium.

(3) V.K. GOEL AND N.K. NAIR has studied on productivity trends of the
industries for the period from 1954 to 1976. This study includes various aspects like origin
and growth of the industries, extent of under utilization of capacity and its causes,
efficiency of major inputs like labors, capital, and raw materials. It also considers financial
Performance, pricing and future directions in which the industries may grow.

(4) CHAKRAVARTY AND REDDY had written an article on the financial

performance of the industries for period from 1967 to 1971 by making comparison in 1973.
They used ratio analysis as major tool for financial performance and had studied 22 ratios of
profitability, proprietary, liquidity and turnover groups.

(5) DR. D.K. GHOSH studied the financial position of 18 private sector companies.
Heaving a paid-Up. Capital of Rs.50 lacks or more. This study relates to the period from
1971-72 to 1975-76. His study is confined to the analysis of the balance sheet, assets and
liabilities and condensed common- size income and expenditure statements etc.

(6) KAURA AND SUBRAMANIAM published an article on the financial

performance of 10 units relating to the period from 1972 to 1979 which mainly observed
liquidity, profitability, financial structure and overall performance. For this study they used
conventional ratio analysis and merit rating approach. They found that the financial strength
of the units have declined over the years.

(7) RAO AND CHANDAR.... have made attempt to assess the financial efficiency
of cement companies for the period from 1970-71 to 1977-78 which covers 70% of entire
industries. They found out that the profitability of selected companies had decreased
continuously from 1970-71 to 1974-75 owing to causes such as inflationary pressure in the
country, continuous fall in capacity utilization due to drastic power - cuts and shortage of
coal, oil and wagon. The profitability increased in 1975-76 because of appreciable increase
in the sales.

(8) DR. KUMAR BARDAS published a comprehensive book in

43
1987, touching on the various aspects of the cement industries like factor productivity,
location, and degree of competition, capacity utilization, size efficiency, financial
performance, distribution pattern and governmental policies with respect to distributions.
The study pertains to the period from 1970 to 1980. The study revealed that all profitability
ratios decreased gradually and become negative for 1973-74 and1974-75. However, it
improved gradually thereafter.

(9) NPC RESEARCH DIVISION (April June 1991) published an article in

"Productivity quarterly magazine" in which an attempt was made to analyze the
productivity and performance ratio of the industries with a view to identifying the measure
problem- areas and the prospects of solving them. The study covers 26 companies,
comprising of large size plants, medium size plants and mini plants. On profitability front,
of the 26 companies examined, at least 11 have shown losses.

(10) DR. D.K. MITTAL published a book in 1994, touching on the various
aspects of the cement industries like growth of the industries, regional up gradation and
modernization, energy efficiency, price and technological controls and financial
performance. The study covers more than 45 cement companies. The study pertains to the
period from 198485 to 1991-92. On the profit performance front, the study revealed that the
industries‟ profit had fallen despite sales growth, though at a slower pace.

(11) RAMA SHAKAR SINGH published a book in 1992. This edited book
covers various issues pattern, development, regional imbalances, sickness, environmental
impact, policy and regulation, and case study article of “cement industry.” This article
covered topic, development of the industries before independence after independence, state-
wise distribution of production, pattern of consumption, pricing of cement, distribution,
Government participation in production, India‟s role in global cement exports, and policy
matter.

(12) DR. B. L. MAHESHWARI published a book in 2001, marketing

strategies in cement industries in India. Like factor cement industries in India & world,
marketing organizations & structure, product standardization & grading, packing & brand,
price, distribution & transportation, promotion. The study pertains to the period to overall
cement industries marketing area up to 2001.

44
 (13) DR. S. J. PARMAR published a book in 2001. The book is a systematic
study of the modern financial measurement techniques useful for management in planning
and controlling corporate activities. With increasing participation by the general public and
financial institutions as present and corporate bodies have to be on their guard and manage
their efficient financial efficiency in the area of globalization. This book covers topics of
concept and measurement of profitability, cost & sales trend, profit margin, assets turnover,
analysis of return on investment common size of value added statements.

(14) DR. SANJAY J. BHAYANI has done his Ph.D. on "Analysis of

financial statements of cement industries in India." In this study profile of the cement
industries in India, conceptual framework of financial statements, analysis of activity,
profitability, working capital, financial structure and summary, findings and suggestions.

(15) DR. BUTALAL C. AJMERA has done his dissertation

“Interpretation and analysis of financial statement of two selected units of Birla group”, in
the year 2001 by using conceptual framework of financial statement, Research plan, profile
of the cement industries. Birla group of companies a bird's eye view, liquidity position,
financial structure and suggestion, the period of 1994-95 to 1998-99.

The study reveals the course of profitability.

(16) In 1989, PRAVEEN KUMAR JAIN conducted a study entitled

"Management of working capital" with special reference to seven paper companies. The
study was mainly devoted to working capital and liquidity analysis with the help of
following indicators (1) Trend Analysis
(2) Ratios Analysis.

(17) In 1995, D. GOVINDA RAO and P. MOHANA RAO

conducted a study entitled “Impact of working capital on profitability in cement company.”
The study was mainly devoted to impact of working capital on profitability. It was studied
with the help of correlation analysis. A researcher was selecting a single unit, vise
associated cement companies Ltd (ACC). Correlation between profitability vis-à-vis ten
select variables is analyzed with the help of Karl Pearson‟s co –efficient of correlation
technique.

45
 (18) In 1982, A. A. KHAN, conducted a study entitled "Working capital
analysis" the study was mainly devoted to the measurement of profitability with reference to
five type companies. It was studied with the help of following indicators. (1) Ratios
Analysis, (2) Common Size Analysis. Researcher also measured capital structure. The
efficiency of one company was very poor and one company was not up to satisfaction
profitability of one company was unsatisfactory and other companies were satisfactory.
Researcher found that the companies were mainly financed by borrowed capital. Their
capital structure was based on trading on equity position.

(19) DR. RASIK N.BAVARIAhas done his Ph.D. on “A comparative

analysis of profitability vies-a-vies liquidity performance in cement industries of India.” In
this study profile of the cement industries in India, conceptual framework of financial
statements, analysis of activity, profitability, liquidity, Profitability vies-a-vies Liquidity
and summary, findings and suggestions.

(20) DR. SURAJ NARAIN MATHURhas done his Ph.D. on “Working

capital management of cement industries in India- a comparative analysis of selected units”
In this study profile of the cement industries in India, analysis of cash and liquidity
management, accounts receivables management, inventory management and control,
conclusion, suggestions and recommendations.
(21) DR. J. R. PATEL has done his Ph.D. on "A study of working capital
management in cement industries in India" In this study profile of the cement industries in
India, conceptual framework of working capital management, profile of cement industries
in India, analysis of working capital management, inventory management – analysis,
receivables management – analysis, cash management – analysis, findings and suggestions.

(21) DR. VIRENDRA C. JAIN has done his Ph.D. on "Working capital
management of fertilizer industries of Gujarat " In this study profile of the concept and
measurement of working capital, fertilizer industries, analysis of receivables management,
analysis of working capital, analysis of inventory management, analysis of cash
management, analysis of financing of working capital, summary of findings.

46
 (22) DR. JAYESHKUMAR P. VORA has done his Ph.D. on " Working
capital management of trading houses in India " In this study profile of trading house,
working capital management, history and development, of selected companies working as
trading house in India, analytical study of working capital management of trading house in
India, findings, suggestions and conclusions.

(23) DR. ASHVINKUMAR H. SOLANKI has done his Ph.D. on " Working
capital management in selected small scale industries of Gujarat State " In this study profile
of nature and growth of small scale industries in Gujarat, working capital management
practices and working finance in small scale industries, management of cash,management of
accounts receivables,inventory management practicescomparative performance analysis of
selected small scale industries of Gujarat stateSummary, findings and suggestions.

On the above background, researcher has evaluated the concept and various related aspects
of Working Capital. After this, the researcher has shown his interest to go for exploratory
study and investigate this concept and its related applicability in the cement industries.

1.

47
INDUSTRY PROFILE:

A diary is a business enterprise for the harvesting or processing The Dairy Development
Department was established in Tamil Nadu in the year 1958 to oversee and regulate milk
production and commercial distribution in the state. The Dairy Development Department took
over control of the milk cooperatives. Tamil Nadu is one of the leading states in India in milk
production with about 14.5 million liters per day.

Milk has been a part of our nutrition since time immemorial and rich in nutrients.
Terminology differs between countries.The building or farm area where milk is harvested from
the cow is often called a "milking parlor" or “parlor”. The farm area where milk is stored in bulk
tanks is known as the farm's "milk house". Milk is then hauled (usually by truck) to a "dairy
plant" = also referred to as a "dairy" - where raw milk is further processed and prepared for the
commercial sale of dairy products.

48
In New Zealand, farm areas for milk harvesting are also called "milking parlous", and are
historically known as "milking sheds". As in the United States, sometimes milking sheds are
referred to by their type, such as "herring bone shed" or "pit parlous". Parlous design has evolved
from simple barns or sheds to large rotary structures in which the workflow (throughput of cows)
is very efficiently handled.

In some countries, especially those with small numbers of animals being milked, the farm may
perform the functions of a dairy plant, processing their own milk into salable dairy products,
such as butter, cheese, or yogurt. This on-site processing is a traditional method of producing
specialist milk products, common in Europe.

In the United States a dairy can also be a place that processes, distributes and sells dairy
products, or a room, building or establishment where milk is stored and processed into milk
products, such as butter or cheese. In New Zealand English the singular use of the word dairy
almost exclusively refers to a corner shop, or superette.

This usage is historical as such shops were a common place for the public to buy milk
products. As an attributive, the word dairy refers to milk-based products, derivatives and
processes, and the animals and workers involved in their production: for example dairy cattle,
dairy goat. A dairy farm produces milk and a dairy factory processes it into a variety of dairy
products. These establishments constitute the global dairy industry, a component of the food
industry.

Milk producing animals have been domesticated for thousands of years. Initially, they were
part of the subsistence farming that nomads engaged in. As the community moved about the
country, their animals accompanied them. Protecting and feeding the animals were a big part of
the symbiotic relationship between the animals and the herders.

In the more recent past, people in agricultural societies owned dairy animals that they milked
for domestic and local (village) consumption, a typical example of a cottage industry. The
animals might serve multiple purposes (for example, as a draught animal for pulling a plough as
a youngster, and at the end of its useful life as meat). In this case the animals were normally
milked by hand and the herd size was quite small, so that all of the animals could be milked in

49
less than an hour—about 10 per milker. These tasks were performed by a dairymaid
(dairywoman) dairyman. The word dairy harkens back to Middle English dayerie, deyerie, from
deye (female servant or dairymaid) and further back to Old English dæge (kneader of bread).

With industrialization and urbanization, the supply of milk became a commercial industry, with
specialized breeds of cattle being developed for dairy, as distinct from beef or draught animals
Initially, more people were employed as milkers, but it soon turned to mechanization with
machines designed to do the milking.

Historically, the milking and the processing took place close together in space and time: on a
dairy farm. People milked the animals by hand; on farms where only small numbers are kept,
hand-milking may still be practiced. Hand-milking is accomplished by grasping the teats in the
hand and expressing milk either by squeezing the fingers progressively, from the udder end to
the tip, or by squeezing the teat between thumb and index finger, then moving the hand
downward from udder towards the end of the teat. The action of the hand or fingers is designed
to close off the milk duct at the udder (upper) end and, by the movement of the fingers, close the
duct progressively to the tip to express the trapped milk. Each half or quarter of the udder is
emptied one milk-duct capacity at a time.

50
The stripping action is repeated, using both hands for speed. Both methods result in the milk that
was trapped in the milk duct being squirted out the end into a bucket that is supported between
the knees of the milker, who usually sits on a low stool.

Traditionally the cow, or cows, would stand in the field or paddock while being milked. Young
stock, heifers, would have to be trained to remain still to be milked. In many countries, the cows
were tethered to a post and milked.

51
COMPANY PROFILE

52
COMPANY PROFILE:

The Salem District Co-operative Milk Producer Union Limited was registered on 10/07/1978
under Tamilnadu Co-operative Societies Act and started functioning from 07/10/1978. The
object of the union is to carry out activities conducive to the economic development of
agriculturists agricultural tenants and laborers by organizing effectively production, processing
and marketing of milk commodities. The commercial production of products viz. Butter, ghee
and Skim milk powder started on 16/08/1983. It was replaced by the Tamil Nadu Cooperative
Milk Producers Federation Limited in the year 1981. On 1 February 1981, the commercial
activities of the cooperative were handed over to Tamil Nadu Co-operative Milk Producers'
Federation Limited which sold milk and milk products under the trademark "aavin".

The diary complex is situated in about 46 acres of land bounded by Sithanur and Thalavaipatty
village in steel plant road. In total 110 milk producer co-operative societies are affiliated and 932
societies are functioning. The milk is collected through 55 milk routes daily ranging from 2.5
lakhs to 3.25 lakhs liters of milk per day depending on the season. The procurement and input
operation are managed through 8 milk procurement team offices at salem, sankari, namakkal,
paramatthivellore, attur, rasipuram ,mettur and valapady. The milk is delivered at the dock of the
three chilling center at namakkal, paramathivellore, attur, and the main diary at salem for
chilling.

53
The dairy has installed capacity to process 3 lakhs liters per day, to procure 10 MT of skim milk
powder 9 MT of butter and 6 MT of ghee. The quality of milk available after local sales and
despatch to Chennai is converted into product viz., butter, ghee, and skim milk powder. Ghee
and skim milk powder are being sold in the market all over India through the Tamil Nadu Co-
operative Milk Producer Federation Limited., Chennai with “Agmark” and “ISI” grades
respectively.

Our product bear the famous brand name of “AAVIN”, and supply of milk, skim milk powder,
butter, ghee and UHT milk in tera pack. It is proposed to Organize and assist 25 Women Dairy
Co-operatives both in Salem and Namakkal District during the period from 2002 to 2005,
involving 1750 Women members through self help groups.

The proposed 25 diary co-operative will have 70 members in each society and they will be
identified, trained in all aspects of dairying and monitored continuously for their economic
upliftment.

54
PRODUCTS:

S.NO PRODUCTS PACK TYPES

1. Milk Tonned Milk 250 ml,500 ml
Standarized milk 500 ml,1000 ml
High fact milk 500 ml, 1000ml
2. Butter Cooking Butter 500gm
3. Ghee 200 gm pet jar
450 gm sachet
450 gm tin
500 gm sachet
500gml tin
900 gm sachet
900 gm tin
1000 gm sachet
1000 gm tin
1800 gm pet jar
5 kg, jar
15 kg tin
4. Skim milk 1 kg
powder 25 kg
5. Khoa 50 gm
200gm
6. Curd 150 ml
7. Butter milk 200 ml
8. Tetra milk Plain milk 200 ml,1000 ml
Tonned milk 200 ml,1000 ml
Double Tonned milk 200 ml, 1000ml
Flavored milk 200 ml
Mango drink (Maavin) 200 ml

55
DETAILS OF THE SALEM DAIRY:

Type Co-operative
Gene Milk and Milk products
Managing director C. Kamaraj
Office address Sithanur, Thalaivaipatty P.O., Steel plant road, Salem- 636302

56
E-Mail address Slmaavinslm@sancharnet.in
ISO Certificate ISO 9002 certificate obtained for production and supply of milk, skim
milk powder, butter, ghee and UHT milk in tetra pack.
ISO Number 9001:2000
Owned Government of Tamil Nadu
Founded 1978
Headquarters Tamil Nadu

57
CHAPTEER IV

58
 IV – DATA ANALYSIS AND INTERPRETATION:

RATIO ANALYSIS AND INTERPRETATION

4.1 The Table That Current Ratio Between 2015-201

Current Ratio = Current Assets/ Current Liabilities

TABLE NO 4.1

YEAR CURRENT ASSETS CURRENT CURRENT RATIO

LIABILITIES
2014-2015 13238.78 5325.79 2.49
2015-2016 14684.87 9129.92 1.61
2016-2017 16484.81 8655.77 1.90
2017-2018 17293.25 9466.24 1.83
2018-1019 439474777.82 837795711.3 0.52

100%

90%

80%

70%

60%
CURRENT RATIO
50%
CURRENT LIABILITIES
40% CURRENT ASSETS

30%

20%

10%

0%
2014-2015 2015-2016 2016-2017 2017-2018 2018-1019

INTERPRETATION:

Since above the table shows that 2014-2015 is high then year. 2015-2019 years by the
ratio will be slowly came down, but they were maintaining the 0.52 Ratio so the company will
run smoothly.the firm can improve their assets position they helps in future events (inclcding
short term investment).

59
4.2 The Table Shows That Working Capital Liquid ratio Between 2015-2019

LIQUID RATIO = LIQUID ASSETS / CURRENT LIABILITIES

TABLE NO : 4.2

YEAR LIQUID ASSETS CURRENT RATIO

LIABILITIES
2014-2015 4347051.12 5325.8 81.5
2015-2016 540 912992465.5 5.91
2016-2017 10078053.63 110371840.5 0.09
2017-2018 3242440.11 108828620.3 0.02
2018-2019 277540119.7 1080617140.08 0.25

100%

90%

80%

70%

60%
RATIO
50%
CURRENT LIABILITIES
40% LIQUID ASSETS

30%

20%

10%

0%
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

INTERPRETATION:

Since above table shows that high quick ratio along with a high current ratio indicates a
good short-term solvency or debt repayment capacity of the firm.

60
4.3 The Table Shows That Working Capital Absolute liquid ratio Between 2015-2019

LIQUID RATIO = ABSOLUTE LIQUID RATIO / LIQUID LIABILITIES

ALR = CASH+ BANK +INVESTMENT

LL = CURRENT LIABILITIES - BANK OVER DRAFT

YEAR ABSOLUTE LIQUID LIQUID RATIOS

RATIO LIABILITIES
2014-2015 887142816.1 8105340891 9.13
2015-2016 1045081613 9573223155 9.16
2016-2017 4594269291 178752088.6 0.38
2017-2018 537351387.4 176915512.7 3.03
2018-2019 564496638.3 785397275.7 1.39

100%

90%

80%

70%

60%
RATIOS
50%
LIQUID LIABILITIES
40% ABSOLUTE LIQUID RATIO

30%

20%

10%

0%
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

INTERPRETATION:

Since above table shows that high quick ratio along with a high current ratio indicates a
good short-term solvency or debt repayment capacity of the firm

61
4.4 The Table Shows That Working Capital Profitability Gross Profit Ratio Between 2015-2019

GROSS PROFIT RATIO = GROSS PROFIT / SALES *100

TABLE NO :4.4

YEAR GROSS PROFIT SALES RATIOS

2014-2015 154684687.5 4619073010.6 3.35
2015-2016 196332666.70 5998314968.9 3.27
2016-2017 447229414.40 6253348526.19 7.15
2017-2018 227342556.9 6295669371.6 3.61
2018-2019 3918481.3 111248523.9 3.52

100%

90%

80%

70%

60%
RATIOS
50%
SALES
40% GROSS PROFIT

30%

20%

10%

0%
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

INTERPRETATION:

Since table shows that the gross profit were degreased from previous years it leads to
loss. The company have to increase it by doing innovative activity.

62
4.5 The Table Shows That Working Capital Profitability Net Profit Ratio Between 2015-2019

NET PROFIT RATIO = NET PROFIT / SALES *100

TABLE NO :4.5

YEAR NET PROFIT SALES RATIOS

2014-2015 525611287.82 4619073010.6 11.37
2015-2016 309601078.09 5998314968.9 5.16
2016-2017 495549104.70 6253348526.2 7.92
2017-2018 55219232.93 6295669371.6 0.9
2018-2019 69650810.4 111248523.9 62.6

100%

90%

80%

70%

60%
RATIOS
50%
SALES
40% NET PROFIT

30%

20%

10%

0%
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

INTERPRETATION:

Since above the table shows that very highest profit in the business was in the year of
2018-2019. The net profit ratio were degreased from pervious years. the company have to take
some steps for the improvement.

63
4.1.6 The Table Shows That Working Capital Operating Ratio Between 2015-2019

OPERATING RATIO = GROSS PROFIT / SALES

TABLE NO : 4.6

YEAR GROSS PROFIT SALES RATIOS

2014-2015 154684687.5 4619073010.6 0.03
2015-2016 196332666.70 5998314968.9 0.03
2016-2017 447229414.40 6253348526.19 0.07
2017-2018 27342556.9 6295669371.6 0.00
2018-2019 3918481.3 111248523.9 0.03

100%

90%

80%

70%

60%
RATIOS
50%
SALES
40% GROSS PROFIT

30%

20%

10%

0%
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

INTERPRETATION:

Since the chart that the operating ratio were good in position that should be maintained in
future also.

64
4.7 The Table Shows That Working Capital Operating Profit Ratio Between 2015-2019

OPERATING PROFIT RATIO = OPERATING PROFIT / SALES * 100

TABLE NO :4.7

YEAR OPERATING SALES RATIOS

PROFIT
2014-2015 4464388323 4619073010.6 96.7
2015-2016 580198230 5998314968.9 9.7
2016-2017 5806119112 6253348526.2 92.84
2017-2018 6268326814 6295669317.6 99.5
2018-2019 107330042.6 111248523.9 96.5

100%

90%

80%

70%

60%
RATIOS
50%
SALES
40% OPERATING PROFIT

30%

20%

10%

0%
2014-2015 2015-2016 2016-2017 2017-2018 2018-2019

INTERPRETATION:

Since the chart that the operating ratio were good in position that should be maintained in
future also.

65
TREND ANALYSIS

66
 4.8The table shows that movement of sales during the past 5 years.

TABLE NO :4.8

YEAR (Y) NET X=X-3 XY X2 TREND

SALES(X)
2014-2015 46190.73 -2 -92381.5 4 22185490.8
2015-2016 59983.2 -1 59983.2 1 629615914.6
2016-2017 62533.5 0 0 0 1281417320
2017-2018 6295669371.6 1 6295669371.6 1 1933218725
2018-2019 111248523.9 2 222497047.8 4 2585020131
TOTAL 640708660.2 0 ∑xy=6518014054 ∑X2=10

TRENT VALUE y= a +bx̄

∑x
Where a ? a¿ a= 6407086602 / 5 a=1281417320
n

∑ xy
Where b? b= b= 6518014054 / 10 b=651801405.4
x2

Where y? y= a +bx̄ y=6518014054/10 y=651801405.4

Y = a +bx̄

When x=-2 y=1281417320+-651801405.4*-2 y=-22185490.8

When x=-1 y=1281417320+-651801405.4 y=629615914.6

When x=0 y=1281417320+-651801405.4 y=1281417320

When x=1 y=1281417320+651801405.4 y=1933218725

When x=2 y=1281417320+651801405.4*2 y=2585020131

WHERE FORECASTING THE FUTURE YEARS;

2019-2020 3236821536
2020-2021 3888622942
2021-2022 4540424347
2022-2023 5192225752

67
 2023-2024 5844027158

4.8 The Chart Shows That Movement Of Net Profit The Past5 Years.

Chart no; 4.8

Chart Title
7000000000

6000000000

5000000000

4000000000

Axis Title
3000000000

2000000000

1000000000

0
1 2 3 4 5 6

INTERPRETATION:

Since the chart shows that net sales and trend value of the last 5 years.

The trend value is increased in year by year of 651801405.4 they did not have any interlink.

Hear they did not have any equal value in the trend and net sales.

68
4.9The table shows that movement of GROSS PROFIT past 5 years.

TABLE NO 4.9

Year(Y) Current X=x-3 XY X2 Trend

Assets(X)
2014-2015 154684687.5 -2 -309369375 4 260206065.8
2015-2016 196332666.70 -1 -196332666.7 1 232953813.6
2016-2017 447229414.40 0 0 0 205901561.4
2017-2018 227342556.9 1 227342556.9 1 178849309.2
2018-2019 3918481.3 2 7836962.6 4 151797057
TOTAL 1029507807 0 ∑XY=-270522522.2 ∑X2=10

TRENT VALUE y= a +bx̄

∑x
Where a ? a¿ a= 1029507807 / 5 a=205901561.4
n

∑ xy
Where b? b= b= -270522522.2 / 10 b=-27052252.22
x2

Where y? y= a +bx̄ y=205901561.4-27052252.22 y=178849309.2

Y = a +bx̄

When x=-2 y=205901561.4 +(-27052252.22*-2) y=260206065.8

When x=-1 y=205901561.4 +27052252.22 y=232953813.6

When x=0 y=205901561.4 +27052252.22 y=205901561.4

When x=1 y=205901561.4_(27052252.22) y=178849309.2

When x=2 y=205901561.4+(-27052252.22*2) y=151797057

WHERE FORCASTING THE FUTURE YEAR;

2019-2020 124744804.7
2020-2021 97692552.52
2021-2022 70640300.3
2022-2023 43588048.08
2023-2024 16535795.9

69
4.9The Chart That Movement Of gross profit The past 5 years.

Chart no :4.9

Chart Title
1200000000

1000000000

800000000

Axis Title 600000000

400000000

200000000

0
1 2 3 4 5 6

INTERPERTATION:

Since the chart shows that gross profit and their trend value in the last five years.

Hear the trend and gross profit

Then trend value goes to negative way of -27052252.2

70
 4.10 The table shows that movement of Net Profit Past 5 Years.

TABLE NO : 4.10

YEAR(Y) NET X=X-3 XY X2 TREND

PROFIT(X)
2014-2015 525611287.82 -2 -1051222576 4 29345892580
2015-2016 309601078.09 -1 -309601078.09 1 29229262300
2016-2017 495549104.70 0 0 0 29112632028
2017-2018 55219232.93 1 55219232.93 1 28996001740
2018-2019 69650810.4 2 139301620.8 4 28879371460
TOTAL 1455631514 0 ∑XY=-1166302800 ∑X2=10

TRENT VALUE y= a +bx̄

∑x
Where a ? a¿ a= 1455631514/ 5 a=2911263028
n

∑ xy
Where b? b= b= -1166302800 / 10 b=-116630280
x2

Where y? y= a +bx̄ y=29112632028-116630280 y=29112632028

Y = a +bx̄

When x=-2 y=29112632028+(-116630280*-2) y=29345892580

When x=-1 y=29112632028+(-116630280*-1) y=29229262300

When x=0 y=29112632028-116630280 y=29229262300

When x=1 y=29112632028-M116630280 y=28996001740

When x=2 y=29112632028+(-116630280*2) y=28879371460

WHERE FORECASTING THE FUTURE YEARS :

2019-20 28762741180
2020-21 28646110900
2021-22 28529480620
2022-23 28412850340

71
 2023-24 28296220060

4.10The Chart That Movement Of Net Profit The past 5 years.

Chart no :4.10

72
 Chart Title
35000000000

30000000000

25000000000

20000000000

Axis Title

15000000000

10000000000

5000000000

0
1 2 3 4 5 6

INTERPRETATION:

Since the chart shows that net profit and their trend value in the last five years.

Then the trend value goes to negative way of -116630280.

4.11 The table shows that movement of Current Assets Past 5 Years.

TABLE NO : 4.2.4

Year(Y) CURRENT X=X-3 XY X2 TREND

73
 ASSETS(X)
2014-2015 13238.8 -2 -264776 4 -155958526.9
2015-2016 14684.9 -1 -14684.9 1 166692480.1
2016-2017 16484,8 0 0 0 489343487.1
2017-2018 966556523.9 1 966556523.9 1 811994494.1
2018-2019 1480116503.70 2 23602323006 4 1134645501
TOTAL 2446717435 ∑XY=322651006 ∑X2=10
9

TRENT VALUE y= a +bx̄

∑x
Where a ? a¿ a= 2446717435/ 5 a=489343487.1
n

∑ xy
Where b? b= b= 3226510069 / 10 b=322651007
x2

Where y? y= a +bx̄ y=489343487.1-322651007 y=489343487.1

Y = a +bx̄

When x=-2 y=489343487.1+(322651007*-2) y=155958526.9

When x=-1 y=489343487.1+(322651007*-1) y=166692480.1

When x=0 y=489343487.1-322651007 y=489343487.1

When x=1 y=489343487.1+(322651007*1) y=811994494.1

When x=2 y=489343487.1+(322651007*2) y=1134645501

WHERE FORECASTING THE FUTURE YEARS :

2019-20 1457296508
2020-21 1779947515
2021-22 2102598522
2022-23 2425249529
2023-24 2747900536

74
4.11The Chart That Movement Of CURRENT ASSETS The past 5 years.

Chart no :4.11

Chart Title
3000000000

2500000000

2000000000

Axis Title 1500000000

1000000000

500000000

0
1 2 3 4 5 6

INTERPRETATION:

Since the chart shows that current assets and their trend value.

The trend value goes to positive way of 322651007.

75
4.12The table shows that movement of Current liabilities Past 5 Years.

TABLE NO : 4.2.4

Year(Y) CURRENT X=X-3 XY X2 TREND

LIABILITIES(X)
2014-2015 5325.8 -2 -10651.6 4 -21757145.46
2015-2016 912992 -1 -9129.92 1 11043784.5
2016-2017 8655.8 0 0 0 43844714.46
2017-2018 110371840.5 1 110371840.5 1 76645644.42
2018-2019 108828620.3 2 217657240.6 4 109446574.4
TOTAL 219223572.3 ∑XY=328009299.6 ∑X2=10

TRENT VALUE y= a +bx̄

∑x
Where a ? a¿ a= 219223572.3/ 5 a=43844714.5
n

∑ xy
Where b? b= b= 328009299.6 / 10 b=32800929.96
x2

Where y? y= a +bx̄ y=43844714.5-32800929.96 y=43844714.46

Y = a +bx̄

When x=-2 y=43844714.7+(32800929.96*-2) y=-21757145.7

When x=-1 y=43844714.7+(32800929.96*-1) y=11043784.5

When x=0 y=43844714.7 - 32800929.96 y=43844714.7

When x=1 y=43844714.7+(32800929.96*1) y=76645644.42

When x=2 y=43844714.7+(32800929.96*2) y=109446574.4

WHERE FORECASTING THE FUTURE YEARS :

2019-20 142247504.3
2020-21 1750484343
2021-22 207849364,3
2022-23 240650294.2
2023-24 273451224.2

76
 4.12 The Chart That Movement Of CURRENT LIABILITIES The past 5 years.

Chart no :4.12

Chart Title
3000000000

2500000000

2000000000

Axis Title 1500000000

1000000000

500000000

0
1 2 3 4 5 6

INTERPRETATION:
77
Sine the chart shows that current liability and their trend value

The trend value goes to positive way of 32800929.96

CHAPTER V

78
FINDING ,SUGGESTION,CONCLUSION:

FINDING:

 The current ratio of the was below the standard of 0.52 hence the ratio is not
satisfied.
 The working capital turnover ratio will be increased in year by year for the last 5
years.
 The fixed assets turnover ratio is reduced in years by year so the firm loses irs
fixed assets turnover ratio.
 The liquid ratio is positive after in the five years.
 The net profit ratio is in very critical position.
 Then trend analysis of sales and debtors is positive trend.
 Hear the gross profit and net profit is negative trend.

Suggestion:

 The company shall concentrate on net working capital

 The company should be taken be normal price for the customer, so that sales price will be
improve.
 The company has to take measure to increase sales and utilize the assets effectively.
 Optimum utilization of liquid assets of assets will definitely help the company to get
more profit.
 Maintenance of liquid assets will definitely help the company in facing the unexpected
situation.

Conclution:

 The salem distric co-operative milk producers union ltd, has been performing well in the
milk and product goods being one of the union of the salem distric co-operative milk
producers union ltd, its has been showing an increasing trend in its profitability position
for the past 5 years which deficits a good sing.
 The company must taken steps to improved it liquidiry position.

79
  The company has a high a operation efficiency and most of the ratio seen to be
satisfaction from the point of view of both the agent and customers.
 The other importance factor which is worth mentioning years is that the company has
been progressing steadily on its capacity utilization in line with its growing financial
performances.

BIBLIOGRAPHY

REFERENCE :-

1. :http://en.wikipedia.org/wiki/Working_capital

2. Ravi M. Kishore, “Advanced Management Accounting”

3. http://www.dtsc.ca.gov/AssessingRisk/Upload/pce.pdf

4. C.R.Kothari, Research methodology.

5. Vijay Prakash Joshi, 1995 Working Capital Management, New Delhi.

6. I.M.Pandey: 2000 “Financial Management theory and practices”, Vikas

publishing house Pvt. Ltd., New Delhi.

7. Praveen Kumar Jain, 1993 Management of Working Capital,

Jaipur .

8. P. Mohan Rao and Alok K. Pramanik, 1999 Working Capital Management.

9. A. A. Khan, 1989 Working Capital Analysis, Jaipur.

10. Ravi .M. Kishore, 2005 “Financial Management Tax and Cases” taxman
publishing company, New Delhi.

11. Brown J.L & Howard L.R., “Managerial Accounting and Finance”

Website:

80
1. www.capitaline.com
2. www.economictimes.com
3. www.blonnet.com
4. www.moneycontrol.com
5. www.reportgallery.com
6. www.annualreportservice.com
7. www.pwcglobal.com
8. www.nse-india.com
9. www.ft.com
10. www.sebi.in
11. www.sec.gov
12. www.business-standard.com
in.finance.yahoo.com

81
APPENDIX

BALANCE SHEET OF MILK MAR MAR MAR MAR MAR  

SPECIALITIES (in Rs. Cr.) '16 '17 '18 '19 '20

  12 12 12 12 12  
mths mths mths mths mths

SOURCES OF FUNDS  

Total Share Capital 8.95 8.95 8.95 8.95 8.95  

Equity Share Capital 8.95 8.95 8.95 8.95 8.95  

Reserves 8.43 8.64 7.96 7.36 6.85  

NETWORTH 17.3 17.5 16.9 16.3 15.8  

8 9 1 1 0

Secured Loans 34.2 39.2 45.1 28.2 22.5  

7 8 5 6 6

Unsecured Loans 0.00 0.00 2.87 2.87 2.87  

TOTAL DEBT 34.2 39.2 48.0 31.1 25.4  

7 8 2 3 3

TOTAL LIABILITIES 51.6 56.8 64.9 47.4 41.2  

5 7 3 4 3

Gross Block 24.5 24.5 24.4 24.2 22.7  

5 5 4 8 6

82
Less: Accum. Depreciation 16.7 15.5 14.4 13.2 12.1  
0 7 4 8 2

NET BLOCK 7.85 8.98 10.0 11.0 10.6  

0 0 4

Capital Work in Progress 0.00 0.00 0.00 0.00 0.24  

INVESTMENTS 0.00 0.00 0.00 0.00 0.00  

Inventories 45.8 46.0 48.6 31.2 24.3  

0 2 3 3 4

Sundry Debtors 2.15 7.28 7.07 6.87 6.89  

Cash and Bank Balance 0.98 0.48 1.65 1.04 1.57  

Total Current Assets 48.9 53.7 57.3 39.1 32.8  

3 8 5 4 0

Loans and Advances 1.24 1.65 1.65 1.28 1.83  

Total CA, Loans & Advances 50.1 55.4 59.0 40.4 34.6  
7 3 0 2 3

Current Liabilities 6.23 7.33 4.07 3.97 4.28  

Provisions 0.15 0.22 0.00 0.00 0.00  

Total CL & Provisions 6.38 7.55 4.07 3.97 4.28  

NET CURRENT ASSETS 43.7 47.8 54.9 36.4 30.3  

9 8 3 5 5

TOTAL ASSETS 51.6 56.8 64.9 47.4 41.2  

4 6 3 5 3

Contingent Liabilities 0.00 0.00 0.00 0.00 0.00  

83
 Book Value (Rs) 19.3 19.5 18.7 18.1 17.5  
1 4 9 2 5

Source : Dion Global Solutions Limited

84