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EXECUTIVE SUMMARY
India in a large and growing economy with rapidly expanding financial service sector. Managing working capital is a matter of balance. A company must have sufficient cash on hand to meet its immediate needs while ensuring that idle cash is invested to the organizations best possible advantage. To avoid tipping the scale, it is necessary to have clear and accurate reports on each of the components of working capital and awareness of the potential impact of outside influences. In the analysis for STAR PAPER MILL LTD, It was found that the working capital has increased which could be mainly due to increased sales. The Gross Operating Cycle declined significantly but the reduction was nullified due to the reduction in inventory conversion period. This is why we see that Net operating Cycle for last two years is almost identical. The main areas of emphasis were work in progress conversion period and creditor's conversion period. Debtors' conversion period reduced but work in progress and creditors conversion period increased. Few suggestions that are recommended for better management of working capital are reducing inter-corporate deposits and loans, reducing finished goods inventory, increment in creditors payment period etc. Thus, good management of working capital is part of good financial management. Effective use of working capital will contribute to the
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operational efficiency of a company; optimum use will help to generate maximum returns. Working capital management is a significant in financial management due to the fact that it plays a pivotal role in keeping the wheels of a business enterprise running; working capital management is concerned with shortterm financial decisions. Shortage of funds for working capital has caused many businesses to fail and in many cases has retarded their growth.

So, working capital should be in balance, neither in excess nor in less.

COMPANY PROFILE
BACK GROUND: Star Paper Mill Ltd. (SPML) is a profit making, dividend paying company engaged in the business of manufacturing pulp and paper. The is accredited with ISO: 14001:2004, ISO 9001:2000 and OHSAS 18001:2007.

The registered office of the company is in KOLKATA (WEST BENGAL).

The plant is located at SAHARANPUR (UTTAR PRADESH).

SPML was incorporated on august 31, 1936. SPML set up its plant for manufacturing writing and printing paper from BHABHER GRASS at SAHARANPUR (U.P.) in 1938 with a capacity of 6000 TPA, in 1956-57, SPML undertook an expansion program to increase its capacity to 18000 TPA, to produce packing papers of high quality from pine wood. SPML added 2 MG paper machines and a chemical recovery plant in 1961.

SPML has been periodically undertaking various balancing-cum-expansion schemes. As a result, the capacity has increased up from 18000 TPA in 1961 to 71350 TPA in 2004-05. Star Paper Mills is a Duncan Goenka group company, one of Indias largest and well diversified business houses. The company was incorporated in 1938 by Seth Shri Baldev Das Bajoria, with an initial installed capacity of 7280 TPA (20 TPD) and ever since the take over of the Management of the company by the Goenka Group headed by Shri G. P. Goenka, in 1986, Star Paper Mills has grown phenomenally.

Star is an ISO 9001:2000 certification. Manufactures a wide range of paper of different grades for packaging, printing and other industrial uses in premium grade. We have started striven to improve the quality of products and to provide consumers with high quality paper at competitive price.

A massive modernization and expansion is in progress of increase production, improve competitiveness and reduce pollution. We are today manufacturing about 75,000 TPA (205 TPD) of Writing, Printing and Packaging grade of paper.

Star is conscious of its social responsibility and has invested heavily in reducing pollution and encouraged literacy and skill learning among ladies especially as it is surrounded by urban as well as rural population.

Star is situated at Saharanpur, a scenic city in the foothills of Himalayas. It has to its east the famous hill station Queen of Hills Mossoro and the capital of Uttaranchal State Dehradoon, to west the Capital of India New Delhi, north the beautiful city of Chandigarh and to the south the city of Meerut, harbinger of 1857 revolution in India. It has large number of famous

universities all around it. A town with population about 7 lakhs, with proper civic amenities.

The company lays great emphasis on Human Resource Development and truly believes that people are its main strength. The company had the good fortune of having stalwarts of Paper Industry viz. Mr.R.S.BHARGAVA, Mr. R.S.KACHOLIA and DR. B.L.BIHANI guiding its destiny through its journey of time.

The company is situated near to premier Institute I.I.T Roorkee, (Saharanpur Campus) and Central Pulp and Paper Research Institute (CPPRI) of the country in Pulp & Paper Field.

The efforts of the company for its revigouration have been duly recognized by various institutions like International Friendship Society of India, New Delhi, Institute of Economics, New Delhi, Institute National

Demercodoteonia, Mexico and Govt. of India, Ministry of Power and INTERNATIONAL DIAMOND STAR for quality and first prize in Energy Conservation in Pulp and Paper Industry for the year 1992 respectively.

In recognition of the continual efforts for energy conservation, the company has been awarded commendation certificate for the year 1999 under the National Energy Conservation Award scheme in Pulp Sector by Ministry of Power, Govt. of India.

PAPER CONSUMPTION

COUNTARY WISE PAPER CONSUMPTION:

COUNTRY

PAPER CONSUMPTION (Kg. PER CAPITA)

USA

334

JAPAN

302

SOUTH EAST-ASIA 40

CHINA

30

WORLD-AVERAGE 56

INDIA

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INDIAN PAPER INDUSTRY

1. Paper demand estimated at 61.5 lakh tons (excluding news paper) 2. Growth rate is tandem with GDP growth. 3. IPMA member units constitute. 4. Demand break up as under:1) Production 2) Imports 3) Exports 60.5 lac tons 4.0 lac tons 3.0 lac tons

SEGMENT WISE PAPER DEMAND IS AS UNDER:

PRINTING AND WRITING

48%

CREAMWOVE = 25% MAPLITHO COPIER COATED OTHER = = = = 12% 04% 05% 02%

INDUSTRIAL

49%

KRAFT DUPLEX/GREY BOARD POSTER ABSORBENT-KRAFT COATED BASE MG COVER

= 22% = 17% = 05% = 03% = 01% = 01%

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PRODUCT PORTFOLIO

: Star paper has a rich product portfolio, comprising of industrial and cultural paper. : We manufacture a wide range of industrial papers, such as Absorbent kraft, among others : We also produce a diverse variety of cultural papers, like SS Map litho paper, MG cover papers and business communication papers (Azure laid and capier variety).

CULTURAL PAPER: Cultural paper comprises writing and printing paper and business communication paper. This variety use for a number of diverse applications in diaries, calendars, books, maps, computer stationary, photo-copying paper.

INDUSTRIAL PAPER: Industrial paper constitutes absorbent kraft, padding paper, base paper, kraft paper, poster paper, Poster ARSR and ribbed craft paper.

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SEGMENT

APPLICATION

PRODUCT

CULTURAL:

Writing & printing Book printing Map printing Label printing Magazine printing SS Map litho white/natural shade SS map litho

(H.B.) Lottery printing (H.B.) Business communication Photo copy Ledger Computer stationary Cone mfg. Water proof/gum tape Fire crackers INDUSTRIAL: Soap wrapper Biscuit packing Water proofing Tobacco packing SS map litho

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KEY CUSTOMERS:
HUL EVEREADY ITC LTD. THOMSON PRESS GOPSON PAPER PEARSON EDUCATION REPLICA PRESS MASTER COTE MANU COTE SURYA COTE MEGHDOOT LAMINATIONS NOVINO BATTERIES WATER PROFF CORPORATION STANDARD FIREWORKS BLOOM DCOR etc

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DISTRIBUTION NETWORK
Our strength lies in extensive service network of 50 dealers having pan India presence. Our clientele includes Century Laminating, Eveready, Greenply, Hindustan Lever, ITC, Pearson Education (Singapore) Pvt. Limited and Thomson Press, among others. We have a well established distribution network for sale of various products on all India bases. Our sales are through dealer network. Almost entire sales are immediate payment terms. Dealer in turn extends credit in the market and carries stock. NUMBERS OF DEALERS ARE:STATE ANDHRA PRADESH DELHI GUJRAT HARYANA KARNATAKA MAHARAASHTRA MADHAYA PRADESH PUNJAB CHANDIGARH RAJASTHAN TAMIL NADU UTTAR PRADESH WEST BENGAL NEPAL TOTAL NOS 01 16 01 01 02 05 05 01 01 02 02 12 04 01 54

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Distribution and reach

Retail customers serviced through 50 nationwide distributors, Stars primary customers; 8% increase in dealer throughput in 2004-05.

Presence in 13 Indian states through the dealer network. 85 per cent of the companys distributors have been the companys channel partners for at least 10 years.

Some distributors represent the fourth generation working with the company.

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RECOGNITIONS
Recognition has come from far and wide. In line with the high quality products, the company has ISO 9001:2000 certification. The ISO-14000 certification attests to our efficient environment

management. Our efforts in environmental preservation have earned us awards like Genentech Award for safety in paper industries.

We have a sustained energy conservation programmed within our manufacturing unit and that endeavor was recognized through a certificate of Merit given by the Indian Paper Manufactures Association.

PERFORMANCE 2006-07 : Capacity utilization increased from 91% to95%. : Clocked post tax profit of Rs. 1270.18 lacs (18 months) as against Rs.928.27 lacs last year.

MANAGEMENT DISCUSSION AND ANALYSIS

Industry Insight: Global Paper Industry maintained its steady growth, with Asian markets continuing to grow faster than the rest of world. Indian Paper Industry also witnessed rapid increase in the demand on the back of sustained economic growth in the country and is now engaged in capacity expansion to meet projected demand.
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Global prices of most paper products and pulp had remained depressed for several years in the past, prompting significant capacity reductions in developed countries. The global demand supply imbalance having being corrected prices in the international markets have been corrected, prices in the international markets have off late, begun rising particularly for pulp and waste paper. In tandem with global markets realization improved in the domestic market too. Asian paper market is estimated at around 32% of the total global consumption, its principal segments being China, Japan, India, Malaysia, Singapore and Thailand. The opportunity for paper manufactures. Across the Asian landmass, excluding Japan, annual demand increase ranged of the world. In addition, due to lower cost of fibrous raw materials massive fresh pulp capacities are coming on stream in Latin America. Asia and Latin America have thus become engines of growth for the Global Paper Industry.

GROWTH POTENTIAL: According to the report of CIRS-INFAC the global demand for paper and paper board is expected to grow at a compounded annual growth rate of 5.8% whereas the capacity is expected to increase by 2.1% only, translating into better operating ratios across the world. Within Asia, India is expected to report one of the sharpest demand growths. It is estimated that demand in Indian paper industry would continue to grow at a rate slightly faster than the economy growth rate and is poised to cross 10 million MT per annum. According to the International Finance Corporation (IFC) per capita consumption in the country is estimated at 7 kilograms per year one of the

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lowest in the world and far below the global average of 56 kilogram. With the expected increase in the per capita consumption of paper is expected. Although a number of players have announced capital expenditure plansaggregating to Rs10, 300 crores this is expected to add only about 1.45 million tones per annum to production capacity. These capacity additions in pipeline are likely to come on stream by FY 09 in a phased manner.

SOCIAL FARM FORESRTY In order to build sustainable raw material supply at optimum cost, your company started Social Farm Forestry programmed, and so far plantation have been developed covering over 44,000 ha of farmlands. Presently company is sourcing 92% of its raw material supply from farm forestry plantation. There are plans to accelerate the plantation activity to a level of 10,000 ha per annum. More than 300 lacs seedlings were distributed among the farmers (on annualized basis) under review. In order to give impetus to wood yield from plants, your company started tree improvement programmed through clonally technology. The demand for high yielding clones is the low yielding plantation. This will help in not only augmenting raw material supply but also raise farm productivity and rural incomes. To meet the increasing demand of high yielding clonally plants your company has started an additional facility for clonally multiplication.

INTERNAL CONTROL SYSTEM Your companys management continuously reviews the internal control system and procedure to ensure orderly and efficient conduct of business.

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The company regularly conducts internal audits either through external or internal resource to monitor the effective of internal control in the organization. Significant audit finding are brought to the Audit Committee of the Board and corrective measure are taken. Reports of the internal auditors are also regularly reviewed by the management and corrective actions are initiated to strengthen controls enhance effectiveness of the existing systems.

HUMAN RESOURCES: Our Human resource Development system is linked to organizations need and performance. Skill enhancement needs are regularly identified and imparted with the help of both internal trainers and external faculty. The company consistently seek t recruit, develop and employ suitably qualified, capable and experienced people. OUTLOOK In tandem with the growth in countrys economy, the Indian Paper industry is also set to witness period growth. However already input prices coupled with appreciating Rupee pose a challenge for the industry. COMPANYS PHILOSOPHY ON CORPORATE GOVERNANCE

The Company places strong emphasis on transparency, empowerment accountability and integrity so as to continuously enhance the stakeholder value. BOARD OF DIRECTORS: In term of the companys Corporate Governance policy, all statutory and other significant and material information are placed before the Board to
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enable it to discharge its responsibilities of supervision, control and direction of the company. COMPOSITION: The composition of the Board of Directors consists of Executive and Non Executive Directors. The total number of the Company is nine including Whole-Time Director.

COMPANY POLICY ABOUT SHARE-HOLDERS: CAPITAL HISTORY:Issued, subscribed and paid up capital of the company comprises of equity shares of Rs.10/- each fully paid up. The paid up capital till 1994-95 was enhanced to Rs. 15.60 crores during the 1995-96, by issuing Right and Bonus share, Since then there has been no change.

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 LISTING: Your company is listed on the Bombay and National stock exchanges.

CODE OF CONDUCT: A code of conduct for all its Board Member and Senior Management personnel for avoidance of conflict of interest has been laid down and is available ON THE Company website. Necessary declarations affirming compliance has been received during the period since it has been in force. There were no material personal interest/ personal benefits received by the Board Member/Senior Management personnel, which could lead to potential conflict of interest with the company as a result of their position. COMMITTEES OF THE BOARD: The Board of directors has constituted two committee the Audit committee and the Shareholders/Investors Grievance Committee.

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 THE AUDIT COMMITTEE The company has already set up the Audit Committee in accordance with requirement of Section 292A of the Companies Act, 1956 and the term of reference are in conformity with clause 49 of the listing agreement entered into with the stock exchange. Statutory Auditors, internal Auditors and Cost Auditor are invitees to the committee meetings. The Company Secretary acts as the Secretary to the Committee. SHAREHOLDERS/ INVESTORS GRIEVANCE COMMITTEE The committee oversees redressal of shareholder and investor grievance, like transfer of share, non-receipt of Annul Report, dividends and approves of sub-division, transmission, issue of duplicate share etc. The Company Secretary acts as the Secretary to the Committee. SHAREHOLDER INFORMATION: Registrar and Share Transfer Agents The Companys Registrar and Share Transfer Agent is Karvy Computer share Pvt. Ltd... Address for correspondence: Karvy House, 46, Avenue 4, Street No. 1, Banjara hills, Hyderabad 500034 Telephone 0091-40-23312454/23320751/23320752/ 233220251 Fax: 0091-40-233333311968/ 23323049 The Shareholder holding shares in the electronic holding shares in the electronic form should address their respective Depository Participants.

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RATING OF DEBT SECURITIES IN RESENT YEAR, RATING AGENCIES HAVE BEEN SET UP IN SEVERAL COUNTRIES. IN INDIA TOO, FOUR RATING AGENCIES HAVE BEEN SET UP CRISIL ICRA CARE PHELPS AND DUFF

MEETINGS AND ATTENDENCE: During the year ended 30th September 2007,seven meeting of Board of Directors were held on 23rd may 2006, 29th may 2006, 6th September, 2006, 29th November 2006, 26th February 2007, 31st May 2007 and 27th August 2007.

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WELFARE ACTIVITIES Consumer Items Annual Indent of Consumer items (Mammal, Malesia, Mustard Oil, soap, Bhabar Ban, Coir String, Niwar) Bjabar Ban, Coir String & Niwar Distribution Exercise Books Exercise Book Indent Exercise Book Distribution Health/Medical Eye Check-Up Camp Camp Annual Medical Checkup of all employees working in Hazardous Processes (as per Factories Act) Annual Medical checkup (From-27) of all employees Water Testing Report from Govt. Authorities Retirement farewell Daily Keep up of Rest Room Look after R.D.A/cs (Mew A/c, PMC, enquiry) Ensure good Canteen Services Library in mills colony 5.00 to 7.00 PM As Per Requirement Look after Hospitalized Sick/Injures employees (Emergency Services) Seminars for Health & Disease from time to time Marwari Mess allotment to employees for Marriages/Functions etc. Cash Reward (Rs. 200) & Sql. Leave (10 days) for Family Planning Operation of Self/spouse. Pulse polio for children Combined farewell for retired employees

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COMPARISION WITH COMPETETORS

STAR PAPER MILLS VS BALLARPUR INDUSTRIES

STAR PAPERS Mkt Cap (Rs Cr) 52wk H/L (Rs) 45.32 58.00 - 25.20

BALL. IND 3077.98 38.10 24.85

STAR PAPERS PE ratio EPS (Rs) Sales (Rs crore) Face Value (Rs) Net profit margin (%) Last bonus Last dividend (%) Return on average equity 10.92 Sep, 07 3.52 8.14 60.12 10 3.93 1:02 17.5 Sep, 07 12/11/1978 28/11/07 30/09/08 Sep, 07 Mar, 08

BALL. IND. 12.13 2.7 266.59 2 11.45 1:02 15 Jun, 07 5/10/1989 29/08/07 31/07/08 Jun, 07 Mar, 08

12.61

Jun, 07

Ballarpur Industries are strong competent in the papers industry, not only they show more market capitalization i.e. 3077 cr. whereas Star Paper mills limited has mere 45.32 cr. The price earning ratio of Ballarpur Industries is 12.13 where as Star Papers has only 3.52 which show that Star Paper Mills has strong potential. The
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earning per share of Star Paper mills is more than that of Ballarpur Industries. The Star Papers has face value of its share is 10 Rs. But Ballarpur Industries has only 2 Rs. It shows a great advantage of Star Papers over Ballarpur Industries. The profit margin of Star Paper Mills is lagging behind from the Ballarpur industries. Percentage of dividend given star papers is more than Ballarpur Industries i.e. 17.5 % as compare to 15 of Ballarpur Industries.

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STAR PAPER MILL VS ANDHRA PAPERS MILL

STAR PAPER MILLS Mkt Cap (Rs Cr) 52wk H/L (Rs) 45.32 58.00 25.20

ANDHRA P PAPERS 190.31 123.70 - 64.10

Star Paper PE ratio EPS (Rs) Sales (Rs crore) Face Value (Rs) Net profit margin (%) Last bonus Last dividend (%) Return on average equity 10.92 Sep, 07 17.5 28/11/07 3.93 1:02 Sep, 07 12/11/1978 3.52 8.14 60.12 10 30/07/08 Sep, 07 Mar, 08

Andhra P Papers 11.52 6.43 178.52 10 1/8/2008 Mar, 08 Jun, 08

4.9 1:04

Mar, 07 29/04/81

10

13/05/08

6.32

Mar, 07

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INTRODUCTION
Every business needs investment to procure fixed assets, which remain in use for a long period. Money invested in these assets is called Long term Funds or Fixed Capital. Business also needs funds for short-term purposes to finance current operations. Investment in short term assets like cash, inventories, debtors etc., is called Short-term Funds or Working Capital. The Working Capital can be categorized, as funds needed for carrying out day-to-day operations of the business smoothly.

The management of the working capital is equally important as the management of long-term financial investment.

The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

Every running business needs working capital. Even a business which is fully equipped with all types of fixed assets required, is bound to collapse without

(i)

adequate supply of raw materials for processing;

(ii) cash to pay for wages, power and other costs; (iii) creating a stock of finished goods to feed the market demand regularly; and, (iv) The ability to grant credit to its customers.
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All these require working capital. Working capital is thus like the lifeblood of a business. The business will not be able to carry on day-to-day activities without the availability of adequate working capital. Statement in this report that describe the companys objectives , projection , estimates , expectations or predictions of the future may be forward looking statement within the meaning of the applicable securities laws and regulations . The Company cautions that such statements involve risks and uncertainty and that actual result could differ materially from those expressed or implied. Important factors that could cause difference include raw materials cost or availability, cyclical demand and pricing in the companys principal markets, change in government regulations , economic developments within the countries in which the company conducts business, and other factors relating to the companys operations , such as litigation, labor negotiations and fiscal regimes.

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COMPONENTS
The term working capital refers to the amount of capital which is readily available to an organization. That is, working capital is the difference between resources in cash or readily convertible into cash (Current Assets) and organizational commitments for which cash will soon be required (Current Liabilities) Current Assets are resources which are in cash or will soon be converted into cash in "the ordinary course of business". Current Liabilities are commitments which will soon require cash settlement in "the ordinary course of business". WORKING LIABILITIES CAPITAL = CURRENT ASSETS CURRENT

Current Assets

Liquid Assets (cash and bank deposits) Inventory Debtors and Receivables Prepaid exp. Temporary Investment Short term advance

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Current Liabilities

Bank Overdraft Creditors and Payables Other Short Term Liabilities Outstanding exp.

Component of Working Capital i. Stock of raw material

Basis of Valuation

Purchase cost of raw Materials

ii.

Stock of work in process

At cost or market value, whichever is lower

iii. iv.

Stock of finished goods Cost of production Debtors Cost of sales or sales value

v.

Cash

Working expenses

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Working Capital Cycle

Working capital cycle involves conversions and rotation of various constituents/components of the working capital. Initially cash is converted into raw materials. Cash flows in a cycle into, around and out of a business. It is the Businesss life blood and every manager's primary task is to help Keeps it flowing and to use the cash flow to generate profits. If a business is operating profitably, then it should, in theory, generate cash surpluses. If it doesn't generate surpluses, the business will eventually run out of cash and expire. The usage of fixed assets result in value additions, the raw materials get converted into work in process and then into finished goods. When sold on credit, the finished goods assume the form of debtors who give the business cash on due date. Thus cash assumes its original form again at the end of one such working capital cycle but in the course it passes through various other forms of current assets too. This is how various components of current assets keep on changing their forms due to value addition. As a result, they rotate and business operations continue. Thus, the working capital cycle involves rotation of various constituents of the working capital. While managing the working capital, two characteristics of current assets should be kept in mind viz. (i) short life span, and (ii) Swift transformation into other form of current asset. Each constituent of current asset has comparatively very short life span. Investment remains in a particular form of current asset for a short period.
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The life span of current assets depends upon the time required in the activities of procurement; production, sales and collection and degree of synchronization among them. A very short life span of current assets results into swift transformation into other form of current assets for a running business. These characteristics have certain implications: I Decision regarding management of the working capital has to be taken frequently and on a repeat basis. ii. The various components of the working capital are closely related and mismanagement of any one Component adversely affects the other components too. iii. The difference between the present value and the book value of profit is not significant.

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If money moves faster around the cycle (e.g. collect monies due from debtors more quickly) or the amount of money tied up is reduced (e.g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, the cost of bank interest can be reduced or additional free money will be available to support additional sales growth or investment. Similarly, if improved terms with suppliers are negotiated e.g. longer credit or an increased credit limit, then free finance to help fund future sales can be effectively created.

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MANAGEMENT OF COMPONENTS OF WORKING CAPITAL

Inventory Management
Inventory includes all types of stocks. For effective working capital management, inventory needs to be managed effectively. The level of inventory should be such that the total cost of ordering and holding inventory is the least. Simultaneously, stock out costs should be minimized. Business, therefore, should fix the minimum safety stock level, re-order level and ordering quantity so that the inventory cost is reduced and its management becomes efficient. Average stock-holding periods will be influenced by the nature of the business. For example, a fresh vegetable shop might turn over its entire stock every few days while a motor factor would be much slower as it may carry a wide range of rarely-used spare parts in case somebody needs them. Many large manufacturers operate on a just-in-time (JIT) basis whereby all the components to be assembled on a particular today, arrive at the factory early that morning, no earlier - no later. This helps to minimize manufacturing costs as JIT stocks take up little space, minimize stockholding and virtually eliminate the risks of obsolete or damaged stock. Because JIT manufacturers hold stock for a very short time, they are able to conserve substantial cash. JIT is a good model to strive for as it embraces all the principles of prudent stock management.

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Debtors Management
The objective of any management policy pertaining to debtors would be to ensure that the benefits arising due to the debtors are more than the cost incurred for debtors and the gap between benefits and cost increases profits. An effective control of receivables helps a great deal in property managing it. Each business should, therefore, try to find out average credit extended to its client using the below given formula

Creditors Management
Creditors are a vital part of effective cash management and should be managed carefully to enhance the cash position. Purchasing initiates cash outflows and an over-zealous purchasing function can create liquidity problems. Thus, the following factors should be considered: The purchasing authority in the company and whether it is tightly managed or spread among a number of people. The purchase quantities should be geared to demand forecasts.
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Order quantities should be used that take into account stockholding and purchasing costs. The cost of carrying stock should be known. Dependency on a single supplier should be avoided and facilities like best discounts, credit terms etc. should be used from alternative suppliers. Suppliers returns policy should be considered.

Cash Management
Cash is the most liquid current asset. It is of vital importance to the daily operations of business. While the proportion of assets held in the form of cash is very small, its efficient management is crucial to the solvency of the business. Therefore, planning cash and controlling its use are very important tasks. Cash budgeting is a useful device for this purpose.

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FINANCIAL RATIO ANALYSIS FINANCIAL RATIO ANALYSIS

Introduction:
Financial ratio analysis calculates and compares various ratios of amounts and balances taken from the financial statements. The main purposes of working capital ratio analysis are: To indicate working capital management performance; and To assist in identifying areas requiring closer management. Three key points need to be taken into account when analyzing financial ratios: The results are based on highly summarized information. Consequently, situations which require control might not be apparent, or situations which do not warrant significant effort might be unnecessarily highlighted; Different departments face very different situations. Comparisons between them, or with global "ideal" ratio values, can be misleading; Ratio analysis is somewhat one-sided; favorable results mean little, whereas unfavorable results are usually significant. However, financial ratio analysis is valuable because it raises questions and indicates directions for more detailed investigation.

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Working Capital Ratio: Current Ratio

Current Assets divided by Current Liabilities
The working capital ratio (or current ratio) attempts to measure the level of liquidity, that is, the level of safety provided by the excess of current assets over current liabilities.

Quick Ratio
Liquid Assets divided by Current Liabilities
This is another measure of liquidity. It looks at the number of days that liquid assets (for example, inventory) could service daily operating expenses (including salaries).

Stock Turnover Ratio

Cost of Sales divided by Average Stock Level
This ratio applies only to finished goods. It indicates the speed with which inventory is sold-or, to look at it from the other angle, how long inventory items remain on the shelves. It can be used for the inventory balance as a whole, for classes of inventory, or for individual inventory items.

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Debtor Turnover Ratio

There is a close relationship between debtors and credit sales to third parties (that is, sales other than to the Crown). If sales increase, debtors will increase, and conversely, if sales decrease debtors will decrease.
Credit Sales per Period X Days per period Average Debtors

The debtor ratio does not solve the collection problem, but it acts as an indicator that an adverse trend is developing. Remedial action can then be instigated.

Creditor Turnover Ratio

It expresses the relationship between credit purchases and the liability to creditors. It can be stated as the number of days that credit purchases are carried on the books.
Credit Purchases per Period X Days per period Average Creditors

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Thus: Se. No. On average, the value of the entire stock is turned every x days. There may be a need to break this down into product groups for Stock (i) Turnover (in days) Average Stock * 365/ Cost of = x days effective management. Obsolete stock, slow stock Ratio Formulae Result Interpretation

Goods Sold

moving lines will extend overall stock turnover days. Faster production, fewer product lines, just in time ordering will reduce

average days.

It takes on an average of x days to collect the due amount of money. If the Receivables (ii) Ratio (in days) Debtors 365/ Sales * official credit terms are 45 = x days day and it takes 65 days... then why should be found out? One or more large or slow debts can drag out the average
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days.

Effective

debtor management will minimize the days.

On average, the suppliers (iii) are paid every x days. If better negotiations are done regarding the credit terms this Creditors Payables Ratio (in days) 365/ Cost of Sales (or Purchases) * If paid will earlier increase. to the

supplier, say, to get a = x days discount this will decline. If there is a deferment in payment to the suppliers (without agreement) this will also increase - but the reputation, the quality of service and any flexibility provided by the suppliers may suffer.

Current Assets are those Total Current Current Ratio Assets/ = assets that can readily be x turn into cash or can be done so within 12 months in the course of business. Current Liabilities are those (iv)
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Total Current times Liabilities

amounts which are due to

pay within the coming 12 months. For

example, 1.5 times means that one should be able to lay his/her hands on $1.50 for every $1.00 one owes. Less than 1 time e.g. 0.75 means that one could have liquidity problems and be under pressure to generate sufficient cash to meet oncoming demands.

What are the projected sales of each product? How widely available are raw materials, components etc.? How long does it take for delivery by suppliers? Can you remove slow movers from your product range without What are the projected sales of each product? How widely available are raw materials, components?

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OBJECTIVES OF THE STUDY

The objective of working capital management is to maintain the optimum balance of each of the working capital components. This includes making sure that funds are held as cash in bank deposits for as long as and in the largest amounts possible, thereby maximizing the interest earned. However, such cash may more appropriately be invested in other assets or in reducing other liabilities. My objectives of analyzing working capital management in STAR PAPER MILL LTD.are as follows: To study how SPML can improve its operating cycle. To study the current discrepancies in their current Working Capital Management structure and ways to overcome them. To study the method which SPML is using to ascertain its working capital requirement? To learn about the sources from which SPML is procuring funds to fulfill its working capital requirements. To study where the procured funds have been used by SPML. To study whether the company is running effectively with as little money tied up in current accounts as possible. To analyze whether the method being used for ascertainment of working capital requirement is efficient or not. To have an appreciation of the financial environment within which business operates.

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RESEARCH METHODOLOGY
The study under reference is based on secondary data i.e. Annual report published Accounts information obtained through discussion with the concerned Executive of the Corporate it has already been mentioned earlier that our period of study is 5 year i.e. 2000-2001 to 2004-2005 & the traditional method of data analysis & application of financial statement analysis tool & technique for examining the degree of efficiency of working capital management has been adopted in systematic order we show component wise gross working capital analysis & working capital ratio Analysis.

In Brief Research Methodology and Data Collection:

Research is an art of scientific investigation. Research comprises defining and redefining problems, formulating hypothesis or suggested solution; collecting, organizing and evaluating data; making deductions and reaching conclusions; and at least carefully testing the conclusions to determine whether they fit the formulating hypothesis. Research Methodology: Research Methodology is a way to systematically solve the research problem. It may be understood as the science of studying how research is done scientifically. In it we study the various steps that are generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods/techniques but also the methodology.

47

This study will be based on: Secondary Research Secondary Data: All relevant information connected with this study was assembled from following sources: Foreign and Indian Books. Banking and Financial Journals. Through website. Data Interpretation and Analysis The data collected from secondary sources was assembled, screened, sorted, Evaluated in line with the objectives of the study and has been incorporated in this Project. The data collected from the Balance Sheet, Profit and Loss Account, and Cash Flow Statement and through interview was mostly qualitative in nature. Operating Cycles Analysis All the above statements are helpful to know the financial position of the firm, need of working capital and needs of resources etc.

48

FINDINGS &ANALYSIS
ASSUMPTIONS:
All calculations have been done taking 365 days in a year. All sales are credit sales. Mostly parts of purchases are on credit. And rest on cash.

Gross Working Capital Trend

Graph 1
Gross 250000 Working 200000 Capital 150000
100000 50000 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Table 1 Year Current Assets 160751.7 177772 194132 135468 2004-05 2005-06 2006-07 2007-08

(In Million) 2008-09 129073

49

Gross working capital register a decreased from 2004-05 to 2008-09 from160751.70 to 129073 RS in Million, this decrease coming along side an increase in capacity is chiefly due to controlled inventory and substantially reduce receivables.

Net Current Assets Trend

Graph 2
Net Current

200000

Assets 150000

100000 50000 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Table 2 Year Net Current Assets 93427.36 119653 148282 54527 2004-05 2005-06 2006-07 2007-08

(In Million) 2008-09

61606

Net working capital also shows a substantial decrease from 2004-05 to 2008-09 from 93427.36 to 61606 mainly for controlled current assets as well as generally increases current liabilities.

50

Working Capital Turnover Ratio

Graph 3
5 4

Ratio 3
2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Working Capital Turnover Ratio =

Table 3 Year Sales Average Net Working Capital Ratio 96671.11 1.96 106540.18 1.67 2004-05 189449.84 2005-06 178153

Sales Average Net Working Capital

(In Million) 2006-07 190475 2007-08 188591 2008-09 225402

133967.5 1.42

101404.5 1.86

58066.5 3.88

This ratio indicates the efficiency of working capital in generating profits. This ratio relates a sale to average networking capital that is to show how productive is the investment in working capital. This ratio for the period under considers shows a mixed trend it falls to1.67 from the previous 1.96 in 2004-05 and then to 1.42 in 2006-07 there after it arise to 1.86 in 2007-08 and then to the high of 3.86 in 2008-09 that trend on the last two years is mainly due to an increase in sales from188591 million to 225402 million resulting from increase in the generation based on additional installed capacities. Upswing has also been due to a decrease in average networking capital due to control receivables and inventory.

51

Net Current Assets to Gross Current Graph 4 Assets

0.8

Ratio

0.6 0.4 0.2 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Net Current Assets Net Current Assets to Gross Current Assets = Table 4 Year Net C. A. Gross C. A. Ratio 2004-05 93427.36 160751.7 0.58 2005-06 119653 177772 0.67 2006-07 148282 194132 0.76 2007-08 54527 135468 0.4 Gross Current Assets (In Million) 2008-09 61606 129073 0.48

This ratio has been taken to have an estimate of the relationship total current assets to a structure that includes current liabilities also. Where as a consistently falling trend in this ratio would indicate the soundness of working capital management, for the period under consideration this ratio actually shows a rise to the highest during 2005-06 and there after a fall and again an increase in last year of our period. That trend is mixed as all show by the increase in current assets in 2005-06 Mainly due to rise in receivables and then a considerable decrease during the last two years due to decrease in receivables and inventories. The net current assets however show a mix trend at a different pattern due to not only the current liabilities but also the provision that have shown greater consistency of a rise than the current liability.

52

Net Current Assets to Sales

Graph 5
1 0.8 Ratio 0.6 0.4 0.2 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Table 5 Year Net Current Assets Sales Ratio 93427.36 189449.84 0.49 119653 178153 0.67 148282 190475 0.78 54527 188591 0.3 2004-05 2005-06 2006-07 2007-08

(In Million) 2008-09 61606 225402 0.27

This ratio serves to relate the productivity of the working capital management by comparing it with sale. The ratio shows an increasing trend up to 2006-07 and then a falling trend where as on the strength of increasing sales this ratio should normally have a decreasing trend, for the period under consideration in shows the reverse up to 2006-07. This is mainly due to a consistence increase in net current assets mainly due factor discussed about. The trend is reversed there after both due to increase in sales as also considerably reduce net current assets.

53

Current Ratio
Graph 6
8 Ratio 6 4 2 0 .

2003-04

2004-05

2005-06 Year

2006-07

2007-08

Current Asset Current Ratio = Table 6 Year C. Assets C. Liability Ratio 2003-04 160751.7 27620.23 5.82 2004-05 177772 31881 5.58 2005-06 194132 34202 5.68 2006-07 135468 65244 2.08 Current Liability (In Million) 2007-08 129073 52306 2.47

Where as the current ratio is indicated to be most ideal at 2 SPML current ratio was 2.83 in 2003-04 it increase to 3.48 in the next year increase again to 4.23 in 2005-06 which is the highest for the period the ratio again show the falling trend with the level at1.68 at a slide increase to 1.91 in 2007-08. It is seen that the current liability is the main reason for the highest level of current ratio to 2004-05 during the first three year the current liability went down from Rs. 67324 Million to Rs.45850 Million the ratio improves during the last three years of our period only the Strength of an increase in current liability. During the Last two year the current assets also register a decrease from the trend of the current ratio it is clear that the organization should give greater importance to its current liability by obtaining more credit from its supplier, mainly supplier of fuel and inventory. It may be noted that the figures for current liability also include provision.

54

Acid Test Ratio

Graph 7
6 5 4 Ratio 3 2 1 0 2004-05 2005-06 2006-07

Liquid Current Assets

2007-08

2008-09

Year

Table 7 Year Liq.Current Assets Current Liability Ratio 27620.23 5.15 31881 4.94 34202 5.16 65244 1.81 142395.85 157630 176420 118088 2004-05 2005-06 2006-07 2007-08

(In Million) 2008-09 111296 52306 2.13

This ratio indicates the liquidity position of the company more completely by excluding least liquid current assets that is inventory. The current visible is of an increase unto 4.5 in the year 2007-08 while this compare unfair comparison with desire 1, the ratio show an improvement in the year 2007-08 at the level of 1.39 the moment is slightly adverse for the last year of our period at the level of 1.61 the improvement in the trend is due to a decrease in the level of receivables from 2007 to 2009 but is also due to a generally rising Trend of current liability. The ratio would have show a better performance but for the considerable increase in the level of cash during the last year.

55

Current Assets to Total Assets

Graph 8
0.5 0.4

Ratio 0.3
0.2 0.1 0 2004-05 2005-06
Current Assets 2006-07 2007-08

2008-09

Year

Current Assets Current Assets to Total Assets = Total Assets Table 8 Year Current Assets Total Assets Ratio 160751.7 0.45 177772 0.44 194132 447556 0.43 135468 515405 0.26 129073 592016 0.22 356255.12 402336.62 2004-05 2005-06 2006-07 2007-08 (In Million) 2008-09

This ratio serves to compare the respective out lays of investment of resources in current assets and the total assets. The ratio register a generally fall from 0.45 to 0.43 in the 200607 but after that the ratio shows a sharp fall to 0.26 in 2007-08 and 0.21 in 2008-09. The fall in ratio is mainly due to more controlled levels of receivables and inventory and Also Capacity addition and expansion achieve by SPML Threw its newly adopted policy of forward, backward and horizontal integration.

56

Current Assets Turnover Ratio

Graph 9
1.5 1 Ratio 0.5 0 2004-05 2005-06 2006-07 2007-08 2008-09
Cost of Goods Sold

Year
Cost of goods sold Current Assets Turnover Ratio = Average Current Assets

Table 9 Year Cost Of Goods Sold Average Current Assets Ratio 166280.08 169261.85 0.71 0.73 185952 0.7 164800 0.85 117804.9 123667 129394 140798 2004-05 2005-06 2006-07 2007-08

(In Million) 2008-09 158166

132270.5 1.2

The current assets turnover ratio shows very stable level for first two year of period that is 0.70 and 0.73 in the third year of period that is 2006-07 the ratio dips to 0.70 the lowest level in the period it again increase to 0.85 and 1.20 in the last year. 57

Average net Current assets to Generation Graph 10

1.2 1 0.8 Ratio 0.6 0.4 0.2 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Average net Current Assets Average net Current Assets to Generation = Table 10 Year Average Net Current Assets Generation Ratio 96671.11 129046 0.75 106540.18 133178 0.8 133967.5 138276 0.97 101404.5 148048 0.68 58066.5 158271 0.37 2004-05 2005-06 2006-07 2007-08 Generation (In Million) 2008-09

If total generation were to be a yard stick of an efficiency of current assets it could be related to the total generation in any given year and the trend are studies for all the years Of the period. The proportions are very nearly stable for first three years of the period under consideration. During the next two years the ratio a true falling trend evidencing less current assets employed in more and more generation. Much of this is due to the control of inventory, loan and advances and receivables. But for the abnormal level of cash during the Last year the trend could be healthier. 58

Profit before tax to Net current assets

Graph 11
1.2 Ratio 1 0.8 0.6 0.4 0.2 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Profit before Tax Profit before tax to Net Current Assets = Table 11 Year Profit Before Tax Net Current Assets Ratio 93427.36 0.44 119653 0.31 148282 0.25 54527 1.08 61606 0.99 40738 37521 37540 58897 60782 2004-05 2005-06 2006-07 2007-08 Net Current Assets (In Million) 2008-09

This ratio relates profit before tax or operating profit to net the current assets to have an estimate of the efficiency of net current assets in terms of its relationship with the operating profit. In an institution like SPML this ratio must be less than one. Profit before tax shall be less than the amount invested in current assets some of which are of a permanent nature the ratio, though it must be less than one shell have a rising trend in case the resources invested in current assets are generative of profits at a higher rate than there own increase. How ever for the period under review the ratio shows a falling trend up to 2003-04 falling from 0.44 to 0.25. This trend could partly be due to an increased in net current assets as well as some effect of the adoption of Availability Based Tariff. Where by the emphasis and incentive have shifted from efficiency to availability.

59

Cash
SPMLs requirement of cash is mate from two sources internal and external. The Internal sources include collection against sales, profits, depreciation. The internal sources are often not sufficient for meet day-to-day cash requirement. SPML therefore has to borrow Cash from banks to cash credit arrangements with a cons Siam led by the SBI and its Subsidiaries and few other banks. The fund management is done centrally at corporate center with the help of budgets grant for every unit in details. This is the fund procure externally the gap in the requirement and availability of fund internally is due to the credit that SPML gives to its customers. As the funds are costly the company is follows the policy of keeping minimal idle fund at any given point of time. For their requirements the UNITS called for the required amount threw a system of monthly, and weekly and daily requisition stating the purpose (payment of construction or Fuel or salaries or etc).

60

Cash Ratio
Graph 12
1.5 1 Ratio 0.5 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Cash Cash Ratio = Current Liability Table 12 Year Cash Current Liability Ratio 27620.23 0.14 31881 0.38 34202 0.16 65244 0.09 52306 1.16 2004-05 3829.48 2005-06 12048.57 2006-07 5447 2007-08 6091 (In Million) 2008-09 60783

The cash ratio relates cash to a factor that serve to keep cash balance in the cheques that is current liability. Where as these ratio should fairly register a falling trend with ideal cash balances kept to a minimum and current liability suitably increasing, this ratio actually registers a falling trend up to 2007-08 it shows a high of 0.9 due to abnormally high cash balance of Rs 60783 Million during 2008-09 this high level of cash obtained due to some charges in the policy line for investment of cash leading to the given level of cash.

61

Cash Turnover Ratio

Graph 13
8 Ratio 6 4 2 0 2004-05 2005-06 2006-07 Year 2007-08 2008-09

Interest & Finance Charges (I&FC) Cash Turnover Ratio = Average Cash Balance (ACB) Table 13 Year I&FC ACB Ratio 2004-05 10917.62 4715.67 2.32 2005-06 8677 7939.025 1.09
2006-07

(In Million) 2007-08 33697 5769 5.84 2008-09 16955 33437 0.51

9916 8747.79 1.13

The cash turnover ratio indicates the efficiency of cash and its use threw the working capital cycle. This ratio relates interest and financial charges, which indicate volume of cash transacted to average cash balance. Which indicates the ideal cash remaining at the end of the period? Clearly the higher volume of cash transacted and the lower the ideal cash are indicating the healthy working capital management. Therefore the ratio should be having a normal rising trend. The trend for ratio during our period however the reverse up to 2006-07 mainly due to rising average cash balances for the first three year. This Was due to the need to offset short falls of collection of receivables for 2004-05 the trend was reversed on the strength of both considerably increased cash transacted as well hedge control average cash balance this was due to the policy of turning receivables into investment with defaulting customer.

Cash Holding Period

62 Graph 14 800

Average Cash Balance (ACB)*365 Cash Holding Period = Interest & Finance Charges (I&FC) Table 14 Year ACB I&FC Day 2004-05 4715.67 10917.62 158 2005-06 7939.025 8677 334 2006-07 8747.79 9916 322 2007-08 5769 33697 62 (In Million) 2008-09 33437 16955 720

The holding for any current assets should be the optimum keeping in the major of the business. The cycle of current assets for SPML cannot be very short due to the fact that the company generates an intangible product that cannot be store, the fact leading to receivables of a minimum 60 days long ability as also large inventory of spares having Necessarily long holding periods as also of fuel for safety of continue generation the company follow a policy of holding the minimal cash balance at any given point of time. For the reason that it has to mobilize liquidity to meets its day to day requirements not only from its collection against sales (which are always credit sales often defaulted) but threw a consideration of banks led by the SBI in the form of cash credit i.e. costly as against this the trend of cash holding period for the first three years is that of a sharp increase with a sharp fall in 2007-08 as the reason discussed above. The holding period for the last year rises up to an abnormal 720 days due to sharply increase average cash balance for the extra ordinary factor prevailing.

63

Cash to Current Assets

Graph 15
0.5 0.4 0.3 Ratio 0.2 0.1 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Cash Cash to Current Assets = Table 15 Year Cash Current Assets Ratio 160751.7 0.02 177772 0.07 194132 0.03 135468 0.04 129073 0.47 2004-05 3829.48 2005-06 12048.57 2006-07 5447 2007-08 6091 Current Assets (In Million) 2008-09 60783

This ratio intended to have an estimation of the proportion of cash in the current assets SPML has been in keeping minimum ideal cash added any given point of time and this evident during all period of our period except 2005-06 and 2008-09 where as 2004-05 the company have to keep cash because of the exceptionally adverse receivables situation that year, the highest level of cash for the year 2008-09 was due to change into policy lines for investment of cash there for where as the ratio should have had generally falling trend and shows abnormally high level for the last year. 64

Cash
This ratio serves to estimate the need for cash stemming from a situation of uncontrollable receivable. It is seem that the need for cash raises indirectly proportion to the receivables and there for our working capital a structure to be sound the ratio should have an increasing trend with increase in stable proportion. The trend should be increasing because of an increase in generation, installed capacity and sales. It should be in stable proportion. If the receivables and the cash balances stick to normal levels is keeping with the increasing operation and turnover where as the trend of this ratio should be one of graduated increase, it show a stability for first three years but increase this proportionately last two the level for 2007-08 i.e. 1.30 has been due to considerably reduce receivable for the policy of debt management threw investment the trend for the last year both because of an increasing receivable as well as cash.

Receivables
Receivables of SPML are very important because of the nature of a product and the credit policy followed by SPML. Because SPML sales energy to its customers on credit. It gives a 60 days credit to its customers. There is a rebate on early or prompt payment. The present system of Tariff is Availability Based Tariff (ABC) where as the previous tariff system called the K. P. Rao Tariff was a two-part Tariff essentially rewarding efficiency or PLF, the present system is a three-part Tariff. (1) Fixed charge (2) Variable charge (now called energy charge) (3) Unscheduled interchange charge rewarding availability between the Power producers i.e. SPML and the customer i.e. SEBE there is a monitor in the institution of the regional electricity board which coordinates the availability schedule awarded to each of power producer in the region as well as the joint meter reading and both the ends. And implement the new resume. The billing is completed during the first five days of the month following and therefore the billing cycle of SPM.L comes to be 35 days. There are default on part of the customer in view of these SPML adopted a new receivables management policy in the form of turning long time receivables into investment with the defaulting customers these are in the shape of medium term bond or debenture bearing interest up to 12.5%, 8.5% or even less. By this method the company has managed control his receivables to a large extent. 65

Receivables Turnover Ratio

Graph 17
30 25 Ratio 20 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Sales Receivables Turnover Ratio = Average Receivables (In Table 17 Year Sales Average Receivables 88971.065 105589.7 119838.5 Ratio 2.13 1.69 1.59 64524 2.92 9223 24.44 2004-05 189449.84 2005-06 178153 2006-07 190475 2007-08 188591 Million) 2008-08 225402

This ratio gives the efficiency of receivables as current assets. It is relates sales to average receivables in this way specifically address the receivables actually contributing to a given volume of sales during the year. Where as the trend of this ratio ideally be raising the ratio for the first three year of our period actually registered a fall. During these three-year even though the sales registered overall increase the receivables have the consistent in a rise with the control of receivables from 2007-08 to 2008-09 with the Result that the ratio shows a drastic increase from 2.92 in 2007-08 to 24.44 in last year of our period.

66

Average Collection Period

Graph 18
250 200 Day 150 100 50 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Average Receivables *365 Average Collection Period = Table 18 Year Average Receivables 88971.065 105589.7 119838.5 Sales Day 189449.84 171 178153 216 190475 230 64524 125 9223 15 188591 225402
2004-05 2005-06 2006-07 2007-08

Sales (In Million)

2008-09

The average collection period is the reciprocal of the receivables turnover ratio. The collection period of receivables for SPML in any given year except the last year of our period is rather long when we consider the company policy of given 60 days credit to its customers and having a billing period of 35 days. Which would make the total collection period with any default from the customer to be naturally 95 days as against this we have collection period rising from 171 in 2004-05, 230 in 2006-07 and then with a reduction to 125 in 2007-08 to 15 in 2008-09 the collection period of the last year would indicate very prompt payment or settlement 67 of due by customer.

Receivables to Current Assets

Graph 19
0.8 0.6

Ratio

0.4 0.2 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Receivables Receivables to Current Assets = Table 19 Year Current Assets Ratio 160751.7 0.6 177772 0.65 194132 0.64 135468 0.03 129073 0.11 2004-05 2005-06 115328 2006-07 124349 2007-08 4699 Current Assets (In Million) 2008-09 13747

Receivables 95851.39

This ratio relates receivables to the total of current assets i.e. show the proportion of receivables in the quantum of current assets where as this ratio so have an ideally falling trend the trend should be one of consistent proportion. Against this the ratio rises marginally for first two year, remains nearly constant during third year and falls drastically in 2007-08 again registering a rising in 2008-09 with a mix trend of receivables over the last two year and a generally falling trend of current assets towards the end.

68

Receivables to Current Liability

Graph 20
4

Ratio
2 1 0

Receivables
2004-05 2005-06 2006-07

Receivables to Current Liability =

Year

Current Liability

2007-08

2008-09

(In Table 20 Year Current Liability Ratio 27620.23 3.47 31881 3.62 34202 3.64 65244 0.07 52306 0.26 2004-05 2005-06 115328 2006-07 124349 2007-08 4699 Receivable 95851.39 Million) 2008-09 13747

This ratio relates receivables to its financial antithesis therefore in the two should be inversely proportional to one another in normal course and the ratio of two should have a Consistently falling trend the ratio however saw an increasing trend up to 2006-07 and there after a sharp fall to 0.07 in 2007-08 and then slide increase to 0.26 in 2007-08. This is because of an increase both in current liabilities as well as receivables, a sharp increase in current liabilities in 2007-08 along with a drastic fall in receivables there after an increase in receivables and a fall in current liability.

69

Investment to Receivables
Graph 21
40 30 Ratio 20 10 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year Investment Investment to Receivables = Table 21 Year Investment Ratio 2004-05 39914.59 0.42 2005-06 40281 115328 0.35 2006-07 36674 124349 0.3 2007-08 173380 4699 36.9 Receivables (In Million) 2008-09 207977 13747 15.13

Receivables 95851.39

Investment i.e. trade investments have been a debt management technique adopted by SPML to control rising receivables especially since 2007-08 by this method long standing receivables due from insolvent customer were converted to medium terms bonds of the nature of debentures bearing interest and having maturity period upwards of Seven years. As such investments also are inversely proportional to one another and this is broadly in Evidence over the period under consideration. Where as the trend of this ratio should be one of rising level, it should not be show disproportionately, the trend in evidence is one of a fall up to 2006-07 and a sharp increase in the next year. The ratio falls to 15.13 in the last year. It is to be noted that investments increase substantially only from 2007-08 where as receivables, after the sharp fall of 2007-08 due to effective of recourse to investment resume there original increasing trend in the last year. 70

Inventory
The inventory of SPML is unique for not having semi-finished goods, finished goods or raw materials. Fuel is some way could be considering raw material but by most definitions it would not qualify to be raw material because the product is intangible. The inventory of SPML consist of fuel, spare parts, loose tools and components, chemicals consumerables and some other material. The inventory of SPML is very large comprising 73000 material codes. The inventory at Singrauli alone consists of 53000 material codes. Being a large inventory some of which is to be maintained permanently for to continuity and security of generation, the inventory is valued by the monthly weighted moving average method. The valued inventory is called priced stores ledger (PSL) this is regulated by the four instruments. (1) MRN (2) MTN (3) SRV (4) SIV. PSL is run on monthly basis. The inventory of SPML is subject to several analysis including ABC, XYZ, VED, FSN, ICU The consumption is valued at PSL rate. Where as at the point of induction at the store it is valued at the invoice price he inventory is regularly verified for a match between the Bin Card balances and the physical stock as also with the PSL run. This inventory in SPML is also subject to regular checks and control exercises.

71

Inventory Turnover Ratio

Graph 22
10 Ratio8 6 4 2 0 2004-05 I Inventory Turnover Ratio = 2005-06 2006-07 2007-08 2008-09

Year

Average Inventory Cost of Goods Sold

(In Table 22 Year COGS Average Inventory 19291.36 Ratio 6.11 19265.93 6.42 18944 6.83 17546 8.02 17578.5 9 2004-05 117804.9 2005-06 123667 2006-07 129394 2007-08 140798 Million) 2008-09 158166

This ratio estimates the efficiency of inventory in facilitating generation and sales. It relates cost of goods sold to average inventory. Cost of goods sold has been taken to include expenses on fuel, employee remuneration and generation and administration & other expenses. In other words only the operating expenses have been taken the average inventory can shows the inventory specifically availing during the year. Cost of goods sold indicates sales less profit i.e. sales valued at operating expenses. Where as this ratio should have increasing trend it does have the same our period under consideration. Where as the cost of goods sold, indicative of sales, register a consistent increase the inventory show a falling trend mainly due to effective inventory control methods and controlled inventory. 72

Average Holding Period

Graph23
80

Day

60 40 20 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Average Inventory Average Holding Period = Table 23 Year Average Inventory 19291.36 Cost Of Goods Sold Day 117804.9 60 123667 57 129394 53 140798 45 158166 41 19265.93 18944 17546 17578.5 2004-05 2005-06 2006-07 2007-08 Cost of Goods Sold (In Million) 2008-09

The holding period in lined with the evidence with the controlled inventory shows a falling trend over a period under consideration from 60 days in first year to 41 days in the last year. However as large inventory like SPMLs at the time when the older plants of the company are nearing there end of useful life many of the inventory of spares must 73

necessarily have inventory i.e. now obsolete, non-moving or surplus due to technological changes, up gradation, renovation and modernization or replacement. The control of such inventory would improve the holding period further.

Inventory to Current Assets

Graph 24
0.15

Ratio

0.1

0.05 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Inventory Inventory to Current Assets = Current Assets

(In Table 24 Year Current Assets Ratio 160751.7 0.11 177772 0.11 194132 0.09 135468 0.13 129073 0.14 2004-05 2005-06 20176 2006-07 17712 2007-08 17380 Inventory 18355.85 Million) 2008-09 17777

This ratio shows the proportion of Inventory in the total layout on current assets. The ratio show a generally constraint trend showing not only evidence of inventory control but also the necessity of it, in the basically engineering orientation of the facilities in the country.

74

Cash to Inventory
Graph 25
4

Ratio

3 2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Cash Cash to Inventory = Inventory

(In Table 25 Year Cash Ratio 2004-05 3829.48 0.21 2005-06 12048.57 20176 0.6 2006-07 5447 17712 0.31 2007-08 6091 17380 0.35 Million) 2008-09 60783 17777 3.42

Inventory 18355.85

This ratio relates cash to inventory to procure which cash is mainly used; this ratio should ideally have a falling trend. This is show because while larger cash balance would indicates idealness and interest expenses, a rise in inventory could be normal given added installed capacity increasing generation and less costly tangible of current assets. In the right of this the ratio show a generally adverse trend, because of a generally rising trend of cash set against controlled inventory.

75

Inventory to Fuel
Graph 26
5 4 3 Ratio 2 1 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Inventory Inventory to Fuel = Fuel (In Table 26 Year Inventory Fuel Ratio 2004-05 18355.85 5077 3.62 2005-06 20176 6757 2.99 2006-07 17712 5015 3.53 2007-08 17380 4407 3.94 Million) 2008-09 17777 4583 3.88

Fuels in SPML consist of coal, oil and Naphtha depending upon nature of generating machines. fuel as a part of total inventory should ideally be rising of keeping pace with the generation how ever the ratio should not have a rising trend unrelated of expansion of generating capacity in such a case it would reflect more total inventory of spares and other components to manage generating capacity consuming less and less fuel indicate a fall in generation. 76

Inventory to Spares
Graph 27
1.7

Spares
1.5 1.4 1.3 2004-05 2005-06 2006-07 2007-08 2008-09

1.6

Year

Inventory Inventory to Spares = Spares Table 27 Year Inventory Spares Ratio 2004-05 18355.85 11802 1.56 2005-06 20176 12003 1.68 2006-07 17712 11390 1.56 2007-08 17380 11742 1.48 (In Million) 2008-09 17777 11869 1.5

Spares are an important form of the inventory SPML because of constant operation, maintenance, repairs and overhauling as such a spares alone constitute the largest part of inventory. The ratio of total inventory to spares however should add best have a proportionally control trend over the year. Since spares constitute the largest components of inventory and the exercise of inventory control target mainly the quantum of spare shows controlled level and the ratio is generally stable over the period.

77

Inventory to Chemicals and Consumerables Graph 28

30 25 20 Ratio 15 10 5 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year
Inventory Inventory to Chemicals and Consumerables = Chemicals & Consumerables

Table 28 Year Inventory Chemicals & Consumerables Ratio 792 23.12 810 24.91 634 27.94 661 26.29 2004-05 18355.85

(In Million)

2005-06 2006-07 2007-08 2008-09 20176 17712 17380 17777 670 26.53

Chemicals and consumerables including water demineralization chemicals and lubricants for a small of the inventory, as a result of inventory control these are also controlled with a slight fall after 2006-07 the ratio however remains stable after 2006-07 mainly for the reason discussed above.

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Inventory to Loose Tools

Graph 29
500 400

Ratio

300 200 100 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Inventory Inventory to Loose Tools = Loose Tools

(In Table 28 Year Inventory Loose Tools Ratio 61 58 51 47 41 300.91557 347.86207 347.29412 369.78723 433.58537 2004-05 18355.85 2005-06 20176 2006-07 17712 2007-08 17380 Million) 2008-09 17777

Loose tools also a very small part of total inventory and the ratio of Inventory to loose tool shoes a controlled appearance for the period from 2006-07 to 2007-08 with a slight rise in the last year.

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Loan and Advances

Although current assets traditionally comprise inventory, receivables and Cash, in an organization like SPML which provides loans to its employees and also advances both to the employees and supplier as well as contractors, the loan and advances are also an important part of the company. The advances given to contractor are mainly the nature of mobilization advances and to the employees with the purpose of providing assistant to them by way facilities to help in the discharge of their duties. Their loans are included in the category of current assets for their regular recovery from the employees adjust and recovery from supplier within a very short period of time. The loan and advances given by the company to its suppliers, contractor and its employees are the major part of its current assets. These other mainly on interest or free of charge advances given to suppliers and contactor are mostly free two of the advances given to employees are interest free, multipurpose advances and furniture advance recoverable in 12 and 60 installment respectively. Beside these all other loan and advances are on interest. The recovery of these interests bearing loan done as such a way that the principal is recovered first and the interest there after. The interest is levied on the diminishing balance of principal and there is no interest on interest. These loan and advances are categorized as current assets because their recovery is continuous immediately from the after the drawn month and the principal is first recovered.

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Loan & Advances to Current Assets

Graph 30
0.25 0.2 Ratio 0.15 0.1 0.05 0 2004-05 2005-06 2006-07 2007-08 2008-09

Year

Loan & Advances Loan & Advances to Current Assets = Current Assets

(In Table 30 Year Loan & Advances Current Assets Ratio 160751.7 0.21 177772 0.14 194132 0.11 135468 0.2 129073 0.21 33011.35 24742 21482 27279 27052 2004-05 2005-06 2006-07 2007-08 Million) 2008-09

The Loan & Advances also do not form a very large proportion of the total current assets. As such the ratio of two is very nearly stable for all the years except 2004-05 & 2006-07 these changes in the ratio have been more due to changes in inventory for these year then due to any drastic level of change in Loan & Advances.

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CONCLUSION & SUGGESTION

After the study of different chapter our conclusion is that STAR PAPER MILLS LTD Paper plant organization has a very systematic working capital as well as structured working capital have been involved. The working capital has been maintained through the integration of different section like book section commercial section work bill section, miscellaneous section. In every section there is a sequence and definite process of giving and taking orders and instruction. Every section has very much careful toward their work. Every section has to pass a definite rule and regulation, which cannot be doing by way of by pass. ON the basis of these criteria, every section has doing their work, so that organization could run working capital smoothly without any disturbance, thats why paper capacity increase year per year, there trends are increasing. This organization has good proof of working capital management where the sale has been done only on credit basis and cash management Work smoothly. We have studied all the aspect of working capital like inventory management in STAR PAPER MILLS LTD what are different type of inventory material which daily uses in the paper plant for the generation of Paper, we have studied there nature as well there trend with different years through the tabulation graph. We have studied about Debtor, how debtors are made on the basis of credit sale? We have studied trend of debtors increasing or decreasing or decreasing with the past five years data we have also studied loans and advances, which shows how loans and advances has been made, how the payment of loans and advances will be done? In the context of current liability we have studied about over all current liability increase or decrease as well as trend of different item of current liability like creditors and provisions. We have studied how the creditors have to be paid? What is the grace period of the creditors? How much creditors has been increased or decreased, what is rate of increasing or decreasing, what is the proportion of increasing or decreasing? What are the different provision are made, is the provision increasing or decreasing if increasing then how much if decreasing then how much, provision are to be made to which items After that we have studied about capital structure of the STAR PAPER MILL LTD, about what how much there is subscribed capital? How much there are authorized capital? How much issued capital is there? How much called up capital in paper plant? How much paid up capital is 82

there? We have studied the performance highlight of STAR PAPER MILL LTD paper plant in the context of financial aspect as well as overall performance, like: (1) Gross revenue and profit. (2) Capacity addition. (3) Percentage of return of investment. (4) Capital structure. (5) Amount of paper generation

We have studied about different ratio like: (1) Current ratio.

(2) Liquidity ratio. (3) Debtor ratio (4) Creditor turnover ratio (5) Net current asset to fixed asset. (6) Net fixed asset to net current asset. (8) Profitability.

All these ratio shows in what trend STAR PAPER MILL LTD Paper plant going on? What is the efficiency of the company? How much company is able to increase or retain same level of efficiency and profitability through the study of different ratio, which are given above? How manufacturing process take place in STAR PAPER MILL LTD except inventory and goods is there and Paper is generated as finished goods and it is sold on credit and debtor are created and cash are collected from the debtor and operating cycle run smoothly, there are huge amount of capital investment. So according to above discussion we find that STAR PAPER MILL LTD manage its Working Capital very effectively.

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I reach to following conclusion:Very large amount invest in Working Capital of the company. STAR PAPER MILL LTD is a Capital-intensive company. It means the Profit is inversely proportion to working capital, if we want to increase Profit than we have to decrease working capital. The new policy regarding the settlement of Receivables is very good but some precaution is needed. Investment having the interest but interest is not a part of Profit and lot of Political commitment is needed to control repayment from Owner. There are some problem in managing cash, company not manage cash very effectively so that holding period of cash is large. The liquidity position of the company is very good. The relation of Sales with his component like Inventory, Receivables etc is very good. The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. The Company has not given guarantees for loans taken by others from bank or financial institutions. The Company has utilized the term loan for the purpose for which they were raised. Revenue is being recognized on actual basis. Contribution towards Provident Fund is accounted for according to the rule of the funds and is charged to the profit and loss account. The standard of current ratio is 2:1 but last 3 years the C.R. has been decreasing because inventory & cash has decreased. The standard of quick ratio is 1:1 but last 3 years the Q.R. has been decreasing because the main reason of company uses new technology.

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SUGGESTIONS & RECOMMENDATIONS

The management of the working capital is equally important as the management of long-term financial investment. The goal of Working capital management is to ensure that the firm is able to continue its operations and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

The various possible steps that SPML may take to improve its working capital management are as follows:

The company should look indigenous suppliers for its raw material and spare parts requirements and reduce its lead time. The company is increasing its installed capacity and its production too each year but the increase in production is not in proportion to installed capacity. Thus, the two must be matched.

Availing more credit from its suppliers. Prompt collection from its debtors. Moving towards zero working capital. Improvement in Inventory Conversion Period, mainly reduction in Work in Progress. Reduction in loans and inter-corporate deposits and utilizing the money to pay off debts and loans taken by the company. The company can maintain separate books of accounts for their manufacturing and trading businesses for more clarity and transparency in operations.
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Working capital management is an important yardstick to measure a company operational and financial efficiency. This aspect must form part of the companys strategic and operational thinking. Efforts should constantly be made to improve the working capital position. This will yield greater efficiencies and improve customer satisfaction.

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BIBLIOGRAPHY
I.M. Pandey, Financial Management, 6th Edition www.STARPAPERMILL.COM www.treasury.govt.nz/publicsector/workingcapital/further.asp www.planware.org/workingcapital.htm www.wikipedia.org
www.altavista.com

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