Summer Internship Report Vadilal

SUMMER INTERNSHIP REPORT
Titled
FINANCIAL ANALYSIS OF VADILAL INDUSTRIES LTD
Submitted after 2 months practical training as part of curriculum of PGDM To
Som-Lalit Institute of Management Studies
Prepared by: - GAURAV PRAJAPATI (Roll No:-40)
SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.
Page 1
DECLARATION
This project report entitled the functional study of WORKING CAPITAL MANAGEMENT a
nd Ratio-Analysis at VADILAL INDUSTRIES LIMITED, Prepared to submit SOM-LALIT IN
STITUTE OF MANAGEMENT STUDIES, AHMEDABAD AS THE PART OF PGDM study, has been com
pleted by me under the guidance of Mr. Milin J. Jani, Finance Head and the entir
e staff member at Vadilal Industries Limited, Ahmedabad.
This project report is entitled an outcome of my an own efforts and it is not su
bmitted either in part or in whole to or copied from any project submitted to an
y other university or institute for and other degree.
DATE: PLACE:
GAURAV PRAJAPATI (PGDM)
Page 2
ACKNOWLEDGEMENT
Knowledge in itself is a continuous process. At this moment of my substantial en
hancement I rarely find enough words to express my gratitude towards those who w
ere constantly involved with me during my project and making it a success. Men b
ecome good through practice than by nature.
I am grateful to Prof. Arpita Amarnani, faculty of SOM-LALIT INSTITUTE OF MANAGE
MENT STUDIES who created this opportunity to work on the project, i m also thank
ful to Prof. Roopa Rao and all the faculty member of SOM -LALIT INSTITUTE OF MAN
AGEMENT STUDIES.
I am highly obliged to Mr. Milin J. Jani, Finance Head at Vadilal Industries lim
ited, for allocating such an interesting and challenging project.
I am grateful to Mr. Ankur Patel (Dy. Finance Manager) at Vadilal Industries Lim
ited, who had guided me throughout the project with their vast knowledge of exis
ting system, inspite of being very busy; he was ready to help me whenever requir
ed.
The whole staff of finance department
s Ltd. were highly co-operative and i
ded to me. I would also like to thank
ped me, though indirectly, throughout
a source of encouragement.
and all staff members of Vadilal Industrie

am thankful for all the support they exten
my parents and all my friends who have hel
the project duration and always have been
DATE: PLACE:
GAURAV PRAJAPATI (PGDM)
Page 3
PREFACE
Yesterday is a cancelled check; tomorrow is a promissory note; today is a ready c
ash, this quote from Hubert Tinley expressed Working Capital Management. Working
capital is the excess of Current Assets over Current Liabilities. Decisions rela
ting to working capital and short term financing are referred to as Working Capi
tal Management. These involve managing the relationship between a firms Assets an
d its short term L iabilities. The goal of Working Capital Management is to ensu
re that the firm is able to continue its operations and that it has sufficient c
ash flow to satisfy both maturing short term debt and upcoming operational expen
ses.
Working capital management is described as involving the administration of Curre
nt Assets namely, cash and marketable securities, Receivables and Inventories an
d administration of Current Liabilities, which includes Account Payables, Bank L
oan and other short term sources of finance. Current Assets flow through the fir
m. Inventory is acquired and subsequently sold for cash or on credit. Accounts R
eceivables are collected and the cash is used to acquire other income producing
assets or to retire debt. The cycle is then repeated as the firm acquires new in
ventory for sale.
Every entrepreneur would like to imagine himself in a situation where his produc
tion process takes very little time to convert the input to the finished product
which gets sold immediately in cash the moments it rolls out of the process and
the input market is so perfect that any amount of raw material is available at
any time at a fixed price. But the entrepreneurs dream is hardly realized. He fin
ds, instead, that his production progress takes quite long time; the finished go
ods are not sold so quickly which means a quantity of stock remains in the store
s. Moreover, the sales are not always in cash- some amount of credit has to be g
iven and the input market is so uncertain that he has to keep a certain amount o
f safety stock all the time. Each and every current asset of a firm is therefore
nothing, but congealed fund for working expenses. And because business is a con
tinuous process, every cycle of operation generates these Current Assets, which
need to be funded for immediate financing of working expenses. All organizations
have to carry working capital in one form or another. The efficient management
of working capital is important from the view of both liquidity and profitabilit
y.
Page 4
TABLE OF CONTENT
PARTICULAR
Executive Summary Objective of Study Brief Introduction on Ice-cream Market of I
ndia Brief Introduction on Vadilal Group of Companies Research Methodology Ratio
- Analysis Working Capital Working Capital Management
Working Capital Cycle
Liqu
idity Analysis Working Capital Facilities Fund Based Facilities
Non-Fund Based F
acilities Working Capital Financing Trade Credit Working Capital Financing by Co
mmercial Bank
Public Deposit Inter corporate Deposit Form of Bank Finance Guidel
ines For Bank Finance Conclusion Recommendation Limitation of Study Bibliography
Annexure
Pg. No.
06 07 09 13 32 36 54 64 66 71 76 77 82 85 85 86 87 88 89 91 96 98 99 100 101
Page 5
EXECUTIVE SUMMURY
Financial Management decisions are divided into the management of Assets (invest
ments) and Liabilities (sources of financing), in the long-term and the short-te
rm. It is common knowledge that a firm s value cannot be maximized in the long r
un unless it survives the short run. Firms fail most often because they are unab
le to meet their working capital needs; consequently, sound working capital mana
gement is a requisite for firms survival.
About 60 percent of a financial manager s time is devoted to working capital man
agement, and many of the potential employees in finance-related fields will find
out that their first assignment on the job will involve working capital. For th
ese reasons, the project of working capital policy and management given to me at
Vadilal Industries Ltd. will help me get the required practical experience on v
arious management practices involved in managing working capital of an organizat
ion.
Working capital policy refers to decisions relating to the level of Current Asse
ts and the way they are financed, while Working Capital Management refers to all
those decisions and activities a firm undertakes in order to manage efficiently
the elements of Current Assets. While Long-Term Financial Analysis primarily co
ncerns strategic planning, working capital management deals with day-to-day oper
ations. By making sure that production lines do not stop due to lack of raw mate
rials, that inventories do not build up because production continues unchanged w
hen sales dip, that customers pay on time and that enough cash is on hand to mak
e payments when they are due. Obviously without good working capital management,
no firm can be efficient and profitable.
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OBJECTIVES OF THE STUDY

The project on analysis of Working Capital Management and short term financing w
ould be of immense use for a student to manage for the overall understanding of
finance department in any organization. Short term financing forms a vital part
of corporate financing decisions. For any company, working capital and short ter
m financing has an impact on the profitability and thus the shareholders earnings
. The present study is envisaged with the following objectives: Understanding th
e working capital policy followed at Vadilal industries Ltd.
Understanding cash
and Liquidity management, Accounts Payable, Accounts Receivables policy followed
at Vadilal Industries Ltd.
Understanding various components of Working Capital
and change in them over time. To determine the type of relationship between vari
ous constituents of Current Assets and Working Capital.
To assess Liquidity posi
tion of Vadilal over the given time period. To understand various avenues used b
y Vadilal Industries Ltd to finance its Working Capital needs.
Page 7
1
BRIEF INTRODUCTION ON ICECREAM MARKET OF INDIA
Page 8
ICE-CREAM MARKET IN INDIA

India is considered to be the largest milk producer across the globe and account
s for one-fifth of the total global milk production. The ice cream market in Indi
a can be divided into: the branded market and the grey market. The branded marke
t at present is 100 million Litters per annum valued at more than Rs. 800 crores
. The grey market consists of small local players and cottage industry players. I
n 2010-11, in the branded ice cream market, Amul held the number one spot, with
a market share of 40%, followed by Vadilal at 20%, Kwallity walls at 20%.The ice
cream market in India about Rs 3,000 crore and about 60-70% is gone into the or
ganized sector.
The per capita consumption of ice cream in India is approximately 300 ml, as aga
inst the world average of 2.3 Litters per annum. The per capita consumption of i
ce creams in India is just 300 ml per annum, compared to 22 Litters in the US, 1
8 Litters in Australia, and 14 Litters in Sweden. India is a way too far behind
even in terms of the world average per capita ice cream consumption of 2.3 Litte
rs per annum. The Indian ice cream sector is a competitive market with strong co
mpetition from the unorganized sector. "The ice-cream market is growing at an av
erage of 1215% a year and has now turned into a game of volumes. Current scenari
o of market expecting to grow even better during coming summer.
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Market Share of Major Ice-Cream Industries in India:

The above graph reveals that the Amul is the national number one player having 4
0% of the total market share. Vadilal is having a 20% market share and giving to
ugh competition to the major brands like Kwality Walls, cream bell and regional
players.
Market Share of Major Ice-cream Industries in Gujarat:
The graph shown above depicts that in Gujarat Vadilal stands at the first place
with 40% of the market share followed by Amul and Havmor with market share of 35
% and 15% respectively. The market share of Vadilal reveals the strong position
in the mind and hearts of people.
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Market Share of Ice-Cream Industries in Ahmedabad

If we see the scenario in Ahmedabad Ice Cream market then we find that Vadilal i
s at the first position having the market share of 35%. However the number one n
ational player Amul is having negligible market share.
Page 11
2
BRIEF INTRODUCTION ON VADIAL GROUP OF COMPANIES
Page 12
VADILAL INDUSTRIES LIMITED

Type Industries Founded Headquarters
Public Limited Company Conglomerate 1907 Ahmedabad, India Shri. Ramchandra Gandh
i - Chairman
Key people
Shri. Rajesh Gandhi - Managing Director Shri. Devanshu Gandhi - Managing Directo
r Ice cream, Processed Food, Foreign Exchange, Chemicals, Real Estate 450 Crore
(US$89.78 million) 1000 Vadilal Group
Products
Revenue Employees Parent Website
www.vadilalgroup.com
Page 13
ORGANIZATION STRUCTURE OF VADILAL

Vadilal Group is mainly divided into three parts:
VADILAL GROUP
VADILAL INDUSTRIES LIMITED
VADILAL ENTERPRISES LIMITED
VADILAL CHEMICALS LIMITED
VISION & MISSION
TO BECOME AN INDIAN MNC IN FROZEN FOODS.
TO PROVIDE PRODUCTS AND SERVICES AT AN AFFORDABLE PRICE WITHOUT COMPROMISING THE
QUALITY.
Page 14
ABOUT THE COMPANY

Vadilal was established in 1907, a name synonymous to Ice- Cream. A company, whi
ch is around 85 years old, was started by the founder member Late Shri Vadilal Ga
ndhi.
A certain unassuming gentleman started a soda fountain outlet in Ahmedabad. He,
later on, passed on the business to his son Shri. Ranchodlal Gandhi, who ran a o
ne-man show, and, with a hand-cranked machine, started a small retail outlet in
1926. which was started in 1907 by Shri Vadilal Gandhi has now turned out to be
third-largest ice-cream brand in India, which boasts of 40 C&F agent, 560 distri
butors, and more than 50,000 retailers. With its 70-plus flavours, Vadilal has o
ne of the largest ranges of ice-creams in the country. Brand Vadilal firmly esta
blished itself in the early 1960s. With the entry of Vadilal s grandsons, the Ga
ndhi family decided to ramp up operations and incorporated the company in 1961.
Before introducing automatic machines around in 1960, Gandhi family used to manu
facture ice cream in wooden drums called Kothis. A name that dominates western Ind
ian market, Vadilal, during seventies and eighties, had to contend with competit
ion from local brands. Kwality ice -cream was the only sizeable player in the stil
l promising ice-cream market. But it faced first real challenge when dairy giant
Amul forayed into ice-cream business in 1996. Backed by its strong butter brand
, cooperative major made quick inroads into the 1,500lakh litre ice-cream market
in which it now enjoys 40% share. Amul marketed its ice-creams almost 30-40% ch
eaper than the existing brands, and that pushed into market leader Vadilal to th
e second slot. But Amul s foray also indirectly helped Vadilal, as it helped in
expansion of market in India. As against the per capita consumption of 23 litres
in the US, 18 litres in Australia, 14 litres in Sweden, icecream consumption in
India stood at a pathetic 100 ml in the mid-nineties. Vadilal has been using th
e growing ice-cream consumption culture to its advantage.
Page 15
"Brand Vadilal has survived many challenges and it will live through generations
," said by Vadilal groups managing director, Shri. Rajesh Gandhi, in the fourth g
eneration of Vadilal. Today, turnover of Vadilal Group, which has presence in Ic
e-Cream, Frozen Food, Chemicals, Forex and Real Estate, stands at about Rs 450 c
rore.
With an investment outlay of Rs 50 crore, the group has expanded the capac
ity by 60% to three Lacs Litres per day. While two candy lines having production
capacity of 25,000 pieces per hour. Vadilal has manufacturing facilities of Ice
Cream at Pundhra near Ahmedabad and Bareilly in Uttar Pradesh. Vadilal group ha
s started airing its commercials on national television. It is spending about Rs
78 crore a year on promotions and planning to increase the budget in coming day
s. The group is focusing on the food business. Vadilal launched processed food b
usiness under the brand name QUICK TREAT some five years back that accounts fo
r Rs 50 crore in our total turnover and growing at almost 80% a year. While icecream remains the core activity, Company also exports ready-to-serve curries, ra
nge of Indian breads, frozen samosa etc to 45 countries". Vadilal serves popular
snacks items like parathas, samosas and kachoris under the Quick Treat segmen
t. "Recently, company has added two Chinese cuisines including spring rolls and
Chinese samosas under Quick Treat . Going forwards some more international and
domestic cuisines would be added to their RTE portfolio. The manufacturing facil
ity for frozen foods is located at Dharampur near Valsad in south Gujarat with a
capacity of 32500 Metric tonnes per annum.
The group recently launched ice-crea
m parlours under the banner of HAPPINEZZ. "They believe that ice-cream is a happy
thing, so they named their chain of ice-cream boutiques Happinezz, which offers
rich exotic flavours." Besides expanding manufacturing and distribution capacita
tes, company is also strengthening its milk procurement network from farm-to-fac
tory to cater ice cream made from the fresh milk."
Page 16
ICE CREAM DIVISION:

Vadilal the name perform tricks up the image of ice cream laden bowls and a plet
hora of new flavours. Starting from one man show with a hand cranked machine in
1926 as a small retail outlet, the ice cream division now has a production capac
ity of one lac litres per day at three sophisticated plants, located at Ahmedaba
d, Pundhra and Bareilly. These ISO 9002 certified plants for Pundhra and Bareill
y are established in such a way that they are in consonance with the market expa
nsion strategies of the division.
Vadilal offers the widest range of ice creams and frozen desserts (More than 200
Stock Keeping units) in the country in packs including cups, party packs, famil
y bricks, dollies, cones and candies. Something for all taste, preference and bu
dgets. To meet with the consumer demand on regular basis, Vadilal introduces new
flavours for different segments of customers throughout the year. People eagerl
y await Vadilals new introductions. Creativity is at forefront in all the activit
ies of Vadilal.
PROCESS FOOD DIVISION:

Vadilal entered the Horticulture Processing Industries in May 1991.The best way
to ensure total quality is to exercise total control right from the raw material
stage onwards. Thats exactly what Vadilal does. Selected fruits and vegetables a
re grown under the companys guidance in South Gujarat the important Fruit Bowl of I
ndia. It is in close proximity to the Alphanso Mango region. This is where the m
anufacturing plant is situated. These plants at Dharampur and Chittoor are moder
n units with a well-equipped laboratory for product development and microbiologi
cal testing.
Page 17
Keeping in view the tremendous export potential for the processed foods Vadilal
has set up manufacturing unit having an installed capacity of 3 2,500 MT per ann
um. Vadilal is a registered Indian supplier to international mega brands. The pr
oducts are exported to Europe, USA, Middle & Far East and South East Asia. Vadil
al is the leading producers and exporters of Mango Pulp and Green Vegetables in
the country.
Vadilal has installed an automated line from Mather & Platt for washing, despond
ing, inspecting, blanching and cooling fruits and vegetables. Their slicing and
dicing is done on imported machines. In order it preserves freshness and enhance
s shelf life the food is processed using Individually Quick Frozen (IQF) technique
. This technology has been imported from Eurotek Engineering L imited, UK and it
involves fluidized belt type continuous freezing. It can process two tons of ma
terial per hour, and it provides the flexibility of freezing at varying depths f
or different durations.
It has all been worth the effort, considering that M/s. Underwriters Laboratorie
s Inc. USA has awarded the ISO 9002 certification for quality system. Vadilal wa
s a ls o awarded the certificate of merit for excellent export performance by A
PEDA (Agricultural and Processed Foods Export Development Authority). Among IQF
vegetables the range includes, green Peas, Sweet Corn, Okra, Mixed Vegetables et
c all. The IQF Fruits range has exotic varieties of the famous Indian Mangoes- A
lphanso, Kesar, Totapuri in pulps, slices, cubes in addition to strawberries, Sa
mosa and other ready to eat foods and condiments also from apart from Vadilals fo
rmidable range.
Page 18
FOREX ADVISORY SERVICES & FFMC DIVISION:

Vadilal ventured into this segment in April 1996, offering non-banking financial
services. The main activities are:
Forex advisory & Forex Exposure Management to Importers and Exporters. Bullion i
n f o r m a t i v e S e r v i c e o n G o l d S i l v e r --- A c o m p l e t e
s useful guidance to bullion traders, importers and jewellers. LME-Metal inform
ative service bin base and Scrape metals. A complete useful guidance and informat
ion to metal traders, importers, and Metal scrap indenting agents.
RBI a u t h o r i z e d f u l l y fledged m o n e y ch a n ge r FFMC r e l a t e

d transactions: Sale/Purchase of foreign Currency and Travellers Cheque.
VADILAL ENTERPRISE LTD:
An excellent product would be of little use if it didn t have somebody to mainta
in that excellence and give it to the world. That is how Vadilal Enterprises Ltd
- the marketing arm of Vadilal Industries came into existence. Today Vadilal ha
ve a dynamic sales force of over 200 sales & marketing professionals, through wh
ich they have improved their promotion strategy and increasing their sales. The
company has effected changes in its organizational structure and training inputs
from time to time, in order to infuse a competitive spirit amongst peers and bu
ild a consolidated force of live-wire professionals. Target achievement is monit
ored through an elaborate Management Information System, across the rank and fil
e. Vadilal has stood the challenge of time and held its own in the country, even
in the presence of global giants.
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VADILAL CHEMICALS LTD.:

This division started in 1970, deals mainly in industrial gases and chemicals. T
he main products are gases such as Argon Nitrogen, hydrogen and Oxygen, Speciali
ty gases, Industrial gas mixtures, Calibration Gases, Anhydrous and Liquor Ammon
ia. Vadilal is one of the biggest bottlers of Anhydrous
Ammonia. Vadilal Chemicals Ltd. has over 2000 industrial customers. To serve the
m, there is a marketing network of twelve branches and eight dealers, a fleet of
50 cryogenic/liquid transport tankers & commercial vehicles and
25,000-gas cylinders- one of the largest networks for industrial gases in wester
n India.
PRODUCTS
It is a process by which the produced from raw material to finished product. Witho
ut production department, there is no need to finance, marketing and personnel d
epartment. If the companys product is good and its quality is better, then people
buy its product and that leads to increase in the sales of the company. Now a d
ay, we can see a tough competition in the market. Everyday new technology is to
be introduced. So it is beneficial to every company for concentrating on their p
roduct quality because if quality is good and by using the product customer are
satisfied, than they will definitely buy. In VADILAL INDUSTRIES LTD., they have
completely concentrated on quality of the product. For that company has its own
R&D department to increase the product quality. Following are the products of ic
e-cream of Vadilal group.
Page 20
ICE CREAM PRODUCTS

NOVELTIES OF PRODUCTS BIG CUPS
Vanilla Ripe Strawberry 2 in 1
i Fruity Real Mango Rainbow Fruit Bonanza Kaju Draksh Butter Scootch Kewra Jafra
ni Badam Pista Fun 2000 Rajbhog (Ice Mithai)
SMALL CUPS
Vanilla Ripe Strawberry

Page 21
FAMILY PACK PLAIN FAVOURTIES

CHOCOLATE ECSTASIES
FRUIT FANTASIES
NUTTY DELIGHTS
ICE MITHAI
Vanilla Ripe Strawberry 2-in-1
Chocolate Chips
Real Mango Fresh Strawberry
Kaju Draksh Butter Scotch Real Kesar Pista Jafrani Badam Pista
Rajbhog
FROZEN DESSERTS
Page 22
Snowy Yummy Kesar Pista Yummy Mango Munch
KING KONES
Chocolate Drip Pineapple Delight Yummy Butter Scotch Chashmeshahi Pri
me Kesar Pista Almond Kulfi Cone
KULFIES
KULFI CORNER
Kewra Roll Cut
Kesar Pista Kulfis Chowpati Kulfi Kewra Kulfi Pista Kesar Roll Cut
DANDY CANDIES
spberry Dolly Mango Dolly
Page 23
Mango Juicy Juicee Orange Kaju Candy Litchee Dolly Orange Dolly R
Nutty Chocobar Chocolate Chocobar Soft Spot (Chocolate)

FROZEN DESSERT
Bargain Best Chocobar Mango Tango Dolly Fun Bhari Raspberry
VADILAL SPECIALS
Heart Throb Mini Sandwich Sajan Sajani (Roll Cut) Quic
Easy Sundae August - 15 Cassatta Slice/ (Cut) Sajan Sajani (Roll) Vanilla Magic
Strawberry Magic Mango Mag
Page 24
ACHIEVEMENTS OF VADILAL:
On 10th November, 2001 Vadilal broke its own record by making "The Largest Ice C
ream Sundae". This ice cream sundae was made using 4950 litres of ice cream, 125
kg of dry fruits, and 255 kg of Fresh fruits. The length of the sundae was 20 f
eet and height was 9 feet, 180 man took 60 minutes to create this record breakin
g (registered in Limca Books of records) ice cream sundae. More than 50,000 peop
le enjoyed.
Snow- Storm Ice-Cream Festival (25th December, 2001 to 31st December, 2001) A we
ek long ice cream festival was held simultaneously in 11 Vadilal Happinezz Parlo
urs of Gujarat. 71 flavours of Ice Cream, 51 Ice Cream Sundaes, Sorbets, and Ice
Mithai ice creams like Rasgulla, Gulabjamun & other artisan Ice Creams were ava
ilable at one stop. Over hundred thousand people have attained this festival.
The Bareilly plant has been awarded the coveted ISO 9001 Accreditation and HACCP
certification.
Vadilal Ice Cream has achieved 20% market share among Indian Ice Cream Industry
and 40% market share in Gujarat.
Page 25
They have been awarded the ISO 9002 Certification for quality systems, by M/s Un
derwriters Laboratories Inc., USA.
Vadilal was also awarded the Certificate of Merit for Excellent Export Performan
ce by APEDA (Agricultural and Processed Foods Export
Development Authority)
One of the largest marketing networks for industrial gases in Western India.
In 2011, Vadilal Company has been evaluated by verities certification (UKAS kcc.
no.008) and also meets the requirement of Global Standard Food for Safety.
It has largest cold chain network in India o 40 Clearing & Forwarding agents acr
oss the country. o 560 distributors in different cities in India. o Ice Cream so
ld through more than 50000 retail outlets in India.
Export House status by Govt. of India since 1994.

Page 26
MARKETING CHANNEL
Page 27
NEW TACTIC OF MARKETING CHANNEL:
Due to fewer profit margins in old strategy of distribution, company started to

follow new strategy for distribution which has higher margin of profit and the p
roduct will go directly and according to demand of the customer through the HAPP
INEZZ parlour.
Page 28
SWOT ANALYSIS OF VADILAL INDUSTRIES LIMITED

STRENGTH:
Vadilal has started frozen food since 1991, which is growing year by y
ear and Vadilal Group is the only Company which export the frozen food to the ot
her Indian company with the affordable rate like reliance and many more. Vadilal
has a maximum range of ice-cream products in India, (more than 200 SKUs). Vadil
al Group has mainly target on rural areas people with the afford able price, and
its generated major revenue from the rural area. One of the oldest manufacturer
of ice-cream in India and hence a well established brand name, because of that r
eason maximum customers are attracted towards its product.
They have a cold chai
n network with three manufacturing units in India, 40 clearing and forwarding ag
ents, 560 distributors and more than 50000 retailers. They have their own refrig
erated vans for smoother and faster deliveries.
Quality is given at most as depi
cted in their philosophy to provide quality products and services at an affordab
le rate, as we know that Gujarat people are more quality conscious rather price
sensitive. There is large no. of flavour giving a customer range of choice, arou
nd more than 70 flavours has introduced by the Vadilal Group, Vadilal Ice-creams
come in a wide variety of flavours, with additives such as chocolate flakes or
chips, nuts, Ice-tropper, fruit, and even small candies/sweets. Some of the most
trendy ice cream flavours of Vadilal in markets are vanilla, chocolate, strawbe
rry, and butter scotch. Many people like ice cream sundaes of our Happinezz Parl
our, which regularly have ice cream, hot fudge, nuts, whipped cream, cherries an
d other toppings of their choice.
Market leader in Gujarat, they also gaining ma
rkets in Rajasthan as well as Uttar Pradesh, Uttarakhand, and Zarkhand.
Page 29
WEAKNESS:
Financial constraints due to high overheads and cost of production. The major fa
ctor affecting to the cost is electricity.
Vadilal Group is not aggressive in pr
omotion and advertisement followed by lack of innovation and initiatives to intr
oduce a new concept in area. Lack of innovation in recently launched ice-cream a
gainst Amul and Havmor.
Company still perform as a follower of Amul.
OPPORTUNITIES:
The company is also engaged in agro based food processing sector
which is one of the major thrust areas of the new central govt. There is a huge
overseas market for a food processing company.
Huge available market of ice-crea
m, changing and growing consumption pattern. They are having manufacturing units
at three different locations and vans for catering the needs of increasing dema
nd in the market.
Vadilal is Pioneers of processed food industries since 1991, t
herefore they gathered loyalty to other companies, so there is direct impact on
their Selling and as a result they gained high reputation. With his loyal dealer
network it can easily shift to the new market.
Because of its emphasis on quali
ty, it is held high in mind of the customer. A favourite with the customers becaus
e of its large variety of flavours and SKUs. Because of its leadership in novelt
ies and impulses items it is a hot favourite among young generation, by introduc
ing some trendy product like Ice-tropper in summer with the attractive packages
increasing its hold substantially.
Page 30
THREATS:
High Taxes, Multi National companies entering in to the market and also the incr
easing number of local manufacturers, as well as the international companies lik
e Amul, dairydan, and HUL.
Lack of niche. With increase in competition it would be very difficult to survey

without a niche market. HAVMOR and Amul with competitive flavours and prices be
coming major threat for the company.
Page 31
3
RESEARCH METHODOLOGY
Page 32
Period of Research
Entire research work is done for following period: 16-04-2012 to 16-6-2012
Research Design
Study the source of working capital in VADILAL INDUSTRIES LTD.
Prepared operatin
g statement of the company to understand finance of the company. Find out Ratios
related to working capital management of VADILAL INDUSTRIES LIMITED on year to
year basis starting from 2008-09 to 2010-11 and interpret them.
To study practic
ally various transaction processes of the company and its method of working. Stu
dy various formal documents of the company relating to the sample projects inclu
ding Term Loan, Cash Credit, Annual Report, Bills Discounting, Letter of Credit,
Stock Statement. Quarterly Information Statements etc.
To study a live project
of Proposed Term-Loan.
Data used
Information about companys assets, liabilities, revenue, expenditure, bankers etc
. Information about companys Bank Guarantee, Letter of Credit & other financial i
nformation.
Data Source
Annual Reports of companies
Balance Sheet
Profit & Loss Accounts
Page 33
Analyses & Interpretation

The data collected and analyzed subjectively as well as graphically where it is
possible. The analysis is based upon available information & interpreted accordi
ngly.
Scope of The Study
The study of Financial Analysis is based on tools like trend Analysis, Ratio Ana
lysis, Working capital Management, Working capital cycle etc. Further the study
is based on last 3 years Annual Reports of VADILAL INDUSTRIES LIMITED.
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4
RATIO ANALYSIS
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RATIO ANALYSIS
Introduction:
Ratio Analysis is the basic tool of Financial Analysis and Financial Analysis it
self is an important part of any business planning process. Ratios are the basic
tool of the strategic analysis plays a vital role in a business planning proces
s and no SWOT analysis would be complete without an analysis of companys financia
l position. In this way Ratio Analysis is very important part of whole business
strategic planning. Ratio Analysis is a form of Financial Statement Analysis tha
t is used to obtain a quick indication of a firm s financial performance in seve
ral key areas. The Ratios are categorized as Profitability Ratio, Leverage Ratio
, Turnover Ratio, and Liquidity Ratio. Ratios can be used to compare a firm s fi
nancial performance with industry averages. In addition, Ratios can be used in a
form of trend analysis to identify areas where performance has improved or dete
riorated over time.
Definition:
Ratio is an expression of mathematical relationship between two variables or fig
ures; it is the effectively used as a tool of management or analysis of financia
l statements along with cash and fund flow statements. Even in the trend analysi
s Ratio are used as an effective tool.
Objective Of Ratio Analysis:
To understand the financial statements Figures in a better way
To enquire in to t
he reason for change To make comparison to facilitate decision making
To compare
past and present performance of the company To analyse the operational activity
, profitability, performance efficiency, liquidity, and other related Ratio.
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Classification of Ratio:
Liquidity Ratio: Liquidity Ratio refer to the Ratio which measure the
companys ability to meet current or short term, usually one year, its obligations
. Liquidity means cash or equivalent available for the payment to creditors for
trade and expenses. Liquidity Ratio is generally based on the relationship betwe
en Current Liability and Current Assets.
Leverage Ratio: Leverage Ratio can also be known as solvency Ratio. This
Ratio means the companys ability to meet both short-term and long-term obligation
, when they fall due leverage depend upon the profitability of the business. Fin
ancial leverage refers to use of debt. Finance this Ratio help in assessing the
risk arising from the use of debt-capita. Solvency refers to the soundness of th
e company.
Turnover Ratio: Turnover Ratio also known as an Activity Ratio. Turnover

Ratio measure how effectively assets utilized in the firm. This means the quickn
ess with which the company is to able to covert Current Assets in to cash. Turno
ver means the frequency or the no. of times the item has turnover during the yea
r.
Profitability Ratio: Profitability in the terms of sales or/and investment to

assess the capacity of the management to earn the profit and to ensure returns t
o owner. This Ratio is reflecting the final result of the business operation. Th
ere are two type of profitability Ratio and rate of return Ratio.
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Liquidity Ratio: Liquidity Ratio Includes:

1. Current Ratio: Current Ratio is the Ratio of Current Assets to Current Liabil
ity. It is also known as working Capital Ratio, this Ratio is not expressed in p
ercentage Ratio. Generally (2:1) considered to be favourable Ratio that means Cu
rrent Assets twice Current Liability.
Purpose: The purpose of this Ratio is to test Liquidity of the company.
Current Assets Current Ratio: Current Liability
Particular Current Assets Current Liability Current Ratio:
2008-09 7897 3005 2.63
2009-10 10425 5173 2.02
2010-11 10961 3917 2.80
Interpretations: In 2008-09, Current Ratio of the company was 2.63. Same way in
2009-10 and 2010-11 comapanys current Ratio is healthy. In this case it implies t
hat the company can easily pay its Current Liabilities, Because of the Company h
aving adequate liquidity in term of Current Assets.
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2. Quick Ratio: It is calculated to establish a relationship between Liquid/Quic

k Assets and Current Liabilities. Quick Assets are nothing but cash, cash equiva
lents, and readily realizable marketable securities excluding stock and prepaid
expenses from Current Assets. This Ratio is considered as an ideal test for liqu
idity. The standard Ratio is 1:1.
Purpose: The purpose of this Ratio is to test liquidity of an enterprise conside

ring cash and cash equivalents as numerators.
Quick Ratio:
Quick Assets Quick Liability
Particular Quick Assets Quick Liability Quick Ratio
2008-09 4197 3005 1.40
2009-10 4851 5173 0.94
2010-11 5372 3917 1.37
Interpretations: Quick Ratio is very much Greater than the standard Ratio of 1:1
. This indicates the company is in position to honour its current obligation.
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Profitability Ratio: This Profitability Ratio includes following Ratios:

1. Gross Profit Ratio: This Ratio is measure the efficiency of production/purcha
se
as well as pricing. The higher the Gross Profit, the better is the efficiency of
the management in relation to production/purchase as well as pricing.
Purpose: This Ratio is used to test Profitability of an organisation relating to
trading activity. Gross Profit Net Sales 2008-09 3403 15416 22% 2009-10 4469 18
970 24% 2010-11 4934 23642 21%
Gross Profit Ratio:
Particulars Gross Profit Ratio Gross Profit Net sales Gross Profit Ratio
Interpretation: Gross Profit of the company in 2008-09,2009-10 and 2010-11 is 22
%,24% and 21% respectively.higher GP Ratio implies better runing capacity of the
company.but 22% GP Ratio implies average trading efficiency.
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2. Net Profit Ratio: This Ratio is indicating difference between net sales and t
otal
expenses during the period. The higher the Net Profit, the better is the efficie
ncy of the management. The management should in better position to distribute hi
gher returns to the owners on the capital invested by them.
Purpose: To test Profitability of organisation.

Net Profit Ratio:
Net Profit Net Sales
Particular Net Profit Net Sale Net Profit Ratio
2008-09 108 15416 0.70%
2009-10 575 18970 3.03%
2010-11 507 23672 2.14%
Interpretation: As above graph shows, even though sales increase in 2010-11, the
Net profit Ratio is not increase at good level, but in 2010-11,sales increases
but Net profit Ratio decreases and also there is increase in expenditure compare
to previous year which shows decline trend in Net profit.
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3. Expenses Ratio: This Ratio is indicating the relationship between Operating

Expenses and Net Sales, Expenses Ratio are computed. For example, proportion of
selling expenses or administrative expenses or finance expenses in relation to n
et sale.
Purpose: The purpose of this Ratio is to know how much expenses are increases wi
th accordance to increase in sales.
Expense Ratio:
Total expenses Net sales
Particular Total Expense Net Sale Expense Ratio
2008-09 4995 15416 32%
2009-10 4288 18970 23%
2010-11 4995 23642 21%
Interpretation: This Ratio is combination of all expenditure which include in op
erating statement as well as in P & L account, the Ratio is continuously reducin
g in last three years that means from 2008 to 2011 which shows higher efficiency
of the company.
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4. Return on Capital Employed: It calculated to establish a relationship between

earnings before interest and taxes (EBIT) and capital employed. Capital Employed
means, Share Capital+ Reserve and Surpluses- Fictitious Assets+ Long-Term Loan.
It means the effectiveness of the company in using all its assets to increase t
he earnings of the company.
Purpose: This Ratio is calculated to find out how efficiently the long term fund
s supplied and used in the company.
ROCE:
EBIT Total Capital Employee Particular 2008-09 865 6022 14% 2009-10 1433 7968 18
% 2010-11 1616 10977 15%
EBIT Total Capital Employee ROCE:
Interpretation: Higher the Ratio, the management is more efficient. The Capital
Employed Ratio in 2008-09 is low but higher in 2009-10, which show the managemen
t is quite effective again in 2010-11 its decreases in lower level.
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5. Return on Share Holders Fund: This Ratio is measure a relationship between net
profit after tax and share holders fund which include Share Capital + Reserves an
d Surplus.
Purpose: This Ratio is to find out how efficiently the funds supplied by Equity
Shareholders have been used.
ROSF:
PAT Shareholder s fund
Particular PAT Shareholder s Fund ROCE:
2008-09 108 3530 3%
2009-10 575 3958 15%
2010-11 507 4320 12%
Interpretation: This Ratio shows how efficiently the fund supply by the equity
Shareholder has been used and the company is able to get and give sufficient ret
urns to the Shareholders. As we can see in the graph that the Ratio of 200809 is
low as compare to both years which shows that the company is able to pay suffic
ient returns to the Shareholders.
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6. Operating Margin: It is calculated purely to establish relationship between

Operating Profit and Net Sales when non-operating incomes and expenses are not c
onsidered into P & L account.
Purpose: It determines the operational efficiency with production; purchasing an
d
selling operations are carried on.
Operating Margin:
COGS + Operating Exp. Sales
Particular COGS Operating Exp. COGS + Operating Exp. Sales Operating Margin:
2008-09 11443 2538 13981 15416 91%
2009-10 14501 3035 17536 18970 92%
2010-11 18709 3318 22027 23642 93%
Interpretation: In year 2008-09 Ratio is 91% which is increased up to 93% in yea
r 2010-11 which shows increasing trend of operating margin compare to last 2 yea
rs that means there is healthy operating margin trend.
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Leverage Ratio: Leverage Ratio includes following Ratio: 1. Debt-Equity: This Ra

tio establishes relationship between long-term debts and shareholders fund. Debt
-Equity Ratio should be less than 1 to show that owners fund is greater than len
ders fund.
Purpose: This Ratio shows at which extent the company has been financed by debt,
and used to measure the solvency of the company.
Debt-Equity Ratio:
Total Long-term Debt Shareholder s Fund
Particular Total Long-term Debt Shareholder s Fund Debt-Equity Ratio
2008-09 2492 3530 0.71
2009-10 4010 3958 1.01
2010-2011 6657 4320 1.54
Interpretations: This Ratio shows the relationship between Long Term Debt and sh
areholders fund. The main objective of computing this Ratio is to measure the re
lative proportion of the Debt and Equity financing Assets of the firm. In this c
ompany it shows company is having more Debt which creates high risk for it. The
company should try to reduce its Loan Funds. Here the Ratio is increase year by
year due to increase in Debt, due to wide capital expansion in last three years.
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2. Interest Coverage Ratio: This Ratio is useful to know the company has suffici
ent profit for liability of interest.
Purpose: This Ratio shows that how many times the interest payable is covered by
the amount of the profit. EBIT Interest
Interest Coverage Ratio:
Particular EBIT Interest Interest Coverage Ratio
2008-09 865 749 1.15
2009-10 1433 631 2.27
2010-2011 1616 961 1.68
Interpretation: This Ratio is useful to know about firms sufficient profit throug
h which shows the firm is enough capable to pay its Liabilities (Interest). It re
presents that how many times Interest payable is covered by the amount of profit
.
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Turnover Ratio: This Ratio includes following Ratios:

1. Stock Turnover Ratio: It measure how frequently inventory sold or how many ti
mes the stock of the business has turnover. This is the Ratio of COGS to Average
Inventory in a stock during the year. Increase in the frequency of stock turn o
ver indicates increased profit and low level of inventory in the stock and high
Cash Inflow.
Purpose: The main purpose of computing this Ratio is to determine the efficiency
with which inventory is utilized.
Stock Turnover Ratio:
Cost of Goods Sold Average Stock
Particular Cost of Goods Sold Average Stock Stock Turnover Ratio
2008-09 11443 2707 4
2009-10 14501 4149 3
2010-11 18709 5046 4
Interpretations: This Ratio shows relationship between Cost of Goods Sold and Av
erage Inventory and to know how frequently inventory is utilised. Higher this Ra
tio shows higher efficiency of the company. There is stable capacity of stock mo
vement compared among last three years.
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2. Debtors Ratio: The Ratio shows the no. of days taken to collect the Credit Sa
les. It shows the efficiency or collection policy of the company.
Purpose: The p
urpose of use this Ratio is to measure the frequency of the collection of the Ac
count Recievable (Debtors+ Bills Recievable).
Debtors Ratio:
Debtors + Bills Receivable Credit Sales
*365
Particular Debtors + Bills Receivable Credit Sales Debtors Ratio (Days)
2008-09 2959 15416 70
2009-10 3321 18970 64
2010-11 3495 23642 54
Interpretations: This Ratio describes the effectiveness in the collection period
of dues credit sale. This shows the efficiency of the collection policy of the
company, as we can see in the graph that the collection period of the company is
better than last two years and it is considerably improve day by day.
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3. Debtors Turnover Ratio: Debtors Turnover Ratio gives no. of times within whic
h the amount due for credit sale is collected.
Purpose: This Ratio is able to indicate the ability of the company to meet the s
hort term current obligation and measure strength of current operation as well.
Debtors Turnover Ratio:
No. of days in year Debtors Ratio
Particular No. of days in year Debtors Ratio Debtors Turnover Ratio
2008-09 365 70 5
2009-10 365 64 6
2010-11 365 54 7
Interpretation: The Debtors Turnover Ratio shows the number of times the amount d
ue for Credit Sales is collected within a year. Higher this Ratio shows higher e
fficiency of the company. Here the Debtors Turnover Ratio is continuously increa
sing, which shows efficient management of the company.
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4. Creditors Ratio: Company will be interested in finding out how much time the
firm is likely to take in repaying the trade creditors. This ratio helps in find
ing out the exact time a firm is likely to take in repaying to its trade credito
rs.
Purpose: This Ratio measures the length of time it takes a company to pay its cr
editors. Creditors + Bills Payable Credit purchase
Creditors Ratio:
*365
Particular Creditors + Bills payable Credit Purchase Creditors Ratio
2008-09 1219 9480 50
2009-10 2120 12443 62
2010-11 1540 13684 41
Interpretation: The number of the days in which the company makes payment to its
Creditors for Credit Purchase. Here the Ratio of 2010-11 is 41 days which is lo
wer compare to last year 2009-10 which shows company is better managing its cred
itors. The company is making faster payment to its suppliers.
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5. Creditors Turnover Ratio: This Ratio measures how many times the Accounts Paya
bles are paid in a year. Higher Creditors Turnover Ratio is an indication of str
ict credit policy and lower Ratio is an indication of liberal credit policy by t
he company.
Purpose: This Ratio helps the manager to understand that how many times company
makes a payment to their supplier.
Creditors Turnover Ratio:
No. of days in year Creditors Ratio
Particular No. of days in year Creditors Ratio Creditors Turnover Ratio
2008-09 365 47 8
2009-10 365 62 6
2010-11 365 41 9
Interpretations: The Creditors Turnover Ratio shows that the numbers of times
with in which we make payment to our creditors for Credit Purchase is obtained f
rom Creditors Velocity. The Ratio is quite same during 3 years that means there i
s no much fluctuation in Ratio, its increase from 8 to 9 times from 2008-09 to 2
010-11 which shows the company pays amount for credit purchase 9 times in a year
.
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5
WORKING CAPITAL
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WORKING CAPITAL
Introduction:
The life blood of business, as is evident, signified funds required for day-to-d
ay operations of the f irm. The management of working capital assumes great impo
rtance because shortage of working capital funds is perhaps the biggest possible
cause of failure of many business units.
Management is a talent of anticipating
and preparing for risks, uncertainities and overcoming obstacles. In morden fin
ancing management , efficient allocation of funds has a great scope, in finance
and profit planning, for most effective utilization of company resources. we wou
ld like to present a broad overview of what working capital is and why it is imp
ortant. working capital is the money which used in a business has available to s
ustain its operations. It s the capital available to purchase inventory, pay emp
loyees, keep the lights on, and finance other short term expenditures. This make
s managing working capital a critical business skill. If there is no working cap
ital, there is no business.
Working capital in simple term means amount of funds
that company requires for financing its day-to-day operations. Finance manager
should develop sound techniques of managing Current Assets. Not only does workin
g capital management involve ensuring the business does not fail due to a short
term cash problem, but it also helps to ensure a business does not carry too muc
h cash. Every business needs investment to procure fixed assets, which remain in
use for a longer period. Money invested in these assets is called Long term Fund
s or Fixed Capital. Business also needs funds for short-term purposes to finance cu
rrent operations. Investment in short term assets like cash, inventories, debtor
s etc., is called Short- term Funds or Working Capital. The Working capital can be ca
tegorized, as funds needed for carrying out day-to-day operations of the busines
s smoothly.
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Every running business needs working capital. Even a fully equipped with all typ
e of assets required is bound to collapse without:
o Adequate supply of raw materials for processing o Cash to pay wages, various t
ypes of bills, salaries etc. o Creating a stock of finished goods to feed the ma
rket demand regularly. o The ability to grant credit to customers. All these req
uire working capital. Working capital is thus like The Lifeblood of a Business. T
he business will not be able to carry on day-to-day activities without the avail
ability of adequate working capital.
WHAT IS WORKING CAPITAL?
Working capital refers to the investment by the company in Short Terms Assets su
ch as cash, marketable securities. Net Current Assets or Net Working capital ref
ers to the Current Assets less Current Liabilities.
Symbolically, it means, Net Current Assets = Current Assets-Current Liabilities.
DEFINITIONS OF WORKING CAPITAL:
The following are the most important definitions of Working capital:
1. Working capital is the difference between the inflow and outflow of Funds. In
other words it is the net cash inflow. 2. Working capital represents the total
of all Current Assets. In other words it is the Gross working capital, it is als
o known as Circulating capital or Current capital for Current Assets are rotatin
g in their nature. 3. Working capital is defined as the excess of Current Assets
over Current Liabilities and provisions. In other words it is the Net Current A
ssets or Net Working Capital.
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FEATURES:
Working capital is regarded as the excess of Current Assets over Current Liabili
ties.
Working capital indicates circular flow of funds in the day-to-day activit
ies of business. Thats why it is also called circulating capital. Working capital
represents the minimum amount of investment in raw materials, work-in progress,
finished goods, stores and spares, accounts receivables and cash balance.
SIGNIFICANCE OF WORKING CAPITAL:
Working capital may be regarded as the lifeblood of the business. Without Insuff
icient working capital, any business organization cannot run smoothly or success
fully.
In the business the Working capital is comparable to the blood of the Human body
. Therefore the study of working capital is of major importance to the internal
and external analysis because of its close relationship with the current day to
day operations of a business. The inadequacy or mismanagement of working capital
is the leading cause of business failures.
To meet the current requirements of a business enterprise such as the purchases

of services, raw materials etc. working capital is essential. It is also pointed
out that working capital is nothing but one segment of the capital structure of
a business.
In short, the cash and credit in the business, is comparable to the blood in the
human body like finance s life and strength i.e. profit of solvency to the busi
ness enterprise. Financial management is called upon to maintain always the righ
t cash balance so that flow of fund is maintained at a desirable speed not allow
ing slow down. Thus enterprise can have a balance between liquidity and profitab
ility. Therefore the management of working capital is essential in each and ever
y activity.
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TYPES OF WORKING CAPITAL

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These are the two concept of Working Capital:

Gross working capital:
Net working capital:
1. Gross Working Capital: The Gross Working Capital refers to firms investment in
Current Assets. Current Assets are the assets which can be converted into the c
ash with in accounting year and with in cash, short-term securities, debtors, bi
lls receivable and stock. Therefore, gross working capital is the Current Assets
of the company.
It can be represented by following equation:
Gross working capital= Total of the Current Assets
2. Net Working Capital: Net working capital is difference between Current Assets
and Current Liability. Current Liabilities are those claims which are expected
to mature of the payment with in accounting year and include creditors, bills pa
yable and outstanding expenses.net capital can be negative or positive.
A positive working capital occurs when Current Assets are excess of Current Liab
ilities.
A negative working capital occurs when Current Liabilities are excess of Current
Assets.
It can be represented by following equation:
Net working capital= Current Assets Current Liabilities
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ON THE BASIS OF TIME, WORKING CAPITAL MAY BE CLASSIFIED AS:

orking capital Temporary or variable working capital
Permanent or fixed w
1. PERMANENT OR FIXED WORKING CAPITAL: Permanent or fixed working capital is min

imum amount which is required to ensure effective utilization of fixed facilitie
s and for maintaining the circulation of Current Assets. Every firm has to maint
ain a minimum level of raw material, work-in-process, finished goods and cash ba
lance. This minimum level of Current Assets is called permanent or fixed working
capital as this part of working is permanently blocked in Current Assets. As th
e business grow the requirements of working capital also increases due to increa
se in Current Assets. 2. TEMPORARY OR VARIABLE WORKING CAPITAL: Temporary or var
iable working capital is the amount of working capital which is requires meeting
the seasonal demands and some special exigencies. Variable working capital can
further be classified as seasonal working capital and special working capital. I
n the Vadilal industries, they purchase raw materials for ice-cream in winter se
asonal. The capital required to meet the seasonal need of the company is called
seasonal working capital. Temporary working capital is the additional assets requ
ired to meet the variations in sales above the permanent level. Special working c
apital is that part of working capital which is required to meet special exigenc
ies such as launching of extensive marketing for conducting research, etc.
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Figure: Capital Requirements of a firm over time

IMPORTANCE OF MAINTAINING ADEQUATE WORKING CAPITAL
Adequate working capital helps in maintaining solvency of the business by provid
ing uninterrupted production.
Prompt payment and maintenance of goodwill with th
e customers of the firm is ensured by maintaining sufficient amount of working c
apital. High solvency and high credit rating will help the firm in availing loan
s from banks and other financial institutions on easy and favourable terms.
Main
taining adequate working capital will help the firm in getting cash discounts fr
om its suppliers which will eventually reduce cost. Regular supply of raw materi
al and continuous production of its products will be ensured if a firm maintains
sufficient working capital.
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Maintenance of adequate working capital will help a firm in making regular payme
nt of salaries, wages and other day-to-day commitments that will eventually resu
lt in satisfaction of its employees, an increase in their efficiency & enhanced
production as well as profits of the firm.
If a firm is having adequate working
capital, then it can exploit favourable market conditions such as purchasing raw
materials in bulk when their prices are lower & holding its inventories when th
e prices are higher. Sufficient working capital will enable a firm to pay quick
& regular dividends to its Investors, gain confidence of the investors and raise
more funds in the future.
DISADVANTAGES OF HAVING AN EXCESSIVE WORKING CAPITAL
Excessive working capital means ideal funds which wont result in any profit for t
he firm and business cannot earn the required rate of return on its investments.
Redundant working capital leads to unnecessary purchasing and accumulation of i
nventories.
Excessive working capital implies excessive debtors and defective cr
edit policy which causes higher incidence of bad debts.
It may reduce the overal
l efficiency of the business. If a firm is having excessive working capital then
the relations with banks and other financial institution may not be maintained.
Due to lower rate of return n investments, the values of shares may also fall.
The redundant working capital gives rise to speculative transactions.
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Taking into consideration the advantages to a firm in maintaining adequate worki

ng capital and the disadvantages for a firm in having an excessive working capit
al, we can say that it is imperative for a firm to maintain right levels of work
ing capital. This requires efficient management of the Current Assets and the Cu
rrent Liabilities of a firm i.e. employing efficient working capital management
policies which will have a considerable impact on the profitability, liquidity a
nd structural health of the firm. Various aspects of working capital management
have been described in detail in the subsequent pages.
Structure of Working Capital
The different elements or components of Current Assets and Current Liabilities c
onstitute the structure of working capital which can be illustrated in the shape
of a table as follows:
Current Liabilities Bank Overdraft Creditors
Current Assets Cash and Bank Balance Inventories: Raw-Materials Work-in-progress
Finished Goods
Outstanding Expenses Bills Payable Short-term Loans Proposed Dividends Provision
for Taxation, etc.
Stores & Spare Accounts Receivables Bills Receivables Accrued Income Prepaid Exp
enses, Short-term Investments
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6
WORKING CAPITAL MANAGEMENT
Page 63
WORKING CAPITAL MANAGEMENT

Working Capital Management is significant in Financial Management. It plays a vi
tal role in keeping the wheel of the business running. Every business requires c
apital, without it cant be promoted. Investment decisions are concerned with inve
stment in Current Assets and Fixed Assets. Working Capital plays a key role in a
business enterprise just as the role of heart in human body. It acts as grease
to run the wheels of Fixed Assets. Its effective provision can ensure the succes
s of business while. Its inefficient management can lead not only to loss but al
so to the ultimate downfall of what otherwise might be considered as a promising
concern. Efficiency of a business enterprise depends largely on its ability to
its working capital. Working capital management is one of the important facts of
affirms overall financial management.
Working Capital Management refers to management of Current Assets and Current Li

abilities. The major thrust of course is on the management of Current Assets .Th
is is understandable because Current Liabilities arise in the context of Current
Assets. Working Capital Management is a significant fact of financial managemen
t.
Working capital is that part of companys capital which is used for purchasing raw
material and involve in sundry debtors. We all know that Current Assets are ver
y important for proper working of Fixed Assets. Suppose, If you have invested you
r money to purchase machines of company and if you have not any more money to bu
y raw material, then your machinery will no use for any production without raw m
aterial. From this example, you can understand that working capital is very usefu
l for operating any business organization. We can also take one more liquid item
of Current Assets that is cash. If you have not cash in hand, then you cannot p
ay for different expenses of company, and at that time, your many business works
may delay for not paying certain expenses. If we define working capital in very
simple form, then we can say that working capital is the excess of Current Asse
ts over Current Liabilities.
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WHAT IS WORKING CAPITAL MANAGEMENT?

A Managerial Accounting Strategy focusing on maintaining efficient levels of both
components of working capital, Current Assets and Current Liabilities, in respe
ct to each other. Working Capital Management ensures a company has sufficient ca
sh flow in order to meet its short-term debt obligation and operating expenses.
Components of working capital and their basis of valuation
Components of W.C Stock of R.M Stock of W.I.P Stock of Finished Goods Debtors Ca
sh
Basis of Valuation Purchase Cost of R.M At cost or market value Cost of Producti
on Cost of Sale Working Expenses
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WORKING CAPITAL CYCLE

Introduction:
Working Capital Cycle is helpful in various senses for the company. Working Capi
tal Cycle is one of the several measures for effectiveness of the management. It
is also known as a cash conversation cycle. Depending upon the type of time perio
d this cycle is referred to as a short period WC Cycle. It is able to suggest th
at this has good cash flow. It measures how fast a company can convert cash on h
and into even more cash on hand. The WCC does this by following the cash as it i
s first converted into Inventory and Accounts Payable (AP), through sales and Ac
counts Receivable (AR), and then back into cash. Generally, the lower this numbe
r is the better for the company. It can be especially useful for comparing close
competitors because the company with the lowest WCC is often the one with bette
r management.
As far as manufacturing company like Vadilal is concern, there wor
king capital cycle starts with the purchase of raw materials and ends with reali
zation of cash from the sale of finished goods. The cycle involves the purchase
of Raw Materials and ends with the realization of cash from the sale of finished
products. The cycle involves purchase of raw materials and stores, its conversi
on in to stock of finished goods through work in progress with progressive incre
ment of labor and service cost, conversion of finished stick in to sales and rec
eivables and ultimately realization of cash and this cycle continuous again from
cash to purchase of Raw Materials and so on.
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What is WCC?
The WCC is a combination of several activity Ratios involving Accounts Receivabl
e, Accounts Payable and Inventory Turnover. AR and inventory are Short-term Asse
ts, while AP is a liability; all of these Ratios are found with the help of the
balance sheet. In essence, the Ratios indicate how efficiently management is usi
ng Short-term Assets and Liabilities to generate cash. This allows an investor t
o gauge the overall health of the company. How do these Ratios relate to busines
s? If the company sells what people want to buy, cash cycles through the busines
s quickly. If management cannot figure out what sells, the WCC goes slow down. F
or instance, if too much inventory builds up, cash is tied up in goods that cann
ot be sold - this is not good news for the company. If AR is handled poorly, it
means that the company is having difficulty in collecting payment from customers
. The longer a company has to wait to be paid, the longer that money is unavaila
ble for investment elsewhere. On the other hand, the company benefits by slowing
down payment of AP to its suppliers, because that allows the company to make us
e of the money for longer.
OPERATING CYCLE:
The duration of time required to complete the following sequence of events, in c
ase of manufacturing firm, is called the operating cycle:
1. Conversation of cash into Raw Materials 2. Conversation of Raw Material in to
work-in-progress 3. Conversation of work in process in to finished goods 4. Con
versation of Finished Goods into Debtors and Bills Receivables through sales. 5.
Conversation of Debtors and Bills Receivable in to cash.
Page 67
Duration of the Operating Cycle:

The duration of the operating cycle is equal to the sum of the duration of each
of these stages less the credit period allowed by the suppliers of the company.
In symbols,
Operating cycle:
Inv. Period + A/c. Receivable- A/c. Payable
CASH CYCLE
PARTICULAR Operating Cycle: Accounts Payable Period Cash Cycle (In Month) 2009 1
88 39 149 2010 204 53 151 2011 163 30 133 Average Days 185 41 144 Months 6 1 5
Page 68
INVENTORY PERIOD
PARTICULAR INVENTORY PERIOD: Inventory COGS INVENTORY PERIOD
2009
2010
2011
Average Days
Months
3700 11443 118
5573 14501 140
5589 18709 109
4954 14884 122 4
A manufacturing company converts the raw material in to Finished Goods and then
sells the same. The time lag between the purchase of Raw Material and the sales
of Finished Goods is the Inventory Period. Based on the data of the past 3 years
, Vadilal industries Ltd. takes an average of 122 days between the purchase of r
aw materials and the sale of finished goods that means Average Credit Period for
inventory is 4 months.
ACCOUNT RECEIVABLES PERIOD
PARTICULAR ACCOUNT RECIEVABLE PERIOD: DEBTOR ANNUAL CREDIT SALES ACCOUNT RECIEVA
BLE PERIOD 2959 15416 70 3321 18970 64 3495 23642 54 3258 19343 63 2 2009 2010 2
011 Average Days Months
After a company sells the finished goods to its customer, customers will pay the
ir bills after availing credit period. Time duration between the date of sales a
nd the date of collection of receivables is the Accounts Receivable Period. For
Vadilal industries Ltd., it takes on an average 63 days after the date of sales
to receive the payments from its customer.
Page 69
ACCOUNT PAYABLES PERIOD

PARTICULAR ACCOUNT PAYABLE PERIOD: CREDITORS ANNUAL PURCHASE ACCOUNT PAYABLE PER
IOD 1219 11443 39 2120 14501 53 1540 18709 30 1626 14884 41 1 2009 2010 2011 Ave
rage Days Months
The company begins with the purchase of Raw Material which is paid for after a s
pecified time period, which represents the Accounts Payable Period. Vadilal Indu
stries ltd. takes an average of 41 days from the date of purchase of raw materia
ls to pay the raw material supplier that means there is 1 month period. Year 201
0 has longest accounts payable period of 53 days but again its decrease in 2011.
Page 70
LIQUIDITY ANALYSIS
Maintenance of liquidity is one of the prime concerns of working capital managem
ent. Through Liquidity Analysis, we can come to know which year the company had
maximum liquidity.
METHODOLOGY
For the purpose of Liquidity Analysis, first of all the components of Gross Work
ing Capital are taken as % of total block. Through this we get the % composition
of each constituent for a particular year. Furthermore, rankings are given to e
ach constituent across all the years. Ranks are given to each component dependin
g on its relative liquidity. As inventories are less liquid compared to cash bal
ances the year having least % inventory is given rank 1 and the year having high
est % inventory is given the lowest rank. Similarly, cash balances, which are on
e of the most liquid Current Assets, the year where its % is highest is given ra
nk 1 and the year where its % is the lowest is given the lowest rank. After givi
ng ranks to each constituent, individual rankings of each constituent for each y
ear are added up and the year with the least total is given the highest rank and
the year with the highest total is given the lowest rank. Year with the highest
rank is considered to be the most liquid year and the year with the lowest rank
is considered to be the least liquid year. Thus, by this way, we can compare th
e Annual liquidities and perform liquidity analysis. Following example shows the
companys Liquidity position over the past three years.
Page 71
LIQUIDITY ANALYSIS GROSS WORKING CAPITAL YEAR CURRENT ASSETS a) Inventories b) S

undry Debtors c) Cash and Bank bal. d) Interest Receivable e) Loans and Advances
2008-09 7897 3700 2959 162 63 1012 % 100 47 37 2 1 13 2009-10 10425 5573 3321 2
47 161 1123 % 100 53 32 2 2 11 2010-11 10961 5589 3495 138 196 1450 % 100 51 32
1 2 13
RANKING YEAR a)Inventories b)Sundry Debtors c)Cash and Bank bal. d)Interest Rece
ivable e)Loans and Advances Total Ranks 2008-09 1 3 1 1 1 7 1 2009-10 3 1 1 2 3
10 3 2010-11 2 1 3 2 1 9 2
INFERENCE
In case of Vadilal Industries Ltd., on the basis of the Liquidity Analysis, we c
an see that the year 2010-11 ranks the best and the year 2008-09 ranks the worst
as far as liquidity is concerned. It implies that during this year the mix of C
urrent Assets was the most liquid. We will look at each component separately and
see how each affects the liquidity of a company.
Page 72
INVENTORIES
Inventory forms a major portion of the companys Current Assets. Inven
tory occupies 47% to 53% of the companys total Current Assets over the past three
years. One must also consider the fact that a firm has to maintain sufficient i
nventory so as to prevent any shortages due to unexpected rise in the demand. Ho
wever, company can try to reduce its inventory in order to save the inventory ho
lding cost and enhance liquidity.
SUNDRY DEBTORS Along with Inventories, Debtors also form a major portion of the
companys Current Assets. Debtors occupy 32 to 37% of the companys total Current As
sets over the past three years. Thus, it can be inferred that major part of the
companys sales are on credit. High composition of Sundry Debtors in the company c
an not only reduce the liquidity of the company, but also makes the company more
open to defaults.
CASH & BANK BALANCES
Cash & Bank balances are one of the most liquid Current Ass
ets. Cash & bank balances occupy 1% to 3% of the companys Current Assets over the
past three years. We can observe that the company has a very low balance of cas
h throughout the past three years. It can look to better its overall liquidity b
y maintaining higher cash and bank balances.
LOANS & ADVANCES After Cash & Bank Balances, Loans & Advances can be termed as h
ighly liquid in nature. Portion of Loans & Advances are in the range of 11% to 1
3% over the past three years. As compared to Inventories & Debtors, Loans & Adva
nces occupy relatively less portion of companys total Current Assets.
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OTHER CURRENT ASSETS (INTEREST RECEIVABLES)

Over the past three years, Interest
Receivables have occupied about 1% to 2% of the companys Current Assets. In the y
ear 2009-10 & 2010-11, interest receivables have occupied about 2.0% of the comp
anys Current Assets which is the highest since the past 3 years.
LIMITATIONS OF LIQUIDITY ANALYSIS As it considers only the % figures, no in-dept
h analysis can be provided. Secondly, the Liquidity Analysis does not help us in
identifying the reasons resulting in variation of the figures.
Page 74
7
WORKING CAPITAL FACILITIES
Page 75
WORKING CAPITAL FACILITIES:

There are two types of working capital facilities:
1. Fund based working capital:
Fund based working capital facilities include: 1. Term Loan
2. Cash Credit
3. EPC
4. PCFC
2. Non fund based working capital:
Non fund based working capital includes: 1. Letter of Credit:
2. Bank Guarantee: I. Advance: II. Corporate: III. Performance base:
3. Bill Discount (Purchase Bill Discount):
Page 76
A) Fund based working capital:

Fund based working capital facilities include:
1. Term Loan:
All banks have Term-Loan program that can offer to all type of businesses for th
e purpose of acquisition of fixed assets. viz., Land, Building, Plant and Machin
ery for setting up of new industrial units or expansion/modernisation of existin
g units, financing for the purchase of second hand machinery (both indigenous as
well as imported) can also be considered subject to certain conditions. Organiz
ation will use the funds from the term loan to purchase Fixed Assets such as equ
ipment used in its production process. Bank will provide fund in term of loan to
the company, then bank will finance the loan in the proportion of ratings of th
e company. It is different from case to case of companys credit ratings, generall
y 1:3 Ratio is applicable. That means Companys Promoter takes out Re. 1.00 then b
ank will give Rs. 3.00. For example, the total cost of project is of Rs.15.00 cr
ores, than Bank will finance of Rs. 10.00 crores and companys contribution would
be Rs. 5.00 crores. Vadilal Industries Limited having total Term Loan of Rs. 91.00
Cr, In which they have borrowed loan from various banks i.e. BOB, SBI, SBT, IDB
I and EXIM proportionately as per their consortium sharing pattern.
2. Cash credit:
Cash Credit is also known as Working Capital. Cash Credit is a facility to withdra
w the amount from the business account even though the account may not have enou
gh credit balance. The limit of the amount that can be withdrawn is sanctioned b
y the bank based on the business cycle of the company, working
capital requirement and the drawing power of the company. This drawing power is
determined, based on the stock and book debts statements submitted by the compan
y at monthly intervals against the security by hypothecating of stock of commodi
ties and book debts. The Cash Credit facility is quite useful to those businesse
s where cash payment like wages, transportation, cash purchases are to be made a
nd the receivables are not realized in time.
Page 77
Drawing Power:
Drawing Power is a capacity of a company to avail a finance facility against the
Debtor and stock. There are two methods for determining finance available to a
company. As per policy, bank cannot give 100 % of Finance to a company. As far a
s Vadilal is concern, they are mainly using the second method for finding out th
e drawing power. A company needs to put some money as a Margin Money for Working
Capital. On basis of that there are two methods use which are as follows: Metho
d-1 Rs. In Lacs Particular Stock Less: Margin (25%) Net stock (A) 120 36 84 159
60 99 Rs. 100 25 75 Total Amt.
Debtors Less: Margin (30%) Net Debtors (B) (A+B) Less: Creditors NET DRAWING POW
ER
Page 78
Method-2 Rs. In Lacs Particular Stock Less: Creditors Net stock Less: Margin (25
%) DRAWING POWER ON STOCK (A) Debtors Less: Margin (30%) DRAWING POWER ON DEBTOR
S (B) TOTAL D.P (A+B) 120 36 84 114 Rs. 100 60 Total Amt.
40 10 30
Purpose: to meet the working capital needs of their ice-cream and food processed
business.
Security: Company is required to maintain sufficient security for this facility
with the bank. They are as follow. A) D.P not executed by company. B)Hypothecati
on of raw material, finished goods, stores and spares ,packing material lying/st
ored at their factory at Dudheshwar ,Bareilly, Pundhra, proposed plant at Calcut
ta and other warehousing of their associate concerns at companys C&F site and oth
er place. C) Letter of continuing security D) Letter of undertaking E) Irrevocab
le power of Attorney for book debts.
Provision: cash credit limit is allowed aga
inst stock at various plants as per requirement. Company is required to provide
insurance for all the stock. General terms;
Company is required to submit monthl
y statement of stock and book debts hypothecated to the bank as of each month by
the 10th of the following month, if any delay will attract penalty
Page 79
3. EPC/PCFC:
Company has taken both the kinds of financing facilities from the bank i.e., pre
and post shipment. Under pre-shipment, company takes two types of credit facili
ties i.e., EPC (export packing credit) and PCFC (packing credit in foreign curre
ncy). Under pre-shipment they have taken FBD/FBP (foreign bill discounting/purch
ase) for meeting their working capital requirement. Now their financing mechanis
m goes like this; Company takes credit on the export orders on hand through EPC/
PCFC window for producing goods. These goods are then transported through ship t
o their destination. In this whole transition it is the banks of both the partie
s (Vadilal and their customer) that take care of the financial aspect of the tra
nsaction.
On our request, our bank puts money in our C.C account for utilization
. Such a credit is permissible for a period of 180 days. Within this 180 days co
mpany is required to submit the export documents in the bank for realizing payme
nt the foreign customer by its bank and then duly deposited in our banks account
in India. After goods are sent for shipment, documents are submitted to the dom
estic bank within 180 days (failing to this bank charges penal interest from the
company) these documents include invoice and inland letter. These documents are
than submitted to the foreign bank by the domestic bank seeking conformation of
the payment by the customer within the stipulated period. Then these documents
are given to the customer against which he can take delivery of the goods from t
he shipping company.
On the due date, customer make payment to their bank and th
at bank submits the amount to our bank and hence the account is liquidated.
In c
ase of Vadilal the company procure Raw Material for processed food like mango, gre
en Peas, Sweet Corn, Okra, Mixed Vegetables etc during its season and process it
in Frozen Foods and exports the same as per requirements of the customer for wh
ole year and enjoys the benefit of low rate of interest by availing EPC/PCFC.
Page 80
Company has also taken post-shipment financing from the consortium in the form o
f FBD/FBP. Whenever company is in the need of extra finance they take it from th
e bank by discounting their export invoice from the bank
Page 81
B) Non fund based working capital:

Non fund based working capital includes: 1. LETTER OF CREDIT:
There always remain the risks of default on the part of buyer. Therefore, suppli
ers and particularly foreign suppliers insist on getting a guarantee from the bu
yers bank for the payment in the event of default on the part of the buyer. This
facility is extended by the bank to its customer in the form of an instrument ca
lled Letter of Credit. This arrangement passes the risk of suppliers to the bank.
This facility is extended by banks to only financially sound customer. However,
unlike cash credit or overdraft facility Letter of Credit is an indirect form of
financing; the bank will make payment on behalf of the buyer only if he fails t
o meet his obligation.
Page 82
L/C Transaction Structure

1. Vadilal Industry Ltd. enters into a purchase agreement with its supplier, For
IceCream and Frozen Food business. 2. Vadilal Industry Ltd completes an Applica
tion for an irrevocable Letter of Credit with information pertaining to VIL tran
saction and then submits it to Issuing bank (SBI Bank) for processing. 3. The Le
tter of Credit is usually issued within 24 hours of the time the Issuing Bank (S
BI Bank) sends the Letter of Credit to the Advising Bank (IDBI Bank). 4. The Adv
ising bank (IDBI Bank) establishes the authenticity of the Letter of Credit and
informs the Beneficiary (i.e., supplier) that it has been received. 5. Supplier,
ships goods to VIL against the letter of credit. 6. The Supplier / Beneficiary
presents the Documents to the Advising Bank for payment under the Letter of Cred
it. 7. The IDBI bank sends the Documents to the SBI bank which checks to make su
re they conform to the terms of the letter of credit. 8. VIL pays Issuing bank f
or the amount drawn under the Letter of Credit or has previously made arrangemen
ts for extended credit terms. 9. The Issuing Bank releases the Documents to VIL
and the SBI Bank wires the funds to your Supplier through its IDBI Bank.
Page 83
2. BANK GUARANTEE:
A bank Guarantee is a written contract given by a bank on the behalf of a Compan
y. By issuing this guarantee, a bank takes responsibility for payment of a sum o
f money in case, if it is not paid by the Company on whose behalf the guarantee
has been issued. In return, a bank gets some commission for issuing the guarante
e. Any company can apply for a Bank Guarantee, if his or her company has obligat
ions towards a bank for which funds need to be blocked in order to guarantee tha
t his or her company fulfil its obligations (for example carrying out certain wo
rks, payment of a debt, etc.) In case of any changes or cancellation during the
transaction process, a Bank Guarantee remains valid until the customer dully rel
eases the bank from its Liability. In the situations, where a Company fails to p
ay the money, the bank must pay the amount within three working days. This payme
nt can also be refused by the bank, if the claim is found to be unlawful.
Bank is providing three kinds of guaranties: Advance Payment Guarantee
allows buyer to gives advance payment to the seller party in order to carry out
the particular projects according to the terms and conditions of the contract. H
ere the bank will give guarantee on behalf of another party for the payment of t
he remaining fund to the main party. Corporate Guarantee is given by a Company to
a Customer acknowledging obligation to the Terms of Contract. Corporate Guarante
e is provided by the Company to another company for the same purpose but it is n
ot foolproof. It is however a legally valid document and the Customer can sue th
e Company in Court if it does not pay up. The seller issues a Performance Bank Gu
arantee to passionate ensure or give concrete commitment to the buyer through its
bank. This method ensures the buyer the timely execution of an agreement to hav
e the goods exported to the buyer Company. In case the seller defaults on execut
ion of the terms agreed, upon the Performance Bank Guarantee ensures the buyer f
or payment of the guarantee amount by the issuing bank.
Page 84
WORKING CAPITAL FINANCING

TRADE CREDIT
Trade Credit appears to be a cost free source of finance as it does not involve
any explicit interest charges. However, in practice it is not free. It involves
an implicit cost which may be transferred to buyer by the supplier in the form i
ncreased prices or the forgone Cash Discount extended by the supplier to the buy
er for the early payment of the dues. At times for meeting their finance require
ments, companies stretch their account payables. However, this again proves to b
e very costly both implicitly and explicitly. Explicitly in the sense that compa
ny might have to pay penal interest for this delayed period and implicitly in th
e sense that this adversely affects the companys creditworthiness.
WORKING CAPITAL ADVANCES BY COMMERCIAL BANK
WHAT IS CONSORTIUM?
Consortium is a Latin word, meaning partnership, association or society and derive
s from censors partner, itself from con -together and sores fate, meaning owner of me
ans or comrade.
A consortium is an association of two or more individuals, compa
nies, organizations, or governments (or any combination of these entities) with
the objective of participating in a common activity or pooling their resources f
or achieving a common goal.
Page 85
WHY A BANK CONSORTIUM?

Bank Consortium means, an association of more than one bank which join together
to fulfil the financial requirements of a company. In the same way in Vadilal ha
ving five banks called Bank of Baroda, State Bank of India, State Bank of Travan
core, IDBI, and Export Import Bank of India (EXIM). In which BOB is lead bank of
Vadilal and others are followed banks. They share a proportionately in a pre de
cided manner, these are as follow 29%, 21%, 17%, 14%, 18% respectively, Such an
arrangement diversifies the risk from any one bank, in other words risk of defau
lt on the part of company gets divided among the consortium members and hence a
bank can finance more amount of money depending on the degree of risk it can tak
e.
Consortium banking had faded away with the demise of financial institutions. How
ever, with the kind of revolution that has occurred in the financial system of I
ndia, this concept is regarding its popularity. According to banking sources, ba
nks are appointing a single security trustee who will draft the terms and condit
ions for the entire group of banks involved in lending.
Consortium lending had become past due to problem in settling non-performing ass
ets through the Corporate Debt Restricting (CDR) method. Disagreement among bank
ers used to cause the entire process to fall through. In extreme cases in the pa
st, even major lenders had gone ahead with the debt restricting process without
the full consent of lenders. Therefore, each bank had decided to have its own te
rms and condition for lending to a corporate account. However, consortium bankin
g has made a comeback after the legal procedure for settling bad accounts has be
en simplified and streamlines by the Reserve Bank of India and through the enact
ment of the securitization act.
Company also has an excess to the private sources for funds in the form of bill
discounting. However this source is used only to fill the transitional gaps on m
onthly bases. This is not any major sources of finance.
Now coming to the VADILAL Industries Limited, bank has been the most feasible so
urces for financing their requirement of working capital. Bank generally do not
finance with adequate security. Company has very well fulfilled this requirement
by means of hypothecation of stock, book debt and mortgage of fixed assets.
Page 86
Apart from this, company also uses Trade Credits from its suppliers in the form
of sundry which are also known as Account Payable.
As far as cost of the funds is concerned, Vadilal is well as per the running mar
ket rate and nothing extra is to be paid. However, their cost vitiates due to ch
ange in bank interest rates i.e. Base Rate Previously it was a BPLR (Benchmark P
rime Lending Rate) which is changes as per guidelines of RBI and Banks Policy.
Thus from all this we can say that company has quite successfully met its financ
e requirement for their working capital given the external and internal limitati
ons.
PUBLIC DEPOSIT
Public Deposits are an important source of financing the medium-term and long-te
rm requirements of a company. The term Public Deposit implies any money receiv
ed by a company through the deposits collected from the public. The public inclu
des the general public, employees and shareholders of the company but excludes t
he money received in the form of shares and debentures. The public deposits are
generally solicited by company in order to finance the working capital requireme
nts of the Company. Besides the issue of Shares- Equity, Preference and Debentur
es, a company can accept deposits from the public to finance its medium and shor
t-term requirements of funds. This source has become very popular recently becau
se, a company offers interest at a rate higher than offered by banks. As far as
Vadilal is concerned, it also accepts public deposit to meet the short-term fina
ncial/ working capital requirement. Under this method, Vadilal is able to obtain
funds directly from public without financial intermediaries. They offer interes
t to the investors over public deposits.
Page 87
INTER CORPORATE DEPOSIT

An Inter-Corporate Deposit (ICD) is an unsecured loan extended by one corporate
to another. Existing mainly as a refuge for low rated corporate, this market all
ows funds surplus corporate to lend to other corporate. Also the better-rated co
rporate can borrow from the banking system and lend in this market. In the same
way Vadilal borrow the funds from the bank, and then after they lend these funds
to other corporate, and receive higher interest rate. As the cost of funds for
a corporate in much higher than a bank, the rates in this market are higher than
those in the other markets. ICDs are unsecured, and hence the risk inherent is
high. The ICD market is not well organised with very little information availabl
e publically about transaction detail. Such Inter Corporate Deposits are as foll
ow:
Call Deposits: In theory, a lender can withdraw a call deposit on giving a d
ays notice. In practice, however, the lender has to wait for at least three days.
The interest rate on such deposits is varying from company to company.
Three-month Deposits: This type of deposit is more common and more popular in pr
actice as far as Vadilal Industries is concerned. Such deposits are taken by the
borrowers to make up for the short term cash inadequacy which can occur due to
many reasons.
Six-month Deposits: Normally, lending companies do not extend deposits beyond th

is time frame. Such deposits are usually made with first-class borrowers & carry
a higher interest rate.
Page 88
BANK FINANCE FOR WORKING CAPITAL

Banks are the main institutional sources of the Working Capital Finance in India
. After Trade Credit, Bank Credit is the most important source of financing work
ing capital requirements. The amount approved by the bank for the fi rms working
capital is called Credit Limit. Credit Limit is the maximum funds which a firm c
an obtain from the banking system. In case of companies with seasonal businesses
banks may fix separate limits for peak and non peak season indicating the time
period during the year when these two limits will be applicable. In practice, ba
nks do not lend 100% of the limit sanctioned. They deduct margin money from it.
FORMS OF BANK FINANCE
An organization can withdraw funds from the bank in various forms within the max
imum permissible limit. They are as follow:
Overdraft: Under Overdraft facility
the Company is allowed to withdraw funds in excess of the balance in his Current
Account up to a certain specified limit during a stipulated period. Overdrawn a
mount is repayable on demand. It is a very flexible arrangement from the Companys
point of view since he can withdraw and repay funds whenever he desires within
the overall stipulation. Interest is charged on the daily balances on the amount
actually withdrawn subject to some minimum charges.
Discount of Bills: When sale and purchase transaction takes place, the seller is
sues an invoice (Bill) to the purchaser. If this sale is a credit sale, then sel
ler will get the money from the purchaser only after expiry of credit period. Th
e bank discounts the borrowers bills. The amount provided under this agreement i
s covered within the overall cash credit or overdraft limit. When a Bill is disc
ounted, the borrower is paid the discounted amount of the bill. However bank col
lects the full amount on the maturity. Difference between the amounts is the ban
ks charge for this service.
Page 89
A bill arises out of trade transaction. The seller of goods draws the bill on th
e purchaser. The bill may be either clean or documentary and may be payable on d
emand or after an insurance period which does not exceed 90 days. On acceptance
of the bill by the purchaser, the seller offers it to the bank for discount/purc
hase. When the bank discounts/purchases the bill it releases the funds to the se
ller. The bank presents the bill to the purchaser on the due date and gets its p
ayment. However, this source is used only to fill the transitional gaps on month
ly basis. This is not any major source of finance.
Working Capital Loan: A borro
wer may sometimes require extra amount of funds due to occurrence of some unfore
seen contingencies. This is given to them in the form Working Capital Loan. Some
times a borrower may require additional credit in excess of sanctioned credit li
mit to meet unforeseen contingencies. Banks provide such credit through a Workin
g Capital Demand Loan (WCDL) account or a separate nonoperable cash credit account.
This arrangement is presently applicable to borrowers having working capital re
quirement of Rs.10 crores or above. The minimum period of WCDL keeps on changing
. WCDL is granted for a fixed term on maturity of which it has to be liquidated,
renewed or rolled over. On such additional credit, the borrower has to pay a hi
gher rate of interest more than the normal Rate of Interest. However borrower is
required to pay a higher rate of interest as compared to the normal rate. Here
I would like to mention the working capital requirement of the Vadilal Industries
Limited. are as follow: first of all I m mentioning the fund based facility of W
.C, Vadilal having total fund based loan of Rs. 52.67 Cr from their consortium b
ank. Now coming to the non-fund based facility of W.C loan, Vadilal having total
of Rs. 12 Cr from the same.
Page 90
GUIDELINES FOR BANK FINANCE

Bank Credit is a scarce source of finance. Banks are the safest place for an ind
ividual as well as business man to keep their money. However, returns on Bank De
posits are very less as compared to the other investment options. Therefore bank
s get limited amount of deposits which they can offer under various credit facil
ities. Moreover there are many other contenders for bank credit. These mainly in
clude agriculture, small scale industries, farmers, small man and many others. P
ublic limited companies also approach commercial banks for their working capital
requirement.
Hence, monetary authorities have been very particular regarding th
e efficient and legitimate use of bank finance by the companies. In this regard,
Reserve Bank of India has taken many steps from time to time for bringing the n
ecessary changes in the banking system with the changing needs. An important cha
pter of this reform journey is Tandon committee and the Chore committee. These c
ommittees laid down norms which formed the basis for extending bank finance to t
he companies for fulfilling their credit needs for working capital. They introdu
ced the concept of MPBF i.e. Maximum Permissible Bank Finance. MPBF formed a subst
antial part of the working capital gap (Current Assets Current Liabilities).
Fin
ance only a part of the working capital requirement and not the 100%. Logic behi
nd such recommendation was that, since certain amount remains invested in the bu
siness on permanent basis which is also termed as permanent working capital, suc
h amount should be financed from the long term sources of funds of the firm. The
se committees also recommended on the style of credit and the information system
(flow). In addition to this chore committee recommended banks to consider peak
and non peak limits separately in case of the businesses which are having season
al element in them.
These efforts have been very successful in reforming the cre
dit system of the banks. It has resulted in more optimize usage of bank finance.
However still we have to do a long way on this path since lot of in efficiencie
s still exist some of which have developed with the passage of time and changing
requirement.
Page 91
TANDON COMMITTEE RECOMMENDATIONS

NORMS FOR CURRENT ASSETS: Tandon Committee defined the norms of raw materials, s
tock-in-progress, finished goods, and receivables for fifteen major industries.
Subsequently, more industries were covered.
MAXIMUM PERMISSIBLE BANK FINANCE: Th
e Tandon Committee had suggested three methods for determining the maximum permi
ssible bank Finance (MPBF). These methods are described below:
Method 1: MPBF = 0.75 (CA - CL) Method 2: MPBF = 0.75 (CA) - CL Method 3: MPBF =
0.75 (CA - CCA) CL
Where,
CA = Current Assets as per the norms laid down CL = Non-bank Current Liabilities
like trade credit and provisions CCA = Core Current Assets which represent the
permanent component of working capital. To consider the calculation of the MPBF
under the three methods, let us consider the data for the Vadilal Industries Lim
ited:
Page 92
CURRENT ASSETS AND CURRENT LIBILITIES OF VADILAL INDUSTRIES LIMITED

PARTICULAR Current Assets
2008-09
2009-10
2010-11
Inventories Sundry Debtors Cash and Bank Balance Other Current Assets
3699.98 2958.96 162.27 63.05
5573.21 3209.37 246.56 272.87
5588.85 3494.54 138.06 289.06
SUB TOTAL
(A)
6884.26
9302.01
9510.51
LESS: Current Liabilities
Sundry Creditors Other Liabilities Bills Payable/ Acceptances Advances from Cust
omers Due to Managing Directors Unclaimed Dividend Unpaid Matured Deposit Intere
st on Deposit
1218.55 494.52 896.75 17.71 1.9 6.75 19.16 3.05
2119.53 741.64 1640.99 27.76 25.33 8.92 26.39 4.14
1540.38 842.38 1106.93 28.74 8.6 11.75 33.52 11.3
SUB TOTAL
(B)
2658.39
4594.7
3583.6
NET CURRENT ASSETS (A-B)
4225.87
4707.31
5926.91
Page 93
CORE CURRENT ASSETS

CORE CURRENT ASSETS Stores & Spares Raw Materials Packing Materials 2008-09 150.
26 682.16 507.21 2009-10 172.34 1060.48 760.18 2010-11 241.86 1598.06 806
Total
1339.63
1993
2645.92
CALCULATION FOR MPBF
Particular METHOD-1: 0.75 (CA-CL) Net Current Assets 4225.9 4707.3 5926.9 2008-0
9 2009-10 2010-11
Method-1 0.75(CA) CL Current Assets Current Liabilities
3169.4
3530.5
4445.2
METHOD-2:
5163.2 2658.4
6976.5 4594.7
7132.9 3583.6
Method-2
2504.8
2381.8
3549.3
METHOD-3:
0.75(CA - CCA) CL Current Assets Core Current Assets Current Liabilities CA CCA
Method-3 6884.3 1339.6 2658.4 5879.5 3221.1 9302 1993 4594.7 7807.3 3212.6 9510.
5 2645.9 3583.6 7526.1 3942.5
Page 94
CURRENT RATIO: MPBF + CURRENT LIBILITIES METHOD- 1 METHOD- 2 METHOD- 3

2008-09 2009-10 2010-11
5827.8 5163.2 5879.5
8125.2 6976.5 7807.3
8028.8 7132.9 7526.1
M-1 CURRENT RATIO: M-2 M-3
1.18 1.33 1.17
1.14 1.33 1.19
1.18 1.33 1.26
Out of the three methods for determining the Maximum Permissible Bank Finance (M
PBF), the second method has been adopted since the minimum Current Ratio in this
type of method works out to be 1.30. For example, the Current Liabilities of Va
dilal Industries Ltd. for the year 2009 is 2658.43 Lacs and the Current Assets f
or the year 2009 are 6884.26 Lacs. According to the second method, MPBF comes ou
t to be 2504.8 Lacs. This means that now, the total Current Liabilities includin
g MPBF will be: Rs. 2504.8 Lacs (MPBF) + Rs. 2658.39 Lacs (Current Liabilities)
= Rs. 5163.2 Lacs as a result, the current Ratio comes out to be = 6884.26/5163.
2 = 1.33.
CURRENT RATIO NORMS:
Tandon Committee recommended that a company seeking Working Capital Financing sh
ould maintain a minimum Current Ratio of 1.33. However, in the present times, a
Current Ratio of 1.33 is regarded only as a benchmark and banks do accept a lowe
r Current Ratio depending upon the circumstances. While deciding MPBF, banks do
look into many factors such as duration & nature of the operating cycle, project
ed build-up of Current Assets & Liabilities, projected Turnover, Profitability &
Liquidity.
Page 95
CONCLUSION
After performing Ratio and liquidity analysis on the financial data of the compa
ny and analyzing various avenues from where the company has financed its working
capital requirement, one can say that the company is adequately managing its wo
rking capital needs.
Ratio Analysis performed on the companys financial data prov
ides a broader overview of the companys liquidity position. From the Ratio Analys
is, we can observe that the companys Liquidity Ratios have been increasing over t
he past few years. However, this increase can be attributed to the steady increa
se in the inventory level which is the least Liquid Current Asset. Ratio Analysi
s also indicates that the company can put in more efforts to efficiently handle
its slow moving inventory. Turnover Ratios also suggest that the Average Collect
ion Period has decreased over the years, which is a good sign for the company as
far as its credit management policy is concerned. Stiff competition in the icecream business, uncertainty and volatility in the market & an increase in the ma
terial & finance cost can be attributed to this decrease in the Profit Margin.
A
s far as Working Capital Financing is concerned, history of Vadilal Industries L
td. suggests that financing through banks has been one of the most feasible sour
ces for financing its working capital requirements. Cash-Credit/Overdrafts, Work
ing Capital Loans, Discount of Bills, Letter of Credit are different modes of fi
nancing availed through commercial banks. Trade Credit from the suppliers is ano
ther mode of financing preferred by the company for financing its working capita
l needs. Liquidity Analysis suggests that a major portion of the companys Current
Assets are inventories. Cash & Bank Balances occupy very small portion of the c
ompanys total Current Assets which may be a cause for concern.
Page 96
In these two months of my summer training I have learned a lot not just on any p
articular aspect, rather it has been a fruitful learning experience for me in al
l the spheres of corporate life. Apart from just reinforcing the academic learni
ng, it has taught me how to work in an environment which is full of uncertaintie
s. Hope that i can make full use of what I have learned in Vadilal in my profess
ional career.
Page 97
RECOMMENDATIONS
Vadilal being a growing enterprise is on the expansion mode. This is favoured by
the growing market for its product and hence companys funds requirements are alw
ays on an upswing. Competition in the ice-cream market from reputed companies li
ke Amul, Havmor and Kwality Walls is growing along with an increase in the marke
t share of the ice-cream makers belonging to the unorganized sector and thus, th
ere is constant pressure on the profit margin of the company. Hence to remain pr
ofitable, company must try to reduce its operating cost to the maximum possible
extent. This reduction in operating cost will be ensured by adopting a more effi
cient working capital management policy. This will require better co-ordination
between different departments concerned.
With major expansion work being carried
out in both Pundhra & Bareilly plant of Vadilal Industries Ltd. so as to cater
to the growing needs of the consumers, inventory level is bound to move up. Henc
e, the company will have to relook its inventory management practices so as to m
ake it more efficient. Since the company is on an expansion spree and undergoing
various brand-building endeavours, costs are expected to increase. But hopefull
y these costs will lead to more sales in the future and the company will be able
to create a stronger hold on the market and sustain the growth momentum in the
future.
Page 98
LIMITATIONS OF THE STUDY

Financial statements contain summarized information as a result of which there a
re chances that some important relevant information may be left out. Because of
the limitations of the financial statements, Ratios calculated on the basis of t
hese statements may not always be the true reflection of the overall years result
s. Ratios need to be interpreted carefully since there are no fixed standards fo
r ideal Ratios. For example, it is difficult to establish the ideal Ratios again
st which one can compare the Ratios of Vadilal Industries. This is because the i
ce-cream industry in Gujarat is still unorganized and as a result it is difficul
t to establish the industry average of the Financial Ratios. Thus, it can be pos
sible that due to personal bias or due to other reasons, different people may in
terpret the same Ratio differently.
Sometimes it is difficult to compare same Ra
tios between two firms operating in the same industry because those firms differ
in their businesses, their size, their accounting procedures, etc. For example,
although Vadilal and Amul operate in the same ice-cream industry, it is difficu
lt to compare their Ratios since both these companies have different & diversifi
ed business profiles. The project had to be done using previous years data since
the Annual Report for the year ending 31st March, 2012 has not been released yet
and also the financial findings based on the unaudited information of the prese
nt year could be misleading.
Page 99
BIBLIOGRAPHY
Various sources of information used in this project are as follows:
Chandra, P. Financial Management, New Delhi: Tata McGraw-Hill Publishing Company
Limited.
Financial Statements of Vadilal Industries Ltd.
(n.d.). Retrieved from
http://www.vadilalgroup.com/ Opportunities. (2010). Retrieved from http://dare.
co.in/opportunities/otherbusiness-opportunities/ice-cream-industry-in-india.htm (n.d.). Retrieved from ht
tp://www.istockanalyst.com/article/viewarticle/articleid/2832512
DOI: www.invest
opedia.com Finance Department
Page 100

Page 101
OPERATING STATEMENT OF "VADILAL INDUSTRIES LIMITED."

Rs. In Lacs
PARTICULARS GROSS SALES (i) Domestic Sales (ii) Export Sales (iii) Others TOTAL
Less: Excise duty NET SALES Other Business Income Derivative Losses Total Income
% age rise(+) or fall (-) in net Sales as compared to previous year COST OF SAL
ES i) Raw materials/Goods Purchased (a) Imported (b) Indigenous ii) Packing Mate
rials (a) Imported (b) Indigenous iii) Other Spares (a) Imported (b) Indigenous
iv) Power & Fuel v) Direct Labour vi) Other mfg. expenses vii) Depreciation viii
) SUB-TOTAL (i to vii) xii) ADD: Op.stk of Work in process xiii) SUB TOTAL xiv)
DED : Cl.stk of work in process xv) SUB TOTAL / COST OF PRODUCTION xvi) ADD: Op.
stk of finished goods 9382 11756 13554 2008-09 15363 2009-10 18891 2010-11 23583
55 15418 2 15416 0 -570 14846
80 18971 1 18970 0 0 18970
91 23674 32 23642 0 0 23642
97
687
130
34
47
60 0 0 1785 39 1677 817 18063 0 18063 0 18063 3579
1186 28 1065 484 12276 0 12276 0 12276 1527
1379 33 1253 565 15720 0 15720 0 15720 2360
Page 102
xvii) SUB TOTAL xviii) DED: Cl.stk of Finished goods xv) SUB TOTAL / TOTAL COST
OF SALES Gross Profit Selling & distribution expenses General & Administrative e
xpenses SUB TOTAL (5 + 6) Op. Profit before Int. (3-7) Interest (Gross) Interest
received Interest Net Op. Profit after interest (8-9) i) ADD Other Non-Operatin
g income (a) Profit on sale of F.A. & Invts. (b) Others Sub-Total (Income) ii) D
ED. Other Non-Operating exp. (a) Previous Yr s adjustment/others (b) Preliminary
exp. W/O Sub-Total (Expenses) iii) NET of Other non-op.Income/Exp. PROFIT BEFOR
E TAX/LOSS (10+11(iii)) Tax Provision NET PROFIT / LOSS (12-13)
13803 2360 11443 3403 2538
18080 3579 14501 4469 3035
21642 2933 18709 4934 3318
13981 865
17536 1433
22027 1616
749 116 86 17
631 802 77
961 654 94
219 111 108
879 304 575
748 241 507
Page 103
PARTICULARS 1.Sources of funds: (A) Share holders funds (i)Share capital (ii)Res
erves & surpluses TOTAL (B) Add: Differed govt. grant (C) Loan funds: (i)Secured
Loan: a)Term Loan b)Working capital loan Total of Secured loan Unsecured loan T
otal (D) Differed tax liability Total 2. Application of funds: 1)Fixed Assets a)
Gross block Less: Depreciation Net block b)work in progress
BALANCE SHEET OF VADILAL INDUSTRIES LIMITED.
in Lacs SCHEDULE 2008-09
in Lacs 2009-10
in Lacs 2010-11
1 2
719 2811 3530 35
719 3239 3958 32
719 3602 4320 29
3 2492 2933 5425 4 1204 6629 5 578 10771 4010 3202 7212 2009 9221 549 13760 6657
4286 10943 3341 14284 783 19415
6 9380 4031 5349 159 5508 7 330 9796 4559 5237 3050 8287 159 14880 5332 9549 261
4 12163 158
2)Investments: 3)Current Assets, loan & provisions: a)Inventories b)Sundry debto
rs c)Cash and bank bal. d)Other Current Assets e)Loans and advances Subtotal (A)
-{ less: Current liability and prov. a)Current liability b)Provision Subtotal (
B)-{ Net Current Assets(A-B) 4)Misc. expenditure Total:
8 9 10 11 12
3700 2959 162 63 1012 7897
5573 3321 247 161 1123 10425
5589 3495 138 289 1450 10961
13 14
2746 259 3005 4891
4681 492 5173 5252 63 13760
3662 254 3917 7044 50 19415
15
42 10771
Page 104

Summer Internship Report Vadilal

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and all staff members of Vadilal Industrie

OBJECTIVES OF THE STUDY

ICE-CREAM MARKET IN INDIA

Market Share of Major Ice-Cream Industries in India:

Market Share of Ice-Cream Industries in Ahmedabad

VADILAL INDUSTRIES LIMITED

ORGANIZATION STRUCTURE OF VADILAL

ABOUT THE COMPANY

ICE CREAM DIVISION:

PROCESS FOOD DIVISION:

FOREX ADVISORY SERVICES & FFMC DIVISION:

RBI a u t h o r i z e d f u l l y fledged m o n e y ch a n ge r FFMC r e l a t e

VADILAL CHEMICALS LTD.:

ICE CREAM PRODUCTS

Vanilla Ripe Strawberry

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

FAMILY PACK PLAIN FAVOURTIES

Vanilla Ripe Strawberry 2-in-1

Snowy Yummy Kesar Pista Yummy Mango Munch

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

SUMMER INTERNSHIP REPORT AT VADILAL INDUSTRIES LTD.

Nutty Chocobar Chocolate Chocobar Soft Spot (Chocolate)

Bargain Best Chocobar Mango Tango Dolly Fun Bhari Raspberry

Export House status by Govt. of India since 1994.

NEW TACTIC OF MARKETING CHANNEL:

Due to fewer profit margins in old strategy of distribution, company started to

SWOT ANALYSIS OF VADILAL INDUSTRIES LIMITED

Lack of niche. With increase in competition it would be very difficult to survey

Analyses & Interpretation

Turnover Ratio: Turnover Ratio also known as an Activity Ratio. Turnover

Profitability Ratio: Profitability in the terms of sales or/and investment to

Liquidity Ratio: Liquidity Ratio Includes:

2. Quick Ratio: It is calculated to establish a relationship between Liquid/Quic

Purpose: The purpose of this Ratio is to test liquidity of an enterprise conside

Profitability Ratio: This Profitability Ratio includes following Ratios:

Purpose: To test Profitability of organisation.

3. Expenses Ratio: This Ratio is indicating the relationship between Operating

4. Return on Capital Employed: It calculated to establish a relationship between

6. Operating Margin: It is calculated purely to establish relationship between

Leverage Ratio: Leverage Ratio includes following Ratio: 1. Debt-Equity: This Ra

Turnover Ratio: This Ratio includes following Ratios:

To meet the current requirements of a business enterprise such as the purchases

TYPES OF WORKING CAPITAL

These are the two concept of Working Capital:

ON THE BASIS OF TIME, WORKING CAPITAL MAY BE CLASSIFIED AS:

1. PERMANENT OR FIXED WORKING CAPITAL: Permanent or fixed working capital is min

Figure: Capital Requirements of a firm over time

Taking into consideration the advantages to a firm in maintaining adequate worki

WORKING CAPITAL MANAGEMENT

Working Capital Management refers to management of Current Assets and Current Li

WHAT IS WORKING CAPITAL MANAGEMENT?

WORKING CAPITAL CYCLE

Duration of the Operating Cycle:

ACCOUNT PAYABLES PERIOD

LIQUIDITY ANALYSIS GROSS WORKING CAPITAL YEAR CURRENT ASSETS a) Inventories b) S

OTHER CURRENT ASSETS (INTEREST RECEIVABLES)

WORKING CAPITAL FACILITIES:

A) Fund based working capital:

B) Non fund based working capital:

L/C Transaction Structure

WORKING CAPITAL FINANCING