Suyash 1

INTRODUCTION
Financial Management
Financial management is concerned with the managerial decisions, which result in the
acquisitions and financing of long term and short term credits for the firm. As such it deals with
such situations that require selection of specific assets and liabilities as well as the problem size
and growth of an enterprise. The analysis of these decisions is based on the expected inflows and
outflows of funds and their effects upon managerial objectives.
Social financial management is essential in both profit and non-profit organizations. The
financial management helps in monitoring the effective employment of funds in fixed asset and in
Working capital. The financial manager estimates the total assets of financial requirements and
position of the company.
The Maintenance of assets and maximization of profitability of the firm are the
main objectives of the financial management. Besides the basic objectives, the other objectives
of financial management are
1. Ensuring a fair return to shareholders.
2. Building up reserves or growth and expansion.
3. Ensuring maximum operational efficiency by efficient and effective utilization of finance.
4. Ensuring financial discipline in the organization.
Capital required for a business can be classified under two main categories Viz.,
Fixed capital
Working capital
Working Capital of Sugar Factory- By Suyash Pathak

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Every business needs funds for two purposes for its establishment and to carry its day-today operations. Long-term funds are required to create production facilities through purchase of
fixed assets and such capital, which is blocked on a permanent or fixed basis and is called fixed
capital. Funds are also needed for short-term purpose for the purchase of raw materials, payment of
wages and other day-to-day expenses, etc these funds are known as working capital.
In simple words, working capital refers to that part of the firms capital, which is
required for short-term, or current assets such assets cash, marketable securities, debtors, and
inventories. Funds thus, invested in current assets keep revolving fast and are being constantly
converted into cash and these cash flows out again in exchange for other current assets. Hence it is
also known as revolving or circulating capital or short-term capital.

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1.1 INDUSTRY PROFILE

Sugarcane belongs to the genus SACCHARAM. The word sugar is divided from the
Sanskrit word SHARAKARA from which the word SACCHARAM seems to have been derived
indelicate the antiquity of knowledge of sugarcane in India. Sugar industry is the second largest
agro based industry in India next to textiles. It has emerged as the largest vacuum pan sugar
producer in the world. Sugarcane is grown in about 162 countries in the world and India Occupies
the first rank from the point of area followed by Brazil and Cuba. Madhya pradesh occupies the
third place with regard to cane area and production in the country.
There are around 493 sugar mills across the country with an aggregate installed
capacity of 16.2 million tones. These are sitting on a mountain of inventory 16 months
consumption of closing stocks, to be precise some are there for long and some others have come in
recently has ensured that the industry has lost the confidence of all the major stakeholders such as
investors, banks, financial institutions and farmers. This has led the industry from one crisis to
another. The resultant rush by mills, especially from the north and the west, to scuttle the sugar
release mechanism by moving the courts has sent not only price market but also the industry as
well hurting downhill. The present cost structure is such that the mills could never be profitable
exporters.
Sugar comes under the essentials commodities Act. ISPO fact, there has been
control on all facts of regime that regulates the installed capacity, the minimum support price for
cane, the reservation of cane area for mills and the control over price and movement of sugar as
well its by product molasses, have all triggered a situation totally out of sync with market realities.
Gur and khandasari are traditional Indian sweeteners, which are produced in additional to
sugar. These are the natural mixture of sugar molasses. If pure clarified sugarcane juice is boiled.
What is left as solid is gur also called jaggery.

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Capital requirement in gur making is very less, when compared to the capital requirement
for a sugar plant of the same capacity. Currently around one- third of Indias sweetener production
of 26 million tons is the form of these products. While, the production of sugar has fluctuated
between 17-21 million tons. Around 4 million hectares of land is under sugar cultivation in India.
The production of sugarcane in the recent years has fluctuated between 230-300 million tons. The
Indian sugar industry is the second largest agro-processing industry in the country. India is the
largest consumer and second largest producer of sugar in the world next to Brazil.
Sugar as commodity is currently faced with a peculiar situation of huge inventories,
plunging prices, unpaid dues to cane farmers and mills suffering losses. The sugar production
fluctuates over the years; displaying a distinct cyclic trend typically Indian sugar industry follows a
five-year cyclic pattern. Imports and exports are resorted to when there is mismatch in domestic
sugar production. India had been an export of sugar till 2014-15. However, the country has started
importing sugar in 2015-16. Typically, the quantity imported or exported in 1-2 million tons,
depending on the excess/shortage situation.
The Indian sugar prices are largely governed by the releases of sugar made by the
government. Lower the release higher the price. The sugar economy in India is highly regulated,
starting from sugarcane to the use of end-product sugar. It has been a demand for liberalization of
the sugar economy. Efficient futures trading and subsequent price discovery would be the first in
this regard. These are three major grades of sugar traded in India S 30, M 30 and L 30. These are
classified based on the size of granules.
There are certain problems faced by the sugar producing countries in the world including
India. Where there will be some difference in different regions, common problems faced by sugar
producing industries can be thrashed out if the representative from these different regions is met on
a common platform. Whether it is a matter of marketing, exports, government subsidies or
transport problems all have a commonality of features in themselves.
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Sugar industry is the single largest contribute or to the central government as well as state
government by way of paying excise duty, income tax, sales tax, purchase tax etc., by the sugar
industry. It also earns large amount of foreign currency by way of sugar exports to other countries.
Sugarcane is one of the most important cash crops in India. Sugar industry is seasonal industry.
The duration of season varying widely form area-to-area depending upon the availability of
sugarcane. Large number of workers is a seasonal employment skilled and semi-skilled worker.
These workers are paid retirement allowance while unskilled are not paid.
The potential of employment in sugar industry is depending upon the quality of
sugarcane, which is highly perishable in nature and susceptible to diseases, pests and climate
conditions. This is not a product to be transported over a long distance. The quality of sugarcane is
determined by its sucrose contents very from area to area depending upon the climatic conditions.
Irrigational facilities and cane development activities. The yield of cane per acre also varies form
area to area and also variety wise. Sugar industry is one of the industries located entirely on rural
areas. It is highly regulated industry in fixing the price of sugarcane and in marketing the finished
product and it is one of the heavy taxed industries in the country. The government collects tax from
sugarcane by way of purchase tax, sales tax, excise duty etc
Major Indian Markets

Muzzafar nagar,
Mumbai,
Delhi,
Ludhiana,
Kolkata,
Hyderabad,

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Chennai are major trading centers of sugar in India.
1.2 COMPANY PROFILE

An Overview of Mahakoshal Private Sugar Factory:-
The Mahakoshal Private Sugar Factory is located at bachcai village, Narsinghpur. The
area occupied by the factory is exactly 122 acres of land. The factory is owned by Mr. Nawab Raza
who was a TI in m.p police before opening it. But after some time due to his rich family
background he left the job and started this factory.
Structure of the Mahakoshal Private Sugar Factory Ltd

The Mahakoshal Private Sugar Factory Limited started its crushing operations on
12/08/2003 under the Private Societies Act 1974. The factory had a capacity of 1250tons. Now the
sugar factory had a capacity of 2500tons it was intended to reach a recovery rate 9.5% for the
present crushing season.
The Mahakoshal Private Sugar Factory Limited is distributed 30% of the levy sugar directly
to the ration cardholders through the civil supplies department. The balance 70% is being
distributed indirectly to the ultimate consumer through the dealers (wholesalers and retailers).
Factors Influence the Selection of Site:Agricultural Soil

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Narsinghpur district is famous for its agriculture. Sugar cane (raw material) is mainly
available in the surrounding. Thus district is also tons for its sugar growth. The supply of
sugarcane is enormous for the year 2006-07 the production was above 3,500,00M.Ts which can be
early cracked by the sugar plant. The total area available for sugar cane cultivation in about
50,000acres.
Labor
The labor available in the season in the required number. They are from the surroundings
116 villages.
Transportation
The main Narsinghpur station is about 15km, from the factory in connected by a road the
N.H 26 that constitute the Jhansi-Lakhnadon Highway and is connected with indias longest
highway 7
Organised Structure of the Mahakoshal Pvt. Limited

From the start the M.D under the control of the board of directors and the chairman
managed the factory. A team of professional qualified and experienced person will assist him the
technical and commercial administration of the factory.
The board of directors has also set up a committee to help the M.D the committee has been
able to create awareness among the technical Person in the factory and improve production.
It had been able to set-up and monitor targets in the finance section. The Board of directors
and the chairman are elected by Mr. Raza. He also appointed the M.D
Construction of Godown

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The factory is utilizing more than the installed capacity and producing excess quantitative
of sugar. At present a factory is having 3 go downs which can store about 1, 50,000 quintals of
sugar. The factory is providing quintals of sugar in excess. It is being stored in private at a much
cost (8 to 16 Lakhs).
Facilities Being Extended to the Cane Growers: Seed are supplied to cane growers on loan basis.
Fertilizers are being supplied to cane growers on lone basis with an interest rate of
12.4%
They indicates are being supplied to cane growers at 1/3 rd of their price through
Development Corporation
Development of Seed Nurseries

At present they are having COG65 variety in most of the factory zone are but in its place
The factory planning the seed nursery plantation in 250 acres in order to arrange the seed for the
next session..
Crushing Performance
They have spent about 1600 corers over the last 3 years for modernization and expansion
now they could crush up to 2500 TCD.

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ORGANISATION CHART
MANAGING DIRECTOR
ADMINISTRATIVE OFFICER
Chief
Chief
Chief
Agriculture
Accountant
Engineer
Working Capital
of Sugar FactoryBy Suyash Pathak
officer
officer
9
Chief
Chemist
ORGANISATION CHART
MANAGING DIRECTOR
ADMINISTRATIVE OFFICER
Chief
Agriculture
officer
Chief
Accountant
officer
Chief
Engineer
General
Accountant
Stores
Accountant
Cane
Accountant

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Chief
Chemist
2.1 REVIEW OF LITERATURE

Working Capital Management
The prime objective of any management is to make maximum profit. For attaining
maximum profit which enables the organization to accomplish to other objectives of the business
firms. Working capital management involves the administration of current assets of a firm namely
cash, receivables, and inventory.
Administration of fixed assets comes with in the preview of capital budgeting while the
management of working capital is a continuing function, which involves controlling of every day
and flow of financial resources circulating in the business. Therefore a business cannot survive in
the absence of satisfactory ratio between current assets and current liabilities. Before going to deal
with various aspects of working capital management it is better to under take definition and
concepts of working capital.
Definitions and Concepts of Working Capital:Working capital management usually is considered to involve the administration of
current assets namely cash and marketable securities, receivables and inventories and the
administration of current liabilities
- James C. Van Horne
Working capital is the excess of current assets over current liabilities
-J. S. Mill
Working capital refers to the firms investment in the short term assets like cash, account
receivable and inventories
- Western and Brigham.

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Concepts of Working Capital

There are two concepts or senses used for working capital these are
1. Gross working capital
2. Net working capital
1. Gross working capital

The concept of gross working capital refers to the total value of current assets. In other
words, gross working capital the total amount available for financial position of an enterprise. For
example, a borrowing will increase current assets and thus, will increase gross working capital but
at the same time it will increase current liabilities also. As a result the net working capital will
return the same. The business community usually supports this concept as it raises their assets and
their advantage to borrow the funds from external sources such as banks, and the financial
institutions. Gross working is the capital-total current assets.
2. Net working capital
The Net working capital is an accounting concept, which represents the excess of the
currents assets over the current liabilities. A currents asset consists of items such as cash, bank
balances, stock, debtors, bills receivables, etc., Excess of currents asset over the current liabilities
thus indicated the liquidity portion of an enterprise the ratio of 2: 1 between currents asset and
current liabilities considered as optimum or sound. It is important to mention that the Net working
capital will not increase in with every increase in gross working capital importantly Net working
capital will increase when there is increase in currents asset without corresponding increase in the
current liabilities.

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Significance of Working Capital:The significance of working capital are explained under the following heads namely,
1. Necessary Liquidity
2. Maximization of profits
3. Smooth Functioning
4. Increasing Firms value
1. Necessary Liquidity
The operating cycle that it takes certain time from spending money on raw materials to its
realization through the sales of finished goods. Therefore an enterprise needs necessary cash or
liquidity to meet its obligations during the intervening i.e., operating cycle. This is made possible
by working capital.
2. Maximization of profits
According to cardinal principle of financial management the maximization of profits
depends upon the proper balance between fixed capital and working capital. Working capital
management strikes this balance between the two by properly synchronizing cash inflows and cash
outflows.
3. Smooth Functioning
The significance of working capital is even more for small-scale enterprises as it seems
asset ensures the timely purchases of inputs even at competitive prices and payment to the factors
of production.
4. Increasing Firms value
Since working capital strikes proper balance between assets and liabilities it results in
increase in the market value of enterprise.
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Factors Determining the Working Capital :There are some of the important determinants of working capital namely,
1. Sales
2. Nature of business
3. Length of operating cycle.
4. Terms of credit
5. Seasonal variations
6. Turnover of inventories
7. Demand conditions.
1. Sales
Among the various factors size of sales is one of the important factors in the determining
the amount of working capital. In order to increase sales volume the enterprise has to maintain its
currents assets. In the course of period, the enterprise becomes in the position to keep the study
ratio of its current assets annual sales. As a result the turnover ratio, i.e. current assets to turnover
increases, reducing the length of operating cycle. Thus, less the operating cycle period less will be
requirements for working capital and vice versa.
2. Nature of Business
The requirement of working capital also varies among the enterprise depending upon the
nature of the business. For instance trading companies required more working capital than
manufacturing companies. This is because of that the trading business requires large quantities of
goods to be held in stock and also carry large amount of working capital than manufacturing
concerns. In both of these types of business, the value of current assets 80% to 90% of the values
of Total assets.
3. Length of operating cycle

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The length of operating cycle can be defined as the time taken for the conversion of the
funds to loan. So longer the operating cycle time the more working capital required.
4. Term of credit
Another important factor that determines the amount of working capital requirements
relates to the terms of credit allowed to the customers. Then the requirements of Working capital
will naturally be more if the credit period is longer and credit facilities are extend to all customers,
no matter reliable or non-reliable they are. This is because there will be longer Balances or debtors
and that too for a reliable longer period which will obviously demand for more capital.
5. Seasonal variations
The seasonal enterprise i.e. the enterprise whose operations pick up seasonally may require
more working capital to meet their increased operations during the Particular season.
6. Turnover of inventories
If inventories are large in size but turnover is slow, the small-scale enterprise will need
more working capital and the contrary is inventory is small but their turnover is quick, the
Enterprise will need a small amount of working capital.
7. Demand conditions
Most firms experience seasonal and cyclical fluctuations in demand for their productions
and services. These business variations affect the working capital requirements, especially the
temporary requirements of the firm.

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Sources of Working Capital:The two segments of working capital regular or fixed or permanent and variable are
financed by the long term and the short-tem sources of funds respectively. The main sources of
Long-term funds are shares, debentures, and short-term loans, retained earnings etc. The sources
of short-term funds used for financing variable part of working capital mainly include the
following:
1. Loans from commercial banks
2. Public deposits
3. Trade credit
4. Factoring
5. Discounting bills of exchange
6. Bank over draft
7. Cash credit
8. Accrual account
1. Loans from Commercial Banks
Small-scale industries can raise loan from the commercial banks with or without security.
This method of financing does not require any legal formally except that of creating a mortgage on
the Assets. Loan can be paid in lump sum or it parts. The short-term loans can also obtain from
Banks on the personal security of the directors of a company. Such loans are callers clean and
advances it is considered as one of the cheaper source of financing working capital requirements.
2. Public Deposits
Often companies find it easy and consentient to raise short-term funds by inviting the
Shareholders, employees and general public to deposit their savings with the company. It is a
Simple method of raising funds from the public for which the company has only to advertise and
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inform the public that it is authorized by the companies Act to accept the deposits. The companies
can raise the public deposit subject to a maximum of 25% of their paid up capital free reserves.
3. Trade Credit
Just as the companies sell all its goods on credit, they also buy the raw materials,
components and other goods on credit form their suppliers. Thus outstanding amounts payable to
the suppliers i.e., trade creditors for credit purchases are regarded as sources of finance. Generally
suppliers grant the credit to their claims for a period of 3 to 6 months.
4. Factoring
Factoring is a financial service designed to help firms in managing their books debts and
receivables in a better manner. The book debts and receivables are assigned to a bank called factor
and cash is realized in advance from the bank. For rendering these services, the fee or commission
charged is usually a percentage of the sale of the book debts and receivable factored. This method
of raising short-term capital is known as factoring. The factoring is very helpful financial service
to both the suppliers companies and purchasing company
5. Discounting Bills of Exchange
The buyer of goods generally draws when goods are sold on credit bills of exchanged for
acceptance. The bills are generally drawn for the period of 3 to 6 months. In practice the writer of
the bills instead of holding the bill till the date of maturity prefers to discount them with
commercial banks on the payment of a charge known as discount. If a bill is dishonored on
maturity, the bank returns the dishonored bill to the company who then becomes liable to pay the
amount to the bank.
6. Bank overdraft
Overdraft is a facility extended by the banks to their current account holders for a short
term generally for a week. A current account holder is allowed to withdrawn from its current

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Deposit account up to a certain limit over the balance with the bank the interest is charged only on
the amount actually overdrawn.
7. Advances from Customers

One way of raising funds for short-term requirement is to demand for advance from ones
own customers. Examples of advances from the customers are advances at the time of booking of
car a telephone connection flat etc. This has become an increasingly popular pays source of shortterm finance among the companies.
8. Accrual Accounts
Generally there is a certain amount of time gap between incomes is earned and is actually received
or expenditure becomes due and its actually paid. Salaries, wages and taxes are become at the end
of the month but they are usually paid in the first week of the next month this source of raising the
fund does not involve any cost.
Operating Cycle
The times require to complete the sequence of events in the case of manufacturing firm is called
operating cycle.
Debtor
Sales
Cash
Work-in
Raw
Working Capital of Sugar FactoryBy
Suyash
Pathak
progress
materials
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Finished
Product
Operating Cycle of the Manufacturing firm
The operating cycle consist of 3 phases.

1st phase cash gets converted into inventory. This includes purchase of raw material,
conversion of
raw material into work-in-process and working in program to finished
product.
2nd phase the stock is converted into receivables if credit sales are made.
3rd phase the conversion of receivable into cash after certain period.
The operating cycles of a non-manufacturing firm is
Accounts
receivables
Cash
Stock of
finished goods
Operation cycle of non-manufacturing firm
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The operating cycle refers to the length of time necessary to complete the following cycle of
events.
Current Assets
Current Liabilities
1. Cash
1. Bank over draft
2. Bank balance
3. Short term investment
4. Bills receivable
5. Trade debtors
2. Bills payable
3. Trade creditors
4. Provision for taxation
5. Proposed dividends
6. Short term loans & advances

7. Inventories
6. Unclaimed dividends
7.Advance payments
8. Prepaid payments
8. Outstanding expenses
CASH MANAGEMENT
Cash is common purchasing power or medium of exchange. As such, it forms the most
important component of working capital. The term cash with reference to cash management is used
in two senses, in narrow sense it is used broadly to cover cash and generally accepted equivalent of
cash such as cheques, draft and demand deposits in banks. The broader views of cash also induce
near cash assets, such as marketable securities and time deposits in banks. The main characteristics
of this deposits that they can be really sold and convert into cash in short term. They also provide
short-term investment outlet for excess and are also useful for meeting planned outflow of funds.
We employ the term cash management in the broader sense. Irrespective of the form in which it is
held, a distinguishing feature of cash as assets is that it was no earning power. Companies have to
always maintain the cash balance to fulfill the dally requirement of expenses. There are four
primary motives for maintain the cash as follow
.

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Objectives of Cash Management

The basic objectives of cash management are as follows
1. To meet the payments schedules
2. Minimizing funds committed to cash balances.
Functions of Cash Management

1. Cash planning.
2. Managing the cash flows.
3. Determining optimum cash balance.
4.
Investing idle cash.
Advantages of Cash Management

Cash does not enter into the profit and loss account of an enterprise, hence cash is neither profit
nor lose but without cash, profit remains meaningless for an enterprise owner.
A sufficient of cash can keep an unsuccessful firm going despite losses
An efficient cash management through a relevant and timely cash budget may enable a firm
to obtain optimum working capital and ease the strains of cash shortage, fascinating
temporary investment of cash and providing funds normal growth.
Cash management involves balance sheet changes and other cash flow that do not appear in
the profit and loss account such as capital expenditure.

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INVENTORY MANAGEMENT
Inventory management involves the control of assets being produced for the purposes of
sale in the normal courses of the companys operation. Inventories include raw material, work-inprocess and finished good inventory. The main goal of effective inventory management is to
minimize the total costs direct and indirect that is associated with holding inventories. How ever
the importance of inventory management to the company depends upon the extent of investment in
inventory.
Meaning
The term inventory refers to the stock file of the product which a firm is offering for sale
and the components that male the product.
Nature of Inventories
Inventories are stock of the product a company is manufacturing for sale and components
that make up the product. The various forms in which inventories exist in a manufacturing
company.
1. Raw materials
Raw materials are basic inputs that are converted into finished product. Raw materials
inventories are those units which have been purchased and stored for future productions.
2. Work-in-process
Work in process inventories are semi-manufactured products. They represent products that
need more work before they become finished products for sale.
3. Finished goods
Finished goods inventories are those completely manufactured products, which are ready
for sale.
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Stocks of raw materials and work-in-process facilitate production, while stock of finished
goods is required for smooth maturing operation. Thus inventories serve as a link between the
production and consumption of goods.
A firm also maintains a fourth kind of inventory or stores and spares. This category
includes those products which are accessories to the main products produced for the purpose of
sale.
Ex: bolts, nuts, clamps, screws etc.
Purpose of Inventories
The purpose of holding inventories is to allow the firm to separate the processes of
purchasing, manufacturing and marketing of its primary products. The goal is to achieve
efficiencies in areas where costs are involved and to achieve sales at competitive prices in the
market place.
The main purposes are
1. Avoiding losses of sales
2. Gaining quantity discount
3. Reducing order cost
4. Achieving efficient production.
Purchasing
Avoid losses of
sales
Gain Quantity
discounts
Firms holding
Inventories
Producing
Reduce Order
Costs
Selling
Achieve efficient
production

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Purpose of inventory
Objectives of Inventory Management
The main objectives of inventory management as follows
1. Ensure a continuous supply of raw materials to facilitate uninterrupted production.
2. Maintain sufficient stocks of raw materials in periods of short supply and anticipate price
changes.
3. Maintain sufficient finished goods inventory for smooth sales operation, and efficient
customer service.
4. Minimize the carrying cost and time.
5. Control investment in inventories and keep it at an optimum level.
Inventory Control
A firm needs an inventory control system to effectively manage its inventory. Inventory
control is concerned with the acquisition storage, handling and use of inventories so as to ensure
the availability of inventory when ever needed provide adequate cushion for contingency and
derive maximum economy and minimize wastage and losses.
R. K. Ghosh and G. S. Gupta,
Objectives of Inventory Control

To minimize the possibility of delay in production through regular supply of raw materials,
stores and spares, tools and other equipment and when required.
1. To avoid unnecessary capital locker up in inventories.
2. To exercise economies in ordering, the obtaining and storing of materials.

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Role of Inventory in Working Capital Management

Inventories are components of current assets. Some characteristics are important in the
broad context of working capital management including.
1. Current assets
2. Level of liquidity
3. Liquidity lags
4. Circulating activity
RATIOS
Current Ratio:Current ratio measures the firms short-term solvency of indicates the availability of current assets
in rupees for every one of current liability. A ratio greater than its standard means that the firm
has more current assets the current liability
Current Assets
Current Ratio =
Current Liability
Liquidity Ratio:Liquidity ratio indicate that a relationship between quick or liquid assets and current
liabilities. An asset is liquid if it can be converted into cash immediately of reasonable soon
without a loose of values.
Quick (or) Liquid Assets
Liquidity Ratio =
Current liabilities

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Liquid or Quick Assets = Current Assets (Inventory + Prepaid Expenses)
Absolute Liquid Ratio:Since cash is most liquid asset a financial analysis may examine the ratio of cash and its
equivalent to current liabilities, trade investment on marketable secularity is equivalent to cash.
Absolute liquid Assets

Absolute liquid Ratio
=
Current liabilities
RESEARCH METHODOLOGY
3.1 STATEMENT OF THE PROBLEM
Working capital management is very significant aspect in the management of finance of any
organization. By checking the level of working capital one can easily identify and profitability
position of the firm and the decision regarding.
1. The level of working, which can be determined, by the level of current assets and current
liabilities
2. Financing of current assets and current liabilities are of at most importance and significant
in the financial management of the business because it not only shows the financial
efficiency of business but also it credit worthiness, which has gained importance in these
days of credit squeeze. This fact has been justified by many industries, which have failed
frequently due to faulty management of working capital.

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It is this view that a case study has been made on working capital management in
Mahakoshal Private Sugar Factory.
3.2 OBJECTIVES OF THE STUDY

To study the schedule changes in working capital of Mahakoshal Private Sugar Factory.
To study the working capital management with regards to cash, and inventory of
Mahakoshal Private Sugar Factory.
.
3.3 NEED FOR THE STUDY

In the process of industrialization of a country the problem lies only in
financing a business unit at its initial stage but also in providing adequate working capital for its
day-to-day requirements. The efficiency and profitability of an enterprise is mostly determined by
adequacy of capital for short and medium loan requirements. Ultimately the working capital
contribution is the very base, which the super structure of modern industrial economy is erected.
But it must be known clearly that very often financing of working capital requirements of an
enterprise is an intricate and highly complex process entailing intelligent and careful managerial
approach. It was through that an in depth study will definitely help in improving the position of
working capital management of the Mahakoshal Private Sugar Factory.

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3.4 SCOPE OF THE STUDY

Financial management is that the managerial activity which is concerned with the
planning and controlling of the firms financial resources. Though it was a branch of economics till
1890 as a separate activity or discipline, it is of recent origin. Still it has no unique body of
knowledge of its own and heavily on economics for its theoretical concepts even today.
The present study aims at the following
Highlighting the necessity of current assets and current liabilities.
Explain the need for holding cash.
Highlight the need for and a nature of inventory.
3.5 SOURCES OF THE DATA

The Data that being used in study was collected from two methods.
1. Primary data
2. Secondary data
1. Primary data
The primary data relating to Mahakoshal Private Sugar Factory were to be
collected through discussions with concerned officers and staff in the Finance Department of the
company.

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2. Secondary data
The data relating to Mahakoshal Private Sugar Factory Ltd has been collected
through secondary sources viz., published annual Reports of the company during the years 20162015.
Research Instrument
Annual reports of The Mahakoshal Private Sugar Ltd., from 2011-2016.
3.6 LIMITATIONS OF THE STUDY

The study will be only a provisional or based on the data collected from the published
annual reports during 2016-2015.
Working Capital standards pertain to relevant industry is also a limiting factor for analysis.
The company is defying to provide confidential matter regarding finance to outsiders.

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4.1 DATA ANALYSIS AND INTERPRETATION

SCHEDULE OF CHANGES IN WORKING CAPITAL DURING 2011-12
PARTICULARS
2011
2012
CHANGES
IN WORKING CAPITAL
INCREASE DECREASE
CURRENT ASSETS (A)
Inventories
& Bank Balance
Loans & advances
Other current assets
11,11,91,020
5,17,98,695
7,57,21,422
4,717,474
3,95,59,545
5,00,68,843
8,44,91,825
51,45,801
8,770,415
4,28,327
7,16,31,475
1,729,852
-
TOTAL (A)
24,28,28,611
17,29,66,014
91,98,730
7,27,61,327
5,194
14,26,91,553
5,194
14,85,83,721
58,92,168
TOTAL (B)
14,26,96,747
14,85,88,915
58,92,168
Working capital (A-B)
16,01,31,864
3,12,77,159
91,98,730
7,86,53,495
Net decrease in W.C
16,01,31,864
6,94,54,765
16,01,31,864
6,94,54,765
7,86,53,495
7,86,53,495
Cash
CURRENT LIABILITIES (B)
Sundry creditors
Other current liabilities
TOTAL
Source
Published annul reports of The Mahakoshal Private Sugar Ltd., 2011-2012
30
Analysis
As the above statement reveals the decrease of Working capital about 6,94,54,765/-. The above
figures is due to the decrease of current assets about 91,98,730/- and also increase of current
liabilities of about 58,92,168/-.

PARTICULARS
2012
2013
CHANGES
IN WORKING
CAPITAL
INCREASE
DECREASE
CURRENT ASSETS (A)
Inventories
Cash & Bank Balance
Loans & advances
3,95,59,545
5,00,68,843
8,44,91,825
51,45,801
21,48,37,348 17,52,77,815
32,19,549
5,32,88,392
80,85,262
9,25,77,147
40,78,126
16,67,675
TOTAL (A)
17,92,66,014
36,47,80,953
18,65,82,614
16,67,675
5,194
5,194
14,85,83,721 14,85,83,721
TOTAL (B)
14,85,88,915
14,85,88,915
3,12,77,159
21,61,92,158 18,65,82,614
Net increase in W.C
18,55,14,939
18,55,14,939
TOTAL
216192158
21,61,92,158
18,65,82,614
18,65,82,614
Sundry creditors
Source

31
16,67,675
Analysis
As the above statement reveals the increase of Working capital about 18,55,14,939/-. The above
figure is due to the increase of current assets about 18,65,82,614 /-.

CHANGES
2013
2014
Inventories
Cash & Bank Balance
Loans & advances
21,48,37,348
5,32,88,392
9,25,77,147
40,78,126
15,15,72,555
3,55,15,287
9,42,72,251
35,16,286
16,95,164
-
6,44,64793
1,77,79,111
5,61,840
TOTAL
36,47,80,953
28,36,70,379
16,95,164
8,28,11,738
5,194
5,194
14,85,83,721 20,49,38,891
5,63,55,170
TOTAL (B)
14,85,88,915
20,49,44,145
5,63,55,170
21,61,92,158
7,87,26,294
16,95,164
13,91,60,914
Net decrease in W.C
13,74,65,746
13,74,65,746
TOTAL
21,61,92,158
21,61,92,158
13,91,60,914
13,91,60,914
PARTICULARS
IN WORKING CAPITAL
INCREASE DECREASE
CURRENT ASSETS (A)
Sundry creditors
Source
Analysis
figures is due to the decrease of current assets about 16,95,164 /- and also increase of current
liabilities of about 5,63,55,170 /-.
32

CHANGES
PARTICULARS
2014
2015
IN WORKING CAPITAL
INCREASE
DECREASE
CURRENT ASSETS (A)
Inventories
& Bank Balance
Loans & advances
15,15,72,555 20,90,40,270
3,55,15,287 3,73,14,826
9,42,72,251 9,37,98,814
35,16,286
36,67,630
5,86,67,715
17,99,539
1,51,344
4,73,443
-
28,36,70,379
6,12,18,598
4,73,443
5,194
5,194
20,49,38,891 22,68,22,000
2,18,83,115
TOTAL (B)
20,49,44,145
22,68,27,194
2,18,83,115
7,87,26,294
11,69,88,340
6,12,18,598
2,18,83,115
Net increase in W.C
3,82,62,112
3,82,62,112
TOTAL
11,69,88,340
11,69,88,340
6,12,18,598
6,12,18,598
Cash
TOTAL (A)
34,38,15,534
Sundry creditors
Source
Analysis
As the above statement reveals the increase of Working capital about 3,82,62,112/-. The above
figures is due to the increase of current assets about 6,12,18,598/- and also decrease of current
liabilities of about 2,18,83,115/-.

33

CHANGES
PARTICULARS
2015
2016
IN WORKING CAPITAL
INCREASE DECREASE
CURRENT ASSETS (A)
Inventories
Cash & Bank Balance
Loans & advances
TOTAL (A)
20,90,40,270 18,31,27,292
3,73,14,826
35,60, 459
9,37,98,814 16,27,71,394
36,67,630
36,38,137
34,38,15,534
32,51,43,282
2,59,12,978
17,02,367
89,72,586
29,493
89,72,586
2,76,44,838
5,194
5,194
22,68,22,000 25,30,71,827
26,24,98,327
TOTAL (B)
22,68,27,194
25,30,77,021
26,24,98,327
11,69,88,340
7,20,66,261
89,72,586
4,49,22,139
4,49,22,139
11,69,88,340
5,38,94,665
5,38,94,665
Sundry creditors
Net decrease in W.C

TOTAL
11,69,88,340
Source
Analysis

34
figures is due to the decrease of current assets about 89,72,586/- and also increase of current
liabilities of about 26,24,98,327 /-
CASH MANAGEMENT IN M.S.F.Pvt. LTD.

Cash is the prime component in the current assets position of adequate amount of cash is
assigned of the liquidity position of the company. Higher the cash higher the liquidity. The average
cash and bank balances position of Mahakoshal Private Sugar Factory is given in the following
table.
AVERAGE CASH AND BANK BALANCES

YEARS
CASH &BANK
BALANCE
NET WORKING
CAPITAL
CASH TO
NETWORKING
CAPITAL RATIO
0.54
0.23
0.20
2011-2012
2012-2013
2013-2014
51533769
51678617
44398839
94292675
216192314
216192314
2014-2015
36415116
116988340
0.31
2015-2016
36457642
116988340
0.31
Source

35
Interpretation
From the above graph the size of the cash & bank balances are 0.54% in the year 2011-12,0.23%
in the year 2012-13,0.20 % in the year 2013-14,0.31% in the year 2014-15,0.31% in the year 201516. This ratio indicates the proportion of cash and bank balance. It is assumed that the level of cash
balance decides the liquidity, profitability aspects of the company. The lower the cash to
networking capital the greater may be the profitability of the concern and vice-versa. If any
company holds too low cash and bank balances in the relation to net working capital, it implies the
ability of firm to meet day-to-day requirement of cash. Practice of holding cash balance in relation
to net working capital indicates good cash management in sales.
PERCENTAGE OF CASH &BANK BALANCES TO CURRENT ASSETS

The percentage of the cash and balances will reveal the proportion of highly liquid assets in the
total current assets the higher the percentage the greater the liquidity. The details presented in the
following table.

36
CASH & BANK BALANCES AS A % OF CURRENT ASSETS

PARTICULARS
Cash & Bank Balance
Current Assets
Net Working Capital
% of cash to current assets
% of cash to working capital
2011-2012
50128,843
172966014
2012-2013
53288392
364781553
2013-2014
35515287
283671579
2014-2015
37314826
343815534
2015-2016
35612459
325143282
94292675
28.94
53.1
216192314
14.60
24.64
216192314
12.51
16.42
116988340
16.85
31.89
116988340
16.95
30.43
Source
Interpretation

37
From the above graph it was observed that the percentage of current assets in 2011-12 is
28.94%; in 2012-13 is 14.60%; in 2013-14 is 12.51%; in 2014-15 is 16.85%; in 2015-16 is 16.95%
and percentage of cash to working capital is 2011-12 is 53.1%; in 2012-13 is 24.64%; in 2013-14
is 16.42%; in 2014-15 is 31.89%; in 2015-16 is 30.43%.There is a gradual decrease in cash to
current assets for the period i.e., 2011-2015 because the difference in the ratio of increasing current
assets is high when compare to cash, and some what increased in the year 2015-2016.
PERCENTAGE OF INVENTORY TO TOTALCURRENT ASSETS
YEAR
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
INVENTORY
39559545
214837348
151572555
215160270
183127292
TOTAL CURRENT
% OF INVENTORY TO
ASSETS
TOTAL CURRENTASSETS
325358346
263581611
457151114
375513158
444624838
12.15
81.50
32.89
55.66
41.18
Source
Interpretation
38
The total inventory as a percentage of the total current assets as 12.15% in the year 2011-12
it has increased as 81.50 % in 2012-13 and decreased in the year 2013-14 as 32.89%, then
increased as 55.66% in 2014-15,and decreased in the year 2015-16 as 41.18%
INVENTORY TURN OVER RATIO

Table: 4.5
YEAR
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
SALES
AVERAGE
INVENTORY
82152316
75013716
311517416
496312796
344176519
INVENTORY
75135282
127198446
182611551
179712412
196143781
TURN OVER RATIO

1.15
0.58
1.66
2.76
1.75
Source
Published annul reports of The Mahakoshal Private Sugar Ltd., 2011-2016.
Inventory turn over ratio
3
2.5
2
1.5
1
0.5
0
2005-2006
2006-2007
2007-2008
Year
Interpretation

39
2008-2009
2009-2010
Inventory Turnover ratio measures the velocity and the efficiency of the company in
selling its products. In the year 2011-12 it was 1.15 %; and decreased to 0.58 % in the year 201213; increased to1.66 % in the year 2013-14; increased to 2.76 % in the year 2014-15; decreased
to1.75% in the year 2015-16. So the firm was not efficient in management of inventory.
CURRENT RATIO
YEAR
CURRENT ASSETS
CURRENT
RATIO
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
242828611
172966014
364781553
283671579
343815534
LIABILITIES
142696747
148588915
148588915
211544145
226827194
1.70
1.16
2.45
1.38
1.51
Source
Current Ratio
2.5
2
1.5
1
0.5

40
0
2005-2006
2006-2007
2007-2008
Year
2008-2009
2009-2010
Interpretation
The above graph shows the current ratio of the firm in the year2011-12 is 1.70;in the year
2012-2013 is 1.16;in the year 2013-2014 is 2.45;in the year2014-2015 is 1.38; in the year 20152016 is 1.51. Since the ratio is less than its standard except in the year 2013-14, the shot term
financial position of the company is unsatisfactory in all the years except 2013-14.
LIQUID RATIO
YEARS
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
LIQUID ASSETS
CURRENT
RATIO
198123265
45949460
211492112
71562479
157116111
LIABILITIES
142696747
148588915
148588915
211544145
226827194
1.38
0.30
1.41
0.34
0.69
Source
Published annul reports of The Mahakoshal Private Sugar Factory Ltd., 2011-2016

41
1.6
1.4
Liquid ratio
1.2
1
0.8
0.6
0.4
0.2
0
2005-2006
2006-2007
2007-2008
2008-2009
2009-2010
Year
Interpretation
From the above graph it can be observed that the liquid ratio in the year 2011-2012 is
1.38;in the year 2012-2013 is 0.30;in the year 2013-2014 is 1.41; in the year 2014-2015 is 0.34; in
the year 2015-2016 is 0.69.Since the liquid ratio is 1.38% in 2011-2012,and 1.41% in 20132014,which are greater than the standard ratio (1:1), it maintain sufficient amount of liquid assets
so the performance is satisfactory in those two years and it was unsatisfactory in the remaining
years
ABSOLUTE LIQUID RATIO

YEARS
CASH & BANK
CURRENT
RATIO
2011-2012
2012-2013
2013-2014
2014-2015
2015-2016
BALANCE
50128843
53288392
35515287
37314826
35612459
LIABILITIES
142696747
148588915
148588915
211544145
226827194
0.35
0.36
0.23
0.18
0.15

42
Source
Published annul reports of The Mahakoshal Private Sugar Ltd., 2011-2016.
Interpretation
From the above graph it can be observed that the absolute liquid ratio in the year 20112012 is 0.35;in the year 2012-2013 is 0.36;in the year 2013-2014 is 0.23; in the year 2014-2015 is
0.18; in the year 2015-2016 is 0.15.The average ratio during the period of study is 0.25.In the all
the years absolute liquid ratio is lower than the acceptable standard ratio (0.5:1), which indicates
that the firm has not maintaining sufficient level cash to meet its day-to-day obligations.
5.1 FINDINGS
The net decrease in working capital during the year 2011-2012 is Rs: 6,94,54,765
The net increase in working capital during the year 2012-2013 is Rs: 18,55,14,939
The net increase in working capital during the year 2014-2015 is Rs: 3,82,62,112

43
The size of the cash & bank balances are 0.54% in the year 2011-12,0.23% in the year
2012-13,0.20 % in the year 2013-14,0.31% in the year 2014-15,0.31% in the year 2015-16.
The percentage of current assets in 2011-12 is 28.94%; in 2012-13 is 14.60%; in 2013-14 is

12.51%; in 2014-15 is 16.85%; in 2015-16 is 16.95% and percentage of cash to working
capital is 2011-12 is 53.1%; in 2012-13 is 24.64%; in 2013-14 is 16.42%; in 2014-15 is
31.89%; in 2015-16 is 30.43%.
Inventory Turnover ratio measures the velocity and the efficiency of the company in selling
its products. In the year 2011-12 it was 1.15 %; and decreased to 0.58 % in the year 201213; increased to1.66 % in the year 2013-14; increased to 2.76 % in the year 2014-2015;
decreased to1.75% in the year 2015-16. So the firm was not efficient in management of
inventory.
The current ratio in the year2011-12 is 1.70; in the year 2012-2013 is 1.16;in the year 20132014 is 2.45;in the year2014-2015 is 1.38; in the year 2015-2016 is 1.51. Since the ratio is
less than its standard except in the year 2013-14, the shot term financial position is
unsatisfactory in all the years except 2013-14.
The liquid ratio in the year 2011-2012 is 1.38; in the year 2012-2013 is 0.30;in
theyear2013-2014 is 1.41; in the year 2014-2015 is 0.34; in the year 2015-2016 is 0.69. The

44
liquid ratio was less than standard ratio in all the years; therefore liquidity position is
unsatisfactory.
In the all the years absolute liquid ratio (0.25) is lower than the acceptable standard ratio
(0.5:1), which indicates that the firm has not maintaining sufficient level cash to meet its
day-to-day obligation.
5.2 SUGGESTIONS
The firm should take measures to increase the current assets double the current liabilities to
increase current ratio to make them equal to the standard ratio inorder to improve the
working capital.
It is suggested to make investment in inventories and to improve the performance in

inventory management.
The firm facing main problem about raw material so management should offer best prices
and seed capital to farmers to increase the raw material.
5.3 CONCLUSION
The study reviewed the Working Capital position and short-term financial strength of
the Mahakoshal Private Sugar Factory Limited. It was found that the level of current assets like
cash and bank balances and inventory are less in working capital due to step fall in the sales,
45
and more investment on fixed assests. For improving working capital management and shortterm financial strength, they can invest and utilize the short-term assets.
BIBILOGRAPHY
Financial Management. Theory & Practice Prasanna Chandra Tata Mc Grawhill
Financial Management I.M.Pandey Vikas Publications .
Management Accounting Practice-R.K.Sharma, Seshi K.Gupta
Financial Management Decision Making Jon Hampton practice Hall India
Annual Reports and Accounts of Vijaya Dairy, Narsinghpur.
Web site: www.google.com.

46

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INTRODUCTION

Working Capital of Sugar Factory- By Suyash Pathak

Working Capital of Sugar Factory- By Suyash Pathak

1.1 INDUSTRY PROFILE

Working Capital of Sugar Factory- By Suyash Pathak

Major Indian Markets

Working Capital of Sugar Factory- By Suyash Pathak

Chennai are major trading centers of sugar in India.

1.2 COMPANY PROFILE

Structure of the Mahakoshal Private Sugar Factory Ltd

Factors Influence the Selection of Site:Agricultural Soil

Organised Structure of the Mahakoshal Pvt. Limited

Working Capital of Sugar Factory- By Suyash Pathak

Development of Seed Nurseries

Working Capital of Sugar Factory- By Suyash Pathak

Working Capital of Sugar Factory- By Suyash Pathak

2.1 REVIEW OF LITERATURE

Working Capital of Sugar Factory- By Suyash Pathak

Concepts of Working Capital

1. Gross working capital

Working Capital of Sugar Factory- By Suyash Pathak

Working Capital of Sugar Factory- By Suyash Pathak

Working Capital of Sugar Factory- By Suyash Pathak

Working Capital of Sugar Factory- By Suyash Pathak

7. Advances from Customers

Operating Cycle of the Manufacturing firm

The operating cycle consist of 3 phases.

raw material into work-in-process and working in program to finished

The operating cycles of a non-manufacturing firm is

1. Bank over draft

6. Short term loans & advances

Working Capital of Sugar Factory- By Suyash Pathak

Objectives of Cash Management

Functions of Cash Management

Investing idle cash.

Advantages of Cash Management

Working Capital of Sugar Factory- By Suyash Pathak

Working Capital of Sugar Factory- By Suyash Pathak

Objectives of Inventory Control

Working Capital of Sugar Factory- By Suyash Pathak

Role of Inventory in Working Capital Management

Working Capital of Sugar Factory- By Suyash Pathak

Liquid or Quick Assets = Current Assets (Inventory + Prepaid Expenses)

Absolute liquid Assets

Working Capital of Sugar Factory- By Suyash Pathak

3.2 OBJECTIVES OF THE STUDY

3.3 NEED FOR THE STUDY

Working Capital of Sugar Factory- By Suyash Pathak

3.4 SCOPE OF THE STUDY

The present study aims at the following

Highlighting the necessity of current assets and current liabilities.

Explain the need for holding cash.

Highlight the need for and a nature of inventory.

3.5 SOURCES OF THE DATA

Working Capital of Sugar Factory- By Suyash Pathak

3.6 LIMITATIONS OF THE STUDY

Working Capital of Sugar Factory- By Suyash Pathak

4.1 DATA ANALYSIS AND INTERPRETATION

CURRENT ASSETS (A)

Working capital (A-B)

Net decrease in W.C

CURRENT LIABILITIES (B)

SCHEDULE OF CHANGES IN WORKING CAPITAL DURING 2012-13