project on wc

Sudha Dairy Project Report

A

PROJECT REPORT

ON

A COMPRATIVE STUDY OF WORKING CAPITAL

-A STUDY IN PDP

(SUDHA, PHULWARISHARIF, PATNA)

FROM

POONA SCHOOL OF BUSINESS

Submitted By:

UNDER THE GUDANCE OF FAIZAN AHMAD

Mr. Ratneshwar Jha M.B.A

(Accounts Officer in Patna POONA SCHOOL OF BUSINESS

Dairy Project) SESSION-2009-11

&

Prof. Bhanu Vashishtha(Intuitional guide)

Poona School of Business


DECLARATION

I Faizan Ahmad hereby declare that this project report entitled “ A COMPARATIVE STUDY OF WORKING CAPITAL - A STUDY IN PATNA DAIRY PROJECT” , completed under the guidance of Shree Ratneshwar Jha (Accounts Officer in Patna Dairy Project ) & Prof. Bhanu Vashishtha (Intuitional guide), is the result of my efforts during the training period which I have undergone as a part of the curriculum in “MBA ” From POONA SCHOOL OF BUSINESS,PUNE,INDIA.I thereby declare that I would have fulfilled all the provision of institutional training in PDP and based on the training I had acquainted myself to the best in the knowledge of project “A COMPARATIVE STUDY OF WORKING CAPITAL - A STUDY IN PATNA DAIRY PROJECT”

Place:Patna Faizan Ahmad



PREFACE A project is a scientific and systematic study of a real issue, on a problem with the application of an origination. It can be a case study where a problem been dealt with through the process of management. The essential equipment of a project is that, it should contain scientific, collection of data analysis and interpretation of leading to a valid conclusion.

In partial fulfilment of the requirement for the award of MBA from POONA SCHOOL OF BUSINESS ,PUNE,INDIA , a student has under gone summer training in any Business Organisation. In two year full time education program, two month internship is curriculum to be trained in the corporate world which helps us to develop financial skill.

The topic of my study is “ A COMPARATIVE STUDY OF WORKING CAPITAL- A STUDY IN PATNA DAIRY PROJECT” for the analysis of financial statement .

Faizan Ahmad



ACKNOWLEDGEMENT

Preparing the project is not a solely the work of single person .This

project is certainly not an exception to this adage. This is a collective

effort of experience of the consultant in corporate finance practice &

mine.

I have great pleasure & opportunity to thank our HOD Prof. Bhanu

Vashishtha(Institutional guide), Poona school of business, Pune for

giving me opportunity and kind help to complete this dissertation work

and showing the right direction in the field of finance in practice.

I would like to thank to Managing Director of Patna Dairy Project

Shree Sudhir Kumar Singh for giving me an opportunity to do the

summer project in Patna Dairy Project.

I would like to express my gratitude to Shree Bhanu Pratap

(Incharge Accounts) for introducing me to Shree Ranteshwar Jha

(Accounts Officer) as my industrial guide .

I would like to thank to respectable and learned guide Shri

Ranteshwar Jha (accounts officer) as my industrial guide .He provided

encouragement and boost in the transformation of my inherent internal

knowledge into a real work for practical knowledge. He has also been a

key discussion partner for me, a teacher friend, philosopher and guide.



I express my gratitude to Shree S V Narsimhan , Shree Javed Akhtar , Shree Prasant Kumar Mishra , Shree Amit Sinha , Shree Ajay Kumar, Shree Madan Mohan Mishra, Shree Vinay Kumar Mishra , Shree Naval Kumar Gupta for their corporation and support

Lastly I express my gratitude to my family and friends. I could not have devoted the time and energy to this project without the support and encouragement of my family members.



CERTIFICATION

This is to certify that this project report titled “ A

COMPARATIVE STUDY OF WORKING CAPITAL- A STUDY

IN PATNA DAIRY PROJECT” have been successfully completed by

Faizan Ahmad a student of POONA SCHOOL OF BUSINESS ,PUNE

during the period of 1st July 2010 to 31th July 2010 & is being completed

in partial fulfilment for the award of MBA Degree

Shree Ratneshwar Jha

Account Officers

Patna Dairy Project

Patna



CONTENT

CHAPTER

1. INTRODUCTION TO THE PROJECT

OBJECTIVE

RESEARCH METHADOLOGY

2. ORGANATATION PROFILE

HISTORICAL BACKGROUND OF DAIRY DEVELOPMENT

A SHIFT OF ANAND PATTERN

OPERATION FLOOR

PROGRMME IMPLENTATION

3. ORGANITATIONAL STRUCTURE

THREE TIER STRUCTURE

PROGRESS OF PATNA DAIRY PROJECT

PROGRESS UNDER VPDUSS

PRESENT STATUS

QUALITY & PRODUCTION ACTIVITY

VALUES

4. PROJECT OVERALL

INTRODUCTION OF WORKING CAPITAL



CONCEPT & NATURE OF WORKING CAPITAL

TYPES & DETERMINANTS OF WORKING CAPITAL

OPERATING & CASH CONVERSION CYCLE

POLICIES OF WORKING CAPITAL FINANCE

5. WORKING CAPITAL APPLICATION –AN ANALYSIS

6. C0NCLUSION

7. BIBLIOGRAPHY

8. REFERANCE

9. GLOSSARY

10 .APPENDIX



CHAPTER-1

INTPODUCTION TO PROJECT



INTRODUCTION TO PROJECT

This project is a part of the summer training at “PATNA DAIRY PROJECT” during 10th may to 30th june 2010 undertaken as apart of the PGP Program .The project title “A comparative study of working capital-A study in Patna dairy project” hold much importance for the organization for the purposes of analysing financial statements of the firm.



OBJECTIVE

This project is the course requirement as a part of PGP curriculum

To learn & understand working capital

To provide a deeper analysis of the profitability , liquidity , solvency & efficiency level in organisation

To learn how the information from financial statement is useful for making estimates for the future



METHODOLOGY TO PROJECT

There are two sources of data collection:

Primary data source:

From proper interaction with departmental heads, suite in PDP, finance manager, employees who are working in different department, and managing director of the organization and education guide.

Secondary data source:

Through balance sheet , P&L A/c and annual report of PDP , books , internet etc.



CHAPTER-2

ORGANAISATIONAL

PROFILE



INTRODUCTION TO PATNA DAIRY PROJECT

THE INDIAN DAIRY MARKET - A PYRAMID

India has emerged as the largest milk producing country in the world manufacturing about 92 million tonnes of milk per annum. It could be said of the Indian dairy market as being a pyramid with the base made up of a vast market for low-cost milk. The bulk of the demand for milk is among the poor in urban areas whose individual requirement is small, maybe a glassful for use as whitener for their chi and coffee. Nevertheless, it adds up to have sizable volume - millions of litres per day. In the major cities lies an immense growth potential for the modern sector. Presently, barely 1000 out of 3,700 cities and towns are served by its milk distribution network, dispensing hygienically packed wholesome and quality pasteurized milk. According to one estimate, the packed milk segment would double in the next five years, giving both strength and volume to the modern sector. The narrow tip at the top is a small but affluent market for western type milk products.

The effective milk market is largely confined to urban areas, inhabited by over 25 per cent of the country's population. An estimated 50 per cent of the total milk produced is consumed here. At the turn of the twentieth century, the urban population consuming milk has estimated to have risen by more than 100 million to cross 364 million, a growth of about 40 per cent. The expected rise in urban population would be a boon to Indian dairying. Presently, the organised sector, both cooperative and private, and the traditional sector cater to this market.



HISTORICAL BACKGROUND OF DAIRY DEVELOPMENT

Dairy development, though, is a state subject under Constitution of India, the centre and the state exercise joint jurisdiction. The central govt, lays down general guidelines, the individual states design their Dairy Development Policies within it. Initially in most of the states, Dairy Development was in the hands of State Dairy Development Corporation or under the State Govt. itself. Animal Husbandry was considered an activity for rural areas, whereas dairy development was limited only in the cities.

Project such as key Village Scheme and Intensive Cattle Development Programme were taken up for improving milk yield, but these projects by themselves, never paid much attention either to the marketing of additional milk supposed to be produced or to its processing. Urban milk traders, who, together with middlemen, exploited both the producers and consumers, Such a structure could not transform the livelihood of the rural poor through dairy farming a subsidiary occupation.



A SHIFT TO “ANAND PATTERN”:

The Anand Pattern is an integrated cooperative structure that procures, processes and markets produce. Supported by professional management, producers decide their own business policies, adopt modem production and marketing techniques and receive services that they can individually neither afford nor manage.

The Anand Pattern succeeds because it involves people in their own development through cooperatives where professionals are accountable to leaders elected by producers- The institutional infrastructure — village cooperative, dairy and cattle feed plants, state and national marketing — is owned and controlled by farmers. .

Anand Pattern cooperatives have progressively, linked producers directly with consumers.

It was in the year, 1964, when the Prime Minister of India, the Late Shri Lal Bahadur Shastri visited the Kaira (Khc-da) District Co-operative Milk Producers' Union Ltd, popularly known as AMUL (Anand Milk Union Ltd). The Prime minister stayed overnight in village Ajarpura and spent several hours discussing with the farmers the affairs of their village co-operative. From the discussion, the Prime Minister could come to the conclusion that because the farmers formulate and implement their own policies and programmes for dairy development in their areas, because their elected representatives managed the village society and district union, and because they had good sense to employ competent professionals to manage the dairy factories, the Amul Dairy was sensitive to their needs and was responsive to their demands. The Prime Minister was so convinced and impressed by AMUL model of dairy development that he asked Dr. V Kurien, the then General Manager of AMUL to prepare a programme for replicating the AMUL model throughout India. He also decided that Govt of India would create a body, whose job would be to replicate 'Anands'. The NBBD to be headed by Dr. V. Kurien, was thus created in 1965 and was officially registered on 27' September, 1965 as an Autonomous Society under the administration control of Union Ministry of agriculture.



OPERATION FLOOD

One of the world's largest rural development programmes

Launched in 1970. Operation Flood has helped dairy farmers direct their own development, placing control of the resources they create in their own hands- A National Milk Grid links milk producers throughout India with consumers in over 700 towns and cities, reducing seasonal and regional price variations while ensuring that the producer gets fair market prices in a transparent manner on a regular basis.

The bedrock of Operation Flood has been village milk producers' cooperatives, which procure milk and provide inputs and services, making modem management 'and technology available to members. Operation Flood's objectives included:

• Increase milk production ("a flood of milk")

• Augment rural incomes

• Reasonable prices for consumers



Programme implementation

Operation Flood was implemented in three phases:

Phase 1

Phase I (1970-1980) was financed by the sale of skimmed milk powder and butter oil gifted by the European Union then EEC through the World Food Programme. NDDB planned the programme and negotiated the details of EEC assistance.

During its first phase, Operation Flood linked 18 of India's premier milk sheds with consumers in India's four major metropolitan cities: Delhi, Mumbai, Kolkata and Chennai.

Phase 2

Operation Flood's Phase II (1981-85) increased the milk sheds from 18 to 136; 290 urban markets expanded the outlets for milk. By the end of 1985. A self-sustaining system of 43,000 village cooperatives covering 4.25 million milk producers had become a reality. Domestic milk powder production increased from 22,000 tons in the pre-project year to 140000 tons by 1989, all of the increase coming from dairies set up under Operation Flood. In this way EEC gifts and World Bank loan helped to promote self-reliance. Direct marketing of milk by producer's cooperatives increased by several million litres a day.

Phase 3

Phase III (1985-1996) enabled dairy cooperatives to expand and strengthen the infrastructure required to procure and market increasing volumes of milk. Veterinary first-aid health care services, feed and artificial insemination services for cooperative members were extended, along with intensified member education.

Operation Flood's Phase III consolidated India's dairy cooperative movement, adding 30,000 new dairy cooperatives to the 42,000 existing societies organised during Phase II, Milk sheds peaked to 173 in 1988-89 with the numbers of



women members and Women's Dairy Cooperative Societies increasing significantly.

Phase III gave increased emphasis to research and development in animal health and animal nutrition. Innovations like vaccine for Theileriosis , bypass protein feed and urea-molasses mineral blocks, all contributed to the enhanced productivity of mulch animals.

From the outset, Operation Fiood was conceived and implemented as much more than a dairy programme. Rather, dairying was seen as an instrument of development, generating employment and regular incomes for millions of rural people- "Operation Flood can be viewed as a twenty year experiment confirming the Rural Development Vision" (World Bank Report 1997c.).



CHAPTER-3

ORGANISATIONAL STRUCTURE

OF

PATNA DAIRY PROJECT



THREE TIER STRUCTURE

The Village Society

An Anand Pattern village dairy cooperative society (DCS) is formed by milk producers. Any producer can become a DCS member by buying a share and committing to set) milk only 10 the society. Each DCS has a milk collection centre where members take milk every day. Each member's milk is tested for quality with payments based on the percentage of fat and SNF. At the end of

each year, a portion of the DCS profits is used to pay each member a patronage bonus based on the quantity of milk poured

The District Union

A District Cooperative Milk Producers’' Union is owned by dairy cooperative societies. The Union buys all the societies' milk, then processes and markets fluid milk and products. Most Unions also provide a range of inputs and services to DCSs and their members: feed, veterinary care, artificial insemination 10 sustains the growth of milk production and the cooperatives' business. Union staff train and provide consulting services to support DCS leaders and staff.

The State Federation

The cooperative milk producers' unions in a state form a State Federation which is responsible for marketing the fluid milk and products of member unions. Some federations also manufacture feed and support other union activities.



PATNA DAIRY PROJECT

Vaishal Patliputra Dugdh Utpadak Sahkari Sangh Ltd (VPDUSS) is a District Level Milk Union set up in Bihar on Anand Pattern under Operation Flood. Registered on 02-07-1987 under Bihar & Orissa Co-operative Act. 1935, it is one of the five Milk Unions set up under Operation Flood in Bihar. Headquartered at Phulwarisharifin Patna, it has a dairy' plant and a cattle feed plant at Patna and 4 Chilling Centres at Hajipur . Biharsharif , Ekangarsarai and Asthawa. All milk unions are affiliated to the Bihar State Co-operative Milk Producers Federation Ltd, which is the apex body in the state of Bihar. Central and State Govl. have Jointly promoted these Milk Unions with a view to organise, develop and strengthen dairy co-operatives and to modernise the dairy industry for self-sufficiency and self-reliance in milk and milk products, as envisaged under Operation Flood-

The National Dairy Development Board, managing the Feeder Balancing Dairy of 1.0 lake litres and a Cattle Feed Plant with 100 Mis/day capacity at Patna (set up under the Operation Flood-1) since August, 1981 in the name and style of Patna Dairy Project (PDP) as per the Govt. decision, transferred the management of NDDB, the project progressed very well on co-operative principles envisaged under OF and commercial lines as well.

The NDDB was managing the Project on behalf of a milk shed level milk union to be formed in Patna milk shed under OF on Anand Pattern. Accordingly after formation of VPDUSS, the NDDB transferred .the management of PDP to the Sangh.

The PDP is so popular among public and those associated to it. The project name under study, therefore, appears singly as VPDUSS, PDP or as VPDUSS-PDP in the report



PROGRESS OF PATNA DAIRY PROJECT

The NDDB immediately after taking over the project positioned an integrated Spear Head Team to restructure the milk procurement activities and also for streamlining the working of the FBD and CFP, Under the management of NDDB the project had not only made excellent progress but had been able to establish the fact that the co-operatives could function equally well in Bihar too what is essential is the proper atmosphere and guidance.

Along with the organisation of milk procurement activities and management of both the plants on commercial lines, NDDB took special care to develop the Vaishal Patiipuira Dagdh Utpadak Sahkari Sangh Ltd. (VPDUSS), the milk shed level co-operative for taking over the project once the DAIRY BOARD withdraws its management. NDDB handed over the arrangements of Patna Dairy Project (PDP) to Vaishal Patliputra Dugdh Utpadak Sahkari Sangh Ltd. (VPDUSS) with effect from l"July. 1988.

PROGRESS UNDER VAISHAL PATLIPUTRA DUGDH UTPADAK SAHKARI SANGH LTD. (VPDUSS)

The major task before the Vaishal Patliputra Dugdh Utpadak Sahkari Sangh Ltd. (VPDUSS) that the excellent infrastructure developed by the National Dairy Development Board (NDDB) is not only maintained but also to see that the pace of development is not hampered. The Vaishal Patliputra Dugdh



Utpadak Sahkari Sangh Ltd. (VPDUSS) has been able to accomplish these tasks to a greater extent.

PRESE N T STATUS

Milk Procurement:There are at present 1257 no's of functional Dairy Cooperatives Societies (DCS) in the areas ot'PDP covering'the districts of Patna- Vaishaii, Nalanda and fringe areas of Saran with a tutai membership of 94222. The daily average procurement has reached up to 1106163 litres during the year 2007-2008. they hoped that the project shall collect above one & half lakh litres of milk per day in commencing year. Tliere are 173 nu's of women Co-operative Societies exclusively managed and run by rural women folk;- While the union has a fairly good number of functional societies- emphasis is being given to consolidate the functioning of the primary societies by increasing .-.the members" participation. The Co-operative Development (CD) Programme'' was also initiated from March. 1991 with the assistance of NDDB.

Technical Inputs:

The Union, in addition providing a ready and stable market for the rurally produced milk at the door-slop has been providing the inputs required for milk production enhancement viz. Artificial Insemination (AI) with Frozen Semen, Veterinary First Aid (VFA), Vaccination, supply of balanced feed, supply of fodder seeds, treatment of paddy straw/wheat bursa with Urea, supply of Urea Molasses Block (UMB) etc on no profit no loss basis. The response from the milk producers for all these inputs has been exceedingly encouraging and the Union is in the process of extending these facilities to more and more societies and farmers.

Feeder Balancing Dairy:

The Feeder Balancing Dairy with a capacity to handle 1.5 lakes litres per day (LLPD), has facilities for manufacture of milk powder. butter, ghee, ice cream, peda, paneer and Plain/Misti Dahl, Lassi, Matha,



The production and marketing of Table Butter under the brand name 'SUDHA' was introduced from 1st October, 1993 and the response has been encouraging.

The marketing of Sudha brand of Ice Cream in Patna after test marketing in August-September. 1994, was formally launched from April. 1995. The initial response has been satisfactory. Efforts are on to increase the market share of Sudha ice-cream

The marketing of Sudha brand Plain/Misti Dahl in Patna was started in Oct-Nov.2001 and was formally launched from Nov.2001. The initial response for this product too has been overwhelming.

The production of Sudha brand Lassie in Patna was started in April-May-2003 and the product ofmatha started in March-2007.

Cattle Feed Plant:

The role of balanced feed is not only increasing milk production but also sustaining the same by ensuring regular conception need not be over emphasised. Realising the same the Union has been making consistent efforts for popularising the consumption of balanced feed by the milk producers.

In addition to catering to the needs of the Dairy Co-operative Societies cattle feed is sold through dealers in rest of the state for better capacity utilisation of the Plant. Further realising the importance of introduction of latest technologies in this field, the production and sale of By Pass Protein feed was started from the year 1989-90. The response for this feed too is encouraging.

Milk Marketing:

The marketing of liquid milk in sachet was introduced from the year 1981 itself. However, initially the thrust was for organising the milk procurement activities and to stabilise the same at reasonable level. Nevertheless there was some natural growth in the milk marketing over the years. However, for various reasons there was some stagnation for few years in the quantity of milk marketed. With certain modifications in the policy decisions and because of concerted efforts, the quantum of milk being marketed is steadily growing.



Quality & Productivity Activities:

The Dairy Plant Managemem Programme (DPM) was introduced in the year 1992 followed by Quality Assurance Programme (QAP) in the year 1993 with the help ofNDDB. This resulted in bringing about a positive change leading to \ lability of the project coupled with lowering of operational costs on one hand and improved quality of products on the other. Consequent to the liberalisation and giobaiisation of Indian economy in early 90's it was felt that the organisation should strive to make its total outlook, approach and systems of highest standards. Accordingly, it was decided in the year 2001 that the organisation should go in for ISO certification both in quality management system and food safety. This process was successfully completed leading to ISO-9001: 2000 and HACCP (IS-15000) certification by Bureau of Indian Standards in March, 2002.

The project has been honoured with "Best Productivity Performance" Award for the three years 2000-2001, 2001-2002 & 2005-2006 by National Productivity Council, New Delhi.



Thrust areas:

1. To make Sudha Brand a market leader by making Sudha Milk and milk. products a consumers' delight and ensuring-that the esteemed customers get value for money.

2. Consolidation of the DCS's already organised leading to increase milk procurement.

3. Further improvement in the involvement/participation of members in their Co-operatives.

4. Bridging the flush-gap further,

5. Popularising ail the Input Programme.

6. Increasing the throughputs and sale of both milk and milk products as weli • as cattle feed. By Pass Protein Feed & UMB.

7. Reducing further the handling losses and increasing the utilisation of plant capacities.

8- Optimising the utilisation of all consumables.

9. Human Resource Development through training, orientation etc to the employees at all levels for ensuring better motivation and involvement leading to the employees at all levels for ensuring better motivation and involvement leading to all round progress of the organisation.



Vision:

In line of values, by maintaining economic balance, the milk sangh shall

arrange to provide maximum return to producer's members and provide a!)

Necessary services for enhancing milk production. The milk union shall be

well known as

one of the leading organization in the country for its total quality.

MISSION

• Socio economic upnftment of rural farmers through cooperative

dairying.

• Cater the needs of urban consumers by supplying hygienically packed milk

and milk products at reasonable prices.

• Development and expansion of such other allied activities conducive for

dairying, improvement and protection of mulch animals for the betterment of mi

1k producers.



VALUES

• Cooperation and Team spirit

• Belief in cooperative organizations

• Honesty

• Total quality at every level

• Discipline

• Openness and Transparency

• Trust and Motivation (from milk producer to consumers)

• Education and Awareness at every level



Aims and objective of PDP

The patna dairy project aims mainly to concentrate on goods quality procurement of milk maintain milk product for making them available to general masses so that they can avail the opportunity of better nourishment.

As such aim of PDP are:-

To develop dairying on Anand Pattern in Bihar to cater the need of masses in Patna and suburbs in terms of milk and milk product and at the same line maintained high quality.

To eliminate middle-man between milkman and consumer there by stopping undeserved share of profit to milkman which is the second most important objective

To provide milk market to the milkman throughout the year thus helping them to lead a better life.

To decrease the cost of production so that the ultimate consumer can get the product at low and cheaper cost.

To help in the rural development by developing strong co-operative society to guard the rural people and to help to overcome any set backs

To produce dairy product of high quality and built in food safety to meet a well defined need use and purpose of judicious and efficient utilisation of resources.

Promote innovation and development of new product.

To achieve continual improvement in customer satisfaction in term product quality and service



To ensure continuous improvement in terms of physical financial performance resulting in maximum production at optimum cost



CHAPTER-4

PROJECT OVERVIEW

INTRODUCTION OF WORKING CAPITAL CONCEPT & NATURE TYPES & DETERMINANT OF WORKING CAPITAL OPERATING & CASH CONVERSION CYCLE POLICIES OF WORKING CAPITAL FINANCE



INTRODUCTION OF WORKING CAPITAL

INTRODUCTION

Working capital typically means the firm’s holding of current or short-term assets such as cash, receivables, inventory and marketable securities.These items are also referred to as circulating capital .Corporate executives devote a considerable amount of attention to the management of working capital.

The management of current assets is similar to that of fixed assets in the sense that in both cases a firm analyses their effects on its return & risk.the management of fixed & current assets, however differs in three important ways: first, in managing fixed assets , time is very important factor; consequently,discounting and compounding techniques play a significant role in capital budgeting and a minor one in the management of current assets. Second, the large holding of current assets, especially cash , strengthens the firm liquidity position but also reduces the overall profitability. Thus a risk –return trade off is involved in holding current assets. Third , levels of fixed as well as current assets depend upon expected sales,but it is only current assets which can be adjusted with sales fluctuation in the short run .

Working Capital refers to that part of the firm’s capital, which is required for financing short-term or current assets such a cash marketable securities, debtors and inventories. Funds thus, invested in current assets keep revolving fast and are constantly converted into cash and this cash flow out again in exchange for other current assets. Working Capital is also known as revolving or circulating capital or short-term capital.



CONCEPT & NATURE OF WORKING CAPITAL

There are two concept of working capital- gross and net.

Gross working capital (GWC)

GWC refers to the firm’s total investment in current assets.

Current assets are the assets which can be converted into cash within an accounting year (or operating cycle) and include cash, short-term securities, debtors, (accounts receivable or book debts) bills receivable and stock (inventory)

Net working capital (NWC).

NWC refers to the difference between current assets and current liabilities.

Current liabilities (CL) are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors (accounts payable), bills payable, and outstanding expenses.

NWC can be positive or negative.

A positive net working will arise when current assets exceed current liabilities.

A negative net working capital occurs when current liabilities are in excess of current assets.

Positive NWC = CA > CL

Negative NWC = CA < CL

GWC focuses on:

Optimisation of investment in current.

Financing of current assets.

Financial manager should have knowledge of the sources of working capital



Funds as well as investment avenues where idle funds may be temporarily Invested.

NWC focuses on:

Liquidity position of the firm.

Judicious mix of short-term and long-tern financing.

The two concepts of working capital – gross & net- are not exclusive ; rather,They have equal significance from the management viewpoint.There is no precise way to determine the exact amount of gross & net Working capital for any firm . the data and problem of each company shouldbe analysed to determine the amount of working capital. There is no specific rule as to how current assets should be financed.



TYPES OF WORKING CAPITAL

Types of working capital.

Permanent or fixed working capital

A minimum level of current assets, which is continuously required by a firm to carry on its business operations, is referred to as permanent or fixed working capital.

Fluctuating or variable working capital

The extra working capital needed to support the changing production and sales activities of the firm is referred to as fluctuating or variable working capital.

Both the working capital – permanent and variable – are necessary to facilitate

Production and sale through the operating cycle.



BALANCED WORKING CAPITAL POSITION

Every business concern should have adequate working capital to run its business operations. It should have neither redundant or excess working capital nor inadequate or shortage of working capital.

Both excess as well as shortage of working capital situations are bad for any business. However, out of the two, inadequacy or shortage of working capital is more dangerous from the point of view of the firm.



DISADVANTAGES OF EXCESS WORKING CAPITAL

- Idle funds, non-profitable for business, poor ROI.

- Unnecessary purchasing & accumulation of inventories over required level.

- Excessive debtors and defective credit policy, higher incidence of B/D.

- Overall inefficiency in the organization.

- When there is excessive working capital, Credit worthiness suffers

Due to low rate of return on investments, the market value of shares may fall.



DISADVANTAGES OF INADEQUATE WORKING CAPITAL

-Can’t pay off its short-term liabilities in time.

-Economies of scale are not possible.

-Difficult for the firm to exploit favourable market situations.

-Day-to-day liquidity worsens.

-Improper utilization the fixed assets and ROA/ROI falls sharply.



DETERMINANTS OF WORKING CAPITAL

There are no set rules or formula to determine the working capital requirement

Of firms. A large number of factors , each having a different importance,

Influence working capital needs of firms. The following factors which

Generally influence the working capital requirement of firms.

1. Nature of the Industry

2. Demand of Industry

3. Cash requirements

4. Nature of the Business

5. Manufacturing time

6. Volume of Sales

7. Terms of Purchase and Sales

8. Inventory Turnover

9. Business Turnover



10. Business Cycle

11. Current Assets requirements

12. Production Cycle

13. Credit control

14. Inflation or Price level changes

15. Profit planning and control

16. Repayment ability

17. Cash reserves

18. Operation efficiency

19. Change in Technology

20. Firm’s finance and dividend policy

21. Attitude towards Riskness

The description of some major factors are in the following ways.

Nature of Business –



Working capital requirement of a firm are basically influenced by the nature of Business. Trading & financial firms have a very small investment in working capital.

Market and Demand Conditions –

The working capital needs of a firms are related its sales.in practice current assets will have to be employed before growth takes place.it is,there fore,nesseary to make advance planning of working capital for a growing firm on a continuous basis.

Growing firm may need to invest funds in fixed assets in order to sustain growing production and sales.

Sales depand on demand conditions.large number of firms experience seasonal and cyclical fluctuation in the demand for there products and services.these business variation affect the working capital requirement,specially the temporary working capital requirement of the firm.

Technology and Manufacturing Policy –

Longer the manuf acturing cycle,larger will be the firms working capital requirement for exm...,the manufacturing cycle in the case of a boiler ,depending on its size,may range between six to twenty four months.on the other hand ,the manufacturing cycle of a products such detergent powder ,soap ,chocolate etc...may be a few our and extended manufacturing time span means a larger tie up of funds in inventories .

Credit Policy –

The credit policy of the firm affect the working capital by influencing the level of debtors.



Availability Of Cridit From Suppliers –

The working capital requirement of a firm are also affected by credit terms granted by its suppliers.a firm will needless working capital if liberal credit terms are available to it from suppliers.

Operating Efficiency –

The operating efficiency of the firm relates to the optimum utilisation of all its resources at minimum cost.the use of working capital is improved and pace of cash conversion cycle is accelerated with operating efficiency.

Price Levels Changes –

Generally, rising price levels will require a firm to maintain higher amount of working capital. Same levels of current assets will need increased investment when prices are increasing.



OPERATING & CASH CONVERSION CYCLE

We know that a firm should aim at maximizing the wealth of shareholders. In its endeavour to do so,a firm should earn sufficient return from its operations.current assets are needed because sales do not convert into cash instantaneously. There is always a operating cycle involved in the conversion of sales into cash.

Operating cycle is the time duration required to convert sales, after the conversion of resources into inventories, into cash. The operating cycle of a manufacturing company involves three phases:

Acquisition of resources such as raw material, labour, power and fuel etc.

Manufacture of the product which includes conversion of raw material into work-in-progress into finished goods.

Sale of the product either for cash or on credit. Credit sales create account receivable for collection.

The length of the operating cycle of a manufacturing firm is the sum of:

inventory conversion period (ICP).

Debtors (receivable) conversion period (DCP).

Inventory conversion period is the total time needed for producing and selling the product. Typically, it includes:

raw material conversion period (RMCP)

work-in-process conversion period (WIPCP)



finished goods conversion period (FGCP)

The debtors conversion period is the time required to collect the outstanding amount from the customers.

Creditors or payables deferral period (CDP) is the length of time the firm is able to defer payments on various resource purchases.

Gross operating cycle (GOC)

The total of inventory conversion period and debtors conversion period is referred to as gross operating cycle (GOC).

Net operating cycle (NOC)

NOC is the difference between GOC and CDP.

Cash conversion cycle (CCC)

CCC is the difference between NOP and non-cash items like depreciation.

Cash conversion cycle = operating cycle – payables deferral period.

The firm has to maintain cash balance to pay the bills as they come due.

In addition, the company must invest in inventories to fill customer orders promptly.

And finally, the company invests in accounts receivable to extend credit to customers.

Operating cycle is equal to the length of inventory and receivable conversion periods.



Inventory conversion period

Avg. inventory

= _________________

Cost of sales/365

Receivable conversion period

Accounts receivable

= ___________________

Annual credit sales/365

Payables deferral period

Accounts payable + Salaries, etc

= ___________________________

(Cost of sales + selling, general and admn. Expenses)/365



POLICIES FOR WORKING CAPITAL FINANCE

A firm can adopt different financing policies vis- vis current assets. Three types of financing may be distinguished.

Long Term financing-

The sources og long term financing include ordaniry share capital, preferance share capital , debenture,

Long-term borrowing from financing institutions and reserves and surplus(retained earning).

Short Term financing-

The short term financing is obtained for a period less than one year.it is arranged in advance from banks and other suppliers of short term finance in the money market.

Spontaneous financing-

Spontaneous financing refers to the automatic sources of short term funds arising in the normal course of a business.trade credit and outstanding expenses are example of spontaneous financing.there is no explicit cost of spontaneous financing.

The mix of short term and long term sources in financing current assets depending on the mix of short and long term financing, the approach followed by company may be referred to as:

Matching approach

Conservative approach

Aggressive approach



Matching Approach

When the firm follows matching approach, long term financing will be used to finance fixed assets and permanent current assets and short term financing to finance temporary or variable current assets . however , it should be realised that exact matching is not possible because of the uncertainty about the expected lives of the assets.

The temporary or variable current assets are financed with short – term funds and as their level increases, the level of short – term financing also increases. Under the matching plan , no short – term financing will be used if the firm has a fixed current assets need only.



Conservative Approach

A firm in practice may adopt a conservative approach in financing its current and fixed assets. The financing policy of the firm is said to be conservative when its depends more on long term funds for financing needs. Under a conservative plan , the firm finances its permanent assets and also a part of temporary current assets with long term financing. In the period when the firm has no need for temporary current assets, the idle long term funds can be invested in the tradable securities to conserve liquidity.



Aggressive Approach

A firm may be aggressive in financing its assets. An aggressive policy is said to be followed by the firm when its uses more short – term financing than warranted by the matching plan. Under an aggressive policy, the firm finances a part of its permanent current assets with short – term financing. Some extremely aggressive firms may even finance a part of their fixed assets with short – term financing.



CHAPTER-5

PROJECT ANALYSIS:

RATIO APPLCATION

&

ANALYSIS



VISHAL PATILIPUTRA DUGDH UTPADAK SAHKARI SANGH NH LTD

BALANCE SHEET

(As on 31st march 2008)

LIABLITIES SHARE CAPITALAUTHORISED SHARE CAPITAL

PAID UP SHARE CAPITALSHARE DEPOSIT

50000000.00

9043300.00 1191189.84

RESERVES & SURPLUS 241714627.52LONG TERM LOAN 31424000.00CURRENT LIABLITIESPROVISION SUNDRY CREDITORSDEMAND LOAN WITH BANKINTREST PAYABLLIABLITY FOREXPENSESLIABLITIES-OTHERLIABLITIY-VAT

5885723.08 151084261.15 70316474.10 2180206.18 11463770.80 18840419.06 966067.85 260736922.22

NET PROFIT FROM P/L ACCOUNT

5860196.05

549970235.63ASSETSFIXED ASSET 227219711.34INVESTMENTS 51689255.55CURRENT ASSETCLOSING STOCKDEPOSITLOAN & ADVANCESUNDRY DEBTORSCASH-IN –HANDBANK ACCOUNT INTREST RECEIVABLESINVESTMENT(short term)STOCK & STORES

7531374.00 1973366.83 180755910.23 27875007.44 207909.85 64766594.92 3908027.12

84407418.31

62315660.04 271061268.74



549970235.63

PARTCULARS AMOUNTNet sales

L LESS: Cost of goods soldOpening stock(+)Purchase

(+)Direct expenses(-)C Closing stock

Gross profitL LESS: Indirect expenses

ADD: Indirect income

PB PBDIT or EBDIT

LESS: DepreciationPBIT OR EBIT

LESS: Tax

11075497.00 59710507.60 1083055881.70

1246936185.68

1146310512.30 1153841886.30 7531374.00

100625673.38 97380831.63 3244841.75

15481239.45 18726081.20 8342641.00 1038344.20

2124498.15 8258942.05 2398746.00

Retained Earning 5860196.05VAISHAL PATLIPUTRA DUGDH UTPADAK SAHAKARI SANGH LTD

INCOME STATEMENT

(For the year ended 31.03.2008)



VISHAL PATILIPUTRA DUGDH UTPADAK SAHKARI SANGH NH LTD

BALANCE SHEET

(As on 31st march 2009)

LIABLITIES SHARE CAPITALAUTHORISED SHARE CAPITAL

PAID UP SHARE CAPITALSHARE DEPOSIT

50000000.00

9254100.00 1164996.59

RESERVES & SURPLUS 259147749.05LONG TERM LOAN 48568000.00CURRENT LIABLITIESPROVISION SUNDRY CREDITORSDEMAND LOAN WITH BANKINTREST PAYABLLIABLITY FOREXPENSESLIABLITIES-OTHERLIABLITIY-VAT

6897121.86 189496174.24 70003516.00 25679772.07 16487422.83 19425725.36 744591.19 305622523.55

NET PROFIT FROM P/L ACCOUNT

8153851.43

631911220.62ASSETSFIXED ASSET 239611774.43INVESTMENTS 83608423.84CURRENT ASSETCLOSING STOCKDEPOSITLOAN & ADVANCESUNDRY DEBTORSCASH-IN –HANDBANK ACCOUNT INTREST RECEIVABLESINVESTMENT(short term)

12151249.00 5061277.83 15552379.20 33782122.41 81202.45 58984222.62 7032101.16

83259638.00



STOCK & STORES 92786829.68 308691022.35 631911220.62

VAISHAL PATLIPUTRA DUGDH UTPADAK SAHAKARI SANGH LTD

INCOME STATEMENT

(For the year ended 31.03.2009)

PARTCULARS AMOUNTNet sales

LESS: Cost of goods sold

Opening stock(+)Purchase

(+)Direct expenses

(-)Closing stockGross profit

LESS: Indirect expenses

ADD: Indirect incomePBDIT or EBDITLESS: Depreciation

PBIT OR EBITLESS:Intrest paid

PBT or EBTLESS: Tax

7531374.00 92707476.63 1201381801.57

1406858952.81

1301620652.00 12151249.00

1289469403.00 108464664.90

1181004738.00 17506961.98 1198511700.00 10245585.00 1188266115.00 5698857.19 1182567258.00 2333553.00

Retained Earning 1180233705.00



Schedule for change in working capital

Particular

31st march 2008 31st march 2009 Working capital increase

Working capital decrease

A. CURRENT ASSETS

Closing stock 7531374.00 12151249.00 4619875.00

S.Debtor 27875007.44 33782122.41 5907114.97

Deposits(assets) 1973366.83 5061277.83 3087911.00

Loan&advance 18075910.23 15552379.20 2523531.03

Cash in hand 207909.85 81202.45 126707.40

Bank 64766594.92 58984222.62 5782372.30

Interest receivable

3908027.12 7032101.16 3124074.04

Investment 84407418.31 83259638.00 1147780.31

Stock&share 62315660.04 92786829.68 30471169.64

TOTAL.A 271061268.74 308691022.35

B. CURRENT LIABILITIES

Provisions 5885723.08 6897121.86 1011398.78

S.Creditors 151084261.15 189496174.24 38411913.09

Demand loan 70316474.10 70003516.00 312958.10

Interest Payable 2180206.18 2567972.07 387765.89

Liability for expencses

11463770.80 16487422.83 5023652.03

Liability- other 18840419.06 19425725.36 585306.30



,, VAT/CST payable

966067.85 744591.19 221476.66

TOTAL.B 260736922.22 305622523.55

Working capital(A-B)

10324346.50 3068498.80

Decrease in WC 7255847.72

TOTAL 55000427.13 55000427.13

The following statements shows that the PDP is in better condition because the firm funds are not Blocked to the outsider while the firm is utilizing the outsider funds.



LIQUDITITY RATIO

PARTICULAR 2008-09 2009-10CURRENT RATIO=CURRENT ASSET/CURRENT LIABLITY

271061268.74/260736922.22=1.03:1

308691022.35/305622523.55=1.01:1

QUICK RATIO =(CURRENT ASSET-INVENTORY)/ CURRENT LIABLITY

CASH RATIO=CASH&BANK+MARKETABLE SECURITIES/CL

RECEAVABLE TURNOVER=TOTAL CREDIT SALES/AVERAGE RECEIVABLE

AVERAGE COLLECTION PERIOD DAYS=AVERAGE RECEIVABLE*365/TOTAL CREDIT SALES

CASH TURN OVER RATIO=CASH OPERATING EXPENSES/AVERAGE CASH&BANK BALANCE

201214234.70/260736922.22=0.77:1

142325063.07/305622523.55=0.46568

1246936185.68/333231998.64=37.5222

12129679503.6/1246936185.68=9.72758

1182561211.48/60003991.55=19.708 TIMES

203752943.67/305622523.55=0.66:1

149381923.08/260736922.22=0.5729

1406858952.81/36298629.07=38.75791

13248999608.73/1406858952.81=9.41743

1315545323.73/61719964.94=21.3147 TIMES



CASH HOLDING PERIOD=AVERAGE CASH&BANK BALANCE/CASH OPERATING EXPENSES

60003991.55*365/1182561211.48=18.52

61719964.94*365/1315545323.73=17.124

PROFITABLITY RATIO

PARTICULAR 2008-09 2009-10GROSS PROFIT RATIO =GROSS PROFIT/SALES

100625673.38/1246936185=8.07%

107143964.61/1406858952.81=7.63%

NET PROFIT RATIO=NET PROFIT/SALES

10383440.20*100/1246936185

=0.58%

8153851.43*100/1406858952.81

=0.83%



ACTIVITY RATIO

PARTICULAR 2007-08 2008-09FINISHED GOODS INVENTORY TURNOVER=COST OF GOODS SOLD/AVERAGE FINISHED GOODS

FINISHED GOODS STORAGE PERIOD=AVERAGE INVENTORY*365/COST OF GOODS SOLD

1154653153.0/9303435.5=124.11

3395753957.5/1154653153=2.94DAYS

1299714987.0/9841311.5=132.067

3592078697.5/1299714988.2=2.7637DAYS

WORKING CAPITAL TURNOVER RATIO=NET SALES/NET WORKING CAPITAL

(NET SALES=SALES-GROSS PROFIT)

1154653153/10324346.50=112 TIMES

1299714987.00/3068498.80=424 TIMES

FIXED ASSET TURNOVER RATIO=COST OF SALES/NET FIXED ASSET(COSTOF SALES=SALES-GROSS PROFIT)

CURRENT ASSETS TURNOVER=COST OF SALES/CURENT ASSETS

1154653153/227219711.34=5.08 TIMES

1154653153.0/271061268.74=4.2597

1299714987.00/239611774.43=5.42 TIMES

1299714987.0/308691022.35=4.2104



RATIO OF CURRENT ASSETS TO TOTAL ASSETS=CURRENT ASSETS/TOTAL ASSETS

RATIO OF CASH TO CURRENT ASSETS=CASH&BANK/CURRENT ASSETS

CURRENT LIABILITIES TO TOTAL LIABILITIES=CURRENT LIABILITIES/TOTOTAL LIABILITIES

271061268.74/227219711.34=1.1929

64974504.77/271061268.74=0.2397

260736922.22/549970235.63=0.47409

308691022.35/239611774.43=1.2882

59065425.07/308691022.35=0.19134

305622523.55/631911220.62=0.48364



GLANCE OF FINANCIAL ANALYSIS IN VDPUSSL

PARTICULAR 2007-08 2008-09

LIQUDITY RATIO

CURRENT RATIO 1.04:1 1.01:1QUICK RATIOCASH TURNOVERCASH HOLDING PERIODRECEIVABLE TURNOVERAVERAGE COLLECTION PERIOD

0.77:119.708 TIMES18.52 DAYS

37.5221 TIMES

9.73 DAYS

0.67:121.315 TIMES17.124 DAYS

38.7579 TIMES

9.42 DAYS

PROFITABLITY RATIO

GROSS PROFIT RATIO 8.07% 7.62%NET PROFIT RATIO 0.83% 0.58%ACTIVITY RATIO

CURRENT ASSETS 4.2597 TIMES 4.2104 TIMES



TURNOVER

FINISHED GOODS STORAGE PERIOD

2.94 DAYS 2.76 DAYS

WORKING CAPITAL TURNOVER RATIO

112 Times 424Times

FIXED ASSET TURNOVER RATIO

5.08 Times 5.4 2Times

RATIO OF CURRENT ASSETS TO TOTAL ASSETS

1.19:1 1.29:1

RATIO OF CASH TO CURRENT ASSETS

0.24:1 0.19:1

CURRENT LIABILITIES TOTOTAL LIABILITIES

0.474 0.484



CHAPTER-6

FINDING

&

CONCLUSION



LIQUIDITY RATIO

FINDING

PARTICULAR 2007-08 2008-09Current ratio 1.03:1 1.01:1Quick ratio 0.77:1 0.66:1

CONCLUSION

So for the current ratio is recorded 1.03:1 and 1.01:1 in 2oo7-08 &08-09 respectively. And acid test ratio is recorded 0.77:1 and 0.66:1 for the year 2oo7-08 &08-09 respectively is alarming for the organisation with respect to traditional concept prevailing for liquidity and most expert may recommend to improve this ratio for better management for the liquidity and rational matching with current asset and current liability ,hence I experience during the training the financial manager has set a sight all the traditional concept recommended for the organisation for the liquidity management and optimally derive a concept lowering down the ratio and succeed obviously .this improve the profitability and there is no evidence of any threat of any liquidity.



PROFITABLITY RATIO

FINDING

Gross Profit Ratio 8.07% 7.63%Net Profit Ratio 0.58% 0.83%

CONCLUSION

In Patna dairy project is a cooperative organisation and profit is not the objective. The objective of the firm is to render the services to its member .despite it generate some surplus which is distributed among the member after retaining some of the reserve as prostitute .Decrease in gross profit ratio is the cause of enhancement of direct cost such as material ,labour and petroleum product.

The increase in the net profit ratio demonstrate the efficiency of the management as regard to the reduction of the direct cost.



ACTIVITY RATIO

FINDING

PARTICULAR 2007-08 2008-09Stock turnover ratio 166 times 116 timesWorking capital turnover ratio

112 times 424 times

Fixed asset turnover ratio 5.08 times 5.42times

CONCLUSION

Organisation deals with perishable commodity and having a strategic plan to put the lowest possible investment in finished product. As there is no culture to retain the packed milk as stock .however the milk product and cattle feed are basically remain as stock and thus the rotation the stock is decreased as there is increase in the product stock with reference to increase in the turn over .

Rotation of net working capital is excellently increased as the liquidity has gone down with a latest design made by the management without accepting any threat to the liquidity.

Asset turnover ratio is little bit increased as there is 12% increase return on turn over which give good sign to the industries. It is to be noted that the gross block network is followed for the purpose of asset management.



CHAPTER-7

BIBLIOGRAPHY



BIBLIOGRARHY

ANNUAL REPORT OF VPDUSS

FINANCIAL MANAGEMENT BY RAVI M.KISHOR

FINANCIAL MANAGEMENT BY I M PANDEY

MANAGEMENT ACCOUNTING BY DR S.P.GUPTA

FINANCIAL MANAGEMENT BY KHAN AND JAIN

WEB SITES:

1. www.ndri.com 2. www.nddb.com 3. www.comfed.com 4. www.amul.com 5. www.google.com


http://www.google.com/

http://www.amul.com/

http://www.comfed.com/

http://www.nddb.com/

http://www.ndri.com/


CHAPTER-8

GLOSARY



GLOSARY

1. VPUDSS =Vaishal Patliputra Dugdh Utpadak Sahkari Sangh Ltd 2. PDP = Patna Dairy Project3. NDDB= National Dairy Development Board4. OF =Operational Flood5. FBD= Feeder Balancing Dairy6. CFP=Cattle Feed Plant7. SHT=Spear Head Team 8. DCS=Dairy Cooperative Society9. CD= Cooperative Development10.AI=Artificial Insemination11. VFA= Veterinary First Aid12.UNB= Urea Molasses Block 13. LLPD =Lakh Litre Per Day 14. DPMP =Dairy Plant Management Program15. QAP =Quality Assurance Program 16. DPR = Detail Project Report17. IDC = Indian Dairy Corporation18. GOI= Govt. Of India19. SMP=Skimmed milk Powder 20. WFP= World Food Program21. FAO= Food and Agriculture Organisation22. WB= World Bank23.UN= United Nation 24. EEC= European Economic Community25. MMT= Million Metric Tones26.LPD= Litre per day27. BSDC= Bihar State Dairy Corporation Ltd28. SNF= Solid Not Fat29. HACCP = Hazard and Critical Point



30.ISO= International Organisation to Standardization

CHAPTER-9

APPENDIX


project on wc

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