A STUDY ON WORKING CAPITAL MANAGEMENT

CHAPTER I

1.1 INTRODUCTION
1.2 INDUSTRIAL PROFILE
1.2 COMPANY PROFILE

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CHAPTER -I
1.1 INTRODUCTION
Working capital is that amount of funds which is required to carry out the day- to- day
operations of an enterprise. It may also regards as that position of an enterprise total capital,
which is employed in its short – term operations. This operation consists of primarily items such
as raw materials, semi – finished goods, finished goods, sundry debtors, short – term investments
etc., Thus working capital also refers to all the short – term assets. There is no such a business
for which working capital is not needed. The main aim every firm is to maximize shareholders
wealth.
Firm must earn sufficient returns to increase the shareholder wealth. To earn steady amount of
profit, a successful sales activity is necessary. Firm can generate sales if sufficient amount is
invested in Current assets. The need of current assets is necessary because sales do not convert
into cash immediately. There is always an operating cycle involved in the conversion of sales
into cash. Working capital management is one of the most important aspects of financial
management. It forms a major function of the finance manager and accountant. It is concerned
with the problems that arise in attempting to manage the current assets, the current liabilities and
the interrelation ship that exists between them. 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 and
risk

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1.2 INDUSTRY PROFILE

GENERAL INTRODUCTION

The progress of mankind and civilization has been closely alike with his diet. Even today
the leading nations capable of becoming strong are those, which can obtain food in abundance
for their people.

It has been said that cow is a machine that converts raw materials (plants) into food in a
surprisingly efficient manner. The method by which cattle are managed in order o produce milk
can be accomplished in many ways. In order to be most successful, dairymen or those
contemplating entering the business should carefully survey to produce under local conditions.

Milk may be defined as the whole, fresh, clean, lacteal secretion obtained by the complete
milking of one or more healthy milk animals. It is an almost ideal good. Although milk is
commonly thought of as a beverage, it is nature’s most nearly perfect food and contains more
actual solids than many so called solids goods, especially vegetable. Milk is the only food, which
is designed by nature solely as good. It serves as the foundation of an adequate diet. It supplies
bodybuilding protein, bone forming minerals and health giving vitamins and furnishers’ energy
giving lactose and milk fat. All these properties make milk important for pregnant mothers,
growing children, adolescents, adults, invalids, convalescents and patients alike. An adequate
consumption of milk can correct dieting deficiencies for most people to have strong and healthy
bodies. It is a delicious and appetizing good for all ages as well as being healthful.

CONSTITUTENTS OF MILK PERCENTAGE

Water 87.0
Butterfat 4.0
Casein 2.0
Albumi 0.5
Lactose (Milk sugar) 5.0
Minerals 0.7
Milk constituents are divided into groups, water and solids. The constituents other
than water are called the total solids (TS). The total solids mines the butterfat is termed as the
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solids-not fat (SNF). All the constituents expect the butterfat are known as the milk serum. The
casein and albumin make up most of the protein of the milk actually about 0.5% globulin also is
present. The major constituents of milk are water, butterfat, protein, lactose and minerals. The
minor constituents are vitamins, pigments such as carotenes, fat soluble pigment xanthophylls
and water soluble pigment Lacto flavin, Cholesterol, Phospholipids (lecithin), sterols, enzymes
such as lipase, Galcotose, diastase etc., gases such as carbon dioxide, oxygen and nitrogen and
nitrogenous substances such as uric acid, urea nitrogen and truces of amino acids. The true
constituents are milk fat, casein and lactose.

Milk is absolutely essential for the welfare of human race. The cow has been rightly
called “the foster mother of the human race” and she is found in most of the civilized countries
of the world.

MARKET MILK INDUSTRY IN INDIA AND ABROAD

Although a beginning in organized milk handling was made in India with the
establishment of military dairy farms (oldest Allahabad, 1889), the salient features of the market
industry had been:

 Handling of milk in Co-operative Milk Unions established all over the country on a
small scale in the early stages.
 Long distance refrigerated rail-transport or milk from Anand to Bombay since 1945.
 Pasteurization and bottling of milk on a large scale for organized distribution was started
by Aarey(1950), Worly(1961), Calcutta (Haringhta, 1959), Delhi(1959),
Madras(1963)etc.,
 Establishment of Milk plants under the five-year pans for Dairy Development all over
India. These were taken up with the dual object of increasing the national level of milk
consumption and ensuring better returns to the primary milk producer. Their main aim
was to produce more, better and cheaper milk.

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GROWTH AND DEVELOPMENT OF THE INDUSTRY

Until the year 1940, there was very little published information of the method of
preparation and use of these products. The credit for the first publication on the subject goes to
Dr. W.B. Davies, the first director of Dairy Research, India Dairy Research Institute (now
National), Bangalore. Within the span of three or four decades since his book appeared,
considerable research has been conducted at the National Dairy Research Institute and other
place on indigenous Dairy Products. In India, there was no progress in the Diary Industry before
independence. Government of India realized the necessity of increasing Milk production and by
products there by availing substantial job opportunities to the urban and rural Community. The
government of India has focused much more attention on Dairy Development Programmed by
allocating more funds on the 4th and 5th Five year plans. The Government of India during 1970
has launched massive programmed through Flood Operation Flood II and I with the help of
European Nations and world Production Programmed costing Rs.500 Cores

The Government of India has undertaken various schemes through organizations and
institutions like India Dairy Corporation, India Dairy Development Board animal husbandry
department of all Sates, Private Sectors, Organizations of milk Producers, Co-operative and
Dairy Plants, National Dairy Research Institute. These programs enable for immediate
development in Dairy Activities, Dairy development in our Country with the help effective
marketing system.

A market is one of Principal way of increasing milk production and milk productivity of
Dairy Industry. In addition to the above, marketing helps to the enhancement of profitability of
the enterprise.

OPERATION FLOOD PROGRAMME IN INDIA

In order to build a viable and sustaining National Dairy Industry and Co-operative lines
the NDDB launched a project christened operation Flood mobilized from the sale of products
based on foreign food donations in the form of Skim Milk Powder and Butter Oil. Operation
flood, the lagers development Programmed undertaken in the worked, was initiated closely on
the heels of green Revolution in the Country. Against the back drop of huge surplus of Milk
Production in the highly developed Milk producing Countries in the West and dwindling per

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capital. Milk availability at home with its pledge to provide milk to one and all it was considered
the World’s larges Dairy Development Programmed. It spurred the Indian Dairy Industry to
launch a “White Revolution”.

The establishment of Milk Producers off co-operative societies to link dairy Development
worth Milk Marketing formed the Central Plant of the Project, which gave into a vigorous Milk
co-operative movement under the basis of NDDK. This was a unique development effort, which
was initiated at the grassroots level the villager and went up to the “Dairy Federation” of a state
with its operational effectiveness ascending at every step.

According to the Agreement signed by World Food Programmed (WFP) and

Government of India, the WFP will arrange to supply 1, 26,000 metric tons of butter oil which
the corporation will handle on behalf of the Government. The Projector aims at the improvement
of Milk Marketing in the Organized Sector especially in the Four Major Cities extended over ten
States i.e., Punjab, Haryana, Rajasthan, Uttar Pradesh, Bihar, West Bengal, Tamilnadu, Andhra
Pradesh, Maharashtra and Gujarat.

NATIONAL DAIRY DEVELOPMENT BOARD (NDDB):

At the time of inauguration of cattle feed factory at Kanjari in October 1964. The late
SriLalBahadurShastri, the Prime Minister of India paid an unscheduled visit to milk production
Co-operative society and stayed there overnight. He was impressed by the Socio-economic
changes brought by milk co-operatives in Kaira District, and desired to have a national Dairy
Development Board is the Chief Executive of the organization who is supported by Professional
to carry out Board’s activities.

ANAND PATTERN DAIRY DEVELOPMENT

The formation of Anand Pattern of milk co-operatives was landed with the organization
of the Kaira District Co-operatives Milk Production. Milk Producers themselves control
procurement processing and marketing.

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DAIRY INDUSTRY IN ANDHRA PRADESH

The main occupation in Andhra Pradesh is cultivation. The villages reflect the socio-
economic development, moral and cultural values of human race Dairy stands as the back bone
of Agriculture and at the same time it maintains important role for stability of rural economic
conditions and helps to maintain nation’s health by supplying sweet milk. It provides not only
health but also income to milk producers.

Self Sufficiency:

In Andhra Pradesh the pilot milk scheme brought revolutionary change in Dairy
Development and the economic development. The programme of “Operation Flood” created
milk revolution and laid new hopes for eradication of poverty and unemployment. Now, the
Dairy Industry is equipped with Modern Technical knowhow and is on a position to face any
challenge of future milk demands under co-operative sector several steps are taken to provide
milk collecting centers in every nook and corner of the state of increase the production capacity
of the milk yielding animals the help of programme of modern technical methods for achieving
self-sufficiency in milk production.

Dairy Development:

In 1960 a pilot milk supply scheme was started in our started in our state for the Dairy
Development. It initial milk collection capacity was 100 liters a day at the time of starting. Now,
its dairy milk collecting increased 10 lakh liters per day. It is acting as a liaison between milk
producers of villages and consumers of the milk providing reasonable price to the producers to
maintain stable market.

Packaging Technology:

Milk was initially sold door-to-door by the local milk man. When the dairy co-operatives
initially started marketing branded milk, it was sold in glass bottles sealed with foil. Over the
years, several developments in packaging media have taken place. In the early 80’s plastic
pouches replaced the bottles. Plastic pouches made transportation and storage very convenient,
besides reducing costs. Milk packed in plastic pouches/bottles have a shelf life of just 1-2 days,
that too only if refrigerated. In 1996, Tetra packs were introduced in India. Tetra packs are

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aseptic laminate packs made of aluminum, paper, board and plastic. Milk stored in tetra packs
and treated under Ultra High temperature (UHT) technique can be stored for four months without
refrigeration. Most of the dairy co-operatives in Andhra Pradesh, Tamil Nadu, Punjab and
Rajasthan sell milk in tetra packs. However tetra packed milk is costlier by Rs.5-7 compared to
plastic pouches .In 1999-00 Nestle launched its UHT milk market is expected to grow at range of
more than 10-12% in coming years.

CHANGING PATTERN OF THE INDUSTRY

The demand for milk and milk products in the country is on the rise. The increase in
purchasing power and pace of urbanization is leading to a change in the lifestyle and
consumption habits of the households. The current trends indicate that 44% of the total
population will definitely lead to an increase in consumption of dairy products.

The domestic market for butter and ghee is growing at a healthy rate of over 10% per
annum but the same may not be true in case of an international market. The production and
export of butter has witnessed a major decline in some of the developed countries. The situation
is now alarming to the industries which are having international market for this product. These
companies definitely have to think about other potential products that are gaining steady growth
all over the world.

STRATEGIES TO BOOST INDIAN DAIRY PRODUCTS GLOBALLY

 Improve the quality of the products.

 Value addition into widely accepted products.
 Improving productivity and improving the cost of production.
 Building brands.
 Public relations and stick measures to avoid misinformation, viz.
 To maintain lead in milk production.
 Research and development.
 Utilization of desirable constituents from the waste rather than draining.

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FUTURE ASPECTS

The invariable growth of milk production in India has made its position envious to the
other nations. The proper utilization of milk in the right products and direction will definitely be
helpful in realizing the growth potential of dairy industry. A more systematic approach to
process innovation, quality assurance and shelf life improvement for the indigenous and western
dairy products in needed.

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1.3 COMPANY PROFILE

Heritage foods limited (HFL) was incorporated under the companies Act 1956 as public
limited companies 5th June 1992. The promoters have long and varied experience in
administration as well as management of business.

HFL entered the capital market on 17 th November 1994 with an issue of 65,00,000
equity share of Rs.10/- each for cash at par to the India investing public. The Issue was over –
subscribed by about 54 times, an indication of the rich confidence of the promoter who enjoy
with the investing in community.

The public issue aggregating to Rs.65 million was intended to part-finance the
company’s integrated dairy product costing a total of Rs.147.50 millions, which has been fully
implemented.

HFL is currently in the business of procuring milk from dairy farmers, chilling,
pasturing and packaging the same for marketing to consumers in the metropolitan city of
Chennai and other cities are Bangalore, Hyderabad and Visakhapatnam in South India. The
company has already established 3 more centers in North Arcot district of Tamilnadu. A process
plant is also being established at Bangalore city which is one of the biggest markets for liquid
milk.

The market share of Heritage Foods India Limited is cow ghee 30% in Tamilnadu. 5% in
Andhra Pradesh and 15% in Kerala nil percentage in Karnataka. In case of Milk 30% share in
Chennai from private dairy and 10% market share having from corporation.

The company Managing Director is Mrs. N.Bhuvaneswari. It is having mainly 6 branch

offices and 14 sub-plants. The Head office of HFIL is at Hyderabad (AP).

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THE FOUNDER

Sri NARA CHANDRA BABU NAIDU

Heritage Foods (India) Limited, India

Sri Chandra Babu Naidu is one of the greatest Dynamic, Pragmatic, Progressive and
Visionary Leaders of the 21st Century.

With an objective of "Bringing prosperity into the rural families through co-operative
efforts", he along with a few like minded, friends and associates promoted "Heritage Foods" in
the year 1992 taking opportunity from the Industrial Policy, 1991 of Government of India and he
has been successful in his Endeavour. At present, Heritage has market presence in the states of
Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Maharashtra. More than three thousand
villages and three lakh farmers are being benefited in these states. On the other side, Heritage is
serving millions of customers needs, employing more than 3500 employees and generating
indirect employment opportunities to more than 10000 people. Beginning with a humble annual
turnover of Rs.4.38 crores in 1993-94, the sales turnover has reached close to Rs.350 crores
during the financial year 2006-2007.

Sri Chandra Babu Naidu was born on April 20, 1951 in NaravaripallyVillageChittoor
District, Andhra Pradesh , India . His late father Sri N. Kharjura Naidu was an agriculturist and
his late mother Smt. Ammanamma was a housewife. Mr. Naidu had his school education in
Chandragiri and his college education at the Sri Venkateswara Arts College , Tirupati. He did his
Masters in Economics from the Sri Venkateswara University , Tirupati. Sri Naidu is married to
Ms. Bhuvaneswari D/o Sri N T Rama Rao, Ex-Chief Minister of Andhra Pradesh and famous
Star of Telugu Cinema. Mrs. N Bhuvaneswari is presently the Vice Chairman & Managing
Director of Heritage Foods ( India ) Limited.

Mr. Naidu held various positions of office in his college and organised a number of social
activities. Following the 1977 cyclone, which devastated Diviseemataluk of Krishna district, he
actively organised donations and relief material from Chittoor district for the cyclone victims.
Mr. Naidu has been evincing keen interest in rural development activities in general and the
upliftment of the poor and downtrodden sections of society in particular.

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Sri Naidu has won numerous awards including " Member of the World Economic
Forum's Dream Cabinet" (Time Asia ), "South Asian of the Year " (Time Asia ), "’Business
Person of the Year " (Economic Times), and " IT Indian of the Millennium "

( India Today).

Sri Naidu was chosen as one of 50 leaders at the forefront of change in the year 2000 by
the Business Week magazine for being an unflinching proponent of technology and for his drive
to transform the State of Andhra Pradesh.

MISSION & VISION

Mission:

Bringing prosperity into rural families of India through co-operative efforts and providing
customers with hygienic, affordable and convenient supply of " Fresh and Healthy " food
products.

Vision:

To be a progressive billion dollar organization with a pan India foot print by 2012.To achieve
this by delighting customers with "Fresh and Healthy" food products, those are a benchmark for
quality in the industry.

We are committed to enhanced prosperity and the empowerment of the farming community
through our unique "Relationship Farming" Model.

To be a preferred employer by nurturing entrepreneurship, managing career aspirations and

providing innovative avenues for enhanced employee prosperity

The Beginning:

Beginning with a humble annual turnover of just Rs.4.38 crores in 1993-94, the sales
turnover has crossed Rs.346.33 crores during the financial year 2006-2007. Taking off with its
flagship processing plant at Chittoor, Andhra Pradesh in April 1993, Heritage spread its wings
during the years hence. To raise resources, Heritage went public in November 1994. This Public

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issue was oversubscribed 54 times a moving testimony to the level of confidence the investing
public reposed in the promoters and in the management of the venture.Under the able guidance
of eminent people like Sri D Seetharamiah, Dr N R Sivaswamy, Dr A Appa Rao, Sri N P
Ramakrishna, Smt N Bjuvaneswari and Dr V Nagaraja Naidu, the Directors, Heritage continued
to embark on its ambitious phase of expansion.

The directors with their varied & extensive and experience in the fields of Agriculture, Industry
and Finance and their intimate understanding of the rural socioeconomic scenario have been able
to strengthen the systems and strategies of Heritage, which contributed to the current status of
Heritage as a leading player in South India.

HFL entered the capital market on 17 th November1994 with an issue of 65,00,000 equity
share of Rs.10/- each at par to the India investing public. The Issue was over-subscribed by about
54 times, an indication of the rich confidence of the promoter who enjoy with the investing in
community.

Investors:

Listed with: Stock code

The Stock Exchange, Mumbai 519552

National Stock Exchange of India Limited HERITAGE FOOD

Compliance Officer:

Mr. Muralist Krishna

Company Secretary

Phone: (091) 040-23391221/23391222

Fax: (091) 040-23318090

E-mail:[email protected]

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EXCELLENCE IN QUALITY

Quality Policy:

We are committed to achieve customer satisfaction through hygienically processed and packed
Milk and Milk Products. We strive to continually improve the quality of our products and
services through up gradation of technologies and systems.

Heritage's soul has always been imbibed with an unwritten perpetual commitment to itself, to
always produce and provide quality products with continuous efforts to improve the process and
environment. Adhering to its moral commitment and its continuous drive to achieve excellence
in quality of Milk, Milk products & Systems, Heritage has always been laying emphasis on not
only reviewing & re-defining quality standards, but also in implementing them successfully. All
activities of Processing, Quality control, Purchase, Stores, Marketing and Training have been
documented with detailed quality plans in each of the departments. Today Heritage feels that the
ISO certificate is not only an epitome of achieved targets, but also a scale to identify & reckon,
what is yet to be achieved on a continuous basis.

Though, it is a beginning, Heritage has initiated the process of standardizing and adopting similar
quality systems at most of its other plants.

BOARD OF DIRECTORS

CA D Seetharamaiah, Non Executive Independent Chairman

Smt N. Bhuvaneswari, Vice Chairman & Managing Director

Sri N P Ramakrishna, Independent Director

Dr N R Sivaswamy, Independent Director

Company Secretary: CS Murali Krishna

Company Senior Executives

Dr M Sambasiva Rao, President

Sri N Lokesh, Vice President

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CA Prabhakara Naidu, Senior General Manager - Finance & Accounts

Company Locations

Corporate and red. Office : Punjaguta, Hyderabad

Main Dairy Plant : Tirupathi(Chandragiri)

Procurements and processing centers:

 Atmakur
 Brahmanapalli
 Barsi
 Bapatla
 Kandukuru
 Kalluru
 Madanapally
 Madhira
 Muppavaram

 Piler

 Salthamagulure
 Tiruvannamalai(TN)
 Uthangarai(TN)
Procurement processing and Packing stations:

 Bangalore(KN)
 Bayyavaram(AP)
 Chittoor(AP)
 Narketpalle(AP)
 Santhipuram(AP)

Regional Office Sales:

 Hyderabad
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 Narketpalle
 Vizag
 Bangalore(KN)
 Mysore(KN)
 Chennai(TN)
 Madurai(TN)
Plants under construction

 Addanki

 Tirupathi

 Namakkal

Hygienically procured, pasteurized and poly packed under PEA standards, Heritage milk is a
complete food for any age be it children Teenagers, adults, expecting mother as older citizens.

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CHAPTER II
2.1 NEED FOR THE STUDY
2.2 SCOPE OF THE STUDY
2.3 OBJECTIVES
2.4 RESEARCH METHODOLOGY
2.5 LIMITATIONS OF THE STUDY

CHAPTER -II

2.1 NEED FOR THE STUDY

 Current assets must be managed efficiently in order to maintain the liquidity of

the firm to know about the financial mixed strategies.

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 Hence forth so far researchers not touched with said topic to knowing the
information in organization exactly the working capital wants to know the
balances of current assets & current liabilities increases or decreases to know the
corrected net profit of balance and we can know the difference of the year of
balance how much it is profit or loss will be there in company.

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2.2 SCOPE OF THE STUDY

 The study is confined to HERITAGE FOODS LIMITED and analysis of its financial

statements.

 The main aim of the study is to assess the proper management of current assets & current

liabilities.

 The study concentrates more on the working capital management of HERITAGE FOODS
LIMITED.

 Working capital gives only a good basis for quantitative analysis of financial problem.

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2.3 OBJECTIVES

 To study overall position of HERITAGE FOODS LIMITED.

 To examine the changes in working capital of HERITAGE FOODS LIMITED.

 To study existing system of working capital management in HERITAGE FOODS

LIMITED.

 To analyze financial performance of company with reference to its working capital

components.

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2.4 RESEARCH METHODOLOGY

Research methodology is a systematic approach in management research to achieve pre-

defined objectives. It helps a researcher to guide during the course of research work. Rules and
techniques stated in research methodology save time and labour of the researcher as researcher
know how to proceed to conduct the study as per the objective.

SELECTION OF TOPIC

The selection of topic is a crucial factor in any research study. There should be newness
and it should give maximum scope to explore the ideas from different angles.

In present day due to increase in competition, working capital is becoming necessary for
the organisation. It is that part of capital which is necessary to undertake day to day expenditure
of the business organization. Whatever may be the organization, working capital plays an
important role, as the company needs capital for its day to day expenditure. Thousands of
companies fail each year due to poor working capital management practices. Entrepreneurs often
don't account for short term disruptions to cash flow and are forced to close their operations.
Working capital is the fund invested by a firm in current assets. Now in a cut throat competitive
era where each firm competes with each other to increase their production and sales, holding of
sufficient current assets have become mandatory as current assets include inventories and raw
materials which are required for smooth production runs. Holding of sufficient current assets will
ensure smooth and uninterruputed production but at the same time, it will consume a lot of
working capital. Here creeps the importance and need of efficient working capital management.
After due to consultation with the external guide /internal guide, the topic was finalized and titled
as-“A STUDY ON WORKING CAPITAL MANAGEMENT IN HERITAGE FOODS
LIMITED”

To achieve a fore said objective the following methodology has been adopted. The information
for this report has been collected through the Primary and Secondary sources.

 Primary Data Sources

 Secondary Data Sources

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PRIMARY DATA SOURCES:

It is also called as first handed information the data is collected through the observation
in the organization and interviews with the accounts and the persons in the financial department.
A part from these, some information is collected through the seminars which were held by
HERITAGE FOODS LIMITED

SECONDARY DATA SOURCES:

These secondary data is existing data which is collected by other sources, i.e. financial
journals annual reports of HERITAGE FOODS LIMITED, website of HERITAGE FOODS
LIMITED and other publication of HERITAGE FOODS LIMITED.

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2.5 LIMITATIONS OF THE STUDY

 In present study the analysis is mainly based on secondary data given in annual audited

balance sheets, profit and loss a/c and reports of HERITAGE FOODS LIMITED.

 The study does not touch all the units of HERITAGE FOODS LIMITED

 Limited span of time is a major limitation of this project.

 The present study cannot be used for inter firm comparison.

 The result does not reflect the day to day transactions.

 The study does not cover the all working capital.

 Balancing liquidity, profitability and risk in managing working capital.

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CHAPTER III

THEORETICAL BACKGROUND

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CHAPTER III

THEORETICAL BACKGROUND

Working capital of a firm may be different as the amount by which its current assets
exceed its current liabilities. Working capital management is concerned with the problem that
arises attempting to manage current assets, current liabilities and the interrelationship that exists
between them. The current assets are those assets, which in the ordinary course of the business
can be, or will be, turned into cash with in 1 year without disrupting the operations of the firm.
The major current assets are cash marketable securities account receivable and inventories.
Current liabilities are those liabilities, which are intended at their inception to be payee in the
ordinary course of business with in the year, out of current assets or earning of the concern. The
basic current liabilities are account payable, bills payable, bank overdraft and outstanding
expenses.
The goal of working capital management is to manage the firm’s current assets and
current liabilities in such a way that the satisfactory level of the working capital is maintained.
The Interaction between the current assets and current liabilities is the main theme of the theory
of the working capital management.
The important elements of working capital includes inventory management, cash
management, credit and collection policy and short term borrowings where as long term financial
analysis is primarily concerned with strategic planning, working capital management is primarily
concerned with day to day operations making shore, production lines out stop as firms run out of
the raw material and thus preventing the slowing down of the process. Obviously without good
working capital management no firm can be efficient and profitable
.
MEANING OF WORKING CAPITAL

The term working capital is commonly used for the capital required for day-to-day
working in business concern. Such as for purchasing raw material for meeting day-to-day
expenditure on salaries, wages, rent rates advertising etc. but there is much disagreement among
various financial authorities as to the exact meaning of the term working capital

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CONCEPTS OF WORKING CAPITAL

The term working capital can be used in two different ways they are

1. Gross Working Capital

The gross working capital refers to investment in all the current assets taken together.
The total of investments in all current assets is known as gross working capital

2. Net Working Capital

The term net working capital refers excess of total current assets over total current
liabilities. It may be noted that the current assets refers to these liabilities which are payable with
in a period of one year.

Types of working capital

The operating cycle creates the need for current assets (working capital).

However the need does not come to an end after cycle is completed to explain this
continuing need of current assets a destination should be drawn between permanent and
temporary working capital.

1. Permanent working capital

It is also refers to the hard core working capital. It is the minimum level of investment in
the current assets that is carried by the business at all times to carries our minimum level of its
activities.

2. Temporary working capital

It refers to the part of total working capital which is required by a business over and
about permanent working capital. It is also called variable working capital. Since the volume of
the temporary working capital keeps on fluctuating from time to time according to the business
activities it may be financed from short term resources. Permanent working capital can be further
divided into:

A) Regular Working Capital

B) Reserve Working Capital

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A. Regular Working Capital

It is the minimum amount of liquid capital needed to keep up the circulation of the
capital from cash to inventories to receivables and again to cash. This would include sufficient
minimum bank balance to discount all bills, maintain adequate supply of raw materials etc.

B. Reserve Working Capital

It is the excess over the needs or regular working capital that should be kept in reserve for
contingencies that may arise at any time these contingencies include rising prices, business
depression, strikes and special operations such as experiments with new products.

METHODS FOR ESTIMATING WORKING CAPITAL

Three widely used methods for determining working capital requirements of a firm are:

 Percentage of sales method

 Regression analysis method

 Operating cycle method

1. PERCENTAGE OF SALES METHOD

In this method, level of working capital requirements is decided on the basis of past
experience. The past relationship between sales and working capital is taken as a base for
determining the size of working capital requirements for future. It is, however, presumed that the
relationship between sales and working capital that has existed in the past has been stable. This
may be explained with the help of the following illustration.

Percentage of sales method is a simple and easily understood method and practically used
for ascertaining short-term changes in working capital in future. However this method lacks
reliability inasmuch as its basic assumption of linear relationship between sales and working
capital does not hold true in all the cases. As such, this method cannot be recommended for
universal application.

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2. REGRESSION ANALYSIS METHOD

This is a statistical method of determining working capital requirements by establishing

the average relationship between sales and working capital and its various components in the
past years. In this regard the method of least squares is employed and the relationship between
sales and working capital is expressed by the equation:

Y=a+bx

The values of ‘a’ and ‘b’ is obtained by the solution of simultaneous linear equations given as
under

Where a=fixed component

b=variable component

x=sales

y=inventory

n=number of observation

NEED & IMPORTANCE OF WORKING CAPITAL

Working capital management includes a number of aspects that make it especially
important for the financial health of the firm. Surveys indicate that the largest portion of the
financial manager time is devoted to the day-to-day operations of the firm, which fall under the
heading o working capital management.
Current assets represent the largest proportion i.e. if total assets forms 1% then current
assets are generally above 60%. Moreover current assets fluctuate with sales and sales vary over
time. Thus managing current asset is the dynamic process and it requires the financial mange to
closely monitor sales to ensure that assets in hand are at the right level for actual sales production
levels.
DETERMINANTS OF WORKING CAPITAL

 Nature of Industry

 Seasonality of Operations

 Production Policy

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 Market Conditions

 Conditions of supply

 Size of Business

 Volume of Sales

 Terms of Purchase and Sales

 Business Cycle

 Growth and Expansion of the firm

 Price Level Changes

 Operating Efficiency of the firm

 Profit Appropriation

 Capital Structure of the firm

HERITAGE FOODS LIMITED

In order to study the statement it is necessary to define important terms used in statement
of the problem.

The term “working capital management” refers to total current assets of HERITAGE
FOODS LIMITED during a particular period of time. Current assets are the assets which can be
converted into cash within accounting year. The term working capital management implies
determination of requirements of working capital, financing the requirements and efficient
utilization of working capital in HERITAGE FOODS LIMITED .

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FACTORS INFLUENCING WORKING CAPITAL NEEDS

1. Nature of Business: -
The amount of working capital is basically related to the natureand volume of the
business. In concerns, where the cost of raw materials to be used in the manufacture of a product
is very large in proportion to its total cost of manufacture the requirements of working capital
will be very large. For instance, a cotton or sugar mill requires a large amount of working capital.
On the contrary, concerns having large investments in fixed assets require less amount of
working capital.
2. Size of Business Unit: -
Size of the business unit is also a determining factor is estimating the total amount of
working capital. The general principle in this regard is that the bigger the size the larger will be
the amount of working capital required as because the larger business units are required to
maintain big inventories for the flow of the business.
3. Seasonal Variations: -
Strong seasonal movements create certain special problems ofworking capital in
controlling the internal financial swings. A great many companies have to carry on seasonal
business such as sugar mills, oil mills or woolen mills etc. and therefore they require large
amount of working capital in the season to purchase the raw materials in large quantities and
utilize them throughout the year.

4. Time Consumed in Manufacture: -

The average time taken in the process ofmanufacture is also an important factor in
determining the amount of working capital. The longer the period of manufacture the large the
investor required.
5. Turnover of Circulating Capital: -
Turnover means the ratio of annual gross sales toaverage working assets. In simple
words, it means the speed with which circulating capital completes its rounds or the number of
times the amount invested in working assets has been converted into cash by sales of the finished
goods and reinvested in working assets during a year.
6. Labor Intensive Vs Capital Intensive Industries: -

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In labor intensive industries working capital is required because or regular payment of

heavy wage-bills and more time taken in completing the manufacturing process. Conversely, the
capital intensive industries require lesser amount of working capital because of the heavy
investment in fixed and shorter period in manufacturing process.
7. Need to Stockpile Raw Material and Finished Goods: -
In industries where it isnecessary to stockpile the raw materials and finished goods
increase the amount of working capital lied up in stocks and stores in certain lines of business
where the materials are bulky and best purchasable in large quantities such as cements
stockpiling of raw material is very usual or where labor stoppage is frequent finished goods stock
have to be large in stored quantities.
8. Terms of Purchase and Sales: -
Terms of purchase and sales also affect the amount ofworking capital. If a company
purchases all goods in cash and sells its finished product on credit also naturally it will require
large amount of working capital. On the contrary a concern having credit facilities and allowing
no credit to its customers will require lesser amount of working capital
9. Conversion of Current Assets Into Cash: -
The need of having cash in hand to meet theday to day requirements payment of wages
and salaries rent rates has an important bearing in deciding the adequate amount of working
capital. The greater the cash requirement the higher will be the need of working capital but if a
company has ample stock of liquid current assets will require lesser amount of working capital
because the company can en cashes such assets immediately in the open market.
10. Growth and Expansion of Business: -
Growing concerns require more working capital than those that are static. It is logical to
expect larger amount of working capital in a growing concern to meet its growing needs of funds
for its expansion programmers though it varies with economic condition and corporate practices.
11. Business Cycle Fluctuations: -
Business cycle affects the requirement of workingcapital. At times when the prices are
going up and up and boom conditions prevail the tendency management is to pile up a big stock
of raw materials and to maintain a big stock of finished goods with an expectation to earn more
profits.

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12. Profit Margin and Profit Appropriation: -

Some firms enjoy a dominant position in the market due to quality product or good
marketing management or monopoly power in the market and therefore earn a high profit
margin. On the other hand form facing tough competition earn low margin of profit.
13. Price level changes: -
The financial manager should also anticipate the effect of price level changes on working
capital requirements of the firm. Generally, rising price levels will require a higher amount of
working capital because to maintain the same levels of current assets will require higher
investment. However if companies may revise their product prices will not face a severe working
capital problem. The effects of rising price levels will be different for different firms depending
upon their price policies nature of the product etc.
14. Dividend policy: -
There is a well established relationship between dividend and working capital in
companies where conservation dividend policy is followed. The changes in working capital
position bring a about an adjustment in dividend policy. With a view to maintain and established
dividend policy is the management before declaring a dividend gives due consideration to its
effects on cash and cash requirements.

OPERATING CYCLE

Working capital cycle indicates the length of time between companies paying for materials,
entering into stock and receiving the cash from sales of finished goods. It can be determined by
adding the number of days required for each stage in the cycle.

For e.g., a company holds raw materials on an average for 60 days, it gets credit from the
supplier for 15 days, production process needs 15 days, finished goods are held for 30 days and
30 days credit is extended to debtors. The total of all these 120 days, i.e., 60-15+15+30+30 days
is the total working capital cycle.

The determination of working capital cycle helps in the forecast, control and management of
working capital. It indicates the total time lag and the relative significance of its constituting
parts. The duration of working capital cycle may vary depending on the nature of the business.

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2.4 OTHERS

Cash
Sources of Working Capital

Working Capital Sources

Short-term sources
Long – term sources

Internal External
Sale of shares
Sale of Debentures
Sale of idle fixed assets Depreciation funds Trade credit
Long-term loans Provision of Taxation Credit papers
Customer’s credit Accrued Expenses Bank credit
Loans from directors Public Deposits
Security of employee
Factoring

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The working capital needs of a firm are determined & influenced by various factors. A wide
variety of considerations may affect the quantum of working capital required & these
considerations may vary from time to time. The working capital needed at one point of time may
not be good enough for some other situation. The determination of working capital requirements
is a continuous process & must be undertaken on a regular basis in the light of the changing
situations. Following are some of the factors which are relevant in determining the working
capital need of the firms.

1. Production policy

2. Nature of the business

3. Credit policy

4. Inventory policy

5. Abnormal factors

6. Market conditions

7. Conditions of supply

8. Business cycle

9. Growth and expansion

10. Level of taxes

11. Dividend policy

12. Price level changes

13. Operating efficiency

1. Production Policy

The production schedule i.e., the plan for production, has great influence on the level of
the inventories. In some cases raw materials can be produced only in a particular season and
have to be stocked for the production of the whole year. In many others the production cycle is
limited to a part of the year and raw materials have to be accumulated throughout the year. Thus
need for working capital will vary according to the production plans.

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2. Nature of the Business

The size of business also has an important impact on its working capital needs. Size may
be measured in terms of the scale of operations. A firm with large scale of operation will need
working capital than small term. The working capital requirements of a firm are basically
influenced by the nature of the business trading and financial firm has a very less investment in
fixed assets, but require a large sum of money to be invested in working capital

3. Credit Policy

A company, which allows liberal credit to its customers, may have higher sales but
consequently will have large amount of funds tied up in sundry debtors. Credit terms, Debt
collection system also influences the level of working capita

4. Inventory policy

Large amount of funds is normally locked up in inventory. An efficient firm may stock
raw material for a smaller period and may therefore require lesser amount of working capital.

5. Abnormal factors

Abnormal factors like strikes, lockouts also require additional working capital.
Recessionary conditions necessitate a higher amount of stock of finished goods.

6. Market conditions

Market conditions like competition large inventory are essential as delivery has to be off
the self or credit has to be extended on liberal terms when market competition is fierce.

7. Conditions of supply

If prompt and adequate supply of raw materials requires small investment in inventory. If
supply is scared, seasonal canalized, it is essential to keep longer stocks increasing working
capital requirements.

8. Business cycle

Business fluctuations lead to cyclical and seasonal changes in production, sales and effect
the working capital requirements.

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9. Growth and expansion

The working capital needs of firm increases in growth in terms sales of fixed assets. If is
difficult to precisely determine the relationship between volume of sales and the working capital
needs. The critical fact however that is the need for increased working capital funds does not
fallow growth in business activities but precedes it.

10. Level of taxes

Taxation is a short term liability payable in cash. Advance payment of cash may have to
be paid on the basis of anticipated profits. Tax is first appropriation out of profits. Higher the tax,
greater is the stain on the working capital of the company. Working capital varies with tax rate
and advanced tax provisions.

11. Dividend policy

Payment of dividend utilizes cash while retaining profits acts as a source of working
capital.

12. Price Level changes

Inflationary trends in the economy necessitate more working capital maintain the same
level of activity.

13. Operating efficiency

The operating efficiency of the firm relates to the optimum utilization of resources at
minimum costs. The firm will be effectively contributing in keeping the working capital
investment at a lower level if it is efficient to controlling operating costs and utilizing current
assets. The use of working capital is improved and pace of a cash conversion cycle is
acceleratedwith operating efficiency.

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CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

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CHAPTER-IV

DATA ANALYSIS AND INTERPRETATION

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR
2013-14
Effect of working capital
PARTICULARS 2013 2014
Increase Decrease

CURRENT ASSETS:
Cash and bank balance 5512130 5801648 289518 ******
Sundry debtors 4801648 4512121 ****** 289527
Short term loans & advances to employee
1091340 1091318 ****** 00022
TOTAL CURRENT ASSETS (A) 11405118 11405087
CURRENT LIABILITIES:
Loans & borrowings 4357212 4575212 ****** 218000
Employees stat liabilities 4522122 4322122 200000 ******
Other non stat liabilities 1894615 1894615 ****** ******
TOTAL CURRENT LIABILITIES 10773949 10791949
(B)
NET 631169 613138 489518 507549
WORKING CAPITAL (A-B)
NET DECREASE IN WORKING
CAPITAL ****** 18031 18031 ******
TOTAL 631169 631169 507549 507549

INTERPRETATION: From the above table no 4.1 The net working capital requirement of the
company during the year 2013 has Decreased than in the year 2014, and the net working capital
of the company was recorded Rs.631169 and it was been Decreased to Rs.613138 in the year
2014.

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SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2014-15
Effect of working capital
PARTICULARS 2014 2015
Increase Decrease

CURRENT ASSETS:

Cash and bank balance 5801648 8545512 2740564 ******

Sundry debtors 4512121 4432211 ****** 79910

Short term loans & advances to employees

1091318 948009 ****** 143309

TOTALCURRENTASSETS (A) 11405087 13922433
CURRENT LIABILITIES:

Loans & borrowings 4575212 5421984 ****** 846772

Employees stat liabilities 4322122 3654655 667467 ******

Other non stat liabilities 1894615 2929042 ******* 1034427

TOTAL CURRENTL IABILITIES 10791949 12005681

(B)
NET WORKING CAPITAL 613138 1916752 3408031 2104418

(A-B)
NET INCREASE IN WORKING

CAPITAL 1303614 ******* ****** 1303614

TOTAL 1916752 1916752 3408031 3408031
INTERPRETATION:

From the above table no 4.2 The net working capital requirement of the company during
the year 2014 has increased than in the year 2015, and the net working capital of the company
was recorded Rs.613138 and it was been increased to Rs.1916752 in the year 2014.

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2015-16
PARTICULARS 2015 2016 Effect of Working Capital

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Increase Decrease

CURRENT ASSETS:
Cash and bank balance 8542212 9001221 459009 ******
Sundry debtors 4432211 7246521 2814310 ******
Short term loans & advances to
employees
948009 1926193 978184 ******
TOTALCURRENTASSETS 13922432 18173935
(A)
CURRENT LIABILITIES:
Loans & borrowings 5421984 5243554 178430 ******
Employees stat liabilities 3654655 4724215 ******* 1069560
Other non stat liabilities 2929042 4197963 ******* 1268924

TOTALCURRENT LIABILITIES 12005681 14165732

(B)
NET WORKING CAPITAL 1916752 4008203
(A-B)
NET INCREASE IN WORKING
CAPITAL
2091452 ****** ******* 2091449
TOTAL 4008203 4008203 4429933 4429933

INTERPRETATION: From the above table no 4.3 The net working capital requirement of the
company during the year 2015has increased than in the year 2016, and the net working capital of
the company was recorded Rs.1916752 and it was been increased to Rs.4008203 in the year
2016.

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2016-17
PARTICULARS 2016 2017 Effect of working capital

Increase Decrease

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Current Assets:
Cash and bank balance 9001221 9189751 188530 ******
Sundry debtors 7246521 7554321 307800 ******
Short term loans & advances to
employees
1926193 3896353 1970160 ******
Total Current Assets (A) 18173935 20640425
Current Liabilities:
Loans & borrowings 5243554 3100242 2143312 ******
Employees stat liabilities 4724215 2383017 2341198 ******
Other non stat liabilities 4197963 1665792 2532171 ******
Total Current Liabilities (B) 14165732 7149051

Net Working Capital (A-B) 4008203 13491374 9483171 ******

Net Increase in Working

Capital
9483171 ****** ****** 9483171

TOTAL 13491374 13491374 9483171 9483171

INTERPRETATION: From the above table no 4.4 The net working capital requirement of the
company during the year 2016 has increased than in the year 2017, and the net working capital of
the company was recorded Rs.4008203 and it was been increased to Rs.13491374 in the year
2017.

SCHEDULE OF CHANGES IN WORKING CAPITAL FOR THE YEAR

2017-18

PARTICULARS 2017 2018 Effect of Working Capital

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Increase Decrease

Current Assets:

Cash and bank balance 9189751 589295 ****** 8600456

Sundry debtors 7554321 523686 ****** 7030635

Short term loans & advances to 3896353 345990 ****** 3550363

employees

Total Current Assets (A) 20640425 1458971

Current Liabilities:

Loans & borrowings 3100242 124980 2975262 ******

Employees stat liabilities 2383017 98745 2284272 ******

Other non stat liabilities 1665792 58429 1607363 ******

Total Current Liabilities (B) 7149051 282154
Net Working Capital (A-B) 13491374 1176817 6866897 19181454

Net Decrease in Working Capital ****** 12314557 12314557 ******

TOTAL 13491374 13491374 19181454 19181454

INTERPRETATION:

From the above table no 4.5 The net working capital requirement of the company during
the year 2017 has Decreased than in the year 2018, and the net working capital of the company
was recorded Rs.13491374 and it was been Decreased to Rs.1176817 in the year 2018.

CURRENT RATIO:

This ratio is a barometer of general measures of liquidity and state of trading current ratio
shows the firm’s commitment to meet its shot-term liabilities. It expresses the relationship
between current assets and current liabilities.
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Current ratio = Current assets

Currentliabilities
TABLE NO 4.6: CURRENT RATIO
Year Current Assets Current Liabilities CURRENT
Ratio
2013-14 11405087 10791949 1.05
2014-15 13922432 12005681 1.15
2015-16 18173935 14165732 1.28
2016-17 20640425 7149051 2.88
2017-18 1458971 282154 5.17

GRAPH 4.6

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CURRENT Ratio

INTERPRETATION

From the above table no 4.6 . The standard norm for current ratio is (2:1). It is evident that in
the year 2014-15 and 2016-17 Current Ratio is satisfactory. In remaining years current ratio is
less than 2 is not satisfactory. Therefore it can be calculated that the liquidity performance of the
company is high during the year 2017.

QUICK RATIO
This ratio is also called as “acid test ratio”. Quick ratio is the real index of the liquidity or
the short-term solvency of a concern. Quick ratio generally expressed as a pure, i.e.., as a
promotion between quick assets and quick liabilities.

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Quick ratio =current assets

current liabilities

TABLE NO 4.7 : QUICK RATIO

Super Quick
Year Current Liabilities Ratio
Assets
2013-14 5801648 10791949 0.53
2014-15 8542212 12005681 0.71
2015-16 9001221 14165732 0.63
2016-17 9189751 7149051 1.28
2017-18 589295 282154 2.08

GRAPH4.7

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Ratio

INTERPRETATION:
From the above table no 4.7. Generally a quick ratio is 1:1 it considered to represent a
satisfactory current financial condition. The quick ratio has never exceeded the standard ratio.
Empiricallythe quick ratio in the year2016-17 to 2017-18satisfactory.

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CASH TO CURRENT ASSETS RATIO

Cash is important and sensitive current assets. It is viewed as the most liquid assets. When the
proportion of cash in current assets is more than it is said that the company had more liquid.
High proportion of cash in current assets also indicates the good stock in receivables. This ratio
indicates the cash proportion in current assets.

Cash and Bank Balance

Cash ratio =____________________
Current Assets

TABLE NO 4.8: CASH TO CURRENT ASSETS RATIO

Year Cash and Bank Balance Current Assets Ratio

2013-14 5801648 10791949 0.53
2014-15 8545512 12005681 0.71
2015-16 9001221 14165732 0.63
2016-17 9189751 7149051 1.28
2017-18 589295 1176817 0.50

GRAPH 4.8

GRA

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INTERPRETATION:
From the above table no
Ratio
4.8 The desirable norm for cash
ratio is 1:2. The cash ratio is very
low in 2013-14 year. There after
it is increased slightly on the years
2014-15 to 2015-16 respectively
and declined in 2016-17 and
2017-18. Anyway finally the
company failed inkeeping sufficient cash and bank balance and marketable securities.

NET WORKING CAPITAL RATIO

The difference between current assets and current liabilities excluding short term bank
borrowing is called net working capital it is sometimes used as a measure of a firm’s liquidity. It
is considered that between two firms the one have a largest networking capital bas the greater
than liability to meet its current obligations.

Net working capital = Net Working Capital

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Net Assets

TABLE NO 4.9: NET WORKING CAPITAL RATIO

Net Working
Year Net assets Ratio
Capital
2013-14 613138 94930352 3.45
2014-15 1916752 8837584 0.21
2015-16 4008203 8845519 0.45
2016-17 13491374 19921649 0.67
2017-18 1176817 21275690 0.05

GRAPH4.9

Ratio

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INTERPRETATION: From the above table no4.9 that the net working capital is decreasing
every year which shows the ideal funds are used for most productive purpose and company
continues doing it.

Working capital Turnover Ratio:

This ratio is also known as Sales to Working Capital. It shows the number of times
workingcapital is turned-over in a stated period.

Sales
WorkingCapitalTurnover Ratio 
Net WorkingCapital

TABLE NO 4.10: WORKING CAPITAL TURNOVER RATIO

Year Sales Working capital turnover Ratio

2013-14 6579980 613138 10.73
2014-15 13776540 1916752 7.18

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2015-16 8012850 4008203 1.99

2016-17 7731472 13491374 0.57
2017-18 7496210 1176817 6.36

GRAPH4.10

Ratio INTERPRETATION:

From the above table no 4.10

this ratio measures the
relationship between sales and net
working capital. In the
years2013-14, 2014-15 and 2015-16,2016-2017 recorded as decreasing gradually and 2017-2018
has highest working capital turnover ratio respectively.

INVENTORY TURNOVER RATIO

Inventory turnover ratio indicates the efficiency of the firm in producing and selling its
product. It is calculated by dividing the cost of goods sold by the average inventory or sales by
inventories.

Inventory turnover ratio = Net Sales

Average Inventory

TABLE NO 4.11: INVENTORY TURNOVER RATIO

Year Net Sales Average Ratios

Inventory
2013-14 6579980 19554635 0.33
2014-15 13776540 2781570 4.92
2015-16 8012850 2141365 3.74

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2016-17 7731472 1038709S 7.44

2017-18 7496210 855241 8.76

GRAPH4.11

INTERPRETATION:

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From the above table no 4.11 The inventory turnover ratio indicates the efficiency of the firm in
producing and selling its products. A low inventory turnover implies excessive inventory levels
than required for production. From The company inventory turnover ratio is in decreasing 2016-
17 and 2017-18 is increased.

CHAPTER V
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5.1 FINDINGS
5.2 SUGGESTIONS
5.3 CONCLUSION
5.4 BIBLOGRAPHY
5.5 ANNEXTURE

CHAPTER-V
5.1 FINDINGS
 The year 2017-18 could be called the peak of the business during last five years.
 Current Ratio of the company is below the standard norm of 2:1consistently throughout
the study period 2013-2018 as follows: 1.02, 1.09, 1.13, 1.08, 1.03. Average current ratio
during the period is 1.06.
 Quick ratio of the company during the study period 2013-2018 as follows: 0.54, 0.53,
0.50, 0.52, 0.55 is below standard ratio i.e. 1:1. The average is 0.52. It can be understood
that the company has poor liquidity position.
 The organization is maintaining cash ratio above the standard norm of 0.5:1. The average
cash ratio during the study period is 0.834.
 From the study we find the inventory turnover ratio is down falling. The inventory ratio
during the study period is 4.18, 4.64, 3.94, 3.69, 3.78 & average is 4.046.

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 The debtors turnover ratio was decreasing gradually during the study period 2013-2018.
The ratios are 27.53, 31.69, 35.07, 32.29, 26.55.And the debt collection period was also
increasing constantly it is not good for the organization
 Working capital turnover ratio is gradually declining trend from the past 5 years & there
is a slight increase in the current year. It is not good & un satisfactory. Ratios are 217.50,
53.69, 40.63, 43.33, 112.13 & average is 93.45.
 The current assets ratio in the study period is 4.225, 4.687, 4.787, 3.514, 4.169 are below
the standard norms of the industry. The average is 4.2764.

5.2 SUGGESTIONS

 From the analysis it is observed current ratio is relatively comfortable zone. But still it is
advised to enhance the current ratio.
 The organization wants to increase the liquid assets as to meet the liquidity position.
 The cash is in idle position so maintain it in the required norms.
 As inventory ratio is declining so it is not able to meet the demand of the market (sales).
 The organization wants to decrease the debtors collection period because to improve the
conversation of debtors into cash.
 The working capital of the company is in comfortable position, but it is observed that the
working capital is not consistently increased compare to the sales. Hence it is advised to
implement innovative practices in managing working capital.

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 The company is maintaining consistent current assets turnover ratio, but the ratio
maintained is below the standard norms of the industry. Hence it is advised to maintain
required current assets.

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5.3 CONCLUSION

The working capital management system followed by Heritage Foods India Ltd,
Kasipentla works shows a satisfactory position. Proper working capital management is used to
establish a cause and effect, relationship between variables to help the management in making
effective strategic planning to forecast the future and take necessary steps to reach the
organizational goals. Various crucial areas that need attention were identified and practical
suggestions were given to improve performance.

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A STUDY ON WORKING CAPITAL MANAGEMENT

BIBLIOGRAPHY

1. M.Y.Khan, P.K.Jain – “Basic Financial Management”, Tata McGrawhill

publishing co.ltd New Delhi.

2.I.M.Pandey – “Financial Management”, Vikas Publishing House Private Limited,

New Delhi.

3. Prasanna Chandra, “Financial management”, Tata McGrawhill Publishing co.ltd

New Delhi.

WEBSITES:

www.heritagefoods.in
www.wikipedia.com/heritage_foods
www.whaleheritgesites.org
www.heritage-ema2.eu
www.myheritage.com
www.econamictimes.com/heritage-foods-India-ltd/stocks/companyid-8582.cms

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A STUDY ON WORKING CAPITAL MANAGEMENT

ANNEXURE
HERITAGE FOODS INDIA LTD
TRADING AND PROFIT&LOSS A/C FOR THE YEAR ENDED 31st-03-2014

Particulars Amount Particulars Amount

To Opening stock 1061067 By Sale of milk 3436700

To Purchase of milk products 1382998 By Sale of milk products 3143280
To Transport charges 857491 By Closing stock 2849860
To Packing material 472920
To Processing and conversion 769820
To Shares consumed 628297
To Gross profit 4257247

9429840 9429840
226950 4257247
To Salaries & wages 192321 By Gross profit 1989573
To Depreciation 258929 By Other incomes
TO Interest on loan 236281
To Insurance charges 183699
To Travelling and conveyance 148329
To Advertisement 448496
To Milk payments 238294
To Selling and distribution 4313521
To Net profit

6246820 6246820

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A STUDY ON WORKING CAPITAL MANAGEMENT

HERITAGE FOODS INDIA LTD

BALANCE SHEET AS AT 31st MARCH 2014

Particulars 31.03.2013 31.03.2014

sources of Funds:
1.share holder funds:
equity share capital 3138642 5892421
share advance 1794637 4113048
Add: profit & loss A/c
4313521 000000
9245800 10005469
2.Loan funds:
secured loans
000000 282720
unsecured loans
184552 194242
TOTAL:
9430352 10482431
application of funds:
3.fixed assets
gross block
Add: additions during the year 16431124 4559280
Less: accumulated dep.
11783959 2545171
Net Block
19397869 102490
4.current assets:
8817214 7001961
Cash and bank balance
Sundry debtors
5801648 5512130
Short term loans & advances to employees
4512121 4801648
1091318 1091340
Less: current liabilities:
Loans & borrowings
Employees stat liabilities
4575212 4357212
Other current liabilities
4322122 4522122
Net current assets
1894615 1894615
5.miscellaneous
613138 631169
expenditure:
profit & loss A/c
TOTAL
000000 2849301
94930352 10482431

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A STUDY ON WORKING CAPITAL MANAGEMENT

HERITAGE FOODS INDIA LTD

TRADING AND PROFIT&LOSS A/C FOR THE YEAR ENDED 31st-03-2015

Particulars Amount Particulars Amount

To Opening stock 2849860 By Sale of milk of milk 8298290
To Purchase of milk products 2729210 By Sale of milk products 5478250
To Transport charges 1229211 By Closing stock 2713280
To Packing material 728500
To Processing and conversion 1098256
To Shares consumed 957893
To Gross profit 6896890

16489820 16489820
To Salaries & wages 1595820 By Gross profit 6896890
To Depreciation 629621 By Other incomes 1680008
TO Interest on loan 789987
To Other expenses 598920
To Insurance charges 942875
To Travelling and conveyance 791357
To Advertisement 5298285
To Milk payments 1598285
To Selling and distribution 875992
To Net profit 2246039

8576898 8576898

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A STUDY ON WORKING CAPITAL MANAGEMENT

HERITAGE FOODS INDIA LTD

BALANCE SHEET AS AT 31st MARCH 2015

Particulars 31.03.2014 31.03.2015

sources of Funds:
1.share holder funds:
equity share capital 3620300 3138642
share advance 2879461 1794637
Add: profit & loss A/c 2246039 4313521
8745800 9245800
2.Loan funds:
secured loans 00000 00000
unsecured loans 91784 184552
TOTAL 8837584 9430352
application of funds:
3.fixed assets
gross block 6460087 16431124
Add: additions during the year 2472088 11783959
Less: accumulated dep. 2011342 19397869
Net Block 6920833 8817214
4.current assets:
Cash and bank balance 8542212 5801648
Sundry debtors 4432211 4512121
Short term loans & advances to employees 948009 1091318

Less:current liabilities:
Loans & borrowings 5421984 4575212
Employees state liabilities 3654655 4322122
Other non state liabilities 2929042 1894615

Net currentassets 1916751 613138

5.miscellaneous expenditure:
profit & loss A/c 00000 00000
TOTAL 8837584 94930352

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A STUDY ON WORKING CAPITAL MANAGEMENT

HERITAGE FOODS INDIA LTD

TRADING AND PROFIT&LOSS A/C FOR THE YEAR ENDED 31-03-2016

Particulars Amount Particulars Amount

To Opening stock 2713280 By Sale of milk of milk 4892450
To Purchase of milk products 729290 By Sale of milk products 3120400
To Transport charges 250800 By Closing stock 1569450
To Packing material 495000
To Processing and conversion 175184
To Shares consumed 325876
To Gross profit 4892870

9582300 9582300
To Salaries & wages 1123945 By Gross profit 4892870
To Depreciation 252588 By Other incomes 2363920
TO Interest on loan 799867
To Other expenses 595298
To Insurance charges 725790
To Travelling and conveyance 452000
To Advertisement 1687260
To Milk payments 878970
To Selling and distribution 297292
To Net profit 443780

7256790 7256790

HERITAGE FOODS INDIA LTD

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A STUDY ON WORKING CAPITAL MANAGEMENT

BALANCE SHEET AS AT 31st MARCH 2016

Particulars 31.03.2015 31.03.2016

sources of Funds:
1.share holder funds:
equity share capital
3529120 3620300
share advance
Add: profit & loss A/c 4772900 2879461
443780 2246039
2.Loan funds: 8745800 8745800
secured loans
unsecured loans 00000 00000
TOTAL: 99719 91784
application of funds: 8845519 8837584
3.fixed assets
gross block
Add: additions during the year
Less: accumulated dep.
18565780 6460087
Net Block
7394564 2472088
4.current assets:
21123028 2011342
Cash and bank balance
4837316 6920833
Sundry debtors
Short term loans & advances to employees
9001221 8542212
7246521 4432211
Less: current liabilities:
1926193 948009
Loans & borrowings
Employees stat liabilities
Other current liabilities
5243554 5421984
Net current assets
4724215 3654655
5.miscellaneous
4197963 2929042
expenditure:
4008203 1916751
profit & loss A/c
TOTAL

00000 00000
8845519 8837584

HERITAGE FOODS INDIA LTD

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A STUDY ON WORKING CAPITAL MANAGEMENT

TRADING AND PROFIT&LOSS A/C FOR THE YEAR ENDED 31-03-2017

Particulars Amount Particulars Amount

To Opening stock 1569450 By Sale of milk of milk 4278900
To Purchase of milk products 897480 By Sale of milk products 3452572
To Transport charges 345210 By Closing stock 507968
To Packing material 399895
To Processing and conversion 325602
To Shares consumed 422403
To Gross profit 4279400

8239440 8239440
To Salaries & wages 948996 By Gross profit 4279400
To Depreciation 598865 By Other incomes 2595100
TO Interest on loan 759230
To Other expenses 259686
To Insurance charges 789200
To Travelling and conveyance 498967
To Advertisement 1678560
To Milk payments 590872
To Selling and distribution 475622
To Net profit 274502

6874500 6874500

HERITAGE FOODS INDIA LTD

BALANCE SHEET AS AT 31st MARCH 2017

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A STUDY ON WORKING CAPITAL MANAGEMENT

Particulars 31.03.2016 31.03.2017

sources of Funds:
1.share holder funds:
equity share capital 3620300 3529120
share advance 5125500 4772900
Add: profit & loss A/c 274502 443780
2.Loan funds: 9020302 8745800
secured loans 9771572 00000
unsecured loans 1129775 99719
TOTAL: 19921649 8845519
application of funds:
3.fixed assets
gross block 25516561 18565780
Add: additions during the year 3053897 7394564
Less: accumulated dep. 22140183 21123028
Net Block 6430275 4837316
4.current assets:
Cash and bank balance 9189751 9001221
Sundry debtors 7554321 7246521
Short term loans & advances to employees 3896353 1926193

Less: current liabilities:

Loans & borrowings 3100242 5243554
Employees stat liabilities 2383017 4724215
Other non stat liability 1665792 4197963
Net current assets 13491374 4008203
5.miscellaneous
expenditure:
profit & loss A/c 00000 00000

TOTAL 19921649 8845519

HERITAGE FOODS INDIA LTD

TRADING AND PROFIT & LOSS A/C FOR THE YEAR ENDED 31st-03-2018

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A STUDY ON WORKING CAPITAL MANAGEMENT

Particulars Amount Particulars Amount

To Opening stock 507968 By Sale of milk of milk 4596330
To Purchase of milk products 999470 By Sale of milk products 2899880
To Transport charges 398740 By Closing stock 1202514
To Packing material 352020
To Processing and conversion 498060
To Shares consumed 722110
To Gross profit 292076
4928280

8698724 8698724
To Salaries & wages 1172440 By Gross profit 4928280
To Depreciation 325742 By Other incomes 2530170
To Travelling and conveyance 442580
To Selling and Distribution 442820
To Milk payments 1685892
To Advertisement 272390
To other Expenses 490704
To Net profit 2246039

7458450 7458450

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A STUDY ON WORKING CAPITAL MANAGEMENT

HERITAGE FOODS INDIA LTD

BALANCE SHEET AS AT 31st MARCH 2018
Particulars 31.03.2017 31.03.2018

sources of Funds:
1.share holder funds:
equity share capital 5684221 3620300
share advance 4001352 5125500
Add: profit & loss A/c 2246039 274502
2.Loan funds: 11931612 9020302
secured loans 6771572 9771572
unsecured loans 2572506 1129775
TOTAL: 21275690 19921649
application of funds:
3.fixed assets
gross block 46245621 25516561
Add: additions during the year 32456120 3053897
Less: accumulated dep. 58602868 22140183
Net Block 20098873 6430275
4.current assets:
Cash and bank balance 589295 9189751
Sundry debtors 523686 7554321
Short term loans & advances to employees 345990 3896353

Less: current liabilities:

Loans & borrowings 124980 3100242
Employees stat liabilities 98745 2383017
Other non stat liability 58429 1665792
Net current assets 1176817 13491374
5.miscellaneous
expenditure:
profit & loss A/c 000000 000000

TOTAL 21275690 19921649

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