WORKING CAPITAL

1.1 INTRODUCTION

Financial Management

In accounting,” Working capital is the difference between the inflow and outflow of funds. In
other words, it is the net cash inflow. It is defined as the excess of current assets over current
liabilities and provisions. In other words, it is net current assets or net working capital.

A study of working capital is of major importance to internal and external analysis because
of its close relationship with the day-to-day operations of a business. Working Capital is the
portion of the assets of a business which are used on or related to current operations, and
represented at any one time by the operating cycle of such items as against receivables,
inventories of raw materials, stores, work in process and finished goods, merchandise, notes
or bill receivables and cash.

Working capital comprises current assets which are distinct from other assets. In the first
instance, current assets consist of these assets which are of short duration. Working capital
may be regarded as the life blood of a business. Its effective provision can do much to ensure
the success of a business while its inefficient management can lead not only to loss of profits
but also to the ultimate downfall of what otherwise might be considered as a promising
concern.

The funds required and acquired by a business may be invested to two types of assets:

1. Fixed Assets.

2. Current Assets

Fixed assets are those which yield the returns in the due course of time. The various
decisions like in which fixed assets funds should be invested and how much should be
invested in the fixed assets etc. are in the form of capital budgeting decisions. This can be
said to be fixed capital management.

Other types of assets are equally important i.e. Current Assets.

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These types of assets are required to ensure smooth and fluent business operations and can be
said to be life blood of the business. There are two concepts of working capital — Gross and
Net. Gross working capital refers to gross current assets. Net working capital refers to the
difference between current assets and current liabilities. The term current assets refer to those
assets held by the business which can be converted into cash within a short period of time of
say one year, without reduction in value.

The main types of current assets are stock, receivables and cash. The term current liabilities
refer to those liabilities, which are to be paid off during the course of business, within a short
period of time say one year. They are expected to be paid out of current assets or earnings of
the business. The current liabilities mainly consist of sundry creditors, bill payable, cash
credit, outstanding expenses etc.

Working capital management refers to a company's managerial accounting strategy

designed to monitor and utilize the two components of working capital, current assets and
current liabilities, to ensure the most financially efficient operation of the company. The
primary purpose of working capital management is to make sure the company always
maintains sufficient cash flow to meet its short-term operating costs and short-term debt
obligations.

Working capital management is concerned with the problems that arise in

attempting to manage the current assets, the current liabilities and the interrelationship
that exists between them. The term current assets refer to those assets which in the
ordinary course of business can be, or will be, converted in to cash within one year
without undergoing a diminution in value and without disrupting the operation of the
firm.

The goal of working capital management is to ensure that a firm is able to

continue its operations and that it has sufficient ability to satisfy both maturing short-
term debt and upcoming operational expenses. The management of working capital
involves managing inventories, accounts receivable and payable, and cash. The excess
of current assets ‘of a business organization over its current liabilities ‘is termed as the
working capital ‘of that organization.

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The major current assets are cash, marketable security, account receivable and
inventory. Current liabilities are those liabilities which are intended, at their inception,
too be paid in the ordinary course of business, within a year, out of the current assets or
earning of the concern. The basic current liabilities are account payable, bills payable,
bank overdraft and outstanding expenses.

DEFINITIONS

The term working capital is commonly used for the capital required for day-to-
day working in a business concern, such as for purchasing raw material, for meeting
day-to-day expenditure on salaries, wages, rents rates, advertising etc. But there is
much disagreement among various financial authorities (Financiers, accountants,
businessmen and economists) as to the exact meaning of the term working capital.

Working capital is defined as, ―the excess of current assets over current
liabilities and provisions‖.

In the Annual Survey of Industries (1961), working capital is defined to include,

―Stocks of materials, fuels, semi-finished goods including work-in-progress and

finished goods and by-products; cash in hand and bank and the algebraic sum of sundry
creditors as represented by,

(a) outstanding factory payments e.g. rent, wages, interest and dividend;

(b) purchase of goods and services;

(c) short-term loans and advances and sundry debtors comprising amounts due to the
factory on account of sale of goods and services and advances towards tax payments‖.

In the words of Shubin, "working capital is the amount of funds necessary to cover the
cost of operating the enterprise."

According to Gan Stenberg, "circulating capital means current assets of a company that
are changed in the ordinary course of business from one form to another, as for
example from cash to inventories, inventories to receivables, receivables to cash."

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Working capital has been described as the ―life blood of any business which is a
applicable because it constitutes a cyclically flowing stream through the business‖.

CALCULATION OF WORKING CAPITAL

The net working capital formula is calculated by subtracting the current

liabilities from the current assets. Here is what the basic equation looks like:

Net working capital = current assets - current liabilities

Typical current assets that are included in the net working capital calculation
are cash, accounts receivable, inventory, and short-term investments. The current
liabilities section typically includes accounts payable, accrued expenses and taxes,
customer deposits, and other trade debt.

A positive net working capital is better than a negative one. A positive

calculation shows creditors and investors that the company is able to generate enough
from operations to pay for its current obligations with current assets.

A negative net working capital, on the other hand, shows creditors and investors
that the operations of the business aren’t producing enough to support the business
‘current debts.

CLASSIFICATION OF WORKING CAPITAL

Working Capital may be classified in two ways,

a) Concept based working capital
b) Time based working capital
Concepts based working capital
1. Gross Working Capital: It refers to the firm ‘s investment in total current or
circulating assets.
2. Net Working Capital: The term ―Net Working Capital‖ has been defined in two
different ways:
1) It is the excess of current assets over current liabilities. This is, as a matter of fact,
the most commonly accepted definition. Some people define it as only the

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difference between current assets and current liabilities.

2) Alternate definition of net working capital is that portion of a firm ‘s current assets
which is financed by long-term funds.
Time based working capital
Permanent Working Capital:
This refers to that minimum amount of investment in all current assets which is
required at all times to carry out minimum level of business activities. In other words, it
represents the current assets required on a continuing basis over the entire year.

Temporary Working Capital:

The amount of such working capital keeps on fluctuating from time to time on
the basis of business activities. In other words, it represents additional current assets
required at different times during the operating year.

For example, extra inventory has to be maintained to support sales during peak sales
period. Similarly, receivable also increase and must be financed during period of high
sales. On the other hand, investment in inventories, receivables, etc., will decrease in
periods of depression.

NEEDS FOR WORKING CAPITAL

Working capital is needed till a firm gets cash on sale of finished products. It
depends on two factors:

1. Manufacturing cycle i.e. time required for converting the raw material into
finished product.

2 Credit policy i.e. credit period given to Customers and credit period allowed by
creditors.

Thus, the sum total of these times is called an ―Operating cycle‖ and it consists of the
following six steps:

a. Conversion of cash into raw materials.

b. Conversion of raw materials into work-in-process.

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c. Conversion of work-in-process into finished products.

d. Time for sale of finished goods—cash sales and credit sales.
e. Time for realization from debtors and Bills receivables into cash.
f. Credit period allowed by creditors for credit purchase of raw materials, inventory
and creditors for wages and overheads.

DETERMINANTS OF WORKING CAPITAL

The factors influencing the working capital decisions of a firm may be

classified as two groups, such as

I. Internal factors

II. External factors

The internal factors include

1. Nature of business size of business,

2. Firm ‘s product policy
3. Firm ‘s credit policy
4. Availability of credit
5. Growth and expansion of business

The external factors include

1. Business fluctuations,
2. Changes in the technology,
3. Infrastructural facilities,
4. Import policy and
5. The taxation policy etc.

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1.2 INDUSTRY PROFILE

The domestication of cattle occurred between 6000 and 10,000 years ago. Not much known
about the history of this period, but men probably hunted cattle as wild animals prior to the
time that they were domesticated. Later the cow was made as sacred animal and is still so
considered by a part of the population of India.
Various stages of dairy industry origin as follows: -
THE DAIRY INDUSTRY PRIOR TO 1850:
For over 225 years following the first settlements in America very little changes look
place in the methods of producing milk or in the manufacture of dairy products.
Feed supplies have to be shipped from the country areas and ordinance regarding dairy
barns became more and more strict gradually farmers within easy drivelling distance began
delivering milk over regular routes in the cities. The development was not spectacular, but
the stage was set for the many changes, which were to take place in years to follow.

THE DAIRY INDUSTRY AFTER 1850:

The modern dairy emerged in the middle of the 19 th century. Among the many factors,
which have played important roles in the evaluation of the modern dairy industry, the
following may be mentioned.
1. The factory system.
2. Improved machinery.
3. Transportation.
4. Economic factors.
5. Research and scientific investigation.
6. Improved live stock.
India has the potential to become a leading exporter of milk and milk products. Due to low
labor cost, the cost of milk production is significantly low here. To boost exports, the dairy

industry needs to focus on quality and productivity. Significant investment has to be made in
milk procurement equipment and chilling and refrigeration facilities.
Dairy industry contributes significantly to the economy as well as to the rural
poor by providing an opportunity to uplift them by generating additional income thought it.

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Dairying has been practiced as rural cottage industry since ages. India accounts one-sixth of
cattle and half off buffalo population of the world. Among 70 million rural households in
India in 2001, those operating up to two hectares form 42 percent of the households and 37
percent are land less.
India’s dairying industry is today in a state of dynamic transition with
rapid Development in milk production and marketing by virtue of the efforts made by the
government of India under various programmes for benefiting the small rural milk producers
and the under prevailed urban consumers. The direct contribution of dairying to the rural
sector through additional income and employment to the producer is well recognized.

IMPORTANCE OF DAIRY INDUSTRIES:

Data collected by bureau of human nutrition and home economics for the year 1944 and
1945 showed that dairy products contained 75% of the calcium and 45%of riboflavin in the
total food supply as well as 24% of the total protein,17% of the vitamins and 17% calories.

In 1946 the first company was established in kaiva District co-operative milk produces
known as “AMUL” throughout the Nation wide and their different companies were
developed throughout country form Govt. side and also private side. In Andhra Pradesh the
leading companies are A.P. dairy development under the brand names Vijaya, Dodla,
Revilla, Heritage, Jercy, Cream lines, and Mother Dairy etc.

The milk and dairy product ranks as the largest source of income to the farmer of
United States. For the country over 20 percent of the total agricultural income is from milk
or cream sold, the sale of cream and butter by farmers in 1948 totalled more than $4400,
000,000. In addition to the 24,000 people of the dairy firms many others persons and families
must be employed in moving and processing the milk and milk products before there each
the consumer’s table. The exact number of people engaged in these fields in unknown.

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DAIRY PRODUCTS:

A dairy is a place for handling of milk and milk products. Technology refers
to the application of scientific knowledge for practical purposes. Dairy technology has been
defined as that a branch of dairy science, which deals with the processing of milk and
manufacture of milk products.

In India dairying has been practiced as a rural cottage industry from remote places in the
past. Due to scientific knowledge in processing and pasteurization. Dairy is developed as a
separate industry. The main reason for developing of this industry is above to increase in
population of urban areas and more consumption of milk in the areas of soft drinks.

In the earlier years each house hold maintains his/her own cattle or secures
milk form its neighbours. As the urban population increases fewer households could keep
cattle for private use. But the high cost of milk production, problems of sanitation etc.,
restricted the practice and gradually the family cattle in the city was eliminated and city cattle
were all sent back to the rural areas. Gradually formers in the cities began delivering milk
over regular routes within easy driving distances. This was the beginning of the fluid milk-
sheds, which surrounded the large cities.

With the modern knowledge of protection of milk during transportation and scientific
knowledge in processing for pasteurization improves rapidly dairy as a special industry.

A dairy is a place for handling of milk and milk products. Technology refers to the
application of scientific knowledge for practical purposes. Dairy technology has been defined
as that a branch of dairy science, which deals with the processing of milk and manufacture of
milk products.

In India dairying has been practiced as a rural cottage industry from remote places
in the past.

Due to scientific knowledge in processing and pasteurization. Dairy is developed as a

separate industry. The main reason for developing of this industry is above to increase in
population of urban areas and more consumption of milk in the areas of soft drinks.

In the earlier years each house hold maintains his/her own cattle or secures milk from its
neighbour. As the urban population increases fewer households could keep cattle for private

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use. But the high cost of milk production, problems of sanitation etc., restricted the practice
and gradually the family cattle in the city was eliminated and city cattle were all sent back to
the rural areas.

Gradually formers in the cities began delivering milk over regular routes within
easy driving distances. This was the beginning of the fluid milk-sheds, which surrounded the
large cities. With the modern knowledge of protection of milk during transportation and
scientific knowledge in processing for pasteurization improves rapidly dairy as a special
industry.

The first and fore most requirement of modern marketing is to understand the
customer needs, and create need develop strategies to bring the customers right elements of
the i.e., product Offering, positioning distribution channels etc.., to satisfy the needs.

Market entry strategies for developing market, like India, can’t be developed by
middle managers whose only experience spans distribution and channels of management.
Though India has over vast geographical area yet it is not successful especially for perishable
goods such as vegetables, food items, milky fruits etc., milk is consumed as a product of food
from the past.

But it is not commercialized still at the end of the 19th century. In India milk is began in the
early of the 20th century. But the market of the milk industry is developed after
independence due to scientific knowledge in processing, storage, and transportation facilities.

CONSTITUTENTS OF MILK:

Milk as an article of food for mankind antidotes the earliest record history. Milk ranges in
colour forma bluish-white to an almost golden-yellow depending up on the breed of cattle
and the amount of fat solids present.

It is important that everyone should become familiar with the chief components of milk.

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CONSTITUENTS PERCENTAGES

Water 87.00
Fat 4.00
Protein 3.50
Carbohydrates 4.80
Mineral salts 0.70
Total 100.00
MANUFACTURING PROCESS OF MILK

RECEIVING MILK

(GRADING, SAMPLING, WEIGHING, TESTING)

PREHEATING (350-400 C)

FILTRATION/CLARIFICATION

COOLING AND STRONG (50 C OR BELOW)

STANDARDIZATION

PASTEURIZATION (63 C/30 MTS (OR) C/15 Sec)

HOMOGENIZATION (2500 PSI)

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MARKETING OF MILK

A milk product has gone one level channel of distribution of marketing.

Manufacture Milk selling agent Customers

Tirumala Milk
Products
It has extensive selling agents in Nellore, Gudur, Tirupati, Vijayawada, Guntur, Goole,
Bangalore, Chennai and Hyderabad.

PROCUREMENT OF MILK:

The main content required of dairy is milk. It procures milk producer (farmer) covering over
200 villages in Guntur and Prakasam district. In each village one agent will be there collects
milk of that village from milk producers. They collect both in the morning and evening.
Company has its own vehicles to get the collected milk is each village.

DEMAND AND SUPPLY:

The minimum quality of milk per capital consumption recommended Indian Council of
Medical Research is 210 grams per person per day against actual per capital consumption of
178 grams. Thus, there is deficit, of 96 Lakhs tones of milk per annum. Which indicates a
great demand for milk in the domestic market (source: Dairy India 1992). In addition, by
products like ghee, cream, milk powder, butter and cheese will be marketed.;

MILK INDUSTRY IN INDIA:

Today India is the largest milk producing country in the world. The milk producing states in
India are Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and
Tamilnadan. A cattle farming is one of the important aspects of the overall development
process in India. It is said that it is one of the bounded sectors of agriculture.

It has been the important of the National Economic Development Process all these years.
Nearly 5% of the Indian population of the country directly or indirectly depends on milk
production and its sales for their livelihood.

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Everyone without any age limit consumer’s milk. Today because of the modern technology
the cattle breeding has been revolutionized. Outdated methods of extraction of milk from the
cattle of the discarded. New and innovative methods are being widely adopted. India today is
proud to say that it is the largest producer of the milk and its products. Many dairy firms have
been established in the country at different areas as per the requirements of the people i.e. the
consumer, both by the public sector and private sector.

Milk is one of the heavenly foods i.e. prescribed by a doctor, a physician. Everyone without
sex relation, are limit drinks milk directly or indirectly. Milk is a mixture of protein,
vitamins, carbohydrates and fat contains which is helpful for the growth of the humans. Dairy
farming aim is to supply better quality of milk to the consumers.

In 1946 the first company was established in kaiva District co-operative milk produces
known as “AMUL” throughout the Nationwide and their different companies were developed
throughout country form Govt. side and also private side. In Andhra Pradesh the leading
companies are A.P. dairy development under the brand names Vijaya, Doodle, Revilla,
Heritage, Jercy, Cream lines,

Mother Dairy etc.

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MILK PRODUCTION IN INDIA

Production (Million Per Capita Availability

Year
Tonnes) (gms/day)

2000-01 80.6 217

2001-02 84.4 222
2002-03 86.2 224
2003-04 88.1 225
2004-05 92.5 233
2005-06 97.1 241
2006-07 102.6 251
2007-08 107.9 260
2008-09 112.2 266
2009-10 116.4 273
2010-11 121.8 281
2011-12 127.9 290
2012-13 132.4 299
2013-14 137.7 307
2014-15 146.3 322
2015-16 155.5 337
2016-17 165.4 355
2017-18 176.3 375
2018-19 187.7 394
2019-20 198.4 407
2020-21 210 427
2021-22 221.1 444
2022-23 230.6 459

In India milk production has been increasing gradually for several years. During till 1971
the increasing ration was very small after that milk production has increased rapidly because
of green revolution and some other pilot programmes.

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MILK POTENTIAL:

Milk is the only natural product i.e. daily used by the people at regular intervals for different
purposes. The nutritional potential is ideal in quality and balanced to satisfied human-acid
requirements. The contents of minerals and vitamins are unique both in proportion and in
quality nutrients that are essential for man’s growth and developments.

Milk has a very complex composition. It constituents are disposed in aqueous solutions, such
as chlorides; sodium and potassium are present in molecular dispersion, phosphate in
colloidal dispersion, and the fat in emulsion.

The average per capital consumption of milk in India is only 212 grams per day as against
the world average of 303 grams. Malnutrition can be easily wiped out in our country by
developing the dairy industry.

EXPORT POTENTIAL:

India has the potential to become one of the leading players in milk and milk products
exports. The country is located admits major milk-deficit countries in Asia and Africa. Major
importers of milk and milk products are Bangladesh, China, Hong Kong, Singapore,
Thailand, Malaysia, the Philippines, Japan, the UAE, and Oman-all located close to India.
Milk production is scale -insensitive and labour-intensive. Due to low labour cost of milk
production is significantly low in India.

STRENGTHS:

Demand is absolutely optimistic. Margins are quite reasonable even on packed liquid milk.
Tremendous flexibility of product mix, abundance of raw material, and locally available
professionally trained, technical human resource pool are the other plus points. Presently,
more than 80 percent of milk produced is flowing into unorganized sector, which requires
proper channelization.

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WEAKNESSES:
Perish ability:
Pasteurization has overcome this problem partially. UHT gives milk long life. Surely, many
new processes will follow to improve milk quality and extend its shelf life.

Lack of concept over yield:

Theoretically, there is little control over milk yield. However, increased awareness of
Developments like embryo transplant, artificial inseminations, and properly managed animal
husbandry practices, coupled, with higher income to rural milk producers, should
automatically lead to improvement in milk yields.
Logistics of procurement:
Bad roads and inadequate transportation facility make milk procurement problematic.
But with the overall economic improvement in India, these problems would also get solved.
Problematic distribution:
If ice-creams can be sold virtually at every nook and corner, why can’t we sell other
dairy products too? It is only a matter of time before we see the emergence of a cold chain
linking the producer to the refrigerator at the consumer’s home.

Competition:

With so many people entering this industry, competition has to be faced as a ground reality.
The market is large enough for many to serve out their niche.

OPPORTUNITIES:

Value addition:

There is a large scope for innovations in product development, packaging, and

presentation steps should be taken to introduce value-added products like ice-creams,
planner, lassie, khova, based, doodhpeda, flavoured milk, dairy sweets, etc. this will lead to a
greater presence and flexibility in the market place along with opportunities in the field of
brand building. Cultured products like yoghurt and cheese lend further strength both in terms
of utilization of resources and presence in the market place. Other products are infant foods,
geriatric foods, as nutritionals.

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Export potential:

Efforts to exploit potential are already on. Amul is exporting to Bangladesh, Srilanka,
Nigeria, and the Middle East. Following the new GATT treaty, opportunities will increase
tremendously for the export of agree-products in general and dairy products in particular.

THREATS:

Today, milk vendors occupy the pride of place in the industry. Organized
dissemination of information about the harm that they are doing to producers and consumers
should see a steady decline in their importance.

Strengths and opportunities far outweigh weaknesses and threats. Strengths and opportunities
are fundamental, while weaknesses and threats are transitory. Any investment idea can do
well only when you have entrepreneurship, innovative approach, and values (of quality
ethics). The Indian dairy industry, following its delicensing, is attracting a large number of
entrepreneurs.

Their success in dairying depends on factors such as an efficient yet economical

procurement network, hygienic and cost-effective processing, and innovations in the market
place.

PROCESSING OF MILK:

Pasteurization:

The term pasteurization, applied to market milk today, refers to the process of heating every
practical of milk to at least 63 0 C or 1450 F for 30 minutes. After pasteurization, the milk is
immediately cooled to 50 C (41 F) or below as it is difficult to exercise strict supervision over
milk supplies, it becomes necessary to pasteurize milk so as to make it safe for human
consumption. Milk is pasteurized to render it safe for human consumption by destruction of
sent percent pathogenic microorganisms and to improve the keeping quality of milk by
destruction of almost all-spoiling organisms.

Standardisation:

Standardization of milk refers to adjustment of the fat and /or solids not fat percentage of
milk to desired value so as to conform to the legal or other requirements. Milk is
standardized by the addition of milk or cream with a higher or lower fat percentage than of

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milk to be standardized. Sometimes the addition of skimmed milk will do. Downward
standardization for fat is practiced is many countries. The surplus is transformed into butter
or ghee.

The prevention of Food Adulteration Act defines standardized milk as cow and buffalo milk
in which the milk fat content is adjusted to 4.5% or more with the SNF. At least 8.5% high
milk fat content may be adjusted downward by removing milk or fat or by adding skimmed
and/or reconstituted milk.

In the case of low milk fat content, fat may need to be added to assure the legal minimum.
Standardized milk may be marketed as such or used for making certain products.
Standardization ensures milk of practically uniform and constant composition and nutritive
value to the consumer.

The surplus fat can be converted into butter and ghee. Consequently, milk can be supplied at
low cost. Standardized milk is easier and digests.

RECOMBINATION:

This refers to the product obtained when butter, oils, skimmed milk powder, and water are
combined in the correct preposition to yield fluid milk.

The Prevention of Food Adulteration Act Rules 1976 defines recombined product as the milk
product resulting from the combining of milk fat and milk solids not fat in one or more of the
various forms with or without water.

Under the prevention of Food Adulteration Act Rules 1976, recombined milk throughout the
century should contain a minimum of 30% fat and 8.5% solids not fat. The Food and
Agriculture Organization of the United Nations extensively produced recombined milk under
the operation flood scheme in Mumbai, Kolkata, Delhi, and Chennai during 1970-74, from
butter oil and skimmed milk powder donated under the World Food Programme Project.

The technique of recombination involves dispersion of milk powder in water at about 45 C,

addition of milk fat to make a mixture, filtration and clarification of the mixture, followed by
homogenization and pasteurization at 75 C for 15 Seconds.

The physical, chemical, and functional properties of raw material and used in such
preparation determine the flavour, acceptability, and shelf life of the recombined product.

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The use of low-heat, non-fat milk powder with quick wetting ability, increased solubility, and
improved dispensability results into acceptable milk. The introduction of butter oil without
appropriate technology of it has caused problem in acceptance of recombined milk.

Toning:

Toned milk refers to milk obtained on addition of water and skimmed milk powder to while
milk. Under the Prevention of Food Adulteration Rules 1976, toned milk should contain a
minimum of 3% fat 8.5% solids not fat throughout the country.

Toned milk is also called single toned milk and is prepared by toning milk with
fresh separated milk reconstituted from spray-dried skimmed milk powder. Sometimes, milk
is double-toned in order to provide cheap milk (with fat content only 1.5%) to weaker
sections. Toning is a process of reducing fat content i.e. mainly used for providing cheap
milk to the poor.

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1.3 COMPANY PROFILE

“We at Tirumala Milk Products Pvt Ltd; are committed to achieve customer delight-
through providing nutritious and safe milk and milk products with complying to all legal
and statutory requirements, to this effect we communicate, implement and aim at
continual improvement of our quality and food safety system to achieve excellence in this
Tirumala Milk Product Private Limited was incorporated in the month of 13th day
November 1998.The promoters of the company are Sri D. Brahmana dam, D. Nageswara
Rao, Dr. N. Venkata Rao & B. Brahma Naidu. The plant at Kadivedu village, Chillakuru
Mandal, Nellore District was started in the month of September 1999.
Tirumala Milk Products Private Limited is selling its milk and milk products in
Chennai, Bangalore, Tirupati and towns in A.P, Hyderabad, Vijayawada, Nellore, Gudur,
and Guntur. Recently the company has started production in Palamaneru in Chittoor
District.
MAIN OBJECTIVES OF THE COMPANY:
To carry on the business of producers, vendors of milk cream, cheese, butter
milk, and all other dairy products of all kinds and to buy sell trade in any goods which
are usually needed in any of the above business or any other business associated with
the fore going or other interests of the company.
To serve the milk producers of villagers who are having excess of milk by
producing that milk and again selling that milk to urban people who are in needed of
milk.
To serve the villagers by providing loans for purchasing cattle.

RANGE OF PRODUCTS:
Company is offering is a wide range of products to the consumers are as follows
TYPES OF PRODUCTS: -
Tirumala Gold Milk
Tirumala Toned Milk

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Tirumala Milk
Tirumala Butter Milk
Tirumala Curd
Tirumala Butter
Tirumala Cheese
Tirumala Ghee
Tirumala FCM
Subham
Floured milk
Powders

SECTION WISE GUDUR PLANT

201 Reception
202 HR

203 Asst. Cashier

204 Cashier
205 Finance Manger
206 Director
207 Accounts Manager
208 Accounts section
209 Procurement Billing
210 Asst. to General Manager
211 General Manager
212 Quality control lab
213 Ghee Packing
214 Refrigeration
215 Electrical Section
216 Old Boiler
217 New Boiler
218 Powder Plant

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219 Milk Dispatch

220 Processing Lab
221 Ghee Section
222 Security
ORAGANIZATION CHART

GUDUR PLANT CHART

DIRECTOR

GENERAL MANAGER

FINANCE MANAGER

SR. MANAGER (HR)

Asst. PLANT MANAGER

PRODUCTION MANAGER

PROCUREMENT MANAGER

VECHICLE INCHARGE

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STORES/PLANT

PRODUCTS:

Milk

Thirumala ensures the finest quality of milk, which not only provides great taste but also
maintains the highest standards of quality. It guarantees pure freshness and goodness at every
stage, from farms to the family, by collecting farm-fresh milk every day from farmers with
an efficient supply chain under hygienic quality standards and modern technology. Offering a
rich source of calcium, protein and fortified vitamins, Thirumala milk helps you stay active
and fit throughout the day.

CURD

Thirumala has a long-standing expertise and passion for producing the best dairy products.
Made from highest quality milk under stringent and hygienic quality standards, Thirumala
curd delivers the best thick and tasty curd to its consumers. It is a great source of protein and
calcium, which makes it super beneficial for your health.

Flavored Milk

Nothing soothes your soul better than a bottle of Tirumala flavored milk, whether it is
chocolate, strawberry, badam or pasta. Our flavored milk range contains superior ingredients
and milk freshly procured directly from farms. With our high-quality toned milk and added
flavors, Tirumala Flavored Milk gives you the smooth texture, perfect aroma, and above all,
your heart’s content!

Lassi

Thirumala Lassi and Buttermilk are ready-to-drink delicious and healthy beverages. A zesty
concoction of spices and our fresh milk, we provide you with the most refreshing and healthy
buttermilk out there. Hygienically prepared, nutritious and easy to digest, our Lassi sets

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standards on quality and taste for those looking for a revitalizing natural drink to stay healthy
and active.

Buttermilk

Thirumala Buttermilk is an ideal coolant made from curd and spices. Not only is this
delicious drink refreshing but it also completes every meal, making its way into every Indian
household. Thirumala buttermilk makes an excellent digestive aid, controls your acidity
level, and makes it great for health.

GHEE

Ghee is a rich source of Vitamin A and helps in the healthy growth of body, bone metabolism
and strengthening of the immune system. The rich taste and smooth texture is ideal when it
comes to choosing the best ghee. Thirumala Ghee is made from cream that’s sourced from
the freshest milk. Prepared under stringent and hygienic conditions and standards, we ensure
you get the best quality, with the authentic taste and aroma of pure cow ghee.

PANEER

Thirumala Paneer is made from the highest quality milk and is a great source of vitamins and
calcium. The freshness makes it perfect as an ingredient, topping or in a salad and is
guaranteed to bring out the best. Such creamy softness and pure white texture show how
perfect Thirumala Paneer is in its quality and taste.

President butter

President, France’s No.1 brand in butter and cheese has won a lot of accolades for its quality.
Founded by André Besnier in 1933 in the town of Laval, France, in the Loire Valley, we
bring over 75 years of French artisanship and tradition into the widest range of specialty
butter. You can count on President as your personal butter coach, guiding you through the
extraordinary blend of expertise, flavor, and culture that come together in specialty butter.

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CHAPTER-2

RESEARH METHODOLOGY

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2. RESEARH METHODOLOGY

2.1 Review of literature

1.Carley aid Ling (2020)

in their research paper evaluated the percentage of southern dairy farmers' perception
regarding their cooperative or proprietary handlers’ performance, level of satisfaction with
the milk handlers and reasons for staying with the current milk handlers. The study showed
that the dairy farmers were concerned about price, deductions, assessment and price farmers
received appeared to be a significant factor which affected farmer's satisfactions level. The
study also found a trade-off between price and deductions versus service and market and
payments assurance. The study suggested that the dairy farmers needed a cooperative which
provides an assured market for the members. Rao, P. shareware (1992) studied the Working
Capital Management of dairy industry in India. In this study two dairy units Tirumala Dairy
and Heritage foods Ltd. Were studied from the point of view of the management of working
capital. Debtors’ turnover reveals that Tirumala milk products Dairy is following a little
liberal credit policy than heritage. Inventory turnover ratio conveyed that Heritage is more
efficient than Tirumala. Working capital turnover ratio revealed that TIRUMALA MILK
PRODUCTS is using its working capital more efficiently to improve sales. Current and quick
ratios showed that the creditors in Heritage are more secured than that of Tirumala. The
findings revealed that in certain areas of working capital management Heritage Foods (India)
It’d. is having better performance.

2.Misra and Fletcher (2022)

in their study analyzed the factors influencing farmer's degree of satisfaction with the
overall performance of milk marketing corporative. The data for the study were obtained
from dairy farmers located in 12 southern states. They took a random sample of grade A
dairy farmers and mail survey was conducted among 5,660 dairy farmer's degree of
satisfaction with the overall performance of their milk marketing cooperative. The analysis
suggested that the southern dairy farmer's perceived cooperative ability to hold down
operating and marketing costs to provide higher prices and competent field service. The
study found that there were significant differences in the degree of satisfaction with the

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cooperatives among the dairy farmer's located in the 12 southern states. An ISO-9002 dairy
plant having installed capacity of 60,000 Liters Per Day (L. PD); situated in the north eastern
generation for the four products were analyzed

3. Samina Haque (2023):

Liquidity management is growing in importance worldwide with everchanging business
operations. Along with long-term investment decisions, a company must remain solvent in its
daily operations and maintain solvency year-round. The literature on working capital
management (WCM) holds two opposing views about the impact of working capital
investment on firm profitability. One view advocates that an extended cash conversion
period and a relaxed receivable collection period increase sales and firm performance
(Deloof, 2003; Sharma and Kumar, 2010). Another view documents a negative association
between higher working capital (WC) and profitability because a greater WC level requires
more financing, which increases financing and opportunity costs (Alipour, 2011; Ren et al.,
2019). So, having a high level of WCmay drag a firm's financial performance due to the high
cost of carrying WC. This chapter aims to test the effects of WCM on firm performance in
a group of developed countries.

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2.2 NEED OF THE STUDY

Proper management of working capital is essential to a company’s fundamental financial

health and operational success as a business. A hallmark of good business management is the
ability to utilize working capital management.

A business uses working capital in its daily operations; working capital is the difference
between a business's current assets and current liabilities or debts. Working capital serves as
a metric for how efficiently a company is operating and how financially stable it is in the
short-term. The working capital ratio, which divides current assets by current liabilities,
indicates whether a company has adequate cash flow to cover short-term debts and expenses.

2.3 SCOPE OF THE STUDY

The study is conducted at Tirumala Milk Products Pvt Ltd. The study of working
capital management is purely based on secondary data and all the information is available
within the company itself in the form of records. To get proper understanding of this concept,
I have done the study of the balance sheets, profit and loss A/C. So, scope of the study is
limited up to the availability of official records and information provided by the finance
department. The study is supposed to be related to the period of last three years.

The main scope of the study was to put into practical the theoretical aspect of the study into
real lifework experience. The study of working capital is based on tools like Ratio Analysis,
Statement of changes in working capital. Further the study is based on last three years
balance sheet.

2.4 OBJECTIVES OF THE STUDY

1. To analyze the effective utilization of working capital Tirumala Milk Products Pvt Ltd
2. To evaluate the performance of receivables and cash
3. To study the structure of working capital
4. To study the sources of working capital finance
5. To study need of working capital requirement in organization at Tirumala Milk
Products Pvt Ltd

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2.5 RESEARCH METHODOLOGY

Research is an art of scientific investigation. It is defined as “A careful investigation
or enquiry especially through search for new facts in any branch of knowledge”. Research is
a movement from the known to the unknown. It is actually a voyage of discovery. Research
refers to the systematic method consisting of enunciating the problem, collecting the facts or
data, analyzing the facts and reaching certain conclusions in the form of solutions towards
the concerned problem.

It presents the methodology that will be use in the conduct of this study and will include the
discussion of research design, samplings, respondents, data gathering and statistical
instrument used.

2.5.1 Research design

A research design specifies the methods and procedures for conducting a particular
study. Broadly speaking, there are 3 categories of research design – exploratory, descriptive
and casual research.

Research Type Analytical

Source of Data Primary and Secondary

Analysis Tool used Financial Analysis

Primary Data:

 Observation, Discussion with the manager.

Secondary Data:

Secondary data relating to the procedure of assessment of working capital finance,

old sanction proposals,have been sourced from reference books.

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2.5.2 Sampling methods and sample size

The sample for the study has been selected a company named Tirumala milk products. we
should concern the person who is aware about the company finance about the company's
working capital i.e. debtors, creditors, receivables, payables, stock etc.

2.5.3 TOOLS OF ANALYSIS

Secondary data were analyzed and interpreted with the help of different tools such as

• Working capital = current assets – current liabilities.

• Net working capital = current assets (minus cash) - current liabilities (minus debt).

• Operating working capital = current assets – non-operating current assets.

• Operating cycle = inventory days +bills receivables –payables days

2.5.4 PERIOD OF THE STUDY

 The study is done for a period of 8 weeks in the organization where the necessary
guidance and the information required for the project is provided.

2.5.5 LIMITATIONS OF THE STUDY

Following are the limitations of the study being conducting:

 Time has been one of the limiting factors to study the complete details at Tirumala
Milk Products Pvt Ltd

 The reliability and correctness of the calculation and findings depends upon the
information obtained through secondary data.

 Financial statements are prepared on the basis of certain accounting concepts and
conventions. Any change in methods or procedures of accounting will limit the utility
of financial statements.

 As the financial information is confidential, they do not want to share accurate data

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CHAPTER -3
DATA ANALYSIS AND INTERPRETATION

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3. DATA ANALYSIS AND INTERPRETATION

TABLE-3.1
3.1 RATIO ANALYSIS
1) CURENT RATIO: (Rs. IN CRORES)

CURRENT CURRENT
YEAR CURRENT RATIO
ASSESTS LIABILITIES

2019-20 8,063.47 8,819.50 0.91

2020-21 8,186.34 8,788.96 0.93
2021-22 5,423.49 6,998.93 0.77
2022-23 7,451.53 8,273.84 0.9
2023-24 9,521.81 9,547.29 1

GRAPH-3.1

INTERPRETATION
Current ratio for 2023-24 is 1.00, for 2022-23 is 0.90, for 2021-22 is 0.77, for 2020-21 is
0.93 and for 2019-20 is 0.91.

Average current ratio is 0.90.

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TABLE-3.2
2) LIQUID RATIO (Rs. IN CRORES)

YEAR QUICK ASSETS CURRENT LIABILITIES LIQUID RATIO

2019-20 6,305.14 8,819.50 0.71

2020-21 5,501.67 8,788.96 0.63
2021-22 4,185.49 6,998.93 0.6
2022-23 5,309.24 8,273.84 0.64
2023-24 7,446.61 9,547.29 0.78

GRAPH-3.2

INTERPRETATION
Here Liquid ratio for 2019-20 is 0.71, 2020-21 is 0.63, 2021-22 is 0.60, 2022-23 is 0.64 and
for 2023-24 is 0.78.
Highest liquid ration is 0.78 on 2023-24.

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TABLE-3.3
CURRENT ASSET MOVEMENT RATIOS
3) INVENTORY PROPORTION: (Rs. IN CRORES)

RAW WORK-IN- FINISHED

YEAR OTHERS INVENTORY
MATERIAL PROGRESS GOODS

2019-20 15,347.84 234.33 26,242.38 390.62 1,758.33

2020-21 20,872.27 274.64 28,614.03 440.92 2,684.67
2021-22 10,384.46 420.97 17,267.22 200.25 1,238.00
2022-23 11,118.96 228.78 15,301.45 0 2,142.29
2023-24 15,913.16 111.11 21,688.29 0 2,075.20

GRAPH-3.3

INTERPRETATION
Raw materials consumed are increasing from year by year. WIP is almost constant for years
and in 2022-23 the WIP increased drastically. FG is in increasing condition as it is the major
part of inventory. This was a good sign to firm. Total inventory is increasing from year to
year.

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TABLE - 3.4
4) INVENTORY TURN OVER RATIO & INVENTORY HOLDING PERIOD (Rs.
IN CRORES)

INVENTORY
YEAR SALES INVENTORY
TURNOVER RATIO
2019-20 26,247.91 1,758.33 14.93
2020-21 28,614.03 2,684.67 10.66
2021-22 17,467.47 1,238.00 14.11
2022-23 15,229.22 2,142.29 7.11
2023-24 21,567.75 2,075.20 10.39
GRAPH-3.4

INTERPRETATION:
During the 2019-20 the company has very high inventory ratio of 14.93, which means more
capital is being locked up in the inventory. From the year 2021-22 the ratio was decreased
from 14.11 to 7.11 but in 2023-24 there was a slight increase in inventory IS 10.39.

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TABLE-3.5
5) NO. OF DAYS INVENTORY

INVENTORY NO OF INVENTORY
YEAR DAYS
TURNOVER RATIO DAYS
2019-20 14.93 365 24.45
2020-21 10.66 365 34.25
2021-22 14.11 365 25.87
2022-23 7.11 365 51.34
2023-24 10.39 365 35.12

GRAPH-3.5

INTERPRETATION
Inventory days for 2023-24 is 35.12, for 2022-23 is 51.34, for 2021-22 is 25.87, for 2020-21
is 34.25, for 2019-20 is 24.45.

Highest is 51.34 for 2022-2

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TABLE-3.6
6) WORKING CAPITAL TURN OVER RATIO (Rs. IN CRORES)

WORKING WORKING CAPITAL

YEAR SALES
CAPITAL TURNOVER RATIO

2020-21 26,247.91 153.41 171.1

2021-22 28,614.03 972.82 29.41
2022-23 17,467.47 753.13 23.19
2023-24 15,229.22 796.83 19.11

GRAPH-3.6

INTERPRETATION
The working capital turnover ratio for 2019-20 171.10. then decreasing from 2020 e is a dip
in 2021-22.

TABLE-3.7

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TO STUDY THE STRUCTURE OF WORKING CAPITAL

7) CURRENT ASSETS TO TOTAL ASSETS: (Rs. IN CRORES)

YEAR CURRENT ASSESTS TOTAL ASSESTS CA/TA RATIO

2019-20 1,138.94 8,063.47 0.14

2020-21 1,600.09 8,186.34 0.2
2021-22 1,660.20 5,423.49 0.31
2022-23 1,649.67 7,451.53 0.22
2023-24 1,990.58 9,521.81 0.21

GRAPH-3.8

INTERPRETATION:
This CA to TA ratio is of reducing tendency. In 2020-21 it is highest 0.31, and in 2019-20 it
is lowest 0.14. The portion of current assets is changing little year by year.

TABLE-3.8
8) CURRENT LIABILITIES TO TOTAL LIABILITIES (Rs. IN CRORES)

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 WORKING CAPITAL

CL/TL
YEAR CURRENT LIABILITIES TOTAL LIABILITIES
RATIO
2019-20 8,819.50 17,336.39 0.51
2020-21 8,788.96 18,224.40 0.48
2021-22 6,998.93 16,389.61 0.43
2022-23 8,273.84 18,449.91 0.45
2023-24 9,547.29 20,333.78 0.47
GRAPH-3.8

INTERPRETATION:
CL to TL ratio is decreasing from 2019-20 to 2020-21. There is an increase from 2022-23 to
2023-24.

TABLE-3.9
9) PROFITABILITY RATIOS

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GROSS PROFIT MARGINS

GROSS PROFIT
YEAR GROSS PROFIT SALES
MARGIN
2019-20 2,385.83 26247.91 0.091
2020-21 2,496.80 28614.03 0.087
2021-22 361.92 17467.47 0.021
2022-23 411.91 15229.22 0.027
2023-24 527.61 21567.75 0.024
GRAPH-3.9

INTERPRETATION:

From the table shown above gross profit of the firm is satisfactory in all the years except in
2021-22. But it was recovered very soon by next year and it is still doing well.

TABLE-10

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10) NET PROFIT RATIOS: (Rs. IN CRORES)

NET PROFIT
YEAR NET PROFIT SALES
MARGIN
2019-20 1,717.73 26247.91 0.065
2020-21 1,983.20 28614.03 0.069
2021-22 239.52 17467.47 0.014
2022-23 313.68 15229.22 0.021
2023-24 541.83 21567.75 0.025

GRAPH-3.10

INTERPRETATION:

From the data given in the above table it is clear that the net profit of the company is almost
maintained constant except in the year 2021-22. Due to market slow down the net profit of
the company effected. But in 2022-23 it shot up as the company recovered very fast.

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CHAPTER-4
FINDINGS, SUGGESTIONS&CONCLUSION

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4. FINDINGS, SUGGESTIONS&CONCLUSION

4.1 FINDINGS:
Statement Showing Schedule of Changes in Working Capital

 The table shows that there has been increase in need for working capital to the extent
of 153.41 from the year 2020-21.
 The table shows that there has been decrease in need for working capital to the extent
of 972.82 for the year 2021-22
 The table shows that there has been increase in need for working capital to the extent
of 753.13 from the year 2022-23
 The table shows that there has been increase in need for working capital to the extent
of 796.83 from the year 2022-23.
 Current ratio for 2023-24 is 1.00, for 2022-23 is 0.90, for 2021-22 is 0.77, for 2020-
21 is 0.93 and for 2019-20 is 0.91.
 Here Liquid ratio for 2019-20 is 0.71, 2020-21 is 0.63, 2021-22 is 0.60, 2022-23 is
0.64 and for 2023-24 is 0.78.
 Raw materials consumed are increasing from year by year. WIP is almost constant for
years and in 2022-23 the WIP increased drastically.
 During the 2019-20 the company has very high inventory ratio of 14.93, which means
more capital is being locked up in the inventory. From the year 2021-22 the ratio was
decreased from 14.11 to 7.11 but in 2023-24 there was a slight increase in inventory
IS 10.39.
 Inventory days for 2023-24 is 35.12, for 2022-23 is 51.34, for 2021-22 is 25.87, for
2020-21 is 34.25, for 2019-20 is 24.45. Highest is 51.34 for 2022-23.
 The working capital turnover ratio for 2018-19 171.10. then decreasing from 2019 e
is a dip in 2021-22.
 From the data given in the above table it is clear that the net profit of the company is
almost maintained constant except in the year 2021-22. Due to market slow down the
net profit of the company effected.

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4.2 Suggestions
1. The holding of raw material takes long period by the firm. so, it is suggestible to
bring the raw material from nearby places, so that the firm can deliver the order to the
buyer within a short period.
2. By adopting the new technology and also attract the new customers.
3. Adopting the new managerial policies for increase the growth.
4. Working capital is more important to the day-to-day transactions to maintain Proper
reserves it helps the company.
5. To maintain good relationship with the milk dealers and customers and others for
increasing the sales.
6. The Company has to focus on reduction in manufacturing cost.
7. The financial manager has to control current liabilities.

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4.3 CONCLUSION
Working capital management is important aspect of financial management. The study of
working capital management in Tirumala Milk Products Pvt Ltd has revealed that the
current ratio was as per the standard industrial practice but the liquidity position of the
company showed an increasing trend. The study has been conducted on working capital ratio
analysis, working capital components which helped the company to manage its working
capital efficiency and affectively.
 Working capital of the company was increasing and showing positive working capital
per year. It shows good liquidity position.
 Positive working capital indicates that company has the ability of payments of short
terms liabilities.
 Working capital increased because of increment in the current assets is more than
increase in the current liabilities.
 Current assets are more than current liabilities indicate that company used long term
funds for short term requirement, where long term funds are most costly then short-
term funds.
 Current assets components show sundry debtors were the major part in Current assets
it shows that the inefficient receivables collection management.

The company has a good operating cycle, liquidity position, and has sufficient funds to repay
its liabilities. It is being found that components of working capital like inventory
management, receivables management and cash management was managing effectively.
Tirumala Milk Products Pvt Ltd sales position is also very good.
The company is matured one and it has contributed towards the countries growth and
development and will also continue to perform and contribute to the whole nation by
continuum of existing management policies, checking exchange rate risk, competing with
domestic and global players in terms of quality & quantity.
To conclude company has sound and effective management of working capital, which helps
them to control the cost and increase the profit.

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BALANCE SHEET
PARTICULARS 2019-20 2020-21 2021-22 2022-23 2023-24

SOURCE OF FUNDS
Shareholders Fund
Capital 1,323.87 1,330.34 1,330.34 1,330.34 1,330.34
Reserves And Surplus 17,621.81 20,159.48 33,408.65 35,357.23 38,299.27
18,945.68 21,489.83 34,738.99 36,687.57 39,629.62
Loan Funds
Secured Loans 3,602.16 1,902.40 3,044.13 7,115.66 11,822.97
Unsecured Loans 2,801.82 6,972.61 16,537.31 14,923.32 13,859.67
6,403.98 8,875.01 19,581.44 22,038.98 25,682.64
Deferred Liability - - - 765.48 899.26
Deferred Tax Liability-Net 1,969.29 2,538.20 2,634.37 3,845.36 4,438.86
Foreign Currency Monetary Item
38.41 (124.50) -
Translation Difference-Net
Total 27,318.95 32,903.03 56,993.21 63,212.89 70,650.40

APPLICATION OF FUNDS
Fixed Assets
Gross Block 26,201.97 29,424.38 49,532.72 60,186.33 66,918.88
Less Depreciation 13,131.64 14,168.88 15,541.56 17,690.74 20,580.96
Net Block 1,3070.33 15,255.50 33,991.16 42,495.59 46,337.9
Capital work in progress 2,374.91 5,292.45 9,982.89 5,614.67 3,579.66
15,445.24 20,547.95 43,974.06 48,110.28 49,917.57
Investments 2,210.94 6,098.99 2,635.57 3,261.54 12,299.96
Current Assets, Loans and
Advances
Inventories 10,703.21 12,239.14 13,300.14 16,382.4 22,089.03
Sundry Debtors 5,228.75 3,758.35 9,579.74 10,220.61 11,852.13
Cash And Bank Balances 4,349.39 4,513.7 880.836 5,189.2 1,795.27
Loans And Advances 6,695.79 8,241.39 7,895.44 9,604.62 7,936.01
26,977.14 28,752.58 31,656.14 41,396.83 43,672.45
Less Current Liabilities and
Provisions
Liabilities 16,516.25 19,267.08 18,688.64 25,920.65 30,379.47
Provisions 1,042.3 3,452.31 2,680.82 3,686.91 4,903.26
17,558.55 22,719.39 21,369.46 29,607.56 35,282.74
Net Current Assets 9,418.59 6,033.187 10,286.68 11,789.27 8,389.71
Miscellaneous Expenditure 244.18 222.91 96.88 51.74 43.14
Total 27,318.95 32,903.03 56,993.21 63,212.83 70,650.40

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REFERENCES
[1] Khan, M.Y. and Jain, P.K. “Management Accounting”, fifth edition, Noida Tata

McGraw Hill Publication, 2008.

[2] Pandey, I. M. 2008. “Financial Management”, Vikas Publishing House Pvt Ltd., New

Delhi, 2008.

[3] http://www.business-standard.com/india/news/

[4] http://www.indiaprwire.com/pressrelease/auto/2010030444861.htm

[5] http://en.wikipedia.org/wiki/

[6] Annual report of Tirumala Milk Products Pvt Ltd

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