CHAPTER-1

SUGAR INDUSTRY

AT GLANCE

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INDIAN SUGAR INDUSTRY

1.1) INTRODUCTION:

Sugar originated from the Arabic word "sharkara" and is derived from the sanskrit world "sharkara". Sugar is an important part of the daily diet and  forming a class of edible substances which includes  sucrose, lactose, and fructose. It provides the human body with requisite carbohydrates and is basically extracted from sugar cane and sugar beet.  Found in fruits, honey, sorghum, sugar maple and in several other sources, it is the main ingredient of candy which is loved by children the world over. Yet, it has been  blamed for causing tooth decay and excess consumption of sugar has been associated with a host of ailments like diabetes, obesity, weight gain, depression, joint pain, fatigue and insulin resistance and even cancer. Sugar is present in various forms in fruits, honey, maple syrup and other natural sources. It is extracted by an intricate process, whereby the pulp is extracted first and then, the remaining is used for producing the sugar. Sugar has wide variety of uses and is used for baking, sweets, alcoholic beverages, and even in the soap we use. Further, it is also used as a food preservative and in confectionery items.

1.2) History:

Sugar is said to have originated in India. During the Gupta dynasty in India, the extraction of sugar was clearly known to the Indians. Experts identify the Pacific region and certain parts of India like the North East as real locations where the sugar cultivation was practised. This was taken to the western hemisphere by the Arab traders who borrowed the techniques from India and subsequently, set up mills to commercially produce this highly useful agricultural product. The production of sugar spread to countries like Spain and the Portuguese took it to South America.

During the eighteenth century, sugar production became increasingly mechanized and sugar market went through a phase of great boom. New technology was developed as sugar became a very popular item and specialized procedures were developed for the large scale processing of sugar. At first, the sugar was used mainly for tea and then, went into the making of  confectionery and chocolates. The Dutch took sugar to the Carribean Islands and today, this area is the largest source of sugar in the world. With the introduction of sugar plantations in the Carribean islands on a large scale, the price of sugar fell

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substantially and  in Britain, all classes of people took to  sugar and it has become a part of their routine. Earlier, it was relegated to the upper echelons of society, it, then, became a common commodity and became sufficiently cheaper. Maximum consumption of sugar has been recorded from Belgium  and the least consumption is from Ethopia with an amount of three kilos per year.

1.3) Sources of Sugar

Generally, sugar is produced from plants like sugarcane and sugar beet. The sugarcane plant is very thick with long grasses. A perennial crop, it is grown in the various tropical and subtropical areas. The stalks of the sugarcane is the exact location, from where the sweet sap is extracted. Sugar beet has the highest sugar content from among  the beetroot family and  this variety is specifically cultivated for high quality sugar production. In addition, sugar is produced from sweet sorghum, maple, honey, corn sugar, etc. Of a 180 countries of the world, around a 100 of them  make sugar from the  sugar beet and cane.

1.4) Types of sugar

1)Raw sugarsRaw sugars consist of varying shades of yellow to brown sugars and is

processed by boiling till it solidifies. From sugar beet juice, the raw beet sugars are extracted and are then used to fabricate white sugar. Raw sugars include demerera, muscovada and turbinado. These are available in crystalline and loaf forms, where the moulds are then allowed to dry up and the resulting product is called jaggery or gur.  Raw sugar is not so popular in South America. Mill white sugar is produced by exposing the sugar to sulfur dioxide but it retains the coloured impurities.

2)Blanco direct Blanco direct is a white sugar used much more in India and Asia and is less purer than the white sugar. It undergoes  the process of phosphation and is more devoid of impurities. White refined sugar, popular in the West, is processed  by dissolving the raw sugar and purifying it with phosphoric acid or by filtration strategies. White sugar is available in granulated form. Granulated sugar includes coarse grained sugars such as sanding sugars, caster sugar and

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superfine powdered sugar and they are divided on the basis of fineness of grades.

3)Brown sugars

Brown sugars are formed when sugars form fine crystals with high molasses content or from coating white refined sugar with a cane molasses syrup. Colour and taste becomes stronger with increasing molasses content . On being exposed to air, they tend to harden and proper handling of this. Natural sugars are found in their natural form and covers the most unrefined sugars and includes the fruits, grains and vegetables. The World Health Organization has approved the natural sugars as carbohydrates for unrestricted consumption purposes.

1.5) Manufacturing Process:

For sugarcane, the process of refining is carried out in following steps Pressing of sugarcane to extract the juice. Boiling the juice until it begins to thicken and sugar begins to crystallize.

Spinning the crystals in a centrifuge to remove the syrup, producing raw sugar.

Shipping the raw sugar to a refinery where it is washed and filtered to remove remaining non-sugar ingredients and color.

Crystallizing, drying and packaging the refined sugar.

1.6) World Sugar Scenario:

After two consecutive seasons of surplus between world sugar production and consumption, World Sugar economy is now facing a significant supply-demand imbalance. There will be fall in global sugar production. The world consumption of sugar is forecasted to grow by 1.73% to 167.446 mln tones. World production is expected to increase by 4.817 million tonnes, which is 8.404 million tonnes lower thanworld consumption.

World export availability is expected to rise due to projected growth in output in exporting countries. World export availability for season 2009-10 is

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expected to be 51.964 million tonnes, as against 50.903 million tonnes in the previous season.

A significant production shortfall in India and China, as well as a further contraction of production in the EU, on the other hand and a continuing expansion of sugar output in Brazil, on the other hand are the four major supply features of Sugar season 2008-2009.

1.7) Indian Sugar Economy

The sugar industry is the largest agro-based industry and India is the Second largest producer of sugar in the world next only to Brazil. Sugar industry in India is headed for a rough patch during the current sugar year ending September 30, 2009. India plays a crucial role in the world's sugar output. Indian sugar industry is controlled by the Government. Starting from cane price to the price of sugar, everything is under the hands of the Government. The Statutory minimum Price (SMP) of sugarcane is fixed by the Central Government to support the cane farmers. However, states like U.P., Haryana and Uttarakhand are free to fix their own price known as State Advisory Price (SAP), which is usually higher than SMP.

1.8) India’s Production:

The Country’s sugar output touched a three year low. Sugar production in 2008-09 season is set to fall by 44% from the previous season. In sugar season 2008-09, production has declined to 147.50 lacs tones compared to production of 263.28 lac tonnes in the year, 2007-08. One major reason for this is the shrinkage in the sugarcane growing area in last couple of years due to delay in cane payment and confusion over the price, less area of ratoon in this season and poor monsoon in some parts of the country. The sugar industry is cyclical in nature. It is dependent upon monsoons for both its production and price realisation. Such a shortfall in sugar production has posed a serious threat to inventory on hand. Drop in cane output may lead to increase in cost of production for sugar companies and hit their profit margins in 2009.

1.9) Government Policies:

Rising prices of sugar has caused concern to the Government and it has intervened substantially to control the prices of the sugar, because it is one of the essential commodities. The Government brought in measures such as weekly quota for free sale, weekly reporting mechanism to monitor sugar dispatches and sale, liberalized raw sugar import under Advance Authorization

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Scheme [with change in export obligation norm from ‘grain-to-grain’ to ‘tonne-to tonne’ basis] and finally the facility to import raw sugar without export obligation as well as import of white sugar upto 10 lakh tonnes by Government agencies, both at zero% customs duty. The Centre is also planning to bring back Gur under the Sugarcane (control) order, 1996 to ensure adequate cane supplies to sugar mills.

1.10) Demand & Supply of sugar in India: (In million tonnes)

Season 2008-2009

Season 2007-2008

1 Opening stock as on 1st October

80.00 92.00

2 Production during the season

147.50 263.28

3 Imports 25.00 ------4 Total availability 252.50 355.285 Domestic consumption* 220.00 225.726 Exports 2.00 49.567 Closing stock 30.50 80.00

1.11) Indian Sugar Industry at a glance :

Sr. Particulars Crushing Season 2008-2009 2007-2008

1 Number of Sugar Factories in Operation 501 455

2 Crushing Capacity (million TCD) 21.391 19.7973 Sugarcane Crushed (million tons) 278.872 188.6724 Sugar Produced (million tons) 28.328 19.2675 Recovery % Cane 10.16 10.21

6 Yield of sugarcane (tons per hectare) 69.0 66.9

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1.12) Sugar Producing States in India:

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SWOT ANALYSIS:

SWOT analysis is a strategic planning method used to evaluate the

Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a

business venture. It involves specifying the objective of the business venture or

project and identifying the internal and external factors that are favorable and

unfavorable to achieving that objective. The technique is credited to Albert

Humphrey, who led a convention at Stanford University in the 1960s and 1970s

using data from Fortune 500 companies.

STRENGTHS

Global prices to move up –an incremental positive

The demand is everlasting

Environmental conditions suitable for the growth of sugar cane

About 2.7% culitvable land is used for the cane production

The sugar industry also includes alcohol, gur an khandri which is mainly

for the domestic industry

WEAKNESS

Production to decline by 20-25% in fy09

Shift of the farmer from cane to paddy, wheat, pulses and oil seeds

The greater diversion of cane to un-organised sector

The ignorance in the residual sugar market

Some of the government policy that adhere the growth of the sugar

industry

Shortage in sugar cane supply

Obsolete technology

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OPPRTUNITIES

Prices to rise by 25% in fy09 and more in fy10e

Higher margins , lower cyclicality driving shift towerds integration

The on going increase in demand year after year

The shift of brazil from white sugar to production of ethanol.

THREATS

Less rainfall in the highest sugarcane cultivating regions

Due to water shortage the shift of the farmers to multiple crops

cultivation

Due to government policies the selling of sugarcane by the farmers to

private sectors

Sugar production being more volatile than cane production

Due to rise in domestic consumtion the export is likely to fall

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CHAPTERCHAPTER-2

DESIGN OF THE STUDY

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2.1) TITLE OF THE STUDY:

“A study on working capital management and Ratio analysis” at VSL, Bellad-

Bagewadi.

2.2) STATEMENT OF THE PROBLEM:

The success and failure of any organization is very much influenced by

the past and previous year financial analysis and working capital management.

Vishwanath Sugars ltd is mainly engaged in production of sugar. The

leading Vishwanath Sugars ltd is private sector undertakings, which is located

in Bellad-Bagewadi. and have been striving hard on meeting the competition

from their competitors.

Any business enterprise needs funds for its operations, investors are the

major ‘Source’ of fund apart from owners funds. From the above statement it is

clearly state that they need to be strong in managing resources and increase

there receivables and decrease the liabilities, to be strong in managing working

capital thus it is this problem, which prompted the researcher to take up the

study on financial statement analysis and working capital management.

2.3) OBJECTIVE OF THE STUDY:

The study aims to achieve the following objectives:

To determine the progress of the company and to ascertain the future

prospects of the company.

To find out the level of activity or the operating efficiency of the

company.

To measure the liquidity or the short-term solvency and to indicate

whether the company will be able to meet the short-term obligations out

of its resources.

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To ascertain the working capital requirement of the company.

To study the extent of influence of different factors on size of working

capital.

2.4) SCOPE OF THE STUDY:

This study has a wider scope to cover components and determinants of

capital, sources and types of working capital, components of capital

management such as cash, receivables and inventory. Financial analysis which

covers using different tools of ratios.

2.5) METHODOLOGY:

No study is completed until a proper method is adopted. The level of any

systematic research depends upon collection of data by keenly observing the

existing conditions, classification and interpretation of data and at the end

formation and generalization and conclusion.

The research design should be such that it maximizes reliability of the

evidence collected. The data required for the preparation of financial statement

analysis and working capital management was collected through Primary and

Secondary data.

Primary Data :

Primary data required for the study is collected from the Vishwanath Sugars ltd

Head office.

Secondary Data :

This includes information relating too

Annual reports.

Company brouchers, magazines, periodical reports.

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Balance sheets, profit and loss accounts.

Published text books.

Internet.

2.6) TOOLS FOR COLLECTING DATA:

After carrying out analysis of financial statements, balance sheet and

profit and loss A/c, to elicit additional information to supplement the analysis,

discussions were held with the concerned executives of the company. For this

purpose a schedule was prepared for collection of data which is presented in the

appendices.

2.7) PLAN OF ANALYSIS:

Information from financial statements was arranged as per the objectives

of the study. The data collection have been analyses by the use of statistical

tools and techniques such as percentages, average where ever necessary the data

have been presented diagrammatically using graph charts, tables etc.

REFRENCE PERIOD:

For the company under study, financial year is from March 2008-2009,

March 2007-2008, and March 2006-2007.

REVIEW OF LITERATURE:

Annual reports of Vishwanath Sugars ltd from 2006-2009.

Financial management text books:

Prasanna Chandra.

I. M. Pandey.

Interviewing the finance manager of Vishwanath Sugars ltd.

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2.8) OPERATIONAL DEFINATIONS OF CONCEPTS:

Current Assets: Includes Inventories, Sundry debtors, Cash and Bank,

Loans and advances and all those assets that could be converted into cash

within one year.

Current Liabilities: It includes Sundry Creditors, Advances received

from Customers, Provisions and any other liability that fall due for

payment within one year.

Quick Assets: Current assets (less) Inventories.

Liquid Liability: Current liability (less) Bank overdraft etc.

Net working Capital: Current assets (less) Current liabilities.

Liquidity: Liquidity is used in limited sense study to mean short term

debt repaying capacity of the enterprises. In other words, it is taken as the

ability of the firm to meet the claims of suppliers of short-term capital

Profitability: Refers to the ability of the company in making the profits

in relation to capital employed, sales and the share holder’s funds.

Cash: Cash is the money, which the firm can disburse immediately

without any restrictions.

Inventory: Inventory refers to the stock of goods in the company.

Receivables: Receivable represents the amount due from its customers to

whom the company has extended the credit.

Net sales: It is the gross sales less returns and allowances freight out and

cash discounts allowed.

Credit sales: It means gross credit sales less sales returns.

LIMITATIONS OF THE STUDY:

The figure and facts claimed in the annual reports and other forms are

assumed to be true.

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The authenticity of conclusions drawn is only based on the observations

made by the researcher only.

It is data based on the data supplied by the company personnel.

The project is just a brief study due to lack of comprehensive and

practical knowledge.

Lack of sufficient time to get required information.

The out come of the study is based on the data given in the financial

statements so that there is always difference in the actual and the

calculated values.

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CHAPTER-3

INTRODUCTION

TO FINANCE

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INTRODUCTION TO FINANCE

Finance has been called “The science of money”. In studies the principles

and methods of obtaining control of money from those have saved it and the

administration of it by those in to whose control it passes.

Finance may be said to be circulatory system of the economic body,

making possible needed co-operation between the many units of activity. In an

organization composed of myriad separate enterprises, each working for its own

end but simultaneously contributing to the system as whole, some forces is

necessary to bring about direction and co-ordination. Something must be direct

the floe of economic activity and facilitate its smooth operation. Finance is the

agent that produces this result.

Finance is the business activity which is concerned with the acquisition

and conversation of capital funds in meeting financial needs and overall

objective of a business enterprise.

3.1) SCOPE AND IMPORTANCE OF FINANCE

The modern industrial or service firm must conduct its business in a

rapidly changing and highly competitive environment. A premium is placed on

the ability to react quickly and correctly to constantly changing market

conditions. Financial management is most totally independent area. It draws

heavily on related discipline and fields of study namely Economics,

Accounting, Marketing, Production and Quantitative methods. Management

must be concerned with all the aspects of firm’s operation including production

of goods and delivery of services, sales and marketing activities and supporting

functions such as Personnel training and data processing. To handle these

responsibilities, most firms make extensive use of financial data and reports.

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The scope financial management involves shaping the fortunes of the

enterprise as it involves the most vital decision of allocation of capital. A broad

and farsighted outlook has to be taken into consideration to ensure the funds of

the enterprise are utilized in the most efficient manner. Financial decisions have

far reaching consequences for the firm because they influence the size,

profitability, growth, risk and survival of the firms.

Financial statements are prepared for decision making. They play

dominant role in setting the framework of managerial decisions. But the

information provided in the financial statements not an ending itself as no

meaningful conclusions can be drawn from these statements is of immense use

in making decisions through analysis and interpretation of financial statements.

Financial analysis is the process of identifying relationship between the items of

Balance Sheet and the profit & loss statements, such as Schedule of changes in

Working capital, cost volume profit analysis and ratio analysis. It is the process

of establishing and interpreting various ratios. It is with the help of ratios that

the financial statements can be analyzed more clearly and decision made from

such analysis.

3.2) WORKING CAPITAL MANAGEMENT

Introduction:

The management of working capital is an important and time consuming

aspect of management finance. Sufficient working capital must be provided in

order to take care of the normal process of purchasing raw materials and

supplies, turning out finished products, selling the products, waiting for

payments to be made. If the original estimates of working capital are

insufficient, some emergency measures must be restored to or the business will

come to dead stop. Inadequate levels of working capital can results in serious

financial difficulties, and even bankruptcy; exclusive levels are likely to reduce

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corporate profitability and ultimately cause the firm’s effectiveness and market

value to decline.

Meaning of Working Capital:

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 provision.

Definition of Working Capital:

“Working Capital is the amount of funds necessary to cover the cost of

operating the enterprises.”

Concepts of Working Capital:

There are two concepts of working capital:

Balance Sheet concept.

Operating Cycle or Circular flow concept.

(A) Balance Sheet Concept:

There are two interpretation of working capital under the balance sheet

concept:

1. Gross working capital.

2. Net working capital.

1. Gross working capital:

In the broad sense, the term working capital refers to gross working capital and

represents the amount of funds invested in current assets. Thus, the gross

working capital invested in total current assets of the enterprise. The gross

working capital concept is financial or going concern concept.

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2. Net working capital:

The term net working capital is the excess of current assets over current

liabilities. Net working capital is an accounting concept of working capital.

Net working capital= Current assets – Current liabilities

Current assets include:

Cash in hand.

Cash in bank.

Sundry debtors (less provision for bad debts).

Short-term loans and advances.

Inventories of stocks as:

Raw materials.

Work-in-progress.

Stores and spares.

Finished goods.

Temporary investments of surplus funds.

Prepaid expenses.

Accrued incomes.

Current liabilities include:

Bills payable.

Sundry creditors or accounts payable.

Accrued or outstanding expenses.

Short-term loans, advances and deposits.

Dividends payable.

Bank overdraft.

Provision for taxation, if it does not amount to appropriation of profits.

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(B) Operating cycle or circular flow concept:

The circular flow of concept of working capital is based upon this operation or

working capital cycle of a firm. The cycle starts with the purchase of raw

material and other resources and ends with the realization of cash from sale of

finished goods. The speed/time duration required to complete one cycle

determination the requirements of working capital-longer the period of cycle

determines the requirements of working capital.

Importance or advantage of adequate working capital:

Working capital is the life blood and nerve center of a business. Working

capital is very essential to maintain the smooth running of a business. No

business can run successfully without an adequate amount of working capital.

Some of the importance or advantage of adequate working capital are as

follows:

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Solvency of the business: Adequate working capital helps in maintaining

solvency of the business by providing uninterrupted flow of production.

Good will: Sufficient working capital enables a business concern to make

prompt payment and hence helps in creating and maintaining good will.

Easy loans: A concern having adequate working capital, high solvency

and good credit standing can arrange loans from bank and other easy and

favorable terms.

Cash discounts: Adequate working capital also enables a concern to

avail cash discounts on the purchases and hence it reduces costs.

Regular supply of raw materials: Sufficient working capital ensures

regular supply of raw materials and continuous production.

Regular payment of salaries: A company which has ample working

capital can make regular payment of salaries, wages and other day to day

commitments which rises the morale of its employees, increase there

efficiency, reduces wastages and costs and enhances production and

profits.

Exploitation of favorable market conditions: Only concerns with

adequate working capital can exploit favorable market conditions such as

purchasing its requirements in bulk when the prices are lower and by

holding its inventories for higher prices.

Ability to face crises: Adequate working capital enables a concern to

face business crises in emergencies such as depression because during

such periods, generally there is much pressures on working capital.

Quick and regular return on investment: Every investor wants a quick

and regular return on his investments. Sufficiency of working capital

enables a concern to pay quick and regular dividends to its investors as

there may not be much pressure to plough back profits. This gains the

confidence of its investors and creates a favorable market to rise

additional funds in the future.

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High morale: Adequacy working capital creates an environment of

security, confidence; high morale creates efficiency in a business.

Importance of Excess or Inadequate working capital:

Every business concern should have adequate working capital to run its

business operations. Both excess as well as short working capital positions are

bad for any business.

Disadvantages of redundant or excessive working capital:

Excessive working capital mans idle funds which earn no profits for the

business and hence the business cannot earn a proper rate of return on its

investments.

When there is redundant working capital, it may lead to unnecessary

purchasing and accumulation of inventories causing more chances of

theft, wastes and losses.

Excessive working capital implies excessive debtors and defective credit

policy which may cause higher incidence of bad debts.

It may result into overall inefficiency in the organization.

When there is excessive working capital, relations with the banks and

other financial institutions may not be maintained.

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

The redundant working capital gives rise to speculative transactions.

Disadvantages or dangers of inadequate working capital:

A concern which has inadequate working capital cannot pay its short –

term liabilities in time. Thus it will lose its reputation and shall not be

able to get good credit facilities.

It cannot buy its requirement in bulk and cannot avail discounts, etc.

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It becomes difficult for the firm to exploit favorable market conditions

and undertake profitable projects due to lack of working capital.

The firm cannot pay day-to-day expenses of its operations and it creates

inefficiencies, increases costs and reduces the profits of business.

It becomes impossible to utilize efficiently the fixed assets due to non

availability of liquid funds.

The rate of return on investments also falls with the shortage of working

capital.

Need or Objectives of working capital:

The need for working capital to meet the operation needs of a firm need

not be over emphasized. Every business needs some amount of working capital.

The need of working capital arises due to the time gap between production and

realization of cash from sales.

Working capital is needed for following purpose, they are:

For the purchase of raw materials, components and spares.

To pay wages and salaries.

To incur day-to-day expenses and over heads costs such as fuel, power

and office expenses, etc.

To meet the selling costs as packing, advertising, etc.

To provide credit facilities to the customers.

To maintain the inventories of raw materials, work-in-progress, stores

and spares and finished stock.

The amount of working capital needed goes on increasing with the growth

and expansion of business till it attains maturity. At maturity the amount of

working capital needed is called normal working capital.

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Principles of working capital management:

Principles of Risk Variation: Risk here refers to inability of a firm to

meet its obligation as and when they become due for payment. There is a

definite inverse relationship between the degree of risk and profitability,

A conservative management prefers to minimize risk by maintaining a

higher level of current assets or working capital while a liberal

management assumes greater risk by reducing working capital.

Principle of Cost of Capital: The various sources of raising working

capital finance have different cost of capital and the degree of risk

involved. Generally, higher the risks lower is the cost and lower the risk

higher is cost. A sound working capital management should always try to

achieve a proper balance between these two.

Principle of Equity Position: This principle is concerned with planning

the total investment in current assets. According to this principle, the

amount of working capital invested in each component should be

adequately justified by firm’s equity position.

Principle of Maturity of Payment: This principle is concerned with

planning the sources of finance for working capital. According to this a

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firm should make every effort to relate maturities of payment to its flow

of internally generated funds. Maturity pattern of various current

obligations is an important factor in risk assumptions and risk

assessments. Generally, shorter the maturity schedule of current liabilities

in relation to expected cash inflows, the greater the inability to meet its

obligation in time.

COMPONENTS OF WORKING CAPITAL:

There are three important components in working capital, they are:

Cash management.

Receivable management.

Inventory management.

Cash Management:

Cash management has assumed importance because it is the most significant of

all the current assets. It is required to meet business obligations and it is

unproductive when not used.

Cash management deals with the following:

Cash inflows and outflows.

Cash flows within the firm.

Cash balance held by the firm at a point of time by financing deficit or

investing surplus cash.

Receivable management:

Receivable management is the process of making decisions relating to

investment in trade debtors. We have already stated that certain investment

decisions are necessary to increase the sales and the profits of a firm. But at the

same time investment in this asset involves cost considerations also. Further,

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there is always a risk of bad debts too. Thus, the objective of receivables

management is to take a sound decision as regards investment in debtors.

Dimension of receivable management are:

Forming of credit policy.

Executing the credit policy.

Formulating and executing collection policy.

Inventory management:

The investment in inventory is very high in most of the undertakings

engaged in Manu fracturing, whole-sale and retail trade. The amount of

investment is sometimes more in inventory than in other assets. It is necessary

for every management to give proper attention to inventory than in other assets.

It is necessary for every management to give proper attention to inventory

management. A proper planning of purchasing, handling, storing and

accounting should form a part of inventory management. An efficient system of

inventory management will determine what to purchase, how much to purchase,

from where to purchase, where to store etc.

3.3) RATIO ANALYSISA ratio is a simple arithmetical expression of the relationship of one

number to another. It may be defined as the indicated quotient to two

mathematical expressions. According to Accountants hand book by Knell and

Bedford, a ratio “Is an expression of the quantitative relationship between

two numbers”

Ratio analysis is a process of comparison of one figure against another,

which make a ratio, and the appraisal of the ratios to make proper analysis about

the strengths and weakness of the firm operations. The calculations of ratios are

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a relatively easy and simple task but the proper analysis and interpretation of the

ratios can be made only by the skilled analyst. While interpreting the financial

information, the analyst has to be careful in limitations imposed by the

accounting concepts and information, the analyst has to be careful in limitations

imposed by the accounting concepts and methods of valuation. Information of

non-financial nature will also be taken into consideration before a meaningful

analysis is made.

Significance of Ratio Analysis:

The ratio analysis is one of the most powerful tools of financial analysis. It is

used as a device to analysis and interprets the financial health of the enterprise.

The use of ratios is not confined to financial managers only. There are different

parties interested in the ratio analysis for knowing the financial position of a

firm for different purposes of a firm for different purposes. The suppliers of

goods on credit, banks, financial institutions, investors, shareholders and

management all make use of ratio analysis as a tool in evaluating the financial

positions and performance of a firm for granting credit, providing loans or

making investment in the firm. With use of ratio analysis, one can measure the

financial condition of a firm and one can point whether the condition is strong,

good, questionable or poor.

Helps in financial forecasting and planning: Ratio analysis is of much

help in financial forecasting and planning. Planning is looking ahead and

the ratio calculated for a number of year work as guide for the future.

Meaningful conclusions can be drawn for future from these ratios.

Helps in control: Ratio analysis even helps in making effective control

of business standard ratio can be based upon Performa financial statement

variances or deviation, if any can be found by comparing the actual with

the standards to take a corrective action at the right time. The weakness or

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otherwise , if any come to the knowledge of the management which helps

in the control of business.

Utility to shareholder/investors: Investors in the company will like to

assess the financial position of the concern where he is going to invest.

His first interest will be the security of his investment and then a return in

the form of dividend or interest. For purpose he will try to assess the

value of fixed assets and the loans raised against them. The investor will

feel satisfied only if the concern has sufficient amount of assets long-term

solvency ratios will help him in assessing the financial position of the

concern. Profitability ratios, on the other hand will be useful to determine

the profitability position.

Utility to creditors: The creditors or suppliers extend short-term credit to

the concern. They are interested to know whether financial positions of

the concern enable their payments at a specified time or not. The concern

pays short term creditors out of its current assets. If the current assets are

sufficient to meet the current liabilities then the creditors will not hesitate

in extending credit facilities.

ADVANTAGES/USES OF RATIO ANALYSIS:

Ratio analysis simplifies the understanding of financial statements.

Ratio analysis is an instrument for diagnosing the financial

health/condition of a business that is through the computation comparison

and interpretation of accounting ratios.

Ratio analysis is an invaluable aid to the management in the efficient

discharge of its basic functions of forecasting, planning, communications

etc. By an analytical study of the past performance of the business, trends

in cost, sales, profits and other related facts can be understood and based

on such trends.

Future events can be forecasted.

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Ratios are helpful in establishing standard costing system and budgetary

control.

Ratio analysis is not only useful to management but also to outsiders like

creditors and investors.

LIMITATIONS OF RATIO ANALYSIS:

Ratio analysis is very useful in many aspects. However, its importance should

not be exaggerated because it has number of limitations which are as follows:

Ratios computed from historical dated are used for predicting and

projecting the likely events in the future. Such ratios may provide a

glimpse of the firms past performance but the forecast for the future may

not be correct.

Ratios are tools of quantitative analysis only. As such only quantitative

aspects are taken into account in ratios analysis, thereby ignoring

qualitative factors which generally where the conclusions are drawn.

A ratio is a hypersensitive; a new entry of a transaction can change its magnitude drastically.

3.4) Categories of Ratios

The ratio analysis is made under six broad categories as follows:

Long-term Solvency Ratios.

Shot-term Solvency Ratios.

Profitability Ratios.

Activity Ratios.

Operating Ratios.

Long-Term Solvency Ratios:

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The long term liability financial stability of the firm may be considered as

dependent upon its ability to meet all its liabilities, including those not currently

payable. The ratios which are important in measuring the long-term solvency

are as follows:

Debt-Equity Ratio.

Shareholders equity ratio.

Debt to net worth ratio.

Capital gearing ratio.

Fixed assets to long-term funds ratio.

Proprietary ratio.

Debt service coverage ratio.

Dividend cover.

Interest cover.

1. Debt-Equity ratio: Capital is derived from two sources: share and

loans. It is quite likely for only shares to be issued when the

company is formed, but loans are invariably raised at some later

date. There are numerous reasons for issuing loan capital. For

instance, the owners might want to increase their investment but

avoid the risk which attaches to share capital, and they can do this

by making secured loan.

Debt Equity Ratio = Long Term Debt Share Holders Fund

This ratio indicates the relationship between loan funds and net

worth of the company, which is known as gearing. If the proportion

of debt to equity is low, a company is said to be low-geared and

vice versa. A debt equity ratio of 2:1 is the norm accepted by

financial institutions for financing of projects. The higher the

gearing, the more volatile the return to the shareholders.

2. Shareholders equity ratio: Share holders Equity

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Total assets (Tangible)

It is assumed that the larger the proportion of the shareholders

equity, the stronger is the financial position of the firm. This

ratio will supplement the debt equity ratio. In this ratio the

relationship is established between the shareholders funds and the

total assets. This ratio indicates the degree to which unsecured

creditors are protected against the loss in the event of liquidation.

3. Debt to net worth ratio: The ratio compares long- term debt to the

net worth of the firm i.e., the capital and free reserves less

intangible assets. This ratio is finer than the debt-equity ratio and

includes capital which is invested in fictitious assets like deferred

expenditure and carried forward losses. This ratio would be more

interest to the contributors of long term finance of the firm.

Debt to Net worth Ratio = Long term debt

Net worth

4. Capital gearing ratio: It is the proportion of fixed interest bearing

funds to equity shareholders funds. The fixed interest bearing funds

include debenture, long term loans and preference share capital.

The equity shareholder funds include equity share capital, reserves

and surplus. Capital gearing ratio indicates the degree of

vulnerability of earnings available for equity shareholders.

Capital Gearing Ratio = Fixed Interest bearing funds

Equity share holders fund

5. Fixed assets to long term funds ratio: This ratio indicates the

proportion of long term funds deployed in fixed assets. Fixed

assets represent the gross fixed assets less depreciation

provided on this till date of calculation. Long term funds

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include share capital, reserves and surplus and long term

loans. The higher the ratio indicates the safer the funds

available in case of liquidation. It also indicates the

proportion of long term funds that is invested in working

capital.

Fixed Assets to Long Term Funds Ratio = Fixed Assets

Long-Term funds

6. Proprietary Ratio: It expresses the relationship between net worth

and total assets.

Net worth = equity share capital+ preference share capital+

reserves- fictitious assets.

Total assets= fixed assets+ current assets

Reserves embarked specifically for a particular purpose should not

be included in calculation of net worth. A high proprietary ratio is

indicative of strong financial position of the business. The higher

the ratio the better it is

Proprietary Ratio = Net Worth

Total Assets

7. Interest cover: The interest coverage ratio shows how many times

interest charges are covered by funds that are available for payment

of interest. An interest cover of 2:1 is considered reasonable by

financial institutions. A very high ratio indicates that the firm is

conservative in using debt and a very low ratio indicates excessive

use of debt.

Interest Cover = Profit before Interest, Depreciation and Tax

Interest

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8. Dividend cover: This ratio indicates the number of times the

dividends are covered by net profits. This highlights the amount

retained by a company for financing of future options.

Dividend Cover = Net Profit after Tax

Dividend

Short- Term solvency Ratios:

The short-term solvency ratios, which measure the liquidity of the firm and its

ability to meet its maturing short-term obligations. Liquidity is defined as the

ability to realize values in money the most of liquid assets. It refers to the ability

to pay in cash, the obligations that are due.

The corporate liquidity has two dimensions viz, quantitative and qualitative

concepts. The quantitative concept includes the quantum, structure and

utilization of liquid assets and in the qualitative concept it is the ability to meet

all present and potential demands on cash from any source in a manner that

minimizes cost and maximizes the value of the firm. Thus, corporate liquidity is

a vital factor in business-excess liquidity, though a guarantor of solvency would

reflect lower profitability, deterioration in managerial efficiency, increased

speculation and unjustified expansion, extension of too liberal credit and

dividend policies.

The important ratios in measuring short term solvency are:

Current ratio.

Quick ratio or liquid ratio.

1. Current ratio: This ratio measures the solvency of the company in the

short-term. Current assets are those assets which can be converted into

cash within a year. Current liabilities and provisions are those liabilities

that are payable within a year. A current ratio of 2:1 indicates a highly

solvent position. A current ratio of 1.33:1 is considered by banks as the

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minimum acceptable level for providing working capital finance. A high

current ratio may be due to the pilling up of inventory, inefficiency in

collection of debtors, high balances in cash and bank accounts with out

the proper investment.

Current ratio = Current Assets, Loans & Advances

Current liability & provision

2. Quick ratio or liquid ratio: This ratio is used as measure of the

company’s ability to meet its current obligations. Since bank overdraft is

secured by the inventories, the other current assets must be sufficient to

meet other current liabilities. A quick ratio of 1:1 indicates highly solvent

position. This ratio is called acid test ratio. This ratio serves as a

supplement to the current ratio in analyzing liquidity.

Quick Ratio or Liquidity Ratio = Current Assets, Loans & Advances – Inventories

Current Liability & provision – Bank overdraft

Profitability Ratios:

The purpose of study and analysis of profitability ratios are to help assessing the

adequacy of profits earned by the company and also to discover whether

profitability of the firm is the net result of a large number of policies and

decisions. The profitability ratios show the combined effects of liquidity, asset

management and debt management on operating results. Profitability ratios are

measured with reference to sales, capital employed, total assets employed,

shareholders funds etc. The major profitability ratios are as follows:

Return on capital employed or return on investment (ROCE or ROI).

Earnings per share (EPS).

Cash earnings per share (Cash EPS).

Gross profit margin.

Net profit margin.

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Cash profit margin.

Return on assets.

Return on Net worth (Return on shareholders funds).

1. Return on capital employed: The strategic aim of business enterprises is

to earn a return on capital. If in any particular case, the return on the long-

run is not satisfactory then the deficiency should be corrected or the

activity be abandoned for a more favorable one. Measuring the historical

performance of an investment centre calls for a comparison of the profits

that has been earned with capital employed.

Return on Capital Employed = Net Profit 100

Capital Employed

2. Earnings per share (EPS): The objective of financial

management is wealth or value maximization of a corporate entity.

The value is maximized when the market price of equity shares is

maximized. The use of the objective of wealth maximization or net

present value maximization has been advocated as an appropriate

and operationally feasible criterion to choose among the

alternatives financial actions. A higher EPS means better capital

productivity.

Earning per Share = Net Profit after tax and Preference Dividend

No of Equity Shares

3. Gross profit margin: The ratio measures the gross profit margin on the

total net sales made by the company. The gross profit represents the

excess of sales proceeds during the period under observation over their

costs, before taking into account administration, selling and distribution

and financing charges. The ratio measures the efficiency of the company

operations and this can be compared with the previous year’s results to

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ascertain the efficiency partners with respect to the previous years. The

gross profit margin may be compared with that of competitors in the

industry to assess the operational performance relative to the other

players in the industry.

Gross Profit Margins = Sales – Cost of Goods Sold 100

Sales

4. Net profit margin: The ratio is designed to focus attention on the net

profit margin arising from business operations before interest and tax is

deducted. The convention is to express profit after tax and interest as a

percentage of sales. A draw back is that the percentage which a result

varies depending on the sources of employed to finance business activity,

interest is charged above the line while dividends are deducted below the

line. It is for this reason that the net profit earnings before interest and tax

(EBIT) are used. It is to be observed that majority of the costs debited to

the profit and loss account are fixed in nature and any increase in sales

will cause the cost per unit to decline because of the spread of same fixed

cost over the increased number of units sold.

Net Profit Margin = Net Profit before interest and Tax 100

Sales

5. Cash profit ratio: where cash profit= net profit + depreciation

Cash profit ratio measures the cash generation in the business as a result

of the operations expressed in terms of sales. The cash profit ratio is more

reliable indicator of performance where there are sharp fluctuations in the

profit before tax and net profit from year to year owing in depreciation

charged. It also facilitates inter-firm comparison of performance since

different methods of depreciation may be adopted by different companies.

Cash Profit Ratio = Cash Profit 100

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Sales

6. Return on assets: The profitability of the firm is measured by

establishing relation of net profits with the total assets of the organization.

This ratio indicates the efficiency of utilization of assets in generating the

revenue.

Return on Assets = Net Profit after Tax 100

Total Assets

Activity ratios or Turnover ratios:

Activity ratios measure how effectively the firm employs its resources. These

ratios are also called turnover ratios which involve comparison between the

level of sales and investments in various accounts inventories, debtors, fixed

assets, etc, activity ratios are used to measure the speed with which various

accounts are converted into sales or cash. The following activity ratios are

calculated for analysis:

Inventory ratio: A considerable amount of a company’s capital may be tied up

in the financing of raw materials, work-in-progress and finished goods. It is

important to ensure that the level of stocks is kept as low as possible, consistent

with the need to fulfill customer’s order in time.

Inventory turnover ratio: Cost of goods sold

Average inventory

Average inventory: opening stock+ closing stock

2

Inventory ratio: The level of inventory in a company may be assessed by the

use of the inventory ratio, which measures how much has been tied up in

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inventory. The inventory turnover ratio has decreased from past, it means that

either inventory is growing or sales are dropping. In addition to that, if a firm

has a turnover that is slower than for its industry, then there may be obsolete

goods on hand, or inventory stocks may be high. Low turnover has impact on

the liquidity of the business.

Inventory ratio: Inventory 100

Current assets

Debtors:

There are three main debtors ratios are as follows :

1. Debtor turnover ratio: Debtor turnover, which measures whether the

amount of resources tied up in debtors, is reasonable and whether the

company has been efficient in converting debtors into cash.

Debtors turnover ratio: Credit sales

Average debtors.

2. Debtors collection period: Average collection period, which measures

how long it take to collect amounts from debtors. The actual collection

period can be compared with the stated credit terms of the company. If it

is longer than those terms, then this indicates some insufficiency in the

procedures of collecting debts.

Debtors collection period: Average debtors X 365

Credit sales

3. Bad debts to sales ratio: This ratio indicates the efficiency of the credit

control procedures of the company. Its level will depend on the type of

the business. Mail order companies have to accept a fairly high level of

bad debts, while retailing organizations should maintain very low levels

or, if they do not allow credit accounts, none at all. The actual ratio is

compared with the target or norm to decide whether or not acceptable

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Bad debts to sales ratio: Bad debts

Sales

4. Creditors payment period: In general the longer the credit period

achieved the better, because delays in payment mean that the operation of

the company are being financed interest free by suppliers of funds. But

there will be a point beyond which delays in payment will damage

relationships with the suppliers which, if they are operating in a sellers

market, may harm the company. If too long period is taken to pay

creditors, the credit rating of the company may suffer, there by making it

more difficult to obtain suppliers in the future.

Creditor payment period: Average creditors X 365

Purchases

Operating ratios:

The ratio of all operating expenses (i.e. materials, labour, factory overheads,

administration, and selling expenses) to sales is the operating ratio. A

comparison of the operating ratio would indicate whether the cost content is

high or low in the figure of sales. If the annual comparison shows that the sales

has increased the management would be naturally interested and concerned to

know as to which element of the cost has gone up.

1) Material cost ratio. 2) Administrative expenses ratio.

3) Labour cost ratio. 4) Selling and distribution expenses ratio.

5) Factory overhead ratio.

CHAPTER-4

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COMPANY PROFILE

VISHWANATH SUGARS LIMITED

BELLAD-BAGEWADI

4.1) PROFILE OF THE COMPANY

Vishwanath Sugars Ltd., was a pioneer in the exporting of power to other

industry. Situated in state of Karnataka, it combines for technology and the

latest. Mechanization and compliments with a two years experience result, High

quality sugar.

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Alongside, the factory waste namely molasses is used for organo

Chemicals industrial alcogol/rectified spirit is manufacture with the sugar waste.

This VSL company is also looking towards venturing into plant a new plant for

production.

4.2) History:

Vishwanath sugars ltd entered the sugar industry in the late nineties.

Based in the Indian State of Karnataka, it began operations by setting up one

sugar factory, of which used a scientific method of cultivation. Despite

increasing emphasis on traditional cultivation methods, Vishwanath sugars ltd

was among the few to introduce modernity to this industry.

Sugar factories in Maharashtra were being victimized through state

policies Private farms were being nationalized and the co-operative movement

quickened the pace of ultimate closure of these farms. This was unfortunate

because the yields from these belts of sugarcane were among the best in the

world. The yield of cane was 64 ton per acre, recovery of sugar was 11.5% per

acre and yield of sugar was 7.36 tons per acre. Realizing that it could no longer

work towards its full potential, the opened Vishwanath Sugars Ltd at Bellad

Bagewadi in Karnataka State.

In 2002, the foundation stone at the factory of Vishwanath sugars ltd was

laid by then Governor of Karnataka. Due to the prevalent India Pakistan war at

that time.

The factory was erection on a war footing and commissioned in a record

time of less than ten months. Production started in 2005.Today advanced

technology and a high level of Mechanization has made Vishwanath sugars ltd

one of India’s largest sugar producers. This Vishwanath sugars ltd company has

one of the highest average recovery rates in industry.

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4.3) ABOUT THE FOUNDER

A Light has gone out of our lives but has left behind many sweet

memories. Born with humble feelings, Shri Umesh V. Katti learnt that Honesty

and hard work lead to success. Very early in his life, through the example and

teachings of great men like swami Vivekanand, Mahatma Gandhi and swami

Dayanand Saraswati, he assimilated in his life the maxim that “There is no

religion greater than man”.

Shri Umesh V. Katti started his carrier as agriculturist. He use to grow

sugar cane as a main crop in his filed. In later days Shri Umesh V. Katti has

acquired great name and reputation from his achievements in agriculture, for his

insight and analytical skills and for his deep understanding of people problems.

A popular person Shri Umesh V. Katti made his mark for his outspoken and

fortnight views and stood for the elections of MLA and was also elected as a

MLA and after that he was selected another three times as a MLA and for the

forth time he became a Sugar minister and was Public Work Department and

cabinet minister. He was also Director of Belgaum District Co-operative Bank.

And at present he is the Horticulture and Prison Minister in cabinet.

Then he started his carrier as a Business man as a industrialist, when we

studied about his we would he was a visionary person and a hard worker and he

is a self made man and a good decision maker.

When we asked his employs their opinion was that “He is a kind hearted

Person and also a well knowledge person in the field of sugar industry and

distillery industry technical field.” When we asked for some more details they

told being a politician he is also a great industrialist. They also told that my

establishing this industry in rural place he is feeding thousand of family’s live

hoods. Being a agriculturist he understands the problems of farmers and poor

people and helped to solved the problems. When we asked the people of the

villages.

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Shri Umesh V. Katti vision and foresight have led to this huge growth of

industry in Karnataka. Due to his belief in Humanity and faith in Almighty he

could transform his dream into reality.

4.4) Location: Vishwanath sugars ltd is located at Bellad Bagewadi small village in the

Belgaum district of Karnataka Bellad Bagewadi lies in presented between two

rivers, Ghatprabha & Krishna. It falls under the command area of Hidkal dam,

on the Ghatprabha Left Bank canal, at the confluence of four townships

(talukas) , Mudhol, Jamakhandi, Raibag and Gokak.

4.5) COMPANY VISION AND MISSIONS :

VSL will continue to expand its operations by expanding production into

new markets and applications. Growth will also come from value added

diversification derived from the group’s strengths in products and process.

The quality of the products and services delivered by VSL will always

strive to exceed customer expectations.

VSL always has and will continue to use renewable resources in its

products. We believe that this is an important need for sustainable development.

VSL has been and always is aware of its social commitment to the

community that it serves. We believe that we have a responsibility and

obligation to return to society what we earn from it.

VSL has a vision to adopt the most modern technologies and equipments

to improve the production of the company and to create more no of

employment.

VSL has an vision to help farmers present in the surrounding area and

help them in improving their yield totally they want to see rural development.

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4.6) ORGANIZATION STRUCTURE:

4.7) MANAGEMENT TEAM:

Mr. Umesh V. Katti Mr. Umesh V. Katti is Chairman and Promoter of the company having

business and manufacturing interest in Sugar Industrial Alcohol, Organic

Chemicals, Agriculture etc. since over five years. He is also associated with

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various Educational, social and Cultural Organization and is also cabinet

minister of the state government.

Mr.Ramesh V. KattiMr.Ramesh V. Katti is the vice chairman of the company. He is also

Bachelor of Arts from Hukkeri. He is also a Chairman of a Sugar cane factory at

Hukkeri.

Shri Mallikarjun Pujar Managing Director of the company having more than 12 years of

experience in the filed of Sugar, Chemical and Power. He is Bachelor of Arts

having such a good experience he is good at managerial skills which helps

maintaining of people of the company.

Shri Mukesh Kumar SharmaHe is COO of the company with more than 13 years of experience in the

filed of Sugar Industry. He is well known person in Sugar Industry. He is person

who had his Bachelor of Engineering from Bihar with specialization in the field

of Chemistry.

Mr. Shivanand M Katti Whole time Chief Electrical Engineer of the company. He is B.E. in

electrical from belgaum. He is the person with great knowledge who is most

helpful person in the company who looks after power section of the company.

4.8) BANKERS AND INSTITUTIONS:Bank of India

Industrial Development Bank of India

State Bank of India

HUDCO

4.9) COMPANY QUALITY POLICY :

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We are committed to produce and supply products to meet our costumers

needs.

We shall continually strive to improve the effectiveness of our quality

management system.

We shall train and motivate our employees for continual improvement.

We are conscious of our responsibility towards safety, Health and

Environment.

Quality is what we think, and Believe.

4.10) PRODUCT AT GLANCEThe specification of Bellad Bagewadi sugar isPolarization : 99.80 to 99.88

Moisture : 0.35 to 0.06

Icmsa : up to 150 units

Ash : 0.08 to 0.10

Granulation : S-30 of Indian Sugar

Standard Colour : Sparking white

Packing : Present Packing. 100 kg

However they can be packaged in 50 kg HDPE bags, if required.

Vishwanath sugars ltd is the manufacture of White Crystal Sugar, along with

sugar some other main products manufactured in Vishwanath Sugars works ltd

are…Power ,Distillery Products,Bio-gas etc…..

4.11) Sugar Industry By-Products

SUGAR CANE

SUGAR MOLASES BAGASSE PRESS MUD

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RECTIFIED BIOGAS EXPORTABLE POWER BIO SPIRIT POWDER FERTILIZER

FUEL INDUSTRIAL PORTABLEETHANOL ALCHOHOL ALCHOHOL

4.12) FUNCTIONAL DEPARTMENTS

1 Administration Department

2 Purchase Department

3 Cane Development Department

4 Production Department

5 Finance Department

6 Sales and Distribution Department

Administration Department

Administration department is the main department in the organization.

They are total number of 38 employees working in this department. Is divided

into 6 sections and they are as below :

1. Share section.

2. Purchase section.

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3. Stores section.4. Sales Section.

5. Time office section.

6. Computer section.

7. Security section.

8. Telephone operating section.

1) SHARE SECTION:

The Share section is one of the important sections because more than half

of the total authorized capital is collected from shareholders. In this factory the

share are class

1. Grower shares A class

2. Non Grower Shares D class

3. Society share B Class

4. Out of Area Share E class

5. Govt share C Class

The person who wants to become a member has to follow the procedure /

rules. He has to fulfill appropriate application given by the share section

authority. If the boards of directors approve the application in body meeting,

then only he is treated as shareholder of the factory. After the approval he has to

pay the amount equivalent to face value of the share.

There is no transferability of share. If at all he wants to transfer his shares,

he has to transfer to such a person who is the member of the factory. If he

transfer to another person it is not valid and such shares get cancelled. For the

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identification of its members, the factory issues share certificate and identity

cards to such share holders.

2) PURCHASE SECTION :

Purchase officer

Clerks

Attenders

FUNCTIONS OF PURCHASE DEPARTMENT:-

receiving purchasing requisition

determining the volume of materials to be ordered

placing orders

inviting tenders and quotations from different suppliers

Checking and passing bills for payment.

Receiving and inspecting materials.

Steps involved in purchasing the materials:

A. Raising requisition :

It is the first step and necessity for particular can be used only by the user

of the material.

B. Scrutinizing requisition :

The manager scrutinizes the demand of materials. He examines

whether the item mentioned in the requisition note is necessary or not.

C. Vendor selection :

After scrutinizing, if a material is necessary then tender advertisement

is given or if they have permanent vendors. The manager chooses the power

vendor. The BOD does selection of vendors.

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D. Enquiry :

After selecting a proper vendor enquiry is sent to the vendor.

E. Receiving Quotation :

The purchase manager receives the quotations from vendors to whom

the enquiries are sent. Through there quotations a right vendor is chosen.

F. Sending purchase order :

Lastly the purchase order is placed to the selected venders. In this way

purchase of material takes place.

3) STORES SECTION

Stores keeper

Clerks Tool room Clerk Diesel room Clerk

Attainders Tool room attainders Clerks

Daily wage labors Attainders

PROCEDURE OF WORKING AT PRESENT: Handling of materials: First, they receive the stores purchase indents

from concerned section heads for requisition to purchase item needed for the

crushing or off season work. Then they mention the present stock of item in the

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purchase indents, after verifying the stores. Then only they forward the

purchase indents.

After receiving the materials from suppliers they seek the quality approval

of the same materials. After getting the approval materials are placed to the

respective to the racks they issue the materials by adapting FIFO method.

They issue the materials to the workers of the factory on loan and

retainable basis on daily loan or personal loan.

STORES ACCOUNT:

After receiving the materials from suppliers quantity will be verified.

The details of the materials will be entered in to transport registered and

approved memo will be sent to the concerned departments for getting quality

approval. They keep bin cards for each different items receipt from the suppliers

with details.

TOOL ROOM:

Tool room is personnel issue the materials to the workers on temporary

loan and retainable basis entering in the register.

List of the registers:

1. Transport register.

2. Approval memo book.

3. Bin card files.

4. Purchase order.

5. Stores purchase indent etc.

4) TIME OFFICE :

Time keeper

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Clerks

Time office is one of the important sections of administration department.

There are 5 employees working in this department.

Functions:

1. Showing the absent report to the HOD’s

2. To receive the attendance cards from the workers

3. To put attendance of the workers in the master role

4. It arranges the duty to the workers, maintains working bell

5. It maintains salary register book.

Types of Leaves:

1. Sick leaves :

Sick leave provided to employees 15 days per year

2. Casual leaves :

Casual leave provided to employees 12 days per year

3. Earn leaves :

If employee attends 30 days in a month then he is eligible for 3 days

Earn leave

Shift working : In a shift of 8 hours the factory is providing 4 types of shifts.

Shift Time

I 4 am to 12 pm

II 12 pm to 8 pm

III 8 pm to 4 am

General Shift 8-30 am to 5-30 pm

5) SALES SECTION :

Sales officer

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Godown clerk

Consultant Clarks

In this section sales of the following products produced takes place are

sugar, molasses, bagasses and power. This factory is producing three types

of sugars they are M-30, S1-30 and S2-30 grades. And also it producing by

products like molasses, bagasses, press mud. These are used by factory it self

only like molasses and press mud are used in distillery / Ethanol production

and bagasses is used in production of power. And power is exported to

KPTCL.

This section will take care of all the sales transactions. The sale of sugar

is done according to the notification by the central government and has such

factories follows certain government rules in sales of sugar. Accordingly,

Karnataka state federation of co-operative sugar factories limited will give

figures of bags to sell within a month.

PROCEDURE FOR SALE:

The organization undertakes selling activities in three methods;

1. Free sale: Free sale is done within the country. Hear company will invite

tenders from different buyers at a 10 days notice. The sugar is sold to that

buyer who quotes or bids highest price. Tenders are called periodically. If

the rate is not satisfactory the tender will be cancelled. In free sale sugar

is being done to bulk purchases on the bases of tenders, these bulk

purchases then sell the purchased sugar to retailers.

2. Levy sale: It is also done within the state of Karnataka and being sold to

the government of Karnataka on levy bases. The government then

distributes outlets at predetermined, reasonable price.

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3. Export : Sugar is sold outside the country on the contract bases.

According to the rules and regulation of the contract it will be done.

6) COMPUTER SECTION:

The total number of employees working in this department is 9. This section

is to maintain all types of records that are very important for the organization

and the following departments are computerized in the factory,

a) Weigh bridge department

b) Cane accounts department

c) Time office department

d) Laboratory department

e) Stores department

f) Sales department

g) Purchase department

h) General accounts department

i) Sales accounts section

7) SECURITY SECTION:

Security officer

Assistant security officer

Security guard

The security section is operating under the administrative department. It

is also working in three shifts as mentioned under time office section. Hear in

this department the employees are recruited on the yearly contract basis. There

are total 42 guards working in this section.

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FACILITY TO WORKERS:-

1 Availability of rest house with TV facility.

2 Availability of quarters.

3 Providing 2 wheelers for employees who are visiting the field to

supervise and check the availability cane.

4 Executive levels are provided with 4 wheelers.

5 Weekly one holiday of any in a week

FINANCE DEPARTMENT:Accounts of finance department are the main and the hart of every

department of the company or industry. Hear in this factory, the accounts

section maintains all the transactions related to the factory dealings. The sale

accounts, purchase accounts, etc are maintained and this department prepares

P&L account, Balance sheet, etc.

In RSSK is divided finance department or accounts department in two sections.

1. General account section

2. Cane account section

In the above chart 50% of the labors are working in the general

account section and 50% are in the cane accounts section.

1. GENERAL ACCOUNTS SECTION:

In general accounts section book keeping is followed. General

account transactions like receipts and payments registers are maintained.

Receipts include sales process of sugar, molasses, share amount, etc. Payments

include salary, tax, etc. maintaining audit and audit rectification is done, annual

account and monthly account are prepared and maintained.

Some other types of registers are maintained by this section are:

a. Advance register

b. Contractors register

c. Contra register

d. Fixed assets register

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e. Bank register

f. Expense register

Functions

1) Its main function’s to finalize each & every record of the factory.

2) It prepares profit & loss a/c & balance sheet.

3) It executes financial activities in factory.

4) Ratio analysis.

5) Report to the management.

6) Conduction of meetings.

2. CANE ACCOUNTS SECTION:

This section maintains the cane accounts and cane bills. This section

purchases the cane on daily basis and prepares accounts of forthrightly basis. In

addition, will take care of all cane suppliers accounts and department manager

separates accounts for cane suppliers.

The section will provide cane bill once in a month desired by the higher

authority. While giving cane bill, department will debut all the expenses and

advances which is given to the cane suppliers in terms of seeds, fertilizers and

transportation facilities and also harvesting of the cane that all the expenses are

given by the factory.

The registers maintained in this section are:

a) Self harvesting payment register

b) Harvesting bills

c) Cultivator payment register

CANE DEVELOPMENT DEPARTMENT

Cane Manager

Office manager Cane Cane Procurement Manager Cane Dev Manager

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Cane Officers Cane Officers Field Assistants Field Assistants

Objectives of the CDD:

To get best quality of cane at a right time

To improve the variety of the cane

To provide all facilities like seeds, fertilizers, unloading and

loading charges

Main objectives are to receiving exactly 2500 TCD

To undertake seeds development program

Varieties of Sugar cane:

1. COC671 {Early Maturity}

2. CO8011 {Middle Maturity}

3. CO86032 {Early Maturity}

4. CO8021 {Early Maturity}

5. CO94012 {Early Maturity}

PRODUCTION DEPARTMENT

STRUCTURE

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Laboratory In charge

Deputy Chief Chemist

The production department is center of the center organization. The main

function of the production department is Functions:-

To maintain close and co-ordinates relationship with all others.

To upgrade the technical efficiency of the production.

To flow up the daily production schedule of as per plan.

To produce the future needs of the company and to promote the

organization.

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Laboratory Chemist

Laboratory Boys

Manufacturing Chemist

Staff and Workers

CHAPTER-5

ANALYSIS

SCHEDULE OF CHANGES IN WORKING CAPITAL

SL.NO PARTICULARS 31/03/2009 31/03/2008 Increase or Decrease in

Absolute1 LOANS :-

Secured Loans 1,330,097,993.26 638,064,463.23 692033530.03

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Unsecured Loans 23,242,972.00 ---------------- 23,242,972.00

TOTAL 1353340965.26 638,064,463.23 715276502.03

2 FIXED ASSETS Gross Block 1,800,795,673.04 965,574,561.26 835221111.78

(Less) - Depreciation 169,905,278.44 124,662,222.38 45243056.06

Net Block - A 1,630,890,394.60 840,912,338.88 789978055.72

TOTAL CURRENT ASSET

1,119,608,329.53 683,578,842.26 436029487.27

(Less) – Current Liability in provision

584,263,485.22 279,261,185.52 305002299.7

Net Current Assets – B

535,344,844.31 404,317,656.74 131027187.57

Total (A+B) 2166235238.91 1245229995.62 921005243.29

Working capital required:

WCP= COGS * Operating Cycle + Desired Cash Balance

No of Working Days

Operating Cycle = Raw material + WIP + Finished Goods +Debtors – Creditors

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1) Raw Materials

a) Average Stock of Raw materials = Total of Raw materials and Components

2

b) Raw material consumption per day = Total material consumed

No of working days

(Amount in Rupees)

PARTICULARS 2009 2008 2007

Average stock of Raw materials 500023234.43 275874282.31 254892920.00

Raw Material consumption per day 3846332.57 1339195.54 897510.28

Raw materials (in days) 130 206 284

Working capital maintained by the company:

WC= Current assets (less) Current liabilities.

Particulars 2009 2008 2007

Total current assets 1,119,608,329.53 683,578,842.26 422067183.97

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Totalcurrent liabilities 584,263,485.22 279,261,185.52 151708691.07

W.C 535,344,844.31 404,317,656.74 270358492.90

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RATIO

ANALYSIS

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1)Debt Equity Ratio:

Debt Equity Ratio = Long Term Debt Share Holders Fund

Debt= Secured loan + unsecured loan (long term)

Particular’s 2009 2008 2007

Debt 135,33,40,965.26 63,80,64,000 76,80,20,840

Equity 34,03,59,000.00 34,03,59,000 33,19,71,481

Ratio 3.97 1.87 2.31

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2) Shareholders equity ratio:

Shareholders equity ratio: Share holders Equity

Total assets (Tangible)

Particulars 2009 2008 2007

Shareholders funds 83,45,92,364.65 60,93,74,000 34,38,69,627

Total assets 2,18,79,33,329.91 152,67,00,000 110,46,90,466

Ratio 0.38 0.39 0.31

Share holders equity: Equity shares+ Preference+ Reserves and surplus- losses (if any)

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3)Debt to net worth ratio:

Debt to Net worth Ratio = Long term debt

Net worth

Net worth: equity + preference+ reserves and surplus- losses

Particulars 2009 2008 2007

Long term debt 135,33,40,965.26 63,80,64,000 76,80,20,840

Net worth 83,45,92,364.65 60,93,74,000 34,38,69,627

Ratio 1.62 1.04 2.23

:

If we look at this ratio we can say the company is having more long term debts than its net worth. So the company has to taken care of it. Here higher the ratio higher the obligation and vice-versa.

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4) Fixed assets to long term funds:

Fixed assets to long term funds: Fixed assets

Long term funds.

Long term funds = equity + debt

Particular’s 2009 2008 2007

Fixed Assets 1,63,08,90,394.60 84,09,12,000 83,19,52,687

Long term funds. 169,36,99,965.26 97,84,23,000 109,99,92,321

Ratio 0.96 0.85 0.75

If we look at this ratio the company is getting more and more long term funds from year to year. This analysis states us that the company securing itself by raising its long term funds. This raise the company’s capability of investment.

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5) Current ratio:

Current ratio: Current assets

Current liabilities

Particular’s 2009 2008 2007

Current assets 111,96,08,329.53 68,35,78,842.26 42,20,67,183.97

Current Liability 58,42,63,485.22 27,92,61,185.52 15,17,08,691.07

Ratio 1.91 2.44 2.78

:

As the current ratio is moving downwards from year to year, it states us that the company is becoming lesser capable to meet its short term obligations. If the company’s current ratio goes lesser than 1 it would be very harmful to the company. So the company has taken care of it.

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6) Quick Ratio:

Quick Ratio: Current assets- stock

Current liabilities- bank o/d

Particular’s 2009 2008 2007

Current Assets- Stock 66,90,90,723.72 37,81,31,521.16 19,65,75,176.36

Current Liability – Bank overdraft

58,42,63,485.22 27,92,61,185.52 15,17,08,691.07

Ratio 1.14 1.35 1.29

If we look at the quick ratio we can say that the company is not so consistent to meet its short term debt obligations. By above analysis the company from 2007 to 2008 it had more capability of repaying its debt obligations and if compare 2008 to 2009 it has lost its capability of repayment of its debt obligations.

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7)Return on capital employed:

Return on Capital Employed = Net Profit 100

Capital Employed

Particulars 2009 2008 2007Net Profit 22,52,18,081.25 21,64,97,137.69 7,09,29,391.60Capital Employed 83,45,92,364.65 60,93,74,000 34,38,69,627

Ratio 0.26 0.35 0.20

This position of the company states us that the company is fair enough in its return on capital employed. The above analysis states us that the company as compared to 2009 into 2008 it is not having fair margin and if we 2008 into 2007 it has gained good margin in it.

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8) Net profit margin:

Net Profit Margin = Net Profit before interest and Tax 100

Sales

Particulars 2009 2008 2007Net Profit before interest and Tax

251,079,243.25 247,131,501.69 70929391.60

Sales 1,160,705,003.75 942,877,990.40 518359946.19

Ratio 0.21 0.26 0.13

By above analysis we can say that as compared to 2007 into 2008 it has gained good control over its costs and if we compare 2009 into 2008 the company is not having much control over its costs.

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SUGGESTION AND RECOMMENDATION

On the basis of analysis, the recommendation to further improves the working capital management, which would level the company to greater heights.

1) As we seen in the current ratio, we can say that the company is utilizing its equity fully. This states us that there is no unutilized fund in the company.

2) By observing current ratio, we can say that the company is having more current assets than its current liabilities.

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