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Chapter I
Introduction To Study
Introduction Statement of the study Objectives of the study Methodology Scope and significance of the study Limitations
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Chapter I
Introduction to Study
Introduction
Working capital may be regarded as the life blood and controlling nerve
centre of the business. Working capital is very important in every business
because it is the capital required for day to day working in business concern
material, for meeting day to day expenditure on salary, wages, rent, advertisement
etc.
A business cannot invest whole of its capital in long term asset. The ratio of
fixed capital and working capital may differ in the different business depend upon
its nature and volume. But it quite impossible to have no working capital to meet
its day to day obligation.
The finance manager spend most of his time in managing current asset and
current liabilities arranging for short term financing, negotiating for favorablecredit terms, controlling the movement of cash, management of account
receivables and maintaining a satisfactory level of inventory.
Working capital management is a relationship between current assets and
current liabilities. In this study effort are made to study all aspects related to
working capital management in Islampur Dudh Puravatha Sahakari Kendra Ltd.,
Islampur.
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Statement of the study
A study of Working Capital Management with special reference to
Islampur Dudh Puravatha Sahakari Kendra Ltd., Islampur.
Objectives of the study-
1. The major objective of this project report is to study the existing position ofworking capital management in the organization.
2. To study the concept, tool, techniques of working capital management appliedby the organization.
3. To know the financial strength and weakness of the organization throw threeWorking Capitals methods (ratio analysis, cash management & fund flows).
4. To study effectiveness of working capital management by means of ratio.
Research Methodology
Research methodology concerns itself with obtaining information through
empirical observation that can be used to systematically develop logically related
propositions so as to attempt to establish causal relationship among variables.
It completion of project the methods used were mostly situational. The
method, which was sought to be most appropriate and effective, was adopted for
special purposes.
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The project data analysis too was conducted with the help of various methods and
techniques like Working Capital ratio analysis, Funds flow and Working Capital
estimation with graphical presentation and inferences based thereon.
Sources of Data
Data constitutes the subject matter of analysis. The relevance, adequacy and
reliability of data determine the quality of the study.
Data is primarily of two kinds:
1. Primary data2. Secondary data
Primary data-
In this study, the primary data is mainly collected by conducting interview
and discussion with clerks and managers of the organization.
Secondary data-
In this study secondary data is collected from annual report of the company,
reference books.
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Scope and significance of the study-
The scope of the study is related to only working capital management in
Islampur Dudh Puravatha Sahakari Kendra Ltd., situated at Islampur.
The study is significant to researcher because it helps in understanding the
techniques and practices of working capital management in the organization. It is
also important to the organization to know its current financial position and adopt,
if necessary, the policy recommendation suggested by the researcher.
Limitation
1. Working capital management is a wide topic involving numerous techniques;each and every aspect of it cannot be dealt in detail.
2. Due to the secrecy of the organization, confidential matters were not given.3. The duration of project work is not sufficient to understand the complete
mechanism of Working Capital in the company.
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Chapter -II
Company Profile
Islampur Dudh Puravatha Sahakari KendraAn overview Mission Statement Milk Procurement Milk Marketing Board of Directors Organization Chart Milk Collection
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Chapter II
Company Profile
Islampur Dudh Puravatha Sahakari Kendra An overview
Islampur Dairy co-operative milk union was a far sighted dream of Shri
Rajarambapu which turned into reality in the year 1959. It was specifically
designed to have 100% involvement of the farmers, generate best remuneration for
their milk supply, boost milk production and give the region the most wanted
economic development. Till 1985 it turtle at a slow pace, but gathered dynamic
momentum thereafter, when in 1993 open market system came into effect thereby
starting operations in the Islampur city and thus improving the economic status of
the union and in turn returning the same to the farmers, primary milk producers
and members. The milk union today has a turnover of over 1 crore rupees.
Mission Statement
To constantly endeavor in providing the best remuneration to its members
and to consistently strive towards delivering high standard milk products to its
consumer, thereby being a front runner in serving the society through its fortified
co-operative nature.
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Milk Procurement
The milk is produced twice a day from all the farmers and milk producer at
village level from a whopping 50 villages with a fully fledged adherence to clean
milk production program on all the levels. In this program all the milk producer
and staff have been given an in depth training towards hygiene value, purity, safety
and quality assurance system.
Milk Marketing
The procured and hygienically processed nutritious and refreshing milk is
marketed in far of areas of Islampur and region of villages near the Islampur city.
The dairy pays due attention to maintain all its cold chain efficiently performing so
that the customers can cherish the same refreshing, rejuvenating and healthy taste
of all our products at any time.
Milk Collection
The Company collects the milk from around more than 25 villages. There are
more than 700 farmers providing milk to the company. The company procurement
is growing at a rate of 10-15 % per Annum.
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Statement Shownig of Milk Collection
Years Milk Collection (in Ltr.)
2006-07 284242.102007-08 316794.42
2008-09 391276.58
2009-10 1150747.90
Graphical Presentation
0
200000
400000
600000
800000
1000000
1200000
2006-07 2007-08 2008-09 2009-10
Year
Milk Collection(in Ltr.)
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Board of directors
Sr. No. Name of director Designation
1. Shri S. D. Kadam Chairman
2. Shri N. C. Holkar Director
3. Shri A. C. Karande Director
4. Shri K. D. Kshirsagar Director
5. Shri S. S. Dhembre Director
6. Shri A. T. Kadam Director
7. Shri V. A. Pawar Director
8. Smt S. N. Kshirsagar Director
9. Shri B. J. Bansode Director
10. Shri K. S. Patil Director
11. Shri. S. V. Jadhav Director
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Organization Chart
Organization Chart
Board of Directors
Chairman
Secretary
Clerk Fat man
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Chapter III
Conceptual Background of the Study
Meaning and definition of Working Capital Concept of Working Capital Working Capital Management Management of Working Capital Importance of Working Capital Factors Affecting Working Capital Ratio Analysis Cash management
Fund Flow Analysis
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Chapter III
Conceptual Background of the Study
Meaning of Working Capital
Working capital (also known as net working capital) is a financial metric,
which represents the amount of day- by- day operating liquidity available to a
business. Along with fixed assets such as plant and equipment, working capital is
considered a part of operating capital. It is calculated as current assets minus
current liabilities.
Working capital is common measures of a companys liquidity, efficiency
and overall health. Because it includes cash, inventory, accounts receivable,
accounts payable, the portion of debt due within one year, and other short-term
accounts, a companys working capital reflects the results of a host of company
activities, including inventory management, debt management, revenue collection,
and payments to suppliers.
Working capital measures how much in liquid assets a company has
available to build its business. The number can be positive or negative; depending
on how much debt the company is carrying. In general, companies that have a lot
of working capital will be more successful since they can expand and improve their
operations. Companies with negative working capital may lack the funds necessary
for growth.
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Defining Working Capital
The term working capital refers to the amount of capital that is readilyavailable to an organization. That is, working capital is the difference between
resources in cash or readily convertible into cash (Current Assets) and
organizational commitments foe which cash will soon be required (Current
Liabilities).
Definition of Working Capital
Working Capital is access of Current assets over Current liability
- GAJHMANN DAUGALIThe sum of the Current assets in the Working Capital of the business
- V.S.MILL
Hence:
WORKING CAPITAL = CURRENT ASSETS CURRENT LIABILITIES
Concepts of Working Capital
There are two concepts of working capital gross and net.
1. Gross Working Capital2. Net Working Capital
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Gross Working Capital:
It means current assets which represent the proportion of investment that
circulates from one form to other in the ordinary conduct of business.
Net Working Capital
It is the difference between current assets and current liabilities or
alternatively the portion of current assets financed with long-term funds.
Net Working Capital = Current Assets - Current Liabilities
Working Capital Management
Meaning
Working Capital Management refers to the procedures and policies required
to manage the working capital. The long-term profitability of a firm depends upon
investments decisions of a firm.
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.
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The goal of working capital management is to manage the firms current
assets and liabilities in such a way that a satisfactory level of working capital is
maintained.
Investment decisions have two important implications for working capital
management
1. The sales forecast of goods and services being produced by the firm allow thefinancial manager to estimate the working capital needs.
2. The working capital management helps maximizing the shareholders wealth byproviding and maintaining firms liquidity.
Working capital management involves the relationship between a firms short-
term assets and its short-term liabilities. 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 and upcoming operational expenses. The
management of working capital involves managing inventories, accounts
receivable and cash.
The goal of working capital management is to ensure that the firm is able to
continue its operations and that it has sufficient cash flow to satisfy both maturing
short-term debt and upcoming operational expenses.
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Management of Working Capital
A company uses a combination of policies and techniques for the management
of working capital. These policies aim at managing the current assets (generally
cash equivalent, inventories and debtors) and the short term financing like
marketable securities, such that cash flow and returns are acceptable.
Cash ManagementCash management identifies the cash balance which allows for the business to
meet day-to-day expenses, but reduces cash holding costs.
Inventory ManagementIt identifies the level of inventory which allows for uninterrupted production but
reduces the investment in raw materials-and minimizes reordering costs-and hence
increases cash flow.
Debtors ManagementDebtors management identifies the appropriate credit policy, i.e. credit
terms which will attract customers, such that any impact on cash flows and the
cash conversion cycle will be offset increased revenue and hence return on capital.
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Short Term Financing (Marketable Securities):The marketable securities are the short term money market instruments that
can easily be converted into cash. As the marketable securities are quickly
convertible into cash, the two are often regarded as substitute and so the
marketable securities are considered as a part of liquid assets. The firm can hold a
minimum level of cash and procure cash as a when required from the sale of
marketable securities.
Importance of Working Capital
Every firm requires adequate working capital to run its business smoothly
and successfully. In fact working capital forms the life blood of any business.
a) Adequate working capital helps a firm in the following ways-b) It is an index of the solvency of the firm.c) At enhance the credit worthiness of the firm.d) At helps the firm to avail of cash discount facilities offered by the suppliers for
prompt payment
e) It improves the morale of the executives and employees out of the firm.
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Factors affecting on working capital requirement
The working capital requirements of concern are affected by a number of
factors. The various factors which affect the working capital, requirement of a
concern are as follow-
Nature of business Scale of operations Growth and expansion of business Production policies Seasonal fluctuations in demand Credit policy Profit level Taxes Depreciation policy
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RATIO ANALISIS
Current RatioCurrent ratio may be show as difference between current assets and current
Liabilities. This ratio is also know as working ratio .This is measure of
general Liquidity and it is most widely used to make the analysis of short
term Financial position of a firm. The standard for current ratio is 2:1
Current Assets
Current assets means those asset which can be converted into cash as
accounting year and it include marketable security, bills receivable, sundry debtors,
inventory, work in progress.
Current Liability
Current liability are those which can be payable within accounting year and
includes bills payable, sundry creditors, accrued expense, short-term advance etc.
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Liquidity RatioIt is also called as acid test ratio or quick ratio. The word liquidity means
conversion of asset into cash during the normal course of business and to have
regular uninterrupted flow of cash to meet outside current liabilities. This ratio will
be an indicative or measure of the extent to which liquid resources are immediately
available to meet a current obligation. It gives better picture of the firm ability to
meet its short term debt out of short term assets.
If the ratio is 1:1, it is considered that all claims will be meet when they
arise. Quick assets included current assets, except stock and prepaid expenses
where as a liquid liability includes all current liabilities, except overdraft andaccrued expenses.
Debtors Turnover RatioDebtor constitutes an important component of current asset. Debtors
turnover ratio indicates the velocity of debt collection of the firm. In the simple
words, this ratio indicates the speed at which the debtors are converted into cash.
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The optimum ratio is depending upon credit policy of a firm and credit
period allowed to a customer.
Average debtor is calculated as under-
Average A/c receivable = Debtors + Bills receivable
Working Capital Turnover Ratio
The working capital turnover ratio studies the velocity and utilization of the
working capital of the firm during the year.
The working capital here refers to the net working capital, which is equal to
the total current assets less current liabilities.
The higher the working capital turnover ratio, the lower is the investment in
the working capital and higher would be profitability. A high ratio reflects the
better utilization of the working capital of the firm. The working capital turnover
ratio is calculated assuming on the basis of net sales.
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Inventory to Working Capital RatioThis ratio indicates the efficiency of the firm in selling its product. It is
calculated by dividing the cost of goods sold by the average inventory or sales by
closing inventory of finished goods. The inventory turnover ratio shows how
rapidly the inventory is turning into receivable through sales. Generally high
inventory is indicative of good inventory management.
Current Asset Turnover Ratio
Current asset turnover ratio is the ratio between current asset & turnover orsales. The ratio indicates the contribution of current asset to sales.
There is no standard or ideal current asset turnover ratio. Normally a high
current asset ratio indicates better utilization of current asset. The low current asset
turnover ratio suggests that the current asset have been utilized effectively.
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Net Profit Ratio
Net profit ratio is the ratio of net profit to sales. This ratio indicates the
quantum of profit earned by concern.
There is not any standard ratio or ideal ratio. Normally, high ratio indicates
that profitability of the concern is good and low ratio indicates danger signal.
Cash & Bank Balance to Working Capital RatioCash and Bank Balance to Working Capital Ratio is calculated under
following formula
There is not any standard ratio or ideal ratio.
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CASH MANAGEMENT
Cash is the important current asset for the operations of the business. Cash is the
basic input needed to keep the business running on a continuous basis it is also the
ultimate output expected to be realized by selling the service or productmanufactured by the firm. The firm should keep sufficient cash, neither more nor
less. Cash shortage will disrupt the firms operations while excessive cash will
simply remain idle, without contributing anything towards the firms profitability.
Thus a major function of the Financial Manager is to maintain a sound cash
position.
Cash is the money which a firm can disburse immediately without any restriction.
The term cash includes currency and cheque held by the firm and balances in its
bank accounts. Sometimes near cash items, such as marketable securities or banktime deposits are also included in cash. The basic characteristics of near cash assets
are that they can readily be converted into cash. Cash management is concerned
with managing of:
i) Cash flows in and out of the firm
ii) Cash flows within the firm
iii) Cash balances held by the firm at a point of time by financing deficit or
inverting surplus cash.
In order to resolve the uncertainty about cash flow prediction and lack of
synchronization between cash receipts and payments, the firm should develop
appropriate strategies regarding the following four facets of cash management.
1. Cash Planning: - Cash inflows and cash outflows should be planned to project
cash surplus or deficit for each period of the planning period. Cash budget
should be prepared for this purpose.
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2. Managing the cash flows: - The flow of cash should be properly managed. The
cash inflows should be accelerated while, as far as possible decelerating the
cash outflows.
3. Optimum cash level: - The firm should decide about the appropriate level ofcash balances. The cost of excess cash and danger of cash deficiency should be
matched to determine the optimum level of cash balances.
4. Investing surplus cash: - The surplus cash balance should be properly invested
to earn profits. The firm should decide about the division of such cash balance
between bank deposits, marketable securities and inter corporate lending.
The ideal Cash Management system will depend on the firms products,organization structure, competition, culture and options available. The task is
complex and decision taken can affect important areas of the firm.
Functions of Cash Management:
Cash Management functions are intimately, interrelated and intertwined Linkage
among different Cash Management functions have led to the adoption of the
following methods for efficient Cash Management:
Use of techniques of cash mobilization to reduce operating requirement ofcash
Major efforts to increase the precision and reliability of cash forecasting. Maximum effort to define and quantify the liquidity reserve needs of the
firm.
Development of explicit alternative sources of liquidity Aggressive search for relatively more productive uses for surplus money
asset.
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CASH MANAGEMENT: OBJECTIVES
The Basic objective of cash management is two fold:
(a) To meet the cash disbursement needs (payment schedule);
(b) To minimize funds committed to cash balances. These are conflicting and
mutually contradictory and the task of cash management is to reconcile them.
CASH MANAGEMENT TECHNIQUES & PROCESSES
Speedy cash collection Prompt payment by customer Early conversion of payment into cash Concentration Banking Lock-Box System Avoidance of early payments
EVALUATION OF CASH MANAGEMENT PERFORMANCES
To assess the cash management performance this phase is divided as follows:
a) Size of Cash
b) Liquidity and Adequacy of cash
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FUNDS FLOW ANALYSIS
Fund flow analysis is the analysis of cash of funds. The terms is refers to
movement & includes both inflow & outflow thus, Flow of fund, means the
transfer of economic values from one assets of equity to another. Therefore it is
very effective tool for managing financial resources & utilization.
The funds flow statement clearly shows the working capital & how
effectively use cash. Thus it is technique of analyzing financial statement for
decision making of investment.
FUND FLOW STATEMENT:
This is the most useful statement which indicates changes in working capital. It is
a financial operational statement which revels the method by which a business has
been financed & the use to which it has applied its fund over period of time. It tells
management of the source from which a company has been taken & whether there
are any weaknesses due to lack of internal capitalization
ADVANTAGES OF FUND FLOW STATEMENT:
It provides information about now funds are obtained & how they are putto actual use.
It registers is the flow of funds during a given period of time. It is supplementary to the conventional financial statement. It is an important too in the hands of the financial manager in process of
decision making.
It evaluates the urgency of operational matters & makes it easier for acorporation to set a time limit within which is operating problems may
come to a critical stage. In other words. It may enable it to find out when
its resource are likely to be exhausted.
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LIMITATIONS- OF FUND FLOW ANALYSIS:
1.Not Fool Proof:The financial statement tools proof as it depends upon conventional financial
statement viz. balance sheet income statement etc.
2.No introduction of new items:It does not introduce any new or original items which can enhance or reduce
the financial states of the business. Its function is simply rearranging the financial
data appearing elsewhere that is in conventional financial statement &supplementary schedule & focus attention to those facts which are significantly for
any investigation.
3. Historical:The statement of changes like other financial statements its essentially
historical in nature. It does not estimate source & application of funds for the near
future.
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Chapter IV
Data Analysis and Interpretation
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Chapter IV
Data Analysis and Interpretations
Balance sheet of Islampur Dudh Puravatha Sahakari Kendra Ltd.,
Islampur
Liabilities 2006-07
(Amt.in. Rs)
2007-08
(Amt.in. Rs)
2008-09
(Amt.in. Rs)
2009-10
(Amt.in. Rs)
Paid up
capital
Member
shares
1,740.00 1,740.00 1,740.00 1,740.00
Reserves
and other
fund
Reserve fund 22,14,276.62 22,38,540.62 22,63,495.62 23,05,275.62
Building
fund
23,35,508.89 23,49,926.89 23,64,858.89 23,89,884.89
Dead stock
depreciation
fund
1,56,935.55 1,56,198.55 2,50,556.55 3,55,415.55
Doubtful
debts
3,54,177.00 3,57,781.00 3,61,514.00 3,86,540.00
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Employee
welfare fund
39,200.00 39,200.00 39,200.00 39,200.00
Charity 1,07,260.00 1,10,864.00 1,14,597.00 1,20,853.00
Cattle feed
development
fund
1,96,988.28 2,04,197.28 2,11,663.28 2,24,176.28
Creditors 18,47,333.42 21,91,210.82 33,51,393.75 41,37,879.61
Other
liabilities
9,278.00 - - -
Net profit 96,397.00 99,823.93 1,67,120.86 1,68,905.22
Total 73,59,094.76 77,49,483.09 91,26,139.95 1,01,29,870.17
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Assets 2006-07
(Amt.in. Rs)
2007-08
(Amt.in. Rs)
2008-09
(Amt.in. Rs)
2009-10
(Amt.in. Rs)
Cash in hand
and at bank
31,68,130.89 28,06,655.22 36,23,240.50 24,25,818.17
Investment 14,97,370.00 23,11,997.00 24,28,140.00 24,47,009.00
Fixed Assets
Shade 14,726.00 13,253.00 13,253.00 13,253.00
Furniture 25,152.00 24,257.00 24,257.00 26,015.00
Building 5,89,520.00 5,89,520.00 5,89,520.00 21,30,345.00
Vehicle 174023.00 1,30,517.00 1,30,517.00 1,30,517.00
Boar well - - 11,300.00 17,700.00
Loans &
advances
14,43,436.00 13,52,053.00 15,35,125.00 21,47,870.00
Debtors 1,10,017.07 1,80,048.07 3,81,738.65 3,23,718.00
Stock 3,36,719.80 3,41,182.80 3,89,048.80 4,67,624.00
Total 73,59,094.76 77,49,483.09 91,26,139.95 1,01,29,870.17
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Trading account
Particulars 2006-07
(Amt.in. Rs)
2007-08
(Amt.in. Rs)
2008-09
(Amt.in. Rs)
2009-10
(Amt.in. Rs)
Purchase A/c
centre 1
68,30,239.80 76,66,771.40 77,77,211.66 93,10,753.50
Purchase A/c
centre 2
- - 20,74,191.53 27,01,066.00
Subsidy 1,00,000.00 50,000.00 50,000.00 30,000.00
Traveling
expense
1,18,696.00 15,000.00 50,000.00 50,000.00
Dairy
equipment
1582.00 4418.00 5759.00 5727.00
Electricity bill 30,600.00 21,520.00 34,140.00 39,860.00
Milko
maintenance
135.00 5140.00 2468.70 11,762.00
Dead stock
maintenance
645.00 414.00 6228.00 6672.00
Water supply
bill
3840.00 4800.00 4800.00 4800.00
Petrol expense 13,426.65 10,600.00 17,606.30 17,403.00
Pharmaceuticals - - - 9,809.00
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Purchase A/c
Building
maintenance
expense
5708.00 2628.00 - -
Insurance A/c 1,14,000.00 50,000.00 1,00,000.00 50000.00
Traveling
subsidy
70,000.00 15,000.00 50,000.00 30,000.00
vehicle
maintenance
1,859.00 - - -
Weight scale
inspection
passing
3100.00 - 2450.00 1100.00
Milk rate
difference
centre 1
4,00,000.00 6,50,000.00 6,60,092.00 6,80,000.00
Milk rate
difference
centre 2
- - 1,50,000.00 2,00,000.00
Cattle feeds A/c 675.00 68,890.00 19,520.00 7,778.00
Waste milk - - - 5,736.00
Gross profit 2,64,272.45 3,98,898.93 8,38,159.13 9,04,905.40
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Total 79,58,778.90 89,64,080.33 1,18,42,626.32 1,40,67,371.90
Particulars 2006-07 2007-08 2008-09 2009-10
Sales centre 1 43,39,440.80 51,71,323.90 68,81,200.10 77,95,053.90
Sales centre 2 - - 5,74,367.10 8,20,611.00
Sale to
Rajarambapu
patil dairy
35,75,252.00 36,41,087.00 42,47,097.00 52,86,083.00
Ratib sales 43,485.10 57,833.00 35,633.30 -
Milk rate
difference
501.00 - - 76.00
Cattle feed sales - 61,690.00 14,640.00 17,587.00
Sale of cattle
feed toRajarambapu
patil dairy
- 1,500.00 4880.00 -
Sample sale - 30,646.43 25,047.82 26,164.00
Bonus - - 59,761.00 1,21,797.00
Total 79,58,778.90 89,64,080.33 1,18,42,626.32 1,40,67,371.90
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Profit & Loss account
Particulars of
payment
2006-07
(Amt.in. Rs)
2007-08
(Amt.in. Rs)
2008-09
(Amt.in. Rs)
2009-10
(Amt.in. Rs)
Stationary 7,119.50 5964.50 8,736.50 9,515.00
Traveling
expense
5,322.00 392.00 2,789.00 3,230.00
Meeting
expense
6,671.00 8,097.00 9,391.00 6,735.00
Livestock 6,073.00 3,840.00 5,768.00 8,060.00
Saadil 5,921.50 2,456.50 3,071.00 1,757.00
Municipal tax 1,824.00 1,812.00 1,864.00 1,864.00
Employee
salary
92,300.00 1,00,800.00 1,20,800.00 1,52,400.00
Employee
bonus
25,000.00 23,460.00 18,000.00 20,000.00
Employee
reward
5,000.00 6803.00 5,000.00 -
Employees
dress
10,000.00 5000.00 5,000.00 7,000.00
Audit fee 25,000.00 35,000.00 30,000.00 25,000.00
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Education fund 100.00 100.00 200.00 200.00
Building
maintenance
expense
- - 4,664.00 2,722.00
Advertisement
expense
- 4,690.00 - 675.00
Pharmaceuticals 784.00 50,000.00 22,453.00 25,000.00
Tax 4,200.00 2,500.00 2,500.00 750.00
Miscellaneous
expense
304.00 374.00 1,50,000.00 302.00
Weight scale
inspection
passing
- 950.00 - 350.00
Bank
commission
3,334.25 1098.00 380.00 209.00
Weight scale
maintenance
7,655.00 2620.00 2,950.00 -
Postage &
telephone
3,053.00 3,300.00 3,280.00 2,900.00
Profit & loss a/c 10,230.20 - - -
Other expense 50,000.00 64,055.00 2,00,000.00 1,50,000.00
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Guest expense 1,179.00 1812.00 1,098.00 2,957.00
Vehicle
insurance
- - 6,298.00 -
Tax audit fee 5,000.00 7000.00 10,000.00 5,000.00
License fee 900.00 2500.00 - 900.00
Education trip 10,000.00 17,500.00 25,000.00 12,000.00
Depreciation 1,14,644.00 1,08,675.00 98,716.00 1,17,433.00
Fringe benefit
tax
831.00 400.00 2,546.00 419.00
Machinery - - 3,00,000.00 3,00,000.00
Office rent 2,600.00 4200.00 4,200.00 4,800.00
Internal
inspection
- - 20,000.00 10,000.00
Vehicle
maintenance
- 1820.00 8,612.00 7,328.00
Net profit 96,397.00 99,823.93 1,67,120.86 1,68,905.22
Total 5,01,442.45 5,67,042.93 12,40,437.36 10,48,411.22
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Particulars
of receipt
2006-07
(Amt.in. Rs)
2007-08
(Amt.in. Rs)
2008-09
(Amt.in. Rs)
2009-10
(Amt.in. Rs)
Gross profit 2,64,272.45 3,98,898.93 8,38,159.13 9,04,905.40
Livestock
loan interest
31,232.00 8,888.00 2,177.00 -
Bank interest 1,53,383.00 1,07,765.00 2,24,351.55 65,112.82
Bonus 50,555.00 44,291.00 3,000.00 -
Cattle feedsubsidy
2,000.00 7,200.00 - -
Other interest - - 1,72,743.68 78,393.00
Total 5,01,442.45 5,67,042.93 12,40,437.36 10,48,411.22
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Statement showing of the working capital requirements
Particulars 2006-07
(Amt.in. Rs)
2007-08
(Amt.in. Rs)
2008-09
(Amt.in. Rs)
2009-10
(Amt.in. Rs)
Current assets
Cash in hand
and at bank
31,68,130.89 28,06,655.22 36,23,240.50 24,25,818.00
Loans & adv. 14,43,436.00 13,52,053.00 15,35,125.00 21,47,870.00
Debtors 1,10,017.07 1,80,048.07 3,81,738.65 3,23,718.00
Stock 3,36,719.80 3,41,182.80 3,89,048.80 4,67,624.00
a) Total
Current
Assets
50,58,303.76 46,79,939.09 59,29,152.95 53,65,030.00
Current
liabilities
Creditors 18,47,333.42 21,91,210.82 33,51,393.75 41,37,879.61
Other
liabilities
9,278.00 - - -
b) Total
current
Liabilities
18,56,611.42 21,91,210.82 33,51,393.75 41,37,879.61
Working
Capital (A-B)
32,01,692.34 24,88,728.27 25,77,759.20 12,27,150.39
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1.Statement Showing of Current Ratio
Year Current Assets
(in. Rs)
Current Liability
(in. Rs)
Ratio
2006-07 50,58,303.76 18,56,611.42 2.72:1
2007-08 46,79,939.09 21,91,210.82 2.13:1
2008-09 59,29,152.95 33,51,393.75 1.76:1
2009-10 53,65,030.00 41,37,879.61 1.29:1
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Graphical Presentation
Interpretation -
The above table reveals that the current ratio of a company was 2.72:1,
2.13:1, 1.76:1, and 1.29:1 in 2006-07 to 2009-10 respectively. Company not able
to balance in currant ration during last two yrs. The standard ratio is 2:1; it
indicates that current ratio of company is decreasing continuously.
0
0.5
1
1.5
2
2.5
3
2006-07 2007-08 2008-09 2009-10
Ratio
Year
Current Ratio
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2.Statement Showing of Liquidity Ratio
Year Quick Assts (in.
Rs)
Quick Liability
(in. Rs)
Ratio
2006-07 47,21,583.96 18,56,611.42 2.54:1
2007-08 43,38,756.29 22,00,488.82 1.97:1
2008-09 55,39,549.15 33,51,393.75 1.65:1
2009-10 48,82,406.00 41,37,879.61 1.17:1
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Graphical Presentation
Interpretation
The liquidity ratio of the firm is 2.54, 1.98, 1.65, and 1.18 in year 2006-07,
2007-08, 2008-09, and 2009-10 respectively. This indicates that the ratio was
above the standard ratio. The organization is able to meet its current obligation.
0
0.5
1
1.5
2
2.5
3
2006-07 2007-08 2008-09 2009-10
Ratio
Year
Liquidity Ratio
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3.Statement Showing of Debtors Turnover Ratio
Year Sales (in. Rs) Average A/c
receivable (in.
Rs)
Ratio ( in
time )
Debtors
collection
period(Days)
2006-07 79,58,277.90 1,10,017.07 72.33 5.04
2007-08 89,64,080.33 1,80,048.07 49.78 7.33
2008-09 1,17,82,865.32 3,81,738.65 30.86 11.82
2009-10 1,39,45,498.90 3,23,718.00 43.07 8.47
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Graphical Presentation
Interpretation
The above table shows that in 2006-07 the debtor turnover ratio was 72.33 time
which decreased to 49.78, 30.86, 43.07 times in 2007-08, 2008-09, 2009-10
respectively. It implies that the speed of converting debtors into cash has declined
over the years. Its good sign to Company maintain debtors collection period.
0
10
20
30
40
50
60
70
80
2006-07 2007-08 2008-09 2009-10
Ratio
Year
Debtors Turnover Ratio
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4.Statement Showing of Working Capital Turnover Ratio
Year Net Sales
(in. Rs)
Working
Capital (in. Rs)
Ratio in time
2006-07 79,58,177.90 32,01,692.34 2.48
2007-08 89,64,080.33 24,88,728.27 3.60
2008-09 1,17,82,865.32 25,77,759.20 4.57
2009-10 1,39,45,498.90 12,27,150.39 11.36
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Graphical presentation
Interpretation
From the above tabulation it reveals that working capital turnover ratio was
2.48 times in year 2006-07 which is 3.61 times, 4.57 times and 11.50 times in year
2007-08, 2008-09 and 2009-10 respectively. It is increasing continuously every
year. It indicates that utilization of working capital is satisfactory.
0
2
4
6
8
10
12
2006-07 2007-08 2008-09 2009-10
Ra
tio
Year
Working capital Turnover ratio
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5.Statement Showing of Inventory to Working Capital Ratio
Year Closing stock
(in. Rs)
Working capital
(in. Rs)
Ratio
2006-07 3,36,719.80 32,01,692.34 0.105:1
2007-08 3,41,182.80 24,88,728.27 0.137:1
2008-09 3,89,048.80 25,77,759.20 0.150:1
2009-10 4,67,624.00 12,27,150.39 0.381:1
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Graphical Presentation
Interpretation
The above table shows that the inventory ratio of the firm i.e. 0.105, 0.137,
0.150 and 0.385 times for the year 2006-07 to 2009-10 respectively.
A high inventory ratio is indicative of good inventory management. The inventory
to working capital ratio is in increasing trend.
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
2006-07 2007-08 2008-09 2009-10
Ratio
Year
Inventory to Working Capital
Ratio
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6.Statement Showing Current Asset Turnover Ratio
Year Net Sales (in.
Rs)
Current Asset
(in. Rs)
Ratio in time
2006-07 79,58,277.90 50,58,303.76 1.57
2007-08 89,64,080.33 46,79,939.09 1.91
2008-09 1,17,82,865.32 59,29,152.95 1.98
2009-10 1,39,45,498.90 53,65,030.00 2.59
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Graphical Presentation
Interpretation
The above table shows that the current asset turnover ratio was 1.57 times in
the year 2006-07 which is increased at 1.91 times, 1.98 times and 2.59 times in
year 2007-08, 2008-09, 2009-10 respectively.
0
0.5
1
1.5
2
2.5
3
2006-07 2007-08 2008-09 2009-10
Ratio
Year
Current Asset Turnover Ratio
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7.Statement Showing of Net Profit Ratio
Year Net Profit(in.
Rs)
Sales (in. Rs) Ratio ( % )
2006-07 96,397.00 79,58,177.90 1.211
2007-08 99,823.93 89,64,080.33 1.113
2008-09 1,67,120.86 1,17,82,865.32 1.418
2009-10 1,68,905.22 1,39,45,498.90 1.211
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Graphical Presentation
Interpretation
The net profit ratio of firm was 1.211 % in 2006-07 which decreased at
1.113% in year 2007-08, again increased at 1.418 % in year 2008-09 and decreased
at 1.211% in 2009-10. The firm has to improve, however the ratio proves worse
condition of the firm.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2006-07 2007-08 2008-09 2009-10
Ratio
Year
Net Profit Ratio
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Cash & Bank Balance to Working Capital Ratio
Year Cash & Bank
Balance (in. Rs)
Working capital
(in. Rs)
Ratio (in %)
2006-07 31,68,130.89 32,01,692.34 98.95
2007-08 28,06,655.22 24,88,728.27 112.77
2008-09 36,23,240.50 25,77,759.20 140.55
2009-10 24,25,818.00 12,27,150.39 197.67
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Graphical Presentation
Interpretation
Cash and Bank Balance to Working Capital ratio was 98.95% in 2006-
2007.It was 112.77%, 140.55% and 197.67 % in the year 2007-08, 2008-09 and
2009-10 respectively. It is seen from the ratio that huge funds are blocked in the
Cash and Bank component of working capital.
0
50
100
150
200
2006-07 2007-08 2008-09 2009-10
Ratio
Year
Cash & Bank Balance to Working Capital
Ratio
Cash & Bank Balance to
Working Capital Ratio
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CASH MANAGEMENT PERFORMANCES
A)Size of cash:The quantum of cash held by Islampur Dudh Puravatha
Sahakari Kendra during the study period is presented in the table. The trend
percentage also calculated and shown in the table
Statement Showing Size of cash balance (Rs. in Lacs)
Year Cash (In Lacs) Trend2006-07 31.68 100
2007-08 28.06 88.57
2008-09 36.23 114.36
2009-10 24.25 76.54
Graphical Presentation
0
20
40
60
80
100
120
2006-07 2007-08 2008-09 2009-10
Year
Cash(in Lacs.)
Trend
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Statement Showing of Size of sales (Rs. in Lacs)
Year Sales(Rs. In Lacs) Trend2006-07 79.58 100
2007-08 89.64 112.722008-09 118.42 148.80
2009-10 140.67 176.77
Graphical presentation
0
20
40
60
80
100
120
140
160
180
2006-07 2007-08 2008-09 2009-10
Series 1
Series 2
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B) Liquidity and Adequacy of Cash:
One of the most important jobs of the Finance Manager is to maintain sufficient
liquidity to enable the firm to pay off its obligations when they fall due. To test a
firms liquidity and solvency we commonly use current and quick ratios.Traditionally 2:1 current ratio and 1:1 quick ratio are taken as satisfactory
standards for the purpose. The former indicates the extent of the soundness of the
current financial position of a firm and the degree of safety provided to the
creditors, the later signifies the ability of a firm to settle all its current obligations
on a particular date.
Current ratio and quick ratio
Year Current ratio Quick ratio
2006-07 2.72 2.24
2007-08 2.13 1.98
2008-09 1.76 1.65
2009-10 1.29 1.18
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Graphical presentatio
Interpretation:
Overall analysis of financial data reveals that the company has very sound positionregarding liquidity and solvency as shown by the current and quick ratios .It is
good sign for company increasing its sales & Company able to maintain the Cash
Balance.
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
2006-07 2007-08 2008-09 2009-10
Ratio
Year
Quick ratio
Current ratio
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FUND FLOW STATEMENT
STATEMENT SHOWING CHANGE IN WORKING CAPITAL
As on: 2006-07&2007-08
Particulars
Previous
Year
Current
Year
Changes In Working
Capital
2006-07 2007-08 Increase Decrease
A. Current Assets
Cash in hand 31,68,130.89 28,06,655.22 3,61,475.67
Loan & adv. 14,43,436.00 13,52,053.00 91,383.00
Debtors 1,10,017.07 1,80,048.07 70,031.00
Closing stock 3,36,719.80 3,41,182.80 4,463.00
Total A 50,58,303.76 46,79,939.09
A. Current Liabilities
Sundry Creditors 18,47,333.42 21,91,210.82 3,43,877.40
Other liabilities 9,278.00 9,278.00
Total B 18,56,611.42 21,91,210.82 83,772.00 7,96,736.07
Working Capital (A-B) 32,01,692.34 24,88,728.27
7,12,964.07 7,12,964.07
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FUND FLOW STATEMENT
2006-07&2007-08
Source Of Fund(Inflow)
Rs. Application Of Fund(Outflow)
Rs.
Funds from
Operation
57265.93
Purchase of
Investment 8,14,627.00
Dep. &
Sales Fixed Asset
44397.00
Decrees In working
Capital
7,12,964.07
Share Capital -Nil-
Loan -Nil-
Total 8,14,627.00 Total 8,14,627.00
Interpretation
Above the Statement In Year of 2006-07&2007-08 the company not taking any
loan.In this year working capital decrees by Rs.7,22,242.07 & investment Rs.
8,14,627.00 .
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STATEMENT SHOWING CHANGE IN WORKING CAPITAL
As on: 2008-09&2009-10
Particulars
Previous
Year
Current
Year
Changes In Working
Capital
2008-09 2009-10 Increase Decrease
A. Current Assets
Cash in hand 36,23,240.50 24,25,818.00 11,97,422.5
Loan & adv. 15,35,125.00 21,47,870.00 6,12,745.00
Debtors 3,81,738.65 3,23,718.00 58,020.65
Closing stock 3,89,048.80 4,67,624.00 78,575.20
Total A 59,29,152.95 53,65,030.00
A. Current Liabilities
Sundry Creditors 33,51,393.75 41,37,879.61 7,86,485.86
Other liabilities - -
Total B 33,51,393.75 41,37,879.61 6,76,875.20 20,41,929.01
Working Capital (A-
B)
25,77,759.20 12,27,150.39
13,50,608.81 13,50,608.81
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FUND FLOW STATEMENT
2008-09&2009-10
Source Of Fund(Inflow)
Rs. Application Of Fund(Outflow)
Rs.
Funds from
Operation
2,17,243.19 Purchase of
Investment
18,869.00
Decrees In working
Capital
13,50,608.81 Purchase Fixed Asset 15,48,983.00
Share Capital -Nil-
Loan -Nil-
Total 15,67,852.00 Total 15,67,852.00
Interpretation
Above the Statement In the year of 2008-09&2009-10 Company purchase Fixed
Assets for Rs. 15,42,583.00 .
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Chapter V
Findings and Suggestions
Findings
Suggestions
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FindingsOn the basis of data presentation analysis and interpretation the major
findings of the study are as follows
1. Current ratioThe standard current ratio of the company is showing fluctuation trend.
Throughout the study period the current ratio of the company is decreasing
continuously. However the company was able to meet its current obligations
2. Liquidity ratioThe liquidity ratio of the company during more than standard ratio that is
1:1. this ratio also more than standard ratio. So it is a good sign for company.
3. Debtors Turnover ratioThe company is maintained his Debtors collection period .this is good for
company.
4. Working Capital Turnover ratioWorking capital turnover ratio is increasing continuously every year. It
shows that utilization of working capital is satisfactory.
5. Inventory to Working Capital ratioA high inventory turnover ratio is indicative of good inventory management.
The inventory to working capital ratios are in increasing trend. It means that the
last year the firm is selling its inventory rapidly.
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6. Current Asset Turnover ratioCurrent asset turnover ratio indicates contribution of current asset to sales.
Current asset turnover ratio was 1.57 times in year 2006-07 which is continuously
increased. The current assets are utilized effectively.
7. Net Profit ratioThe net profit of the firms was 1.211% in 2006-07 which decreased to
1.113% in the year 2007-08, again increased to 1.418% in 2008-09 and in 2009-10
i.e. last year it is 1.211%.
8. Cash & Bank Balance to Working Capital RatioThis ratio indicates that the huge amount of cash and bank balance of the
society is remaining every year. This indicates that the society has good future plan
for the better cash management and influencing the sale in coming years.
9. Cash ManagementThe Company is maintained Cash Balance. Cash and bank balance of the
Company is remaining every year. This indicates that the society has good
future plan for the better cash management also Company increasing in sale of
product.
10.Fund Flow StatementThe Company Fund flow statement show that the Working Capital is
decreasing & Purchasing Fixed Assets in 2009-10 in large quantity for opening
new sales center.
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Suggestions
On the basis of the findings we are suggesting here some of the
recommendation for the improvement of Working Capital Management by the
organization.
1. The current ratio of the company is more than standard ratio. But the ratio isdecreasing continuously every year. Therefore, it is suggested that the company
should emphasis on increasing current asset and reducing current liabilities in
order to fulfill its current obligation.
2. Working capital was utilized very fast in the year 2006-07 to 2009-10. Whenworking capital increases it is not good for the organization as burden of
interest increases, which reduce down the profit.
3. Debtors turnover ratio of a company showing decreasing trend. In the dairyindustry generally goods are sold against cash as such society should try to keep
debtors at minimum level.
4. Inventory turnover ratio of company showing increasing trend. But, it isrecommended that the company should use ABC analysis and EOQ technique
for improving inventory turnover ratio.
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5. Current asset turnover ratio shown increasing trend, which increased from 1.57times in 2006-07 to 2.59 times in year 2009-10. It indicates those current assets
are effectively used by the firm.
6. Net profit ratio of a company is very low, which decreased from 1.211% to1.113% during the period. In 2008-09 it is again increased to 1.418% and in
2009-10 the ratio is again decreased to 1.211%. So, there is need of a careful
and analysis of factor responsible for it. Also it is suggested to the company to
improve its profitability position by maximizing sales and controlling its costs.
Company expects to maintain growth and profitability in entire year.
7. Company should be maintain the Cash & Bank balance and also continues tomaintain the trend of Sale.
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BIBLIOGRAPHY
Financial Management Mr I.M. Pandey.
Management Accounting Mr M.G. Patkar.
Cash Management Mr Banerjee
Annual Reports of the Islampur Dudh Puravtha SahakariKendra Ltd., Islampur