project for correction
TRANSCRIPT
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CHAPTER - 1
GENRAL INTRODUCTION (INDUSTRIAL BACK GROUND
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HISTORY OF RUCHI SOYA INDUSTRIES LIMITED
The 24-year old Ruchi Soya Industries Limited is the flagship company of Ruchi Group
of Industries. It’s recent merger with sister concerns ( Aneja Solvex Ltd, General Foods
Ltd, Ruchi Credit Corporation, Ruchi Health Foods Ltd, Param Ind. Ltd, Ruchi Private
Ltd and soya businesses of MP Glychem) has catapulted it among the top five FMCG
players in the country, with a turnover of 11915 crores. This merger illustrates the
strength that is to be found in increased transparency, firm market position and better
control of systems.Besides being a leading manufacturer of high quality edible oils,
vanaspati, bakery fats and soya foods, Ruchi Soya is also the highest exporter of soya
meal and lecithin from India. Nutrela (soya chunks, granules, soya flour) is the largest
selling soya foods brand in the country today
Ruchi Soya is the undisputed leader in the branded edible oil category as well with
brands like Nutrela Soyumm (Soyabean Oil), Ruchi Gold (Palmolein Oil), Sunrich
(Sunflower Oil) and Mandap (Mustard Oil). New healthy oil variants like Nutrela
Vitamin Sunflower oil and Nutrela Groundnut oil make Nutrela a trusted option inedible oils as well Superior procurement and trading skills, continuous innovation, an
endeavor to meet consumer needs and stringent quality control standards have
enabled Ruchi to emerge as a highly-respected and admired Indian company. The
scrip is listed and the BSE code is 500368, while the NSE code is RUCHISOYA
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THE SOYA REVOLUTION
In early 1960s, when Mr. Mahadev Shahra went about convincing farmers in M.P., about
the potential of Soya, he would not have imagined that he will be instrumental in bringing
up a small green revolution in the State, by introducing and encouraging Soya bean
cultivation on a commercial scale. The family was in the business of commodities trading
and subsequently, they entered the business of ginning and oil milling. The family's efforts,
along with that of the others, resulted in Soya revolution in M.P. Today M.P. is considered
as Soya bowl of the country, and contributes to 70% of its production. Despite all odds,
Ruchi Soya is now the largest player in the country in edible oils, Soya foods and processed
foods categories. This is largely due to its strict quality commitment and continuous
innovation to keep with the times. Also, Ruchi Soya has evolved from being a largemanufacturing firm to a respected brand, keeping in line with the FMCG players. Its Nutrela
and Ruchi Gold brands have captured leading positions in the Soya foods and edible oils
categories respectively. Ruchi Soya has also ventured into other businesses like bakery
specialties, where it foresees a big potential for growth. With Ruchi's innate manufacturing
and logistics advantages, and its foray into the branded sector, one only sees immense
potential for growth in the future .
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CHAPTER –2
INTRODUCTION TO PROBLEM
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INTRODUCTION TO THE PROBLEM
1. to find out the liquidity position of company.
2. to find out the effectiveness of working capital management.
3. to analyze the credit policy of the company'.
4. to know the cause of changes in the firm's working capital.
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CHAPTER - 3
TITLE OF THE PROJECT
a. statement of project
b.objective of the study
c. scope of the study
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TITLE OF THE PROJECT
During the training time my title of project was Analysis of working capital managemt
of Ruchi Soya industries ltd.
OBJECTIVES OF THE STUDY
The main objectives of the study are:
1. To find out the liquidity position of company.
2. To find out the effectiveness of working capital management.
3. To analyze the credit policy of the company'.
4. To know the cause of changes in the firm's working capital.
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CHAPTER – 4
BRIEF DESCRIPTION OF THE ORGANISATION PROFILE
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INTRODUCTION OF RUCHI SOYA INDUSTRIES LIMITED
The 24-year old Ruchi Soya Industries Limited is the flagship company of Ruchi Group of
Industries. It’s recent merger with sister concerns ( Aneja Solvex Ltd, General Foods Ltd, Ruchi
Credit Corporation, Ruchi Health Foods Ltd, Param Ind. Ltd, Ruchi Private Ltd and soya
businesses of MP Glychem) has catapulted it among the top five FMCG players in the country,
with a turnover of 11915 crores. This merger illustrates the strength that is to be found in
increased transparency, firm market position and better control of systems.
Besides being a leading manufacturer of high quality edible oils, vanaspati, bakery fats and soya
foods, Ruchi Soya is also the highest exporter of soya meal and lecithin from India. Nutrela
(soya chunks, granules, soya flour) is the largest selling soya foods brand in the country today
Ruchi Soya is the undisputed leader in the branded edible oil category as well with brands like
Nutrela Soyumm (Soyabean Oil), Ruchi Gold (Palmolein Oil), Sunrich (Sunflower Oil) and
Mandap (Mustard Oil). New healthy oil variants like Nutrela Vitamin Sunflower oil and Nutrela
Groundnut oil make Nutrela a trusted option in edible oils as well
Superior procurement and trading skills, continuous innovation, an endeavor to meet consumer
needs and stringent quality control standards have enabled Ruchi to emerge as a highly-respected
and admired Indian company. The scrip is listed and the BSE code is 500368, while the NSE
code is RUCHISOYA
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THE SOYA REVOLUTION
In early 1960s, when Mr. Mahadev Shahra went about convincing farmers in M.P.,
about the potential of Soya, he would not have imagined that he will be instrumental in
bringing up a small green revolution in the State, by introducing and encouraging Soya
bean cultivation on a commercial scale. The family was in the business of commodities
trading and subsequently, they entered the business of ginning and oil milling. The
family's efforts, along with that of the others, resulted in Soya revolution in M.P. Today
M.P. is considered as Soya bowl of the country, and contributes to 70% of its
production. Despite all odds, Ruchi Soya is now the largest player in the country in
edible oils, Soya foods and processed foods categories. This is largely due to its strictquality commitment and continuous innovation to keep with the times. Also, Ruchi Soya
has evolved from being a large manufacturing firm to a respected brand, keeping in line
with the FMCG players. Its Nutrela and Ruchi Gold brands have captured leading
positions in the Soya foods and edible oils categories respectively. Ruchi Soya has also
ventured into other businesses like bakery specialties, where it foresees a big potential
for growth. With Ruchi's innate manufacturing and logistics advantages, and its foray
into the branded sector, one only sees immense potential for growth in the future
VISION OF RUCHI SOYA
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The extensive distribution network, built over the years, is a major strength for Ruchi.
Catering nationally through over 5 Lac retail stores, with 90 Company depots, over 2000
distributors and a sales staff of over 200, Ruchi has attempted to penetrate depth wise,
alongwith opening new markets. With its emphasis on providing value goods to
consumers, Ruchi's dual strategy of popular and premium range works well. ‘Ruchi
Gold’ and ‘Sunrich’ are our value for money offering but with no compromise in
quality. This positioning helps generate large sales volumes for the products. Our
Nutrela series is more premium, and offers healthy options in soya foods and edible oils.
This dual strategy is based on our cultivated understanding of the Indian consumer
psyche.
We also have a firm footing in modern retail and prestigious hotel chains due to our undivided focus on new channels of distribution. With our alliances with big players like
Pantaloon and visible presence in all leading national and regional supermarkets, we
hope to grow our consumer base and product portfolio
RUCHI'S EXPORTS
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Ruchi Soya is the Flagship Company of Ruchi Group, a pioneer Soya Processor group, which
started operating back in 1972-73 and is the first exporter of Soyabean Meal from India
Over the years, Ruchi has become one of the largest crushers of Soyabean in India and presently
has installed crushing capacity of about 13,000 Tons per day i.e. about 4 million tons annually in
14 plants, spread over 11 locations. Ruchi's share in the crushing of soyabean in India is
presently about 19%. Being the largest crusher, Ruchi with its annual export of about one million
tons has also become one of the largest exporters of Indian Soyabean Meal accounting for nearly
20 - 22% of the total soyabean meal from India. Soyabean meal (de-oiled extractions / cake) is
obtained after crushing of seed and extraction of oil by solvent extraction process. Soyabean
meal is considered as one of the most valuable raw material for preparing poultry / aqua / animal
feed in the world market as it contains a very high percentage of protein. Ruchi producesdifferent grades of soyabean meal viz. de-hulled, high pro and normal FAQ varieties.
Ruchi has been able to create a strong niche in the international market for its soyabean meal
which is in high demand particularly by the quality feed producers in South East Asia, Far East
and Middle East markets.
Besides, Ruchi is also able to export high end value added products like edible de-fatted soya
flour, full fatted edible flour, soya lecithin, soya granules, soya flakes and soya chunks etc., All
the products produced by Ruchi enjoy ready accessibility in the export market namely, Japan,
Vietnam, Indonesia, Thailand, Philippines, South Korea, Taiwan, Middle East countries apart
from Indian Sub continent countries namely Bangladesh, Pakistan, Nepal, Srilanka etc
STRENGTHS OF OUR BRANDS
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Over the years, we have grown to become a multi-million US Dollar company. Two of
our strongest brands, Nutrela and Ruchi Gold are category leaders.
Nutrela, the biggest Soya foods brand in the country, enjoys more than 50% of the
market share. It has enjoyed the trust of consumers for last 24 years now, and continues
to expand its range to cater to varying needs of its consumers. It has become generic to
the soya category. We have effortlessly strived to educate people about health and
goodness of Soya as our firm commitment is to provide healthy solutions to the
consumers.
Our edible oils brands like Ruchi Gold and Nutrela Soyumm enjoy mass acceptability
and acclaim from the people. Ruchi Gold is the leader in the palmoline category. As a
part of packaged goods thrust, ‘Ruchi Gold' was introduced about 6 years back in
Chennai. The market share in southern states ranges from 50 to 85%. The brand hasgrown from 35% to 40% CAGR since its introduction. Today, it enjoys the number one
position in branded palmoline oil category.
Nutrela Soyumm ranks in the top three soya oils category, and continues to strive to
reach the top position. Both brands symbolize health and quality.
We are also leaders in the vanaspati category with brands like Ruchi No. 1 and have also
ventured into bakery and special fats category
RUCHI’S REFINING AND CRUSHING STRENGTHS
LARGEST SEED CRUSER IN INDIA.
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Ruchi today holds edible oil refining capacity of about 2.2 million tones per annum and
process nearly 1.5 million tones of imported crude oils namely Palm Oil, Soyabean Oil and
Sunflower oil.
We are one of the few edible oil companies in the country that has a balanced mix of inland
and port based refineries. This enables us to optimize production depending upon the
availability of various alternatives – local oilseeds or imported crude oil. Moreover, multi-
location refineries have reduced road travel costs leading to significant transportation cost
advantage. We have sixteen refineries at various locations and 14 inland crushing plants.
AWARD
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Ruchi soya has been the reciepient of many prestigious awards, from leading
organisations like Dun and Bradstreet, Globoil and many more"
Some of the prestigious Excellence awards won by RUCHI SOYA INDUSTRIES LIMITED
are as under
From GLOBOIL India, Mumbai :
GLOBOIL GOLD AWARD FOR OUTSTANDING
PERFORMANCE IN THE CATEGORY OF :
Highest Exporter of Oil Meals 2006
Highest Exporter of Oil Meals 2004
Highest Exporter of Oil Meals 2003
Highest Exporter of Oil Meals 2000
Highest Exporter of Oil Meals 1999
Highest Exporter of Oil Meals 1998
Highest Importer of Edible Oil 2006
Highest Importer of Edible Oil 2003
GLOBAL APPEARANCE
Ruchi has its world wide appearance in internatiol market as a Exporter which has
classified COUNTRY WISE .
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Japan, Malaysia, Singapore, Sri Lanka, Pakistan, Bangladesh, Nepal, Myanmar,
Thailand, Viet Nam, Indonesia, China, Taiwan, Philippines, South Korea
Middle East Countries, Europe & African Countrie
PRODUCTS
Ruchi's wide range of food products include healthy cooking oils, nutritional Soya foods, top
grade vanaspati and bakery fats. Ruchi is the undisputed market leader in the edible oils, as
well as Soya foods categories. The edible oil range includes many top brands like Soyumm,
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Soyabean oil, Ruchi Gold Palmoline oil and Sunrich sunflower oil. Nutrela is the largest
selling Soya foods brand in the country, with more than 50% market share. Nutrela and
Ruchi No. 1 vanaspati are regional leaders in their respective categories
REFIEND SOYABIN OIL
Benefits Of Soyabean Oil
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• The natural taste of Soyabean oil enhances the flavour of food, and works well with other
ingredients including fats and oils, making it edible in salad dressings, sauces and baked foods.
• It contains 61% polyunsaturated fats and 24% monounsaturated fats, adding up to a total of
85% unsaturated fats, which is comparable to, or even better than most vegetable oils.
• Poly and monounsaturated fats have been known to reduce serum cholesterol levels, which
makes people ‘heart healthy'.
• It also contains Omega 3 fatty acids, which are known to be protective against heart diseases.
• It does not produce any irritating odour, and is one of the most popularly used commercial
deep-frying oils.
Soyabean Oil Is Available In Three Brands
A premium Soyabean oil from Ruchi. Soyumm is the market leader in
Soyabean oils. It is available in 500 ml, 1lt, 5 lts and 15 lts packs.
Available in 500 ml, 1lt, 2lts, 5 lts and 15 lts pack
An economical, high quality Soya oil. It is available in 1/2 lt, 1 lt, 1 lt-Pet, 5
lts, 15 lts, 15 lts-Jar, 15 kgs, 15 kgs Jar and 15 lts Jar with Box.
REFIEND SUN FLOWER OIL
Benefits Of Sunflower Oil
• It is healthy, natural and light in taste and appearance.
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• It supplies more Vitamin E, than any other vegetable oil.
• With zero percent cholesterol levels, it makes an excellent choice as a cooking medium.
Sunflower Oil Is Available In Two Brands
The premium high quality sunflower oil is offered in 500 ml, 1 lt, 5 lts and 15
lts packs.
Available in 500 ml, 1lt, 2lts, 5 lts and 15 lts packs
MUSTARD OIL
Benefits Of Mustard Oil
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• Mustard oil is made from the first press of the finest mustard seeds, preserving their aroma
and flavour, which makes food delicious
• Besides acting as a preservative, it imparts flavour to Indian recipes, sausages and westernfoods.
• It is an economical cooking medium with a long shelf life.
Mustard Oil Is Available In Two Brands
A high quality mustard oil brand, available in 500 ml, 1 lt, 5 lts, 15 lts
and 15 kgs packs.
A value for money mustard oil brand from Ruchi, available in 1 lt, 15
lts. and 15 kgs packs.
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Nutrigold vanaspati is our latest offering in the vanaspati category. It has been
formulated after extensive R&D and is a product which has an almost ‘ghee like '
grainy texture. Nutrigold promises to be ‘Good for health ' as it offers a healthy
alternative to the traditional vanaspati due to relatively low trans fatty acids.
Nutrigold is ideal for deep - fried dishes that need to be preserved for a longer
period of time. It is also recommended for making Indian sweets. It is a 'value for
money' offering as Ruchi Soya has the ability to procure the best quality oils at the
lowest prices because of its vast logistics network spread across the country.
Nutrigold is available in 500g and 1Kg packs.
NEUTRILA CHUNKS
According to Health Claim, “25 gms of Soya protein daily, lowers cholesterol
levels, preventing heart diseases”. Nutrela, the most trusted, 100 % vegetarian Soya food
brand in the country, offers Soya granules, chunks and minichunks , which are full of
nutrition and are also easy to prepare. Nutrela has enjoyed the trust of its consumers,
both in India and overseas, for more than 25 years and continues to expand its range to
give more offerings to the consumers.
Nutrela is beneficial for all lifestyles and age-groups as follows -
• For The Busy Executive Nutrela helps control hypertension, blood pressure and is
also excellent as part of a low- calorie diet for weight control or fitness training.
• In Women
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Nutrela can help fulfill many of the requirements of expectant mothers. In older
women, it promots bone health and reduces the risk of osteoporosis. Moreover, it also
helps prevent the breast cancer, and uncomfortable menopausal symptoms.
• In Children
Nutrela’s high proteins content helps deliver essential nutrients to remain fit, healthy
and energetic throughout the day. It also aids the development of bones and teeth.
How To Use:
Just follow the simple 3 step procedure mentioned on the box and prepare a range of delicious dishes for all mealtimes, including breakfast, lunch, dinner, evening snacks
and even desserts!
Available in 3 forms
Chunks : 100 gms, 200 gms and 1 kg packs
Granules : 200 gms and 1 kg packsMini chunks : 200 gms pack
RUCHI SHOAP
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Ruchi No 1 is the optimum answer for all the needs of the skin as it provides
Purification, Nourishment and Hydration. Consumer research has indicated that the
desire for a lasting fragrance features highest in the daily beauty regime of economy
soap users. Hence Ruchi No 1 comes in four enhanced fragrances, which provide longer
lasting freshness besides just taking care of the skin
Natural rose petals are popularly used for softening & toning of the skin and
the sweet rose fragrance creates an atmosphere of opulence. After bathing with Ruchi’s
Rose soap, you will feel like a ‘movie star’ throughout the day.
The exotic aroma of jasmine creates an ambiance of bathing in a ‘magic garden’, away
from the mayhem of day to day life. Ruchi’s new offering promises the magic to linger and the romance to continue till the next bath tim
Lime embodies freshness and cleanliness. Bathing with Ruchi’s fresh new
soap after a long, tiring day uplifts the fatigued body and boosts it with energy. This
freshness of the mind and the body will help you maintain a sense of well being through
the entire day.
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Sandalwood is known for it’s legendary cleansing and hydrating properties and it’s
excellent aroma . Sandalwood was the choice of royalty in olden times to enhance
skincare. Ruchi’s sandalwood aroma will transport you back in time when long drawn
out bathing rituals were cherished and women were fastidious about natural skin care
and favored natural sandal fragrance
Ruchi No. 1 has 72 % TFM ( total fatty matter ) and delivers the promise of “quality at
an economical price “ , keeping in line with the company’s commitment to consumers.
With the company lending its corporate name to this brand, it guarantees optimumquality to the consumer.
Ruchi No. 1 is available in 2 SKUs. 75 gms – Rs.8/- and 100 gms –
RUCHI BAKERY PRODUCTS
Ruchi's Avanti Bakery Fats
This product is a highly textured and grain-less product having best plasticity, smooth
and creamy texture and a blend-in taste that ensures a good layered structure in puff
products. It is manufactured in an Ultra modern plant with highly sophisticated
techniques under specific hygienic conditions. It is a stable medium which provides a
longer shelf life to the products.
This product is available in
15 kgs tin, 15 kgs Ply bag in box (corrugated box) and through clean, insulated road
tankers, in the form of liquid vanaspati.
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VISION – TO achive across 2500crores turn over by 2009
Auditors’ Report
THE MEMBERS OF RUCHI WORLWIDE LIMITED
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We have audited the attached Balance Sheet of Ruchi Worldwide Ltd. as at 31st March,
2009 , the Profit & Loss Account and the
Cash Flow Statement for the year ended on that date annexed thereto. These Financial
statements are the responsibility of the
company management. Our responsibility is to express an opinion on these financial
statements based on our audit.
1. We have conducted our audit in accordance with auditing standards generally
accepted in India. Those Standards require
that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a
reasonable basis for our opinion.
2. As required by Companies (Auditor’s Report) Order, 2003, as amended by the
Companies (Auditor’s Report) Order,2004,
(‘the Order’) issued by the Central Government of India in terms of Section 227 (4A) of
the Companies Act, 1956, we
enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of
the said Order.
3. Further to our comments in the annexure referred to in paragraph 2 above, we report
that :
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a) We have obtained all the information and explanations which to the best of our
knowledge and belief were necessary
for the purpose of our audit.
b) In our opinion proper books of accounts as required by law have been kept by the
company, so far as appears from
our examination of the books.
c) The Balance Sheet, the Profit and Loss Account and Cash Flow Statement referred to
in this report are in agreement
with the books of account.
d) In our opinion, the Profit & Loss account, Balance Sheet and Cash Flow Statement
dealt with by this report comply
with the mandatory Accounting Standards referred to in sub-section (3C) of section 211
of the Companies Act, 1956.
e) On the basis of written representations received from the Directors of the Company
and taken on record by the Board
of Directors, we report that no Directors are disqualified as at 31st March, 2009 from
being appointed as Directors in
terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956.
f) In our opinion and to the best of our information and according to the explanations
given to us, the said Balance
Sheet, Profit & Loss Account and Cash Flow Statement read with notes thereon give the
information required by the
Companies Act, 1956 in the manner so required and give a true and fair view.
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i) In the case of the Balance Sheet of the state of affairs of the Company as at 31st
March, 2009.
ii) In the case of Profit & Loss Account, of the profit of the company for the year ended
on that date and;
iii) In the case of Cash Flow Statement of the Cash Flows for the year ended on that
date.
For M.M.Singla & Co.
Chartered Accountants
(MURLI M.SINGLA)
Place : Mumbai Proprietor
(Membership No. 40366)
BALANCE SHEET OF RUCHI SOYA INDUSTRIES LIMITED
AS AT 31ST MARCH, 2009
Sch. 2008-2009 2007-2008
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No. (Rs. in lacs) (Rs. in lacs)
I . SOURCES OF FUNDS
1. Shareholders’ Funds
a. Share Capital 1 1,894.07 1,894.07
b. Reserves & Surplus 2 2,607.35 2,187.44
2. Loan Funds
a. Secured Loans 3 1,472.07 6,025.50
b. Unsecured Loans 4 11,593.34 37,001.63
II. APPLICATION OF FUNDS
1. Fixed Assets 5
a. Gross Block 29.84 21.38
b. Less : Depreciation (17.11) (15.59)
c. Net Block
2. Current Assets, Loans & Advances
a. Sundry Debtors 6 25,498.13 14,214.39
b. Cash & Bank Balances 7 12,385.52 38,048.75
c. Loans and Advances 8 3,707.34 4,457.79
d. Inventories 9 1,685.15 8,036.10
Less : Current Liabilities & Provisions
a. Current Liabilities 10 24,894.88 17,051.89
b. Provisions 11 831.63 607.70
Net Current Assets 17,549.63 47,097.44
3. Net Deferred Tax Asset 0.53 0.48
4. Miscellaneous Expenditure 12 3.94 4.93
(To the extent not written off or adjusted)
NOTES TO THE ACCOUNTS 16
As per our report of even date attached For and on behalf of the Board of Directors
For M. M. SINGLA & CO. DINESH SHAHRA
Chartered Accountants Director
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(MURLI M. SINGLA) NEERAJ JAIN
Proprietor Company Secretary S.P. JOSHI
(Membership No. 40366) Director
Mumbai, 22nd August, 2009 Mumbai, 22nd August, 2009
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RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
Research methodology is a systematic way, which consists of series of action steps,
necessary to effectively carry out research and the desired sequencing to these steps. The
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marketing research is a process of involves a no. of inter-related activities, which overlap and
do rigidly follow a particular sequence. It consists of the following steps:-
• Formulating the objective of the study
• Designing the methods of data collection• Selecting the sample plan
• Collecting the data
• Processing and analyzing the data
• Reporting the findings
Ob ective of Stud
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Research Desi n
Sam le Desi n
Data Collection
Data Analysis
Re ort of findin s
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RESEARCH DESIGN
Research design specifies the methods and procedures for conducting a particular study.
A research design is the arrangement of conditions for collection and analysis of the data in a
manner that aims to combine relevance to the research purpose with economy in procedure.
Research design is broadly classified into three types as
• Exploratory Research Design
• Descriptive Research Design
• Causal Research Design
I have chosen the descriptive research design.
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DESCRIPTIVE RESEARCH DESIGN:
Descriptive research studies are those studies which are concerned with described the
characteristics of particular individual.
In descriptive as well as in diagnostic studies, the researcher must be able to define
clearly, what he wants to measure and must find adequate methods for measuring it
along with a clear cut definition of population he want to study. Since the aim is to
obtain complete and accurate information in the said studies, the procedure to be used
must be carefully planned. The research design must make enough provision for
protection against bias and must maximize reliability, with due concern for the
economical completion of the research study.
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COLLECTION OF DATA
DATA COLLECTION
For the purpose of analyzing the data it is necessary to collect the vital information.I collectthe information with the use of secondary data.
SECONDARY DATA:-
Secondary data means data that are already available i.e. they refer the data which have
already been collected and analyzed by someone else. When the researcher utilizes
secondary data, than he has to look into various sources from where h e can obtain them,
in this case he is certainly not confronted with the problems that are usually associated
with the collection of original data. Secondary data may either be published data or
unpublished data. Usually published data are available in:
• Annual financial documents of RUCI SOYA INDUSTRIES LTD
COLLECTION TECHNIQUE:
Descriptive method is used in collection the data.
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MEANING OF WORKING CAPITAL
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INTRODUCTION
The project undertaken is on “WORKING CAPITAL MANAGEMENT IN RSIL.
It describes about how the company manages its working capital and the various steps
that are required in the management of working capital.
Cash is the lifeline of a company. If this lifeline deteriorates, so does the company's
ability to fund operations, reinvest and meet capital requirements and payments.
Understanding a company's cash flow health is essential to making investment decisions.
A good way to judge a company's cash flow prospects is to look at its working capital
management (WCM).
Working capital refers to the cash a business requires for day to day operations or, more
specifically, for financing the conversion of raw materials into finished goods, which the
company sells for payment. Among the most important items of working capital are
levels of inventory, accounts receivable, and accounts payable. Analysts look at these
items for signs of a company's efficiency and financial strength.
The working capital is an important yardstick to measure the company’s operational and
financial efficiency. Any company should have a right amount of cash and lines of credit
for its business needs at all times.
This project describes how the management of working capital takes place at igate
“Working Capital is the Life Blood and Controlling Nerve Center of a business” The
working capital management precisely refers to management of current assets. A firm’s
working capital consists of its investment in current assets, which include short term
assets such as:
Cash and bank balance,
Inventories,
Receivables (including debtors and bills),
Marketable securities.
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Working capital is commonly defined as the difference between current assets and
current liabilities.
Working Capital = Current Assets - Current Liabilities
CLASSIFICATION OF WORKING CAPITAL
Working capital can be classified as follows:
On the basis of time
On the basis of concept
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Working Capital may be classified on two basis: -
a) On the basis of Concept: -
On the basis of concept, working capital can be classified as,
• Gross Working Capital
• Net Working Capital
b) On the basis of Time: -
On the basis of time, working capital can be classified as,
• Permanent or Fixed Working Capital
• Temporary or Variable Working Capital
Gross Working Capital: -
The Gross Working Capital is the Capital invested in the total current assets of the enterprises.
Current assets are those assets, which can be converted into cash within a short period, normally
an accounting year.
Gross Working Capital = Total Current Assets
Net Working Capital: -
The term Net Working Capital refers to the excess of current assets over current
liabilities, or say,
Net Working Capital = Current Assets – Current Liabilities
Net Working Capital can be positive or negative. When the current assets exceeds the
current liabilities the working capital is positive and the negative working capital results
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when the current liabilities are more than the current assets. Current liabilities are those
liabilities, which are intended to be paid in the ordinary course of business within a short
period of normally one accounting year out of the current assets of the income of the
business. The gross working capital concept is financial or going concern concept
whereas net working capital is an accounting concept of working capital. Both the
concepts have their own merits.
The gross concept is sometime preferred to the concept of working
capital for the following reasons: -
• It enables the enterprise to provide correct amount of working capital at correct time.
• Every management is more interested in total current assets with which it has to
operate then the sources from where it is made available.• It takes into consideration of the fact every increase in the funds of the enterprise
would increase its working capital.
• The concept is also useful in determining the rate of return on investments in working
capital.
• The net working capital concept, however, is also important for the following
reasons:-
• It is a qualitative concept, which indicates the firm’s ability to meet its operatingexpenses the short-term liabilities.
• It indicates the margin of protection available to short term creditors.
• It is an indicator of financial soundness of enterprise.
• It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds.
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Permanent or Fixed Working Capital: -
Permanent or fixed capital is the minimum amount, which is required to ensure effective
utilization of fixed facilities and for maintaining the circulation of current assets. Every
firm has to maintain a minimum level of current assets is called permanent or fixed
working capital as this part of working capital is permanently blocked in current assets.
As the business, grow the requirement of working capital also increases due to increase
in current assets.
Temporary or Variable Working Capital: -Temporary or variable working capital is the amount of working capital, which is
required to meet the seasonal demands and some special exigencies. Variable working
capital can further be classified as seasonal working capital and special working capital.
The capital required to meet the seasonal need of the enterprise is called the seasonal
working capital. Special working capital is that part of working capital which is required
to meet special exigencies such as launching of extensive marketing campaign for
conducting research etc.
Temporary working capital differ from permanent working capital in the sense that it is
required for short periods and cannot be permanently employed gainfully in business
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NEEDS AND OBJECTIVES FOR WORKING CAPITAL
Every business needs some amount of working capital. The needs for working capital,
arises due to time gap between production and realization of cash from sales. There is an
operating cycle involved in sales and realization of cash. There are time gaps in purchase
of raw material and production, production and sales, and realization of cash.
Thus, working capital is needed for the following purposes: -
• For the purchase of raw material, component and spares.
• To pay wages and salaries.
•
To incur day- to- day expenses and overhead costs such as fuel, power and officeexpenses etc.
• To meet the selling costs such as packing, advertising etc.
• To provide credit facilities to the customers.
• To maintain the inventories of raw material, work in progress, store, spares, and
finished stock
.For studying the need of working capital in a business, one has to study the business
under varying circumstances such as new concern, as a growing and one, which has
attained maturity. A new concern requires a lot of funds to meets its initial requirement
such as promotion and formation etc. These expenses are called preliminary expenses
and are capitalized. The amount needed for working capital depends upon the size of the
company and the ambition of its promoters. Greater the size of the business unit,
generally will be the requirement of the working capital. The requirement of the working
capital goes on increasing with the growth and expansion of the business until its gains
maturity. At maturity, the amount of working capital required is called normal working
capital.
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FACTORS DETERMINING THE WORKING CAPITAL
REQUIREMENT
1. NATURE OF BUSINESS :-
The requirement of working capital is very limited in public utility undertaking such as
Electricity, Water Supply and Railways because they offer cash sales only and supply
services not products and no funds are tied up in inventories and receivables. On the
other hand, the trading and financial firm requires less investment in fixed assets but
have to invest large amounts in current assets. The manufacturing undertaking requires
sizable amount of working capital along with fixed investments.
2. PRODUCTION POLICY :-
The determination of working capital needs depends upon the production policy of the
business. The demand for certain products is seasonal i.e.; such products are purchased
in certain months of a year. For such industries, two types of production policy can be
followed. Firstly they can produce the goods in the months of demand or secondly, they
produce for the whole year. If the second alternative were followed, it would mean thatuntil the time of demand finishes, product would have to be kept in stock. It would
require additional working capital.
3. LENGTH OF PRODUCTION CYCLE :-
The longer the manufacturing time, the raw material and other supplies have to be
carried for a longer time in the process with progressive increment of labor and servicecosts before the final product is obtained. Therefore, working capital is directly
proportional to the length of the manufacturing process.
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4. RATE OF STOCK TURNOVER :There is an inverse co-relationship between the quantum of working capital and the
velocity or speed with which the sales are effected. A firm having a higher rate of stock
turnover will need lower amount of working capital as compared to a firm having a low
rate of turnover.
CREDIT POLICY :Credit policy affects the working capital requirements in two ways:
(a) Terms of credit allowed by customer to the firm,
(b) Terms of credit available to the firm.
A concern that purchases its requirements on credit and sells its product/services on cash
requires lesser amount of working capital and vice-versa.
6. WORKING CAPITAL CYCLE :-
The speed with which the working cycle completes one cycle determines the
requirements of working capital. Longer the cycle larger is the requirement of working
capital.
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7. RATE OF GROWTH AND EXPANSION OF BUSINESS: -
The larger size businesses require more permanent and variable working capital in
comparison to small business. If a company is growing, its working capital requirements
will also go on increasing. Thus, the growing concerns require more working capital as
compared to the stable industries.
8. SEASONAL VARIATION: -
Generally, during the busy season, a firm requires larger working capital than in the
slack season.
9. BUSINESS FLUCTUATION: - In period of boom, when the business is prosperous,
there is a need for larger amount of working capital due to rise in sales, rise in prices,
optimistic expansion of business etc. On the contrary in time of depression, the business
contracts, sales decline, difficulties are faced in collection from debtors and the firm may
have a large amount of working capital idle.
EARNING CAPACITY AND DIVIND POLICY :-
DEBTORS
CASH FINISHEDGOODS
RAW MATERIAL WORK INPROGRESS
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Some firms have more earning capacity than other due to quality of their products, monopoly
conditions, etc. Such firms may generate cash profits from operations and contribute to their
working capital. The dividend policy also effects the requirement of working capital. A firm
maintaining a steady high rate of cash dividend irrespective of its profit needs more working
capital than the firm that retain larger part of its profits and does not pay so high rate of cash
dividend.
PRICE LEVEL CHANGES: -
Price level changes also affect working capital needs. If the prices of different goods increase, to
maintain same level of production, more working capital is needed.
10. AVAILABILITY OF RAW MATERIAL : -
Availability of raw material on the continuos basis affects the requirement of working capital.
There are certain types of raw materials, which are not available regularly. In such a situationfirm requires greater working capital to meet the requirements of production. Some raw materials
are available in particular season only for example wool, cotton, oil seeds, etc. They have to keep
greater working capital.
-
11. MAGNITUDE OF PROFIT :-
Magnitude of profit is different for different businesses. Nature of product, control on the market
and ability of managers etc. determine the quantum of profit. If the profit margin is high, it will
help to arrange funds internally, which will also increase the working capital.
12. OTHER FACTOR : -
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Operating efficiency
a) Management ability
b) Irregularities of supply
c) Import policyd) Asset structure
e) Importance of labor
SOURCES OF WORKING CAPITAL
A part of working capital is required as permanent investment because there is always
minimum level of current assets which are continuously required by the enterprise to carry
out its day to day business operation. This gives rise to permanent working capital. Similarly
demands and some special exigencies like rise in prices, strikes etc. This proposition or
working capital gives rise to temporary working capital.
The fixed proposition of working capital is generally financed from fixed capital sources
while the temporary or variable working capital requirement of a concern may from the short
term sources of capital.
1. PERMANENT WORKING CAPITAL SOURCES
• Shares
• Debentures
• Ploughing back of profit
• Loans from financial institutions
• Public deposits
2. TEMPORARY WORKING CAPITAL SOURCES
• Indigenous bankers
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• Trade credit
• Advances
• Accrued expenses
•
Commercial banks1. LONG TERM WORKING CAPITAL SOURCES
• Shares:
Issue of shares is the most important source for raising the permanent working
capital. A company can issue various types of shares like equity shares and preference
shares. A company should raise maximum amount of working capital by issue of shares.
• Debentures:
The debenture is an instrument issued by the company acknowledging its debts to its
holder. The debenture holders are the creditors of the company. It is also a long term
source from which any company meets its fixed working capital requirement.
• Public deposits
Public deposits are the fixed deposits accepted bya business enterprise directly from the
public. The reserve bank of India has laid done certain limits on public deposits morethan 25% of its paid up capital and free reserves.
• Ploughing Back of profits:
Ploughing back of profits means the reinvestments by the concern of its surplus earning
its business. It is an internal source of financing the working capital.
• Loans from financial institutions:
Financial institutions like commercial banks, Life insurance Corporation of India,
state financial corporation, state industrial development corporation, and industrial
development banks of India etc. provide short term, medium term and long term loans.
This is also a major source to finance working capital.
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2. SHORT TERM WORKING CAPITAL SOURCES
• Indigenous bankers:
Indigenous bankers are the private money lenders who are charging very high rates of
interest and exploit the customers. Now they have lost their monopoly. Yet some
business has to depend upon indigenous bankers for obtaining loans to meet their
working requirement.
• Trade credit:
Trade credit refers to the credit extended by the suppliers of goods. The buying firm's
don't have to pay cash immediately for the purchases made. The deferral of payment is
the short term financing called trade credit. It is the major source of financing for firms.
In India it contributes to about one- third of the short term financing. It may also take the
form of bills payables whereby the buyers sign a bill of exchange payable on a specified
future date.
In this the borrower is allowed to withdraw funds in access of the balance in his
current account up to a certain limit. The interest as changed on daily overdrawn
balances.
• Advances: - .Some business house get advance from their customers and agents against orders. It is
the cheap source of finance and in order to minimize their investment in working. Some
firms having long. . productiol1; cycle especially the firm manufacturing industrial
product prefers to take advantages from their customers.
• Accrued expenses:
Accrued expenses represent a liability that a firm has to pay for the services which it
had already received. Thus they represent spontaneous, interest free sources of
financing. Its major components are wages and salaries, taxes and interests. The firm
incurs a liability when the en1ployees have rendered services. They are paid after works
usually at some fixed interval. Similarly interest is paid periodically during a year while
the borrowed funds are continuously used by the firm. .
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• Commercial banks:
After trade credit, bank credit is the most important source of financing working
capital requirements of the firm. Bank can finance working capital in the following
ways:
a) Overdraft:
In this borrower is allowed to withdraw funds to access of the balance in the current
account up to a certain limit. The interest as changed on daily overdrawn balances.
b) Cash credit:
In this borrower is allowed to withdraw funds from the bank upon the sanctioned
credit limit. He can withdraw periodically to extent if his requirement and repay by
depositing surplus fund in his cash credit account.
c) Discounting of bills:
In this a borrower obtains credit from a bank against his bills. The bank purchases or
discounts the borrower bills. The bank purchases the bill payable on the demand and
credit the customers account with the amount of bill less discount. At maturity, bank
presents the bill to its acceptor for payment.
d) Working Capital Loans:
In this, bank makes an advance in lump- sum against some security known as loan.
The entire loan is paid to the borrower either in cash or by credit to his account. Theseloans may be either medium term or long term loans.
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MANAGEMENT OF WORKING CAPITAL
Management of working capital means management of all aspects of current assets and
current liabilities. Basically, Working capital management is concerned with the problems that arise in attempting to manage the current assets, current liabilities and the
inter relationship that exist between them.
Financial management should determine the quantum and structure of current assets. It
should also see that current assets are financed from the proper sources. Management
should also see that current liabilities are paid in time, while managing the working
capital.
The main objective of working capital management is to manage current assets andcurrent liabilities in a manner so that working capital can be kept in a satisfactory level.
It is also taken in to account that the working capital should be neither excessive nor
inadequate. The amount of current assets should be adequate to pay the current liabilities
in time and adequate security margin can be maintained. Accordingly, proper balance
among the different constituents of current assets is maintained so that no current has
more than require amount invested in it.
Management of working capital affects profitability, risk and liquidity of the business
significantly. Management should, therefore, maintain proper balance among these
factors while managing working capital. If the quantum of working capital is more, it
will increase liquidity, but decrease profitability and risk. If working capital relatively
declines, it will decrease liquidity but cause an increase in profitability and risk. If
business wants to earn more profit, it will have to bear higher risk. Risk means inability
of the firm to pay current liabilities in time.
Working capital management is three dimensional in nature : -
1) It concerned with the formulation. It of policies with regard to profitability, liquidity
and risk.
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2) It is concerned with the decisions about the composition and level of current assets.
3) It is concerned with the decisions about the composition and level of current
liabilities.
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Policies regarding to Profitability,
Liquidity and Risk.
Composition of level of Composition of level of current liabilities
current assets
Dimensions of working capital.
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ANALYSIS STATICAL TOOL : The analysis of working capital can be conducted througha number of devices, such as:.
1. Ratio analysis.
2 . Cash flow analysis.
1. RATIO ANALYSIS
A ratio is a simple arithmetical expression one number to another. The technique of ratio
analysis can be employed for measuring short-term liquidity or Working capital position
of a firm. The following ratios can be calculated for these purposes:
1. Current ratio.
2. Quick ratio
3. Inventory turnover.
4. Working capital turnover ratio.
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RATIO ANALYSIS
1. Net Working Capital:
Net working Capital = Current Assets- Current Liabilities
Year
Ending(31st
march)
Current
Assets
Current
liabilities
N.W.C(in
crore)
2005 1480.86 782.04 698.82
2006 2415.83 1586.50 829.33
2007 2919.40 1700.10 1219.30
2008 4491.38 3108.93 1382.45
2009 4563.45 3152.61 1410.83
0
1000
2000
3000
4000
5000
2005 2006 2007 2008 2009
Current Assets
Current liabiliti
N.W.C(in crore
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Net Working capital the excess of current assets over current liabilities. Current assets refer
to assets which are generally converted into cash with in a period alone year. Current
Liabilities are those which are required to be paid 'in a short period normally a year. An
enterprise should have the sufficient Net Working Capital in order to meet the claim of the
creditors & day to day needs of the business. Net Working Capital of Ruchi Soya industries
ltd increasing gradually. It shows that the liquidity of the company is improving & thecompany is able to meet its creditors & day expenses. In 2006 Net Working Capital is
increased from 698.82 to 829.33 crore. In 2007 Net Working Capital has increased then the
previous.Now in 2009 its N.W.C is increase from 1382.45 to1410.83.
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CURRENT RATIO
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0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
20052006
20072008
2009
Current Assets
Current liabiliti
Current ratio
Year
Ending(31st
march)
Current
Assets
Current
liabilitiesCurrent ratio
2005 1480.86 782.04 1.89
2006 2415.83 1586.50 1.522007 2919.40 1700.10 1.72
2008 4491.38 3108.93 1.44
2009 4563.45 3152.61 1.45
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Current Ratio: Current Assets/Current liabilities
Current Ratio shows the ratio of current assets & current liabilities. Since from NeWorking
Capital we cannot determine the relationship between current assets & current liabilities
hence we have to calculate current ratio. The ratio shows how, much amount of current assetsis available to pay IRs. Current liability A relatively high ratio shows that the firm is liquid &
hence the ability to pay its current obligations in time as & when they become due. On the
other hand, a relatively low current ratio indicated that the liquidity position of the company
is not so good & may not be able to pay its current liabilities in time without facing
difficulty.
2. QUICK RATIO
Quick ratio is a more rigorous test of liquidity than current ratio. Quick ratio may be
defined as the relationship between quick/liquid assets and current or liquid liabilities.
An asset is said to be liquid if it can be converted into cash with a short period without
loss of value. It measures the firms’ capacity to pay off current obligations immediately.
QUICK RATIO = QUICK ASSETS
CURRENT LIABILITES
Where Quick Assets are:
1) Marketable Securities
2) Cash in hand and Cash at bank.
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3) Debtors.
A high ratio is an indication that the firm is liquid and has the ability to meet its current
liabilities in time and on the other hand a low quick ratio represents that the firms’
liquidity position is not good.
As a rule of thumb ratio of 1:1 is considered satisfactory. It is generally thought that if
quick assets are equal to the current liabilities then the concern may be able to meet its
short-term obligations. However, a firm having high quick ratio may not have a
satisfactory liquidity position if it has slow paying debtors. On the other hand, a firm
having a low liquidity position if it has fast moving inventories.
Quick Ratio of ruchi soya ind.ltd
Year Quick ratio
2006 0.97
2007 1.15
2008 0.75
2009 0.96
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Interpretation :
A quick ratio is an indication that the firm is liquid and has the ability to meet its
current liabilities in time. The ideal quick ratio is 1:1. Company’s quick ratio is less
than ideal ratio in 2009 and 2008.This shows company has liquidity problem.
INVENTORY MANAGEMENT
Introduction
Inventories constitute most significant part of current assets, in most of the companies in India.
To maintain a large size of inventory, a considerable amount of fund is required. It is, therefore,
absolutely imperative to manage inventories efficiently and effectively in order to avoid
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unnecessary investment. A firm neglecting the management of inventories will be jeopardizing
its long-run profitability and may fail ultimately. It is possible for a company to reduce its levels
of inventories to a considerable degree, e.g.10% to 20%, without any adverse effect on
production and sales, by using inventory planning and control techniques. The reduction in
‘excessive’ inventories carries a favorable impact on a company’s profitability.
There are at least three motives for holding inventories:
1-To facilitates smooth production and sales operation ( transaction motive ).
2-To guards against the risk of unpredictable changes in usage rate and delivery time
(precautionary motive ).
3- To make advantage of price fluctuations ( speculative motive) .
OBJECTIVE: -
Inventories represent investment of a firm’s funds. The objective of the inventory management
should be the maximization of the value of the firm. The firm should therefore consider:
(a) costs,
(b) return, and
(c) Risk factors in establishing its inventory policy.
Two types of costs are involved in the inventory maintenance:
1-Ordering costs: - Requisition, placing of order, transportation, and staff services. Ordering
costs are fixed per order size increases.
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2-Carrying costs: - Warehousing, handling, clerical and staff services, insurance and taxes.
Carrying cost increases.
The firm should minimize the total cost (ordering cost + carrying cost). The economic order
quantity (EOQ) of inventory will occur at a point where the total cost is minimum. The following
formula can be used to determine EOQ:
EOQ=(2AO/C)^1/2
Where,
A= Annual requirement.
O= Per order cost.
C= Per unit carrying cost.
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WHEN SHOULD THE FIRM PLACE AN ORDER TO REPLENISH INVENTORY?
The inventory level at which the firm places order to replenish inventory is called reorder point.
It depends on (a) the lead time and (b) the usage rate.
Under perfect certainty about the usage rate, the instantaneous delivery (i.e. zero lead time0, the
reorder point will be equal to:
Lead-time *Usage rate +Safety stock.
The firm should strike a trade-off between the marginal rate of return and marginal cost of funds
to determine the level of safety stock.
A firm, which carries a number of items in inventory, which differ in value, can follow a
selective control system. A selective control system, such as the A-B-C analysis, classifiesinventories in to three categories according to the value of item:
A-Category consists of highest value items,
B- Category consists of high value items,
C -Category consists of lowest value items.
More categories of inventories can also be created. Tight control may be applied for high-value
items and relatively loose control for low-value items.
FUNCTION OF INVENTORY CONTROL
Functions to be performed in the field of Inventory Control are:
1 Setting up norms for carrying Inventory.
2 Determining what items to be stocked.
3 Setting rules for Inventory replenishments.
4 Receiving, storing and issuing inventory items as needed.
5 Maintaining records of inventory quantities and values.6 Identifying and deposing of slow moving, non-moving, obsolete or damage inventories.
7 Furnishing summary information on inventory position for control purposes.
Locations of position responsible for performing each of these functions in organisation structure
greatly vary from company to company.
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In RSIL determination of product material or direct work order material (what?) to be carried in
Inventory is more or less automatic result of product design formulation and is given in material
forecast for a work order. Indirect materials consumed in manufacturing process such as
electrodes, brazing alloys, tooling etc. are usually given by process engineering or at times by
design departments.
Balance great bulk of indirect materials is made up of repair parts and general supplies.
Responsibility for specific (what?) items to be carried in inventory rests with Works
Engineering.
With respect to raw materials and purchased parts, responsibility for determining (when?) and
how much to buy is a sign to relevant product manufacturing i.e. production planning and
material planning groups. However a strict budgetary control and allocation to specific work
order control on high value items is exercised by Inventory control department organizedseparately under Material Management.Purchase department attached to manufacturing
department determines (where?) to buy.
Determination of indirect material (when?) and how much to buy and (where?), is done by
central group under Material Management by consolidating requirements of all sections and
while looking at consumption trends over a No. Years.
Again a strict budgetary control and control on high value items for their allocation is exercised
by Inventory control group.
Receiving and storing is done by Central Stores CSX under Material Management Department.
Issuing Inventory is done by CSX on demand from manufacturing and is controlled by Material
Planning.Again some on
Line checks are proposed to be introduced at raising of Store Issue voucher stage itself, for high
value items so that induction is controlled strictly as per requirement of production schedule
based on lead time for manufacture to keep WIP inventory under control.
Records of Inventory are maintained on a main frame computer centrally arranged having shared
access from all functions for their specific use.
Inventory Record Keeping and Related Procedures
How well Inventory records are maintained has a major bearing on the effectiveness of Inventory
control program. Mostly information recorded in RSIL. system is:
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• Name of the part or material
• Short description
• Identifying No called Material code
•
Unit of measurement• Location in store (custody)
• Bin no.
• Opening, received, issue, closing quantity and value.
These records are maintained in an online system on main frame computer user departments
have shared access for posting and retrieval of information.
There is a system for reserving specific items as customer specific, which is done by tagging on
the item.
Posting of withdrawals or issue from inventory is done on specific authorization by a document
called Store Issue voucher.
INVENTORY MANAGEMENT
YEAR 2008-2009 2007-2008RAW MATERIAL 75980.39 13025.33WIP 996.03 3063.28FINISHED GOODS 66112.56 71557.14REALISABLE BY PRODUCT 1565.39 2060.38CONSUMABLE,STORES,SPARE
S
6278.30 4116.67
TOTAL 150932.67 213822.80
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YEAR INVENTORY LEVEL
2007-2008 213822.80
2008-2009 150932.67
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INVENTORY TURNOVER OR STOCK TURNOVER RATIO :
Every firm has to maintain a certain amount of inventory of finished goods so as to meet
the requirements of the business. But the level of inventory should neither be too high
nor too low. Because it is harmful to hold more inventory as some amount of capital is
blocked in it and some cost is involved in it. It will therefore be advisable to dispose the
inventory as soon as possible.
INVENTORY TURNOVER RATIO = COST OF GOOD SOLD
AVERAGE INVENTORY
Inventory turnover ratio measures the speed with which the stock is converted into sales.
Usually a high inventory ratio indicates an efficient management of inventory because
more frequently the stocks are sold ; the lesser amount of money is required to finance
the inventory. Where as low inventory turnover ratio indicates the inefficient
management of inventory. A low inventory turnover implies over investment in
inventories, dull business, poor quality of goods, stock accumulations and slow moving
goods and low profits as compared to total investment.
AVERAGE STOCK = OPENING STOCK + CLOSING STOCK
2
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INVENTORY TURNOVER RATIO
0
1
2
3
4
5
6
7
8
9
10
2006 2007 2008 2009
I.T
Interpretation :
These ratio shows how rapidly the inventory is turning into receivable through sales.
In 2007 the company has high inventory turnover ratio but in 2008 it has reduced to 5.25
times. This shows that the company’s inventory management technique is less efficient
as compare to 2007.but in 2009 it increase to 8.41.now inventory management technique
is more efficient.
Year 2009 2008 2007 2006Inventory
turnover
ratio
8.41 5.25 9.25 8.89
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2. INVENTORY CONVERSION PERIOD:
INVENTORY CONVERSION PERIOD = 365 (net WORKING days)
INVENTORY TURNOVER
RATIO
0
10
20
30
40
50
60
70
2006 2007 2008 2009
I.C.
Year I.C.R
2006 41
2007 39
2008 69
2009 43
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Interpretation :
Inventory conversion period shows that how many days inventories takes to convert
from raw material to finished goods. In the company inventory conversion period is
decreasing. This shows the efficiency of managemant to convert the inventory into cash.
CASH BNAK BALANCE :
(Rs. in Lacs)
Year 2007-2008 2008-2009Cash Bank Balance 57890.3 101479.3
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0
20000
40000
60000
80000
100000
120000
2007-20082008-2009
57890.3
101479.3
Cash Bank Balance 2008-2009
Interpretation :
Cash is basic input or component of working capital. Cash is needed to keep the
business running on a continuous basis. So the organization should have sufficient cash
to meet various requirements. The above graph is indicate that in 2008 the cash is
57890.3 but in 2009 it has increases to 101479.3 . So in 2009 the company has no
problem for meeting its requirement as compare to 2008.
(Rs. in Lacs)
DEBTORS
Year 2007-2008 2008-2009Debtors 103770.58 102689.76
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Interpretation :
This graph shows that there is increase in current assets in 2008-09. This increase is
arise because there is increase in inventories. Increase in current assets shows the
liquidity soundness of company.
RECOMMENDATIONS
The management of working capital plays a vital role in running of a successful
business. So, things should go with a proper understanding for managing cash,
receivables and inventory.
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RSIL is managing its working capital in a good manner, but still there is some scope for
improvement in its management. This can help the company in raising its profit level by
making less investment in accounts receivables and stocks etc. This wi ll ultimately
improve the efficiency of its operations. Following are few recommendations given to
the company in achieving its desired objectives:
• The business runs successfully with adequate amount of the working capital but the
company should see to it that the cash should not be tied up in excessive amount of
working capital.
• Though the present collection system is near perfect, the company as due to the
increasing sales should adopt more effective measures so as to counter the threat of bad
debts.
• The over purchasing function should be avoided as it could lead to liquidity problems.
• The investment of cash in marketable securities should be increased, as it is very
profitable for the company.
• Holding of excessive and insufficient stock must be avoided as it creates a burden on
the cash resources of a business and results in lost sales, delays for customers, etc
respectively.
FINDING
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The working capital position of the company is sound and the various sources through which it is
funded are optimal.
The company has used its dividend policy, purchasing, financing and investment decisions to
good effect can be seen from the inferences made earlier in the project.
The debts doubtful have been doubled over the years but their percentage on the debts has almost
become half. This implies a sales and collection policy that get along with the receivables
management of the firm.
The various ratios calculated are an indicator as to the fact that the profitability of the firm and
sales are on a rise and also the deletion of the inefficiencies in the working capital management.
The firm has not compromised on profitability despite the high liquidity is commendable.
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LIMITATION
The study is limited to three years only.
Price level changes are not considered.
Time is short for deep research.
Separate records of the all units are not available.
No comparison made with other firm’s ratio while during the study period and
making conclusion time.
The readjusted and regroup figure slightly affects the ratio figures.
Study is limited with the one unit of RSIL
The data is used in the project have been taken from annual report only. Hence,
grouping and sub grouping and annuliasation of data may slightly affect the results.
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CONCLUSION
• The working capital position of the company is sound and the various sources throughwhich it is funded are optimal.
• The company has used its dividend policy, purchasing, financing and investment
decisions to good effect can be seen from the inferences made earlier in the project.
• The debts doubtful have been doubled over the years but their percentage on the debts
has almost become half. This implies a sales and collection policy that get along with the
receivables management of the firm.
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BIBLIOGRAPHY
Following sources have been sought for the preparation of this report:
• Corporate Intranet
• Direct interaction with the employees of the company
• Internet www.Ruchi soya industries ltd.com
• Textbooks on financial management
• I.M. Pandey
• Khan and Jain