working capital management

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ANALYSE THE WORKING CAPITAL OF AGI GLASPAC

A PROJECT REPORT

CONTENT

CHAPTER-1
1.1 – INTRODUCTION
1.2 - STATEMENT OF THE PROBLEM
1.3 - OBJECTIVES OF THE STUDY
1.4 - SCOPE OF THE STUDY
1.5 - LIMITATIONS OF THE STUDY
CHAPTER-2
2.1- COMPANY PROFILE
2.2- PRODUCT PROFILE
CHAPTER-3
3.1 - RESEARCH DESIGN
3.2 - DATA COLLECTION DETAILS
3. 3 - TOOLS OF THE STUDY
3.4 - PERIOD OF STUDY

CHAPTER-4
4.1. ANALYSIS OF THE DATA
CHAPTER-5
5.1 – FINDINGS
5.2 –SUGGESTIONS
5.3- CONCLUSIONS










CHAPTER-1
1.1 - INTRODUCTION

Working Capital Management is concerned with the problems that arise in attempting to manage the current assets, the current liabilities and the interrelationship that exists between them. The term current assets refer to those assets which in the ordinary course of business can be, or will be, converted into cash within one year without undergoing diminution in value and without disturbing the operations of the firm.

Current Liabilities of are those liabilities, which are intended at their inception, to be paid in the ordinary course of business within a year, out of the current assets or earning of the concern.

The goal of working capital management is to manage the firm’s current assets and liabilities in such a way that a satisfactory level of working capital is maintained.


1.2 - STATEMENT OF THE PROBLEM:

The researcher aim to find out the liquidity and profitability position of the company. This study is concerned with problems involved in working capital like estimation of working capital and provision of working capital at the time it is needed.

Working capital represents that part of resources of the business, which makes the business work. In the absence of proper management of working capital it would be difficult to achieve the requirement of bank.








1.3 - OBJECTIVES OF THE STUDY

 To examine financial performance of company in the area of working capital during 2003-04 to 2007-08.

 To compute working capital rating to highlight financial performance of the company.

 To analyze the effectiveness of
i. Cash Management
ii. Receivables Management


1.4 - SCOPE OF THE STUDY

Working Capital is the money used to make goods and attract sales. The less working capital used to attract sales, the higher is likely to be the return on investment. Working Capital Management is about the commercial and financial aspects of Inventory, Credit, Purchasing, Marketing and royalty and investment policy. The higher the profit margin, the lower is like to be the level of working capital tied up in creating and selling titles. The importance of working capital management stems form the two reasons viz.,

 A substantial portion of total investment is invested in current assets
 Level of current assets will change quickly with the variation in sales.

Hence, an attempt should be made to analyze the size and composition of working capital and whether such an investment will lead to increased of business ever a period of time. After determining the requirements of current assets, one of the importance tasks of the financial manager is to select an assortment of appropriate sources of finance for the current assets.

The efficient utilization of funds is very important in an organization. The scope of this project is to analyze the efficiency utilization of working capital. This project document emphasizes in handling the various techniques in articulating the glass factory’s monetary strengths and weakness and its growth for the specific period of time. So this project will help the organization’s future by suggesting means to metering the optimal level is working capital.


1.5 - LIMITATIONS OF THE STUDY

 The time period taken for the study is only 5 years (2003-04 to 2007-08) which cannot be taken as a whole fulfillment.

 The prediction of the future based on the study is not reasonable.

 As ratio is the primary tool used in the analysis it suffers from its own limitations.

 The working capital analysis is made for a particular organization, therefore the result are not applicable to other organization.

 Hence any change that takes place in the middle of the year will not be accounted as figure at the end of the accounting year.









CHAPTER-2

2.1- COMPANY PROFILE

ABOUT AGI glaspac

INTRODUCTION:

AGI glaspac was established in the year 1964 under the management of Sri D. Radha Krishna Reddy, Managing Director with a joint Venture of Andhra Pradesh Industrial Developing Corporation(APIDC) named as Associated Glass Industries Limited. The company then manufactured products like Bottles and Crystal Glassware like Flower Vases.Tumblers, Candle Stands etc., With a Capital base of Rs.15 crores. At that time the manpower of the company was around 1300 to 1400. The company was a Joint venture with Andhra Pradesh Government and Hungarian Collaboration for technical know-how.

In the year 1970, company imported machinery from Hungary and USA to manufacture the Crystal Glass and Glassware. The first production of the company was on May 2nd 1971.The company had a turnover of about Rs.20 to Rs.25 lakhs per month during the years 1971-77. In 1979, the company became a sick unit due to wide fluctuations in profitability. The management decided to shutdown two big departments (HW-1/grinding section). About 350-400 workers were laid-off.

In November 1979, Management was forced to declare a lay-off for the entire organization for a period of one and half year.

In the year 1981, the management of AGI decided to handover the factory to the Government of Andhra Pradesh .Since the State Government had stake in the company, they started looking for buyer and finally Somany Group could finalize a deal. After the takeover, the management invested huge amounts for upgrading the technology and also closed down some non-profitable units like Crystal Glass Division.
The name of the company was changed to Hindustan Sanitaryware and Industries Limited in June 1981 and subsequently it has been changed as AGI glaspac.

AGI glaspac is now dedicated to manufacture high quality glass containers to meet the stringent and demanding quality standards for packaging needs of food, pharmaceuticals, beverage, soft drinks, liquor, cosmetic and other industries. The factory is located in south –central India, close to raw material sources and fast growing markets, AGI is the largest manufacturer of Container Glass in south India and is the third largest in the country.

It has a pioneering role in development of Glass containers for many critical packaging applications. Over the past 30 years of operation the company has built up an excellent reputation for quality and caters to a huge and demanding customer base with a product range covering Flint, Amber and Green containers. .

The manufacturing facilities are among the most modern available in the country to achieve high levels of productivity and quality.

The company is certified for ISO 9001 Quality Systems and ISO 14001 Environmental systems. The combined possession of these two certificates is a rare distinction not only in India but even internationally. These certifications reflect upon the company’s commitment to supply quality products under stringent environmental controls.

The container glass industry requires high capital investment, close monitoring, controls of operations and continuous investment in modernization and up gradation to meet increasingly higher quality expectations of its customers.

The following sections describe the various subunits in the manufacturing unit.





 BATCH HOUSE

Sourcing of quality raw materials, their processing and mixing are critical to production of quality glass containers. The handling and processing equipment has to be accurate, reliable and consistent in their operations. AGI has an excellent supply source for its inputs and has also modernized the critical parts of process. This enabled the company to control the operations in storage, transport, mixing and charging into furnace continuously.

 FURNACE


Furnace is the “back bone” of any glass Industry. In AGI there are two types of furnace, which are New Hollowware-II(HW-II) and Hollowware-III(HW-II). The capacities of furnaces are 250 MT per day (Flint) and 90 MT (Amber) per day. The Amber furnace can be converted as Green Furnace based on the requirements.

Furnace number NHW-II at the AGI glaspac factory is a medium sized end fired regenerative unit with a Deep Refiner designed to melt up to 250 tones per day (tpd) of flint soda lime container glass.

Glass conditioning is provided by a SORG Percon, working end and 5force hearths, of which 4 are SORG AMC units, whilst the other is of local design.

DESCRIPTION: Furnace number NHW-II at AGI Glaspac is a 93 square meter end-fired melter with a SORG Deep Refiner. The furnace is designed for a maximum melting load of 250 tpd of flint container glass. The furnace is conventional in design, albeit including the Deep refiner; and features two doghouses each provide with a pusher type batch charger. The main fuel oil, with 3 SORG® oil burners installed per port.


The PRECON® working end is built in the form of a distribution channel.
This gives the sufficient spacing between the production lines whilst allowing an orderly arrangement of the fore hearths.

This furnace supplies to the five production lines, which are specified for a range of tonnages, from a minimum of 8 tpd on the smallest line to a maximum of 106 tpd on the largest line. This range underlines the extent to which the operation has to be flexible to serve the market.

The glass melting furnaces, especially flint furnace is the state of art designed and built by SORG, Germany, the world leaders in glass furnace technology with many patents such as deep refiner to their credit. The optimum range if temperature is1550°C-1600C and that is in the conditioning areas is 1100°C-1200°C. This is controlled in the range of +/-1C to homogeneous, clear and consistent glass quality. The level of glass in the melter, holding about 300 tons of glass is controlled within +/-30 micros (.03mm) variation, for close control in container weights consistency of quality. The furnace is computer controlled and is continuously monitored.

 I.S. MACHINES:
.
The key is automatic bottle making machines are also completely computer controlled. They are used to impart high level of reliability, accuracy and consistency to machine operation and bottle quality. These machines are versatile to make both press and blow operations and blow and blow operations in single gob and double gob configuration. They are capable of controlling the container weights to close tolerance and hence provide containers with consistent volume, a key quality parameter required for high speed filling time operations.




 INSPECTION MACHINES

Large high volume bottle making lines are provided with automatic Inspection Machines imported from reputed manufacturers in the US. These machines reject bottles automatically with even a minute crack in critical areas of the bottle. It also ensures consistency of top sealing surface and bore size to close tolerances.


 DESIGN AND DEVELOPMENT: CAD/CAM

AGI is distinguished for designing and producing for some of its key customers in a short period of about a week from concept to bulk supply. This is possible due to its state of the art CAD/CAM facilities and highly skilled designers and dedicated product development engineers and technicians.

THE CUSTOMER BASE OF AGI glaspac:
Let us now have a look at the number of customers and products of the company









TABLE 2.1.1
CUSTOMER BASE NO. OF. CUSTOMERS NO. OF.PRODUCTS

Pharmaceuticals 208 92
Soft Drinks 101

Liquor 50 35
Beer 5 5
Cosmetic& Others 6 6

SOURCE: Company records



TOP 10 CUSTOMERS – FLINT (WHITE) BOTTLES:

1) United Spirits Limited.
2) The Global Green Company Ltd.
3) Seagram Limited.
4) Glaxo Smithkline Consumber Healthcare Ltd.
5) Asia-wide Refreshments Corporation
6) Hindustan Unilever Ltd.
7) Pepsico India.
8) Hindustan Coca-Cola Ltd.
9) Mutual Food Products Ltd.
10) Makson Industries Ltd.




TOP 10 CUSTOMERS – AMBER BOTTLES:

1) SKOL Breweries Ltd.
2) United Breweries Ltd.
3) Glaxo Smithkline Consumber Healthcare Ltd.
4) Kemwell Private Ltd.
5) Apex Laboratories Ltd.
6) Foster’s India Limited.
7) Biological E Limited
8) Pfizer Ltd.
9) Albert David Ltd.
10) Daily – Need Industries Ltd.

TOP 10 CUSTOMERS – GREEN BOTTLES:

1) Hindustan Coca-Cola Beverages Pvt.Ltd.
2) Pepsico India
3) SKOL Breweries Ltd.
4) Gorkha Brewery Pvt.Ltd.
5) Champagine Indage Ltd.
6) Grover Vineyards Ltd.
7) United Spirits Ltd- Baramati
8) Elenjikal Foods and Beverages (I) Pvt.Ltd.
9) Yati Foods
10) Podaran Soft Drinks

 LOCATION

The Hindustan Sanitaryware and Industries Limited is operating totally four units (three sanitaryware units and one glass unit).

Ceramic Division at bahadurgarh, Ceramic Division at Biwinagar, A.P., Raasi Division near patancheru and the AGI Glaspac, which is located at varadanagar, BoraBanda, Kukatpally Municipality, Hyderabad, in 33 acres, manufacturing different types of container glassware. The day-to-day functions of Procurement, Production, Marketing &Administration are being carried out in the factory premises.

 REGISTERED OFFICE:

The Registered office is located at 2,Red Cross Place, Calcutta.


 MARKETING OFFICES:

The company’s Marketing Offices, each headed by a Regional Manager, are situated in the following cities
1) Delhi
2) Bangalore
3) Kolkata
4) Mumbai
5) Chennai

 HIGHLIGHTS OF AGI glaspac:

• An ISO 9001 Company and an ISO 14001 Company.
• The largest Glass bottle manufacturers in South India.
• Company Batch House stands first in India.
• Company produces three types of bottles, Flint (white), Amber and Green bottles.
• Company installed Compressor, which is biggest in Andhra Pradesh.
• Company installed three generators having capacity of 4.2MW one and 2.9MW two numbers, which are imported from Germany and Polland respectively.
• Automatic weighing, batch mixing, conveying and furnace feeding systems.
• Automatic glass forming machines and color labeling machines.
• Broken or waste glasses after process can be fed back into the furnaces for new bottles.
• Automatic Inspection machines to eliminate minute defects in glass bottles.





2.2- PRODUCT PROFILE
 COMPANY’S PRODUCT:

AGI glaspac products three types of bottles:
1) Flint glass
2) Amber glass
3) Green glass

 CHEMICAL COMPOSITION / RAW MATERIAL:

1) Flint Glass:

a) Sand e) Feldspar
b) Soda Ash f) Barites
c) Lime Stone g) Sodium
d) Dolomite h) Selenium


2) Amber Glass:

a) Sand f) Petroleum
b) Soda Ash g) Barites
c) Lime Stone h) Iron Oxide
d) Dolomite i) Slag
e) Feldspar j) Pyrites

3) Green Glass:


a) Sand
e) Dolomite

b) Soda Ash
f) Feldspar

c) Broken glass
g) Barite

d) Lime stone

SOURCE: Company records


MANUFACTURING PROCESS

PROCESS:

 Bulk raw materials like Sand, Soda Ash, Limestone, Dolomite, Feldspar are treated cullet (broken glass) are mixed together in the mixer and stored in the bunker. This mixer is known as a Batch

 The glass is made in the furnace by feeding the batch through a doghouse and melting the same by means of producer gas at about 1500°c.

 The molten glass is then taken to the conditioning zone called the fore hearths, which is heated by LPG/LDO.

 Through the feeder mechanism glass is then fed in accurately cut and proportioned gobs to blank moulds present in the IS forming machines.

 Bottles are formed either by “blow and blow process” or by “press and blow process” on six and eight sections, single or double gob machines.

 After the bottle has been formed, it is automatically transferred to the conveyor and then to the stacking equipment, which pushes off bottles in the annealing lehr. This is a stress relieving process, which releases stress, which are developed daring the forming process.

 The bottles are annealed at a temperature of 450°c-500°c. All the bottles coming out of the lehr are inspected and immediately packed for dispatch or sent to the Applied Color Lab(ACL) Department, where color printing is done.

 These printed bottles are again heated in the lehr to ensure durability of color prints. These are re-inspected again and then packed for dispatch.



 PRESENT SCENARIO

There is a heavy competition among the manufacturers of glassware throughout India. To meet the requirements of the customers and to standout against the competitors, the management achieved the ISO 9001 and ISO 14001 certification.

 QUALITY POLICY
Achieve customer satisfaction by being a quality conscious organization through sound systems and practices total employee involvements

1) To manufacture quality products, deliver in time at acceptable prices to customers.
2) To be cost effective and a profitable organization.
3) To be transparent in all activities.
4) To upgrade technology with focus on continuous improvement.
5) To continuously train and upgrade the skills in employees.

 ENVIRONMENTAL POLICY

1) Pursue sustainable growth while continuously improving environmental performance of the organization.

2) Comply with relevant Environmental legislations, regulations and other requirements.

3) Establish objectives and targets for environmental performance review regularly and reverse policy, if required.
4) Promote increased environmental awareness among the
people on company and interested parties.



 TURNOVER OF AGI glaspac

a) Turnover: the following figure shows the growth of the company.

TABLE NO- 2.2.1

YEAR

TURNOVER IN CRORES
1996-1997 45.30 Crores
1997-1998 48.58 Crores
1998-1999 61.48 Crores
1999-2000 61.00 Crores
2000-2001 67.00 Crores
2001-2002 85.00 Crores
2002-2003 118.00 Crores
2003-2004 147.00 Crores
2004-2005 142.00 Crores
2005-2006 182.00 Crores
2006-07 230.00 Crores
2007-2008 240.00 Crores

SOURCE: Company records



 COMPETITORS

Company faces stiff competition from the following competitors.
1) Gujarat Glass-Gujarat
2) Mohan Breweries & Distilleries Ltd.-Pondicherry
3) Victory Glass-Bangalore
4) Excel Glass-Allepy
5) Universal Glass
6) United Glass
7) Ramnath Glass-Maharashtra
8) Shree Durga Glass-Orissa
9) Mahalakshmi Glass-Mumbai
10) Vitrum Glass-Mumbai
11) Haldyn Glass-Mumbai & Gujarat
12) Hindustan Natial Glass-West Bengal & Haryana
13) Haryana Sheet Glass-Haryana.








MAN- POWER PATICULARS IN AGI

TABLE: 2.2.2

CATEGORY
MAN-POWER

Managers
33

Officers
201

Staff
50

Workers
327

Total:
611

SOURCE: Company records
















CHAPTER-3
METHODOLOGY

3.1 - RESEARCH DESIGN:

Research Methodology is a way to systematically solve the research problem. It may be understood as a science how research is done scientifically. It has many dimensions and research methods to constitute a part of the research methodology.

The research design for this study is descriptive. In this design, the researcher has no control over the variables. He can only report what is happening. The research can only discover causes but cannot control the variable. This is also called as “Expert facts research”.

3.2 - DATA COLLECTION DETAILS:
The collection of data considered for study is both primary and secondary data has been used.

3. 3 - TOOLS OF THE STUDY:
The major tools used for analysis are
1) Ratio Analysis
2) Contribution percentage analysis

3.4 - PERIOD OF STUDY:

The analysis was done by considering the past five years data i.e. from 2003-04 to 2007-08. The study was conducted for four month.


CHAPTER-4
DATA ANALYSIS & INTERPRETATIONS

4.1. ANALYSIS OF THE DATA

TABLE NO- 4.1.1
WORKING CAPITAL STRUCTURE IN AGI glaspac FOR LAST 5 YEARS

Particulars Rupees in Crores
Year Year Year Year Year
2003-04 2004-05 2005-06 2006-07 2007-08
Inventories 19.77 32.15 48.78 38.90 37.97
Sundry Debtors 29.41 41.25 56.53 43.77 55.51
Cash and Bank balance 3.05 5.94 4.18 26.00 52.24
Other Current Assets 0.08 0.07 0.02 0.07 0.09
Loans & Advances 5.47 5.47 5.53 9.07 8.07
Gross Working Capital 57.78 84.88 115.04 117.81 153.88

SOURCE: Balance sheet
















TABLE NO- 4.1.2
COMPARATIVE STATEMENT OF WORKING CAPITAL FOR LAST 5 YEARS

Particulars Rupees in Crores
Year Year Year Year Year
2003-04 2004-05 2005-06 2006-07 2007-08
Inventories 19.77 32.15 48.78 38.90 37.97
Sundry Debtors 29.41 41.25 56.53 43.77 55.51
Cash and Bank balance 3.05 5.94 4.18 26.00 52.24
Other Current Assets 0.08 0.07 0.02 0.07 0.09
Loans & Advances 5.47 5.47 5.53 9.07 8.07
Gross Working Capital 57.78 84.88 115.04 117.81 153.88
Current Liabilities 35.00 35.90 34.00 33.37 36.50
Net Working Capital 22.78 48.98 81.04 84.44 117.38
Sales 168.00 162.17 204.17 259.40 272.80
SOURCE: Balance sheet


SALES
NET WORKING CAPITAL = --------------
WORKING CAPITAL










TABLE NO- 4.1.3
NET WORKING CAPITAL
(Rupees in Crores)
Sales 168.00 162.17 204.17 259.40 272.80
Net Working Capital 22.78 48.98 81.04 84.44 117.38
No.of times in One year 7.37 3.31 2.52 3.07 2.32
SOURCE: Balance sheet








TABLE NO- 4.1.4

PERCENTAGE INCREASE IN CURRENT ASSETS AND SALES (Rupees in Crores)
Particulars Year Year Year Year Year
2003-04 2004-05 2005-06 2006-07 2007-08
Sales 26% -2.78% 26% 27% 5.2%
Inventories -45% 63% 52% -20% -2.4%
Sundry Debtors -18% 40% 37% -23% 27%
SOURCE: Balance sheet


IMPORTANT OBSERVATIONS:

In the year 2003-04 Sales have been increased by 26% but Inventory has
decreased by -45% and Sundry Debtors have gone down by -18%.

In the year 2004-05 Sales have been decreased by more than three times but Inventory and Sundry Debtors have been increased by 63% and 40% respectively.

In the year 2005-06 Sales have been increased by 26% but Inventory and Sundry Debtors have been decreased by 52% and 37% respectively.

In the year 2006-07 Sales have been increased by 27% but Inventory and Sundry Debtors have been decreased by -20% and -23% respectively.
In the year 2007-08 Sales have been decreased to 5.2%, Inventory has decreased to -2.4% and Sundry Debtors have been increased by 27%.







TABLE NO- 4.1.5

PERCENTAGE INCREASE IN NET WORKING CAPITAL AND SALES

Particulars Rupees in Crores
Year Year Year Year Year
2003-04 2004-05 2005-06 2006-07 2007-08
Increase in Sales 26% -2.78% 26% 27% 5.2%
Increase in Working Capital -48% 115% 65% 4.19% 39%
SOURCE: Balance sheet



IMPORTANT OBSERVATIONS:
Except in the year 2003-04 & 2006-07 the percentage of working capital is more than of Sales. It shows that the firm is concentrating more on increase in working capital





Each of the components of the operating cycle can be calculated as follows;

Average stock of raw materials
R = ----------------------------------------------------------------
Average Cost of Raw materials consumption per day

Average Work-in-Progress Inventory
W = ---------------------------------------------------------------
Average Cost of Production per day

Average Stock of Finished Goods
F = ---------------------------------------------------------------
Average Cost of Goods sold per day

Average Book Debts
D = ----------------------------------------------------------------
Average Credit Sales per day

Average Trade Creditors
C = -------------------------------------------------
Average Credit Purchases per day

After computing the period of operating cycle the total number of operating cycles that can be completed during a year can be computed by dividing 365 days with a No. of operating days in a cycle. The total operating expenditure in the year when divide by the No. of operating cycles ion a year will give average amount of the working capital requirements.





TABLE NO- 4.1.6

CALCULATION OF OPERATING CYCLE

(Rupees in Crores)
ITEMS Year Year Year Year Year
2007-08 2006-07 2005-06 2004-05 2003-04
1) Raw Materials Holding Period:
a) Raw Materials Consumption 62.72 60.74 37.04 52.19 30.23
b) Raw Materials Consumption Per Day 0.17 0.17 0.10 0.14 0.08
c) Raw Materials Stock 21.82 35.17 20.00 8.08 2.05
d) Raw Materials Holding Days 126.98 211.34 197.08 56.51 24.75
2) Work-in-Progress Holding Period:
a) Cost of Production 239.59 216.05 178.96 159.85 123.71
b) Cost of Production Per Day 0.66 0.59 0.49 0.44 0.34
c) Work-in-Progress Holding Period 0.49 0.44 0.43 0.38 0.24
d) Work-in-Progress Holding Days 0.75 0.74 0.88 0.87 0.71
3) Finished Goods Holding Period:
a) Cost of Goods Sold 241.11 229.40 163.84 148.32 140.45
b) Cost of Goods Per Day 0.66 0.63 0.45 0.41 0.38
c) Finished Goods Inventory 19.86 21.38 34.73 19.61 8.08
d) Finished Goods Inventory Holding Days 30.06 34.02 77.37 48.26 21.00
4) Collection Period:
a) Credit Sales 272.80 260.00 162.10 204.70 168.00
b) Sales Per Day 0.75 0.71 0.44 0.56 0.46
c) Book Debts 55.51 43.76 56.55 41.24 29.41
d) Book Debts Outstanding Days 74.27 61.43 127.33 73.53 63.90
5) Payment Deferral Period:
a) Credit Purchases 239.59 216.05 178.96 159.85 123.77
b) Purchases Per Day 0.66 0.59 0.49 0.44 0.34
c) Creditors 30.00 25.74 24.06 23.00 18.04
d) Creditors Outstanding Days 45.70 43.49 49.07 52.52 53.20
SOURCE: Balance sheet



TABLE NO- 4.1.7
CALCULATION OF COST OF PRODUCTION
(Rupees in Crores)

PARTICULARS Year Year Year Year Year
2007-08 2006-07 2005-06 2004-05 2003-04
Raw Materials Consumed 62.72 60.74 37.04 52.19 30.23
Packing Material Consumed 17.11 16.67 14.94 10.49 8.92
Stores and Spares 12.60 9.28 9.17 9.00 8.92
Wages 16.28 15.03 13.35 12.5 10.84
Power and Fuel 79.1 66.04 61.40 41.4 31.6
Manufacturing Cost 36.47 32.27 24.91 20.68 21.93
Depreciation 15.80 16.11 18.65 15.00 11.20
TOTAL 240.08 216.14 179.46 161.26 123.64
Add : Opening Stock of Work-in-Progress 4.42 4.33 3.83 2.42 2.46
Less : Closing Stock of Work-in-Progress 4.91 4.42 4.33 3.83 2.42
COST OF PRODUCTION 239.59 216.05 178.96 159.85 123.68
SOURCE: Balance sheet

TABLE NO- 4.1.8
CALCULATION OF COST OF SALES

(Rupees in Crores)

PARTICULARS Year Year Year Year Year
2007-08 2006-07 2005-06 2004-05 2003-04
Cost of Production 239.59 216.05 178.96 159.85 123.68
Add : Opening Stock of Finished Goods 21.38 34.73 19.61 8.08 24.82
Less : Closing Stock of Finished Goods 19.86 21.38 34.73 19.61 8.08
COST OF SALES 241.11 229.40 163.84 148.32 140.42
SOURCE: Balance sheet





TABLE NO- 4.1.9
DURATION OF OPERATING CYCLE

(Rupees in Crores)
PARTICULARS No.of Days
Year Year Year Year Year
2007-08 2006-07 2005-06 2004-05 2003-04
R 126.98 211.34 197.08 56.51 24.75
W 0.75 0.74 0.88 0.87 0.71
F 30.06 34.02 77.37 48.26 21.00
D 74.27 61.43 127.33 73.53 63.90
C 45.70 43.49 49.07 52.52 53.20

O = 277.77 351.02 451.74 231.69 163.56
SOURCE: Balance sheet
Note: O = R + W + F + D - C

TABLE NO- 4.1.10

LIQUIDITY POSITION OF THE FIRM

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES
(Rupees in crores)

PARTICULARS YEAR YEAR YEAR YEAR YEAR
2003-04 2004-05 2005-06 2006-07 2007-08
CURRENT ASSETS 57.78 84.85 115.03 94.43 106.87
CURRENT LIABILITIES 35.32 36.40 34.60 34.20 37.44
RATIO 1.64 2.33 3.32 2.76 2.85
SOURCE: Balance sheet




TABLE NO- 4.1.11

ACID-TEST RATIO = CURRENT ASSETS-STOCK / CURRENT LIABILITIES
(Rupees in crores)
PARTICULARS YEAR YEAR YEAR YEAR YEAR
2003-04 2004-05 2005-06 2006-07 2007-08
CURRENT ASSETS – STOCK 38.01 52.7 66.25 55.53 68.9
CURRENT LIABILITIES 35.33 36.4 34.6 34.2 37.44
RATIO 1.08 1.45 1.91 1.62 1.84
SOURCE: Balance sheet

TABLE NO- 4.1.12
SUPER QUICK RATIO = CASH / CURRENT LIABILITIES
(Rupees in crores)
PARTICULARS YEAR YEAR YEAR YEAR YEAR
2003-04 2004-05 2005-06 2006-07 2007-08
CASH 3.54 5.90 4.17 2.60 5.20
CURRENT LIABILITIES 35.32 36.4 34.6 34.2 37.44
RATIO 0.10 0.16 0.12 0.08 0.14
SOURCE: Balance sheet


LIQUIDITY POSITION OF THE FIRM

Current Ratio (Current Assets / Current Liabilities) (along with acid test ratio to supplement it) has traditionally been considered the best indicator of the working capital situation. It has been stated by many accountants that a current ration of 2 (two) for a manufacturing firm implies that the firm has an optimum amount of working capital. Thus, if the Current Assets are twice the amount of Current Liabilities, a manufacturing concern is supposed to be having an adequate amount of working capital.
This is supplemented by Acid Test Ratio (Quick Assets/Current Liabilities) which should be at least 1 (one). As a thumb rule, this may be quite adequate. Thus, in a company where the inventories are easily saleable and the sundry debtors are as good as liquid cash, the current ratio may be lower than 2 and yet firm may be sound. An optimum working Capital ratio is dependent upon the business situation as such and the nature and composition of various current assets.

From the above table we can observe that the current ratio is above the standard norm as the minimum recommend ratio is 1.33, which is followed by the Commercial Banks. It indicates excess investment in current assets, which should be avoided as it, impairs the firm’s profitability.

The Quick Ratio, which is 1.80, 1.45, 1.91, 1.62, 1.84, satisfies the current ratio, which should be 1:1 as per the Rule of Thumb. Therefore the company shows their efficient management.

The Super Quick Ratio as indicated in the above table has been 0.10, 0.16, 0.12, 0.08, 0.14 indicates the improvement in the level of the company.
INVENTORY TURNOVER OF AGI glaspac FOR 5 YEARS

TABLE NO- 4.1.13
INVENTORY TURNOVER RATIO = SALES / AVERAGE INVENTORY*
(Rupees in crores)
YEAR YEAR YEAR YEAR YEAR
PARTICULARS 2003-04 2004-05 2005-06 2006-07 2007-08
SALES 168 162.17 204.71 259.42 272.87
AVERAGE INVENTORY 27.91 25.96 40.47 43.84 38.43
RATIO 6.02 6.25 5.06 5.92 7.10
DAYS OF INVENTORY HOLDING (DIH) = 360 / INVENTORY TURNOVER RATIO
D I H (IN DAYS) 60 58 71 61 51
SOURCE: Balance sheet


OPENING INVENTORY + CLOSING INVENTORY
* AVERAGE INVENTORY = -----------------------------------------------------------------
2

IMPORTANT OBSERVATIONS:
From the given data the trend line of Inventory has increased, except in the year 2004-05.
The higher the turnover of inventory the better it is from the point of view of efficiency in Working Capital Management.
TABLE NO- 4.1.1.4

INVENTORY RELATION TO SALES

Rupees in Crores
Particulars Year Year Year Year Year
2003-04 2004-05 2005-06 2006-07 2007-08
Sales 26% -3.47% 26% 27% 5.18%
Inventories -45% 63% 52% -20% -2.4%
SOURCE: Balance sheet


IMPORTANT OBSERVATIONS:
It can be observed that in the year 2004-05 and 2005-06 inventories has increased more than that of the percentage of sales. But in the year 2003-04, 2006-07 & 2007-08 percentage of inventory has decreased and it is less than percentage increase in sales.

Inventory level is generally adequate in the company, as the inventory is less than sales during the current year.






AVERAGE COLLECTION PERIOD OF AGI glaspac
TABLE NO-4.1.1.5
DEBTORS TURNOVER RATIO = SALES / AVERAGE DEBTORS
YEAR YEAR YEAR YEAR YEAR
PARTICULARS 2003-04 2004-05 2005-06 2006-07 2007-08
SALES 168 162.17 204.71 259.42 272.87
AVERAGE DEBTORS 32.60 35.33 48.88 50.14 49.64
RATIO 5.15 4.59 4.19 5.17 5.50
DEBTORS COLLECTION PERIOD (DCP) = 360 / INVENTORY TURNOVER RATIO
D C P (IN DAYS) 70 78 86 70 65
SOURCE: Balance sheet


IMPORTANT OBSERVATIONS:

If the average collection period is found to be consistently higher than the net credit period extended by the company to its customers, then the collection efforts has to be more effective as cash is locked up for a period more than what is warranted by the credit terms extended.












CHAPTER-5
5- RESULTS AND DISCUSSIONS

5.1 – FINDINGS


• It is observed that except in the year 2003-04 & 2006-07 the percentage of working capital is more than of Sales. It shows that the firm is concentrating more on increase in working capital.
• Current Ratio (Current Assets / Current Liabilities) (along with acid test ratio to supplement it) has traditionally been considered the best indicator of the working capital situation. It has been stated by many accountants that a current ration of 2 (two) for a manufacturing firm implies that the firm has an optimum amount of working capital. Thus, if the Current Assets are twice the amount of Current Liabilities, a manufacturing concern is supposed to be having an adequate amount of working capital.
• This is supplemented by Acid Test Ratio (Quick Assets/Current Liabilities) which should be at least 1 (one). As a thumb rule, this may be quite adequate. Thus, in a company where the inventories are easily saleable and the sundry debtors are as good as liquid cash, the current ratio may be lower than 2 and yet firm may be sound. An optimum working Capital ratio is dependent upon the business situation as such and the nature and composition of various current assets.
• From the given data it is observe that the current ratio is above the standard norm as the minimum recommend ratio is 1.33, which is followed by the Commercial Banks. It indicates excess investment in current assets, which should be avoided as it, impairs the firm’s profitability.
• The Quick Ratio, which is 1.80, 1.45, 1.91, 1.62, 1.84, satisfies the current ratio, which should be 1:1 as per the Rule of Thumb. Therefore the company shows their efficient management.
• The Super Quick Ratio as indicated in the above table has been 0.10, 0.16, 0.12, 0.08, 0.14 indicates the improvement in the level of the company.
• From the given data the trend line of Inventory has increased, except in the year 2004-05. The higher the turnover of inventory the better it is from the point of view of efficiency in Working Capital Management.
• It can be observed that in the year 2004-05 and 2005-06 inventories has increased more than that of the percentage of sales. But in the year 2003-04, 2006-07 & 2007-08 percentage of inventory has decreased and it is less than percentage increase in sales.
• Inventory level is generally adequate in the company, as the inventory is less than sales during the year 2007-08.
• If the average collection period is found to be consistently higher than the net credit period extended by the company to its customers, then the collection efforts has to be more effective as cash is locked up for a period more than what is warranted by the credit terms extended.



















5.2 SUGGESTIONS:
The analysis shows that the company is not utilizing the working capital components effectively. The current asset is lower and the current liabilities are higher. The company should increase their current asset and maximum utilization resources.

The working capital turnover ratio also should is positive to have the optimum utilization of resources. The inventory should be reduced to reduce the cost and increase the profitability.


























5.3 CONCLUSIONS:

The project work titled A STUDY ON WORKING CAPITAL MANAGEMENT ON THE PROFITABILITY WITH SPECIAL REFERENCE TO AGIglaspac an (SBU) of Hindustan sanitaryware and industries ltd, HYDERABAD was an attempt to examine the various factor influencing the working capital components. Finally some suggestions are produced to the company. I hope this will be helpful to the company. By doing this project I came to know how the theoretical knowledge used in the organization.
 
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