Sudha Dairy Project Report

A
PROJECT REPORT
ON
A COMPRATIVE STUDY OF WORKING CAPITAL
-A STUDY IN PDP

(SUDHA, PHULWARISHARIF, PATNA)

FROM
POONA SCHOOL OF BUSINESS

Submitted By:

UNDER THE GUDANCE OF FAIZAN

AHMAD
Mr. Ratneshwar Jha M.B.A

(Accounts Officer in Patna POONA SCHOOL OF BUSINESS

Dairy Project) SESSION-2009-11

&

Prof. Bhanu Vashishtha(Intuitional guide)

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DECLARATION

I Faizan Ahmad hereby declare that this project report entitled “ A

COMPARATIVE STUDY OF WORKING CAPITAL - A STUDY IN
PATNA DAIRY PROJECT” , completed under the guidance of Shree
Ratneshwar Jha (Accounts Officer in Patna Dairy Project ) & Prof. Bhanu
Vashishtha (Intuitional guide), is the result of my efforts during the training
period which I have undergone as a part of the curriculum in “MBA ” From
POONA SCHOOL OF BUSINESS,PUNE,INDIA.I thereby declare that I would
have fulfilled all the provision of institutional training in PDP and based on the
training I had acquainted myself to the best in the knowledge of project “A
COMPARATIVE STUDY OF WORKING CAPITAL - A STUDY IN PATNA
DAIRY PROJECT”

Place:Patna Faizan Ahmad

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PREFACE
A project is a scientific and systematic study of a real issue, on a problem with
the application of an origination. It can be a case study where a problem been
dealt with through the process of management. The essential equipment of a
project is that, it should contain scientific, collection of data analysis and
interpretation of leading to a valid conclusion.

In partial fulfilment of the requirement for the award of MBA from POONA
SCHOOL OF BUSINESS ,PUNE,INDIA , a student has under gone summer
training in any Business Organisation. In two year full time education program,
two month internship is curriculum to be trained in the corporate world which
helps us to develop financial skill.

The topic of my study is “ A COMPARATIVE STUDY OF WORKING

CAPITAL- A STUDY IN PATNA DAIRY PROJECT” for the analysis of
financial statement .

Faizan Ahmad

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ACKNOWLEDGEMENT

Preparing the project is not a solely the work of single person .This
project is certainly not an exception to this adage. This is a collective
effort of experience of the consultant in corporate finance practice &
mine.

I have great pleasure & opportunity to thank our HOD Prof. Bhanu
Vashishtha(Institutional guide), Poona school of business, Pune for
giving me opportunity and kind help to complete this dissertation work
and showing the right direction in the field of finance in practice.

I would like to thank to Managing Director of Patna Dairy Project

Shree Sudhir Kumar Singh for giving me an opportunity to do the
summer project in Patna Dairy Project.

I would like to express my gratitude to Shree Bhanu Pratap

(Incharge Accounts) for introducing me to Shree Ranteshwar Jha
(Accounts Officer) as my industrial guide .

I would like to thank to respectable and learned guide Shri

Ranteshwar Jha (accounts officer) as my industrial guide .He provided
encouragement and boost in the transformation of my inherent internal
knowledge into a real work for practical knowledge. He has also been a
key discussion partner for me, a teacher friend, philosopher and guide.

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I express my gratitude to Shree S V Narsimhan , Shree

Javed Akhtar , Shree Prasant Kumar Mishra , Shree Amit Sinha
, Shree Ajay Kumar, Shree Madan Mohan Mishra, Shree Vinay
Kumar Mishra , Shree Naval Kumar Gupta for their corporation
and support

Lastly I express my gratitude to my family and friends. I could

not have devoted the time and energy to this project without
the support and encouragement of my family members.

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CERTIFICATION

This is to certify that this project report titled “ A

COMPARATIVE STUDY OF WORKING CAPITAL- A STUDY
IN PATNA DAIRY PROJECT” have been successfully completed by
Faizan Ahmad a student of POONA SCHOOL OF BUSINESS ,PUNE
during the period of 1st July 2010 to 31th July 2010 & is being completed
in partial fulfilment for the award of MBA Degree

Shree Ratneshwar Jha

Account Officers

Patna Dairy Project

Patna

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CONTENT

CHAPTER
1. INTRODUCTION TO THE PROJECT

OBJECTIVE

RESEARCH METHADOLOGY

2. ORGANATATION PROFILE

HISTORICAL BACKGROUND OF DAIRY DEVELOPMENT

A SHIFT OF ANAND PATTERN

OPERATION FLOOR

PROGRMME IMPLENTATION

3. ORGANITATIONAL STRUCTURE

THREE TIER STRUCTURE

PROGRESS OF PATNA DAIRY PROJECT

PROGRESS UNDER VPDUSS

PRESENT STATUS

QUALITY & PRODUCTION ACTIVITY

VALUES

4. PROJECT OVERALL

INTRODUCTION OF WORKING CAPITAL

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CONCEPT & NATURE OF WORKING CAPITAL

TYPES & DETERMINANTS OF WORKING CAPITAL

OPERATING & CASH CONVERSION CYCLE

POLICIES OF WORKING CAPITAL FINANCE

5. WORKING CAPITAL APPLICATION –AN ANALYSIS

6. C0NCLUSION

7. BIBLIOGRAPHY

8. REFERANCE

9. GLOSSARY

10 .APPENDIX

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CHAPTER-1

INTPODUCTION TO PROJECT

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INTRODUCTION TO PROJECT
This project is a part of the summer training at “PATNA DAIRY PROJECT”
during 10th may to 30th june 2010 undertaken as apart of the PGP Program
.The project title “A comparative study of working capital-A study in Patna
dairy project” hold much importance for the organization for the purposes of
analysing financial statements of the firm.

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OBJECTIVE
 This project is the course requirement as a part of PGP curriculum

 To learn & understand working capital

 To provide a deeper analysis of the profitability , liquidity , solvency &

efficiency level in organisation

 To learn how the information from financial statement is useful for

making estimates for the future

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METHODOLOGY TO PROJECT

There are two sources of data collection:

•Primary data source:

From proper interaction with departmental heads, suite in PDP, finance
manager, employees who are working in different department, and managing
director of the organization and education guide.

•Secondary data source:

Through balance sheet , P&L A/c and annual report of PDP , books , internet
etc.

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CHAPTER-2

ORGANAISATIONAL
PROFILE

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INTRODUCTION TO PATNA DAIRY PROJECT

THE INDIAN DAIRY MARKET - A PYRAMID

India has emerged as the largest milk producing country in the world
manufacturing about 92 million tonnes of milk per annum. It could be said of
the Indian dairy market as being a pyramid with the base made up of a vast
market for low-cost milk. The bulk of the demand for milk is among the poor in
urban areas whose individual requirement is small, maybe a glassful for use as
whitener for their chi and coffee. Nevertheless, it adds up to have sizable
volume - millions of litres per day. In the major cities lies an immense growth
potential for the modern sector. Presently, barely 1000 out of 3,700 cities and
towns are served by its milk distribution network, dispensing hygienically
packed wholesome and quality pasteurized milk. According to one estimate, the
packed milk segment would double in the next five years, giving both strength
and volume to the modern sector. The narrow tip at the top is a small but
affluent market for western type milk products.
The effective milk market is largely confined to urban areas, inhabited by over
25 per cent of the country's population. An estimated 50 per cent of the total
milk produced is consumed here. At the turn of the twentieth century, the urban
population consuming milk has estimated to have risen by more than 100
million to cross 364 million, a growth of about 40 per cent. The expected rise in
urban population would be a boon to Indian dairying. Presently, the organised
sector, both cooperative and private, and the traditional sector cater to this
market.

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HISTORICAL BACKGROUND OF DAIRY DEVELOPMENT

Dairy development, though, is a state subject under Constitution of India, the

centre and the state exercise joint jurisdiction. The central govt, lays down
general guidelines, the individual states design their Dairy Development
Policies within it. Initially in most of the states, Dairy Development was in the
hands of State Dairy Development Corporation or under the State Govt. itself.
Animal Husbandry was considered an activity for rural areas, whereas dairy
development was limited only in the cities.

Project such as key Village Scheme and Intensive Cattle Development

Programme were taken up for improving milk yield, but these projects by
themselves, never paid much attention either to the marketing of additional milk
supposed to be produced or to its processing. Urban milk traders, who, together
with middlemen, exploited both the producers and consumers, Such a structure
could not transform the livelihood of the rural poor through dairy farming a
subsidiary occupation.

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A SHIFT TO “ANAND PATTERN”:

The Anand Pattern is an integrated cooperative structure that procures,

processes and markets produce. Supported by professional management,
producers decide their own business policies, adopt modem production and
marketing techniques and receive services that they can individually neither
afford nor manage.

The Anand Pattern succeeds because it involves people in their own

development through cooperatives where professionals are accountable to
leaders elected by producers- The institutional infrastructure — village
cooperative, dairy and cattle feed plants, state and national marketing — is
owned and controlled by farmers. .

Anand Pattern cooperatives have progressively, linked producers directly with

consumers.

It was in the year, 1964, when the Prime Minister of India, the Late Shri Lal
Bahadur Shastri visited the Kaira (Khc-da) District Co-operative Milk
Producers' Union Ltd, popularly known as AMUL (Anand Milk Union Ltd).
The Prime minister stayed overnight in village Ajarpura and spent several hours
discussing with the farmers the affairs of their village co-operative. From the
discussion, the Prime Minister could come to the conclusion that because the
farmers formulate and implement their own policies and programmes for dairy
development in their areas, because their elected representatives managed the
village society and district union, and because they had good sense to employ
competent professionals to manage the dairy factories, the Amul Dairy was
sensitive to their needs and was responsive to their demands. The Prime
Minister was so convinced and impressed by AMUL model of dairy
development that he asked Dr. V Kurien, the then General Manager of AMUL
to prepare a programme for replicating the AMUL model throughout India. He
also decided that Govt of India would create a body, whose job would be to
replicate 'Anands'. The NBBD to be headed by Dr. V. Kurien, was thus created
in 1965 and was officially registered on 27' September, 1965 as an Autonomous
Society under the administration control of Union Ministry of
agriculture.

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OPERATION FLOOD

One of the world's largest rural development programmes

Launched in 1970. Operation Flood has helped dairy farmers direct their own
development, placing control of the resources they create in their own hands- A
National Milk Grid links milk producers throughout India with consumers in
over 700 towns and cities, reducing seasonal and regional price variations while
ensuring that the producer gets fair market prices in a transparent manner on a
regular basis.

The bedrock of Operation Flood has been village milk producers' cooperatives,
which procure milk and provide inputs and services, making modem
management 'and technology available to members. Operation Flood's
objectives included:

• Increase milk production ("a flood of milk")

• Augment rural incomes

• Reasonable prices for consumers

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Programme implementation

Operation Flood was implemented in three phases:

Phase 1

Phase I (1970-1980) was financed by the sale of skimmed milk powder and
butter oil gifted by the European Union then EEC through the World Food
Programme. NDDB planned the programme and negotiated the details of EEC
assistance.

During its first phase, Operation Flood linked 18 of India's premier milk sheds
with consumers in India's four major metropolitan cities: Delhi, Mumbai,
Kolkata and Chennai.

Phase 2

Operation Flood's Phase II (1981-85) increased the milk sheds from 18 to 136;
290 urban markets expanded the outlets for milk. By the end of 1985. A self-
sustaining system of 43,000 village cooperatives covering 4.25 million milk
producers had become a reality. Domestic milk powder production increased
from 22,000 tons in the pre-project year to 140000 tons by 1989, all of the
increase coming from dairies set up under Operation Flood. In this way EEC
gifts and World Bank loan helped to promote self-reliance. Direct marketing of
milk by producer's cooperatives increased by several million litres a day.

Phase 3

Phase III (1985-1996) enabled dairy cooperatives to expand and strengthen the
infrastructure required to procure and market increasing volumes of milk.
Veterinary first-aid health care services, feed and artificial insemination
services for cooperative members were extended, along with intensified
member education.

Operation Flood's Phase III consolidated India's dairy cooperative movement,

adding 30,000 new dairy cooperatives to the 42,000 existing societies organised
during Phase II, Milk sheds peaked to 173 in 1988-89 with the numbers of

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women members and Women's Dairy Cooperative Societies increasing

significantly.

Phase III gave increased emphasis to research and development in animal health
and animal nutrition. Innovations like vaccine for Theileriosis , bypass protein
feed and urea-molasses mineral blocks, all contributed to the enhanced
productivity of mulch animals.

From the outset, Operation Fiood was conceived and implemented as much
more than a dairy programme. Rather, dairying was seen as an instrument of
development, generating employment and regular incomes for millions of rural
people- "Operation Flood can be viewed as a twenty year experiment
confirming the Rural Development Vision" (World Bank Report
1997c.).

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CHAPTER-3

ORGANISATIONAL STRUCTURE

OF

PATNA DAIRY PROJECT

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THREE TIER STRUCTURE

The Village Society

An Anand Pattern village dairy cooperative society (DCS) is formed by milk

producers. Any producer can become a DCS member by buying a share and
committing to set) milk only 10 the society. Each DCS has a milk collection
centre where members take milk every day. Each member's milk is tested for
quality with payments based on the percentage of fat and SNF. At the end of
each year, a portion of the DCS profits is used to pay each member a patronage
bonus based on the quantity of milk poured

The District Union

A District Cooperative Milk Producers’' Union is owned by dairy cooperative

societies. The Union buys all the societies' milk, then processes and markets
fluid milk and products. Most Unions also provide a range of inputs and
services to DCSs and their members: feed, veterinary care, artificial
insemination 10 sustains the growth of milk production and the cooperatives'
business. Union staff train and provide consulting services to support DCS
leaders and staff.

The State Federation

The cooperative milk producers' unions in a state form a State Federation

which is responsible for marketing the fluid milk and products of member
unions. Some federations also manufacture feed and support other union
activities.

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PATNA DAIRY PROJECT

Vaishal Patliputra Dugdh Utpadak Sahkari Sangh Ltd (VPDUSS) is a
District Level Milk Union set up in Bihar on Anand Pattern under Operation
Flood. Registered on 02-07-1987 under Bihar & Orissa Co-operative Act. 1935,
it is one of the five Milk Unions set up under Operation Flood in Bihar.
Headquartered at Phulwarisharifin Patna, it has a dairy' plant and a cattle feed
plant at Patna and 4 Chilling Centres at Hajipur . Biharsharif , Ekangarsarai and
Asthawa. All milk unions are affiliated to the Bihar State Co-operative Milk
Producers Federation Ltd, which is the apex body in the state of Bihar. Central
and State Govl. have Jointly promoted these Milk Unions with a view to
organise, develop and strengthen dairy co-operatives and to modernise the dairy
industry for self-sufficiency and self-reliance in milk and milk products, as
envisaged under Operation Flood-

The National Dairy Development Board, managing the Feeder Balancing Dairy
of 1.0 lake litres and a Cattle Feed Plant with 100 Mis/day capacity at Patna (set
up under the Operation Flood-1) since August, 1981 in the name and style of
Patna Dairy Project (PDP) as per the Govt. decision, transferred the
management of NDDB, the project progressed very well on co-operative
principles envisaged under OF and commercial lines as well.

The NDDB was managing the Project on behalf of a milk shed level milk union
to be formed in Patna milk shed under OF on Anand Pattern. Accordingly after
formation of VPDUSS, the NDDB transferred .the management of PDP to the
Sangh.

The PDP is so popular among public and those associated to it. The project
name under study, therefore, appears singly as VPDUSS, PDP or as VPDUSS-
PDP in the report

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PROGRESS OF PATNA DAIRY PROJECT

The NDDB immediately after taking over the project positioned an integrated
Spear Head Team to restructure the milk procurement activities and also for
streamlining the working of the FBD and CFP, Under the management of
NDDB the project had not only made excellent progress but had been able to
establish the fact that the co-operatives could function equally well in Bihar too
what is essential is the proper atmosphere and guidance.

Along with the organisation of milk procurement activities and management of

both the plants on commercial lines, NDDB took special care to develop the
Vaishal Patiipuira Dagdh Utpadak Sahkari Sangh Ltd. (VPDUSS), the milk
shed level co-operative for taking over the project once the DAIRY BOARD
withdraws its management. NDDB handed over the arrangements of Patna
Dairy Project (PDP) to Vaishal Patliputra Dugdh Utpadak Sahkari Sangh Ltd.
(VPDUSS) with effect from l"July. 1988.

PROGRESS UNDER VAISHAL PATLIPUTRA DUGDH UTPADAK

SAHKARI SANGH LTD. (VPDUSS)

The major task before the Vaishal Patliputra Dugdh Utpadak Sahkari Sangh
Ltd. (VPDUSS) that the excellent infrastructure developed by the National
Dairy Development Board (NDDB) is not only maintained but also to see that
the pace of development is not hampered. The Vaishal Patliputra Dugdh
Utpadak Sahkari Sangh Ltd. (VPDUSS) has been able to accomplish these tasks
to a greater extent.

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PRESENT STATUS
Milk Procurement:
There are at present 1257 no's of functional Dairy Cooperatives Societies (DCS)
in the areas ot'PDP covering'the districts of Patna- Vaishaii, Nalanda and fringe
areas of Saran with a tutai membership of 94222. The daily average
procurement has reached up to 1106163 litres during the year 2007-2008. they
hoped that the project shall collect above one & half lakh litres of milk per day
in commencing year. Tliere are 173 nu's of women Co-operative Societies
exclusively managed and run by rural women folk;- While the union has a fairly
good number of functional societies- emphasis is being given to consolidate the
functioning of the primary societies by increasing .-.the members" participation.
The Co-operative Development (CD) Programme'' was also initiated from
March. 1991 with the assistance of NDDB.

Technical Inputs:

The Union, in addition providing a ready and stable market for the rurally
produced milk at the door-slop has been providing the inputs required for milk
production enhancement viz. Artificial Insemination (AI) with Frozen Semen,
Veterinary First Aid (VFA), Vaccination, supply of balanced feed, supply of
fodder seeds, treatment of paddy straw/wheat bursa with Urea, supply of Urea
Molasses Block (UMB) etc on no profit no loss basis. The response from the
milk producers for all these inputs has been exceedingly encouraging and the
Union is in the process of extending these facilities to more and more societies
and farmers.

Feeder Balancing Dairy:

The Feeder Balancing Dairy with a capacity to handle 1.5 lakes litres per day
(LLPD), has facilities for manufacture of milk powder. butter, ghee, ice cream,
peda, paneer and Plain/Misti Dahl, Lassi, Matha,

The production and marketing of Table Butter under the brand name 'SUDHA'
was introduced from 1st October, 1993 and the response has been encouraging.

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The marketing of Sudha brand of Ice Cream in Patna after test marketing in
August-September. 1994, was formally launched from April. 1995. The initial
response has been satisfactory. Efforts are on to increase the market share of
Sudha ice-cream

The marketing of Sudha brand Plain/Misti Dahl in Patna was started in Oct-
Nov.2001 and was formally launched from Nov.2001. The initial response for
this product too has been overwhelming.

The production of Sudha brand Lassie in Patna was started in April-May-2003

and the product ofmatha started in March-2007.

Cattle Feed Plant:

The role of balanced feed is not only increasing milk production but also
sustaining the same by ensuring regular conception need not be over
emphasised. Realising the same the Union has been making consistent efforts
for popularising the consumption of balanced feed by the milk producers.

In addition to catering to the needs of the Dairy Co-operative Societies cattle

feed is sold through dealers in rest of the state for better capacity utilisation of
the Plant. Further realising the importance of introduction of latest technologies
in this field, the production and sale of By Pass Protein feed was started from
the year 1989-90. The response for this feed too is encouraging.

Milk Marketing:

The marketing of liquid milk in sachet was introduced from the year 1981 itself.
However, initially the thrust was for organising the milk procurement activities
and to stabilise the same at reasonable level. Nevertheless there was some
natural growth in the milk marketing over the years. However, for various
reasons there was some stagnation for few years in the quantity of milk
marketed. With certain modifications in the policy decisions and
because of concerted efforts, the quantum of milk being marketed is steadily
growing.

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Quality & Productivity Activities:

The Dairy Plant Managemem Programme (DPM) was introduced in the year
1992 followed by Quality Assurance Programme (QAP) in the year 1993 with
the help ofNDDB. This resulted in bringing about a positive change leading to \
lability of the project coupled with lowering of operational costs on one hand
and improved quality of products on the other. Consequent to the liberalisation
and giobaiisation of Indian economy in early 90's it was felt that the
organisation should strive to make its total outlook, approach and systems of
highest standards. Accordingly, it was decided in the year 2001 that the
organisation should go in for ISO certification both in quality management
system and food safety. This process was successfully completed leading to
ISO-9001: 2000 and HACCP (IS-15000) certification by Bureau of Indian
Standards in March, 2002.

The project has been honoured with "Best Productivity Performance" Award
for the three years 2000-2001, 2001-2002 & 2005-2006 by National
Productivity Council, New Delhi.

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Thrust areas:

1. To make Sudha Brand a market leader by making Sudha Milk and milk.
products a consumers' delight and ensuring-that the esteemed customers get
value for money.
2. Consolidation of the DCS's already organised leading to increase milk
procurement.
3. Further improvement in the involvement/participation of members in their
Co-operatives.
4. Bridging the flush-gap further,

5. Popularising ail the Input Programme.

6. Increasing the throughputs and sale of both milk and milk products as weli •
as cattle feed. By Pass Protein Feed & UMB.
7. Reducing further the handling losses and increasing the utilisation of plant
capacities.
8- Optimising the utilisation of all consumables.

9. Human Resource Development through training, orientation etc to the

employees at all levels for ensuring better motivation and involvement leading
to the employees at all levels for ensuring better motivation and involvement
leading to all round progress of the organisation.

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Vision:

In line of values, by maintaining economic balance, the milk sangh shall

arrange to provide maximum return to producer's members and provide a!)

Necessary services for enhancing milk production. The milk union shall be

well known as

one of the leading organization in the country for its total quality.

MISSION

• Socio economic upnftment of rural farmers through cooperative

dairying.

• Cater the needs of urban consumers by supplying hygienically packed milk

and milk products at reasonable prices.

• Development and expansion of such other allied activities conducive for

dairying, improvement and protection of mulch animals for the betterment of mi

1k producers.

VALUES

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• Cooperation and Team spirit

• Belief in cooperative organizations
• Honesty
• Total quality at every level
• Discipline
• Openness and Transparency
• Trust and Motivation (from milk producer to consumers)
• Education and Awareness at every level

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Aims and objective of PDP

The patna dairy project aims mainly to concentrate on goods quality

procurement of milk maintain milk product for making them available to
general masses so that they can avail the opportunity of better nourishment.
As such aim of PDP are:-
•To develop dairying on Anand Pattern in Bihar to cater the need of
masses in Patna and suburbs in terms of milk and milk product and at
the same line maintained high quality.
•To eliminate middle-man between milkman and consumer there by
stopping undeserved share of profit to milkman which is the second
most important objective
•To provide milk market to the milkman throughout the year thus helping
them to lead a better life.
•To decrease the cost of production so that the ultimate consumer can get
the product at low and cheaper cost.
•To help in the rural development by developing strong co-operative
society to guard the rural people and to help to overcome any set backs
• To produce dairy product of high quality and built in food safety to meet
a well defined need use and purpose of judicious and efficient
utilisation of resources.
• Promote innovation and development of new product.
•To achieve continual improvement in customer satisfaction in term
product quality and service
•To ensure continuous improvement in terms of physical financial
performance resulting in maximum production at optimum cost

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CHAPTER-4

PROJECT OVERVIEW

• INTRODUCTION OF WORKING CAPITAL

•CONCEPT & NATURE

•TYPES & DETERMINANT OF WORKING CAPITAL

•OPERATING & CASH CONVERSION CYCLE

•POLICIES OF WORKING CAPITAL FINANCE

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INTRODUCTION OF WORKING CAPITAL

INTRODUCTION

Working capital typically means the firm’s holding of current or short-term

assets such as cash, receivables, inventory and marketable securities.These
items are also referred to as circulating capital .Corporate executives devote a
considerable amount of attention to the management of working capital.

The management of current assets is similar to that of fixed assets in

the sense that in both cases a firm analyses their effects on its return & risk.the
management of fixed & current assets, however differs in three important
ways: first, in managing fixed assets , time is very important factor;
consequently,discounting and compounding techniques play a significant role in
capital budgeting and a minor one in the management of current assets. Second,
the large holding of current assets, especially cash , strengthens the firm
liquidity position but also reduces the overall profitability. Thus a risk –return
trade off is involved in holding current assets. Third , levels of fixed as well as
current assets depend upon expected sales,but it is only current assets which can
be adjusted with sales fluctuation in the short run .

Working Capital refers to that part of the firm’s capital, which is required
for financing short-term or current assets such a cash marketable securities,
debtors and inventories. Funds thus, invested in current assets keep revolving
fast and are constantly converted into cash and this cash flow out again in
exchange for other current assets. Working Capital is also known as revolving
or circulating capital or short-term capital.

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CONCEPT & NATURE OF WORKING CAPITAL

There are two concept of working capital- gross and net.

Gross working capital (GWC)

GWC refers to the firm’s total investment in current assets.

Current assets are the assets which can be converted into cash within an
accounting year (or operating cycle) and include cash, short-term securities,
debtors, (accounts receivable or book debts) bills receivable and stock
(inventory)

Net working capital (NWC).

NWC refers to the difference between current assets and current liabilities.

Current liabilities (CL) are those claims of outsiders which are expected to
mature for payment within an accounting year and include creditors (accounts
payable), bills payable, and outstanding expenses.

NWC can be positive or negative.

A positive net working will arise when current assets exceed current liabilities.

A negative net working capital occurs when current liabilities are in excess of
current assets.

Positive NWC = CA > CL

Negativ
e NWC = CA < CL

GWC focuses on:

Optimisation of investment in current.

Financing of current assets.

Financial manager should have knowledge of the sources of working capital

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Funds as well as investment avenues where idle funds may be temporarily

Invested.

NWC focuses on:

Liquidity position of the firm.

Judicious mix of short-term and long-tern financing.

The two concepts of working capital – gross & net- are not exclusive ;
rather,They have equal significance from the management viewpoint.There is
no precise way to determine the exact amount of gross & net Working capital
for any firm . the data and problem of each company shouldbe analysed to
determine the amount of working capital. There is no specific rule as to how
current assets should be financed.

TYPES OF WORKING CAPITAL

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Types of working capital.

 Permanent or fixed working capital

A minimum level of current assets, which is continuously required by a

firm to carry on its business operations, is referred to as permanent or fixed
working capital.

 Fluctuating or variable working capital

The extra working capital needed to support the changing production and
sales activities of the firm is referred to as fluctuating or variable working
capital.

Both the working capital – permanent and variable – are necessary to facilitate

Production and sale through the operating cycle.

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Differe

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BALANCED WORKING CAPITAL POSITION

Fin
Every business concern should have adequate working capital to run its
business operations. It should have neither redundant or excess working capital
nor inadequate or shortage of working capital.

Both excess as well as shortage of working capital situations are bad for any
business. However, out of the two, inadequacy or shortage of working capital is
more dangerous from the point of view of the firm.

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DISADVANTAGES OF EXCESS WORKING CAPITAL

- Idle funds, non-profitable for business, poor ROI.

- Unnecessary purchasing & accumulation of inventories over required level.

- Excessive debtors and defective credit policy, higher incidence of B/D.

- Overall inefficiency in the organization.

- When there is excessive working capital, Credit worthiness suffers

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

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DISADVANTAGES OF INADEQUATE WORKING CAPITAL

-Can’t pay off its short-term liabilities in time.

-Economies of scale are not possible.

-Difficult for the firm to exploit favourable market situations.

-Day-to-day liquidity worsens.

-Improper utilization the fixed assets and ROA/ROI falls sharply.

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DETERMINANTS OF WORKING CAPITAL

There are no set rules or formula to determine the working capital requirement

Of firms. A large number of factors , each having a different importance,

Influence working capital needs of firms. The following factors which

Generally influence the working capital requirement of firms.

1. Nature of the Industry

2. Demand of Industry

3. Cash requirements

4. Nature of the Business

5. Manufacturing time

6. Volume of Sales

7. Terms of Purchase and Sales

8. Inventory Turnover

9. Business Turnover

1
0. Business Cycle
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11. Current Assets requirements

12. Production Cycle

13. Credit control

14. Inflation or Price level changes

15. Profit planning and control

16. Repayment ability

17. Cash reserves

18. Operation efficiency

19. Change in Technology

20. Firm’s finance and dividend policy

21. Attitude towards Riskness

The description of some major factors are in the following ways.

Nature of Business –

Working capital requirement of a firm are basically influenced by the nature of

Business. Trading & financial firms have a very small investment in working
capital.

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Market and Demand Conditions –

The working capital needs of a firms are related its sales.in practice current
assets will have to be employed before growth takes place.it is,there
fore,nesseary to make advance planning of working capital for a growing firm
on a continuous basis.

Growing firm may need to invest funds in fixed assets in order to sustain
growing production and sales.

Sales depand on demand conditions.large number of firms experience

seasonal and cyclical fluctuation in the demand for there products and
services.these business variation affect the working capital
requirement,specially the temporary working capital requirement of the firm.

Technology and Manufacturing Policy –

Longer the manuf acturing cycle,larger will be the firms working capital
requirement for exm...,the manufacturing cycle in the case of a boiler
,depending on its size,may range between six to twenty four months.on the
other hand ,the manufacturing cycle of a products such detergent powder
,soap ,chocolate etc...may be a few our and extended manufacturing time span
means a larger tie up of funds in inventories .

Credit Policy –

The credit policy of the firm affect the working capital by influencing the level
of debtors.

Availability Of Cridit From Suppliers –

The working capital requirement of a firm are also affected by credit terms
granted by its suppliers.a firm will needless working capital if liberal credit
terms are available to it from suppliers.
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Operating Efficiency –

The operating efficiency of the firm relates to the optimum utilisation of all its
resources at minimum cost.the use of working capital is improved and pace of
cash conversion cycle is accelerated with operating efficiency.

Price Levels Changes –

Generally, rising price levels will require a firm to maintain higher amount of
working capital. Same levels of current assets will need increased investment
when prices are increasing.

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OPERATING & CASH CONVERSION CYCLE

We know that a firm should aim at maximizing the wealth of shareholders. In

its endeavour to do so,a firm should earn sufficient return from its
operations.current assets are needed because sales do not convert into
cash instantaneously. There is always a operating cycle involved in the
conversion of sales into cash.

Operating cycle is the time duration required to convert sales, after the
conversion of resources into inventories, into cash. The operating cycle of
a manufacturing company involves three phases:

Acquisition of resources such as raw material, labour, power and fuel etc.

Manufacture of the product which includes conversion of raw material into

work-in-progress into finished goods.

Sale of the product either for cash or on credit. Credit sales create account
receivable for collection.

The length of the operating cycle of a manufacturing firm is the sum of:

inventory conversion period (ICP).

Debtors (receivable) conversion period (DCP).

Inventory conversion period is the total time needed for producing and selling
the product. Typically, it includes:

raw material conversion period (RMCP)

work-in-process conversion period (WIPCP)

finished goods conversion period (FGCP)

The debtors conversion period is the time required to collect the outstanding
amount from the customers.

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Creditors or payables deferral period (CDP) is the length of time the firm is able
to defer payments on various resource purchases.

Gross operating cycle (GOC)

The total of inventory conversion period and debtors conversion period is

referred to as gross operating cycle (GOC).

Net operating cycle (NOC)

NOC is the difference between GOC and CDP.

Cash conversion cycle (CCC)

CCC is the difference between NOP and non-cash items like depreciation.

Cash conversion cycle = operating cycle – payables deferral period.

The firm has to maintain cash balance to pay the bills as they come due.

In addition, the company must invest in inventories to fill customer orders

promptly.

And finally, the company invests in accounts receivable to extend credit to

customers.

Operating cycle is equal to the length of inventory and receivable conversion

periods.

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Inventory conversion period

Avg. inventory

= _________________

Cost of sales/365

Receivable conversion period

Accounts receivable

= ___________________

Annual credit sales/365

Payables deferral period

Accounts payable + Salaries, etc

= ___________________________

(Cost of sales + selling, general and admn. Expenses)/365

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Operat

Purchase
resources

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POLICIES FOR WORKING CAPITAL FINANCE

A firm can adopt different financing policies

vis- vis current assets. Three types of financing may be
distinguished.

Long Term financing-

The sources og long term financing include ordaniry share

capital, preferance share capital , debenture,

Long-term borrowing from financing institutions and reserves

and surplus(retained earning).

Short Term financing-

The short term financing is obtained for a period less than one
year.it is arranged in advance from banks and other suppliers
of short term finance in the money market.

Spontaneous financing-

Spontaneous financing refers to the automatic sources of short

term funds arising in the normal course of a business.trade
credit and outstanding expenses are example of spontaneous
financing.there is no explicit cost of spontaneous financing.

The mix of short term and long term sources in financing

current assets depending on the mix of short and long term
financing, the approach followed by company may be referred
to as:

Matching approach

Conservative approach

Aggressive approach

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Matching Approach

When the firm follows matching approach, long term financing

will be used to finance fixed assets and permanent current
assets and short term financing to finance temporary or
variable current assets . however , it should be realised that
exact matching is not possible because of the uncertainty
about the expected lives of the assets.

The temporary or variable current assets are

financed with short – term funds and as their level increases,
the level of short – term financing also increases. Under the
matching plan , no short – term financing will be used if the firm
has a fixed current assets need only.

Matc
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Conservative Approach

A firm in practice may adopt a conservative approach in

financing its current and fixed assets. The financing policy of
the firm is said to be conservative when its depends more on
long term funds for financing needs. Under a conservative plan
, the firm finances its permanent assets and also a part of
temporary current assets with long term financing. In the
period when the firm has no need for temporary current assets,
the idle long term funds can be invested in the tradable
securities to conserve liquidity.

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Cons

Aggressive Approach

A firm may be aggressive in financing its assets. An aggressive policy is said to

be followed by the firm when its uses more short – term financing than
warranted by the matching plan. Under an aggressive policy, the firm finances a
part of its permanent current assets with short – term financing. Some extremely
aggressive firms may even finance a part of their fixed assets with short – term
financing.

$
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Aggr
CHAPTER-5

PROJECT ANALYSIS:
RATIO APPLCATION
&
ANALYSIS
$
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VISHAL PATILIPUTRA DUGDH UTPADAK SAHKARI SANGH NH LTD

BALANCE SHEET

(As on 31st march 2008)

LIABLITIES
SHARE CAPITAL
AUTHORISED SHARE 50000000.00
CAPITAL
9043300.00
PAID UP SHARE CAPITAL
SHARE DEPOSIT 1191189.84

RESERVES & SURPLUS 241714627.52

LONG TERM LOAN 31424000.00
CURRENT LIABLITIES
PROVISION 5885723.08
SUNDRY CREDITORS
151084261.15
DEMAND LOAN WITH
BANK 70316474.10
INTREST PAYABL 2180206.18
LIABLITY FOREXPENSES 11463770.80
LIABLITIES-OTHER 18840419.06
LIABLITIY-VAT 966067.85 260736922.22
NET PROFIT FROM 5860196.05
P/L ACCOUNT
549970235.63
ASSETS
FIXED ASSET 227219711.34
INVESTMENTS 51689255.55
CURRENT ASSET
CLOSING STOCK 7531374.00
DEPOSIT 1973366.83
LOAN & ADVANCE 180755910.23
SUNDRY DEBTORS 27875007.44
CASH-IN –HAND 207909.85
BANK ACCOUNT 64766594.92
INTREST 3908027.12
RECEIVABLES
INVESTMENT(short 84407418.31
term)
STOCK & STORES 62315660.04 271061268.74

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549970235.63

VAISHAL PATLIPUTRA DUGDH UTPADAK SAHAKARI SANGH LTD

PARTCULARS AMOUNT
Net sales 1246936185.68
L LESS: Cost of goods sold
Opening stock 11075497.00
(+)Purchase 59710507.60
(+)Direct expenses 1083055881.70
(-)C Closing stock 1153841886.30
Gross profit 7531374.00 1146310512.30
L LESS: Indirect expenses 100625673.38
97380831.63
ADD: Indirect income 3244841.75
15481239.45
PB PBDIT or EBDIT 18726081.20
8342641.00
LESS: Depreciation 1038344.20
PBIT OR EBIT 2124498.15
LESS: Tax 8258942.05
2398746.00

Retained Earning 5860196.05

INCOME STATEMENT

(For the year ended 31.03.2008)

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VISHAL PATILIPUTRA DUGDH UTPADAK SAHKARI SANGH NH LTD

BALANCE SHEET

(As on 31st march 2009)

LIABLITIES
SHARE CAPITAL
AUTHORISED SHARE 50000000.00
CAPITAL
9254100.00
PAID UP SHARE CAPITAL
SHARE DEPOSIT 1164996.59

RESERVES & SURPLUS 259147749.05

LONG TERM LOAN 48568000.00
CURRENT LIABLITIES
PROVISION 6897121.86
SUNDRY CREDITORS 189496174.24
DEMAND LOAN WITH 70003516.00
BANK 25679772.07
INTREST PAYABL 16487422.83
LIABLITY FOREXPENSES
19425725.36
LIABLITIES-OTHER 305622523.55
LIABLITIY-VAT 744591.19
NET PROFIT FROM 8153851.43
P/L ACCOUNT
631911220.62
ASSETS
FIXED ASSET 239611774.43
INVESTMENTS 83608423.84
CURRENT ASSET
CLOSING STOCK 12151249.00
DEPOSIT 5061277.83
LOAN & ADVANCE 15552379.20
SUNDRY DEBTORS 33782122.41
CASH-IN –HAND 81202.45
BANK ACCOUNT 58984222.62
INTREST 7032101.16
RECEIVABLES
INVESTMENT(short 83259638.00
term)
STOCK & STORES 92786829.68 308691022.35
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631911220.62
VAISHAL PATLIPUTRA DUGDH UTPADAK SAHAKARI SANGH LTD

INCOME STATEMENT

(For the year ended 31.03.2009)

PARTCULARS AMOUNT
Net sales 1406858952.81
LESS: Cost of goods
sold
Opening stock 7531374.00
(+)Purchase 92707476.63
(+)Direct expenses 1201381801.57
1301620652.00
(-)Closing stock 12151249.00
Gross profit 1289469403.00
LESS: Indirect expenses 108464664.90
1181004738.00
ADD: Indirect income 17506961.98
PBDIT or EBDIT 1198511700.00
LESS: Depreciation 10245585.00
PBIT OR EBIT 1188266115.00
LESS:Intrest paid 5698857.19
PBT or EBT 1182567258.00
LESS: Tax 2333553.00

Retained Earning 1180233705.00

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Schedule for change in working capital

Particular

31st march 31st march Working Working

2008 2009 capital capital
increase decrease

A. CURRENT
ASSETS

Closing stock 7531374.00 12151249.00 4619875.00

S.Debtor 27875007.44 33782122.41 5907114.97

Deposits(asset 1973366.83 5061277.83 3087911.00

s)

Loan&advanc 18075910.23 15552379.20 2523531.03

e

Cash in hand 207909.85 81202.45 126707.40

Bank 64766594.92 58984222.62 5782372.30

Interest 3908027.12 7032101.16 3124074.04

receivable

Investment 84407418.31 83259638.00 1147780.31

Stock&share 62315660.04 92786829.68 30471169.64

TOTAL.A 271061268. 308691022.

74 35

B. CURRENT
LIABILITIES

Provisions 5885723.08 6897121.86 1011398.78

S.Creditors 151084261.1 189496174.2 38411913.09

5 4

Demand loan 70316474.10 70003516.00 312958.10

Interest 2180206.18 2567972.07 387765.89

Payable

Liability for 11463770.80 16487422.83 5023652.03

expencses

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Liability- other 18840419.06 19425725.36 585306.30

,, VAT/CST 966067.85 744591.19 221476.66

payable

TOTAL.B 260736922. 305622523.

22 55

Working 10324346.50 3068498.80

capital(A-B)

Decrease in 7255847.72
WC

TOTAL 55000427.1 55000427.1

3 3

The following statements shows that the PDP is in better condition

because the firm funds are not Blocked to the outsider while the firm is
utilizing the outsider funds.

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LIQUDITITY RATIO

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PARTICULAR 2008-09 2009-10

CURRENT 271061268.74/260736922.22 308691022.35/305622523.
RATIO=CURRENT =1.03:1 55
ASSET/CURRENT =1.01:1
LIABLITY
QUICK RATIO =(CURRENT 201214234.70/260736922.22 203752943.67/305622523.
ASSET-INVENTORY)/ =0.77:1 55
CURRENT LIABLITY =0.66:1

CASH
RATIO=CASH&BANK+ 142325063.07/305622523.55 149381923.08/260736922.
MARKETABLE =0.46568 22
SECURITIES/CL =0.5729

1406858952.81/36298629.
RECEAVABLE 1246936185.68/333231998.64 07
TURNOVER=TOTAL =37.5222 =38.75791
CREDIT SALES/AVERAGE
RECEIVABLE

13248999608.73/1406858
AVERAGE COLLECTION 12129679503.6/1246936185.68 95
PERIOD DAYS=AVERAGE =9.72758 2.81=9.41743
RECEIVABLE*365/TOT
AL CREDIT SALES

CASH TURN OVER RATIO 1182561211.48/60003991.55 1315545323.73/61719964

=CASH OPERATING EXPEN =19.708 TIMES .94=21.3147 TIMES
SES/AVERAGE
CASH&BANK BALANCE

CASH HOLDING PERIOD= 60003991.55*365/1182561211. 61719964.94*365/131554

AVERAGE CASH&BANK 48=18.52 5323.73=17.124
BALANCE/CASH
OPERATING EXPENSES
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PROFITABLITY RATIO

PARTICULAR 2008-09 2009-10

GROSS 100625673.38/1246936185 107143964.61/1406858952.81
PROFIT =8.07% =7.63%
RATIO
=GROSS
PROFIT/SALE
S
NET PROFIT 10383440.20*100/12469361 8153851.43*100/1406858952.
RATIO=NET 85 81
PROFIT/SALE
S =0.58% =0.83%

ACTIVITY RATIO

PARTICULAR 2007-08 2008-09

FINISHED GOODS 1154653153.0/9303435.5= 1299714987.0/9841311.5=
INVENTORY 124.11 132.067
TURNOVER=COST OF
GOODS SOLD/AVERAGE
FINISHED GOODS

FINISHED GOODS
STORAGE 3395753957.5/1154653153= 3592078697.5/1299714988.
PERIOD=AVERAGE 2.94DAYS 2=

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INVENTORY*365/COST OF 2.7637DAYS
GOODS SOLD

WORKING CAPITAL 1154653153/10324346.50 1299714987.00/3068498.80

TURNOVER RATIO=NET =112 TIMES =424 TIMES
SALES/NET WORKING
CAPITAL

(NET SALES=SALES-
GROSS PROFIT)
FIXED ASSET TURNOVER 1154653153/227219711.34 1299714987.00/239611774.
RATIO=COST OF =5.08 TIMES 43
SALES/NET FIXED ASSET =5.42 TIMES
(COSTOF SALES=SALES-
GROSS PROFIT)

CURRENT ASSETS 1154653153.0/271061268.74 1299714987.0/308691022.3

TURNOVER=COST OF =4.2597 5
SALES/CURENT ASSETS =4.2104

RATIO OF CURRENT 271061268.74/227219711.34 308691022.35/239611774.4

ASSETS TO TOTAL =1.1929 3=1.2882
ASSETS=CURRENT
ASSETS/TOTAL ASSETS

RATIO OF CASH TO 64974504.77/271061268.74 59065425.07/308691022.35

CURRENT =0.2397 =0.19134
ASSETS=CASH&BANK/CU
RRENT ASSETS

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CURRENT LIABILITIES TO 260736922.22/549970235.63 305622523.55/631911220.6

TOTAL LIABILITIES= =0.47409 2=0.48364
CURRENT
LIABILITIES/TOTOTAL
LIABILITIES

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GLANCE OF FINANCIAL ANALYSIS IN VDPUSSL

PARTICULAR 2007-08 2008-09

LIQUDITY RATIO

CURRENT RATIO 1.04:1 1.01:1

QUICK RATIO 0.77:1 0.67:1
CASH TURNOVER 19.708 TIMES 21.315 TIMES
CASH HOLDING 18.52 DAYS 17.124 DAYS
PERIOD
RECEIVABLE 37.5221 TIMES 38.7579 TIMES
TURNOVER
AVERAGE 9.73 DAYS 9.42 DAYS
COLLECTION PERIOD
PROFITABLITY
RATIO

GROSS PROFIT RATIO 8.07% 7.62%

NET PROFIT RATIO 0.83% 0.58%
ACTIVITY RATIO

CURRENT ASSETS 4.2597 TIMES 4.2104 TIMES

TURNOVER

FINISHED GOODS 2.94 DAYS 2.76 DAYS

STORAGE PERIOD
WORKING CAPITAL 112 Times 424Times
TURNOVER RATIO
FIXED ASSET 5.08 Times 5.4 2Times
TURNOVER RATIO
RATIO OF CURRENT 1.19:1 1.29:1
ASSETS TO TOTAL
ASSETS

RATIO OF CASH TO 0.24:1 0.19:1

CURRENT ASSETS
CURRENT 0.474 0.484
LIABILITIES
TOTOTAL
LIABILITIES

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CHAPTER-6

FINDING
&
CONCLUSION

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LIQUIDITY RATIO

FINDING

PARTICULAR 2007-08 2008-09

Current ratio 1.03:1 1.01:1
Quick ratio 0.77:1 0.66:1

CONCLUSION

So for the current ratio is recorded 1.03:1 and 1.01:1 in 2oo7-08 &08-09
respectively. And acid test ratio is recorded 0.77:1 and 0.66:1 for the year 2oo7-
08 &08-09 respectively is alarming for the organisation with respect to
traditional concept prevailing for liquidity and most expert may recommend to
improve this ratio for better management for the liquidity and rational matching
with current asset and current liability ,hence I experience during the training
the financial manager has set a sight all the traditional concept recommended
for the organisation for the liquidity management and optimally derive a
concept lowering down the ratio and succeed obviously .this improve the
profitability and there is no evidence of any threat of any liquidity.

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PROFITABLITY RATIO

FINDING

Gross Profit Ratio 8.07% 7.63%

Net Profit Ratio 0.58% 0.83%

CONCLUSION

In Patna dairy project is a cooperative organisation and profit is not the

objective. The objective of the firm is to render the services to its member
.despite it generate some surplus which is distributed among the member after
retaining some of the reserve as prostitute .Decrease in gross profit ratio is the
cause of enhancement of direct cost such as material ,labour and petroleum
product.

The increase in the net profit ratio demonstrate the efficiency of the
management as regard to the reduction of the direct cost.

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ACTIVITY RATIO

FINDING

PARTICULAR 2007-08 2008-09

Stock turnover ratio 166 times 116 times
Working capital turnover 112 times 424 times
ratio
Fixed asset turnover ratio 5.08 times 5.42times

CONCLUSION

Organisation deals with perishable commodity and having a strategic plan to put
the lowest possible investment in finished product. As there is no culture to
retain the packed milk as stock .however the milk product and cattle feed are
basically remain as stock and thus the rotation the stock is decreased as there is
increase in the product stock with reference to increase in the turn over .

Rotation of net working capital is excellently increased as the liquidity has gone
down with a latest design made by the management without accepting any
threat to the liquidity.

Asset turnover ratio is little bit increased as there is 12% increase return on turn
over which give good sign to the industries. It is to be noted that the gross block
network is followed for the purpose of asset management.

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CHAPTER-7

BIBLIOGRAPHY

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BIBLIOGRARHY

ANNUAL REPORT OF VPDUSS

FINANCIAL MANAGEMENT BY RAVI M.KISHOR

FINANCIAL MANAGEMENT BY I M PANDEY

MANAGEMENT ACCOUNTING BY DR S.P.GUPTA

FINANCIAL MANAGEMENT BY KHAN AND JAIN

WEB SITES:

1. www.ndri.com

2. www.nddb.com

3. www.comfed.com

4. www.amul.com

5. www.google.com

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CHAPTER-8

GLOSARY

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GLOSARY

1. VPUDSS =Vaishal Patliputra Dugdh Utpadak Sahkari Sangh Ltd

2. PDP = Patna Dairy Project

3. NDDB= National Dairy Development Board

4. OF =Operational Flood

5. FBD= Feeder Balancing Dairy

6. CFP=Cattle Feed Plant

7. SHT=Spear Head Team

8. DCS=Dairy Cooperative Society

9. CD= Cooperative Development

10.AI=Artificial Insemination

11. VFA= Veterinary First Aid

12.UNB= Urea Molasses Block

13. LLPD =Lakh Litre Per Day

14. DPMP =Dairy Plant Management Program

15. QAP =Quality Assurance Program

16. DPR = Detail Project Report

17. IDC = Indian Dairy Corporation

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18. GOI= Govt. Of India

19. SMP=Skimmed milk Powder

20. WFP= World Food Program

21. FAO= Food and Agriculture Organisation

22. WB= World Bank

23.UN= United Nation

24. EEC= European Economic Community

25. MMT= Million Metric Tones

26.LPD= Litre per day

27. BSDC= Bihar State Dairy Corporation Ltd

28. SNF= Solid Not Fat

29. HACCP = Hazard and Critical Point

30.ISO= International Organisation to Standardization

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CHAPTER-9

APPENDIX

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