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A Study of Working Capital Status at Study Units

AJMER UNION

Established in the year 1972 as Ajmer Zila Dugdh Utpadak Sahakari Sangh Ltd (AZDUSS Ltd.). Established by National Dairy Development Board (NDDB). Under the aegis of Rajasthan Co-Operative   Dairy Federation. Established under Operation Flood Programme based on Amul model. Currently working under the chairmanship of Mr. Ramchandra Chaudhary & Management controlled by Mr. Jeevan Prabhakar. Have quality assurance certification of ISO 9001:2000 & HACCP

The  liquid  milk handling capacity 12 lakhs liter per day. The liquid milk storage capacity 30 lakhs liter per day. The pasteurized milk storage capacity1.05 lakhs liter per day. The Ghee making capacity 5 ton per day. AZDUSS LTD. has 2 chilling centers at Beawer and Vijaynagar.

Table of AJMER UNION Table no. 5.1

Rs Cr.    

Year 2009 2010 2011 2012 2013
Current 

Assets

123563213.76 156287456.87 173227415.49 376493162.32 567254907.90
Current 

Liabilities

15639875.78 12896836.78 13899949.88 33857687.58 46289765.98
Working capital 107923337.98 143390620.09 159327465.61 342635474.74 520965141.92
Investment 98463987 99378377.67 115368021 49367021.00 67367298.78
Fixed 

Assets

35678376.87 57463836.98 80344498.00 130582795.00 245673219.98
Current 

Ratio

7.9005 12.1182 12.46 11.1198 12.2544
Total asset to current assets 1.2887 1.367 1.463 1.3468 1.433
Cash to wc .34 .24 .54 .43 .41
Investment to wc .912 .69 .724 .144 .129
Quick Ratio 2.3 3.1 3.5 2.6 3.3

 

Sources of data collection are Annual report and balance sheet

 

Chart of current ratio of ajmer union   (5.1 )

 

 

Quick ratio chart of ajmer units    5.2

 

 

Total assets to current assets ratio   5.3

 

 

 

 

Cash to working capital chart of ajmer 5.4

 

 

 

Investment to working capital chart of ajmer units 5.5 

 

 

 

INTERPRETATION

 

Liquidity Ratio

From the above table it can be analyzed that the current ratio in 2009 is 7.9005, 2010 is 12.1182,2011 is 12.46, and 2012 and 2013 is 11.1198 and 12.2544.Ajmer union have more working capital. This is not good for union .Because union more funds are unused this fund union for many other productive works. Because working capital ideal ratio is 2:1 but union all year’s working capital ratio is high to 2:1.  As well as quick ideal ratio is 1:1 but we can see in chart (5.2B) that all years of Ajmer units quick ratio is more than ideal ratio to that is not good. These liquidity ratio conclude that Ajmer units not proper use of funds .if Ajmer unit do proper use of cash fund in different productive sources that is more benefit for Ajmer unit and Ajmer units earn more profit by these funds

Working capital to total asset ratio:

We find with different ratio that how RCDF different units manage working capital to its assets. Unit manages its composition of assets with working capital.  Asset structure ratios of AJMER Dairy for the five years studied indicate that, on the average 11.70 of current ratio.

working capital to  average investment ratio is in ajmer units is 51.70 .This ratio indicate that AJMER units have average investment in current assets and in fixed assets or in other word we can say that ajmer units have equal investment in fixed assets and current assets.   But we can also say that in AJMER units first 2009 have more investment in fixed assets as a percentage in 2009 in fixed assets was very high 91.2 % and next year decrease 69%and again increase in investment in fixed assets was 72.4%This is conclusion assets investment ratio is very high 91.2 % and next year decrease 69%and again increase in investment in was 72.4%. In three years ratio is very high and this ratio indicate that absence of investments in fixed assets. And then decreasing onward. (See figure 5.3 C). Normally, this is at the expense of Expanding production capacity by investing in more productive fixed assets in the long-term.  Therefore, the low production capacity and profit margins experienced by high current asset investment. We also computed cash to working capital, total assets to current assets ratio.

Cash to working capital ratio was 2009, 34% and then decrease in2010 24%.this situation is good for Ajmer dairy because Ajmer dairy Increase in the component dairy use its 34 % and 24 % use of cash in working capital is also good for dairy .And 2011 increase ratio 54% this sign is also the signal of bad liquidity management. As profitability of AJMER Dairy, was found suffering, so it can be concluded that increase in cash ratio component were affecting profitability.

Like total assets to current ratio is less than 15% all year this is indicate that ajmer dairy use its fund in fixed assets productive  sources. This is good for Ajmer dairy because dairy use fund for futures profit earning activities.

Alwar  milk union

Alwar Dairy is a dairy registered under Rajasthan cooperative act and is owned by thousands of its milk producers members. It works on world famous Amul pattern. It was established in the year 1972 to implement dairy development activities in the Alwar district, under Operation Flood Program.

The task of milk collection started from22nd August 1973. Presently the dairy plant has a capacity to process 1.50 lakhs liter milk; prepare 10 M.T. milk powder and 9.0 M.T. ghee per day. The plant also has a capacity to pack 2.50 lakhs liter milk per day. The Alwar plant of Saras (AZDUSS Ltd., Alwar) has been certified under internationally accepted quality and food safety management systems in accordance with ISO 9001-2000 with HACCP.

Table of Alwar Milk Union 5.2

Rs Cr.    

Year 2009 2010 2011 2012 2013
Current 

Assets

195672367.45 279161775.13 447859001.9 547788989.38 648768937.78
Current 

Liabilities

187636761.31 333330199.11 503014087.97 536899768.87 607796939.33
Working capital 8035606.14 -54168423.98 -55155086.07 10889220.51 40971998.45
Investment 7547789.76 8232034.35 9995460.42 1679797.87 1797070.23
Fixed 

Assets

36868639.56 46631102.00 101519362.75 15079797.78 17807777.98
Current 

Ratio

1.0428 .8374 .8903 1.0208 1.0674
Total asset to current assets 1.188 1.167 1.226 1.0275 1.0274
Cash to wc .54 .23 .32 .43 ..32
Investment to wc .935 .-151 -.181 .154 .043
Quick Ratio .65 .58 .76 .87 .86

 

Sources of data collection are Annual report and balance sheet

 

 

Current ratio chart of alwar union  5.6

 


 

Chart of total assets and liabilities  5.7

 


 

 

 

 

Quick ratio chart of alwar unit  5.8

 

 

Cash to working capital ratio chart of alwar unit 5.9

 

 

 

 

 

Investment to working capital ratio chart  5.10

 

 

 

Total assets to current assets ratio chart  5.11

 

 

 

 

INTERPRETATION:

 

Liquidity ratio :

Alwar union in 2009 current ratio is 1.0428. In 2010 and 2011 year current ratio is decreased to .8374 and .8903. And in 2012 and 2013 Alwar union increase its current ratio 1.0208 and 1.0674.this show company  have equal liabilities to equal assets . In 2010 and 2011 union have more liabilities to current assets. Its time is not good for union. Alwar union have not idle ratio of working capital 2:1. So this condition is not good for union .As well as Alwar unit quick ratio is not good indicator. Quick ratio ideal ratio is 1:1 .But in Alwar unit quick ratio was 2009,  .65 that is less than ideal ratio 1:1.and next year 2010  is decrease quick ratio and reach .58,then next year 2011 some increase in quick ratio .76 and 2012 .87 that  is little good condition of Alwar  unit .and in 2013 is .86 ratio. So with quick ratio we can conclude that Alwar unit not manages its ideal quick ratio 1:1.So we can say that Alwar units increase its liquidity ratio use all current sources in better productive sources. Therefore can be concluded that it does not has satisfactory liquidity position.

Structures ratio

Working capital investment ratio

The main asset structure ratio relevant to the study is working capital to total assets, cash, and inventory to working capital ratios.

Working capital to total asset ratio:  In Alwar units we also do research about different assets structure ratio with working capital. Units manage its composition of assets with working capital.  Asset structure ratios of ALWAR Dairy for the five years studied indicate that, on the average .9744 of current ratio. working capital to  average investment ratio is in Alwar units is 23.70 .This ratio indicate that  ALWAR units more use of its fund in fixed assets against current assets Profit earning This condition is good for future but also we can conclude that in current assets also do some investment that Alwar units make good condition in market. We also computed cash to working capital, total assets to current assets ratio.

Cash to working capital ratio was 2009 54% and then decrease in2010 23%.this situation is good for Alwar dairy because Alwar dairy use its 54 % and 23 % use of cash in working capital is also good for dairy .And 2011 increase ratio 32% this sign is also the signal of bad liquidity management. As profitability of ALWAR Dairy, was found suffering, so it can be concluded that increase in cash ratio component were affecting profitability.

Like total assets to current ratio is less than 15% all year this is indicate that Alwar dairy use its fund in fixed assets productive  sources. This is good for Alwar dairy because dairy use fund for futures profit earning activities.

BHILWARA MILK UNION 

 

Bhilwara Milk Union was registered under Rajasthan co-operative act 1965. It has a Dairy plant handling capacity 2.0 lakhs liters. Per day Bhilwara Milk Union is an ISO 9001:2008 & IS 15000 (HACCP) certified organization. This Milk Union is affiliated to Rajasthan Co-operative Dairy Federation Ltd., Jaipur.

 

Table of Bhilwara Milk Union Table No.5.3

Rs Cr.    

Year 2009 2010 2011 2012 2013
Current 

Assets

390898546.19 392650192.66 486988698.78 518174373.18 744810871.49
Current 

Liabilities

175699361.65 173327834.05 148534816.80 185961479.23 172575189.25
Working capital 215199184.54 219322358.61 33453881.985 332212893.95 572235682.24
Investment 5126146.00 5126146 5126146 5126146 9563647
Fixed 

Assets

71702277.00 68314103.20 70114010.44 72042066.41 83319855.41
Current Ratio 2.224 2.265 3.278 2.786 4.315
Total asset to current assets 1.183 1.17 1.143 1.93 1.111
Cash to wc 1.79 1.34 1.78 1.54 2.2
Investment to wc .023 .0233 .153 .0154 .0167
Quick Ratio 1.3 1.37 1.8 1.76 2.9

 

Sources of data collection are Annual report and balance sheet

 

 

 

Current ratio chart of bhilwara union 5.12

 

Quick ratio chart of bhilwara unit  5.13

 

 

 

 

Working capital chart of Bhilwara union  5.14

 

 

 

Investment to working capital chart of Bhilwara unit  5.15

 

 

 

Total assets to current assets chart of bhilwara unit  5.16

 

 

 

Cash to working capital chart of bhilwara unit  5.17

 

 

 

 

Chart of total assets and liabilities of Bhilwara unit   5.18

 

 

 

INTERPRETATION:

Bhilwara unit current ratio is 2009 is 2.224 ,2010  2.265 , and 2011 increase 3.278 but in 2012 again decrease 2.786 and again 2013 current ratio increase 4.315. Ratio in all the years in above standard ratio of 2:1 indicating  high liquidity position .But in 2011 and 2013 more liquidity comparison to idle working capital ratio 2:1 . This time company may be use their funds in other uses .As well as quick ratio is more than ideal ratio 1:1 of all year. This thing is not good for Bhilwara unit. Because we think if unit use of cash fund in productive sources that is beneficial for unit.

In Bhilwara unit total assets to current ratio is high all year that is indicating that unit invest its fund in current assets. This means unit have more fund invested in current assets for daily operation .As well as cash to working capital ratio is high all year this thing indicate that unit have more cash in hand for its daily transaction and other activities  As against investment to working capital ratio is very low . It means units have more cash in hand against invested in fixed assets or long term invested.

 

Jaipur union

 

Jaipur Union Registered March 1975. Plant commissioned June 1981 APS April 1984 Coverage Jaipur & Dausa Started with 25 DCS. Jaipur union affiliated to Rajasthan Co-Operative Dairy Federation Ltd., Jaipur Milk Union was registered under Rajasthan co-operative Societies Act 1965.

Table of Jaipur Union Table No. 5.4

Rs Cr.    

Year 2009 2010 2011 2012 2013
Current 

Assets

2922761070.11 1945070677.93 1338777625.79 1303953789.9 1282676526.78
Current 

Liabilities

887334965.55 885064670.18 1202512413.16 1202512413.16 1229287543.23
Working capital 2035426104.56 1060006007.75 136265212.63 101441376.74 53388983.55
Investment 600900000 600900000 600900000 600900000 600900000
Fixed 

Assets

125842469.29 130641296.41 151517167.02 219568509.89 246537658.29
Current 

Ratio

3.2938 2.197 1.113 1.084 1.0434
Total asset to current assets 1.043 1.067 1.1131 1.168 1.192
Quick ratio 2.3 1.8 .85 .78 .84
Investment to wc ratio .29 .56 4.4 5.9 11.25
Cash to wc 

ratio

1.36 .85 7.74 8.35 30.89

 

Sources of data collection are Annual report and balance sheet

 

Current ratio chart of jaipur union  5.19

 

 

 

 

 

 

 

 

 

 

Quick ratio chart of Jaipur unit  5.20

 

 

Chart of Total assets  and liabilities of jaipur unit   5.21

 

 

 

 

Investment to working capital chart 5.22

 


 

 

Total assets to current assets ratio chart  5.23

 


 

 

 

Cash to working capital ratio chart  5.24

 

 

 

INTERPRETATION:

Jaipur union in 2010 have idle working capital ratio 2.197 and in 2009 more cash liquidity this is not good for union. Union 2009 have 3.2938 ratio then next continues years decrease current ratio 2010 2.197, 2011 1.113, 2012 1.084, 2013 1.0434 in these years showing low liquidity position as it is below standard liquidity ratio. As same quick ratio is high in 2009 to ideal quick ratio 1:1. That year unit not proper use of fund in productive things. Or we can say that in 2009 unit have more cash in hand against daily operation activities. Then next year 2010 unit quick ratio little decrease but have more than its ideal ratio 1;1. Decrease Then next year in 2011 unit did proper use of its sources in productive things. But that year is we cannot good because that year unit have low quick ratio from its ideal ratio 1:1.

In Jaipur unit total assets to current ratio is high all year that is indicating that unit invest its fund in current assets. This means unit have more fund invested in current assets for daily operation. As well as cash to working capital ratio is high all year this thing indicate that unit have more cash in hand for its daily transaction and other activities .And in 2013 unit cash to working capital ratio is very high 30.89. And in 2010 year cash to working capital ratio is less then to all year .In 2010 unit has less cash in hand for daily operation. and invest in fixed assets for earning more profit .And in 2013 unit have more cash in hand for daily activities then invest  fixed assets .

UDAIPUR MILK UNION

 

Udaipur Milk Union is an ISO 9001:2008 & IS 15000 (HACCP) certified organization established in 1972 affiliated to Rajasthan Co-Operative Dairy Federation Ltd., Udaipur Milk Union was registered under Rajasthan co-operative Societies Act 1965. The Processing capacity of 60000 LPD is likely to be escalated to 1.5 lakhs LPD within a short span of time.

Table of Udaipur Milk Union Table no. 5.5

Rs Cr.    

Year 2009 2010 2011 2012 2013
Current 

Assets

71137694.35 99834489.71 92458795.58 187030375.05 140167667.90
Current 

Liabilities

55064716.67 60962551.47 66585133.10 74103934.26 65888444.21
Working capital 16072977.68 38871938.24 25873662.48 112926440.79 74279223.69
Investment 20728374.35 37128080.35 67173663.35 42062466.35 48090341.35
Fixed 

Assets

49972423.93 71477772.70 68251261.45 98989300.00 103995202.18
Current 

Ratio

3.2938 2.197 1.113 1.084 1.0434
Total asset to current assets 1.70 1.71 1.73 1.52 1.74
Quick ratio 2.4 1.3 .87 .76 .75
Investment to wc ratio 1.28 .95 .6656 .37 .64
Cash to wc 

Ratio

.83 .74 .76 .87 .95

 

Sources of data collection are Annual report and balance sheet

Current ratio chart of Udaipur union 5.25

 

 

 

 

 

 

Quick ratio chart of udaipur unit  5.26

 

 

 

 

 

Quick ratio chart of udaipur unit  5.26

Chart of total assets and liabilities of Udaipur unit 5.27

Total investment to working capital chart  5.28

 

 

 

 

Cash to working capital chart  5.29

 

 

Interpretation:

Udaipur union in  current  ratio  2011 1.113, 2012 1.084, and 2013 1.0434  these years  showing low liquidity position as it is below standard liquidity ratio 2:1.Then union sufficient  working capital ratio  in 2009  and 2010 union have sufficient working capital ratio 2:1. These conditions is better than next’s three years .Because union have liquidity for its current liabilities .In Udaipur unit year 2009 have more quick ratio compare to its ideal ratio 1:1. In 2009 Udaipur unit have quick ratio 2:4 this was very much excessive. In 2009 Udaipur unit not use of cash properly. Next year quick ratio decreases 2010 is 1.3,2011 .87 then next two year decreases .76 and .75.So we can say that unit have proper use of its fund but also we want to say that unit have proper cash in hand for daily activities . Because units faces liquidity positions.

Assets structure ratio in Udaipur units is average 1.70 %..And we can say that all year of our research total assets to current ratio is much that ratio showing that unit invest its fund in fixed assets for more profit generate.

Investment to working capital ratio is average that show except 2013. In 2013 ratio was .37 and show that this year Udaipur unit have less investment for generated working capital. As same cash to working capital ratio is all year more than 70% that show that Udaipur unit have more cash in hand for daily operation.

Conclusion

 

Table of Working capital  assessment of different union Table no. 5.6

Rs Cr.    

Year /Union 2009 2010 2011 2012 2013
AJMER 107923337.98 143390620.09 159327465.61 342635474.74 520965141.92
ALWAR 8035606.14 -54168423.98 -55155086.07 10889220.51 40971998.45
BHILWARA 215199184.54 219322358.61 33453881.985 332212893.95 572235682.24
JAIPUR 2035426104.56 1060006007.75 136265212.63 101441376.74 53388983.55
UDAIPUR 16072977.68 38871938.24 25873662.48 112926440.79 74279223.69

 

Sources of data collection are Annual report and balance sheet

 

 

 

 

 

Chart of  total working capital of five units 5.30

 

Comparative study of different union

In the present study of Working Capital management then we have studied various type of aspect of working capital management.

During the past decades, India holds a significant position and has undergone revolutionary changes in the profile of dairy industry. There have been considered improvement in formulating the method and technology of manufacturing the dairy product. In-spite of having a signifying role in the Indian economy, the dairy industry still faces some problems and challenges .More than 80% of the dairy occupation is still within the purview of unorganized sector. Working Capital management is an integral part of overall financial management. A firm may exist without making profits but cannot survive without liquidity. The function of working capital management organization is similar that of heart in a human body. The financial manager must determine the satisfactory level of working capital funds and also the optimum mix of current assets and current liabilities. Ajmer union has more working capital. This is not good for union .Because union more funds are unused this fund union for many other productive works. Ajmer union have very high liquidity and it is financed by creditors rather than own funds and carries a high long term debt exposure Alwar union have more liabilities to current assets. These shows low liquidity position as it is below standard liquidity ratio. Its time is not good for union. Alwar union have not idle ratio of working capital 2:1. So this condition is not good for union. Bhilwara union have good liquidity position but prefer financing from own financial sources rather than borrowed funds. This time company may be use their funds in other uses. Jaipur union in 2010 have idle working capital ratio 2.197 and in 2009 more cash liquidity this is not good for union. Then next continues years decrease current ratio in these years showing low liquidity position as it is below standard liquidity ratio Udaipur union in current ratio 2009 2010, 1nd 2011 these years showing low liquidity position as it is below standard liquidity ratio 2:1.Then union improve its working capital ratio so in 2012 and 2013 union have sufficient working capital ratio 2:1. This condition is better than last three years .Because union have liquidity for its current liabilities. So it can be concluded that Ajmer union have high liquidity position this is not good for union .Alwar union had high debt exposure and doesn’t maintain good liquidity which may be a dangerous trend. Bhilwara union have good liquidity position but prefer financing from own financial sources rather than borrowed funds.jaipur union will have improve its liquidity position Further Udaipur union now have improve its liquidity condition.

Short and long term aspects of financial management to be needed.

Short Term Sources of Working Capital Financing

This type of finance is required for a short period up to one year. It refers to fund needed to meet day-to-day requirements and for holding stocks of raw materials, spare parts, etc. to be used for current operations.

Short-term finance is often called working capital or short-term capital, or circulating capital. As soon as goods are sold and funds are recovered the amount is again used for current operations. Generally, speaking, production processes are completed within a year and goods are ready for sale.

Hence, short-term funds can be used over and over again from year to year. Trading firms normally require proportionately more of short-term capital than long-term capital. Manufacturing concerns, on the other hand, need relatively smaller amounts of short-term capital as compared to long-term capital. Again, if production time and the time gap between production and sale is shorter (say one or two months), it will require much less short term finance than if the time gap is one year. The volume or scale of business activity determines the amount of short-term finance. Thus, a small factory needs much less short term than a large manufacturing enterprise.

Factoring

Factoring is a financing method in which a business owner sells its accounts receivable at a discount to a third-person for funding source to raise capital. Factoring is the cash-management in many business. Factoring is very common, Factoring is not say a loan; factoring does not create a liability on the balance sheet. In other word we can say that

Factoring is a financial transaction  in which a business or a company sells its accounts receivableinvoices to a third person or party at a discount.  The  main use of factoring is to obtain the cash needed to accommodate a firm’s immediate cash needs .In short we can say that factoring is a traditional source of short term funding that manage in a business its short term need by sale its invoice to third party.

Installment Credit

In simple way we can say a loan repaid with interest in equal periodic payments called installment credit. Installment credit says in other word Installment Plan, or Hire-purchase Plan. These loans are generally secured by the item purchased or by personal .

Income received in advance

In a business many condition and situation business get money received in advance. This money or income not correlated to current year. But next year or coming years. So a company or business man this money for use its cash flow condition and maintain working capital .This is good for company because business get income without giving any interest or money.

Advances received from customers

In business many time business get money from customers in advances for future deliver the product or services. This money a business will be used for working capital management.

Bank Overdraft

Use bank overdraft  facility a business maintain its working capital and cash balance .In bank overdraft  a person or business man is able to spend more than in their bank account. The overdraft will be limited.  We can say that a bank overdraft is also like a loan as the money is technically borrowed and maintain cash flow.

Commercial Papers

Commercial paper is also source of short-term credit, an unsecured promissory note called commercial papers. Well-established firms’ promissory notes sold generally to other businesses. Commercial paper issued by large corporation to give money for short term. Commercial paper is issued for very short periods from two days 270 days. Commercial papers is a money-market security

Trade credit

All business and firm mainly purchase its supplies and materials on credit from other firms, and this is convert debt as an account payable. And this type purchasing called trade credit. Trade credit is the also sources of short-term credit. Credit terms are usually showed with a discount for prompt payment. Thus, the seller sees that if payment is made within 10 days of the purchase date, cash discount will be allowed. If the cash discount is not taken, payment is due 30 days after the date of invoice. The cost of not taking cash discounts is the price of the credit.

Letter of Credit

A letter of credit is a form given by bank for guaranteeing that a buyer’s payment to a seller. In this from bank take guarantee of buyer. In the event that the buyer is unable to make payment on the purchase, the bank will be cover the full or remaining amount of the purchase. So this sources seller satisfied with its selling to buyer. That buyer not pay the amount bank will pay the amount .
Long Term Sources of Working Capital Financing

 

Short-term funds is always not sufficient for manage its working capital needs especially are big level . So these type business need their working capital for a long time, then they decide to fulfill their need with take long term loan.

Long-Term Loan from a Bank:

Most business and companies take long term loan from a bank that type loan meet all their working capital needs for two, three or more years.

Retain Profits:

With retain profit a business maintain its working capital. A business use it’s retain earning for dividend payments to shareholders or investing in new ventures, so if a business use of retain profits for working capital. This way  if a business use they do not have to take loans, pay interest, or any losses on discounted bills, and they maintain in business  sufficient working capital with retain profit.

Issue Equities and Debentures:

In many situation  when the business is suffering of short of funds, or when the business is investing in a large-level ,then business might decide to issue equity stock and debentures to the general public .Of course, this will be done only rare cases when there is a need for a huge quantum of funds.

Companies cannot depend only on limited sources for their working capital needs. They need to different way for working capital.

Challenges and problems arising out of the working of financial management

In all business have faces many problem and challenges for running its business. Most problems are related to short term like working capital, cash, uncertainties, labor problem, recession etc. If a business have sufficient working capital then easily maintain its short term problems and challenges With sufficient working capital business run smoothly run and have capacity to fight and problems. Some problems and challenges have faces mostly business like……

Working Capital Financing

After determining the level of working capital, a company has to decide how it is to be financed. The need for financing arises, because the investment in working capital/current assets, raw materials, and work/stock in process, finished goods and receivables typically fluctuate during the year. Although long-term fund partly finance current assets and provide the margin money for working capital. Such assets/working capital is virtually exclusively supported by short-term sources or in other words we can say that Working capital finance is defined as the capital of a business that is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities. For many companies, this is wholly comprised of trade debtors (that is, bills outstanding) and trade creditors.

Some business knows that working capital management is a strategic tool. But some mistakes make when establishing working capital improvement programs:

1.    Top management   think that only t he CFO and top management solve the  problems  of working capital management .Many times employee and other persons give the best solution of working capital management. Working capital manages with better management and better coordination of workers, employee and management. In business production and operating cycle is better than a working capital is proper in business.

2.  If business do credit sales and cash purchase and delay in cash from customer that time business faces working capital. If business does credit sales that is no big matter but collection by customer within 10- 20 days or very short time that condition business no faces the problem of working capital.

3 . If business faces problems that time if business waiting for a business recovery before trying to improve working capital processes that condition is very big problems. Top management will to try for faces all condition

4    Management think that ERP systems is always good not want to improve ERP system according to situation that time business face working capital management.

5. Business failing to connect suppliers and customers throughout the according business condition. Management faces problem if suppliers give less time for payment and customer wants credit sales that condition management face working capital.

6   Management tries to maintain proper inventories with improving the overall supply chain process. Management have not have more stock of raw material if business have keep more stock that time business most of cash are use in maintain stock and handling cost.

A business man needs to ensure that the steps taken today don’t create additional problems for the future. Effective leadership and management will help in a business   make strong and make strength for live in market long time and then business will grow in the future. Working capital is a simple concept because it’s all about freeing up the company’s cash. Unfortunately, many organizations face serious internal challenges that can interfere with their ability to do so some others problems are ………….

Failing to connect suppliers and customers throughout the enterprise to gain significant benefits for all companies involved.

Delaying payments to suppliers

Past due receivables are increasing.

Customers are paying short, due to quality issues

Detailed information on inventory not available .so company not get benefit of better purchase like discount ,less price ,better quality etc.

Inventory management and turnover problems

Interest incurred or late payment penalties from vendors

Over  purchasing. Then most of the cash are use in purchase goods.

Working capital management in RCDF units

If a firm can effectively manage and design its purchasing and sales policies, it would have proper manage its working capital management. Because firm

Direct effect of credit purchasing and payment as well as credit selling and collection policies has. A policy of collection and payment may have effect on cash flow cycle. In the management of the activities of cash payment, the firm has to slow-down cash payments and pay debts as late as it is reliable for business with maintaining its credit standing with suppliers so that it can make the most efficient use of the money it. In a business the management has control of the all cash activities and cash receipt, the firm has to speed-up and control cash collection. A firm has to speed-up the collection of sales so that it earns income and uses the money for better transaction like for better investment or pay in bills and save future expenses. A management have a purposes of managing working capital internally refers only to the levels and operations, which are directly, connected with the firms external linkages to its suppliers and customers.

Research methodology

 

The research methodology of the analysis is based on the review of financial indicators internationally accepted and used in connection with working capital management

In our research correctly suits of qualitative approach  with the used for studying the working capital assessment of RCDF Ltd. Our study has basically focused on the descriptive and explanatory research. In our study we use deeply examine of working capital internally and externally. We can see that internally, study relates to the value creating characteristics of working capital.  And in externally are come

Business to business cooperation is assessed. After that, decide is what working capital approaches – internally and externally  RCDF units  firms use.  We can make a comparison in RCDF five units. In our study we take data collection, data analysis and criteria used to ensure the credibility of the findings. We take both the qualitative and quantitative data analysis is used. WCM approach requires using the qualitative data analysis, to essences of people, objects and situations and is expressed in terms of words based on observations, interviews and documents. And quantitative data analysis refers to the evaluation of working capital decisions using financial performance ratios.  In our research annual report interviews and questionnaire are use for data collection interviews are conducted with the respondents (managers of dairy units and customer).  Questionnaires are also personally administered and collected from the dairy ‘ managers. In our research we take financial statements of the dairy units and RCDF ltd. last five years (2010 to 2014) are collected and are used in this research.  Questions were referred on overall working capital management to the dairy general managers, questions on levels of investment in current assets and short-term financing to financial managers.

Working Capital Management – Internally

 

In this topic we take  working capital management – internally of RCDF five units AJMER,ALWAR,BHILWARA,JAIPUR AND UDAIPUR. How these five units manage its finance ,operations of purchasing and selling activities.

Managing Working Capital Investments

In this section, we   discus  is on the manager’s responses to questions on how the  RCDF Five units manages working capital investments of cash, receivables and inventories. The main aim of the we want to know how RCDF Five units  applies value-creating methods of managing working capital levels of invest

Cash management

Motives for holding cash:   we ask to RCDF units  financial manager,  what is the purpose of cash holding they told that main purpose of cash holding in the units are transaction purposes – to make  units regular predetermined payments because units supplier are farmers  and villagers and they have need of money. The firm rarely keeps any cash for making for unforeseen transactions . and it does not keep cash opportunity(speculative purpose) to pay or as a guarantee for bank loans

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Cash budgeting and control: 

In all business make cash budget for future best planning. As same RCDF Units also make cash budgets mainly to plan for short and long-term cash needs to control liquidity, cash payments and receipts. Cash budget are make with past experience, opinion of the management and forecasted sales levels. RCDF units make cash flow statements with the receipts and disbursements method, which it uses for units improve its future cash forecasts as well as to control cash payments and receipts.

Management of Inventory

Management of finished goods inventory:

saras dairy Produce varieties of product – Dahi, Butter,, Cheese, Ghee Milk, Flavored Milk  & Lassi.  So in Saras dairy the production process takes only one day, so there is no work-in-process in Saras dairy. The cost of holding, of finished goods inventory, includes mainly the opportunity cost of capital, cost of physical deterioration and handling.  In Saras dairy financial managers told that Saras dairy using just in time method use try minimizes finished goods holding and ordering costs .establish long term customer relations, and making customer pay the costs.  Ordering costs are minimized by making a contract agreement only once, where customers indicate the supply of products that they want on a daily basis. Saras   uses the average cost approach to determine the cost and value of cost of goods sold and remaining in inventory.

Material inventory managementAccording to our study we find that in Saras dairy Main raw materials is milk , sugar, and plastic bags for those product packing .saras dairy financial manager told that main aim of dairy is reduce the material cost with reduce ordering and holding cost .and also keep in mind that production is have in running. Saras dairy   minimizes materials holding and ordering costs using the “just-in-time” approach of inventory management and tries to keep only the minimum required. Ordering costs are minimized by making a contract agreement only once.

Saras dairy  policies and constraintsAccording to the our study we find that in saras dairy is a co-operative firm and its main aim to customer satisfaction with good brand loyalty. Saras dairy main raw materials are milk.  Saras dairy purchase its raw material is from village farmers. And according Saras dairy financial manager, the main objectives of working capital management is the increase of sales, with the customer satisfaction and also try to decrease of costs. And financial manager try to proper management of cash for smooth running business .The Saras dairy manages its daily cash circulation with manage its purchasing and sales policies. In Saras dairy buys its materials on credit and sells its goods to customers on a monthly credit basis and uses these funds in working capital investments and daily activities. Saras dairy pays its suppliers and collects from customers in the first 15-30 days following the months of purchases and sales. It does not keep raw materials and finished goods inventory in the store because production starts immediately when the materials are received and the sales is directly after production. However, price levels of inputs, availability of credit and operating efficiency do not influence the levels of working capital. And production capacity and markets are not problems.

Role of working capital management in value creation:Financial managers of all the five units of RCDF Ltd. believe that working capital management has an important role in value creation. The   RCDF UNITS managers’ response that working capital management is important for the purpose of increasing sales  and for this is possible when management do proper managing  of cash, trade receivables, inventory, trade payable, sales of finished goods and purchase of materials.  And also necessary that working capital management can be used to decrease costs by managing proper purchase of materials, inventory, cash and receivables.

Management of Receivables

Credit policy and management of receivables:  In saras Dairy make a policy for its selling and purchasing. saras dairy  sells to larger customers on the basis of a monthly credit and these customers generally pay within the first 15 -30 days of the month after sales. However, the financial manager believes that the firm does not have problem of managing receivables. Customers who order large daily purchases are preferred for credit sales .In saras dairy sales its product mostly saras booth and small saras dairy booth.  Saras dairy prefer the cash sales to smaller dairy booth & private agencies while the credit sales refer to larger private and all government   booth.  In order to collect overdue receivables they all send reminder, make telephone calls and extend credit periods, and none of them employs collection agents or takes legal action. However, the risk of bad debt is very low and none of them makes allowances for it.

Sources, costs and influences of working capital financing:  

 In all RCDF UNITS uses the cash earned from operations and deposited in its bank’s current account as a source of working capital financing. We can see in balance sheet that cash balance is not excessive, but enough to pay for the working capital needs. RCDF have option to give all units that they all use of retained earnings, bank overdraft, trade creditors, and accruals as sources of financing its working capital investments.

Performance Evaluation of Working Capital Investment

 

Working capital investment compositionIn this topic we find that in RCDF five units what is investment composition. So this related we do research of take the data RCDF five units and find asset structure ratios. In this we find RCDF five units cash to working capital ratio, total assets to current assets ratio, investment to working capitals ratio .and  liquidity ratio current and quick ratio.

An organization’s working capital management improvement program should include

Basically working capital depends on four main factors. These are:

  1. Cash
  2. Accounts Receivable
  3. Inventories
  4. Accounts Payable

All business depend on upper factors .these factors creates a cycles and those cycles effects on availability of cash in business. So  Most business have a problem in one of these areas. These factors most affect how a company can operate and these factors decide the level of working capital.. There are many reasons in a business will have working capital problems.

To avoid problems in working capital, the business owner should spend time carefully looking at what is going on in the business at this level. At the end of every month, a “financial dashboard” should be prepared for the business owner that gives him/her the vital statistics in the areas needed to monitor working capital. For instance, each month a report should be produced showing information such as aged receivables, receivable days, inventory levels by category, inventory turnover, and days in payables. These statistics should be looked at and compared month by month to determine if the problem is getting better or worse. Action should be taken immediately when the numbers show a trend that will be bad for the company.

Monitoring working capital is not a difficult thing to do. A simple report put together every month will focus management in the right areas, and help to move the business into better times. Business owners monitor their working capital by putting together simple, easy to understand reports that get to the heart of the matter. Tackle this problem early, and working capital will not be a problem.

How face So we think in all business have keep in mind some point for face of shortage working capital and them.

Keeping up with the market

  • Market research isn’t not enough when new business is establishment. Business conditions change continually, so our market research should be continuous as well as production process cycle run.. Otherwise a business man faces the risk of making business decisions. All decision is taken on out-of-date information, which can lead to business failure.
  • At the same time, a business man needs to invest in innovation to build a stream of new, profitable products. All things depend on market and market survey for to find of new customer. And also necessary to find answer of question customer are satisfied or not.
  • In a business suppliers and other business partners can be important sources of market information.  A business man wants to carry out extra research as well – for example, to test customer reaction to a new product.

Planning ahead

  • Market conditions continually change, so in a business a management a responsibility to revisit and update regularly business plan.
  • As your business grows, your strategy needs to evolve to suit your changed circumstances; every business needs to be alert to new opportunities.
  • New ideas suit for make in all business strengths and overall vision of where the business is going. Bear in mind that every new development brings with it changing risks.

Cash flow and financial management

  • Good cash flow control is important for any business.Making the best use of business resources should be a key element in business planning and assessing new opportunities. Every element of working capital should be carefully managed. Effective credit management and tight control of overdue debts are essential. Planning ahead helps in a business anticipate financing needs and arrange suitable funding.

 

Problem solving

  • Every day in all business brings new challenges and obstacles come. That urgently need resolving and management spends most of their time troubleshooting.
  • .As a business grows, management also needs to be alert to new problems and priorities. Identifying the key drivers of growth is a good way of understanding what to priorities in business. A good management deal all problems and obstacle and take good decision for business. Then in future business grow without problems and make a goodwill of business in market..
  • And management develops a systems and structures that make it easier to handle problems in the future.

The right systems

  • Responsibilities and tasks can be delegated as business grows, but without solid management information systems management cannot manage effectively.  As a business grows different functions work together effectively with Putting the right infrastructure in place is an essential part of helping for business to grow.
  • Documentation, policies and procedures also become increasingly important in a business. Investing in the right systems is an investment that will pay off both short and long term.

Skills and attitudes

  • All business success depends on a Entrepreneurs and entrepreneurs are the driving force behind creating and growing new businesse.To grow for a business need to learn to delegate properly, trusting on management team and giving up day-to-day control of every detail. A management delegate responsibility for particular areas to different specialists. All business growth depends on good management skills and attitudes.

Welcoming change

  • An up-to-date plan helps  identify what action a business man  need to take to change in a  business and the way it operates,:
  • Training and developing employees.
  • Making sure that keeps up to date with new technologies.

Cash management culture

  •  With best training and experience, we can provide the leadership needed to build a cash management culture that includes a formal working capital strategy, appropriate drivers and metrics, and clearly communicated policies across the organization.
  •  An organization can help drive working capital improvements, such as managing inventory more efficiently, embedding specific working capital metrics in forecasting, and improving the management of accounts receivable and accounts payable.
  • There should be company-wide incentives that foster management focus and change, as well as real links to business performance and overall compensation. We should also have the flexibility to adjust for external factors that may adversely affect working capital, such as changes in the global economy, the limited availability of financing resources, and suppliers who are unable to meet company needs because of their own internal capacity challenges.

 

Cross-functional approach

  •  Cash flow management is a cross-functional organizational concern. To gain an enterprise-wide view of cash management, it’s important to track sources and uses of cash by both type and location. It also means engaging the sales, procurement, and operations functions in a meaningful way.
  • Companies that use a cross-functional approach to working capital management don’t wait for problems to occur; they anticipate them and, when necessary, make quick adjustments. By analyzing each component of working capital along the value chain and streamlining key processes, organizations can identify and remove the obstacles that slow cash flow.
  • Too much working capital usually means that too much money is tied up in accounts receivable and inventory. The typical knee-jerk reaction to this problem is to aggressively collect receivables, suppress payments to suppliers, and cut inventory across the boar.
  • A more effective approach is to reassess and refine key processes across the value chain, processes that can lead to significant reductions in working capital. Companies must analyze the entire value chain from product design to manufacturing, sales, and customer service to identify hidden interdependencies and maximize savings. The key is to uncover the underlying causes of excess working capital across the entire value chain. By refining end-to-end processes, companies can reduce buffer stock, decrease restock times from internal and external suppliers, and improve cash collection and payment cycles .Best practices in working capital management that include new processes, expertise, and supporting technology work together to reduce working capital requirements across the three primary drivers of inventory, accounts payable, and accounts receivable. Companies need to manage all three simultaneously across the value chain to free up cash to fund strategic investments while delivering improved results to shareholders. It’s actually a rather simple formula: Strong disciplines in working capital management lead to strong disciplines in operations, which lead to significant gains in resource productivity and profits.

Impact on customers, suppliers, and partners

  • Companies must look for ways to simplify processes and eliminate costs, keeping in mind how these changes may affect other areas in the value chain. Improving working capital management can affect customers, suppliers, and partners. For instance, lowering the level of spare repair parts or reducing product customization could lead to a major reduction in inventory. But how would these measures affect service quality, marketing strategies, or other aspects of the business?
  • Building strong, transparent relationships with customers and suppliers is the key to flexible working capital policies that are mutually beneficial and that can be adapted to business cycles. Having strong external relationships means a company has room to negotiate new agreements with customers or suppliers that are mutually beneficial to everyone.

Measuring and monitoring

Many companies don’t systematically track or report granular data on working capital. This is a challenge because getting data from multiple legacy systems into a consistent and usable format can be tedious and time-consuming, making it difficult to execute strategy on an ongoing basis.



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