The study was conducted at FOOD CORPORATION OF INDIA popularly known as FCI set up on 14 January 1965 having its first District Office at Thanjavur – rice bowl of Tamil Nadu – and headquarters at Chennai under the under the Food Corporations Act 1964 to implement the following objectives of the National Food Policy : 1. Effective price support operations for safeguarding the interests of the farmers 2. Distribution of food grains throughout the country for Public Distribution System 3. Maintaining satisfactory level of operational and buffer stocks of food grains to ensure National Food Security 4.
Regulate market price to provide food grains to consumers at a reliable price It is one of the largest corporations in India and probably the largest supply chain management in Asia. It operates through 5 zonal offices and 26 regional offices. Each year, the Food Corporation of India purchases roughly 15-20 per cent of India’s wheat output and 12-15 per cent of its rice output. The purchases are made from the farmers at the rates declared by the Govt. of India. This rate is called as MSP (Minimum support Price).
There is no limit for procurement in terms of volume; any quantity can be procured by FCI provided the stock satisfies FAQ (Fair Average Quality) specifications with respect to FCI. OBJECTIVE In its 45 years of service to the nation, FCI has played a significant role in India’s success in transforming the crisis management oriented food security into a stable security system. FCI’s Objectives are: * To provide farmers remunerative prices * To make food grains available at reasonable prices, particularly to vulnerable section of the society * To maintain buffer stocks as measure f Food Security * To intervene in market for price stabilization HIGHLIGHTS 1. There is an increase of 9% in overall movement of food grains during 2012-13 till December, 2012 compared to previous year i. e. 2011-12 till December, 2011. Food- Grains| April’12-Dec’12| April’11-Dec’11| Percentage Increase| | 284. 07| 260. 92| 9. 00 %| 2. Also, FCI has successfully implemented the pilot Riverine Movement of 3000 MTs each of food grains to Northern Assam and Arunchal Pradesh, to assess the feasibility of supplementing existing transportation modes to these sensitive parts of North East Zone.
MISSION * Fulfillment of all the targets set as per Govt. of India Food Policy from time to time. * Monitoring of Quality in all major transactions, processes leading to improved customer satisfaction level * Accountability for efficiency, responsiveness, performance and minimization of all losses & wastes * Need based up-gradation of infrastructure and work environment * Need based enhancement of available knowledge & skills * Transparency in decision making, effective communication leading to harmonious employee relations
STATEMENT OF THE PROBLEM Every business enterprise functions with a view to earn profits. Profits are vital for a concern in order to sustain and ensure a long life. Here in this project an attempt is made to evaluate the profitability of FCI. The project aims to find out the financial efficiency and weakness of the concern and to draw inference about the present position of the company. OBJECTIVES 1. To study the financial position of FCI and to evaluate the progress for a period of 5 years. 2.
To determine the solvency (both long term and short term) of the company. 3. To know the financial efficiency and weakness of the concern. 4. To draw inference about the present position of the company. 5. To make suggestive comments about the performance of the company. SIGNIFICANCE OF THE STUDY Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is essential to maintain the smooth running of business.
No business can run successfully without an adequate amount of working capital. On one hand, inadequacy of working capital pose a danger to the short term liquidity and solvency position of the business and on the other hand excess working capital leads to blockage of firm’s funds in current assets, which reduced the profitability of the organization. Thus there is a need to maintain a trade-off between the above aspects (i. e. liquidity, solvency and profitability aspects) so that the short term funds of the corporation can be utilized in most effective manner.
Keeping the above in mind, the present study analyzed the various aspects of working capital management of Food Corporation of India and pin-points on weak areas and suggests corrective action to manage the working capital effectively. The study is useful for the different stakeholders in understanding the working capital position of the corporation. The study would also help the future researcher for their research in the organization. REVIEW OF LITERATURE Business as we know is concerned with the financial activities.
In order to ascertain the financial status of the business every enterprise prepares certain statements, known as the financial statements. Financial statements refer to two statements which are prepared by a business concern at the end of the year. These are (i) income statement or trading and Profit and Loss Account which is prepared by a business concern in order to know the profit earned and loss sustained during a specified period; (ii) position statement or balance sheet which is prepared by a business concern on a particular date in order to know its financial position. . Income statement: trading concerns, whose financial activities are restricted to purchases and sales of goods prepare trading and Profit and Loss Account. The trading and Profit and Loss Account in order to ascertain their net income/net loss. Manufacturing concern requires information regarding the cost of production also, so they prepare one more additional Account, known as the manufacturing Account. In case of Joint Stock Companies profit and loss appropriation is also prepared to show the disposal of profit earned by the company.
It furnishes the information regarding purchases, sales, direct expenses, gross profit or gross loss and net profit and net loss. 2. Position statement: it is a mirror which reflects the true position of the assets and liabilities of the business on a particular date. Assets include all current and non-current assets and the liabilities include creditors equities and proprietors’ equities. It is traditionally known as the balance sheet.
Financial analysis Financial analysis is the systematic numerical calculation of the relationship of one financial fact with the other to measure the profitability, operational efficiency, solvency and the growth potential of the business. The analysis serves the interests of shareholders, debenture-holders, potential investors, creditors, bankers, journalists, legislators, politicians, researchers, stock exchanges, taxations authorities and economists.
The analysis of financial statements makes it simple, intelligible, and meaningful for all concerned parties. Financial statements are split into simple statements by the process of rearranging, regrouping and calculations of various ratios. The analysis simplifies, summarizes and systematizes the monotonous figures. Financial analysis in this way is the purposeful and systematic presentation of financial statements. Various items of income and position statements are compared and their inter relationship is established.
According to Kennedy and Memullar “ The analysis and interpretation of financial statements are an attempt to determine the significance and meaning of financial statements data, so that a forecast may be made of the prospects for future earning, ability to pay interest and debt maturities( both current and long term) and profitability of sound dividend policy. To these statements added are the statement of retained earnings and some other statements (as fund flow statement, cash flow statement, etc. ) and schedules of fixed assets (as investments, current assets etc) to give a full view of the financial affairs.
All these statements are collectively called as a package of financial statements. Statement of retained earnings (when prepared separately) or profit and loss appropriation Account shows the utilization of profits of the company i. e. , dividend declared, amount transferred to general reserve or any other reserve are shown in this Account. Funds flow statement summarises the changes in working capital in a specified period and indicates the various sources and applications of funds. Cash flow statement gives the various items of inflow and outflow of cash.
Various schedules of fixed assets are prepared by companies to show as to how the figures shown in the balance sheet have been arrived at. TOOLS USED FOR THE ANALYSIS OF FINANCIAL STATEMENTS 1. Comparative financial statements 2. Common size statements 3. Trend analysis 4. Funds flow statement 5. Cash flow statement 6. Ratio analysis 7. Cost profit volume analysis COMPARATIVE FINANCIAL STATEMENTS In the words of FLAUKE “Comparative analysis is the study of trend of the same items and computed from two or more financial statements of the same business enterprise on different dates. The comparative financial statements are statements of the financial position at different periods of time. The elements of financial position are shown in a comparative form so as to give an idea of financial position at two or more periods. Any statement prepared in a comparative form will be covered in comparative statements. The two comparative statements are 1. Comparative balance sheet 2. Comparative income statement * Comparative balance sheet
The comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of the business. The changes can be observed by comparison of the balance sheet at the beginning and at the end of a period and these changes can help in forming an opinion about the progress of an enterprise. * Comparative income statement The income statement gives the result of the operations of a business.
The comparative income statement gives an idea of the progress of a business over a period of time. The changes in absolute data in money values and percentages can be determined to analysed the profitability of the business. COMMON SIZE STATEMENT The common size statements, balance sheet and income statement, are shown as analytical percentages. The common size statements may be prepared in the following way: 1. The total assets or liabilities are taken as 100 2. The individual assets are expressed as a percentage of total assets, i. e. 100 and different liabilities are calculated in relation to total liabilities * Common size balance sheet A statement in which balance sheet items are expressed as the ratio of each asset to total assets and in the ratio of each liability is expressed as a ratio of each asset to total liabilities is called common size balance sheet. * Common size income statement The items in income statement are shown as percentages of sales to show the relation of each item to sales. This relationship is helpful in evaluating operational activities of the enterprise. TREND ANALYSIS
The financial statements may be analyzed by computing trends of series of information. The information for a number of years is taken up and one year, generally in the first year, is taken as a base year. The figures of the base year are taken as 100 and trend ratios for the other years are calculated on the basis of base year. The analyst is able to see the trend figures, whether upward or downward. RATIO ANALYSIS Systematized, simplified and summarized presentation of the information from financial statements in the form of ratios is termed as ratio analysis. CASH FLOW STATEMENT
It is a statement of changes in the short term financial position of the business due to inflow and outflow of cash. FUND FLOW STATEMENT The fund flow statement is a statement which shows the movement of funds and is a report of the financial operations of the business undertaking. It indicates various means by which funds were obtained during a particular period and the ways in which these funds were employed. RESEARCH METHODOLOGY NATURE OF RESEARCH: – The research is of analytical as well as descriptive in nature, where the problem has been analyzed with help of financial information available with the corporation.
DATA COLLECTION & DATA SOURCE: – Due to the nature of study, study is primarily based on the secondary data. The secondary data is collected through annexure, schedules, other pertinent details from various sources in the corporation and references books. Annual reports and records of the corporation have been used for the purpose of study. SCOPE OF THE STUDY The study basically aims to find out the financial performance of FCI. The study also looks at the feedbacks, which can be used efficiently to improve the quality of the service.
It helps the organization to make decisions regarding the control of the debts and creditors and also regarding the fund utilization of the firm. PERIOD OF STUDY The period of study is limited to 4 financial years starting from 2008-2009 to 2011-2012. LIMITATIONS OF THE STUDY Utmost care has been taken with regard to the collection, classification and still it is subject to the following limitations. 1. The study is mainly based on published secondary data. 2. The effectiveness of the study depends on the correctness of the information provided. 3. The study covers only a limited period of 5 years. . Time available for the study is limited. CHAPTER II PROFILE INDUSTRY PROFILE INDIAN AGRICULTURE INDUSTRY INTRODUCTION Agriculture is the dominant sector of Indian economy, which determines the growth and sustainability. About 65 per cent of the population still relies on agriculture for employment and livelihood. India is the first in the world in the production of milk, pulses, jute and jute-like fibers; second in rice, wheat, sugarcane, groundnut, vegetables, fruits and cotton production; and is a leading producer of spices and plantation crops as well as livestock, fisheries and poultry.
India ranked within the world’s five largest producers of over 80? % of agricultural produce items, including many cash crops such as coffee and cotton, in 2010. India is also one of the world’s five largest producers of livestock and poultry meat, with one of the fastest growth rates, as of 2011. In fiscal year ending June 2011, with a normal monsoon season, Indian agriculture accomplished an all-time record production of 85. 9 million tonnes of wheat, a 6. 4? % increase from a year earlier. Rice output in India also hit a new record at 95. 3 million tonnes, a 7? % increase from the year earlier.
Lentils and many other food staples production also increased year over year. Indian farmers thus produced about 71 kilograms of wheat and 80 kilograms of rice for every member of Indian population in 2011. The per capita supply of rice every year in India is now higher than the per capita consumption of rice every year in Japan. India exported around 2 million metric tonnes of wheat and 2. 1 million metric tonnes of rice in 2011 to Africa, Nepal, Bangladesh and other regions around the world. In the past few years, Indian agriculture has done remarkably well in terms of output growth.
The 11th Five Year Plan (2007-12) witnessed an average annual growth of 3. 6 per cent in the gross domestic product (GDP) from agriculture and allied sector. The growth target for agriculture in the 12th Five Year Plan is estimated to be 4 per cent. Indian agriculture is benefitting huge from rising external demand and the sector’s wider participation in the global economy. In order to boost investments in the sector, the Government of India has allowed 100 per cent foreign direct investment (FDI) under automatic route in storage and warehousing including cold storages.
The government has also allowed 100 per cent FDI under the automatic route for the development of seeds. Department of Agriculture and Cooperation under the Ministry of Agriculture is the nodal organization responsible for development of the agriculture sector in India. The organization is responsible for formulation and implementation of national policies and programmes aimed at achieving rapid agricultural growth through optimum utilization of land, water, soil and plant resources of the country. MARKET DYNAMICS
Backed by policy impetus by the Government of India, the country ranks 10th in global agricultural and food exports, as per Economic Survey 2012-13. Agriculture accounts for about 10 per cent of the total export earnings and provides raw material to a large number of industries. “Exports of agricultural products are expected to cross US$ 22 billion mark by 2014 and account for 5 per cent of the world’s agriculture exports,” according to the Agricultural and Processed Food Products Export Development Authority (APEDA).
Total exports of Indian agro and processed food products from April 2012 to February 2013 stood at Rs 11,254,275. 51 lakh (US$ 20. 74 billion) as compared to Rs 7,186,784. 33 lakh (US$ 13. 24 billion) during the same period last year, according to the data provided by APEDA. As of March 1, 2013, India has wheat stocks of around 27. 1 million tonnes (MT), as against a requirement of mere 7 MT, while total food grains stocks in the central pool (including rice) is estimated to be almost 63 MT, as against a requirement of 21. MT. Wheat exports from India are expected to grow by 23 per cent to 8 MT in the financial year 2013-14, on the back of strong global prices and surplus domestic supply. Exports of rice are also expected to cross 10 MT from 7. 3 MT during previous year due to robust demand from West Asia, Africa and South-East Asian countries. MAJOR DEVELOPMENTS AND INVESTMENTS The total planned expenditure for the Ministry of Agriculture has increased considerably to Rs 27,049 crore (US$ 4. 98 billion) in the Union Budget 2013-14.
The outlay is 22 per cent over the revised estimates of the year 2012-13. Further, the amount of Rs 1,000 crore (US$ 184. 32 million) has been allocated to continue support to the new green revolution in Eastern States like Assam, Bihar, Chhattisgarh and West Bengal to increase the rice production. An outlay of Rs 500 crore (US$ 92. 17 million) is also proposed for starting a programme of crop diversification that would promote technological innovation and encourage farmers to choose crop alternatives in the original green revolution States.
Under the Rashtriya Krishi Vikas Yojana, an outlay of Rs 9954 crore (US$ 1. 83 billion) and Rs 2250 crore (US$ 414. 64 million) have been proposed for mobilizing higher investment in agriculture and the National Food Security Mission respectively. A memorandum of understanding (MoU) has been signed between Indian Council of Agricultural Research (ICAR) and Ramakrishna Mission Vivekananda University (RKMVU) for establishment of 632nd Krishi Vigyan Kendra (KVK) in South 24 Parganas district, West Bengal.
The ICAR and the World Bank have been implementing a joint National Agricultural Innovation Project (NAIP) in the country to accelerate the collaborative development and application of agricultural innovations. Till date, an amount of Rs 727. 93 crore (US$ 134. 13 million) has been released by the World Bank for the project. The Chennai based Indian Overseas Bank (IOB) keeping its thrust on agricultural lending under priority sector area has proposed to open 15 special agricultural credit branches in Karnataka and Maharashtra.
The bank intends to lend about Rs 500 crore (US$ 92. 17 million) through these branches. GOVERNMENT INITIATIVES Some of the major initiatives taken by the Government of India are: * The Union cabinet has approved the proposal of the department of agricultural research and education under the Ministry of Agriculture for the establishment of the National Institute of Biotic Stress Management (NIBSM) at Raipur, Chhattisgarh during the 12th Five Year Plan at an estimated cost of Rs 121. 10 crore (US$ 22. 31 million).
The institute will address the impact of biotic stress and harness potentials of emerging tools of biotechnology in agriculture * To provide relief to small and marginal farmers especially in drought prone and ecologically-stressed regions, the allocation for the Integrated Watershed Programme has been increased to Rs 5387 crore (US$ 992. 79 million) from Rs 3050 crore (US$ 562. 12 million) * The National Livestock Mission will be launched in 2013-14 to attract investment and to enhance productivity of livestock, taking into account local agro-climatic conditions.
Rs 307 crore (US$ 56. 58 million) have been provided for the Mission * In addition, Government has substantially improved the availability of farm credit and increased minimum Support Price to improve investment in the farm sector. The annual agriculture credit target for the financial year 2013-14 has been fixed at Rs 7,00,000 crore (US$ 128. 98 billion) against the target of Rs 5,75,000 crore (US$ 105. 95 billion) in 2012-13 * The Government of India plans to set up a Regional Rural Bank (RRB) Credit Refinance Fund with a capital of US$ 2. billion to disburse short term crop loans to small and marginal farmers INDIAN AGRICULTURE AT A GLANCE IN 2012-13 The total planned expenditure for the Department of Agriculture and Cooperation in India has increased by 18 per cent from Rs 17,123 crore (US$ 3. 18 billion) in 2011-12 to Rs 20,208 crore (US$ 3. 75 billion) in 2012-13. The outlay for Rashtriya Krishi Vikas Yojana (RKVY) was being increased from Rs 7,860 crore (US$ 1. 46 billion) in 2011-12 to Rs 9,217 crore (US$ 1. 71 billion) in 2012-13.
Further, an amount of Rs 1,000 crore (US$ 185. 53 million) has been allocated for “Bringing Green Revolution to Eastern India (BGREI)” initiative, compared to Rs 400 crore (US$ 74. 22 million) in 2011-12. Allocation to the Department of Agriculture and Cooperation has increased considerably from Rs 5560 crore (US$ 1. 03 billion) in 2007-08 to Rs 20,208 crore (US$ 3. 75 billion) in 2012-13 facilitating more investment in the sector. India’s agricultural growth for the period of 2012-13 was positive, largely on the back of normal monsoon.
The Gross Domestic Product (GDP) growth in the agricultural sector is forecast at 3% for coming year, according to the National Council of Applied Economic Research (NCAER). India’s agricultural growth for the past three has remained in the positive regime and it is expected to continue for the coming years too. The annual agriculture target for the financial year 2012-13 has been fixed at Rs 5,75,000 crore (US$ 106. 69 billion) against the target of Rs 4,75,000 crore (US$ 88. 13 billion) in 2011-12 ROAD AHEAD The Indian agriculture sector is now moving towards another green revolution.
The transformations in the sector are being induced by factors like newfound interest of the organized sector, new and improved technologies, mechanized farming, rapid growth of contract farming, easy credit facilities, etc. The Ministry of Agriculture is promoting a new strategy for farm mechanization through its various schemes and programmes. A dedicated Sub-Mission on Agricultural Mechanization has been proposed for the 12th Plan which includes custom-hiring facilities for agricultural machinery as one of its major components. In the 12th Five Year Plan, the Government intends to ncrease the share of expenditure on agricultural research and development (R&D). The Government will focus on strengthening the Agricultural Technology Management Agencies (ATMA) concept through improved integration with Krishi Vikas Kendras (KVKs). COMPANY PROFILE Food Corporation of India (Hindi: ?????? ????? ???? ) was setup on 14th January 1965 under Food Corporation Act 1964 with authorized capital of almost $600 million to implement the national policy for price support operations, procurement, storage, preservation, inter-state movement and distribution operations.
It operates through 5 Zonal offices and 26 regional offices. Each year, the Food Corporation purchases roughly 15-20 per cent of India’s wheat output and 12-15 per cent of its rice output. The losses suffered by FCI are reimbursed by the Union government, to avoid capital erosion, and thus declared as a subsidy in the annual budget. In 2007, such food subsidies were met by government bonds worth almost $8 billion. The Food Corporation of India was setup under the Food Corporation Act 1964, in order to fulfill following objectives of the Food Policy: * Effective price support operations for safeguarding the interests of the farmers. Distribution of food grains throughout the country for public distribution system * Maintaining satisfactory level of operational and buffer stocks of food grains to ensure National Food Security In its 45 years of service to the nation, FCI has played a significant role in India’s success in transforming the crisis management oriented food security into a stable security system. FCI’s Objectives are. * To provide farmers remunerative prices To make food grains available at reasonable prices, particularly to vulnerable section of the society * To maintain buffer stocks as measure of Food Security * To intervene in market for price stabilization Quality Control and Scientific Preservation | The Food Corporation of India has an extensive and scientific stock preservation system. An on-going programme sees that both prophylactic and curative treatment is done timely and adequately. Grain in storage is continuously scientifically graded, fumigated and aerated by qualified trained and experienced personnel. | Food Corporation of India’s testing laboratories spread across the country for effective monitoring of quality of food grains providing quality assurance as per PFA leading improved satisfaction level in producers (farmers) and customers (consumers). | | The preservation of food grain starts, the minute it arrives in the go downs. The bags themselves are kept on wooden crates/poly pallets to avoid moisture on contact with the floor. Further till the bags are dispatched/issued, fumigation to prevent infestation etc. of stocks is done on an average every 15 days with MALATHION and once in three months with DELTAMETHRIN etc. n traces of infestation, curative treatment is done with Al. PHOSPHIDE. | QUALITY POLICY FCI, as the country’s nodal organization for implementing the National Food Policy, is committed to provide credible, customer focused services, for efficient and effective food security management in the country. Our focus shall be: * Professional excellence in Management of food grain and other commodities * Service quality and stake holder orientation * Transparency and accountability in transactions * Optimum utilization of resources * Continual improvement of systems, processes and resources.
CORPORATE VISION Vision 2020 * To aggressively promote Decentralized Procurement by State Governments with special emphasis in non-traditional areas and commodities. * To initiate procurement of non-MSP governed commodities on commercial principles. * To ensure adequate buffer for meeting requirements under TPDS & Other Welfare Schemes. * To dispose of surplus and un-storage worthy godowns and introduce concepts of mechanized handling in the conventional godowns. * To undertake R&D for conversion of some of the existing capacity to bulk and cost effective utilization of existing bulk capacity. To optimize monthly movement programme with existing state of art of computerization within the country at various locations as per corporate policies and priorities. * Modernization of Quality Control equipments and systems for food preservation in order to increase the shelf life of food grain. * To venture in the fields of Forward Trading and Exports of both surplus stocks of food grains in Central Pool and no-traditional commodities. * To introduce state of art of financial management in order to reduce the dependency on the present banking system in the country. To initiate systems for settlement of storage loss and transit loss through insurance coverage and revised inventory mechanism. * To develop efficiency in human resource management both in staff/officers and workers with changed circumstances in the work approach of P. S. U. s. * To achieve state of art in computerized communication between different offices/ depots throughout the country. MAJOR AGRICULTURE PRODUCTS IN WHICH FCI DEALS Wheat With a production reaching ten times in past five years, India is today the second largest wheat producer in the whole world.
Various studies and researches show that wheat and wheat flour play an increasingly important role in the management of India’s food economy. Wheat production is about 70 million tonnes per year in India and counts for approximately 12 per cent of world production. Being the second largest in population, it is also the second largest in wheat consumption after China, with a huge and growing wheat demand. Major wheat growing states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Madhya Pradesh, Gujarat and Bihar. All of north is replenished with wheat cultivation.
Wheat has a narrow geographic land base of production as compared to rice or pulses. Wheat is a temperate crop requiring low temperatures and most of the country is tropical. Rice Throughout history rice has been one of man’s most important foods. Today, this unique grain helps sustain two- thirds of the world’s population. Archeological evidence suggests that rice has been feeding mankind for more than 5,000 years. Today, agriculture is the backbone of India’s economy, providing direct employment to about 70% of working people in the country.
It forms the basis of many premier industries of India, including the textile, jute, and sugar industries. Agriculture contributes about 31% to GDP; about 25% of India’s exports are agricultural products. The major rice growing area in India are West Bengal, Uttar Pradesh, Madhya Pradesh, Orissa, Bihar, Andhra Pradesh, Assam, Tamil Nadu, Punjab, Maharashtra, Karnataka, Haryana, Gujarat, Kerala, Jammu- Kashmir, Tripura, Meghalaya, Manipur, Rajasthan, Nagaland, Arunchal Pradesh, Himachal Pradesh, Mizoram, Goa, Pondicherry, Sikkim, A & N Island and D & N Haveli.
Barley Barley is from the lands of the ancient Egyptians, Grown in mud from the Nile River and held in pottery, was believed to be the first cereal crop by many ancient religions. In the recent year (1999- 2000) the estimate of barley production is 4,360,000 metric tonnes. Barley is a hearty plant, able to withstand many different growing conditions. However, barley is least tolerant of hot, humid conditions, which makes it unsuitable for the subtropical regions.
In India, Rajasthan has the maximum growth of barley grain besides Madhya Pradesh, Andhra Pradesh, Orissa, Gujarat etc. CHAPTER III ANALYSIS AND INTERPRETATION OF DATA ANALYSIS AND INTERPRETATION OF DATA The project report is on the topic “WORKING CAPITAL MANAGEMENT”. Before analyzing the data lets first see what Working Capital Management is. WORKING CAPITAL MANAGEMENT As we all know working capital Management is one of the important decision in financing. So it is very necessary to know the working capital & its cycle.
Working Capital refers to the cash a business requires for the day-to-day operations or more specifically for financing the conversions of raw materials into finished goods, which the corporation sells for payment. In other words ‘Working Capital’ is the money the business process consumes. The longer the process takes, the more money is consumed. Working Capital is calculated by deducting current assets from current liabilities. Current Assets are resources, which are in cash or soon be converted into cash. Whereas Current liabilities are commitments, which will soon require cash settlement in the ordinary course of business.
Working Capital can also be defined with an approach that encompasses all the processes surrounding accounts payable, accounts receivables and inventory and one begins to understand the potential knock-on impacts of a change in working capital practice or policy. When looking in detail at any of these three core areas, it soon becomes clear that Working Capital Management touch all the firm buys makes and sells. Working capital is the life blood and nerve centre of a business. Just as circulation of blood is essential in the human body for maintaining life, working capital is essential to maintain the smooth running of business.
No business can run successfully without an adequate amount of working capital. On one hand, inadequacy of working capital pose a danger to the short term liquidity and solvency position of the business and on the other hand excess working capital leads to blockage of firm’s funds in current assets, which reduced the profitability of the organization. Thus there is a need to maintain a trade-off between the above aspects (i. e. liquidity, solvency and profitability aspects) so that the short term funds of the corporation can be utilized in most effective manner.
The need of working capital is to run the day-to-day business activities. There is hardly any firm, which does not require any amount of working capital. Firms may differ in their requirement of working capital but it is necessary for all firms to maintain the working capital. The working capital is the lifeblood for any corporation, as a person cannot live without blood, as it is any firm cannot survive without working capital. Working capital is necessary for all type of companies’ whether it is a small corporation or large corporation.
Every corporation maintains the working capital to pay the short-term expenses as creditors, short-term loans, daily wage other expenses. It is very important to run a business effectively. It is a part of total investing capital. It does not give any return opposite of long-term investment (fixed capital). But it is helpful in earning profit from the long-term capital. Meaning of working capital Working capital is also known as the short-term investment of capital. Working capital is that capital which is capture in the business as in the form of cash or cash equivalents to run the rut ion activities of business.
Mainly it is known as the difference between the current assets and current liabilities but in other sense it is known as the sum of all current assets. It is also known as the capital, which is used to operate the business’s routine work. It is the short-term capital investment in the business. The working capital includes those assets, which are converted into cash within an accounting year and the current liabilities are include in working capital which are payable within an accounting year. There are two concept of working capital as follows:- Gross Working Capital: –
Gross Working Capital refers to the firm’s investment in the current assets. Current assets are those assets which can be converted into cash within an accounting period (or operating cycle). current assets include the debtors(account receivables ), cash , short term investment, bills receivables, stock(inventories) ,prepaid expenses and accrued interest. Net Working Capital: – Net Working Capital refers to the difference between the current assets and current liabilities. Current assets are those assets, which can be converted into cash within an accounting year (or operating cycle).
Current assets include the debtors (account receivables), cash, short term investment, bills receivables, stock (inventories), prepaid expenses and accrued interest. And current liabilities are those claims of outsiders which are expected to mature for payment within an accounting year and include creditors (accounts payable), bills payables, out expenses (as standing salaries, outstanding rent, outstanding wages), short term loans and bank overdraft. Net working capital can be positive or negative. A positive net working capital will arise when the current assets exceed current liabilities.
A negative net working capital occurs when current liabilities are in excess of current assets. Hence to study the working capital management of FCI the accounting tool used here is “RATIO ANALYSIS”. RATIO ANALYSIS The ratio analysis is one of the most powerful tools of financial analysis. It is the process of establishing and interpreting various ratios (quantitative relationship between figures and group of figures). It is with the help of ratios that the financial statements can be analysed more clearly and decisions made from such analysis. Meaning of ratio
Ratio is the simple arithmetic expression of a relationship of one number to another. It may be defined as the indicated quotient of two mathematical expressions. According to accountants handbook by Wixon, Kell and/Bedford a ratio is an expression of the quantitative relationship between two numbers. According to Kohler ratio is he relation, of the amount, a to another, b, expressed as the ratio of a to b; a:bor as a simple fraction, integer, decimal, fraction or percentage. In simple language ratio is one number expressed in terms of another and can be worked out by dividing one number into the another.
It is the relation which one quantity bears to another of the same kind with regards to their magnitudes and the comparison is made by considering what multiple, part or parts, the first quantity is of the second. A financial ratio is the relationship between two accounting figures expressed mathematically. A ratio can be expressed as percentage, proportion, rate or time. Ratios provide clues to the financial position of a concern. These are the pointers or indicators of financial strength soundness, position or weakness of an enterprise. one can draw conclusions about the exact financial position of the concerns with the help of ratios.
Ratio accounting Ratio accounting signifies the technique and methodology of analysis and interpretation of financial statements by means of accounting ratios. Accounting ratios imply such ratios which have accounting significance. Ratio analysis It impels analysis of financial statements with the aid of accounting ratios. Financial statements like the Trading a/c and Balance Sheet reflect the profit or loss and financial stability of a concern. It is difficult to deduct any inference from the massive pile of numerical figures, contained in such financial statements, as to the financial health of the concern.
Thus, in order to accurately assess the financial health of the concern, it is necessary to regroup and analyse the figures as disclosed by these financial statements. Accounting ratios enable a person to draw a conclusion from the redrafted figures, regarding the financial health and earning capacity of the concern. The systematic use of ratios helps to interpret the financial statements so that the strength and weakness of a firm as well as its historical performance and current financial condition can be determined and assessed.
The ratios (i. e. , financial or accounting) describe the significant relationship between figures shown on Balance Sheet, in a Profit & Loss Account, in a Trading Account, in a Manufacturing Account, in a budgetary control system or in any part of a financial statement. Ratios make the related information comparable. A single figure by itself has no meaning. But when expressed in terms of related figure, it yields significant inferences. Thus, ratios are relative figures reflecting the relationship between related variables.
Their use as tools of financial analysis involves their comparison as single ratios, like absolute figures, are not much use. Three types of comparisons are generally involved: i. Trend analysis ii. Inter-firm comparison iii. Comparison with standards/ industry average i. Trend ratios: Trend ratios involve the comparison of ratios of a firm over a period of time, i. e, present ratios are compared with the past ratios of the same firm. It indicates the direction of change in the performance improvement, and any deterioration or consistency over the years. ii. Inter-firm comparison:
An inter-firm comparison involves a comparison of the ratios of a firm with those of other in the same line of business or for the industry as a whole. Thus, it reflects the firm’s performance in relation to its competitors. iii. Comparison with standard/industry average: Other types of comparisons may relate to the comparison of items within a single year’s financial statement of a firm with standards or plans. Figures provided by Trading and Profit and Loss Account and Balance Sheet are not self-explanatory in nature. These figures do not convey much meaning.
It, therefore, becomes necessary to study some figures in relation to any other relevant figures to arrive at certain conclusions. For example, the figure of Net Profit can be compared with figures of other company and profitability can be judged properly. Nature of ratio analysis Ratio analysis is a technique of analysis and interpretation of financial statements. It is the process of establishing and interpreting various ratios for helping in making certain decisions. However, ratio analysis is not an end in itself. It is only a means of better understanding of financial strengths and weaknesses of a firm.
Calculation of mere ratios does not serve any purpose, unless several appropriate ratios are analysed and interpreted. There are a number of ratios which can be calculated from the information given in the financial statements, but the analyst has to select the appropriate data and calculate only a few appropriate ratios from the same keeping in mind the objective of analysis. The ratios may be used as a symptom like blood pressure. The pulse rate or the body temperature and their interpretation depends upon the calibre and competence of the analyst.
The following are the four steps involved in the ratio analysis: i. Selection of relevant data from the financial statements depending upon the objective of the analysis ii. Calculation of appropriate ratios from the above data iii. Comparison of the calculated ratios of the same firm in the past, or the ratios developed from projected financial statements or the ratios of some other firms or the comparison with the ratios of the industry to which the firm belongs iv. Interpretation of the ratios INTERPRETATION OF RATIOS The interpretation of ratios is an important factor.
Though calculation of ratios is also important but it is only a clerical task whereas interpretation needs skill, intelligence and foresightedness. The inherent limitations of ratio analysis should be kept in mind when attempting to interpret ratios. A single ratio in itself does not convey much of the sense. To make ratios useful, they have to be further interpreted. For example, say, the current ratio is 3:1 does not convey any sense unless it is interpreted and conclusion is drawn from it regarding the financial condition of the firm as to whether it is very strong, good, questionable or poor.
The interpretation of ratios can be made in the following ways: 1) Single absolute ratio: Generally speaking one cannot draw any meaningful conclusion when a single ratio is considered in isolation. But single ratios may be studied in relation to certain rules of thumb which are based upon well proven conventions as for example 2:1 is considered to be a good ratio for current assets to current liabilities. 2) Group of ratios: Ratios may be interpreted by calculating a group of related ratios. A single ratio supported by other related additional ratios becomes more understandable and meaningful.
For example, the ratio of current assets to current liabilities may be supported by the ratio of liquid assets to liquid liabilities to draw more dependable conclusions. 3) Historical comparison: One of the easiest and most popular ways of evaluating the performance of the firm is to compare its present ratios with the past ratios called comparison overtime. When financial ratios are compared over a period of time, it gives an indication of the direction of change and reflects whether the firm’s performance and financial position has improved, deteriorated or remained constant over a period of time.
But while interpreting ratios from comparison over time, one has to be careful about the changes, if any, in the firm’s policies and procedures. 4) Projected ratios: Ratios can also be calculated for future standards based upon the projected or proforma financial statements. These future ratios may be taken as standard for comparison and the ratios calculated on actual financial statements can be compared with the standard ratios to find out the variances, if any. Such variances help in interpreting and taking corrective action for improvement in future. ) Inter-firm comparison: Ratios of one firm can also be compared with the ratios of some other selected firms in the same industry at the same point of time. This kind of comparison helps in evaluating relative financial position and performance of the firm. But while making use of such comparison one has to be very careful regarding the different accounting methods, policies, and procedures adopted by different firms. GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS The calculation of ratios may not be difficult task but their use is not easy.
The information on which these are based, the constraints of financial statements, objectives for using them, the calibre of the analyst, etc are important factors which influence the use of ratios. Following guidelines or factors may be kept in mind while interpreting various ratios: * Accuracy of financial statements: The ratios are calculated from the data available in financial statements. The reliability of ratios is linked to the accuracy of information in these statements. Before calculating ratios one should see whether proper concepts and conventions have been used for preparing financial statements or not.
These statements should also be properly audited by competent auditors. The precautions will establish the reliability of data given in financial statements. * Objective or purpose of analysis: The type of ratios to be calculated will depend upon the purpose for which these are required. If the purpose is to study the current financial position then ratios relating to current assets and current liabilities will be studied. The purpose of user is also important for the analysis of ratios. A creditor, a banker, an investor, a shareholder, all has different objects for studying ratios.
The purpose or objects for which ratios are required to be studied should always be kept in mind for studying various ratios. Different objects may require the study of different ratios. * Selection of ratios: Another precaution in ratio analysis is the proper selection of appropriate ratios. The ratios should match the different purpose for which these are required. Calculation of larger number of ratios without determining their need in the present context may confuse the things instead of solving them. Only those ratios should be selected which can throw proper light on the matter to be discussed. Use of standards: The ratios will give an indication of financial position only when discussed with certain standards. Unless otherwise these ratios are compared with certain standards one will not be able to reach at conclusions. These standards may be rule of thumb as in case of current ratio (2:1) and acid-test ratio (1:1), may be industry standards, may be budgeted or projected ratios, etc. The comparison of calculated ratios with the standards will help the analyst in forming his opinion about financial situation of the concern. Calibre of the analyst: The ratios are only the tools of analysis and their interpretation will depend upon the calibre and competence of the analyst. He should be familiar with various financial statements and the significance of changes, etc. A wrong interpretation may create havoc for the concern since wrong conclusions may lead to wrong decisions. The utility of ratios is linked to the expertise of the analyst. * Ratios provide only a base: The ratios are only guidelines for the analyst, he should not base his decisions entirely on them.
He should study any other relevant information, situation in the concern, general economic environment, etc before reaching final conclusions. The study of ratios in isolation may not always prove useful. A businessman will not afford a single wrong decision because it may have far-reaching consequences. The interpreter should use the ratios as guide and may try to solicit any other relevant information which helps in reaching a correct decision. Use and significance of ratio analysis Ratio analysis is one of the most powerful tools of financial analysis. It is used as a device to analyse and interpret the financial health of enterprise.
Just like a doctor examines his patient by recording his body temperature, blood pressure, etc before making his conclusion regarding the illness and before giving his treatment, a financial analyst analyses the financial statements with various tools of analysis before commenting upon the financial health or weaknesses of an enterprise. ‘A ratio is known as a symptom like blood pressure, the pulse rate or the temperature of an individual. ’ It is with the help of ratios that the financial statements can be analysed more clearly and decisions made from such analysis.
The use of ratios is not confined to financial managers only. There are different parties interested in ratio analysis for knowing the financial position of a firm for different purposes. The supplier of good on credit, banks, financial institutions, investors, shareholders and management all make use of ratio analysis as a tool in evaluating the financial position and performance of a firm for granting credit, providing loans or making investment in the firm. With the use of ratio analysis one can measure the financial condition of a firm and can point out whether the condition is trong, good, questionable or poor. The conclusions can also be drawn as to whether the performance of the firm is improving or deteriorating. Thus, ratios have wide applications and are of immense use today. The followings are the main points of importance of ratio analysis: (a) Managerial uses of ratio analysis: * Helps in decision-making: Financial statements are prepared primarily for decision-making. But the information provided in financial statements is not an end in itself and no meaningful conclusion can be drawn from these statements alone.
Ratio analysis helps in making decisions from the information provided in these financial statements. * Helps in financial forecasting and planning: Ratio analysis is of much help in financial forecasting and planning. Planning is looking ahead and the ratios calculated for a number of years work as a guide for the future. Meaningful conclusions can be drawn for future from these ratios. Thus, ratio analysis helps in forecasting and planning. * Helps in communication: The financial strength and weakness of a firm are communicated in a more easy and understandable manner by the use of ratios.
The information contained in the financial statements is conveyed in a meaningful manner to the one for whom it is meant. Thus, ratios help in communication and enhance the value of the financial statements. * Helps in co-coordinating: Ratios even help in co-ordination which is of utmost importance in effective business management. Better communication of efficiency and weakness of an enterprise results in better co-ordination in the enterprise. * Helps in control: Ratio analysis even helps in making effective control of the business.
Standard ratios can be based upon proforma financial statements and variances or deviations, if any, can be found by comparing the actual with the standards so as to take a corrective action at the right time. The weaknesses or otherwise, if any, come to the knowledge of the management which helps in effective control of the business. * Other uses: There are so many uses of the ratio analysis. It is an essential part of the budgetary control and standard costing. Ratios are of immense importance in the analysis and interpretation of financial statements as they bring the strength or weakness of a firm. b) Utility to shareholders/investors An investor in the company will like to access the financial position of the concern where he is going to invest. His first interest will be the security of his investment and then a return in the form of dividend or interest. For this purpose he will try to access the value of fixed assets. The investor will feel satisfied only if the concern has sufficient amount of assets. Long-term solvency ratios will help him in accessing financial position of the concern. Profitability ratios, on the other hand, will be useful to determine profitability position.
Ratio analysis will be useful to the investor in making up his mind whether present financial position of the concern warrants further investment or not. (c) Utility to Creditors: The creditors or suppliers extend short-term credit to the concern. They are interested to know whether financial position of the concern warrants their payments at a specified time or not. The concern pays short-term creditors out of its current assets. If the current assets are quite sufficient to meet current liabilities, then the creditor will not hesitate in extending credit facilities.
Current and acid test ratio will give an idea about the current financial postion of the concern. (d) Utility to Employees: The employees are also interested in the financial position of the concern, especially profitability. Their wage increases and the amount of fringe benefits are related to the volume of profits earned by the concern. The employees make use of information available in the financial statements. Various profitability ratios relating to Gross profit, operating profit, net profit, etc. enable employees to put forward their viewpoint for increase of ages and other benefits. (e) Utility to Government: Government is interested to know the overall strength of the industry. Various financial statements published by industrial units are used to calculate ratios for determining short-term, long-term and overall financial position of the concerns. Profitability indexes can also be prepared with the help of ratios. Government may base its future policies on the basis of industrial information available from various units. The ratios may be used as indicators of overall financial strength of public as well as private sector.
In the absence of reliable economic information, government plans and policies may not prove successful. (f) Tax Audit Requirements: Section 44 AB was inserted in the Income Tax Act by the Finance act, 1984. Under this act every assessee engaged in any business and having turnover or gross receipts exceeding Rs. 40 lakh is required to get the accounts audited by a Chartered Accountant an submit the tax audit report before the due date of filing th return of income u/s 139(1). in case of a profession, a similar report is required if gross receipts exceed Rs. 10 lakh.
Clause 32 of the Income Tax Act requires that the following accounting ratios should b given: i. Gross profit/Turnover ii. Net profit/Turnover iii. Stock-in-trade/ Turnover iv. Material consumed/Finished goods produced. Further, it is advisable to compare the accounting ratios for the year under consideration with the accounting ratios for the earlier two years so that the auditor can make necessary enquiries, if there is any major variation in the accounting ratios. Precautions while using ratio analysis While conducting the ratio analysis, the following precautions are required to be taken: I.
The cause and effect relationship should always be considered while forming and establishing a ratio. For example, the ratio of sales to net profit is a useful one, for it tells us the return (in terms of net period) obtained from the sale of one rupee where the ratio of sales to the authorized capital is quite meaningless since there exists no relationship between the two. Useful conclusion can be arrived at only if the ratios are calculated between such figures as are meaningfully related to each other. II. The particular characteristic of the industry should always be kept in mind while the firm is being studied.
For example, the ratio of a seasonal concern during the season period shall differ from the ratios during the non-season period. III. While conducting an inter-firm comparison, the factors such as age, size, industry, etc should also be kept in mind. Besides this, it must be ensured that ratios to be compared have been worked out on the same basis. LIMITATIONS OF RATIO ANALYSIS The ratio analysis is one of the most powerful tools of financial management. Though ratios are simple to calculate and easy to understand, they suffer from some serious limitations: 1. Limited use of a single ratio:
A single ratio, usually, does not convey much of a sense. To make a better interpretation a number of ratios have to be calculated which is likely to confuse the analyst than help him in making any meaningful conclusion. 2. Lack of adequate standards: There are no well accepted standards or rules of thumb for all ratios which can be accepted as norms. It renders interpretation of the ratios difficult. 3. Inherent limitations of accounting: Like financial statements, ratios also suffer from the inherent weakness of accounting records such as their historical nature. Ratios of the past are not necessarily true indicators of the future. . Change of accounting procedures: Change in accounting procedures by a firm often makes ratio analysis misleading. That is, a change in the valuation methods of inventories, from FIFI to LIFO increases the cost of sales and reduces considerably the value of closing stock turnover ratio to be lucrative and an unfavorable gross profit ratio. 5. Window dressing Financial statements can easily be window dressed to present a better picture of its financial and profitability position to outsiders. Hence, one has to be very careful in making a decision from ratios calculated from such financial statements.
But it may be very difficult for an outsider to know about the window dressing made by a firm. 6. Personal bias: Ratios are only means of financial analysis and not an end in itself. Ratios have to be interpreted and different people may interpret the same ratio in different ways. 7. Incomparable: Not only industries differ in their nature but also the firms of the similar business widely differ in their size and accounting procedures, etc. it makes comparison of ratios difficult and misleading. Moreover, comparisons are made difficult due to differences in definitions of various financial terms used in the ratio analysis. . Absolute figures distortive: Ratios devoid of absolute figures may prove distortive as ratio analysis is primarily a quantitative analysis and not a qualitative analysis. 9. Price level changes: While making ratio analysis, no consideration is made to the changes in price levels and this makes the interpretation of ratios invalid. 10. No substitutes: Ratio analysis is merely a tool of financial statements. Hence, ratios become useless if separated from the statements from which they are computed. STRUCTURE AND TREND OF WORKING CAPITAL OF FCI PARTICULAR| 2008-09| 2009-10| 2010-11| 2011-12|
CURRENT ASSETS| | | | | CASH| 1782. 88| 2885. 14| 263. 96| 16. 18| BANK| 1332. 09| 342. 02| 380358. 17| 336. 8| LOANS AND ADVANCES| 160273. 89| 160234. 20| 206077. 87| 261208. 19| DEBTORS| 1481414. 44| 1307135. 92| 1817003. 29| 2620942. 10| STOCK | 2752562. 12| 3542023. 71| 4037048. 11| 4925729. 67| TOTAL(A)| 4397529. 2| 5012620. 99| 6440751. 4| 7808233. 54| CURRENT LIABILITIES| | | | | CURRENT LIABILITIES AND PROVISIONS| 853126. 33| 1154573. 38| 2561046. 43| 90004. 61| TOTAL(B)| 853126. 3| 1154573. 38| 2561046. 43| 90004. 61| NET WORKING CAPITAL(A-B)| 3544402. 9| 3858047. 61| 3879704. 97| 7718228. 93| Inference * Current Assets increased to 77. 6 % in the year of 2011-2012 as compared to in the year 2008-2009. * Current Liabilities in the year 2011-2012 got decreased by 89. 5 % as compared to the year 2008-2009. * In the year 2009-2010 the growth in working capital was 8. 8 % as compared to the year 2008-2009 similarly working capital in the year 2010-2011 has grown to 0. 56 % as compared to the working capital in the year 2008-2009
RATIO ANALYSIS OF WORKING CAPITAL Ratio analysis shows the trend of current assets, current liabilities and working capital only. It do not interpret the contribution of each item of working capital in the trend, whereas, it can be done easily by ratio analysis. The ratio analysis of working capital can be used by management as a means of checking upon the efficiency in working capital management of the company. Following ratios have been used to analyse and interpret working capital of FCI. * LIQUIDITY RATIOS * PROFITABILITY RATIOS * TURNOVER RATIOS LIQUIDITY RATIOS
Liquidity is the ability of the business to meet its short-term commitments for cash without affecting operations. Short-term requirements for cash arise on account of working capital needs such as payments for materials, wages, salaries, rents, administrative and selling expenses, payment of interest, tax, and dividend and repayment of borrowings. Liquidity is basically the relationship between short-term assets (current assets) and short-term liabilities (current liabilities). * Current Ratio * Quick Ratio CURRENT RATIO Of the important ratio that reveals the short-term liquidity of the business, current ratio is the most important.
Current assets divided by current liabilities and provisions gives the ratio. The safer norm is 1. 5:1 that is, 1. 5 units of current assets back up every one unit of current liability. Liquidity is the ability of the business to meet its short-term commitments as and when they arise. Current Ratio = Current Assets / Current Liabilities CURRENT RATIO OF FCI DURING 2008 TO 2012| | YEAR| CURRENT ASSETS| CURRENT LIABILITIES| CURRENT RATIO| (A)| (B)| (C)| (B)/(C)| 2008-2009| 4397529. 2| 853126. 33| 5. 15| 2009-2010| 5012620. 99| 1154573. 38| 4. 34| 2010-2011| 6440751. 40| 2561046. 43| 2. 51| 2011-2012| 7808233. 4| 7320461. 74| 1. 066| QUICK RATIO In the groups of current assets, certain assets are nearer to cash in the working capital cycle (also called operating cycle) than others. Thus, liquid assets are current assets less inventories. The ratio of these assets to the current liabilities is called quick ratio or acid test ratio. A quick ratio of 1:1 is considered adequate to ensure uninterrupted operation. Quick Ratio = Current Assets – (stock + prepaid expenses) / Current Liabilities QUICK RATIO OF FCI FROM 2008 TO 2012| YEAR| QUICK ASSETS| CURRENT LIABILITIES| RATIO| 2008-09| 1667527. 06| 853126. 33| 1. 95| 009-10| 1506668. 81| 1154573. 38| 1. 30| 2010-11| 2427777. 28| 2561046. 43| 0. 94| 2011-12| 2743733. 41| 7320461. 74| 0. 37| PROFITABILITY RATIOS Profitability is the yardstick of success or failure of an enterprise. Profitability is directly related to turnover. Higher the turnover, greater should be the profits of the business. In fact the ratio of profit should increase higher than that of sales, as every increase in sales beyond breakeven point less variable cost is profit. The indirect factors that influence profits are increase in assets, increase in working capital and increase in capital employed.
Profit is also related to the owned funds of shareholders or equity. Gross profitability Ratio Gross profitability measures the surplus of the sales over the cost of its production (in manufacturing) and service charges (in service industries). Gross profitability ratio is worked out by dividing gross profit by cost of sales. It indicates the production efficiency of a manufacturing or service organization. In a trading enterprise, the ratio would roughly indicate the margin on purchases. Gross profitability ratio (GPR) = Gross Profit / Net Sales GROSS PROFIT RATIO OF FCI FROM 2008 TO 2012| YEAR| GROSS PROFIT| NET SALES| RATIO| 008-09| 125882. 14| 5207672. 89| 2. 41%| 2009-10| 549430. 76| 6619349. 87| 8. 3%| 2010-11| 899848. 13| 8196099. 22| 10. 9%| 2011-12| 1174933. 61| 9538398. 33| 12. 31%| NET PORFITABILITY RATIO Net profit is the surplus after meeting all costs, both operational and non-operational and after deducting taxes. If the business has preference capital, dividend on preference capital is to be deducted. With the introduction of dividend tax, dividend tax should also be deducted to arrive at net profit. The net profit frequently referred to as PAT is thus profit after tax, after preference dividend and dividend and dividend tax.
PAT is as divisible profit belonging to the owners. The value of equity or intrinsic value of the business depends on the volume of net profit. This ratio indicates how profitable the working of the business is to the owners during the concerned accounting period. Net Profitability Ratio = Net profit/ Net Sales NET PROFIT RATIO OF FCI FROM 2008 TO 2012| YEAR| NET PROFIT| NET SALES| RATIO| 2008-09| 1594. 93| 5207672. 89| 0. 0306%| 2009-10| (36462. 15)| 6619349. 87| 0. 5508%| 2010-11| 579. 70| 8196099. 22| 0. 0070%| 2011-12| 6463. 49| 9538398. 33| 0. 6776%| Note: FCI is an establishment which is not incorporated for a profit motive.
It was established with a purpose of consumer welfare and public distribution under the Ministry of Food, Consumer Affairs and Public Distribution. TURNOVER RATIOS Turnover ratios are also known as activity ratios as they measure the level of activity in a business. Activity is related to fixed assets, current assets and capital employed. In current assets, components such as inventories and debtors have definite relationship with turnover. The turnover ratios used in the project are as follows:- * Working Capital Turnover Ratio * Stock Turnover Ratio * Debtors Turnover Ratio * Fixed Asset Turnover Ratio WORKING CAPITAL TURNOVER RATIO
It indicates the number of times working capital has turned over. Working capital here means networking capital, that is, current assets minus current liabilities. The contribution of working capital to the generation of income is direct, compared to that of fixed assets, which is indirect. It is also the fact that working capital forms between 30 to60 percent of the capital employed in Indian industries. Therefore, lower the working capital, higher would be the reduction in financing cost and consequently better would be the performance. Higher the working capital ratio better is the utilization of working capital.
Working capital turnover ratio = Turnover/working capital WORKING CAPITAL RATIO OF FCI FROM 2008 TO 2012| YEAR| TURNOVER| WORKING CAPITAL| RATIO| 2008-09| 5207672. 89| 3544402. 9| 1. 46| 2009-10| 6619349. 87| 3858047. 61| 1. 71| 2010-11| 8196099. 22| 3879704. 97| 2. 11| 2011-12| 9538398. 33| 7718228. 93| 1. 23| STOCK TURNOVER RATIO Turnover divided by inventory is the inventory turnover ratio. The ratio measures the rapidity with which inventory has turned over. Higher the ratio, more efficient is inventory management. By way of caution, it might be added that inventory turnover ratio, much higher than that of the ndustry norm, means overtrading and is risky. Stock turnover ratio = Cost of Goods Sold/ Stock STOCK TURNOVER RATIO OF FCI FROM 2008 TO 2012| YEAR| COGS| AVERAGE STOCK| RATIO| 2008-09| 3008145. 44| 2130771. 31| 1. 41| 2009-10| 5943565. 95| 3147292. 91| 1. 89| 2010-11| 7334531. 62| 3789535. 91| 1. 93| 2011-12| 8464170. 31| 4481388. 89| 1. 89| DEBTORS TURNOVER RATIO The ratio is analogous to the average collection period. Credit sales divided by average debtors would give the ratio. This ratio has to be analyzed having the credit policy of the company in mind.
Debtors are a generic term comprising bills receivables and sundry debtors. Inventory and debtor are the major subdivisions of gross working capital. Debtors turnover ratio = Turnover /Average Debtors DEBTOR TURNOVER RATIO OF FCI FROM 2008 TO 2012| YEAR| TURNOVER| AVERAGE DEBTORS| RATIO| 2008-09| 5207672. 89| 1910375. 13| 2. 72| 2009-10| 6619349. 87| 1394275. 18| 4. 74| 2010-11| 8196099. 22| 1562069. 60| 5. 24| 2011-12| 9538398. 33| 1413824. 25| 6. 74| FIXED ASSET TURNOVER RATIO Turnover ratios are activity ratios. They indicate the velocity of circulation of assets in generating income.
Fixed asset turnover ratio is arrived at by dividing turnover by gross fixed assets. The ratio indicates the effective utilization of fixed assets in the generation of income. Every unit aspires to have a higher turnover ratio. But, the ratio differs from industry to industry, depending upon its nature. Usually, the ratio is very high in value added industries. Fixed asset turnover ratio = Turnover / Fixed Asset FIXED ASSET TURNOVER RATIO OF FCI FROM 2008 TO 2012| YEAR| TURNOVER| FIXED ASSET| RATIO| 2008-09| 5207672. 89| 36239. 89| 143. 70| 2009-10| 6619349. 87| 36663. 04| 180. 54| 2010-11| 8196099. 22| 39335. 16| 208. 6| 2011-12| 9538398. 33| 43828. 34| 217. 63| CHAPTER IV SUMMARY OF FINDINGS SUGGESTIONS AND CONCLUSION FINDINGS The study of working capital primarily aimed at pinpointing the strengths and weaknesses of a business undertaking by regrouping and analyzing the systems and procedures involved in preparing financial statements and procedures involved in. It is useful for management for its internal affairs and to outside parties who are directly or indirectly related with the affairs of the corporation. These are crucial reports, which reflect the financial soundness of a business enterprise through well- arranged data.
On the basis of the study of financial accounting system of Food Corporation of India following are the main findings: 1. The working capital management of corporation is good. Corporation pays its creditors on time and well manages the current assets. 2. There is a time gap between debtors and creditors. And it’s a good health sign for a corporation. Because a corporation can invest for short term & earn return. 3. Firm made its payment through NEFT (national electronic fund transfer) & RTGS (real time gross settlement). And by this a firm can made payment quickly and there is no need of paper work. . As corporation uses JIT policy for inventory. That’s why there is very less chances for obsolescence of inventory. SUGGESTIONS On the basis of the study of procedures of Food Corporation of India following are the suggestions: – 1. They should list their Corporation in stock Exchange to generate funds so that they can expand their business and earn more revenue. 2. Corporation is working on Offline. That’s why corporation should adopt other software like Oracle etc. 3. There should have uniform policy in every unit like in making provisions, valuation of inventory etc. 4.
If firm has JIT policy then why there is non-moving stock exists in the firm. A firm should keep check on it. CONCLUSIONS Food Corporation of India is a growing enterprise. Its sales are increasingly gradually. Depending upon which its working capital requirement s also increased. The management of working capital in Food Corporation of India is quite satisfactory. This is shown by different ratios and other calculations. Ratio like net working capital, Current Ratio, quick Ratio shows that liquidity position of the corporation is good which means corporation can easily pay to its short term liabilities as and when it became due.
And if one can get money to move faster around the cycle (e. g. collect money due from debtors more quickly) or reduce the amount of money tied up (e. g. reduce inventory levels relative to sales), the business will generate more cash or it will need to borrow less money to fund working capital. As a consequence, one can reduce the cost of bank interest or generate additional free money available to support additional sales growth or investment. Similarly, if one can negotiate improved terms with supplier e. g. get longer credit or an increased credit limit; one can effectively create free finance to help fund future sales.
BIBLIOGRAPHY BOOKS: – 1. Khan M. Y. and Jain P. K (2012), Financial Management, Tata McGraw Hill. 2. Kothari C. R. (2011), “Research Methodology-Methods & Techniques”, New Age International Pvt. Ltd. Publishers, New Delhi. 3. Pandey I. M. (2013), Financial Management, Tata McGraw Hill. 4. Shapiro Alan C. (2013) “Multinational Financial Management” John Wiley & Sons (ASIA) Pvt. Ltd. WEBSITES: – 1. www. economictimes. com 2. www. financialexpress. org 3. www. fciweb. nic. in 4. http://www. agriculture-industry-india. com