A Summer Training Report

ON

Working Capital Management

CONDUCTED AT

PARLE BISCUITS PRIVATE LIMITED

Submitted in partial fulfillment for the Award of degree of

MASTER OF BUSINESS ADMINISTRATION (SESSION 2010-2012)

SUBMITTED BY: SUBMITTED TO:

ASHISH KUMAR DIRECTOR

MBA –2ND YEAR JECRC

JECRC School of Management

JAIPUR

APPROVED BY

RAJASTHAN TECHNICAL UNIVERSITY, KOTA

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DECLARATION

I, Roll No Class of the JECRC

School of Management here by declared at the project entitled

is an original work and the same has

not been submitted to any other institute for the award of any other degree. The interim

was presented to the supervisor on and the pre submission presentation

was made on ____________. The feasible suggestions have been only incorporated in

consultation with the supervisor.

Countersigned

Signature of the Supervisor

Forwarded By Signature of the candidate

Director/Principal of the Institute

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TABLE OF CONTENTS

ACKNOWLEDGMENT 4

PREFACE 5

INTRODUCTION* HISTORY OF COMPANY 6* PRODUCT PROFILE 18

MANAGERIAL USEFULNESS OF STUDY 49

CONCEPTS USED IN STUDY 50

FOCUS OF THE PROBLEMS 51

OBJECTIVES OF THE PROJECT 52

SCOPE OF THE WORK 54

RESEARCH METHODOLOGY 55 * RESEARCH DESIGN

* COLLECTION OF DATA

DATA ANALYSIS 60

FINDINGS 74

RECOMMENDATION 76

LIMITATIONS 77

CONCLUSIONS

BIBLIOGRAPHY 79

ANNEXURE 80

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ACKLNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful completion of any task

would be, but incomplete without mentioning the people who made it possible, whose

constant guidance encouraging crowned my effort with success.

I would like to begin with a special note of gratitude and heartfelt thanks to Mr. Vijay

k. chauhan, chairman, who gave me the opportunity to complete my summer project

at PARLE BISCUITS PRIVATE LIMITED, NEEMRANA.

I am extremely grateful to the Deputy Manager of Finance Department Mr.

JAIDEEP BHALA for his constant encouragement and valuable suggestions

throughout my summer training and project for his cooperation extended to me.

I express my special thanks to Ms. LALITA (HR MANAGER), Mr. GIRISH

CHAND BHATI (Assistant HR manager) for giving me their valuable opinions time

to time.

At last but not the least, I am very thankful to all the staff members of I.T. department

also.

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PREFACE

Practical work experience is the integral part of individual learning. An individual who

is learning managerial concepts has to undergo this practical experience for being a

future executive.

Master of Business Administration is a two-year programme that inserts management

knowledge in an individual to make that individual completely professional for which

practical experience is must.

Parle Biscuits Pvt. Ltd. is the market leader in biscuit industry. Neemrana plant of PBPL

offered me a project on Working Capital Management to understand the current position

through dates provided by them.

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HISTORY OF COMPANY

INTRODUCTION

Parle-G or Parle Glucose biscuits, manufactured by Parle Products Pvt

Ltd, are one of the most popular biscuits in India. Parle-G is one of the oldest brand

names as well as the largest selling brand of biscuits in India. For decades, the product

was instantly recognized by its iconic white and yellow wax paper wrapper with the

depiction of a young girl on the front. Counterfeit companies have attempted to recreate

and sell lower quality products of similar names with virtually identical package

design.The company's slogan is G means Genius. The name, "Parle-G", is derived from

the name of the suburban rail station, Vile Parle which in turn is based on village Parle

in olden days (there is also area called Irle nearby where the Parle Agro production

factory is based).This popular biscuit is primarily eaten as a tea-time snack.

Parle-G is the largest selling biscuit in the world. It has 70% market share in India in the

glucose biscuit category followed by Britannia, Tiger (17-18%) and ITC's Sunfeast (8-

9%). The brand is estimated to be worth over Rs 2,000 crore (Rs 20 billion), and

contributes more than 50 per cent of the company's turnover (Parle Products is an

unlisted company and its executives are not comfortable disclosing exact numbers). Last

fiscal, Parle had sales of Rs 3,500 crore (Rs 35 billion). It also is popular across the

world and is starting to sell in Western Europe and USA.

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AWARDS

Parle products have been shining with the golds and silvers consistently at the Monde

Selection ever since they were first entered in 1971. Monde Selection is an international

institute for assessing the quality of foods and is currently the oldest and most

representative organization in the field of selecting quality foods worldwide.

Almost all of our products are market leaders and as recognition of their quality, have won us 111 gold, 26 silver and 4 bronze Monde Selection medals since 1971.

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HOW PARLE FOUGHT TO MAKE BISCUITS AFFORDABLE TO ALL

Biscuits were very much a luxury food in INDIA, when Parle began production in 1939.

Apart from Glucose and Monaco biscuits, Parle did offer a wide variety of brands.

However, during the Second World War, all domestic production was diverted to assist

the Indian Soldiers in India and Far East. Apart from this, the shortage of wheat in those

days, made Parle decide to concentrate on the more popular brands, so that people could

enjoy the price benefits.

Thankfully today, there’s no dearth of ingredients and the demand for more premium

brands is on the rise. That’s why; we now have a wide range of biscuits mouthwatering

confectioneries to offer.

THE QUALITY COMMITMENT

Parle Product Private Limited has 3 manufacturing plants –

1) VILE PARLE in Mumbai (Maharashtra)

2) BHUJ (Gujarat)

3) BANGLORE (Karnataka)

Apart these plants Parle Product Pvt. Ltd. maintain 20 contract base manufacturing units

in all over INDIA. These plants and CMU’s produce sweets and confectionary products.

Parle Product Pvt. Ltd. has also a subsidiary company, which is Parle Biscuit Pvt. Ltd.

This subsidiary company produces only biscuits. It also has 2 manufacturing plants –

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1) BAHADURGARH in Gurgaon (Haryana)

2) NEEMRANA in Alwar (Rajasthan)

Apart these two plants Parle Biscuit Pvt. Ltd. maintain 11 contract base manufacturing

units on different locations, which produce only biscuits.

All these factories are located at strategic locations, so as to ensure a constant output &

easy distribution. Each factory has state-of-the-art machinery with automatic printing &

packaging facilities.

All Parle products are manufactured under the most hygienic conditions. Great care is

exercised in the selection & quality control of raw materials; packaging materials &

rigid quality standard are ensured at every stage of the manufacturing process. Every

batch of biscuits & confectioneries are thoroughly checked by expert staff, using the

most modern equipment.

THE MARKETING STRENGTH

The extensive distribution network built over the years is a major strength for Parle

Products. Parle biscuits and sweets are available to consumer even in the most remote

places and in the smallest of villages with a population of just 500.

Parle Has nearly 1500 wholesalers catering to 4,25,000 retail outlets directly or

indirectly. A two hundred strong dedicated field force services these wholesalers and

retailers. Additionally there are 40 depots and C&F agents supplying goods to the wide

distribution network.

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The Parle marketing philosophy emphasizes catering to the masses.

We constantly endeavor at designing products that provide nutrition & fun to the

common man. Most Parle offerings are in the low & midrange price segments. This is

based on our cultivated understanding of the Indian consumer psyche. The value for

money positioning helps generate large sales volumes for the products.

Parle-G it’s first venture became an instant favorite amongst the masses, leading the

glucose category with a huge market share of 65%. It topped charts worldwide by

becoming the WORLD’S LARGEST BISCUIT SELLING BRAND as revealed by

the US-BASED BAKERY MANUFACTURES ASSOCIATION in 2002.

THE CUSTOMER CONFIDENCE

The Parle name conjures up fond memories across the length and breadth of the country.

After all, since 1929, the people of India have been growing up on Parle biscuits &

sweets.

Today, the Parle brands have found their way into the hearts and homes of the people of

all over India & abroad. Parle Biscuits & Confectioneries, continue to spread happiness

& joy among people of all ages.

The consumer is the focus of all the activities of Parle. Maximizing value to consumers

and forging enduring customer relationships are the core endeavors at Parle.

Our efforts are driven towards maximizing customers’ satisfaction and this is in synergy

with our quality pledge. “Parle Products Limited will strive to provide consistently

nutritious & quality food products to meet consumers’ satisfaction by using quality

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materials and by adopting appropriate processes. To facilitate the above we will strive to

continuously train our employee and to provide them an open and participative

environment. “

EMERGING TRENDS OF THE BRAND

Since its inception in the 30’s Parle biscuits have prided itself in offering quality

products that are affordable to the common man. The marketing mix has evolved with

the times…

THE PRODUCT

Parle biscuits have a range of variants in its product portfolio. The popular brands

Parle-G, Krackjack, Monaco and its variants (zeera, onion and methi) are available in

packets of various convenient sizes. New products like Hide & Seek are a foray into the

premium segment.

THE PRICING STRATEGY

This biscuit major has not bothered to raise the price of its flagship brand “Parle-G” for

the past 6-8 years and has always tried to provide its offerings at nearly 33% discount as

compared to other competitive brands.

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THE PROMOTION POLICY

The consumer is the focus of all activities at Parle. Maximizing value to consumers and

forging enduring customer relationships are the core endeavors at Parle. Parle-G ‘My

Dream Comes True Contest’ was one of its biggest promotional ventures (2.5 crores)

which gave contestants a chance to fulfill their dreams. Discounts, gift offer schemes are

other popular promotional offerings.

THE PLACE

A well-entrenched distribution system (the company covers 12-15 lacks outlets across

the country) with 40 depots at strategic points all over the country. From the depots, the

biscuits are sold to wholesalers and further to retailers.

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PARLE BISCUITS PRIVATE LIMITED (NEEMRANA)

Parle Biscuit Pvt. Ltd. is a subsidiary of Parle Product Pvt. Ltd.

The manufacturing at Neemrana unit started in 1982 for Parle-G with a single plant. It

is planted in near about 16 acres of land.

Including General Manager 78 employees of Managerial and Officer

class are working in this plant. Production is going on in this plant 24 hours in three

shifts. Number of permanent workers of thrice shifts is 680 and around 400 workers are

there on contract basis.

In 1990’s Krackjack production began followed by Monaco and Nimkin. Average

Production capacity of Neemrana unit per month is-

1) Parle-G 3500 Metric Tonnes

2) Krackjack 1600 Metric Tonnes

3) Monaco 800 MetricTonnes

The plant works in coordination with the Mumbai office, Neemrana (Rajasthan).

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DEPARTMENTS IN PLANT

FINANCE

HR & PERSONNEL

QUALITY ASSURANCE

PRODUCTION & PRINTING

EXCISE & DESPATCH

ENGINEERING

I.T.

PURCHASE

STORE

The organization follows a flat structure with less hierarchal levels. The heads of the

different departments report to the General Manager through direct communication.

The working atmosphere is not stressful with enough work-flexibility given to staff and

managers.

The plant also has auditorium and viewing gallery, which is used during the visit of

school children. A retail shop at the Plant provides Parle Products at M.R.P. rates.

Parle-G Making Process

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MIXING:

This is a process where all ingredients are put together in right proportion for dough

formation. These ingredients are then fed into Mixers where mixing is done and dough

is prepared for molding .Major ingredients are flour, fat, sugar and others as per the

product one would like to have.

MOULDING:

In this section we laminate the dough into sheet which then passes down to gauge rollers

and sheet thickness achieved for cutting. Here we have a cutter or a molder as per the

variety where one gets the shape and sizes of biscuits.

BAKING:

This is the area where we pass these mounded wet biscuit into baking oven. The oven

temperature is 230°C. The biscuits are baked on desired temperature. The oven which

are use very effective.

COOLING:

These baked biscuits are then passed on to cooling conveyors for natural cooling prior

to packing .The temperatures are brought down to room temperatures.

PACKING:

These biscuit are then stacked and fed into packing machine for packing. Different

packing material are available for packing of these biscuit in different packs .slug packs,

pouch pack or family packs etc. These packs are then put into secondary packaging like

cartons to be transported to retailers.

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EQUIPMENT USED FOR AUTOMATED BISCUIT MANUFACTURING

Mixers Laminators Gauge Rolls or Pre Sheeters Molder / Cutter Baking Oven Cooling

Conveyor Packing

Machines Material Handling Equipments Biscuit / Sugar Grinder Milk/Oil

Sprays Salt / Cashew

Sprinklers

INGREDIENTS USED

Flour , Fat , Sugar , Salt , Ammonium bicarbonate , Milk , Butter , Flavors ,

Emulsifiers , Invert syrups, Dough Improvers and many additives

CREDIT POLICY OF PARLE BISCUITS PVT. LTD.

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Before coming to the credit policy it’s necessary to be aware with the goods distribution

policy of Parle Biscuits Pvt. Ltd.

For fulfilling the demand of it’s customer’s timely Parle Biscuits Pvt. Ltd. maintains 40

DEPOTS in all over INDIA. Finished goods are transferred from production plants to

these depots. According to their transportation facilities customers of Parle Biscuits Pvt.

Ltd. ask their demand of different products to depots.

Then it’s the responsibility of these depots to fulfill the demand of customers of Parle

Biscuits Pvt. Ltd.

Parle Biscuits Pvt. Ltd. doesn’t has credit policy it deals in cash. For the collection of

it’s payment PBPL deals with 5 banks which are as follows:

1) UTI

2) STANDARD CHARTERED

3) HDFC

4) BANK OF PUNJAB

5) CORPORATION BANK

After collecting the amount of sold goods it is deposited by the depots in any of these

bank.

Parle Biscuits Pvt. Ltd. divided its customers in 4 categories-

1) Cheque Parties – Cheque parties are those who send their blank cheques to Depots

before receiving the finished goods. Depots fill the selling amount of the

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consignment in those cheques and then these cheques are deposited by the depots in

the account of PBPL in any of these 5 banks.

2) Demand Draft Parties – In such cities where anyone of these 5 banks isn’t there

customers of those come in this category. Before receiving the finished goods

customers send the draft of the consignment amount to production plants directly.

Then consignment is sent to those customers by concerned depot.

3) Credit Parties – Those parties to whom maximum 4 days credit facility is provided

are called credit parties. After 4 days these parties send cheque of consignment

amount to depot. And then procedure just like first category is followed by depot.

4) Credit Demand Draft Parties - These are those parties to whom 4 days credit

facility is provided but they also don’t have facility of any of those 5 banks in their

city. After 4 days just like the second category these parties send the draft of

consignment amount directly to production plant.

Product Profile

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Over the years, Parle has grown to become a multi-million US Dollar company. Many

of the Parle products, biscuits or confectionaries, are market leaders in their category

and have won acclaim at the Monde Selection, since 1971.

Today, Parle enjoys a 40% share of the total biscuits market and a 15% share of the total

confectionary market in India.

The Parle biscuits brands are:

1) Hide & Seek

2) Choc Cream

3) Elaichi Cream

4) Orange Cream

5) Pineapple Cream

6) Marie Choice

7) Cheesling

8) Jeffs

9) Monaco

10)Nimkin

11)Sixer

12)Glucose

13)Krackjack

14)Parle-G

The Parle toffees brands are:

1) Funtoosh

2) Mango Bite

3) Orange Candy

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4) Poppins

5) Roll-A-Cola

6) Tangy Candy

7) Boo

8) Pippermint

9) Rose Mint

10)M Choco

11)Melody

12)Dairy Toffee

13)Lux Toffee

14)Mayfair Toffee

15)Kismi

16)Mahakismi

17)Smoothies

18)Cafechino

19)Chox Bar

INTRODUCTION OF TOPIC

WORKING CAPITAL AT A GLANCE

INTRODUCTION

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TYPES

FEATURES

DETERMINANTS

COMPONENTS

WORKING CAPITAL CYCLE

INTRODUCTION

A successful sales program is necessary for earning profits by any business enterprise.

Sales don’t convert into cash instantly. There is a time lag between the sale of goods and

receipt of cash. Therefore, there is a need for working capital in the form of current

assets to deal with the problem arising out of the lack of immediate realization of cash

against goods sold. Therefore sufficient working capital is necessary to sustain sales

activity.

FEATURES

1) Working capital is regarded as the excess of current assets over current liabilities.

2) Working capital indicates circular flow of funds in the day-to-day activities of

business. That’s why it is also called circulating capital.

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3) Working capital represents the minimum amount of investment in raw materials,

work-in progress, finished goods, stores and spares, accounts receivables and cash

balance.

TYPES

Working capital can be classified either on the basis of concept or on the basis of

periodicity of its requirement.

1) ON THE BASIS OF CONCEPT

On the basis of concept working capital is of 2 types.

A) Gross working capital - Gross working capital is represented by the total Current

assets.

Gross working capital = Total current assets

B) Net working capital - Net working capital is the excess of current assets over

current liabilities.

Net working capital = Current assets – Current liabilities

2) ON THE BASIS OF REQUIREMENT

On the basis of requirement working capital is also of 2 types.

A) Permanent working capital - It is that amount of investment which should always

be there in the fixes or minimum current assets like inventory, accounts

receivables or cash balance etc. to carry out business smoothly. Such an amount

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cant be reduced if the firms wants to carry on business operations without

interruption.

B) Variable working capital - The excess the amount of working capital over

permanent working capital is known as variable working capital. It may also be

subdivided into two parts.

b) Seasonal working capital - Such capital is required to meet out the

seasonal demands of busy periods occurring at stated intervals.

c) Special working capital - Such capital is required to meet out the extra-

ordinary needs for contingencies. Events like strike, fire, unexpected

competition, rising price tendencies, or initiating a big advertisement

campaign require such capital.

DETERMINANTS

1) Nature of business – The effect of the general nature of the business on working

capital requirements can’t be exaggerated. Rail, roads and other public utility

services have large fixes investment so they have the lower requirements of current

assets. Industrial and manufacturing enterprises, on the other hand, generally

require a large amount of working capital.

2) Production policies – if the production is evenly spread over the entire year,

working capital requirements are greater, because the inventories will be

unnecessarily accumulated during of season period. But if the production schedule

favours a varying production plan as per the seasonal requirements, working

capital is required to a greater extent during a specified season only. The

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production policies are affected by so many factors availability of raw materials,

labour, stocking facility etc & therefore, whatever the productions policies are, the

firm has to arrange its working capital requirements accordingly.

3) Proportion of the cost of raw materials to total cost - In those industries where

cost of proportion is a large proportion of total cost of the goods produced,

requirements of working capital will be comparatively large.

4) Length of period of manufacturing – The time which elapses between the

commencement and end of the manufacturing process has an important bearing

upon the requirements of working capital. The manufacturing cycle may be shorter

for certain concerns & longer for others- it depends on the type of the product to be

manufactured, work to be done through machine labour & hand labour, degree of

rationalization of manufacturing procedures through times, motion & fatigue

studies etc.

5) Terms of purchase - If suppliers allow continuous credit, payment can be

postponed for some time and can be made out of the sale proceeds of the goods

produced. In such a case, the requirements of working capital will be reduced.

6) Dynamic Attitudes – As a company grows, it is logical to expect the large amount

of working capital will be required.

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7) Business cycles – Requirement of working capital also varies with the business.

When the price level is up due to boom conditions, the inflationary conditions

create demand for more working capital. During depression also a heavy amount of

working capital is needed due to the inventories being locked unsold and book

debts uncollected.

8) Requirement of cash - The working capital requirements of a company are also

influenced by the amount of cash required by it for various purposes. The greater

the requirement of cash, the higher will be the working capital needs of the

company.

9) Dividend policy of concern – If the management follows a conservative dividend

policy the needs of working capital can be met with the retained earnings. The

relationship between dividend policy and working capital is well established and

mostly companies declare dividend after a careful study of their cash requirements.

10) Other Factors - Other factors, which affect the requirement of working capital,

are lack of co-operation in production and distribution policies, transport and

communication facilities, the fiscal and tariff policies of the government etc.

COMPONENTS

Main components of working capital are as follows:

1) Cash – Cash is the most liquid and important component of working capital.

Holding cash involves cash in the sense that the present worth of cash held for a

year is less than the value of cash on today. During inflationary situations as exist

today the cost of holding includes the deterioration in the value of the cash due to

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inflation. Cash, therefore, results in enhanced liquidity, but lower profitability.

Despite in the cost involved it is pertinent to hold cash because it facilitates the

attainment of some important motives.

2) Marketable Securities – Though marketable securities provides a such lower

yield that the firm’s operation assets. They serve two useful functions. Firstly, they

act as a substitute for cash, and secondly, are used as temporary investment. Where

these securities are held in lieu of the cash balance, they act as a substitute for

transactional or precautionary balances. Normally, these aren’t used as speculative

balances, but only as a guard against the possible shortage of bank credit.

Marketable securities (as temporary investment) may be held for one of the

following reasons:

Seasonal or cyclical operations

To meet known financial requirements. Construction of an additional plant.

Immediately after the sale of long-term securities.

3) Account Receivable - Though accounts receivable are a vital investment of any

business organization, little analytical work as been done to determine credit

policies. Maintaining account receivable has its cost implications in that the

firm’s monetary resources are tied up. This is of greater significance in the

inflationary economy, because of the depreciation in the value of money.

Basically, this is a two-step account. When goods are shipped, inventories are

reduced and accounts receivable is created. When payment is made, this account

is reduced and the cash level increases. Accounts receivables are, therefore a

function of the volume of credit sales and the average length of time between

sales and collections.

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4) Inventory – Inventories represent a substantial amount of a firm’s current assets.

Management of inventories should be efficiently carried out so that this investment

doesn’t become too large, as it would result in blocked capital which could put to

productive use elsewhere. On the other hand, having too small an inventory could

result in loss of sale or loss of customer goodwill. An optimum level of inventory

should therefore be maintained.

WORKING CAPITAL CYCLE

Working capital cycle indicates the length of time between a firm’s paying for materials

entering into stock and receiving the cash from sale of finished goods. In a

manufacturing firm, the duration of time required to complete the sequence of events is

called operating cycle.

In case of a manufacturing company, the operating cycle is the length of time necessary

to complete the following cycle of events: -

1) Conversion of cash into raw materials

2) Conversion of raw materials into work-in-progress

3) Conversion of work-in-progress into finished goods

4) Conversion of finished goods into accounts receivable

5) Conversion of accounts receivable into cash

The above operating cycle is repeated again & again over the period depending upon the

nature of the business & type of product etc. the duration of the operating cycle for the

purpose of estimating working capital is equal to the sum of duration allowed by the

suppliers.

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Working capital cycle can be expressed as:

R+W+F+D-C

Where R=Raw Material Storage Period = Avg. Stock of Raw Material

Avg. Cost of Production per day

W=Work in Progress Holding Period = Avg. Work in Progress Inventory

Avg. Cost of Production per day

F=Finished Goods Storage Period = Avg. Stock of Finished Goods

Avg. Cost of Goods Sold per day

D=Debtors Collection Period = Avg. Book Debts

Avg. Credit Sales per day

C=Credit Period Availed = Avg. Trade Creditors

Avg. Credit Purchases per day

OPERATING CYCLE OF MANUFACTURING BUSINESS

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REALIZATION Accounts SALES

Receivables

Cash Finished Goods

PURCHASES PRODUCTION

PROCESS

PRODUCTION

Raw Materials Work-in-Process

PROCESS

METHOD OF ASSESMENT OF WORKING CAPITAL

Operating cycle No. of days

Raw material = 916.53 = 7.9

114.84

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Stock in Process = 10.12 = .088

114.84

Finished goods = 1054.1 = 9.13

115.36

Debt collection period = 4.22

(Calculating in ratios)

_______________

Total length of Operating Cycle = 21.34 Days

SALES per month 67829.07 = 5652.422 Rs.

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Total EXPENSES 60450.77 = 5037.66 Rs.

Per month 12

WORKING CAPITAL REQUIRED = Total Length of X Monthly Expenses

Operating Cycle

__________________________________

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= 21.34 X 5037.66

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30

= 3583.45Rs.

Working Notes:

1. Raw Material – (Mentioned in P&L Account)

Opening Stock + Purchases – Closing Stock

2009-10:

Annual Consumption = 36047.27Rs

1 Month’s Consumption = 36047.27/12 = 3003.94Rs

2010-11:

Annual Consumption = 38058.07Rs

1 Month’s Consumption = 38058.07/12 = 3171.50 Rs.

2. Stock In Process --

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Raw Material + Power + Labour + Repairs

+ Other Manufacturing Expenses + Depreciation

+ Opening Stock – Closing Stock

2009-10:

Cost of Production = 40125.5 Rs.

1Month’s Stock In Process = 40125.5/12 = 3343.81Rs.

2010-11

Cost of Production = 41315.08 Rs.

1Month’S Stock In Process = 41315.08/12 = 3442.92 Rs.

3. Finished Goods --

Cost of Production + Opening Stock - Closing Stock

2009-10:

Cost of Goods Sold = 40275.31Rs.

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1 Month’s Finished Goods = 40275.31/12 = 3356.27Rs.

2010-11:

Cost of Goods Sold = 41529.54Rs.

1 Month’s Finished Goods = 41529.54/12 = 3460.85Rs.

THEORTICAL ASPECTS OF WORKING CAPITAL MANAGEMENT

NATURE OF WORKING CAPITAL MANAGEMENT

Working capital management is three dimensional in nature-

1) It is concerned with the formulation of policies with regard to profitability, liquidity

and risk.

2) It is concerned with the decisions about the composition and level of current assets.

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Composition of Level of Current Liabilities

3) It is concerned with the decisions about the composition and level of current

liabilities.

DIMENSIONS OF WORKING CAPITAL

GOAL OF WORKING CAPITAL MANAGEMENT

Working capital management is concerned with the problems that arise in

attempting to manage the current assets, the current liabilities and the interrelationship

that exists between them.

Composition of Level of Current Assets

Policies regarding to Profitability Liquidity and Risk

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The term current assets refer to those assets which is the ordinary course of

business can be converted into cash within one year. Major current assets are cash,

marketable securities, accounts receivable and inventory.

Current liabilities are those liabilities, which are intended, at their

inception, to be paid in the ordinary course of business within a year, out of the current

assets or earnings of the concern. Current liabilities are accounts payable, bills payable,

bank overdraft, and outstanding expenses.

Working capital is that portion of firm’s assets which is financed by long-term funds.

Interaction between current assets and current liabilities is the main theme

of the theory of working capital management.

Goal of working capital management is to manage the firm’s current assets and

liabilities in such a way so that a satisfactory level of working capital is maintained.

The second important segment of working capital management is deciding the optimum

level of investment in various current assets. There are three important current assets

cash, accounts receivables and inventory

INVENTORY MANMAGEMENT IN PARLE BISCUITS PVT. LTD.

For inventory management in Neemrana plant of PBPL certain things are

considered which are completely practical-

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As market generally fluctuates so if there is any perception of the increment in the

price level of any commodity in future then that particular commodity is stored.

All the materials of the mixture, which is used in making biscuits, can be stored

maximum only for 3 days. Because store of plant is designed like this that more

than 3 days storage can’t be maintained in it.

Minimum levels of inventories are maintained in plant in wake of lead-time, govt.

policies, and one-day safety stock for transportation problem.

Re-order levels of inventories are maintained in the plant in wake of per day

consumption level of inventories and lead-time in days.

The position of inventory at the end of last two years is as follows-

NAME OF THE COMMODITY YEAR AMOUNT (In Rs/-)

Stores and spares 2009-10 82, 91,000

2010-11 57, 29,000

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Raw Materials 2009-10 10, 21,52,000

2010-11 8,11,54,000

Packing Material 2009-10 5,82,08,000

2010-11 7,08,06,000

Finished Goods 2009-10 11,61,33,000

2010-2011 9,46,87,000

CASH MANAGEMENT IN PARLE BISCUITS PVT. LTD.

Cash management in Parle Biscuits Pvt. Ltd. is as follows-

Average daily collection of the Parle Biscuits Pvt. Ltd. is 2 crores.

38

Salaries and Wages are distributed in Parle Biscuits Pvt. Ltd on monthly basis.

50,00,000-75,00,000 salaries and wages are distributed in one month. Like this all

other daily transactions are completed by daily collection.

In case of strike or any contingency supply of demand is completed by another

plant of Parle Biscuits Pvt. Ltd. and by 11 CMU’S. Supply doesn’t disturb.

Authority for getting the benefit of any opportunity is given to Mumbai office of

Parle Biscuits Pvt. Ltd. That decides the policy regarding to any market opportunity.

Parle Biscuits Pvt. Ltd. doesn’t have any credit policy. It deals in cash. That’s why it

doesn’t has any cash problem.

Distribution channel of Parle Biscuits Pvt. Ltd. is very short only depots are there as

a middleman between plant & open market. That’s why there isn’t any necessity of

more cash.

Biscuits come in FMCG product. So circulation of cash is smooth & fast.

Production cycle is short. That’s why Parle Biscuits Pvt. Ltd has less demand of

cash.

FINANCING OF WORKING CAPITAL

INTRODUCTION

A firm has to decide how it is to be financed. The need for financing arises mainly

because the investment in Working Capital/Current Assets that is raw materials,

39

work/stock-in-progress, finished goods and receivables typically fluctuates during the

year.

The main sources of Working Capital financing are Trade Credit, Bank Credit, RBI

framework/regulation of bank credit/finance/advances, Factoring, Commercial Papers

and Internal Sources.

TRADE CREDIT

Trade Credit refers to the credit extended by the supplier of goods and services in the

normal course of transaction/business/sale of the firm. According to trade practices,

cash is not paid immediately for purchases but after an agreed period of time. Thus,

deferral of payment (trade credit) represents a source of finance for credit purchases.

BANK CREDIT

Bank Credit is the primary institutional source of Working Capital finance in India. In

fact, it represents the most important source for financing of Current Assets.

Working Capital finance is provided by banks in five ways:

1) Cash Credits/Overdrafts

2) Loans

3) Purchase/Discount Bills

4) Letter of Credit

5) Working Capital term loans

40

RESERVE BANK OF INDIA FRAMEWORK FOR /REGULATION OF BANK

CREDIT

In order to secure alignment of Bank Credit with planning priorities and measures to

direct Bank Credit to priority sectors and enforce a measure of financial discipline

among industrial borrowers.

However, the basic character of Bank financing of Industry, namely over borrowing and

domination of cash credit system did not materially alter.

COMMERCIAL PAPERS

Commercial Paper is a short-term unsecured negotiable instrument, consisting of usance

promissory notes with a fixed maturity. It is issued on a discount on face value basis but

it can also be issued in interest bearing form. A Commercial Paper when issued by a

company directly to the investor is called a Direct Paper. The companies announce

current rates of Commercial Papers of various maturities, and investors can select those

maturities, which closely approximate their holding period. When Commercial Papers

are issued by security dealers/dealers on behalf of their corporate customers, they are

called Dealer Paper. They buy at a price less than the commission and sell at the highest

possible level.

FACTORING

Factoring provides resources to finance receivables as well as facilitates the collection

of receivables. Although such services constitute a critical segment of the financial

services scenario in the developed countries, they appeared in the Indian financial scene

41

only in the early nineties as a result of RBI initiatives. There are two bank-sponsored

organizations, which provide such services:

1) SBI Factors and Commercial Services Ltd.

2) Canarabank Factors Ltd.

The first private sector factoring company, Foremost Factors Ltd, started

operations since the beginning of 1997.

INTERNAL SOURCES

This is also another major source for financing of Working Capital. Internal Sources

include profits, reserves etc.

FINANCING OF WORKING CAPITAL IN PARLE BISCUITS PVT. LTD.

In Parle Biscuits Pvt. Ltd financing of Working Capital is done through only internal

sources. Profits and reserves of Parle Biscuits Pvt. Ltd. are enough to fulfill the demand

of it’s Working Capital.

Parle Biscuits Pvt. Ltd. doesn’t use any other source apart internal for financing it’s

Working Capital.

MANAGERIAL USEFULNESS OF STUDY

Today in the business line every man want to know about his company financial

condition. A working capital is a part of finance. The working capital are calculated by

the current assets and current liabilities which are related to annual report of the

42

company. With the help of working capital management we can calculated the liquidity

position of the company. If the current assets are more than the current liabilities thus

we can say that the liquidity position of the company is satisfactory, the usefulness of

study is included the signification of the working capital. Working capital management

is manage the operating process in the organization & company.

All the businessmen want to know how much they have gained or lost during the

year; how much capital is invested in the business at the end (if the year; how much

amount, they are liable to pay and to whom they owe it; how much is owed to them and

by whom etc. In order to attain such information, it is essential to keep a complete and

systematic record of each and every business transaction entered into during the year.

By keeping a complete and systematic record of every business dealing the businessman

can know how much the amount of purchases is; how much is the amount of sales; what

are his total expenses and what is the amount of profit earned or loss incurred during the

year. Furthermore, he can ascertain the financial position of his business, such as, how

much capital it has at the end for the year and how that capital stands invested in various

assets; how much amount he has to take and from whom and how much amount he is

liable to pay and to whom. Besides, the properly maintained accounts are helpful in the

assessment of Income-tax and Sales

CONCEPT USED IN STUDY

In this project I used working the ratio which are used for calculating for the financial

conditions of Parle Biscuit Pvt. Ltd. I have used the ratio which are networking capital

ratio, current ratio, average collection ratio and quick ratio. These ratio are very useful

43

to understand the topic because we can calculate the working capital by the help of these

ratio. I have used these ratio by the declaration of financial manager of Parle Biscuit

Pvt. Ltd. These ratio are shows the liquidity position in the financial competition. Ratio

help to summaries the large quantities of financial data and to make qualitative

judgment about the firm’s financial performance. The project is developed keeping in

mind the security of working capital of the company. That is possible with the help of

ratio analysis.

Focus of the Problem

The main purpose of study the account process is to find the main reason or decision

which can improve the business of the company. The main purpose or focus of the

problem is to know that which product should be used in the company and why and how

can it be effective for the company?

The main focus of the problem is to find out output of the economical business. Since a

special reference has been made towards Parle Biscuits Pvt. Ltd. business has also

become equally important and unless we know the methodology adopted by Parle

Biscuits Pvt. Ltd. our study will not give the true picture. In nutshell, the focus of our

study is find the amount consolidation of the entire group.

Our study is focused on to know about the amount consolidation of the entire group and

the international financial market.

The study is also focused on satisfaction of the customer, job satisfaction level of the

employees and the effectives handling of accounts with computer & related software.

44

OBJECTIVE OF PROJECT

Right from the beginning and also in present scenario, Confectionary has carved for

itself a strong place in the international market with around half of the global primary

demand of confectionary products. Now-a-days confectionary products are also a means

to economic power. Most of the nations including developing countries like INDIA

have placed adequate emphasis on self-reliance technology in confectionary industry.

1. Primary : To find out the operating and day to day financial

functions which reflects how the company operates its

operating cycle and manage financial flow in day to day

business activity.

2. Secondary :

1. To know the functioning of the finance deppt. Of Parle

Biscuits Pvt. Ltd.

2. To analyze the liquidity position of the organization

3. To examine profitability position of the management.

4. To prepare report on study thus conducted.

RESEARCH METHODOLOGY

Research Design

45

The research design involves taking the decision on type of data sources from which the

data is to collected and the contact methods. The research design selected by me was

descriptive cum analytical as this the best suited to analyze the fact which already exist

and choose the best one for welfare of the employees.

METHODS OF DATA COLLECTION

To deal with real life problems it is often found that data at hand are inadequate and

hence it becomes necessary to collect data appropriate.

As the project is on working capital information include was collected from the finance

dept. for this purpose data collection was done through secondary data.

1)Secondary Data

Secondary data consists of information that already exists somewhere and was collected

for another purpose which may not be the same.

Secondary Data used here

- Various files of accounts

- Magazine and Books

- Performa’s and Websites

- Annual financial reports of parle

I have used secondary data in the completion of this summer training report.

Tool and Techniques:-

1. Ratio analysis

2. Fund flow statement .

3. Operating cycle method

46

Data Analysis

ANALYSIS OF WORKING CAPITAL MANAGEMENT

In this chapter an analysis over the Working Capital of Parle Biscuits Pvt. Ltd. has been

done. But before going further let us have a look on the current position of Working

Capital.

The Working Capital of the last two years is as follows –

(Amount in ‘00s Rs/-)

YEAR SALES INVESTMENTS WORKING

CAPITAL

% OF

WORKING

CAPITAL TO

SALES

2009-10 5282907 939194 299640 5.67

2010-11 5505061 1175683 288828 5.24

In year 2009-10 Working Capital of Parle Biscuits Pvt. Ltd. was 299640

Rs/- while in the same period the sales was noticed 5282907 Rs/- then % of Working

47

Capital to sale was 5.67 but in the next year 2010-11 sales was 550506 Rs/- and

Working Capital was 288828 Rs/-. So in year 2010-11 % of Working Capital to sales

was 5.24.

48

CALCULATION OF WORKING CAPITAL

1 2 30

10000

20000

30000

40000

50000

60000

70000

80000

68000

INVESTMENT33540.19

Working Capital6596.16

SALE 70000

27390.76

5294.01

Years

Am

ou

nt

Amount in ‘00s

49

RATIO ANALYSIS

It is a powerful tool of financial analysis. A ratio is defined as “the indicated quotient of

two mathematical expressions” and as “the relationship between two or more things”.

Ratio helps to summaries the large quantities of financial data and to make qualitative

judgment about the firm’s financial performance. The point to note is that a ratio

indicates a quantitative relationship, which can be turn, used to make a qualitative

judgment.

Here are some of the calculated ratios of the financial year of Parle Biscuits Pvt. Ltd.

All the ratios are calculated in ‘00s Rs/- figures.

1)Net Working Capital Ratio

Net Working Capital

Capital Employed

2009-10 2010-11

Net Working Capital 299640 288828

Net Assets or Capital employed 1403616 1716615

Ratio .21: 1 .17: 1

The difference between Current Assets and Current Liabilities excluding

short-term borrowings is called Net Working Capital or Net Current Assets. The

position of Net Working Capital in the year 2009-10 is better as compared with the year

2010-11. The important thing to say is that this organization has healthy Current Assets.

50

0

0.05

0.1

0.15

0.2

0.250.22

0.15

Net Working Capital Ratio

51

2)Current Ratio:-

Current Assets

Current Liabilities

2009-10 2010-11

Current Assets 596878 646067

Current Liabilities 297238 357239

Ratio 2 : 1 1.80: 1

Current Assets include cash and those assets, which can be converted into

cash within a year. All obligations maturing within a year are included in current

liabilities.

As a conventional rule a current ratio 2: 1 or more is considered

satisfactory. The current ratio doesn’t represent margin of safety i.e. a “cushion” of

protection for creditors.

52

Cu

rre

nt R

atio

1.16

1.18

1.2

1.22

1.24

1.26

1.28

1.3

1.32

1.34

53

3)Average Collection Ratio

Debtors*360

Sales

2009-10 2010-11

Debtors*360 172716*360 188725*360

Sales 5282907 5505061

Days 11.77 12.34

The average collection period shows the efficiency of debtors. It tells the

PBL doesn’t has credit policy & if is given then in rare case.

54

55

4)Quick Ratio or Acid Test

Current Assets - Inventories

Current Liabilities

2009-10 2010-11

Current Assets – Inventories 596878-270934 646067-289272

Current Liabilities 297238 357239

Ratio 1.09 : 1 .99 : 1

Generally a quick ratio of 1:1 is considered to represent a satisfactory position. But it

can’t be said tat a company having quick ratio of less than 1:1 isn’t financially sound,

Because it depends upon the nature of debtors. If the debtors are slow paying the quick

ratio of more than 1:1 can become harmful. But if debtors are liquid like in this

organization than even less than 1:1 can work out to be satisfactory.

As debtors of this organization aren’t slow paying so that quick ratio is satisfactory.

The above made calculation of various ratios has told us about the various aspects of

Working Capital of Parle Biscuits Pvt. Ltd. The system is well under control an

effective but still in some areas a little more concentration to be needed.

56

57

5)Gross Profit Margin

Gross Profit Margin = gross profit*100/sales

2009-10 2010-11

Gross profit 829287 846824

Sales 5282907 5505061

Ratio 15.70 15.38

Profit Margin of the firm has decreased from 15.70% to 15.38% which means that

margin of profit on sales has decreased.

6) Net Profit Margin

Net Profit Margin= PAT*100/Sales

2009-10 2010-11

PAT 262056 347142

Sales 5282907 5505061

Ratio 4.96 6.31

Profit Margin of the firm has increased from 4.96% to 6.31% which means that margin

of profit on sales has increased.

58

7)Asset Turnover Ratio

Net Asset turnover ratio= sales/net assets

2009-10 2010-11

Sales 5282907 5505061

Net Assets 1403616 1716615

Ratio 3.76 3.21

NATR has decreased from 3.76 to3.21 which means Parle is producing 3.76 times of

sales for one rupee of capital employed in net assets in 2009-10 to decreased a 3.21

times of sales for one rupee of capital employed in net assets in 2010-11.

59

FUND FLOW ANALYSIS

The statement of change in financial position, prepared to determine only the sources

and uses of working capital between dates of the two Balance Sheets is known as the

Fund Flow Statement. Working Capital is defined as the difference between Current

Assets and Current Liabilities. Working determines the liquidity of the firm.

The Working Capital flow or fund arises when the net effect of transaction is to increase

or decrease the amount of Working Capital. Normally, a firm will have some

transactions that will change Net Working Capital and some that ill cause no change in

Net Working Capital. The transaction will cause Net Change of Working Capital only

when one of the accounts affected is a current account (Current Liability) and account is

non-current account (Long-term Assets or Long term Liability).

The concepts of Working Capital may be summarized as follows:

The Net Working Capital increases or decreases when a transaction involves a

current account and a non-current asset account.

The Net Working Capital remains unaffected when a transaction involves only

Current accounts.

The Net Working Capital remains unaffected when a transaction involves only

non current accounts.

Now let us examine the Working Capital flow of Parle Biscuits Pvt. Ltd. through

the statement of change in Working Capital.

60

SCHEDULE OF CHANGE IN WORKING CAPITAL

The project is developed keeping in mind the security of Working Capital of the company.

that no

one can

enter in the confidential data of the company and without permission the senior officer one can’t enter in

the main programme whether he is Manager, Employee or the Guest.

61

Particulars 2009-10 2010-11 Effect on Working capital

Increase Decrease

Current

Assets

Inventories 270934 289272 18338

Debtors 172716 188725 16009

Cash 153228 168070 14842

Accured Income 816122 868345 52223

Total 1413000 1514412

Current Liabilities

C/L (Cr.) 297238 357239 60001

Provisions 1111814 1151815 40001

Total 1409052 1509054

W.C (A-B) 3948 5358 101412 100002

Pos. Inc. in W.C 1410

FINDINGS

It is very difficult to make the project or the analysis in such a way that can solve all the

problems according to the requirements. In this project it is being tried to give more and

more facilities but in a short period of training time, as much as possible has been done.

In year 2009-10 Working Capital of Parle Biscuits Pvt. Ltd. was 299640 Rs/-

while in the same period the sales was noticed 5282907 Rs/- then % of Working

Capital to sale was 5.67 but in the next year 2010-11 sales was 550506 Rs/- and

Working Capital was 288828 Rs/-. So in year 2010-11 % of Working Capital to

sales was 5.24.

The Position of Net Working Capital in the year 2009-10 is better as compared

with the year 2010-11. The important thing to say is that this organization has

healthy current assets.

As a Conventional rule a current ratio 2:1 or more is considered satisfactory the

current ratio don’t represent margin of safety i.e. a “cushion” of protection for

creditors.

The average Collection period shows the efficiency of the debtors, it tells that

Parle Biscuit Pvt. Ltd doesn’t has credit policy and if is given then in rare cases.

.

62

Recommendation

Total Current assets need to be increased.

Total Liabilities of outsiders should be decreased.

Overall Management should be improved.

Expenditure should be decreased.

Organization has healthy current assets but it needs to improve its liquidity

power.

63

Limitations of the Study

The major limitations of my study are as under.

Limited Time : Although the staff of Parle Company Pvt. Ltd. was very efficient

and highly co-operative and devoted enough of their valuable time to us. But

because of time constant. We were not able to devote as much time with their

employees.

Secrecy: Some of the information was kept confidential and was not disclosed to

any person who so ever.

Lack of Comparative Data : Due to non availability of other industries in the

same line we were not able to compare the data of one organization with other

one. Inspire of these difficulties we still put our best efforts to try to do the full

justice subject matter and in completion of the report.

64

Conclusions

“Success is achieved by those who try where there is nothing to loose by trying a great

deal to gain if successful, by all means try.”

W.Clement Stone

The study has its own importance in its own way. With the help of this study one can

know about the struggle and success of Parle Biscuits Pvt. Ltd. Efforts, which is due to

its efficient management.

The study will definitely increase the morale of each employee and by studying this

managers come to know that what effective measures can be taken to maintain the

effective use of working capital in the organization and thus to achieve goals of the

organizations.

65

=

BIBLIOGRAPHY

Text Books

D.C.Sharma & K.G.Gupta Management Accounting

M.Y.Khan & P.K.Jain Financial Management

Annual Reports

1) Parle Biscuits Pvt. Ltd. annual report 2009-10

2) Parle Biscuits Pvt. Ltd. annual report 2010-11

ANNEXURE

Profit and Loss Account

66

Particulars 2009-10

(in ‘00s)

2010-11

(in ‘00s)

Sales 5282907 5505061

Less: Cost of Goods Sold

Opening Stock 137107 136933

Add: Raw Material Consumed 3067148 3268256

Packing Material Consumed 723740 666587

Payment to an Provisions for employees 171429 126067

Store and Spare Parts Consumed 43975 40306

Power and Fuel 120505 142037

Conversion Charges 257928 305061

Rates and Taxes 68721 78051

Less: Closing Stocks 136933 105061

Gross Profit 829287 846824

Less : Operating Expenses

Selling and Distribution expenses

Repair and Maintenance 44499 40507

Advertisement and Sales/ Marketing Expenses 187875 250507

Communication Expenses 2103 2209

Cash Discount 20440 25061

Traveling and Convince Expenses 6312 7051

67

General and Administrative Expenses

Rent 4636 2051

Printing and Stationary 2276 2051

Insurance 3531 3033

Legal and Professional 3642 4050

Financial Expenses

Depreciation 103900 95061

Miscellaneous 5488 6057

Operating Profit 327846 396336

Add : Not Operating Income

Income from Investment 87622 146251

Other Incomes 10606 21872

Less : Non Operating Expenses

Net income before Tax 426074 564459

Less : Tax@38.5% 164038 217317

Net Income 262036 347142

68

69

Common Size Statement

Profit and loss Account

Particulars 2009-10 2010-11

Sales 100 100

Less Cost of Good Sold 84.3 84.62

Gross Profit 15.7 15.38

Less : Operating Expenses

Selling and Distribution Expenses 7.15 6.14

General and Administration Expenses .27 .20

Financial Expenses 1.97 1.72

Misc. Expenses .10 .11

Total Operating Expenses 9.5 8.18

Operating Profit 6.21 7.2

Total Income 1.86 3.05

Less : Other Expenses

Income Before Tax 8.07 10.25

Less : Provision for Tax 3.11 3.95

Income after Tax 4.96 6.3

70

Balance Sheet

Particulars 2009-10 2010-11

Liabilities

Share Capital 4950 4950

Reserves and Surplus 1494788 1759852

Secured Loans

Unsecured Loans

Current Liabilities and Provisions

a) Current Liabilities(Creditors) 297238 357239

b) Provisions 1111814 1151815

Contingent Liabilities

Total 2908790 3273856

Particulars 2009-10 2010-11

Assets

Fixed Assets 556596 583761

Investment 939194 1175683

Current Assets, Loans and Advances

71

a) Current assets

Stock 270934 289272

Debtors 172716 188725

Cash 153228 168070

b) Loans and Advances 816122 868345

Misc. Expenditure

Profit and Loss A/c(Dr. Balance)

Total 2908790 3273856

72